Wednesday, December 28, 2016

The Best Performing Sector For 2016

Well with the year almost over I was wondering which S&P 500 sector was in the lead. Surprisingly, or not depending on your view, the Energy sector lead all major groups according to www.sectorspdr.com. This comes on top of WTI's big rally from the mid $20's earlier in the year, all the way back to the low $50's now.


The next best sectors are Industrials(XLI) and Financials at 2 & 3 with 19.5% and 18.1% gains. The worst groups so far have been Healthcare(XLV) down 3.5%, and Real Estate(XLRE) down 1%. I think it's safe to say they'll all finish the year in their respective spots.



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Sunday, December 25, 2016

TLH Market Review 12/24/16

Well this is the last review of the year.  I'll have a somewhat uneven posting schedule the next few weeks also. 

It's been a quiet week.  Besides the Dow flirting with 20,000 part of the week there really wasn't much going on.  Most of the Western world took unused vacation days to finish up last minute shopping, travel, relax, and prepare for Christmas weekend.  The big money's pretty much finished up their books in the weeks following Thanksgiving, so as expected volume tails off significantly this week and next. 

We did get some economic data.  Q3 GDP was revised up to 3.5% from 3.2%. This isn't a big deal though.  Q3 ended in September and it's already the end of December.  The markets already figured out what happened between June-September. 

More importantly we received Personal Spending, Income, and Core PCE Index.  I didn't like the soft numbers for income which came in flat at 0% when the market expected 0.3%.  Incomes need to grow for the economy to expand.  Either way it's not as if zero's have been a trend so it's not much to worry about yet.  Spending was weaker and that's fine if Savings were increasing. But we got a 0.2% bump in spending after expectations were coming in at 0.3-0.4%. On top of that the savings rate has dipped down to 5.5% from a previous 5.7%.  So the money must be going somewhere. Taxes maybe??? 

Core PCE also had a zero reading.  This is one of the indicators the Fed keeps an eye on and the index has had trouble gaining steam all year.  Inflation continues to be tame and I think that's just the new reality we are in. 

Portfolio News

Once again the portfolio was quiet overall.  Fine with me!  We did get news the Linde AG and Praxair(PX) finally agreed on merger details.  The new company will be worth approximately $65 billion with revenues of approximately $30 billion.  There's talk divestitures will be necessary so maybe we can expect revenues to be 3-5 billion less. Linde AG shareholders will receive 1.54 shares of new company stock for each share owned, and Praxair shareholders will be given 1 share in the new entity for each share already owned. The company's new ownership structure will be split 50/50 between each company. 

I think the deal makes sense for the most part.  The industry is consolidating, and this should give the company better negotiating power at the table with customers.  I'm not extremely excited about the increased currency exposure, but over time this should all even out.  This is long haul investing don't forget.

Have a great weekend and a Merry Christmas, Happy Hanukkah, and Happy Kwanzaa.

Cheers,

The Long Haul Investor.

Sunday, December 18, 2016

TLH Market Review - 12/18/16

Well the markets finally got what they waited 1 year for.  On Wednesday Janet Yellen & Co unanimously decided to hike interest rates for the second time in 10 years.  On top of that the Fed indicated they would raise rates 3 times in 2017, and the dot plot indicated the Fed expects rates to rise into a range of 3.5-4.0% by 2019. The outlook has sent US bond yields soaring as the 10 Year Treasury hit a high of 2.6% for the week. I'm not sure how much more upside is left. Eventually the bond market will digest gains before continuing it's move up.

After years of keeping rates low to stimulate growth it seems there is suddenly a big urge to hike rates in a consistent manner.  Funny is I don't think a lot of people "believe" the economy is strong enough.  Most people still feel left out and behind in what's been one of the most controversial recoveries since the Great Depression.  Either way if the Fed's path turns out to be true that should continue to be a tailwind for the US Dollar which has seen a substantial rally the last few months.





Non-OPEC members agreed to a 558k bpd production cut to help stimulate prices.  The oil markets initially reacted with a strong surge, but then quickly calmed back down for the week.  I must say I love how these countries get to collude against the entire world, and no one does a thing about it but continue to buy more oil.

Oil is still in a long term downtrend from the way I see it.  So I'd like to see how this continues to play out. I'm not concerned one bit about overall energy prices. There is a seemingly never ending glut of ways to provide our energy needs in the near term horizon.  Besides the abundance of coal, natural gas, and oil we also could ramp up the increasingly less popular nuclear energy systems.  On top of that there have been great strides in the past few years with wind and solar energy. I could easily see energy prices continuing to fall in the decades ahead as energy producers of all types continue to fight for our money.

The Portfolio

It's kind of nice how our investing style doesn't generate many action items, or news to pay attention to.  It allows me to spend my time getting other productive things done.  The portfolio had a quiet week with no earnings announcements, or other major news.  The IShares Biotech ETF(IBB) seems to be the only thing constantly being talked about as this politically sensitive sector is the subject of never ending whiplash lately.  On top of that a few holdings had some bad news lately which have kept share prices under a lid.

From a technical standpoint the ETF is sitting in a precarious position right now as it straddles the 50 and 200 day SMA's.  If things don't start looking up for this sector soon it may test my patience for than I'd like. The one bright spot from the chart is the ETF is doing a decent job of holding up against it's previous lows and making marginally higher highs.  It's not a perfect chart, but I've seen plenty of companies and industries overcome less than stellar chart action. Hopefully this sector can continue to create lifesaving drugs, and rewards shareholders with the profits.



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The tobacco sector has been lagging of late, and I think a lot of that was due to the impending rate hike and prospects for higher borrowing costs in this leveraged industry. Besides RAI and BTI merging the sector has been quiet as it moves sideways for the most part. Also it remains to be seen if British American Tobacco will increase it's offer for Reynolds America. I'm partially skeptical, but you never know. The industry has seen an uptick in the movement to curb e-cig use. That's expected.

It was nice to see our tobacco/real estate play, Vector Group(VGR), waking up with a 9%+ move the last two weeks. It looked like the stock was sleeping during the ensuing Trump Rally. I was starting to wonder why the stock wasn't moving since the real estate sector overall had seen a decent post-election bump.  

There was no major news out of our other stocks. We are light on retail except for Costco(COST) so we don't need to pay attention to holiday trends very much.  Although the companies last earnings report was very good in my opinion especially when other retailers are considering curbing expansion, or actually closing stores.  Cummins(CMI) has seen a big boost to it's share price lately as it's trading around $140.  Crazy to think less than a year ago the company was going for $80.  I really regret not adding.  Oh well.  Engines aren't going anywhere soon.  And this company makes the best ones in the world while being a cutting edge producer of cleaner, stronger, and more efficient engines.

Since I've been slacking lately I'll do one last review next week, although expect it to be abbreviated. After that I won't be back on a regular schedule until mid-January. The blog will still get it's periodic updates so be sure to keep checking back in. I'm looking forward to calculating the year end results to see how the portfolio stacked up against the S&P 500.  This quarter won't be an easy beat so I'm really anxious to see how this turns out. 

Enjoy all the end of year has to offer. Time with family and friends, and a variety of festivals, should be more than enough to keep us all happy the next few weeks.  The boost to our portfolios is just a nice bonus in my opinion!

Hope your weekend was great!

Friday, December 16, 2016

The Markets End of Year Streak

If you've lived in a box you probably have no idea the S&P 500 is so far up 5 of the last 6 weeks. In fact since the week of the Presidential Elections the market is up by 8%. That's a big chunk of the yearly gain it's seen so far. It's also a respectable gain if  8% was for the entire year. Of course if you owned an S&P 500 index fund you'd have received dividends so your total return is actually higher. As of now it seems a safe bet the S&P will end the year up around 10%. It's currently up around 11%. Let's see if it can continue the trend to end on a high note. 



That's why I think it's important to buy and hold. If you were trying to "time" the market I bet most people would have completely gotten this call wrong the last few weeks.  Especially if you listen to the talking heads that spew out horrible information. I sometimes wonder where they get their info from. 



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Saturday, December 10, 2016

TLH Market Review - 12/10/16

Fear not fellow investors. Despite all 4 indexes hitting new highs this week there shouldn't be a worry abound.  Not just because Christmas and all the many other holidays celebrated this month are near.  Because a higher market doesn't mean a crash is right around the next corner.

I get it. For many the pain and stress of two major free falls, plus plenty of 10% pullbacks, is brandished in their memory.  But if you stuck through thick and thin since January 2000 you'd still be up 124% according to the S&P 500 Total Return Index which includes dividends. A gain is a gain, you can't argue with that.

Friday, December 9, 2016

US Treasury Rally

While it might not be new news to anyone at this point I thought it was worth mentioning the huge tear Treasuries have been on.

Since July, 3 Month Treasury yields have risen an astounding 96.15%! The 2 year, 10 year, and 30 year are showing respective gains too.

Monday, November 28, 2016

Elliott Management's Letter to Cognizant

Today Elliott Management disclosed a $1.4 billion 4% stake in Cognizant Technology Solutions(CTSH).  The activist firm identified a few key areas they feel could create significant and immediate value to shareholders.  According to their research and plan the company could easily boost it's stock price to $80-$90 with ease. You can read the entire letter here. Here is an article highlight.

– Cognizant is viewed as being shareholderunfriendly. In contrast, Accenture is viewed as being a responsible steward of shareholder capital and is therefore awarded a multiple of more than 20x NTM P/E, a meaningful premium to the entire peer group, despite having the lowest revenue growth rate. Its robust capital return and margin expansion programs support a far higher multiple than its slower growth alone warrants, because it offers shareholders a balanced set of drivers to deliver investment returns. Cognizant, on the other hand, gets penalized with a significant discount. Because Cognizant has a limited capital return program and explicitly commits not to expand margins, shareholders must rely on the Company delivering above-average revenue growth for investment returns. When selecting companies in which to invest capital, shareholders will naturally gravitate toward management teams with proven capital allocation track records.

For the most part they identified the lack of a plan to consistently return cash to shareholders(ie buybacks & dividends), adherence to an old margin policy, and a misguided reliance on revenue growth. Furthermore they cited the company had excess cash and very little debt, which they made it seem is bad. The last problem I'd be ecstatic to have.  I'd put that comment in the list of "things you don't hear people complain about".

I'd have to agree that the company needs to make some changes. It's just part of the business cycle. Revenue growth has been tailing off compared to it's historical growth rate.  That alone is a big clue it's time to change your focus. I've been a champion of the company, and even I was starting to wonder if they would initiate a dividend soon.  The company could easily handle it. 

Saturday, November 19, 2016

TLH Market Review 11/19/16

"That's two weeks" - TLHI
"Two weeks of what?" - You
"Two weeks of post-election market highs even though the world was supposed to end" TLHI

Yep that's right! Two weeks of new highs even though the "smart" people at Goldman Sachs with a huge research budget, and boat loads of MBA's from Ivy League schools all said a Trump victory would be bad for the market.  I hate to get political but they were backing HRC the entire time so take their word with a massive grain of salt. That's why there is the phrase "Follow The Money"

With the Dow Jones and Russell 2000 climbing into uncharted territory it's only a matter of time before the S&P 500 and Nasdaq follow.  My guess is we'll see it by year end, or by February at the latest. The line won't be straight up, but it will be up.  

Either way the last few weeks have seen a lot of change within the market.  Financials and Industrials have been leading the rotation with respective gains of 13.7% & 7.17% the last month.  Meanwhile Utilities and Real estate have taken a beating as each are down -4.4% & -6%.
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These aren't the only areas seeing massive moves. Small caps have been on fire as the Russell 2000 has surged over 13% the last couple weeks and now sports a 16% YTD gain. 

It's crazy how quickly things can change as investors are now flocking into cyclical and riskier assets.  At the beginning of this year investors were clamoring for utilities, real estate, telecom, and staples as the market see-sawed all over the place. Many back then were calling for a recession and a crash in stocks. We did see some dangerously low growth, but it seems the worst was avoided. 

Bonds and Gold have also had some divergent paths as big money re-positions.  The 10 year yield has soared 50bps to 2.34%, and safe haven gold has seen its price drop from $124 to $115.
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I think it's safe to say risk and inflation trades are back on. 

Speaking of inflation we did get CPI this week which showed a 0.4% rise for October. That's a good number. The markets pretty much think it's a lock for the Federal Reserve to raise rates in December. This has been the most widely broadcast rate hike in recent history so it shouldn't be a surprise. Either way the market has rate hike odds at 95.4% now. 


The portfolio had no earnings. We did get a statement from Hain Celestial(HAIN) that their investigation into their revenue recognition found no intentional or inappropriate actions. That was good enough for the stock to pop 10% on the news. Remember I sold part of the shares out of the portfolio on the news release.  I still don't want to buy back in.  Maybe that will turn out to be a mistake as I do think the company trades at a nice value right now.  Either way I don't like getting burned.

I was very close to cutting ties with CTSH too, but they were very clear upfront that improper payments were made. These are two separate issues which have to be looked at individually.  Either way it looks like I made the right calls so far.

Have a great weekend!

The Long Haul Investor

Friday, November 18, 2016

USD Continues Post-Election Surge

Incredible to see how strong the dollar has been since the election. It's shooting up faster than Facebook!


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Saturday, November 12, 2016

TLH Market Review - 11/12/16

Crazy. That about sums it up so far this year, and this election.  Turns out both Democrats and Republicans enjoy protesting and being violent.  Although at this point protesting solves nothing. Your vote is what really would have mattered. Protesting our Democratic process shows to others that you think it's your way or the highway. Un-Democratic.  Hillary needs to come out and condemn this type of behavior, and Obama should put more effort into calming everyone down. Off my soap box now.

OK so it looks like we have all this mess because everyone is so shocked. Not surprised. I think even Donald Trump himself was a little shocked. I feel like you could just tell a little bit by the expressions on his face.  I really think he thought he was going to lose.  He did claim he felt the election could possibly be rigged, aided by the media, so I'm sure he felt the odds were overwhelming against him.

The markets sure didn't like everything at first. HFT's and big market makers at one point sent the Dow Jones futures down over 800 points Tuesday night. By Wednesday though everything was, well, GREEN!

Even more shocking was the Dow Jones hit a new ALL TIME HIGH! Holy Cow! I don't think anyone saw that coming for this week.  It's really hard to make out but if you look closely at the right side of the chart you can barely see when the market head straight up after the election :)



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Almost going unnoticed is the fact small caps have rallied 10.1% for the week. That's why it's important to stay invested. You never know when a huge rally will hit. Even for the S&P 500 and Dow they added most of their YTD gains back in this single week!

For the small retail investor there's no way they would have caught that move. Why? They've proven to professionals and researchers time and time again they are horrible at timing the market.

The bond market saw yields surge, and the probability of a Fed rate hike for December is coming at 81%. Yeah I'd say that's a lock. Finally.

Gold at first had a decent pop, only to see selling into the end of the week. I guess the yellow metal is just that, yella! I think that move has more to do with the fact there's less fear and anxiety now that people know what the future will bring. Add in the stronger dollar and the gold train seems to have a lot more going against it than for it right now.



Portfolio Adds
I did make a couple adds this week. McCormick and Phillip Morris both sold down to the $90's level and I felt this made sense for a buy at this price.  The rest of the market might be going for High Beta names, but I want more stability.  I'll be doing some much needed updating on the spreadsheet this weekend.

Earnings
We had earnings from 3 portfolio members.  Cognizant Technology Solutions, Universal Corp, and WhiteWave Foods. I won't be highlighting WWAV since their merge is less than 7 weeks away with Danone.  It looks like it will go off without a hitch.

Cognizant(CTSH) reported a great quarter which was really needed considering how controversial this quarter has been for them.  The company reported EPS of $0.73(up 12.3%) on revenues of $3.45 billion which was up 8.4% from a year ago.  Also they gave solid guidance which shows they are still on track to keep growing.  Non GAAP EPS was guided at $3.38 and $3.41. That’s an increase from their previous guidance range of $3.32 to $3.44 per share.

“Third-quarter revenue was within, and non-GAAP EPS was slightly above, our guided range, indicating that we continue to execute well on our stated strategy,” said Karen McLoughlin, Chief Financial Officer. “Our solid performance was also reflected in another strong quarter of cash flow generation as cash and investments, net of debt, increased by $390 million.”
 
I highlighted that I felt the big reason for the spike up was the fact their improper payments disclosure in the 10-Q didn't show much of a financial impact. The company has so far highlighted only $5 million in improper payments. That' doesn't mean a fine won't be large, but I think how they've handled it so far means this really won't be a huge financial issue going forward. Of course any ding to earnings is real, but this is a small one in the grand scheme of things. Helping companies integrate their digital platforms and become more efficient isn't going away anytime soon.  In fact the company has been on a hiring binge to help keep up with demand.









Universal Corp(UVV) reported earnings that initially sent the shares 4 points higher, but then the California tax increase sent all those great gains right back to the toilet. Sigh.








Still the company reported nice earnings report with EPS of $0.90 on revenues of $456 million.  The company is so stable it's sickening. So sickening we got an even sicker 46th annual consecutive dividend raise! Not many other companies can claim such a feat. The dividend was increased by one penny to $0.54/share. Not huge but a raise is a raise.

The California tax increase will no doubt affect the company. I think the pain will be well managed. The company does a great job at managing it's inventory. In fact I think this will continue to push all the tobacco companies into reduced risk products.  UVV has positioned itself as a supplier of liquid nicotine for vaping products.  That should help offset any losses from it's traditional business as this new area grows.

Cheers!

The Long Haul Investor

Friday, November 11, 2016

Election Edition - Low Volatility vs High Beta

The never ending struggling between low volatility(stable) and high beta(wild) stocks is putting on a fabulous display lately.

For most the past year SPLV has been leading it's wilder, more fun loving cousin - SPHB.






Then the elections came leaving stodgy old SPLV in the dust.  Safe to say it looks like investors are willing to take on substantially more risk in a Trump world.

Monday, November 7, 2016

Cognizant Technology Reports Q3 Earnings

I've been waiting to hear from Cognizant Technology Solutions(CTSH) as it's been a very tumultuous quarter for them as they disclosed improprieties.

For their third quarter the company reported EPS of $0.73(up 12.3%) on revenues of $3.45 billion which was up 8.4% from a year ago, and 2.5% sequentially. Cash flow was strong in the quarter, and operating margins came in at 16.8% and net income margins were 12.8%. Those are solid results. Also remember the company has $1.5 billion in cash, and $3.3 billion in short term investments which is mostly comprised of bonds(USD based) maturing in 2 years or less. Make no mistake they have a strong balance sheet, and strong industry trends behind them which show no sign of slowing down.  Overall strong results. 

But that's not what I think has the stock up over 4% today. 

Saturday, November 5, 2016

TLH Market Review 11/5/16

This week sure didn't feel great on the pocketbook.  The S&P 500 ended up down -1.9%, the Nasdaq -2.9%, and only the Dow saved us from some pain with a loss of -1.5%.There are a lot of election jitters and Fed Rate Hike Fears still lingering over this market.  For good reason.  They affect us all a great deal.

The Fed decided to do nothing. While mentioning the case for a rate hike increase was strengthening. Really? That's what you tell people. Talk about lacking credibility. Either way the do nothing approach makes it all the more likely December comes into play.  That gives investors 4 more weeks of uneasiness heading into the end of the year after we knock this election out of the way. Finally!!!

Thursday, November 3, 2016

Earnings - FB, CHD, VGR

Yesterday after the close we received earnings from one of the markets hottest and most talked about stocks, Facebook(FB). The company reported Q3 results with EPS of $0.82 up 165% on revenues of $6.8 billion up 59%. The company noted it's DAU's were 1.18 billion up 17%. On top of that mobile advertising revenues reprsented an 84% share. Staggering.

Unfortunately the company mentioned on the call that Q4 and 2017 would see a "meaningfully" decline in ad revenue growth rates and a pickup in expenses. That seems to be what is causing the stock to have a World Series Hangover today. Although looking at the chart it seems the stock was losing steam before this announcement. I wouldn't be surprised to see the stock pullback 20-25% overall. It's had a historic run already. So far today the shares have traded as low as $119.  Here is the company guidance given by the CFO during the conference call.

Turning now to the outlook for the remainder of 2016.
First, some color on revenue. We continue to expect that revenue growth rates will decline in Q4 as we lap a strong fourth quarter in 2015. We also continue to expect that our total Payments & Other Fees revenue in Q4 will be lower than it was in the fourth quarter of last year. 

I also wanted to provide some brief comments on 2017. First on revenue. As I mentioned last quarter, we continue to expect that ad load will play a less significant role driving revenue growth after mid-2017. Over the past two years we have averaged about 50% compound revenue growth in advertising. Ad load has been one of the three primary factors fueling 9 that growth. With a much smaller contribution from this important factor going forward, we expect to see ad revenue growth rates come down meaningfully. Secondly on expenses. Though it is premature to provide specific expense guidance, as Mark mentioned, we anticipate 2017 will be an aggressive investment year. Adding top engineering talent remains one of our key investment priorities as we continue to execute on our 3-, 5- and 10-year roadmap. We will continue to invest in our ability to recruit top technology talent both in the Bay Area and beyond. In addition, we expect to grow capital expenditures substantially as we continue to fund the ongoing data center expansion efforts that we have underway. Finally I wanted to share some plans on the use of cash starting in 2017. Beginning in January, we intend to fund withholding taxes due on employee equity awards via net share settlement, rather than our current approach of requiring employees to sell shares of our common stock to cover taxes upon vesting of such awards. We expect this change will increase our cash outflows and correspondingly result in less dilution. If we had used this approach in 2016, our cash outflows would have increased by approximately $1.8 billion in the year through September.

Our quiet strong arm, Church & Dwight (CHD), also reported Q3 earnings with EPS of $0.47 up 4.4% on revenues up 1% to $870.7 million. The company's core products in it's Consumer segment saw steady growth, especially internationally. The company lowered it's Q4 just slightly as it tightened guidance for EPS growth to 14% and 8%(reported & adjusted) from 14-15% to 8-9%. In other words a point off the top end.

The company's operating cash flow was up 21% in the quarter, and they announced their 463rd consecutive dividend. I expect a raise is coming for next year and I can easily see 10%. Either way shares are taking a beating today as they are currently down 7.6%. Maybe this will give me a buying opportunity I've been looking for.  Here is the CEO comments.

Matthew T. Farrell, President and Chief Executive Officer, commented, “We are pleased with our Consumer organic sales and the company’s earnings growth as our business overcame continued headwinds faced by our Specialty Products business. Our continued gross margin expansion in the third quarter provided us flexibility with our marketing and promotional investments to protect and grow our brand equities.”


Vector Group Ltd(VGR) reported Q3 results with EPS of $0.18 on revenues of $459 million. There was nothing really special that caught my eye in this quarter, but nonetheless shares are up near 3% on the day.  The company is a steady performer, and the dividend is still a generous 7.4%.  Although I would have liked to see some more growth out of the real estate portion of the business. That might be temporary though.

Tuesday, November 1, 2016

Earnings - HCP, CMI, EMR

If you own shares of HCP you may have noticed a few things differently this morning.  For one the share price of HCP is much lower as it's been adjusted for the spinoff of Quality Care Properties. That's the new company created from the HCR Manorcare business. Shareholders of HCP received 1 share of QCP for every 5 shares of HCP held in their account.  Fore more information see here. HCP also announced they were selling 64 Brookdale properties for $1.125 billion.  The company plans on using the proceeds from both transactions to deleverage, which is a wise move given the outlook for interest rates.

Now onto their earnings.

Sunday, October 30, 2016

TLH Market Review

This week we received our first estimate for Q3 GDP. According to government data the economy grew by 2.9% between July-September. That growth number is compared to the preceding 3 months, or Q2.  That's the best number we've seen since Q3 2014, but remember this number will be revised a couple more times so let's keep our fingers crossed.  Growth is nowhere near what our economy is capable of.  We have so many talented and smart individuals in this country and it seems our policies are preventing full blown utilization of this. 



We also received some damning news about HRC and her email scandal that won't go away. Apparently agents found some of the "deleted" emails during an unrelated political investigation from a congressman for underage child interactions.  This saga would make for an excellent movie. Maybe one day there will be. Considering the FBI issued it's letter to Congress means they will definitely have to back track on their previous stance regarding her mis-handling of classified information. I like to say where there is smoke there is fire, and I couldn't trust what looks like a criminal in the Oval Office. Traders didn't take to kindly to the news which made for an exciting Friday afternoon in the markets. The S&P 500 swooned 20 points, but ultimately ended down 10 points from when the news broke.


Portfolio Earnings

We received a batch of earnings this week so let's highlight the important stuff!

We started with Visa(V) which reported it's fiscal Q4 and year ending results.. For the quarter EPS came in at $0.79 and for the year $2.78. Revenue for the quarter came in at $4.3 billion, and 15.1 billion for the year. Q4 contained Visa Europe results. The company gave some metrics excluding the integration and payment volumes grew 10% over the prior year and service revenues were up 8% YoY.

That's a solid quarter and with the integration about to hit full throttle we'll start to see some cost savings come through in 2017.  We also received results from MasterCard and we'll see the payments sector is firing on all cylinders. Here is Visa's guidance for 2017.


Visa Inc. provides its financial outlook for the following GAAP metrics for fiscal full-year 2017: 

• Annual net revenue growth: 16% to 18% range on a nominal dollar basis, including 1.0 to 1.5 ppts of negative foreign currency impact; 
• Client incentives as a percent of gross revenues: 20.5% to 21.5% range; 
• Annual operating margin: Mid 60s; 
• Effective tax rate: Low 30s; and 
• Annual diluted class A common stock earnings per share growth: Low 30s on a GAAP nominal dollar basis and mid-teens on an adjusted, non-GAAP nominal dollar basis (see note below), both including 1.5 to 2.0 ppts of negative foreign currency impact.

MasterCard(MA) reported Q3 results with EPS of $1.08 up 26% on revenues up 14% to $2.9 billion.  Their worldwide purchasing volume was up 9% for the quarter. If you recall our PayPal results there is no doubt this has been a solid time for earnings with our companies. MasterCard has been quietly performing very well lately and is up around 21% since July.  Here is what the CEO had to say

“Our business continues to perform well, and we are pleased with our strong growth in revenue and earnings per share this quarter,” said Ajay Banga , Mastercard president and CEO. “We are executing on our strategy, deepening issuer relationships and delivering our customers and partners digital-first solutions. As a result, consumers benefit from seamless and secure purchase experiences everywhere and every way they shop.”


I'm expecting another solid dividend raise which I expect the company to announce in December.  I can really see another 19% raise, but I'm guessing it will be more like 12-16%.

It seems like a good time to transition to some bad news even though AB Inbev(BUD) reported later in the week.  The company announced Q3 results that were somewhat weak. EPS decreased to $0.83(USD) on revenues of $11.1 billion.  Volumes and costs both headed in the wrong direction. The company did note strength in it's 3 core brands - Budweiser, Stella Artois, and Corona. I do thoroughly enjoy each of those along with plenty of other beers I might add for an occasional drink. The company did announce it's interim dividend of $1.60 EUR. The company mentioned forward dividend growth will be modest as it looks to deleverage it's balance sheet instead for the coming years.

The company also completed it's SABMiller integration on October 10. The shares are starting to look attractive again, but I'm hesitant to add considering we also have exposure through Altria's 10% stake in the new company.

Speaking of the company they reported this week too.  Altria(MO) reported Q3 EPS of $0.56 on revenues on revenues of $6.9 billion. During the quarter the company also retired $993 million worth of high coupon debt and replaced it with $2 billion worth of debt financed at 2.625% and 3.875%. That to me shows the company is keenly aware of interest rate trends, and does a great job at managing it's' balance sheet. I'm also glad to see the company is looking to increase it's focus on reduced risk products, and working closer with PM on it's heated IQOS system.

Praxair(PX) reported mixed Q3 results with EPS of $1.18 on revenues of $2.7 billion. The company noted "persisten weakness" in it's industrial and energy business which are cyclical, but noted resilience in it's healthcare and food/beverage business which are defensive.  I'm expecting the company to make it through this rough time, and I love the fact no one ever talks about investing in this solid company that provides essential operating components to other industries.

Procter & Gamble(PG) results were really not that great, but the market loved it as the stock jumped from $84 to $87.  Considering the company has been figthing stagnant sales for awhile, it seems to be good enough to see that business is continuing along just fine with no decreases.  It is one of the few remaining blue chips with a dividend yield around 3% too.  The stock has been on a nice upward path since June as it's rallied from $79.  I think we can see shares make a run towards $95 in the next 4-6 months which would be welcome!

Wabtech(WAB) gave us earnings that really disappointed, and their guidance made it feel even worse as that helped the shares fall from $83 earlier in the week to a low of $74. The company has narrowed guidance a couple times this year, and it's never been to the upside. I hope the company can beat the numbers they gave us. The company has performed so well for so long that I think they'll come through this just fine.  Their industry is in a bit of a rough patch as rail volumes and pricing isn't blowing it out of the water right now. The company also noted they'll be selling off Faiveley's rail brake business as part of their acquisition. I'll be patient with this one as rail roads are still an essential cog in our global economy.

Now to the sweet stuff! Hershey's(HSY) reported their Q3 results with EPS of $1.18 on revenues up 2.2% to $2 billion. The shares popped over 6% on the report. I think that has to do more with the fact the company has such a stable business, and despite the increased attacks we saw on sugary drinks during the quarter it really had minimal affect on their business. With Halloween here I'll be sure to indulge in my own fair share of Reese's and Almond Joy.  Overall this is not an exciting company to say the least. I mean they sell candy and cocoa powder. Still it's a proven industry that works well for shareholders. I'm looking forward to a full year with HSY in the portfolio.


Hershey's (HSY) reported


Thursday, October 27, 2016

Earnings Roll In - PG, MO, PX, WAB

This week is a heavier than normal week for earnings, and for me it's been a busy week too.  Here is a brief update for the stocks that have reported so far that I haven't either mentioned or tweeted about. I've included their press release for your leisurely review.

Procter & Gamble(PG) announced Q1'17 EPS of $0.96 on flat revenues of  $16.5 billion. Here is the company guidance for the year and Press Release

Fiscal Year 2017 Guidance

P&G said it is maintaining its projection for organic sales growth of approximately two percent for fiscal 2017. The Company expects the combined headwinds of foreign exchange and minor brand divestitures to reduce sales growth by about one percentage point. As a result, P&G continues to estimate all-in sales growth of about one percent for fiscal 2017.

The Company also maintains its expectation for core earnings per share growth of mid-single digits versus fiscal 2016 core EPS of $3.67. All-in GAAP earnings per share are expected to increase 45% to 50% versus fiscal year 2016 GAAP EPS of $3.69. The fiscal 2017 GAAP EPS estimate includes approximately $0.10 per share of non-core restructuring costs and $0.13 per share of charges related to early debt retirement that was initiated earlier this month. Also included in GAAP EPS is a significant gain from the divestiture of 41 beauty brands to Coty Inc. The exact earnings gain from the transaction with Coty, which closed October 1, 2016, will be reported in the second quarter results


Wabtech(WAB) announced Q3 EPS of $0.91 on revenues of $675 million.  The company also updated it's guidance where they lowered the top end from previous estimates. Not exactly what I'd like to see. Here is their earnings release

Based on its year-to-date results and outlook for the rest of the year, Wabtec updated its full-year 2016 guidance as follows: Revenues are now expected to be down about 12 percent compared to 2015, and earnings per diluted share are now expected to be between $4.00-$4.04. This guidance does not include costs for restructuring activities or expenses related to the Faiveley Transport acquisition. Faiveley Transport is a global supplier of high added value integrated systems for the railway industry with annual revenues of about $1.2 billion.

Raymond T. Betler, Wabtec’s president and chief executive officer, said: “Our transit business continues to perform well, while the freight markets remain challenging due to overall rail industry conditions and the sluggish global economy. We have continued to focus on controlling what we can by aggressively reducing costs, generating cash and investing in our growth opportunities, including acquisitions. At the same time, we are progressing toward completion of the Faiveley Transport acquisition and remain excited by its growth and improvement opportunities.”


 Praxair(PX) announced Q3 EPS of $1.18 on revenues of $2.7 billion. Guidance for Q4 is $1.36-$1.43, and full year results should come in at $5.17-5.24. Here is the Press Release. 

Altria(MO) announced Q3 EPS of $0.56 on revenues on revenues of $6.9 billion. Here is the Press Release.

Here is the company guidance.

Altria reaffirms its most recent guidance for 2016 full-year adjusted diluted EPS, which reflects the reporting lag, to be in a range of $2.98 to $3.04. This represents a growth rate of 6.5% to 8.5% from a 2015 adjusted diluted EPS base of $2.80




 

Monday, October 24, 2016

Who Crudes The Most?

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I was actually having a discussion this weekend about the proposed Saudi Aramco IPO which would value the company at about $1 trillion. With oil having an amazing run from the August low of $39 to $50/brl on better than expected inventory reports, and general fear in the Middle East I decided to take a look at who leads the world in crude oil production.  After all it's considered common knowledge that Saudi Arabia is the worlds oil juggernaut in production and reserves.  If you asked most people which country is the oil king I bet Saudi Arabia would be the first country to come out of their mouths.


So who really does produce the most crude? Or as I'd like to say "Who Crudes the Most"?

Saturday, October 22, 2016

TLH Market Review 10/22/16

I decided this week to rename the weekly review to the "Market Review" to better reflect what we talk about here.  You can subscribe to receive new blog posts directly in your inbox by using the email signup tool on the right side of the web page.  I'm not going to discuss much about economics this week, and instead I'm going to focus on the portfolio holdings and earnings.


The S&P 500 continues to meander around it's all time highs. In fact the stronger dollar doesn't seem to be

Friday, October 21, 2016

PayPal & Boston Beer Earnings

Today PayPal(PYPL) reported Q3 results with EPS up 8% to $0.27 on revenues up 18% to $2.6 billion. The company increased it's active users to 192 million and TPV was up 25% to $87 billion. The company increased mobile payments by 56%(29% of TPV), and it's Venmo increased TPV by 131% to $4.9 billion. This is another solid quarter of growth for the company. I think the company will beat it's full year EPS guidance of $1.13-$1.15. My guess is it will actually come in at $1.17-$1.18. The company also upped it's 3 year revenue growth projections to 16-17% from 15%. One of the few discouraging signs are it's 5 quarter slide in transaction margins to 58.7%, down from 62.3% last year. The shares are up nicely today with a 9% gain. Here is what the CEO had to say.

British American Tobacco Bids for Reynolds American

Really big news today I'm sure you've heard by now. British American Tobacco(BTI) has proposed to purchase Reynolds American(RAI) for $47 billion dollars or a roughly 19% premium to yesterdays price. Both are members of The Long Haul Portfolio©.

That offer values the shares at $56.50 each, and the transaction would entail $24.13 in cash for each share, and .5502 of BTI shares for each share of RAI held. In other words if you own 100 shares you'll get 55 shares of BTI, and $2,413 in exchange.

What a crazy week for RAI as it fell below $44 the other day after disappointing earnings results. I think this deal makes a lot of sense for BTI.  They already own 42% of RAI, and it gives them larger access to the US market, and the accompanying strong dollar that should help boost results. Additionally with rates still low the company can still access debt cheaply to help finance the acquisition.

This will make the company potentially the largest publicly traded tobacco name in the world. Shares of Altria, Phillip Morris, and Vector Group are also up today.  This is the big boost to the portfolio I was just mentioning about with our tobacco shares. This will certainly help results for Q4 if momentum can be maintained.

I'll also add this is the second name on our list that has received a buyout offer this year as WhiteWave(WWAV) food is scheduled to be merged with Danone at the end of this year.

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.

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

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?

FinTech

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.



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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.

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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.

YearROAROI
201011.93%17.35%
201114.27%19.60%
201213.90%20.42%
201315.31%21.40%
201415.06%24.04%
20159.60%16.96%
Average13.35%19.96%

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.

Monday, September 19, 2016

Low Volatility vs High Beta

One of the things I love doing is comparing different sector performance against each other.  With the advent of ETF's this is so easy to do and interesting.  One of my favorite pairs is the S&P Low Volatility(SPLV) & High Beta(SPHB) ETF.

VGR Stock Dividend

If you own shares of Vector Group(VGR) don't be alarmed as the stock did not horrifically fall by a large amount. The company paid its annual 1:20 (5%) stock dividend today, plus it's $0.40/share quarterly dividend. That means the shares were adjusted by $1.55 to reflect payment.  Depending on your broker you should have received actual shares, and it's possible in some cases you were given cash in lieu of shares so check your account.

Saturday, September 17, 2016

The Long Haul Weekly Review 9/17/16

“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” - Peter Lynch

Couldn't agree more Peter.  For most people they don't bother looking at the actual financial performance of a company.  Most people are infatuated with the talking heads on CNBC or Bloomberg about the hottest and latest technology.  Don't get me wrong it can sound intoxicating and make you feel like the riches are right around the corner.  You have to resist the instinct to buy what's hot, and buy what's boring instead. 

This week I made a few buys,

Friday, September 16, 2016

Should I Have Gone Apple Picking?

Fall is just around the corner. With this time of year comes apple picking at the orchards, warm apple pies, and spiced(or spiked) apple cider.  Ah it's a great time to feel incoming arctic air, the fading strong sun still on your skin, and nature's beautiful color. I can almost feel it now.

It's no secret Apple(AAPL) is one of the most widely followed companies not only in the investment community, but worldwide by customers, competitors, and hater's alike. It only makes sense then that The Long Haul Investor also keeps an eye on the company too.

I was looking at Apple just before it was announced Warren Buffet's Berkshire Hathaway(BRK.A) took a position.  Of course that gave the shares a nice little pop.  It also made me feel kind of cool to think I was looking at the same company thinking it was a decent value just as some of the richest and smartest investors in the world were too.

When shares were in the $90's there was a lot to like. The stock had

Monday, September 12, 2016

Interest Rates Fuel Volatility

Last Friday I posted that rough tides might be ahead. I didn't realize how many people followed me and decided to hit the sell button based on that article! All kidding aside the S&P 500's 2.45% drop was the largest since Brexit. Also the VIX shot up to 20%. Things have calmed down a bit today as the market advances over 1%.

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One noteworthy item is without anyone really noticing Financial stocks(XLF) have started to outperform their rate sensitive cousin Utilities(XLU). It shows the market has slowly been factoring in a rate hike since August.  Lately the rhetoric from the Fed is only fueling the fire.

Friday, September 9, 2016

Rough Tides Ahead?

As we finish up this so far relatively calm shortened trading week I thought it'd be fun to bring up some history regarding the Dow Jones and volatility.

The 5 largest daily percentage losses in the Dow have all come over the next few months in October, November, and December. The largest point drop was the 22.6% drop during

Thursday, September 8, 2016

Will Cummins Rule The Road?

I tweeted the other day the announcement regarding a partnership between Volkswagen(VLKAY) and Navistar(NAV) joining forces.  The partnership involves VW making a $256 million equity investment in Navistar for a 16.6% stake and two board seats.

The idea of the partnership is to allow sharing of engine technology, part sourcing, and other forms of collaboration between the two companies. The move gives Volkswagen better access to the profitable North American market through it's two European brands(MAN & Scania) where it's weak.

This is a big hit to Cummin's

Saturday, September 3, 2016

TLH Weekly Review - September 3, 2016

I'll keep this weeks review quick. We did receive quite a bit of economic news, and I'll give a quick synopsis.

At the beginning of the week we received Personal Spending and Income data.  Incomes rose a bit more than expected, and spending was lower than expected. So if we put that together we should have seen in bump in the savings rate. That we did as savings were bumped up from 5.5% in June to 5.7% in July.  The trend of higher savings started since the recession is still intact, and nicely recovering from the downturn in 2013.

Pending home sales and Case-Shiller 20 City Composite also showed gains of 1.3% and 5.1% respectively. But on the downside construction spending came in weak with a 0% change while the market expected 0.9%.  Then all eyes turned towards the Non-Farm Payroll data on Friday.  Considering the Fed has sent out it's speakers to

Friday, September 2, 2016

The CEO's Letter

Each year just about every CEO sends out a letter to shareholders via their Annual Report. It cheer-leads all the best parts of the year a company had. John Lancaster wrote a good piece in The New Yorker that you can read here regarding letters to and from the Chairman.

It's loaded with quality information and stories. Including many from Warren Buffet and his mentor Benjamin Graham.  Here are a few excerpts.

Because Buffett ignores the short-term fluctuations of the stock market and doesn’t mind long stretches when the valuations of companies in his portfolio are depressed, he needs shareholders who see things the same way. His way of heading off this potential trouble is to practice what he calls “shareholder eugenics.”

Keeping My Eye on Hershey

I'll be the first to say I was pissed when Mondelez(MDLZ) made a bid to buy Hershey's. I had been keeping a loose eye on the company for bit, and I was upset that I'd have to buy MDLZ if I wanted exposure.

I didn't like that idea because in my opinion Mondelez was making the offer to counter their falling sales the last few years. Hershey has done much better in handling the move towards healthier foods in American diets.  Surprisingly the fact that Hershey's

Saturday, August 27, 2016

TLH Weekly Review - August 27, 2016

"Man this market is dull - it's awesome"

Said no one ever!  Actually a lot of people have probably said this privately, but not in public.  Even with some conflicting remarks from Janet Yellen on Friday the S&P 500 moved a scant -0.16% on the day and down just -0.7%(14.71 points) for the week.  Not exactly earth shattering moves.

As we enjoy the last few weeks of summer I'll keep this post light. Especially since the portfolio was very quiet.

On Friday Janet Yellen and Co. gave a few remarks that confused a lot of people. Was she hawkish, or was she dovish? Depends on what you want to believe.

Wednesday, August 24, 2016

The Dow Dropped 1,089 Points

If I didn't mention it I bet most of you would have forgotten last year the Dow dropped 1,089 points exactly 1 year ago.

On August 23rd the Dow closed at 16,459. The following day on August 24th the Dow traded as low as 15,370. That's a 6.6% drop

The "Oil Indicator"

Not to long ago I discussed the Election Indicator, and it's surprising ability to accurately predict the election 86% of the time. Of course that indicator was the stock market which is a barometer of the business economy.


Here is another indicator we heard a lot about this past year.  It's the "Oil Indicator". 

Tuesday, August 23, 2016

The Self-Driving Investment

OK so I guess I'll admit right off the bat the article headline is just slightly mis-leading.  Today I want to talk about Ford's announcement to produce fully autonomous vehicles. In case you aren't aware there are already fully autonomous vehicles on the road.  A prime example is Google's self driving car fender bender fiasco.

But technology is always a hard area to invest with individual companies. Premiums are quickly bid up, and you never know when the next change is around the corner. Unfortunately technology is essential to growth, but is best had in a passive index fund in my opinion for the majority of people. Or basically by a fund which tracks the Nasdaq.

A lot of people want to invest in this area since they see it as the next "Big Thing".  Tesla has been made famous by their super fast electric vehicles ability to change lanes and park itself.   A process it gets even better at over time.  Their technology was provided mostly by Mobileye(MBLY) until their recent decision to part ways.  Mobileye is one of the few publicly traded companies out there with this type of technology, Google is another, and it's speculated Apple is in on the game too. The problem is it's not so easy to invest in this area outside of traditional automakers.

Each represents their own challenges. For one MBLY is trading at a pretty high valuation, although the pullback that ended in February did provide a decent opportunity for those willing to take some risk. They aren't the only ones with this technology. In fact it appears Ford developed their technology with in house engineers and other companies. They never even mention Mobileye in their recent press release. Reminds me of cell phone companies in the 90's and early 2000's. Just ask investors in Blackberry, Motorola, or Nokia how they have fared. Unless the company can continuously outdo the in-house technology from automakers, and competitors, it will be tough for them to maintain this premium.

Google is predominantly a search and advertising company that's slowly morphing into a content/data/business services enterprise.  I don't doubt they'll figure out a way to get a piece of the action, but it's not going to be their focal point which doesn't make it a clear cut investment in this space right now. The stock has been an absolute beast in performance terms so maybe its best to own it for what it is.

Apple is the technology investors poster child. The company initially had a lot of success. Almost went bankrupt, and then came roaring back into the worlds most dominant company.  If it does turn out they have some type of technology they've been developing in the field it might be an intriguing play. But for now count them out of the self-driving vehicle scene. 

Tesla on the other hand is in my opinion not fit for most investors right now. I just like to look at this metric to make my point. They are valued at $33 billion right now. But they barely sell 100k cars each year. That means each car is worth $330k in market cap. Compare that to any other major automaker selling millions of vehicles with reasonable market caps. Whether or not Tesla can meet it's forecast to sell 500,000 vehicles by 2018 remains to be seen. Even if they do reach that milestone each vehicle sold in market cap terms is worth $66k right now. Hope they don't slip up.

That leaves the other automakers. They'll be the ones making the actual vehicles as always so no change here.  However I don't see margins getting miraculously huge because of this.  At first their major self-driving cars customers will be companies using these vehicles for profit. Or in other words the dreaded fleet- vehicle sale accompanied by thin margins. The buyers own profit motive will drive them to seek low prices, and will likely buy in bulk to negotiate discounts.  That doesn't sound like margin expansion to me.  But plenty of them have plans to introduce fully autonomous vehicles. I think in the automotive space let a few other companies release details of their self-driving plans and go from there.  Whoever gets the biggest lead with the best looking technology might keep a leg up on the competition for awhile.

It doesn't mean the performance of any of these companies will be bad, or that lots of money will be made in this sector.  I'm betting there will be at least a couple of names that benefit greatly from this trend. What I do know is that it's too difficult to pick a winner right now.  These cars aren't even for sale yet with the exception of Tesla's semi-autonomous models. So for now I'd stand pat and continue to invest in solid companies that sell great products, have wide moats, and a solid operating history. Just like the ones found in our portfolio.

Saturday, August 20, 2016

TLH Weekly Review


Boring. That's what this market continues to be.  Even with the FOMC minutes released this week we only saw a 0.6%(15 points) move for the day, and S&P finished flat for the week.  In different times we might have seen 1-2% moves.

Some will attribute it to the "Summer Market", and all the big boys are out on vacation.  That has a little truth to it, but it doesn't account for all the low volatility.  The S&P 500 has just not been that volatile of late, which is a great thing!


Look at how the daily changes in the S&P have continued to drop all year, with the exception of the Brexit vote.  Frankly there just isn't much to worry about now and I think that was evidenced by the barely large moves we've been seeing even on Fed and ECB meeting days.

Yet that is totally fine with me.  I like boring.  In fact most of our stocks are "boring".  Boring means things change little on a daily basis, but over time continue to rise as the money rolls in. It has been tough though to find really good deals in this market. The majority of high quality names even have low yields as judged by NOBL, the ETF loaded with dividend aristocrats barely yields above 2%. Although we have plenty of high quality on our list yielding above 3%(DEO, BUD, CMI, RAI, PG, PM, VGR, HCP, MO, BTI, EMR).

We had the FOMC minutes released this week, and there really wasn't much of a reaction overall Don't confuse no rate hikes as good, and rate hikes as bad.  While the initial market reaction can be in either direction, history has shown in general equities trend up with rising interest rates.

Then we started to see some disagreement behind the scenes from two Fed Presidents. William Dudley, and John Williams both came out recently stating they felt rates needed to be raised. Either way the market is finally starting to think rates might go up this year. In fact futures traders now foresee a 53% probability of rates getting hiked by December.  This meeting wasn't the most clear on direction, and I think that's a very calculated message.  Some took the notes as "dovish", but I think the Fed is really starting to wonder about which month they'll raise rates. 

Inflation data was flat this week showing a 0.08% increase excluding food and energy.  While on the whole this is running beneath the Fed's target rate, it continues to inch up for the most part. While the strong dollar and low energy prices have been able to keep a lid on prices, it doesn't mean everything is gloomy. 


We saw Industrial Production increased at a healthy pace.  The 0.7% increase was one of the largest since November 2014, and a lot of that weakness was attributed to the dollars rise during that time. With the dollar trending flat this year manufacturers have been able to handle currency pressures much better.  We've seen some pretty income numbers recently, and eventually higher wages and production will work it's way into the economy.

Not so boring week for a some portfolio members

Hain Celestial dropped a bombshell on us. I ended up selling part of the shares as a result.  The company noted they had accounting revenue recognition issues. You never like to see accounting issues when you own a stock.  The company did note it would not affect the amount of revenues, but the timing. No matter what, what worries investors is if they find out who actually knew of the problem and if it was not accidental. The company played it off that it wasn't, but I'm always skeptical.

The bigger issue is they announced they'll miss earnings. Considering just last quarter they issued no warning, things have changed quite a bit over the summer.  I think this earnings miss will be big.  If it wasn't they would have announced a new EPS range changed maybe 5 cents from prior guidance. That's what concerns investors.  Competition is getting stiff, and when the company started trading higher on buyout valuations(due to WWAV) you get the perfect storm for a multiple contractions.  I'm expecting the stock to start trading at a P/E under 20 for the foreseeable future.

Emerson Electric announced they'll be buying Pentair Plc valve and control unit.  The market didn't like the news and initially sent the stock down more than 5%.  The shares recovered a bit, and ended the day down around 3%.  I'm not sure what the margins are in this business, but I hope they are good.  Considering the company has been selling low margin divisions to re-invest into higher margin areas it better fit the bill.  I'll have to take some time to research.  The company has just shed about $5 billion in assets, and has now spent more than half of it with this $3 billion purchase.

In more cross border transaction news our recent pick Praxair(PX) announced they are in merger discussions with European counterpart Linde AG.  This combination would create the worlds largest industrial gas company worth nearly $60 billion.  Shares of PX popped higher on the news so it appears investors like the idea. I'm considering adding more shares if they fall back down a bit with this news as a nice tailwind.

That's all for now. Have a great weekend!