Tuesday, October 18, 2016

Earnings - IBM & PM

International Business Machines(IBM) reported Q3 results with EPS(GAAP) of $2.98 on revenues of $19.2 billion. Overall Strategic Imperatives Revenues were up 16% YoY, and now represent 40% of company revenues. I was looking to see how revenues in their Watson unit would be this quarter. I must say I'm a little disappointed as Cognitive Solutions revenue only grew by 4.5%, although cloud sales within that segment grew by 75% which is a small bright spot.  It's clear the transition the company is unfolding can't still quite keep up with their declines in other former core areas. I'm still pleased overall with the results as they continue to make strong gains in areas that are pertinent for future success. The shares are taking it on the chin today trading as low as $147. Here is what the CEO had to say.

"IBM's third-quarter performance, led by continued double-digit growth in our strategic imperatives, is a testament to our leadership in cognitive solutions and cloud," said Ginni Rometty, IBM chairman, president and chief executive officer. "Our ability to apply deep expertise and breakthrough technology, led by Watson and the IBM Cloud, to massive amounts of data is enabling us to build new markets and transform industries. Whether it is banks implementing IBM blockchain solutions, hospitals leveraging Watson to fight cancer, or retailers using cognitive apps built on the IBM Cloud to transform the customer experience, clients across all industries are tapping into a new kind of innovation value from IBM."

Phillip Morris Intl(PM) reported Q3 results with adjusted EPS of $1.25 on revenues of $19.9 billion.  The company did increase it's dividend by 2.0% during the quarter to $4.16/share. The company also reported a nice increase in it's reduced risk IQOS HeatStick category as volume expanded to 2.1 billion units from 278 million YoY. The downside is it's cannibalizing it's traditional cigarette volume. The shares are trading slightly up with a 0.5% gain. Here is what the CEO had to say. 
“Our adjusted diluted EPS in the quarter increased by 4.0%, excluding currency, in line with our expectations," said AndrĂ© Calantzopoulos, Chief Executive Officer. We are confident that we will achieve our full-year reported diluted EPS forecast. We continue to anticipate annual volume in line with the September year-to-date decline of 3.9%, despite temporary volume weakness this quarter. We are particularly encouraged by the strong performance of iQOS across all of its launch geographies, particularly in Japan where HeatSticks recorded a quarterly share of 3.5%."

Saturday, October 15, 2016

TLH Weekly Review 10/14/16

"It ain't over til it's over"  Anonymous

It seems the party is over. No I'm not talking about Hilary Clinton and the damning WikiLeak email release. Though it is quite entertaining to see all the dirt come out on her. The next debate will be all the more unpredictable, and that is probably one of the few guarantees in life.

I'm talking about the interest rate plays that were favorites among investors for so long.  I should be more specific though. The party isn't completely over for Real Estate(+1.2%), Utilities(1.3%), Telecom(0.7%), and Consumer Staples(0.4%) as each sector showed decent gains this week as investors snapped up shares as dividend yields have risen during the fall.  Still these sectors are amongst the hardest hit so far as the poster children for stocks that fall when rates rise.

Visit StockCharts.com to see more great charts.

Just in case you weren't sure the Fed was going to raise rates it was made clear in the September FOMC minutes release.  Everyone is expecting the next hike to come in December and I agree here.  It just makes sense, and we can all breath a sigh of relief that it's finally over when it does come.

Financials such as bank stocks have seen a boost, and continue to be a leader in a higher rate environment. We did get earnings from WFC, JPM, and C this week. The biggest news in my opinion came from Stumpf's resignation from Wells Fargo.  That was for sure a necessary step as he was in charge during the massive defrauding of customers. Each banks earnings were well received by the market for the mot part. 

Speaking of earnings next week Q3 earnings start to hit full throttle. The portfolio will have a few names reporting including IBM, and PM.  I'll be eagerly looking to see how the turnaround at IBM is going.  I think the worst is behind us for the stock. I've also noticed they are heavily advertising their Watson program. Hopefully the spending on is paying off. That's what I'd like to see.

Gold and Silver continue to lag. The strong dollar I think will continue to be a headwind for the metals.  A lot of people go crazy over this market. Not sure why.  To me it makes sense to play it only if you are a trader, or holding to play a trend. If you're playing a trend I can see where it makes sense to hold for a few years, but considering there are no dividends or interest it's hard for big institutions  to be buyers. Visit StockCharts.com to see more great charts.

As for the portfolio there was some news. No earnings reports were received this week. Cognizant(CTSH) continues to claw back some of it's improper payment issue's loss.  That just goes to show you how many people hit the sell button now and ask questions later.  I guess I can't blame them.

Hershey's(HSY) CEO announced his resignation.  That's not much of an issue. This is a simple company to run.  Keep raw material costs low, and continue to sell sweet tasty treats for a decent profit. There has been some buzz about sugar sales taxes, such as the recent one in Chicago. I don't see that affecting food products as much as I do beverage products. That's a big factor why I was comfortable going ahead with a buy.  Either way the more I look at the company the happier I am that I added shares. 

Boston Beer(SAM) received a downgrade and that took a big bite out of shares. I'm hoping the worst is behind us after the next earnings report.  This stock unfairly represents a large portion of the portfolio due it's high share price so when it does get it's footing back I'm expecting the portfolio to do really well. Make no mistake this is a well run company. 

The I-Shares Biotech ETF(IBB) took some lumps as Illumina issued some bad revenue news.  That sent the ETF down 6.3% for the week. Ouch!  I've definitely got my work cut out for me the rest of the year. 

The portfolio was doing a nice job outperforming SPY for awhile, and it's taking a breather now.  I'm confident once a few sectors prop back up we'll be right back on track.  Once SAM, IBB, and the tobacco names regain some footing I expect the portfolio to leap ahead.


The Long Haul Investor

Friday, October 14, 2016

Retail Sales Rise

Today we received a pretty decent Retail Sales Report from the Census Bureau. The report cited sales were up 0.6% in September from August, and up 2.2% from September 2015 to September 2016.

There were some interesting trends we can see in greater detail from this report. Here is an excerpt from IBD

The retail sales report reflected and shed light on evolving industry dynamics.

Auto sales hit the gas in September, rising to a 17.76 million annual rate from

Wednesday, October 12, 2016

Twitter Back to Reality

I'm not sure what it feels like to be an employee of Twitter(TWTR), but it must be dis-heartening. You have a cool little piece of technology with millions of loyal users(The Long Haul Investor included). Yet the company struggles to make profits, and gain traction. Then when it turns out no one is even interested in buying the company that must feel like the bottom falls out of your efforts. 

I think long term the platform Twitter has created really has a  ton of untapped potential.  You can now live stream NFL Football games, and the Presidential Debates.  It's also turning into

Saturday, October 8, 2016

TLH Weekly Review - 10/8/16

It was a busy week for sure with plenty of data and mischief afoot in the market.  It appears for sure the market is preparing for a rate hike. According to the CME Group participants are expecting 65% chances the Fed will raise rates in December.  And this time market internals are really displaying that probability.

For one Gold has taken it on the chin this week. The "yella" metal  dropped roughly 5% making it one of the worst weekly losses in years.

Gold fluctuates on a few things.

Happy Anniversary!

Actually it was the blogs 1 Year Anniversary yesterday, but I'm human and had a lot of personal obligations this week so I forgot myself to put up a post about it. We could debate the first day as I started tracking on October 7, but didn't post an article until October 9. So maybe posting this on the 8th is a compromise I guess.

Here are some of my favorite articles from the last year.

Is That a Conflict?


Sell Your Stocks!

The Self Driving Investment

Rough Tides Ahead? 

Monday, October 3, 2016

Portfolio Results - Q3

What a wild end we've had to Q3 this year. July and August were very mundane. They were so boring in fact many people wondered what happened to the markets.  Then right after Labor Day, and seemingly on cue, the markets started springing back to life, but not always in the way we enjoy. You can view the Google spreadsheet here

I had mentioned last week I was concerned the portfolio would probably not outperform the benchmark S&P 500 ETF SPY for the quarter. A few reasons being the sudden down move in Cognizant Technology Solutions, headwinds from tobacco stocks lagging, and Boston Beer representing such a large portion of the portfolio on a weighted basis.

Since the portfolio was started

Saturday, October 1, 2016

TLH Weekly Review 10/1/2016

Well it's the end of another quarter. Crazy to think this year is 3/4 done, and in a few days this site turns 1 year old. I'm busy getting everything together for the portfolio results which I'll put out on Monday morning.

The week was filled with some important economic reports, bank talk, and rate hike expectations. Let's start with the latter. Rate hike expectations for December actually rose this week(mostly Friday) to 61.7% up from last weeks 54.2%. That's really solid odds right now especially compared to the historical odds we've seen for most meetings.  There was even some rumbling about the Fed looking to buy stocks like the BOJ is.

Friday, September 30, 2016

Cognizant Drops on Payment Investigation

Of course we had great news this morning with earnings from COST & MKC, but we don't live in a perfect world. This morning it was announced by Cognizant(CTSH that it discovered possibly improper payments regarding facilities in India. President Gordon Coburn has resigned on the issue. Here is a write-up from Reuters. The company had voluntarily notified the DOJ and SEC.

Costco & McCormick Earnings

In the last 24 hours we received good earnings from two picks - Costco(COST) and McCormick(MKC).

Costco reported it's fiscal year 2016 Q4 and 52 week results last night. Diluted EPS came in at $1.77 on revenues of $36.5 billion. For the year the company reported EPS of $5.33 on revenues of $116 billion. The company is trading at a premium with a trailing PE of 28. Total sales for the year were up 2% while EPS was actually down $0.04 from $5.37 in 2015. The stock is currently up 4%

Thursday, September 29, 2016

Economic Data - GDP, Durable Goods, Consumer Confidence

There was a slew of economic data out this week that I haven't covered. Most recently we received the 3rd estimate of Q2 GDP, Durable Goods, and Consumer Confidence to name a few.

If you are not aware GDP estimates are routinely revised months later as new data comes in, and is re-analyzed. Today we received the third estimate of Q2 GDP.  It was reported instead of 1.1% growth, we actually had 1.4% growth from April-June 2016.

Equal Weight/Market Cap Comparison

Here is a chart depicting the S&P 500 Equal Weight Index versus the S&P 500. Since roughly 2003 the equal weight index(SPXEW) was outperforming it's market cap cousin the S&P 500. SPXEW's gains were outpacing SPX to the tune of 30% in 2010-2011. As recently as 2014 the gain was still close to 10%. Strangely though in 2015 that lead started to dissipate rapidly.

Visit StockCharts.com to see more great charts.

Here is a closer look from the last 3 years. We can start to see the market cap weighted index started to take the lead in 2015.  They are really neck and neck for the most part, with just a slight edge towards the S&P 500(SPX). The only thing I can think of is this has to do with market participants gravitating towards larger constituents the last couple years as uncertainty persists. That would put the equal weight index at a disadvantage as bigger names have less pull.

Visit StockCharts.com to see more great charts.

Wednesday, September 28, 2016

Kissing The Portfolio with Hersheys

I don't think this is a company that needs much mentioning.  Started by Milton S. Hershey over 122 years ago, the company has become one of the worlds premier confection and snack companies. Although technically Hershey as we know it today was formed in 1927. Located in Hershey, PA the company has been churning out sweet treats loved for generations by people all over the world.  Some of it's iconic brands include Hershey's Milk Chocolate, Hershey's Kisses, Almond Joy, Reese's, and Twizzlers. For more history on the company and Milton S. Hershey click here.

There is a lot to like about Hershey in this current environment. For one it is clearly a takeover target. In fact Nestle, Cadbury, and William Wrigley Jr. Co all have tried to purchase the the company before Mondelez's failed bid. Not that I'm buying the shares for that reason, but it's good to know any buyout is likely to come at $125 or higher which from my entry at $94.86 would be a 37% gain.  The solid dividend growth, and brand recognition is coming at a decent price when plenty of other high quality names are trading at even higher premiums.  I really wanted to wait until $90, and maybe I should have, but the stock looked oversold enough to me that I felt comfortable committing funds at this price level.  I didn't want to miss buying by a buck or less to only see the stock head higher(which recently happened to me with DEO).

There are concerns. Consumers are slowly cutting back on sugary foods.  But candy, which is what the company is known for, isn't under the same attack as their big soda counterparts. Candy is still considered a special treat. I highlighted that earlier this month when I first noted I had my eye on  Hershey(HSY). I think the company is aware of this problem, and is likely the catalyst behind it's expansion into China(which isn't going as planned), and it's move into the snack jerky category with it's Krave acquisition.  I do like how the company still gets around 85% of it's sales from North America. That will keep currency effects less of an issue, and I see it as a plus in this environment.

Revenues at the company have been flat the last 3 years. Yet the longer term view shows a much different picture. Since 2005 when revenues were $4.8 billion they have increased 53% over the last 10 years, or on average 4.36%/yr.  Not exactly blockbuster growth, but steady.  Net income has done pretty well too. The exception is 2015 when net income came in at $512 million. Much of the decline is due to non-cash impairment charges related to the goodwill write-down of it's Chinese operations, and cost cutting initiatives. Adding those two items back in would have net income back at $862 million. Still the numbers are the numbers, but I think these impairments are temporary and we should see net income rise back to it's normal path.  For the past 10 years the company has been sporting a profit margin of 9% on average which is really good for a food company.
The dividend growth has also been outstanding. The 5 and 10 year growth rate come in at 10.17% and 8.08% respectively.  based on the 10yr growth rate the company doubles it's dividend every 8 years. Also I like the trajectory of shares outstanding. Since 2005 shares have been reduced from 178 million to 155 million in 2015. The company continues to buyback shares to offset dilution, and then some.  That means each share is getting larger pieces of net income as years pass. The payout ratio is currently really high, but I see it as a transient issue. The 10 year historical payout ratio is 66%. So it's at the high end, and I don't see much growth coming from an increasing payout percentage.

The balance sheet is good, but I wouldn't call it great.  The current ratio is at a low 0.68, and when I back out goodwill and intangibles and divide it buy total liabilities I get 0.98. On the last one I prefer to see a higher number from my companies such as with MasterCard, Cummins, or Boston Beer. Still it's within an acceptable range and the company has a good track record of managing it's balance sheet.

The company has also managed to record an average ROA the last five years of 13.35%. The average ROI for the last 5 years comes in at 19.96%. Both are respectable numbers and what I'd expect from a blue-chip type company.


Overall I'm pleased with adding this pick to the portfolio. Adding Hershey's to the portfolio gives me 29 total picks. Since last October I've added CHD, COST, DEO, EMR, GPN, IBB, MA, PX, SAM, V, UVV, and now HSY. That's 12 total additions in about a year. I'd like no more than 30 stocks in The Long Haul Portfolio, and I feel comfortable with where it's at. Of course we are still on track to lose WWAV at the end of the year so we should start 2016 with 28 picks.

Thursday, September 22, 2016

Yellen Comment

I wanted to get this out yesterday, but I actually forgot to hit the "publish" button. Yeah I know embarrassing.

I was listening to Janet Yellen's press conference to see if she gave any additional clues to interest rates. The reason is some of the names I'm looking at are rate sensitive. Sorry I can't let you know about each pick I'm eyeing!! It would ruin the surprise! Either way remember a few weeks ago in a weekly review when I talked about the central bank having no clue?

Well, Yellen just reinforced the reason why you can't put to much faith or credibility in any central bank. Here is her actual comment.

“I can assure you that any specific projections I write down will turn out to be wrong, perhaps markedly so.” – Janet Yellen

Yep there it is clear as day. Central bankers actually have no clue just like most of us. They are playing a guessing game, and use the data the best they can to guide decisions. Furthermore while they are currently projecting the economy to grow mildly around 2%, in theory they could be way off. Growth could skyrocket to 5% or crash to -5%. Their response would be - "Well we did our best". That'd be it.

Just some food for thought on this first day of Autumn. Enjoy the change in seasons! 

Wednesday, September 21, 2016

No Rate Hike

Ok we can all breathe a sigh of relief now that this is behind us.  We focus on the long term here at The Long Haul so a small rate hike is really not a ton to worry about, although it must be monitored. Here is the Fed's policy statement.

Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid, on average. Household spending has been growing strongly but business fixed investment has remained soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action were: Esther L. George, Loretta J. Mester, and Eric Rosengren, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.