Sunday Reads May 28, 2017

  • a sizable group of indicators, and a short summary:  “The nowcast for the economy remains positive, as does the near term view, with both stocks and jobless claims leading the way.  The longer term forecast remains neutral to positive, shading a little closer to neutral based on the tightening yield curve, less robust growth in real money supply, and the miss in corporate profits.”  Source
  • Two things here (Factset):  a) Europe growing and b) positive forecasts coming out of S&P Q1 earnings.  One can rationalize pollitically and economically why growth is moving away from US.  Aggregate indicators like this can be misinterpreted and misused … i see these like tail / head winds that need to be considered when looking at specific companies.  The industry data sets are important, however.   Source
  • Jeff Miller’s posted weekly snapshot 
  • A great overview of BMO, my fourth largest stock holding with cost basis of $53.19 / 5.19% yield – https://seekingalpha.com/article/4077038-schedule-canadian-banks-part-1-6-bank-montreal 
  • Not sure i agree w/ this perspective on Convertibles, but was worth the internal dialogue.  Source – i looked at ETF, ICVT, for a quick reference:  low yield, low analyst ratings, and a steep positive price slope (where’s the value?).
  • A good fist-full of data – http://brooklyninvestor.blogspot.com/

Will come back w/ a post on last week’s catching falling knives.

Language choices matter

The language news sources choice matters … significantly in my opinion.  Here are the framing assumptions:

  • Many people (investors too) read headlines and snippets and few take the time (or have the time) to read the full text and try to comprehend the nuance
  • All stories, investment stories too, have nuance
  • The language used in headlines creates and demonstrates the bias of the writer and perhaps “the street” for investments

Here is a good example from Briefing.com … “…worse than expected earnings and a 3.0% decrease in comparable store sales” … this just feeds the negative bias for retailers.  When actually, the earnings were $0.01 from consensus, and revenue (which i find most important) was about 1.0% ($6.2m) above estimates.  But that was not mentioned.  So income missed, revenue exceeded, but the headlines completely avoided the positive (revenue).

For the headline readers, continue selling the retailer.  For those of us who actually read the details and try to understand the nuance, we will do our best to take advantage of your headline only ignorance / actions.

Thank you!

Sunday reads & weekly commentary May 7, 2017

Triple Net REIT Noise – Increased my O

Yesterday was one of those days for Triple Net REITs due to one specific REIT disasterous earnings.  Like the lemings that investors typically are, every like REIT suffered max exodus – the fear quotient.  I got out my check book and increased my position in O.  I basically doubled my overall position across both taxable and non-taxed accounts.  I grabbed the knife on the way down and did not get the absolute bottom – two positions, 1@55.5 and 1@55.8 … i’ll take the cuts on my fingers for this one.  Brad Thomas (Mr. SA REIT) wrote similiarly yesterday and promised to write more about O.  https://seekingalpha.com/article/4069400-thank-spirit-spooky-earnings-results

PFE and a good Wednesday read

Yesterday, i doubled my PFE holdings with a purchase <$33.  While something less than $31 would have been ideal, i compromised my target buy to increase position before X-div date upcoming.  Sometimes buy / sell targets are ‘guidelines’ like the pirates code.

A really good quick read on how people can hold too tightly to historical versions of the world … always learning, always mashing up past with future seems good advice – http://awealthofcommonsense.com/2017/05/experts-on-an-earlier-version-of-the-world/

TSCO – just cannot pull the trigger

I have been watching TSCO for quite a few months now and remember the stores from my growing up in the mid-west.   the price passed thru my ‘buy target’, so i took another look through my ‘relative growth’ model tool that looks at future capital and dividends with a blend of historical and forecasted numbers.  two reasons i just cannot pull trigger … first, the dividend yield 3 years out remains below 3.5% which is my favorable 3 year floor.  second, even though the capital appreciation on the low side should be somewhere close to 9% annual appreciation, i fail to see how rural america and small town america which is the heart of TSCO customer base will stay even with where it is now … a cyclical decline based on a) international competition for commodities, b) demographics behind the aging populations, and c) the further exodus to urban centers for jobs, education and promise

i took the target down $2 from today’s close to $59, and i am still frozen on same two rationale.  there has to be some new sign of growth in the customer base and the business before i can pull the trigger … more waiting, though TSCO now moves from a radar slot #4 to a #6 (just watching).

If you want a blank Google Sheet w/ the relative growth model, email me @ michael@plansandclues.org

Small adjustment – RY to T

based on two factors:  a) canada real estate bubble anxiety and b) T yielding 5%.  I own two of the 5 Big Canada Banks (BMO and RY), but today i reduced my RY by 30%.  Took those funds and a bit more and purchased more T for the 5% dividend, and lower capital risk.  I may also add to VZ position above 5%.  Everybody seems to hate VZ and T these days, and that usually means the floor is close – and i have a hard time seeing their businesses going away or even declining materially any time soon.  Of course, they (VZ / T) need to figure out a higher ARPU and avoid being commodity digital conduits.

Sunday Reads & Weekly Commentary – 4-30-17

Commentary -> I did follow thru and removed a bit of INTC from taxable account and sold the remaning CAH.  I also took profits on the UMPQ trade position that i took – gross return was ~7% for a <30 day hold; this could be a repeating pattern between $16 and 18.  As much as i wanted to take a couple of new positions (expanding current ones too); the prices just did not hit my trigger target so i held off … of interest right now:  T, VZ, VNQ, O, FPI, and TSCO (on the latter, i have yet to convine myself that a) rural US will avoid further declines and b) TSCO can hold sales against the others, e.g., WMT, AMZN, HD …  i am also watching ETFs carrying China, India and other emerging markets.  I have yet to find the best way to invest there.

Watching ahead next week … mostly irrational moves and reactions to macro and political perceptions.  One observation is that since the US election, the market has reacted to perceived / anticipated events more than to fundamental facts.  I will stay focused on the facts, and react when others ignore them and create opportunities.

 

GDP fog

a post today shows how the fog of GDP forecasting is rolling in for this Friday’s expected report on Q1.  https://seekingalpha.com/article/4065188-u-s-q1-gdp-estimates-run-gamut-ahead-fridays-report

If there is clarity to either high or low side of the estimates, i can predict too much talking and a bit of emotional response (especially on the low side).  Regardless, the report will be worth paying attention to for support or challenge to one’s thesis wrt growth and reflation.

Sunday Reads April 23, 2017

  • Agree or disagree, this thesis is very similar to mine and why i have CSCO in mutliple accounts https://seekingalpha.com/article/4064344-3-reasons-bullish-cisco-systems 
  • More confusion in the CAH narrative, though this article reflects my thinking … i had a small position at $69, sold half of it at >$82, and now am leaning toward eliminating the remaining at a small gain rather than add more.  https://seekingalpha.com/article/4064312-dividend-aristocrat-cardinal-health-drops-12-percent-buying-opportunity-value-trap  It may not be a value trap, but i regret not selling my full position above $82.
  • Housing costs rising 2x income growth (without factoring inflation) https://seekingalpha.com/article/4064318-americas-real-estate-booming-bubble – one would think that an opportunity exists to provide more supply at lower prices if land and construction costs work out favorably.
  • From Jeff Miller’s weekly post
    • i think this ratio between earnings (GAPP i like better) and revenue is material in either a micro or macro analysis.  I could entertain a socratic discussion on if the delta between the two or their trends (and the corrleation between them) is the more important metric – i am not sure if i have an opinion yet.   <quote> “To date, 6% of the companies in the S&P 500 have reported actual results for Q1 2017. In terms of earnings, more companies (76%) are reporting actual EPS above estimates compared to the 5-year average. In aggregate, companies are reporting earnings that are 6.7% above the estimates, which is also above the 5-year average. In terms of sales, more companies (59%) are reporting actual sales above estimates compared to the 5-year average. In aggregate, companies are reporting sales that are 0.2% above estimates, which is also above the 5-year average.”
    • Jeff also pointed here, and i echo his comments – sad that this was not more widely discussed and we each should read –  http://www.imf.org/en/Publications/GFSR/Issues/2017/03/30/global-financial-stability-report-april-2017
  • Blackrock opines about favorable market segments for investors … i tend to agree with most of it but i am not a fan of Japan (i just cannot get my head around the growth potential and interest rate return for the risk)  https://www.blackrockblog.com/2017/04/20/investing-opportunities-2
  • Overweight into Tech and Financials http://fundamentalis.com/?p=6860 – i agree but add a  third:  healthcare
  • Not associated with a specific reading but plotting the plan over next 7 days.
    • Two reductions planned:
      •  INTC allocation is too high at 9.5% of taxable account – reviewed selling near term calls, but the prices do not justify holding the capital risk captive – i will sell 50% of the targeted reduction before earnings and accept the risk with the remainder
      • CAH as indicated earlier i think its time to exit 100% – just wish i had done it when i sold 50% above $82.
      • I can easily re-acquire the income (dividend) from both with adding to PFE or starting new position in BMY (or both)

Is there an issue with growing divergence between GAAP and pro-forma?

One of my more favored SA authors published a piece this week that had a very interesting graphic on the growing delta between aggregate GAAP and pro-forma corporate earnings.  This analysis aligns with my thesis that economic growth is not accelerating as people want to believe and the recent FED moves are more about putting bullets back into their weapon, than really slowing down inflation.  The negative element to this article and many of the comments is the political overtones that sound more like opinions and beliefs.   Just the facts and an analysis of the facts, please?

https://seekingalpha.com/article/4064161-brick-wall-front-trump-agenda-rally-2_0

Just a reminder

In a SA article this morning, https://seekingalpha.com/article/4063767-stock-bond-markets-alpha-coming-back, there is a very interesting reminder buried in the discsussion … traditional bond houses do not make money without volitility.  Their greatest profits come from other people’s mistakes.  While the new world of passive algorithmic trading is making some people very rich, many of the traditional vultures are hurting.  Makes it also very hard for small investors to find obscure values that the market will discover afterwards.

JNJ – thought about it

My cost basis for JNJ is about $88.  Today’s drop got my interest as i could take on another slice of JNJ.  I looked quickly and even with my lower cost basis on 2/3 of a full position, i could not buy at $121.  I think somewhere closer to $118 gets interesting.  I would really like all purchases close to or below a 3.% dividend.

I also looked at the ETFs – FHLC and VHT given the impact of JNJ, CAH, MRK etc … not there yet.  The ETFs i think are still 8-10% too expensive.

Patience, patience, patience … the mantra