by Scott Martin | Jul 31, 2019 | 7am News Flash
Netflix (NFLX: $362, down 3% earlier this week) disappointed last night and the stock's precipitous overnight decline provides us with a different kind of wake-up call. Whether you're in Netflix or not, you're going to want to read this flash.
On the surface, Netflix delivered a quarter almost entirely in line with what investors told themselves they wanted to see. Revenue of $4.92 billion was only 0.1% below guidance and reflects healthy 26% year-over-year improvement. Even quarter-to-quarter, the company squeezed 9% more cash out of its subscribers than it did three months ago.
Furthermore, despite profit being a lower priority while management invests vast amounts in original content, it was nice to see that Netflix carried $0.60 per share across the bottom line, $0.04 better than we expected.
But the market found fault as Netflix missed its subscriber growth target, losing 126,000 paid U.S. accounts and only adding 2.83 million new viewers overseas. Management told us to expect the audience to grow by an even 5 million accounts, so it's a clear disappointment.
There are some compensating factors like the way revenue hit guidance. Netflix raised prices in many markets and this is apparently where the pain point is. We know that now. Furthermore, management has doubled down on its aggressive growth forecasts and now expects subscriber adds to accelerate again in the current quarter.
We've had it with Netflix. We've warned throughout that it's going to be a volatile ride. The stock is now down 20% since we started covering it this time around, after making 65% back in 2016-17. We're worried about competitors like Disney and Apple starting to crowd into the space. With a negative $3.5 billion of free cash flow this year and next, we'd rather be invested in a company that actually makes money. We hereby remove Netflix from our High Tech portfolio. We added them on July 16th last year. We're gone now on July 18th, 2019.
However, even for a volatile stock, the reaction to so-so numbers was so extreme that we now suspect that the market as a whole is getting overheated. It's not Netflix. It's Wall Street. And an overheated market can lurch lower as fast as it soars. Even counting the stocks that fizzled and left our list under a cloud, the BMR universe is up a dramatic 33% YTD. This is a great time to lock in some of that profit before a moody market can take it away.
Is It Time to Take Some Profits?
Why are we asking this question?We can’t predict the future. You may think we can, but we can’t. And we want YOU to think about where YOU are and where you are going with your investments. We have made some amazing stock picks and we’ve made you a lot of money in many of these. (We’ve had a few losers too.) Roku is now a triple since we added it last year. Shopify is up 350% in two years. Square is another quadruple play. PayPal, Twilio, Paycom, Microsoft, Apple, Visa: all strong performers.
Is it time to take some of that off the table? There are a lot of things to worry about in the world today: Trump, Chinese tariffs, Iran, immigrants, global slowdown, flat earnings for the past quarter and next; negative interest rates in Europe and Japan . . . can they happen here? If so, will the Fed run out of ammunition if short rates go to zero? What about the attacks on Big Tech by Congress and the European Union? Can Facebook, Amazon and Google survive this onslaught? Of course they will, but why sit around with someone hitting you on the head with a hammer. Maybe it’s better to step a little away from the scene.
Lots of questions. No solid answers. Irrational exuberance was proclaimed by Alan Greenspan on December 5, 1996 after an amazing bull run in the preceding few years. But the bull market continued to skyrocket until the Spring of 2000. That’s almost 3½ years after Greenspan’s call. So is it too early to start taking profits now?
Again, we don’t know, but we do know that there are things you can do. You can sell some calls against your stocks. This brings in cash and cushions you on the downside a bit. But if Roku, which was at $32 at the start of the year goes from $110 now to $90 or even lower, it’s not going to cushion you much with $5 of call option income. So perhaps you can take some profits off the table. Maybe you should put some stops in place. Sell some at $104. Sell some shares if it hits $96. Sell some more if it hits $90. Then if it goes to $70, which is a distinct possibility in a nasty bear market, you’ve protected your profits and have cash in the bank.
And don't forget, we’ve got 17 stocks in our High Yield and REIT portfolios that are paying from 3% to 11% dividends. (Be wary of Annaly and New Residential, though.) These stocks are just waiting for you to place some cash in them so that you can sleep better at night.
This content is for our beloved subscribers and anything you see on this page is just an excerpt!
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by Scott Martin | Jul 30, 2019 | 7am News Flash
Netflix (NFLX: $362, down 3% earlier this week) disappointed last night and the stock's precipitous overnight decline provides us with a different kind of wake-up call. Whether you're in Netflix or not, you're going to want to read this flash.
On the surface, Netflix delivered a quarter almost entirely in line with what investors told themselves they wanted to see. Revenue of $4.92 billion was only 0.1% below guidance and reflects healthy 26% year-over-year improvement. Even quarter-to-quarter, the company squeezed 9% more cash out of its subscribers than it did three months ago.
Furthermore, despite profit being a lower priority while management invests vast amounts in original content, it was nice to see that Netflix carried $0.60 per share across the bottom line, $0.04 better than we expected.
But the market found fault as Netflix missed its subscriber growth target, losing 126,000 paid U.S. accounts and only adding 2.83 million new viewers overseas. Management told us to expect the audience to grow by an even 5 million accounts, so it's a clear disappointment.
There are some compensating factors like the way revenue hit guidance. Netflix raised prices in many markets and this is apparently where the pain point is. We know that now. Furthermore, management has doubled down on its aggressive growth forecasts and now expects subscriber adds to accelerate again in the current quarter.
We've had it with Netflix. We've warned throughout that it's going to be a volatile ride. The stock is now down 20% since we started covering it this time around, after making 65% back in 2016-17. We're worried about competitors like Disney and Apple starting to crowd into the space. With a negative $3.5 billion of free cash flow this year and next, we'd rather be invested in a company that actually makes money. We hereby remove Netflix from our High Tech portfolio. We added them on July 16th last year. We're gone now on July 18th, 2019.
However, even for a volatile stock, the reaction to so-so numbers was so extreme that we now suspect that the market as a whole is getting overheated. It's not Netflix. It's Wall Street. And an overheated market can lurch lower as fast as it soars. Even counting the stocks that fizzled and left our list under a cloud, the BMR universe is up a dramatic 33% YTD. This is a great time to lock in some of that profit before a moody market can take it away.
Is It Time to Take Some Profits?
Why are we asking this question?We can’t predict the future. You may think we can, but we can’t. And we want YOU to think about where YOU are and where you are going with your investments. We have made some amazing stock picks and we’ve made you a lot of money in many of these. (We’ve had a few losers too.) Roku is now a triple since we added it last year. Shopify is up 350% in two years. Square is another quadruple play. PayPal, Twilio, Paycom, Microsoft, Apple, Visa: all strong performers.
Is it time to take some of that off the table? There are a lot of things to worry about in the world today: Trump, Chinese tariffs, Iran, immigrants, global slowdown, flat earnings for the past quarter and next; negative interest rates in Europe and Japan . . . can they happen here? If so, will the Fed run out of ammunition if short rates go to zero? What about the attacks on Big Tech by Congress and the European Union? Can Facebook, Amazon and Google survive this onslaught? Of course they will, but why sit around with someone hitting you on the head with a hammer. Maybe it’s better to step a little away from the scene.
Lots of questions. No solid answers. Irrational exuberance was proclaimed by Alan Greenspan on December 5, 1996 after an amazing bull run in the preceding few years. But the bull market continued to skyrocket until the Spring of 2000. That’s almost 3½ years after Greenspan’s call. So is it too early to start taking profits now?
Again, we don’t know, but we do know that there are things you can do. You can sell some calls against your stocks. This brings in cash and cushions you on the downside a bit. But if Roku, which was at $32 at the start of the year goes from $110 now to $90 or even lower, it’s not going to cushion you much with $5 of call option income. So perhaps you can take some profits off the table. Maybe you should put some stops in place. Sell some at $104. Sell some shares if it hits $96. Sell some more if it hits $90. Then if it goes to $70, which is a distinct possibility in a nasty bear market, you’ve protected your profits and have cash in the bank.
And don't forget, we’ve got 17 stocks in our High Yield and REIT portfolios that are paying from 3% to 11% dividends. (Be wary of Annaly and New Residential, though.) These stocks are just waiting for you to place some cash in them so that you can sleep better at night.
This content is for our beloved subscribers and anything you see on this page is just an excerpt!
Please note BullMarket.com access is available to paid subscribers only. Our Members Areas include archives of past Newsletters, News Flashes, our eight portfolios including STOCKS FOR SUCCESS, Healthcare, High Yield, High Technology, Aggressive, Real Estate Investment Trusts, Long Term Growth, and Special Opportunities. Also, all of our in-depth research is available, and more.
Already a subscriber?
Login Here
Ready to join?
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by Scott Martin | Jul 17, 2019 | 7am News Flash
Johnson & Johnson (JNJ: $133, down 1% this week) has been known to drop as much as 4% in the wake of a perfectly solid quarterly report, so yesterday's relatively minor retreat wasn't a real shock. The important thing is to take the long view.
First, the historical numbers remain healthy. Revenue only dipped 1% to $20.5 billion from last year's $20.8 billion. Our math suggested a deeper drop to $20.3 billion, so an extra $200 million more than we thought coming in last quarter counts as a win. The ailing Medical Device unit held up a little better than we expected, with 7% lower sales almost perfectly balanced against a stronger pulse in Consumer Products and Pharma. Excluding the impact of a weak Chinese yuan and strong U.S. dollar, Johnson & Johnson eked out a little bona fide revenue growth.
Management is confident that Medical Devices are turning around thanks to a revitalized product line in Optical and Cardio equipment along with robust hip replacement sales. In the other categories, a wide range of cancer, hypertension and behavioral drugs did well, creating a fertile sales environment for new therapies coming out of the pipeline soon.
Earnings came in at $2.58 per share, nicely above our $2.46 target. It's great to see our first report of the 2Q19 season give us a number that large, especially when the market as a whole is steeled for a slight earnings decline. If our other recommendations can deliver anything like this, it's going to be a great quarter.
Guidance also improved. Management is now tentatively promising up to 4% sales growth for the full year, which implies more than a little acceleration in the next six months. (Drugs and biotech products are the key drivers of this.) While the earnings target didn't budge, the fact that they're still contemplating up to 6% growth on that side is a good show of confidence.
We like these numbers. And while the market seems more concerned with litigation at this point, management continues to assert complete confidence in decades of Johnson & Johnson product testing. They haven't set money aside for anticipated lawsuit settlements. Legal expenses dropped to $190 million last quarter, down a full 85% from 4Q18.
All these fundamentals are going the right way. And if history is any guide, it might take a few weeks for the stock to start moving in the same direction. That's all we want. Johnson & Johnson will never be a fast stock, but it is extremely reliable.
And on the opposite extreme, we'll see you tomorrow morning with the numbers from Netflix. That one could get a little wild, but for now, we're looking forward to clarity.
This content is for our beloved subscribers and anything you see on this page is just an excerpt!
Please note BullMarket.com access is available to paid subscribers only. Our Members Areas include archives of past Newsletters, News Flashes, our eight portfolios including STOCKS FOR SUCCESS, Healthcare, High Yield, High Technology, Aggressive, Real Estate Investment Trusts, Long Term Growth, and Special Opportunities. Also, all of our in-depth research is available, and more.
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by Todd Shaver | Dec 6, 2017 | 7am News Flash
Square (SQ: $38, up $1) had a good day yesterday, after a rough week last week. We wish we could say the same about Twilio (TWLO) which was down 2% to $25. These are two of our favorites (plus Nutanix, makes three) and Square has been a home run while Twilio has been a strike out. We still believe in Twilio but the market is telling us another story. We can’t quite believe it as revenues for the past few years have been stellar. We saw $90 million in 2014, $165 million in 2015 and $280 million in 2016. And they did $100 million in the 3rd quarter of 2017. We don’t get it. Revenues always win in the end, but Wall Street is making us suffer for the time being.
As to Nutanix (NTNX: $34), the stock is up $2 from where it was at the beginning of November. Yes, it had a run to $38 on Friday, but the stock was at $23 in the beginning of October for heaven’s sake. We’re not worried in the slightest.
Apple and Facebook are doing just fine, with both hovering around the $170 mark. Apple was at $151 in late September, just a little over two short months ago. Facebook was at $148 in July. Things are really quite OK out there.
But if you are afraid of the world at large and concerned about your investments (and not willing to climb a wall of worry with the rest of the market) then take some profits and put your money to work in Annaly Capital Management (NLY) paying over 10% or Government Properties Income Trust (GOV) paying over 9%. Or Pimco Dynamic Income Fund (PDI) paying 8.6%.
Relax – It’s almost Christmas!
by Todd Shaver | Oct 31, 2017 | 7am News Flash
First Solar (FSLR: $60, up 5% yesterday) reported results for the September 2017 quarter that were much better than many had expected, although the good numbers were driven by revenue timing issues that we’ve previously discussed. For all of 2017 the company’s outlook was mostly unchanged. First Solar reported revenue of $1.09 billion, up 60% from the year-ago quarter and beating the consensus estimate of $825 million. It reported earnings of $1.95 per share, beating the consensus of 85 cents, and up 65% from the year-ago period. First Solar also reiterated its revenue guidance for 2017, in the range of $3 billion to $3.1 billion.
A major uptick in bookings was the major story to the quarter. What has changed is the demand environment, which appears to be significantly better than expected. The company booked a remarkable 4.5GW in net new bookings during the September quarter, 3x the run rate for the previous quarter, and doubled shippable backlog to 7.4GW. Those shipments stretch several years into the future. What the backlog tells us is that a) buyers appear ready to give First Solar and Series 6 a chance, and b) demand is good as project developers are making efforts to secure supply. Tariff worries may be a factor, but either way the bookings performance during the quarter was remarkable.
First Solar is seeing strong customer interest in its new Series 6 panels. The panels are viewed as one of First Solar’s most important product launches in years, as they allow it to compete more directly with silicon-based panels in terms of both conversion efficiency as well as total rated power, while bringing down costs considerably (as much as 40% below the company’s current generation Series 4 modules). The company expects Series 6 production to commence at its Ohio unit in Q2 2018, with total capacity ramping up to over 3 GW by 2019.
We do want to see more detail on capacity expansion plans. On the production front, the most noteworthy development is the reiteration of the plan to put Series 6 production into the Vietnam facility, while maintaining some level of Series 4 production in Malaysia. It is becoming difficult to judge how quickly First Solar will terminate Series 4, and it now appears possible that Series 4 output could stretch well into 2018. Sooner or later the company is going to need to invest in additional space. By our math the company can get to about 5.5GW of Series 6 output with its existing facilities, which is less than where First Solar probably wants to be by 2020. We expect to hear more at the company’s upcoming analyst meeting.
BMR Take: First Solar is crushing it and the stock is rocking. Our Target was $55 but we are moving that up to $65 and increasing our Sell Price from $39 to $49. EPS is on a swing to major growth from -$0.20 this year to $1.79 next year to much higher thereafter.
by Todd Shaver | Oct 5, 2017 | 7am News Flash
Shopify (SHOP: 103, down $13) Falls Sharply After Andrew Left Calls the Company a “Get-Rich-Quick Scheme”
Short-seller Citron Research issued a stinging lecture of the Canadian e-commerce company, calling it a "get-rich-quick scheme." In tweets and in an interview on Bloomberg TV, CEO Andrew Left said Shopify is "dirtier" than Herbalife, which has been targeted by regulators for deceptive business practices.
Shopify had no comment.
Shopify, which provides websites, payments and shipping for online merchants, has been one of the top technology stocks globally in recent years, gaining 8-fold from its IPO in 2015.
Left has trashed Valeant Pharmaceuticals, and urged the U.S. Federal Trade Commission to look at Shopify’s claims that members can quit their jobs and become millionaires, similar to what Herbalife has said and was censured for. On Shopify’s Facebook page it says that “2,700 people become millionaires each day,” and the company brands itself as “the online store for someday millionaires.” The FTC prohibited the Herbalife from claiming that “members can “quit their job” and enjoy a lavish lifestyle,” and fined them $200 million. Left also accused Shopify of paying bloggers and influencers to promote the company without disclosing those relationships.
Some things that Left said:
“This is not an $11-billion company.”
“This needs to get completely looked at by the FTC and completely looked at by Wall Street.”
“Shopify should be down 45% immediately."
He set a $60 price target on the stock.
Robert W. Baird & Co. defended the shares, saying that Citron is "largely off-base" and that they would use the weakness as a buying opportunity. The company views the selloff of Shopify as a buying opportunity. Baird said that Shopify is not a multi-level marketing company; it is a technology company that sells a SaaS e-Commerce platform focused on small and medium sized businesses. The vast majority of the marketing campaigns are focused on easy online store set-up, building a brand, selling on Facebook, or creating an online shop. They have an Outperform rating on the stock.
To review, in the second quarter revenue was up 76%. The company is still operating at a loss right now, but it closed the gap toward profitability by reporting an adjusted operating loss of just 2% of revenue in the second quarter, compared to 4% of revenue in 2016's second quarter.
The company also said in August that it now has 500,000 customers across 175 countries. That puts annual growth at an extremely strong 74% pace since 2012.
Shopify is expecting revenue of $165 million in the third quarter, which would represent a 66% year-over-year increase at the midpoint.
BMR Take: Remember, revenue always wins out in the end.
We are with Baird on this one. We feel this is a buying opportunity. The stock could go lower in the next few days but in the long run, we believe this stock will go much higher. And you know what a short seller has to do some day? He has to buy back his shares, which of course is bullish.
We added the stock in March at $72, so we are up 42%. If you don’t like controversy, you might want to take profits here. But we believe a year from now the stock will be a lot higher.
