The Motley Fool Take
Shares of cybersecurity specialist Palo Alto Networks have been in a slump for much of the summer and were recently down over 16% from their all-time high in May. The story isn’t as bad as it looks, though, and this appears to be a good buying opportunity for risk-tolerant investors.
Palo Alto’s revenue actually jumped 22% year over year in its fourth quarter, thanks to continued market-share gains and broader adoption of its industry-leading cybersecurity product portfolio. Revenue for the full fiscal year surged 28% to $2.9 billion.
Several headwinds have been pressuring the stock. For starters, many of Palo Alto’s customers are transitioning over to shorter annual contracts instead of multiyear ones, which is affecting revenue recognition. The trade war between the U.S. and China is also having a negative, albeit small, impact on the bottom line, and Palo Alto is shelling out cash to fund a string of acquisitions over the last couple of years. The company recently announced plans to acquire Internet of Things security specialist Zingbox for $75 million.
Nevertheless, this is a best-in-class security stock with an appealing valuation. Given the growing importance of cybersecurity in today’s digital age, Palo Alto appears to be a great long-term growth story worth holding onto for the foreseeable future. (The Motley Fool owns shares of and has recommended Palo Alto Networks.)
My Dumbest Investment
From B.B., online: My dumbest investment was buying into Zynga at its initial public offering. I’m still underwater almost eight years later.
The Fool responds: The game company Zynga achieved great success after it was founded in 2007, with early games such as Zynga Poker, Mafia Wars and FarmVille becoming big hits on the Facebook platform. Believers in the company’s promising future were excited about its IPO because that would give them a chance to invest in it by buying the first shares issued on the public stock market. The shares were priced at $10 apiece, giving the company an overall value of around $7 billion.
As you know, the stock went mostly down, not up, once on the market — as happens with many IPOs. Zynga stock was trading below $6 per share within six months, and below $3 a year after its debut. IPOs can be very volatile — even Facebook’s shares ended up down some 31% a year after debuting — though they’ve gained nearly 800% over the last seven years.
It makes a lot of sense to just steer clear of IPOs for a year or so, giving the shares some time to settle and the companies a chance to report solid performance over a few quarters. Zynga’s future isn’t crystal clear, but its shares have surged more than 40% over the past year on rising revenue and shrinking losses.
Ask the Fool
From F.W. in Morganton, N.C.: What’s swing trading?
The Fool responds: It’s a form of short-term investing in which investors buy stocks and hold them for just one or more days or weeks. Swing trading is a lot like day trading, but day traders are typically in and out of a security within a single day — sometimes holding for just a few minutes.
Just as day traders do, swing traders employ “technical analysis,” studying stock-price movements and looking for seemingly promising patterns. Unlike most day traders, they may also employ some fundamental analysis — such as evaluating a company’s business strength, profit margins, growth rates, debt levels, valuation and so on — though many will not. The Securities and Exchange Commission has warned that “Day trading is extremely risky and can result in substantial financial losses in a very short period of time.” Go to SEC.gov and search for “Day Trading: Your Dollars at Risk” to read its report. Swing trading is slower-paced and not quite as risky. But a more dependable road to riches for most people is simply buying into healthy and growing companies and holding on for years, or just sticking with low-fee index funds.
The Fool’s School
It’s hard to plan and save for your retirement when you don’t know how much money you’ll need. A million dollars is often suggested, but many of us need less — or more.
The following calculation can help you arrive at a rough estimate of your needs: If you think you’ll need $50,000 per year in retirement and you expect to get $20,000 of that from Social Security, you’ll need another $30,000 in annual income. The 4% rule suggests withdrawing 4% of your nest egg in your first year of retirement and then adjusting for inflation in subsequent years, in order to give your funds a good chance of lasting 30 years.
To see what $30,000 is 4% of, multiply it by 25. You’ll get $750,000. If that seems way more than you can possibly save, then consider planning a retirement full of less expensive activities, such as reading, gardening, volunteering and playing tennis, instead of costlier activities such as world traveling. Know, though, that with enough time and determination, you may be able to save a lot of money. There are many things you can do right now to position yourself for a sweeter future:
- Save and invest more. Try saving 15% or more of your income.
- Work for a few more years. That lets you save more and shortens the period in which you’ll have to support yourself with your investments.
- Invest more effectively. The money you won’t need for five or 10 years is likely to grow fastest in the stock market, which you can access via a simple, low-fee index fund, such as one that tracks the S&P 500 index.
- Make the most of 401(k) accounts and IRAs. Money that grows in a Roth IRA or Roth 401(k) can eventually be withdrawn tax-free, if you follow the rules.
Who am I?
I trace my roots back to 1845, when a Swiss immigrant launched a carriage-making company and then sold a billiard table. I used to be known for my strong position in the bowling business, and I was a player in fitness machines as well. But I’ve shed those in order to focus on things that float. Based in Mettawa, Ill., and with a market value recently near $4.6 billion, I’m a leader in boats, marine engines, parts and related services. My offerings bear brand names such as Mercury Marine, SmartCraft, MotorGuide, Boston Whaler and Sea Ray.
Who am I?
Last week’s trivia answer: W.W. Grainger