Netflix: A Favorite Stock

Who Wants More Brussels Sprouts?
Up, Up and Away!
A Favorite Stock

It’s been a while since I tackled the topic of obesity epidemic, but the problem continues, costing us untold billions in medical expenses, so here I go again.
Last week brought the news that more than two dozen cities and towns in Western Massachusetts will take part in a study to determine whether lowering the price of fruits and vegetables will lead low-income families to eat more nutritious meals.
In brief, a segment of the 50,000 households in Hampden County that rely on food stamps will be provided with a 30% discount on fruits and vegetables at checkout, while others will continue to pay full price.  (Unfortunately, the posted price will stay the same; the discount will be applied at checkout.)  Researchers from Abt Associates will track the households for 15 months to see whether their eating habits change.
I wish them well but ….
I notice the program will be funded by the Agriculture Department, which allocated $20 million for such studies in the Farm Bill of 2008 … and that researchers hope to begin the program in fall 2011.  That’s a gap of three years since the bill’s passage … perhaps longer.  Not exactly speedy.
And $20 million is a drop in the bucket for the Farm Bill.
In fact, the Farm Bill currently spends about $20 billion a year on agricultural subsidies, via programs that date back to the Great Depression, when about 25% of the country’s population lived on family farms.
Today, less than 2% of us live on family farms.  Agribusiness has taken over, and agribusinesses—which are expert at dealing with the government—are the main beneficiaries of the farm subsidies.  The three biggest beneficiary states are Texas, Iowa and Illinois and you can be sure their congressmen are working to keep those subsidies coming.
First-hand knowledge of the situation comes from a reader from Indiana.
“Farm subsidies .… are the best kept secret in the U.S., and the largest example of corporate welfare. One example: A very wealthy farmer I know received $1.2 million in subsidies between 2000 and 2005. And quite contrary to the idea that “we need to help small family farms survive”, the $1.2 million helped this farmer buy up many small farms around him, and even allowed him to “pass through” part of the subsidies to his children, who are also very wealthy. The total amount of subsidies per year has gone down, but that doesn’t minimize the sad fact that it is one example of government gone wild.”
And what’s sadder is that most people don’t realize the great distortions that these subsidies introduce into the food market.
Roughly 30% of the subsidy money goes to corn farmers, and roughly 75% of that corn goes to livestock feed and ethanol production.  The rest is consumed by humans, on the cob or off, or in the form of corn flour, corn meal, grits, corn starch, corn oil and high-fructose corn syrup, the poster-boy of childhood obesity.
The basic effect of the subsidy is that these products are cheaper than they’d be otherwise.  Thus people—particularly low-income families—consume more of them.
Meanwhile, the most healthy foods—tomatoes, broccoli, Brussels sprouts, carrots, squash, sweet potatoes, eggplant, bell peppers, spinach, onions, collard greens, kale, cucumbers, asparagus—get few or no subsidies, which is one reason low-income families eat less of them.
If I were president, I’d simply phase out those existing agricultural subsidies—and then stay out of Texas, Iowa and Illinois (which supplied three of our four latest presidents) until folks cooled off and the beneficial effects appeared.
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Moving on the market, last Monday, my Cabot Wealth Advisory was titled, “An Important Message About Fear and Greed.”
In it I explained how markets peaked at the point of maximum optimism and bottomed at the point of maximum pessimism.
I wrote, “the best way to invest is to Buy at the point of peak pessimism, and Sell at the point of peak optimism.”
And I explained that the present was a point of very great pessimism, and therefore a very good time to buy!
Finally, to counter the protests of those who would argue that today’s special fundamental troubles override this sentiment indicator, I wrote this:
“One final point: Some people will tell you, “It’s different this time,” and they will cite various fundamental facts—our huge national debt, Social Security, Congress, demographics, China, terrorism, peak oil, immigration, global warming—as reasons that investing in the future will not pay.
“To which I say, “Baloney!”
“Throughout history, there have always been people saying “it’s different this time,” but bull markets and bear markets have repeatedly proved the naysayers wrong.  And why?  Because bull and bear markets are driven by changes in perception that drive human emotions from the depths of despair to the heights of euphoria and than back down again, over and over.
“Over the decades and the centuries, the economic facts change and the technologies change, but human nature is ever dependable in its variability.
“And THAT is why I am confident that the market’s next major move will be up.”
Well, since then, not a lot has changed, fundamentally.  We’ve had a nice report on manufacturing, and growth in China is strong, but the stats on unemployment, housing, national debt, etc., remain downright rotten.
Investors—and would-be investors—are still fearful of a double-dip recession, among other things.  To most of them, making aggressive investments in growth stocks at this stage—when so much is uncertain—appears just foolish.
Yet we have had a big change in the market!  Last Wednesday’s 254-point Dow surge marked what we call a follow-through day.  Friday’s 128-point advance confirmed the signal.  Together they tell us the selling pressures have ebbed (all the sellers have exhausted their ammunition) and now the buyers are in control again, and they will remain in control until optimism reigns again.
So I’m telling readers of Cabot Stock of the Month to buy, and one of my favorite stocks is Netflix (NFLX), which I recommended to subscribers to my Cabot Stock of the Month back in February when it was trading at 65.
Well, it’s now trading north of 135, and I still like it, mainly because of its growing role in bringing movies, TV shows and more into your home.  I’ve been a customer since 2003, when all content arrived through the mail, but today I have a Roku box that streams Netflix content straight to my TV … and I love it.  The remote has just a few buttons.  It’s easy as pie to work.  And Netflix loves when I stream content instead of ordering a DVD, because it costs them only pennies to stream a movie!
And last week Steve Jobs announced a new version of Apple TV that follows the Roku model.  No more will users of Apple TV (there weren’t that many to begin with) have to deal with synching and storage issues.  From here on, Apple TV (list price $99) will simply stream rented content, from the iTunes store AND the Netflix library as well as ABC and Fox TV … and I predict it will be a big hit.
Now, technically, NFLX looks a tad extended here, so if you don’t own it yet, I think you should wait for a lower-risk entry point.  In the meantime, I suggest you take a no-risk trial subscription to Cabot Stock of the Month (it’s just $49) and see what stocks ARE attractive to me today!

Yours in pursuit of wisdom and wealth,
Timothy Lutts
Cabot Wealth Advisory


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