Sunday, July 31, 2016

TLH Weekly Review



Another dull week in the markets, and the DNC in Philadelphia. Both were so boring it put Bill Clinton to sleep in one of Hilary's speeches.

Every was waiting to see what Janet Yellen would say Wednesday. The market didn't expect a rate hike while I was a bit more skeptical. Alas there was no rate hike, but she did include some stronger than normal language. "Near-term risks to the economic outlook have diminished". That was the exact phrase used. Also they noted economic activity has continued to expand moderately. I'm not sure what they are waiting for, and the 1.2% rise in GDP reported Friday definitely makes the case stronger for a hike.

Now GDP will be revised a couple more times over the next few months, but it's still growing. I think what concerns the Fed is the lower growth rates we've experienced. A lot of that can be attributed to a lack of confidence this year. Not only was business dealing with Brexit for so long, but also the fact that this is an election year and no one really wants to make huge investments without knowing who will be in charge come November. Business confidence was actually cited in the GDP release, and it makes a showing in durable goods orders posted this week.

Durable goods came in at with an extremely low -4%. Now people are quick to point out that excluding transportation the number was only down -0.5%. But let's not get to worried. I think the Fed said it best that our economy is still expanding moderately.

Internationally Japan has instituted quite a large economic stimulus plan this week at $267 billion. Then the BOJ decided to not really change anything in it's current monetary policy. The BOJ response sent the yen soaring against the Euro and US Dollar. The current plan is to continue buying government debt, corporate debt, -0.1% interest rates, but ETF equity buying would be increased quite a bit.

It was a big week for our portfolio with 10 companies reporting. I detailed most of them in a previous post this week(besides BUD). I'll briefly summarize each again.

Facebook(FB) is one of the most widely watched stocks out there, and I'm glad we own it here. The company just continues to blow it out of the park with earnings and revenue increase. They are almost a true money making machine. The company reported earnings up 184% and revenues increased 63%. Absolutely solid numbers.The stock is still by no means cheap, and I've been reluctant to add. Still the company is finding it's user base very receptive to advertising, and plenty of business willing to pay up for the privilege.

Internationally we had our alcoholic beverage makers both report earnings. I'll detail BUD a bit more as they reported Friday. The company has been in the news a lot as their merger with SAB Miller appears to be hitting a few snags. The company had to up it's offer to 45GPB as a result of the currency falling in value. It seems there is some dissatisfaction among some shareholders. I'm willing to think this will get resolved especially since regulatory approval was given in many countries already. But you never know so stay tuned. The company had pretty good results overall. Q2 EPS came in at $0.09(basic), and normalized earnings at $1.06. Now there is a lot of accounting going on with the merger so this is not a good quarter for earnings as proxy for business strength. Revenues were strong up 4% to $11.05 billion. The company is seeing nice growth in it's biggest brands, although they are feeling the heat just a bit in their craft brands with increased competition.

Diageo(DEO) reported a quarter with lower sales and earnings, but the company was able to showcase why it's still ownable. They found ways to increase cash flow by $134 million, or in other words they became more efficient. That's how a good company works.

Wabtech results were definitely less than stellar, but the stock was able to recoup it's losses after the announcement which is a good sign so far. The new guidance of $4.00-$4.20 is upsetting, but the company is doing a great job maintaining margins, and keeping costs in check.

Three of our tobacco holdings reported - MO, RAI, & VGR. The big surprise came when RAI announced that industry volumes have dropped 4%, but looking a little deeper some of it was due to inventory fluctuations. Still the downtrend persists, and its apparent they are all looking to reduced risk products to really start filling the gap. Although they are all in hover mode as they await new regulations from the FDA. The group as a whole was down after earnings, but has rebounded some since. I think it's time for a breather with this group as it's been one of the years best performers.

Two of our payment processors reported as GPN, and MA both releases results that were good. GPN gave guidance that I think is throwing some people off right now. It seems earning growth isn't what some were expecting. I'm willing to give the company time to digest it's Heartland acquisition as it's a pretty sizable undertaking. MA once again showed why it's one of the best in the space. Transaction and volume growth continues to be strong across the board. I really like this pick for the long term.

Our atmospheric gas stock Praxair is another "boring" pick that reported good results. Overall the slower global economy is pinching results.  Remember that even though things aren't great here, they are even worse in other parts of the world.  I think their results reflect the struggles overseas, and the energy market is still a drag as more projects come offline. Earnings guidance was re-affirmed and I'm confident they'll meet it.

The market is still trading near highs. The Nasdaq had it's 5th week in a row up.  Big earnings from AAPL, FB, and GOOGL certainly help. I'd like to see it reach new highs and confirm everything we've seen in the S&P 500.  That's all for now. Hope the weekend was fun!

Cheers,

The Long Haul Investor



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