Sell These Drug Retailers About to Get Amazoned

July 12, 2018 Tony Daltorio

There has been no company like Amazon.com (Nasdaq: AMZN) ever with the ability to affect entire industries just by announcing its entry.

The most recent example of this was in late June when Amazon announced a roughly $1 billion acquisition of PillPack, a mail-order pharmacy that packages pills into daily portions before shipping them to patients in 49 states.

PillPack was backed by several well-known investors including Silicon Valley venture capital firms Accel and Menlo Ventures. Its target market is people with chronic illnesses or multiple conditions who take several different tablets every day, rather than people who take a single medication or use prescription drugs only occasionally.

Amazon already captures more than $4 out of every $10 spent online in the U.S. So in response to its PillPack announcement, about $14 billion magically disappeared from the stock market valuations of the biggest players in the U.S. drug distribution and retailing. Shares in those six companies – Walgreens Boots Alliance (Nasdaq: WBA), CVS Health (NYSE:CVS), Express Scripts Holding (Nasdaq: ESRX), Cardinal Health (NYSE: CAH), McKesson (NYSE: MCK) and AmerisourceBergen (NYSE: ABC) had already been depressed last year when Amazon hinted that it was coming into their territory. Proof positive trimmed their values by as much as 10%.

Already the fear of Amazon’s entry into the sector had started a frenzy of consolidation in the sector including CVS agreeing to acquire health insurer Aetna for $69 billion in December, and in March Cigna, a rival health insurer, agreed to pay $67 billion for the aforementioned Express Scripts, a pharmacy benefits manager that also delivers medication by mail.

Amazon’s Long Game

There is one characteristic I’ve always liked about Jeff Bezos and Amazon – its planning for the long-term. This is so unlike most U.S. companies that are focused on the very short-term.

The PillPack purchase looks like a crucial part of a strategy that Amazon has been slowly building brick by brick, and likely just one step of many in the sector it has long eyed.

Its interest goes back to 1999 when it bought a minority stake in Drugstore.com, but never fully integrated it into its core retail offering. Walgreens later bought the website and eventually shut it down in 2016. More recently, Amazon has pursued pharmacy licenses in several US states, held meetings with healthcare industry executives and made several senior hires from insurers and pharmacy benefits managers. And of course, it also recently joined with JPMorgan Chase and Berkshire Hathaway to create a not-for-profit healthcare company that aims to reduce bills for their employees and “potentially all Americans”.

In buying PillPack, Amazon is sticking with the same game plan it is following in the grocery business and its Whole Foods purchase. That is, acquire a company with an existing footprint in a market rather than trying to build a brand new business within its existing retail network. With this purchase, Amazon buys regulatory permits and contracts with health insurers.

While mail order deliveries represent a small proportion of the overall prescription market, it is seen as a source of growth due to demographics – an aging U.S. population will require higher levels of medical care in coming years.

The acquisition should create another competitive advantage for Amazon over others in the space thanks to its extensive logistics network and loyal customer base to its Prime subscription (with 100 million subscribers) delivery service. Amazon may bundle its prescriptions with other products where people make regular, frequent purchases, such as groceries. That could help attract even more Prime subscribers, who spend more and order more frequently from Amazon than non-Prime customers.

But it will not be an easy road for Amazon. That’s because the trend in the pharmacy business is going in the opposite direction of other retail businesses. Last year, about 88% of prescriptions filled were collected at brick-and-mortar pharmacies. That compares to 82% in 2009, according to Goldman Sachs.

As to why this is happening, it’s simple. . .existing mail-order pharmacies stink. For example, with Express Scripts it can take eight days to have a prescription filled and up to two weeks for a new prescription to be filled. Obviously, Amazon is hoping its strength in logistics will shorten those times greatly.

But its logistics won’t help with another problem – about 30% of prescriptions result in a “pharmacy callback”. That is when the medicine prescribed to a patient is not covered by their insurance and the pharmacy then has to contact the doctor’s office to see if a cheaper alternative is acceptable. Perhaps that is why Amazon is pursuing the insurance angle with JPMorgan and Berkshire Hathaway.

Investment Implications

This move into the drugstore space looks to be another win for Amazon. And a loss for the drug distributors and especially the retail drugstores. After all, Amazon is already undercutting them on the prices for non-prescription medicines.

According to Jeffries Group, median prices for over-the-counter, private-brand medicine sold by Walgreens Boots Alliance and CVS Health were about 20% higher than Basic Care, the over-the-counter drug line sold exclusively by Amazon. Amazon began selling the Basic Care line last August with roughly 35 products and has since expanded its range to 65 medicines including mild painkillers, cold and flu medication, sleeping aids and other medication commonly found in the pharmacy aisle. Many of these meds are available through Amazon Prime.

Take all of these moves by Amazon into the distribution of medicines and you have one more reason to sell the drug retailers or, if you’re an aggressive trader, short them.

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Dividends

3 Buys to “Catapult” Your Dividends to 8.6%

July 11, 2018 Brett Owens

My best advice for you today is this: ignore the breathless trade-war panicking and focus on one thing: cash.

Because the truth is, US companies—like the 3 stout dividend growers we’ll dive into below—are swimming in it. So much so, in fact, that they don’t know what to do with it all … so they’re sending it right back out the door to us!

A Colossal Cash Stash

But don’t take my word for it; ask the folks at UBS, who just said that US companies are sitting on nearly $2.5 trillionin cash. And that’s just what they’re holding inside America’s borders. There’s another $3.5 trillion squirreled away overseas!

On top of that, new cash is literally flowing in the door faster than management can send it out. As my colleague Michael Foster recently pointed out, S&P 500 earnings are expected to spike 19% in the second quarter, after jumping nearly 25% in Q1.

And don’t forget the $1.5-trillion tax cut businesses grabbed thanks to tax reform. They also gained the ability to bring foreign cash home at a lower tax rate.

Like Catching Rain in a Bucket

No wonder UBS says US companies are poised to drop $2.5 trillion on buybacks, dividends and mergers and acquisitions this year.

I’m sure I don’t have to tell you that all three of these moves (when done right, of course) line our pockets. It’s just a question of how you want your profits: in cash (dividends) or gains (M&A and buybacks, as both juice earnings, and share prices along with them).

So today we’re going to zero in on 3 stocks that are doing the best job of using their cash piles to fatten our portfolios, starting with…

Cash Machine No. 1: Rising Rates Catapult This Dividend Higher

SunTrust Banks (STI) just rolled out a 25% dividend hike on June 28, after passing the Federal Reserve’s latest “stress test” for banks. It also announced a $2.0-billion share-repurchase program—52% bigger than the previous one.

Funny thing is, hikes like these are standard fare for STI shareholders. Last summer, they grabbed a nice 53% “pay raise.”

But don’t take that to mean STI’s payout growth is slowing down. The stock still pays out a meager 29% of its $2.7 billion in yearly free cash flow (FCF) as dividends.

The stock has jumped more than 2% since the latest dividend hikes and buybacks were announced, but don’t worry, you haven’t missed your chance: the bank, which focuses on the fast-growing southeast and mid-Atlantic regions, is still cheap at 11.8 times FCF.

(An added plus: its regional focus gives it insulation from any trade-war blowback.)

Higher interest rates are, naturally, boosting the bank’s net interest income (NII): SunTrust earned $1.44 billion in NII in the first quarter of 2018 versus $1.37 billion the same time period in 2017—a gain of 5.5%.

That’s a nice raise for doing nothing, and it helped—along with a lower tax rate from tax reform and fewer shares outstanding due to its buybacks—drive a 42% jump in earnings per share in the first quarter.

Management Knows a Bargain When It Sees One

And with the Federal Reserve poised to raise rates 2 more times this year, the bank’s NII will keep quietly rising, giving it more room to up its dividend (current yield: 2.4%) and buybacks—and its share price right along with them.

Cash Machine No. 2: Buy This Hotel Operator Post-Split

Wyndham Worldwide was a bargain before it renamed itself Wyndham Destinations (WYND) and spun off its hotel arm as Wyndham Hotels & Resorts (WH) in May … and both stocks are even cheaper now.

Shares of both the parent and the spinoff are down since the split occurred, which is normal as investors look at their portfolios, spot the two “new” stocks and decide which to keep and which to toss.

Wyndham Shareholders Rearrange the Furniture

So which is the better bet?

We’re going to go with the “new” company, Wyndham Hotels, which is actually Wyndham’s “old school” hotel business.

Why?

Because it uses a terrific business model to reap the most gains (at the least risk) from its 9,000 or so hotels in 80 countries.

It does it by offloading its risk to franchisees, who run its hotels on steady 10-to-20-year contracts. And Wyndham doesn’t put its whole business on just a few owners, either: it has 5,700 in all, with most owning just one hotel.

18 Stocks That Could Be Takeover Targets

July 10, 2018 Vince Martin

M&A activity has been big part of the global market for the past few years now, and that’s likely to continue. Tax reform has freed up more cash and made potential targets more accretive. The economy is humming along. And in a few key sectors — consumer goods and media come to mind — there’s an obvious logic behind consolidation.

The old rules still apply as well. Older companies are looking to drive scale and cut costs. Newer companies are looking to expand their reach — or cash out by selling to one of those older companies looking to spark growth of their own.

With U.S. mergers actually down in 2017 — perhaps due to tax uncertainty — there’s some pent-up demand as well. And so this might be exactly the type of market to look for takeover stocks. These 18 stocks all have been rumored or reported targets. And in many (though not necessarily all) cases, the possibility of an acquisition doesn’t necessarily look priced in.

Takeover Stocks: BlackBerry (BB)

Source: Shutterstock

On this site late last year, Larry Ramer argued that BlackBerry (NYSE:BB) was a prime takeover target. Ramer isn’t alone in that argument. Noted short-seller Citron Research made a similar claim last year in arguing that BB stock had the potential to double.

Rumors of potential acquirers have swirled for some time. BlackBerry of course almost went private back in 2013 at $9-per-share. Two years later, the company reportedly was in talks with Samsung about an acquisition.

There’s still a logical takeover case for BlackBerry at the moment. The phone business is gone, leaving an attractive software business. The QNX operating system has a real role to play in ensuring security for autonomous driving. BlackBerry’s patents have real value, with potential upside from a filed suit against Facebook (NASDAQ:FB). And with over $2 billion in cash on the books, another go-private transaction could work as well.

BB stock, meanwhile, has pulled back below $10 despite a Q1 earnings beat. Investors are worried that the company’s turnaround simply isn’t progressing fast enough (indeed, I’ve made that argument myself). But with real value in the software and the nameplate, it simply may be that the turnaround could be better executed under different ownership.

Takeover Stocks: Lions Gate Entertainment (LGF.A, LGF.B)

Source: Shutterstock

The acquisition of Time Warner by AT&T (NYSE:T) has led to an belief that consolidation is coming in the media space. As James Brumley wrote last month:

“…the previous lines between media distribution, media creation, and content licensing have been completely wiped away. This is just the beginning of a heated M&A race, with all players knowing once-unthinkable partnerships are now going to be permitted.”

And so the owners of content look like attractive targets, and Lions Gate Entertainment (NYSE:LGF.A, NYSE:LGF.B) is high on the list. As Will Healy argued last month, its ownership of Starz, films such as The Hunger Games and TV programs, including Mad Menand Will & Grace all make Lions Gate an intriguing target for larger distributors.

LGF earnings have struggled a bit, and so has LGF stock. Analysts have abandoned the story of late. And investors likely will need a bit of patience. It seems likely that consolidation, if it comes, won’t kick into full gear until the drama between Comcast (NASDAQ:CMCSA), Disney (NYSE:DIS) and Twenty-First Century Fo (NASDAQ:FOX, NASDAQ:FOXA) has completed. But for investors who believe that consolidation is inevitable, LGF’s lower valuation and content portfolio make it among the most attractive takeover stocks to buy at the moment.

Takeover Stocks: AMC Networks (AMCX)

Source: Shutterstock

Lions Gate isn’t the only potential target, however. AMC (NASDAQ:AMCX) is another mid-sized content provider that could provide an attractive consolation prize for acquirers who miss out on the big fish. It also provides a nice ‘tuck-in’ acquisition for companies looking to expand their reach.

AMC owns five networks, including the flagship AMC, along with WE tv, Sundance, BBC America and IFC. Ratings for The Walking Dead have declined of late, but it’s still the most-watched program on cable and it has a huge long tail of content licensing revenue ahead. (AMCX owns Dead in full, unlike Mad Men and Breaking Bad.)

Meanwhile, AMCX is controlled by the Dolan family, who has already sold off Cablevision and reportedly would like to do the same with MSG Networks (NYSE:MSGN). And of late, the company has aggressively repurchased shares instead of paying down debt, which suggests at least a possibility that management believes that debt could become someone else’s problem.

The only concern here is valuation. I sold AMCX on a recent runup near $70, while the stock looks cheap on a price-to-earnings basis, further declines from The Walking Dead can lead earnings south, and even 2018 growth looks relatively muted. With a recent pullback after a big run following the AT&T/Time Warner deal, however, AMCX is starting to drift back to an attractive valuation.

Takeover Stocks: BioMarin Pharmaceutical (BMRN)

Source: Shutterstock

Acquisition rumors have swirled around specialty biotech BioMarin Pharmaceutical (NASDAQ:BMRN) for years now. In fact, Genetic Engineering & Biotechnology News has had it on its takeover target list for six years now.

Analysts have become part of the act off and on as well, with speculated acquirers including Sanofi (NYSE:SNY) and Roche Holdings (OTCMKTS:RHHBY).

The M&A case here makes some sense. BioMarin has developed an attractive portfolio, including several “orphan drugs”, as well as potentially valuable gene therapy treatments for hemophilia. 2018 revenue should be in the range of $1.5 billion, but BioMarin continues to post losses, which is one reason why the stock has flat-lined the past few years.

A larger acquirer could add growth from BioMarin’s drugs and cut costs to turn the company profitable. The big concern is valuation, particularly after a 30% run off of April lows. Still, at some point, the long-awaited sale of BioMarin appears likely. And even just below $100, there’s still more upside to come in that scenario.

Takeover Stocks: Arconic (ARNC)

Source: Shutterstock

Aircraft parts manufacturer Arconic (NYSE:ARNC) has been a subject of takeover speculation ever since it split from Alcoa (NYSE:AA). An activist stake owned by Elliott Management, whose strategies generally center on a near-term sale, only added to the frenzy. CNBC’s Jim Cramer argued last year that Honeywell International (NYSE:HON) was the obvious buyer, after United Technologies (NYSE:UTX) agreed to acquire Rockwell Collins (NYSE:COL).

That speculation has been paused, however, as Arconic’s performance has hit the skids. The stock plunged in late April after cutting its full-year outlook. Higher aluminum costs are hitting margins (and somewhat ironically benefiting the Alcoa unit that supposedly was hiding Arconic’s true potential). Production missteps under Elliott’s new, hand-picked CEO have only added to the pressure.

Still, at some point, Arconic seems likely to return to being one of the most talked-about takeover stocks. It will take some time for the company to work through near-term issues. But with end demand from Boeing (NYSE:BA) strong and likely to stay the way, and consolidation in the space inevitable, Arconic very well may be acquired sooner than many investors currently believe.

Takeover Stocks: Xilinx (XLNX)

Source: Shutterstock

There are three key reasons why chipmaker Xilinx (NASDAQ:XLNX) is a likely acquisition target. The first is that the chip space in general is performing well and optimism toward the future is rising. With trends like IoT (Internet of Things) providing tailwinds, there’s an increasing belief that the old, more cyclical, nature of the space is starting to fade.

Secondly, Xilinx looks like a strong play on one of the bigger trends: artificial intelligence. Its FPGAs (Field Programmable Gate Arrays) are tailor-made for AI applications. Indeed, the company focused heavily on artificial intelligence during its Investor Day in May.

And, third, there’s a logical acquirer here in Broadcom (NASDAQ:AVGO). Even before Broadcom’s bid to buy Qualcomm (NASDAQ:QCOM) fell through, XLNX was touted as an attractive target for that always-acquisitive company. With Broadcom now U.S.-based, and with plenty of dry powder, such a deal makes even more sense at the moment. With XLNX lagging the chip space — it has gained less than 5% over the past year — despite strong earnings, the valuation looks workable as well.

Takeover Stocks: Maxim Integrated (MXIM)

Source: Shutterstock

Maxim Integrated (NASDAQ:MXIM) is another target for Broadcom or another large semiconductor company. Indeed, speculation has swirled for some time. Rumors of interest from Japan’s Renesas Electronics (OTCMKTS:RNECY) spiked MXIM stock in January, but the rumor was quickly shot down. Back in 2015, sources said Maxim held talks with Analog Devices (NASDAQ:ADI) and Texas Instruments (NASDAQ:TXN).

In both cases, price was a reported issue, and that still may be the case. At 21x forward earnings, MXIM stock isn’t exactly cheap. But a takeover at some point does seem possible, if not necessarily likely. And in the meantime, investors can receive a 2.8% dividend yield as they wait.

Takeover Stocks: Mattel (MAT)

Source: Shutterstock

Mattel (NASDAQ:MAT) is not a stock for the faint of heart. Execution missteps and weak demand have led MAT stock to drop by about 62% over the past five years, and 32% over the past three, even with a recent rally. The loss of a key licensing deal with Disney to rival Hasbro (NASDAQ:HAS) has only added to the pressure.

Indeed, I don’t see MAT as a buy, particularly after gains over the past couple of months. I argued a year ago that the stock was a value trap (when it traded above current levels) and I wasn’t particularly impressed with Q1 results.

But Mattel appears to have entered the realm of takeover stocks, and with some reason. Hasbro could be a suitor, although antitrust concerns are an issue. The company itself said it had rejected an offer from MGA Entertainment in May.

The huge amount of debt is a big problem, as markets are valuing that debt as low as 82 cents on the dollar, making it less likely that an acquirer would want to pay par and provide a premium to equity owners. Still, rumors continue to swirl, and if Mattel can make some progress on its turnaround, the calls for a sale likely will only get louder.

Takeover Stocks: Red Hat (RHT)

Source: Shutterstock

Red Hat (NYSE:RHT) is in an interesting spot at the moment. The open-source software developer unquestionably has a major growth driver in cloud computing. But it’s also coming off a disappointing Q1 earnings report that sent RHT stock plunging.

Even after the losses, RHT still isn’t cheap.

Yet takeover speculation has continued, with recent rumors suggesting Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) should be interested as it builds out its cloud business. Any interest could start a bidding war, with other tech giants including Microsoft (NASDAQ:MSFT) perhaps becoming interested.

Whether there’s room for more premium is unclear, with RHT still trading at a dear 34x+ forward P/E multiple. But given its growth potential and importance in such a key space, Red Hat could become a target at any time.

Takeover Stocks: Sprouts Farmers Market (SFM)

Source: Shutterstock

Grocery stocks have struggled for the past year, ever since Amazon announced its acquisition of Whole Foods Market. And with the industry’s majors looking to increase scale and stand out from the crowd, Sprouts Farmers Market (NASDAQ:SFM) seems like an intriguing target.

Analysts have called out Sprouts as an attractive target. And indeed, Sprouts itself has taken steps down that path. Its CEO said in December that Sprouts was amenable to a takeover. It held talks with Albertsons early last year, though after they fell through, that giant instead chose to merge with Rite Aid (NYSE:RAD). Target (NYSE:TGT), Walmart (NYSE:WMT) and Kroger (NYSE:KR) all potentially make sense as buyers.

The concern is that — like many of these takeover stocks — some M&A premium is already priced in. And SFM did fall hard after a disappointing Q1 report in early May. But the stock has regained most of those losses, and it has held up despite the pressure on the space. That’s likely because the market believes that at some point, a buyout offer will come along.

Takeover Stocks: AeroVironment (AVAV)

Source: Shutterstock

Drone manufacturer AeroVironment (NASDAQ:AVAV) has been a logical M&A target going back to the last decade. Longstanding relationships with the U.S. Army and the Department of Defense, along with a generally heavy cost structure, theoretically made AVAV a natural target for a major defense contractor like Lockheed Martin (NYSE:LMT) or General Dynamics (NYSE:GD).

But the recent gains in AVAV stock, which has tripled from late 2016 lows, are coming from improvements in the business, not takeover speculation. Margins are improving. AeroVironment has two key opportunities in commercial applications (notably for agricultural use) and a joint venture with Softbank (OTCMKTS:SFTBY) to offer 5G wireless from high-altitude drones.

Still, there’s a potential M&A case here, with the only concern being its valuation. AVAV looks awfully stretched from here, trading at ~45x forward earnings. There are a lot of costs to cut, but it remains to be seen if the savings, and the potential growth, are large enough to justify more gains for AVAV.

Takeover Stocks: W.R. Grace (GRA)

Source: Shutterstock

Chemical producer W.R. Grace (NYSE:GRA) doesn’t get a lot of attention from investors, despite a $5 billion market cap. But there is increasing belief that Grace could be a takeover target relatively soon.

In April, chatter surrounding a Honeywell (NYSE:HON) bid sent GRA shares up over 6%. Before that, RBC cited the company as one of five likely takeover targets. And the 2016 spin-off of GCP Applied Technologies (NYSE:GCP) made a potential sale easier, as Grace’s CFO admitted at the time.

Takeover Stocks: Ciena (CIEN)

There are few, if any, companies that have been takeover stocks longer than optical networking provider Ciena (NYSE:CIEN). Investors were looking for a Ciena buyout going back to the dot-com bubble. In 2010, Nokia (NYSE:NOK) looked like the buyer. Two years ago, rumors swirled of interest from Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC), which was supposed to buy the company eight years earlier.

More recent speculation names Cisco (NASDAQ:CSCO) as potentially having interest. And several firms, including Morgan Stanley, have added CIEN to their list of takeover stocks.

Will this time be different? Possibly. But in the meantime, Ciena has a healthy balance sheet, a focus on margin expansion, and a reasonable valuation. Even if a takeover doesn’t (finally) materialize, there could be some value left in CIEN stock.

Takeover Stocks: Square (SQ)

Source: Via Square

Square (NYSE:SQ) seems like a classic takeout candidate. It’s disrupting a payment space largely led by giants. The business could benefit from increased scale, and an acquirer could gain from lower sales and marketing spend.

The only question at this point is whether SQ stock is too expensive. I’ve long been bearish from a valuation perspective, but so far, I’ve been completely wrong.

In my defense, I’m not alone. At $65, SQ stock is well ahead of the consensus Wall Street target of $57. And at nearly 10x revenue, there’s a question as to whether the valuation can support anything left in the way of premium. Companies like PayPal (NASDAQ:PYPL) and even Visa (NYSE:V) and Mastercard (NYSE:MA) could be logical suitors. But can they — and will they — pay what Square shareholders would ask for?

Takeover Stocks: National Beverage (FIZZ)

Source: H. Michael Karshis (Modified)

Just a few years ago, beverage maker National Beverage Corp. (NASDAQ:FIZZ) was a sleepy producer of smaller soft drink brands. But the company’s LaCroix sparkling water brand took off, and so did FIZZ stock. It has risen 484% in the past five years alone.

Along with that increased valuation has come increased attention. Short sellers have targeted FIZZ stock. And rumors of a takeover have only amplified.

After all, LaCroix looks like a big winner. It has massive market share in sparkling water, a category that is taking share from diet soda (and regular soda as well). Quirky branding, design and marketing has garnered the label a cult following.

And so an acquisition makes sense — if one of the majors can’t undercut the LaCroix business. PepsiCo (NASDAQ:PEP) is trying to do so with its Bubly line. Coca-Cola Co (NYSE:KO) has rolled out Dasani sparkling water and acquired Topo Chico. But if LaCroix continues its dominance, Pepsi or Coke may simply decide to buy out National Beverage. Acquisitive Dr Pepper Snapple Group (NYSE:DPS) could be in the mix as well.

Takeover Stocks: Campbell’s Soup (CPB)

Source: Meal Makeover Moms via Flickr (Modified)

The rumor mill is as hot around Campbell Soup (NYSE:CPB) as any of the takeover stocks right now. In May, disappointing numbers and the exit of its CEO sent CPB stock to its lowest levels in nearly five years. But reports that Kraft Heinz Co (NASDAQ:KHC) is interested in buying the company have sent CPB shares soaring.

From here, the logic of a Kraft-Campbell’s tie-up seems minimal. Adding one zero-growth, indebted manufacturer to another doesn’t seem like an attractive combination. But at the least, it does seem like CPB’s family ownership group is accepting the need for a sale. And with activist pressure helping, that could lead to a buyout, whether by Kraft or by someone else.

Takeover Stocks: Hain Celestial (HAIN)

Source: Shutterstock

A common trend in the food industry the last few years has been for larger companies to buy smaller, faster-growing brands in the natural and organic spaces. But Hain Celestial (NASDAQ:HAIN) seems to have missed out.

Over the past few years, Hain has been cited as a possible target for a number of companies, including Kraft Heinz, Campbell’s and Hormel Foods (NYSE:HRL). But a somewhat unwieldy portfolio, which includes personal care, meats and snacks, has made a straight sale difficult. In the meantime, HAIN stock has taken a big hit, touching a six-year low in late May before a recent rebound.

But a sale finally may be on the way. An activist has taken a 9.9% stake and is pushing for a sale. HAIN probably won’t get a price close to its peak, and it may have to break itself up to create incremental value for existing shareholders. There is some value here, however, and a clear motivation to — finally — get a deal done.

Takeover Stocks: Wynn Resorts (WYNN)

Source: Shutterstock

Takeover speculation has ramped up around Wynn Resorts (NASDAQ:WYNN) this year. Once founder Steve Wynn stepped down amid sexual harrassment allegations in February, the path to a sale actually became a bit clearer.

Rival Las Vegas Sands (NYSE:LVS) seemed like the most logical acquirer. Rumors followed in April that MGM Resorts (NYSE:MGM) was interested in a takeover.

And with WYNN pulling back over the past few weeks, largely due to concerns surrounding its operations in Macau, the case for a takeout looks stronger. U.S. casinos have been in full-out M&A mode, with Eldorado Resorts (NASDAQ:ERI) buying up Isle of Capri and other assets and Penn National Gaming (NASDAQ:PENN) merging with Pinnacle Entertainment (NASDAQ:PNK), among many other moves. Similar logic would work for a takeout of Wynn.

Source: Investor Place

Cryptocurrency

Keep Holding On

July 10, 2018 Adam Sharp

At Early Investing, we like to hold our crypto. We believe that, despite the volatility in the crypto market and the scary dips that can happen, crypto is ultimately growing in value. And it will eventually overtake the fiat currency system.

Taking this view means adopting a long-term approach to investing.

Tom Lee, co-founder and head of research at Fundstrat Global Advisors, has calculatedbitcoin’s return if an investor had not owned the crypto for its 10 highest-returning days each year.

The top 10 days drastically outperformed the rest of the year – especially in 2013 and 2017. The non-top 10 day returns were negative in four out of the past six years. The dotted line shows the annualized return from 2013 to 2017 would be negative 25% if an investor had missed the 10 best days in each year.

As Adam Sharp pointed out recently, investors are emotional beings. They are susceptible to fear and greed, and that can undermine their judgment. An investor who’s new to crypto would probably look at that chart and feel both fear and greed – fear for the dips and greed for the dramatic highs. They might try to jump in and out of the market to profit from those highs and escape the lows.

But the fact is it’s extremely difficult to pinpoint the bottom of a market. Bitcoin’s volatility just adds to the degree of difficulty. And the fact that most media headlines are fixated on price (instead of bitcoin’s market cap and growing institutional adoption) just adds to the pressure to sell.

According to many different publications over the years, bitcoin has met its demise 322 times.

Yet it’s still here… at a $6,700 price and a $114 billion market cap as I write.

This is why taking the long view is so important. It may look (and feel) terrifying to see crypto prices take turns soaring and plummeting. But the closer crypto gets to mainstream adoption, the more the markets will stabilize. And it’s getting closer all the time.

Take heart and hold your crypto – even when it makes you queasy. This roller coaster has its loops, but it also has a steadily rising baseline. Remember that.

Good investing,

Allison Brickell
Assistant Managing Editor, Early Investing

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Blockchain

3 Companies Profiting from New Ways to Use Blockchain Technology

July 9, 2018 Tony Daltorio

Many investors continue to think of blockchain as merely the technology that Bitcoin is based on. But it is rapidly becoming a lot more than that. . . . .

In this next article in my series on blockchain technology, I look at the ever-expanding uses some of the leading companies in the world are finding for the use of blockchain. Here is just a small sample I want to bring to your attention, emphasizing the practicality of blockchain in all sorts of businesses.

Fixing the Opioid Epidemic

One novel use for blockchain technology is being undertaken by Intel (Nasdaq: INTC) and the pharmaceutical industry – tackling the opioid epidemic.

Intel’s idea is to use blockchain to pinpoint where drugs “leak” out of the drug supply chain. The test began this spring when Johnson & Johnson and McKesson among others entered simulated data into new digital ledgers. The experiment will see how easy it is to track drugs as they travel from the manufacturer all the way to a patient’s home.

The effort would include using sensors and scanners to ensure that information is entered accurately. After a pharmacy issues a drug and scans it, the record will immediately appear on the blockchain. Each bottle, and even each pill, would be traceable all the way through the supply chain. And any ‘missing’ drugs could then be investigated.

The hope is the tests will lead to a live pilot project and possibly even a limited deployment by year-end. The ultimate goal is for all drug-related companies and their suppliers worldwide to be on an online ledger that can’t be erased. Then government agencies such as the FDA (Food and Drug Administration) could potentially plug into the blockchain and provide oversight.

It is hoped blockchain technology will also help detect “double doctoring”, where an addicted patient takes out more than one prescription from multiple doctors. There is already software that sift through prescription records from 45 states that detects potential opioid abusers that cross state lines to get their prescriptions filled.

Insurance Industry Adopting Blockchain

In my last article on Blockchain, I told you how the world’s largest container shipping company, Moeller Maersk (OTC: AMKBY), was adopting blockchain to modernize global supply chains.

Maersk is also using blockchain to help decide how its ships will be insured if they are sailing through war zones. It has teamed up with the consultancy Ernst & Young, insurers XL Catlin and MS Amlin and the insurance broker Willis Towers Watson to create a system that Maersk hopes will lead to more efficient insurance policies that are more tailored to what it needs.

This is just one of dozens of blockchain initiatives going right now in the insurance industry. The major insurance companies, including Axa, Allianz and AIG, are experimenting on how best to use blockchain. For example, one possible use of blockchain would be to store details of the possessions that policy holders want to insure.

The main benefit of blockchain adoption here would be to increase the efficiency of the insurance firms, making them more cost-efficient. That efficiency could take several forms. First, all parties to an insurance contract — from the insurer to the broker and the policyholder — will be able to see all of the documents in the same place, with changes being verified by all parties. That can save a lot of the time-consuming data re-entry that goes on across the insurance industry, and cut down on the risk of mistakes or misunderstandings in a contract. Blockchain could speed up the claims process too, especially if it is a straightforward claim.

Insurance is normally an industry very slow to change. But blockchain could be a real game changer for this staid industry.

Diamonds, Jewelry and Blockchain

This next industry that is adopting blockchain may be a surprise to you – it is the diamond industry. It is desperately in need of this, with such a murky supply chain that may include fakes, synthetic diamonds and so-called conflict diamonds getting into the mix.

The diamond mining giant De Beers said in May that it had successfully tracked its first diamonds all the way from its mines to jewelry retailers using its Tracr blockchain technology that it plans to roll out to the whole diamond industry later this year.

Tracr gives each diamond a unique ID that stores stones characteristics such as weight, color and clarity. To support the process, the system will also be using stone photos and planned outcome images. Its blockchain technology allows De Beers to show transactions to all participants, while keeping their identities and the values hidden. It is meant to give buyers confidence that the diamonds they are genuine and don’t come from conflict zones.

IBM (NYSE: IBM) is working on something similar (called TrustChain) for jewelry in general, following the supply chain from the mines to the jewelry store and that is based on its proprietary blockchain technology.

Supply chain verification for the jewelry industry is becoming increasingly essential because consumers are demanding transparency in the jewelry they buy. They want to be sure the diamond or precious metal in the jewelry was not mined by exploited labor and in a sustainable way. Research has found consumers are willing to pay more for such proof.

The goal is that, by next year, consumers will be able to pull a smartphone, scan a QR code on the diamond and see a visual of the entire supply chain right on their smartphone.

Blockchain Investment

I hope this look at some of the rapidly uses for blockchain brings home the point that it is a technology worth investing into. The only problem is that the highest-quality efforts in blockchain are just small parts of very large companies. Although IBM is probably the best play if you’re looking for an individual stock to invest into.

If you’re looking for a broader approach, there are a number of blockchain-centered ETFs to choose from. The best of these is the Reality Shares Nasdaq NexGen Economy ETF (Nasdaq: BLCN), which is down 7% year-to-date. Among its top 10 holdings are: IBM and Intel as well as Square, Microsoft and AMD.

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Uncategorized

5 Earnings Reports to Watch This Week

July 9, 2018 Vince Martin

Earnings season is upon us again — and it’s a big one. The market has traded sideways for several months now, and a solid batch of earnings reports could be just the catalyst to move broad markets back to new all-time highs.

Of late, investors have alternated between optimism toward a strong U.S. economy and fears about higher interest rates and potential trade wars. Moving the headlines to what should be at worst a solid earnings season could be good news for U.S. equities.

After all, there’s still a lot to like. Lower tax rates will help the majority of reporting companies. The economy looks like it’s at — or getting very close to — full employment. The effect of inflation in areas like labor and commodities bears watching, and could pressure margins and profit growth. But overall it seems like the majority of earnings reports should be good news.

This week kicks off the season — led by several key financials. But leaders in both the consumer and industrial spaces should also signal the health of their respective sectors. Strong reports from these five companies could send their stocks higher and also give investors reason for confidence heading into the next few weeks.

5 Earnings Reports to Watch: PepsiCo (PEP)

Source: Shutterstock

Earnings Report Date: Tuesday, before market open

PepsiCo (NASDAQ:PEP) has had a roller-coaster 2018. As of late January, PEP stock traded at an all-time high. By early May, it reached a 29-month low. An ugly start to the year for consumer products stocks was a key culprit. Not even a solid Q1 report in April could stem the bleeding.

Pepsi stock has rallied into earnings, however, rising 14% from those May lows. It can keep the momentum going with another beat on Tuesday. But caution might be advised. CPG stocks have struggled this year — for good reason, as I wrote in May. The new Bubly line, meant to compete with LaCroix from National Beverage Corp. (NASDAQ:FIZZ), needs to be a win — and may not be. Declining soda consumption, particularly relative to diet varieties, presents another long-term headwind.

PEP has outperformed rival The Coca-Cola Co (NYSE:KO) for years now. It may still do so going forward. But given the pressures on the industry, that doesn’t necessarily mean PEP stock is going up … either on Tuesday or beyond.

5 Earnings Reports to Watch: Fastenal (FAST)

Source: Shutterstock

Earnings Report Date: Wednesday, before market open

One sector that has been notably weak this year has been construction. Distributor Fastenal Company (NASDAQ:FAST) could buoy the space with strong results on Wednesday morning.

After all, FAST sales are a key data point relative to demand from builders and contractors. As such, it’s possible that a good quarter for Fastenal could do as much — if not more — to help other stocks than its own. Strong revenue results will suggest confidence from Fastenal’s suppliers and a continuation of solid growth in the industry.

And with those suppliers not threatened by Amazon.com (NASDAQ:AMZN), investors might see less risk in them. FAST does trade at a seven-month low, so a good report can help its own stock. But investors across the sector will be watching closely as well.

5 Earnings Reports to Watch: J.P. Morgan Chase (JPM)

Source: Shutterstock

Earnings Report Date: Friday, before market open

After a huge post-election run, financials have weakened – and that includes J.P. Morgan Chase(NYSE:JPM). JPM actually trades at a seven-month low at the moment.

It’s difficult to see why. Fed rate hikes, which should help net interest margin for JPM and other banks, seem likely to be on the expected pace. Federal Reserve stress tests went well, leading Josh Enomoto to recommend JPM as one of three bank stocks to buy.

I agree with Enomoto; I recommended JPM myself back in March. I still like Bank of America (NYSE:BAC) best in this sector, but investors can’t go wrong with JPM, either. And a strong earnings report on Friday should remind investors why this is a stock worth owning long-term.

5 Earnings Reports to Watch: Wells Fargo (WFC)

Source: Shutterstock

Earnings Report Date: Friday, before market open

For Wells Fargo (NYSE:WFC), Friday’s Q2 release will be less about what the company is doing right – and more about what it’s doing better. Wells continues to struggle with its past scandals, with the Fed deciding back in February to cap its asset growth as a result.

Strong numbers will help the stock’s cause. But the quarter — and the earnings call — will be more about restoring investor confidence. Wells Fargo’s largely new management will try and make the case that the bank is headed in the right direction.

On that front, I’m still skeptical. Particularly with JPM and BAC on sale, there are simply easier ways to make money in the financial space. It will take quite a bit from Wells Fargo’s Q2 report to suggest that past failures truly are behind the company.

5 Earnings Reports to Watch: Citigroup (C)

Source: Shutterstock

Earnings Report Date: Friday, before market open

Citigroup (NYSE:C) similarly has taken a hit of late. The stock actually touched an 11-month low last month before a modest rebound. And the low price sets up a potentially interesting report of its own on Friday morning.

After all, C stock looks like the cheapest of the big banks. It still trades below book value and at barely 9x 2019 EPS estimates. A recently boosted capital return program will add to buybacks and move the stock’s dividend yield to nearly 2.7%.

But Citi has its own regulatory issues to worry about. It still feels much more like a turnaround play than JPM or BAC. It’s not executing as well as those peers in either consumer or investment banking.

That leaves room for upside if Citigroup can improve its operations. That’s what investors will be watching for on Friday — and if they like what they hear, C stock could become a near-term out-performer.

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Source: Investor Place

Options

What Does This Huge Options Trade Mean For Oil?

July 5, 2018 Jay Soloff

When I write about large options block trades, it’s generally for one of two reasons. First, a lot of smart money is active in the options market. If a very big (i.e. capital intensive) trade occurs with options, it can often be a signal that there’s going to be action in the underlying asset.

Second, sometimes I just find an options trade very interesting and worth discussing. It could be because it’s an unusual trade or is an original way to handle risk management. Of course there are times when I write about a large trade because it’s interesting and may provide meaningful insight into the underlying asset.

A trade last week I came across meets both of those criteria. More specifically, I noticed a massive covered call trade in United States Oil (NYSE: USO).

USO is the most active oil ETF. While it has its flaws, trading USO is probably the easiest way for the average trader/investor to trade oil. Beyond trading oil futures themselves, USO is likely the most direct way to trade oil as well.

Covered calls can be intriguing to analyze because they can be successful in many different types of market conditions. However, one of the few situations which are “bad” for covered calls are when the underlying asset price blows through the short call strike. (It’s not entirely bad since you are still making money, but you could have made more money by just being long the asset.)

So, is this covered call trade suggesting there’s a limit on how far oil prices are going to rise? Let’s take a closer look at the position.

The trade involved a massive 60,000 USO January 2019 calls, which means 6 million shares of USO were purchased against the calls. The call strike sold was the 15, and the stock was right around $15 at the time, in other words, the calls were sold at the money.

The 60,000 options were executed in two separate blocks. And, if you average the prices together between the two blocks, you get an average call sale price of $1.35. That works out to $8 million in premium received (or a 9% yield over a roughly 7 month period).

With the short calls being sold at the money, the trader clearly does not expect USO (and thus oil prices) to continue climbing through next January. Otherwise, he or she would have sold out-of-the-money options instead to give USO room to climb. (Clearly, as you can see in the chart, oil has already seen sharp gains in recent weeks.) With the at-the-money trade, the max gain on the trade is right at $15 at January expiration.

On the other side, the call premium collected means the USO shares are hedged down to $13.65. Plus, the trader may not expect the shares to be offset by the short calls next January. Instead, he or she may be happy to be left long the shares for an effective price of $13.65, and could always continue writing calls against those shares moving forward.

If you believe oil’s price increase has run its course, this is a good way to generate income on it, while still giving you a chance in to be long the shares next January. If you think oil has more room to run, you can always sell a higher call strike. The 16 strike trades for about $0.75. That’s not a bad credit to receive, while also giving yourself a bit of upside potential in the stock price.

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Cryptocurrency

Here’s Our Bitcoin and Crypto Outlook for 2018

July 5, 2018 Money Morning News Team

WILLIAM PATALON III

David Zeiler and I have known each other and worked together for 20 years now. We worked together at The Baltimore Sun, and I hired Dave here when I helped launch and then ran Money Morning.

We’ve become good friends.

I’ve become one of his biggest admirers.

Indeed, I even started a kind of “running gag” with Dave on Twitter, where we’re both active users. Anytime I see Dave post something substantive about Bitcoin or other cryptocurrencies, I “reply” with some variation of this tweet:

#Attention: If you aren’t following @moneymorning #cryptocurrency editor @DavidGZeiler, then you really aren’t following #bitcoin or #ethereum or the #blockchain. Dave is a #mustread/#mustfollow expert on #cryptocurrencies.

Here’s the thing…

While I admit that this is a “running gag” between us, what I’m actually saying is no joke.

No joke at all.

In just a few short years, Dave has become one of the most prescient, most widely read chroniclers on cryptocurrencies. He’s part of the amazing “bench” that Publisher Mike Ward has built here at Money Map Press – and underscores why we’re “investment idea leaders” in areas like technology, cryptocurrencies, energy, medical marijuana, options trading (and trading systems), and wealth creation.

That’s why I invited David to talk specifically about Bitcoin and cryptocurrencies.

Dave amassed his expertise the “right” way – through immersion. He was one of the early Bitcoin “miners” – back when it was still possible for an individual investor to be a go-it-alone cryptocurrency prospector.

Since then, as an Associate Editor at Money Morning, Dave has become one of the industry’s foremost writers/analysts about all things related to cryptocurrencies.

And he’s made some stunning calls along the way.

In early 2016, when Bitcoin was trading at $450, Dave predicted – on the record – that the crypto coin could zoom to $2,000 – and then go higher from there.

Much higher.

As we know now, Bitcoin did soar – just as he predicted. It zoomed past $19,000 before the crypto market collapsed.

When we last talked to Dave, it was during the big Bitcoin sell-off early in the year.

As part of the activities here at 2018’s midpoint, I thought Dave would offer some terrific insights about what to expect in the last half of the year.

He didn’t disappoint…

Crypto Investors Are Set for an Eventful Six Months

William Patalon, III: Okay, Dave – well, we’re certainly in an interesting area when it comes to Bitcoin and its cryptocurrency brethren. The year’s first half has been rough – really rough. Here at the year’s midpoint, and as we look downhill to 2018’s second half, what’s foremost on your mind?

David Zeiler: Well, what I’m looking for – specifically – is a catalyst that will snap Bitcoin and all of its “crypto brethren” out of the slump the sector has been in for the entire year.

Actually, Bill, there are several catalysts – it’s really a question of which one happens first.

My money right now is on the Lightning Network. Lightning is a technology that vastly increases the capacity and speed of the Bitcoin network by allowing transactions to take place in “payment channels” off the main blockchain.

WPIII: Lightning is still a work in progress, though, correct?

DZ: That’s right, Bill, but folks who haven’t followed it closely might want to consider this carefully. You see, Lightning went from “test mode” to “live mode” in March.

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WPIII: So this just happened, then…

DZ: That’s correct. Right now, the developers are working hard to make these features user-friendly so that the masses can take advantage of them. When that happens, you’ll see adoption skyrocket and the Bitcoin price along with it.

WPIII: That’s pretty cool, Dave. What else?

DZ: The other major catalyst on the horizon is big institutional money coming into Bitcoin.

WPIII: You and I have talked about this “offline.” As you know, I covered the money management/wealth management sector for years in Upstate New York – where there’s a lot of “Old Money” – and have followed the sector and its trends ever since. And one thing that I keep hearing is that high-net-worth investors are looking to put their cash to work in two key areas of opportunity.

DZ: Legalized marijuana and cryptocurrencies…

WPIII: (laughing) That’s right, Dave, that’s right.

DZ: I think that still holds true in the long run. But I also believe the spike in prices last year and the subsequent big drop has made them wary. A lot of the crypto hedge funds that launched last year got hurt. But as the crypto market recovers, the big players will want in. They’re also waiting for proper regulation by the U.S. Securities and Exchange Commission [SEC]. The current “Wild West” nature of crypto trading is a bit too risky – now – even for a lot of hedge-fund managers.

In the long run, it doesn’t matter which of these catalysts hits first. It’s going to be a “one-two punch” that will start driving Bitcoin higher in the second half of the year and well into 2019.

WPIII: So let’s consider the outlook for the U.S. and global economies – and the financial system in general – and relate that to your expectations for Bitcoin et al.

DZ: Obviously, crypto prices aren’t affected by the economy the way that stock prices are. But cryptos could turn out to be a great “safe-haven investment” in the last half of 2018 if the stock markets take a tumble. All the capital fleeing stocks will have to go somewhere. Have to.

You know, some of this cash will move into gold and other precious metals. But Bitcoin and Ethereum prices could get a boost from any significant pullback in stocks – especially if that sell-off is triggered by a fear-inducing event.

WPIII: Such as…

DZ: I’m talking about things like President Donald Trump’s trade wars, a confrontation with Iran, a major incident in the South China Sea – which I know you’ve been chronicling for years and were way ahead of everyone in assessing. I think President Trump makes Wall Street nervous, especially when it comes to foreign policy – because he’s unpredictable. That unpredictability is bad for stocks – but good for crypto.

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WPIII: Okay, given all the ground we’ve already covered here, let’s get to your predictions. What’s your outlook for the crypto market in the last six months of this year? And beyond, if you want to go out that far…

DZ: Well, Bill, it goes without saying that the first half of the year has been rough for crypto. Most of these coins are down 65% to 70% from the all-time highs they reached back in December. But lately, the decline has leveled off. To some extent, news and other current events will drive prices. But I do believe one or more of the catalysts mentioned earlier will take hold by late summer or fall.

WPIII: And if or when that happens?

DZ: Prices will bounce back. And once they start to move up, they’re likely to move fast. That’s what we’ve seen in previous Bitcoin recoveries. And the recovery ahead of us – whenever it comes – will be the biggest yet. We’ll get past the all-time highs and then some.

WPIII: Timing?

DZ: Bill, if this doesn’t happen by the end of 2018, then I believe it will happen in the first half of next year, to be sure.

And here’s a key point: This recovery won’t be limited to Bitcoin: It will apply to most of the top cryptocurrencies. They tend to follow Bitcoin.

WPIII: Okay, so we’ve talked about your prediction, your “forecast.” What are the biggest threats – the biggest “wild cards” – that could impede this?

DZ: In my mind, regulation is the biggest wild card. We know the SEC is looking hard at cryptocurrencies in general and ICOs [initial coin offerings] in particular. So is the U.S. Commodity Futures Trading Commission. A lot of crypto veterans think regulation will be a disaster. They think the regulators want to kill cryptos or strangle their revolutionary potential.

WPIII: But you don’t believe that, do you?

DZ: No, I don’t. In fact, it doesn’t even make sense. They – the regulators – certainly want this to succeed.

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WPIII: Right, because regulators understand that innovation – and this certainly qualifies – is good for the economy, creating growth, new business opportunities, and needed job growth.

DZ: That’s exactly right.

You know, last fall I interviewed Emma Channing, the general counsel for Argon Group, the investment bank that’s working with the tZero exchange. She told me she talks to SEC officials all the time, and the perception that they’re “out to get” crypto is totally off base. Channing told me the SEC sincerely wants crypto to succeed – but at the same time wants to fulfill its mission of protecting investors.

WPIII: Those two things aren’t mutually exclusive.

DZ: They aren’t. But having the two together – breakthrough innovation and a sturdy, realistic regulator structure – takes more time.

Remember, too, that regulation is one of the key pieces big institutional investors are waiting for. Retail investors, too. People need and want regulatory clarity. People want to know they’re not going to lose all their hard-earned money to a scammer or sink money into an ill-conceived project. Regulation will force transparency and disclosure. When that exists for crypto, it will open the door to a torrent of fresh capital. The only question is how long it will take for the regulators to get the rules in place.

WPIII: Given this backdrop, what’s the biggest opportunity for profit here? What are you most focused on?

DZ: The biggest risk in the crypto world is falling into the trap of thinking that buying the newest and cheapest crypto is the path to fabulous wealth. People imagine that every ICO will be “the next Bitcoin.” But recent experience has shown that a lot of the ICOs out on the margin are scams.

That’s why I actually think there’s still plenty of profit – and less risk – in the major cryptocurrencies like Bitcoin and Ethereum.

Just think about it, Bill: As we sit here talking, Bitcoin is trading at about $6,000. If it gets back to its all-time high within the next year, you’ve tripled your money. Sure, it’s not a 10,000% gain. But we’re not likely to see that again. Some of the better cryptos trading under $1 today might get to $10, but they’re not going to hit $10,000 like Bitcoin did.

If you want to gamble a little, there are the second-tier coins like Cardano, IOTA, Ripple, Stellar, Neo, and Monero. You’re still looking mostly at 3x to 5x gains, though, at least in 2018. The smart move in crypto, since it’s so early in the game, is to diversify among a number of these top prospects. And make sure you include some exposure to Bitcoin and Ethereum, as well. Betting everything on one coin at this point just isn’t smart.

WPIII: Are there other ways to participate? Are there funds, ETFs? Is there a “safety play” or two folks should consider, Dave?

DZ: For some investors, buying individual cryptos is just too scary. There’s a lot of concern about exchanges getting hacked. Plus, you need the technical chops to manage your own wallet.

I get all that, I really do.

So if you’re risk averse but still want to participate in this market of promise and innovation, there are other ways to go.

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WPIII: Like “blockchain,” for instance?

DZ: Yes, that’s a great way to go. Blockchain is a kind of “building block” element of the cryptocurrency paradigm. It’s the technology “underpinning” that makes cryptocurrencies work.

There are no “pure play” blockchain companies right now, though a lot of the big financial firms and fintech companies are involved. Given that fact alone, it’s worth investing in the potential of blockchain through blockchain ETFs.

Right now, in fact, there are five of these ETFs. They don’t buy cryptocurrencies. Instead, they buy stocks of companies working on blockchain technology. The portfolios include big tech companies like IBM Corp. [NYSE: IBM] and Microsoft Corp. [Nasdaq: MSFT], as well as smaller companies that are mostly focused on blockchain.

I actually wrote about them recently.

WPIII: Is there one you like the best?

DZ: Yes. If I had to pick one, it would be the Amplify Transformational Data Sharing ETF [NYSE Arca: BLOK]. I like this ETF because it has attracted the most capital and is actively managed, which means it will be able to adapt its holdings quickly in a rapidly evolving sector.

WPIII: This is great stuff, Dave, which is why I really wanted to get you in front of my subscribers again.

Okay, so let’s talk strategy.

Is there a strategy that cryptocurrency investors should use in the year’s second half?

DZ: Well, Bill, when I look at this, the good news I see is that the admittedly steep decline in crypto prices in the first half of the year has brought prices down so much that they’re really cheap – at least for the time being.

And that’s not some attempt to varnish the reality of what has happened. But as you know from our many talks, both in formal interviews and “offline,” I really do believe in this market. I really do believe this is a transformative technology.

You know, Bill, I remember that – a while back – you did this fascinating piece about the “history of money.” You argued that cryptocurrencies were a logical next step in the process.

I loved that piece and your explanation. It was elegantly simple – but so very true.

WPIII: Investors get so caught up in the “gee-whiz” technology that they lose sight of the bigger picture.

DZ: Exactly – that’s exactly right.

Cryptocurrencies are the next logical progression in payment technology. The technology blunts some of the weaknesses of cash, credit cards, and digital payments by offering greater speed, greater security, [and] greater acceptance. Those are all good things.

The one difference is that crypto coins are directly investable.

And that makes them a wealth opportunity – and a good one.

The fact that prices are lower now means that you have a lower entry point than you did six, eight months ago. And lower entry points now mean higher profits later.

Now, given how long you and I have worked together – and how much you care about your Private Briefing subscribers, Bill – I know what you’re about to ask me: Could Bitcoin and other cryptos go lower?

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WPIII: Well, you beat me to the draw on that one.

DZ: Have to win sometimes, right? [both Dave and Bill laughing]

In all seriousness, my answer is “yes,” of course they could. But I have to believe that prices aren’t likely to go that much lower before they start to rebound. So the strategy is to invest what makes sense for you – people still shouldn’t make crypto any more than 5% of their portfolio – and to do it sooner rather than later. Those of us who have been involved with Bitcoin for a long time know that the price can leap up just as fast as it dropped. You don’t want to wait until Bitcoin is back up to $15,000 to buy.

WPIII: Dave, this has been great – as always. Thanks for joining us here.

DZ: Always glad to do so, Bill.

Source: Money Morning

Pot Stocks

3 of the Best Marijuana Stocks to Buy in July 2018

July 3, 2018 Money Morning News Team

We’ve been telling Money Morning readers that marijuana is one of the most explosive industries you can invest in this year.

Today, we’re going to show you three of the best marijuana stocks to buy in July 2018.

The 4 Cannabis Stocks to Buy Now – Profits of Up to 1,000% Could Be Likely This Election Year!

But first, we want to show you why it’s such an important moment for marijuana investing…

Marijuana Sales Will Soar Through 2021

Marijuana is rapidly being legalized across the United States and Canada.

That’s leading to a flood of revenue coming to the companies successfully positioned to capitalize on the wave of legalization.

Sales of legal cannabis in North America are forecast to reach $24.5 billion by 2021, up from only $10 billion last year. In other words, in only four years marijuana sales throughout North America will jump a whopping 145%.

The sales will be driven by the growing legalization in the United States and Canada.

Canada will fully legalize cannabis this fall, after voting to approve it on June 7.

And more U.S. states may join Canada in 2018’s election cycle. New Jersey and Arizona are among the states contemplating legalization.

But even as states move to legalize cannabis, it’s still illegal under federal law. There were fears that U.S. Attorney General Jeff Sessions – a marijuana critic – would harshly enforce federal law against states that legalized cannabis.

Plus, marijuana being federally illegal keeps banks and financial services from providing cannabis companies with much-needed cash and security.

That’s keeping a lid on some marijuana stocks for now, but it’s not going to last…

U.S. President Donald Trump is already considering support of legislation that will protect the states that have legalized pot.

If the president does that, Sessions will have to follow suit, no matter how much he doesn’t like marijuana legalization.

And it’s simply a matter of time before federal law is brought into the 21st century, and marijuana is treated with a hands-off approach.

That means there’s still time to get in early on the best pot stocks before they truly soar.

But there are so many cannabis stocks listed, it’s tough for investors to find those worth owning. Some lists contain up to 227 different companies.

Instead, we’re making it easy…

Here’s our list of the three best marijuana stocks to buy…

The Best Marijuana Stocks to Buy in July 2018

To help narrow down the universe of marijuana stocks, we turned to marijuana expert Wil Ralston.

Wil is president of SinglePoint Inc. (OTCMKTS: SING), a holding company for cannabis and technology. The company focuses on small to midsize company acquisitions, specializing in emerging markets and mobile technologies.

We believe Ralston is in a great position to focus on the superior profit plays in the sector. And he’s pointing to two stocks we’ve been on top of at Money Morning.

These stocks are pick-and-shovel plays, just like the successful entrepreneurs who sold equipment to miners during the Gold Rush. Instead of hoping to hit it big with a gold mine, they instead raked in a fortune from everyone who tried.

We have two favorite pick-and-shovel stocks, and they are the same ones Ralston likes.

They are ScottsMiracle-Gro Co. (NYSE: SMG), which is on the agricultural side of legal cannabis, and Microsoft Corp. (Nasdaq: MSFT), which is on the financial side.

SMG is known to nearly every American lawn owner as the provider of lawn care products. But the company is pivoting to help marijuana growers too. SMG acquired a hydroponics company this year for $450 million. Hydroponics allows plants to grow in water inside greenhouse nurseries instead of fields and is one of the most popular ways to cultivate marijuana.

MSFT is also getting in on the action. Microsoft is partnering with KIND Financial, which offers legal compliance services to the marijuana trade. Marijuana companies have to be careful to comply with all laws, and that means using a digital network to archive and track their shipments and sales. KIND supplies that software thanks to Microsoft’s Azure cloud system.

As Ralston points out, venerable blue-chip firms like SMG and MSFT getting involved in the marijuana industry indicates the growing confidence they have in the future of the sector. Investors can not only profit from these companies – they can also feel heartened by the sign that the marijuana industry is beginning to standardize as legalization increases.

We also turned to another industry expert, Frank Lane. Frank is the president of CFN Media Group, a premier creative shop and media network working within the legal marijuana industry.

As we mentioned earlier, because of federal laws prohibiting marijuana sales, cannabis companies often struggle to find reliable banking partners.

But this isn’t a problem in Canada, and one company is focusing on helping finance new cannabis operations in our neighbors to the North.

Cronos Group Inc. (Nasdaq: CRON) is a marijuana investment firm based in Canada and listed on the Nasdaq. It was able to list in the United States because the firm is not in violation of any U.S. laws, which is a great opportunity for you.

Cronos Group specializes in investments in firms that are engaged in Canadian medical marijuana, firms that are either seeking a license or already licensed.

And with full marijuana legalization launching in Canada by September 2018, now is the best time to get in before the CRON stock price really takes off.

Cronos owns Peace Naturals Project Inc., a company that is licensed to sell medical marijuana and cannabis oil in Canada.

It also owns Original BC Ltd., another company licensed to sell medical marijuana in Canada.

When the cannabis boom takes off up north, Cronos is ready to profit.

Energy

3 Energy Stocks to Buy as China Cuts Solar Subsidies

July 2, 2018 Brandon Borello

There was good news recently for supporters of solar energy…

Despite tariffs imposed on imported solar panels, the United States installed more solar energy than any other source of electricity (accounting for 55% of all capacity installed) in the first quarter of 2018. According to a report from GTM Research, there were 2.5 gigawatts of solar power installed in the first quarter, a rise of 13% from the year earlier period.

This was part of the move globally toward renewable energy. In its annual review of world energy released in mid-June, BP (NYSE: BP) revealed a surprising fact – 17% of the world’s energy growth in 2017 came from renewable energy sources. That was the largest increase on record and the equivalent of the energy consumed by Sweden and Denmark in a year.

Much of this progress is the result of falling prices for solar panels, thanks to overproduction from Chinese companies. The International Energy Agency (IEA) estimates that solar power will soon be the cheapest source of new electricity in a number of countries.

However, there is a dark cloud on the horizon. As prices for solar power come down, government policymakers are moving away from subsidies for solar power projects and shifting toward auction-based systems to reward the lowest-cost producers of renewable electricity.

China’s Solar Eclipse

We saw such a move in the world’s biggest solar power market, China, announced in early June. It accounted for two-thirds of solar installations worldwide in 2017, with a 55% surge in new solar installations. So it was a bit of a shock to the industry when China said it would eliminate subsidies for most new solar projects as well as reducing feed-in tariffs.

China’s move was aimed at curbing runaway growth in the country’s solar generation, which had boomed under its generous subsidies program. The massive subsidies created a deficit of $15.6 billion in a fund set up to pay for the higher feed-in tariffs. The energy consultancy Wood Mackenzie forecast that deficit would soar to nearly $40 billion by 2020 if China had left its policy unchanged.

In addition, much of the solar power installed in China in recent years is “curtailed”, or unused, as provincial grid operators choose to use electricity from local coal-fired power plants instead. This practice is particularly prevalent in China’s far western provinces. In Xinjiang, for example, curtailment stood at more than 20% at the end of 2017. This was actually an improvement about one-third of installed capacity that stood idle the year before.

The government’s new policy sets a strict quota for solar installations and eliminates subsidies for any projects outside the quotas. And the quotas were so low that most of the quotas were already filled within the first five months of this year.

Because of China’s actions, solar installations worldwide are now expected to drop and the sudden contraction will place even more pressure on solar panel prices and on the manufacturers, who in many cases were already struggling. Wood Mackenzie expects that 20 gigawatts will be shaved off China’s solar installations this year as a result of the new policy.

That is equivalent to a fifth of last year’s overall global demand! Or as Edurne Zoco, head of solar research at IHS Market, told the Financial Times “If China really clamps down, there is no market, no combination of markets in the rest of the world that can actually compensate for that.”
The end result is that 2018 will likely be the first year in the short history of the industry that it will experience negative annual installation growth. And price-wise, Bloomberg New Energy Finance (BNEF) lowered their forecast for this year from a 25% price decline to a 34% drop for solar panels.

More on China: Buy This Export to China That Is Exempt From Tariffs

Investing in Solar

This is why you saw steep price declines of all solar power-related stocks in June. Is now a time then to look for bargains among the beaten-down solar stocks?

The answer is yes and no. Let me explain…

First of all, you must stay away from broad exposure to the industry through ETFs such as the Invesco Solar ETF (NYSE: TAN), which is down about 8.5% year-to-date. There are just too many of the lower-tier players in such a broad fund.

You will need to pick and choose, or as the old adage goes, ‘separate the wheat from the chaff’. One way to do that is to go with the beneficiaries of lower solar panel prices (despite the tariffs), the companies that install solar power.

One such example is Sunrun (Nasdaq: RUN), which is the largest residential solar power company in the United States with a 15% market share. Its stock has soared over 122% year-to-date and is up 90% over the past year.

Since establishing its so-called ‘solar as a service’ model in 2007, Sunrun leads the industry in providing clean energy to homeowners with little to no upfront cost and at a savings to traditional electricity. The company designs, installs, finances, insures, monitors and maintains the solar panels on a homeowner’s roof, while homeowners receive predictable electricity pricing for 20 years or more.

Another factor in its favor is the fact that California passed a law that will require the installation of solar power generation of all new homes, beginning in 2020. The state’s largest solar system installer is Sunrun.

Another company to look at is one that was once considered ‘dead’ – Enphase Energy (Nasdaq: ENPH). Its semiconductor-based microinverter system converts energy at the individual solar module level and brings a system-based high-technology approach to solar energy generation, storage, control and management.

It is interesting to note that as China pulls back on solar, India is going ahead full steam. And Enphase is installing a 4.5 gigawatt solar power plant in India that will send power to Bangalore. When completed, it will be the company’s largest microinverter-based solar plant installation.

Its stock has seen a Lazarus-like comeback, soaring over 700% in the past year and it is up more than 182% year-to-date.

Finally, there is my favorite and a member of the Growth Stock Advisor portfolio, SolarEdge Technologies (Nasdaq: SEDG).

The company has invented an intelligent inverter solution that has changed the way power is harvested and managed in a solar photovoltaic (PV) system. The SolarEdge DC optimized inverter system maximizes power generation at the individual PV module-level while lowering the cost of energy produced by the solar PV system. Since beginning commercial shipments in 2010, SolarEdge has shipped over 6.7 Gigawatts of its DC optimized inverter systems and its products have been installed in solar PV systems in 120 countries.

I believe its DC voltage optimizer strategy will win more and more market share versus the more expensive micro-inverter strategy used by their rivals. Despite its recent pullback, the stock is still up 25% year-to-date and 129% over the past year.

Stocks like these three will likely survive and even thrive, despite tariffs and China’s cutbacks on its subsidies for solar, as the number of competitors dwindle.

Market Mavens

Monthly Archives: July 2018

Sell These Drug Retailers About to Get Amazoned

3 Buys to “Catapult” Your Dividends to 8.6%

18 Stocks That Could Be Takeover Targets

Takeover Stocks: BlackBerry (BB)

Takeover Stocks: Lions Gate Entertainment (LGF.A, LGF.B)

Takeover Stocks: AMC Networks (AMCX)

Takeover Stocks: BioMarin Pharmaceutical (BMRN)

Takeover Stocks: Arconic (ARNC)

Takeover Stocks: Xilinx (XLNX)

Takeover Stocks: Maxim Integrated (MXIM)

Takeover Stocks: Mattel (MAT)

Takeover Stocks: Red Hat (RHT)

Takeover Stocks: Sprouts Farmers Market (SFM)

Takeover Stocks: AeroVironment (AVAV)

Takeover Stocks: W.R. Grace (GRA)

Takeover Stocks: Ciena (CIEN)

Takeover Stocks: Square (SQ)

Takeover Stocks: National Beverage (FIZZ)

Takeover Stocks: Campbell’s Soup (CPB)

Takeover Stocks: Hain Celestial (HAIN)

Takeover Stocks: Wynn Resorts (WYNN)

Keep Holding On

3 Companies Profiting from New Ways to Use Blockchain Technology

5 Earnings Reports to Watch This Week

5 Earnings Reports to Watch: PepsiCo (PEP)

5 Earnings Reports to Watch: Fastenal (FAST)

5 Earnings Reports to Watch: J.P. Morgan Chase (JPM)

5 Earnings Reports to Watch: Wells Fargo (WFC)

5 Earnings Reports to Watch: Citigroup (C)

What Does This Huge Options Trade Mean For Oil?

Here’s Our Bitcoin and Crypto Outlook for 2018

Crypto Investors Are Set for an Eventful Six Months

3 of the Best Marijuana Stocks to Buy in July 2018

Marijuana Sales Will Soar Through 2021

The Best Marijuana Stocks to Buy in July 2018

3 Energy Stocks to Buy as China Cuts Solar Subsidies

Stock Research Made Simple

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