Tuesday, December 29, 2015

Adding VGR

I decided to add shares of Vector Group Ltd(VGR) on 12/28/15. Remember you can follow at @LngHaulInvestor.

When I looked at the portfolio weighting in the revised spreadsheet I noticed that the pick represented less than 1% of the portfolio. While it is a smaller market cap company compared to some of the big names on the list, I felt the stock should have a bit more weighting overall. Additionally I'm not feeling 100% comfortable with the economic outlook at this time and tobacco stocks have historically provided relative safety.  I expect equities to continue rising, although not straight up, I feel the continuing worldwide events and falling commodity prices have yet to fully play out for investors so I want to add to safe stocks.

My guess is that for 2016 the dividend is raised to .41-.42. Also remember that the company has been paying a yearly 5% stock dividend. That is usually done in September and investors will need to take note of it for yearly income tax reporting.  You can access more information on the companies website.   That gives us a total dividend of around 11.75%. It's not easy finding that kind of return on dividends alone in any security. I think this one is safe enough for the portfolio.

Is the solar industry turning around?

The political news event in Paris a few weeks ago apparently had some major implications for the solar industry. As you may have heard politicians signed an agreement on curbing greenhouse gas emissions and controlling global warming. We won't get into detail about the science behind it which seems to have plenty of research on both sides of the fence, so for now we'll say its inconclusive.

Not to long after Congress included in its budget bill a 5 year extension of the Investment Tax Credit. As of now it appears the solar utility stocks will benefit the most.  They also shot up quite incredibly on the news the last couple weeks.  I think the solar industry overall has plenty of untapped potential as the human imagination works to make it more feasible and cost effective. Either way it's events like this that must be watched as they have profound impacts on stocks. Anything involving energy is definitely going to stand the test of time as humans have acquired an insatiable need for energy since the industrial revolution.

I think for now solar stocks might have put a bottom in. A lot can change within 5 years when the tax credit expires again. For all we know a huge breakthrough could be made in the solar industry, or another one for that matter. Remember there are plenty of people vying to quench our energy thirst.

Friday, December 18, 2015

Portfolio housekeeping and BTI addition

I've been thinking of ways to make everything better around here.  I have made some changes to the portfolio tracking spreadsheet. I'll details those changes below. I'm also looking at ways to create a better blog layout as the current one is pretty blah. I'm not the most tech savvy person so it's a work in progress.

If you have checked out the portfolio's google doc spreadsheet the past few weeks you would have noticed it was pretty basic. I've updated so that each addition I make is to be considered as if I added one share. This will make it possible to calculate a portfolio weighting of each individual holding. I felt this is fair and more transparent since in the real world a fund manager is subjected to the same scrutiny.  I'm also including tracking of the SPY ETF which I feel is representative as the primary channel retail investors participate in the S&P 500. Now we can see the results of the portfolio over time versus the SPY. I hope to beat the SPY, but considering many people smarter than me with more resources struggle to I realize it's an uphill battle. I'll calculate the portfolio returns for the end of the year and continue to do so quarterly. It's not important to update it daily as these are meant to be long term holds. I'm also going to calculate an unweighted return for the portfolio just to see how the individual picks and their respective timing perform.  I believe this will be useful information.

There is a dividend column which represents the amount of dividends received per share as stated in the companies official dividend declaration.  Actual cash dividends from overseas based companies will be different for people in other countries depending on their currency so this is a more transparent representation. For example the portfolio received a dividend from BUD at a declared rate of $1.77 but after conversion to USD it came to 1.709/share. The dividends will be used to calculate an overall return.  So if I have 2 shares in a company and receive a $.50/share dividend the total dividend received will be $1.00.

I'm also adding a spreadsheet with the reported earnings of each company. It will be a work in progress but will allow us to create a long term view of how the company has increased earnings over time.  As time goes on it will give us a quick view to a companies earning history.


I added to BTI the other day as I feel any price under $115 is a decent value for the company. Plus I love tobacco stocks. I could care less that fewer people smoke every year. This industry will continue to buy back shares thus increasing our share of earnings. Also current industry players are well insulated from competition due to government regulations which make it a unique investing opportunity.  I want to own the companies with the best profit margins and highest dividends in this sector.

That's all for now. Feel free to follow on Twitter when you can see during the day when an add is being made to the portfolio as I don't always put up a post the day of. I'm working on getting a feed directly onto the blog which should be cool to see. You can follow at @LngHaulInvestor.  Thank you for stopping by. Have a great weekend!

Wednesday, December 16, 2015

Fed Rate Hike Decision

There has been an awful lot of talk regarding Janet Yellen and the FOMC meeting this week. To me it's pointless.  The Fed made it clear throughout the fall that rates would be hiked in December.

What it means for out portfolio is also quite meaningless.  Years from now it will not matter what the Fed decided to do. Our companies will continue to work hard making more money for us the entire time while we sit back.  Oh how I love investing!

If it really mattered Goldman Sachs wouldn't have upgraded Visa  to their conviction buy list yesterday. Or MasterCard wouldn't have raised it's dividend and announced a bigger share buyback.  Or how about Altria which is one of my favorite holdings. I think after today people will still be buying cigarettes, and many smokers will not even have a clue as to what the Fed is doing today.

So go on about your day like normal.  Stocks will continue to go up(albeit not in a straight line) since capital will continue to flow into the USD and spill over into equities. When the next inevitable recession comes we will be at the ready to buy some companies at insanely cheap prices.

Cheers!

The Long Haul Investor

Monday, December 14, 2015

Ringing the register with MasterCard

Lost in the noise of the falling market this week was news that MasterCard Inc. decided to raise it's dividend 19%, and initiate a new $4 billion share buyback program. With that in mind I decided to finally add shares in one of the worlds leading payment processors and solutions provider.

I love getting a pay raise. Especially one that is way higher than just about any employer would give me on a yearly basis. MasterCard has been paying a dividend since 2006 and it's been generous with raising it ever since.  The company has averaged a 56% yearly gain in pay raises to investors since the dividend began.  While the overall yield is a little low the payout ratio has averaged between 15-22% in recent quarters leaving plenty of room for growth. Personally I see the company targeting a 30-40% payout ratio in the next 3-6 years.

Other things to love about the company is it's operating margin that comes in at 53%, and a net income profit margin of 39%. That's very close to it's peer Visa Inc. Additionally I love the balance sheet. The company has a current ratio of 1.58 and when I subtract Goodwill and Intangibles from Assets against Liabilities I calculate a ratio of 1.41. The higher the ratios the better the company is at managing it's debt and cash. Did I mention this is a Warren Buffet holding also?

MasterCard has been around since 1966 and it has come a long way since then.  MasterCard is benefiting from the same trends as Visa and American Express.  Societies around the world are slowly moving towards less cash within the economic system. No doubt the move is highly touted by the companies as it means more profits and deeper entrenchment into our daily lives. It's my belief that this trend is here to stay and MasterCard has built a dominate position it should easily be able to defend. I added the shares on December 11, 2015.  If you follow on Twitter you can get my updates during the day when I decide to add a security to the portfolio @LngHaulInvestor

Saturday, December 12, 2015

Adding Church & Dwight

I decided to finally add Church and Dwight to the portfolio.  With the market being shaky I want more exposure to sturdy consumer staples. I believe if a recession were to hit in the next 6-18 months stocks of this type will hold up better as big money parks their cash in these assets to ride out the storm. Church and Dwight was founded in 1846 as a baking soda sales company, but now also sells personal care and household products. The company controls the Arm&Hammer brand which is recognized throughout the US.  Additional brands include Trojan, Nair, Oxiclean, and Vitafusion to name a few.  These brands are well known recognized names which continue to generate a lot of cash for shareholders.

The company has provided outstanding results to shareholders the last decade. The stock is up over 355% the last ten years compared to the 57% gain in the S&P 500. This doesn't include dividends which averaged 13% yearly growth over that time, and have shown an actual increase of 466%! Pretty outstanding results. If you are a dividend growth investor(which we like to be as much as possible) that is one outstanding pay raise. While I'm not expecting dividends to grow that much in the next 10 years I expect the returns to be above average. The company pays out 35% of FCF so there is room to increase the dividend over time. The company also has a solid net income profit percentage with the last 3 years coming in right around 12%. The stock is trading on the expensive side as I calculate a total yield of 5.11%. However if I can buy shares at a good discount in the future I'll make additional adds to the portfolio. The company also sports impressive 20% operating margin, ROA of 10%, and ROE coming in at 19%.

The balance sheet is also good. This enables the company to borrow at favorable rates with its highest coupon debt coming in at 3.35%(due 12/15), and the next highest at 2.875%(due 10/22). Additionally the company values it's trade names at $860 million.  If we take all intangible assets & goodwill from the balance sheet that leaves $1.58 billion in assets. It also gives us a ratio of .73 for assets minus goodwill & intangibles divided by total liabilities.  While that ratio is low compared to say WFM which sports a ratio of 2.51, it is not out of line for companies that have valuable brand assets.

Management has also stated the company is continuously looking for strategic acquisitions that provide outstanding return.  The company has so far proven to be very reliable in its acquisitions providing value to shareholders.  In the future I believe the company will provide a good source of stable profits and dividends as consumers generally don't cut back as much on these products as say electronics in rough times. Church and Dwight has also shown how boring products can be immensely profitable.  The shares have been added effective 12/9/15




Monday, December 7, 2015

Adding COST and DEO

Shares of Costco Wholesale Corp and Diageo PLC have been added to the portfolio.  I have a quick synopsis of each below.

Costco Wholesale Corp(COST) -  Sadly I've been personally eyeing this stock when it was $100 a share. Just never pulled the trigger. I even watched it as it came back from the fall swoon.   Sigh. Well I'm proud to say its finally here to stay.

COST has delivered exceptional returns to shareholders.  First of all the company has increased its dividend the last 10 years at an average of 13%. That doesn't even include the special dividends its paid. The dividend has been increased by 248% the last ten years. That's an amazing pay raise if you are a dividend growth investor. The company has a ROE of 20%, ROA of 7%, and ROI of 13%. Very respectable measures across the board. The net income and operating percentages are 2.07% and 3.12% which are expected in this industry.  I'm not crazy about the total stock yield(EPS+Dividend) of 4.30% that I calculated. However when a stock starts hitting new highs before the market does I've learned from other stocks I followed it's a sign of a truly great stock that's destined to outpace the broader market.

Why is Costco worthy of standing the test of time? For one it offers a unique shopping experience all while competing in one of the most competitive landscapes. You can't order bulk sizes of many products it sells online from competitors or at other local stores.  They are one of the largest sellers of organic food.  You have to pay them to even shop at their locations.  Plus a large chunk of their transactions are processed with cash or debit cards which reduces their transaction costs compared to other retailers.  Their online shopping allows members to realize big savings with modern convenience.

Diageo PLC (DEO) - I've been eyeing alcohol stocks lately and I'm pleased with the addition of DEO at this level. The stocks sports a current yield of 3.70%, and has grown an average of 4.80% for the ADR shares the last ten years. Management has stated its committed to raising the dividend mid-single digits as they've hit the outer limits for their payout ratio. So I'm not expecting any 10%+ dividend raises anytime soon. What I like most is the last three years net income profit percentage is over 20%. Basically for every dollar in revenue twenty cents falls right to investors pockets. Not many companies can boast that kind of return.   The stock offers a total yield of 8.68% which is in the range I prefer.

Why would we own this company? The company has a 26% share of the global spirit market and owns some of the worlds premier whisky and scotch brands. The company owns Guinness beer which has only been around since 1759. Also the company took full control over the Don Julio Tequila brand this year. Tequila has been one of the strongest growing spirits the last few years and the company recognizes it's potential.  I have tried many of their products over the years and a couple of their brands are my personal favorites. My hope is the stock will become a personal favorite also!

I'll be on the lookout to make additional buys if the prices drop far enough for either stock. Offer up any comments or thoughts. It's always great to see what others are thinking. Also follow on Twitter at @LngHaulInvestor.

Thursday, December 3, 2015

Market Peculiarities

It's always amazed me how some individual stocks act in regards to the overall market behavior. Even though the market has just corrected and subsequently climbed back towards the highs set over the summer there are some great companies with completely divergent paths.

For example Whole Foods(WFM) and Costco(COST) have completely divergent charts right now despite having one big similarity. They are the nations two largest sellers of organic food. Yet one has been trading near yearly lows while the other is sitting at fresh all time highs. I'm an ardent fan and customer of both companies.

Or in the payment processing space there is American Express(AXP) and Global Payments(GPN). Both serve the purpose of facilitating financial transaction processing for customers and merchants. While you may never know you're using Global Payments or an American Express network at checkout, you will know when you're using an American Express card.

Sometimes good companies get taken to the woodshed. Which is what provides smart investors a great buying opportunity.  Other times they can become over valued which is what we must be careful of when investing.


Wednesday, November 18, 2015

Adding to IBM

It was reported on Berkshire Hathaway's 13F filing that Warren Buffet added 1.53 million shares since June. That makes Big Blue one of his Top 5 holdings.  I added to the position yesterday based on that information, and the stock is in oversold territory on the weekly chart. Plus with the stock yielding near 4% at this level investors are getting paid to wait this one out. IBM's Watson system is going to be a game changer and they've only began to realize it's potential. I think at this price level we have a lot of bad news baked in until revenues start to turn.  IBM was showing solid percentage gains on it's strategic imperatives according to their last earnings report. I think the tide will be turning for Big Blue in late 2016 or 2017.

Friday, November 13, 2015

Portfolio Adds

I apologize for the brevity of this post and lack of activity the last week as I've been busy.  Today I added to HAIN, RAI, MO, WAB, and MKC.  I'll have a bit more detail in another post and I'll make sure to update the spreadsheet over the next couple days. I'll usually update any adds that are made during the day on twitter. You can follow me via LngHaulInvestor.  


**Update** 11/15/15

Here is why I added to each of the positions. 

HAIN - After the company reported earnings on November 5th the stock has been hitting new lows for the year. The stock last traded close to this price in August 2014 so it's sitting near support in the $40 area. It's oversold on the weekly and daily charts which generally means the stock is likely at a near term bottom. I incorporate technical analysis into my purchase decisions and I always prefer to buy a stock when its been down rather than up. I listed to the conference call and management cited some growing competition, and a slowdown in the natural business at grocery stores(meaning slower sales growth). While I think the company is no longer going to experience heady 20% plus revenue growth as it was in prior years consumers are still gravitating toward healthier brands. While it is entirely possible for the stock to head lower I think this represents a good entry point for those with a long term view(or forever if possible). If the stock gets even cheaper I'll consider adding more at that time. 

MO - No change in the business at all here. The stock has simply revisited it's 50 day SMA line and I thought it would be a good time to add after the recent run up. 

MKC - Pretty simple here too. The stock is trading around it's 50 day SMA so I decided to make an add. The stock has held up very well through the volatility of the last few months. A sign of a truly great stock. MKC doesn't always offer up opportunities to buy shares at a substantial discount so I take what it gives me.

RAI - Similar to MO as the stock trades near it's 50 day. I personally expect RAI to perform a bit better than the other tobacco holdings this year. Then again so do a lot of people after the Lorillard acquisition.

WAB - This one has been a heart breaker. WAB has been one of the best stocks the last decade. While there is nothing wrong with the company I think the march down is representative of the slowing global economy. Thus less freight train movement. The stock is at oversold levels on the daily and weekly charts thus making it a good opportunity for an add in my opinion.

For anyone new to technical analysis you can go to www.stockcharts.com to use their free charts. They offer a very simple layout that lets you customize certain aspects. While not the best overall, it's a great start for beginners. I still use it myself to check charts periodically. It will give you a basic idea of when a stock is at overbought/oversold levels.

That's it for now. I'm on the lookout for making some completely new additions to the portfolio. Just waiting for the right price at this point.

Thursday, November 5, 2015

Facebook Crushes Earnings

Yesterday Facebook Inc. (FB) reported earnings. You can read the earnigns report here.

The company is blowing it out on revenues as they increased by 40.6% from the same quarter a year ago. The company has still seen solid increases in daily and monthly active users.  Despite the company spending aggressively they managed to increase their cash position to $15.3 billion, which is up from $14.1 billion in the previous quarter. The company has an awesome balance sheet no doubt. I think a big reason the shares are up is the company has announced it's plan to aggressively monetize it's Instagram App. That will help drive revenue growth into the next year at least.

On a Non-GAAP diluted basis the company has earned $2.03/share the last year. Using GAAP diluted results the company has earned $0.99/share. Quite the difference between the two formats. I'm a proponent of GAAP results over Non-GAAP. Using GAAP results that gives the company a P/E over 108. While not always the best barometer of a stock price the current P/E ratio is extremely high. I like the inverse which translates into an earnings yield per share. For each share you own you can expect a 0.92% return from earnings. Comparing this to another one of our picks, Cummins Inc, where both trade at roughly the same price plus you get a near 9% yield from earnings. This is the way I look at it. If I was going to start my own business would I expect to get 1% at the end of the year, or 9% from my money?

That's the downside as FB is trading at an extremely high premium. Today the company is now worth over $300 billion dollars. This puts Facebook right up there with the likes of Berkshire Hathaway, Exxon Mobil, Apple, Wells Fargo, and Microsoft. That's one reason why I'm not adding to the shares as I have been with other companies on the list after earnings. The stock is quite expensive at this point. Yet the company has an extreme competitive advantage that is clearly paying off. Advertisers are flocking to the site left and right as their ROI is huge. FB is still a great hold for the long haul, but if you were looking to add shares to your personal portfolio this price level presents more risk than it did a few weeks ago when shares were trading in the $80-$90 area. While growth stocks represent the greatest capital appreciation opportunities they also offer investors the quickest downturns.

Wednesday, November 4, 2015

CTSH Earnings

Cognizant reported nice results today.  Here is what the CEO had to say.

"We experienced another quarter of strong performance, building on our solid momentum in the first half of the year with continued broad-based demand across key industries and geographies we serve," said Francisco D'Souza, Chief Executive Officer of Cognizant. "As clients worldwide shift spending toward investments that drive innovation and growth in the digital era, our portfolio of services is well positioned to meet their needs and capture a disproportionate share of the market."
"Our third quarter results, and increased guidance for the full year, clearly demonstrate that clients are turning to Cognizant to help them transition into digital enterprises while optimizing their traditional investments in technology and business processes," said Gordon Coburn, President. "Large scale business transformations require a partner that brings a consultative approach to client engagement -- combining deep domain knowledge, understanding of clients' legacy systems, expertise in digital design and technologies, and ability to scale at an enterprise level. These are areas where we have invested significantly and have critical competitive differentiation to meet the changing demands of clients in a new digital world."
Exactly what you want to hear on a report like this. Cognizant's competitive advantage is the knowledge of employees, and ability to execute at a high level. GAAP diluted EPS came in at $.65, and non GAAP diluted EPS came in at $.76. I'll make another add to the portfolio today and that should be good for awhile. 

Tuesday, November 3, 2015

Adding to Cognizant Technology Solutions

I'm adding to Cognizant Technology Solutions Corp. (CTSH) today just ahead of the earnings report. I'll look to add after earnings if the price is still right.

Monday, November 2, 2015

Update V & PYPL

Visa reported earnings today and announced they will acquire Visa Europe.  You can find the press release here. I'm not terribly excited about the acquisition.  I think at a time when currency headwinds from the strong dollar are hitting sales it does not seem prudent to increase your risk in that area. Plus the company noted about 37% of the European economy was still transacting via cash & check. I'm fairly confident Visa will not gobble up the remaining 37%. That doesn't leave a considerable amount of room for growth at this point in my opinion  Also with the civil unrest caused by the current immigration issues it seems the European economy will not exactly be smooth the next few years. Either way we think "long haul" here so hopefully this will be very good for the stock in the future.  Here is what the CEO had to say on the earnings release.

“Visa’s fiscal fourth quarter was a strong finish to an equally strong fiscal full-year 2015 in terms of revenue and earnings per share growth in the face of a continued challenging global economic environment. The underlying growth of our franchise continued as evidenced by our strong payments volumes as well as new and renewed partnerships during the year. Most importantly, we continued to build our capabilities at the physical point-of-sale as well as in the digital space,” said Charlie Scharf, Chief Executive Officer of Visa Inc. “Although fiscal 2016 reported growth rates will be negatively impacted by a strong US dollar and an uneven global economy, we are well positioned for strong success in 2017 and well beyond.” 

Paypal also issued results last week. The stock had dropped initially but has climbed its way back up since then.  Growth is much stronger at PYPL than V right now. This was PYPL's first report since separating from Ebay. Here is what the CEO had to say.

“PayPal is entirely focused on digital payments and transforming money for people around the world. This clear focus and our strong value proposition allowed us to deliver strong financial results in the third quarter,” said Dan Schulman, President and CEO of PayPal. “We are operating in a time when change is sweeping through the financial services industry driven by the rise of mobile technology and the acceleration of money becoming digital. These two massive trends play directly to our strengths and we are leveraging this transformation to extend and accelerate our lead.”


Update Cummins Inc

On October 27 Cummins reported Q3 results. The big issues were noted in the company's foreign markets. Most notably Brazil and China. No doubt these two economies had been struggling based off recent headlines so it was only a matter of time before it showed up in the results. On the bright side North American sales continued hold up.  I think when the cycle reverses Cummins will be nicely positioned overseas to capitalize on economic improvements. I think management was keen to get most of the bad news out of the way now instead of letting it slowly leak out over the next few months.

The company reported EPS of 2.14/share coupled with a move to cut up to 2,000 jobs. While I never like to see a company layoff workers it appears from the conference call the job cuts will not be isolated to one segment of the business. The company noted it will be making a lot of corporate job cuts(think selling and administrative), and looking at ways to reduce manufacturing head count.  Nothing was mentioned specifically about the engineering or R&D departments so it seems any damage to this area will be light. Cummins Inc has built a distinct technology advantage over its competitors. It was noted on the call that the company had no intentions of relinquishing that lead leaving it to compete more on price. Anyway I applaud management for taking a quick approach to cut costs and re-align based upon market conditions.

Management stated they don't believe a bottom is in yet in many of their markets. They previously thought they had already reached a bottom but were proven to be incorrect. There is obviously the potential for more downside in the business, but management had already noted its intention for forecasting no improvements for 2016. Assuming they are correct and business stays the exact same we can reach a couple of conclusions. First lets assume the dividend is frozen at $3.90/share. Also for the last 12 months the company has earned $9.46/share.  This would give us total earnings power per share of $13.36 for a total yield of 13.1%(13.36/102 share price).  If the business doesn't deteriorate any further we can reasonably expect our investment to earn us 13% on our money for the next year. If earnings go down to $8.50/share we can expect a total yield of 12.1%.  If EPS were to drop that much the shares would likely follow suit allowing an opportunity to buy shares even cheaper.  Additionally management seemed confident in the company cash flow prospects. There appears to be no plans to curtail stock buybacks, and I would expect another dividend increase in 2016 albeit at a much lower percentage increase compared to recent history.  As of now CMI yields 3.8%, and if we factor in an increase of 10% to the dividend(estimated $4.25-4.30/share) for next year that would give investors a yield of 4.1% for 2016 if the stock were at $102. That definitely makes the stock a friendly dividend pick to get paid while we wait for the business to turn around.

On a technical note when I take a look at a weekly chart the stock is near oversold levels. This makes the contrarian side of me believe the stock could be due for a short term bounce. So if you want to start a position I wouldn't go chasing the stock.  I'd make sure to keep buys below $110/share.

Tuesday, October 27, 2015

Revving up with Cummins Inc(CMI)

I'll be adding another buy of Cummins Inc(CMI) today as the company released earnings.  I'll get a summary out in a few days regarding the buy. While not pretty overall I think at this price level it offers a good entry point for long term investors. Coincidentally that's what we do here.

Friday, October 23, 2015

Update on IBM & P&G

Both IBM & Procter & Gamble both reported earnings this week.  I do not plan on going into specifics of each report. Instead I'll mention some noteworthy items.

Lets start with IBM

"In the third quarter we again made progress in the transformation of our business to higher value, with strong growth in our strategic imperatives and expanded operating margins,” said Ginni Rometty, IBM chairman, president and chief executive officer. "We are continuing to make significant investments to build platforms around analytics, cloud, mobility and security that lay the foundation for a new era of cognitive business -- where we see long-term value for our clients and shareholders."

In other words we are struggling right now with the business, but patience is needed as we continue our turnaround. The move into cloud, data analytics, and other services is proving much tougher than the company originally projected. Although I think they are making solid sales gains in the space. YTD strategic imperatives are up 20%.  Specifically cloud revenues are up 45% YTD and have reached $9.4 billion the trailing twelve months.  The cloud is going to be a big move. It's so big that Microsoft has decided to give away free upgrades to it's platform in hopes that users will want to migrate to its extra cloud services, and their sales-force has been heavily pushing it's cloud options onto business' of all sizes.  So unfortunately patience is warranted as it's a competitive field all around.

 The company re-affirmed it's full year non-GAAP guidance of $14.75-15.75. Back in Q1 the company had originally guided non-GAAP for $15.75-16.50. Obviously not good to miss your own numbers for the year. GAAP results are expected to come in at $13.25-14.25. I prefer GAAP results as it's less prone to financial maneuvering.  If today were January 1st, 2016 we would have a GAAP P/E(TTM) of around 11 based on the current stock price. Add in the dividend of $5.20/share and we have a total stock yield(5.20+13.25/145) of 12.7% as of today at the low end of GAAP guidance.  If we knew the turnaround was complete this could be a very nice entry point. I'm going to keep an eye on the technical's as they are close to oversold territory. The stock seems to be finding support around $140 too. However for a fundamental take I think it might be prudent to wait until the next quarter and guidance for 2016 comes out. If the stock continues to get cheaper I might make an add to the existing position.

P&G(PG) is another longtime dividend champion dealing with declining sales revenues. Although the market met results with an upbeat tempo as the stock popped higher today. Yet as a consumer staple it's not as important to dwell on revenue, but instead on margin and cash generation. GAAP operating profit came in at 22.8% vs 19.4% for the same quarter last year. Nice to see that improve from a quarter a year ago. Cash generation is also still big as the company had cash from operations to the tune of $3.5 billion. After taking out Capex we have FCF of $3 billion for the quarter. Based off the cash flow statement provided in the earnings release the payout ratio 62% from FCF, and 52% when compared to operating cash flow.

Personally I'd like to see the competitive pressures ease a bit more before adding to the position. Also the stock has had a nice move up since it's foray into the high 60's a couple months ago. Otherwise it's business as normal for this one. Unless WB sells his position I'm going to sit back and collect the dividends.

Have a nice weekend!

Wednesday, October 21, 2015

Buying plant power

Yesterday I added to the existing Whitewave position. I apologize for not getting this post finished sooner. The stock was downgraded by Goldman Sachs and you can see their synopsis here.  While a slowdown in growth is to be expected as the company gets larger I personally believe the sell off is a little over done.

Back in August the company reported Q3 results with guidance for adjusted EPS in the range of 1.14-1.17 for 2015. At yesterday closing price of 40.25 that gives the stock a P/E of 35.30 at the low end of guidance. The company has been expanding it's presence in China, and we know during the quarter the yuan was devalued by the PBOC. However during this time the Euro has stabilized and meandered around 1.10-1.15 most of the quarter. Slightly stronger than what was recorded in Q3. I think the net currency impact will be close to a wash. Hence possibly why Goldman Sachs didn't mention it.  Also Goldman Sachs noted only a slow down in North American sales as a reason for their downgrade. Nothing was noted about international sales which have been growing at a strong rate despite currency headwinds.

The balance sheet isn't exactly solid, but it's not shaky either. Here are a few ratios I check. Data is from the most recent quarter(mrq)

Current Ratio - 1.19
Total Assets/Total Liabilities - 1.49
Total Assets - Goodwill & Intangibles/Total Liabilities - .72

I like to see all the numbers above 1 at an absolute minimum. So with the last ratio under one we must keep watching to see the trend. The company has been on a buying spree the last few years so their Goodwill & Intangibles has increased quite a bit.  Personally I think their Vega acquisition was on the expensive side, but I'm hoping their analysis has found some value that maybe the numbers don't necessarily portray. I think if the acquisitions stop for the next 6-12 months it will allow the company time to steady the balance sheet and increase it's strength.

Furthermore if you look at a basic chart from stockcharts.com you can see the price action has put WWAV very close to oversold territory on both the weekly and daily chart.  That makes me think most of the selling is out of the stock for the near future.

Well that's about it for this one.  I'll update the portfolio as of yesterdays closing price.

Thursday, October 15, 2015

Is Wal-Mart still a great stock?

Wal-Mart shocked a lot of investors and analysts the other day when the CEO let everyone know profits could slip by 12% in its next fiscal year. The drop is attributable to its increased employment costs, moderate sales growth, and increased capital expenditures.

One item to note is that the company plans to only spend $900 million on e-commerce for FY 2016, and then $1.1 billion for FY 2017. Odd considering the company has previously cited Amazon and other retailers e-commerce platforms as a threat to the company. The press release can be found here. A plus side is that the company has decided to initiate another $20 billion in share repurchases over this time period. Let's do some quick math to estimate the share count reduction.

Shares Outstanding: 3.21 billion
Assumed average purchase price: $68

20bil/68= 294.1 million shares purchased
3.21bil-294.1mil = 2.91bil shares left
294.1mil/2.91bil shares = 10%

In other words the company is looking to purchase 10% of the outstanding shares even if the shares traded almost 10 points higher than they are today. Its important to note that only 1.37 billion shares are floating as the Walton Family still owns a large portion of the company.

Coupled with the fact that they expect to generate $80 billion in cash over the next 3 years($26.6 billion/year) there seems to be no anticipation of a downturn in Wal-Marts balance sheet. The company has also generated a dividend growth rate by my calculations of 12.5% the last 10 years. With some back of the envelop math that means the company might be paying about $7.5 billion for 2015, $8.5 billion in 2016, and $9.5 billion for 2017 in dividends each year. That would keep its payout ratio around 35% which is very close the current 34% payout ratio from operating cash flow. Of course dividend growth and cash generation could slow which investors will need to keep an eye on.

According to the guidance from the company worst case scenario is EPS comes in at $3.88 - $4.14 if we take a 12% reduction at both ends of next years guidance of $4.40-4.70. At worst that means Wal-Mart is currently trading at 15 times earnings for the rough years ahead. Not really overvalued in my opinion.

The overall situation bodes watching in the near term.  As of now almost all the bad news is getting priced into the stock. Watching the technicals will be key to see if the stock holds along any historical support lines.  It will be interesting to see if Warren Buffet dumps his shares in the next 13G filing. In the meantime I'm going to watch the stock for a potential add. Companies with $485 billion in annual revenue don't disappear very easily.

Tuesday, October 13, 2015

About The Portfolio

I personally own all the stocks in my portfolio.  I wouldn't put it online if I didn't think they were solid companies.  I decided to use the date I began putting everything together for this site as the starting prices for the companies.  This way we can track from a single point in time the performance of the holdings and any additions/subtractions that might be made.  My goal is to add to these holdings as time progresses. If I make an add to an existing holding I'll use the price I actually bought shares at.  For example if I subsequently make two more adds to a position I'd take the closing price from inception and the actual buy price on the two add days to create the average price.

The goal here is to rely on these securities as part of my own personal plan to reach financial independence. This will allow me to pursue other endeavors in life without the fear or stress of being put out on the street.  I think that a combination of saving a lot of money and investing wisely anyone can vastly change the outcome and situation in each of their lives. I do understand that the impossible could happen overnight throwing any tediously crafted plan out the window.

I don't believe in diversification really. Neither does Warren Buffett. He's been quoted saying "Diversification is protection against ignorance. It makes little sense if you know what you're doing." Although if you look at his current portfolio he clearly is spread across many sectors. I'm not claiming to be a genius by any means. I've made plenty of mistakes over my life already. You can see I own almost every major tobacco stock trading in the USA. They'll never go out of business. If the government wanted them gone they would have done it back in the late 90's. Instead they settled with this agreement.  I also plan on buying more companies in the sectors I already own because I believe these companies/industries have an advantage not afforded to others. I'm big on food companies too. It's no secret they are dependable companies as it's why they are referred to as "staples" or "defensive" stocks. But some companies in this sector offer advantages that others do not have. Of course they are subject to changing competitive landscapes. But great companies adapt and continue to succeed even more. I try to shy away from technology. Besides IBM & CTSH I'd consider CMI, V, PYPL, & WAB as tech companies too even if the standard definition doesn't include them.  In all reality every single company utilizes technology to some degree in ever facet of their operations and sales. The key is to find companies with the right technology and innovation that affords them a competitive advantage over others in their industry.

I'll post the odd thing or two about the market, interesting facts, or correlations.  So there should always be something interesting going on here. Thanks for stopping by. I'll continually look to update the site and make changes for the better as time goes on. So I apologize in advance for any hiccups that maybe encountered.

Friday, October 9, 2015

What is investing for the long haul?

The answer to the articles question will sound reasonable to many investors, and idiocy to others. When we choose to invest our money we have a plethora of choices. There are so many investment companies and their agents out there trying to hawk us the best fund, or financial product to invest in.  The reality is that these funds are just a basket of underlying securities already widely available to the average investor through just about every discount online broker. So we can choose to put our money with the sales person with a great sounding idea(plus a hefty commission). But when that person decides to jump ship when things go south your left holding the bag.  Doesn't sound like they were in it for the long haul for you. Or we can learn how to do it ourselves, and it doesn't require a finance or accounting degree(although that helps).

Here I'll strive to seek out individual securities and investment ideas that will be there for me through good times and bad.  These investments are in it for the long haul.   I'd think Warren Buffet said it best

“An investor should act as though he had a lifetime decision card with just twenty punches on it.“


“If you aren't thinking about owning a stock for ten years, don't even think about owning it for ten minutes.”

I'd say he's done very well for himself by identifying companies that are built to last almost indefinitely. Now that doesn't mean one of his most famous investments, Coca-Cola, will never go bankrupt. Instead we should try to understand that there are certain companies, some of which are very unexciting, that produce great products and extraordinary profits for their shareholders. By identifying and investing in these companies we'll build our own portfolio that we can use to reach financial independence, fund retirement, and even pass down to future generations. How is that possible? Through the dividends the majority of the these great companies pay each year to their shareholders.  Over time these dividends end up as a tidal wave of cash in our accounts.  

The approach here won't be extremely analytical.  I'll look to buy great companies at great prices, or in following WB's mantra to buy great companies at fair prices too.  I'll post an analysis on each investment highlighting some of the key factors I use when deciding to purchase a company. Not to much rocket science here, but it will include a fair dose of hard work and knowledge. Buys are intended to be held at least 10 years with the idea of owning the stocks forever. If the situation changes drastically on any investment then selling will be prudent if the need arises at any time.  

You might be wondering why we don't just invest in an index fund, which is all the rage. The thing is I personally have some of my holdings in the SPY index fund, but not a big portion. Of course I want a piece of the overall action, and the dividends that come with it. But why would I want to completely settle for the average returns of what is an actively managed portfolio with companies I feel don't stand the test of time.  Maybe I'd rather own Home Depot instead of Lowes, or have nothing to do with Petsmart, Genworth, or Red Hat*.  Now these are just examples, and some are well run companies. But the fact is the index funds might not even own some of the companies that I believe  will offer superior results over time. 

Now I'm not new to investing, it's been a passion of mine since I was 12. I've had plenty of successful  and unsuccessful choices. So I'm not perfect in any sense.  I currently own stocks that I think are solid companies with great future prospects.  As a way of tracking the results I'll have a shareable spreadsheet** from Google Docs that will list the price of the securities starting  as of the close on October 7, 2015. I'll give a quarterly update, and if there are any new buys I'll put up a post and update the sheet accordingly. 



Thanks for coming along for the ride, or should I say "The Long Haul!"

* Based upon the link here
**Sheet updated and viewable 10/11/15

Full Disclosure: Long SPY.