When you examine the stock market and hopefully you own some companies that benefit from COVID, you think the stocks have increased, is there more to go? If I buy, how much does it have to up to benefit and what if the market went down? Given no one knows what the market will do except for the situation does not look better, Ian Tam of Morningsie CPMS examined some companies for the cautiously optimistic:

The companies are in the S&P 500

5 year deviation of earnings and total return (measures the consistency of a company’s reported earnings, as well as the stock price lower figures preferred to target lower volatility)

5 year historical beta (measures the historical sensitivity of the stock against the index – lower numbers good)

5 year return on equity (the growth rate is higher than the other companies in their sector) Also only companies which exceed expectations from analysts.

Company Mkt Cap 5 yr earn 5y SD of 5 yr Hist Earnings Div Total Recent

($ Bil) Dev % Rtns % Beta Srpse % Yld Rtn Close

Clorox 27.884 2.4 21.2 0.2 4.4 2.0 38.1 221.42

AutoZone 26.568 3.6 28.0 0.9 17.7 0.0 1.3 1,137.38

Domino Pizza 15.060 8.2 30.8 0.4 1.6 0.8 58.6 385

S&P Global 82.151 4.9 27.9 1.1 5.7 0.8 40.2 341.0

AbbVie 174.490 6.5 30.2 0.8 2.2 4.8 53.8 99.10

MSCI 29.359 5.6 30.5 0.9 3.9 0.8 55.8 351.20

Masco 13.277 4.8 29.3 1.5 9.3 1.1 24.5 50.34

Eli Lilly 159.622 4.8 26.4 0.3 5.8 1.8 55.7 166.89

Sherwin-Wills 53.768 3.9 27.6 1.2 3.3 0.9 16.4 592.16

Lowe’s 102.499 3.1 30.9 1.4 16.2 1.6 35.5 135.76

Linking to dividend paying stocks, if you examine the earnings surprise as a percentage you see relatively low numbers. Most dividend paying stocks are well known by the analysts, they can generally predict how they are doing and just need affirming at the quarter. The surprise was Lowe’s because people staying home they went to Home Depot and Lowe’s, generally Home Depot is the better company. The issue with COVID stocks is how high do you believe they will go up, when a company has a 50% gain will it have another 50% gain in the next quarter? It is very difficult to know, but the chart does allow yo to examine some of the items which help you do your homework and pick the best companies you can no matter what happens to the stock market – Up, Down or Sideways. The dividends help on the Down and Sideways, it is good to have something come into the bank account besides hope.

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

As a consumer you have buying power and how you buy can influence a company. As an investor you have some choice in investing or investing in things you do not like. This does not mean the companies you do not like do not have access to capital, but it does mean there are likely others with the same goals as you. All public companies have annual general meetings, they do not have to be over in 10 minutes, they can last until the business is done. Depending on how many votes you can bring, management at least has to have an opinion on the issue or issue a public opinion. That can lead to other actions.

In an article by Paul Sullivan of the New York Times News Service, he looked at social investing and how to do it. Some people avoid the sin stocks – alcohol, firearms, tobacco and the list can go on. Understanding some companies because of their size and complexity they are hard to avoid because they deliver consistent returns year and year.

Allocating capital is a expression of belief, starting with the belief the investment is going to grow over time. It can also be a means to force, support or accelerate change within an organization.

Erika Karp, founder of Cornerstone Capital said companies are on a continuum: they are good at some things but not everything. If you want change, what do you want and try to be consistent. Sometimes you are looking for a company that is in of turn around with new management, change is easier but are you gaining the returns you expect? If a company says they are for racial justice, does the senior management reflect that. (for many years, women in companies knew glass ceilings, what other glass ceilings are there?)

Some managers apply best in class, if you do not like the fossil fuel companies, even the best run oil companies still use fossil fuels as there base operations. If you prefer to not to be in fossil fuels, you will be invested in them. If you do not mind, then you should be invested in the best oil company of the group.

In banking everyone examines the fee business (it has grown) in a municipality similar to Ferguson, Missouri fees amount to 25% of the budget. Most of the fees came from minor offences such as broken taillights and jaywalking. The national average is 2% from fines. If you lived in Ferguson you would be fined for something during the year, would you like it? how do you change the system?

Linking to dividend paying stocks, there are some stocks there are seemingly very easy to own because they seem to do the right thing most of the time. An example is an utility – deliver the lights to your home, on the surface there is little controversy in the company. The company hires people who live in the area to ensure the lights go on and bills collected, likely their workforce reflects the city. If not it should. The issue for the utility is does the regulator increase the rates every year? If yes, then as long as the utility does not spend money foolishly they should generate the income to pay dividends. The method of generating electricity will depend on price – natural gas is less expensive than coal, switch to natural gas. In addition natural gas pollutes less which is a good thing. You have two killed two birds with one stone. There are flaws with most companies, but flaws can be changed – the issue is the change to your liking?

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

If you are a President of a publicly traded company, one of the items in your financial compensation package is how the stock does. The stock is compared to comparable companies and if the stock is under performing your compensation level is affected. Sometimes there is nothing you can do for if you work for a commodity type company and the price is low, you have to wait until the price goes up. If you have your shares listed in another country besides the US, you might want to list them in the US. The reason is much of the trading on the stock exchange is institutional including low fee index funds which as an investor you like. The changing make up of the ownership of the stocks means ensuring the company meets and exceeds targets to continually move up the index ladder. The very broad index has 2,000 companies the smallest the Dow Jones 30 has 30, because people watch the indexes, the stocks inside the indexes have extra value. For a stock to be included in an index, means the index has to buy shares in the company, the narrower the index the more shares have to be bought by index funds.

An older company in Canada called Encana moved its head office from Calgary to Denver and changed its name to Ovintiv to be included in the US indexes. According to an article by Andrew Willis and David Milstead of the Globe, the company had 7% of its shares in index funds or passive ownership. Since moving to Denver, the company is now in the US index funds and ownership is now 11% in index funds or passive ownership. As the stock price improves, it can be added to more index funds it will soon be in the Vanguard index funds through the CRSP or Center for Research in Securities Prices LLC. Vanguard uses information from the CRSP.

The size of passive funds is large – about $64 billion of investor money is tied to the Russell 2000; nearly $79 billion is tired to the S&P MidCap 400; almost $51 billion is tied to the S&P Small Cap 600 and the S&P 500 has 1.65 trillion tied to it. To move up funds the price of the stock has to go upwards. If a company is close to the edge expect it to try to push up its stock price and then let passive money keep it there for a while as executive compensation increases. As long as a stock is in the index, sometimes is it management or other forces; however indexes change the index twice a year, does compensation go down?

Linking to dividend paying stocks, there are many reasons why a stock price goes up and down, sometimes it is being in the correct index. If it is the index then all the funds which are linked to the index have to own the shares. This means when it comes to change the index some shares should go up and some should go down. The trick is to have a great business which is profitable and pay a dividend and shareholders are less concern about executive compensation.

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

At the start of the month, President Trump had a press conference to talk about the job growth, but he tended to leave out things, because he is known as a cheerleader. There is nothing wrong with a cheerleader, except for they are on the sidelines and rarely know or understand what the team is trying to do on the field. The cheerleaders hope for success and have simple messages – Defense, Go Team Go, Smoke em, all good things to say but they do not focus on execution of the plays.

In an article by Lucia Mutikani of Reuters, the US economy created jobs at record pace but still 31.5 million were collecting unemployment cheques. The stimulus package has given extra money to those unemployed but is scheduled to stop at the end of July. What will happen to those unemployed if the stimulus package is not extend?

Non-farm payrolls surged by 4.8 million jobs in June, many people were recalled from work. Payrolls rebounded 2.699 million in May after a historic plunge of 20.787 million. Economists polled by Reuters were expecting 3 million jobs, so the 4.8 was wonderful.

Hiring in June was boosted by the typically low paying leisure and hospitality industry which brought in 2.1 million accounting for 2/5’s of the rise in payrolls. However average wages were down 1.2% and average hours worked was down from 34.7 to 34.5 hours.

Jobs in state governments began to decrease as states have less tax revenues and stressed budgets.

Some economists were attributing the burst in employment to the rules of the Paycheck Protection Program, businesses that were given loans can be partly forgiven if used for wages. Those funds are drying up and those businesses with weak demand will be laying off workers.

Most economists polled by Reuters said they need more data to get a better view of the labor market.

Linking to dividend paying stocks, when COVID meant governments had to shut down parts of the economy for social distancing, some industries benefited and some did not. That is a normal part of the cycle for any outside threat. As the months have gone, confidence to go back to normal while there is desire to, the general public is not doing it. If you read about stay vacations and trying to go to relative remote areas to avoid people to have a vacation, it does seem some industries benefit and others simply do not. As long as you have move money from one sector to the other, you are fine. If not watch the debt and cash flow for the restructurings that will be coming soon.

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

In every market there are stocks which are deemed unfavorable and thus sink to low prices. Some of them have very good assets, but they are not promoted on the exchanges. Think about the present time with COVID, some stocks benefit from people staying at home, some do not. Some stocks it does not matter. A number of years ago, one of the best performing classes was Real Estate Investment Trusts or REITS, then COVID happens and people do not go to the malls and office buildings in great numbers. The malls were closed, rents are not collected and all REITS go down in price. Will there be some that are better positioned than others, yes there are. It is important to remember not all companies are the same even though they might be in the same category. If you were an manager and all your investors are asking why are you holding REITS, it is easier to say I sold some of them but I holding the best ones.

According to an article by Ian McGugan, a recent report about broken asset classes by Research Affilates LLC, a market analysis firm based in Newport Beach, California, in the past investors have done very well buying broken assets and holding as the market turns around. The report’s authors are John West and Amie Ko highlight a few examples: Business Week in August 1979 declared stocks dead as an investment. Barron’s did not like REITs in 1998. The Economist magazine said oil was too cheap at $20 in 1999. In 2000 small value stocks were dismissed and high yield bonds were being avoided in 2008.

The report says 5 years after an asset class is described as broken, they each roared back. Then they beat the broad stock market by 15%.

Linking to dividend paying stocks, if you are a value investor you are constantly examining what is out of favor and or what is broken and all the reasons why the stock should be higher. When the articles were written there were compelling reasons for saying what they did. Did the companies change or the economy change? what did the government do to encourage the asset classes to come back? The market goes through sector rotation, it is to be expected. There are often very good reasons why a stock is not in favor, as an investor if it is a profitable one, you can put it on your watch list, have patience and buy it 2 or 3 years after it is out of favor. Respect the tape or respect the market and it works for you.

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

If you examine the economy, it has evolved for very good reasons for people to come together in groups and see other people. Individually we may be relatively isolated, but when we travel and wished to be entertained, groups are what we strive for. The groups can be in a ball park, concert hall, theater, convention, movie theater, shopping and visiting other places we see or have seen on in the news or read about. To fight the COVID we have to social distance and avoid crowds. That makes it hard, because we all want to talk to or hear other people, in the bar or lunches. By staying at home or social distance when you go out, the global tourism industry is hurting.

In an article by Emma Farge of Reuters, the United Nations Conference on Trade and Development (UNCTAD) released a report which outlined 3 scenarios for the industry with lockdown meansures lasting 4 months, 8 months and 12 months.

The effect on world’s gross domestic product is between 1.5 and 4.2%, with revenue falling between $1.17 trillion or $2.22 trillion or $3.3 trillion. Because of international flights being curtailed, you can still travel but some countries isolate you for 14 days, which means you need at least a month and then when you return you will likely have to isolate yourself for 14 days. Is it worth it?

The effect of people not travelling is the jobs that came when people did are not longer coming back or they come on a much reduced number. A few weeks ago, the writer was talking to someone who works at a large convention hotel, normally the place runs at 70% plus occupancy, the last few months it has been less than 5%. How many people did the company call back to work? What should happen to them?

Linking to dividend paying stocks, as investors there are many good reasons to enjoy extra profits companies are making because of COVID, there is a society cost which someone must consider – what do you do with the people that are not needed because demand is low. A store opens, how many people did it have before and now? The store did nothing wrong, it may have even strengthened their on line sales to stay in business, but does it need the extra people? For many years, there has been an argument that companies should stick to what they do it terms of making money; what should be their voice on social concerns? If they take one, is there a backlash or what is the upside.

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

If you know the company name Berkshire Hathaway you likely have heard about Warren Buffett. Warren has a partner and you can find some interviews of You Tube and his name is Charlie Munger. The fact that both men are billionaires means that everyone want to know how did they earn their billions? what process do they follow to invest? One of the secrets is to own a company that generates lots of free cash to invest in ie an insurance company. Warren Buffett always keeps lots of money in cash or cash equivalents waiting for the market to decline before he buys.

Charlie Munger studies the markets for years before loading on select stocks at good prices – have patience and wait. After he buys the company, he waits for decades before considering selling them.

Often he suggests investors should stick with diversified low fee index funds and begin to buy as many share as possible in companies you know a great deal about and hold them for as long as possible. If you work for a company which offers shares and you expect it to be in business for the next 20 years, that is a good thing to participate in. You are in the industry, you should know something about it. If you are going to concentrate on stocks, ensure you have simple metrics to ensure they are worth holding for 20 years – profits, free cash, increasing dividends over the years, low debt, good management and who are the customers. Why are they coming back year after year to buy their goods and services over the competitors.

The problem with concentrating on a few stocks is you tend to do very well or very poorly. Warren Buffett owns Coca-Cola which is good; (Jim Cramer likes Pepsi Co better, but Coke is good) Wells Fargo which over the past three years has not performed well but it should do better. (it is on my watch list).

Norman Rothery of StingyInvestor.com demonstrated in an article diversification is a good thing for investors because if you are over concentrated in one industry or one group you will be subject to the whims of the market. A couple of years ago, the market loved companies taking on debt to buy back stock; this year the market does not like too much debt. The moods of the market changes and the risk reward changes.

Diversification tends to be 20 to 30 stocks, because the only perfect information is when the market closes. No one knows what happens when the market opens, somebody has a theory and tries to connect the dots to a different theory and it begins to make the rounds and what was popular is no longer until in does not work.

Linking to dividend paying stocks, in the market you will not be in every rally, somebody will be making more money than you, someone will be losing more money than you. If you have the bulk of your assets in dividend paying stocks, the stocks over the years will do well and you are rewarded because they make money or profits. One of the important elements when doing investing is try not to lose money. It is much easier to lose money than make money. It is much easier to overpay than underpay. It is much easier to jump in on a trend only to see it go away. The trick is patience, trying to think long term and realizing you can have some of the dividends go into an account that plays the hot stocks, the rest and bulk of your assets are protected by profits.

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

I

When you think about Australia it is natural to think about the beaches and the cities, but much of Australia is rural and there are areas where iron ore (raw material to make steel) and gold are to found in great quantities. In an article by Clyde Russell of Reuters, he noted Australia is the world’s largest exporter of LNG, coking coal, and ranks second in thermal coal. It is also the biggest shipper of iron ore and the world’s second largest producer of gold.

When the economy of China picks up, the economy of Australia is not far behind. Many of those resources go to China to feed the manufacturing concerns.

Iron ore demand has been rising from 852 million tonnes in 2019-20, to 893 million in 2020-21 and 912 million tonnes in 2022. The Australian government forecasts the price to be in the $77 to $78 a ton while spot prices have risen to $103.50. The difference is understanding China buys 2/3 of global seaborne iron ore. When the big powers of China and the US have trade wars, all the other countries around the world are affected one way or the other.

In terms of gold, with the rise of COVID, the price has increased to $1,781.20 an ounce, although government forecasts are expecting $1,587 an ounce. The government expects Australia to produce 418 tonnes in 2020-21 which is an increase from 362 tonnes in 2019-20. Revenue will jump to $32 billion from $27 billion.

Linking to dividend paying stocks, with companies engaged in raw materials the decision process is much easier, who are the customers? how much resource is in the ground and can it be taken out for a profit? what is the price needed to make a profit? Is the price above that level and is is sustainable? If the answer is yes, you may wish to invest in it. If the answer is no, find other alternatives, but put on your watch list if the prices move up. Investing in raw material companies means continuing to update your research on prices and profits and which companies are the best choice. Some of the companies in Australia have a very low base price they need to produce a profit. Sustainability can mean a variety of things, but in investing it means can the company consistently make a profit?

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

In late June there was good news for Boeing. The Boeing 737 Max which has been grounded since two accidents is finally in test campaign. The planes are flying at the end of June for test flights.

In an article by Eric M Johnson and David Shepardson of Reuters, if all goes well and the engineers at Boeing have demonstrated Boeing has fixed the problems, the results should be known by September. If the results are positive, Boeing stock will be a high flier once again.

The 737 Max was designed as a cash cow for the passenger side of the company, the company also has a healthy division involving the military. For most of us, when the countries open up and people can fly and beginning flying, there are two choices – Boeing and Airbus planes. The growth of airlines around the world has meant Boeing planes were the largest single contributor of foreign payments to the US. The planes were a hot seller. Then came the accidents and on top of that the effects of COVID. In addition Boeing’s relationship to the accident has been at issue, the FAA was subject to complaints it was too close to Boeing as its top officials once worked at Boeing. It is expected, Boeing has corrected the errors and put safety first.

Linking to dividend paying stocks, it is often through crisis when you get to see the character the culture of the company. Without finding fault, Boeing lost its President because of the accidents. Has Boeing changed, as potential passengers we hope and expect it has. Boeing has been a profitable company for a long time, one expects given the monpoly like position it holds with Airbus, Boeing will be so again.

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