Saturday, April 30, 2016

The Long Haul Weekly Review

Another week in the books as we close the first  four months of 2016. Crazy it seems how fast time goes. It was actually a busy week for economic news. We received the  FOMC rate decision, Q1 GDP, Personal Income, and Personal Consumption Expenditures to name a few.

The Federal Reserve kept it's benchmark unchanged for the week. Completely expected. What I didn't expect was for them to remove the wording regarding global concerns. Either way the world is slowly lowering it's expectations for rate increases.  Whether or not it's the best course of action remains to be seen. Although I'm inclined to think behind the scenes the Fed is under a lot of pressure from external source to keep rates lower longer than they'd like. Higher US rates would spell disaster for European and Japanese economies which are toying with negative interest rates.

Let's look at  Q1 GDP which came in at 0.5%. That's pretty weak growth for the worlds economic engine.  Although it's nothing new with the recovery from the Great Recession as this has been a rather tepid recover overall. It should be noted Q1 is historically a weaker quarter. It's also a bit of a disappointment from recent Q1's. Let's keep an eye out to see if growth accelerates for the remainder of the year.


Next is Personal Income(PI) and Personal Consumption Expenditures (PCE). PI actually rose 0.4% for the month and PCE rose by 0.1%. It's important that wage growth continues to show increases, while people keep their spending lower. The caveat is they can't cut their spending so much it ruins the business that depends on their spending. Here is a graph showing income, spending, and savings. Savings is the lowly green bar at the bottom. Yes Americans are very bad at it.

Company Earnings
It was an extremely busy week for our companies that reported earnings. We received reports from RAI, VGR, MO, MA, FB, PYPL, PG & WAB.  Business is going as expected for all of our picks, however the direction of each stock is not always what we like.

The news from the tobacco holdings was as expected. For the most part the volumes were down across the industry.  However RAI, VGR, and MO continue to make good money from their products.

RAI is seeing good strength from the brands it acquired with its Lorillard acquisition. The company continues to stick out with being able to grow it's volumes and revenues. Although much of that is attributed to the acquisition, their brands are performing better than competitors such as MO, PM, and VGR.

VGR is a quiet stock you never hear much about. However one thing you don't hear about is the nice growth it sees from it's real estate division. This quarter saw revenues grow from $130 million to $157 million on transaction closings of $5.7 billion. That's a healthy number.

Procter & Gamble earnings were somewhat of a dud. The company is a cash generating machine, although that wasn't evidenced by it's 1% dividend increase for this year.  I do expect the company to experience challenges growing EPS. I also think the 1% dividend raise is a blip. I'm willing to think in a few years we'll see something closer to 5% on a regular basis.

Wabtec reported earnings that seemingly weren't so good, but I thought were in reality pretty good. The company is actually one of the better performers in the portfolio since the start of the year.  In hindsight what a steal the shares were in the $60's.  I'm expecting the stock to get back to its highs within the year.

MasterCard and PayPal also highlight our payment processing holdings for the week. PYPL really hit it out of the ballpark with it's earnings report. Both are seeing great growth in their payment processing volume as consumers continue to switch more of their transactions to digital. This industry is just humming along at a solid clip, and I'm proud to own a lot of the players. One thing to note is both firms talked about their initiatives to incorporate their payment processing with other platforms that will allow their customers to purchase products seamlessly. One of the other platforms they mentioned just so happens to be Facebook.

Facebook crushed their earnings again and the stock zoomed 10% higher to hit an all time high at $120. It seems the Zuckerberg & Co can just turn on the money spigot at will. The company continues to invest heavily in talent and other initiatives which will one day pay off. I compare it to Google back in the early days when the company just generated gobs of cash that it reinvested to research other opportunities. However FB is still cognizant that it needs to invest heavily in products that are paying off now too.  I don't think earnings growth is done yet for Facebook. I wish I could get the shares at a better valuation based on traditional metrics, but it seems that might not be the case. I thought about adding in the $90's but ultimately passed. This is a well run outfit and I'm looking forward to the rest of the year with them.

That's all for now. If you haven't tuned in already to the live stream of Berkshire Hathaway I highly recommend. I've been listening to it while I finished up this post. Have a great weekend!

Cheers,
The Long Haul Investor

VGR, MO, & MA Earnings

There were a few earnings reports we got this Thursday and Friday.

Vector Group(VGR) reported EPS of $0.16/share on revenues of $380 million. The stock moved up 2.5% on the news after recently drifting down.  There was no CEO statement in the press release

Our other favorite tobacco name Altria(MO) reported EPS of $0.62/share on revenues of $5.4 billion. The company reaffirmed adjusted diluted guidance of $3.00-$3.05 per share. The stock perked up towards the end of the week after drifting lower recently. Here is what the CEO Marty Barrington had to say.

“Altria is off to an excellent start in 2016, growing adjusted diluted earnings per share by 14.3% despite a tough 2015 comparison,” said Marty Barrington, Altria’s Chairman, Chief Executive Officer and President. “Our first-quarter results illustrate the strength of our core tobacco businesses and our focus on execution. And Altria paid shareholders over $1.1 billion in dividends during the quarter.”

“The smokeable products segment continued its outstanding performance with contributions across the brand portfolio. In smokeless products, USSTC continues to execute its strategies, including the successful national expansion of its innovative Copenhagen Mint.”

“We also have made significant progress against the $300 million productivity initiative we announced on January 28th. Among other actions, we completed the realignment of our organization in the quarter,” said Mr. Barrington.


MasterCard(MA) reported EPS of $0.86/share on revenue up 10% to $2.4 billion. The company didn't change its outlook for growth or earnings on the conference call. The shares really didn't change much by the end of the week either. The company is still seeing healthy growth across the board. Here is what CEO Ajay Banga had to say. 

“The year is off to a good start with solid growth in revenue due to strong volume and transaction levels this quarter,” said Ajay Banga, president and CEO, MasterCard. “We continue to deliver against our strategy, looking to our investments and acquisitions to create a better cardholder experience, supported by a relentless commitment to security. Our encryption and token services are helping to support new ways to pay in an increasingly digital world, while our APT and Pinpoint businesses are helping to drive stronger connections between merchants and their customers.”

Wednesday, April 27, 2016

Facebook & PayPal Earnings, and Fed Policy Statement

Today we received earnings from FB, PYPL, and received a Federal Reserve Policy Statement. I'll start with earnings reports.

Facebook announced a 189% increase in EPS of $0.52(GAAP), and revenues came in at $5.3 billion(57% increase). Revenues, earnings, and the number of advertisers all saw strong growth. The user metrics also came in strong.  The company also proposed a new capital structure that will allow Zuckerberg to retain control of the company while still allowing him to give to charity as most his net worth is tied up in the company stock. Here is what CEO Mark Zuckerberg had to say.

"We had a great start to the year," said Mark Zuckerberg, Facebook founder and CEO. "We're focused on our 10 year roadmap to give everyone in the world the power to share anything they want with anyone."
If you didn't hear the first warning shot at the 10 year road map announcement it definitely came through loud and clear in that statement. All competitors should be on alert because Facebook is going to eat your cake if it can.

Now to PayPal. 

PayPal reported Q1 earnings growth of 43% to $0.30(GAAP) per share on revenue that grew 19% to $2.5 billion.  The company reported strong growth across the board and is gaining market share. Additionally their new initiatives are turning out well. Guidance was re-affirmed for the year at $1.09-$1.14(GAAP). I expect that guidance number to be beaten, and I'll guess the full year will see $1.20-$1.24. Here is what the CEO Dan Schulman had to say.

"Our first quarter results continue to demonstrate the power of our global payments platform to attract and engage consumers, increasing our global scale and in turn attracting new merchants and partners to PayPal,” said Dan Schulman, President and CEO of PayPal. “Our focus on payments and ability to innovate for merchants and consumers continues to differentiate PayPal and drive our growth in a dynamic and competitive environment.”

Not to beat a dead horse but these two companies are killing it right now. I'm very impressed with the results for both and I expect more of the same this year.

Now on to the Fed policy statement. It was really a non event. They did omit the previous statement regarding their concerns for global financial developments. Apparently the rest of the world isn't a concern anymore. Amazing how one day you matter, and the next you don't. Either way expectations have been tamed and I think one more hike sometime this year should be expected. 

Is That A Conflict?

Knowing what a conflict of interest is in the investment world is supposed to be pretty transparent. Imagine a mutual fund company or research analyst is giving a talk and mentions a specific security in an interview. Normally it will be disclosed if the firm or analyst have a position in said security. That's all fine and dandy. But what about other conflicts that are not so crystal clear?

A good example is yesterday morning Global Payments teamed up with Goldman Sachs and announced an accelerated share repurchase agreement for $50 million.  That's great for shareholders since it will be $50 million less stock floating around making each share a bit more valuable. Nothing out of the ordinary here so what's the big deal?

The big deal is that morning Goldman Sachs also issued a coverage opinion on Global Payments. Goldman initiated coverage on GPN with a Neutral outlook, but their price target is $82. Yeah that doesn't seem "Neutral" to me either since the stock is trading around $73 as of writing. Apparently having around $10 a share in upside means you think the stock will stay flat.

Now imagine a rookie investor seeing ONLY the coverage opinion and $82 price target.  They might be inclined to think Goldman believes there is about $10 a share to be made all while giving them this info at arms length.  While that could very well be true it's just not seemingly the case.  This situation just appears murky. Goldman is clearly going to get paid for the share repurchase agreement. Also the fact that it's announced on the same day raises a flag.

So as a rookie you think it's a good time to buy shares and proceed to your favorite discount online broker to enter an order. Except the rookie investor normally doesn't follow any indicators let alone know they are flashing overbought on a few. He probably wouldn't realize the stock has just had a good run from the low 50's to the mid 70's so it's likely due to pull back or pause a bit.  Instead he views it as a missed opportunity, and must get in the stock before it hits the $80's! Now all of this is fictional obviously. But what if during the next few weeks shares turn down to the low 60's. The rookie would be sitting on a loss of almost $10/share instead of a $10 profit in the opposite direction. The rookie might be scared out of the position and realize a loss causing emotional and financial distress.
 
That's a big reason why I like to poke fun at some of the analyst opinions and research that is published. Much of it is not suitable* for investors, and is ripe with conflicts that aren't apparent.  I'll admit that in my younger less experienced years I put some weight into this kind of stuff. I slowly began to learn that none of it meant anything, nor did it help me reach my investing goals. I'm sure to some it is useful information, and very helpful too. Is what Goldman did illegal? No. Is it a conflict? Sure looks like it.

*By no means do I claim to be the smartest person or best investor.

Tuesday, April 26, 2016

WAB, RAI, & PG Earnings

Wabtec reported Q1 earnings of $1.02 per share on revenues of $772 million. The company re-affirmed guidance for 2016 between $4.30-$4.50. So far the stock is about 2% today. Here is what the CEO Raymond Betler had to say.

“We continue to expect another record earnings year, even as we face challenges in some of our key markets. We are responding to these challenges with aggressive cost- and efficiency-improvement programs, while continuing to invest in growth opportunities around the world. We remain optimistic about our long-term prospects and expect to continue to benefit from our diversified business model, balanced growth strategies and rigorous application of the Wabtec Performance System.”

Reynolds American reported  Q1 earnings of $0.50 on revenues of $2.92 billion. The company re-affirmed guidance for 2016 at $2.25-$2.35. Many outlets are also reporting the dividend was increased by 16.7% today. That's actually not true as the dividend announcement came earlier in February. The stock has been fighting it's way off the lows all day but is still down about 0.5%. Here is what the CEO Susan Cameron had to say. 

“Reynolds American’s operating companies began the year with strong momentum out of the gate, driving additional growth in RAI’s profitability,” said Susan M. Cameron, president and chief executive officer of RAI. “All of our operating companies demonstrated excellent performance, benefiting from increased volumes and higher pricing on both cigarettes and moist snuff. “I’m very pleased to report that Newport’s manufacturing integration is progressing smoothly and is now expected to be completed by the middle of this year, well ahead of the initial projection for the end of 2016,”

I just added shares of RAI on April 15th. I posted that buy to Twitter which you can follow here.  I'm very happy that I chose to add shares in this company as they are doing well. I was expecting the stock to turn down and I wrote about that here. I did state I wanted to wait until the stock pulled back before I bought, which is what I did. It's possible RAI hits the 200 day line around $45, and I would be happy to add again if it goes that far.

In that same post I said that I was going to add to MO if it got below $60. Well it did for one day going as low as $59.48. I had actually set a buy order at $59.50 only to change my mind shortly after I set it to $59.35. I'm hoping to get one more shot as they report earnings on Thursday.

Procter & Gamble also reported it's fiscal Q3 earnings of $0.86 on revenues of $15.8 billion. The company re-affirmed it's guidance for the year at $3.53-$3.65. The stock has been down around 2% most the day. Here is what the CEO David Taylor had to say.

“We continue to make progress on the transformations we are undertaking to return P&G to balanced top and bottom-line growth and maintain strong cash generation,” said President and Chief Executive Officer David Taylor. “We achieved a significant milestone this quarter in the transformation of the product portfolio with the sale of the Duracell business. We delivered another strong quarter of productivity improvement and cost savings, and we increased investments in innovation, advertising and selling to enhance our long-term prospects for faster, sustainable top-line growth and value creation.”

Saturday, April 23, 2016

TLH Weekly Market Review


The S&P 500 came within inches of it's all time high set back in 2015 this week. However the market faded towards the end of the week. Regardless it has been quite the run since the beginning of the year. I'd expect the markets to take a breather as players lock in some profits and digest earnings.


Visit StockCharts.com to see more great charts.

Speaking of earnings we are about to hit full stride into Q1 results. Some of our companies have already reported. Some good, some bad. 

International Business Machines(IBM) reported results that disappointed many at first. However the stock recovered after touching the low 140's and hit $150 on Friday. I think the turnaround is really starting to take hold. The company has reported strong growth in it's strategic imperatives which include cloud,data analytics, and security services.  I'm starting to wonder if I should make one more add to this stalwart. I have been wanting to add more blue chip protection, and BIG BLUE would fit the description. 

Phillip Morris(PM) also gave us a report that oddly surprised me. The company increased it's 2016 guidance to $4.40-$4.50. Just in January the company told us to expect $4.25-$4.35. I think that goes to show that the weaker dollar of late is going to boost earnings for companies with large overseas operations. Phillip Morris conducts virtually all of it's business outside the USA. Either way the stock has slowly started to pullback after a recent run to $100+. 

Boston Beer(SAM) so far has been a disappointment since I started adding a few months ago. I wasn't expecting this one to get me drunk on new highs as I began purchasing, but I wasn't expecting the stock to continue falling flat on it's face(of course after one to many).  The downside guidance is not particularly welcome, but if the company comes in at the high end of guidance the stock is giving investors a 4.7% stock yield. Not terrible, but not great. With my average purchase price at $195 the yield on cost is a paltry 3.7%. I'll look to see if the company can turn things around. 

Visa(V) issued some very good numbers too. The stock took it on the chin, but that is fine.  I'm expecting once the Visa Europe deal closes investors will be more comfortable to start entering the stock.  Right now anything with Europe related to it seems to carry more risk. This transaction doesn't warrant the same caution in my opinion.  I think many want to see how the merger will affect operations towards the second half of this year.  Plus don't forget the company expects to generate free cash flow of $7 billion for the year. That's an impressive number. 

On a side note GPN will be added to the S&P 500 after Friday's close.  That might cause some weird gyrations as traders look for quick cash opportunities. That's a nice accomplishment for the company to be considered one of the best. Also McCormick late last week backed out of its consideration for Premier Foods, but then closed on Botanical Gardens for $53 million. That's a small acquisition overall for the company. MKC has pulled back recently. If it can get down a few more points I might add. 

The ECB had a meeting this week. Mario Draghi stayed the course and emphasized they will continue to do whatever is needed.  That's all fine and dandy since European insurers and banks will soon(June) be dumping corporate bonds they don't want.  Institutions can sell up to BBB- rated bonds. Of course the proceeds will probably not be lent out as new loans despite the banks claiming otherwise.  Also inflation came in at a big fat zero despite the ECB's 2% target. Draghi actually stated in the Q&A the ECB's policy measures are working, but they just need more time!  He did note that structural reforms would make the policy measures more effective. In other words ECB policy measures are less effective due to government mismanagement.  Seems to me nothing is working out there. Interesting the ECB noted a Brexit would pose limited risks to the economic recovery.  So much for all those out there claiming it will wreck Britain and it's trading partners. 

There is a Fed meeting this week with a rate decision. No one is expecting any changes, but you never know.  Just a reminder that Earth Day was April 22nd. Take the opportunity to use less fossil fuels and be mindful of your impact on the environment with your daily habits. That's all for now. Have a great weekend!

Cheers,
The Long Haul Investor

Friday, April 22, 2016

Earnings - SAM & V

Yesterday we received earnings from Boston Beer Co and Visa.  Neither stock is getting much love today.

SAM reported earnings of $0.53/share and gave downside guidance for the remainder of the year. The new guidance came in at $6.50-$7.30, which is down from $7.60-$8.00.  That's not good news since their original guidance was just given last quarter. Here is what CEO Jim Koch had to say.

"Our total company depletion trends declined in the first quarter, even as the better beer and craft categories appear healthy. We believe Samuel Adams has lost share due to the increased competition and continued growth of drinker interest in variety and innovation. During the quarter, we rolled out new beers, including Samuel Adams Nitro White Ale, Samuel Adams Nitro IPA, Samuel Adams Nitro Coffee Stout and Samuel Adams Rebel Grapefruit IPA. These beers have started slowly, but their momentum continues to build. We believe that we are well positioned to meet the longer term challenges of this competitive environment, through the quality of our beers, our innovation capability and our sales execution strength, coupled with our strong financial position that enables us to invest in growing our brands."

Not exactly upbeat. The competition is strong within the craft category.  A few weeks ago I would have loved the idea of adding below $160. Right now not so much. I'm going to keep my eye on this one though as the company still has a strong balance sheet. If the stock dips to $140 I might make one last add. Oddly this would be a good price for one of the larger brewers looking to diversify into craft brands to pick up the company.

Visa also isn't getting any love. The company reported earnings of $0.71/share. Also the company is getting much closer to finishing the Visa Europe acquisition. Here is what CEO Charlie Scharf had to say.

“Visa reported solid financial results in the fiscal second quarter. The continued headwinds of the strong U.S. dollar, lower oil prices, and an uneven global economy are driving continued weak cross-border spend, but domestic spend continues at reasonably strong levels consistent with last quarter. In fact, most of our growth metrics look very similar to what we saw last quarter. The U.S. consumer remains strong, but we see weakness in China, Brazil, and oil based economies. Since we are not seeing any material improvements in economic trends, we are cautious as we head into the second half of fiscal 2016. The continued headwinds we see do not take away from the underlying growth in our business and our continued conviction in the great opportunities to grow global penetration of electronic payments for years to come,”

FYI the weekly market review will be out tomorrow. 

Tuesday, April 19, 2016

IBM and PM earnings

So far this week IBM and PM reported earnings.

PM said it earned $0.98/share, plus an increase in guidance to $4.40-4.50. Here is what the CEO had to say.

“In line with our expectations, our first-quarter financial results reflected a tough comparison with the exceptionally strong first quarter of last year," said AndrĂ© Calantzopoulos, Chief Executive Officer.

"Today we raised our full-year guidance as a result of moderating currency headwinds, which continues to represent a currency-neutral adjusted diluted EPS growth rate of approximately 10% to 12% versus 2015. We expect the growth to be skewed towards the second half of this year, and the fourth quarter in particular."

“Our confidence is guided by moderating industry volume declines and robust pricing, underpinned by our superior cigarette brand portfolio, led by our flagship brand, Marlboro. We are also excited by the progress, best represented by our impressive HeatStick share momentum in Japan, of our Reduced-Risk Product, iQOS."

IBM also reported but got pummeled all day. The company earned $2.35(non-GAAP) and $2.09(GAAP). Here is what the CEO had to say. 

"We are pleased with the progress we have made helping our clients apply new cognitive solutions and hybrid cloud platforms," said Ginni Rometty, IBM chairman, president and chief executive officer. "IBM has established itself as the industry leader in total cloud, analytics and cognitive, all of which helped drive our strategic imperatives revenue growth at a strong double-digit rate, substantially faster than the market."

If you are unsure what cognitive solutions and hybrid cloud platforms are don't worry. Ginni is basically referring to Watson in that statement. Why she didn't just say that is beyond me, but hey its a free country. 

Friday, April 15, 2016

TLH Market Review

It was a busy week here at TLH.  I have not done a lot of buying simply because stock prices had gone up and the good deals were hard to find. The jury is out whether I'm just suffering from an itchy trigger finger or if I made some good choices. Check back in 5 years and we shall have a better idea! I still have my eyes on a few other stocks, but that stingy market just won't give me another good shot. Maybe it's a sign?

However this week I did add to WWAV, RAI, and the all new Universal Corporation(UVV). Who? Yes that's their name alright. Universal Corporation is the top supplier of tobacco leaf and other value added services to the tobacco industry.  They've been around for over 100 years. You can see my write up here.  I was waiting for a pull back in some tobacco names and I felt adding to RAI was offering a nice price under $49.  With steady stocks I'm learning it's best to take the price when you can. I think if you are slightly more patient with a keener eye you can probably get better than my buy price, which as of writing is possible!! WWAV is one I'm torn over. The entire sector is unloved right now. However that's usually a good time to buy. The company is not cheap, but this will be my last add for quite awhile.  HAIN actually looks like a better value right now, and time will tell if I made the wrong choice.

The rest of the portfolio was quiet for the most part. Procter & Gamble announced a 1% dividend increase marking 60 years of increased dividend growth. While 60 years is very impressive, the 1% raise left a lot of investors wondering just how tough things are right now.  The company is under increasing competition from our fellow stock Church & Dwight, Colgate-Palmolive, and Unilever to name a few competitors.I noticed Colgate is actually breaking above a very long consolidation to new highs recently.  There is no doubt these stocks are steady and not very volatile.  I thought about adding to PG, but the lower than average dividend increase is making think twice for right now. However if the stock gets knocked back down to $70 I'd be a buyer.

Friday saw V, MA, PYPL, and GPN get a neutral call from Compass Point(huh?). Yeah I don't know who they are either. Their price targets were either all below, or right at current trading prices for each stock.  We know where I stand on this group.  The toll roads of electronic money will do fine, and one day we will look back at the price they were currently trading at saying "What a bargain that was!"

It was a busy weak for economic reports. Retail sales came in pretty weak declining 0.2% from the prior month. Excluding auto's the number is positive, but barely at 0.18%.  Judging by the chart we are dangerously close to hitting a downtrend into negative territory.



Industrial production also continued to come in weaker. Although some of that is attributed to a stronger dollar. The inverse correlation between the two isn't overly strong, but it's there.  Eventually the dollar hits levels that make it unprofitable for some manufacturers, and hence cut production.   

CPI also came in and the number was very modest.  That coincides with the Fed's reasoning that they want to see some strong inflation before doing anything.  I think the recent number will give them some leeway for not raising rates at the next meeting.  

Interesting enough initial claims for unemployment came in at a 40 year low.  A lot of people would tell you that doesn't mean anything. I'm undecided on it's real importance. There are certainly plenty of folks that never made it through the recession with a better job, or one at all. Yet it's hard to deny the numbers.  

That's all for now. Earnings will really pick up the following weeks.  I'll keep the blog updated with news as it comes in. Also for all the procrastinators out there make sure to get your taxes in by Monday.  The IRS is accepting returns until April 18 this year instead of today as the usual deadline. 

Have a good weekend!

Cheers,
The Long Haul Investor

Monday, April 11, 2016

Adding Universal Corporation

I added shares of Universal Corporation to the portfolio on Friday.  Many people are probably asking who?  Universal Corporation(UVV) is the largest publicly traded provider of tobacco leaf in the USA, and has substantial operations overseas. In a nutshell the company basically connects farmers to the largest tobacco manufacturing companies by procuring, processing, and storing tobacco. The company was founded in 1888 and is headquartered in Richmond, Virginia.

While it's mainstay procuring and processing operations account for the bulk of company revenues and earnings, UVV has branched out into other areas including some recently.  The company provides testing and blending services to customers. The company employs crop management solutions through their proprietary Mobileaf system used on tablets. The company has expanded into providing vapor liquids to capitalize on the growing field. Additionally  in 2015 the company entered a new business to produce high-quality dehydrated and juiced fruits and vegetables.

UVV isn't a blockbuster growth stock by any means. It's quietly worked under the radar in the industry for many years. Also since the company does not actually sell finished tobacco products it is not under the same scrutiny as MO, PM, or BTI. It is however subject to the same trends of declining tobacco use on a percentage of population basis especially in developed markets. The stock has also under-performed in the small cap space the last 5 years.

The balance sheet is actually very good. The company sports a current ratio of 5.71! Also total assets and liabilities come to 2.62, and when I take out goodwill/intangibles I get 2.50.  That signifies to me the company isn't very leveraged, and takes a prudent approach to keeping a strong balance sheet.

Revenues during 2009-2015 have been flat to declining while bouncing between $2.2-$2.5 billion each year. Operating margins have ranged from 7.4%-10.3% during the same time. The company has a net income percentage that normally does not go much higher 5%.  So for every $100 in sales we are left with $5 in profits at the end of the day.

EPS growth for the last 10 years has also been non existent by my calculations.  Investors have realized a scant 1% average rise in EPS from 2005-2015. 2015 EPS came in at $4.06/share.  I bet by now most people are wondering why I'm even considering this company and I haven't even mentioned other operating metrics.

The one bright spot is the dividend has been paid and raised for 45 years.  That's an impressive streak all on its own.  Now of course more downside. The payout has increased on average by only 2.15% the last 10 years. That's generally not seen as very strong considering plenty of blue-chips increase their payouts by 5% or more on average each year.

So why am I even buying this company?

The short answer is because of the stability offered by this company.  While it's not exactly a blue-chip the company exhibits well managed stability and dividends that are very dependable. I mentioned the other day that I'm looking for more quality.  The nice fat 4% dividend yield will provide that.  Of course I could add to EMR or IBM which are prime examples of blue chips that recently yielded 4%.  I am actively looking to add shares of each company.  There is also a small part of me that is thinking this overlooked company might even begin to outperform its historical self, but not necessarily the overall market.  Either way I see the downside as very low, and any additional upside will be a welcome surprise.

Sunday, April 10, 2016

Weekly Market Review & Portfolio Adds

The market ended the week on a down note. That is to be expected considering the rally from January lows, and the lackluster sideways action most of March. Traders and other participants have to take their profits eventually. There were no major economic releases so institutions, traders, and investors alike were left to their own perspicacity.

There will be more economic news next week as we get the Fed Beige Book, CPI, Michigan Consumer Sentiment, Retail Sales, and Industrial Production. Industrial production and Retail Sales will be especially important.




For the week the S&P fell 1.3% .A down week does not mean the cliff is falling. Although after the last year a lot of people are still on edge. Believe me there are plenty of reasons to worry.  Central banks that send different messages every other month, negative interest rates, currency swings, and social unrest in many parts of the world can leave the average investor feeling apprehensive. But worrying short term is a futile exercise in human discernment. Especially when it comes to investing. Because short term obstacles do not stop long term progress. If that were the case the Berlin Wall would never have fallen, or women would not have gained the right to vote(almost everywhere) the last few centuries.

I also highlighted the other day how high quality names were outperforming the overall market.  I expect that trend to continue and I'll try to re-focus my efforts to make sure the portfolio doesn't stray to far away from the best names around.

Now to some portfolio news.

Global Payments smashed it's quarterly results topping EPS estimates at $0.70(non-gaap). Remember when the stock took a dive on news of it's Heartland acquisition? We can thank those investors for being short sighted as it allowed us to enter the stock at a much better valuation. The company should complete the transaction within a month. The stock is now closing back in on it's all time high.

Facebook announced a big update to its video platform.   Now you can stream live video to your friends, family, groups, and even schedule live video events. While I don't see this as a head on challenge to YouTube it certainly puts the video sharing site closer within the crosshairs.

Morningstar downgraded IBM.  I think that's ill-advised at this point in time. The analyst cited a bunch of concerns even the most novice of investors have known for awhile now.  I think the company turnaround is about to hit full steam in the next year, and I'm sure investors will begin to anticipate the change in trend.

I also made some adds to the portfolio on Friday.  Shares of WWAV were added, and also a completely new pick UVV.

WWAV is a buy I hope to not regret.  The problem is each time I buy their plant based milk I fall in love with the company even more. They are the market leader and I'm impressed with how quickly the company has turned itself into a leading organic and plant based food company.  The balance sheet is not the strongest, but I stated before that if no more acquisitions are made the company will be fine.  The stock has been stuck in a downtrend for awhile now, and I think the worst is over for the time being.  I can't envision sales growing at the solid clip from 2013-2014, but I think better than 7% is an achievable target for the next few years.

Universal Corporation (UVV) is in the tobacco industry. They are the primary tobacco merchant in the country. The company also provides a variety of other services including supplies for vapors and e-cigs. They also sport a solid and fat dividend associated with the sector. I'll have a write-up regarding the buy in the next day or two. I think this company will add some extra dividends and safety I'm seeking for the portfolio.

Earnings season will kick off in earnest this week.  A slightly weaker dollar should put some of the wind back into company earnings. We'll see how everyone is managing in this tough environment. Also I'll keep my eye out for any quality stocks that get knocked down unnecessarily on a quarterly miss.

Also don't forget to follow on Twitter.

Cheers
The Long Haul Investor



Thursday, April 7, 2016

Blue Chips Outperforming

Check out this chart from StockCharts.com comparing blue chip quality stocks to the overall market. What's interesting for 2016 is how much better high quality stocks have been performing.  It was also noteworthy DJIA did not penetrate the Aug/Sep 2015 lows earlier this year, but the S&P 500 did. Investors are clearly favoring blue chip quality stocks.  No surprise as they are usually more stable, and reliable in times of worry.


Visit StockCharts.com to see more great charts.

Wednesday, April 6, 2016

Global Payments Earnings

Global Payments released fiscal Q3(Feb 29) earnings this morning. The earnings release can be found here.  Earnings came in at $0.53 for the quarter, and at $0.70 on an adjusted basis.

Here is what Jeff Sloan(CEO) had to say.

“We delivered strong financial results for the quarter, accelerating growth across our key markets. We are especially pleased with our performance in North America and Europe, with sequentially higher adjusted net revenue growth in the United States direct channel and the United Kingdom,” said Chief Executive Officer Jeff Sloan. “We also grew margins in each region, highlighting solid execution.” 

Sloan continued, “We are delighted with the progress we have made on the partnership with Heartland Payment Systems and look forward to closing the transaction later this month. The combination with Heartland will transform Global Payments into the leading provider of payments technology solutions worldwide.”

Shares are up over 8% to $70 a share as of writing.  The market clearly liked this one. The stock has had a huge rally from the low $50's to $70 so I might not get a chance for another buy as hoped. I'll keep my eye out for one more opportunity to buy under $60, and I shall take it as lesson learned for not adding in March when I knew the shares were still at a good price.  

Monday, April 4, 2016

Smith & Wesson Lesson

Every once in awhile I like to check up on a stock I used to own.

Smith & Wesson is a company I owned a few years ago and purchased when it was trading at $10.  I sold when after about a year the stock hit $17(June 2014) and I felt it was overvalued.  Coincidentally the market agreed with me and I nailed a top.  Believe me that does not happen very often for myself, and I'm not ashamed one bit. Not to long after the stock was trading around $10 again.


Visit StockCharts.com to see more great charts.At the beginning of 2015 I thought about taking another position. But alas I let it slip my mind and put funds to use in other ideas. As one can see from the chart what a nice investment that would have been. Yesterday the stock was downgraded by not just one, but three separate analysts.  The shares took a huge hit. Yes the shares got away from themselves as evidenced by the chart action. The long term view is completely different until someone invents an entirely new type of firearm.

Either way the whole point of this is to learn from past experiences.  Yes I should have bought when I knew the company was undervalued again at $10. The other key item to point out is that staying invested would have done me just fine too. Though yesterday's move would have put the hurt on.

That's the key to success. Staying the course is sometimes the most widely overlooked piece of investment advice.  Once you find a good company it's best to stick with that stock for the long haul.


Sunday, April 3, 2016

Portfolio Results and Weekly Review

I was eager to calculate the portfolio results as Q1 came to an end. What a ride it has been. Back in January volatility was so high many people were expecting another 10-15% drop. Alas the market fought back and the S&P 500 ended the quarter with a .08% gain to the surprise of many. The S&P staged one of the wildest quarters in history as the index was down nearly 13% shortly after the year started only to rally all the way back. If you went to the moon January 1 and came back April 1 you would have never known it even fell. It remains to be seen how the rest of the year will finish, but I think this will be one exciting year to say the least.

So let's start with the laggards.  Hard to believe but there were a few stocks that either made no progress since the beginning of the year, or went down further despite the huge market rally. COST, DEO, HCP, MA, SAM, V, and VGR all ended the quarter down from where the year started. I'm not at all worried about any of the picks.  HCP hit us really hard when they lowered their FAD guidance for the year. Of course I bought before the news with my fabulous timing!. Investors seemed to shrug off the dividend raise too. VGR is one I'm a bit surprised about, even more so than MA and V.

Stocks that really didn't move much were BUD, CTSH, HAIN, PG, and WWAV. I think HAIN and WWAV will continue to have some rough stretches in 2016. The organic and healthy food space is more competitive than ever this year. PG is a slow steady pick, and their Gillette line is under attack from cheaper options.  I want to add to this one again as it's not very volatile, and an income investors dream for reliable cash production.

The big winners for us this quarter were CHD, CMI, EMR, GPN, FB, IBM, MKC, PM, and WAB. Not all the picks were up huge amounts, although some of the picks in the portfolio are up over 20% from their lows this year. Emerson was a classic example of basically nailing the bottom which is extremely difficult. Since our purchase the stock has rallied all the way from $42 to $54.  I definitely would like to add more shares of this industrial and engineering giant at a better price if I can get it. In hindsight I really should have added once more to CMI, and even MKC.  Each represent the epitome of being highly undervalued, and the latter a stalwart blue-chip.

Overall since I started tracking the portfolio has returned 4.81% while an investment in SPY would have yielded 4.30%*. Quite the difference from December when the portfolio was down and the SPY was up almost 3%. Feels good to beat the benchmark for one quarter, but I'll need to work extra hard to keep it up. For the year overall here is how the indexes have fared.

  • Nasdaq Composite -2.8% YTD
  • Russell 2000 -1.9% YTD
  • S&P 500 +0.8% YTD
  • Dow Jones +1.5% YTD

Now time to recap the weeks action. There was not a lot of significant news in the portfolio. Some of the stocks were upgraded and downgraded or given new price targets.  I don't base any of my decisions off that as I do my own research. Although I periodically will poke fun at some, or mention one if it's noteworthy. IBM purchased BlueWolf which is a big Salesforce partner.  A lot of people have underestimated this company.  Not me, nor Warren Buffet.  The market liked the news and the stock has had a great run from the $120's to $150. I for one would never bet against a company that has found multiple ways over time to transform itself into something better. Also GPN completed its financing to acquire Heartland. 

Wall Street started off quiet as Easter was observed in Europe, and likely many traders took an extra day off too. Then Janet Yellen spoke on Wednesday at the Economic Club of New York.  Everyone went nuts. Janet basically rebuked recent comments from James Bullard, and made it clear fewer rate hikes were coming.  I didn't believe the Federal Reserve was really serious about 4 rate hikes in 2016. My belief is it was a test to see how everyone took the information.  Well Janet Yellen probably fielded a lot of phone calls from the IMF and other central banks to cool it. As everyone else in the world goes negative, a stronger dollar will cause huge disruptions worldwide. Janet Yellen hinted towards that exact concern as she stated global affairs are very important right now. 

Why would it be important?  In a nutshell a stronger dollar will cause even more international capital flow into the USA.  Not to mention all the dollar denominated debt issued internationally during the Fed's QE program which would make the debt rise in value. Now we have filled the powder-keg just waiting for a spark.  In essence past decisions have handcuffed Janet Yellen, and she'll likely have to deal with the repercussions. 

That's all for now. Hope everyone had a great weekend. With spring hitting full gear let's take time to enjoy the change in seasons!

Cheers,
The Long Haul Investor


*This is based off a total return calculation which will be used going forward. See the spreadsheet for calculation details.