In the stock market world, the job of the analyst is to find uncovered gems and determine why a stock should be bought or sold. The press covers analyst for both comments and general view of their world, as an analyst they have reasonably regular meetings or conference calls with senior management to gauge what is going on. The other side of the story is all public companies do something – issue shares, sell debt, need opinions when they buying or selling subsidiaries and the like, a good analyst helps maintain this business for the other side of the company. Given the reality of did the analyst’s projection come true or not, in early May Ian Tam of Morningside decided to test the theory and his criteria was:

current year projected earnings per share growth (today’s median consensus estimate for the current year EPS compared against the prior fiscal year EPS)

next year’s projected earnings (today’s median consensus estimate for next year’s EPS vs the median consensus estimate for the current fiscal year EPS)

quarterly earnings momentum for the next quarter (the latest quarter’s EPS, adds the trailing 3 quarters of reported EPS and compares the figure to the trailing 4 quarters of reported EPS)

earnings variability (a measure of how consistent a company’s earnings are over the past 5 years- lower numbers are good)

market cap – the study was for larger companies

to qualify the company’s must have a positive current year median EPS estimate, positive trailing 4 quarters of EPS, and covered by at least 5 analysts.

Company                     Mkt Cap  Curt Yr   Next Yr  QEM   Earnings   Curt Yr Trailing Dvd

($Bil)         Exp GR   Exp GR  Nxt QT Var Score  Med Est  4Q EPS Yield

Chevron                     200.271     689.4        32.7       46.7        19.5         4.40         2.15        4.1

Netflix                           67.493    150.0         90.5         7.9        40.9          1.05        0.76          0

Pioneer Natl Res          28.799   922.1         121.6      84.0        47.9          1.95       0.62          0

Exxon Mobil               340.097     56.8           34.8       19.1        16.2          3.71       2.89         3.8

Applied Materials          45.169   48.2             6.9       19.3        23.0          2.61       2.17         1.0

Devon Energy                 19.945  1040           15.9       49.4        33.6          1.95       0.81         0.6

Chipoltle Mex Grill         13.675   435.9            52.4      32.9         40.7         8.24       4.05          0

Southern Copper             26.042    68.3             22.9      14.4         8.8           1.7         1.18        1.4

Visa                                   193.890    18.4            16.7         4.1         2.2          3.35      3.18    0.7

Cognizant Tech                  38.4         7.2            20.7          1.8         1.3          3.28     3.19   0.9

The other companies on the list  were Nvidia Corp, MasterCard, Aetna, Boeing and 3M Co.

Linking to dividend paying stocks, as an investor you depend on analyst’s reactions and expectations. Ideally the analyst should not be surprised because they have greater interaction with the senior management and if something was not as expected they would know or be looking for it. Large companies to generate large returns have to do something to big to keep growing and gaining market share or at least a near monopoly position. As a consumer, you want options, as an investor you are looking for monopoly.

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

 

According to the Washington Post feature The Daily 202 written by James Hohmann firing FBI Director James Comey the reasons why Mr. Comey was fired was poorly done. The President has the right to hire and fire senior people working for the government. In firing the FBI Director who is the top law enforcement official for a reason given the public trust was eroded. This is the same public trust which likely helped the President win more than the Russian involvement. My opinion is the Russian hacks of the Democratic Party gave fuel to his existing supporters; when the FBI Director added his views on Hilary’s emails, it allowed Republicans to vote for the Republican nominee. To fire the FBI Director for this one would expected the Democrats to fire him, not the Republicans. However, similar to many things in the Presidential White House the time line does not add up.

Linking to dividend paying stocks, in every organization there are the people who made decisions and those that have the title. The decision makers the ones pushing the company one way or another are the people you want to know about. If one gets fired or is let go (usually with an enhanced paycheck), as a shareholder you want to know why? what does it mean for the direction of the company? what governance was going on and how will it be changed? As stock holders you own the company and if senior people are let go for the correct reasons the company can continue and you do not have to worry. If they are let go for a less than reliable reason, you need to find alternatives for your investments, for the next few weeks or months the stock will go nowhere or will decline.

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

If you look at Tesla the stock is up dramatically this year and hopefully it will introduce an electric vehicle priced closer to the average vehicle. Instead of paying at the gas pump you will pay at the electricity charging, but the bill should be much less. If the car is popular and more people buy it, Tesla could change the industry. As the price increases, sometimes you want to buy but then the price says maybe, is there another way to play the game? The answer tends to be yes, but it does take some homework. One way to bet on Tesla is through the companies it sources. According to Mark Burton  of Bloomberg News one method to bet on Tesla is through the demand for cobalt the batteries of the vehicles use. One of the most important part of the Tesla is the battery, not your average battery but one that allows for longer drives without charging again.

The Tesla’s batteries use cobalt and cobalt trades on the future exchanges and there are some public companies which mine the material and have shares the public can buy. The risk is high with these types of companies. The good news is all the automobile companies are beginning to adapt to the changes coming as they expect hybrid and electric cares to make up about a third of new car sales by the end of the decade.

Linking to dividend paying stocks, while Tesla is not paying dividends yet, it is has gone up dramatically and any company which rises in value is worth paying attention to. Tesla could rise up and fall or continue Elon Musk’s rising net worth for Tesla has a greater market value than GM with considerably less capital investments and vehicle sales. The electric vehicle could be here or you might want to invest in utility stocks which will need to ensure the electricity is there to power the cars as you collect your dividend.

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

In reading a book about Edward 1 written by Marc Morris published by Windmill books, London, UK , 2008. Edward I is also known as Longshanks in the movie Braveheart. In the book, among other topics is power struggles between the King and other feudal lords. At the time, most of the wealth was in a feudal system which a family accumulated lands (sometimes because of being friends with the Royals) and 95% of the people were serfs who worked the land for the lords. The lords were the members of the government and occasionally when a King lost a number of battles, the lords would set out to try to be King.

Among the tasks of King is stewardship of the country or how to defend it and keep it together of the income the country has. In times of peace, it is relatively easy,  but in times of war, King tend to overspend. In the case of Edward 1, for much of the time he was King he was at war with someone – Wales, Scotland, France and he went to the Holy Land. Wars are expensive, at the time of Edward 1 in the late 1200 and early 1300’s, the church owned lands – grew crops which meant to go to the Holy Lands the church could pay. To fight wars, Edward had to tax the population but it was really taxing the feudal lords who had to pay. Similar to everyone in history, people are willing to pay something but not a lot. Edward taxed the wool industry, but unless wool could be sold to Europeans, it had a maximum it could be taxed. Edward 1 took grain from the lords estates, however when they took the grain, what would the people do and how could the lords live? In Edward’s time the financiers to government’s were the Italians and Edward liked spending rather than saving money. He had to go to war to plunder someone’s assets. Eventually, people represented the taxes and the other things it represented and the movie Braveheart is one of the movies about people who were fed up with a lot of things including too high of taxes which did not benefit them.

Linking to dividend paying stocks, it is not a perfect world even if you have a monopoly to raise prices, to keep margins high, there is always a balance. If the prices go to high, people look to alternatives. If they begin to look for alternatives, then it will be very hard to get them back. Most people will pay the price because they need to, but they are always looking, maybe not always be doing, but looking for alternatives.

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

In reading a book about Edward 1 written by Marc Morris published by Windmill books, London, UK , 2008. Edward I is also known as Longshanks in the movie Braveheart. In the book, among other topics is power struggles between the King and other feudal lords. At the time, most of the wealth was in a feudal system which a family accumulated lands (sometimes because of being friends with the Royals) and 95% of the people were serfs who worked the land for the lords. The lords were the members of the government and occasionally when a King lost a number of battles, the lords would set out to try to be King.

One of risks if the lord backed the losing side was disinheritance. This was the rebel’s greatest fear, sometimes even worse than death. The reason being it entailed lasting shame and the end of the family’s fortune. Often times rebels would understand being punished to some degree but they would swear loyalty to the winning side or the King if they kept most of their lands. If they were lose all their lands, they would go to a distant property and challenge the King’s forces. In Edward’s time more than a thousand properties changed hands because they back the wrong horse.

Another way to gain property was through taxation. England was a Christian nation although how people received religion was varied. The religion was Catholic and the Pope had forbidden Christians from practicing usury or lending money at interest. Since most jobs were not allowed, those of the Jewish faith quickly became bankers. Due to mismanagement of government by Henry (Edward’s father), Henry constantly raised the taxes on Jewish people. This is turn lead to the bankers selling discounted loans to those who could afford it, and then the Jewish people could pay the taxes. Those that were buying most of the debt were two of the wealthiest people in Henry’s court. The lords bought the loans at 50 cents on the dollar and then asked for the loan to be repaid. If the person could not repay, the lords foreclosed and seized the real estate.

Linking to dividend paying stocks, one off the reasons why one wants to increase their wealth is to enlarge their inheritance. Sometimes the attitudes that were prevalent in the 1200’s can easily be seen in the 2000’s. Another reason why you want to increase your wealth is to take advantage of opportunities to buy relative inexpensive assets and allow them to return to normal full market value.

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

If you have the chance to visit Ireland, you will likely enjoy your trip most people do. However, behind the scenery of Ireland is religion – Catholic and in Northern Ireland Protestant. The people look the same, but it parts of Northern Ireland there is mark distinction for they live in different sections of town. For a long time, parts of Belfast were marked by violence, fortunately now it is peaceful. When it was marked by violence, a gang called the Shankill Butchers killed more people than any other mass murders in British criminal history. There is a book about them The Shankill Butchers – A Case Study of Mass Murder by Martin Dillon published by Hutchinson, London UK, 1989.  It is often hard to read about murders, but the author was trying to understand why the murders occurred between 1972 and 1977.

On one hand, it is relatively easy to blame it on individuals who were out of control and there is that part of the explanation. The leader of gang, did kill someone and threatened families who under normal circumstances would give evidence or there is that element. However, the leader went further than most he felt any one who was Catholic was a target and should be killed. The leader of the gang, operated in an area that many would approve but not officially. He also learned how the operations of courts and justice in order to throw wrenches in to slow down the machinery of justice. Each time, an act was committed he would gain confidence and continue. (the nearest movie character is Raynald de Chatillon in the movie Kingdom of Heaven – although the time was in the middle ages, the leader and Raynald acted similarly for their cause).

This leads to the environment and authorities. In Belfast in the 1960’s and 1970’s the British sent the army to keep the peace. When the army was sent it, they made a decision to block some roads (for efficiency sake) however what it meant was anyone driving in to the section of town that was predominately Catholic was likely Catholic; anyone driving in a different part of town was likely Protestant. People were seized because they were easy targets. The road the killers used is called Shankill Road. In examining the army control, the gang found gaps in coverage and this is where they would do their damage.

Another aspect of the continuing of the gang was resources of the government. In Belfast the local police were lead by a very good detective and in the 1975 dealt with 2,911 crimes and had a success rate of 50% detection rate for murders and over 30% for attempted murders. The department was made up of 10 people and this was in a age before computers.  A comparison in England was there was a Yorkshire Ripper on the loose and more than 300 police and many resources were allocated to finding him.

In Belfast, during the troubles, people had to move around the city and groups felt destroying buses would be a good idea. This lead to many cabs operating and the gang of murders including a cab driver. In the end the leader of the gang with the help of both Catholics and Protestants was killed.

Linking to dividend paying stocks, in most industries there is a gap between the regulations and companies providing services and it is often where larger profits can be made. Governments try to do something but seemingly overlook a solution and causes gaps. In business, you are concern with is gaining access to the money in the pocket, however as times change the gaps will be dealt with. In the case of the gang, conditions change to put an end to the group for whatever was in the mind they were doing the right thing, it was far from the right thing to do.

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

During the week of April, 190 companies in the S&P 500 or 40% of the S&P 500 reported their earnings. In all things Wall Street there is opportunity with all the reporting, if a earnings of a company surprises the analyst’s then the stock will go up or down depending on the surprise. To this end, companies such as Thomson Reuters have developed a tool called SmartEstimate. The tool assigns a different weight to every analyst based on how accurate they have been in the past – were some analyst surprised all the time or were they near perfect? Hugh Smith of Thomson Reuters used SmartEstimate criteria to”

companies yet to report but the SmartEstimate is greater than 2% or 80% chance the reported figure will indeed beat the estimate.

the expected earnings growth based of SmartEstimate is 15.9%, companies in the list should be more

Wall Street has many analysts and they are all doing similar things, if a company 4 week price change is greater than 10%, much of the surprise would be price in, the idea is to look for companies where it is not priced in

Company                      Reporting    EPS          Q1 YOY    Rev      Q1          4 week     Dividend

Date               Predict    Smartest   Pred   SmarEs  Price       Yield %

Surprise  EPS Grow  Surpr Rev Grow Change

Mosaic                         May 2              6.4%            46%        0.36%    5%         -7.2%       4.06

NVIDIA                        May 9               2.0              114           0.12      52           -5.4          0.54

EOG Resource            May 8              11.7             121           0.44       87          -1.3           0.71

XL Group                    Apr 26                3.6              40            0.05       17            1.5           2.15

Devon Energy            May 2                3.1              184           1.04       52            2.4           0.60

Equinix  Inc               Apr 26               2.7             293            0.05       18            3.5           1.98

Cabot Oil & Gas          Apr 28               4.7             240             3.8        81            3.9            0.34

American Tower        Apr 27               5.1               26              0.22     32            4.3            2.0

Amazon.com               Apr 27               3.9               17             0.04      30            6.3            0.0

Linking to dividend paying stocks, if you are going to use this type of analysis you have to think how will the street react? There should be many people doing the exact same thing and remember the old Holiday Inn ad the No surprise Rooms. Not only does the company have to have a bigger than expected surprise (ideally one way or another) the street has to agree with your decision to buy or not to buy. It does happen see Caterpillar but it does not happen often. An easier decision maybe to buy quality companies making profits and hold them as long as they do not offer surprises.

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

 

In late April according to Reuters Caterpillar’s first quarter beat the estimates of Wall Street and its shares rose 7% to the highest it has been in 3 years. The shares rose to $104.42 up $7.62. The company because it sells heavy equipment is seen as a bell weather stock as governments around the world turn to infrastructure spending Caterpillar is a company expected to benefit from the decisions. If you drive and see the yellow machines at work, then that is good for the company. Caterpillar expects 2017 to be better than 2016 with sales and revenues to be in the $40 billion area as opposed to between $35 and $38 billion. Excluding restructuring costs Caterpillar earned $1.28 a share which was twice the estimate of 62 cents a share. Part of the restructuring was shutting down factories and laying off 12,000 workers. The newer plants will have more robots.

A company similar to Caterpillar has three macro areas of support – mining; infrastructure spending (roads and bridges) and construction both home and institutional (government buildings). Ideally under President Trump’s proposal trillion dollar infrastructure spending, the companies doing the work (buy American) would be using the yellow machines of Caterpillar. It should be noted there is a glut of used equipment.

Linking to dividend paying stocks, on the macro side of stocks there is good news and not so good news. The good news is the government wants to create the conditions for business to grow and use its spending power; the bad news is for company such as Caterpillar it had to shut factories and 12,000 people are out of work. Even if there is more work, the workers are not likely to be called back, for Caterpillar expects to be able to meet the demand under the new conditions. With investing there is rarely a black and white issue, many of the issues are grey.

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

A BBC documentary on Genghis Khan – how did he managed to rise from the Steppes of Mongolia to become leader of most of Europe and Asia? In took a long list of lessons to be learned, some of them harsh, but he did learn.

The first thing he was born properly, the son of a small family clan run by his father. He eventually married the daughter of another family clan who was slightly more important than his fathers. He received a great wedding present. One of his fellow clans members was jealous of his wife, led a raid and capture her. Khan gave the wedding present to another leader of a clan to cement relationships and led a successful raid to get his wife back and destroy the enemy.

Khan realized he needed a professional trained army and there was strength in unity. You can easily break one stick or arrow, it is hard to break 6 sticks or arrows. The professional army needed skills such as archery and when the horse is off the ground the arrow should be shot which results in better controlled shots.

In one of his battles, he used psychological warfare he had his army light 5 fires for each person and the opposition scouts seeing it would think there are more people. His attacks were without mercy, but each tactic was planned and executed. He would regroup and charge again; he would fall back and led the opposition into a trap to be defeated.

When Khan went to China he took the fight to the enemy, he offered mercenaries similar or more money to fight with them; in terms of siege warfare he learned the value of patience and new tactics. In China he learnt about gunpowder, and plunder without mercy. The plunder without mercy and taking of slaves sends a reputation which he was happy to send to other countries – if you do not submit, the town will be burnt down. Sometimes he was content to impale the opposing armies.

Linking to dividend paying stocks, taking away the killing, in order to continue to be successful companies have to learn and continue to learn. While attacking without mercy is likely to lead to government regulators, the planning of tactics and the execution of them never go out of learning. Think about your company and its biggest profit center how well is it protected and promoted?

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