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My extensive experience working overseas has provided a solid foundation for my investment philosophy. I have found that travel is a far better teacher than a conventional education. The experiences and knowledge one gains on the ground around the world cannot be taught in any classroom.
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  • CNOOC Increases Interim Dividend By 66%

    On August 20, 2013 CEO (0883.HK) declared an interim dividend of 0.25 HKD per ordinary share. This works out to a dividend of $3.225 per ADR share - an increase of 66% over last year's interim dividend.

    The calculation is as follows:

    100 ordinary shares to 1 ADR share = 25.00 HKD per ADR share

    Assuming an exchange rate of 1 HKD to 0.129 USD = $3.225 per ADR

    Take out the 10% foreign tax and the net dividend should be $2.9025 per share.

    Ex-Dividend Date is September 5, 2013

    Payable Date is October 10, 2013

    This works to a 3.34% yield on an annual basis (net of foreign tax on interim and year-end dividends).

    My info came from the following site:

    www.aastocks.com

    Disclosure: I am long CEO, FCX.

    Aug 21 7:34 PM | Link | Comment!
  • Apple's Cash - Never To Return

    Background

    In its quarterly earnings report on Tuesday, Apple (NASDAQ:AAPL) announced it was raising its quarterly dividend by 15% to $3.05. Based on today's closing price of $408.38, the annual dividend yield will be approximately 3%, one of the highest in the S&P 500.

    In addition, Apple will buy back $60 billion worth of its stock. "This is the largest share buyback operation of any company in history," Apple Chief Financial Officer Peter Oppenheimer said on a call with analysts.

    The interesting part is how Apple is paying for these two transactions and what this means for the future of the US economy.

    Never Coming Back

    Apple currently has approximately $102 billion of its $145 billion in cash outside the US. This money is likely earning very little return in interest, but probably more than it would if it was in a US bank. In addition, the money overseas is likely appreciating in nominal dollars as it is deposited in local foreign currencies that are devaluing at a slower rate than the US dollar.

    Apple's dividend and share buyback will cost about $100 billion, but instead of repatriating the money, the company will be borrowing the cash to fund the transactions. Apple currently has no long term debt and is rated AA+ by Standard and Poor's.

    The reason for borrowing money is based on a prudent financial strategy. The money deposited overseas is never coming back to the US.

    Prudent Financial Strategy

    Repatriating money from overseas is very expensive for Apple shareholders. In addition to the 35% federal corporate income tax, Apple shareholders would also pay a 13% California income tax. Funding the dividend and buyback without borrowing would cost Apple approximately $49 billion dollars.

    On the other hand, borrowing money with an AA+ rating means that the annual interest expense on borrowing $100 billion would be approximately $2.5 billion (assuming a 2.5% rate). It would take Apple about 20 years to realize the same expense on borrowing vs. repatriating and distributing the cash it has overseas. Assuming that inflation merely maintains it current real annual rate of 10%, the cost benefit analysis of these two decisions is really a no-brainer.

    Winner(s)

    Some may say the winners are the shareholders as they get dividends in their pocket to spend and potential share appreciation from the share repurchase, but this is not quite true. The real winner is Apple as they are able to:

    • Silence critics who wanted the cash to be put to good use
    • Utilize low interest rates in the US to transfer their income to shareholders
    • Avoid crushing US income taxes by keeping foreign cash holdings offshore

    Loser(s)

    One may think that the losers must be investors who either do not own Apple stock or who bought near the $700 high. The losers are the US government and the state of California:

    • The US government loses $49 billion in tax revenue
    • California loses $13 billion in tax revenue
    • The US government will be competing with Apple in the bond market as they both has the same AA+ rating

    Summary

    Comparing the decision by Apple to go into debt to finance its dividend and share repurchase transactions to US government stimulus is disingenuous at the very least. Apple is transferring wealth to its shareholders, but when the US government provides stimulus it steals wealth from the US citizen.

    Instead of claiming that Apple's actions prove stimulus is good for everyone, we should see Apple's actions as a harbinger. Capital is fleeing the US and will never return. The sicker the economy becomes the more the government will seek to increase taxes and the more capital will flee. This is a death spiral with a predictable ending.

    Investors should make plans to follow in Apple's wake by hedging against rising taxes and inflation by investing in overseas stocks, currencies and commodities.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AAPL, Economy
    Apr 30 12:24 PM | Link | Comment!
  • Apple – History Rhymes

    Background

    Apple (NASDAQ:AAPL) designs, manufactures, and markets mobile communication and media devices, personal computing products, and portable digital music players. Its most notable products include the iPhone, iPod, iPad, and iMac. The company also offers a range of software products, including iOS and OS X operating system software; server software. It also sells digital content through the iTunes Store.

    At the time of this article, Apple's current price was $390.53 - close to its 52 week low of $385.10 - with a current PE of 8.85, a forward PE of 7.97 and a dividend yield of 2.7%.

    While the fundamentals may appear to make Apple a good investment, fundamentals were not the reason for the stock price bubbling at just over $700 in September 2012. Fundamentals will therefore not be the reason for the deflation of the Apple bubble. Based on the following analysis, the stock price has a long way to go down before becoming a rational investment again.

    Not about the Fundamentals

    Steve Jobs Made Apple - Steve Jobs was the cofounder and director of Apple until resigning in 1985 after falling out with the then current CEO. During his first tenure at Apple, Jobs spearheaded the development of the Macintosh, a computer he did not create, but saw more potential in than other projects at that time. The Macintosh was greeted with much fanfare, especially after the famous "1984" commercial aired during the Super Bowl in January 1984. The Macintosh was later demonstrated by Jobs during the first of his now famous Mac keynote speeches. While the Mac gained an immediate and enthusiastic following, it was not without serious weaknesses.

    After Jobs left Apple to set up his own company, Apple had success with the Macintosh line for several years. As interest in the Macintosh waned, Apple experimented with various other consumer product offerings such as digital cameras, CD players, speakers, video and TV appliances. Enormous resources were also invested in a PDA division called Newton based on unrealistic market forecasts. These products were all flops and Apple's market share and stock price slid as a result.

    At the same time Apple's main competitor Microsoft continued to gain market share with its Windows software on cheap commodity personal computers. Apple never developed a competitively priced option to Windows and instead relied on suing Microsoft for using a graphical user interface similar to the one used by Apple. The lawsuit dragged on for years before it was finally dismissed.

    Jobs returned to Apple in 1997 and oversaw its turnaround beginning with co-development and release of the Microsoft Office software for Macintosh. Other releases included the iMac in 1998, the opening of Apple retail stores and the iPod in 2001, the online iTunes store in 2003, the use of Intel processors in 2005, the iPhone in 2007, and various revisions to these products in subsequent years.

    Since the passing of Jobs, the pipeline of products offerings has again diminished into the mundane. And a similar attempt to enter the low-end market with a plastic iPhone will likely have the same results as the low-end Macs of the 90s. Apple resorted to a lawsuit against Samsung for possible patent infringement.

    Steve Jobs created markets for Apple's products while Apple now has to adapt to an evolving market that is better prepared to compete head to head in product offerings.

    Brand Loyalty can Change Quickly - The unveiling of each new product was much anticipated and enthusiastically received. Everyone remembers the images on TV and the internet of people waiting long hours in line in inclement weather to be the first to buy the newly released Apple product. Without a continuous stream of innovative offerings, this loyalty will migrate to companies that do innovate. This currently appears to be the case at Apple with a lukewarm reception on their potential new offerings like the plastic iPhone.

    Competition is Increasing - Samsung's new products, namely the Galaxy Note II, are becoming the market leader. Samsung's smart phones are cheaper and able to grab more market share while Apple is relying on high profit margins on their iPhone. These margins are now eroding as Apple's market share has fallen.

    Apple is also facing competition from the Google operating system Android and Amazon's Kindle. Both these are grabbing market share at the expense of lower margins in order to lock these consumers into their operating system. As more consumers become familiar with these lower cost options, they will be less willing to learn a new system.

    Apple's Customer Demographic Shift - According to Brandindex, "Apple's biggest supporters are consumers 35 years and older. Meanwhile, the younger age group of 18 to 34 - once the demographic most smitten with Apple - has trended downward. This reverses the positions of the two age groups before last July." This trend reversal was never fully explained, but likely it is because the 18 to 34 age group is likely unemployed and saddled with student loan debt. These consumers cannot afford an $800 iPhone and settled for a less expensive alternative from Samsung. Increasing Costs - Apple products are almost exclusively manufactured in China. With the appreciation of the Chinese Yuan (NYSEARCA:CNY) against the US Dollar to a 19 year high, labor and raw material costs will likely eat into margins. While this will also affect Apple's competitors, Apple will suffer more as it has a lower volume / higher margin mix. Apple's competitors appear to concede margins for higher market share (at least for now).

    Contrarian View

    Apple could have a winning strategy in either its current projected offerings or future ones. These may allow Apple market share to stabilize or gain ground against its competitors.

    Investment Strategy

    Investors should avoid considering the fundamentals on this stock as a basis for investment. The forward earnings estimates will likely be revised downward and the huge cash position will likely be squandered in unprofitable consumer projects. An enticing dividend may lure income investors, but once this company loses it's loyal following the dividend will likely be cut as well.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AAPL
    Apr 29 2:20 PM | Link | Comment!
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