If you own a mutual fund or index fund and it does not have Alphabet in it, then you should be looking for an alternative fund. One of the reasons to own it is Alphabet which owns Google made $9.4 billion in profit in one quarter. In an article by Paresh Dave and Arjun Panchadar of Reuters, Alphabet achieved better pricing on ads and saw unrealized income from start up investments.

Alphabet makes its money from advertising and point and click ads. The ads come after the clean page search engine, YouTube videos, millions of partner apps and websites. World wide ad sales increased to $31.1 billion. In terms of the mobile app store such as cloud computing services and consumer devices the number was $4.4 billion.

Another aspect to Google is through its venture capital arm with investment in companies such as Uber Technologies and Waymo – the self driving car ideas.

Linking to dividend paying stocks, Alphabet continues to generate billions of dollars in revenue and most people expect what we consumers are doing now, we will continue to do next year. If we do similar things, use Google to search and find information we can use, then advertisers will continue to use Alphabet as a primary adverting. Along with the ads, Google does many other things and most of us will use one or more of their services. If you examine the number of people the company has and the few fixed expenses, it is one of the reasons why owning Alphabet is needed in your portfolio.

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

For every company to make money somebody must sell their goods and services. The company can do and make very needed things, but somehow they must be sold. For manufacturers it is often easier to have distributors sell their product and the company can concentrate on the next improvement. For Hasbro which has been around for many years, the biggest seller of their toys was Toys “R” Us and for many years this has been a very good relationship. It was reported by Nivedita Balu of Reuters,  Hasbro reported nearly $100 million less than expected because of the bankruptcy of Toys”R” Us. The good news is the company has found ways to grow margins by 2019 and is expected to  generate between $600 and $700 million in operating cash flow for the year. One of the strategies is to ensure their toys are in Disney and Marvel movies and this year there are 6 major releases.

Linking to dividend paying stocks, every company eventually becomes dependent on others and that is a good thing until it is not. It is the reason in large organizations there is someone worried and makes plans if things do not go correctly, what should the company do? how does the company adjust and how long should it take? It is easier to adjust if their are plans on how to adjust. As you look at your investment in companies see who they are dependent upon and how could they adjust if something goes off for a quarter or two.

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

As political season gears up for the midterm elections, you will hear an argument for tough, cost-conscious management to bring the correct results to the electorate. The argument works in politics and in the private sector. At the moment one of the best companies known for its cost cutting is 3G – a Brazilian investment firm. Warren Buffet teamed up with them in the merger between Kraft and Heinz. According to Ian McGuggan of the Globe and Mail only a couple of years ago, 3G was being applauded by analysts for their ability to slash costs and trim corporate fat. This was the best recipe for squeezing new profits from aging consumer brands.

The approach worked for a time as critics argue management focuses on streamlining operations but they have less time to spend on product development, corporate innovations and brand building. The danger is efficiency increases but sales and earnings per share do not. In the era of highly commoditized categories it is hard to grow consumer brands as Robert Moskow of Credit Suisse noted. The model is very good at cutting non-essential overhead, focusing on price realization and running an efficient plant and distribution network. The model is not so good at driving sales growth through marketing new products and strategic investments.

Linking to dividend paying stocks, the lesson to be learned is if a company goes through cost cutting hold for 2 or 3 years and then look for alternatives because the price of the stock will likely fall.

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

In the drug world, if a company can produce a drug which people believe they need they can make millions of dollars. If they have a good monopoly for a number of years, shareholders like the fact the companies can pay dividends and share prices can move upwards. In the drug industry there has been a number of mergers because sometimes it is less expensive to buy a company with a good pipeline of drugs than do the research and development. Shire PLC has a significant share in the rare drug business and had two companies wanting to buy it Japan’s Takeda and Dublin maker of botox Allergan. According to reporters Greg Roumeliotis, Ben Martin and Ben Hirschler of Reuters Allergan has a little problem with its existing shareholders – the debt the company carries is $30 billion, thanks in part to buying other drug companies.

Takeda according to Shire has not offered enough money or management wants more and Shire is larger than Takeda. The Japanese company is profitable and continues to pay dividends.

Linking to dividend paying stocks, when a takeover comes as a shareholder you have a number of choices – do nothing, accept the offer or sell – hopefully at a higher price but then you need to find an alternative. It is important that you keep a number of companies on your homework list to buy when the time is right for you.

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

President Trump occasionally announces all kinds of proposals, some of the them most of us consider good, some are questionable. However, as President we assume rightly or wrongly he has very good reasons to announce his ideas. One of the ideas was to impost tariffs of steel and aluminum. Naturally, the announcement made the front pages of the world press but inside an average US company actually using steel and aluminum there is different story. The story is rising costs, delayed shipments, and a baffling bureaucracy.

In a story by Paul Wiseman and Christopher Rugaber of the Associated Press, a new organization has been founded – the Coalition of American Metal Manufacturers and Users who are small and medium sized businesses which are trying to have the Commerce Department exempt them from the tariff. The reason the companies can appeal for exemptions is they can not obtain the metals from US producers. It is one thing to announce tariffs, it is another thing to have the steel and aluminum producers provide the kind of steel and aluminum desired. There is a reason why they went outside the US.

The Commerce department has 90 days to review and make a decision, unfortunately there was little resources put in the area and time has come and gone. The Commerce department traditionally reviews each potential exemption individually and does not wish to do across the board reviews.

Companies are finding while their customers are satisfied with their past work, they still need to be in business and they can access the materials from alternative sources.

Linking to dividend paying stocks, the headlines in the newspaper generally makes poor financial results. Companies tend to like relative stability not the headlines attention. What may be good for politicians, seemingly to do things disrupts supply chains which have existed for a number of years. It is the reason why all companies need to have backup plans and deal with a number of suppliers. It is the reason why companies deal with more than one bank. Having choices or alternatives is a good thing.

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

 

In the far north is the Arctic Ocean and for many years, it was as its name sounds cold and frozen most of the time – Arctic weather. With climate change and the possible opening of the Northwest Passage for shipping, various books have been and will be written on the history of the Arctic. We know there are deposits of oil and gas, sometimes minerals have been found and the shipping passage could be used as a short trip between Asia and Europe. A book called The Scramble for the Arctic – ownership, exploitation and conflict in the Far North written by Richard Sale and Eugene Potapov published by Frances Lincoln Ltd, London, England, 2010 helps put the issues into perspective. The first thing to know about the Arctic is it is relatively easy to look back in time – the cold preserves artefacts. There is a lack of activity in much of the land so what is left on the ground can be found on the ground. Archaeologist have found by looking for vegetation patches, they can discover sites for man. The bone leaching nutrients allows for vegetation to grow. The difficulty is the Arctic is a tough place to work – much of the time the ground is covered by snow and ice; the non ice season is short; although planes make life easier.

In the book, the authors discuss the natives – much of their tradition is oral and many are nomadic which makes property rights hard to define. The interest of the north was first for animal pelts – at one time the highest domestic tax source for Russia was sable pelts; while beaver pelts made into tall hats in London was a reason to discover Canada.

No matter which country whose country reaches toward the north pole, they have all treated the natives badly, to be generous. When it came time for resource development, because companies have an interest in shipping product out to be processed, the pipelines and roads have crossed native hunting grounds and the solution was to move the natives out of the way. In terms of animals – we have a bad history of nearly causing animals to be extinct before understanding if you kill too many, then there will be none the next year. It is significant that the companies which engaged in processing animals were very profitable for a number of years. Whether that was sable, beaver, whaling, fishing, sealing, However it only took years, not decades, before the animal population was significantly lowered.

The biggest issue of the north is the great oil and gas discoveries or potential and who owns the land. All northern countries are trying to ensure the boundaries which have existed on maps for the last 50 years remain the boundaries when it is time to harvest the raw materials.

Linking to dividend paying stocks, the history of the north is to exploit the natural resources and move on. It has been done all over the world for generations, the difference is in southern climates, nature can come back or it is possible for nature to come back. In the north, one has to think of centuries not decades when the natural resource is less than profitable. There are greater challenges but also greater rewards and for that companies will continue to want to go north.

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

The only reason to pay attention to Wells Fargo is of all the banks, the stock price has been flat or you have to be thankful for the dividend to receive a return from the company. It seems it has gone from scandal after scandal in abuses of overcharging its customers. According to Aparajita Saxena of Reuters, Wells Fargo will pay about $1 billion in fines related to auto-insurance and mortgage lending abuses. This is on top of their other fee generating schemes (every person has to have 12 fee generating services whether they wanted or needed them or not); steering minority borrowers into the most expensive loans and fees; and other such things.

Wells Fargo as a bank over was considered to be one of the better banks, had an emphasis on small business lending, but needed to cut costs – in the $4 billion area.

Total revenues fell in the quarter 1.4% to $21.92 billion. Total loans were down 1.2% to $947.3 billion.

On some good news, thanks to corporate tax cuts by the President income tax expenses fell 36% to $1.37 billion.

Linking to dividend paying stocks, many people look at the bank and it is still a profitable bank wondering when the bank will have its act cleaned up so the stock price can rise into the 60s from the $50 where it exists. The bank still has many customers who are loyal to it, while it has been hurt by the reputation of their actions. It may take time and eventually the stock should rise. You might want to put it on your list to buy after it reaches the mid 50’s. The key will be the lifting of constraints from the US Federal Reserve.

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

At the moment, you can not own it, but soon major institutional money will be snapping up shares of Aramco. The Saudi oil complex is going public and according to Bloomberg News, the shareholders will hold this company for a long time. The reason is Aramco had net income of $33.8 billion in the first 6 months. The company makes more money than Apple, JP Morgan and Exxon Mobil.

Among the most important facts: the company has almost no debt and enjoys production costs running at a fraction of the industry standard. The downside, the government of Saudi Arabia depends on Aramco to finance social, military spending as well as the lifestyles of the princes. The stock market listing of Aramco was suppose to happen in 2018 but looks like it will happen in 2019.

Aramco generated adjusted cash flow from operations of $52.1 billion in the first half of last year when Brent crude averaged $53 a barrel. Royal Dutch Shell generated cash flow of $21 billion despite pumping a quarter of the oil and gas Aramco produces.

In terms of dividend payments, Aramco paid a cash distribution of $13 billion in the first half of 2017 while Exxon paid $6.4 billion and Shell paid $7.8 billion.

The great news for potential Aramco shareholders is it costs Aramco $4 a barrel to pump oil and gas, the corresponding numbers for Exxon and Shell is about $20.

Linking to dividend paying stocks, Aramco has two of the main attributes an investor is looking for in a company, no debt and very low cost of production with a high sale margin. At the moment the price of oil is about $67 a barrel. This means although Aramco is only selling 5% of the company, the dividends will be safe, secure and owning this stock is a long term success story.

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

There is an interesting book about the subject and it was made into a movie staring George Clooney in 2014, the book is called The Monuments Men by Robert Edsel published by Center Street part of the Hachette Book Group, New York, 2009. In the book, Mr. Edsel outlines the importance the Nazis gave to the looting of art and how an unlikely group of Allied Heroes was able to recover most of the art. In the war, the last thing Generals worried about is saving the landscape, they are worried about defeating the enemy. If the enemy takes positions in sensitive areas, then it is their fault that something happens to the setting. After the battles are over is a time to worry about historical buildings and what is in them.

The book highlights the unlikely men who lead the search for and recovery of art which was systematically taken by the Nazis. The men had knowledge of art and history and generally were not expected to shoot a rifle because they were after art. In countries such as Italy and France, if you were to visit the country a visit to a museum or see the art in the street is expected and millions of tourists do that. Both countries ensure artists have grants to do work every year, in the US the use of private funds is consider more important. Society is different, one is not better, just different. The Monuments Men worked with the army to try figure out where did the Nazis put the art? they worried that planes dropping bombs might destroy some of the art. they worried when the Nazis retreated they would destroy the art they could not bring with them. Similar to all research, one needs to do great amount of homework and have some lucky breaks. For example, after months of trying to find leads where the art was stored, one of the Monuments Men had a toothache. He went to a Dentist, the Dentist said you should meet my son in law who is in the art world. His son in law happened to be Goerings man in France who arranged all the art movements. He knew where the storage facilities were and they would go to caves, salt mines, castles (the castle Disney used for Sleeping Beauty) in mountain hideouts away from the average German.

Another concern was as the war was ending, the Russians were coming towards Germany and included in the front lines was the Trophy Brigades. Their job was to find and seize enemy assets, looted or otherwise. Stalin expected to be restituted in kind in gold, silver, carved marble, and works of art for what his people had lost. The Americans believed the works of art should go back to France and Italy or whatever over European country it had been taken from – part of the reason for fighting Germany was to return Europe’s soul to Europe. Similar to most things in life – many people have different agendas and looking at the situation.

Linking to dividend paying stocks, eventually when something is stolen or looted the average person finds out. They may not be aware during the time, but they can sense something was wrong. It is credit to society that most of us try to stay within the laws or rules and regulations and we expect our institutions to stay within the law. When a company is profitable and can continue to pay dividends, it often has the ability to stay within the rules and regulations. Sometimes the rules and regulations help the company by providing a moat which is a good thing for investors.

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