All posts by Tony Daltorio

Foreign Investments

Two Stocks to Buy in Japan’s Quiet Bull Market

It’s the bull market that almost no U.S. investor has heard about. But it is a very real and vibrant bull market. What am I talking about?

The Japanese stock market, which last week hit a 27-year high!

After Japan’s “bubble economy” collapsed in the early 1990s, its entered a long period of recession and stagnation. In the late 1990s, conditions got even worse as a financial crisis hit some of its leading financial companies, such as Yamaichi Securities and the Long-Term Credit Bank of Japan. The Nikkei index continued drifting downward after that, hitting the 7,054.98 mark on March 10, 2009 as the global financial crisis took its toll.

But then, the second Abe government began in December 2012, and its so-called Abenomics economic strategy, including an ultra-easy monetary policy from the Bank of Japan, took both Japan’s economy and stock market into a long upward trend, which has continued to this day.

Clear evidence of that was seen in the second quarter of 2018 when Japan’s economy grew at the fastest pace in more than two years, as the country witnesses its longest stretch of economic growth in a generation.

Japan Regains Former Glory

This economic growth is reflected in Japan’s stock market, which this past summer regained its place as the world’s second largest stock market, as it surpassed a struggling mainland Chinese stock market. It lost the second spot to China in 2014.

Why has Japan’s stock market come to life? There are a number of reasons.

First of all, Wall Street was wrong about the effects of the U.S. – China trade war on Japan. It thought Japan would suffer, but instead it has flourished. As CLSA equity strategist Nicholas Smith told Bloomberg, “If China and the U.S. are going to throw bricks at each other’s windows, it pays to be the one that sells glass to both sides.”

But there’s a lot more at play here than the trade war. Earnings have been spectacular. In the last quarter, about two-thirds of the companies listed on Japan’s benchmark Topix index had big earnings beats. And we’re talking here about the big familiar names like Sony.

And these Japanese companies are thrashing earnings forecasts while their valuations are dirt cheap. The average Japanese stock is selling for about a 20% discount to the average European stock, which in turn is selling at a 20% discount to the average U.S. stock. In other words, in many cases, you are getting growth that is outpacing their U.S. counterparts and at a much, much lower valuation.

One look at Japanese companies’ pre-tax profits will show you what a good story Japan is. Over the past five years, Japanese companies’ average profit margins have risen from about 4.5% to 7.7% – well ahead of where margins were even at the peak of the late 1980s bubble era when market valuations were stratospheric. The profitability growth arises, in large part, from cost-cutting exercises conducted across much of corporate Japan following the global financial crisis.

Look at the chart (based on Ministry of Finance data and compiled by the brokerage firm CLSA) below that shows the profitability of corporate Japan (including unlisted companies) surging to its highest level since comparable data started being compiled in 1954.

Japanese companies have also found enthusiasm for corporate governance, which had always been a problem. The 2014 publication of the stewardship code encouraged investors to demand more from companies and the companies have delivered. Increasing dividends and share buybacks are becoming much more commonplace in Japan.

Finally, there is also direct support for Japanese equities from the Bank of Japan (BOJ), which for years bought Japanese stocks as part of its massive monetary easing program to lift the country out of deflation and hit a 2% price-stability target.

Under governor Haruhiko Kuroda’s quantitative and qualitative monetary easing (QQE) plan, stock-buying through exchange-traded funds (ETFs) started in 2013 at a pace of about 1 trillion yen ($8.873 billion) annually, expanding to about 3 trillion yen in October 2014, and further to about 6 trillion yen in July 2016. The BOJ though has begun to taper its purchases as well as shifting the emphasis from ETFs focused on the Nikkei 225 index to the Topix index.

This form of QE makes the BOJ a predictable buyer in the event of a sharp market sell-off. Since the start of Abenomics in 2013, the index has never fallen for more than eight days in a row.

Japan’s ‘New’ Stock Leaders

It is interesting to note that this run to a 27-year high has not been led by the usual ‘suspects’ – the giant exporters like Toyota.

Instead, retailers, healthcare and pharma companies and other more defensive shares have been driving the increase, with companies such as Fast Retailing, FamilyMart UNY Holdings and Eisai at the forefront. On the broader Topix index, it’s the same story with pharmaceutical companies, utilities and service firms among the standout performers.

The top 10 ranking of Japanese stocks today is vastly different from the last time stocks traded at the current level in 1991. Back then, banks claimed seven of the top 10 spots. Today, there are only two. And even Toyota, which occupies the top spot currently is only valued at about 80% of its pre-financial-crisis level.

Four of the companies in the current top 10 had not even listed yet in 1991. Technology and investment giant Softbank Group (OTC: SFTBY) went public in 1994 and currently sits behind only Toyota, with a valuation of more than $105 billion. Third-ranked NTT Docomo – the mobile unit of fourth-ranked Nippon Telegraph & Telephone listed in 1998. Telecommunications company KDDI, at No. 8, went public in 1993. And the 10th-ranked stock, staffing company Recruit Holdings, did so in 2014.

Companies, like Softbank, that are overseas powerhouses are also in the top 10. For both automation equipment maker Keyence, the No. 7 player, and sixth-ranked Sony (NYSE: SNE), at least half of sales come from outside Japan. By the way, Keyence’s market cap of 8 trillion yen represents 19-fold growth from 27 years earlier.

How to Invest in Japan

If you are looking to invest into Japan’s bull market, please do NOT use ETFs. If you do, your performance will be held back by the banks and other similar companies in the index that offer little growth.

Instead, stick with individual stocks as I have with the Growth Stock Confidential portfolio that currently holds three Japanese stocks with great growth potential. There are many possibilities that offer you growth at a good price.

Related: Buy These 3 Growth Stocks on Robinhood and Pay NO Commission

For instance, there is Sony, which this year has racked up record profits. Quite a change from losses totaling more than $8.8 billion over the prior decade!

The company is shifting away from consumer electronics to more growth-oriented area such as artificial intelligence and has increased its focus on subscription revenue from online gaming and streaming of videos and music (EMI Music). As part of that strategy, Sony will take a more strategic approach to collecting data from its users across a range of devices and platforms, spanning PlayStation games, financial services and mobile phones.

In February, Sony announced plans to launch a ride-hailing service in partnership with several Japanese taxi companies to obtain data on vehicles. The company is looking to expand the sale of image sensors, which are used in Apple’s iPhones and other mobile devices, for use in self-driving cars. Sales of its sensors to the automobile industry have become a big business for Sony.

Another stock worth your consideration is Softbank. It is led by its founder Masayoshi Son, whom I believe is the best tech investor of his generation. Just his investment of $20 million into Alibaba (NYSE: BABA) in 2000 makes him so. He ignored all the naysayers (as is currently) about investing into China. That $20 million turned into an incredible $70 billion when Alibaba had its IPO in 2014.

The naysayers are out again about his $100 billion Vision Fund, which is equivalent in size to all the world’s other venture capital funds combined! The investments made so far all have one thing in common – they are all make heavy use of artificial intelligence and big data. As Son said recently, “It may look like we are investing on a whim without any consistency, but one common theme is artificial intelligence.” Here in the U.S., Son has established positions in Nvidia, Uber, WeWork, and GM’s autonomous vehicle unit, Cruise.

Add in the fact, despite its recent price rally, that Softbank sells well below its net asset value and below even just the valuation of its holdings in Alibaba and Yahoo Japan and you have a long-term winner for your portfolio.

And there are many more stocks like Sony and Softbank in Japan that are worth a look and that I may be adding to both the Growth Stock Advisor and Growth Stock Confidential portfolios in the months ahead.

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Technology

Energy Stocks Adopting New Technologies

Even as technology invades other areas of industry, there has been one notable laggard in adopting new technologies – the energy industry.

Even the mining industry is using robots to automate many of the functions at mines, but autonomous robots are still a rarity in the oil and gas industry (more on that later). So it is major news that Royal Dutch Shell PLC (NYSE: RDS.A and RDS.B) is investing in an artificial intelligence (AI) platform to support operations across the entire group.

Shell and AI

The company providing the AI platform for Shell is C3IOT on Microsoft Azure. The main initial application of AI at Shell will be for predictive maintenance – such as working out when a piece of equipment is likely to fail, so it can be replaced before it breaks. The company says that more than 600,000 assets from individual pieces of equipment to entire wells will be covered by the predictive maintenance program.

The long-term goal though is to expand the AI platform to support other machine learning, machine vision, and natural language processing (NLP)-based uses in all of Shell’s operations – upstream, downstream, unconventional fuels, refining, and retail operations.

Jay Crotts, Shell Group CIO said “With the C3 IoT Platform, we’re looking forward to significantly enhancing the productivity and scope of our advanced analytics capabilities to create greater economic value across Shell’s operations. C3 IoT allows us to optimize our existing investments in data and cloud infrastructure while accelerating time to value of AI-based applications, so Shell can better serve our customers with even more agility and efficiency.”

I cannot emphasize enough that this is a really big deal in the artificial intelligence space. Tom Siebel, C3 IOT’s CEO, described the deal with Shell to the Financial Times as “the largest AI deployment that we’re aware of anywhere in the world.”

And he correctly suggested that the company had jumped ahead of its oil company peers. Siebel said to the Financial Times, “Everybody else is kind of looking at it. These guys are rolling it out.” Siebel predicts that the benefits for Shell will run into the billions of dollars per year!

And with evidence accumulating that the productivity gains from the shale revolution are slowing down, deploying AI could be the way the oil and gas industry takes its next leap forward.

The slowing of productivity gains from the U.S. shale revolution was emphasized recently by the CEO of Schlumberger, Paal Kinsgaard, who said that the advantages of drilling longer laterals and pumping more sand and water to increase oil production was nearing an end. He pointed to the specific example of the Eagle Ford in Texas where unit well performance is declining.

What the IEA Says

The adoption of AI by companies like Shell is just the tip of the proverbial iceberg when it comes to the potential of technology to transform the industry. The International Energy Agency (IEA) recently gave further examples of how how new technologies can boost the oil and gas industry.

One such example is the use of miniaturized sensors and fiber optic sensors that could be used to boost output or increase the overall recovery of oil and gas from a reservoir. Other examples are the use of automated drilling rigs and robots to inspect and repair subsea infrastructure and to monitor transmission pipelines and tanks.

Drones could also be used to inspect pipelines (which are often spread over many miles) and hard-to-reach equipment such as flare stacks and remote, unmanned offshore facilities. Drones with potent “sniffers” can detect methane leaks coming from oil and gas pipelines at 1,000 times the accuracy of traditional methods, saving pipeline owners significant money that is lost from leaked product and potentially from fines.

In the longer term, the IEA says the potential exists to improve the analysis and processing speed of data, such as the large, unstructured datasets generated by seismic studies. The oil and gas industry will furthermore see more wearables, robotics, and the application of AI in their field operations.

The IEA forecast that widespread use of digital technologies could decrease production costs between 10% and 20%, including through advanced processing of seismic data, the use of sensors, and enhanced reservoir modeling. Technically recoverable oil and gas resources could be boosted by around 5% globally, with the greatest gains expected in shale gas.

European Oils Lead

As you saw earlier, Shell is leading the way when it comes to the adoption of AI among the oil majors. Another European oil major, Total SA (NYSE: TOT), is leading in another segment of technology adoption – autonomous robots.

In a first for the oil industry, an autonomous robot will be deployed to an offshore oil and gas platform in the North Sea later this year. Under this pilot project, the robot will initially be deployed at the French oil firm Total’s gas plant on Shetland before being sent to join Total’s 120 workers on the company’s Alwyn platform, 440 kilometers north-east of Aberdeen, Scotland. The machine, made by Austrian firm Taurob and supported on the software side by German university TU Darmstadt, will be used for visual inspections and detecting gas leaks.

The Total trial will start with just this one robot to see how it handles the harsh conditions in the North Sea, as well as how well it works alongside people. If successful, you could see numerous such robots on offshore platforms across the world within five years, transforming the offshore oil industry.

Like many other industries, technology will eventually transform even the staid oil and gas industry. But as we have seen with other industries, the companies that fail to adopt new technologies will wither and die. The winners will be those companies not afraid of technological change.

In the case of the major oil and gas companies right now, the winners look to be the European companies – Shell (up 14% over the past year) and Total (up 22% over the past year). Both look to be good investments, especially with nice current yields of 5.5% and 4.6% respectively.

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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.
Click here to find out what it is.
Technology

Are Charismatic Founders a Curse or a Blessing For Investors?

Throughout U.S. corporate history, there have been some very memorable company founders such as JP Morgan and Henry Ford. Fast forward a few decades and we have Bill Gates and Steve Jobs.

I suspect though that history will less kindly remember the current batch of founders including the likes of Travis Kalarick of Uber, John Schnatter of Papa John’s and Elon Musk of Tesla. These entrepreneurs succeeded initially, but failed to come up with a succession plan to transition to a professional management. And worse, they’ve stayed on too long, becoming both an embarrassment and a hindrance to their respective companies.

In the case of Musk and Tesla, he may have let his strong dislike of people pointing out the flaws in his company’s finances go so far that he may have committed a crime with his “funding secured” tweet. The U.S. government has launched a criminal investigation into Tesla.

All of the above examples are companies that failed at the very important task of planning for the replacement of an executive who serves not only as the company’s manager but also as its pitchman and inspiration. These companies should all have planned for a staged withdrawal with the elevation of several key executives to key positions. But Tesla for example, cannot seem to keep an executive for more than a few months.

However, there are companies that have done things right. Here are two examples, with one company’s success very plain to see and another that I believe will continue its success after its founder leaves.

Microsoft’s Teddy Roosevelt

Former President Teddy Roosevelt is perhaps best known for his approach to foreign policy that was summed up in one phrase, “Speak softly and carry a big stick.”

That seems to be the approach of Microsoft (Nasdaq: MSFT)CEO Satya Nadella. His default posture, even with rivals, is to discuss mutual advantage first, competition second. This is in stark contrast to his predecessor – the boisterous Steve Ballmer and Microsoft founder Bill Gates, who both took business as an us-versus-them competitive fight to the death.

That attitude had Microsoft’s stock and business going nowhere for more than a decade. In contrast, Nadella’s ‘soft’ approach has worked marvelously. The company’s strong revenue growth have pushed its shares to an all-time high. Microsoft’s revenue expansion is being powered by cloud computing services for businesses, where revenues have climbed from a single-digit percentage to a third of sales in just five years. Its emphasis on cloud computing is evidence that Mr Nadella was tough enough and carried a big enough ‘stick’ to win the internal company battle with the guardians of Microsoft’s legacy personal computing businesses.

It is giving Amazon a real run for its money in the sector. That because unlike the other big cloud players, Microsoft’s business extends from all the way from giant corporations to individual consumers using its Office software online. It has become a leader in edge computing — this is where more data-crunching is carried out on the network “edge” — the name given to the many computing devices that intersect with the real world, from internet-connected cameras and smartwatches to autonomous cars.

Related: Better Buy: Microsoft Versus Amazon Versus Google

And Nadella has turned Microsoft into a highly diverse company, offering products that range from applications to services to consumer hardware like the Xbox. It is also one of a handful of tech companies leading in the next age of computing – quantum computers. These machines tap into the weirdness of quantum mechanics — a branch of physics that deals with the behavior of sub-atomic particles. And it holds the promise of exponential gains in computing power, making supercomputers and even blockchain technology obsolete.

These moves make Microsoft the likely next entrant to the very exclusive “four comma club” – that is, having a stock with a valuation of $1 trillion or more.

Jack Ma and Alibaba

Another company that is doing things right is Alibaba (NYSE: BABA) and its founder Jack Ma, who recently revealed plans to step away from the company.

This transition has been in the works for almost a decade. Ma actually handed over the reins as chief executive in 2013, first to Jonathan Lu. Daniel Zhang, who replaced Mr Lu two years later, shoulders the bulk of the day-to-day running of the company along with a number of individual business heads.

That is in sharp contrast to how traditional Chinese firms are run, where control is passed on to members of the immediate family, not employees. And in a way, it reminds me of the transition at Apple from Steve Jobs to a professional manager like Tim Cook.

And while Ma remains the face of the company and contributes to the big picture plans for Alibaba, professional managers are running the day-to-day operations. For instance, Ma has never hosted an earnings call, which instead are handled by M.r Zhang, executive vice-chairman Joe Tsai and chief financial officer Maggie Wu. Contrast that to Musk’s disastrous handing of the earnings call several months ago.

So while many of Alibaba’s initiatives carry his fingerprints, they are increasingly led by the next generation. Zhang makes sure Singles Day – the largest shopping day in the world – runs smoothly. Last year, sales hit a record of $25.3 billion, dwarfing Amazon’s Prime Day.

Zhang is also the driving force behind Alibaba’s ‘new retail’ strategy — the blending of online and offline shopping — through operations such as the Hema supermarket chain where consumers can shop, order deliveries or eat in the store. Zhang is likewise championing Alibaba’s grand plan for global trade without frontiers.

Like Taobao, where more than 630 million consumers shop every month, these were all Jack Ma ideas that are being implemented by highly qualified people, such as Zhang and Jian Wang who is running Alibaba’s cloud business, which is growing by leaps and bounds. Alibaba is also moving other areas, ala Microsoft, including quantum computing and artificial intelligence (AI) chips.

Alibaba is doing things right and trade war fears are merely giving long-term investors a chance to buy the stock at a reasonable valuation level.

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.
Growth Stocks, Technology

The Clear Winning Investment from Apple’s New iPhone Strategy

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

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

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

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

The Watch That Is a Health Monitor

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

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

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

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

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

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

The Investment Message

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

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

The Winner – Taiwan Semiconductor

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

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

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

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

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

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

The Loser – Fitbit

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

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

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

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

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 

Growth Stocks

Capitalize On The Growing Worldwide Airplane Pilot Shortage

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

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

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

The Boeing and the ICAO Studies

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

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

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

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

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

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

Just Put More People into Pilot Training, Right?

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

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

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

A Leading Trainer for Professional Pilots

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

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

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

Source: company investor presentation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source: Investors Alley 

Uncategorized

Wall Street’s Hottest Takeover Target is Brewing Double Digit Gains

The $5.1 billion deal to buy the Costa Coffee chain by Coca-Cola (NYSE: KO) is just the latest example highlighting the great lengths to which food and drinks companies are trying to keep pace with rapidly changing consumer habits that are upending traditional business models across the sector.

The former owner, Britain’s Whitbread, had said it would spin off Costa, the world’s second largest coffee shop chain after Starbucks. But the price Coke offered for Costa was simply too good to pass up.

For Coca-Cola, the transaction represents a full-fledged leap into the global coffee market, where it has little presence currently. “Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” said James Quincey, president and CEO of Coke. “Costa gives us access to this market through a strong coffee platform.”

This move continues Coke’s process of diversifying away from the fizzy and sugary drinks that made the company famous. These type of drinks have declined in popularity among increasingly health-conscious consumers. The deal is all part of the company’s effort to reposition itself as a “total beverage company”. As Mr. Quincey said, coffee was among the “strongest growing [beverage] categories in the world” and the company was missing out.

As the chart above shows, the potential for growth of coffee beverages versus soft drinks is high. So with Coke now entering the market, it sets up a battle royal for coffee sales between the world’s biggest beverage maker and the other giants in the sector including Starbucks, Nestlé and privately-held JAB Holdings. More on that later.

Consumer Drinks Pressure

Coke’s proposed transaction is just the latest in a series by established consumer brands, which are taking divergent approaches in response to the demand from consumers globally for fresher and healthier products.

Some consumer companies are expanding into territories or products with brighter growth prospects. Coke’s arch-rival PepsiCo recently struck a $3.2 billion deal to buy SodaStream, which makes home carbonation products. This deal came mere days after Coke agreed to buy a minority stake (with a path to full ownership) in BodyArmor, a sports drink maker backed by US basketball star Kobe Bryant.

Coke has struggled for years to loosen the hold of Pepsi’s sports drink business Gatorade with its Powerade drink. But it may have struck gold with BodyArmor. Its products use coconut water, have higher levels of potassium than its competitors, do not use artificial colors, allowing the company to market its products as a healthier alternative to Gatorade and Powerade. Now it will gain access to Coca-Cola’s bottling system, allowing it to increase production.

The research firm Euromonitor said that sports drinks volumes were flat last year in the U.S., as both of the big two brands struggled. The one real exception, according to Euromonitor, was BodyArmor. Analysts with Wells Fargo, relying on Nielsen data, estimated that Body Armor retail sales had climbed 90% over the past year to $288 million. Much of that market share came from Gatorade.

Both Coke and Pepsi are coming under increasing pressure from JAB Holding, a Luxembourg-based investment vehicle backed by the billionaire Reimann family. As part of its international buying spree JAB bought the Keurig Green Mountain coffee business, best known for its single-serve brewing machines, in December 2015 for $13.9 billion. And JAB made a more direct threat to the two incumbents when, in January 2018, it struck a $18.7 billion deal to acquire Dr. Pepper Snapple and combined it with Keurig to create a beverage group with almost $11 billion in annual revenue.

The Steaming Hot Coffee Market

Once you get to the global coffee market, the competition gets even hotter as global food and beverage giant Nestle is a major player. Its recent deals in the space include acquiring the rights to sell Starbucks products and taking a majority stake in roaster Blue Bottle.

According to Euromonitor, the global coffee industry is valued at more than $80 billion, and has been expanding at an annual rate of more than 5%. Here in the United States – the world’s biggest coffee market – most of the growth is coming from a resurgence in the café culture among millennials aged 18 to 34.

According to a recent survey conducted by the National Coffee Association, 15% of millennials had their last cup of coffee in a café and 32% had an espresso-based drink the day before the survey, the highest share for any age group. These are the type of consumers Coke is trying to reach through its purchase of Costa.

This data is also why Dunkin Brands (Nasdaq: DNKN) is Wall Street’s hottest takeover target, sending its stock to all-time highs. Dunkin is a lot more than a donut shop today and has pushed into more upmarket coffee offerings such as cold brew and espresso drinks. It will likely be added to the $250 billion in deals in the coffee business over the past six years.

But what about Coca-Cola? Was the purchase of Costa a smart move?

Coke and Coffee

Not surprisingly, I am once again in disagreement with the Wall Street consensus. They hate the deal and I love it.

Analysts are saying that Coke knows nothing about brick-and-mortar stores even though Coke insists “this is a coffee strategy, not a retail strategy.”

Maybe the analysts are right, but they are ignoring that the entire Costa team is staying in place. When Whitbread bought Costa in 1995 it was a company that was just a small chain of 39 cafes across Britain to today having 2,400 shops in Britain and another 1,400 in more than 30 countries with a brand that is recognized in most parts of the world.

Costa has recently begun its push into China, where it pitches its drinks to Chinese consumers as a luxury treat. It still has only 460 shops there, so the potential for growth is enormous. Starbucks has 600 shops in Shanghai alone.

Costa just did not have the financial firepower for a major push into China, but now with Coke’s financial muscle, it does. It will help too that surveys show Chinese consumers consider Costa to be of higher quality than Starbucks. And the trade war may play right into Costa’s hands if Chinese consumers begin boycotting American products.

And I like the deal for its symmetry. Think about it – Coke started out being served as a flavor of syrup in the soda fountains of little neighborhood stores (drug stores, etc.) in the late 19th and early 20th centuries. The soda was mixed by black-tied “soda jerks” behind marble counters – the forerunners of today’s baristas. Then Coke completely moved away from direct contact with consumers…

But now it’s back with Costa’s coffee houses and its baristas. Just for nostalgia’s sake, I hope they succeed. And they might – after all, Amazon had little brick-and-mortar experience before it bought Whole Foods and Apple does have its physical stores. Coke going back to its roots looks like a winner to me.

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.
Uncategorized

Sell These Advertising Giants About to Be Amazoned

It was nice to see the New York Times catching up to what I told you months ago here… the headline read ‘Amazon Sets Its Sights on the $88 billion Online Ad Market’. I first brought this to everyone’s attention an article in early June. You can read it here.

So get ready everyone… it looks like Amazon (Nasdaq: AMZN)is getting ready to dominate in another sector of the economy. But this time it is not going after traditional industries such as retailing or logistics or even healthcare.

No, this time it is gunning for the online advertising business that is currently controlled by the duopoly of Google [Alphabet (Nasdaq: GOOG)] and Facebook (Nasdaq: FB). That sets up a battle of the tech titans.

Amazon Advertising

One needs only to look at Amazon’s last earnings report to see that its advertising business is just starting to grow. The company’s CFO, Brian Olsavsky, called Amazon’s ad sales business “a multibillion-dollar program and growing very quickly.” Advertising sales made up the majority of sales in Amazon’s “other” section of their earnings.

The signs were clear to see even a year ago. In October, internet research firm eMarketer forecast Amazon would hit $3.2 billion in net U.S. digital ad revenues in 2019, or 3% of total digital ad spending. That is dwarfed by Google and Facebook, but the trend is there.

Even traditional advertising firms have taken notice. Martin Sorrell, the founder of the world’s largest advertising company WPP, who stepped down in mid-April, in March said he saw Amazon in “head-to-head” competition with Google and Facebook. Sorrell added that WPP had directed $200 million of its clients’ ad budgets to Amazon in 2017 and predicted that number would rise to $300 million in 2018.

“Amazon is coming over the hill. Amazon certainly poses a big threat on search and advertising,” he said, adding that its voice assistant, Alexa, would make it an even stronger competitor.

Sorrell is right because Amazon has a natural advantage over both Google and Facebook. Google only knows what people are searching for and Facebook only knows what you want your ‘friends’ to think you like.

Amazon has actual shoppers purchase data and knows what they need. In other words, Amazon is richer than anyone else as far as purchase and consumer behavior data, especially on their 95 million U.S. Prime members.

 Amazon’s Battle Plan

In order to push its way into a sector that is overwhelmingly controlled by Google and Facebook, Amazon is making use of self-serve programmatic advertising. The company plans to spend the next year aggressively expanding their infrastructure that is hoping will get more brands to purchase ad space on its websites as well as through its ad platform. To help accomplish these goals, it will work with ad-tech companies, digital agencies, and media companies to build platforms that make buying Amazon ads as easy as filling up an online shopping cart.

Amazon is developing a “remarketing” ad type that will recommend products based on consumers’ purchase or search histories. Such ads will appear on several different sites visited by consumers, effectively retargeting and following them around the web and linking them back to Amazon if they click. Such retargeting is especially popular with apparel brands, so the company’s move into this area could prove very appealing  to apparel marketers.

One obvious advantage to these type of ads for Amazon is it gives it an edge while the customer is hunting for the best deal. The ad will remain on the screen while the customer searches for alternatives, and thus get reconsideration before purchase.

Amazon also plans to grow its advertising base by opening access to the Amazon Ad Platform that connects to display and video inventory outside of its own. They will be opening up the ad platform to everyone that has a product on Amazon.

And is undercutting Google on ad-tech fees as it recruits for Amazon Publisher Services, a division offering ad marketplace services that will compete directly with Google’s DoubleClick for Publishers. Google does offer similar ad-bidding technology for publishers, but it takes up to 5% from a deal, however, Amazon is planning not taking any percentage at the moment to people to buy in.

What the Future Holds

Amazon looks to be jumping in to this lucrative business at just the right time. According to eMarketer, by 2021, advertising on websites and mobile devices will account for half of all ad spending in the U.S., capturing greater share than television, radio, newspapers and billboards combined.

In negotiations with advertisers, Amazon bills itself as a better advertising investment than Google’s search engine and Facebook’s social media platform, since people on Amazon are looking to buy. And it does have has an advertising platform no other company can match: a web store selling hundreds of millions of products combined with a streaming entertainment service and a trove of data about customer preferences. Amazon attracts 180 million U.S. visitors each month, most with shopping on their minds. And as more people shop on smartphones, they’re skipping search engines such as Google, with many turning instead to Amazon’s mobile app.

Advertisers are paying attention. Similarly to how major brands pressed their ad agencies a few years ago to devise plans to get the biggest bang for their ad bucks with Google and Facebook, they’re now demanding an “Amazon strategy.” This should not be surprising… China’s e-commerce giant, Alibaba, gets more than half of its revenues from advertising.

In the latest earnings period, the ad business looked to be growing at a 72% annualized clip. Revenues in advertising for 2018 should be about $10 billion, which is about half the size of AWS, Amazon Web Services. Expect it to catch up to AWS in size soon with perhaps even fatter profit margins. Good news for Amazon, but not good for Google and Facebook.

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

Wall Street’s Hottest Takeover Target is Brewing Double Digit Gains

The $5.1 billion deal to buy the Costa Coffee chain by Coca-Cola (NYSE: KO) is just the latest example highlighting the great lengths to which food and drinks companies are trying to keep pace with rapidly changing consumer habits that are upending traditional business models across the sector.

The former owner, Britain’s Whitbread, had said it would spin off Costa, the world’s second largest coffee shop chain after Starbucks. But the price Coke offered for Costa was simply too good to pass up.

For Coca-Cola, the transaction represents a full-fledged leap into the global coffee market, where it has little presence currently. “Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” said James Quincey, president and CEO of Coke. “Costa gives us access to this market through a strong coffee platform.”

This move continues Coke’s process of diversifying away from the fizzy and sugary drinks that made the company famous. These type of drinks have declined in popularity among increasingly health-conscious consumers. The deal is all part of the company’s effort to reposition itself as a “total beverage company”. As Mr. Quincey said, coffee was among the “strongest growing [beverage] categories in the world” and the company was missing out.

As the chart above shows, the potential for growth of coffee beverages versus soft drinks is high. So with Coke now entering the market, it sets up a battle royal for coffee sales between the world’s biggest beverage maker and the other giants in the sector including Starbucks, Nestlé and privately-held JAB Holdings. More on that later.

Consumer Drinks Pressure

Coke’s proposed transaction is just the latest in a series by established consumer brands, which are taking divergent approaches in response to the demand from consumers globally for fresher and healthier products.

Some consumer companies are expanding into territories or products with brighter growth prospects. Coke’s arch-rival PepsiCo recently struck a $3.2 billion deal to buy SodaStream, which makes home carbonation products. This deal came mere days after Coke agreed to buy a minority stake (with a path to full ownership) in BodyArmor, a sports drink maker backed by US basketball star Kobe Bryant.

Coke has struggled for years to loosen the hold of Pepsi’s sports drink business Gatorade with its Powerade drink. But it may have struck gold with BodyArmor. Its products use coconut water, have higher levels of potassium than its competitors, do not use artificial colors, allowing the company to market its products as a healthier alternative to Gatorade and Powerade. Now it will gain access to Coca-Cola’s bottling system, allowing it to increase production.

The research firm Euromonitor said that sports drinks volumes were flat last year in the U.S., as both of the big two brands struggled. The one real exception, according to Euromonitor, was BodyArmor. Analysts with Wells Fargo, relying on Nielsen data, estimated that Body Armor retail sales had climbed 90% over the past year to $288 million. Much of that market share came from Gatorade.

Both Coke and Pepsi are coming under increasing pressure from JAB Holding, a Luxembourg-based investment vehicle backed by the billionaire Reimann family. As part of its international buying spree JAB bought the Keurig Green Mountain coffee business, best known for its single-serve brewing machines, in December 2015 for $13.9 billion. And JAB made a more direct threat to the two incumbents when, in January 2018, it struck a $18.7 billion deal to acquire Dr. Pepper Snapple and combined it with Keurig to create a beverage group with almost $11 billion in annual revenue.

The Steaming Hot Coffee Market

Once you get to the global coffee market, the competition gets even hotter as global food and beverage giant Nestle is a major player. Its recent deals in the space include acquiring the rights to sell Starbucks products and taking a majority stake in roaster Blue Bottle.

According to Euromonitor, the global coffee industry is valued at more than $80 billion, and has been expanding at an annual rate of more than 5%. Here in the United States – the world’s biggest coffee market – most of the growth is coming from a resurgence in the café culture among millennials aged 18 to 34.

According to a recent survey conducted by the National Coffee Association, 15% of millennials had their last cup of coffee in a café and 32% had an espresso-based drink the day before the survey, the highest share for any age group. These are the type of consumers Coke is trying to reach through its purchase of Costa.

This data is also why Dunkin Brands (Nasdaq: DNKN) is Wall Street’s hottest takeover target, sending its stock to all-time highs. Dunkin is a lot more than a donut shop today and has pushed into more upmarket coffee offerings such as cold brew and espresso drinks. It will likely be added to the $250 billion in deals in the coffee business over the past six years.

But what about Coca-Cola? Was the purchase of Costa a smart move?

Coke and Coffee

Not surprisingly, I am once again in disagreement with the Wall Street consensus. They hate the deal and I love it.

Analysts are saying that Coke knows nothing about brick-and-mortar stores even though Coke insists “this is a coffee strategy, not a retail strategy.”

Maybe the analysts are right, but they are ignoring that the entire Costa team is staying in place. When Whitbread bought Costa in 1995 it was a company that was just a small chain of 39 cafes across Britain to today having 2,400 shops in Britain and another 1,400 in more than 30 countries with a brand that is recognized in most parts of the world.

Costa has recently begun its push into China, where it pitches its drinks to Chinese consumers as a luxury treat. It still has only 460 shops there, so the potential for growth is enormous. Starbucks has 600 shops in Shanghai alone.

Costa just did not have the financial firepower for a major push into China, but now with Coke’s financial muscle, it does. It will help too that surveys show Chinese consumers consider Costa to be of higher quality than Starbucks. And the trade war may play right into Costa’s hands if Chinese consumers begin boycotting American products.

And I like the deal for its symmetry. Think about it – Coke started out being served as a flavor of syrup in the soda fountains of little neighborhood stores (drug stores, etc.) in the late 19th and early 20th centuries. The soda was mixed by black-tied “soda jerks” behind marble counters – the forerunners of today’s baristas. Then Coke completely moved away from direct contact with consumers…

But now it’s back with Costa’s coffee houses and its baristas. Just for nostalgia’s sake, I hope they succeed. And they might – after all, Amazon had little brick-and-mortar experience before it bought Whole Foods and Apple does have its physical stores. Coke going back to its roots looks like a winner to me.

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 Growth Stocks on Robinhood and Pay NO Commission

As editor of Growth Stock Advisor, I’m always on the lookout for disruptors… trends that will change forever the way things are done. And of course, the companies that are at the forefront of the disruption and that will benefit from it.

One such disruption is occurring right now in my former field of employment – the brokerage industry and commission-free trading. It is perhaps apropos that the first disruptor in the sector is a company called Robinhood, which sent shockwaves through the brokerage industry in 2015 when it launched, offering free stock trades.

Robinhood (and others) to the Rescue with Zero Commissions

And like the hero of English folklore, this stock-trading app was designed to support the little guy by providing commission-free trading to individual investors. “We didn’t build Robinhood to make the rich people richer,” says Baiju Bhatt, co-founder and co-chief executive, to the Financial Times, “If they think it is useful that is wonderful, but the mission is to help the everyman, the rest of us, to be part of the financial system.”

The company is still growing rapidly. It added about 3 million accounts over the past year, bringing its total number of customers to 5 million, which is more than twice the big three incumbent discount brokerage firms combined. It remains the only venue that offers trading on stocks, cryptocurrencies and options all in one place.

The success of Robinhood is well known in the industry – it is now valued as a tech ‘unicorn’. That is, the private company is valued at more than a billion dollars. In fact, at its latest funding round, it was valued at $5.6 billion. But its very success has attracted the attention of the competition…

And you can’t get any bigger in the U.S. financial industry than JPMorgan (NYSE: JPM). It is launching its own low-cost digital trading platform, throwing down the gauntlet to online brokerages such as my former employer, CharlesSchwab.

You Invest, offers clients 100 free trades in stocks and exchange traded funds in their first year and the opportunity to earn unlimited free trading going forward. However, a minimum balance of $15,000 is required to maintain free trades beyond 100 per year. That may exclude many of the investors it is trying to pull away from Robinhood, which has no minimum balance required.

Robinhood Strikes Again

What really caught my attention is how Robinhood immediately responded to this challenge. It made the biggest addition to the number of stocks eligible for no commission since its launch three years ago.

But it is doing so with a twist that I love – Robinhood is adding 250 ADRs (American depositary receipts of companies from Japan, China, Germany, the U.K. and elsewhere. ADRs of companies from France will be added in the coming months. ADRs are stocks of foreign companies that trade and settle in the U.S. market in dollars, allowing investors to avoid having to transact in a foreign currency.

“We looked at what customers were searching for and not getting,” Robinhood co-founder and CEO Vlad Tenev told CNBC. “It allows customers to get some exposure outside of the U.S.” The company discovered its users wanted access to global stocks by looking at its own search data. Robinhood’s staff has access to what people are typing into the app’s search and looking to trade. Names such as Nintendo, Adidas, BMW and Heineken continued to pop up. The company used similar reasoning in February when it decided to add cryptocurrency trading after users repeatedly searched for bitcoin.

As someone that owns a good number of foreign stocks personally, this is fantastic – it caused me to open an account at Robinhood to take advantage of the zero commissions. This move has just made investing in the top overseas stocks easy, safe, and cost-efficient. While there are hundreds of quality foreign companies to choose from on Robinhood’s platform, let me briefly highlight just three…

Adidas

One such blue chip you can buy now for no commission at Robinhood is the world’s number two sportswear maker, Adidas (OTC: ADDYY), which is catching up to Nike.

The company reported an excellent set of second quarter results. It increased quarterly sales 4.4% year-on-year to €5.3 billion, compared with €5.2 billion expected by analysts. With the effect of foreign exchange movements stripped out, the increase was a very impressive 10%. Operating profit in the three months to June was 17.2% higher than a year ago and at €592 million beat analyst expectations of €546 million. Adidas said it is on track to meet its full-year guidance of 10% revenue growth excluding foreign exchange movements, as sales in the two key markets of North America and Asia are increasing at double-digit rates.

Adidas has stayed on top of fashion more than most of its peers. It nicely exploited the “athleisure” trend and is doing well again with its clunky, retro-inspired trainers popular with millennials called “Dad shoes”. Innovation also limits the amount of inventory that ends up being sold cheaply on Amazon. At Adidas, 80% of sales are generated by products that are less than a year old. That gives it strong control over pricing.

And while Nike’s operating margins at over 12% are still nearly two points higher than Adidas, the German group is catching up fast, thanks to economies of scale from growing sales, higher price points and growing online sales. Its margins should reach record heights this year.

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

Shiseido

Another very high quality company that is doing very well is Asia’s largest cosmetics company, Japan’s Shiseido (OTC: SSDOY).

A macrotrend that has gone almost unnoticed by U.S. investors is growth in the use of cosmetics by China’s millennial generation, which has benefited a number of companies including Shiseido, whose ADR has nearly doubled over the past year.

One area of growth for the company is online sales. It expects e-commerce to account for 15% of its global sales by 2020 compared to just 8% last year. The key driver will be China, where Shiseido expects the e-commerce segment to rise by 40%.

Tourism is another bright spot for the company. In 2017, Chinese visitors to Japan hit a record of about 7.35 million, a 15% increase over the previous year. Cosmetics are increasingly popular as souvenirs, ranking alongside cameras and watches. It is believed that about 80% of Chinese tourists purchase beauty products in Japan.

Finally, it is also expanding in China itself. Shiseido sells its biggest brand through about 270 stores in China. During 2018, it has started opening spaces for people to test products, assisted in some instances by beauty consultants. The company aims to have the spaces installed in all their stores by 2020. This is similar to its stores in Japan where Shiseido provides detailed consultations that are customized for individual skin types.

CSL Ltd

For those of you looking for a biotech company, there is Australia’s CSL Limited (OTC: CSLLY), whose stock is hitting record highs nearly every day. In May, the company raised its guidance for 2018 by an amount that surprised the market.

It is a major company with a $45 billion market capitalization, nearly $7 billion in revenues, and last year had net profit of $1.3 billion. CSL does business in over 60 countries, with major facilities in several countries including the United States. It has been around for more than a century and has several core focuses – influenza vaccines, blood plasma derivatives, and rare and serious diseases.

It is one of the biggest and fastest-growing protein-based biotech firms. Its drugs are used to treat bleeding disorders, immunodeficiencies, hereditary angioedema, Alpha-1 antitrypsin deficiency and neurological disorders.

I urge all of you to look into Robinhood and especially its addition of ADRs. Drop me a line if do open an account there or if you are interested in hearing more about ADRs.

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 High-Yielders with Fast Growing Dividends and International Exposure

A few weeks ago I shared with you an article on the generous dividend stream coming from Asian companies. However, the growth in dividends is a global phenomena, with the actual rise in dividend payments elsewhere outpacing the dividend raises here in the U.S.

Global dividends reached record levels in the second quarter of 2018, reflecting strong earnings and economic growth. Headline dividends jumped 12.9% in the second quarter of 2018 compared with the same period last year to reach a record $497.4 billion, according to the Janus Henderson Global Dividend Index. The Janus Henderson Global Dividend Index ended the quarter at a new record reading of 182.0, meaning that global dividends have risen by more than 80% since 2009.

Here are some highlights, courtesy of data from Janus Henderson:

  • 12 countries saw record payouts including Japan, and the United States. Most of the records though occurred in Europe, where total dividend payouts hit record levels in France, Germany, Switzerland, the Netherlands, Belgium, Denmark and Ireland, said Janus Henderson.
  • Underlying growth of dividends was 9.5%, the fastest pace in three years.
  • Forecast for the underlying growth rate of dividends going forward was upgraded by Janus Henderson from 6.0% to 7.4%.

It’s interesting to note that, despite dividend payouts in the U.S. hitting a record $117.1 billion in the quarter, the growth rate of dividend payments was less than elsewhere in the world, with a rise of only 4.5% in headline terms. European companies paid a record $176.5 billion in dividends, an 18.7% jump year-on-year. Asia’s dividends, excluding Japan, jumped 29.2 % in headline terms to $42.8 billion, or 13.5% in underlying terms. Japanese dividends rose 14.2% in headline terms.

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How to Invest for Global Dividends

And as I told you in my article on Asian dividends, this region was a standout in the growth of underlying dividends according to Janus Henderson. Here are just a few examples. . .

In Singapore, Southeast Asia’s largest bank DBS Group Holdings (OTC: DBSDY) took advantage of higher profits and surplus capital to make a very large increase in its dividend and accounted for half the growth in dividends from the country. In Hong Kong, China Mobile (NYSE: CHL) made the biggest contribution to growth. And in mainland China, China’s Sinopec, the world’s largest oil refiner almost tripled its dividend thanks to improved refining margins and a better sales mix. Sinopec is also known as China Petroleum & Chemical (NYSE: SNP).

Of course, if you opt to buy individual companies, you run the risk of losses in the underlying stock. Out of three stocks mentioned above, two – DBS and China Mobile are down on the year. So in this case, this is one of the few times I would actually go with exchange traded funds (ETFs) to alleviate somewhat the risk of losses.

One excellent option to consider among international dividend ETFs is the iShares International Select Dividend ETF (CBOE: IDV). This ETF’s portfolio consists of companies taken from developed countries in Europe, Pacific, Asia and Canada. Securities must also meet requirements on dividend payout consistency and growth metrics, along with profitability and minimum liquidity levels. The fund holdings are then weighted by dividend yield.

The majority of the holdings seem to be in three sectors – drugs, such as AstraZeneca, oil, such as Royal Dutch Shell; financials, such as Macquarie Bank. IDV is down 1.85% over the past year (due likely to a strong dollar), but does have a 4.64% 12-month yield.

Another good choice is the Legg Mason International Low Volatility High Dividend ETF (CBOE: LVHI). The underlying index the ETF tracks seeks to provide more stable income through investments in stocks of profitable companies in developed markets outside of the U.S. with relatively high dividend yields or anticipated dividend yields and lower price and earnings volatility- while mitigating exposure to exchange-rate fluctuations between the dollar and other international currencies.

This fund also has exposure to drug companies, banks and oil companies. But it also owns telecom firms such as Japan’s NTT Docomo and Britain’s BT Group. LVHI is down 2.5% over the last year, but does have a 4.34% yield.

Finally, there is a fund I like because it excludes financial stocks – the WisdomTree International Dividend ex-Financials Fund (NYSE: DOO). It is based on an index that includes high-dividend yielding international stocks outside the financial sector, which is subject to interest rate risk.

The fund has a lot of telecom and utility firms in the portfolio such as Vodaphone and Spain’s Endesa. DOO is up 1.5% over the past year and has a dividend yield of 3.63%.

There are numerous other international dividend ETFs, of course. One common factor you will find is that a strong U.S. dollar (as we’ve had the past few months) will adversely affect the price of the stocks in the ETF. However, when the dollar inevitably turns the other direction, you will find a strong tailwind at your back. In other words, a good dividend yield and capital appreciation.

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