Daily Archives: September 17, 2018

Growth Stocks

Capitalize On The Growing Worldwide Airplane Pilot Shortage

I’m a great believer in looking at areas that few on Wall Street do for growth opportunities. I like to find a major positive change happening in the global macroeconomic environment that will benefit a sector or industry and then uncover a company that should benefit from this change in the long term.

I’ve recently discovered such a change and want to bring it to your attention… the growing worldwide airplane pilot shortage.

All of the world’s largest countries, both in the developed and developing world, cannot find enough pilots to fly their planes. This will affect you as a consumer because if airlines cannot find enough pilots, they will reduce service or even drop many routes entirely. But it could affect you more as an investor because of the profit opportunity it offers.

The Boeing and the ICAO Studies

Last summer, Boeing (NYSE: BA) released a study that estimated the world’s airlines will need about 637,000 new pilots over the next two decades to meet demand. That works out to be 87 new pilots entering the commercial ranks every day for the next 20 years!

About 40% of that number will be needed just to replace the pilots globally who will be retiring over the next 20 years. This is a similar problem that I described in the May issue of Growth Stock Advisor with regard to U.S. healthcare staffing as the baby boom generation retires.

The remaining 60% will be needed to cover all the additional flying that airlines are expected to do over the next 20 years, especially in the ultra-fast-growing Asian air markets. That’s one of those positive macroeconomic trends I mentioned earlier – rising incomes in places like China and India are leading to an unprecedented tourist boom emanating from Asia. More on that later.

But even here in the slower growing U.S. market, more pilots will be desperately needed. Boeing said the U.S. market will need about 117,000 new pilots over the next two decades. That’s roughly 5,800 pilots a year or, over three years, it’s the equivalent of the current number of pilots that American Airlines has.

Think about that for a second: imagine if a major airline, like American Airlines, had to replace every pilot every year for the next 20 years. That’s where we are right now and where one of my newest finds fills that niche.

A similar study was conducted by the International Civil Aviation Organization. Its study found that the global airline industry will need 980,000 pilots in 2030, more than double the level of 2010. That will require the training of 50,000 pilots annually.

Just Put More People into Pilot Training, Right?

Bottom line – a lot more pilots will be needed globally. But why aren’t more people pursuing an aviation career?

In simple terms, it isn’t easy to become a pilot.

Even ignoring the physical requirements, it’s darn expensive to become a pilot. Here in the U.S., it costs about $125,000 (on top of whatever you spend for a four-year college degree which is usually required) to get the necessary ground and flight training you need. And thanks to a Congressional mandate, you need to have at least 1,500 flight hours before any passenger airline will hire you.

A Leading Trainer for Professional Pilots

CAE (NYSE: CAE) has been in business since 1947 and offers you a “pure play” training company driven by the long-term growth in civil aviation around the world. That is in contrast to some of its competitors such as L3 Technologies (NYSE: LLL), which are involved in other businesses. The company also is riding the wave of simulation-based training in areas with critical tasks including defense and security as well as healthcare.

It continues to define global training standards with its innovative virtual-to-live training solutions to make flying safer, maintain defense force readiness and enhance patient safety.

CAE has the broadest global presence in the industry, with over 160 sites and training locations in over 35 countries that includes the world’s largest civil aviation network with over 50 training locations, more than 250 full flight simulators, over 2000 instructors and more than 160 aircraft. Each year, CAE trains more than 120,000 civil and defense crew members and thousands of healthcare professionals worldwide.

Source: company investor presentation.

One reason I like CAE is that the company is the leader in these markets, but still with lots of room for growth thanks to the significant, untapped market opportunities that exist in its three core businesses.

While CAE is a market leader in civil aviation training, it addresses less than a third of what the company estimates to be a $3.5 billion training market. Company management is well aware of the incredible growth opportunities here. It says that 50% of the commercial pilots that will be active in 2027 have not begun training yet. CAE predicts there will be a need for 180,000 new captains and 250,000 new first officers over the next decade.

In defense and security, CAE has a 7% share of the approximately $15 billion training systems integrator (TSI) market. In addition to contracts with all the U.S. military branches, CAE also trains people for the U.K. and Swedish militaries as well as NATO.

In healthcare, it is an innovation leader in the simulation-based healthcare education and training market. The company sees significant opportunities for long-term growth as the healthcare market increasingly adopts simulation as a means of training. CAE Healthcare was the first company to bring a commercial Microsoft HoloLens mixed-reality application to the medical simulation market.

By using the HoloLens, the CAE Vimedix AR ultrasound simulator integrates real-time interactive holograms of the human anatomy. If you think back to last month’s issue and the critical need for more healthcare personnel, you realize how much this type of training is needed.

Another reason I like CAE is that much of its revenues are recurring due to long-term agreements with many airlines as well as military services. In 2017, 60% of its revenues were recurring, up from 43% in 2008 and just 15% in 2001.

In addition, of its $2.7 billion in 2017 revenue, 58% came from civil aviation training solutions and 38% from defense and security training programs. The remainder came from its small, but rapidly growing, healthcare business.

CAE’s revenue base has what I like too – a broad geographic mix with 36% of 2017 revenue coming from the U.S., 28% from Europe and the remaining 36% from the rest of the world. It is the latter area that is growing the quickest thanks to the aforementioned rapid growth in Asian airline travel.

The macrotrends I have been telling you about are already coming together to boost CAE. The evidence can be seen in its latest fourth quarter and full fiscal year results, which sent the stock up 5% immediately afterwards. Let me fill you in on some the details…

Annual fiscal 2018 revenue was C$2.8 billion, up 5% from the prior year. Annual net income attributable to equity holders from continuing operations was C$347.0 million (C$1.29 per share). This includes an income tax recovery related to the U.S. tax reform, and net gains on strategic transactions relating to CAE’s Asian joint ventures: Asian Aviation Center of Excellence and Zhuhai Flight Training Center.

Marc Parent, the company’s president and CEO, summed up the company’s performance:

“CAE’s training strategy is proving successful as evidenced by our strong performance in the fourth quarter and fiscal year 2018 and our delivery on our growth outlook across all segments. I am especially pleased with our increased momentum to be the recognized global training partner of choice, as underscored by a record $3.9 billion annual order intake and $7.8 billion backlog. We grew earnings per share by 8% this year and increased return on capital to 12.3% on higher training demand and the deployment of accretive growth capital. In Civil, we grew segment operating income by 12% and booked a record $2.3 billion in orders, and in Defense, we grew segment operating income by 6% and booked a record $1.4 billion in orders. In Healthcare, we resumed growth with the launch of innovative products and a broader market reach. Our core markets benefit from strong fundamentals and secular tailwinds, and as we look to the year ahead, we expect CAE to exceed the underlying rate of growth in these markets.”

I especially like his last statement saying that CAE would exceed the underlying rate of growth in markets that are experiencing accelerating rates of growth themselves. But keep in mind CAE is a company with solid fundamentals behind it and not some company that adds blockchain to its name, sending the stock soaring.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
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Source: Investors Alley 

Market Preview

Market Preview: China Trade Tariffs Appear Imminent, Earnings from General Mills and Red Hat

News that President Trump is not happy with how China is responding to the threat of sanctions on $200B of Chinese goods sent the markets lower Monday. Larry Kudlow, the President’s National Economics Council head, said an announcement from the White House is likely very soon. This was followed by a White House statement that an announcement would be made after the markets closed Monday. Kudlow, in a CNBC interview, went on to say the Republicans likely will not pass a second tax cut before the midterms. Talk of an announcement of more cuts had buoyed the markets the past few weeks. While tariffs on $200B in Chinese goods is nothing new, the market may be beginning to doubt the President’s strategy. The fear that a full blown trade war with China will erupt should at a minimum keep the market in check, and may signal increased volatility short term.

General Mills (GIS) reports earnings on Tuesday. The packaged goods company is struggling to dig out of a hole in 2018. The stock is down almost 20% on the year, and has struggled with competition from private label on the low end and boutique operators on the high end. Analysts will be looking for a plan moving forward that addresses competition and compressing margins. Also reporting on Tuesday is Autozone (AZO). Automotive parts companies have done quite well this year, but competitors like Advance Auto Parts (AAP) look a little vulnerable at these levels. Investors should watch Autozone carefully for its impact on the overall sector.

Redbook retail numbers and the housing market index will both be released Tuesday morning. The housing market index, which measures sentiment among homebuilders, is expected to remain flat due to rising costs and a lack of workers. Wednesday, investors will examine housing starts, mortgage applications, the current account for trade, and petroleum inventories. The current account numbers will be closely scrutinized in this trade environment, and petroleum numbers will be closely watched to determine what the impact of Florence has been. Housing starts are expected to bounce back after a weak June and July. The consensus is at the high end of the range, and calls for 1.24 million new home starts. A miss will definitely be a negative for the market.     

Wednesday investors will hear earnings reports from Red Hat (RHT) and Copart (CPRT). Red Hat had a great first half of 2018, but then came crashing down after its last earnings call. Slowing growth was the culprit last quarter. Analysts are looking for additional business moving to the cloud, and how that transition is progressing for the open source company. As the economy has ratcheted higher in 2018, so has Copart. The online auto auctioneer reported increased revenue last quarter of almost 28%. The stock may be priced for perfection at this point. Investors may be interested to hear of any impacts from Hurricane Florence on future earnings for the company.

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.
Pot Stocks

Cash Runs to Quality in This Growing $1.5 Billion Cannabis Niche

Every investor should understand how the market for cannabis is developing – now and over the coming weeks, months, and years.

Choosing the companies best positioned to profit in the emerging market helps you gain an edge over those who simply “throw darts at a list of stocks” and pick cannabis companies without regard to industry realities.

But as legalization becomes more widespread throughout the United States and across the whole of Canada investors still face questions about what the realities of a mature cannabis market might be.

For some answers, we can look at Colorado – the first U.S. state to make recreational cannabis easily available.

That made some realities evident.

We know, for example, that in places where vaporizing (aka “vaping”) cannabis concentrate is legal, that form quickly takes over a significant part of the market.

Vaporizable concentrates are a value-added product, but they’re also fairly commoditized, meaning customers shop by product attributes, such as how rigorously it’s been tested, say, or the ratio of tetrahydrocannabinol (THC) to cannabidiol (CBD), as opposed to shopping by brand.

The traditional marijuana bud, or “flower,” market, which in Canada is worth about $1.5 billion today, is still fragmented. Customers there are still experimenting with different strains, different growers and brands, and different cannabinoids and THC to CBD ratios. In other words, there are a lot of questions.

One big question facing the market – both in Colorado and worldwide – is whether consumers are willing to pay up for “super-premium” cannabis. That is, cannabis that is more expensive to produce… but that produces a better smoking experience.

There are many producers claiming to make such cannabis – that’s why it’s such a big question. After all, no one is going to advertise that they make the lowest-end cannabis on the market any more than Busch admits that its beer is lower-end than a craft brewer’s.

So how can an investor tell when a company is really producing super-premium cannabis… or merely claiming to grow it?

That’s a very important question because, naturally, the investment case for the genuine super-premium product tends to be much stronger than it might be for the pretenders.

One company last week gave us the answer loud and clear…

So Good, Even Competitors Are Racing to This Company’s Product

Last week, Supreme Cannabis Co. Inc. (OTC: SPRWF) signed a deal that serves as an important indicator of the direction of the market for cannabis “flower” – cannabis meant for smoking.

Supreme is a Canadian grower that started when a father began growing cannabis to treat his daughter’s chronic pain. All along, the company has claimed that its brand, 7ACRES, is superior to other cannabis.

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And lately it’s been proving it.

As Canada moves toward recreational use on Oct. 17, we’ve seen a variety of go-to-market strategies, but none quite like that of Supreme and its 7ACRES brand.

In addition to selling to retailers in Canada’s provinces, Supreme is selling its product to other producers. The idea is that these companies, primarily producers of commodity-grade cannabis, want a super-premium product to round out their product lines. Until recently, 7ACRES struck up these partnerships primarily with other smaller growers.

The company looks to be scaling up in the partnership department, though. Supreme recently signed a deal with one of Canada’s largest producers, Tilray Inc. (NASDAQ: TLRY). That puts Supreme in partnership with two of Canada’s giant producers; it previously signed a deal with Aurora Cannabis Inc. (OTC: ACBFF).

That these giants felt they needed 7ACRES product to supplement their own massive capacity is as clear an indicator as can be imagined that super-premium cannabis will be part of the sales mix in Canada – and that 7ACRES is producing real super-premium product.

The deals tell us investors two things:

  • There will be significant market segmentation in the cannabis market as it matures. Even as branding increases, there will be price-differentiated products targeted to different markets. This makes sense – the alcohol markets work the same way. In fact, the big beer producers have been acquiring craft brewers to gain access to all price and quality points in their markets. Similarly, a company like Diagio Plc. (NYSE: DEO), itself heavily rumored to be considering the purchase of a Canadian cannabis asset, sells whiskeys at price points from $15 all the way up to $500.
  • And there will be room for specialty growers in the long run. Right now, just about all cannabis producers are also growers. That’s actually an unusual industry model. High-end wine growers grow their own grapes, but lower-end producers purchase their grapes from independent farmers. Similarly, the beer and liquor companies don’t generally grow their own barley, corn, wheat, and rye.

In the long run, it’s clear that the cannabis industry will work like the wine industry. Most of the huge producers will sell off their greenhouses to commodity farmers if they can. Over time and with regulatory change, cannabis production will move outdoors and to low-cost areas in South America and Africa. However, there will still be room for specialty growers, whether indoors or outdoors.

As an investor, these facts will not be important – or baked into share prices – for a few years yet… which makes right now a smart time to move and make the most of our early advantage.

The bottom line right now: When a company claims to be producing a premium product, the best indicator of whether it’s telling the truth is if its competitors endorse that claim… with their wallets.

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Source: Money Morning