If you look at your bank and a retail store, do you see them as similar or different. If you ask many people they would say they are different, but although the bank tends to have more of its own software, they also use the software of other companies. The easy example is Mastercard and VISA. For many years, banks could issue one or the other now they can issue both. Recently an article by David Berman examined the company Fiserv. If you are a normal person, you likely have not heard of the company because it sells all its products to financial institutions like banks.

50 plus years ago, everyone paid cash only a few used credit cards. Then consumers had credit cards and the next logical step was payment with no cash or from your bank account. Companies that provide credit cards, develop financial technology and facilitate mobile payments have been rewarding investors for years.

Over the past 5 years, VISA delivered a return (with dividends) of 162%.  Mastercard was 194%. PayPal Holdings is up 157% since it left the parent company of eBay Inc; and Square is up 734% since its IPO in November 2015.

Another company to look at is Fiserv Inc on Feb 17, 2009 the stock was at $8.44 on Feb 15, 2019 the stock reached 85.78 or a return of 872.84% over 10 years.

Fiserv is based in Wisconsin and processes debit and credit card transactions, electronic bill payments and offer image check clearing, and its many services. The company works with banks, insurance companies, and credit unions and has 12,000 clients. A few weeks ago, Fiserv bought First Data Corp of Atlanta which makes point-of-sale terminals and provides e-commerce services and gift cards for merchants. The cost of merging is $22 billion.

Over the past 5 years the share price has risen 3 fold which is better than Mastercard and VISA. Analysts expect the stock to reach into the 90s this year.

Linking to dividend paying stocks, when you adjust your thinking you can see even more opportunities. In the case of the banks, they use external services just like many other retail stores. Doing you homework allows you to determine who supplies the banks you have a habit of making money and paying dividends. By seeing who the supplier is, you can find more than one way to invest in the company.

There are more questions than answers, till the next time – to raising questions.

 

The book Game Over is subtitled Jerry Sandusky, Penn State and the Culture of Silence by Bill Moushey and Bob Dvorchak published by HarperCollinsm, NY, 2012.

While the book is a sports book, it also deals with Jerry Sandusky who is a sex offender with young boys. The sports aspect of the book is college football – many of us watch the games and cheer the players. If the coaches are doing consistently well, they get treated better than most by fans and law enforcement. At Penn State – the coach was Joe Paterno who was an excellent coach and tried to ensure his players graduated because most would not play professional football, some would and are playing.

Jerry Sandusky was an assistant coach, concentrated on defense and could easily have moved to other colleges to be the head coach. Mr. Sandusky was instrumental in the 2nd Mile Center – think of Boys and Girls Clubs for kids and particularly kids of lower income. He raised funds for it, he assisted in programs and he took an interest in some young people before dropping them for other young boys. In the world of child molestation, it takes patience, time, developing relationships, giving gifts and ensuring secrecy. It also usually takes place away from the eyes of reasonably responsible adults so it is hard to use the force of law and order. In the book, Mr. Sandusky was caught in the shows at Penn State late in the evening with a young boy. By all accounts it seemed to be wrong, but was it illegal because no one saw illegal acts. What should the college do? What should happen to Mr. Sandusky?

The administration of Penn State saw the activity as a once, not a continuous event. Was it weird yes, was it illegal? hard to know. Particularly when the person is someone who is known by all. Is it best to deal with internally or externally? Hopefully now if someone saw an adult in the shower with a minor who was not their child, alarm bells would ring and notifications would go to various outside agencies to investigate.

Linking to dividend paying stocks, the culture of silence exists all over the world. We see people for the good they do, we do not know if they are the “killer” next door. We only want and wish to see the good. In the culture of silence, it is very hard to raise the negative and then what to do when you hear it. It is important all companies have a program to hear the negative and people willing to do something. It is easier to work on customer fixes than dealing with people. How well the company does that makes it a better company for it.

There are more questions than answers, till the next time – to raising questions.

In mid February Peter Ashton of Trading Central wrote an article about some companies which could based on past performance outperform the market. The idea was to search its data base for stocks with reasonable valuations, above average volume and strong short term price momentum hinting at possible future price gains.

He started with companies with a market capitalization of greater than $10 billion.

To find reasonable valuations, he was looking for trailing price-earnings ratios of 25 or less.

For those companies increasing revenues, compare revenues from the last quarter vs a year ago and the benchmark is greater than 7% growth.

To see above average stock volume, he used a 10 day average where the criteria is 110% of the 90 day average.

To check on price momentum, looking for stocks that have risen 5% or more in the past 5 trading days.

Company                    Recent     Mkt                P/E      Revenue    Vol    Price       Dividend

Price        Cap $ bil      Ratio     Growth    10vs90  Perf        Yield%

Conagra Brands          23.82        11.524          12.9       9.7%         1.23       7.4%        3.6

Electronic Arts          103.10        30.658           22.6      9.2            2.95       27.5          0

Masco                            37.05        10.832          15.7        8.9            1.15      11.8           1.3

M&T Bank                   168.11        23.555          15.2        8.1           1.10        5.5          2.4

Ametek                            78.54      17.952          22.7        10.0         1.25         5.6         0.7

Tractor Supply               95.82       11.665         23.5        9.3            1.45        5.3         1.3

 

The idea of this strategy is to see what is moving higher and then you will need to do homework to see if it is a good stock to buy. In the case of Electronic Arts or EA – they released a game which people like much better than their last one.  If you invest in it, determine if the growth rate for signing up remains high.

The other good thing about these lists is some of the companies you may not know or they are in industries which you either do not work in or generally do not follow, these lists help broaden your base, which is good.

Linking to dividend paying stocks, in the case of the list above, the idea is to continually to narrow the list so your criteria can change. Once you narrow the list you need to determine which one suits you or you can wait for the stocks to decline and pick them up later.

There are more questions than answers, till the next time – to raising questions.

 

 

In mid February, Amazon was not feeling the love from NY and decided not to go through with a new HQ2 in Queens. While individuals who bought condos to take advantage of possible increases will have to wait longer, Amazon has decided its HQ2 personnel of 700 people in 2019 and by 10 years 25,000 people, they will be working in another city. Perhaps, New Jersey which offered billions to come is back on the table. In the world of economic attraction, bringing in a profitable company to your home is very valuable,  a company that could easily take up more office space with jobs that were expected to start around the $100,000 area is even more valuable.

However, local politicians and neighbors were not keen on Amazon coming to Queens and Amazon felt a whole host of criticisms in the economic attraction game. Governments offer money to profitable companies in the form of tax breaks and incentives, should they be? If Amazon hired 25,000 workers who lived and paid tax in New York, there might be an argument it is worth having those workers in New York. The questions would remain why should not both the company and workers contribute to the tax role now? For a large city like New York, other companies could possibly evolve to the same size, but Amazon given their growth in the past seemed to be able to do exactly that and for New York or any other city it seems a lot to give up.

Linking to dividend paying stocks, companies do not exist in an isolated world, where they only do good. At times the company is the lighting rod for all the wrongs the existing system operates. The company itself may have little to do with it, but the people find local supporters and the issue becomes bigger than the announcement. Fortunately profitable companies can wait and have options. In the case of Amazon 238 proposals came forth, Washington DC accepted Amazon; that still leads 236 other very good choices.

There are more questions than answers, till the next time – to raising questions.

When you listen to politicians speak about the economy, they will tend to highlight the positive and by many measures there has been growth in the economy, that is a good thing. The politicians speak about number of jobs created, while we must remember with the baby boom retiring, there was going to be a need for more people to replace the ones retiring. That said, on a individual basis creating jobs is a good thing.

In terms of the economy, debt is a red flag, whether it is corporate or personal because debt has to be repaid or some financial institution must take the lost of not receiving money – write downs. In the banking sector, the lower the write down or provision for loss, the higher the income for the bank. In early Feburary, in an article by Jonathan Spicer of Reuters reported on a the US household debt and credit report issued by the Federal Reserve Bank in New York. The report showed overall debt edged up to $13.5 trillion in the fourth quarter of 2018.

When looking at that number, mortgage debt makes the largest slice as it should as most people need to go into debt or have a mortgage to buy a house. Mortgage debt as an indicator is a good thing for the economy. Hopefully people qualify and have the ability to repay the debt.

Consumer spending accounts for 2/3’s of the growth of the world’s largest economy and it is expected to hold strong this year.Consumer debt is different – it is made up of credit card debt and car loans. Ideally those purchases on credit card are more toward the want rather than the need and for the most part they can be paid off. The reality is for more and more people, credit card debt is for normal daily spending. In good times, credit card companies (including banks) give credit cards with greater ease but good times are ending as serious dlinquency for credit cards rose 5% up for 4.8% or 1 out of 20 people.

Student debt remains high because many jobs require post secondary education and the fact that people go is a good thing. By most standards, the rewards for the majority are lessing but gaining a job afterwards on close to minimum wage tends to mean student debt delinquencies are rising. The issue is that if someone declares bankruptcy to write off their loans, student debt still has to be paid.

Car loans are the big issue in the report. A record 7 million Americans are 3 months or more behind in their car loans. There is a limited discretion with cars because people there are different prices for new and used cars. However most jobs still require people to have a car because of where they live and work and public transportation may not be that good or will take extra hours in the day to get to. The good thing for companies that give car loans is they can relatively easy tow the car and try to sell it again. On You Tube there is a gentleman name Dave Ramsey and he always says – do not buy the car you want, buy the car you can afford. By a beater car, then move up as your debt goes away. Most people do not do that, they buy the car they want.

Linking to dividend paying stocks, all companies have head wins or what keeps the President up at night. What does the executive team worry about? Listen for the good news, but ask about the red flags, so you can sleep at night.

There are more questions than answers, till the next time – to raising questions.

Since December the stock market has been up and that is a good thing, particularly if you were invested in October and November, most of your losses should have been gained. But which companies have and are continuing to do well for shareholders? Noor Hussain of Inovestor Inc. came up with some answers with the Inovestor for Advisors software. No matter what software you use, the issue is always how do you narrow the field to have the best alternatives? Noor used the following criteria:

Market cap in the S&P 500 of more than $10 billion.

Positive 12 month change in economic value added (EVA) metric – the figure tells you the company’s profit is increasing at greater pace than the cost of capital. The EVA is economic profit generated by the company or net operating profit after tax – capital expenses.

Economic performance index (EPI) of more than 1 and a positive EPI 12 month change. For every dollar invested in the company, more than one dollar is generated in return.

Free cash flow to capital (FCF) is greater than 5%. The ratio gives you an idea of how efficiently the company converts it invested capital to free cash flow. This helps you determine if the company can continue to pay its dividends and reinvest in the company.

Company                Recent    Mkt Cap    FCF/     EPI      Div      1 Yr Price       EVA

Price        in $Bil       Cap                   Yield   Return %       12 Chg %

Church & Dwight    63.34      15.619      14.3      4.0       1.3        29.5               198.3

Union Pacific           161.74    117.256     11.5     3.3       2.2        19.9               392.9

CSX                              68.75       56.249     10.3     2.5       1.4        14.3               477.8

Republic Services      76.68      24.729       5.9    1.3        2.0        10.0               133.4

Norfolk Southern     171.46     45.968     6.4      2.4        2.0          9.4               518.2

Verizon Comm             53.95   222.921    6.6      2.9         4.2         3.1               628.5

Walt Disney                111.51    167.265   7.8     1.5          1.5         -1.0                53.5

Sherwin Williams       421.01     38.987   5.5     3.5          0.9         -7.3              168.9

Southwest Airlines     57.65         31.857  16.4   2.4          1.3         -9.6              205.4

The other companies in the list were Comcast, Microchip Tech, Lam Research, Paccar, Dover Inc and Applied Materials.

Linking to dividend paying stocks, the lists help you narrow the field to what you do not want to buy. The lists also help to put companies on your watch list to know whether they are good to buy now or wait. Whatever list you use, remember why you are buying the company which means you have a good idea when to sell. If you are buying for the dividend it implies a longer holding pattern and as long as the Free Cash Flow is very good, you can hold. If the Free Cash Flow then other investors will push up the stock as the company is profitable.

There are more questions than answers, till the next time – to raising questions.

Occasionally in the financial press, various people both try to educate people and to offer their services and in one such piece Ian Tam of Morningstar Research offer advice on 15 stocks with reasonable and sustainable yields.

Mr. Tam used his company’s software to rank the companies through the S7P 500 total return index based on the following metrics:

5 year deviation of earnings – it shows how volatile a company’s earnings are, low is good.

Yield on expected dividends, based on dividends announced by not yet paid

Annual cash flow momentum  based on the last 4 quarters vs the previous 4 quarters

5 year historical beta – shows sensitivity of a stock versus the index, low is good

Payout ratio must pay out less than 80% of their trailing earnings or less than 60% of their trailing cash in the form of dividends.

The yield of the stock must be higher than the median of the S&P 500 index. When the report was published the median  was 2.3%

Company                  Mkt Cap     Div     5 Yr   5 Y EPS  Ann of   Payout          Recent

in $bil        Yield  Beta    Deviat   Mome    Ratio Earn    Close

Altria Group           92.279       6.5       0.41      4.6          67.3      75.1                 49.11

Duke Energy           62.604      4.2       0.04       2.5          27.7      74.9                 87.82

Western Union          8.152     4.1       0.95       2.6        135.1      40.6                18.41

Southern Co             50.014      4.9     0.18       3.8            13.4      70.9                48.61

Wells Fargo            230.937     3.7     1.10        1.7             54.0      37.8               49.06

Dominion Energy    46.805     5.1      0.20      3.3                0.2      82.7               71.45

AT&T                       215.501      6.9     0.56       3.9              10.8      56.8               29.61

Hershey                    22.183       2.7     0.11      2.8              14.3      51.4               105.73

Clorox                        20.217       2.4    0.29       2.4             13.5        61.5             158.38

AbbVie                     118.126      5.5    1.17       7.9              50.1        45.4              78.53

Other stocks on the list

Verizon Comm. Merck, H&R Block, Broadcom and Darden Restaurants

Linking to dividend paying stocks, the data from Morningside reveals a wide range of industries, but the important thing is what metrics besides the stock price going up is important to you. Every year there are more metrics, knowing why allows you to decided to keep or find other alternatives and there are always other alternatives or opportunities in the market.

There are more questions than answers, till the next time – to raising questions.

 

 

Two of the largest regional banks in the south have set a process to merge and create a larger bank. BB&T offered 1.295 shares for each SunTrust Bank share according to the press release. BB&T is based in Winston-Salem, North Carolina while SunTrust is based in Atlanta, Georgia. The combined bank which is seen as a merger of equals will become the 6th largest bank in the US with over 10 million customers who have $442 billion in assets. $301 billion in loans and $324 billion in deposits.

The companies believe the larger scale will allow diversification and greater fees to create value for the combined entity. A new name will be chosen if the merger goes through by the close of the 4th quarter. At the moment the succession is equally split between the banks.

The merger is the biggest bank merger since 2008 bank crisis when the government would not allow mergers. One of President Trump’s platform is to change regulations from the previous administration and allowing mergers of banks is one of the changes.

In all industries, the government has regulations to protect or limit some of the losses which executives will try to do for the sake of greater profits and market share. All industries go through the cycle and at the low point, one wonders who was looking for the average depositor? Regulations are introduced, the number of merges fall and Wall Street looks to another industry to merge. The cycle moves and eventually possible regulations happen again.

Similar to other industries banking has changed and the lowest method to deliver services is through apps on your smartphone or laptop. They are less expensive that a building and having tellers do it, although most people still will go into a branch once in a while. The teller does the deposit and the money is in your account at the moment, at the ATM it is the next day.

Linking to dividend paying stocks, companies that consistently earn money are vulnerable to mergers, because management wish to scale up. Sometimes that is good, sometimes mergers do not work, we all know the answer afterwards. When mergers happen as an investor you have to revisit why you own the stock.

There are more questions than answers, till the next time – to raising questions.

One of the most successful hedge funds in the US is Bridgewater Associates, most of the time you hear from the President Ray Dalio and he is worth listening to. At Davos, Switzerland, Bob Prince who is the co-chief investment officer of Bridgewater was interviewed.

One of the most important things he said was if you want to sleep well at night, be diversified. Good asset allocation is important.

When Mr. Prince looks at the world to invest in he sees what is priced is discounted. The markets relationship to what is discounted?

For example:

In the US, optimistic earnings are priced in the stocks, which means you need to ask what if earnings are lower? what if expenses are higher – how have executives cut expenses?

Mr. Prince there is always opportunity, if you understand how the system is suppose to work. What are the natural ebbs and flows?

Linking to dividend paying stocks, everyone looks at stocks a little differently which is why stocks go up and down. Generally there tends to be a reason because many people are using the same formulas to calculate the values to buy and sell. There is always some opportunity because some are right and some are wrong. If you buy, buy for a reason for example as long as the company pays a dividend and ideally can increase it, then you do not have to sell. You will earn money and allow others to push up the value of your shares and your total return will make you contented.

There are more questions than answers, till the next time – to raising questions.