Friday, July 22, 2016

TLH Market Review

Another week and more highs were set in stone. I guess sell in May and go away was a horrible investment strategy this summer.  Good thing for us we don't believe in such nonsense to guide our investment themes.  The portfolio continues to perform well, and I'm expecting it to separate itself from the index during the second half of this year.  

We had the Republican Convention this week, and it looks like we finally have what everyone knew all along. You've probably been reading or hearing about the Presidential/Stock Cycle. Well I wouldn't worry about that correlation either. No matter who is President quality companies will continue to find ways to make money and increase value for shareholders. Just another piece of nonsense to throw us off our game in my opinion.  

Economic news continues to come in pretty good. We received another great Initial Claims for Unemployment report with 253k people. I had to look it up myself when I saw this, but this week marks the 72nd straight week claims came in below 300k. That's the longest such streak since 1973. Also another hard to believe fact is that claims are their lowest levels in 45 years!!! It's all about what you do in this economy.


Existing home sales continue to show gains. The median existing home price is up 4.8% from June 2015 to $247,700. After being a drag on the economy for so long it still appears that real estate, especially in certain areas, is kicking in a little growth to the economy.  All gains however are not created equal.  

We had a slew of earnings reports this week from PM, IBM, V, PYPL, and SAM. 

Phillip Morris from what I'm seeing is having a great year despite the currency headwinds it's faced.  The company raised guidance despite the fact they have curtailed share repurchases the last year as they struggle with cash flows(currency effects). Internationally smoking is more prevalent than it is here in the US.  But I'm beginning to think the e-cig/vaping sector is going to start making some real headway in the next few years. I see it more often on the streets than I did a few years ago. I'll be interested to see what Altria and Reynolds have to say on this area. PM will also benefit from this growing trend.

IBM seems like a mouse on a wheel.  They keep running faster and faster on their strategic imperatives, but can't seem to offset their legacy business declines.  This is the tough part of longer term investing.  Despite the fact the company is showing great progress they are still struggling in others. The stock reflects this. The recent run up has been good, but it's still a far cry from the days when it traded near $200.  I'd expect it to have some choppy action as it tries to break through resistance zones. 

Boston Beer had what a lot of people probably think was a bad quarter. Lower shipment volumes and market share losses all over the place. Additionally statements from Jim Koch and the CEO weren't very upbeat as they cited increased competition.  Still the stock is popping as of this writing.   EPS was guided lower even at $6.50-$7.00 for the year from a previous $6.50-$7.30. So why the pop? Honestly I think it's just short covering to explain some of it.  The shares were taken to the woodshed the last few months. They were starting to have a nice run up, and if I were short I'd thinking this is the worst of the bad news so time to get out and protect my profits before they disappear.  Shorts usually create the fuel for a change in trend. I wouldn't count them out though. This is a very well run company.  They'll find ways to get consumers back to their brands even if their startup micro-brew glow isn't as strong as it used to be. 

Visa had a tougher quarter to decipher since it included much of the Visa Europe transaction.  Long term this is good for the company. How can that be since Europe is seemingly such a mess right now?  The governments out there are moving faster to convert the economy to a more digitally based one than here in the US.  The motives we won't discuss, but I know one thing is that's good for Visa. The company did announce a big $5 billion share repurchase, which makes for a $7.3 billion total authorization. Don't be to fooled by that number. As part of their Visa Europe transaction they issued preferred shares convertible into common shares currently valued at $6.1 billion. So on a net basis they are making sure they don't dilute current shareholders. EPS guidance is weak as they are expecting negative to low single digits growth for the remainder of the year. So don't expect the stock to fly out of the gates just yet. The company also announced a deeper partnership with Visa. This is good for both companies.

PayPal had a strong quarter. Revenues continue to grow at a solid clip up 15% to $2.6 billion, and EPS growth came in 7% higher. The company guided the rest of the year at $1.11-$1.14/share. The stock has a P/E of around 33 at this area.  So it does trade at a premium.  The portfolio isn't premium averse as you can tell with holdings such as FB, GPN, CHD, MKC, & HAIN(Surprised to see some of those names in there?). The company is still doing a great job at growing itself. The Visa partnership only makes it easier for customers to use Visa branded payment options with their PayPal accounts. It also offers customers greater real time insight to their spending. That's a plus for everyone involved.In the payment space it's inevitable that you'll need to use a competitors highway eventually.  I like to make it analogous to the Comcast/Netflix internet dispute.  Sometimes enemies have to work together.  

If you noticed IBB had a good pop this week due to Biogen having a good earnings report which is one of the ETF's largest holdings. The ETF has struggled of late despite new highs for the market. 

Have a good weekend!

The Long Haul Investor

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