CSCO … i was going to post on it …

A SA author beat me to the punch as priorities kept me from posting something intelligent. I commented on the author and will be spending time between now and EOY fleshing out this thesis (not specific to CSCO but it will be included).

SA Post https://seekingalpha.com/article/4308030-real-story-behind-ciscos-weak-outlook

I agree w/ timelines, and I see 2021 as the beginning of a revenue upward cycle being driven by enterprise upgrades to meet 5G data and M2M usage demands. Between now and then, the macro winds will blow … a great buying opp in 2020 may surface, and if that happens, I will increase my % of CSCO to 7-10% from current 4.5% (long time kernel holding – cost basis <$15)

This 3 phase 5G implementation / roll out is the heart of the thesis mentioned.

Not since 2000

Intel (INTC)

From Mott Capital Management: “Intel is testing a break out of its own around $59 with the potential for a push higher to prices not seen since September 2000 at $64.”

I have so much less than once upon a time and those funds did MUCH better elsewhere, but I’ll take this rise for time being.

Financial due diligence – reminder

A recent post at SA got me going … i own a small slice of this company and had missed this in my financial analysis due diligence. I made a mistake (was stupid), and now need to correct it. I will exit the postion quickly. Here is my comment to the author

Thank you for this analysis … I have a small portion of LAND and will discard quickly based on this as I had missed it. Seems way out of whack and with the games FPI management played back a bit, one would think the farm REITs would come to a ‘squeaky clean’ view. Not there.Also, I tried to reconcile this w/ www.investing.com/… … – no go even at the ‘roll up’ number unless the two sources are using different time periods (would be bizarre)Sad, as I too thought this was a plausible play on a real asset in limited supply … Good work on your part and reminder to all that financial due diligence takes effort.`

Hats off to the author for doing the needed grunt work, and ‘not to self’ do you due diligence better!

CSCO quarterly report – an important read

Cisco is a kernel element in my equity portfolio. The company released earnings this week and held the ritualistic earnings conference call. I will write more about this in the next week or so … it has big implications to the 5G timing.

Regardless, I will not be immediately adding to my position (which is minimal right now ~4.0% of equity portfolio). Patience is merited here. I am also sure that an army of analysts will provide their insights (mostly to take capital from your account). I will be adding more to CSCO but like in comedy, timing is everything.

Here’s the transcript for your own reading

Ericsson’s earnings conf call – usage model spiral!

This week ERIC released quarterly earnings and held the requisite conference call. Mostly it was good news and the stock popped somewhat. I actually trimmed my position 50% with this move, as I believe lower entries will surface over next ~6 months.

With that said, however, there was a great line in the call that I am not sure people fully understand and it completely reminds me of Andy Grove’s insightful “Software Sprial” – basically the concept is that new technology surfaces new usages and those new usages continue to drive new technology – riding that sprial as INTC did with software and compute capabilities can make folks serious money. Usage models and use cases that were not before possible really drive the breakthroughs, not the technology itself (but that which it enables).

Quote (my bold emphasis):

“So the demand here is strong and when we look at early launch markets for 5G, we see a very sharp increase of data consumption among the 5G users, which indicate that 5G yet again shows that you will use your device in a different way, when you get a better service.

So if we look at — compare that for example to Europe, where we typically have weaker coverage or weaker networks as it’s more of an average compared to Northeast Asia and the U.S. And we see much lower data consumption as well. So I think the reality here is a better network drives new type of behaviors that actually also drives investment needs and drives our business. And that’s why it’s important I think that the operators also are able to charge a premium for 5G, because it will create new type of use cases.”

Healthcare REITs from Hoya Capital

This was a pretty good post on Healthcare REITs, though my perspective is similar to Hoya’s (preference on lower risk segments) creates a bit of echo chamber here.

https://seekingalpha.com/article/4296372-healthcare-reits-rehab

DOC and WELL are each ~2% of my actively traded portfolio within the income growth segment. LTC is a much, much smaller allocation mostly because their management team is excellent, but the SNF is a tough business and to be mostly avoided. I am not expecting continued stock price appreciation and have recently trimmed my DOC position, but all 3 will remain in portfolio unless business changes materially.

5G End to End early tests

NOK reported out today some preliminary end to end test results from Indonesia https://seekingalpha.com/pr/17660863-nokia-hutchison-3-complete-first-5g-end-end-live-network-trial-indonesia

This is interesting data and will be good to watch over time as independent 3rd parties and more extensive testing gets rolling in different countries / different networks.

QUOTE: “Multiple tests were conducted on the 28 GHz spectrum, obtaining the highest data download speeds of up to 1.62 Gbps with 11ms latency while upload speeds of 75.9 Mbps were measured. The trial also included a voice call test, which was initiated on the 5G trial network and realized over VoLTE (voice over existing LTE network) to demonstrate how basic telephony services would be handled in 5G. “

Cisco (CSCO) quarterly / annual update

Cisco reported annual earnings today. Wall Street, so far, responded unfavorably to future guidance provided by the company. I am not sure I fully agree, but acknowledge that the crystal ball is opaque at best with the current irrationally moving economic parts … so one key question: “Is CSCO hedging the future with very, very conservative guidance?”

This financial block really got my attention given the service provider order drop – quote, with my bold: ” In terms of orders in Q4, total product orders growth was flat. Looking at our geographies Americas was up 1%, EMEA was up 4% and APJC was down 8%. Total emerging markets was down 8% with the BRICS plus Mexico down 20%. In our customer segments, enterprise was down 2%, commercial grew 7%, public sector was up 13% and service provider was down 21%. “

CEO continued on: “Let me double click on service provider just a bit. The Americas was generally the same from an order perspective from the prior quarter, so no real shift positive or negative. Europe was actually positive in the SP space. In Asia, we saw continued weakening in our China service provider business and we had two massive build outs in India a year ago that just didn’t replicate this year with the two major players there. That’s the net of the service provider situation it’s not more complicated than that. “

Bottom line – if CSCO was not one of my largest stock positions, I might be backing up the truck over the next few downturns (I am assuming them to occur), so I’ll watch and back up the little red wagon when opportunity knocks with a >3% yield.

Fitbit trade debacle

Ok … sometimes you just need to confess up to making an error and then working a way out of a hole.

Yesterday with Fitbit due to report earnings, I thought that it may surprise on upside … boy, was I wrong!

With all the published information wrt FIT, I added the following inputs:

  • Apple reported decent growth in Apple Watch sales
  • Almost everybody I know uses a FIT device and does NOT want to buy the more expensive Apple Watch (i offered to buy them for wife and daughter and both declined and chose to stay w/ FIT)
  • I scaned the blogosphere and Stocktwits for any noise – it all came back neutral in RECENT posts

I purchased a total of 300 shares (not much capital intentionally so for a speculative earnings trade)

FIT earnings were good, but the company reduced revenue and margin targets … to sell more cheaper devices (?) … the FIT watch device is NOT selling well.

I am in a hole … I did not sell, I bought a bit more to lower my entry price. Why? User data. The data FIT has is not reproducible. If the current management team cannot figure out how to monetize it, somebody else will … I will keep working (trading) to make a bit of $ of this – a bit of lemonade from really sour lemons.

Key learning: when hunting for noise in blogosphere, retracing steps backward longer in time is worth it.

Better late than sorry – DBI (old DSW) Q1 Conf Call

Disclaimer: Not recommendation just an observation and opinion

I just finally read carefully the latest earnings conference call from DBI – i was really late as this sat in my inbox since May 30 – a month late. Between now an then, I doubled my position in DBI due to the price / valuation and X-div dates. My current long position is ~2% of my actively managed portfolio, and I am considering increasing that position.

The earnings call held a couple of nuggets: a) first q2 will not be a barn burning (a buying opportunity?) and q3 is seasonally strongest; b) management enthusiasm for their strategy was high and their opportunities / challenges were well explained; and c) analysts did not ask tough questions in the call – are they comfortable w/ management’s strategy and delivery, or have they just punted on anything / everything retail? Hard to sa

I will most likely not add to my position until q2 earnings are out to see the depth of analyst disappointment (or absence thereof)

An active investor

https://seekingalpha.com/news/3473007-big-u-k-investor-dumps-exxon-climate-change

quote:

  • Exxon Mobil (XOM +0.9%) is being dropped by the U.K.’s biggest asset manager, which also says it plans to vote against the reappointment of Chairman/CEO Darren Woods for failing to adequately address the threats posed by climate change.
  • XOM is the only oil major Legal & General is divesting, as competitors including Chevron (NYSE:CVX) and Royal Dutch Shell (NYSE:RDS.A) meet or exceed the insurer’s basic standards on climate change action.
  • The divestment affects a small part of XOM’s equity – Legal & General owns just 0.6% of the company, and the divesting funds hold just part of that -but it could increase pressure on the oil giant.

The more investors who apply pressure with their capital to further climate change considerations the better! Carry on!

Data on some Banks – Canada

Disclaimer: Not recommendation just an observation and opinion

The big banks in Canada are some of my favorite equity income portfolio kernels; currently long time long, BMO, RY, & BNS.  Seeking Alpha post on the banks presented a good bundle of data to compare the banks – with a bias or narrative assuming mortgage credit issue impacting the banks’ portfolio quality.  I am a fan of these banks given the higher regulatory environment in Canada as well as (and most importantly) a long tradition of >100years successfully managing capital… a bit of differentiating DNA.

https://seekingalpha.com/article/4270368-toronto-dominion-banks-dividends-appear-secure-among-peers

Here is my comment to the author:  Thanks for putting all the data on the table. I am a long time (US citizen) holder of BMO & RY as core portfolio dividend kernels – their history speaks for itself. BNS is interesting as more aggressive in emerging markets; total portfolio position 50% less in BNS than in BMO or RY. Based on the data presented here, is there really a material (statistical?) difference between TD, BMO and RY on the ratios? – My take is not so much and probably depends on your point in time to review. Currency issue/risk is worth the predictability of dividend flows. I am also looking to increase current BNS position @~$41.00US

A climate reason behind ‘why not’

Looking at different new investments, an industrial REIT surfaced from my value screens … I am not a huge fan of economic cycle REITs at this point, but the valuation was interesting – MNR

I was primarily interested in a preferred stock MNR/PR/C. But … after looking at their financials and business model a bit closer, this graphic struck me

They have a sizable property distribution on the eastern US seaboard … if i am looking at a 10 yr investment, do i really want to purchase hard physical assets that are on the coast? NO! Climate change risk was a big factor in walking away from this investment.

Apple’s WDC from Morningstar

Morningstar was out this morning on Apple’s WDC so far … they made a point that hit me too. quote: “One of the most important announcements, in our view, was Project Catalyst, which helps developers port existing iPad apps onto the Mac, facilitated by the latest macOS, Catalina. We believe these moves in aggregate will usher Apple toward having its MacBook offerings running on its ARM-based A-series processors in lieu of Intel processors. However, we don’t believe this will meaningfully come to fruition for at least another three or four years, if not longer, given Apple’s 100 million Mac and MacBook installed base and the incumbent applications written for Intel’s x86 architecture.” (bold is mine)

Developers are the key and refreshing to see focus put back where it belongs. Devices are the delivery systems and need to be hip and fabulous, services need to be valuable and meaningful to users, but without apps …. nothing. There are two transitions that seem to be setting up – a) iPad / Mac blurring and interoperability (moving the iPad closer to Mac than iPhone which makes sense) and b) x86 to ARM in Mac … both totally make sense, but without developers paving the way for those, again … nothing. If I’m close to right, it surfaces how Apple is playing a long game.

BMO Earnings Conf Call

Disclaimer: Not recommendation just an observation and opinion

https://seekingalpha.com/article/4267058-bank-montreals-bmo-ceo-darryl-white-q2-2019-results-earnings-call-transcript

This conference call seemed better to me than the recent RY (posted earlier). The comments around expenses and differentiating between a specific business and the enterprise was refreshing. I just thought the leadership team had a better grasp of their business and strategies.

I also really appreciated this comment by CEO in opening remarks – quote: ” As I look across the bank we’re building on our strong foundation and differentiating strengths to grow our businesses and deepen customer loyalty. “

I am long BMO for ~ 10yrs but have reduced my position to core buy/hold/DRIP, and include this as a core holding in my equity income growth sub-portfolio with RY and BNS.