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.