The President of Boeing claims safety is number one and as a member of the public we all want to belive him. Boeing is the world’s largest commercial aviation company and has many defence contracts, so we all hope safety is number one. An article by Tom Krisher and David Koeing of the Associated Press noted two US House of Represatives received a non working safety alert on the problem and believed they had 3 years to fix it. When the crashes happened Boeing speed up the ability to fix.

Sometime in the fall, the plane is expected to fly again.

Linking to dividend paying stocks, midtakes happen how companies handle their errors should determine how long you want to hold on the stock or look for alternatives.

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

 

A couple of months ago the company Anadarko Petroleum was in play as it decided to merge with Chevron. It was a good deal, but Occidental Petroleum valued the assets of Anadarko. When the dust has settled Occidental Petroleum had won the Board’s approval. For public companies, what the Board did or did not do has to be filed with the securities regulators. Jennifer Hiller of Reuters read the filings and reported without a higher cash offer the Board expected investor opposition.

The prize the companies were expecting was over 250,000 acres in West Texas known as the Permain Basin.

Large fees were earned by Evercore Group $53 million; Goldman Sachs $53 million; Chevron receives $ 1 billion and the CEO of Anadarko will receive $98 million and the CFO $55 million.

The Board helped raise the offering from an all stock deal to $59 in cash and 0.29 Occidental Petroleum share for each share of Anadarko and shareholders will vote for the deal

As the price went up, assets not held in the US will be sold to Total for $8.8 billion dollars and Occidental Petroleum needs oil prices to go higher to pay off debt.

Linking to dividend paying stocks, the Board of Directors has similar concerns as small investors. Generate healthy cash flows to have profits to pay dividends. The numbers are just a little bigger than most smaller investors deal with

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

 

 

 

 

 

 

 

 

In the last column it was recommend to ensure your portfolio has profitable stocks, about the same time Ian Tam of Morningstar Research looked for profitable stocks and his criteria was:

S&P 500 companies

10 year average return on equity (ROE)

10 year earnings per share growth rate (EPS)

10 year deviation of ROE and EPS  lower figures are better

Dividend yield of 2.4% or higher and the payout ratio must be less than 80% on expected earnings or 60% on operating cash flows to ensure dividends are reasonable sustainable

Company              Mkt Cap    10 Yr Ave 10 Yr dev  10 Yr EPS  10 Yr dev  Div        Payout on

bil$              ROE          ROE           Growth       EPS       Yield  For EPS Op CF

Xcel Energy         29.737        10.3            0.4              5.5               2.5          2.8        62.1      24.5

Consol Edison    28.631           9.0             0.4              3.1               3.3         3.4        68.0      28.6

Southern Com     56.384         12.8           0.6               3.4               3.8         4.6        81.6      45.5

American Elec     42.953         10.5          0.5                3.3               4.5         3.1       65.0        27.0

JM Smucker          14.172        10.6           0.6               5.5               3.7         2.7       40.5        34.3

P&G                     262.568         17.7          1.2                1.0               3.8        2.9     63.0     51.4

CH Robinson        10.957         37.8          5.0               7.7                8.4        2.5     40.3  31.4

Paychex                 30.677        38.2           3.4              7.9                6.4        2.9      80.0   55.5

AT&T                   229.741         25.2           3.5              6.5                5.4        2.8      44.1   44.4

The other companies on the list were J&J, T Rowe Price, Cisco, Snap-On, Packaging Corp of America, Foot Locker

Linking to dividend paying stocks, one may notice a number of the companies are utilities which are great defensive companies and you should own at least one of them. If you are going to own list such as these help make the alternatives on a very good list to pick. If you do buy them every year you can look at the ROE and EPS to ensure your dividends are safe and whether you should keep the stock for another year.

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

 

President Trump will be known as the tariff President and it is possible that his strategy will be successful in the short run and maybe the long run. Some do question if he has an actual strategy, but he seems to like tariffs. Whether they are good or bad or just raise prices for consumers, that will be shown in the longer term, for investors the issue is what should you do or not do.

In an article by Scott Barlow, he reviewed a report by Merrill Lynch quantitative strategist Savita Subramanian issued on June 3. In Ms. Subramanian the issue will likely get worse better getting better. She believes the main consequence will be the CBOE Volatility Index (VIX) will be a sharply higher equity market volatility will be the result. She recommends high quality stocks.

The concern is declining profit margins for her analysis shows almost half of the increase in corporate profits since 2004 has come from increased globalization.

Investors may look to small cap stocks as defensive because they are more domestic in operations, however many small companies rely on multinationals as customers and the demand can dry up as the multinationals cut back on their spending. There has been a sharp drop in spending for industrial and software firms.

Pay attention to the profitability ratios to see how your investments are doing.

Linking to dividend paying companies, often these companies are profitable by doing the right thing in serving their customers who are a diversified over geographic areas. Ideally as an investor you are looking at monopoly or semi-monopoly situations, but the affect of trade wars does affect all the companies. Pay attention to key ratios and if they change you can begin to look at your alternatives. Having alternatives in mind is a key factor in investing.

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

When markets go up, it is easy to invest for it seems everything you buy goes up, when the market goes down, then you worry about the first rule of investing try not to lose money. What should you buy? Who expect the US China war to increase? Who expected the President to threaten Mexico just as he was going to sign the USMC trade deal? Who else is the President going to impose tariffs on? We will see how all this plays out, in the meantime what are some great names in health care and consumer staples?

Noor Hussain of Inovestor Inc examines EVA (economic added value) approach which helps narrow the list for investors. His criteria are:

1. Market cap of company greater than $10 billion
2. A positive 12 month EVA. EVA is the economic profit generated by the company and is calculated as the net operating profit after tax minus capital expenses
3. A positive 12 month change in the EPI (Economic Performance Index) and a current EPI greater than 1 – this is the return of capital to cost of capital
4. A future growth value to market value ratio (FGV/MV) between 40% and -70%. The ratio represents what money the company should make in the future compared to the actual amount it is making.
5. Free cash flow to capital ratio. This ratio helps answer how efficient the company converts its invested capital to free cash flow? Looking for a positive ratio and more than 5% is excellent.

Company                       Mkt Cap  EVA 12M  EPI   FGV/       FCF/        EPI 12M  Div     1 Yr

$ bil          Chg %                 MV %     Cap%     Chg %     Yield   Return

Constellation Brands   33.319      208.7       3.3      -34.3       6.9            57              1.7    -20.9

HCA Healthcare            41.493      235.1       2.4       -27.8      5.4            39.5            1.3    17.3

AbbVie                           113.395      130.5       2.4        5.9      11.3            96.4           5.6    -22.5

Hormel Foods                  21.146       32.7       2.4       23.3       6.1             12.5          2.1      10.0

Sysco                                  35.362        71.7     2.3        30.4      6.9              30.7           2.3       5.8

Bristol Myers Squibb       74.225      449.6   2.2           8.9     7.3             121.6           3.6     -13.8

Johnson & Johnson          348.286     359.3   2.0         14.6     4.9            107.7           2.9        9.6

Proctor & Gamble             258.132       53.3   1.8        37.2      4.3              22.0            2.9     40.6

Stryker                                   68.497     286.1   1.8        32.2      4.2             61.7            1.1      5.3

Amgen                                102.420.5    387.5  1.6         18.1      8.2             93.3           3.5      -7.2

The other companies on the list were Gilead Science, Celgene and Walgreen Boots Alliance.

Linking to dividend paying stocks, these lists help you narrow the list and at least start with some solid companies. Sometimes the price seems high, but with many of the companies you have to thing long term holdings. If you buy them for the quality of the cash flow, then over time you need to ensure the cash flow stays above your criteria. The lists helps answer if the price declines, what do I do? when should I sell? If you own Celgene which will be bought by Bristol Myers what do you do with the cash?

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

Investment banks exist to make greater amounts of money than lending money to consumers and one method to examine them is how are they allocating their people. According to an article by Peter Hobson of Reuters, the consultancy company called Coalition tracks the information of the world’s largest investment banks.

In the world, there is a shift to be greener, which is good for the world. The investment banks have responded and there are more bankers for natural gas, power and carbon permits. The shift has come at the expense of oil.

The world’s 12 largest investment banks earned a combined $2.5 billion from power, natural gas and metals which is 5 times the $450 million they earned from oil fees. The head count in oil is down 20%, while the head count at power and natural gas is up 20%.

Investment banks regularly chop and change teams depending on which markets are the most profitable and some consultants say the change has more to do with the poor returns of the oil market rather than a shift to greener economy. This had to do with lack of demand of oil and trading losses as the price of oil went from $86.74 a barrel in October to below $50 at the end of December. The price has recovered to $60 a barrel which has helped boost revenues.

Linking to dividend paying stocks, in the world on the largest investment banks, the idea is to return a higher profit than can be returned from consumer lending at slightly higher risk. The banks listen to the market, not to politicians. If the market says go green, they build up their staffs to be able to allocate money to doing such. When the US declares cannabis legal, there will be teams involved in that segment of the economy. Watching the allocation of people by investment banks is where the competition takes place to gain the fees needed to run the division.

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

In every industry, the dominant company and/or companies which are the companies investors like to own, because the dominant companies can make profits which turn into dividends, the US government occasionally has their eyes on the companies. Depending on how the public feels, The Federal Trade Commission and Department of Justice will have open files. In the case of the big tech companies including Amazon, Apple,  Facebook and Google files have been opened. Normally the departments do not acknowledge preparations for any investigations, according to Dianne Bratz and Jan Wolfe of Reuters reported in this case the government does acknowledge.

The acknowledge sent shares of prices down, however it is important to note although some people feel the firms have too much power and are exerting a harmful effect on users or competitive marketplace, proving it is different. What generally happens is the companies will be fined without admitting guilt and the case will be months old. The expectation of a break up of the companies is very low.

Linking to dividend paying stocks, large organizations are used to having been sued, there are contingency accounts set up for wrong doings, although most of the time companies are trying to do the correct thing but sometimes public sentiment is different than correct business practices. As investors, most of us are not used to getting sued so we react as an individual to the charges, the reality is often a soft landing for the file, or until the next file is open.

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

 

Most of the time, politicians try to help or not hurt the business community because they provide jobs and economic growth. However, President Trump on on hand will offer support to the community, on the other hand takes away. In the case of increasing the size and scope of tariffs on China, there are large companies directly affected as would be expected given China’s growth over the past 30 years. With the growth rates in China it would have been not prudent not to have large investments in China. Now that President Trump is the tariff President, there is consequences on the stock market, how well the companies manage it, will tell a story.

Recently Scott Clayton of TSI Network tried to determine good stocks with sound growth prospects despite the negative impact of tariffs on their company. His criteria:

One point for 5 years of continuous divident payments, 2 points for more than 5

Two points if the company has raised the dividend in the past 5 years

One point for management’s commitment to dividends

One point for operating in non-cyclical industries

One point for limited exposure to foreign currency rates and freedom from political interference

Two Points for long-term record of positive earnings and cash flow sufficient to cover dividend payments.

One point if the company is a leader in its industry

Company                         Dividend Sustainablity       Points    Div Yield   Mkt Cap    1 Yr Total

Rating                                                     %                $ Bil           Return %

Walmart                          Higherst                                 10              2.1         303.4             23.8

Apple                                Highest                                   10             1.7          820.1            -5.9

3M                                     Above Average                      9               3.5            94.2            -18.9

Caterpillar                        Above Average                     9                3.4           69.5            -22.1

Genuine Parts                  Above Average                    9                3.1            14.2                6.9

Home Depot                      Above Average                   9                 2.9        211.2                1.7

Deere & Co                       Above Average                     9                 2.2         43.8                -11.2

Nike                                   Above Average                      9                1.1       127.6                9.2

Hasbro                               Above Average                     8                2.8         12.3                10.8th

In TSI research found large companies it is important to remember both Walmart and Home Depot rely on China for merchandise. Hasbro and Toys come from China; Nike expects to sell shoes into China but makes them elsewhere in South east Asia; John Deere is affect by agricutlure import restrictions because when the President imposes restrictions on China, China imposes restrictions on the US; Apple makes its products in China and Genuine Parts buys half of its products from China.

Linking to dividend paying stocks, the global supply system which US companies greatly help to implement works until it does not. Relying on Asia has been and generally continues to be a very good thing until local politicians throw a wrench into it. When you are buying stocks, see where they access their supplies to sell at higher margins and what the risks are?

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

The President likes to call himself a tariff President and under some conditions it would be an excellent thing to call oneself. The question is under the existing global supply chain does that moniker hold water? The President likes to go to Pittsburg and talk about how the steel industry needs to come back and employ thousands at the fully integrated steel companies. The reality was always something different because over the years the industry changed. The fully integrated steel companies had higher fixed plants to make steel, but for many years they had good profit margins on areas where the smaller more flexible steel plants competed. The smaller plants over time became better and were able to compete with the same steel as the fully integrated steel mills at better prices and for them higher margins. If you want to understand watch on You Tube Havard Professor Clayton Christensen talk. In that environment, the President introduced tariffs.

The tariffs recently came off in an effort to sign the US Canada Mexico trade agreement, but how well did it do what it was suppose to? Under normal circumstances, tariffs are added to goods and services where the government wishes to encourage the producer to have the incentive to do the work in the home country. Over the past 200 years, there has been many elections about tariffs. The New York Times reporter Jim Tankersley in late May asked how well has the tariffs on aluminum and steel worked?

In both aluminium and steel, the tariffs did not change the competitiveness of the industry, for example the biggest cost to produce aluminium is electricity or a company needs to own a hydro electric water dam or receive a very long term inexpensive rates. That does not exist in the marketplace which means no new jobs. The tariffs were seen by executives as more of a hinderance to their operations.  In terms of steel production, there has been a few thousand more workers added but the production of steel has remain the same as last year thanks to increased productivity in the workplace.

If the tariffs were to promote more jobs, then they have been expensive jobs as the biggest cost has been the increased prices of steel and aluminium to the consumer. At one time, the biggest user of steel was the auto industry, but it order to have lighter cars they use aluminum, they did not switch back to steel.

Linking to dividend paying stocks, every industry changes some for the good, but given the age of politicians they tend to remember the old ways. Often they fight battles they seem to think they remember rather than how the economy is actually changing. At the same time, they seem to remember all the people that worked in the mills, when many of those jobs have been changed to increased productivity and safety. Business needs to anticipate what will happen, politicians remember the past.

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