Thursday, March 31, 2016

GPN Chart

Check out this chart from StockCharts.com for GPN. Not to brag but the stock is up 25% since the early February lows. Much of that has come from big gains this week.  I wish I would have added to the position after the buy in January, but it is what it is. I'd actually expect the stock to pause after this run.



Not to be outdone shares of IBM are actually up 28% from their lows in the same time frame(chart not included). Pretty impressive for both stocks overall considering the market is sitting on a 13% gain since then.



Just a reminder I'll have the quarterly results this week so be sure to check back.



Visit StockCharts.com to see more great charts.

Tuesday, March 29, 2016

McCormick Earnings

McCormick(MKC) delivered earnings this morning.  The company earned $.73/share (non-GAAP) for the quarter citing good volume and margin increases.  So far shares are up over 1%. This stock has been my favorite this year by far. It keeps inching up each day.

Here is what the CEO had to say.

Lawrence E. Kurzius, President and CEO, stated, "McCormick's first quarter results were a great start to fiscal year 2016.  Consumer demand for healthy flavor and high quality products is increasing globally and we are meeting this demand with a growing portfolio of on-trend products.  Each of our two segments achieved strong underlying sales increases driven by our growth strategy.  We are growing base business sales with brand marketing and are launching differentiated new products such as herb grinders and slow cooker sauces for our consumer segment and snack seasonings for industrial customers.  We had an incremental sales benefit from three acquisitions completed in 2015, and continued to expand the availability and footprint of our business through retail channels and with new industrial customers.
"Led by our Comprehensive Continuous Improvement (CCI) program, we are on-track to deliver at least $95 million of cost savings in 2016 and recently announced a goal to reach $400 million of cost savings in the next four years.  Together with our strategies to drive sales growth, these cost savings are driving higher gross profit margin and in the first quarter, led to a double-digit increase in adjusted operating income on a constant currency basis.  I want to recognize McCormick employees around the world for their efforts and engagement.  Together, we are focused on building value for our shareholders and customers and are pleased with the momentum underway in 2016."

Monday, March 28, 2016

Facebook Begins Shipping Oculus VR Gear & Price Target Hike

Today Facebook Inc. began shipping their Oculus VR headsets. The company is selling VR sets for $599 through www.oculus.com. If you want to read a little bit about the technology there is a interesting tech blog post  highlighting some of the development challenges.  If you are wondering I will not be purchasing a set.  Although I think it would be very cool to try.  The goal is to create an ecosystem where all things FB can be integrated into your gaming world.

Evercore also released a price target hike today. The shares were given a $150 price target that would imply a value of around $430 billion. While I'm a skeptic by nature that price seems a little high despite how badly I want shares to get there for obvious reasons.  Either way the analyst cited strength in the Facebook's Messenger App and WhatsApp. I agree that there is a lot of strength to be found within these two products. Although I think monetizing these apps is another 1-2 years away as the company in the past year abolished the $1/yr WhatsApp renewal fee.

I'm going to remain patient until the shares are more reasonably valued. I might be waiting awhile, but one thing I have learned is that it is never good to chase a stock after an impressive run. You never know where the top might be.

Thursday, March 24, 2016

Weekly Market Review

Well it's a short week in the books as Americans celebrate the Easter holiday.

Everyone stood still for a moment as the terrorist attacks in Brussels flashed across screens earlier this week. My thoughts go out to all those injured and killed. I think it highlights a big gaping hole in the migrant issue. I just do not see this ending well which is painful to think. ISIS had warned they were sending militants in under the guise of refugees. It's a shame people still feel the need to hurt others.  Either way the markets seemed to shake it off rather easily.  In reality it will not have a big impact on 99% of business conducted globally. Tourism will drop off only to eventually resume barring no further attacks. I think this makes Brexit more likely as odd as that seems. It's just one big mess that seems to get only crazier every week in Europe.

Durable goods were released this week.  This is a widely followed measure of the economy.  As you can see the trend has been slightly down and sideways since late 2014. Coincidentally during that time the S&P has really not made much headway either.






All the talk has been about oil and stocks working in tandem. That might be true in the short run. However in the long run it will not matter. Good stocks will continue to go up no matter where oil goes after a long enough time period.  The bigger threat will be a stronger US Dollar. The more it rises the more earnings will be clipped at large multi-nationals. The greenback has been a bit weaker this quarter so far. I'm not expecting the same blame on currencies as last quarter.  Gold seems to be taking a breather after an impressive run this year.

The portfolio was pretty quiet this week. BoA/ML downgraded Altria while subsequently upgrading PM. Makes no sense to me but I'm not getting paid the big bucks to make that call. I probably should have worked for a big bank for big bucks. Oh well. To me they are both buys if you can get them below $59 & $93 respectively. PYPL was hit hard on a downgrade also. I'm not concerned one bit. Management provided guidance for the year and I believe it will be met.  I'll be looking forward to see if any momentum was gained in the first quarter.

That's all for now and have a great weekend.

Cheers,
The Long Haul Investor.

Wednesday, March 23, 2016

What's Going On?

I did not post about the Fed meeting last week as I was in a personal time crunch. Pretty much there will not be as many rate hikes as expected. That means one of two things.

It's possible inflation and the economy are a little softer than what the Fed would like to see despite what they say.  No matter what I thought it was a bit unrealistic rates would be raised four times this year after sitting near zero for almost a decade. Secondly the Fed's decision could hint that they see what other central banks are doing(negative rates or cuts), and realized they cannot raise at their original planned pace without causing a bigger rush into the USD.

I'm inclined to think there is a combination of both factors in this decision.  The rest of the world is slowing down, and the US economy is humming along at not a strong, but not terribly weak rate either. I think that is to the dismay of analysts & economists. For how much longer remains to be seen. Although it is entirely possible we cruise along here with growth ranging anywhere .5%-2%. Nothing to be excited about but compared to the rest of the world it looks pretty good.

I don't see to many bargains out there right now. Of the current stocks in the portfolio I'd only consider adding to HCP, PG, WWAV, PM, RAI, MO or CHD if they pulled back just a bit.

I had been eyeing Sherwin Williams or Valspar for an add. Then of course a buyout offer from SHW for VAL is going to merge the two companies. I guess that leaves me with only one left to look at. I'll wait to see if it appears the deal might fall through, but I'm not counting on that.

We have had a good surge from a few stocks including CMI, EMR, PYPL, and FB since February. Many of our other stocks have held steady which I am very pleased with. I'm anxiously waiting for March to end so I can calculate the portfolio results for the first quarter.

Not many stocks are looking cheap right now.  In the portfolio the only real values I see are IBM and maybe WAB from a historical perspective. I'd like one more solid pullback in the market to add to current positions and establish a few new ones. Right now it's not looking like I'll get a chance, but I'll do my best to be patient.

Tuesday, March 15, 2016

Jim Cramer on Tobacco Stocks

Jim Cramer the host of CNBC's Mad Money had a segment on tobacco stocks yesterday evening.

Interesting since I bought shares of VGR yesterday on the pullback which seemed to happen for no reason. I still think the dividend is ok despite the fact the company has a high payout ratio.  The company has borrowing facilities to help cover in a cash crunch, and the continued growth in its real estate should help the next 1-3 years. The tobacco operations are very stable and will be a pillar of funding the dividend.

I have been watching PM myself and would like to add it around $90 again. Cramer stated it would likely pull back to $93 so maybe I need to reset my expectations, but you never know.

Altria has been a solid winner for us. The stock just keeps chugging along time and time again. I'm looking for any move below $60 to add again.

I agree with the consensus on RAI. I want to add to the stock too but I just can't trust the chart myself either. I've been waiting for it to get below $50 again.


Friday, March 11, 2016

Weekly Market Review

"A fool and his money are soon parted" Thomas Tusser

I got that quote just a bit wrong when I tweeted it the other day as I was going off memory. Either way it's a true statement no matter the exact phrase.

The market looks to close higher for the week despite still being down for the year. The S&P started the year at 2038, and as of writing is at 2015. It seemed not to long ago everyone thought the world was falling apart as we saw daily 1% + moves in every direction possible. I'm sure there are people that sold out during the recent lows thinking they'd buy back cheaper. I hope they got their timing right.

I don't think we are out of the woods yet. I'm cautious to deploy anymore funds into our current holdings. I'm eyeing a few other stocks for good entries, but I just want to get them a little cheaper. With some patience I think I'll get some of them. I'm trying to be more patient in all areas of life for 2016. So far so good I believe, but I'm sure my fiancee may disagree!

We heard big news from the ECB this week. The Euro rallied and I think a lot of that was covering of positions. Today it's down slightly. I think if anything the expansion of the bond buying program, and other measures raised more questions than anticipated. For one the new bond buying program was expanded in size, length, and issue type. Obviously they were not getting the desired results with the original program. Also this serves as a way for banks to sever ties with riskier debt from companies they'd prefer not to hold. I don't see them parting ways with higher grade debt from companies such as Daimler, BASF, or Nestle. There must be quite a bit of liquidity concerns behind closed doors. I'm also not sure what bank in their right mind would park money at the ECB only to get less of it back. I do not think this policy will increase lending as borrowers need a clear reason to take the money and invest it. With EU growth coming in between 0.5-1.5% on average it's not an enticing proposition. Also banks have the option to move money to different areas such as overseas subsidiaries, store it in vaults, or buy equities. Altogether the situation is delicate out there in my opinion.

We will get some news from the Fed next week. Everyone will be going crazy over a potential rate hike. In reality it will not make much of a difference for many of our companies.  Ask the gentleman buying Baileys and a 6 pack of Guinness for the upcoming St. Patrick's day celebrations. I bet you he will care less about what interest rates are at 5 years from now let alone stop him each year from making the purchase. Of course that will be good for our pick DEO.

The portfolio was pretty quiet for the most part. IBM, CMI, & PYPL have all had nice moves lately. I'd expect some of the steam to wear off in the short term. Also MO, MKC, and PM have been very resilient which is nice to see.  HCP is a stock I've been thinking about constantly. In hindsight I wish I did not make that add. I would have loved to buy under $30 instead. I try to keep things balanced which is why I have not bought again, but that price is still tempting. The stock has moved straight up since it hit $26.  If it gets under $30 again it will force me to reconsider. I do believe the dividend is stable, and not many places can I park my money for 7-8% guaranteed this year.

There were some upgrades and downgrades, but that's just short term noise. I have a long time horizon when I make buys so I'm not concerned what some analyst with a track record I have no clue about thinks. That's the benefit of researching companies on my own. For all those interested there are a lot of good books regarding basic company analysis. For the most part though you need to hone in on a few key metrics, and then gauge them over time. Also never get caught up in what's hot. It usually turns cold very fast.

Cheers!
The Long Haul Investor


Thursday, March 10, 2016

Artificial Intelligence

There is a great article over at IBD highlighting some of the advancements in AI and the big companies behind it. Two of the companies in our portfolio are mentioned; IBM & FB.

I'm a big believer in the Watson platform developed by IBM. They are finally starting to realize the benefits of their big investment into the technology. In my opinion what's more impressive is how the company funded dividends and buybacks while shedding old companies, buying new ones, and still investing in R&D. Not an easy feat by any means.  I think it showcases the true strength of the company which is not reflected in the stock price right now. No worries as we will patiently wait.

FB was a bit more of a surprise. I knew they were into AI, but not to use it for the reasons stated in the article. I guess shame on me for not knowing. Either way a lot of people think FB is a one trick pony. That's absolutely not true and I highlighted some reasons why in my Does Facebook Have a Moat article. In due time this will be another barrier to entry for other players. You just don't build these systems overnight. Warren Buffet might be renowned for his barriers to entry as having a high cost hurdle and expertise for industrial companies. Well some technology companies are now mimicking the same exact kind of barriers to entry.

Alphabet(GOOGL) is a company in the article I wish I had in the portfolio.  The company is turning itself into a leader in the AI space even though most people know it simply for it's search, map, and YouTube capabilities. I remember about 9 years ago when the stock was trading around $200 share and people were proclaiming the end of the company for a variety of reasons as they struggled through a rough patch. Now if you combine the split company(GOOG) it goes for a combined $1450. I wonder who is laughing now? If only I had pulled the trigger myself all those years it would be me!

Tuesday, March 8, 2016

Upgrades & Downgrades

Today the portfolio received an upgrade and a downgrade.

BNP Paribas upgraded Phillip Morris to Outperform from Neutral.  I guess we will take it despite the fact the company will continue to face currency headwinds. In reality I'm not sure why anyone bothers upgrading or downgrading the tobacco companies. I'd bet more money has been lost following them than staying the course.

Credit Agricole downgraded Boston Beer Company to Underperform from Outperform.  Understandable considering the competition within the industry. Yet remember not to long ago when management told us to expect earnings of $7.60-$8.00 per share? Well I do and I'm sticking by the numbers those in the know give me; not some analyst.

Warren Buffet said it best. "Forecasts tell you a great deal about the forecaster; they tell you nothing about the future."

I've stated before I do not put much faith into analyst upgrades or downgrades. Most the time I'm suspicious of the reasoning.  Such as giving clients an opportunity to pick up shares at a discount or sell higher. Especially when it comes from JP Morgan or Goldman Sachs. Sorry but I just don't trust those institutions.

In reality I think SAM is a great buy under $200 and I stand by that. Let's assume the stock grows EPS by 7%/yr for the next 10 years with 2016 coming in at 7.80. That's a low assumption by the way considering the company has grown EPS by 21% on average the last 10 years.

YearEPSChange in EPS
20167.80.55
20178.350.58
20188.930.63
20199.560.67
202010.220.72
202110.940.77
202211.710.82
202312.530.88
202413.400.94
202514.341.00
202615.341.07

If all goes according to plan we can expect 2026 EPS coming in at 15.34 which would mean the stock is trading at 11 times 2026 earnings with today's price. Not exactly stellar, but this would assume the stock pretty much goes nowhere for 10 years too.

What if the company increased EPS by a more optimistic 13% each year? 

YearEPSChange in EPS
20167.81.01
20178.811.15
20189.961.29
201911.251.46
202012.721.65
202114.371.87
202216.242.11
202318.352.39
202420.742.70
202523.433.05
202626.483.44

Now the stock is trading at 6.6 times 2026 earnings. Well all the sudden this looks like a very attractive stock. Valuations on alcohol companies usually fetch a premium too so keep that in mind. 

In reality I'm not concerned how any of this will turn out. It is however a good exercise to see what you think EPS will be for your favorite companies later on down the road. Use any combination of changes you can think of. It might help you become more disciplined in your own stock analysis and picking 

Thursday, March 3, 2016

Costco Earnings

One of the newer additions to the portfolio reported earnings today. Costco reported EPS figures of $1.24 per diluted share, and revenues of $27.57 billion up 3% from last year. The company noted the impact from foreign exchange and price deflation took a larger than expected bite out of revenue and earnings.

Adjusted figures were decent showing a stable underlying trend. I'm not always the biggest fan of adjusted numbers since it allows management to temporarily cloak the real picture. But they are useful when you need to determine the underlying trend in the business is still intact.  No matter these impacts are very real and do take a bite out of company revenues and earnings. It's an issue that every company in the portfolio has been dealing with except for MO. In reality earnings declined because of these uncontrollable factors and that's part of the business cycle. We must deal with it and depend on management to navigate in proper fashion.

I felt confident enough about the company to make an add to the portfolio today.  I clearly got a better price than my first buy which I bought prior to the earnings release. Big mistake and one I regret. It left a sour taste in my mouth that I let my emotions play a role in that purchase.  I'm an ardent fan of the company and shopper at both physical locations and online.  I'm not likely going to add anymore shares after this for awhile. I don't want to get overly exposed to falling retail sales which has been hurting plenty of other companies right now. But Costco customers are more resilient to job losses and income pressures than at other retailers.

People claim that Amazon is going to put a lid on the company one day. I don't agree with that notion.  I use Amazon myself and find it useful for other shopping habits, but not everything. Costco has a unique merchandising operation and pricing system that keeps buyers coming back to stores. Also if Amazon is going to be it's downfall then why on earth are both Costco and Wal-Mart opening new locations each year? Maybe margins get more compressed but they are already so low there is not much more room for price cutting.  Plus you can't try free samples online at Amazon. Amazon is finally starting to make a profit after years of being a loser. While I haven't dived into the income statement details the impression is the AWS division carries a lot of weight there.  Of course none of this has stopped AMZN stock from outperforming COST for at least the last 5 years. Obviously if it comes down to it I can always buy AMZN too. I mean why would I continue to pass on a great investment if it continues to be one.

Wednesday, March 2, 2016

Warren Buffet's Annual Letter to Shareholders

It's no surprise around here that Warren Buffet is a well respected businessman and investor. Each year he writes an amazing letter to shareholders. I highly recommend every person take the time to read 2015's letter which can be found here. If time permits try to read all the old letters too. They are full of useful investing lessons, valuable life lessons, and the occasional WB joke(some quite good by the way).

I've actually been eyeing the stock(the cheaper ones). I might have missed a good opportunity when it traded below $125. Either way I'll keep my eyes peeled for a potential buy.