December 30, 2019
by Todd Shaver | Dec 30, 2019 | Free Newsletter (Sent Weekly Monday at 12pm)
The Weekly Summary
As the year winds up, the only question left for 2019 to answer is how far back you need to go to get a stronger year. The market this year is close to what we saw in 1998, and we would settle for matching that ultra-bullish dot-com boom. Beyond that, it only takes a few extra percentage points of victory lap before we need to pull out 1975 and even 1958 to find a comparable rally on the books.
Of course BMR stocks are up 41% so far this year, so we're rolling in outperformance either way. A full four of our recommendations doubled, tripled or quadrupled in 2019 and a wide range of others (including mighty Apple itself) are in the 80-95% zone. Only six BMR stocks went down. We're confident that they'll come back strong in 2020.
But then 2020 is the real question Wall Street needs to answer. In our view, the new year will start a lot like the last one, with stocks moving strong to the upside. All we need is a little relief on trade or some sunshine in the coming 4Q19 earnings season to carry the bulls into the summer, at which point the political landscape will undoubtedly get too hot for many investors to handle. That's all right. As long as we stick to our game plan, the election shouldn't hurt us one way or the other . . . and in any event, it's nearly a year down the road, so there isn't a lot of sense in worrying about the results at this stage.
There’s always a bull market here at The Bull Market Report! Gary Jefferson is back with a powerful look at what 2020 is likely to bring us, while The Big Picture focuses on the way markets can swing from dread to exuberance. The rally we're enjoying now isn't any more "irrational" than normal. As such, The High Yield Investor discusses some avenues if you're looking to lock in a little added income before the old year ends. We suggest taking a fresh look at Office Properties Income Trust and Omega Healthcare Investors.
The rest of our paid subscription newsletter is devoted to a few of our biggest winners of 2019 like Anaplan and Alphabet, along with some BMR stocks that fell hard in recent months but are already rebounding fast: Okta, Alteryx and Twitter.
Remember, the last day you can buy or sell stocks this year is Tuesday. Wednesday will be a market holiday and then we start fresh in 2020 on Thursday. As usual, our News Flashes will be a little light this week . . . if there's nothing to say, we won't bore you with filler. Instead, we'll be working behind the scenes to get you ahead of the new year.
Key Market Indicators
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BMR Companies and Commentary
The Big Picture: Animal Spirits In Control
Part of what won Yale economist Robert Shiller the Nobel Prize was his 2005 warning that the housing market was getting unsustainably overheated. Since then, people have come to him to tell the bulls they’ve gone too far. That’s why his recent admission that this record-breaking year on Wall Street is built on irrational factors is so illuminating. Shiller now sees “animal spirits” as the main factor driving what could easily become the best year since the 1950s.
He knows this isn’t logical. And he doesn’t mind. After all, the market isn’t always rational, but when something gets it moving away from the fundamentals, there’s no point in fighting the flow. You’ve simply got to know your own nature. If you aren’t confident enough to run with the bulls, stay on the sidelines and keep cashing 2% Treasury bond coupons. But there’s a lot of money to be made even in a frothy market. Once you let the bulls loose, they’ll run until they’re completely exhausted. Needless to say, we're excited. Even Bob Shiller seems relatively sanguine about how far this rally can continue in 2020 and beyond.
He’s far from alone. Sprawling trillion-dollar asset management complexes are sharing their 2020 outlooks now and they’re convinced bullish conditions will prevail for the foreseeable future. All we need is a mood strong enough to cut through the shocks. Wall Street isn’t climbing a wall of worry any more. We’re riding a wave of exuberance.
It really amounts to market physics. A stock in motion will remain in motion until an obstacle forces a course correction. At this point, there’s nothing big enough looming on the horizon to break the bulls’ stride. We’ve already lived through a year of trade war and earnings deterioration. That’s the status quo now, part of the background noise.
More importantly, it’s already built into the trailing year-over-year comparisons. We don’t need a big external stimulus like tax cuts or even the Fed to get the 2020 numbers going in the right direction. All we need is a little organic growth. That’s been building up behind the scenes as the Fed keeps interest rates low.
Builder confidence is at its highest level since 1999. New home sales are tracking at 2007 levels once again and there’s no ceiling in sight. This is just getting started. And even Bob Shiller, the housing bubble guy himself, has stopped fighting the mood. A year ago, he warned that the housing market reminded him of 2006, right before the crash. Conditions now look hotter than ever.
Shiller says it’s contagious. The impeachment hasn’t stopped it. The trade war hasn’t stopped it. Under normal circumstances, the bulls would have run out of breath by now. But while these aren’t normal circumstances, history shows that they aren’t absolutely unprecedented either. On Shiller’s scale, stocks are “quite high” now at a 30X inflation-adjusted earnings multiple.
Back in 1999, his metrics stretched a full 50% beyond where they are now. History didn’t end. This time around, they can go at least as far before they snap. After all, as Shiller says, we have a motivational speaker in the White House now, someone who loves to talk the market up when everyone else tries to talk it down. That's huge.
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Anaplan (PLAN: $53, down 1% last week )
While Anaplan was down a bit over the past week, it has doubled in the past year and BMR subscribers have captured a healthy 42% of that gain after we added it to the Aggressive portfolio back in March. The company still has significant upside since growth prospects for its decision making software remain bright.
At the forefront of “Connected Planning,” a category that it has created and is a part of the cloud computing category, the technology allows companies to make faster, and, it believes better decisions. Anaplan’s technology, which it calls Hyperblock, connects data through various company’s departments rather than centralizing decision making within the finance department. Currently aimed at large enterprises, there is still plenty of room for growth. At the start of 2019, the company had 1,100 customers and only 250 were part of the Global 2000.
Recent results demonstrate the company’s growth prospects. In the fiscal third quarter (ended October 31), Anaplan’s rapid top-line growth continues, with revenue increasing 44%, from $62 million to $89 million. Although the company has a history of expanding losses, management has slowed down the rate of expense growth. For the most recent period, Anaplan’s operating loss narrowed to $32 million compared to third-quarter 2018’s $50 million operating loss. Management boosted its fiscal 2020 guidance, including raising their revenue expectation to a 44% top-line increase ($347 million) versus their prior 42% expectation, up from $240 million in 2019.
BMR Take: With its pristine balance sheet ($50 million in debt and $310 million in cash), this major disrupter still offers exciting growth prospects as large companies continue to adopt its technology, which includes machine learning and other artificial intelligence. Our Target is $75 and our Sell Price is $45 and we would expect the stock to reach new all-time highs above $60 in the first part of 2020.
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Alphabet (GOOG: $1,352, flat)
The Search giant is up 30% for the year and is within 1% of an all-time record. Not bad for a company with a near-trillion-dollar market cap ($933 billion). The big news recently is that the founders have stepped back and turned over the running of the firm to Sundar Pichai. He’s been running the core Google business since 2015 but this latest promotion gives him a clear line of authority over the entire enterprise.
The search business is solid and obscenely profitable but is not growing terribly fast. Their cloud platform business however rose more than 80% last year, albeit still small at $4.4 billion in revenues. But give this two more years at this growth rate and you have a huge business generating big cash numbers. With revenue tracking near $160 billion in 2019, up from $137 billion in 2018 and $110 billion in 2017, there is nothing but more green ahead for the company.
They are also buying stock back like no tomorrow, with almost $6 billion being spent on shares in just the 3rd quarter. With $120 billion in cash on the books, and generating over $2 billion a month, this type of buying could continue for months if not years into the future. After all, nobody talks about the M-word on the Street, but you have to admit, with 88% of the search market, this company is a monopoly. Is there a risk of the governments of the world getting involved in Google’s business? Yes, of course.
But we think this is highly unlikely and if we didn’t already own stock in the company, we would be happy to acquire shares of this fabulous firm as soon as the market opens for trading on Monday morning. Trading at its all-time high, this concerns us not a bit. After all, why oh why do you think this company is trading at an all-time high? Because it is a cash machine, now and in the future. Our Target is $1450 and our Sell Price is: We would not sell Google.
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Twitter (TWTR: $32.50, up 1%)
What do you do when some of your favorites are down 20-50% from their highs? We go back to the basics.
We continue to love Twitter but the stock has been flat for months now, since October when it was trading in the low 40s. But many times the stock doesn’t tell the whole story. Revenues are good, not spectacular, growing from $2.4 billion in 2017 to $3.0 billion in 2018. This year looks like they will hit the $3.5 billion level, with profits of $1.60 per share in 2018 and what looks like $2.40 in 2019. Compared to a lot of other high-tech companies with virtually no earnings, it’s a nice breath of fresh air to see Twitter actually producing profits.
They still have a ton of cash at $5.8 billion, balancing $2.6 billion of debt. The exposure the company gets from our current president and from the world-changing events that it has been involved in (Arab Spring, Hong Kong) we expect good things from the company in the coming 5-10 years. We see the upside much greater than the downside risk. Our Target of $47 is Aggressive for this $25 billion company and our Sell Price of $25 will protect you on the downside.
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A Word From Gary Jefferson
Jefferson Financial Group
First Vice-President, Investments
UBS Financial Services, Inc.
After digesting dozens of 2020 forecasts from leading Wall Street firms and other outside resources, we want to give you our take on what WE see for the coming year.
First, we don't expect a bear market or a recession. The economy is doing great and it simply is not going to stop on a dime. The things that matter such as consumer confidence, consumer spending, wages, full employment, low interest rates and inflation are at some of the best levels we have seen in our lifetimes.
And the strong economy, of course, is what has and we believe is what will continue to energize the market in 2020. Just look at GDP. The final Q3 GDP estimate of 2.1% puts 2019's annual growth rate on pace to beat the average annual growth rate since this bull market began. Consumer Sentiment was up as well, rising to 99.3 from last month's 96.8.
Even though we key on earnings, if all one did was monitor the following four items, you could accurately forecast the strength of the economy with uncanny precision: GDP, employment, consumer sentiment and interest rates. All are really, really doing well.
Earnings are expected to slow down the first two quarters, but the positive impact from all of the prior rate cuts should hit bottom lines around the midpoint of next year. We anticipate positive growth in the first two quarters and up to 10% earnings growth across S&P 500 stocks for the full year. Thus, if there is going to be a sell-off or "correction," we expect it might be in January or February, triggered more by political consternation than lowered earnings estimates.
If we don't see a pullback early next year, we may have a period of volatility in the June area as politics heats up again with conventions and selections of final candidates. We expect these downswings, if they occur, will be headline-driven events and will therefore result in "buy-the-dip" opportunities for investors wanting to put extra cash to work.
What worked last year: Technology was the clear outperformer in 2019 while Energy was the largest underperformer. As we move in to 2020, we favor Communication Services and Consumer Discretionary stocks (including Amazon) and are not looking for much from either Technology or Energy. However, if Big Oil bounces back, it will come roaring back . . . in that scenario, we'll add to our coverage there.
Either way, as we view the entirety of the economy, tariffs, politics and the Fed, we believe all major sectors are capable of achieving low double-digit returns in 2020, while Consumer Staples, REITs, Utilities and Financials may still be capable of somewhat lower returns.
What we don't expect is smooth sailing throughout 2020. We expect plenty of volatility because of global trade tensions, Brexit and of course politics right here at home. We don't expect the Fed to raise or lower rates next year, but in case the economy needs a safety net, they will lower rates. Oil prices, of course, have always been a wild card, but we see plenty of supply to keep markets stable. We don't expect the president to be removed from office, but rather expect his pro-business policies (less government, fewer regulations and lower taxes) will continue to foster business growth and entrepreneurism.
As a comparison to what we expect, here is the case made by the Stock Trader's Almanac for 2020:
- Worst Case: Correction but no bear in 2020. Flat to single digit loss for full year due to on-going unresolved trade deals, no improvement in earnings and growth weakens further. Trump is removed from office by the Senate, resigns or does not run and political uncertainty spikes.
- Base Case: Average election year gains. Incumbent victory, trade and growth remain muddled, modest improvement in corporate earnings and Fed stays neutral to accommodative. 5-10% gains for DJIA, S&P 500 and NASDAQ.
- Best Case: Above average gains. Incumbent victory, trade resolved, growth improves, earnings improve and Fed stays neutral and accommodative. 7-12% for DJIA, 12-17% for S&P 500 and 17-25% for NASDAQ.
We lean toward the upside.
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The High Yield Investor
As we look toward 2020, most investors have flipped from indulging their grimmest recession fears to a posture closer to our own bullish bias. That's ultimately a good thing. However, it also sets up volatility ahead when expectations get too far ahead of reality, even for a brief period of time. We are looking for good things from the coming year. We just know that the route is going to be far from smooth.
Our top High Yield priority for the coming year is simple: hold defensive positions and wait for money to flow out of these stocks before you expand your holdings. You should have locked in a reasonable quarter-to-quarter income stream to cushion the downswings, so chasing these stocks while yields are relatively low doesn't make a whole lot of strategic sense. The goal is to lock in the highest yields possible, which means waiting until these stocks are out of favor.
It will happen. For now, as long as the rest of the market is rallying, there isn't a whole lot of urgency in building up your defense. And if you're feeling nervous, we suggest capturing the biggest yields you can to offset the impact of negative real interest rates around the world. Remember, the Fed won't raise interest rates again before annual inflation reaches 2%, so locking in anything less for the long term means you're locking in at least a little purchasing power deterioration . . . you are guaranteed to lose money at the end of the road. Who wants that?
Most of our recommendations pay well above 5% and some carry much higher yields as the market pivots from defense to enthusiasm. We'd like to discuss two of our favorites here. The first is ............ AND THIS IS WHERE YOU WILL GET THE BEST VALUE FROM BEING A PAID SUBSCRIBER. GO HERE TO SUBSCRIBE. YOU WILL BE HAPPY YOU DID: www.BullMarket.com/subscribe
Good Investing,
Todd Shaver, Founder and CEO
The Bull Market Report
Since 1998
July 1, 2019
by Scott Martin | Jul 1, 2019 | Free Newsletter (Sent Weekly Monday at 12pm)
Wall Street kept its fireworks in reserve last week ahead of a G-20 Summit that some predicted would either set the stage for a massive breakthrough on global trade or trigger a complete breakdown. We suspected that both extreme outcomes were unlikely when Chinese and U.S. diplomats are still so far apart on a negotiating framework much less the details that will make or break any proposed deal.
What we got was a continued truce in the trade war that will probably maintain the fragile status quo for months if not through the end of the year. That’s far from the worst scenario.
After all, the S&P 500 managed to rally 18% over the last six months, despite all the back-and-forth rhetorical escalation overseas and stalled earnings growth. We evidently aren’t alone in looking beyond the chatter to better days ahead, and with BMR stocks soaring 32% over the same period, it’s no wonder we’re optimistic.
However, success depends on your time horizon. While the last six months have been good for the market and our recommendations, this year-to-date rally needs to be weighed against an equally harrowing 4Q18 slide. Over the last 12 months, the S&P 500 is up only 8%. After that, while the market keeps tiptoeing from record to record, the gains have been grudging. Someone who bought the index in mid-September would be effectively back at zero now, nearly 10 months later.
BMR stocks, meanwhile, are up 40% end to end. Of course we weren’t in all of our current positions 12 months ago, so the raw number is a little misleading. We recommended 16 new companies over the past year and found compelling reasons to cut coverage on 7 others, keeping our portfolios fully exposed to the hottest areas of the market we can find. Some of those new stocks matured fast with 80-90% YTD performance. Others are taking a slightly slower route or are here to play a more defensive role, quietly accumulating dividends while flashier positions do their work.
All in all, however, our universe outperformed the index on the upside and held up a little better on the downside, both YTD and across the trailing year. BMR stocks held onto an 8% gain through the frustrating second half of 2018, then delivered nearly double what the market as a whole earned on the rebound. While nobody can say with certainty where we go from here, there’s no reason to assume that our track record will come to a sudden end now.
For one thing, BMR stocks collectively still have earnings growth on their side even though fundamentals for the S&P 500 now look stagnant (at best) through at least the release of 4Q19 numbers early next year. The trade war is only an intermittent threat where our recommendations are concerned.
And if the trade war becomes too big a drag on the global economy, the Federal Reserve has all but promised that it’s ready to cut interest rates. In that scenario, the tide of easier money helps all companies, and since ours aren’t under any pressure, the BMR universe stands to enjoy all of the benefits without accepting much of the trade war pain.
In the meantime, earnings season starts in a few weeks, so it’s time to start preparing for that cycle of corporate confessions. Expectations are low. A lot of investors have already discounted the entire earnings season and are looking toward the next Fed meeting at the end of July for a sign that it’s time to set off fireworks.
Remember, people who “sold in May and went away” last summer missed most of the year’s real gains, then buying back in when September rolled around only compounded their mistake. Summer can be a great time for investors, and at this point any significant progress on either earnings or trade will be enough to get stocks rallying in relief.
There’s always a bull market here at The Bull Market Report! The end of the quarter is the perfect time to review our strategic dividend focus in The Big Picture and then follow up with specifics in The High Yield Investor, which only subscribers got.
Key Market Measures (Friday’s Close)
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BMR Companies and Commentary
The Big Picture: Yield Is The Base
When stocks are soaring, our primary objective is to ensure that BMR subscribers are participating in the fun and not simply watching from the sidelines. And likewise, we urge you to buy the dips when a faltering market mood temporarily takes the stocks we recommend down with it.
Either way, we know the future will ultimately be better than the past. The only question is how fast we’ll get there in any particular swing of the market pendulum, given the bumps and detours that can make passive index fund investors so frustrated when the gains slow to a stall. The S&P 500 hasn’t even delivered 1% since mid-September while exposing shareholders to an extremely bumpy ride along the way.
Sometimes it isn’t worth the ride. In these consolidation periods when stocks have already burned through a lot of their rally fuel, the immediate returns have a hard time keeping up with the drain on investors’ nerves. That’s when we tend to spotlight our High Yield and REIT recommendations as an alternative to what could become months of empty angst.
Admittedly, these stocks and Closed End Funds aren’t risk free, but they pay back enough cash to buffer a lot of sluggish seasons. Right now someone could buy 10 shares of each of our 16 recommendations in these two portfolios for about $14,700. A year from now, the market may be willing to pay more or less to take those shares back from you, but along the way you’ll get 7% of that capital back in the form of dividends.
The question for you then boils down to where you think stocks will go in that year. Obviously our more aggressive, Technology-oriented posture has done a whole lot better than 7% over the past year, giving the active BMR universe a healthy 28% win in a period when the S&P 500 is only a little better than breakeven. But where will the next 12 months take us?
We’re optimistic that BMR stocks that led the world over the last year have what it takes to keep rallying as we look beyond 2019 into 2020. After all, 28% is a high enough score to justify a few rollercoaster lurches along the way. However, if the market as a whole suffers a sudden shock, the coming year could be a sour one for our universe as well as the S&P 500.
In that scenario, 7% looks pretty good. Depending on your situation, it could be enough to pay a few bills or provide the dry powder to buy temporarily depressed stocks on the dip. Either way, it’s a whole lot better than nothing, and it dramatically reduces the odds that you’ll need to liquidate at the bottom in order to raise cash.
And 7% isn’t even all that bad in absolute terms. Risk and returns go together. Treasury bonds are as risk-free as it gets, but the market won’t let you lock in more than 2% right now and that’s barely enough to keep up with inflation as it is. Stocks can soar or go over a cliff that takes them months or even years to climb back from, forcing investors to wait a long time before they get their money back.
The S&P 500 generally delivers somewhere between a 10% loss and a 20% gain across a typical 12-month period. Locking in a high dividend yield raises the floor and sacrifices a little absolute upside, smoothing the year-to-year return. In the past year, for example, our High Yield recommendations appreciated 3% beyond the dividends we got, translating into 10% performance for the group. Our REITs, on the other hand, are more about market performance, so we actually lagged the S&P 500 there over the past 12 months after factoring in dividend payments.
It happens. Next year these portfolio dynamics may reverse as the Fed pivots from tightening to a more relaxed policy and REITs go back on the offensive. As the market mood swings, we might see a prolonged stock slump crowd big money into both asset classes, adding significant appreciation to the 7% overall income base across the board. In a “flight to safety,” this is where nervous investors will come to hide. We won’t mind. We’re already here.
Either way, it’s all about diversification. We monitor every recommendation to ensure that they’re more likely to make their regular payments than their peers, but we also recognize that our view is always going to be imperfect. Sometimes one of our companies cuts its dividend after years of reliable performance and we need to evaluate whether it’s time to go. Because it happens so rarely, there’s safety in numbers . . . even if three of our sixteen yield choices cancel their distributions entirely, the aggregate performance floor for the group only drops from 7% to 5.5%.
We are confident that our dividend stocks will get through the next 12 months in better shape than that, in which case the real question turns back to whether you think you can do better than that income floor elsewhere. The S&P 500 may have what it takes. Year to date, the index is beating our REITs by 10% and is narrowly ahead of our High Yield portfolio as well. Our non-yielding growth stocks have rallied 40% in the last six months, so that’s an even better choice.
But if you think there’s even a chance that the coming year bodes badly for the market, it’s worth buying a little insurance that will enable you to squeeze at least some profit out of the seasons ahead. That’s what our yield portfolios are for. When our other stocks are making a lot of money, these quieter recommendations make a little money too. And when the market as a whole loses money, the dividends keep coming.
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Alphabet (GOOG: $1,081, down 4% -- all returns are for the week)
Continuing with our Stocks for Success coverage this week, Alphabet hasn’t been as successful as we’d like (up 3% YTD), but that includes the May dip, which the stock has yet to recover from. We were looking at a 22% YTD return prior to the selloff and continue to believe the stock is a prime buying opportunity as this is one of the most bankable long-term investments in the world.
Alphabet has a lot going for it beyond a monopoly on Search. The company is introducing a video game streaming service called Stadia, which could disrupt the entire gaming industry the way Netflix disrupted Hollywood. Stadia will allow users to play games without the need for a console. Additionally, Alphabet is already testing its Project Soli technology, which allows users to operate smart devices with mere hand gestures (no more tapping or swiping). This has immense implications for the smartphone, tablet and even the burgeoning smart-watch industries.
On the financial front, Alphabet has grown revenue at least 20% per year over the last three years, but in 1Q19 revenue growth came in at 17%. That, coupled with macroeconomic concerns is what tanked the stock. Of course, the market is being hyper-reactionary. 17% growth for a $750 billion company is astounding.
And the deceleration is a blip, not a trend. With YouTube dominating in mobile video streaming (37% market share – next biggest players are Facebook and Snapchat with just over 8%), autonomous vehicle manufacturer Waymo coming online soon, and the aforementioned Stadia and Project Soli set to disrupt major industries, there are simply too many revenue drivers for growth not to spike back up over that 20% mark. Additionally, Alphabet is trading at 5.5x price/sales, and its five-year average is 6.5x. So the stock is less expensive along that metric.
BMR Take: With $115 billion in cash and only $12 billion in debt, Alphabet can afford to get creative moving forward. Of course, management already has so many innovative technologies on the horizon, it might be best to just wait and see which ones live up to – or even exceed – expectations. This is a company that’s so cutting edge Hollywood made a movie about two guys trying to get a job there (The Internship.) Revenue growth will pick back up in no time, and so will the stock. We’re reiterating our $1,450 price target and our ‘would not sell’ position.
NOTE: In our weekly paid subscription Newsletter, we do between 5 and 7 SnapShots and also support regular Research Reports. The last three stocks we recommended are already up 5% apiece. Plus, we have the Weekly High Yield Investor, whereby we discuss the 17 stocks in our High Yield and REIT Portfolios.
And to top it all off, we send News Flashes each day during the week. Got a question about any stock on the market? We'll answer. So if your favorite stock reports earnings or there is significant news, you will hear about it here first. If you want the whole picture, join the thousands of Bull Market Report readers who are making money in the stock market and subscribe here:
www.BullMarket.com/subscription
It’s only $249 a year, and later this year we will be raising it to $499 or even $999 a year, it is just THAT valuable. But we will lock you in for life at this lower price.
Good Investing,
Todd Shaver, Founder and CEO
The Bull Market Report
Since 1998
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February 11, 2018
by Todd Shaver | Feb 11, 2018 | Weekly Newsletter 7pm Sunday
The Weekly Summary
Volatility is back and in an uproar. We’ll run through what is happening in the markets below, but don’t lose sight that although the backdrop warrants caution, the bull market is alive and well. US equities ended their worst week in two years on a positive note with the Dow up 330 points on Friday, but rate-hike fears that pushed markets down remain in place as investors await inflation figures on Wednesday. The S&P 500 tumbled 5.2% in the week, its steepest slide since early 2016, jolting equity markets from an unprecedented stretch of calm. At one point, stocks were 12% below the highs set just two 11 days ago, before a strong rally Friday left the equity benchmark 1.5% higher on the day.
Still, the selloff has wiped out gains for the year. Signs are mounting that jitters spread to other assets, with measures of market unrest pushing higher junk bonds, emerging-market equities and treasuries. The CBOE Volatility Index ended at 29, almost 3x higher than its level January 26th. We at The Bull Market Report are staying calm. We believe stocks are on sale so we would suggest picking out one or two of your favorites and slowly buying more shares.
No matter what is happening out there, there is always a bull market here at The Bull Market Report! This week we highlight: Blackrock, The Carlyle Group, Synaptics, Tesla, CBRE Group, and Ventas.
Key Market Measures (Friday’s Close)
BMR Companies & Commentary
Blackrock (BLK: $522, down 5%)
BlackRock is trusted to manage more money than any other investment firm. Its business is investing on behalf of clients from large institutions, to parents and grandparents, teachers, nurses, doctors and people from all walks of life who entrust their savings to the firm. Well, the company is getting even bigger.
BlackRock is seeking to raise $10 billion for "BlackRock Long-Term Private Capital" to buy and hold $500 million to $2 billion minority stakes in companies for periods of up to more than a decade. The move establishes BlackRock as a potential competitor to Wall Street private-equity giants like Carlyle Group and Apollo Global Management. It is the first-ever attempt by the world's largest asset manager to make such direct investments.
BlackRock has praised Berkshire Hathaway as the best-known example of the strategy. Well, of course. No one has ever done it better. We all know this. BlackRock Long-Term Private Capital will operate differently from most private equity funds, taking full commitments up front and reinvesting as it exits investments. As compared with most investments that return capital to investors after one deal. This is great for Blackrock shareholders because there is no need for ongoing fundraising.
BMR Take: The rock of the investment management industry right now is Blackrock. The company is going to generate nearly $14 billion of revenue this year and produce about $28.60 of EPS. With revenue and EPS growing to over $15 billion and $32.00 next year, respectively, the stock is far from expensive leaving a lot of room for upside.
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The Carlyle Group (CG: $23, down 10%)
Carlyle delivered a solid quarter. Revenue was $1.0 billion versus just $435 million a year ago. EPS hit $1.01 versus just $0.02 a year ago.
Management discussed how the business concluded 2017 with great momentum across all businesses. Carlyle had record activity deploying $22 billion into new investments and raising $43 billion of capital across the platform. Investment performance was exceptional with 20% appreciation across carry funds enabling realizations of $26 billion that went to investors as proceeds for their investments.
The company declared a quarterly distribution of $0.33 per share on February 21st. For full year 2017, they paid out $1.41. That is nearly a 6% yield at the current price.
BMR Take: In private equity The Carlyle Group is a top-notch franchise, known everywhere, the who’s who of business, doing deals in the top floor offices of every major city. The business is raising money like weeds and generating big returns. It is a very compelling opportunity. EPS should hit $3.00 next year leaving this stock dirt cheap.
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Synaptics (SYNA: $44, up 7% - yes really!)
Synaptics reported revenue of $430 million versus $461 million last year. EPS was $1.11 versus $1.49 a year ago. Not terribly pretty, but Synaptics is starting to benefit from the transition encompassing a more diversified product portfolio and customer base, and expects to see strong momentum from investments in infinity displays and consumer IoT in the second half of this calendar year. They continue to make meaningful strides across core growth priorities within chip-on-film, OLED (organic light-emitting diode*), in-display fingerprint technology, and consumer IoT. This includes retail availability of flagship smartphone products, such as new fingerprint, display, and voice-enabled technologies.
* OLED panels are made from organic (carbon based) materials that emit light when electricity is applied through them. Since OLEDs do not require a backlight and filters (unlike LCD displays), they are more efficient, simpler to make, and much thinner - and in fact can be made flexible and even rollable.
BMR Take: With all of the growth investments happening, and the lucrative opportunity emerging for consumer IoT, the quarter’s results were less important than the outlook for attacking this major opportunity. And the outlook is bright. EPS is expected to ramp from around $4 this year to $5 next year and substantially more in the years ahead. We added the stock at $41 in December and our Price Target is $54 and we are hopeful of seeing this during the current year. It would be helpful in achieving this goal if the market calms down and resumes its bull run.
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Tesla (TSLA: $310, down 9%)
Tesla reported revenue of $3.3 billion this quarter versus $2.3 billion last year. For the full year Tesla did $12 billion versus $7 billion a year ago. EPS this quarter was a loss of $3.04.
However, the big ramp in profitability is on the horizon. Revenue is expected to jump to $20 billion this year and $27 billion next year. EPS is expected to swing from a loss to a positive $3.25 in 24 months.
The stock traded about flat after the earnings release that included a fractional revenue miss, and narrower-than-consensus EPS loss. Gross margins came in 190 basis points below consensus, with the Model 3 production ramp weighing on the overall margin profile. But that didn’t really matter as management reiterated its target of 5,000 Model 3 production units per week by the end of Q2.
BMR Take: Most continue to see many moving parts to the Tesla story, with the guidance for sustainable positive operating profits sometime in 2018 garnering more of a show-me attitude, especially given the checkered track record of not hitting guidance milestones or production targets. However, most agree the healthy demand for the Model 3 continues to be a good problem to have, and are spectators on the pace of production execution.
We put a Sell Price of $335 on the stock a few weeks ago so we don’t lose the tremendous profits we have on the stock, but the market this week smashed most stocks down including Tesla. Our Sell Prices are for YOU to decide what to do.
--- We love the concept of the company.
--- We love Elon Musk (Space X with its new successful launch this week has had positive ramifications on Tesla).
--- We love the cars they make.
--- But the debt is crushing.
--- But they have been able to weather the storm through debt and equity sales.
As we’ve said before, this stock could go to $200 or $500. And we’re not sure which will come first? It is very speculative. Should you be in this stock for the wild ride ahead? Only you can decide.
Here’s a 5-year chart. Pretty impressive:
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CBRE Group (CBG: $42, down 5%)
CBRE is crushing it. The company reported revenue of $4.4 billion versus $3.8 billion last year. EPS was $0.99 up from $0.93 a year ago. The consensus expects this year’s revenue to grow from $14.2 billion to $16.5 billion in 2019. EPS is similarly expected to grow from $2.70 this year to $3.20 in 2019.
Fourth-quarter results capped another excellent year for CBRE. Performance significantly exceeded the expectations discussed on the third-quarter earnings call as some concerns surfaced about occupier outsourcing and leasing fee revenue growth. But all that went to the wayside as revenue and earnings for 2017 ended up reaching all-time highs. 2017 marked the 8th consecutive year of double-digit EPS growth for CBRE.
BMR Take: The macro environment is a supportive backdrop for this business, and management continues to operate within an industry poised for long-term growth. This is due to the growing acceptance of outsourced commercial real estate services, the increasing capital allocation to commercial real estate as an institutional asset class, and the continuing consolidation of activity within the industry to the highest-quality, globally diversified market leaders. CBRE Group is a must-own holding in your portfolio in the real estate sector.
We’re up over 60% in two years on this wonderful firm. No dividend yet, but we can see that coming. Our target is $54 and there’s an outside chance it can hit that this year. We know what this company does first hand – they save big multi-national companies money. Big money as in millions and millions of dollars. And the firm gets rewarded in brokerage fees, fixed fees and more. And so few people know about this great firm.
This chart shows the value this stock offers here, after this rough week:
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Ventas (VTR: $52, down 5%)
Ventas reported revenue for the quarter of $895 million versus $875 million a year ago. Revenue for 2017 ended at $3.6 billion versus $3.4 billion in 2016. EPS was $0.50 versus $0.58 a year ago. EPS for 2017 ended at $1.78 versus $1.86 in 2016. Consensus expects revenue to drift upward toward $3.7 billion over the next 2 years. EPS is expected remain stable around $1.75 although we see several sources of EPS upside that are likely to drive revisions closer to the highest Street forecast of $2.15.
All in all, 2017 was another excellent year for Ventas, as the business generated record cash flow from operations and delivered same-store property cash net operating income growth at the high end of internal expectations. To further enhance their diverse portfolio, the company made nearly $2 billion in value-creating investments, including significant expansion of their university-based life science business. And they profitably disposed of almost $1 billion in assets and completed innovative deals with leading operating partners.
BMR Take: Ventas has proven resilient through cycles for two decades. They remain one of the world's best REITs with a specialty in healthcare among other areas.
This success is founded on solid strategic vision, superior foresight and innovation, intelligent and timely capital allocation decisions, rigorous execution and a cohesive, expert team. As they enter 2018 – the company’s 20th anniversary year – management is confident that they can continue the long track record of superior consistent performance as the industry leader.
We added Ventas at $60 in last 2016, a little over a year ago. Until the last two weeks, it was hovering around $56, down a bit, but still paying a nice 6% dividend. It’s worth $18 billion, and has over 1200 properties across the US, Canada and the UK. And as you know, they are in the senior living business along with medical facilities as well. Yes, the stock is down, but this company is strong, and we can only see good things happening from here. If you bought at $60 now is the time to add to your position to bring your cost down. Two years from now we wouldn’t be surprised to see the stock in the 70s, as remember, 10,000 people a day turn 65 in the US. They have to live somewhere!
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We got a letter from one of our readers about Ventas
From: Richard Reed [mailto:reed995@]
Sent: Wednesday, February 07, 2018 10:21 AM
To: The Bull Market Report <Info@bullmarket.com>
Subject: Re: EARNINGS PREVIEW FOR THE WEEK AHEAD
Hi Todd,
Ventas (VTR) is below your Sell Price. Are you lowering the sell price? Thanks.
Richard
Our answer:
Hi Richard –
Look – they own 1200 assets in the United States, Canada and the UK. The properties are senior living properties and more. Are they all going down the tubes? NO WAY. A $19 billion asset paying 6%. We would buy more.
Furthermore, our Sell Price on Ventas is $58. But at $52, we have to say that we like it even more. Nothing has changed for the company in the past two weeks. Yes, interest rates are a shade higher, but nothing out of the ordinary. When the economy is good, rates go out. This is just normal. So to answer your question above, yes, we are lowering our Sell Price to $48. Of course, YOU can make up your own mind on this one, as always, but we would take this opportunity to buy an amazing company at an even lower price.
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Economic Calendar
CPI Ex-Food & Energy
Wednesday, February 14th, 8:30 AM
Period: January
Consensus: 1.7%
Prior: 1.8%
CPI
Wednesday, February 14th, 8:30 AM
Period: January
Consensus: 1.9%
Prior: 2.1%
PPI
Thursday, February 15th, 8:30 AM
Period: January
Consensus: 2.5%
Prior: 2.6%
Housing Starts
Friday, February 16th, 8:30 AM
Period: January
Consensus: 3.7%
Prior: -8.2%
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Apple has $285 Billion in Cash
Can you believe this? Again – a record high for any company in history. Apple (AAPL: $156, flat for the week) has $285 billion in cash, or $56 a share. With the stock at $156, that’s 36% of each share of stock in cash. We’re not sure of the Wall St. record, but we are guessing this is twice as much than any other company in history. With the stock flat for the week (amazing) this just screams out at us to add more to the portfolio.
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If the Market Heads Back Up
No one knows where the market is heading. Will it calm down and move higher this coming week and month? Or will it be heading for 23,000 and lower? Again, we don’t know. But if things simmer down and the volatility abates – AND IT WILL – there are a few stocks that we would want to add to our positions in. Here are just a few:
Microsoft
PayPal
Google
Facebook
Apple
Eli Lilly
Yes, many of these are the super Tech stocks that have been leading the market. But guess what? These stocks will continue to lead the market for many years to come.
And one more note. Did you see Annaly Capital Mortgage (NLY: $10.21, down 1%) this week? Solid as a rock. So if you are super worried about things, we believe Annaly can be a store of value for a month or two or 12, and you can enjoy the 11% dividend in this $12 billion market cap company.
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A Word from Gary Jefferson
Jefferson Financial Group
First Vice-President, Investments
UBS Financial Services, Inc.
There was no comment Monday or Tuesday because everything I wrote was outdated and the numbers were obsolete within minutes of writing, rewriting and re-rewriting them. The dust may or may not have settled, but a few things are much clearer today.
In short, the seismic swings over the past few days have been based on three primary factors that we believe now form a consensus:
1. The threat of higher inflation (Rising bond yields)
2. The possibility of more Fed hikes
3. The long streak without a normal and healthy market shakeout.
How does that stack up against the best economy we've seen in over a decade? In other words, is it good news or bad news that economic growth is so strong the Fed may have to raise rates sooner than expected? Or, is it good news or bad news that nearly half the companies in the S&P 500 have reported fourth quarter results and more than 80% of them have beaten Wall Street's revenue expectations, the highest percentage since the third quarter of 2008? And, is it good news or bad news that the tax law will boost those profits further in the quarters ahead?
Let's put all this in perspective:
First, the market isn’t overbought anymore. We now know that. There was a "10% correction." Let’s get over it.
Second, earnings are robust.
Third, the rise in bond yields has been a headwind, but it’s not signaling a looming recession. Importantly, the 10-year vs. 2-year Treasury yield spread has widened out as yields have risen, implying the bond market is now discounting higher inflation and better economic growth, which over the medium term has almost always been positive for stocks.
While volatility has returned with a vengeance, the market fundamentals are now better and earnings growth prospects haven't looked better in years. Basically, all of the reasons why investors have been bullish on the market last week, last month and last year are still here.
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The High Yield Report
by Michael Foster
VP High Yield
It should always be emphasized that much of a stock's action is not caused by only the underlying company, but also by the industry and the overall market. In a volatile environment, this emphasis is especially important. While our High Yield and REIT portfolios have shown lackluster performance over the past two weeks, the fundamental aspects of the companies that make up the portfolios have not changed.
The S&P 500 decreased 5.1% over the past week, leading to stocks officially being in correction territory. Much of the decline is being attributed to interest rate and liquidity fears, which is why much of the analysis on the portfolio below will focus on those aspects. It takes just one week to rattle bullish sentiment. As an investor, you should not put too much weight on what the general financial media is discussing. What should take priority is thinking about whether the fundamental aspects of the economy and market have changed. When this is the priority, our fear diminishes as we realize that earnings are still strong, nonfarm payrolls on February 2nd were above expectations, and a deregulatory environment is still present.
One metric, the yield curve, is worth looking at though. The spread between the 10-year Treasury yield and the 2-year Treasury yield has been constantly decreasing as a result of the Federal Reserve tightening policies and the lack of inflation. On a basic level, you can note that the presence of an inverted yield curve, if it were to happen, has been a common predictor of past recessions. Going deeper, the economic repercussions of the inversion are much more important. Consumers and banks are directly impacted. For consumers, the cost of credit increases, which leads to a larger portion of expendable income being dedicated to servicing debt. For banks, the spread between long-dated loans and deposits decreases, which leads to worse financial performance. We’re sharing this information so that you can keep the yield curve on your radar, but there’s no need to worry as of now. When the curve inverted in the past, it still took between 7 to 24 months to reach any sort of recessionary state.
AllianzGI Equity & Convertible Income Fund (NIE: $20.59, down 4%) fared slightly better than the S&P’s drop of over 5%. It moved from the weekly low of $19.50 to its current level after recovering about 2.5% in the last hour of trading on Friday. The performance of individual equities which it holds, including Microsoft, Alphabet, and Amazon, led to the recovery in the last hour. Given that the fund invests little in the bonds and the scenario of the inverted yield curve, we can expect the funds to be shifted from Equity to Bonds.
We still see Apollo Commercial RE Finance (ARI: $17.70, down 3%) as a cyclical play on the U.S. commercial real estate sector. Given that commercial real estate in the U.S. remains solid, with Apollo’s loan originations hitting $1.5 billion YTD and the economy of the US continuing to get stronger and stronger, Apollo is not a position to be worried about.
Digital Realty Trust (DLR: $102, down 5%) dropped almost by the same amount as the S&P. This was the opposite of the week prior, where the company maintained strength in the midst of widespread declines. While we noted the continued demand for data centers in the last summary, there are some other metrics to note. Digital Realty, owning many data centers in US and internationally, is affected by rising interest rates as the cost of borrowing rises. The company has a massive debt level of $5.8 billion with a Debt/EBITDA ratio of 22. Rising interest rates could cripple the company’s dividend payout and future prospects.
Invesco Municipal Trust (VKQ: $11.83, flat) ended up at the same level as the beginning of the week. With its investments primarily in investment grade U.S. municipal bond obligations (85%), the fund can expect to yield better returns amidst the current rising interest rates scenario. Also, a Fitch report stating that plans to cut federal funds to them won't impact the revenues of the municipal bond funds and ETFs, played a large part in keeping the fund’s price level stable. Nuveen Municipal (NVG: $14.43, flat), another high yield fund with major investments in U.S. investment grade municipal bonds, also maintained its price level.
Pimco Dynamic Fund (PDI: $30, down 1%) was less volatile. The firm, investing primarily in a range of debt securities, including mortgage-backed securities, high yield corporates, and emerging market bonds, could witness further issues with rising interest rates, changes in tax structure, and better yields.
The REIT sector has been partially impacted by the recent economic data, heightening fears of higher interest rates. Primarily, the sector is engaged in massive borrowings, and rising interest rates could increase the cost of the borrowings. With that said, rising interest rates often occur in a booming economy, which indicates higher demand by consumers.
Market corrections generally provide prudent investors with great buying opportunities. One way of going about this is finding relative strength in strong industries. Applying this analysis to REITs, the overall REIT sector was down only 3%. Within out portfolio, three of the five positions outperformed the sector. Annaly Capital Management (NLY: $10.21, down 1%), Government Properties (GOV: $16.37, down 1%), and Omega Healthcare Investors (OHI: $26, flat) composed that group.
As a company that primarily engages in buying mortgages and mortgage-backed securities (as well as other assets), Annaly could fare very well as interest rates go up and correspondingly coupon rates do as well. While this is not necessarily the reason for the less-than-average drop this week, going forward it is something we will keep in mind. Both Government Properties and Omega should not feel a significantly negative impact by rising rates either. The former gets offered attractive rates by the government as a result of its leases and the latter’s healthcare-related real estate is, for the most part, unaffected by the business cycles.
The other two positions, Ventas (VTR: $52, down 5%) and Welltower (HCN: $55, down 5%), ended up having declines that were in-line with the S&P 500 but larger than the move in the REIT sector.
Ventas reported positive 4th quarter earnings on Friday, which provided a minor boost to the stock. The reported income from continuing operations for 2017, $640,000, was a record for the company. In turn, the EPS and FFO per share numbers were also records. In a rising rate environment, this is a positive sign. With the earnings report occurring during a stock market decline, any overall S&P bounce should result in outperformance by Ventas.
The other relatively weak company, Welltower, did not have any news this week to explain the larger than average decline in the stock. As it is focused on owning senior living properties and funding real estate infrastructure, the large amount of debt maintained could pose an issue within the rising rate environment. Currently, though, the extensive track record of stock appreciation over the past 25 years leaves us unworried. Welltower is also at the lower end of its range for the past four years, so it is a good area to pick up more shares.
Good Investing,
Todd Shaver, Founder and CEO
The Bull Market Report
Since 1998
February 4, 2018
by Todd Shaver | Feb 4, 2018 | Weekly Newsletter 7pm Sunday
The Weekly Summary
The stock market took a hit this week. It was down almost 200 on Monday, almost 400 on Tuesday, rallied a tad on Wednesday and Thursday, and got hammered on Friday to the tune of 666 points. It’s a week we can happily say has been put to bed and we can now forget about it. The long-awaited correction has now occurred. Happy now Wall Street pundits? (We don’t feel this way.) The big reason for the sell-off was interest rates. The 10-year was up again to 2.84%. And the 30-year moved up above 3%. But this is what happens when you have a strong economy – interest rates move up. This has been happening for over 100 years. The economy shines; interest rates go up. Why do you think rates have been so low? Because the Fed drove down rates after the debacle of 2008-2009 and kept them there for almost 10 years. Look at this chart here; it’s a bit hard to read at first – note that the right column shows the rate today – 1.48% and in 2008 it was 1.04%.
Now take a look at these two charts. The first one is the 10-year Treasury for the past six months. It's gone straight up.
And this one is the 10-year for the past 20 years. Basically straight down.
The key takeaway here is the interest rates are STILL VERY LOW HISTORICALLY. This is actually good news for the economy and stocks. Thus it is our take that 1) We had a bad week last week 2) Things will calm down this week and in the coming months, and 3) Good solid companies will continue to thrive and grow as the US economy continues to strengthen.
Easy for us to say. Hard for you to implement. We understand that. But we want you to put this past weekly move in perspective. The market is where it was just three weeks ago, at 25,500. A year ago it was at 20,000.
The big oil companies came up a bit short on the earnings front last week. Most of the Street was expecting good things, as the price of crude has remained strong at $65. But Exxon’s production dropped by 130,000 barrels a day and has lost money now for 12 quarters a row on its US drilling business, even as US production touched the record production of 10 million barrels a day in November, the previous record being set in 1970. Plus they took a $1.3 billion write-down on its natural gas business. But overall, Exxon made $3.73 billion, a decline of just 2%. These big companies are expected to generate huge amounts of cash in 2018, so we aren’t feeling too sorry for them. The number could be over $40 billion, in excess of dividends and new spending.
Super Bowl Sunday is here! $5 million for a 30 seconds ad. Over 110 million viewers likely watched. The legacy of Tom Brady’s Patriots against the surprisingly better than you think Eagles. The Patriots are favored by 4.5 points. It is interesting. Very often in sports or in the markets whatever people expect to happen, doesn’t materialize. For all sorts of reasons: Cognitive dissonance. Conservative bias. Confirmation bias. Extrapolating past performance. Loss aversion. Overconfidence. Self-control. Regret aversion. Affinity. Status quo. The list of mental mistakes people make when investing is long and always at play. We saw a 666 point drop on the Dow on Friday. This was the 3rd largest one-day point decline in history. The market is digesting something. The Bull & Bear indicator managed by Merrill Lynch has finally flashed a firm sell signal after weeks of overextended conditions. We will see what happens Monday. The unexpected could happen. Just like in football.
No matter what is happening out there, there is always a bull market here at The Bull Market Report! This week we highlight: Microsoft, Google, Amazon, Facebook, PayPal, and Blackstone.
Key Market Measures
BMR Companies & Commentary
Microsoft (MSFT: $92, down 2%)
Revenue was $28.9 billion and increased 12%. EPS hit a solid $0.96 crushing the $0.87 consensus. This quarter’s results speak to the differentiated value Microsoft is delivering to customers across productivity solutions and as the hybrid cloud provider of choice. The firm’s investments in IoT, data, and AI services across cloud, position the business to further accelerate growth. In particular, Microsoft delivered another strong quarter with commercial cloud revenue growing 56% year-over-year to $5.3 billion, which is just amazing to see such a huge growth figure in the lucrative cloud opportunity. Guidance for Q3 was largely in-line or better than consensus expectations. All in all, a very good quarter.
BMR Take: Microsoft is a stock market darling. The business is well-rounded. Legacy Window products to the up and coming Azure product in commercial cloud. We see Microsoft continuing to piece together solid earnings results in the year ahead. With $4.25 of EPS in direct sight, the stock still screens reasonable at around 22x.
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Google (GOOG: $1,112, down 5%)
Revenue of $32 billion increased 24% from a year ago. EPS of $9.70 just missed the consensus for $10.00. Overall, we are interpreting the quarter’s results favorably (unlike the Street.) Mobile and desktop search along with YouTube are powering accelerating growth and these trends should drive sustained above average growth going forward. Google Cloud momentum is good now generating $1 billion in revenue per quarter, where the number of $1 million or more contracts across cloud products tripled in 2017. Google has now sold ‘tens of millions’ of its Mini, Max, and Chromecast devices as Google Assistant is now on over 400 million devices globally. Waymo’s progress is accelerating. They plan to launch a ride-sharing program in Phoenix operated by self-driving cars this year. Wow.
BMR Take: We really don’t care much about the slight EPS miss. The stock being down is an opportunity to accumulate shares. Scouring through all the analysis on the quarter, nobody is really saying anything that seriously concerns us. What we want to see going forward is more progress on the cloud business. Amazon AWS is now at 35% market share versus Google Cloud only in the high single digits. If Google can close that gap, this stock can continue its strong move higher. With nearly $50 of EPS coming into view, the current valuation of 23x is far from stretched.
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Amazon (AMZN: $1,430, up 2%)
Amazon is crushing it. What else is new? (!) Net sales increased 38% to $60 billion in the fourth quarter, compared with $44 billion in 4Q16. EPS of $6.15 was well above $4.90 a year ago. There is so much to discuss here. What we are really excited about is the Echo business. Earlier in the year Amazon introduced three new Echo devices: the all-new Echo ($100), featuring a new design, improved sound, a lower price, and a choice of colors to personalize your device; Echo Plus ($150) with a built-in smart home hub so customers can easily set up and control their smart home devices; and Echo Spot ($130), a compact Echo with a screen so you can see the weather, get the news with a video flash briefing, view lyrics with Amazon Music, watch a camera monitor, browse and listen to Audible, and more.
This new business opportunity could be huge. Said Jeff Bezos, Amazon founder and CEO, “Our 2017 projections for Alexa were very optimistic, and we far exceeded them. We don’t see positive surprises of this magnitude very often — expect us to double down. We’ve reached an important point where other companies and developers are accelerating adoption of Alexa. There are now over 30,000 skills from outside developers; customers can control more than 4,000 smart home devices from 1,200 unique brands with Alexa; and we’re seeing strong response to our new far-field voice kit for manufacturers. Much more to come and a huge thank you to our customers and partners.”
While Amazon doesn’t break out the financials on Alexa and its other electronics business, the results from its cloud-computing business, Amazon Web Services (AWS), were obvious and contributed much more to the company’s record profit total. AWS saw revenue shoot 45% higher to $5.1 billion, with profits of $1.3 billion. Wow – that’s 26% after tax. AWS and the tax gain of $790 million for the changes in the U.S. tax code, which lowers Amazon’s tax rate to 21%, were the biggest contributors to the company’s overall net income of $1.86 billion. Watch for a possible spin-off of the cloud business sometime this year. Can you imagine what this will do to the stock? Does “shoot higher” ring in your head?
BMR Take: Look, when Jeff Bezos gets surprised by how good a business is doing, and says he is doubling down, you have to take note. But don’t just take note. Take action on it too. You have to have Amazon in your portfolio. You can’t look at the business on current revenue or earnings and say it’s cheap or expensive. It’s an innovation machine. They are constantly doing start-ups, like Echo. More new paid members joined Prime in 2017 than any previous year — both worldwide and in the US. The business is roaring with momentum and still has a very bright future ahead even at the current stock price level.
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Facebook (FB: $190, flat)
Flat for the week. Not bad in the whole scheme of things. Facebook increased revenue 47% to $13 billion. EPS of $1.44 was up 19%. What a good quarter frankly. Though while 2017 was a strong year for Facebook, it was also a hard one," said Mark Zuckerberg, Facebook founder and CEO. "In 2018, we're focused on making sure Facebook isn't just fun to use, but also good for people's well-being and for society. We're doing this by encouraging meaningful connections between people rather than passive consumption of content. Already last quarter, we made changes to show fewer viral videos to make sure people's time is well spent. In total, we made changes that reduced time spent on Facebook by roughly 50 million hours every day. By focusing on meaningful connections, our community and business will be stronger over the long term."
Some analysts were scrambling a bit to figure out what this all mean. But monthly active users increased 14% from a year ago to 2.13 billion. Essentially, the issue is that Facebook has had a huge growth engine coming from adding users. Seriously 2.2 billion users is huge. The runway here is slowing down and that means Facebook is going to have to find another way to take over the world. And that is what Zuckerberg is saying. They will be focusing on quality of usage and fully monetizing existing users.
BMR Take: The company is look at EPS growing from $5.40 in 2017 to $8.70 in 2019. It is not easy to find a 20% earnings growth story. We really like the global platform Facebook has built and all the future opportunities it creates for advertising and other revenue opportunities. We see the same story here as elsewhere in large cap tech, trading for 22x is just not stretched.
The stock hit a new all-time high of $195 on Thursday and even traded at $194 on Friday, before the deluge. What a great company.
Stay the course.
Look at this 5-year chart. Where do you think it is headed, as it moves to 2.5 billion users?
Active Users Chart
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PayPal (PYPL: $77, down 10%)
PayPal delivered strong numbers. Revenue increased 26% to $3.7 billion. EPS increased 57% to $0.50. Overall, PayPal had a transformative year in 2017. The company brought record numbers of new customer accounts to the platform by simplifying life for consumers and merchants.
PayPal also substantially expanded its opportunities for future growth and redefined its competitive position through successful partnership strategies. For example, PayPal and Synchrony Financial announced an agreement expanding their consumer credit relationship. Under the terms of the transaction, Synchrony Financial will acquire PayPal's U.S. consumer credit receivables portfolio, which totaled approximately $6.4 billion at the end of 2017.
BMR Take: So why is the stock down? PayPal and eBay have signed a term sheet to make PayPal available as a way to pay on eBay, through July 2023. But the fact that PayPal’s exclusivity on eBay is going away has people up in arms. This aspect of the PayPal and eBay relationship has been well-discussed and should not surprise people. Don’t let it fool you.
We look at PayPal like this. This quarter new customers increased 9 million up to 227 million total customers. Facebook has over 2 billion users. With time PayPal could look a lot more like Facebook. That means massive growth still lies ahead. We believe in riding this train. We are talking about the next gen MasterCard or Visa here. A 10% drop in the stock is a good opportunity to take advantage of.
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The Blackstone Group (BX: $35, down 4%)
Total revenue ended the year at $7 billion up 39% from last year. EPS of $2.21 compared to just $1.56 a year ago, a huge 42% jump. This business is grooving! It was another strong quarter of core business trends. Specifically, total assets under management increased an elevated 12% sequentially to a record $435 billion, driven primarily by $62 billion of inflows. Capital deployment of $20 billion in the quarter represented a record. And dry powder remained elevated at $95 billion, which bodes well for future capital deployment levels. Just to put that in perspective, Blackstone realized half of the $7 billion of revenue this year from carried interest on prior year inflows, that were deployed to generate big gains of which Blackstone gets a percentage of the profits.
You are telling me the company has $95 billion to put to work to do more of this? Let’s assume on average they can collect a 10% carry on that money. They just doubled the business.
BMR Take: It was a truly exceptional year for Blackstone, reflected by outstanding earnings growth and record capital activity that drove their highest-ever level of aggregate cash distributions to shareholders. Blackstone’s tireless drive to innovate has enabled the company to launch large-scale new product areas that reach a wider client base and serve existing clients in new ways. Our investors in turn have entrusted the company with more capital than ever before, leading to a new record total assets under management of $435 billion, up 18% year-over-year. The stock is a good value at just 10x the current EPS of $3.25.
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Economic Calendar
Total Light Vehicle Sales
Monday, February 5th, 10:00 AM
Period: January
Consensus: 17.2 million
Prior: 17.8 million
Consumer Credit
Wednesday, February 7th, 3:00 PM
Period: December
Consensus: $19.5 billion
Prior: $28.0 billion
Initial Claims
Thursday, February 8th 8:30 AM
Period: February 3rd
Consensus: 233,000
Prior: 230,000
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Apple Reports Earnings
Apple (AAPL: $161, down 6%) sold 77 million iPhones in the holiday quarter. Apple’s forecast for the next quarter was also lighter than expected. Apple says they expect to sell 50 million iPhones this quarter, slightly lower than the Street expected, and this equates to slightly lower revenue and the main reason the stock got hammered last week.
Apple still blew past its own and analysts’ expectations for revenue and profit for its fiscal first quarter, reporting record sales of $88.3 billion and net income of slightly more than $20 billion. The company was able to increase revenue by 13% year-over-year by increasing iPhone prices and generating more money from the people buying Apple’s smartphones.
Apple jacked up the price on its premium iPhone X smartphone, starting the 10th-anniversary model at $1,000, pushing the average selling price, or ASP, of an iPhone far higher than analysts had ever experienced. IPhone buyers paid an average of more than $796 for their phones in Apple’s fiscal first quarter; iPhone ASP had never previously topped $700.
Apple also boosted its software and services segment revenue 18% year-over-year in the quarter to $8.5 billion. And listen to this:The App Store, Apple Music, iCloud and Apple Pay all had their biggest quarters ever.
Apple said, “During the week beginning Dec. 24, a record number of customers made purchases or downloaded apps from the App Store, spending $900 million in that 7-day period, followed by $300 million in purchases on New Year’s Day alone.”
“Other products” revenue grew the biggest of all. This includes smartphone accessories like the Apple Watch, which grew sales 50% year-over-year for the fourth consecutive quarter, as well as AirPods. Revenue hit $5.5 billion by selling such hardware, up 36% more than a year ago.
Apple is capitalizing on the opportunity at hand by producing more money out of iPhone users in every way possible. Apple is making more money on each iPhone, selling a few accessories to go with it, then signing up iPhone users for monthly subscription plans for services such as Apple Music and iCloud.
If Apple Music continues to grow at its current rate, it will officially overtake Spotify this summer as the streaming world's number one service. Apple Music has a monthly growth rate of around 5%. Spotify has a growth rate of just around 2%. If that keeps up, Apple Music will officially bump Spotify off the top in summer - and there's no reason to believe it can't, given that part of Apple's success in building an audience for Apple Music lies in the fact that the service comes bundled with most of the major devices the company sells.
BMR Take: The all-time high of $180 was hit January 18th. Two weeks ago the stock was down $7 and last week $11. Looks like a sale is going on in shares of this great company. Wait until that overseas cash starts hitting the books here in the US.
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VMware (VMW: $123) is Wrapped Up in a Dell Move
One way or the other it’s time to move on from VMware. Why? Dell Technologies owns 80% of the company and is discussing in the press whether to have VMware buy Dell in order for Dell to go public. It’s a back door tactic very rarely, if ever used before. It has impacted VMware greatly because no one really knows how it is going to play out. It looks like VMware might end up owning Dell, creating a behemoth Tech company consisting of Dell, VMware and EMC, plus a host of other tech businesses like cloud computing and cybersecurity. This might be a good investment, but little is known of its financials at this time, so we feel it best to wait and see how things shake out.
VMware was much higher a week ago, and Wall Street is quite nervous because it doesn’t really understand what is going on. The Street doesn’t like uncertainty, remember? (!)
BMR Take: We added the stock a year ago at $83 and we are up a shade under 50%. We think that’s a nice return (a GREAT return) and with everything going on with these new moves by Dell, we think it is time to take profits, sit on the sidelines and watch. Dell may be a stock to buy someday after they go public, but we will leave that decision for another day.
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The High Yield Corner
By Michael Foster
Vice President of High Yield
After the S&P 500’s 2% drop on Friday, which has inspired headlines such as “stocks have worst decline in 2 years”, it’s easy to lose sight of the fact that the S&P 500 is up 3.4% YTD.
Before the decline, stocks were up 7.5%, so a drop was clearly necessary [so they say.] Investors who have gotten comfortable with a bull market may be a little scared, because they aren’t used to down days. And it’s easy to forget what is driving the bull market. Wages are up nearly 3% in the U.S., unemployment keeps dropping, corporate earnings are rising, and, perhaps most impressively, this strong economy is being mirrored around the world. The typically cautious IMF and World Bank have asserted that growth is strong around the world, and while these institutions have made a lot of blunders in the past, they aren’t SO euphoric as to bring out the contrarian bear in us.
For high yield, the cautions are amplified. Riskier income producers like Government Properties Income Trust (GOV: $16.65, down 7%) and AllianzGI Equity & Convertible Fund (NIE: $21, down 5%) are down heavy, although they operate in very different markets and are entirely different asset classes (REITs versus convertible bonds and covered-call stocks). To wit: the AllianzGI’s 5% decline on the stock is far steeper than its 2.9% NAV decline, which is itself slightly better than the S&P 500’s 3.2%. Now, of course we can’t read too heavily into short-term price movements, but at the very least this tells us something about the AllianzGI Fund: it is not making extremely risky bets on very volatile assets, so it isn’t in any danger right now. So why did it sell off in excess of its NAV selloff? You got it. Because of fear. And that’s why the fund remains a buy. It’s up 1.6% for the year, lagging the overall market by a bit.
And what about Government Properties Trust (GOV: $16.65, down 7%)? We recommended this REIT back in 2016 and although the REIT is down 7% since then on a price return basis, much more importantly its dividend has not been cut since then, and investors have actually gotten cash dividends of about 19% on their original investment since our recommendation. As a result, we’ve made a profit on a total return basis. And the dynamics of the fund haven’t changed. The REIT’s FFO over the last 12 months is $2.28, while the dividend is $1.72. Thus its FFO is 133% of dividend payouts, so it’s out-earning its dividend. There is no threat to the dividend stream in the short term, and rising rents thanks to a booming economy mean FFO will go up, resulting in even higher FFO coverage.
The income stream here is not at any risk, despite the implications of the recent absurd sell-off. Revenues have been rising by about 8%, so we don’t see any indication that revenues can’t support the current dividend payout. For this reason, there’s no reason to be more cautious about Government Properties, and plenty of reason to shrug off the recent price declines. In fact, it is a great time to add more to this very stable company that is absurdly undervalued.
Elsewhere in REITs, declines were much less severe. Only Omega Healthcare Investors (OHI: $26, down 3%) saw a decline in-line with the S&P 500, but that’s not surprising. We’ve discussed at length why this company’s dividend hikes are threatened, but the threat won’t materialize for years (we’ve estimated 5 years). Dips are buying opportunities for now, as long as investors are cognizant of the fact that the dividend hikes won’t last forever and the stock could sell off in a few years as a result. But if you want a strong and secure high income stream now, Omega is one way to do it.
Digital Realty Trust (DLR: $108) was the second-best investment in the Bull Market Report High Yield portfolio. It was flat for the week. That sounds bad, especially if you’ve gotten used to gains upon gains and few down days, which has been the market norm since the High Yield portfolio began in 2016. But it also shows, interestingly, that the market has a lot of confidence in Digital Realty (which also outperformed a lot of the Tech sector). This week, Amazon, Apple, and Alphabet reported earnings that proved the world’s demand for data centers isn’t going away. Alas, Digital Realty’s yield is tiny, but as an investment in a good company, it’s a great option for investors.
Apollo Commercial Real Estate (ARI: $18.14, down 1%), Ventas, (VTR: $54, down 3%), and Welltower (HCN: $58, down 3%) all saw slight declines, which we can consider to be more a result of REIT investors following the broader market trend. No big news came from any of these companies last week to warrant the selloff.
Similarly, AstraZeneca (AZN: $36, down 2%) fell a lot less than the broader market after weeks of strength in the Biopharma sector. AstraZeneca has not released any major news and there wasn’t any major sector announcements. We can dismiss this 2% decline as being relatively good in a week of short-term worriers cutting bets on all kinds of things more because of fear than for any fundamental reason.
Now, on to municipal bonds. The end-of-year sell-off in this asset class in anticipation of 2018’s rate cuts meant that these funds were attractively priced for income investors, and we still think long-term capital gains are in the cards. What we need to see is the market get used to our new Fed Chairman. While Janet Yellen did a wonderful job of managing monetary policy and bringing the Fed funds rate closer to historical norms, the job isn’t done. Jay Powell has already said that he will continue in the same mode. And that will limit enthusiasm for municipal bonds. that is, until the booming economy results in higher tax revenues for municipalities that, in turn, results in credit upgrades and thus increasing NAVs for our muni Closed End Funds. The timing on this eventuality is unclear, but there is good reason to be confident that it will happen eventually. Nuveen AMT-Free Municipal Credit Fund (NVG: $14.48, down 3%) and Invesco Municipal Trust (VKQ: $11.83, down 4%) are worth holding for the tax-free income as we wait.
PIMCO Dynamic Income Fund (PDI: $30) is the only High Yield holding to be up for the week, and for that we are grateful! But just as there’s little to read into the short-term declines, the short-term gain here isn’t a reason to celebrate. The market is all about short-term emotion-driven trading. If anything, the fact that the panic didn’t hit the Pimco fund may indicate that no matter how crazy the broader market is, we aren’t in full-blown panic mode. And that, quite possibly, could mean this correction won’t last very long.
Good Investing,
Todd Shaver, Founder and CEO
The Bull Market Report
Since 1998
January 30, 2018
by Todd Shaver | Jan 30, 2018 | Earnings Preview 12 PM
Equity Residential (EQR: $61)
Bull Market Report Target Price: $85
Bull Market Report Sell Price: $55
Earnings Date: Tuesday, After market close
Consensus: 4Q17
Revenues: $625 million
EPS: $0.36
Year Ago Quarter Results
Revenues: $605 million
EPS: $0.75
Key Things to Watch For in the Quarter
Analysts expect Equity Residential to report a 3% increase in revenues with a 50% decrease in earnings per share. Despite having beat estimates in each of the past four quarters, the stock is only trading 2% above its price this time last year. Nearly all of the stock’s 15% gains for the year have been wiped out since November with the oversupply issues in the real estate market. We believe the stock is oversold at its current levels, and will see support in the $60 range.
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Eli Lilly (LLY: $86)
Bull Market Report Target Price: $96
Bull Market Report Sell Price: $82
Earnings Date: Wednesday, 9:00 AM ET
Consensus: 4Q17
Revenues: $6.0 billion
EPS: $1.07
Year Ago Quarter Results
Revenues: $5.8 billion
EPS: $0.95
Key Things to Watch For in the Quarter
Eli Lilly is expected to report a 3% increase in revenues and a 13% increase in earnings per share for 4Q17. The stock has beat estimates in three of the past four quarters, and is currently trading 17% above its price levels from this time last year. The stock saw a bit of resistance at $86 earlier this year, and it had recently broken through, but with the tough market of the last two days, the stock is back to $86. This pharmaceutical company invests heavily in its research and development, which will drive its future sales and earnings growth.
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Facebook (FB: $186)
Bull Market Report Target Price: $190
Bull Market Report Sell Price: $155
Earnings Date: Wednesday, 5:00 PM ET
Consensus: 4Q17
Revenues: $12.5 billion
EPS: $1.95
Year Ago Quarter Results
Revenues: $8.8 billion
EPS: $1.41
Key Things to Watch For in the Quarter
Analysts expect Facebook to report a 42% increase in revenues and a 38% increase in earnings per share for 4Q17. Facebook has beaten estimates in three of the past four quarters which has been reflected in the stock’s 42% appreciation over the past year. Facebook’s growth over the past years has been unprecedented for a company of its size. It truly is adhering to its mission of creating a more connected world. We look forward to seeing what kind of developments CEO Mark Zuckerberg has in store for the connected world in 2018. We know it will be good.
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PayPal Holdings (PYPL: $83)
Bull Market Report Target Price: $87
Bull Market Report Sell Price: We would not sell PayPal
Earnings Date: Wednesday, 5:00 PM ET
Consensus: 4Q17
Revenues: $3.6 billion
EPS: $0.52
Year Ago Quarter Results
Revenues: $3.0 billion
EPS: $0.42
Key Things to Watch For in the Quarter
We are looking for a 20% increase in its sales and a 24% increase in its earnings per share for the 4th quarter of 2017. The stock has been on a tear since last year, returning investors a 110% capital appreciation since this time last year. The stock has gone nowhere but up since posting earnings that have exceeded expectations in the past four quarters. PayPal’s market cap is just over $100 billion, making it the largest publicly traded electronic payments company in the world. We look forward to seeing what PayPal has to offer as they continue to lead this growing industry.
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Microsoft (MSFT: $93)
Bull Market Report Target Price: $92
Bull Market Report Sell Price: We would not sell Microsoft
Earnings Date: Wednesday, 5:30 PM ET
Consensus: 2Q18
Revenues: $28 billion
EPS: $0.86
Year Ago Quarter Results
Revenues: $26 billion
EPS: $0.80
Key Things to Watch For in the Quarter
Microsoft is expected to report an 8% increase in revenues and a 7.5% increase in earnings per share for 2Q18. Microsoft’s ability to beat analyst estimates has been reflected in the stock’s 44% increase over the past year. The firm continues to produce high quality hardware and software, and has a very good understanding of their customer base. Microsoft also allocates an incredible amount of capital to research and development, with its most recent announcement being a push into quantum computing, which some say could be similar to the internet revolution in the 1990s.
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Blackstone Group (BX: $36)
Bull Market Report Target Price: $36
Bull Market Report Sell Price: $31
Earnings Date: Thursday, 11:00 AM ET
Consensus: 4Q17
Revenues: $3.3 billion
EPS: $6.43
Year Ago Quarter Results
Revenues: $2.8 billion
EPS: $5.25
Key Things to Watch For in the Quarter
Blackstone is expected to report an 18% increase in revenue along with a 22% increase in its earnings per share for 4Q17. Blackstone has exceeded analyst estimates in three of the past four quarters, and has seen its stock appreciate 17% over the past year. Technically speaking, the stock has underperformed both the market and the sector, and we believe this is a huge mispricing by the market. Blackstone currently trades at a PE of 15 and yields 5%. At these price levels the stock looks like a steal compared to its competitors.
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United Parcel Service (UPS: $129)
Bull Market Report Target Price: $125
Bull Market Report Sell Price: $106
Earnings Date: Thursday, Exact Time not Available
Consensus: 4Q17
Revenues: $18 billion
EPS: $1.66
Year Ago Quarter Results
Revenues: $17 billion
EPS: $1.63
Key Things to Watch For in the Quarter
Analysts expect UPS to report a 6% increase in revenues and a 2% increase in earnings per share for 4Q17. Despite beating estimates in three of the past four quarters, the stock has slightly underperformed the overall market. The stock has appreciated 24% since this time last year, and we expect to see similar returns moving forward as the demand for logistical services increases. Although we remain bullish on the stock, we are keeping a close eye on Amazon as it begins to roll out its own logistics services, posing a potential threat to UPS.
The stock has passed our Target of $125, and we believe the stock will go higher, as long as the market holds here and moves higher in the coming months. We hereby raise our Target to $142 and our Sell Price to $118.
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Alphabet (GOOG: $1,170)
Bull Market Report Target Price: $1,450
Bull Market Report Sell Price: We would not sell Google
Earnings Date: Thursday, 4:30 PM ET
Consensus: 4Q17
Revenues: $32 billion
EPS: $10.00
Year Ago Quarter Results
Revenues: $26 billion
EPS: $9.36
Key Things to Watch For in the Quarter
We are looking for a 31% increase in revenues and a 7% increase in earnings per share for 1Q18. The company has beaten estimates in three of the past four quarters, which has been reflected in the stock’s 45% appreciation since this time last year. The stock currently boasts a market cap of $815 billion, making it one of the largest publicly traded companies in the world. Although Alphabet is best known for its Google Search Engine, the company touches all aspects of technology from cloud computing to its most recent Television Streaming service through YouTube.
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Apple (AAPL: $165)
Bull Market Report Target Price: $194
Bull Market Report Sell Price: We would not sell Apple
Earnings Date: Thursday, 5:00 PM ET
Consensus: 1Q18
Revenues: $87 billion
EPS: $3.81
Year Ago Quarter Results
Revenues: $78 billion
EPS: $3.36
Key Things to Watch For in the Quarter
We expect to see a 13% increase in earnings per share along with an 11% increase in sales for 1Q18, despite less than ideal results with the release of the iPhone X. The stock has beaten estimates in each of the past four quarters, and has appreciated 38% since this time last year. We also saw Warren Buffet add more stock to his portfolio, which should definitely not be overlooked. We expect to see growth in iPhone and iPad sale over the next year, and remain bullish on the stock. The cash repatriation should begin soon and that will produce some changes – in the dividend and in their outlook on buying new technology firms.
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Visa (V: $123)
Bull Market Report Target Price: $123
Bull Market Report Sell Price: We would not sell Visa
Earnings Date: Thursday, 5:30 PM ET
Consensus: 1Q18
Revenues: $4.8 billion
EPS: $0.99
Year Ago Quarter Results
Revenues: $4.4 billion
EPS: $0.86
Key Things to Watch For in the Quarter
Visa is expected to report a 9% increase in revenues and a 15% increase in earnings per share for 1Q18. Visa has beaten estimates in each of the past four quarters, and seen a 50% appreciation in its stock since this time last year. Despite paying a relatively small dividend, the stock still trades at a PE of 44, suggesting it is fairly valued compared to its competitors. We are confident in Visa’s ability to drive earnings growth through the new year. This $280 billion market cap company is a long term hold.
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Amazon (AMZN: $1,420)
Bull Market Report Target Price: $1,500
Bull Market Report Sell Price: $1,225
Earnings Date: Thursday, 5:30 PM ET
Consensus: 4Q17
Revenues: $60 billion
EPS: $1.84
Year Ago Quarter Results
Revenues: $44 billion
EPS: $1.54
Key Things to Watch For in the Quarter
Analysts expect Amazon to report a 36% increase in revenues and a 19% increase in earnings per share for 4Q17. Despite having only beaten estimates in three of the past four quarters, the stock currently trades 70% higher than its levels this time last year. Amazon continues to lead the charge in the online retail space, and we firmly believe in the longevity of the firm. Although the company trades at a very high PE of 350, we believe this is explained by the company’s inherent ability dominate and revolutionize the Retail industry.
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AstraZeneca (AZN: $36)
Bull Market Report Target Price: $42
Bull Market Report Sell Price: $32
Earnings Date: Friday, exact time not available
Consensus: 4Q17
Revenues: $5.4 billion
EPS: $0.45
Year Ago Quarter Results
Revenues: $5.6 billion
EPS: $0.61
Key Things to Watch For in the Quarter
AstraZeneca is expected to report a 4% decrease in revenues and a 26% decrease in earnings per share for 4Q17. Despite the lack of top line growth, the stock has still managed to beat analyst estimates in each of the past four quarters, and has shown 30% year-over-year appreciation as a result. The stock currently trades at a PE of 26, which is relatively cheap compared to other firms in healthcare which average around 40. The stock pays a 4% dividend, and has room to grow in 2018.
We’re not liking this new development with a slowdown in revenues and earnings and are re-evaluating our take on this stock. More to come this weekend. In the meantime, we are moving our Sell Price to $34.
