If you look at the new products in the marketplace, more and more of them are connected to the internet and to your smart phone. Some of them have value, some have convenience, but there is a bigger and bigger trend. The trend is called the Internet of things.

An example of the internet of things is the Nest. It is a device to attach to your thermostat which can be controlled from your smart phone. To do this first – a sensor must determine the room’s temperature. The information has to be converted to something which the device can understand. Another chip converts the information for your home’s heating and cooling supplier to understand. Another chip converts that information to your smart phone where you can do something or nothing. This relatively simple tasks uses a variety of chips to implement.

If there is a trend, there are methods to make money from and one way is to look at the semiconductor companies or the companies that make the chips which power the internet. There are choices, which means some will do better than others, but according to David Milstead writing in the Globe and Mail under the article Semiconductors primed to power the internet of things. Mr. Milstead took the list from 100’s to 12.

Company                        Ticker      Mkt Capital  Revenue    Net Income    EV/EBITDA     P/E       Dividend Yield

(US$Mill)     (US$Mill)     (US$Mil)                                                    %

Ambarella Inc.             ANBA-Q        3,495           248,              64                   27.22x        35.3               n/a

ARM Holdings             ARM-LSE      24,718        1,302            433                                    34.5              0.6

Atmel Corp                  ATML-Q          4,124         1,394             47                  15.58          21.1              1.6

CEVA                           CEVA-Q            404              51            – 2                                       44.6              n/a

Imagination Tech           IMG-LSE         946             262           -13                   18.69         33.8              n/a

Intel Corp                      INTC-Q         151,096        55,887        11,766               6.31          14.1              3.0

Microchip Tech             MCHP-Q           9,639          2,147             369               9.56          16.4              3.0

Nvdia Corp                    NVDA-Q          11,675         4,730            628              10.03         19.6               1.8

NXP Semiconductors   NXPI-Q             24,446        5,868             322               13.7          17.5               n/a

Qualcomm                    QCOM-Q         110,199       27,491           7,157             10.18       14.6               2.8

Silcon Lab                     SLAB-Q               2,412          369                 36              16.87       24.2               n/a

Texas Instruments          TXN-Q              55,805        13,212           2,990           10.92       18.3               2.5

Source  S&P Capital IQ

EV/EBITDA and P/E are based on analyst’s future earnings

E/V is enterprise value which is market capitalization plus net debt

EBITDA is earnings before interest, taxes, depreciation and amortization

Linking to dividend paying stocks, you will see from the above 7 of the companies are paying dividends which allows both money to be invested into the sectors of the economy where more chips are used as well as pay dividends to you. The larger companies tend to be more diversified into products that people are buying and have adapted as people moved from desktop to laptops to smart phones – the chips are different. Every once in a while you need to go into a computer shop or look through a computer magazine to see what opportunities people see in the future. With every trend, there will be winners and losers, some with go on for a period of time, some will be short. Often times with larger companies with cash on had, they will be able to move through the trends a little better than a small cash strapped company.

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

A couple of weeks ago, my hair was cut by the barber which given the warmer weather it felt great. If you think about the hair care industry – billions of dollars are spent every year, we all grow hair. We have to do something with it or the hair will grow towards you feet and you will be doing something with it. The are divisions of companies which cater to hair such as Head and Shoulders which is part of Proctor and Gamble (P&G); there are many hairdressers which means some are very good and others likely just good and remember your hair does grow back. There are many price points to cut your hair which means some people earn a sizable income from cutting hair. Next time you are in the shop look around at the products the hair dresser uses and you can begin investigating.

Linking to dividend paying stocks, while we all grow hair, the direct link to making money from the hair care industry is not as simple as you first think it should be. The entry point into barber chair is open to many participants – many hair cutters rent the chair, which is one reason why people move around. To make money is to find direct linkages or products that are used by the mass group of people on a regular basis. To make money you need to be selective.

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

 

Last weekend the author attended a dance rehearsal of a ballet company, there were some obvious benefits of watching young women and some men stretch their bodies in front of the audience. The class started the exact same for the juniors to the senior members of the dance company – everyone started with the same exercises. They do this 5 or 6 days a week, for the dancers likely 7 days, but everyday, they start with the same stretching of muscles and move on to where their bodies can turn out. They do not start with the exciting stuff, or go through the motions, they stretch until they are ready to do the big turns. The teacher made comments and one of the things he said was to complete the circle.

Linking to dividend paying stocks, similar to the dancers you start at the basics before you jump to the more exciting stuff. The basics to investing is make a profit – sell more goods than you buy at a healthy margin. It sounds simple, it is hard to execute. If you invest in profit making companies, the stock market will reward you in the short and long term with higher multiples and when the market goes up and down, the profit making companies retain their value longer and bounce back faster. Think of the circle or the economic cycle but start with basics – does the company make a profit to pay the dividend? then ask how much more?

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

Similar to most countries around the world, the US economy was first settled on the shores by the sea, eventually railways were built to carry goods and people, then highways were built to carry cars and people and now planes help move people around. In the era of the railways in the western US, there were only a few routes to go through the mountains, and the first trains that made it had a monopoly and the seemingly easiest paths. There are many stories about building the first national railroad, suffice to say it was built. After it was built great amounts of coal and minerals including gold were discovered to ensure the need for the freight trains. In the year 2000 David Haward Bain who previously wrote a book about the building of the Union Pacific decided to follow Highway 30 by car with his family – on a road trip. His purpose was to view from the highway what many had done from either covered wagon and trains and go west. The book The Old Iron Road by David Bain published by Penguin Books, NY, 2004 is the result.

There are many stories which result about the west and the opening of it to settlements. While driving and stopping and viewing then researching the history of the sites is the book which makes it a very interesting read and it hoped if anyone goes on road trip they will do something similar. In the end, people wish to make a living and move towards where there is opportunity, In the west, the projects tended to be big and still are for on the plains – there are lots of open space and in the mountains, mountains need to be moved.

Linking to dividend paying stocks, if you read a book such as The Old Iron Road, you will notice chance is not something that happens very often, there tends to be a reason. A town is selected as the switching yards over another community; the promoters of the railway have a side deal with someone who can guarantee them tonnage shipped; what we do now with machines back in the 1880s took lots of people (who all have stories); there are lots of booms and busts; generally we try to remember the positives of what really happened. There are always good stories and some of them will help you make money or by looking towards how sustainable the ventures are will help you keep your money. For example a town is a switching yard, it is hard and expensive to move the institutional investments; it is possible but hard to, asking yourself why will the area continue to generate funds for the company is a good question.

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

The sun is shining and the world is open to you – the road awaits and you maybe off on a road trip, did you look at a map before you leave? Most people do, unless they are planning on going the same way as they did before. Have you ever thought about the map or atlas? who drew them? who was the first? what skills were needed? what was going on in the world and did the person actually have to travel around the world to know? The book Mercator – the Man who mapped the planet by Nicolas Crane first published by Weidenfeld & Nicolson (paperback by Phoenix in 2003) London UK, 2002.

To make maps, particularly in the 1500’s took many skills, not the least is gathering great amounts of information to properly fit on the map. One can think about our present day, most of the world has been discovered but names of places continually change and need constant updates for the most current map. If you think about the 1500’s the patrons for the globes were typically the princes or kings of the government of the day. Each of them had slightly different religion or thoughts about religion and it was reflected in the maps of the day. For the maps of the day, did not just have land masses but drawings on the side to show the importance of the prince or king. In the 1500’s this was both good and bad – the Catholic Inquisition happened (Luther had introduced Protestant and the leaders who were Catholic when they went to war jailed anyone they thought or supported the Protestants), which meant the symbols on the maps could put and did put Mercator into jail. Fortunately, the university supported him and academic freedom helped release Mercator from jail.

When Mercator was not bothered by the clergy or Imperial pressures, his thought process was free to take lateral excursions, changing course, bursting the banks to flood the fields of conventional wisdom. Mercator’s greatest asset: the ability to reconcile apparently disparate concepts, to articulate the result with unprecedented graphic eloquence. Some would describe his gift of one of originality; he viewed it as an exercise in harmonization.

In a simpler language he took the great amount of information, and determined correctly how it fit and communicate that thorough his maps, which allowed others to make decisions. In addition, in the mid 1550’s the center of books and printers and dealers of Europe was Frankfurt and the twice yearly book fairs drew the  public. Mercator was represented and the quality of his map making lead to sales which allowed him to continue to make more maps.

Linking to dividend paying stocks, Mercator was a great map maker which lead to making maps, but the real story is the ability to sell his product through the printing houses of Frankfurt. His ability to harmonize the information, the placement of longitude lines which made sailing accurate, his use of italic in the font, through the use of triangulation he became the world’s first scientific mapmaker. There is much to celebrate about Gerard Mercator, to bring us to mere morals, it helps if you have a map for your investments. The map can be goals, expectations, when to sell, when to add to your holdings with an understanding things happen in the world, most of what happens is beyond your control.

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

 

The sun is shining and the world is open to you – the road awaits and you maybe off on a road trip, did you look at a map before you leave? Most people do, unless they are planning on going the same way as they did before. Have you ever thought about the map or atlas? who drew them? who was the first? what skills were needed? what was going on in the world and did the person actually have to travel around the world to know? The book Mercator – the Man who mapped the planet by Nicolas Crane first published by Weidenfeld & Nicolson (paperback by Phoenix in 2003) London UK, 2002. Many of the above questions are answered and the story is very interesting. Gerard Mercator was the gentleman’s name, born in modern-day Belgium, a cobbler’s son was able to go to university  to study mathematics. His gift was to use the skills to map making from which font the print should be and works best on the globes of the world. In the 1500’s the globe has still an unknown because the travelled areas of the world were the trade routes from Europe south to Asia with North and South American only recently discovered or at least the Atlantic side known, the Pacific side was thought to be closer to Asia than is reality.

One of the hardest aspects of being a map maker in those times is whatever we are, we believe we are in the center of the universe (or least our universe), one can easily imagine a king who commissions the work of a globe expecting to see his country larger than what it really is. One can also easily imagine the institutions of the day not wanting to see too much change from their perspectives for it was not so long ago people believed the world was flat, now they were finding out the world is round. Also who was to pay for the time and effort needed to make a globe? who was the patron or as long as the state was in good standing, things were fine.

In the years that followed the globes became better because errors become clearer with the knowledge of magnetism. Mercator had increasingly absorbed by the nature and location of the magnetic pole and the behaviour of the compass needle at various points of the earth’s surface. It changes and if you were on a sailing ship and did not take it account, you would miss your mark.

Linking to dividend paying stocks, when you do make your investments you need a map, but which type of map are you using? Is your map updated? is it leading you astray? things change in the world and economic cycles changes communities in the area. It is why sticking to the best companies often makes you the most money in the long-term.

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

If you own a house you need to have insurance. At first you needed to have insurance when the house was mortgaged for the banks insisted you have insurance. For many banks. they will happily give you a quote from the bank owned insurance company and a possible discount for you. No matter who you take the insurance from, you need the insurance. After you have paid the mortgage off, the house is yours, now you need the insurance to protect against possible losses which hopefully never come. Although one never knows when a fire will happen or whatever you are covered for, although as a consumer you know the higher the deductible (the more you pay before you claim) the lower the insurance rate, but you still need insurance. Whether you pay the insurance in full at once or through semi-annual payments or monthly, the insurance payment is one of many payments you will need to regularly pay.

Linking to dividend paying stocks, one of the reasons why insurance companies are a good investment is people need to pay their insurance. The insurance company then invests the premium and the less it pays out, the more money it makes. The insurance company has to pay something or there should be plenty of lawsuits from consumers wanting their money. The insurance companies receive many regular payments, similar to dividends which for profitable companies should be regular payments to the shareholders. You need to have insurance, having a regular payment to offset the ongoing costs of life is a good thing.

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

n the world of investing, everyone has a theory which is great and when something major has to the economy, some sectors should benefit more than others or there should be easy pickings. In the economy, oil prices have gone down which is good if you buy lots of fuel or transportation stocks. On May 29th in the Globe and Mail, Peter Ashton of Recognia Inc examined US Transportations stocks to see if the theory matches the reality. First Mr. Ashton limited or narrowed the field by setting a minimum market cap of $ 5 billion. When the price of energy was bouncing back and forth, the transportation sector was likely doing the same and he focused on companies whose stock prices has shown negative performances in the past 13 weeks. In addition, we desire growth and some companies analysts are projecting growth by 10% or more. The final piece is companies with a price to sales ratios of 5 or less.

Rank    Company                                 Ticker   Market Cap  Price            Projected EPS       Price to Sales                 Dividend Yield

(US billion)   Perform %     %                         Ratio   %                                %

1.     United Continental Hold         UAL-N         19.8             -26.8             280.5                     0.66                                   0.0

2.     American Airlines                     AAL-Q          28.8            -19.3              269.9                     0.86                                   0.9

3.     FedEx                                           FDX-N         49.4            – 2.1                  43.4                     1.19                                      0.46

4.     Alaska Air Group                        ALK-N           8.1             – 3.2                120.8                    1.59                                    1.25

5.     Delta Air Lines                             DAL-N       34.2              -12.9                47.2                     0.9                                      0.80

6.     Southwest Airlines                      LUV-N        24.1              -20.6             211.6                     1.57                                      0.80

7.    Expeditors Int’l of Washington EXPD-Q       8.9             – 2.9                  32.7                   1.36                                       1.56

8.   JB Hunt Transport                        JBHT-Q      9.9              – 1.8                   28.0                  1.61                                        0.99

9.    CH Robinson Worldwide            CHRW-Q    9.2              -14.9                 24.9                    0.78                                      2.40

10.   UPS                                                  UPS-N       90.6            – 1.8                  13.6                      1.50                                      2.90

11.    Old Dominion Freight                  ODFL-Q      6.0            -10.5                53.1                      2.32                                       0.0

12.     CSX                                                 CSN-N      34.4             – 2.2                 12.0                      2.59                                      2.10

13.      Union Pacific                               UNP-N      90.1             -16.1                 31.6                     3.97                                       2.20

14.     CN Railway                                    CNI-N       48.0            -13.7                 20.6                     4.88                                      1.70

15.     Kansas City Southern                   KSU-N     10.3             -21.7                 20.6                      4.39                                     1.40

Linking to dividend paying stocks – it is given fuel is a major cost to the operations of the companies, it is good to look at what happens if fuel costs go down. The market remains tough for other reasons – the economy is not as robust as expected, China does not need as much bulk commodities so there can other factors to fit into your equation, but having a theory is a great place to start.

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

You did your research on what to buy, the choices you have narrowed it down and whatever you pick was the correct choice. The harder part is deciding when to sell. One of the reasons it is harder to sell than buy, is only in hindsight will you know you made the best decision. In a recent article George Athanassakos wrote an article titled A checklist to help you decide when to sell which should help you. Mr. Athanassakos is a professor of finance at the Richard Ivy Business School in London Ontario and the article was written in the Globe and Mail on May 29.

1. When management did not deliver on a major promise or lied.  If you are wondering what other problems the company has, it is time to sell, wait to see how they do, then if you wish buy come back in a few months.

2. When the balance sheet is deteriorating. When the accounts receivables and inventories rise from historical norms it is time to exit. If goodwill exceeds 20% of the company’s assets or debt is too high, move to alternatives.

3. When the market price rises beyond intrinsic value.  From the Theory of Value Investing once the stock price is higher than the intrinsic value, this is most straightforward reason to sell.

4. When the stock has risen so much that it represents a high proportion of an investor’s portfolio.  If you diversified portfolio and one of the stocks rises in value (which is good) but now represents 25% or more of your portfolio, value investing means to sell part of your holdings to lower the percentage the stock represents in your portfolio.

5. When a stock has risen sharply in a short time.   You made a great decision, the stock price is up faster than you expected it would be. Look around in the market for there are other opportunities, take your profits.

6. When a merger takes place. You will be either offered shares in the new company or cash which means you have to sell.

7. When you improve your price-to-value substantially. If one of your stocks is close to what you expect to be the high for the year, sell and switch to other companies in the grouping which are selling for less than their highs.

8. When a company’s business model has changed. When you did your research, you looked at the business model or strategy, if it changes (it maybe for the better) but you need to look at why it has changed and if the reasons keep you invested. If the change is substantial – you should look at alternatives.

Linking to dividend paying stocks, while the idea is to buy and hold for a longer period of time, companies go through cycles and sometimes it is better to sell and find another company. For companies that are growth stocks, you will move in and out of them as they grow or do not grow, for dividend paying stocks the focus is on the dividend, worry about growth of the stock price. If the dividend can not be paid it is time to leave (and usually there are plenty of clues along the way). Whether you have growth stocks or dividend stocks when you look at the reason why you bought  it will help you when it comes to the selling aspect.

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