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May 5, 2024


Market Summary

The Bull Market Report

A cruel April is over and our stocks are bouncing back fast. Attribute it to Fed dread turning into relief if you like, now that Wednesday's policy meeting is safely over with. It's also good to have most of the Big Tech earnings reports that matter on the books. Silicon Valley's giants are doing well on the whole, which is again enough to motivate relief that the results weren't truly terrible even when they weren't strong enough on their own to trigger a lot of fresh buying. And if elevated bond yields were worrying you, fear not: as we anticipated (and wrote about at length two weeks ago), they've already receded again.

We can discount any of these arguments but it really boils down to a classic situation. Anxiety got out of hand, creating a "wall of worry" that stocks and the economy as a whole needed to expend time and effort climbing. But sooner or later, every historical wall of worry has fallen, becoming just another failed obstacle on Wall Street's relentless road to record after record. Earnings were good enough. The Fed is dovish enough. We know from recent experience that bond yields at this level are survivable. If they weren't, none of us would be here worrying about market activity!

The only pain point in our results this issue is that while BMR stocks are rebounding fast, we're lagging the market as a whole. It's not the fault of our more aggressive portfolios: the Early Stage stocks are soaring while High Tech and Long-Term Growth are also outperforming. But this is simply one of those moments when healthy diversification can become a drag. Our Energy recommendations, which were such a source of comfort and upside in recent weeks, have stalled once again. They'll be back. Healthcare and the Financials are moving slower to the upside than the market as a whole. Guess what? That's what Big Banks and Big Pharma do. They move slower. In down markets, that's a comfort. When the bull is in control, these names hold us back. We aren't complaining. They're here for a reason and they're doing their job.

The great news is that now that the fear clouds have lifted, investors have a chance to go back and review stocks that delivered fantastic numbers but were shunned while the market was distracted by its own doubts. Our stocks have a longer way to go before we fully recover from April's storms. We'll catch up again. And that makes this a buying opportunity, especially on Energy and select names in the Special Opportunities portfolio. Even Berkshire Hathaway (BRK.B) is available now at a discount price!

There's always a bull market here at The Bull Market Report. Since lagging the market in the short term is never fun, we've dedicated The Big Picture to a discussion of our longer-term performance and the reasons for our continued conviction that our stocks are the best. The Bull Market High Yield Investor talks about the Fed: sometimes it's important to say there's no news, and sometimes no news is the best news of all.  And as always, we're talking about a few of our favorite stocks as earnings season continues. Don't forget: if you'd like different coverage or more detail on any topic, you know how to reach us. (Todd@BullMarket.com  970.544.1707).

Key Market Indicators


The Big Picture: A Longer View

We're never thrilled in these periods where our recommendations lag the big benchmarks, but over the years we've come to accept it as part of the larger market cycle. After all, if you dumped all your stocks the minute they started to underperform, you'd very quickly be left with a lot of cash earning prevailing money market rates. That's fine if your financial needs and ambition are satisfied with at most 4-5% a year, but for any hope of a higher return, you need to accept a little more risk along the way. Of course doing that gets a whole lot easier when you have a little confidence in your posture.

And few things are better for confidence than a track record of tangible success. That's why we informally track our own "index" in order to quantify how far ahead of the curve our recommendations are tracking from day to day and from year to year. When we're in high gear, we accumulate excess returns that a temporary reversal can reduce without eliminating completely.

(A lot of what superficially resembles idle boasting about how great BMR stocks have done over time really boils down to reminding you to keep checking that index at moments when your confidence would otherwise start to flag. While we love to brag, there's a behavioral reason for it here.)

So how high is our conviction that the stocks we cover can outrun the broad market in the long haul? Extremely high. The numbers are all the evidence we need. Take the last 4-1/2 years as an example . . . years of uninterrupted volatility and endless shocks punctuated with periods of extreme relief. From the end of 2019 to today, the impact of risk is clearer now than it has been since the 2008 crash. If our methodology broke down in that time frame, it clearly wasn't built to hold up to serious bad market weather. And on the other side of the coin, if our methodology held up throughout the pandemic era, we can trust it to not only survive the storms but keep making money.

Going back, the "BMR Index" weighed in at 1696 at the end of 2019, a few weeks before the world went crazy and "normal" practically ceased to exist on Wall Street. Back then, the S&P 500 closed at 3240 and the Nasdaq was barely holding 9000. Those indices have since rallied at an annualized rate of 13% and 18% . . . not bad at all for investors who had the nerve to keep their eyes fixed on the long-term goal. Believe it or not, these returns are actually a little elevated by historical standards that stretch back over a century, which means that those who swallowed the elevated risk received elevated rewards.

Since the BMR Index currently reads 3321, we've roughly doubled our starting stake across those wild rollercoaster years. That's an annualized return of almost 22%, enough to beat the high-flying Nasdaq by 4 percentage points a year and run literal rings around the market as a whole. Stretch that 4-point advantage across a few years and our lead becomes unassailable. Unless something dramatic shifts in the world (more dramatic than the pandemic and its impacts), it becomes increasingly unlikely that the benchmarks will ever have what it takes to catch up with us.

And in the meantime, the months and years go by. Beating the S&P 500 by 9 percentage points a year even in the stormiest part of the cycle means we're making far more efficient use of every day than index funds . . . and no investor can recover lost time. That's why we won't settle for an extended period of outperformance across our portfolios. When a company has clearly hit a permanent wall, we pull the plug and end active coverage. Otherwise, we take a deep breath and acknowledge that our methodology still picks enough winners to move the overall needle far enough in the right direction.

Of course some of our portfolios will outperform or underperform under various conditions. That's by design too. Maintaining significant exposure to multiple themes helps to raise the odds that something in the BMR universe will be working well in any given season. While diversification has mathematical benefits, the psychological power of a few strong points in a weak season shouldn't be understated either. It's good for morale. And what's good for morale helps investors keep their heads in the game and avoid folding their hands too early. Was the turmoil of the last four years so awful that you would sacrifice 17 percentage points a year to run for the safety of cash? In that scenario, we once again suggest parking your funds in our High Yield recommendations to squeeze as much income as you can without taking another ride on the market rollercoaster.


BMR Companies and Commentary

Apple (AAPL: $183, up 8% last week)
Stocks For Success Portfolio

Tech giant Apple released its second-quarter results this week, reporting $91 billion in revenue, down 4% YoY, compared to $95 billion a year ago. The company posted a profit of $23.6 billion, or $1.53 per share, down slightly from $24.2 billion, or $1.52, with a beat on consensus estimates on the top and bottom lines.

Product revenue took a hit during the quarter, dropping nearly 10%, from $74 billion a year ago, to $67 billion. This was mostly owing to iPhone sales falling 10% YoY, to $46 billion, compared to $51 billion a year ago, followed by similar declines across iPad, plus wearables and accessories by 17% and 10% YoY, respectively. The Mac segment posted 4% YoY growth, at $7.5 billion.

The decline in hardware was, offset by a strong showing in the company’s burgeoning services business, posting $24 billion in revenue, up 15% YoY, compared to $21 billion a year ago. The segment includes subscriptions, advertising, search engine licensing fees, and payments, among others. Right now, it counts over 1 billion active subscriptions across its apps, third-party apps, services, and platforms.

Apple’s hardware performance during the quarter was hurt by persistent weakness in China, apart from tough YoY comparisons because the year-earlier period benefited from strong pent-up iPhone demand after supply constraints lessened. All of this is set to subside, especially with the company set to launch the new iPad this week, and its new blockbuster product, the Apple Vision Pro, already gaining traction.

Despite all of this, the spotlight was ultimately stolen by Apple’s mammoth new $110 billion stock buyback authorization, which will create remarkable value for investors. This unprecedented share repurchase program comes as no surprise. Boasting a war chest of $67 billion in cash, a manageable debt load of $104 billion, and a gushing cash flow of $110 billion annually, the company has been primed for a major buyback for quite some time.

Our Target is $200 and we would not sell Apple. The all-time high on the stock is $199 set right before Christmas last year. It’s had an 8% pullback since then and many are concerned. After all, the overall market was up 9% during this same time frame, so Apple is losing ground lately. Of course, it has been leading the overall market for years now, so it’s not the end of the world. We’re watching and waiting, and thinking about this stock all the time. Apple is slowly moving from a growth stock to a value stock. The company has historically found a way of finding new, massive products to make up for products that have plateaued. We are confident that they are working on many of them that we will see introduced this year and in the coming years, that will prove to be big winners.

The company is amazingly profitable producing $23.6 billion in profits on $91 billion in revenues. That’s 26% AFTER TAX – one of only two or three companies with this extraordinary level of profitability. This will provide plenty of cash in the future to buy back more and more stock, similar to what Exxon has been doing for 40 years.


Johnson & Johnson (JNJ: $150, up 1%)
Healthcare Portfolio

Healthcare giant Johnson & Johnson released its first-quarter results recently, reporting $21.4 billion in revenue, up 2% YoY, compared to $20.9 billion a year ago. The company produced a profit of $6.6 billion, or $2.71 per share, against $6.3 billion, or $2.41, with a beat on consensus earnings estimates, but a slight miss on top-line figures.

During the quarter, the company was aided by a rebound in elective surgeries by older adults, which had been deferred due to COVID over the past few years. This has helped offset the company’s waning COVID-19 vaccine sales, which stood at a mere $25 million, as opposed to $750 million a year ago. The pharma operation reported $13.6 billion in sales, up by 1%.

The medical devices business saw $7.8 billion in revenue, up 4%, driven by the resurgence in elective procedures and a contraction in US distributor inventories for contact lenses. Wound closure products and devices used for orthopedic procedures contributed just as well, alongside serious injuries, and muscular and skeletal trauma, all of which are expected to see double-digit growth rates going forward.

The company was further aided by its acquisitions in this section, which include heart devices maker, Shockwave Medical for $13 billion, alongside Abiomed and Laminar, for $16 billion and $400 million, respectively. All of this is aimed at making J&J a leader in the cardiovascular devices and technologies space, helping offset the decline in sales from spinning off its consumer health segment, Kenvue.

The stock has been largely rangebound for the past four years, as the stock hit $150 at the beginning of the pandemic in 2020, but a few key catalysts could bring about a breakout in the coming months. The company currently trades at just 4 times sales and 14 times earnings, while offering a solid 3.3% annualized yield. It ended the quarter with $26 billion in cash, $34 billion in debt, and $23 billion in cash flow. The company is one of only two firms with a AAA credit rating, the other being Microsoft. Apple had a AAA rating but is now AA+.

Our Target is $188 and the stock hit $182 in 2022 as we had been expecting it to do so, but lately, the market had other ideas. The last time we reported on JNJ we said we were moving on out if it hit $150. Well, it did and we are still in. Look at it this way: This $360 billion company is not going away. It is here to stay and will hit that Target someday down the road. You know what Buffett would do in our position. He would put it away and never look back. You, on the other hand, can do the same, OR, find a replacement for it. But you have to pay capital gains tax and the reinvestment stock has to be better than JNJ. That could be Novo Nordisk. It could be Eli Lilly. But maybe you already have these two great companies. Of course, you can never have too much Novo Nordisk or Eli Lilly. SO YOU DECIDE!  We just want you to think about it. Make your decision and stick with it.


Novo Nordisk (NVO: $123, down 3%)
Healthcare Portfolio

Diabetes drug giant Novo Nordisk had another spectacular performance during its first quarter results this week, posting $9.4 billion in revenue, up 20% YoY, compared to $7.7 billion a year ago. It produced a profit of $3.7 billion, or $0.82 per share, against $2.9 billion, or $0.63, with a beat on consensus estimates on the top and bottom lines, coupled with a raise in its sales guidance for the full year.

The stock pulled back following the results, largely owing to the rising competition from Eli Lilly in the obesity drug market, prompting the Danish giant to cut prices of its wildly popular drugs Ozempic and Wegovy. The company sees no signs of customers moving to competing products such as Zepbound or Mounjaro, and projects double-digit sales growth for the next couple of years.

Wegovy sales more than doubled on a YoY basis, hitting $1.3 billion during the quarter, with the company now filling 130,000 weekly prescriptions in the US alone, with 25,000 fresh new weekly additions. [Focus on these numbers! If the numbers hold, we could see 325,000 new prescriptions in the next 90 days.] The company’s head start in the obesity drug market positions it to dominate as competition heats up. With a potentially $100 billion market on the horizon, their early mover advantage is a significant asset.

Novo Nordisk’s diabetes and obesity care operation, which encompasses its two blockbuster drugs, along with its top-selling insulin variants, among other products, hit $8.8 billion in sales during the quarter, up 25% YoY. The rare diseases segment didn’t fare too well, with $630 million in sales, down 4% YoY, owing to supply constraints on the one hand, and waning demand in key markets on the other.

With a mere 6.2% share of GLP-1 in the global diabetes prescription market, the company has a massive untapped addressable market and a long runway ahead. In addition to this, it has patent protection for Wegovy, extending all the way to 2032, creating massive competitive moats. Novo Nordisk ended the quarter with $9.3 billion in cash, $27 billion in debt, and $93 billion in cash flow. We’d love to see them pull their debt level down. Our Target is $145 and our Sell Price is $110. It hit $138 a short month ago and we fully expect it to hit this in the coming months. We can see this stock at $200 in 2025. Maybe higher. Look what Eli Lilly has done. There is no reason for Novo not to do the same thing.


SPDR Gold Shares ETF (GLD: $213, down 2%)
Special Opportunities Portfolio

It’s hard to make a bearish case for gold in the short run, and the SPDR Gold Shares ETF is the best vehicle to ride this trend. Not only does it come with an extensive track record going back 20 years, but it also offers a low expense ratio, minimal tracking errors, and best-in-class liquidity, making it ideal for all types of funds, investors, and portfolios seeking exposure to the shiny yellow metal. Why? Because the fund actually owns gold and it trades on a 1 for 1 basis with the global price of gold. If gold goes up 4%, the Gold Shares ETF goes up 4%. Where is the gold held? In vaults in HSBC USA, NA Bank vault in London. Very safe and easy way to own gold.

With the possibility of further rate cuts looking quite slim this year, and global equities, particularly in the tech sector once again reaching what some investors feel are high valuations, gold offers much-needed cover for investors. Alongside this, several geopolitical risks are adding to the volatility in equity markets, which are expected to persist for the foreseeable future, making it important to hold gold.

Central banks for various nations have been buying gold hand over fist, with the most bullish nations being Turkey and China, with the latter buying the metal for the 17th consecutive month through March. Historically, demand for gold has been driven by jewelry and industry, but there has been a fundamental shift ever since the war in Ukraine started, with central banks finally capitalizing on the opportunity.

Apart from this, an extended slump in the Chinese real estate market, coupled with the lack of trust in its equity markets has made the commodity popular among retail investors in the country, who now represent a major source of demand. With many nations working to sidestep the dollar with unilateral trade agreements with each other, the role of gold in trade and settlements will be key going forward.

Following a 13% rally in 2023 and 12% YTD, the fund is showing no signs of slowing. We further believe that gold has been held back by a broken correlation with the US dollar, which seems to be ascending merely on the virtue of being more resilient than European and Japanese economies. In the near term, there will be a correction in this regard, resulting in a further rally in gold prices this year. Our Target is $215, hereby raised to $230. Our SP is being raised from $175 to $195.


Walgreens Boots Alliance (WBA: $17.81, up 1%)

We added this stock at $22 at the end of 2023 with the hope that it was so undervalued that the market would realize this and bid the stock up. We also felt that management had a handle on things and would move to raise profits and cut debt. We were wrong on all counts. The stock did move higher to $27 after we added it by the beginning of 2024, but it has faded to its current level. We’re tired of this one and we are moving on. Not too many of you wrote us about this stock so we are hoping it hasn’t caused too much pain.


The Carlyle Group (CG: $41, down 11%)
Special Opportunities Portfolio

The private equity giant released its first quarter results last week, reporting $690 million in revenue, down 20% YoY, compared to $860 million a year ago. It reported a profit of $430 million, or $1.01 per share, up from $270 million, or $0.63, beating consensus estimates on the top and bottom lines, driven by robust asset sales and capital market activity across its private equity funds and portfolio. The stock got hammered. These numbers may look out of whack, with revenues dropping and profits rising so much, but year-over-year comparisons are very tough for any firm in the private equity sector. One could make an argument that these firms shouldn’t report year-over-year comparisons because they don’t operate like a normal growth company. A company like Carlyle might make five large transactions in a given year. And then the next year might do three. Then in the following year, they might do 10. See what we mean here? Private equity firms should be evaluated on their overall profit level over a longer period, say 3-5 years, and their asset base – how has it grown over the past few years. Metrics like these. More in the paragraphs that follow.

This was an eventful quarter for the firm, with $5 billion in fresh deployments, up from $3.8 billion a year ago, followed by proceeds of $5.9 billion, compared to $4.3 billion the prior year. This includes the company selling its stake in McDonald’s local Chinese business, and the UK-based oil firm Neptune Energy, helping Carlyle generate a net profit of $400 million, an increase from $165 million the prior year.

Despite a strong global equity market and a rebound in M&A activity, the firm’s corporate private equity portfolio ended the quarter flat, with its global credit funds appreciating 2%, real estate funds by 1%, and secondaries gaining a remarkable 5%, on a YoY-basis. The private equity fund came in lower than the broader industry, with peers such as Blackstone seeing a 3.4% growth during the quarter.

Carlyle raised $5.3 billion in capital during the quarter, as opposed to net outflows during the same period last year, bringing total assets under management (AUM) to $425 billion, up 12% YoY. Of this, $300 billion are fee-earning assets, $90 billion in perpetual fee-earning capital, and $76 billion in dry powder, capital available for investment, up 3% YoY, which is set to be deployed over the coming years.

Following a phenomenal 36% rally last year, and 6% this year so far, the stock is still fairly undervalued, trading at just over 6 times earnings. The company is amid strong tailwinds in favor of alternative asset management and is rewarding shareholders generously with $150 million in stock repurchases and an annualized yield of 3.4%. It ended with $1.7 billion in cash and $9.3 billion in debt.

Our Target is $53 and our Sell Price is $34. The current drop in price presents a buying opportunity for this excellent company, with a proven management team. The stock is trading at a discount compared to where we believe it should be. While it reached an all-time high of $60 in 2021, the company has grown significantly since then, with AUM increasing from $300 billion to $425 billion. We believe the stock will recover and reach this level again in the coming years. We’ve been with Carlyle since 2017 when we added it at $16.66, so we’re up 150%. We are quite pleased with this investment.


Ally Financial (ALLY: $39, flat)
Financial Portfolio

Bank and leading auto finance company Ally Financial released its first quarter results recently, reporting $2.0 billion in revenue, down 5% YoY, compared to $2.1 billion a year ago. It delivered a profit of $140 million, or $0.45 per share, down from $250 million, or $0.82, but beat consensus estimates on the top and bottom lines, alongside a raise in its guidance for the full year.

The drop in profits during the quarter largely results from increased provisioning against credit losses and substantially higher non-interest expenses, which primarily pertain to its insurance segment. The company’s financing revenue stood at $1.5 billion, down $150 million compared to last year, owing to higher funding costs, which were mostly offset by favorable auto loan pricing and floating rate yields.

During the quarter, Ally received a record 3.8 million auto loan applications, up from 3.3 million a year ago, resulting in an origination volume of $10.0 billion, up from $9.5 billion the prior year. The yield stood at 10.9%, with 40% of new originations in the highest credit quality tier, mainly comprised of high-earning borrowers, and high-end cars with lower depreciation rates. As we research these numbers, we are quietly amazed at the large volume the firm is doing with what everyone seems to think are such high interest rates, curtailing business. Not in this case with Ally.

Ally’s model relies on its extensive partnership with car dealerships, which helps it generate retail loan originations at low costs, in addition to $350 million in insurance premiums. Alongside this, the company has garnered massive retail deposits, which have helped lower its financing costs, and during the quarter this number stood at $145 billion, from over 3.2 million depositors located all over the country.

The stock was up 43% in 2023, and a further 11% so far this year, owing to a resilient US auto market. Credit provisioning has hit profits, but should bounce back in the current quarter as the company continues to cut costs. In the meantime, the company offers an enviable 3% annualized dividend yield, made possible by a strong balance sheet, with $8 billion in cash and $17 billion in debt. Debt is high, of course, as the business model demands it. Our Target is $43 and our Sell Price is $31. We’re going to raise the Sell Price to $35 to protect profits. We added the stock at $27 in 2023, so we are up 46%.


ServiceNow (NOW: $717, down 1%)
High Technology Portfolio

Enterprise digital workflows and cloud computing company ServiceNow released its first quarter results recently, reporting $2.6 billion in revenue, up 24% YoY, compared to $2.1 billion a year ago. The company posted a profit of $710 million, or $3.41 per share, against $480 million, or $2.37, up an incredible 48%, with a beat on consensus estimates on the top and bottom lines, alongside a raise in its guidance for the full-year.

As always, subscription revenues led the way at $2.5 billion, up 25% YoY, with the rest coming from professional services, at $80 million, up 11% YoY. Current remaining performance obligations, or contractual revenues that are set to be realized over the next 12 months hit $8.5 billion, up 21% YoY, owing to a string of new marquee client acquisitions and transactions.

During the quarter, the company onboarded 8 new clients with annual contract values (ACVs) over $5 million, an increase of 100% YoY. It now has over 1,900 customers with ACV over $1 million, up 15% YoY, making it an SAAS company for large enterprises through and through. It is, however, expected to move down-market to offer services to small businesses over the next few years.

ServiceNow has continued its relentless innovation on the product front, starting with its GenAI-powered Now Assist, which is already garnering massive ACV within a few short months of launch. In conjunction with Nvidia and Hugging Face, the company released StarCoder2, a set of open-access large language models (LLMs) for code generation, and was once again named a leader in Customer Service Solutions by Forrester Wave.

The stock posted an impressive 82% rally last year and is still up 4% YTD, which can be attributed to its valuations getting a bit stretched and a weak market for the past 5-6 weeks. Trading at 16 times sales and 53 times earnings, it is anything but cheap, but the company is supporting this with strong revenue and earnings, and $175 million in buybacks, made possible by its $5.1 billion in cash reserves, just $2.3 billion in debt, and $3.8 billion in cash flow.

Our Target is $800 which it hit in February, and a Sell Price of $650. This is no small company, clocking in at a market cap of $150 billion. With growth like this, we fully expect to see a new all-time high (currently $815), later this year or early next.


Prologis (PLD: $106, up 2%)
REIT Portfolio

The leading warehousing REIT released its first quarter results recently, reporting $1.8 billion in revenue, up 12% YoY, compared to $1.6 billion a year ago. The company delivered a profit, or FFO of $1.2 billion, or $1.28 per share, against $1.1 billion, or $1.22, with a miss on consensus estimates on the top line, but a beat on the bottom, alongside a reduction in its full-year guidance impacting the stock.

The company maintained an average occupancy rate of 98.6% while commencing new leases on 48 million square feet, with an impressive retention rate of 74%. The firm’s net effective rent change was 67% YoY*, while its same-store net operating income increased 5.7% YoY. The company achieved this despite concerns of excess capacity post-COVID, and broader headwinds facing logistics and e-commerce.

*We double-checked this number and it came right from the company. An extraordinary increase.

Prologis made acquisitions of just $5 million during the quarter, followed by development stabilizations of $520 million, with an average yield of 5.7%, and $270 million in development starts, with 6.9% in average yields. The company disposed of assets worth over $250 million during the quarter, with an average cap rate of 4.8%, in line with its long-running capital recycling program.

Prologis has long been dubbed ‘Amazon’s Secret Weapon’, allowing the e-commerce giant to serve customers more effectively and efficiently with its 1.2 billion square feet of warehouse space. It is continuing along the same lines with the partnership with Amazon and is well-positioned to capitalize on the unrelenting growth in e-commerce and the new trend of reshoring across industries in recent years.

Following an 18% rally last year, the stock is down 21% so far this year, which can mostly be attributed to excess capacity, and the Fed’s higher-for-longer stance, which may cause consumer demand to take longer than expected to recover. The stock trades at 12 times sales and 30 times earnings, which isn’t cheap, and could have contributed to the pullback. The company ended the quarter with $500 million in cash and $5.3 billion in cash flow. Our Target is $160 and our Sell Price is $120. We added the stock at $128 in 2022 after it hit its all-time high of $174, and as recently as February, the stock was at $136. But it has been weak since then. We’re going to lower the Sell Price to $100 because we believe in the company and the business they are in. But if it hits, we are out.


The Bull Market High Yield Investor

That was easy. Nobody seriously expected a rate cut this week in the face of stubborn recent inflation reports. But Jay Powell put a forceful stop to speculation that rates would swing in the opposite direction. There's no tightening move on the horizon. The short end of the yield curve has climbed as far as it can for the foreseeable future. As far as the Fed is concerned, the pressure has gotten as intense as it gets in this cycle. The only fear factor now is that the cycle will remain this intense for longer than the economy can bear.

We aren't especially worried. Neither is the market. While watching long-term Treasury yields edge back above 4.5% has been a bracing experience, the biggest impact on our investment posture has been psychological. The big institutions simply aren't pivoting big money out of cash or stocks into the bond market because locking in a 4.5% coupon yield is no long-term bargain when you subtract the impact of 2% inflation, assuming that the Fed succeeds in cooling prices that much. What we're seeing instead is banks trying as hard as they can to lighten their exposure to bonds, which is not compatible with the scenario that people who publicly fret about 4.5% yields enticing capital out of the stock market have predicted.

In our view, that's important enough to say twice so it sinks in. If the dangerous thing about bond yields is that they suck money out of stocks, then we would expect to see bond prices surge to lock in those yields. That is not happening. And if it isn't happening, then where is the threat to stocks? Remember, Wall Street and America have weathered 4-5% yields for most of history. This is not a magic tipping point that automatically turns stocks toxic. Instead, it's the past 15 years that were the aberration. Yields got artificially low after the 2008 crash and stayed there so long that people forgot how "normal" works.

"Normal" is Treasury yields trending 1-2 percentage points above inflation in order to compensate bondholders for the use of their money. Right now, that means 4.5% yields are on the low end of normal. We don't see those bond holders getting fair compensation at this point and as a result we do not consider Treasury debt appealing to anyone who isn't forced like the banks to own it. Unless the Fed tightens again, that's only going to change if bond prices drop. Who wants that?

And Powell remains committed to cutting rates one way or another. That could come when inflation weakens or the economy itself cracks. Naturally we prefer the former scenario, but either way the days of 5% cash are numbered. If you're looking for higher returns in the long term, our High Yield portfolio remains where it's at.

Ares Capital (ARCC: $21, down 1%. Yield=9.3%)
High Yield Portfolio

Ares Capital, a leading business development company and alternative asset manager, disclosed a strong first quarter performance, with $700 million in revenue, up 13% YoY, compared to $620 million a year ago. Profits were $325 million, or $0.59 per share, compared to $318 million, $0.57, with a beat on estimates on the top and bottom lines.

The rise in the investment income number during the quarter was driven by an increase in interest income, alongside capital restructuring service fees and dividends. The company had an eventful quarter in terms of portfolio activities, with $3.6 billion in fresh commitments, compared to $770 million a year ago, and $3.6 billion in commitments exited during the quarter, nearly doubling from $1.9 billion a year ago.

Ares has continued to pursue value by bolstering and diversifying its capital base, and during the quarter this involved issuing, amending, and renewing over $7 billion of financing at attractive rates. The company’s portfolio is now valued at $23.1 billion, up from $21.1 billion a year earlier, distributed across over 500 portfolio companies, 66% with floating rates, and 46% in first lien senior secured notes.

The company has done well to make the most of the rate cuts to refinance its debt, but with the possibility of further rate cuts being muted, owing to persistent inflation and a robust labor market, Ares stands to benefit substantially, given its high concentration of floating rate loans. The Fed is hedging on its plan to cut rates, leaving another 6-12 months of elevated interest rates.

Following an 8% rally last year, and 2% so far this year, the stock still trades at a little over 6 times sales and 9 times earnings, offering substantial value for investors. It offers an enviable annualized yield of 9.3% while maintaining sustainable coverage, making it perfect for conservative, income-seeking investors. The company ended the quarter with a strong balance sheet. Our Target is $22 and our Sell Price is $19. We added the stock at $17.22 in 2018 and are now up 20%, and have been collecting over 9% in dividends year in and year out. A very steady investment.

On that note, we know of a very wealthy Wall Street insider in his mid-70s who is a bit concerned about the economy and global uncertainty, and he is very happy to be sitting in 5% Treasuries for the time being. We don’t feel this way, as we are more optimists than he is, but it is certainly food for thought. Wall Street climbs a wall of worry as you know, and we wish to be fully invested in the 60 or so stocks we follow. And if you feel a bit anxious about the economy and other factors, we believe that you could consider moving into our High Yield Portfolio and REIT Portfolio stocks, most of which pay from 7-10% dividends. This is a good income in an inflationary world of 2-3%.

Rithm Capital (RITM: $11.32, up 1%. Yield=8.8%)
High Yield Portfolio

Leading alternative investment management company Rithm Capital released its first quarter results last week, reporting $1.3 billion in revenue, up 66% YoY, compared to $780 million a year ago. It reported a profit of $230 million, or $0.48 per share, against $250 million, or $0.51, with a beat on estimates on the top and bottom lines, aided by continued strong mortgage servicing revenues (MSR) during the quarter.

The company was firing on all cylinders during the quarter, (and continues to fire…) with origination volumes hitting $10.8 billion, up 54% YoY, as borrowers anticipate interest rates to remain higher for longer. This puts the company in a sweet spot, meaning it will see originations grow going forward, with the higher interest rates, while its massive MSR portfolio, at $860 billion will get more valuable, with lower repayments and refinancings. We’ve been saying this for years. Book value is $12.19 as of March 30th. Thus the stock is trading at a discount of 7% to book. With book growing in the future, this appeals to us greatly.

Rithm owns and operates a series of brands across the entire spectrum of the real estate value chain, ranging from its NewRez refinance company to Shellpoint, its mortgage servicing brand, having successfully encompassed the entire real estate financial system. This allows the company to hedge against market cycles, with low interest rates aiding with higher originations, and higher rates raising the value of its MSR business.

Similarly, the company has a presence in the single-family rental market, with 4,270 units across various markets, operating under the brand name Adoor. As a result of the high interest rates, the company is benefiting from higher rents as potential buyers put off home purchases. Rithm recently made its foray into private equity, with its $720 million acquisition of Sculptor, once again aimed at diversification.

Following a 30% rally last year, and 6% this year so far, the stock still trades at a 7% discount to book value (Price/Book of 0.93), a mere 2 times sales, and 7 times earnings, offering substantial value for conservative and speculative investors alike. Its extensive diversification offers protection against volatility, as does its robust balance sheet position, with $1.2 billion in cash and $1.2 billion in cash flow.

Our Target is $13 and our Sell Price is $10.35. The company is driven by a CEO who wants to build a much bigger company. He has been at the helm for 10 years and wants to stay for another 10 years, building the company into a $20 billion company, from its current level of $5 billion. Michael Nierenberg is on a mission and we want to be on the mission with him. While he is building and growing the company, we are enjoying a dividend of 8.8% which will have to be raised in the future, as a REIT must pay out 90% of its income to maintain its REIT status. Our Target is doable later this year or early next, but our secret target is $17. Don’t tell anyone.

Good Investing,

Todd Shaver, Founder and CEO
The Bull Market Report
Since 1998

July 17, 2019

Johnson & Johnson Starts The Season Strong

Johnson & Johnson (JNJ: $133, down 1% this week) has been known to drop as much as 4% in the wake of a perfectly solid quarterly report, so yesterday's relatively minor retreat wasn't a real shock. The important thing is to take the long view.

First, the historical numbers remain healthy. Revenue only dipped 1% to $20.5 billion from last year's $20.8 billion. Our math suggested a deeper drop to $20.3 billion, so an extra $200 million more than we thought coming in last quarter counts as a win. The ailing Medical Device unit held up a little better than we expected, with 7% lower sales almost perfectly balanced against a stronger pulse in Consumer Products and Pharma. Excluding the impact of a weak Chinese yuan and strong U.S. dollar, Johnson & Johnson eked out a little bona fide revenue growth.

Management is confident that Medical Devices are turning around thanks to a revitalized product line in Optical and Cardio equipment along with robust hip replacement sales. In the other categories, a wide range of cancer, hypertension and behavioral drugs did well, creating a fertile sales environment for new therapies coming out of the pipeline soon.

Earnings came in at $2.58 per share, nicely above our $2.46 target. It's great to see our first report of the 2Q19 season give us a number that large, especially when the market as a whole is steeled for a slight earnings decline. If our other recommendations can deliver anything like this, it's going to be a great quarter.

Guidance also improved. Management is now tentatively promising up to 4% sales growth for the full year, which implies more than a little acceleration in the next six months. (Drugs and biotech products are the key drivers of this.) While the earnings target didn't budge, the fact that they're still contemplating up to 6% growth on that side is a good show of confidence.

We like these numbers. And while the market seems more concerned with litigation at this point, management continues to assert complete confidence in decades of Johnson & Johnson product testing. They haven't set money aside for anticipated lawsuit settlements. Legal expenses dropped to $190 million last quarter, down a full 85% from 4Q18.

All these fundamentals are going the right way. And if history is any guide, it might take a few weeks for the stock to start moving in the same direction. That's all we want. Johnson & Johnson will never be a fast stock, but it is extremely reliable.

And on the opposite extreme, we'll see you tomorrow morning with the numbers from Netflix. That one could get a little wild, but for now, we're looking forward to clarity.


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July 15, 2019
Bull Market Report Investor Notes: July 15, 2019

Bull Market Report Investor Notes: July 15, 2019

We all got to a week to brag about, with the S&P 500 and Dow industrials pushing through long-awaited milestones (3,000 and 27,000, respectively) and our universe keeping track with another 1.2% net gain. The broad market is finally catching up a little. They’re welcome to share the fun.

At this point the biggest threats to the rally revolve around investor nerve. After another year punctuated with harrowing slides and slightly slower recoveries, the index funds now have 8% to show for the trailing 12 months. That’s roughly what we expect from the market in a typical year. (Our active and closed positions have done a whole lot better in the aggregate, but you know how well you’re doing. If you’re disappointed, let us know. Write us at Info@BullMarket.com )

The danger is that investors simply won’t tolerate average historical returns in exchange for one of the most volatile rides in recent memory. Nerves are still a little frayed after last year’s slide took 20% away from portfolios between Labor Day and Christmas. However, in the absence of new fear factors, we suspect the mental bruises have healed and people are eager to get back to work accepting new records.

Yes, we’re finally back in full Bull Market mode after months of dithering over trade and Fed policy. Now it’s clear that the Fed isn’t going to keep fighting to preserve some abstract higher interest rate objective. Minimal inflation gives them room to take one of last year’s tightening moves away and leave us all with a reversion to more accommodative monetary policy in its place. And as for trade, a return to the status quo is evidently enough to earn applause. We know now what current tariffs mean for our companies. As long as the situation doesn’t degenerate, stocks now reflect all foreseeable downside.

Meanwhile, we’re three months closer to a resolution, whatever shape it takes. Corporate executives have had another quarter to pivot their supply relationships out of China into places like Korea, Japan, Taiwan and especially Vietnam, where we’re told the factories are full of U.S. products ready to ship to our stores free from tariffs. The Chinese domestic market hasn’t closed to our products. If anything, rolling back sanctions on Huawei should boost sales for U.S. Semiconductor manufacturer in the remainder of the year and beyond.

Earnings season starts this week with the first of the big Banks. From there, we’ll see hundreds of concrete examples of how well (or less likely, how badly) every company is bearing up under the current rate environment and trade regime. The rate environment is about to get better, starting with the Fed’s next meeting looming at the end of July. The trade regime has at least stabilized. What other risk factors can get in the way of the rally? We’re open to suggestions. If you’re nervous about anything, you know where to reach us.

There’s always a bull market here at The Bull Market Report! Our Earnings Previews start this week, which only subscribers get, but we're giving you a taste of our thoughts on Johnson & Johnson, which reports tomorrow. The Big Picture is all about the Fed.

Key Market Measures (Friday’s Close)


BMR Companies and Commentary

The Big Picture: Breathing Room For The Yield Curve

We’ve been fielding concerns about the Treasury yield curve since December, when middle-maturity government debt started to pay lower interest rates than shorter-dated counterparts. That’s an unusual situation because normally investors wait longer to get their money back, and naturally demand bigger yields.

The good news is that with the Federal Reserve likely to cut overnight lending rates in a few weeks, the curve is now unwinding what initially looked like an ominous recession pattern. While we’re still in an environment where 3-year Treasury yields are lower (1.81%) than 1-month bills (2.16%) and everything in between, at least the ends of the curve are moving in the right direction again now. A rate cut can make things better and relieve the recession pressure.

Back in March, most Treasury rates were clustered in an extremely tight band between 2.41% and 2.52%, with very little visible logic keeping the lowest rates on the short end and the highest ones reserved for longer-term debt. Investors got less from 5-year notes than 1-year bills, while 1-month bills paid more than 3-year notes. The most ominous thing of all was the extremely narrow spread between all of these maturities, hinting that the bond market had effectively given up on higher rates before 2026 at the earliest.

Since the Fed has historically needed to tighten as the economy expands, scenarios when rates have peaked generally point to a recession ahead. Similar yield curve inversions preceded all previous recessions in living memory, so this one gave the doomsday theorists plenty to talk about.

However, not every inversion foreshadows a recession, especially when the abnormal rate relationships only apply across part of the curve. This time around, the weight on investors’ minds was all about the dynamics of the curve itself and not the underlying economy. The Fed is tackling that confusion at the source.

Last year we heard persistent complaints that 3% is a hard ceiling for 10-year bond yields. Whenever long-term rates got that high for an extended period, stock investors got nervous and fled to the relative safety of bonds, pushing prices up and bringing the yields back down to “tolerable” levels.

(Remember, prices and yields always move in opposite directions, whether you’re dealing with Treasury bonds or our dividend-oriented recommendations. Buying low locks in a high effective return. Buying high locks in less real income.)

But while the far end of the yield curve became capped at 3%, the Fed kept pulling the near end up 0.25% per quarter throughout last year, compressing what was once 1.50% of room between the extremes to barely 0.48% today. After all, when the Fed makes overnight borrowing 0.25% more expensive, the rates on longer-dated loans need to go up too. That’s exactly what happened. Since the end of 2017, the Fed raised the overnight rate from 1.25% to 2.50% and 1-month Treasury yields moved up from 1.29% to peak at 2.51%.

Meanwhile, 10-year yields remained stalled at 3.0% and dipped to 2.0% when the market shuddered, forcing every point on the curve in between to flatten out or even drop below overnight rates. That’s just the return investors were willing to accept in exchange for relative safety. They weren’t looking for big interest. All they wanted was a secure place to park their funds.

Since the Fed acknowledged that it’s willing to not only “be patient” about future rate hikes but actively cut in order to keep the economy on track, the short end has plunged 0.35% to 2.16%, and a month from now it will be even lower. Longer-maturity bond rates have dropped too, but not as much. There’s now a fraction of a point more room between the extremes.

The curve is getting steeper again in the right direction, with the near end dropping and the far end staying roughly where it was. If 3.0% was the ceiling on the far side, evidently the only way to buy a little breathing space was to reduce pressure on shorter-term rates. That’s the only part the Fed controls, and it’s doing so now.

What this means for us is simple. First, as bond rates start declining again, investors need to look elsewhere to earn real income. That’s constructive for our High-Yield recommendations that pay a lot higher rates in exchange for what we consider only fractionally higher risk.

In general, lower bond yields support higher earnings multiples. Old-school valuation techniques suggest that a stock worth 13X earnings in a 3% world can go all the way to 20X when the Treasury market pays just 2%. We don’t anticipate huge moves from the Fed, but if you were worried about stocks getting frothy, the story is about to change.

And needless to say, cheaper money helps corporate executives dream a little bigger. They can fund larger and more transformative acquisitions or simply borrow enough to buy back more stock. Those with relatively weak balance sheets (we can’t think of any on the BMR list) get a second chance to clean things up before their debt starts choking them.

Throughout the process, consumers can keep spending without feeling the drag when the monthly bills come in. Lower rates are a boon for housing and auto markets. In a struggling economy, that’s the cushion that keeps the wheels turning. When the only apparent problems are tensions overseas and a persistent absence of inflation at home, the bulls get plenty of room to run.

Sooner or later recessions become inevitable. But with the Fed on the move, the yield curve now looks more like what we experienced in 1998 than any real pre-recession rate shock. Back then, Alan Greenspan jumped to correct a partial inversion in the face of tensions overseas. It took 33 months for the economy to contract. Investors who bailed out on stocks on the first glitch on the curve missed out on a 50% move higher and had plenty of time to reposition themselves when it was clear that the party was finally over.

The party’s not over yet. We might have years to let our winners ride. Either way, we’ll be watching . . . and the Fed is alert as well.


Earnings Preview: Johnson & Johnson (JNJ: $134, down 4%)

Earnings Date: Tuesday, 8:00 AM ET

Expectations: 2Q19
Revenue: $20.3 billion
Net Profit: $6.6 billion
EPS: $2.44

Year Ago Quarter Results
Revenue: $20.8 billion
Net Profit: $6.1 billion
EPS: $2.10

Implied Revenue Decline: 2%
Implied EPS Growth: 16%

Target: $150
Sell Price: We would not sell Johnson & Johnson.
Date Added: July 6, 2018
BMR Performance: 10%

Key Things To Watch For in the Quarter

Reports of a potential criminal investigation into the company’s talcum powder testing rocked the market on Friday, but we’ve seen similar headlines over the years and none of them have kept the company down for long. Even when judges have awarded massive damages to people who say they developed cancer after using Johnson powder, the judgments keep getting thrown out on appeal. The overhang just hasn’t turned into material financial liability yet.

Granted, legal costs have become a perpetual drag on Johnson & Johnson’s results, so we’ll be watching those figures Tuesday morning. Last quarter the company spent $400 million on lawyers. If that’s the status quo for the foreseeable future, the expense is built into the regular SEC statements now. Instead, we’re open to an upside surprise as management uses its $14 billion in cash (with another $4.5 billion coming in every quarter) to keep shareholders on deck.

The dividend has climbed to $0.95 per share, so short of a Boeing-style PR disaster we aren’t looking for a huge bump on the quarterly distribution here. However, buybacks are another story. We estimate that Johnson & Johnson has bought and retired 300 million shares over the past year, boosting its per-share earnings growth even as overall performance has been a little less impressive. There’s easily enough cash here to soak up another 200 million shares over the next 12 months.

But we’re not convinced Johnson & Johnson needs that much help in the long run. Sentiment may be skittish when the legal headlines get intense, but the fundamentals keep ticking forward, year after year. A slight revenue retreat this time around is all about the struggling Medical Device unit, which accounts for 30% of the company and keeps stealing focus from persistent growth from the much-better-performing Pharmaceutical operation. Factor out Medical Devices and the impact of a strong dollar and Johnson & Johnson is growing the top line about as fast as the market as a whole.

That’s all we really need this gigantic company to do. We’re here to capture that  2.8% yield while the giant keeps absorbing vibrant new Consumer and Medical brands and letting weaker operations go. The odds of that narrative adding up to big rewards over the long term are heavily weighted in our favor.

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:


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

Subscribe HERE:


Just $249 a year, soon to go up to $499. But you are guaranteed the SAME PRICE forever.

July 8, 2019
Bull Market Report Investor Notes: July 8, 2019

Bull Market Report Investor Notes: July 8, 2019

When holidays break up the market week, a lot of investors simply check out until developments get more interesting. This was not one of those weeks. In the wake of an epochal Federal Reserve meeting and a make-or-break thaw on trade talks, nobody wanted to get trapped on the sidelines while all the fun was happening on Wall Street.

The S&P 500 is now not only breaking records on a regular basis but nudging toward the psychologically important 3,000-point line we suspected it could conquer before trade policy clouded the picture. The Nasdaq is back above 8,000 and even the rarefied Dow industrials, hamstrung by setbacks for many of its bellwether constituents, looks set to crack 27,000 for the first time in history.

As this past week demonstrates, investors have a right to be thrilled. BMR recommendations climbed 2.3%, eclipsing all the major indices as stocks on our list that once looked a little tired got a second wind.

With the exception of our most defensive Healthcare and High Yield portfolios, just about every major segment of the BMR universe beat the market. The core Stocks For Success group gained 3.0% and Technology jumped 3.4%, but even when you get down to the volatile Aggressive portfolio most of our names are in the money and ahead of the game.

We also got outside confirmation of that outperformance this week. First, our submission to this year’s MoneyShow Top Stock Picks competition did better than any of the other 100 participating market watchers put forward. Yes, we gave them Roku (ROKU: $98, up 8% this week), which has climbed so fast that we’re once again approaching triple-the-money returns there since 14 months ago when we added it, and we came out #1 in the competition! We still love this stock. It’s hard not to, when it’s up another 22% since the MoneyShow numbers were compiled at the end of June.

But victory is not just about one stock. Counting dividends, our active universe is up 35% YTD, which is great even by our standards. For comparison, the S&P 500 is up 19% over the same period and is in the throes of its biggest rally since 1997. However, in a year when only two mutual fund managers on prestigious lists scored even 3 percentage points better than we did, it’s nice to see that we’re not only delivering absolute numbers but staying far ahead of the pack.

In this position, our strategy revolves around expanding the lead and resisting the urge to change what clearly isn’t broken. Our recommendations are working. The ones that fizzled are gone, replaced with the most attractive stocks the market gives us in the present. As the economy shifts, we’ll shift with it. For now, no course correction is required.

Earnings are coming. The trade situation has stopped escalating to the downside. Everyone hopes the Fed will cut interest rates at the end of the month, especially after Friday’s unemployment number came in a little higher than expected. Jay Powell will give us some hints in his Congressional testimony later this week. And our companies are still racking up cash a lot faster than the market as a whole.

There’s always a bull market here at The Bull Market Report! The Big Picture takes advantage of the last lull before earnings season (our Previews start next week, which only subscribers get) and then it's good to check in on one of our biggest and steadiest stocks.

Key Market Measures (Friday’s Close)


BMR Companies and Commentary

The Big Picture: Get Ahead Of The Earnings Crush

It happens every 90 days with the big Banks officially starting the 2Q19 earnings season. We’ll see this next Monday, which means this is the last Bull Market Report before the flow of Previews and Reviews starts up again next week. As such, we have an opening here to provide a few strategic notes that will apply throughout the cycle.

First, in terms of timing, you can expect our season to start relatively calmly with Johnson & Johnson the morning of July 16 followed fast by Netflix (NFLX: $381, up 4%), The Blackstone Group (BX: $47, up 6%) and mighty Microsoft (MSFT: $137, up 2%). Every one of them will go a long way toward setting the tone for the market as a whole to follow, with the Technology names likely to grab more than their share of headlines. We’ll say more about them all in the days leading up to their numbers.

The real fun starts the week after, when almost 25% of our recommendations that report quarterly results are on the calendar, and then we wrap up July with a surge of 20 BMR companies crowded into a five-day period. After that, the flow tapers down fast. While we’ll keep reading 10-Q filings through early September, they’ll be more about weighing stock-specific nuances than figuring out the broad strokes.

For us, the broad strokes will be in place after July 30 with numbers from Apple (AAPL: $204, up 3%). Three weeks from now, we’ll have a pretty good sense of how our entire universe did last quarter and the business conditions their management teams see ahead. From there, we can extrapolate most of what’s going on elsewhere and then, if the numbers are as good as we expect, we’ll have 10 weeks to ride the wave.

That’s what every earnings season is all about. The day the 10-Q gets filed, we have absolute certainty on how well the company did in the trailing period. When our projections deviate from that reality, we adjust, and when that revised outlook changes investors’ sense of what the company is worth, the stock goes up or down in response.

But then the quarterly clock starts ticking again. The farther from that moment of 10-Q clarity we are, the more room Wall Street’s targets get to drift away from corporate reality. Eventually that drift reaches the point of maximum uncertainty and investors are more likely than ever to miss crucial clues that can sink or surge the stock.

We prefer to get most of our uncertainty out of the way as early in the cycle as we can. That way, we know what’s going on inside our stocks before other investors figure it out. If we need to raise our Targets or pivot out of a stock that’s finally hit a cash flow wall, we can do it while Wall Street is still off balance and under a cloud of suspense. And the market’s map of the new quarter’s winners fills in, we’re in a better position to make the first moves.

A few weeks from now, we’ll know which moves (if any) to make. For now, we already recommend all the stocks we can’t resist. There isn’t a lot of sizzle out there that isn’t already in the BMR portfolios. The market as a whole is still looking at 2% earnings deterioration this quarter, with growth not coming back until the end of the year. The BMR universe, on the other hand, remains on track to deliver 3% growth.

Our earnings targets have actually come up a little over the last three months. Despite all the noise distracting Wall Street since April, the signal is brighter than ever. Remember, most of our stocks have nothing to do with China. And they’re expanding sales fast enough to fight rising labor costs and other pressures on the bottom line. We’re in the hot spots. As they demonstrate that heat over the next few weeks, it’s likely that other investors will start jumping to our end of the market instead of the other way around.


Johnson & Johnson (JNJ: $141, up 1%)

Aside from being an industry Blue Chip, this is one of the most dependable companies in existence – one of only two companies with a AAA credit rating (the other is Microsoft, another BMR pick). For reference, the United States government has a AA+ rating, so Johnson & Johnson is actually more creditworthy than the federal government.

J&J is a truly diversified Healthcare company, with a major Pharma presence. The company has a strong pipeline of drugs, with the FDA’s recent approval of Darzalex in combination with a Celgene drug for multiple myeloma patients adding another potential large revenue driver. Darzalex is already a blockbuster drug ($2 billion in sales last year), and now it can expand its market share (experts are predicting as much as $3 billion in revenue for 2019).

On top of that, the company announced plans for a Drazalex follow-up by partnering with Genmab (whom they partnered with on Darzalex) to create Hexabody-CD38. The beauty of the deal is Genmab will spend the upfront time and resources to prove that Hexabody has market potential, and only then will Johnson & Johnson decide whether to license the product. Thus there is limited downside here for J&J, and the company could land yet another multiple myeloma blockbuster like Darzalex.

The 1Q19 numbers were just okay, with U.S. sales up 2% YoY to $10 billion, while international sales fell 2% to $10 billion. The $20 billion in revenue per quarter has remained steady throughout the year, and illustrates just how consistent and dependable J&J is. With a $370 billion market cap in the Healthcare space, we’re not looking for massive growth here, just safe, consistent performance.

BMR Take: The stock is up 10% YTD, and the dividend of 2.7% is one of the most bankable in existence. That’s important given the overall market volatility. Remember, Healthcare is a defensive sector that’s primed to outperform during market downturns. Right now though, we’re looking at slow and steady growth for J&J, which is exactly what we expect. This is one of the few companies we would not sell here at BMR.

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:


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

Subscribe HERE:


Just $249 a year, soon to go up to $499. But you are guaranteed the SAME PRICE forever.