During the week of April, 190 companies in the S&P 500 or 40% of the S&P 500 reported their earnings. In all things Wall Street there is opportunity with all the reporting, if a earnings of a company surprises the analyst’s then the stock will go up or down depending on the surprise. To this end, companies such as Thomson Reuters have developed a tool called SmartEstimate. The tool assigns a different weight to every analyst based on how accurate they have been in the past – were some analyst surprised all the time or were they near perfect? Hugh Smith of Thomson Reuters used SmartEstimate criteria to”

companies yet to report but the SmartEstimate is greater than 2% or 80% chance the reported figure will indeed beat the estimate.

the expected earnings growth based of SmartEstimate is 15.9%, companies in the list should be more

Wall Street has many analysts and they are all doing similar things, if a company 4 week price change is greater than 10%, much of the surprise would be price in, the idea is to look for companies where it is not priced in

Company                      Reporting    EPS          Q1 YOY    Rev      Q1          4 week     Dividend

Date               Predict    Smartest   Pred   SmarEs  Price       Yield %

Surprise  EPS Grow  Surpr Rev Grow Change

Mosaic                         May 2              6.4%            46%        0.36%    5%         -7.2%       4.06

NVIDIA                        May 9               2.0              114           0.12      52           -5.4          0.54

EOG Resource            May 8              11.7             121           0.44       87          -1.3           0.71

XL Group                    Apr 26                3.6              40            0.05       17            1.5           2.15

Devon Energy            May 2                3.1              184           1.04       52            2.4           0.60

Equinix  Inc               Apr 26               2.7             293            0.05       18            3.5           1.98

Cabot Oil & Gas          Apr 28               4.7             240             3.8        81            3.9            0.34

American Tower        Apr 27               5.1               26              0.22     32            4.3            2.0

Amazon.com               Apr 27               3.9               17             0.04      30            6.3            0.0

Linking to dividend paying stocks, if you are going to use this type of analysis you have to think how will the street react? There should be many people doing the exact same thing and remember the old Holiday Inn ad the No surprise Rooms. Not only does the company have to have a bigger than expected surprise (ideally one way or another) the street has to agree with your decision to buy or not to buy. It does happen see Caterpillar but it does not happen often. An easier decision maybe to buy quality companies making profits and hold them as long as they do not offer surprises.

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

 

In late April according to Reuters Caterpillar’s first quarter beat the estimates of Wall Street and its shares rose 7% to the highest it has been in 3 years. The shares rose to $104.42 up $7.62. The company because it sells heavy equipment is seen as a bell weather stock as governments around the world turn to infrastructure spending Caterpillar is a company expected to benefit from the decisions. If you drive and see the yellow machines at work, then that is good for the company. Caterpillar expects 2017 to be better than 2016 with sales and revenues to be in the $40 billion area as opposed to between $35 and $38 billion. Excluding restructuring costs Caterpillar earned $1.28 a share which was twice the estimate of 62 cents a share. Part of the restructuring was shutting down factories and laying off 12,000 workers. The newer plants will have more robots.

A company similar to Caterpillar has three macro areas of support – mining; infrastructure spending (roads and bridges) and construction both home and institutional (government buildings). Ideally under President Trump’s proposal trillion dollar infrastructure spending, the companies doing the work (buy American) would be using the yellow machines of Caterpillar. It should be noted there is a glut of used equipment.

Linking to dividend paying stocks, on the macro side of stocks there is good news and not so good news. The good news is the government wants to create the conditions for business to grow and use its spending power; the bad news is for company such as Caterpillar it had to shut factories and 12,000 people are out of work. Even if there is more work, the workers are not likely to be called back, for Caterpillar expects to be able to meet the demand under the new conditions. With investing there is rarely a black and white issue, many of the issues are grey.

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

A BBC documentary on Genghis Khan – how did he managed to rise from the Steppes of Mongolia to become leader of most of Europe and Asia? In took a long list of lessons to be learned, some of them harsh, but he did learn.

The first thing he was born properly, the son of a small family clan run by his father. He eventually married the daughter of another family clan who was slightly more important than his fathers. He received a great wedding present. One of his fellow clans members was jealous of his wife, led a raid and capture her. Khan gave the wedding present to another leader of a clan to cement relationships and led a successful raid to get his wife back and destroy the enemy.

Khan realized he needed a professional trained army and there was strength in unity. You can easily break one stick or arrow, it is hard to break 6 sticks or arrows. The professional army needed skills such as archery and when the horse is off the ground the arrow should be shot which results in better controlled shots.

In one of his battles, he used psychological warfare he had his army light 5 fires for each person and the opposition scouts seeing it would think there are more people. His attacks were without mercy, but each tactic was planned and executed. He would regroup and charge again; he would fall back and led the opposition into a trap to be defeated.

When Khan went to China he took the fight to the enemy, he offered mercenaries similar or more money to fight with them; in terms of siege warfare he learned the value of patience and new tactics. In China he learnt about gunpowder, and plunder without mercy. The plunder without mercy and taking of slaves sends a reputation which he was happy to send to other countries – if you do not submit, the town will be burnt down. Sometimes he was content to impale the opposing armies.

Linking to dividend paying stocks, taking away the killing, in order to continue to be successful companies have to learn and continue to learn. While attacking without mercy is likely to lead to government regulators, the planning of tactics and the execution of them never go out of learning. Think about your company and its biggest profit center how well is it protected and promoted?

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

 

If you read books or watch movies about the Roman Empire eventually one of the groups they faced was the Celts. Typically they are seen as fierce warriors, if you want a reasonable movie think about the opening of the Gladiator staring Russell Crowe. The opening of the movie is a fight with the Celts. In The Roman Empire the Roman influence was some lines and outside of the lines were non Roman settlements. At the time of the Roman Empire the best writers were in Rome and they told stories from the Rome’s view point. The reality is sometimes a little different than the myth and in the book The Celts written by Peter Berresford Ellis published by Constable  Robinson Ltd, London UK, 2003 tries to bring the reality to the Celts.

The Celts were primarily farmers who engaged in advanced agricultural techniques using plows and wheels which relates to wagons. They were also great road builders and most of the roads through the forests of Europe were made by the Celts. The Romans were impressed by them and often improved them which is why people thought the Romans built them. Most of the words in Latin that relate to roads were borrowed from the Celts. An interesting observation is how Old Irish and Vedic Sanskrit (India) are similar and the close links are in terms of linguistics, law, social customs, mythology, folk custom and music. Celtic names can still found throughout Europe including the Danube River is named the Celtic mother goddess Danu and the Rhine River was originally recorded as Rhenus, a Celtic word for a sea way found in the old Irish rian.

Linking to dividend paying stocks, for generations people have been taught the Celts were not as advanced as the Romans and if you were Roman you would have brought your bias to your writing. After all you are taught the best of civilization is what Rome is about and why the Empire remains strong. The reality is other people have and can develop into strong civilizations. As an investor one of your jobs is to pick the best of the breed or the best companies to invest and grow with. After you have picked the company, there are alternatives to every one and depending on how much invested you have you may need to pay attention to the alternatives. This is called continuous learning, why are the companies the best? why do they keep their high margins to earn profits to pay dividends? Understanding we all have biases is good, but try to keep the bias to your family and expect everything else to have alternatives.

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

 

On Earth Day the movie Forest Warrior was seen on You Tube. Forest Warrior is a Chuck Norris movie about being the defender of a mountain from the evils of a timber company. In the movie it was the boss of a local timber company who was the evil one, along with hired henchmen. Mr. Norris’ character was to ensure people and particularly children could use the forest, but not cut the trees down. The Chuck Norris character could shift shapes between animals and person in order to protect the spirit of the mountain. Similar to these types of movies, most of us have a piece of land we think or understand as special. When many more live on farms, it was a piece of the farm or nearby, as urbanites we tend to pick a park, just because we go there but few of us would want to live in the park for longer than the summer. In the movie, the bad guys were the timber companies, but it reality we need timber to build homes. Often times because building homes is labor intensive it provides jobs, the economy is moving because of credit is used to buy homes and then they have to be furnished. Afterwards the people need services and ideally the cycle continues with the next generation. In the world of cutting trees, it seemed when settlers first came to North America the ground was covered with trees and they were cut down by the millions and sent to Europe. Then the easy to get trees were cut and we had to learn to plant new ones and some of them are being harvested for building materials.

Linking to dividend paying stocks, one of the reasons why you want dividends is to be able to spend more time in nature and less in the city. There is often very few black and white lines, but a whole lot of grey. Enjoy the movies for the theme of spirt of the forest; but in reality remember most of your investments will involve some sort of grey.

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

Every company in the world has considered or begins to diversify itself from the place it is founded. It is a good thing, there is no guarantee prosperity will always be in the town or city where the business is founded. In addition, as the company’s goodwill grows, more people will want to try the products and services, this is a good thing. For some companies they see the world as places where there are people to use their products. General Motors founded in Detroit is one of those companies (all the big auto companies fit the fold). GM reached out to any country where people could and would buy their automobiles and in some countries established auto plants to build vehicles. GM eventually built a plant in Venezuela and by 2007 it produced 172,218 vehicles. Times have changed in the country, the oil boom is gone, the country is cash strapped and since 2015 the auto plant has not produced any cars for it can not get parts to build.

In another sphere of the government finance, because Venezuela was an oil producing country it could easily gain access to credit including from the World Bank. The oil downturn and the US producing more of its oil has led to fewer oil sales and the World Bank asking for its money back.  The government has seized assets and in late April it seized GM’s auto plant which was likely something the government could talk about as  important to the welfare of the people of Venezuela. Meanwhile, the 2,700 workers and those that work in dealerships are worried about their jobs.

In relative terms, Venezuela is important but in the overall structure of GM worldwide was a small player for last year GM made $12.5 billion. In the South American structure which includes Venezuela the group lost $400 million on sales of 583,000 vehicles. GM has slowly being writing down the assets in the country for the past couple of years.

Linking to dividend paying stocks, diversification is a great thing until something blows up. In the case of GM, it is sufficiently large enough to absorb the downturn in the economy of Venezuela. In general terms diversification the more you do, the more complex it can get – for example you can easily diversify within your country and only have to worry about one currency. Going outside your country leads to currency risks which you have to consider as the size of diversifying gets larger. There are good things about staying within your country, there are good things going outside – it may make you better in the home market.

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

The book A Fool and His Money by Ann Wroe is set in Medieval town of Rodez, France. The town is interesting because it is a rare separated town with a border in the middle of the town and the town is enclosed by walls to defend itself. The setting is Medieval times and a background of the hundred years war between England and France. Looking at the location of Rodez in the south-west part of France closer to Toulouse and Marseille than Paris, you would not think the 100 years war would not affect the town – but to fight a war, the treasury of France needed taxes. In the 1300’s the English controlled the southern portion of France and Rodez was on a shifting border. Sometimes the taxes went to London, sometimes to Paris. The higher the demand of taxes, the greater the desire not to show you have any money to pay the taxes (or tax avoidance) is an issue. In Rodez, one of the merchants buried some money and forgot where he buried it. Some years later, while construction was being done on pipes, some pots of money were found? whose money is it? what taxes are owed? In the strange world of Rodez with a border in the middle, which side was the taxes owed. Similar to towns, there develops a side for administration and commerce and a side for the church and related activities. Sometimes it is good, sometimes there is conflict between the sides and the people who live on each side and the records of the state reflect the disagreements among people.

Linking to dividend producing stocks, throughout the Medieval times people still had to do things to produce income whether to pay the rent or the mortgage. Whether to produce goods and services to service the people in the community and sometimes beyond. In a gated community divided by a border in the middle, all the issues which divides and brings people together can be found. The town has continued being the life of the community and the issues still remain although they are now all French. Similar to the medieval times, if governments tax too much, people find alternatives and try to fall into a lower tax class.

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

 

 

In early April, the Associated Press reported Boeing signed a $ 3 billion plane deal with an Iranian airline for 30 planes. The planes are the 737 Max and the company is Aseman Airlines which is owned by Iran’s civil service pension fund. The deal is interesting because a few months ago, President Trump was in a Boeing facility talking about how he is bringing back American manufacturing jobs. After Iran signed a nuclear agreement with world powers, Boeing sold 80 planes to Iran Air for $16.6 billion.

The issue for the President is often he has said, the nuclear arms treaty needs to be redone because it was a bad deal for the United States. If the President goes down that road, the sales to Iran could be stopped and manufacturing jobs in the US – Boeing employs 18,000 some jobs would be lost.

Linking to dividend paying stocks, many companies do business around the world, sometimes the domestic politics helps, sometimes it does not. The planes in Iran would help grow the market in Iran for Iran has 80 million people and people need to travel. Iran also has oil revenues to pay for their planes, which makes them a good customer. What is more important when you are investing? which domestic market?

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

Ben Berkon recently wrote an article for The New York Times News Service  titled Emphasis on stats a boon for baseball’s top defenders. The backstory to the article is the book and movie Moneyball – the story is for generations baseball scouts and those in the game looked at stats in one particular method. Then came along the General Manager of the Oakland A’s – Billy Bean who began to question if the stats the generations had used were of good understanding to the results on the field? In turns out many of the stats were rule of thumbs and overlooked the contributions of why a player was good under the general rules. Billy Bean began to draft players who the other scouting organization did not understand and more importantly for the salary structure he employed he was winning. The teams were more than competitive, the salary structure for the owners was great and the Manager had the players he needed.

It has taken a while before all the teams have adopted their version of Billy Ball or looking at the stats differently. In most sports offensive pays more (think of increasing sales), while defensive pays less (think of keeping the same profitable accounts or not losing them). Baseball is no different and now defensive players who make fewer mistakes or are consistently in a position to catch the ball are being rewarded for their defensive abilities. In the article, the example of Tampa Bay outfielder Kevin Kiermaier who is a below average hitter, but an overall average outfielder was rewarded with a $53 million contract extension. The major leagues use a system called Statcast – which provides both video evidence and data to give an increasing amount of information to evaluate players. Every year the amount of data given by Statcast increases and the methods to evaluate every player in relationship to others increases. An example is a stat called Catch Probability – Kiermaier caught 17 more balls than if someone else was in his position.

Linking to dividend paying stocks, there is an old story about James Goldsmith who was a hedge fund tycoon of his day (before he was caught raiding a pension plan) but he asked for 5 numbers from of his various holdings everyday. With those numbers he could do what he needed to do. Everyone operates with some numbers to determine how they are doing? if they are on the right track? While the most important number for dividend stock holders is the company profitable and can pay its dividend, ideally increase the payout, the company still has to be profitable. In baseball, how to measure the worth of a player continues to evolve and that means how you measure your investments can continue to change.

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