Often times what we hear from politicians and business are too different things. The President likes the to talk about the build up of the Defense budget; business sees an anticipation of slower growth of Pentagon spending and new priorities such as space systems and hypersonic missiles.

In an article in the Wall Street Journal reporters Doug Cameron and Ben Kesling examined the United Technologies and Raytheon proposed merger which if successful would be the third largest areospace and defense company by sales after Boeing and Airbus. 30 years ago there were 50 big companies now a handful exist including Lockheed Martin, Northrop Grumman, General Dynamics and BAE. In the shipbuilding industry there are two companies – General Dynamics and Huntington Ingalls Industries.

The consolidation happened with cuts in the military budgets and the Pentagon has made it easier to deal with large companies and harder for smaller ones.

In terms of overlap there are few divisions that do but there are investors who wanted United Technologies broken into 3 – Otis Elevators, Carrier and Aerospace. It is expected the merger will pass the hurdles of regulatory  Washington.

Linking to dividend paying stocks, there is always different perspectives of all industries, for example defense the budgets have increased which should be better for defense companies but the defense companies see a shift from tanks to missiles which are different in the manner they are produced and profitability from each. When you buy your stocks, which perspective are you using to see the company?

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

Many of us having conflicting goals and that is normal. We hear about plastics in the oceans, now micro platics all around us and when we shop there are many uses of plastics. Eventually we think some of the plastics should be cut.

In an article by Jeff Lewis of the Globe and Mail, reducing plastics has an impact on the demand for oil. Some of the best companies to own have been chemical companies. The oil industry supplies chemical manufacters with the building blocks needed to make the resins needed to make plastic ptoducts.

BP estimated a global ban on single use plastics would shave 3 million barrels a day from demand forecasts. Currently total demand is 100 million barrels a day.

Perhaps with a shift to electric vehicles global demand of oil will fall but we are not there yet.

In another 5 years looking at alternatives to the chemical companies will be on yor horizon.

There are more questions than answers- tll the next time, to raising questions.

 

 

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.