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Bret Kenwell
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My name is Bret and I seek out companies that have the ability to generate above-average growth for many years, before ultimately becoming a shareholder-friendly, dividend paying titan, cementing its spot in my portfolio with an incredibly low cost basis due to the previous years of steady,... More
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Future Blue Chips
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  • Why The Rate Hike Is Excruciatingly Similar To Your High School Crush

    The assumption is that when the Federal Reserve hikes interest rates, the dollar will soar and stocks will be sold. Maybe that will happen, but I don't know if it will unfold the way everyone expects.

    My personal - and perhaps too optimistic - of an opinion is that a rate hike is actually a good thing, not a bad thing. Once investors realize that it's not such a bad thing, they'll let out a huge sigh of relief, which could pave the way to a market rally.

    The argument is that the Fed will shift the economy into a rising rate environment, making it more expensive to borrow and making other assets more attractive compared to the S&P 500 SPY.

    Truth be told, I think the first rate hike will be like finally getting with your high school crush. The anticipation and buildup will be gut-wrenching, the performance will be quick and swift and when it's all said and done, most of us will shrug our shoulders and wonder why we made such a big deal about it.

    It's not like the Fed is going to go on a rate-hiking spree, juicing up rates every two to three months. And we're not talking about 100 basis points or even 50. We're talking about a paltry 25 bps!

    Again, this is all my personal opinion, but I really don't look at it as an end of an era or some enormous roadblock to the bull market in U.S. equities.

    The dollar will likely rally into the announcement or perhaps afterwards for a short amount of time, depending on how off-guard investors are caught by the timing of the rate hike. But then the dollar seems likely to level out a bit, as investors and forex traders let out a huge sigh of relief.

    The dollar's longer term trend will likely stay in place, but there are a lot of factors in play - as we saw on Tuesday when the People's Bank of China devalued its currency, sending shock waves through the market.

    But most peoples' minds are likely focused on equities. Like the dollar, it depends on how off-guard investor are caught. Deeply off-guard and stocks will surely be headed lower. Slightly off-guard and stocks are probably still headed lower, just not by as much.

    The Good (Even Though It Looks Bad)

    In either scenario, a rate hike will likely lead to a decline in U.S. stocks. That simply seems to be the base case scenario among most investors. But whether the drop is 2-3%, 6% or 11%, I think the pain will be short-lived.

    At some point, investors are going to realize, 'Hey, the U.S. economy is still humming along with no noticeable change, consumers are still consuming, the world is still spinning and stocks aren't worthless.'

    I think a rate hike could be like the Ebola-induced pullback last fall, where the S&P 500 dropped 9.9% and turned into one the best buying opportunities over the past few years - not enough for the bears to be satisfied with a 10% drop though, so now many of them conclude that the market is wildly overvalued because it hasn't had a significant pullback in ages. Good grief.

    How I'm Preparing

    I'm not a financial advisor or a hedge fund manager. I'm just a regular old joe-schmo investor lucky enough to be in the markets all day and keep track of what the hell I'm doing with my portfolio.

    So maybe my game plan doesn't translate to a good outline for you. Some people are dividend/income related, some our growth/momentum investors. I'm neither.

    I seek out companies that have above-average growth, quality brands and reasonable valuations - even if the recent rallies have made those valuations a little long in the tooth.

    I call these Future Blue Chips - stocks like Starbucks SBUX, MasterCard MA, Visa V, Disney DIS, and Harman HAR - and I believe they will continue to generate long-term growth before becoming a company with slow to moderate growth, a lower valuation and a hefty buyback and dividend.

    So my plan is to stay long my favorite stocks, regardless of how bumpy the interim is. I'll shore up some cash from a few of my short-term positions and hold off making regular purchases. I'll save that money in cash, so I can still stay long stocks and wait for a pullback to add to my favorites and even initiate a few new positions.

    Whether the rate hike is in September or December or early 2016 - or 2020 at this pace - I will stay long of stocks and wait patiently for the decline to deploy my pent up capital.

    Hopefully after "The Hike" happens, investors will realize the world is not ending and the stock market and economy can get through this meager event.

    People will still buy Starbucks, visit Disneyland, and pay for it with Visa and MasterCard. As the great Warren Buffett recently stated:

    "If you thought your house was going to go down 5% in price, you wouldn't sell your house and hope to buy it back 5% cheaper. That's not my game. My game is to own decent businesses and own them at decent prices."

    Aug 12 9:19 AM | Link | Comment!
  • What Do You Mean You Don't Own Apple?

    I often refer to Apple AAPL as one of my greatest and worst investments. In April 2013, I bought the stock for $410, split-adjusted to $58.57 per share. The stock ultimately bottom slightly below that level in July of that year and has rallied since. The rally was so intense by early summer 2014, I cashed out with the stock around $90.

    I ignored the valuation, the dividend, the cash, the buyback, the great products and the Icahn effect. These were all catalysts I used to justify a long position, but in all, it seemed like too much of a rally.

    That rally went on for another $40 per share. But we all live and learn in the investing world. It's not that I wasn't looking at Apple as an investment in April 2013 - I was, it wasn't a trade - but now I try to take a longer term approach, regardless of temporary rallies and pullbacks.

    So with that background in mind, the question for all of us who don't own Apple, (however few that may be), when do we get back in?

    Not So Fast

    It's not as easy to look at the stock now and say, well it has a below market multiple and lots of cash, so just buy it today. That's hard to do when the stock is at all-time highs and $30 to $40 above where you may have sold it.

    But the truth is simple: It's probably never going back to those levels - and if it does, there's a much larger issue at play.

    Fundamentally speaking, the company has never been stronger. While the Apple Watch is reportedly not selling that well, expectations were supposedly quite low - non-existent in many analysts' eyes. So this shouldn't matter too much, especially with the iPhone going as strong as it is both in the U.S. and globally.

    Globally speaking, Chinese consumers have become one of the largest buyers of the iPhone. But concerns about China's economy have forced many pundits and investors to worry about its potential impact on U.S. companies.

    Considering many of us have never been to China, I think it's kind of a stretch to say that Apple will suffer at the hands of the Chinese consumer. The biggest holding in my portfolio is Starbucks SBUX, so naturally I have started to research China, as Starbucks also does a lot of business in the region.

    Seeking Alpha user RTB made an incredibly useful comment in "Starbucks: China Or Bust," (bold emphasis added):

    I'll add a commentary from ground zero in Shanghai. I have lived in China for the past 11 years, and witness to the phenomenal growth Starbucks has reaped. While most multinationals in virtually every other category struggle to grow share, volume, and gross margin; Starbucks enjoys virtual market dominance in their category. SBUX market share in China exceeds 60%, and unlike its U.S. counterpart, Starbucks is not simply a cafe. It truly is a nexus, a meeting place in China, the stores are larger, the people stay longer, and seat occupancy must be north of 75% at all times.

    Stores are located in shopping malls and office buildings, not suburbia, nor drive thru's. People queue here much longer as they try not only to figure out which blended drink to have, but which cake or sandwich to go with it. Coming to Starbucks is an indulgence, and a status symbol; and we all know Chinese place much more emphasis on status and face than other parts of the world.

    Starbucks is an institution here now, and will demonstrate resilience regardless of the market. We've already seen the economic growth slip from mid double digits to sub 7%. And while the real estate and stock market suffer their overheating and cooling off cycles, Starbucks is relatively unaffected, as will other status and face-elated categories like women's cosmetics (Asian women spend 70% more than their Western counterparts), and luxury vehicles and SUV's. These will prove the most resilient aspects of the Chinese economy as they all maintain their aspirational values, which remain so important in the measure of success within China.

    The comment is noteworthy, as it gives us a boots-on-the-ground look at the way the Chinese consumer behaves. I know this if for Starbucks, but Apple is also a status symbol. While an iPhone is vastly more expensive than a cup of coffee, I'm going to stick with the notion that Chinese consumers still want the iPhone, rather than speculate that demand has suddenly plunged.

    Regarding the iPhone, reports have surfaced the company is looking to produce 85 million to 90 million iPhone 6S units. For last year's record breaking iPhone 6 and 6 Plus, the company asked for 70 million to 80 million units. At the midpoint, this represents more than a 16% increase in unit orders, suggesting the company expects strong sales to continue for its flagship product.

    In the previous quarter, the iPhone made up 69% of revenues, highlighting why this product's success is far more important than Apple Music or the Apple Watch. Perhaps even more notable, the company upped its already enormous buyback program of $90 billion to a whopping $140 billion, while boosting the quarterly dividend by 11%.

    Parting Thoughts

    Apple is a consumer technology products company that consumer want to buy, both here and abroad. It's even taking market share from Samsung in China.

    There are a few of the do-no-wrong stocks in this bull market and Apple is one of them. So as the stock pulls back and hovers in this $120 to $130 range, investors like me who have somehow missed the ride should look to get in soon before the next rally takes the stock higher.

    AAPL Chart

    AAPL data by YCharts

    You can see on the chart above that the 200-day moving average is quickly approaching. Overall, the stock has not traded well given all of this good news, and perhaps it's in anticipation of having tough comparable sales in the coming year.

    However, given Apple's low valuation, I think investors are okay owning the stock - along with its huge buyback program. With earnings expected to grow 7.5% in 2016, the forward PE ratio is just 12.5, which is pretty reasonable, especially for a very high quality company.

    If we could be so lucky as to grab the stock at $118, at the 200-day moving average and level that should hold up as support (pending a larger market correction), then that's where I will be looking to buy.

    If Apple doesn't get there, I won't fret over missing a few bucks per share, as I'll simply have to get in at some point to own a piece of this company.

    Tags: AAPL, SBUX
    Jul 10 8:05 AM | Link | 2 Comments
  • Bull Market Vs. China, Puerto Rico And Greece

    In my mind, stocks have been performing relatively well, given all the macro news that surrounds it. Investors know that Greece doesn't directly impact the U.S. economy, nor does China's stock market.

    That's why the latter has slid more than 30% in the past month, yet has hardly impacted stocks until the past few sessions. The concern with Greece is that it could adversely impact Europe, which would then end up impacting U.S. earnings from multinational companies.

    This isn't to say that these two events - plus Puerto Rico's blossoming debt burden - won't hurt stocks. Ultimately, they already have with stocks down around 4% from the highs.

    But that's where I find the silver lining. The S&P 500 continues to chop up and down and volatility has shot higher. The CBOE Volatility Index is at levels not seen since February. Despite all of the volatility and macro headaches, stocks are just 4% off all-time highs.

    That speaks pretty positively to me. Cris Sheridan over at Financial Sense recently published a piece about a potential market top. I think pieces like this are worth noting, because if nothing else, it keeps us in check and somewhat prevents us from becoming too euphoric.

    I'm one of those people where I like to hear and see all angles of an argument and then decide. Whereas some people will be bullish or bearish and refuse to listen to anything else. I'm bullish on this market, but I take Sheridan's information and put it in the back of my mind.

    Maybe it prevents me from buying too much stock, or maybe it has me think twice about when to buy stocks.

    My biggest problem with comparisons back to 2000 and 2007 - be it NYSE margin debt, buyback amounts, valuations, etc. - is that there isn't a comparable crisis on hand.

    In 2000 we had the Nasdaq trading with an insane valuation, something that made zero sense (in hindsight). In 2007, we had total financial chaos, as too-big-to-fail institution where…failing.

    So that brings me to today: The this or the that might be comparable and like in Sheridan's long-term chart, it has similar patterns to a topping market. But that doesn't mean an angry bear is lurking around the corner.

    Not to cover all the bases necessarily, but that doesn't mean an a bear market isn't lurking, i just think it's improbable. The economic data is good, but not great, we still have low interest rates and the Fed seems unlikely move any time soon, and the U.S. dollar is steady.

    Bull markets need a catalyst to end, they don't simply die just because someone decided it was time.

    Maybe China's stock market is foretelling that the Chinese economy is crashing. Or maybe, because Chinese stocks have rallied such a crazy amount, this pullback is actually good.

    Did you know, for all the fuss that is being made about Chinese stocks, that the Shanghai Composite, which fell 30% from its June highs, is still up 80% in the past year? Did you know that the index is still positive on the year, up 14.5%?

    Up 14.5% is a banner year in the U.S., and all we can talk about is how that market is collapsing.

    I'll be the first to admit, a big downturn in another big economy - like Europe or China - can absolutely have a spillover effect on U.S. stocks and the economy. But so far, it's nothing but speculation. Auto sales and housing data remains strong, along with all the other catalysts listed above.

    There's no problem with lightening your exposure to stocks - after all, we are still 4% from the highs, not a bad spot to sell - and there's no issue with being cautious. There could easily be a 5% to 10% correction in the cards, because markets trade on emotion.

    I'm just not ready to throw in the towel and declare this bull to be dead. I'm sticking with the winners from Future Blue Chips picks: Starbucks SBUX, Disney DIS, MasterCard MA and Visa V.

    I also see great growth at a reasonable valuation from Harman HAR and a deeply discounted, attractive risk/reward play in General Motors GM.

    Tags: V, DIS, MA, SBUX, HAR, GM
    Jul 10 7:41 AM | Link | Comment!
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  • Still relevant: Why the Rate Hike is Excruciatingly Similar to Your High School Crush
    Aug 20, 2015
  • $DIS $SBUX $MA $V -- The four stocks in all making record highs.
    Jul 20, 2015
  • $AAPL up and over $127.50 in PM, this one has traded very well the past few days. let's see if it can get over 50-day.
    Jul 16, 2015
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