Daily Archives: September 19, 2018

Growth Stocks, Technology

The Clear Winning Investment from Apple’s New iPhone Strategy

Last week, Apple (Nasdaq: AAPL) unveiled a trio of new phones that followed in line with its corporate strategy. That is, get buyers to pay higher prices for the phones while hopefully gobbling up more services (such as entertainment) as growth in the global smartphone market slows to a crawl.

The iPhone Xs (starting at $999) updates last year’s flagship model with updated cameras and a faster A12 processor. The iPhone Xs Max is the higher-end version and has a 6.5 inch OLED screen, with pricing that starts at $1,099. And for the first time, there are 512 gigabit storage options.

The third phone is Apple’s biggest bet in the sector – the iPhone Xr. Like the iPhone X, it has facial recognition and an edge-to-edge display, but is priced starting at only $749 because Apple used older LCD screen technology and aluminum instead of stainless steel. This phone is expected to be the real driver of volume for Apple with annual sales expected to be in the 100 million units range.

Apple, of course, hopes this year’s line-up will be as successful as last year’s. Apple’s iPhone revenues increased 15% year on year in the nine months to June, despite unit sales of iPhones being flat over the same time period.

The Watch That Is a Health Monitor

Apple also unveiled an Apple Watch with a larger screen and a faster dual-core processor called the S4. It also has a lot more health capabilities, making it the most significant upgrade to the Watch since it first went on sale in 2015, turning it into much more of a health monitoring device. This move into health is a major emphasis for Apple, as I’ve discussed in previous articles.

This new version – the Apple Watch Series 4 – has new health sensor and apps such as an ECG (electrocardiogram) monitor. Apple got clearance for the app from the Food and Drug Administration.

Related: 3 Tech Stocks to Buy as Apple Moves Into Healthcare

The Watch’s powerful sensors can detect when someone has a fall and will deliver an alert and call emergency services if the user does not move for a minute after the fall. The ECG capability will be available later this year and is supposed to have the capability to sense atrial fibrillation. FDA Commissioner Scott Gottlieb said, “The FDA worked closely with the company as they developed and tested these software products, which may help millions of users identify health concerns more quickly.”

As someone with a unique heart condition, I wonder though how many false readings the watch will produce, causing unnecessary trips to the doctor.

Even though the Watch is not a runaway hot seller like the iPhone, it is the world’s best-selling smartwatch and is helping Apple expand into health, which is a plus. The new Watch line start at $399.

The Investment Message

One takeaway I had from the recent Apple event is that Apple is facing growing challenges in the smartphone market. This is particularly true if you look outside the U.S. market. More on that in an article in the not too distant future.

But I also had other takeaways… and found a winner and a loser from the Apple event.

The Winner – Taiwan Semiconductor

The winner has to be Taiwan Semiconductor (NYSE: TSM), also known as TSMC, which is the world’s largest contract semiconductor manufacturer with a 56% market share. And it dominates Apple’s chip production ever since Apple became Taiwan Semiconductor’s biggest client in 2015.

TSMC is also at the forefront of the next phase in the evolution of the smartphone.

Apple’s latest phones are the first devices anywhere to include a chip (A12 Bionic) made with 7 nanometer process technology. That means the width of the features etched on to the silicon has reached a new level of miniaturization, down from the previous 10 nanometers. The chips are designed by Apple but manufactured by TSMC. Getting to the 7 nanometer level has been much tougher for the industry than previous moves down in size, and a sign of how Moore’s Law — which predicted regular advances in the number of transistors that can be squeezed on to a chip — is running out of steam.

But there is much more involved here than just size. Apple’s chip includes a specialized accelerator for machine learning known as a neural processing unit. With the promise of applications that can learn from masses of data, this is where much of the effort in new hardware design is now focused.

Last month, GlobalFoundries – the world’s number two semiconductor contract manufacturer – put off its own plans for 7 nanometer chips indefinitely. And Intel, whose long leadership of the chip industry is now in question, continues to struggle. After several delays, products containing comparable chips will not be available until late next year at the earliest.

This leaves TSMC in the catbird seat with production of the most advanced processors now left to just two companies – TSMC and Samsung. TSMC will be the likely the primary beneficiary as advanced technology investment grows too expensive for all but the leading industry players, as advanced technology becomes more of a ‘winner takes all’ business. By the way, GlobalFoundries’ withdrawal followed a similar move last year by United Microelectronics, the third-biggest player.

The Loser – Fitbit

With Apple moving into the healthcare sector in such a big way with its new Watch, a likely loser is Fitbit (NYSE: FIT). On the day Apple unveiled its Watch plans, Fitibit stock fell more than 5%, bringing its loss over the past year to 16.5%.

Outside, the U.S., it is facing similar competition from China’s Xiaomi, where after years of maintaining its leading position in the wearables market, Fitbit is now losing ground to the Chinese company.

It seems inevitable that Fitbit’s growth will continue to slow as smartwatches outshine the fitness wearable category. Despite the broad range of devices Fitbit provides at different price points, it faces tough competition at both the high- and low-end products. At the high end, there is Apple’s multi-functional Apple Watch, which renders Fitbit devices useless. And at the lower end, the company’s biggest competitors are Xiaomi and also Garmin.

Fitbit would also be affected adversely by tariffs on China since it uses China-based contract manufacturers. This will only add to the pressure on it from well-funded competitors, Apple and Xiaomi. Despite the optimism from some Wall Street firms, it is likely headed toward becoming a footnote in the history of wearable health devices, which is still in its infancy.

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Source: Investors Alley 

Market Preview

Market Preview: Tariff Fears Can’t Hold Back the Dow, Earnings from Micron and Darden Restaurants

Increasingly heated trade rhetoric between the U.S. and China did not dissuade the DJIA from a .61% rally on Wednesday. Pressure from Amazon (AMZN) held back the Nasdaq. Financials drove the Dow higher, even with financial analysts from companies like JP Morgan and BofA beginning to sharpen their knives when it comes to the bull market. Financials offset the increasingly negative outlook for utility stocks as rates have begun rising. While trade remains the main focus of market pundits, strong fundamentals continue to shine through in price action.  

Micron (MU) headlines Thursday’s earnings calendar. Investors in the stock have been on a wild ride in 2018. The company twice breached the $60 level only to fall back into the low $40s where it began the year. Analysts will be looking for a cheerier outlook from the company than the one it presented last quarter. Cautious management comments about the future sent the stock reeling. Also reporting on Thursday is Darden Restaurants (DRI). The Olive Garden owner has been on a roll with positive same store sales increasing quarter after quarter. Cheddar’s, Darden’s newest acquisition, was the lone black sheep last quarter. Analysts will be anxious to hear how the chain has improved.

Finally, Thor Industries (THO) will report on Thursday as well. The announced acquisition this week of Erwin Hymer, a European RV maker, gave the stock a small lift after falling throughout most of 2018. The company hopes growth in Europe will lift it out of the doldrums. Analysts will be looking for a report of integration plans and what the outlook is for the newly purchased company. The Friday earnings calendar is clear at this time.

The Thursday economic numbers will provide investors with a range of items from which to pick. The news includes jobless claims, the Philly Fed Business Outlook Survey, existing home sales, and leading economic indicators. After four months of slowing, existing home sales are expected to rise slightly from 5.34M to 5.36M in August. Economists are keeping a close eye on the housing market for signs of deterioration they fear may spill over into the general economy. Friday is a quadruple witching day with market index futures, market index options, stock options, and stock futures all expiring. These days are often more volatile than usual. Economic numbers Friday include PMI composite flash numbers and the Baker-Hughes rig count. Composite PMI is expected to come in at 55.1 almost unchanged from last month’s 55 level.

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Dividends

3 Shocking Ways to Get a Double-Digit Dividend From Amazon

Brett Owens, Chief Investment Strategist 

Amazon.com (AMZN) blatantly defies all of my investing rules, and gets away with it every time.

It drives me crazy! But instead of staying mad, we’re going to “get even” by banking some backdoor payouts the firm’s landlords dish out.

Of course Jeff Bezos’ company pays no dividend, nor does it buy back shares (and as I’ve written before, growing dividends and well-timed buybacks are sacred cows to me—and 2 keys to a rising share price).

In fact, the e-commerce giant has done the opposite, thumbing its nose at repurchases—busily adding to its share count since the late ’90s!

Amazon Waters Down Its Shares …

But just to show you what an incredible business this is, you can see that even though Amazon has diluted investors’ holdings with these share issues, that’s done zilch to crimp its massive per-share earnings and cash-flow growth:

… and Banks Huge Profits Anyway

To top it off, this stock is the definition of pricey: it’s never traded below 25 times earnings in its history—and today it trades at an absurd 158 times!

It’s infuriating for a value-focused, dividend-growth investors like us, but the numbers don’t lie: if you steered clear of Amazon, you missed one of history’s greatest stocks, with an unimaginable 101,000% gain in the since its IPO.

Too Expensive? Think Again

Tapping Amazon’s “Hidden” Dividend

So am I pounding the table on Amazon stock today?

Nope.

As much as I admire what Bezos has done here, I’m a dyed-in-the-wool dividend investor, and I still can’t make the leap.

So instead, we’re going to take a different tack, tapping big cash dividends from Amazon indirectly.

We’ll do it by buying smartly run high yielders that profit from the same megatrends Amazon is riding (and in many cases, the same megatrends the mavens at Amazon’s Seattle headquarters invented in the first place).

Think of it as a back-door way of wringing a dividend from a company that refuses to pay us one on its own.

Our first pick is about as close as you can get to doing just that. It literally is Amazon’s landlord: it rents space to the e-tail colossus and drops them straight into our accounts as dividends!

Amazon’s “Hidden” Dividend: Pick No. 1

I’m talking about Duke Realty (DRE), a 46-year-old real estate investment trust (REIT) with 499 warehouses in 20 markets.

Amazon is Duke’s No. 1 tenant, and Duke knows its best customer well, having teamed up with it for more than a decade:

A “Prime” E-Commerce Play

Source: Duke Realty NAREIT REIT Week Presentation

The e-commerce leader isn’t the only online-shopping play on that list, either.

Web-based furniture retailer Wayfair.com (W)—whose revenue surged 47% in the second quarter—has a spot, too, as do brick-and-mortar plays with growing online divisions, like Home Depot (HD) and Target (TGT). And courier XPO Logistics is another strong play on the online-shopping boom.

It is true that you’re only getting a 2.8% dividend yield here, but Duke has been goosing its payout in recent years and even handed shareholders a gaudy $0.85 special dividend last December, after unloading its medical-office business.

That was a canny move that frees up management to smoke out more opportunities in its core warehouse operation.

This was also the second special dividend in three years—and Duke can afford another, with the regular dividend eating up just 52% of funds from operations (FFO, the REIT equivalent of earnings per share), a very low ratio for a REIT.

Finally, Duke trades at 21.6-times the midpoint of management’s just-boosted 2018 FFO forecast of $1.33. That’s still a good level for a company that truly is Amazon’s landlord—and way cheaper than buying Amazon itself!

Amazon’s “Hidden” Dividend: Pick No. 2

I know American Tower (AMT) doesn’t seem like an online-shopping play, but it’s a no-brainer that as we move more of our lives online (including shopping), we’ll gobble up more mobile data.

And the cell-tower operator is cashing in through its 170,000 towers. Check out the chart below, which compares growth in the number of cellular subscriptions in the US with rising e-commerce sales:

2 Tech Megatrends With Huge Growth Ahead

Two things stand out here: first, while cell subscriptions grew more slowly, they didn’t miss a beat during the Great Recession, while e-commerce stalled out. That shows you just how durable this business is.

And keep in mind that this chart just focuses on the US. With the rollout of 5G technology, breakneck growth of the Internet of Things and ballooning middle classes in developing countries, there’s plenty of runway for AMT, which has 76% of its towers outside America’s borders.


Source: Digital Realty Trust August 2018 investor presentation

Management agrees: in fact, it’s so confident that it hikes AMT’s dividend every quarter. That’s paid off handsomely for shareholders, whose payouts have surged 182% in just the last five years.

More payout growth is dialed in: AMT’s adjusted per-share FFO surged 13.1% in the second quarter, and the company sent just 39% of its last 12 months of adjusted FFO out the door as dividends—ridiculously low for a REIT.

Finally, this stock’s a screaming bargain at 19.7 times the midpoint of management’s 2018 adjusted FFO forecast of $7.52 per share (which in itself is up a nice 12% from 2017).

So don’t be thrown off by AMT’s meager 2.1% dividend yield. It’s a smokescreen for a company whose dividend—and share price—have lots of jump left.

Amazon’s “Hidden” Dividend: Pick No. 3

Now that we’ve covered bursting warehouses and soaring data use—both of which we can directly tie to Amazon—let’s get into the guts of any e-commerce setup: the places they store the computer hardware that makes it all happen.

Enter Digital Realty Trust (DLR), which houses this gear for 2,300 customers at its 198 data centers across the globe.

As you probably know, demand for these facilities is exploding, due in no small part to booming e-commerce. Because every online purchase, Google search or Facebook “Like” on the planet is processed through a data center somewhere.

DLR buys and develops these facilities, then leases them to its clients, which include some of the biggest names in e-commerce, telecom, finance and media, including serial disrupters like Uber.

This top-quality tenant list is dropping a rising tide of cash into DLR’s coffers; in Q2 alone, FFO jumped 35%—and management is dutifully handing that cash to investors in the form of a dividend whose growth is accelerating:

An “Accelerating” Dividend—With Plenty More to Come

The best news? You can expect another big hike this March, when DLR usually rolls out payout hikes.

Why do I say that?

Because the company’s state-of-the art portfolio continues to draw in tech’s elite, which are in full-on expansion mode. That’s driving management’s bullish FFO forecast: the midpoint of its 2018 range is $7.51, up a nice 7% from 2017.

But we’re not just counting on FFO to backstop our payout growth. DLR also boasts a payout ratio of 61% of FFO—again, ridiculously low for REIT-land, where these ratios regularly top 80% and are still rock solid thanks to the predictable rent checks REITs collect.

And here’s something else that’s ridiculously low: DLR’s valuation, at just 18.8 times the midpoint of management’s 2018 FFO estimate of $6.55 a share. That’s a steal for a company that’s riding e-commerce, data usage, cloud computing and pretty well every other tech megatrend there is.

Forget Amazon: These “Hidden” Dividends Will Double Your Money FAST

Unless you’ve got a time machine and can go back and buy Amazon 10 years ago, or even better in 1997, you’re stillbetter off buying rapid dividend growers—especially accelerating dividends like DLR’s runaway payout.

Because I know I don’t have to tell you that you can only spot megatrend winners like Amazon in hindsight.

Back in 1997, if someone told you that you needed to put your nest egg in a tiny company selling books on something called the Internet, you probably would have thought they were nuts!

Dividend growth, on the other hand, is a slam-dunk strategy that’s proven itself over and over and over again throughout history.

It’s a simple 3-step process:

Step 1. You invest a set amount of money in a “dividend accelerator” like DLR and immediately start getting regular returns on the order of 3%, 4% or maybe more.

That alone is better than you can get from most other conservative investments now!

Step 2. Over time, your dividend payments go up, increasing the yield on your original buy as they do—so you’re eventually earning 8%, 9% or 10% a year on your upfront investment.

That should not only keep pace with inflation and rising interest rates, it should stay ahead of them.

Step 3. As your income is rising, other investors are also bidding up the price of your shares to keep pace with the increasing yields.

This combination of rising dividends and capital appreciation sets you up to earn 21.1% or more a year, on average, with almost no effort or active investing at all.

So which “dividend accelerators” should you buy today?

Editor's Note: The stock market is way up – and that’s terrible news for us dividend investors. Yields haven’t been this low in decades! But there are still plenty of great opportunities to secure meaningful income if you know where to look. Brett Owens' latest report reveals how you can easily (and safely) rake in 8%+ dividends and never worry about drawing down your capital again. Click here for full details!