Inside the smart phone which many consumers have are chips to power the phone. One of the makers of the chips is Qualcomm based in San Diego. US District Judge Lucy Koh 233 page decision believes Qualcomm illegally suppressed competition by threatening to cut off supplies and extracting excessive licensing fees.

In an article by Sayanti Chakraborty and Jan Wolfe of Reuters, the Judge believes the company has a policy of no license, no chips which was verified in many emails, which contradicted Chief Executive Steve Molenkopf’s testimony. The company said they disagree and will appeal to the next level of courts.

Meanwhile governments in China, Japan, Korea, Taiwan, the European Union and the US all disagree with Qualcomm’s position.

Qualcomm recently settled with Apple and its shares have risen as a result.

Linking to dividend paying stocks, many companies make the bulk of their money from licensing fees and that is a very good thing for investors. Licensing fees allow for cash flow to continue on a long term basis. Microsoft was once sued because of its licensing fees, it is not an unusual aspect of tech companies. There is a fine balance because there is a recognition that other companies will attempt to quickly copy the new innovations on the chip which cost money to do. One sees the same thing with pharma companies with their 21 year protection. In many ways dividend investors look for these types of stocks.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For many years, a recession proof portfolio included alcohol and cigarette companies because people consumed the products no matter the size of the taxes governments put on the products. In the interests of health, governments increased taxes and we consumers just paid for there was seemingly little choice. Bars, warm weather, sporting events and social gatherings invariably had an alcohol component, even if the desire was not to get drunk.

If you look around at the companies supplying the products it was a good investment in the Anheuser-Busch, InBev SA, Diageo, and Molson Coors Brewing Co. However an investment in those companies in the past 5 years has lagged behind the market.

A better investment has been caffeine. In an column by Ian McGugan, he examined the caffeine market. Between May 2014 and May 2019 a portfolio of Coca-Cola, Monster Beverage Corp and Starbucks would have generated an average total return of 20% beating the S&P 500 on 16.1%. If you picked Pepsi rather than Coke, the percentage would have been higher.

Mr. McGugan writes when an industry has to scramble for growth by gutting one of the key aspects of its traditional offerings, it is arguably time to look elsewhere for profits.

The issue is not the global drinks industry will not make money, the question is are there better opportunities to make more elsewhere in the drinks sector? The best performing S&P 500 stock this century is Monster Beverage (Coca-Cola has a 17% stake) with more than a 60,000% gain since 2000. The stock has gone from $1.00 to over $60 a share.

Linking to dividend paying stocks, many areas the companies which pay dividends are in mature industries and when you invest you are trying to pick the best of the breed or the best of profit making companies. Most of us do not have money to buy everything, thus we make choices. When it comes to making choices, ask where is the growth coming from? If it comes from a tradition area of profit making area then you can ask what are the alternatives? There is no rush to move because the companies still generate profits, but it is important to note which alternatives you choose.

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

 

About 70% of the citizens live around cities, but if you go into the country, it is not hard to see Green tractors or John Deere tractors. If you drive past construction sites often you see Yellow machines or Caterpillar. The bulk of John Deere’s sales is related to agricultural machines and there is a slump in demand which has forced the company to cut production by 20% at two of its large factories in North America.

Ankit Ajmera of Reuters noted Deere & Co missed quarterly profit estimates for the 5th straight quarter and cut its full year outlook. As the trade war has increased, China has increased tariffs on soybeans and pork. Which has translated in farmers cutting back on crops and grains for export.

In particular, in mid May soybean futures fell to their lowest level in more than 10 years. In recent times, China was the world’s top importer of soybeans, they still import soybeans, they buy from Brazil, rather than the US. The market was worth $12 billion.

Deere & Co receives 60% of their sales from North America expects full year equipment to rise 5% rather than 7%. Profit on sales of $10.27 billion should be $3.3 billion rather than $3.6 billion.

Linking to dividend paying stocks, government policies affect companies, while many policies help companies, some will negatively affect the company’s operations. The government has its agenda and hopefully has a plan to achieve it; it is up to the company to adjust and figure out the plan while neither supporting nor opposing the government. If your company is seen to help the administration, the next administration may punish the company because it was too close. For companies balancing acts are the nature of the beast.

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

In the charts the below, Sean Pugliese and Allan Meyer of Wickham Investment Counsel examined the S&P 500 ensure one of their favorite metrics – free cash flow to enterprise value is highlighted. I would think since this is their favorite when advising clients they would ensure it is one of the metrics being seen. The reason being is they offer safety and value in investing, they need to watch changes in the metric. It is one of the many reasons why you should pick a couple of things why you invest? If those reasons change for the worse, you know when to sell; if they change for the better, then you can do nothing. Learning when to sell is a key aspect in investing.

The criteria Mr. Pugliese used was:

S&P 500 because larger companies tend to be more stable and diverse.

Dividend yield is the projected annualized dividend payments dividend by the share price. In this chart all companies have a plus 4% dividend yield.

Dividend payout ratio is the dividend payment divided by earnings. A low number is preferred and over 100 suggests a dividend cut is coming.

Debt to equity is the debt outstanding divided by shareholders’ equity. A smaller number is low debt. It is difficult to go bankrupt without owing any debts.

Free cash flow to enterprise value (FCF/EV)  Free cash flow is cash left over for investors after all expenses, reinvestments and capital expenditures. EV is the measure of the company’s value excluding its cash. In the below chart all companies have greater than 6%

Company                      Mkt Cap        Div Yield   Div Payout   Debt/    FCF/     Earns   52 week

$bil                   %               Ratio %      Equity   EV    Momen Tot Ret

Seagate Tech                13.2               5.3                 40.0            289.4       12.1    -10.2     -12.3

LyondellBassell Ind    30.4               4.9                 36.0               91.5       9.1      -7.9       -24.0

Harley Davidson            5.7              4.2                  50.2           428.4         8.4      -6.8       -8.1

Macy’s                            7.0                  6.7                42.7             73.8         8.4      -2.1       -19.0

Westrock                     120.0                4.8                 53.1           272.8        8.2     -1.4        -1.7

Gap                                   9.5                 4.9                60.0              55.9        8.2      -0.7     -36.1

Valero Energy               34.1                4.4                50.6               42.0        7.4      -9.1    -26.1

International Paper      18.2               4.4                46.1            144.7         7.4      3.2     -10.0

AT&T                             221.7                6.7                77.8              95.9        7.3       0.3         1.5

Western Union                8.3                4.2                40.9                 0.0       7.1     -3.1        -0.3

Altria Group                    97.3              6.2                  88.9           174.1        7.0      -1.3      -1.9

Verizon Comm              233                  4.3                  61.6         212.7           6.2      0.6     24.9

Linking to dividend paying stocks, charts such as these offered companies that will not be cutting their dividends anytime soon. There may be over concerns for example how does AT&T integrate Warner Comm; but the business will continue. In this chart total return was down, but that is a function of the market, it goes up and down. If you were a buy and hold type of investor, you are buying for the healthy dividend yields and either reinvesting those dividends or looking at other companies which have decreased in price and offer good dividend yields. When the market turns and the stocks go up in price you have made even more which is a good thing.

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

In an article by Andrew Wills of the Globe and Mail, during Fox investor day, the Murdoch’s Rupert and Lachlan unveiled what Fox is going to do next since selling their Hollywood Studio and TV stations to Disney for $71 billion.

Outside of Fox News which the President watches, the other reason to watch Fox is sports. Sports on TV is generally live and Fox carries baseball, auto racing, soccer and NFL Football. The game which still draws the biggest audience of the year is the Super Bowl and one aspect is gambling. It is possible to gamble on many aspects of the game.  Lachlan Murdoch said. we outpunch competitors in the amount of live TV we deliver to American households.

Fox has decided to partner with Stars Group Inc best known as the PokerStars website and come September, an typical viewer will be able to bet on anything going on live as he (it tends to be he) watches sports. In England, gambling and watching sports particular football is a typical aspect of Sky Betting and Gambling which Stars Group paid $4.7 billion a year ago. Stars Group will bring their operational ingredients for success, while Fox has the strategic reach and customer resonance.

The deal with Stars Group is a 25 years in length and Fox can buy up to 50% of the Stars Group US operations over the next 10 years.

Linking to dividend paying stocks, sports and gambling have been together for a long time, even when it was considered illegal.  People still do it and did it, Fox is trying to institutionalize it and if people can gamble from their own home watching sports they will likely keep renewing their cable TV subscriptions and that is consistent money for the operators.

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

One of the many companies which has changed the matter how office workers work is called We Work. In an article by Herbert Lash of Reuters, We Work is looking to sell stock to value the company around $47 billion.

We Work owns very little property, it leases it and then subleases to many smaller companies. The smaller companies have space to do work, have use of a board room and depending on the location they may be able to network with other smaller companies. We Work is taking advantage of the different ways consultants and start ups work and have locations in former department stores to maximize the real estate adage of location, location, location.

On the other side of the coin are larger property developers such as Boston Properties which has 196 properties and has a market value of $20.2 billion. Boston Properties stock has gained less than 15% in the past 5 years.

Critics of We Work’s valuation will suggest that if the economy turns downward, then the model of We Work does not work. If there is a downturn, the client base will be reduced as people will return to home offices, coffee shops, and anywhere there is free wi-fi. In addition, in a downturn rents in Class B and C buildings are very competitive, sometimes there are leases to be gained in Class A buildings.

Linking to dividend paying stocks, consistency of earnings through a couple cycles is what dividend investors are looking for. It is easier to make money when the economy is doing well or seemingly doing well for the majority, it is different when the general economy is a slump. How does your company make money? What are its margins? and how many downturns has management been through and still make money?

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

In mid May the wisdom of President Trump announced higher tariffs with China, he increased the limit from 10% to 25% on $250 billion worth of goods. In the President’s mind China will be a better trade partner though the increases, however China vowed retaliation even as Vice Premier Liu met US Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin.

Hopefully the negotiators will reach some sort of compromise soon and all will be better.

In an article by Adrian Morrow, examining the President’s tweets, the President believes tariffs are good economic policy. He suggested the cost of tariffs is borne by China. The President is a strange policy said he intended to use the money from the tariffs to buy American agricultural food products and donate them to lower income countries around the world. No details of whom the countries are; and the difference between what the US does in co-operation with the UN on food distribution.

Tariffs can be a very good tool to protect local companies in the production of their goods, as tariffs raise prices. The problem is small business owners Tiffany Zarfas Williams owner of the Luggage Shop of Lubbock, Texas noted 85% of the luggage she sells comes from China. In the past she had to raise prices 8% because of the tariffs. Now the prices of the luggage will rise again. The issue is the global supply system means goods are made in China and it is less expensive to build them across the sea, have the items put in a container and eventually make it to shops to sell than to make the items in the US. The 10% tariff did little to expand manufacturing, will the 25% or does it have to be higher?

For other suppliers, they raised prices by more than 10%, making an extra profit which means the base of President Trump is paying higher prices for their goods. Will prices go down when the tariffs are taken off?

Linking to dividend paying stocks, the global supply system has encouraged many items to be massed produced offshore. If you watch Shark Tank, the Sharks often say they know people who can reduce production costs (they mean offshore). The global supply system has evolved over 50 years and generally works to bring lower prices to the masses and allow margins to be consistent for the owners. Tariffs throw a wrench in the system and for the companies you invest in, where do their products come from? Can they raise prices and keep their healthy margins? Which one will collapse first? As an investor you are interested in the margins.

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

 

President Trump has many characteristics but every once in a while, as an investor you have to ensure you are protected against his twitter comments. Whether that is increasing tariffs against China or anyone else; whether it is comments on the economy and how to keep it strong; or what industries he loves or does not like. One method to protect yourself is to buy companies with strong US sales under the expectation they will continue to sell many items well.

Ian Tam works at Morningstar Research and his criteria to produce a list for your consideration was:

use the S&P 500 stocks

quarterly sales momentum (last 4 quarters of revenues compared with same figure 1 quarter ago

sector-relative price-to-sales  – a value  metric comparing the company’s price to sales ratio against the median sector

historical relative price to sales – comparing the P/S ratio against the stock’s own median over the last 10 years

To  read the table a P/S ratio of 0.3 means it is 70% lower than the sector to which it belongs.

To qualify a company must have a sales to total assets ratio greater than 0.5 to ensure it has enough sales to cover its debt. 0.5 is the median sales to total assets ratio of the S&P 500 Index.

Company                      Mkt Cap   Qtrly Sales   Sector/Rel   Historical    Sales to    Dividend

$ bil           Momen %    P/S Ratio       P/S Ratio    T.A. Ratio    Yield %

Quanta Services             5.367         6.5                   0.3               0.6                    1.4           0.4

Marathon Pete             40.033        12.5                 0.1                1.1                   1.3            3.6

CVS Health                    71.793         2.9                 0.1                0.6                    1.2           3.6

McKesson Corp            24.108          3.1                 0.0                0.6                     3.3          1.2

Amerisource Bergen   16.351         3.7                 0.0                 0.7                    4.2           2.19

Cardinal Health            14.584         3.1                 0.0                 0.7                   3.4           3.9

LKQ Corp                         8.800         4.3                0.5                 0.5                     1.0           0.0

CBRE Corp                    16.801          3.7                0.1                 0.8                     1.6           0.0

Walgreens Boots          48.403         2.9               0.2                   0.6                    1.8          3.3

L Brands                          6.698         1.3               0.3                   0.4                     1.6          4.9

The other companies on the list were

Campbell Soup, American Airlines, Facebook, Jacobs Eng and Nucor

Linking to dividend paying stocks, at least 5 of the names are in health care which indicates no matter the economy, people are still going to need health care. It might be a good idea to ensure your portfolio has some health care to protect you. The numbers allow you to be as defensive as possible. In this case, Morningstar Research provided some details but your company you buy stock has similar information. Narrow the field, at least that is what dividend investing tries to do. You may miss some opportunities but the number one rule in investing is try not to lose money.

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

 

In terms of entertainment, after the movies what do people particularly males spend their money on? In you said gaming then that is the correct answer. Most people could easily identify the big movie companies, but which ones are for gaming? There are some massive companies and some of them are public. In the gaming industry, similar to board games, it is not whether people love them or not, but how often they play or the retention value. The higher the retention value the more valuable the company’s games.  In the world of gaming, to enhance your gaming experience is the addition of Virtual Reality. If you know very little and wish to know more about VR, the book The History of the Future by Blake Harris published by Dey St, a division of William Morrow, NY, 2019 is a great place to start.

The concept of VR was around for many years, however the systems were big, clunky, and only had a limited field of vision. As the semiconductor industry spent billions to make smartphones, the same chips could be used for VR to make the experience come alive. Similar to the stories of the first desktop computers with people trying all kinds of things in their garages, there is a story of a young man obsessed with VR living in the camper in his parent’s driveway. Originally, Palmer Luckeys was a teenager trying to invent the next link to bring VR to the masses. His ambition was to make do it your own kits and then other people would advance the technology so the masses  would enjoy VR and gaming would be more fun and enjoyable. Along the way, because the VR world, similar to most worlds are relatively small, Palmer could reach or email the gurus of the field to show them what he had and maybe get a job in their labs. Eventually, others in the VR world saw what Palmer had done, helped start a company called Oculus and eventually Facebook bought it for $2.7 billion. Along the way there are many ups and downs and the book gives you an idea of how the technology companies work, in a small world relationships matter. It is true your biggest assets arrive in the morning and leave at night. How you keep them working for your company  and working on the next big idea and not leaving to start their own company is technology management.

Linking to dividend paying stocks, depending on your age, you will approach the companies to buy differently. Those who are older, look at utility companies or the ones that provide electrical power to homes and businesses. Those that are younger will tend to do their interests first, given the economy has changed there is no right one to go to. A utility company can go to regulators and have their rates increased to ensure their capital plans are done and margins stay healthy. Tech and Entertainment companies pricing and retention are the key factors in evaluating whether their margins remain high and profits are steady. Both sectors can be very rewarding in the long run.

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