In mid March the President ordered the shutdown of the economy to fight the virus, he was hoping or very optimistic it would be a short shutdown. The effect of the shutdown has sent millions of Americans to collect unemployment benefits and economists to look forward and they do not see pent up demand.

In an article by Lucia Mutikani of Reuters, Chris Rupkey, chief economist at MUFG said if the economy fell this hard in the first quarter, with less than a month of pandemic lockdown, the second quarter is going to be complete disaster.

GDP declined at 4.8% annualized and was the steepest rate since the 4th quarter of 2008. Households cut back on purchases of motor vehicles, furniture, clothing, footwear, transportation, hotel and restaurant services.

Previous to falling, the economy was growing at 2.1%. US Congress has approved a fiscal package of $3 trillion and the Federal Reserve has cut interest rates to near 0 and greatly expanded its role as banker of last resort.

Looking forward, economists are looking for recession numbers, as consumer spending which accounts for 2/3’s of the US economy fell at 7.6%.

Linking to dividend paying stocks, in a growing economy everything looks good, but in a recession cash flow is king. It is easy to make a mistake in a growing economy because likely you will still make money, however in a downturn, doing your homework is important. Why did you buy the stock besides to make money? going through the check list of cash flow; profitability, paying dividends; customers and thinking long term matter.

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

In mergers there is a process in which a select committee to the President analysis multiple companies to see which company would be a great fit and enhance the value of the company if a merger happened. The process could go on for years, there are reasons why some companies will merge and others will not, reasons change. The process went on and the folks at Bayer watched Monsanto for a long time. There are a number of overlaps in the agricultural sector and Bayer decided it was time to act. In a $63 billion merger Monsanto and Bayer merged and all was good.

Then came a lawsuit, one of Monsanto’s products – a week killer besides killing weeds was determined by a court to cause cancer. Monsanto will be appeal. What should Bayer do? what should it shareholders do? In an article by Ludwig Burger of Reuters, the first year, Bayer circled the wagons and clenched their fists to fight back and shareholders voted against no confidence in the Board. A year makes a difference, no agreement has been reached but people are talking, the Board received a 92.6% vote in favor of ratifying the executive board’s business conduct in 2019.

Bayer’s earnings has risen, but similar to all global companies the economic downturn has meant a need to preserve cash flow, but last year earnings rose.

Linking to dividend paying stocks, one would think that a billion dollar merger every thing had been taken into consideration, every rock turned and every possibility considered, but a lawsuit was missed for the great good. The lawsuit changed the merger, but it still went ahead. Once things are in motion, it is hard to stop them. We often think large companies have people to ensure that if someone buys a used car, outside does it start and run questions are asked. It turns out sometimes the probing is done and sometimes it is not. The idea of buying dividend paying stocks is the probing can take extra time and that is a good thing. If the company is consistently making money waiting for you to do your homework to see the continuing good results is a good thing to have confidence in.

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

If you think of the American culture since the 1950’s with the completion of the interstates, President Eisenhower wanted trucks moved from the west coast to the east coast after WW II and it took 2 weeks. He decided a better transportation system had to be done and the interstates were born. Once finished travel across the US was easy, affordable and millions of people have and continue to do it. Road trips are part of the culture of living in the US. We are now in the second month of the virus and there has been limited driving – which meant oil prices went down and limited number of people buying vehicles in the urban areas. Given the bulk of the population lives in the urban areas, the affects on the auto dealers can now be seen.

In an article by Ben Klayman and Nick Carey of Reuters, Ford in late April announced it had lost $2 billion in the first quarter of 2020. The second quarter is expected to double the loss. The good news is Ford’s Chief Financial Officer Tim Stone believes Ford has enough cash to take us through the end of the year. Ford had raised $8 billion from selling bonds, it used part of its two credit lines of $15.4 billion, suspended its dividend, and slashed all costs it could including cutting salaries of its white collar workers and executives.

The good news is sometime in May all the auto companies Ford, GM, Fiat Chrysler and Tesla hope to renew production. All companies have operations in China and the China operations are open. In China sales of Ford fell 35%, in the US they fell 12.5%.

Ford is hoping demand will be high and something similar to the cash for clunkers program which offered $4,500 in rebates to trade in an older vehicle, perhaps on vehicles at least 10 years old?

Linking to dividend paying stocks, for many years the auto companies help drive the US manufacturing economy and they are still important, just not as important as they once were. It is important to have profitable auto companies, but the economy will not shut down because auto plants are not in operations. If you wish there are YouTube videos on how a F150 truck is made – there are not many people involved. However, most of us need a vehicle to move around in which means a healthy auto industry is needed. Would you trade your vehicle in? maybe yes, maybe no. If that is your answer, this is why you may like the auto companies, but not necessarily be an investor.

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

One of the most common ratios investors use is the Price to earnings ratio because it tells you how long you will wait to receive your money back. It is also a easy comparison item as your narrow your selection of stocks to buy or sell. Since the decline of the stocks and now the rally back the ratios are getting larger.

In an article by Caroline Valetkevitch of Reuters, strategists say the P/E ratio could go higher given the monetary stimulus, but the huge uncertainity around earnings this year because of the economic fallout from the virus.

Many companies are expecting lower earnings, because of the shutdown, however there is hope in the market due to the economic stimulus packages and the virus seems to have reached peak levels. If peak levels are reached, then states will begin to open up more of their economies. Not to go to normal, but more people will be out and about.

The S&P 500 P/E Ratio in the beginning of May was 20.1, the highest in 15 years. Analysts believe the number will drop to 17.9%. First quarter earning for S&P 500 companies was expected to be down 14.8%, second quarter to fall 33.3% and third quarter to rise.

Linking to dividend paying stocks, stocks which pay dividends typically trade a consistent multiple because they have reasonably stable earnings. Typically they are less than growth stocks, but as the market goes down the multiples tend to trade up, then as markets move to another phase the multiples decline again but dividends are paid and profits role in.

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

If you think about the western movies, when the wagon trains were attacked their defensive position was to circle the wagons or turn inwards. There is a very good reason to circle the wagons and during the virus situation we have all turned inwards. Sometimes it is good to look outside to see what others are doing in the same situation.

In an article by Ian McGuggan examined a company in Scotland called Ballie Gifford, the company has been around for 112 years. For a company to exist for over 100 years, it look to the the long term. Lawrence Burns said when our firm invests we try to look to 5 to 10 years outwards and have a potential to multiply an investor’s money to multiple 10 to 15 times.

The company ins one of the world’s leading growth investors managing or advising on $290 billion assets for institutional investors around the world. The company while understanding people try to avoid loss, it is also important to recognize businesses that are capable of tremendous growth.

Ballie Gifford starting buying shares in Tesla in 2013 and is now the largest outside shareholders with a stake of $9 billion.

What other companies is Ballie Gifford taking positions in? Ocado Group is a British supermarket that has been running a purely online grocery business for almost 20 years. Ocado has partnerships with Kroger and uses robotics in its warehouses. Another company is HelloFresh SE, the German company that has the largest meal-kit operation in the world. Germany’s Delivery Hero, China’s Meituan Delivery.

The firm also owns shares in Spotify Technology for those who love music; Japan’s Softbank; China’s Alibaba Group and Canada’s Shopify. What unites all these companies is the room to grow.

Linking to dividend paying stocks, as investors we love companies that have the ability to generate profits on a yearly basis which allows them to pay dividends. For most of us, that should be the greatest part of your portfolio. The idea is your dividends allow you extra financial freedom, with some of them you can look and growth companies when they have do not burn through cash, they have gained traction in the marketplace. Dividend investors maybe own the growth companies when they first became public, but when they have are established and they will not lose money. Patience is a good thing.

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

We all listen to the updates from the White House and the President who says he is a cheerleader, says the US will have a V shaped recovery. Noting cheerleaders are on the sidelines, the players are on the field, what are other countries doing? The virus has affected the world and everyone is doing the same thing – social distancing, economies half shut down and wearing masks are required to go outside.

In an article by Leika Kihara and Tetshushi Kajimoto of Reuters, the Bank of Japan expanded its monetary stimulus and pledged to buy an unlimited amount of bonds to keep borrowing costs low as the government tries to spend its way out of the growing pain from the virus.

The Bank of Japan is doing what most other central banks around the world are doing. The bank will boost 3 fold the maximum amount of corporate bonds and commercial paper it buys to $20 trillion yen or $186 billion. The bank says it will buy the necessary amount of government bonds without setting an upper limit in order to keep interest rates near 0%.

The bank also offered financial institutions 0.1% interest rate to fund them, to encourage banks to lend to cash strapped firms.

Linking to dividend paying stocks, if central banks are going to these measures do you really believe the lifting of the restrictions will send consumers buying vehicles, furniture, clothes and leisure items? In all downturns cash flow is king, does the company have the cash flow to ensure profits?

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

Imagine yourself working with a food giant similar to Nestle before the virus, the company through a variety of divisions has good market share, many of its brands likely in the average person’s shelf and most of the competition is fighting for a higher 1 to 2%. Then comes the virus concerns and consumers begin to stockpile your products. That was both good and bad, it is good because according to an article by Siddharth Cavale and John Revil of Reuters, sales in North America and Europe increased by 4.3% beating analyst’s expectations of 3%.

In North America. Purina Pet care sales rose by double-digit percentage, while Nescafe and Coffee-Mate had high single digit increases. In the Middle East and Northern Africa Maggi noodles did very well.

Chief Executive Mark Schneider said Nestle was working to adapt to market conditions to ensure it had enough raw materials and factory capacity to meet the expected demand. (this is the bad – higher costs for raw materials and labor), but hopefully increased sales offsets it. The difficulty at Nestle is what is the future? what will demand be? Mr. Schneider believes the recovery will be slow.

A company such as Nestle sales to individuals and institutions or restaurants, cafeterias, etc. The sales to individuals were up, but sales to restaurants because they are closed was down. Nestle launched a financing program for the coffee machines it rents or leases.

Nestle is trying to concentrate on organic sales and is actively looking at possible takeover targets.

Linking to dividend paying stocks, for Nestle which pays a dividend the virus is good because they have the ability to ensure they could ramp up to the individual demand and begin to look for opportunities of companies which have great products but not the financial ability to be agile. One of the reasons to invest in dividend paying companies is if they are reasonably well managed, they can look for opportunities to enhance profits to continue to pay dividends.

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

When governments around the world ask me to stay inside and not met in groups of 5 or more, the economic fallout was and will be immense. One could easily have looked to companies which need people to mix and mingle – entertainment, leisure and travel companies would be bleeding red ink. The question on everyone’s mind is how long? For generations, people have flowed predictable patterns and industry expect economic returns to follow the same pattern. For most urban workers, go to somewhere warm is desired when it is cold; spring comes and outdoor events happen – from concerts to amusement parks to weddings. Each of these events people make a living around them, in normal times it was a good thing to do.

Now think about the financial aspect, aside from the personal aspect of the virus. Companies that previously could go into the bond market to raise money, the option is very different.

In an article by Kate Duguid of Reuters, existing bondholders are getting demoted by new debt issues. The layer approach is called “primed” or “layered” where a company in need of cash offers a bond backed by collateral, called secured debt. Being at the top of the capital structure means that in a bankruptcy those investors get paid paid first.

Since the start of the coronavirus epidemic, this has happened to investors in AMC Entertainment Holdings (movie theatres), theme parks Six Flags Entertainment and Cedar Park Entertainment, cruise ships Carnival Corp and propane supplier Ferrellgas Partners according to a Reuters analysis.

AMC Entertainment raised $500 million secured debt at a cost of 10.5%, that twice the cost of the last issue of debt. About 80% of high-yield bonds issued since 2011 is unsecured. Why? the cost of borrowing from Central Banks has been at all time lows, so issuers put in less investor protection, including the ability to issue new subordinate debt without telling bondholders.

Linking to dividend paying stocks, the economic world has changed because of the virus, that is expected and understood, but cash in the corporate world is always king. The ability to generate profits is important and when the company can not do that, unless you hope the government will bail out the industry, it is better to exit and leave it to vulture investors.

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

In every health care scare there is a run to buy health care stocks because the emphasis for everyone turns to health. The issue is which company do you buy? If you buy a large giant of a company, if it can distribute millions of doses of a vaccine all governments will pay billions of dollars for it. If it does not, does the other parts still contribute to making money? The issue is the health care system makes money for operation room being used, right now it is not being used, treatment for the virus is a priority. This means hospitals while the beds are being used, they are not making as much money as they were under normal circumstances. The government is going to send money or bail them out.

Gary Christie of Trading Central used his company’s data bank for the following criteria:

using the S&P 500 index companies in the biotech and pharma industries with a $10 billion capitalization or more.

strong revenue growth for their last quarter. Looking for companies who achieved a 5% growth over last year.

a return on equity of 10% or moe

a price to sales ratio of no more than 10

upper level on the debt to capital ratio of 0.85

Company Mkt Cap P/E Div ROE Price/ Debt/ Rev Growth 1 Yr Recent

($ bil) Yld Sales Capital % Perf % Price $

Humana 48.5 18.3 0.6 24.4 0.76 0.29 15 46.9 367.17

AmerisourceBerge 17.8 27.9 1.8 21.6 0.10 0.55 5.4 16.7 86.5

Anthem 66.3 14.2 1.3 16.0 0.66 0.36 17.3 4.8 262.96

West Pharma Svcs 12.6 53.0 0.3 18.2 6.97 0.17 11.4 47.7 184.96

Merck 202 21.0 2.9 37.4 4.41 0.47 7.9 7.0 81.35

ResMed 23.3 51.4 1.0 21.6 8.38 0.38 13.1 58.2 160.92

Agilent Tech 23.3 30.9 0.9 15.5 4.53 0.27 5.7 -0.8 75.17

Teleflex 15.5 34.0 0.4 16.7 6.06 0.40 6.1 19.8 334.03

Stryker 68.2 33.2 1.2 17.0 4.64 0.44 8.8 -1.7 181.92

Zoetis 59.7 40.5 0.6 61.3 9.68 0.69 7.0 24.4 125.81

Linking to dividend paying stocks, these charts help give you names of companies that are well run but they also help you to narrow the field. What are the most important metric for you? how will you know the company is doing what you want it to, beside the price of the stock going up? Investing is about narrowing the field of options and choosing well – a old TV show was Kung Fu with David Carradine, in the opening of the show the master would say when you can take the pebble from my hand, you will be ready. How are you getting ready, what homework must you do?

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