Canada Banks

A recent Seeking Alpha post walked through TD, RY and BNS valuation and investment thesis.  I have owned RY and BMO since before 2010 and added BNS recently.  My positions are less than they were as part of portfolio-wide rebalancing in early 2018.  I use these stocks as one of my 4 pillars long dividend oriented portfolio (income growth).

The post https://seekingalpha.com/article/4227211-disruption-creating-opportunity-canadian-banking

https://seekingalpha.com/article/4227211-disruption-creating-opportunity-canadian-banking?app=1#alt1

Strategy Tranparency – CY

I have followed Cypress Semi (CY) for some time.  Currrently, I am long $14 calls that will probably evaporate valueless.  But, CY is doing something that merits pointing out.  They are in the midst of what they are calling “Cypress 3.0” – a business transformation that was probably not all voluntary.

In a recent analyst meeting the CEO talks about the strategy and their expected results.  His remarks:

(Quote) “And obviously for a meaningful size revenue from that, it’s not going to move the needle in ’18 and ’19, but think about in the ’20 as those things get deployed as that connectivity happens, and when you have a software-as-a-service than that starts to be almost an annuity as you go through it and that will start diversifying our revenue stream while maintaining a big focus on because we need good connectivity on the silicon side in order to enjoy this seamless connection on the software, both of those together are what’s going to enable that power of cross-selling.”

I appreciate the fact that he is willing to talk long term outcomes of the strategy without too much visible anxiety of short term expectations.  Transparency of strategy outcomes in longer term timeline is refreshing.  I will keep watching and along with MRVL, CY is a top IOT narrative connectivity watch list item.

Data size, quality, machine learning and Apple

A conceptual inference struck me the other day as I was considering buying additional Apple stock for my ‘invest and almost never sell’ portfolio – there’s a 5-10 year horizon for this capital.  This go around I sold PUT on Apple stock and if it gets assigned, I will be content – there is no FOMO as i can repeat this.  But maybe in the inference path I used will be helpful for thinking about weighing investments leveraging competency in machine learning which I believe will be a major investment thesis over my target time horizon – 5-10 yrs.

Here are my assumptions wrt machine learning capabilities

  • The larger the data set available for the machine learning and correction, the more accurate the machine learning – basically the faster and better it learns and is then able to execute
  • The cleaner the data set the more efficient, effective and timely the same machine learning

If you buy those, then looking at Apple there a couple of like companies with such a broad and large data set that can be leveraged to provide better and better (i.e., demanded) user services and products, e.g., Apple, Amazon, Google, Microsoft are the most relevant.  There are others that may have large data sets but I do not think they have the same breadth and quality, e.g., Facebook, Comcast, ATT, Verizon.

Apple’s data may not be the largest, but i think it is the most controled and hence the cleanest.  Microsoft is probably the second cleanest data set but not as broad across device types, usage models and connectivity modes.  While Google and Amazon probably have the largest and most diverse data sets, neither have the same control over data quality that Apple and Microsoft have.

Based on this inference thread and my current position in Apple, I will continue to add to my position until the narrative changes or my allocation of Apple exceeds 10% of my managed portfolio.  Microsoft will be added to my target list with an upcoming deep dive on 5-10 year investment thesis and entry.

Strategy Clarity

There are two companies that I am currently invested in – I own shares in both companies, and will most likely increase holdings over the next 12 months.  Both companies met w/ analysts recently and both had very clear strategy narratives, imho.  They were explicit, easy to understand and map to my IOT product experiences.

Marvell Technology Group – MRVL

  • Here is their earnings conference call transcript 
  • Here is a recent analyst update

Adesto Technologies Corporation – IOTS

The key things that surfaced for me were the following:

  1. How their product portfolio can leverage greater BOM coverage w/ same sales calls
  2. How their sales strategy stair-steps into more complex, higher margin (takes patience)
  3. How they understand the long design times and ‘designed in’ timelines in the non-consumer IOT markets

I like both of these companies for long-term investments 5-10 years. 

Covered Calls for Income

I looked at some scenarios based on current prices as of Friday, Nov 2 to identify if there is a compelling covered call platform to derive medium risk income.  I selected 3 companies that I would consider owning for their long term prospects, but would not cry a river if the position was taken at a profit:  HBAN, CY and NOK.  Other criteria included:  a good dividend, predictable, sufficient option volume and stable pricing over the next 3-6 months (as the market goes so will these).

Here is the simple comparison

HBAN
Price at analysis 14.29
Cost basis
500 @ 14.29 ($7145)
Possible
1. $14 Call Dec 21, 2018 $0.62
a. Outcome with 500 shares (5 contracts)
i. A - Calls sold but not assigned - $310 gross (4.3%)
ii. B - Calls sold and assigned - $155 gross (2.1%)
2. $15 Call Dec 21, 2018 $0.25
a. Outcome with 500 shares (5 contracts)
i. A - Calls sold but not assigned - $125 gross (1.7%)
ii. B - Calls sold and assigned - $480 gross (6.7%)
CY
Price at analysis 13.51
Cost basis
500 @ 13.51 ($6755)
Possible
1. $14 Call Dec 21, 2018 $0.60
a. Outcome with 500 shares (5 contracts)
i. A - Calls sold but not assigned - $300 gross (4.4%)
ii. B - Calls sold and assigned - $545 gross (8.0%)
2. $15 Call Dec 21, 2018 $0.27
a. Outcome with 500 shares (5 contracts)
i. A - Calls sold but not assigned - $135 gross (1.9%)
ii. B - Calls sold and assigned - $1424 gross (21.0%)
NOK
Price at analysis $5.80
Cost basis
1000 @ 5.80 ($5800)
Possible
1. $5.00 Call Dec 21, 2018 $0.85
a. Outcome with 1000 shares (10 contracts)
i. A - Calls sold but not assigned - $850 gross (14.6%)
ii. B - Calls sold and assigned - $0 gross (0.0%)
2. $6.00 Call Dec 21, 2018 $0.17
a. Outcome with 1000 shares (5 contracts)
i. A - Calls sold but not assigned - $170 gross (2.9%)
ii. B - Calls sold and assigned - $320 gross (5.5%)

The CY purchase and $15 Call with these assumed prices appears the best idea.  This idea fits my objectives of increasing greatest cash flow in worst case scenario (i lose the position) as well as the probability of losing the position (lower w/ CY @ $15) … not a recommendation to execute this trade, but a look at how it might be done and how I came up with the idea.

Customer orientation

A recent article which I am assuming is accurate at least at the root highlighted a view of ‘Orientation’ by companies.

https://www.cbsnews.com/news/kroger-threatens-to-ban-visa-cards/

Now … I find the ‘corporate profit orientation’ above that of the customer.  Would not a retailer want to provide convenient and customer choice modes of payment?  I get it the op costs could be higher with different vendors, but would you rather have happy, loyal customers?

Swings: WELL & HBAN = looking long; UA = short again

Three stocks floated across my desk this weekend for possible actions next week

  1. WELL (Welltower)
    • I lost 200 shares this month due to an open Call sell at $60.  Still own more than that, but …
    • The senior healthcare housing market is a tough segment right now
    • WELL is my top selection amongst the group – above OHI and VTR for sure imho
    • Earnings call was interesting – especially the specific questions (in the QA) and management’s characterization of ‘bouncing around the bottom’
    • The situation appears as if management is positive looking forward (tough times, we’re bouncing at the bottom and we’re making the right plans), but analysts are highly skeptical
    • If stock drops below $60 without a varying narrative, I will look to add more
    • Earnings call https://seekingalpha.com/article/4191416 
  2. UA (Under Armour)
  3. HBAN (Huntington Bancshares)
    • I owned Oct 15 calls – sold most of them
    • There were some interesting points management brought out in the earnings call and this post highlights them well
    • This could be a decent EOY ’18 swing trade, but i would like an entry point below $15.25 – if the current breakout above RL2 continues — too late (want a short pullback before opening additional positions)
    • https://seekingalpha.com/article/4191622

Accounting Gotchas in Canada Weed

https://seekingalpha.com/article/4185105-understanding-cannabis-industry-gain-biologicals

This is a great article (the comments criticize as expected but are still worth reading).  For me, i have not even tried to value weed stocks w/ any due diligence / discipline.  It’s always been a speculative trading vehicle and focused on the 3 bigs:  CGC, APHQF,  & ACBFF.  Speculative positions that by pure luck made enough profit to sit on very small positions in all w/ earned capital.  If they make it big, great.  If they crash, oh well … it was fun.

While the exercise of valuing those companies is something people are going to do and it will help us who will not … i think 2019 is the earliest we get anything to make investment decisions on … the big money (tobacco and alcohol have yet to really show their hands)

OHI – My Problem Child REIT

OHI is in trouble both, i believe, as a business and as a stock.  My total position is small relative to my historical holdings at <350 shares.  Two posts in the last 24-48 hours suggest that i am not the only one with this problem child.

Both of these articles are well researched and detailed about OHI and the market segment challenges and opportunities.  I have NOT changed my mind, however.  LTC will remain my REIT in this segment.  WRT OHI, i am just trying to figure out the right exit … and how much risk i will assume to minimize the loss to the exit.  The political, labor and ‘old people preferences’ headwinds even out into 2020-25 are just too strong in my opinion to carry OHI risk / reward.

I will look to exit by EOY ’17.

Low cost Toronto Weed Stocks

I bought a couple Toronto weed stocks last month and am looking to expand positions as entry points allow … TWMJF, APHQF and ACBFF were the target set.  I have small positions in TWMJF and APHQF (after reducing both by 50% after >25% gains in last 30 days).

I looked at APHQF and ACBFF as possibles due to the lower prices … i took Yahoo Finance numbers for annual financials … looking at these numbers at face value there is only 1 choice … next step is to verify these numbers with deep dives into different sources … then decision about additional investments (speculation?).

Variable

ACBFF

APHQF

Price

3.14

6.72

Assets

248,463

233,930

Liabilities

79,884

31,170

Tangible

112,995

200,472

Op Cash Flow

-8,090

3,942

Rev

12,363

12,806

Op Income

-8,618

-1,030

Net Income

-9,985

3,108

More Q3 Quarterly 2017 Reviews

Last night i read thru 3 earnings conference call transcripts:  HASI, FIT and BEP

  • HASI … debt strategy and their willingness to take on that strategy was positive and well articulated.  No change to my positions (mid-point positions in both taxable and non-taxed portfolios) … will, however, add to positions if entry point lowers
  • FIT … seemed to me there was a bunch of hand waving (old corporate saying for we do not have much positive news to talk about so we’ll wave our hands enough to distract everybody) … the one key thing that surfaced in their prepared remarks was alarming (but maybe this was a transcription error)
    • “G&A spend increased 48% year-over-year to $35 million. Research and development spend was up 1% year-over-year to $71 million, and sales and marketing declined 4% year-over-year to $74 million” …
    • they are spending more on Sales / Marketing than R&D? … way, way, way bizarre imho
    • I have VERY small position in FIT and will exit if price hits $5.50 with a 10% loss
  • BEP … this one is getting way interesting and another executive team that seems like they really know what they are talking about and how to talk to investors.  I will be looking to add to this position in non-taxed account as entry point opportunities surface

UMPQ Q3 2017 Quarterly Review

UMPQ is ~3% of my taxable portfolio, with a cost basis around $12.  Their recent quarterly report, conference call and slides can be found here.

What i liked:

  • less discussion on rearview mirror and more discussion of 3 year strategy and included 2 rate scenarios within the strategy
  • exiting the car loan business and rational reasons for doing so
  • talking about their employees and how the strategy evolution impacts them and what the company is doing about that

What i did not like:

  • no discussion of competition
  • analysts asking questions that focused on their ability to build a revised model rather than really digging into the strategy

Conclusion for me? …. somewhere between $18-19 i would consider adding more to my position … but will watch carefully for now