The United States has large oil refineries not far from Houston, Texas and since the oil is in the middle of the country it makes logistical sense. The refineries are also on the East Coast and for the past years of the Bakken production in North and South Dakota most of the oil has been going by rail car to refineries on the East Coat. The pipelines, the President has authorized, will move the oil to the refineries in Texas, which means the East Coast refineries are now importing oil. According to Luccia Kassai of Bloomberg News the US Energy Information Administration reported 884,000 barrels of oil  a day was imported from Angola, Nigeria and Brazil. At the moment it is good thing because the cost of imported oil is less than domestic oil. The US as a whole is energy independent but as the economy continues to improve it still needs imported oil.

Linking to dividend paying stocks, once the pipeline is built the Bakken oil will be less expensive to move by pipeline which will slow rail car deliveries. The slow down of rail cars means the railroads earn less money, but the pipeline companies and oil refineries make more money. Changes whether they are physical changes (pipelines) or technological happen all the time and that is why it is a credit to companies who consistently can be profitable and raise their dividends for years. Sometimes technology will compensate by driving costs down or enabling companies to concentrate on what really makes them money, but change is a constant.

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

The border between Mexico and the US has been an issue in the political landscape for a number of years and every once in a while President Trump accents it. For a north-eastern such as myself, who has never been to the Mexican border, it is interesting to read about the southwest of the United States. We all know Christopher Columbus discovered parts of the Caribbean for Spain. A few years later, Cortez and other Soldiers or Conquistadors had planted Spain’s flag on 2/3’s of the Western Hemisphere. It helped greatly, Spain had access to Mexico’s gold and Peru’s silver which made Spain the richest country in Europe and the reason why gold coins were called Spanish dollars.

In a book called The Spanish West by the editors of Time-Life Books, published by Time-Life Books, NY, 1976 from 1492 to 1883, Spanish culture dominated the area much more than the Anglo-Saxon culture. Some 40 million people in North and South America spoke Spanish, observed Spanish laws, worshipped in Spanish Catholic churches and several million were citizens of the US.Many estates were based on old Spanish grants, Spanish architecture was the rule throughout the West. 7 states have Spanish names – Arizona, California, Colorado, Montana, Nevada, New Mexico and Texas. The landscape of mountains and rivers and towns have Spanish names. The cowboy and the horse came from Spain via Mexico. When you think about the west – beef cattle, sheep and the horse all came from Spain via Mexico.

Much of the west is desert but there are parts that are fertile or have access to water. The key to the growth of the west is water and later air conditioning. Given the low rain, the population of the west was never that great, so Mexico saw it has having potential but not sure what to do with it. In New Mexico – the Comanches and Apaches never allowed the population to grow. It would take settlers moving westward for new opportunities – some for the gold and silver discovered in California before the tribes were defeated by the US Cavalry or the mounted police of the US Army. Similar to many other areas, a war was fought for the states against Mexico. However, once the country was settled and Mexicans became Americans, their ties to Mexico and Spain did not stop.

Linking to dividend paying stocks, all companies have a history and they can build from it. Decisions were made in the past, which allowed the firm to prosper and grow to be what it is, but it still has a past. It is strange to think of all the ties Mexico and the US have, the history it shares, you wonder who is the President protecting the country from? If the argument is drug dealers, who is buying the drugs? One can always look at any issue from two sides – the present and past while looking to the future. The past can sometimes help prevent mistakes in the future.

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

One of the accounting terms is goodwill which is an intangible asset over and above the cost of the assets. When a company buys another, to ensure balanced books, goodwill is used. Since there is nothing to grasp onto, it can change. Goodwill is used because all companies operate on the faith of their customers and suppliers. It is an expectation the value people see will continue and grow. The interesting part of goodwill is if a company acts negatively or begins to loose money, the goodwill quickly diminishes.

Every organization starts off with goodwill, because it general we all want to see people and organizations succeed. It is a good thing. In terms of the Presidency, every new President starts off with goodwill or a honeymoon period, the person was voted in and in general people are willing to wait to see how they perform for the good of the country. You will likely not agree with everything, but at the start of the period, the person has more goodwill than later on. President Trump was excused for being a little off beat in relationship to the normal systems which operate, he said he want to change and he has.  One of the measures the President has received the most press from is his “ban” on some countries in terms of people coming to the US. The President does have the ability to determine immigration and who comes in, however the affect of the “ban” has lost the US goodwill. It lost goodwill because similar to most systems there are lots of parts and it took Homeland Security 5 days to figure who was included and who was not included. It took some time to ask, for the countries involved, what is the existing process and how would it change? To have a “ban” in order to put extreme vetting in place, when extreme vetting is already in place, makes one wonder about the purpose was. There were other questions including: does having a “ban” make it harder or easier to fit the enemy when to fight the enemy you need the goodwill and resources of some of the countries included in the “ban”? If the government was a company, one would say the customers and suppliers have been alienated and they will look for alternatives. You would also look for people to be moving positions.

Linking to dividend paying stocks, these companies tend to be large and somewhat bureaucratic for the good reasons. They are large because they are successful; they are bureaucratic to not to upset your customers and suppliers. For every government policy, some companies like it, some do not, successful ones have to adapt, which is good thing. As you look at your holdings, does the company have the flexibility to adapt? and still generate healthy margins to ensure profits?

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

When oil prices fell from $100 to less than $40 and have since rebounded all oil companies had to quickly adjust to the revenue shrinkage. In the world of large oil companies including Statoil ASA of Norway it involves billions of dollars. Mikael Holter of Bloomberg News recently wrote a column about Statoil and management has come through the recession to put the company in terrific shape.

The company slashed investments by half in 2 years to $10 billion in 206 and plans to spend about the same in 2017 and move to $ 12 billion in two years. The company went through a stage of delaying projects, reducing its work force, and increased debt. At the same time, it increased efficiency improvements and lower rates from suppliers to the tune of $ 1 billion. This has resulted in the cost to break even in its next 5 projects of $ 27 and its biggest oil field the Johan Sverdrup field to $25 a barrel. Its oil field in the Arctic will make money at $35 a barrel down from 2 years ago needing $80 a barrel. The result of the cost cutting and improvements is Statoil can now fund investments and dividends from an oil price of $50 a barrel.

One of the reasons this is important is the Norway economy is built on the cash flows of the oil and $50 barrel allows the oil company to pump money into the government to be distributed for the benefit of the people. According to the Chief Executive Officer Eldar Saetre the next step is to move into a culture where we continuous improve.

Linking to dividend paying stocks, Statoil pays a dividend but equally important it had to go through the painful decisions involving cost cutting in the company in order to make it better. Part of cost cutting is letting go of people, generally some management knows and it is much easier to management when there a steady cash flow and ability to pay dividends. All companies to be better need to go through cost cutting, but generally only when they have to do they find the savings to drive down costs and come out on the other side ready for the opportunities which exist.

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

 

A number years ago, there was a TV show called Cheers and the theme song had a line where everyone knows your name. There are places that are set in tradition of baseball and apple pie. In the world of professional baseball there is the National and American leagues or the big time – the feeder baseball league or minor league baseball is the subject of a book called Where Nobody Knows Your Name by John Feinstein published by Doubleday, NY, 2014. In the book the author highlights a number of players who all made the majors and played in the minors. The world has changed when minor league teams were not attached to major league teams, but not all the Triple A teams are. In the majors, the 162 game season means at some point in time injuries will occur. The prospects and the needed players will be called up to fill the major league vacancies, an excellent general manager knows how to use the list. The prospects even a casual fan can see they will soon be in the major league or the show. The needed players are those that love the game – may have spent some time in the majors, but they are a needed part of the game. The book is about those players who either played well in the majors, had an injury and on the comeback or players who have high level of skills and the majors need them every once in a while. The minimum money is better in the big leagues.

In every baseball season, there are 3 important dates which happen to be holidays Memorial Day, 4th of July and Labor Day. The meanings behind the date is before Memorial Day it is cooler, after the temperature rises. It is easier to play great ball in the cooler weather. The teams that went on a winning streak will begin to lose games as the weather changes. The 4th of July or Independence Day is the mid point of the major leagues and 2/3’s of the way for the minor leagues (they play fewer games). Labor Day is the push for playoffs and for the minor leagues the season is over. Minor league baseball celebrates winners, but it main role is a feeder system or back up for the major league team – if it needs a player, then they go up. The manager of the minor league team must improvise and use all the talent he has.

Linking to dividend paying stocks, every company that pays dividends does not make its money the same degree each quarter. Whatever company you own, has a cycle and some quarters are more important than others. The classic example is retail – more people show in the last quarter than the first quarter. It is important to know which quarter is most important for your company, if it hits its expectations for the quarter, then you have little to worry about, if the company is far removed, quickly search for alternatives.

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

At some point in time, what is known as Obamacare will be repealed and replaced by something else, if you believe President Trump it will be done in one day. If it is replaced the theory is the private sector will jump in and compete for the business. Why they would want to fight over the people who can not afford to pay higher rates for preconditions of their health and those who generally cost the system more than they pay is something the minds in Washington seem to know. Many insurers might look at the market and then want government guarantees so the bills get paid, but we will see when the change is made. In the meantime what is the outlook for heath stocks?

Peter Aston of Recognia looked at health stocks in early February. He set up the criteria of:

minimum market capitalization of $2.5 billion    (stock price times number of shares outstanding)

companies that make money demonstrated by their projected earnings per share  (EPS)growth and their return on equity (ROE)  -looking for forward EPS growth rate of 10% or more and at ROE of at least 10%

part of the idea is to have a capital gain so you do not want to pay too much and the forward Price Earnings (PE) ratio is 22 or less

Company                                  Mkt Cap           Fwd P/E      ROE      EPS Growth        Dividend

in $ Bil                Ratio                          Projected            Yield

Centene Corp                        30.8                    14.5               18.3%         43.2%                0

Express Scripts                    42.5                     10.6               13.2             15.5                    0

HealthSouth                            3.5                    15.5                31.1               14.3                   2.5

UnitedHealth Group          154.3                  20.4                20.0             18.2                   2.0

Laboratory Corp                    13.8                   15.4                11.3                11.1                   0.0

Humana                                  29.6                   21.2                12.8               23.0                   0.6

INC Research Holdings         2.8                    21.6              38.4               24.9                   0.0

 

Linking to dividend paying stocks, there will be and is many opportunities in the health care field as the baby boom population ages. People over 65 as their bodies need more care need more health care and soon the biggest group of people will be the over 65 years. As you determine, try to use the research to find the best company for your needs. Mr. Ashton picked criteria that may or may not eliminated your company, by changing the criteria you can see what you have and consider alternatives.

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

 

There are many how give investment advice and generally it takes a number of years to beware of the flows of the market before you can give advice. Scott Barlow (sbarlow@globeandmail.com) wrote a column about the best investment advice I ever heard and offers it in a column. Michael Mauboussin is the managing director of Global Financial Strategies at Credit Suisse and has been in the industry for over 30 years. You can see a you tube view of him talking about luck and skill.  Mr. Barlow recommends his Decision Making for Investors report and he recently wrote Reflections on 10 Attributes of Great Investors.  The 10 are:

be numerate ( try to understand accounting)

understand value – the present value of free cash flow

properly assess how a business makes money

compare effectively – expectations versus fundamentals

think probabilistically –  the expectation of winning and losing on a trade

update your views effectively

beware of behavioral biases

know the difference between information and influence

how to size investment positions

read – keep an open mind

There is little in the above that all can not do.

In his article Mr. Barlow focused on think probabilistically – the frequency of being correct does not matter, what matters is how much money you make when you are right and how much you lose when you are wrong.

You have to do your homework to determine what you can make, what you downside is and how to limit your downside if you are wrong or the market does not react to the way you think it should.

Linking to dividend paying stocks, the concepts are simple however there is complexity throughout the layers which makes investing more difficult. Part of the reason is we are people, have demands on us and never have perfect information. Much of investing is trying not to lose money and one of the best methods not to lose is having patience in your approach. If you invest in profit making companies, the upside unless the market is near a bottom may not be 5 times, but if you receive a number of years of returns with limited losses you might be better off in the long run.

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

 

 

President Trump has decided the number of work visa is too high and aims to reduce the number which tech companies have been using to hire tens of thousands of workers. The tech companies hire thousands of people every year and have been allowed to bring people from overseas, one of the biggest places of recruitment is India. A number of companies have grown to meet the demand and the largest three are Infosys Ltd., Tata Consultancy Services; and Winpro. Last year according to their website, Infosys had 25,000 visas. These types of numbers have made the tech companies nervous about their people requirements. According to Sandrine Bastello of Bloomberg News, a company from Canada which is in the same field called CGI Group has hired 11,000 employees and only 485 have a visa requirement.

CGI has an onshore delivery model which offers cheaper services while being on American soil by staying outside the largest cities – close but not in them.

Linking to dividend paying stocks, all governments have regulations, having established a regulation companies develop models to fit and take advantage of the opportunity. Different models work better at different times, the India companies recruited and brought over Indian engineers and they have benefited from the model. If the government regulation regarding H-1B visa is changed, a model such as CGI Group works better. As an investor, you have to ensure whatever model the company you own is following is adaptable to changing regulations.

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

Whether the Presidential Executive Order was a good thing or a bad thing, the courts will decide. No matter how you view the order, everyone can agree the execution was terrible. In every company the most important aspect of the company is the execution of its ability to make sales and introduce new products and services to grow the company. The execution from the idea to the service to the sale and receiving money is the lifeblood of any organization and if they can not do any of the parts the whole chain the company  needs help. In politics, sometimes the idea is the important thing – in this case some level of security, although one can easily debate what level? why those countries? and what were they trying to solve? In the case of visas, there is more than one visa depending on how long the person expects to stay in the country  – tourist? study? work? and each of the visas have their rules and regulations. When a Presidential Executive Order is signed, it becomes the policy the moment it is signed. In this case, the President signed and then it appears the other departments the policy had to change policies  based on what they thought the new policy is. Sometimes making policy on Friday afternoons, when the decision affects multiple departments may not be the best thing to do. In terms of visa control – the senior management had to send the new policies to middle management who explained the changes to front line staff. From all indications, rather than taking minutes it took a days and it the meantime front line staff took most of the abuse and used their discretion to do – some saw ban and banned; some saw delay and delayed, and most did not know.

Linking to dividend paying stocks, one of the reasons for buying these companies is they have gone through numerous new policy executions in terms of changing products and services. The customers have stayed and has grown and the company continues to be profitable because it knows how to execute new policies. If one of your investments did such a bad job as the President Executive Order you should find alternative company because it will take some time to regain any goodwill in the marketplace

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