The 1 Question You Need to Ask About Your Social Media Content in 2018

We all have seen, firsthand, how fast social media moves. With each passing year, it seems new platforms arise, old trends die out, and best practices become outdated. While 2018 will be no different in terms of change, by asking yourself the following question, you’ll put your brand in a terrific position to “win” in the game of social media:

Is my brand building community on social media?

The days where consistency and high quality content almost guaranteed a loyal following are long behind us. If you aren’t building community on social media, your brand will fall behind faster than ever before in 2018.

The Rise of the Algorithm on Social Media

The catalyst here has been the rise and rule of social media algorithms. Simply put, the algorithm tailors a platform’s news feed based mostly on engagement rather than general chronology. 

The algorithm is a natural progression and reaction to the increased volume of content across social media. Social media apps need to maximize the amount of time users spend on their platforms in order to maximize advertising dollars, and the algorithm is the most efficient way to do that.

Due to the success of the algorithm, it’s likely organic reach on social media will only continue to decrease over time. So, what’s the answer then? Well, the easiest way to ensure others remain highly engaged with your content is to build a community of loyal followers. 

How to Build Community on Social Media

1. Start a Facebook Group. 

Facebook’s primary mechanism for building community is Facebook Groups. Facebook has also been explicit in sharing that one of their main objectives going forward is to encourage community building on their network. For this reason alone, starting a Facebook Group centered around your brand’s interests wouldn’t be a bad idea. 

Keep in mind that your Facebook Group doesn’t have to be directly linked to your business. For instance, if you own a pizzeria in Jacksonville called Grandma Jo’s Pizza, your Facebook Group wouldn’t have to be (and shouldn’t be) named “Grandma Jo’s Pizza”. Instead, consider a title like, “Pizza Lovers of Jacksonville” or something along those lines.

2. Give your community members a name.

Giving the members of your audience a label will, whether consciously or subconsciously, reinforce the existence of the community your company is building. Additionally, it’ll allow your customers to know they’re a part of a movement, a club, as opposed to them just exchanging money for goods. 

Musicians like Justin Bieber use this practice by calling his fans, “Beliebers”, while brands like Starbucks do it in a more subtle way by catering to their “Gold members” within their rewards program.

3. Show your audience some love and recognition. 

The point of having a community is to facilitate relationships between the members. Customers and community members alike want to know you appreciate their time and money, so make sure you show them some love. Here’s a few ways to do it:

  • Post user-generated content (photos customers took while at your business, etc.) to your social media channels.
  • Showcase and commend fans who are doing wonderful things in the community (military service, volunteers, non-profit organizers, and more).
  • Have a weekly segment where you publish a top-rated testimonial or comment on your social media to get followers actively engaged in your content.

The list goes on and on here, but the important thing is to make sure your customers know they’re being recognized by you as the company.

4. Start a meetup.

Nothing beats face-to-face, human interaction when it comes to building relationships, and a meetup is an ideal medium for you to begin making those connections possible. Much like a Facebook Group, your meetup doesn’t have to be directly affiliated with your company. In fact, starting a local meetup in conjunction with your Facebook Group, “Pizza Lovers of Jacksonville” (to continue with the above example) would be a seamless way to build community both virtually and online.

By building a loyal core of fans around the mission your brand has, you’ll be in a terrific position to overcome the algorithm on social media. Going into 2018, ask yourself whether or not you’re taking the necessary steps to build community on social. When it comes to marketing, it could be very well be one of the most important questions you ask yourself this year.

Uber to Settle Lawsuit Filed By India Rape Victim

Uber has agreed to settle a civil lawsuit filed by a woman who accused top executives of improperly obtaining her medical records after a company driver raped her in India, according to a court filing on Friday.

In a criminal case in India, the Uber driver was convicted of the rape, which occurred in Delhi in 2014, and sentenced in 2015 to life in prison.

The Indian woman also settled a civil U.S. lawsuit against Uber in 2015, but sued the company again in June in San Francisco federal court saying that shortly after the incident, a U.S. Uber executive “met with Delhi police and intentionally obtained plaintiff’s confidential medical records.” Uber retained a copy of those records, the lawsuit said.

The woman was living in the United States when she filed the lawsuit.

Terms of the settlement were not disclosed in the court document on Friday. Representatives for Uber and an attorney for the woman could not immediately be reached for comment.

The lawsuit cited several media reports which said former Uber CEO Travis Kalanick and others doubted the victim’s account of her ordeal.

“Uber executives duplicitously and publicly decried the rape, expressing sympathy for plaintiff, and shock and regret at the violent attack, while privately speculating, as outlandish as it is, that she had colluded with a rival company to harm Uber’s business,” the lawsuit said.

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In a prior statement, Uber said: “No one should have to go through a horrific experience like this, and we’re truly sorry that she’s had to relive it.”

Citigroup: The Pain Before The Gain

Citigroup (C) is a bank that has greatly benefited from a positive change in investor sentiment, as C shares have greatly outperformed the broader market over the last year.

(Source: Nasdaq)

More recently, however, the stock has ticked lower due to the news that Citigroup’s trading revenue will be down big this quarter and the fact that the bank will likely need to take a higher-than-expected non-cash charge if the current tax reform bill is passed. In my opinion, investors with a long-term perspective should seriously consider using any sizable pullback caused by the recent noise as an opportunity to add to their long position because the bank’s story remains intact.

The Pain [Before The Gain]

The recent news that Citigroup will likely need to take a $20B (yes, with a “B”) non-cash charge if the current version of the tax reform bill is passed has been widely discussed, and rightfully so, as the previous estimate was only around the $12B range. The new estimate that Mr. John Gerspach, CFO, disclosed at the Goldman Sachs U.S. Financial Services Conference surprised investors and caused C shares to pull back. But in my opinion, the fact that the bank will be writing off a portion of its deferred tax assets because the environment is improving should not be viewed as a negative. Instead, I view it as short-term noise. Yes, Citigroup will not be able to fully benefit from the massive losses that the bank suffered during/after the Financial Crisis, but looking out, I do not believe that this changes the investment thesis for the company. To this point, management still expects to reach its capital return target of $60B:

So it’s a non-cash hit that would be a one-time hit to the P&L. Then of that $20 billion now, you asked about capital, because most of our DTA is disallowed for regulatory purposes, while we would take a GAAP hit or a hit to our GAAP income of $20 billion and we would certainly reduce our TCE by $20 million, the hit to our CET one capital we will probably be a much more manageable $4 billion.

So again a very modest hit to our regulatory capital, which means that as capital plans that we talked about during investor day, which said that our view is that over three CCAR cycle ’17, ’18 and ’19, we should be able to return in excess of $60 billion, that stays intact. That statement that goal to return $60 billion plus of capital over three CCAR cycles is not impacted by the senate bill the way we understand it or by the house bill, for that matter.”

I believe that any pullback that comes as a result of this material non-cash charge should be considered a buying opportunity because, as Mr. Gerspach correctly highlights, Citigroup’s capital hit will be a lot more manageable number (~$4B). So, at the end of the day, the $20B sounds like a big number (and it is) and the bears will most likely pounce on the news, especially if the new estimate turns out to be accurate. But I do not believe that this type of charge means that investors should sell the stock. Remember, Citigroup’s long-term story will remain intact, even with a $20B charge.

Improving Results, The Story Remains Intact

On October 12, 2017, Citigroup reported better-than-expected Q3 2017 adjusted EPS of $1.42 on revenues of $18.1B billion, which compares favorably to what was reported in the same quarter of the prior year.

(Source: Q3 2017 Earnings Presentation)

The highlights from Citigroup’s Q3 2017 results:

  • Net income of $4.1 billion, which was an 8% YoY increase.
  • Operating expenses of $10.17 billion, which was an improvement of 2% when compared to Q3 2016.
  • Repurchased 81 million common shares, and its BV and T/BV both increased by 6% YoY.

This bank has reported impressive operating results for several quarters in a row now, and management believes that Citigroup is well-positioned for 2018 and beyond. It is hard to deny the fact that Citigroup’s operating results have greatly improved over the last few quarters.

(Source: Q3 2017 10-Q)

The bank has reported YoY growth in revenue, net income, and earnings per share for the nine months ended September 30, 2017. Moreover, investors should be encouraged by the prospect that all of the U.S. banks, including Citigroup, are likely to be operating in a more favorable environment in the near future. As I described in this Bank of America (BAC) article, many pundits are predicting that the U.S. will be entering a rising rate environment and it is now widely expected that deregulation will have a significant impact on the banks. Lastly, similar to BAC, Citigroup’s stock has been pulled down by poor investor sentiment since the Financial Crisis and I think that this will soon be a thing of the past.

Therefore, the investment thesis for Citigroup (i.e., an under-appreciated bank that is slowly gaining investors’ trust back by reporting improving operating results and returning a significant amount of capital to shareholders) is intact, and it will likely continue to strengthen in the quarters ahead.

Valuation

Citigroup’s stock has consistently traded at a discount to its peer group, and this is still the case today.

Chart

C Price to Book Value data by YCharts

For example, C shares would be trading hands at the mid-$80 range if the bank traded at 1.2x its T/BV. Citigroup is also cheaply valued based on trailing and forward earnings when compared to peers.

Chart

C PE Ratio (TTM) data by YCharts

Does Citigroup deserve a valuation in line with the likes of JPMorgan (JPM)? No, in my opinion, but Citigroup’s discount should continue to dissolve the further we move away from the Financial Crisis. In addition, let’s not forget that Citigroup’s international business model may eventually warrant a higher valuation if the global market continues to strengthen.

Bottom Line

C shares have also been under pressure because management recently disclosed that the bank’s trading revenue would likely be down in the “high-teens percentage” range for Q4. This is, however, in line with what the other U.S. banks are projecting for the current quarter too, so Citigroup is not an outlier. A tick-down in quarterly trading revenue and the estimated $20B charge have caused downward pressure for C shares, but in my opinion, this is simply a case of pain coming before the gain.

I believe this bank has a lot more going for it than just the potential benefits of interest rate hikes, as deregulation and the opportunity to return more capital to shareholders have both become more important components of my investment thesis. As such, I believe that C shares are a great investment at today’s price, so I would treat any pullbacks as long-term buying opportunities.

Author’s Note: Citigroup is a core holding in my R.I.P. Portfolio, and I have no plans to reduce my stake in the next few weeks.

If you found this article to be informative and would like to hear more about this company, or any other company that I analyze, please consider hitting the “Follow” button above. Or, consider joining the Going Long With W.G. premium service to get exclusive content and one-on-one interaction with William J. Block, CPA, President and Chief Investment Officer of W.G. Investment Research LLC.

Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.

Disclosure: I am/we are long C, BAC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Don't Miss Out On The Changing Tide At This Oil Major

The oil industry was roaring after the turn of the millennium saw oil prices skyrocket to triple figures. After the recession of 2008 killed the price of oil, it rebounded to once more cross over the $100 mark. Thanks to a supply glut caused by a trio of increased global production, decreased demand in key markets, and nobody wanting to cut their production to stabilize prices, oil prices again plummeted all the way down to just under $30 by early 2016, where they have slowly begun to climb since.

This downturn in prices shook the oil & gas industry, with numerous small-time players closing their doors, some major players such as ConocoPhillips (NYSE:COP) cutting their dividend, and the integrated oil majors such as Exxon Mobil (NYSE:XOM) being forced to make massive changes to stay financially stable.

Luckily, XOM’s dividend was never cut, but this did come at a cost. Debt skyrocketed, dividend growth came to a standstill, and share buybacks stopped. This has bogged down shares from going much of anywhere for some time. A combination of recovering oil prices and financial remodeling via strategic divesting of assets has cash flows back on the rise. Let’s take a look at where the new look Exxon Mobil is headed.

Financial Effects Of The Downturn

The plunge of oil prices was severe and sent shock waves through the industry and markets.

Chart

WTI Crude Oil Spot Price data by YCharts

With the downturn in oil went Exxon Mobil’s free cash flow and operating margin. Exxon was able to weather this storm of low oil prices, while many small companies had to close their doors, and some upstream-oriented companies such as COP had to cut their dividends.

However, Exxon Mobil did not emerge from the oil crisis unscathed. It had to scale every aspect of its operation back to conserve cash as profits plummeted. This was especially true for shareholder returns. The dividend was not cut, but growth has slowed to a pace that only matches inflation.

Chart

XOM Dividend Growth (Annual) data by YCharts

In addition, it had to scale back buying back shares to boost earnings. With a company as massive as Exxon Mobil, share repurchases are a key driver of earnings growth.

Chart

XOM Stock Buybacks (TTM) data by YCharts

Without the share buybacks throughout the decade, Exxon Mobil’s current TTM earnings of $3.09 per share would only be $2.49 per share, or about 20% lower.

Despite management taking these measures to conserve cash, Exxon still had to take on quite a bit of debt throughout the oil downturn in order to fund its dividend. This has left the balance sheet with more debt than is typical for the oil major.

Chart

XOM Debt to Equity Ratio (Quarterly) data by YCharts

A New, Lower-Cost Oil Environment

The downturn has forced energy companies such as Exxon Mobil to alter its approach, as we seem to have entered a world of lower oil prices. While not a fortune teller, it looks like we are a long ways off from $100 oil. During the past few years, Exxon has sold off what it considered “non-strategic” assets ($21 billion in proceeds from 2012-2016) to raise cash during the downturn, and shifted its focus to North American shale assets.

Earlier this year, Exxon Mobil acquired 275K acres in the Permian basin. These shale assets are “short-cycle” projects which have much shorter cost capture time frames than major offshore projects, and are generally much less capital-intensive.

Operations are ramping up in the Permian, with a 50% increase in rig operation planned for 2018, which will total 30 operated rigs in the Permian region. The Permian region will be a production growth driver for the company over the next few years, with Permian output estimated to more than double the pace of overall production growth. Exxon Mobil’s cost position should improve due to the higher make-up of its resource portfolio consisting of less capital-intensive assets such as shale.

While major exploration will never “die”, the company needs to be very careful about the capital it employs towards these types of projects moving forward. The immediate path to cash flow growth that will get the Exxon Mobil “ship” back moving in the right direction seems to be in shale. I am interested to continue following the development of shale efforts in the intermediate future.

Long-Term Optimism For Natural Gas

Exxon Mobil’s 2010 acquisition of XTO Energy made it a titan in the natural gas industry. Unfortunately, natural gas prices have struggled, stuck in a slow and modest downtrend over the past decade.

(Source: Nasdaq)

Prices have been pushed lower by a combination of mild weather and plentiful supply. Still, natural gas consumption growth is estimated to outpace traditional fuel sources over the very long term.

Exxon Mobil could have opportunities as a natural gas exporter over the long term. The United States is currently the largest natural gas-producing nation in the world, and Exxon Mobil’s XTO Energy business makes it a leading presence in that field. As the United States looks to focus on exports, Exxon will benefit from this given its position in the industry.

The largest driver moving forward for natural gas prices may end up being potential demand spurred from the eventual attempts by nations to phase out the use of coal as an energy source. Climate change is slowly becoming more important across the world, and as emission standards tighten over time, I see natural gas as the “next man up” on the energy source roster.

(Source: Wired)

Renewable energy faces challenges in scaling to a size suitable to fill the giant hole traditional fuels like coal would leave. Renewable energy can be adversely affected by weather. There are also efficiency and energy storage issues, especially with solar. Lastly, natural gas also currently enjoys a cost of production advantage over renewable sources – which may be the most important factor of all.

Improving Cash Flow Signals “Good Things” To Come

As Exxon Mobil gears itself for this new age of low-cost energy production, there are early signs of results – even if they have a lot to do with a modest rebound in oil prices.

The dividend has been funded throughout the past year, and YTD cash from operations has covered all shareholder distributions and investments. At this point, Exxon is only looking “up” from here. With just under $41 billion of debt, there is still a bit of digging to do for management. It is hard to tell how long it will take to return the debt to a more manageable level, as that will highly depend on oil prices in the short term boosting cash flows.

The good news is that OPEC recently extended its agreement on production cuts, which has the industry a bit more bullish on oil prices for 2018. After averaging around $53 per barrel in 2017, oil prices in the $58-60 range for 2018 would drastically boost cash flows.

Chart

WTI Crude Oil Spot Price data by YCharts

Sustained prices in this range should pick up free cash flow per share well past this point, which currently results in an 85% payout of free cash flow towards the dividend. Again, Exxon Mobil is positioning itself for lesser reliance on these commodity prices, but in the short term, oil prices will determine how soon the company can “dig itself out” of the debt it is now in.

Accumulation Stage

Shares have been hanging out in the low $80s for some time now, to the disappointment of a lot of long-term shareholders.

Chart

XOM data by YCharts

Those patient enough have lucked out with the occasional opportunity to purchase shares under $80. Now that Exxon Mobil is cash flow-positive and trending in the right direction, I cannot say in confidence that price dips like those seen in late 2015, early 2016, and mid-2017 will happen again anytime soon – barring a major event in the market.

Income investors get a juicy dividend that is way above its 2.48% historical yield at 3.71% (drip, drip, drip).

Chart

XOM Dividend Yield (TTM) data by YCharts

Meanwhile, free cash flows are yielding as high as they have in almost five years (meaning cash flows are the cheapest they have been in a long time). Exxon Mobil’s cyclical nature can skew traditional valuation metrics, so I want to focus on how much cash flow I can get for my money. As Exxon increases its cash flows in 2018, either the cash flow yield will go up (making it an even better value) or shares will go up with cash flows.

Chart

XOM Free Cash Flow Yield (TTM) data by YCharts

Given Exxon Mobil is on the “up and up”, and the high dividend and cash flow yields, a price as close to $80 per share as possible makes a great entry point for long-term oriented investors. Oil prices are stabilizing in the high $50s, and the financial metrics for the company will only look better by the quarter.

Not a finished product, Exxon Mobil has nice positioning for the long term in an oil & gas environment that is likely to feature lower commodity prices than we have seen in the past. Nobody knows exactly where oil prices will be 1, 5, or 25 years from now, but I am confident that the company’s position in the industry will enable it to generate sufficient cash flows in the near future. Once Exxon Mobil turns on the faucet for share buybacks, the share price should float higher.

Note: Charts sourced from YCharts. Unless noted, graphics sourced from Exxon Mobil.

Disclosure: I am/we are long XOM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Why The Secret To Protecting Your Business's Future Growth Is External Focus

As Blue Apron prepared its IPO at the beginning of this year, the future looked bright. The New York-based meal kit company had been growing exponentially since it was founded by Matthew Wadiak, Matt Salzberg, and Ilia Papas in 2012. They, were soon delivering over five million meals a month and former venture capitalist Salzberg, was being feted in the media. Fast forward six months and Wadiak has been removed as CEO, growth has ground to a halt and Blue apron’s share price is down by 70 percent.

What happened to Blue Apron is something I have seen time and time again during my 25 years of helping CEOs and leaders grow their businesses; leadership gets so wrapped up in executing today’s growth that it loses sight of the bigger picture and endangers the company’s future growth.

Growth leaders need to be ambidextrous. They must be able to execute today’s business to a high level while at the same time identifying and developing the capabilities the organization will need for tomorrow’s growth. This means both exploiting their present business to drive profits while they explore their future business to drive revenue growth down the line.

To do this they need to stay externally focused. Too often leaders get so caught up in the everyday busyness of growth that they take their eye off the big picture. This is a mistake as external focus is one of the strongest drivers of external growth.

Growth leaders must constantly think about existential threats, imaging disruption scenarios with their team. They have to keep examining and reexamining their customers needs and future needs, how they competition is meeting them and how they might meet them in the future or how technology, their operating environment or market forces could change them.

Here are three ways to stay externally focused:

1. Focus on your customers.

Blue Apron’s customer base growth stopped growing at the end of 2017. Many subscription-based business models see their numbers peak and then tail off as customer fatigue sets in.

Blue Apron offered a package of three meals per week for between $60-75, which is a significant commitment in terms of cost, time and planning for many people over the long-term. In the meantime, new services appeared like Uber Eats and Deliveroo that deliver restaurant meals to your door without asking you to sign up for anything.

2. Be aware of your competition.

Blue Apron was first in the US meal kit subscription market but it quickly got crowded with over 150 companies across the US, including Blue Aprons arch-rivals and former classmates Plated, and then Berlin-based HelloFresh opening a New York operation.

If a business is easy to start up then the market place can become very crowded very quickly. With free cancellation  customers could try a different meal kit service every week. If you want to win in a crowded playing field you need to either have a huge critical mass or stand out.

3. Watch out for curve balls.

A lot of people, including Blue Apron, were blindsided by Amazon’s acquisition of Whole Foods – if Amazon brings high-end fresh food directly to your door then it eliminates much of the need for high-end meal kit services and they become just another subscription service.

The signs were there, a month previously NYU Professor, Scott Galloway told Recode:

“I can’t imagine why they [Amazon] wouldn’t buy Whole Foods, for example, just because of the urban locations. They could close them down and just turn them into warehouses and I think they could justify the price.”

In  his new TED talk Galloway explained that while he was researching Amazon he searched for organic milk on their site and it came up with nothing, he immediately saw that high-end fresh produce was a gap for Amazon and if they were going to fill it then Wholefoods would be a good fit.

And Blue Apron’s main competitor saw the risk too. In a 2015 Forbes interview Plated founder Josh Hix said prophetically:

“This isn’t about Plated vs. Blue Apron. It’s about Plated vs. Whole Foods and a huge food market.”

This holiday season you will have to go to your local Whole Foods store to pick up your $159 organic turkey meal but I’m guessing by next year it will be fulfilled by Amazon.

However, as former CFO Brad Dickerson takes over as Blue Apron CEO there are still reasons to stay positive. Meal kits represent only 1 percent of the more than $5 trillion US retail and food services industry so there is still plenty of room to grow.

Amazon launches subscription-based Prime service in Singapore

SINGAPORE (Reuters) – Amazon.com Inc on Wednesday launched its subscription-based Prime service in Singapore that provides access to fast shipping, streaming and gaming, intensifying competition with incumbent rival Alibaba-backed Lazada in Southeast Asia.

FILE PHOTO – The logo of Amazon is seen at the company logistics center in Lauwin-Planque, northern France on February 20, 2017. REUTERS/Pascal Rossignol/File Photo

In July, the e-commerce giant made its biggest push into Southeast Asia by launching a free two-hour delivery service in the city-state, marking its first head-on battle with Chinese rival Alibaba Group Holding. (bit.ly/2AakmBO)

But in what was seen as the first step toward developing a major footprint in the fragmented region of 600 million people, some customers were underwhelmed by its initial limited product categories and it faced tough competition from rivals, such as Lazada.

Now Amazon, which had been offering its two-hour delivery service Prime Now for free on a S$40 ($29.70) minimum purchase in Singapore without any membership fee, will start charging S$8.99 per month after a limited introductory period.

While introducing the membership, the online retailer more than halved the threshold for free international shipping to Singapore and also cut delivery times, hoping the deal will attract more shoppers to its platform that will now give access to more than 5 million items from Amazon U.S..

Lazada had launched its own subscription-based customer loyalty program LiveUp in Singapore in April.

Reporting by Aradhana Aravindan; Editing by Miyoung Kim and Neil Fullick

Our Standards:The Thomson Reuters Trust Principles.

Alibaba’s Jack Ma Has a Message For Donald Trump About Trade Wars

Jack Ma, founder and executive chairman of Chinese e-commerce giant Alibaba, warned against President Donald Trump’s threatened trade war with China.

“It’s easy to launch a war, but it’s so difficult to stop a war,” Ma said on stage at the Fortune Global Forum business conference in Guangzhou, China on Tuesday.

Ma, whose company is pushing to become a global powerhouse, including in the United States, would, of course, be a big loser if the Trump Administration clamped down on China over what Trump describes as that country’s unfair trade practices. Imposing extra tariffs on Chinese imports would make goods sold through Alibaba’s web sites—which include rivals to eBay and Amazon—more expensive to U.S. customers.

Habitually optimistic, Ma avoided criticizing Trump, who he met at Trump Tower in January during the presidential transition and then gushed about in front of cameras downstairs as being “smart” and “open minded.” Instead, Ma minimized any differences between the two countries, saying “even a wife and husband have problems” while preaching the virtues of globalization.

“We have to make sure that every country benefits from globalization,” he said. “We have to make sure that farmers can sell things, we have to make sure that young people benefit.”

Alibaba, Ma argues, helps small U.S. businesses by giving them a huge international market for their products and a cheap source of supplies. And that translates into more U.S. jobs, something that is music to President Trump’s ears—at least when he’s not bashing China.

“He’s making progress,” Ma said of President Trump. “He’s trying hard.”

Ma’s advice is for business leaders to take the initiative when it comes to trade policy, no matter which way the wind is blowing in Washington or Beijing.

“We should never wait for policies,” Ma said. “We should go before the policy and try to do it.”

That simple strategy sounds convincing coming from Ma, a master salesman who transformed the startup he founded 18 years ago into an online powerhouse with market value of $433 billion. But reality can be a lot tougher when it comes to international trade diplomacy, especially with a president who campaigned on “America first” and unilaterally canceling trade deals.

This Is Only the Beginning for China’s Explosive E-Commerce Growth

In less than a decade, China has emerged as the world leader in e-commerce. It claims more online shoppers than any other nation. The numbers speak for themselves.

China is home to 730 million Internet users, it accounts for 40% of global retail e-commerce, and its mobile payment market is a whopping 11 times the size of the U.S. market.

“Whether we’re talking about transactions, technology, or money, China really stands out,” said McKinsey senior partner Jonathan Woetzel Tuesday at Fortune’s Brainstorm Tech International Conference in Guangzhou, China.

And this is only the beginning for China’s astronomical growth in the e-commerce space, Wortzel said. For one, China is still in the early days of the country’s middle-class boom. In other words, more than 300 million middle-class consumers with rising disposable incomes are propelling the consumption of China.

Zhang Xuhao is one Chinese entrepreneur who is taking advantage of this emerging trend. Xuhao is the CEO of Ele.me, China’s leading food delivery startup, which is valued at approximately $6 billion and counts Alibaba and Tencent among its investors.

“In China, more and more people don’t want to go out,” Xuhao said at the conference. “There are traffic jams, there are parking fees, so I think it’s a very reliable way for people to get food.”

Ele.me holds 55% of market share in the country, while its main competitor, Meituan Waimai comes in second with 41%. Here’s where it gets complicated: Alibaba was one of the original backers of Meituan before offloading its assets to focus on Ele.me.

“As you expand in China, relationships become very complicated,” Xuhao said. “Sometimes [our rivals] are our friends, and sometimes they are our enemies. The competition is so fierce.”

The company is one of China’s darling unicorns, with more than 260 million users in 2,000 cities across the country. Now, Xuhao says he’s focused on expanding the company’s retail categories, working with Alibaba to deliver goods straight from the platform, and entering more cities. “If you’re a winner in China, that means you can be a winner in the world,” he said, alluding to his global ambitions.

Woetzel said foreign business leaders need to pay close attention to e-commerce giants that are rapidly dominating the Chinese market. “The main thing people under-appreciate is how big a change you have to make in order to be successful in the digital world of China,” he said. “The growth is higher, the stakes are higher, and the competition is much more intense.”

Why China is Crucial for Airbnb’s Global Ambitions

Many Western companies have found China to be a difficult market to crack, and home-sharing giant Airbnb is no exception.

“Frankly, we weren’t sure [Airbnb’s model] was going to work here,” said Airbnb co-founder and chief strategy officer Nathan Blecharczyk at Fortune’s Brainstorm Tech International Conference in Guangzhou, China on Tuesday. “We had heard the stories about other tech companies and how hard it is to succeed in China, and so we weren’t sure whether to make it a priority or focus on other things that were more straightforward.”

Chinese tourists are the biggest spenders on international tourism with more than 135 million people traveling outside of China last year. The country has been the largest outbound travel market since 2012 and its tourist spending has had double-digit growth each year since 2004. “That alone is reason to prioritize it,” Blecharczyk said.

After a year of contemplation, Airbnb decided to make the leap and give it a go in China. But since launching its Chinese arm three years ago, Airbnb has faced fierce competition from local rivals and encountered discoverability issues related to government censorship of websites like Google, Facebook, and Twitter.

“So much of our site was dependent on those technologies, so we really had to localize the product,” Blecharczyk said.

Airbnb began building relationships with the government and built a 60-person product team in Beijing. Once the company began “localizing” the product, it saw an almost immediate lift in bookings.

For example, Airbnb unveiled a new brand name to be used in the country: ‘Aibiying’ (爱彼迎), which means “welcome each other with love.” The re-naming was part of a larger effort by the company to expand its visibility and presence in China. Airbnb also announced the launch of Trips, a feature that offers suggestions for local experiences, in China.

It also integrated Alipay, Alibaba’s online payment platform, into the Airbnb platform. Today, more than half of Airbnb China’s bookings are paid via Alipay.

These additions have led to some pretty impressive growth. To date, approximately 8.6 million Chinese guests use Airbnb when traveling abroad. Inside of China, there are about 120,000 homes listed on the Airbnb platform. Three years ago, that number was only 10,000.

Airbnb will continue investing heavily in the market to ensure that growth continues. Blecharczyk said the company is currently building a local customer service center and plans to triple its 60-person product team in the new year. Airbnb also recently announced it will invest $2 million through 2020 to support “innovative tourism projects” throughout the region. Airbnb has previously said that China is projected to be its largest origin market by 2020.

“That’s definitely the way it should be long-term,” Blecharczyk said. “China is the largest travel market both outbound and domestically, so it’s really big. And if you look at our trajectory, that is very possible.”

Bank Of America: Just Stay On The Train

Bank of America (BAC) shares have greatly outperformed the broader market since Mr. Donald J. Trump was elected to be President, as BAC shares have increased in value by 70% while the S&P 500 is up only 25%.

(Source: Nasdaq)

BAC shareholders have rode the Trump train to impressive gains since November 2016 but, in my opinion, this bank still has a great story to tell as we progress toward 2018. As such, I believe that investors should stay on the train, because BAC’s long-term story is still intact and it is actually getting better with time.

Where Did We Come From? A Challenging Environment

Prior to 2016, BAC was viewed as the government’s piggy bank, as the bank paid well-over $90B in legal fines and settlements related to pre-Financial Crisis wrongdoings. As a direct result, the bank’s earnings fell off a cliff and investors jumped ship for greener pastures.

Chart
BAC Net Income (Annual) data by YCharts

The bank, however, not only had to face rising legal expenses but it also had to contend with the headwinds that were caused by the low interest rate environment.

Chart
10 Year Treasury Rate data by YCharts

This bank could do no right in the eyes of most investors and, simply put, bearish sentiment wrecked havoc for BAC and its shareholders. It is, however, important to note that BAC was not the only bank that was punished during this period of time, as the three other large financial institutions – JPMorgan (JPM), Wells Fargo (WFC) and Citigroup (C) – also faced downward selling pressure.

On the other hand, a few short years ago, as described in this article, Mr. Brian Moynihan, CEO, started doing what was necessary to right the ship and the market finally realized that management’s plans were bearing fruit. Therefore, sentiment for the once ‘too-hot-to-hold’ bank slowly started to turn positive.

The Bank’s Latest Results Tell A Nice Story

On October 13, 2017, BAC reported better-than-expected Q3 2017 adjusted EPS of $0.48 on revenues of $21.8B, which compares favorably to what the bank reported in the same quarter of the prior year.

(Source: Q3 2017 Earnings Presentation)

The highlights from BAC’s Q3 2017 results were the following:

  • Net income of $5.6B, which was a YoY increase of 13% (YTD net income was up 19% YoY).
  • Noninterest expenses were $13.1B, which was an improvement of 3% when compared to Q3 2016.
  • Average deposits were up 4% (or $45B) and average loans/leases were up 6% YoY.
  • Return on assets (“ROA”) of 0.98%.

Additionally, each of the bank’s business segments performed well over the most recent three-month period.

BAC’s quarterly results were already well-covered on Seeking Alpha (see here), so I do not want to spend my time rehashing what you all already know. Instead, I want to focus on two very important takeaways from the Q3 2017 results.

First, BAC’s below-average ROA has plagued this bank for years and it was actually one of the main talking points for the bears.

Chart
BAC Return on Assets (NYSE:TTM) data by YCharts

As shown, BAC’s ROA – a metric that most analysts believe should be around 1 or higher – has lagged the peer group over the last five years. The benefits of management improving BAC’s ROA are two-fold: (1) the bank is obviously earning more on its assets and (2) it improves investor sentiment in a major way. This is the reason why BAC’s close to 1% ROA for the most recent quarter is so important. Looking ahead, investors should bake in expectations for this metric to continue to climb because, in my opinion, Mr. Monyihan and team have BAC well-positioned to prosper in the changing operating environment.

The other major takeaway from the quarterly results was just how sensitive BAC is to interest rates (a topic that is well-known by most BAC shareholders). To this point, BAC reported a $1B YoY increase, or ~10%, in net interest income (“NII”) for the quarter.

This may not seem like much but it is. More importantly, management expects for BAC to greatly benefit from gradual increases in interest rates as we head into 2018 and beyond. Currently, management expects that the bank would benefit by the tune of $3.2B in additional NII on “+100bps parallel shift in the interest rate yield curve, driven primarily by sensitivity to short-end interest rates”.

BAC’s Q3 2017 results showed that Mr. Moynihan has this bank well-positioned for the future, and investors should be encouraged by the prospects that the U.S. banks will soon be operating in a more-favorable environment.

Where Are We Going? An Improving Environment

On November 28, 2017, BAC shares finished the trading day up almost 3% as the market digested Mr. Jerome Powell’s confirmation hearing to become the next Fed Chair. It was not only BAC shares that benefited from the hearing, as the financial sector finished up almost 3% on the same day.

The Powell hearing was, however, not the only positive news, as it has become more likely that the GOP may actually have the votes to push through a game-changing tax reform bill. In addition, the 10 year treasury has also been ticking higher over the last six months.

Chart
10 Year Treasury Rate data by YCharts

At the end of the day, BAC’s operating environment has slowly started to improve over the last two plus years and, more recently, the bank’s future growth prospects appear extremely promising from here. What used to hold BAC shares back (i.e. sentiment), is actually what has propelled the stock price higher so far in 2017. And, investors should not expect for this to change anytime soon.

Valuation

BAC shares are trading at an attractive valuation when compared to the bank’s peer group.

Chart
BAC Price to Book Value data by YCharts

It is important to note that BAC’s book value and T/BV were negatively impacted by the Berkshire (BRK.A) (BRK.B) stock conversion that occurred during the last quarter. If BAC shares were trading inline with JP Morgan (JPM) or Wells Fargo (WFC), the stock would be worth $34/share (upside potential of ~20%). Mr. Moynihan still has some work to do before BAC will be viewed in the same light as some of the bank’s competitors, but, in my opinion, the bank is without a doubt heading in the right direction and it will likely warrant a similar type of valuation in the near future.

Bottom Line

BAC shares are still attractively valued at today’s price, even after the run-up since November 2016. I believe that this bank has a lot more going for it than just the potential benefits of interest rate hikes, as deregulation and the opportunity to return capital to shareholders have both become more important components of my investment thesis. BAC’s long-term story – an under-appreciated bank that is slowly gaining investor’s trust back by improving its expense base and returning capital to shareholders – is still intact and, in my opinion, the future looks even brighter for this large financial institution as we approach 2018.

At the end of the day, I believe that BAC shares are a great investment at today’s price so I would treat any pullbacks as long-term buying opportunities.

Full Disclosure: All images were taken from BAC’s Q3 2017 Earnings Presentation, unless otherwise stated.

Author’s Note: BAC (common stock and TARP warrants) is a core holding in my R.I.P. Portfolio, and I have no plans to reduce my stake in the next few weeks.

If you found this article to be informative and would like to hear more about this company, or any other company that I analyze, please consider hitting the “Follow” button above. Or, consider joining the Going Long With W.G. premium service to get exclusive content and one-on-one interaction with William J. Block, CPA, President and Chief Investment Officer of W.G. Investment Research LLC.

Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.

Disclosure: I am/we are long BAC, C.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

3 High-Yield REIT Picks For December 2017, Dividends Up To 14%

This research report was jointly produced with High Dividend Opportunities co-authors Jussi Askola and Philip Mause.

During the year 2017, investors have favored “growth stocks” which have strongly outperformed at the expense of “value stocks”, and notably “value dividend stocks”. Investors have been under-allocating Property REITs, BDCs, and Midstream MLPs in favor of growth and momentum stocks such as Technology and FANG stocks (FANG being Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), and Google (NASDAQ:GOOG) (NASDAQ:GOOGL)). This has resulted in very high, and even excessive valuations, for many of these stocks.

The good news is that today, Property REITs, BDC Companies, and Midstream MLPs are trading at their lowest valuations in years and currently offer investors a unique entry point.

In the recent months, we have been very busy with the REIT sector (as well as with other High Yield sectors) which presented a large number of new opportunities. The market sentiment is today turning more and more pessimistic on certain specific names as a result of concerns over many factors. This includes the state of the retail industry, interest rate hikes, and even potential changes to tax policies. This led to large sell-offs, causing many REITs to drop to levels where the risk-to-reward outcomes appear increasingly interesting.

In this article, we aim to shortly outline our buy theses for 3 picks that we have covered in detail at “High Dividend Opportunities“, whereby many of our subscribers and followers are today invested in these names and enjoying high dividend yields, along with other high dividends from other sectors that we cover.

Source

Pick #1: SOHO, High Yielding Hotel Opportunity, 7.6x FFO, 6.5% Yield

  • Sotherly Hotels (NASDAQ:SOHO) is a small cap hotel REIT with a particularly strong and convincing buy thesis. It combines extreme value with share buybacks, positive guidance, a high yield and a favorable track record.
  • Trading at 13% AFFO yield, the REIT pays out 6.5% dividend yield (which is covered at 200%), and reinvests the remaining in growth. This appears particularly inexpensive in a market where the broad REIT market at 19x FFO. There is more risk as a result of the small size and higher leverage, but the valuation gap is way excessive, in our opinion.
  • The Price to NAV provides additional evidence that Sotherly may be grossly undervalued. Rough estimates indicate up to a 50% discount to NAV at the current share price, making the recent share buybacks very accreditive.
  • Despite trading at a deep value share price, the track record has been relatively favorable with impressive growth. Moreover, the 2017 guidance is very encouraging. The management team is expected to generate an AFFO per share with a midpoint $0.92 – or a 2% increase in AFFO compared to 2016. This is despite the hurricane season which had a one-time effect on the REIT’s bottom line. Guidance prior to the hurricanes was at $1.05 (mid-range) or an increase in AFFO by 16.7%. Therefore, 2018 FFO is likely to grow at a faster rate, barring another hurricane disaster.
  • The dividend yield stands currently at 6.5% and represents only about 50% of its expected 2017 cash flow. Many high-yield stocks come with low/no growth, and yet, Sotherly has more than doubled its payout in the last three years alone.

Conclusion: There is a lot to like in Sotherly at today’s price. Despite the price having already increased by 15% since publishing our initial thesis, it remains one of the cheapest REITs out there as measured by its low AFFO multiple and high discount to NAV. Yet it owns a well performing portfolio and is being well managed. The market is today focused on short-term issues and high debt load and seems to forget the big picture. Sotherly has issued a positive guidance, owns good assets, and the high dividend is very well covered.

Pick #2: WPG, High-Yielding Mall REIT, 4.3x FFO, 13.9% Yield

  • Washington Prime Group (NYSE:WPG) is a Class B mall REIT that has gotten way oversold because of extreme fears over the growth of e-commerce. The market is highly pessimistic today and is pricing WPG at only 4.3 times FFO, while the company is not seeing any “major” fundamental issue.
  • It is clear that e-commerce will keep on growing and certain tenants will suffer. That said, WPG is much better positioned than the retailers themselves as it can replace poorly performing tenants with superior ones and keep on collecting rent checks. So far, WPG has had no problem doing so as demonstrated by the stable occupancy rate, relatively resilient Net Operating Income (or NOI), and attractive returns on redevelopment projects.
  • Despite not showing any “major” fundamental flaws, WPG is one of the cheapest REITs today based on NAV discount, FFO multiple, and dividend yield. It is trading at an estimated 40-50% discount to NAV, 4.3 times its FFO, and a 13.9% dividend yield, which is covered at 165%.
  • One could point out that the cash flow is expected to keep declining a bit in the near term, but this is not due to “operational” difficulties; rather it is due to the “strategic” decision to sell lower quality malls and reduce debt. Moreover, this should not put the current dividend in danger.
  • WPG has an investment grade rating and ample liquidity to keep on executing its strategic plan of redeveloping certain properties and improving its portfolio quality which should eventually lead to a higher FFO multiple. Trading at 4.3 times its FFO, even a small upward adjustment would result in sizable gains.

Conclusion: the mismatch in fundamental performance and share price performance is what makes WPG a compelling investment. While the market has seen panic selling of the shares at each negative news, WPG has been consistently collecting its rental income and has managed to maintain fairly consistent profitability. Shares are down over 60% in the past 3 years, but the cash flow and fundamentals have not deteriorated nearly that much. We expect strong price recovery eventually as the market reevaluates its extremely pessimistic sentiment.

Pick #3: LADR, Mortgage REIT Opportunity, 8x Core Earnings, 9.2% Yield

  • What matters the most in the REIT space is the quality of the management team. We consider Ladder Capital (NYSE:LADR) to be one of the best managed mREITs.
  • Its business model is diverse and allows it to adapt to changing market conditions. It results in superior returns to equity (‘ROE’), but this comes at the expense of more volatility over the short run.
  • Despite the higher ROE, LADR has maintained strong discipline in its lending as it has not experienced ANY credit loss since its inception.
  • The complex business model of LADR has resulted in a cheap valuation which is only pricing the firm at about 8x its 2Q 2017 Core Earnings. As such, the market is currently not factoring in any premium to LADR’s superior management and business model.
  • The 9.2% dividend yield is well covered at 130% and leaves room for further dividend growth as well as superior liquidity to the management.
  • It is an internally managed mREIT with significant insider ownership. Senior management has on average 28 years of industry experience and owns $175 million (or 11.6%) of the market cap of the Company.
  • A high single digit dividend yield + good potential for growth + superior management = Great shot at outperforming the market, in addition to a potential for double-digit return annually.

Conclusion: Ladder Capital sticks out as one of the highest quality mREITs as measured by its superior management and business model. Yet, it keeps trading at an attractive valuation and high-yield due to complexity risk and higher volatility in its earnings. We expect long term oriented investors to be well rewarded as long as they are patient and ignore the short-term volatility.

Final Thoughts

High yield often comes with high risk, and this is why it is always crucial to perform proper due diligence and to properly diversify your holdings. At High Dividend Opportunities, subscribers have access to 3 different portfolios with a “Core Portfolio” totaling 40 high-yield picks with an overall yield of 9.7%.

Lately, we have highlighted many deeply undervalued opportunities in the REIT sector and will continue to present the newest high yielding names to our readers. Just because the broad REIT index sells at a relatively low yield does not mean that high-yielding REITs have disappeared. Our job is to discover them and with proper due diligence, seek to identify the future outperformers in the high yield space.

In this sense, we believe that Sotherly, Washington, Ladder are set to deliver strong results going forward. In all three cases, the dividend yield is significantly above average and well covered. Moreover, given the currently low valuations, we expect strong price recovery to occur sooner or later. There is clear risk, but we consider the current risk-to-reward ratios to be very positively asymmetrical here.

High Dividend Opportunities is a leading and comprehensive dividend service ranked #1 in dividends on Seeking Alpha and is dedicated to high-yield securities trading at attractive valuations. It includes a managed portfolio currently yielding 9.7% – and a selection of the best high-yield Master Limited Partnerships, BDCs, U.S. Property REITs, Preferred Shares, and Closed-End Funds. We just launched our new “Portfolio Tracker,” which is a best-in-class tool for the income investors to track their dividend investments. For those interested, we have launched a video, which features the functionalities of our Portfolio Tracker. To watch the video click HERE.

The Portfolio Tracker is free to all subscribers. We invite readers for a two-week free trial currently offered by Seeking Alpha to have a closer look at our investment strategy. For more info, please click HERE.

Note: All images/tables above were extracted from the Company’s website, unless otherwise stated.

Disclosure: I am/we are long SOHO, WPG, CBL, SRC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Fortune Brainstorm Tech International 2017 Livestream

The inaugural Fortune Brainstorm Tech International conference convenes world leaders to discuss innovation, technology, and the economy from December 5 to 6 in Guangzhou, China.

The event taps into the strength of two Fortune powerhouse series: Brainstorm Tech, which takes place each July in Aspen, and Global Forum, our long-running CEO summit. (Indeed, Brainstorm Tech International will colocate with this year’s Global Forum.) It takes place in Guangzhou, China’s southern gateway and an emerging center of tech innovation.

Fortune Brainstorm Tech International will explore the innovation revolution unfolding in China, a trend that is not yet fully appreciated or well understood around the world. The old notion of China as a tech copycat nation is being rapidly replaced by the emerging new reality of home grown innovation and mass implementation in fields that include artificial intelligence, social media, biotech, fintech, VR, automotive, the sharing economy, and mobile platforms. The conference program will feature the China innovators who are rewriting the rules and reshaping the landscape, in combination with tech leaders from around the world.

Fortune Brainstorm Tech International is at capacity but you can watch most of the program right here on this page. The festivities begin at 7:00 a.m. local time on Tuesday, Dec. 5 (or 6:00 p.m. Eastern on Mon. Dec. 4).

Micron And Cypress Semiconductors: Is The Market Failing Or Just A One Day Sale?

Numerous technology and semiconductor stocks fell today, with Micron (NASDAQ: MU) and Cypress Semiconductors (NASDAQ: CY) falling 8.7% and 7.0% respectively. I want to focus on the impact of this slide, and encourage investors to look at this as a great time for considering new opportunities for long positions in these companies.

I formerly wrote a piece on CY (you can read it here) and their growth potential as the Internet of Things (IoT) market grows, particularly with the popularity of smart technology entering the home and offices. Micron specializes in flash memory and storage, useful across the gamut of computing applications including mobile, workstation and IoT. For investors holding, be re-assured: the semiconductor industry is not going anywhere. As major firms move money out of technology holdings and into banking, which broadly saw an increase in price (ref. BAC, JPM, WFC), prospective investors would be foolish not to consider investing in a few technology stocks as stock prices begin to shore up.

While many investors (me included) are unsure what the outlook of the tech industry currently is, I think that this severe drop is a necessary correction, but that growth should still be expected for this sector. Many investors were spooked by Morgan Stanley’s cautionary expectations on pricing for NAND and labeling the stock still as overvalued. While I agree that the stock is overvalued, from considering the fundamentals of the company and their potential to further grow, I think that Micron is a great buy once it appears the stock has stabilized.

Considering the last 3 months, Micron has still seen incredible growth of 40%, including its most recent tumble. The RSI indicator shows that the stock is seriously undervalued, and I think that the ADX should be heeded at this point as it does not indicate that the stock has completely lost all of its momentum. Considering the last two support lines, it seems that we are reaching the previous support line around $42.50; yet I do not think that investors have any need to worry about the health of the stock unless the stock breaks through both support lines.

Price for MU for the last 3 months, with two support lines indicated in maroon. Relative Strength Index (RSI) and Average Directional Index (ADX) beneath. The ADX and RSI are both based on a 14 period calculation. Full size available here.

As a long-term value investor, I also think that the picture for CY is not as bleak as it instinctively appears. On the contrary, I believe that the stock has great potential, at a great price for new investors. Similar to Micron, CY is undervalued as indicated by the RSI and surprisingly, the ADX is not at an all-time low after the recent dip. Looking at the 50-period moving average, it shows that the stock has made sustained growth over the window of consideration, and that it will likely continue to perform well.

Price for CY over the last 3 months with 50-period moving average indicated in orange and support line in red. RSI and ADX below. Full size available here.

However, for all my optimism, it would be foolish to not look at the reasons for the sell-off. Morgan Stanley has downgraded its view on a number of semiconductor and tech stocks before its report on lower expectations for NAND memory pricing and a word of caution about the industry in general. Yet their price target for MU is up to $55 from $39, which gives bullish investors somewhat of a confidence boost. Regardless, stock valuation depends largely on investor confidence, and if Q4 reports show slowing growth, investors may begin to migrate away from technology in a more serious fashion.

In conclusion, I believe that this recent sell-off of technology and semiconductor stocks is not a major cause for concern for investors with open positions as long as the slide does not continue. For new investors, I think that this is an excellent opportunity to enter in a long position once prices stabilize. My word of advice to those who are nervous about continuing to hold, or to enter into a position would be to wait and see to determine whether this is a major change in market sentiment, or just an instinctive sell-off. Between CY and MU, I think that these stocks should continue to give investors a great return year-on-year and continue to outperform the competition.

Disclosure: I am/we are long CY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may also be interested in initiating a long position in MU over the next 72 hours.

Amazon’s New Artificial Intelligence Features Are a Challenge to Silicon Valley

Amazon.com (amzn) this week announced a flurry of new machine learning features for its Amazon Web Services cloud computing business, raising its challenge to Silicon Valley’s biggest tech firms for the lead in artificial intelligence.

The new offerings will enable AWS customers to develop and quickly “train” their own artificial intelligence algorithms, build software applications capable of translating language on the fly, analyze video, and scan text for trends or key phrases.

Artificial intelligence (AI) refers to machines carrying out tasks that are normally associated with human intelligence. Machine learning (ML) is a subset of AI in which sophisticated computer algorithms are developed to recognize patterns in large volumes of data to solve problems on their own.

For example, with two of the new AWS features a company could quickly transcribe customer phone calls and then analyze the text for customer sentiment.

Already Apple (aapl) Facebook Inc (fb), Amazon and other top tech companies are developing and using AI for their own products, but the new offerings from AWS could make it easier and more affordable for startups and less tech-savvy enterprises to implement AI technology.

The product announcements, made at AWS’s annual conference in Las Vegas, cap off a year in which Amazon released 1,300 new AWS features, up from a little more than 1,000 in 2016.

“As always, Amazon is making it easier for companies to get started using new technologies,” said Mikhail Naumov, co-founder of DigitalGenius, a London-based customer service startup that uses AI. “Now they are making it easier for companies of all sizes to leverage powerful ML tools in their business.”

Despite being the pioneer and dominant player in the cloud computing market, AWS is playing catch-up to chief rivals Microsoft Corp (msft) and Alphabet Inc’s Google (goog) when it comes to new AI offerings, several of which will not be generally available until sometime in 2018.

For more on artificial intelligence, watch Fortune’s video:

Microsoft, for example, offered Translator, a direct competitor to the new Amazon Translate, as far back as 2011, Microsoft said. And Google Cloud Platform introduced the Google Natural Language API, a rival to the new Amazon Comprehend, last November. Throughout 2017 both Microsoft and Google announced AI services that rival those unveiled this week by AWS.

“If Amazon can offer products that are just good enough, it can use its leading position,” said Chris Nicholson, CEO of Skymind, a San Francisco startup that provides AI solutions for enterprises.

Among Amazon’s AI announcements is Amazon SageMaker, which lets companies build and quickly train machine learning algorithms. It also announced Amazon Rekognition Video, which uses AI to detect objects and faces in customers’ video content; Amazon Transcribe, which turns audio into text; Amazon Translate, which translates text; and Amazon Comprehend, which analyzes text for sentiment and key phrases.

“We expect the big three to continue to play a game of leapfrog over the next several years as the enterprise moves from experimental to industrialization of AI and machine learning,” said Ken Corless, a principal in Deloitte Consulting’s cloud engineering practice. “Given their market share, AWS’s announcements are significant as they are signaling to the market that they will not cede this space to Microsoft or Google.”

Does Europe have what it takes to create the next Google?

LONDON (Reuters) – Europe is making major strides to eliminate barriers that have held back the region from developing tech firms that can compete on the scale of global giants Alphabet Inc’s Google, Amazon.com Inc or Tencent Holdings Inc, a report published on Thursday shows.

An attendee interacts with an illuminated panel at Google stand during the Mobile World Congress in Barcelona, Spain, March 1, 2017. REUTERS/Paul Hanna

The region has thriving tech hubs in major cities, with record new funding, experienced entrepreneurs, a growing base of technical talent and an improving regulatory climate, according to a study by European venture firm Atomico.

While even the largest European tech ventures remain a fraction of the size of the biggest U.S. and Asian rivals, global music streaming leader Spotify of Sweden marks the rising ambition of European entrepreneurs. Spotify is gearing up for a stock market flotation next year that could value it at upward of $20 billion. (reut.rs/2wYORnI)

“The probability that the next industry-defining company could come from Europe – and become one of the world’s most valuable companies – has never been higher,” said Tom Wehmeier, Atomico’s head of research, who authored the report.

Top venture capitalists and entrepreneurs in the region told Reuters they are increasingly confident that the next world-class companies could emerge from Europe in fields including artificial intelligence, video gaming, music and messaging.

“What we still need to develop is entrepreneurs who have the drive to take it all the way – I think we are starting to see that now,” said Bernard Liautaud, managing partner at venture fund Balderton Capital, who sold his software company Business Objects to SAP for $6.8 billion a decade ago.

The Atomico report is being published in conjunction with the annual Nordic technology start-up festival taking place in Helsinki this week and set to draw some 20,000 participants.

STRONGER FUNDAMENTALS

Capital invested in European tech companies is on track to reach a record this year, with $19.1 billion in funding projected through the end of 2017 – up 33 percent over 2016, according to investment tracking firm Dealroom.co.

The median size of European venture funds nearly tripled to around 58 million euros ($68.7 million) in 2017 compared with five years ago, according to Invest Europe’s European Data Cooperative on fundraising investment activity.

Beyond the availability of funding, Europe has a range of technical talent available to work more cheaply than in Silicon Valley, enabling start-ups to get going with far less funding.

With a pool of professional developers now numbering 5.5 million, European tech employment outpaces the comparable 4.4 million employed in the United States, according to data from Stack Overflow, a site popular with programmers.

London remains the top European city in terms of numbers of professional developers, but Germany, as a country, overtook Britain in the past year with 837,398 developers compared with 813,500, the report states, using Stack Overflow statistics.

While median salaries for software engineers are rising in top European cities Berlin, London, Paris and Barcelona, they are one-third to one-half the average cost of salaries in the San Francisco Bay Area, which is more than $129,000, based on Glassdoor recruiting data.

PUSHING UP AGAINST LIMITS

Big hurdles remain. A survey of 1,000 founders by authors of the report found European entrepreneurs were worried by Brexit, with concerns, especially in Britain, over hiring, investment and heightened uncertainty in the business climate.

Although Europe has deep engineering talent, many big startups focus on business model innovation in areas such as media, retail and gaming rather than on breakthrough technology developments that can usher in new industries, critics say.

Regulatory frameworks in Europe put the brakes on development on promising technologies such as cryptocurrencies, “flying taxis” and gene editing, while autonomous vehicles and drones face fewer obstacles, the report says.

A separate study by Index Ventures, also to be published on Thursday, found that employees at fast-growing tech start-ups in Europe tend to receive only half the stock option stakes that are a primary route to riches for their U.S. rivals. Yet their options are taxed twice as much.

The Index report said employees in successful, later-stage European tech start-ups receive around 10 percent of capital, compared with 20 percent ownership in Silicon Valley firms.

“There is quite a gap today between stock option practices in Europe and those in Silicon Valley,” Index Ventures partner Martin Mignot said in an interview. “There are other issues where Europe is behind, but we think stock options should be at the top of the agenda.”

Another factor holding back Europe is that regional stock markets encourage firms to go public prematurely, Liataud said.

“Europe has markets for average companies. In the U.S., going public is hard. You have to be really, really good. You have to be $100 million, minimum, in revenue,” the French entrepreneur-turned-investor said. “Nasdaq and the New York Stock Exchange have not lowered their standards.”

($1 = 0.8442 euros)

Reporting by Eric Auchard in London; Additional reporting by Jussi Rosendahl and Tuomas Forsell in Helsink; Editing by Leslie Adler

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