All posts by Tony Daltorio

Growth Stocks

Profit From This One Stock As Fresh Water Becomes Scarce

Back in April, I shared with you about the growing problem facing humanity in many places around the world – the growing scarcity of water, which is the foundation upon which our very civilization is built.

Conditions are still very bad, making water even more of a no-brainer sector for some of your investment money. Let me fill you in on what has happened since my last article on water.

First, there was new satellite data on freshwater reserves from NASA that revealed dozens of regions across the globe are in danger of becoming the next Cape Town. If you’ll recall, I told you about the South African city of nearly four million residents that was in danger this year of becoming the first of the world’s big cities to run out of water. It had to impose severe water-saving measures to avert “Day Zero”… more on that situation in a moment.

Research from scientists at NASA and the Jet Propulsion Laboratory shows that worldwide fresh water reserves have changed drastically since 2002. The decline in water availability in regions such as northern India, north-east China, the Caspian Sea and across the Middle East has been blamed mainly on irrigation and groundwater pumping.

The study was the first to use gravitational satellite data to map global trends in fresh water availability across a 14-year period, drawing on data from NASA’s Grace satellites. The research identified areas where water resources rose or fell significantly during the period, and it found 14 regions where changes were primarily due to human activity, compared with eight regions where the changes were mainly caused by climate. As Jay Famiglietti, one of the study’s authors, noted “Fresh water availability is changing and water insecurity is much closer than we think.”

Day of Reckoning Postponed Briefly

That means there could a number of Cape Towns in our future.

Speaking of Cape Town, it managed to postpone it so-called ‘Day Zero’… barely. Theewaterskloof, the biggest reservoir for the city, is a vastly diminished trickle of its former self after three years of relentless drought have reduced it to barely a tenth of its 480 billion-liter capacity.

But for now, ‘Day Zero’ has been put off until 2019. The drought is still going, but the people have made unprecedented efforts in conserving water. In three years, Cape Town residents have more than halved their use from 1.2 billion liters a day in 2015, to just over 500 million liters (about 132 million gallons) at the start of this year. Part of the restriction included suburban residents living with just 50 liters (a little over 13 gallons) a day per person versus the global average of 185 liters.

If and when ‘Day Zero’ restrictions kick in, residents’ water rations would be cut to 25 liters a day. This will be triggered when overall dam levels fall to 13.5% – they were 19% recently.

Water and Geopolitics

Water is also becoming more important geopolitically. Take a country that has been in the news a lot lately – Turkey.

Turkey is the country where the very important Tigris and Euphrates rivers originate and it decides how much of the water to release to its neighbors to the south – Iraq and Iran. It recently decided to restrict the water flow on the Tigris River as it fills a reservoir behind a newly-built dam. Many of those dams, by the way, flooded the traditional lands of the Kurdish people that President Recep Tayyip Erdoğan is constantly fighting against.

That restriction of the Tigris is not good news for those downstream. In Iraq, for example, inflows this year are 40% below the long-term median.

Water shortages pose an immediate and very real threat to Iran, Turkey’s ancient rival. Kaveh Madani, a former Iranian deputy vice-president for the environment and a professor at Imperial College London, said to the Financial Times: “This is not a water crisis. It is a bankruptcy.”

He was not exaggerating the seriousness of the situation. Drought now afflicts 97% of Iran. The country’s most serious recent protests were not against “moderates” or “conservatives” in the government and the average person there could care less about the U.S. withdrawal from the nuclear deal… they were protesting about the lack of water.

The protests are aimed in the right direction – poor government policy. Iran’s policy to raise national food production has led to the cultivation of marginal farmland and, in turn, over-irrigation, salinification and increased desertification.

Water Investments

As you can see water is becoming more and more crucial and is a must-own investment. So how can you participate in the water investment thesis?

The broadest way is through exchange traded funds of which there are five water sector ETFs. The one I like the most is the former Guggenheim S&P Global Water Index ETF, which is now controlled by Invesco and is called the PowerShares S&P Global Water Index Portfolio (NYSE: CGW).

This is nicely balanced geographically with about 45% in the U.S. and the rest overseas. The top two sub-sectors within the fund are utilities (46%) and industrials (41%). Wall Street is apparently still in the ‘ignorance is bliss’ mode when it comes to the global water situation because this fund gained only 6.7% over the past year and is actually down 1% year-to-date.

Among its top ten positions are names that should be well-known to U.S. investors: American Water Works (NYSE: AWK), Xylem (NYSE: XYL), Idex (NYSE: IEX), Danaher (NYSE: DHR) and Aqua America (NYSE: WTR). Both AWK and WTR are water utilities, while the other three are industrial companies.

Interesting to note that these stocks have actually outperformed the ETF on an individual basis, which is why I almost always opt for individual stocks instead of an index or an ETF. Here are the gains for these stocks on a one-year basis and year-to-date respectively:

  • American Water Works – 8.39% and a minus 2.75%
  • Aqua America – 12.1% and a minus 3.5%
  • Danaher – gains of 24% and 8.4%
  • Idex – gains of 35.5% and 16.5%
  • Xylem – gains of 28.5% and 11.66%

One of these stocks is my top water recommendation in my Growth Stock Advisor newsletter – Xylem. It recently came in at number 7 on the Fortune 2018 “Change the World” list for its effect on the world.

Following the acquisition of Sensus in 2016, Xylem now operates in three segments: water infrastructure, applied water and Sensus.

The Water Infrastructure segment includes the company’s business surrounding the sourcing, collection, treatment, and transportation of water. The primary customers in this segment are public utilities and large industrial companies. These customers use Xylem products including industrial pumps, filtration and treatment equipment, and infrastructure control systems.

The Applied Water segment involves the Xylem’s products and services sold to residential, commercial, industrial, and agricultural end-users. Some of the products in this segment include pumps, valves, heat exchangers, hydro turbines, and dispensing equipment systems. Its Applied Water business focuses more on the distribution of water to households and businesses.

The third segment of Xylem’s business is Sensus. It represents the company’s largest foray into the smart technology market. Sensus is all about technology and includes a variety of smart meters, cloud-based analytics software, remote monitoring and data management systems, and smart lighting.

The company reported excellent results for the second quarter of 2018. It delivered $1.3 billion in second quarter 2018 revenue, up 13% year-over-year. Revenue for the quarter rose 8% on an organic basis, driven by double-digit growth in utilities and continued strength in the industrial and commercial end markets across nearly all major geographies. Orders increased 8% organically in the quarter. Xylem now forecasts full-year 2018 revenue of approximately $5.2 billion, up more than 10% versus the prior year. On an organic basis, Xylem now anticipates revenue growth in the range of 6% to 7%. Xylem also narrowed the range of its full-year 2018 earnings expectations, with adjusted earnings per share in the range of $2.85 to $2.95. This represents an increase of 19% to 23% from Xylem’s 2017 adjusted results.

Xylem’s stock is up more than 12% since the November 29 recommendation date despite the turbulent stock market we’ve had in 2018. And I expect much more upside in the years ahead due to the water situation globally.

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Technology

Buy This Profitable Tech Stock Beating the FAANGs

In my last article few articles (here, here, and here), we looked at emerging markets. I gave you the breakdown as to the markets I do not like and those that I do, in the Asia-Pacific region.

But even if you’re not a fan of emerging markets, please do not make the mistake many investors do… just because you don’t like China, for instance, do not throw out the entire Asia-Pacific region. If you do, you will be missing out on some wonderful opportunities to make money.

One of my favorite investing destinations is Australia, which is a stable, democratic country in the Asia-Pacific region. It has a number of top-quality stocks, including a technology stock that trades right here in the U.S. – Atlassian Corporation PLC (Nasdaq: TEAM). The company provides team collaboration and productivity software solutions worldwide. It offers project tracking, content creation and sharing, real-time communication, and service management products to all sizes of organizations.

What Atlassian Does

The company’s products include JIRA, a workflow management system that enables teams to plan, organize, track, and manage their work and projects; Confluence, a content collaboration platform that is used to create, share, organize, and discuss projects; HipChat that provides teams a way to communicate in real-time and share ideas, updates, codes, and files; Trello, a Web-based project management application for capturing and adding structure to fluid and fast-forming work for teams; Bitbucket, a code management and collaboration product for teams using distributed version control systems; and JIRA Service Desk, a service desk product for creating and managing service experiences for various service team providers, including IT help desks, and legal and HR teams. It also offers other tools for software developers, such as Stride, FishEye, Clover, Crowd, Crucible, Bamboo, SourceTree, and StatusPage.

The company recently entered into a strategic partnership with Slack. Atlassian currently has two offerings in the real-time communications market: Stride and Hipchat. With this partnership, Atlassian will exit the communications space. Slack has acquired the intellectual property for Stride and Hipchat Cloud, both of which will be discontinued. Atlassian will also discontinue Hipchat Server and Data Center and will be working with Slack to provide a migration path for customers of all four products.

Related: Sell These 21 Stocks About to Be Destroyed by Amazon [ad]

Microsoft Competition

Atlassian also said it has also made an equity investment in Slack to reinforce the long-term nature and significance of the partnership. The logic behind the two companies joining forces in this particular segment is that both were facing significant competition from Microsoft and its TEAMs product that is offered to its Office cloud customers. Microsoft also offers a free version to people that do not subscribe to Office 365. The deal will let Atlassian and Slack focus on the area where they lead – Slack in chat and Atlassian in project management software.

Microsoft is also trying to encroach on Atlassian’s turf with its recent $7.5 billion purchase of GitHub.

Initially, investors were fearful that Microsoft’s buy would hurt Atlassian. But it turns out the deal may actually bolster Atlassian’s Bitbucket business, which competes with GitHub in the business of storing code for companies and software developers. Immediately after the Microsoft announcement, the company’s Bitbucket enjoyed its best day ever in terms of new user sign ups.

The reason is straightforward – Atlassian offers better products at lower costs. Bitbucket prices are significantly lower than GitHub’s due to its focus on spending more on research and development rather than sales and marketing (more on this in a second).

Atlassian’s Unique History

I have been following Atlassian for a number of years because of its uniqueness among tech firms. Let me fill you in briefly on its history…

Because of its Australian roots, it was a unicorn that was valued well below its Silicon Valley peers.

Part of the reason for that was that the company did not sell much stock (only about $200 million) to private investors. So there was not the typical feeding frenzy sending valuations soaring. And the potential future valuation potential had not been already squeezed out by the venture capitalists.

Also, Atlassian was unique in that the company had always been profitable. I’m sure the investment banks on its IPO had difficulty pitching this unique asset – a technology company that had healthy revenue growth, positive cash flow and a reasonable valuation. What a contrast from what normally comes out of Silicon Valley!

 And now its most unique aspect – Atlassian does not have a sales team. Its business grows simply on word of mouth about the high quality of its products. I absolutely love that concept… letting the quality of your product speak for itself!

Atlassian Still Growing

The lack of a paid sales staff certainly has not slowed down Atlassian’s growth.

Its latest quarterly report sent the stock soaring by rose more than 23%. The company reported financial results for fiscal Q4, with earnings and revenue that topped analysts’ expectations; it also provided guidance for fiscal Q1 and full year 2019 above forecasts.

For the quarter ended June 30, Atlassian posted earnings of $0.13 per share, compared with the prior-year period’s $0.09 per share. Wall Street analysts had expected EPS of $0.12. Revenue came in at $243.8 million, up from $174.3 million in the same quarter last year. That was again above Street estimates for revenue of $233.4 million.

The company expects fiscal first quarter EPS of about $0.19 on revenue of $258 million to $260 million. Wall Street analysts had been looking for guidance of $0.15 on revenue of $252.5 million. For fiscal 2019, Atlassian forecast EPS of about $0.77 on revenue of $1.146 billion to $1.154 billion. That compares to the Street view of EPS of $0.66 on revenue of $1.11 billion.

Not surprisingly, firms such as Oppenheimer boosted their price target on Atlassian. Oppenheimer raised its stock price target to $85 from $65 while retaining its outperform rating. “Strength reflects continuing good execution, broad-based product demand, and record new customer expansion,” analyst Ittai Kidron said in a note, while viewing its exit from the communications business positively because it’s playing catch-up in the business.” We’re buyers seeing multiple growth drivers (new customers, deeper penetration, new products, pricing).”

I’m in agreement, with my expectation that Atlassian will continue to be a winner following its unique Australian model of success.

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Source: Investors Alley

Uncategorized

Should You Buy During The Stock Market’s August Angst?

Once again, stock market jitters worldwide have emerged in August when trading desks are thinly manned with junior staff. This year, the worries emanated from the self-inflicted economic woes in Turkey brought on by its leader, President Recip Tayyip Erdogan.

He thinks he knows more than markets and has taken full control of the Turkish economy. Even though its economy needs much higher interest rates and tough austerity measures, he will not hear of that and is leading his country down the path of Venezuela toward economic oblivion.

Turkey’s troubles then spread to much of the emerging world even though many countries hit by selling (by those junior staffers) have solid fundamentals. I cover all the details for you in an article that will appear on Monday at the Investors Alley website.

Why do I say the selloff in emerging markets was not justified? Because Turkey is ‘small potatoes’.

The country is not a significant player in the global economy. Last year its GDP was $900 billion, or about 1% of global GDP at market exchange rates. And when it comes to foreign exposure to Turkish assets, the impact is equally limited. Non-residents hold 20% of Turkey’s equity market, which has a market capitalization less than 2% the size of the U.K. stock market. In terms of debt, foreigners hold about 40% of Turkish government bonds – and Turkey’s public debt is quite low, at 30% of its GDP.

There’s been much talk about the exposure of certain European banks to Turkey. But even there, the exposure is quite limited. Of the Eurozone’s roughly €175bn claims on Turkish assets, Spanish banks have the largest exposure, with one of the country’s biggest, BBVA, having the most at risk. French and Italian banks are next, a very distant second. Korea barely slides into the top ten, and no other Asian country has any significant exposure to Turkey.

Market Effects

Emerging market stocks last Wednesday that their worst day in six months, sending the FTSE Emerging Index to a decline of more than 20% from its January 26 peak – a classic definition of a bear market.

The decline was exacerbated by a plunge in one of China’s tech giants, Tencent, as pressure from the Chinese government on video games and e-sports led to the company reporting its first quarterly drop in profits in over a decade.

The selloff also spread to developed markets on Wednesday, with Wall Street experiencing its steep decline since late June. And more importantly, a widely watched measure of the yield curve briefly dipped to a new decade low on Wednesday morning, as the fallout from Turkey’s escalating economic crisis ricocheted around the world.

The difference between two- and 10-year yields on U.S. Treasuries dropped to only 23.4 basis points. That was below its previous low of 23.6 basis points reached in mid-July. This spread is important because of its reliability as an economic indicator. It has turned negative, with the yield curve inverting, before every recession of the past 50 years.

Related: Buy These ETFs Setting Up for Profit’s from a Strong U.S. Dollar

Markets did stabilize and enjoy a robust rally on Thursday though after word that the U.S. and China are to resume formal trade talks in late August.

Time to Play Defense?

One interesting item I want to bring to your attention has been happening even before the Turkish turmoil. . .that is that investors around the world have turned more defensive. Some investors seem to be bracing themselves for some sort of economic slowdown or financial stress.

That can be seen in the recent outperformance of healthcare stocks. Globally, healthcare stocks have outperformed the technology sector to the greatest extent since mid-2016. Healthcare stocks have gained 8.5% in the three months through mid-August, according to data from Thomson Reuters. In comparison, the former leaders – global tech stocks –  rose only 4.1%. This is a classic sign of portfolio re-positioning to a more defensive posture.

This is good news if you’re invested in the sector. I’ve seen in my personal portfolio some European healthcare stock ADRs that have hit all-time highs recently.

Related: Dump These Healthcare Stocks Getting Amazoned

It looks like prolonged trade war talk is unfortunately slowing the global economy. “We are seeing a lot of leading indicators already starting to turn down; year-on-year trade growth is now decelerating quite rapidly and we are starting to see a rotation within markets,” said Ian Harnett, chief strategist at Absolute Strategy Research to the Financial Times.

And indeed, the rate of growth in world trade is slowing. The volume of world trade increased a mere 0.4% in the six months to May, according to the latest figures from CPB, the Netherlands Bureau for Economic Policy Analysis — down month on month from 2.8%. It was the slowest growth rate since the six months to October 2016.

Hints of slowing can be seen here in the U.S. too, if you know where to look. If the economy starts to grow more slowly, the impact will show up first in the price of refined fuels such as road diesel, marine gasoil and jet fuel that play a central role in the freight transport system.

These middle distillate fuels are principally burned in the high-powered engines used in trucks, ships, railroads, barges and aircraft to move freight around the world, as well as in factories, on farms and at mines and oilfields. Mid-distillates actually account for more than a third of the oil used around the world every day, and are the single-largest category of refined products.

In other words, distillate fuels are closely correlated with the global economic and trade cycle, and at the moment they confirm other indications the rate of growth is slowing. Even here in the U.S., distillate stocks, which had been drawing down faster than usual during the first four months of 2018, have now been building faster than normal since late May.

Even the mighty U.S. tech sector could become more and more vulnerable to the rising geopolitical and trade tensions. As Mr. Hartnett said to the Financial Times, “Trade wars could morph into tech wars, with a lot more talk about the tech sector and whether the U.S. administration will remain relaxed about how tech companies are fostering the globalization that it seems Trump is looking to reverse.”

Even if that doesn’t happen, I will be looking for more high-quality companies in the healthcare sector to add to the Growth Stock Advisor portfolio in the months ahead. In the meantime, stay tuned for more volatility – the historically volatile period of August, September and October is far from over.

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ETF

Buy These ETFs Setting Up Profits from a Strong Dollar

August – a month with many market participants on vacation – is well known for its bouts of volatility and markets in a tizzy about things not so important.

This year is holding to form with a selloff triggered by worries that turmoil in Turkey – mainly caused by a steep fall in its currency – will spill over into more important emerging markets and then eventually developed markets.

But as usual with August angst, it is much ado about nothing and it merely offers you an opportunity to pick up stocks on sale in some of the better emerging markets. More on that later. First, I want to give you a quick look at Turkey.

Turkey Tantrum

The crisis in Turkish markets was triggered by the geopolitical standoff between the U.S. and Turkey, or more specifically, its leader – President Recip Tayyip Erdogan.

A leader I might add that believes he knows better than the markets and has taken full control of the economy. Turkey needs much higher interest rates and tough austerity measures, but he will not hear of that. So he leads his country down the path of Venezuela toward economic oblivion.

Even with that said, the contagion effects emanating from Turkey are very limited. The sell-off we’ve seen in most other emerging markets is not justified by the fundamentals. First, Turkey is not a significant player in the global economy. Last year its GDP was $900 billion, or about 1% of global GDP at market exchange rates. And when it comes to foreign exposure to Turkish assets, the impact is equally limited. Non-residents hold 20% of Turkey’s equity market, which has a market capitalization less than 2% the size of the U.K. stock market. In terms of debt, foreigners hold about 40% of Turkish government bonds – and Turkey’s public debt is quite low, at only 30% of its GDP.

There’s been much talk about the exposure of certain European banks to Turkey. But even there, the exposure is quite limited. Of the Eurozone’s roughly €175bn claims on Turkish assets, Spanish banks have the largest exposure, with one of the country’s biggest, BBVA, having the most at risk. French and Italian banks are next, a very distant second. Korea barely slides into the top ten, and no other Asian country has any significant exposure to Turkey.

But what about those other emerging markets that the talking heads on CNBC (that know little about Ems) are worried about? The most exposed will be the countries that lack sound and coherent fiscal and economic policies. And there are several of those…

Brazil, faces a very contentious election this autumn and looks particularly at risk. South Africa has a highly respected finance minister and central bank, but faces doubts over its determination to stick to economic orthodoxy. Russia will be helped by the credibility its central bank gained through its handling of the 2014 rouble crisis, but is hampered by unpredictable U.S. sanctions policy. Another problem area is countries that have high non-bank dollar-denominated debt. And here Chile, Mexico and Malaysia all are worrisome.

But all of this does NOT mean that this is not a great time for you to invest into some other emerging markets.

Emerging Markets Are Fast-Growing, Cheap Markets

Especially since the Turkey tantrum has made them very cheap relative to a very expensive U.S. stock market without really changing their strong fundamental story.

According to the highly respected stock market research firm, Research Affiliates, the cyclically adjusted earnings multiple of the MSCI EM index is now 13.7, putting it in the 25th percentile. In other words, emerging stocks have been more expensive than they are now 75% of the time. In comparison, U.S. stocks trade at a cyclically adjusted multiple of 31.9, putting it in the 97th percentile. That means U.S. stocks have only been more expensive than now 3% of the time in history.

Let’s look too at some valuation metrics – price-to-book, price-to-sales, and price-to-earnings. For the U.S., the numbers are 3.3, 2.1 and 21.7 respectively. For Hong Kong, the numbers are 1.6, 2.1 and 14.2 respectively and for South Korea, the numbers are 1.0, 0.7 and 10.3 respectively. The markets that are relatively cheap are pretty obvious.

You may wonder why I’m emphasizing valuations measures? It’s because these measures, such as CAPE (cyclically adjusted price-to-earnings ratio), are often a good indicator of coming outperformance.

For example, the 10 cheapest stock markets at the end of 2016 returned an average of 29.5% in 2017. That outpaced the return from the 10 most expensive markets of 23.4% and the S&P 500 return of 21%. And the 10 cheapest stock markets at the end of 2015 returned 19% in 2016 while the 10 most expensive markets actually declined by 1%.

As far as economic growth goes, there is no comparison between developing countries like China and India when compared to developed nations like the U.S. The percentage increase (in dollar terms) for the GDP between 2002 and 2017 for China is 713% and for India, 398%. In comparison, the U.S. economy only grew by the same as Germany – 76%, and below Canada’s 118%.

And for stock market performances, there really is no comparison. For the G7 major economic powers, the average stock market gain over the period from 2002 has been nearly 200%. But if you look at the markets contained in the Shanghai Cooperation Organization countries – China, Russia, India, Pakistan and other smaller countries, the stock market gain has averaged about 1,500% in the same time period.

These are just some of the reasons I have always been an investor in emerging markets.

Where to Invest

I’ve already mentioned to you places in the developing world to avoid such as Turkey, Russia, South Africa, Brazil and Mexico. But what about the places where I would invest?

For that, you have to look at Asia. And here’s why…

For decades, the U.S. was far and away the biggest driver of growth in global GDP. But today, the lion’s share of global growth is coming from emerging Asia. Consider this data from the investment firm KKR…

It says that the U.S. share of contribution to global real GDP will fall from 25% in the 1992 to 2000 period, to just 9% in the 2010 to 2020 period. Meanwhile, China’s contribution will jump from just 20% in the 1992 to 2000 period, to 34% in the 2010 to 2020 period. And for Asia as a whole, the number leaps from 43% in the 1992 to 2000 period to an impressive 62% in the 2010 to 2020 period.

That’s where I want to be as a long-term investor – where the growth is.

There a number of individual stocks that are and will continue to benefit from the economic growth across Asia. But for now, let me just cover broad ways to participate in that growth through ETFs.

The first ETF is one that I personally own – the WisdomTree China ex-State-Owned Enterprises Fund (Nasdaq: CXSE). The top three positions in the fund, comprising about a third of the portfolio, are the most well-known Chinese companies – Alibaba (NYSE: BABA), Tencent Holdings (OTC: TCEHY) and Ping An Insurance Group (OTC: PNGAY). With the recent selloff in China, the fund is down 19% year-to-date and 3% over the past year.

For India, an ETF to consider is the Columbia India Consumer ETF (NYSE: INCO). This is down 8% year-to-date, but is still up 7% over the last year. Its top three positions include local subsidiaries of well-known consumer brands – Nestle India and Hindustan Unilever. Number three is perhaps India’s best-known food company, Britannia Industries.

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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

Uncategorized

Buy These 3 Tech Stocks Immune to Tariffs and Trade Wars

Last week, I told you about how the tone of quarterly earnings conference calls had changed. From a focus on trumpeting the benefits to companies’ bottom lines of the corporate tax cuts Congress passed at the end of 2017, the focus had shifted to the trade war and rising costs.

This is especially true with regard to technology companies, with many of them raising the possibility of having their supply chain disrupted. One particular segment of the technology sector that is under threat is the data center industry. And more particularly, the key components that keep data centers humming. Let me explain…

China Tariffs to Bite

The China tariffs will bite. But the question is whom.

Consider this data from the World Bank: In 2006 exports represented 36% of China’s GDP, by 2017 they were only 19.7%. Looking at the potential impact of tariffs on China’s economy, only 19% of China’s 2017 exports went to the U.S. representing only around 3.6% of its total economy.

So the effects on China from tariffs may be less than many investors expect.

Related: Buy These 3 Growth Stocks Surging Because of Tariffs

However, the effect on tariffs on the U.S. technology has just begun. Two rounds of tariffs on Chinese imports totaling $50 billion have targeted some of the key components that keep data centers functioning. The tech industry is now facing a third $200 billion list of tariffs that takes dead aim at key digital infrastructure — from the routers, switches and servers that redirect and process data, to components such as motherboards and memory modules used by bigger cloud companies to assemble their own equipment, and even the miles of cabling needed to wire the gear together.

The tariffs are particularly ill-timed. That’s because many of the largest internet and cloud computing companies are in the middle of a capital spending boom. And while a lot of the build-out is overseas and will not be affected by the tariffs, there were planned massive upgrades to existing facilities here in the U.S. to meet demand for extra capacity and new services that are now coming into question.

For many of the tech giants, 2018 was to be a year for massive capital spending.

Alphabet (Nasdaq: GOOG), for example, nearly doubled its capital spending in the first half of 2018 to $10.4 billion. Besides adding capacity for YouTube videos and its fast-growing cloud computing business, CFO Ruth Porat, chief financial officer, said to the Financial Times that the company was buying more equipment to meet the demands of machine learning — a “compute intensive” task that is becoming central to many of its services.

Google’s investments mirrors capital spending spurts at both Facebook (Nasdaq: FB) and Microsoft (Nasdaq: MSFT) this year, although Amazon (Nasdaq: AMZN) has pulled back somewhat after a 2017 spending boom. These cash-rich tech giants obviously can easily afford the higher costs of data center equipment caused by a 25% tariff on Chinese imports.

Semiconductor Industry in the Crossfire

But other well-known tech companies may be affected more harshly. For instance, Dell Technologies imports components from China and then makes servers and laptops in the U.S. And Hewlett Packard Enterprise imports a lot of servers from China although it makes most of its products either in the U.S. or Mexico.

Intel (Nasdaq: INTC) is one of those companies for which the tariffs will be a strong headwind. It says 90% of the value of its chips comes in the design and manufacturing stages, which occur “outside of China and largely in the US”. But like many U.S. semiconductor companies, it uses plants in China to do the final assembly and testing on its products because these are lower skill and therefore lower wage tasks. But with the tariffs, any chips brought back to the U.S. from China will face a tariff on their entire value. In effect, this is a tax on work done here in the U.S.

If the proposed next round of tariffs on China goes into effect, the semiconductor industry will be at the epicenter of the ‘quake’. According to the Semiconductor Industry Association, $6.3 billion worth of chips and other products directly related to semiconductors are about to be hit.

Supply Chains Aren’t Cheap to Move

I’m sure you may be wondering why the semiconductor companies just don’t move their supply chain out of China back to the U.S. or to some other country?

In reality, few companies have the flexibility to switch their sourcing quickly to suppliers outside of China. While there are a number of other countries with the capability to produce what the semiconductor industry needs, the supply chains and capacity just don’t exist and would have to built from scratch in many cases.

Even relatively low-value parts of the current supply chain could be prohibitively expensive to move. According to Intel’s calculations, moving a low-value-added chip packaging plant out of China would cost between $650 million and $875 million.

Money spent on building a whole new supply chain may mean less money spent where it really needed, such as research and development.

The irony of the situation has not been lost on KC Swanson, head of policy at the Telecommunications Industry Association. The Trump Administration is burdening U.S. companies with higher costs at just the moment they needed to invest heavily to compete with China. She pointed out that “China is all about trying to build up its industrial internet, and its routing and switching capabilities.”

Investment Implications

So what are the investment implications for you?

The next round of tariffs has yet to take effect, so you have time to adjust your portfolio. And unless a deal is reached (highly unlikely), the tariffs will hit the semiconductor industry hard.

Your best bets in tech will then be to hold the companies that have a ton of money and can absorb the higher cost of goods. That means three of the companies mentioned earlier in the article – Microsoft, Amazon and Alphabet.

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Source: Investors Alley

Growth Stocks

Buy These 3 Growth Stocks Surging Because of Tariffs

While Wall Street fawns over earnings reports from market darlings such as Apple (Nasdaq: AAPL), something else caught my eye this earnings season. That is the fact that the multi-front trade battles are prompting warnings from some of the largest U.S. companies that higher tariffs will squeeze their profit margins, force them to pass on the pain to suppliers and push prices up for consumers.

A look at corporate executives’ comments since the start of the second quarter reporting season show a marked change from the prior quarter. In the first quarter, attention focused on calculating the benefits to companies’ bottom lines of the corporate tax cuts Congress passed at the end of 2017. But now the focus has shifted to the trade war and rising costs.

According to Bespoke Investment Research, about halfway through earnings season, the percentage of conference calls where tariffs have been brought up have more than doubled relative to the first quarter – 39.8% vs 16.6%. For the entire first quarter earnings season, the word tariff only came up 290 times, but has already cropped up over 600 times, says Bespoke.   

I liken it to a three-act play. In the first act, companies were caught off guard by rising costs and their profits were hurt, negatively affecting their stock. In the second act, companies got a handle on the cost environment, announcing their intentions to pass on higher costs to consumers. Wall Street has gotten confident in that story, and stocks in sectors including consumer staples are in the process of recovering. But it is the third act that has yet to unfold and is worrisome. What happens when all of these pricing increases hit the economy?

Company Executives’ Caution

The AutoNation CEO, Mike Jackson, said in his earnings call that so far, auto manufacturers have absorbed increases in the price of steel and aluminum without passing them on as they await the outcome of trade negotiations. But if tariffs becomes a permanent state of affairs, then manufacturers will have no choice but to try to pass those higher costs on. He said: “Consumers will not pay those higher prices. Volumes will fall, and they’ll have a material impact on the industry and on the economy.”

To date, General Motors has seen a $2 billion rise in its costs from higher commodities prices as well as currency headwinds. The company had been on track for another year of record profits until steel and aluminum tariffs were imposed. Even though GM sources most of metals needs domestically, it was hit hard because U.S. producers raised their prices by 40% to 50%, or much more than the tariffs themselves.

And there are many other companies that have sounded a note of caution too. . . . .

Caterpillar, for example, a big purchaser of steel to build its construction equipment, said it’s preparing for as much as $200 million in tariff-related costs in the second half. Industrial companies from Danaher to United Technologies said they were eyeing price increases because of their rising costs.

And for consumers, price increases will leave a bad taste: Coca-Cola said it will charge more for soda to offset the rising cost of the aluminum it buys for its cans. “I think it’s going to be one of those things that goes through into consumer pricing,” cautioned James Quincey, CEO of Coke, after the company increased prices in response to increases in an array of costs, from freight to the aforementioned aluminum used in Coke cans.

Apple Warns

The protectionist measures threaten tech companies too. And it’s not just semiconductor companies and their supply chains that are being affected.

One prominent company that is sounding a warning about tariffs is Apple. In its latest filing with the SEC, Apple said tariffs and other protectionist measures may “adversely affect” the company. Here is exactly what Apple said in the filing:

“International trade disputes could result in tariffs and other protectionist measures that could adversely affect the Company’s business. Tariffs could increase the cost of the Company’s products and the components and raw materials that go into making them. These increased costs could adversely impact the gross margin that the Company earns on sales of its products. Tariffs could also make the Company’s products more expensive for customers, which could make the Company’s products less competitive and reduce consumer demand. Countries may also adopt other protectionist measures that could limit the Company’s ability to offer its products and services. Political uncertainty surrounding international trade disputes and protectionist measures could also have a negative effect on consumer confidence and spending, which could adversely affect the Company’s business.”

And indeed, Apple’s fastest-growing division, which includes Apple Watch, AirPods earphones and HomePod speaker, is at risk of being caught up in President Trump’s latest proposals to slap a 25% tariff on Chinese imports. The devices that make up the bulk of Apple’s multibillion-dollar “other products” unit are highly exposed to the looming trade war. Apple will be forced to raise prices to compensate for the higher duties on the Chinese-made products or take a hit to its profit margins.

This “other products” is very important to Apple’s future since it is on track to become the company’s third-largest revenue source shortly, trailing only iPhones and services.  Apple shipped about 3.5 million watches in the second quarter, up 30% year on year, with more than half of those sold in North America. And its “other products” revenues rose 38% in the quarter, compared with iPhone revenue growth of 17% year on year.

Related: Will These 3 Popular Stocks Be the First Casualties of Trump’s Trade War?

Broad Swath of America Affected

So who will be affected by the growing trade dispute? And what will its effect be on your portfolio?

It’s not just the companies directly impacted by higher costs that you need to be concerned about. The technology sector may remain the market’s darling, but consumers don’t care which companies are impacted by tariffs and freight and which ones aren’t. They have a fixed budget, and if their cost for basics like groceries all go up in price, that will be less money left over for Amazon orders, streaming media services and smartphone replacements. In other words, if we continue down the current path, just about everyone will be affected.

Stocks-wise so far, it has been a mixed bag. Tariffs on steel and aluminum that started in March prompted LincolnElectric, a maker of welding equipment, to slap tariff surcharges on its products. Some companies though have reported a benefit, including rail operator CSX, which hauls ore to American steelmakers that are adding production.

The list of losers though is quite long. Bloomberg data shows some of the other companies I did not mention adversely affected so far by tariffs: MillerCoors, Brown Forman, Procter & Gamble, Alcoa, Sonoco, PPG Industries, Gentex, GE, Stanley Black & Decker, Harley Davidson, Illinois Tool Works, Lennox International, Hexcel, Plains All American Pipeline, Whirlpool, Eastman Chemical, Tyson Foods, Cummings, Kimberley-Clark, Sunpower and Bunge.

As time goes on, it will be harder to find companies not affected by trade policy. So what can you do with your portfolio?

Related: Buy These 3 Stocks Profiting from Trump’s Trade War

I would start looking for companies that do have pricing power and have been able to pass along price increases, but that do not sell at sky-high valuations or have high expectations built into the stock price.

For example, at a glance you would think US Steel would be a winner since it has raised steel prices so much. But so much high expectations have been built into the stock that, after its earnings report, its stock fell by more than 10%.

One sector that may be worth a look is one despised by Wall Street – consumer staples. Food and other firms in the sector are starting to be able to pass along their higher costs on to the ultimate users – the consumers.

One broad way to play this sector is through the Invesco DWA Consumers Staples Momentum ETF (Nasdaq: PSL), which is actually up 10.5% year-to-date and 18.5% over the past year.

If you take a look at its portfolio, you will find some individual stocks that may be worth a look.

One of the stocks I like is the packaged goods company Post Holdings (NYSE: POST). It reported excellent earnings on August 2, with revenues for the quarter of $1.61 billion, which above Wall Street estimates. This and a positive outlook sent its stock soaring by more than 10%, bringing its year-to-date gain to over 18%.

A similar story – with above expectations results for earnings per share and revenues along with positive forward guidance – unfolded at another packaged food company, Lamb Weston Holdings (NYSE: LW). The supplier of frozen potato, sweet potato, vegetable and appetizer products to retailers and restaurants globally has seen its stock move up 28% year-to-date and 67% over the past year.

Finally, there is the company best known for its spices, McCormick (NYSE: MKC).

Its stock is up nearly 20% year-to-date and over 27% over the last year. In late June, it posted great earnings and management reaffirmed its 2019 earnings and sales would be at the top end of its forecast and above analysts’ estimates. Its second quarter sales jumped 19%, boosted by the Frank’s and French’s brands it had acquired last year.

Bottom line – if trade tensions worsen, satisfy your hunger for profits with the still out-of-favor consumer staples sector.

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Source: Investors Alley 

Uncategorized

Buy These 3 Gaming Stocks to Level Up Your Portfolio

Video games have certainly come a long way from the table tennis-inspired game Pong that was introduced in 1972. Today, people are actually being paid a lot of money to play computer games.

Welcome to the world of e-sports where millions of fans worldwide watch professional gamers in action. There are about 300 million people worldwide that watch competitive e-sports events regularly… a number that the consultancy Newzoo expects to double within five years.

And Goldman Sachs estimates that revenues for e-sports from ads, box office tickets and other sources may hit $3 billion by 2022.

Both may be a conservative estimate when you consider that Walt Disney (NYSE: DIS) gave competitive gaming its first test before mainstream sports viewers on primetime US television in July by broadcasting the finals of Activision Blizzard’s (Nasdaq: ATVI) Overwatch League on ESPN.  Activision has signed a multi-year broadcast deal with ESPN, although the terms were undisclosed.

This is a major step forward for e-sports as Morgan Stanley analyst Brian Nowak told Bloomberg, “We view reaching audiences through linear media as the key next step in legitimizing and monetizing eSports. We continue to see licensing and streaming revenue as the largest component of Overwatch League monetization.

Related: 3 Stocks for Profits from People Playing Video Games All Day

E-Sports Bonanza

High viewership numbers attracts advertisers and sponsorship — $500 million worth in 2017 according to Newzoo — raising player winnings. An example of this was on display in May when Epic Games said it would provide $100 million in prizes for its popular Fortnite Battle Royale. Sponsorship, media rights, in-game purchases and tickets make free-to-play games lucrative. Fortnite generated about $300 million in revenues for its owner Epic Games.

Of course, there are many competitors in the fast-growing e-sports segment. Besides Epic Games and Activision Blizzard, another company leading the way is Electronic Arts (Nasdaq: EA). Consider that many e-sports fans are young men that also follow regular sports too. That plays right into the strength of EA with its sports games such as FIFA 19. With the real soccer World Cup ended, EA’s FIFA eWorld Cup 2018 championship took place this past weekend (August 4) at London’s 20,000-seat O2 venue.

However, neither EA nor Activision happen to be my favorite e-sports stock. Instead, it is the company that owns 40% of privately-held Epic Games and that is bringing the massively popular Fortnite to China – Tencent (OTC: TCEHY).

Tencent Dominates

E-sports is taking off globally, with even the International Olympic Committee considering adding e-sports as an event.

But it is absolutely exploding in China where over 400 million gamers are fueling viewership equal to or exceeding that of professional sports in the U.S. Consider that last year in China, there were more than 11 billion e-sports videos streamed. And there are more than 10,000 teams across the country despite just 12 spots in this year’s marquee King Pro League tournament. Last year’s matchups garnered as many as 240 million daily views — double the U.S. audience of the Super Bowl — on TVs, phones and computers.

No wonder then that Tencent has become one of the most aggressive promoters of professional e-sports. It is teaming up with Under Armour on game apparel and the National Basketball Association for a show that features top gamers. It’s adapting Honour of Kings into a fantasy novel and producing a TV series and film centered on players. And taking a page from Blizzard’s Overwatch League, it’s also decided on a more typical professional set-up where select clubs are guaranteed spots in tournaments such as for the King Pro League. Of course, it helps that the company is in the unique position of owning and backing signature titles such as Fortnite and League of Legends.

At the center of Tencent’s ambitions is the two-year old franchise, Honour of Kings. It is a blockbuster that took China by storm and is now being pushed abroad under the title Arena of Valor. The title combines elements of Chinese historical characters, heroes and culture and is the first mobile game developed in-house that has a chance of becoming a global blockbuster.

The international version will be one of six titles for the upcoming Asian Games. To boost its visibility globally, the company is inviting teams from South Korea, Malaysia and North America to join in another gaming showdown later this year.

Of course, e-sports is still a mere drop in the ocean for one of the world’s 10 largest companies and its expected $50 billion in revenue. But it’s a fast-growing segment that feeds Tencent’s core gaming business, while driving engagement across its many online platforms from WeChat (with one billion active users) and media to advertising.

Related: Here’s Where to Find Triple Digit Returns from Your Kids’ Video Game Habit

Tencent, like its rival Alibaba (NYSE: BABA), is involved in nearly aspect of Chinese life such as e-payments where it is battling Alibaba for supremacy. E-gaming is a core business for Tencent, which is a must-own Chinese stock like Alibaba. And it’s a growth engine that is just revving up.

If you are interested in getting a piece of the action, do not be put off by the fact that Tencent trades on the over-the-counter market. It is the most active stock there on a daily basis with average volume of nearly five million shares. So there is no problem with liquidity.

And with Wall Street selling or shorting everything China-related, the stock is at the lowest level in over a year. That makes it a good time to buy.

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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 

Technology

Is It Time to Bail on the FAANGs?

In recent months, it has gotten harder to separate the performance of the U.S. stock market from the performance of the FAANG stocks (Facebook, Amazon, Apple, Netflix and Google/Alphabet).

Despite Facebook’s face-plant, after its earnings announcement led to the worst one-day loss ever for any stock, the overall performance of the market year-to-date has been supported by the FAANG group. While they’re only a 13.6% weight in the S&P 500’s market cap, they’re driving the market up to the tune of almost half of its year-to-date gains. Impressive stuff for just 5 stocks on their own. Here is a chart from Bespoke Investment Group that displays that fact graphically.

The question facing investors is, of course, whether the FAANG stocks will continue carrying the market or if their leadership is beginning to fade.

Tech Divergence

Investors have taken it as gospel that tech stocks promise unending growth, based on the over-arching macro-trend of a digital revolution across society. This makes them different from other stocks whose growth are more tied to the ebbs and flows of the underlying economy.

As for the FAANGs, they have huge valuations for a reason – these companies have built huge franchises, allowing them to still grow fast, despite their size. That’s why, with the exception of Netflix, their stock market valuations have topped $500 billion and Amazon, Apple and Alphabet are approaching the $1 trillion valuation mark.

Related: Facebook, We Have a Problem

The latest earnings reports seem to show that the fortunes of these stocks are starting to diverge. In other words, some companies like Amazon continue to perform, while others like Facebook are facing more headwinds. This makes sense since they are in very different businesses.

  • Facebook’s playing fast and loose with user data resulted in slowing user growth and engagement as well as slowing sales growth.
  • With Google, investors chose to focus on how smartphones contributed to outsized growth and profits, while completely ignoring that Google plays more fast and loose with data than Facebook does.
  • With Netflix, it was expectations that were too high. Its stunning stock-price rally came crashing to a halt after it reported 1million fewer subscribers than investors had expected.
  • Amazon did not disappoint though. It blew past Wall Street earnings forecasts as its diversification into higher-margin cloud computing and the dominance of its online retail business produced the first $2 billion quarterly profit in its history

One area that I will be watching in the weeks and months ahead is whether executives at these firms continue to sell their stock. FANG insiders, led by Facebook’s Mark Zuckerberg (he sold $2.84 billion of FB stock) are selling stock at the fastest pace in six years. Senior executives and directors of Facebook, Amazon, Netflix and Google parent Alphabet have disposed of $4.58 billion of stock this year, according to data compiled by Bloomberg. They’re on track to exceed $5 billion for the first six months of 2018, the highest since Facebook went public in 2012.

Obviously, continued selling when a stock is still dropping is never a good sign.

What the Future Holds

So what will the future hold for these tech megagiants? Eventually, their growth rate will slow.

As to the why, that was pointed recently by Mary Meeker, a partner at the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers. She said the landscape was getting more competitive for tech companies now that more than half of the world’s population are online. Internet users will hit 3.6 billion people this year, reaching a majority of the world’s population for the first time, according to a new report from Ms. Meeker. Growth in the number of new internet users is also slowing markedly, she said, from 12% in 2016 to 7% last year. She believes that when you get to a market with 50% penetration, new growth becomes more difficult to find. The smartphone market is proof of that.

She also thinks the giant giants will come more and more into competition with themselves. We already see that in the cloud computing sector with Amazon leading Microsoft and Google. And we are starting to see that in the digital advertising space where Amazon is moving into the territory of Google and Facebook. And also in media where Amazon is taking on Netflix.

So which of these big tech stocks should you own?

I strongly dislike the companies that make money from people’s data – Facebook and Google. I believe they will have to revamp their entire business model as the rest of the world seems to be moving toward European style of regulation to protect citizens’ privacy and away from the American all-is-fair-game model.

I am neutral on Netflix and Apple. Netflix is facing a ton of competition all over the world, including some very heavy competition to come soon from Disney. And its sky-high valuation implies investors are oblivious to the fact that it has competition.

Related: Buy These Streaming Giants as Netflix’s Challenges Grow

I like Apple, but the nearly no-growth global smartphone has me hesitant on it. Although its services business is doing extremely well. I just wish the company would do something innovative, something it hasn’t done since the death of Steve Jobs.

That leaves Amazon and Microsoft, both of which I like a lot. Amazon is already in, or will be soon, every business that touches consumers’ everyday lives. The only thing that could stop the Amazon juggernaut is if the Trump Administration does pursue some sort of anti-trust action.

Microsoft has transformed itself into a growth company once again under the leadership of CEO Satya Nadella. Leading the way is its Azure cloud business. The number of new customer contracts worth more than $10 million for the company’s Azure cloud platform doubled in the latest quarter. Wall Street had been expecting the rate of growth in Azure revenues to moderate, slowing to 77%. But the business continued its recent streak to rise 89% and underpin overall sales growth of 17% to $30 billion, leading to Microsoft’s strongest revenue quarter in years. With Microsoft at or near the lead in edge computing, quantum computing and AI, it and Amazon looks like the best of the big tech stocks.

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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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Dividends, ETF

Buy These 5 High-Yielders from Someplace You Wouldn’t Expect

Driven by a strong economy worldwide and rising corporate confidence, global dividends in 2017 reached record levels. Payouts rose 7.7% last year – the fastest pace since 2014 – to $1.3 trillion.

Domestically, payout growth in the U.S. rebounded from a sluggish 2016 when election uncertainty caused companies to hold off their investment and dividend plans. The U.S. posted dividend growth of 6.3% last year compared with just 1.7% in 2016, he said, with a record $438.1 billion in payouts made to shareholders.

However, the star of the dividend show was Asia, according to a study conducted by asset manager Janus Henderson.

Asian Dividend Payouts Soar

Asia-Pacific companies grew their dividends the fastest, climbing by 12.7% in the 12 months to the end of May to a record $283.5 billion, out of a total of $936.8 billion for dividends generated in the rest of the world — dwarfing the growth rate of dividends elsewhere. Between 2009 and 2018, the value of annual dividends paid out by Asian companies tripled, while payouts from the rest of the world doubled in value, according to the study.

This just shows you how the world has changed in 10 years. Back then, many of Asia’s top businesses were growing quickly, but were not worried about paying income to their shareholders. That perception holds today among investors even though many Asian corporate managements have changed their attitudes towards dividends and now pay out generously.

The numbers back up that change in attitude. In 2017, Asia Pacific companies accounted for $1 for every $6 of the dividends paid worldwide, up from just over $1 in every $9 paid out in 2009. A big contributor has been China where dividends payments have grown from just $8 billion in 1998 to $111 billion in 2016.

I believe Asian stocks have more potential for long-term dividend growth than their U.S. counterparts for a number of reasons. Despite the trade war rhetoric, earnings growth among Asian companies has maintained the momentum that started in late 2016, which reversed a three-year trend of deflation and earnings declines for many companies. Asian companies have also weaned themselves from an over-reliance on debt, and today are less leveraged than those in the United States. And of course, the broader Asia growth story and rise of the consumer class is still alive and well.

Valuations among these companies are also far more attractive than they are in the U.S., thanks to U.S. fund selling driving down the prices of most Asian stocks. In other words, U.S. markets have already built huge earnings expectations into many stock prices and valuations are at historically high levels. By contrast, many Asian stocks have already had the worst case trade war scenario built into them.

How to Invest Into Asian Dividend Payers

If you are interested in capturing some of that dividend growth potential from Asian stocks, there are several ways to do it.

The first is an old-fashioned, but effective, way. You can buy a mutual fund from a company whose sole focus is Asia – the Mathew Asia Dividend Fund (MUTF: MATIX). Its top holdings include well-known blue chips such as Taiwan Semiconductor and HSBC.

But it also includes less well-known names to American investors including Shenzhou International Group Holdings, which is the largest knitwear manufacturer in China and makes clothing for Nike and others. Its stock soared an incredible 4200% over the past decade!

The next way for you to access Asian dividends is through exchange traded funds (ETFs). There are several that focus on Asian dividend payers, including the iShares Asia/Pacific Dividend ETF (NYSE: DVYA), the WisdomTree Asia Pacific ex-Japan Fund (NYSE: AXJL) and the O’Shares FTSE Asia Pacific Quality Dividend ETF (NYSE: OASI).

Some of these ETFs (WisdomTree) have familiar names such as Samsung Electronics, Taiwan Semiconductor and China Mobile in them. While others have more of an emphasis on bank and utility stocks. My personal preference would be to go with the ones that have the growth names in them in hopes of capturing a rising dividend stream.

Of course, the final option is to simply buy some of the high-dividend paying stocks such as China Mobile (NYSE: CHL), which listed on the New York Stock Exchange back on October 22, 1997. This stock used to be a high-flyer because of the rapid growth it enjoyed. But now the Chinese phone market is saturated and its stock performs like any other utility.

The company had a payout ratio of 48% in 2017. China Mobile had a final dividend payment of $0.20 per share for the year ended 31 December 2017. Together with the interim dividend payment of $0.21 per share, and a special dividend payment of $0.41 per share to celebrate the 20th anniversary of its IPO, the total dividend payment for the 2017 financial year amounted to $0.82 per share.

Its current yield is 4.66%, although that has been offset by that U.S. fund selling (trade war fears) that has sent the stock down almost 13% year-to-date. So if you’re going to buy the stock, do it piecemeal because the trade war winds are still blowing.

But once again, my preference would be to buy a broad-based fund or ETF that has a number of dividend-paying companies in the portfolio.

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.

Source: Investors Alley 

Uncategorized

Buy These 3 Stocks Profiting from Trump’s Trade War

I like to look for what are called contrarian investments. That is, trades where Wall Street is piled into one side of the ‘boat’. When this happens, the ‘boat’ has a tendency to ‘capsize’ turning into very large profits for taking the opposite side of the trade that Wall Street is on.

There are several of these trades going on right now including shorting U.S. Treasuries, being long the U.S. dollar, being short commodities, and also shorting overseas markets and using the proceeds to go even longer with even more leverage in the U.S. on favorites like the FANG stocks.

The reason for the latter trade is that Wall Street’s perception is that the tariffs imposed on foreign products will hurt those economies even though history says just the opposite – that the country imposing the tariffs is hurt the most. So what I have done in my personal account is scour the globe for companies that are actually benefiting or may gain from the tariffs imposed by the Administration.

Don’t Ignore ADRs

This really isn’t hard, with many of these type of companies trading right here in the U.S. in the form of American Depository Receipts or ADRs. Some of these are large, well-known companies such as Alibaba (NYSE: BABA). Here is a quick overview of ADRs.

ADRs can be sponsored or unsponsored and have three different levels, depending upon foreign companies’ access to US markets, as well as disclosure and compliance requirements. Level 1 ADRs cannot be used to raise capital and are only traded on the over-the-counter market. Level 2 and Level 3 ADRs are both listed on an established U.S. stock exchange, with Level 3 ADRs having the ability to be used to raise capital.

Most ADRs that trade over-the-counter as easy to spot since the last letter of the five letters in their symbol is always a Y. For instance, the food giant Nestle symbol is NSRGY and China’s internet and gaming powerhouse Tencent symbol is TCEHY.

However, the number of ADRs listed in the U.S. has shrunk drastically in recent years. The reason for that lies in the cost of compliance with among other regulations, Sarbanes-Oxley. It is just not cost-effective for companies to spend millions of dollars to comply and then see little daily trading in their ADR thanks to lack of interest in foreign firms by U.S. investors (home bias).

If you do stick with ADRs, the commissions charged you by brokerage firms, such as Charles Schwab, is the same as for U.S. companies – $4.95.

Related: Buy This Export to China That Is Exempt From Tariffs

And if you’re worried about the accounting standards at foreign companies, don’t be. Listed foreign companies follow international accounting standards as set by the IFRS. There are differences between IFRS (International Financial Reporting Standards) and GAAP (Generally Accepted Accounting Principles) standards here in the U.S. But that would be a long, boring discussion we don’t have the time to get into.

Suffice it to say that IFRS standards are very good and better than the pro forma earnings numbers often reported here in the U.S., which I consider to be trash. As Warren Buffett has often pointed out, pro forma earnings often leave out real expenses, such as stock compensation.

Convergence between IFRS and GAAP standards have been a topic of discussion at the SEC and other governmental agencies for years. But interestingly, U.S. officials seems to dragging their feet. Maybe it’s because the U.S. doesn’t always have the highest standards for corporations.

Take Ali Baba (NYSE: BABA), for example. It listed here in the U.S. and not in Hong Kong because the corporate governance rules were less strict here in the U.S. The Hong Kong Exchange frowned upon the company wanting to nominate the majority of the board itself. Although now there is talk Hong Kong will adopt the lower U.S. standards.

Now let me move on and bring you three ADRs I found that are either benefiting from the tariffs or are unaffected. Keep in mind that these are major companies in their home markets that trade millions of shares a day there.

Soybeans Anyone?

One of most prominent retaliations taken against the U.S. was China’s tariffs on U.S. farm products such as soybeans. That immediately make me think of another big agricultural economy that China already bought a lot of products from – Brazil.

One of the largest agricultural companies in Brazil is a company named SLC Agricola SA that does have an ADR with the symbol SLCJY. The ADR is liquid enough for individual investors (I do own it) with trading volume of about 15,000 a day.

The company, founded in 1977, has an English website slcagricola, so it’s easy to get information on it. The company has 16 production sites located in six Brazilian states totaling 404,479 hectares during the 2017/18 crop season. The acreage breakdown is: 230,164 of soybeans, 95,124 of cotton, 76,839 of corn and 2,352 of other crops, such as wheat, corn 1st crop, corn seed and sugarcane.

The ADR has taken off in recent months and is now up 100% year-to-date and 140% over the past year. I’m sure many Brazilian farmers, as well as Agricola shareholders, are thankful tariffs were imposed.

Germany’s Square

Another favorite target seems to be Germany, so I looked to see what I could find there. And I came up with a global leader in the payments space, a company named Wirecard AG that has an ADR with the symbol WCAGY. Its ADR also has decent liquidity with about 10,000 shares traded daily even though it only became available in late 2016.

 Wirecard is one of the fastest growing financial commerce platform that services 36,000 large- and medium-sized merchants and 191,000 small-sized merchants. It had over $106 billion in processed transaction volume worldwide in fiscal year 2017.

The company works together with ApplePay in many European countries. And it bought Citibank’s prepaid card services in North America as well as its merchant acquiring business in the Asia-Pacific region.

Due to its strong organic growth in excess of 25%, management raised its guidance in April for the 2018 fiscal year from 510 million to 535 million euros up to 520 million to 545 million euros. This has not been lost on investors. . . . .

Its ADR is up 60% year-to-date and has soared more than 143% over the past year.

It’s Not Made Here

The final ADR is one that is thinly traded (only a few hundred shares daily). But I wanted to bring it your attention because it makes something that is NOT made in the U.S. meaning that barriers or not, it is an absolute necessity for some firms. Let me explain. . . . .

If you’re having trouble finding some electronic devices, such as a Sony Playstation 4, it is likely due to the ongoing global shortage of MLCCs, or multilayer ceramic capacitors. You may never see these capacitors, which are less than one millimeter on each side. But they are a crucial component of your smartphone as well as your car. They help control the flow of electricity and store power for semiconductors, without which no electronic device will function.

The market for MLCCs is dominated by Asian manufacturers with just three companies controlling 60% of the market – Korea’s Samsung Electro-Mechanics and two Japanese firms, Murata Manufacturing and Taiyo Yuden. Both Japanese companies have ADRs trading in the U.S. with the symbols MRAAY and TYOYY respectively.

Murata has more liquidity, with over 18,000 shares traded daily versus just a few hundred shares. But Taiyo Yuden is by far the better performer. Even before the shortage occurred, Taiyo Yuden saw its sales of capacitors increase by over 21% in its last fiscal year.

That helped send its stock skyward. Its ADR is up 87% over the past year, with most of the performance occurring this year – up 82.5% year-to-date – as the realities of a global shortage of MLCCs have set in.

There you have it – just three of the overseas companies that either are benefiting or will be unaffected by tariffs. There are plenty more too, so please do not be afraid to put a little bit of your portfolio into stocks outside the U.S.

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Source: Investors Alley