For every company, how the supply chain or logistics or execution of strategies will tell you how well that company is doing. For the auto industry, There has been a system which lowers costs, gives flexibility to companies and enhances margins allowing the auto companies to make money. The system has been built up over the years using NAFTA or North American Free Trade Alliance. US based and the foreign based auto companies including GM. Ford, Fiat Chrysler, Toyota, VW, BMW, Nissan, Hyundai and Honda have all benefited. There are car plants in Canada, US and Mexico; the big auto companies many years ago shifted the parts to Parts Companies who locate near the plants and all is good. The finished product is sold around the world.

According to David Shepardson writing for Reuters a coalition of the big auto companies and part supplier companies have told President Trump if tariffs of up to 25% on cars then hundreds of thousands of American jobs would be lost. The reason is for all the big named auto companies the parts and supplies to make the vehicle come from all three countries. The system open up the process for many states and provinces to offer incentives for the auto companies to locate in their state or province. The plants are now there because of some formula, they are located in the state because the state added many financial incentives for the plant to locate. The state was hoping for the multiplier effect of income spent in their communities and the parts plants, the truckers locating nearby.

The President has the right to impose tariffs, it is for companies to response to the tariffs and other countries to fight to maintain the existing situation. The Alliance believes a 25% tariff would add $5,800 increase to the price of a car and given car and truck sales over the 3 countries cost $45 billion a year to consumers. In terms of jobs, it is possible up to 200,000 jobs would be lost in the US and 400,000 plus jobs lost in non US countries.

In addition, both Mercedes and BMW which have plants in the US would cut back because some of the production is sent outside the US and would be exposed to tariffs in other countries. Yet the President believes trade wars are easily won.

Linking to dividend paying stocks, while auto stocks and manufacturing are important to the economy the real driver of the economy is services and technology. On the internet we think of free flowing services. The next round the countries will tackle will be services and technology, where most companies derive half of their revenues from outside the US borders. There is a reason why trade wars are not easily won, hopefully the President will learn that and there will be calm in the marketplace.

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

For the past 70 years, Corporate America has been benefiting from a supply system which enables the companies to reduce costs, maintain and increase margins to benefit the shareholders of the company. The system while nominally keeps the corporate head office in the US, allows for the companies to source, manufacturer, distribute goods made around the world to consumers. A classic example is Apple – the engineering and head office is in the US, the iPhone is made in China and the margins remain high for Apple to make a great deal of profits. The US President similar to all leaders around the world has a right to impose tariffs on goods and services to try to stimulate more manufacturing in the US. Although with Artificial Intelligence and Robots, the head count at a typical factory will be much lower than the past. President Trump imposed tariffs and Corporate America does what it always has and will, look at their self-interest before the country of origin.

In the case of Harley Davidson, the marketing appeal of the motorcycle – typically aimed at men, allows the President to be caught up in the appeal of the company. If the President had examined the company by looking at the website, it would have noticed Harley while based in Milwaukee, Wisconsin has production facilities outside the US. The strategy of the company is to add 2 million US riders per year, grow the international business to make it 50% of the company and deliver superior returns. The company has manufacturing plants in the US, Brazil, India and Thailand. This is good for the company for it has options when politicians in any country decide to impose tariffs. Invariably one of the other countries where it has operations allows entry into the country. If President Trump wishes to impose tariffs. other countries will impose tariffs on the US, Harley can lower its head count in the US and increase it elsewhere.

Linking to dividend paying stocks, the global supply chain works very well until someone tries to relive a time gone by, but politicians are elected to do something. For 70 plus years, the supply chain has been evolving to what it is now and if you watch Shark Tank or shows similar to this – it is amazing where the cost of manufacturing and transporting goods is cheaper than doing it in the same country.  Tariffs might change the supply system and it is good to see how companies will adapt or are flexible to changes. Although politicians seem to give with one hand and take some back with another.

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

In life and with companies having plenty of cash is a good thing. Sometimes the market rewards the companies because they would tend to have low debts, sometimes the market believes the companies are undervalued because they have not or could be using some of the cash to buy another company. On the stock markets, it depends but in general cash is good.

Emily Halverson-Duncan of Morningstar Research analyzed companies with strong cash flows compared to their peers. In all research, you can easily find more elements to compare in order to make a decision. It is important to find some easy method to determine when something changes, do you like the change or should look for alternatives.

Ms Halverson-Duncan used the following criteria:

free cash flow in the top 1/3 of peers

trailing free cash flow in the top 1/3 of peers    (continues to narrow the field)

dividend payout ration less than or equal to 80% – companies need to retain money to fund growth

5 year annualized sales growth greater than 0

5 year annualized dividend growth greater than 0

5 year annualized earnings per share (EPS) greater than 0

 

Company                   Mkt Cap      Div       FCF     Trailing      Div P/O  5 Yr       5 Yr      5 Yr

($ Bil)          Yield    Yield    FCF/Share  Ratio     Sales gr  EPS gr  Div gr

Alliance Data           13.108        1.0          12.1       45.61          10.7       21.5        17.0       38.5

Lam Research          28.658        2.5            8.5       13.64          25.4       21.8        58.6       46.7

Signet Jewelers          3.439      2.5           33.2       25.65          37.3       14.7        10.2       19.0

Gilead Sciences       92.409      3.2             9.4          8.02          39.7        28.9        29.9       72.5

Principal Fin            15.940      3.7           24.8        14.56          36.6       10.4          9.0        15.2

Discover Fin             25.621      1.9           14.1        14.07          18.1       11.8          4.5        12.9

Broadcom                112.111     2.7              5.5        15.33         40.0       53.6         72.9       87.3

American Fin              9.601     1.3            23.0        23.91          16.8        8.5         13.6       13.1

Reinsurance Group    8.886    1.5             15.4        25.99         17.5         7.3         15.5       13.5

Lear                              12.979    1.4              7.8         15.98         14.4        12.3       33.6       46.9

The other companies in the top 15 were McKesson, United Health, Skyworks Solution, Boeing and Amgen

Linking to dividend paying stocks, any company that has a very good cash flow is an excellent company to whether any downturn and to take advantage when its competition stumbles. The danger is the companies buying into non related industries because they have the cash flow to do so – sometimes it does not work out. The issue is cash is good, but watch what the companies do with it. In addition, with dividend paying stocks one of the prime aspects of buying is to ensure the companies can continue to pay dividends and this is when free cash flow with help you.

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

Every President has the right to open and close the borders,  in late June the administration’s zero policy on immigrants and their children was all over the press. Whether you agree with the policy or not, it is important to examine the operations of it. The administration set up a  policy which then needs to be implemented. However the policy was set up with a variety of variables which means it was set up to fail. There could be a practical reason to take children from their parents, but if a child has travelled with their parent for thousands of miles, unless they are very unhealthy it stretches the mind why do it? If a child is taken from the parent at the border, why would an agency send the child from Texas to New York City? Along the way was there no other place that residents spoke Spanish? If you examine the population of the south-west, Spanish is the second language of most people because people move back and forth across the border to work, to shop, and to live. Another issue is where are the children and can they be reunited with the parents? It is hard to understand with the amount of surveillance that is possible on individuals, nobody really has an accurate list. (Perhaps all the children should have been given cellphones).  Is this by design or incompetence? Over the next month, by the time this is read. more blunders on the implementation will be heard and spoken about in the media.

Linking to dividend paying stocks, one of the reasons you want to buy the stocks is the company’s know how to implement their strategies or you are paying for their execution of policies. The companies are more correct than wrong, although many avenues have been travelled. The companies implement what the customers will buy and the customers like what they see for a variety of reasons. In the above case of border families, the agencies responsible did not implement and made a mess a crisis. If the companies you invest in implemented as badly as the above example it would be prudent to find better alternatives.

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

President Trump is his wisdom has decided to invoke tariffs or a trade war which the US will lose. The world of supply management is complicated because the dominant players which have tended to be US companies have over the years structured trade to benefit themselves as opposed to the country where they are headquartered. In this fashion, many of the items Wal-mart sells comes from China or offshore. At one time most of the items were from the US, but it shifted.

The domestic auto industry moves between the US, Mexico and Canada. If the main difference is price, the item will typically come from Mexico because labor costs are lower than the US. If the item is related to benefits the item may come from Canada because benefits are lower in Canada as workers do not pay health insurance directly. There are multiple variations. For companies in Europe – both Daimler and BMW have plants in the US to service the US market and to ship to China. According to an article by Edward Taylor of Reuters Daimler’s plant in Alabama and BMW’s plant in Spartanburg, North Carolina face millions of dollars of losses if vehicles they make will not be able to ship or they will earn less money. BMW’s plant is the largest vehicle exporter from the US by value – much of it goes to China. BMW may be able to move some production from Spartanburg to a plant in China to continue servicing the Chinese market.

Trade is complicated and there are no winners just losers for employees and consumers.

Linking to dividend paying stocks, the companies are doing their thing until politics intervenes Sometimes politics is good, sometimes it is useless from the company’s perspective. In past trade disputes, when the next election came along the policies changed, will it be the same with President Trump’s policies?

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

Do one really knows how the stock market will do, but looking back they can come up with great ideas. One idea is examine highly profitable companies with a low beta which then suggests the pattern will continue. In late June, Tiffana Paulrajah of Innovest Inc did that and came up with the following chart:

The criteria she used was:

Stocks in the S&P 500 with a minimum capitalization of $1 billion.

Positive change in economic value added (EVA) over 12 months. EVA measures the momentum of the wealth creating ability of the company and is the net operating profit after tax (NOPAT) minus capital charge (cost of capital times the amount of invested capital)

Positive sales change over 12 months

Positive change in net operating profit over 12 months

Minimum value of free cash flow to capital of 5%. This number will give a sense of how well the company utilizes its invested capital to generate free cash flow to pay debt or increase or maintain dividends

Beta of less than one. Searching for companies that move less than the market

A price to earnings ratio of 25

The above narrow the field from 500 to 11 companies

Company      Mkt Cap   EVA  Cost of Cap 12M Sales FCF    P/E    EPI  Beta

$ Bil                          %               Chg %       /Cap

Boeing         209.081     5190.8    10.7           3.1             9.9       23.1   1.5    1.40

Comcast       156.428   18,313        8.7          5.82            5.40      6.8   1.4    1.17

Lowe’s            81.526      2,020       9.9          3.72            9.6       21.6   1.4    1.31

LyondellBas  45.376      4,921        9.0         16.14          10.7     8.6    2.7     1.08

DXC Tech        23.932     2,777.4    7.9        222.81          30.7    13.6   1         0.92

Starbucks        78,949     2,202.7    7.6           6.79             6.5    18.5   2.4     0.63

Broadcom      117.884    15,632     8.6          20.86          11.9    10.1   2.8     0.91

Applied Mat     49.707      1,377    12.0         27.37          15.1    16.4   1.6     1.62

Sherwin-Wil     37.636      1,674     9.1         34.41             6.5    20.5   2.3     1.17

Ross Stores         32.059        981.4   9.9         10.19          17.10   22    2.3     1.08

Parker-Hannfin  22.725       141.6  10.1        21.68            5.3     22.7   1     1.42

Lam Research     29.277       805.6   11.2       42.67           17.0   15.4    1.3   1.42

O’Reilly Auto        23.276      883.9   9.8           5.21           20.0    20.8    2.6    0.94

Fiserv                     31.437     1.124    8.4           3.13           11.0    22.8    2.0   0.81

Snap-On                9.121         185.4  9.8         6.98             7.4   15.9     1.3   1.36

Acuity Brands       4.981        141.1   11.5      2.66             13.70  15.1   1.3   1.44

Linking to dividend paying stocks, with the stock market there are many choices and you need to narrow your choices. The charts help decide what is important to lessen risks. Whether you pick one of the above companies is not the issue. The issue is how do you narrow the field to pick the best companies for you, besides one that makes money. Take your time and come up with comparable choices and you may ask why would sales be similar this year? what was special about last year – if it is consistent then the choices are easier because they are all the right ones.

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

 

 

One of the movies which come under critics top 5 movie list is called Citizen King and the story of Charles Foster Kane is based on a real person. In real life, Citizen Kane is based on the life of William Randolph Hearst. There are many books about him and one of them is titled The Uncrowned King – the Sensational Rise of William Randolph Hearst by Kenneth Whyte published by Random House, NY, 2008.

In the book are wonderful account of the newspapers being activist and talking larger than life roles about politics – tariffs and the McKinley Presidential race with backer Mark Hanna; the Cuban American war; and sometimes the newspapers were much better than the police in describing murders or other police investigations.

After WW I, Hearst newspapers were bringing in $100 million a year in revenues with a profit of $12 million. This was good because Mr. Hearst seem to be the one of the few people in the world that could not live off at least $10 million a year. The newspaper chain increased to 26 newspapers in 18 cities, publishing magazines such as Cosmo, Good Housekeeping, Harper’s Bazaar; a radio network, a film studio; blocks of Manhattan real estate. In addition, many people know of his California home – Hearst Castle with is 71,000 sq ft. surrounded by acres of gardens, pools and ranchland. The home is located in San Simeon between Los Angles and San Francisco.

After the 1920’s newspapers changed. They would never be so expansive, competitive and influential and thus they matured as the 20th century brought profit taking and consolidation. It also brought a change in advertising revenues. For many years, circulation was the most important revenue source, slowly advertising became more important and business managers would only need as many readers that would keep advertisers happy. The era of the aggressive, crusading, politically changed, self promoting, polarizing audience building of the warrior owner editor changed.

Linking to dividend paying stocks, by definition many of these companies will be considered more bland because they already have a lock on making profits on a regular and consistent basis. For dividend investors as long as they can do this to pay the dividend how aggressive the company is or is not helps in deciding to keep the shares for a long time. The aggressive type might be exciting to read about, but the mature company with a lock on multiple advertising rates makes for a better company to own.

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

One of the movies which come under critics top 5 movie list is called Citizen King and the story of Charles Foster Kane is based on a real person. In real life, Citizen Kane is based on the life of William Randolph Hearst. There are many books about him and one of them is titled The Uncrowned King – the Sensational Rise of William Randolph Hearst by Kenneth Whyte published by Random House, NY, 2008. In the late 1890’s in the US was the era what we call ‘Robber Barrons” for the top 400 were wealthy as Barrons and most people earn their keep. Mr. Hearst’s father help find and owned shares in the big mineral finds in the west and was happy living in San Francisco. He bought the Examiner and decided to become a Senator and although said very little in the Senate worked the backrooms to help his state and state universities.

Will after dropping out of Harvard, worked on the Examiner and learned the craft of publishing. He would study other papers column sizes, which stories made the front page and why. What influences the paper could have and more importantly what caused more readership in an effort to make a profit. Similar to many people in the media world, the main action of being a newspaper person was the New York market. New York had over 50 newspaper publishing two and three times a day, 7 days a week. The center of the action was called Park Row. This small street in lower Manhattan reaching northeast from Broadway and Ann to Nassau Street and Printing House Square with its statue of Ben Franklin. City Hall was on the other side of the street. This street was convenient to City Hall, the Courts and the Post Office and all the amenities of publishing.

Hearst bought a second tier newspaper the Journal, in New York and was going to try to make it the biggest in terms of sales  and profitablility in New York. At the time, the leading publishers were Charles Dana of the Sun; Joseph Pulitzer of the World, the Times and everyone else. In 1889, The World’s was published in the Pulitzer Building which was at 16 stories and included a Dome was the tallest building in the US.  To move the Journal up to the top tier, money was invested in the content (better writing, more stories), price decrease for more pages, improvements in printing and use of color; pictures, cartoons, and many detail stories. In New York at the time, the newspapers did more detective work than the police.

Although money was very useful to buy the newspaper, to invest in capital improvement, and to cover his losses until circulation rose and advertising rates rose, It was the personal qualifications of living and breathing newspapers which made him a success. There were many examples of wealthy men buying newspapers and losing money. However all the large newspapers in New York were owned by men who were multimillionaires – Charles Dana of the Sun, Joseph Pulitzer of the World, Whitelaw Reid of the Tribune, James Bennett Jr. of the Herald. Bennett and Pulitzer both derived incomes approaching $1 million a year from their newspapers. Bennett’s income was next to Commodore Vanderbilt and William B Astor. Pulitzer netted approximately $20 million from his first 20 years at the World and his outside investments exceed the publishing revenues. This was the time when $15,000 was a princely income and most people lived off of hundreds of dollars a year.

Linking to dividend paying stocks, in the era of the robber barrons when there was not much of a middle income, it seemed easier to be wealthier because if your income reached into the thousands you were much better off than the average person. Now days it takes more than that, you need tens of thousands to feel better off than the average person. As you examining the options for the investments, the choice off comes to a few companies and sometimes buying a second tier company whose management wants to be a first tier company can be a better buy. Sometimes buying the number one or two companies with steady profits is better. The variable is to ensure management is doing what you think they should be doing.

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

 

 

 

 

 

If you watch movies on Netflix or You Tube often you will watch movies with a specific genre more than others. Personally my taste runs to action movies but it can be all over the map. Most of us tend to do the same thing because we follow patterns or perhaps it is because the rest of our lives tend to be very routine – which is good.

Recently saw a movie called Deadly Impact which was released in 2010 and stars Sean Patrick Flanery and Joe Pantoliano who play a FBI agent and a bomber for hire. While all movies are designed with a story and tries to hit the correct elements to become a blockbuster, the movie did not. However it is a good movie and if you watch it you will enjoy it.

The aspect being written about is the character of Joe Pantoliano who is a bomber for hire and has been doing it for generations. He is very good because he is very meticulous or very detailed oriented. The movie is scary because he has the ability over the years to blend in, find people’s weak points and exploit them as well as not healthy regrets when he kills people. It is a job he is well paid and moves on to the next one. It takes time and energy to plan, to do the job, but similar to the average person he does leave a pattern. Eventually because he made the task personal, Joe’s character is finally taken down and the world is a better place.

Linking to dividend paying stocks, while it is not recommended you become meticulous about killing people, making a good income and over time the raising value of your stocks is a very good thing. Everyone is good at something, use your normal abilities to look differently at the markets and focus on what you know best. It is what you do, what you like to do and in every field there are opportunities.

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