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David Zanoni is the owner of startbuildingit.com. He is ranked in the top 1% out of over 5,000 analysts according to tipranks.com. David is a graduate of Rutgers University with a B.S. in Management. He is an independent long term investor of quality stocks and uses options for strategy. David... More
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  • Herbalife: 34 Years In Business And Plenty More To Go

    ** The conspiracy theorists want to bring down Herbalife.

    ** Most of the negative baloney stems from Ackman, those who work for him, and a few followers.

    ** There is no evidence that Herbalife is doing anything wrong.

    ** The stock is likely to do well for the long-term as it is a great bargain in the current market.

    There has been a barrage of negative articles from a small number of bloggers about Herbalife (NYSE:HLF). Most of this negativity came after Bill Ackman went public with his allegations against the company in 2012. I think that this negativity is a bunch of baloney. We see the negativity coming from Ackman, Christine Richard who is working with Ackman, and a small number of bloggers who do a good job of coming up with endless stories of why they think Herbalife is such a terrible company. However, doing a good job of telling stories with numerous conspiracy theories does not make them correct. Nor have they proved any wrongdoing by Herbalife. What we haven't seen is much negative news from government agencies or auditors over the years about Herbalife's business. We do know that the FTC is looking into the company, but that has more to do with the FTC cooperating with those who are crying foul. This pressure stemmed from Ackman, who made his case to anyone in the U.S. government who would listen. Ackman found Massachusetts senator, Edward Markey, to listen to him. Markey sent letters to government regulators urging them to investigate.

    The arguments against Herbalife claim that the company is running a pyramid scheme and that people are being victimized. They paint a picture of poor people falling victim to the scheme, working for nothing, etc. However, Herbalife has a money-back guarantee. So, if someone tries the business and the products and discovers that they don't like it, they can return it for a 100% money-back guarantee and Herbalife will pay for shipping it back. Nobody is forcing people to start their own business or consume product. These people have minds of their own and can walk away at their will. Perhaps there are some distributors that use high-pressure sales tactics, but that behavior is not illegal. Everyone is free to decide on their own if they want to use the product or become a distributor. Even if a few independent distributors are found to break Herbalife's rules, the company could cancel their memberships.

    Christine Richard who was hired by Ackman for his case, presented her biased view of what she observed in a few nutrition clubs. Those observations, although entertaining, didn't demonstrate any wrongdoing on the part of Herbalife. Through negatively biased eyes, she also pointed out how one of the clubs which is known as "Club 100" operates. Richard shows how Club 100 gets people to consume shakes. Although the sales tactics appeared strange as she presented them, there was no evidence of any wrongdoing by Club 100. Although the bears who are betting against Herbalife applauded Richard for her work, there isn't really any evidence that Herbalife or Club 100 are doing anything wrong. Ackman brought up Club 100 back in his July presentation and investors just didn't buy into it as the stock rose significantly that day. So, I think that Richard's recent article was just a ploy to fire up the bears again.

    It appears that Ackman, Richards, and the negative bloggers are just reaching at this point; trying to make mountains out of molehills. Ackman's original argument against Herbalife was that it was running a pyramid scheme. However, that theory has already been disproved as a former FTC economist; Dr. Vandale determined that 97% of Herbalife's sales end up in the hands of ultimate end users. Illegal pyramid schemes are unsustainable business models that involve promising participants payment or services, primarily for enrolling other people into the scheme rather than supplying any real investment or sale of products or services to the public. Dr. Vandale demonstrated that 97% of Herbalife's sales go to end users with 80% of sales going to end users who just want to use the product. This overwhelmingly disproves the theory that Herbalife is an illegal pyramid scheme.

    I think investors need to look at all of the facts regarding Herbalife. When you look at all of the information out there, Herbalife looks like it will emerge from this Ackman-fueled controversy unscathed. Herbalife is a public company, so it has taken great strides to ensure that it complies with all laws and regulations. There really isn't any evidence that Herbalife is doing anything wrong. There isn't any negative news coming from any regulatory agency regarding Herbalife. The negativity is only coming from the conspiracy theorists.

    Herbalife Launches a Nutrition Line in Canada

    Herbalife has announced this week that it is launching a performance nutrition line in Canada. The new product line is known as Herbalife24. The products are targeted for athletes, allowing them to customize their nutrition program based on their specific sport, individual needs, and training demands. This new initiative shows that Herbalife is still innovating its product line; providing athletes with various pre, during, and post work-out nutritional products. The new product line is likely to add further to the company's growing revenue.

    Future Growth

    Herbalife has built a successful business that has thrived for 34 years. I think that the company will continue to do well as obesity remains a problem worldwide and as the world's population increases. Obesity is still a major issue is the United States. According to the CDC, more than one-third (34.9% or 78.6 million) of U.S. adults are obese. According to a study published in the Wall Street Journal, 29% of the world's population is overweight or obese. Herbalife offers nutritional products that can help solve this problem. There are over 370,000 people born per day worldwide, or over 135 million per year. The amount of people turning 18 years of age annually is: 4 million people in the U.S., 22 million people in India, etc. This will create a whole new set of customers for Herbalife going forward. There is plenty of growth for Herbalife due to population growth. Therefore, the arguments about market saturation for Herbalife are unfounded.

    Valuation

    Herbalife has one of the more attractive valuations in today's market thanks to Ackman's scare tactics. The stock is now trading at only 6.4 times next year's expected EPS of $7.19. This is significantly lower than the S&P 500's forward PE of 16.7. Analysts are expecting the company to increase earnings 17% this year and 14% next year. As more time goes by and nothing negative is reported by legitimate regulators, Herbalife stock should perform well. The stock might be volatile in the near term as bearish bloggers spin their conspiracy webs. Therefore, investors will need to have a strong stomach to weather the storms. However, I think that the stock will perform well over the long-term. This is using Warren Buffett's philosophy of investing when there is blood on the streets. Herbalife thrived for 34 years and I think that the company will thrive for many more.

    Sep 12 8:32 AM | Link | 4 Comments
  • Need Dividends? Try National Grid's High Yield

    * National Grid has a strong dividend yield.

    * The company achieves a high ROE which helps shareholders over the long-term.

    * The stock is undervalued as compared to the gas utility industry.

    National Grid plc (NYSE:NGG) is a gas and electric utility that is based in the United Kingdom with operations in the U.K. and the United States. The company typically reports its figures in British Pounds (GBP) and Euros, but for the sake of this article, I converted the figures to U.S. dollars. The stock trades on the NYSE for U.S. investors under the ticker (NGG) and on the London Stock Exchange under the ticker (NG.L) for U.K. investors.

    Dividend Analysis

    National Grid paid a dividend of 4.8% for the past year on a payout ratio of 58%. The company typically raises the dividend payments each year, although there have been two exceptions since 2005. The dividend was $0.02 lower in 2009 as compared to 2008. There was an extra payment during 2010, so the total amount paid in 2011 was lower than the prior year.

    The dividend payment was only increased by $0.01 from 2012 to 2013. However, this followed a 5.7% increase in the dividend payment from 2011 to 2012. National Grid typically pays two payments per year. Here is a snapshot of the total payments made per year according to Nasdaq:

    Year

    Dividend Payment per share

    2013

    $3.18

    2012

    $3.17

    2011

    $3.00

    2010

    $7.05

    2009

    $2.89

    2008

    $3.00

    2007

    $2.98

    2006

    $2.54

    2005

    $0.88

    The $3.18 per share paid in the calendar year 2013 cost the company $2.37 billion based on 746.07 million shares outstanding. This was only 38.4% of National Grid's total operating cash flow of $6.17 billion for the last twelve months. Therefore, the company has the ability to invest in the business while simultaneously rewarding shareholders with dividend payments. Therefore, the dividend payment looks safe and it is feasible for National Grid to continue raising the payment going forward.

    The large payment in 2010 was the result of an extra payment that was paid to U.S. shareholders that year. The amount of the extra payment was $4.253 per share. This interesting situation stemmed from National Grid's offer for shareholders to purchase two shares for every five that they own at a 44% discount to the current market price. By doing this, National Grid was able to raise capital without finding new buyers for its stock. This offer was only good for shares traded on the London Stock Exchange. However, shareholders in the U.S. were able to benefit from the extra dividend payment as the depositary bank, BNY Mellon, took the discount and paid out the proceeds. This gives investors hope that the company could do something similar in the future.

    Thus far in 2014, the company made its first payment of $2.3107 per share. This was higher than the first payments made in recent years, so I would expect the second payment to also be higher than those of recent years. However, I wouldn't expect the second payment to be significantly higher than those in recent years based on National Grid's modest year-over-year dividend raises.

    High ROE

    National Grid achieved a high return on equity (ROE) of 22.3% for the past twelve months. This demonstrates the company's effectiveness of getting a profitable bang for its shareholder's bucks. The company's strategy is to only invest where it can reasonably expect to earn acceptable returns. As a result of this strategy, the company uses ROE and a new value-added metric as an important measure of its performance.

    The company's value-added metric shows how National Grid drives total shareholder return. It is calculated by taking the level of asset growth plus dividends paid for the year minus the increase in net debt. For last fiscal year, National Grid had asset growth of $3.34 billion plus dividends paid of $1.67 billion minus growth in net debt of $1.5 billion for a value added to shareholders of $3.51 billion.

    The high ROE should help sustain future dividend payments and stock appreciation going forward. As the company achieves increases in net income, it increases the likelihood of an appreciating stock price and future dividend increases. National Grid achieves a good return on its investments, so shareholders are likely to be the beneficiaries as these investments materialize.

    Undervalued Utility

    The utility stocks have had a great run, which was followed by a recent sell-off. The good news is that the utility stocks are in the process of recovering from that sell-off. National Grid is selling at a discount to the industry. National Grid is trading at only 14.22X analyst's expected EPS of $5.16 for the fiscal year-ending in March 2016. The gas utility industry is trading with a higher valuation at 18.4X next year's expected EPS. National Grid's undervaluation is reinforced when looking at the longer-term expected earnings. National Grid's PEG is 2.08 as compared to the industry PEG of 2.48. The company is also undervalued in terms of cash flow with a price to cash flow ratio of just 8.2 as compared to the industry's P/CF of 14.74. Overall, National Grid looks like a bargain at current levels. Given these valuation metrics, I would expect National Grid to outperform the industry over the next year. With the stock trading at about 5% below its 52-week high of $77, it looks like a good time to start a position.

    Aug 19 7:51 PM | Link | Comment!
  • Ave Maria Funds – Catholic Funds that Beat the S&P Benchmarks

    Investors with strong moral standards have conflicts investing in companies that are not consistent with their beliefs.  For example, a catholic investor who believes in pro-life would not want to invest in a company that is involved in making an abortion pill.  To avoid conflicts like this, mutual funds have been created to make stock selection consistent with certain moral beliefs.  One such grouping of funds is known as the Ave Maria Funds.

    The Ave Maria Funds have a pro-life and pro-family approach to investing.  They have a moral screening process that ensures that stocks are selected in compliance with Catholic teaching regarding abortion, pornography, and policies that undermine the sacrament of marriage.  This is done with a Catholic Advisory Board who ensures that investments are made in companies that do not violate the teachings of the Roman Catholic Church.   

    The Ave Maria Funds are no-load funds which are built on the philosophy that investors shouldn’t have to sacrifice financial performance for their pro-life and pro-family beliefs.  This philosophy has been made true because the stock funds have beaten the performance of their S&P benchmarks over time since their inception.  

    World Equity Fund (MUTF:AVEWX)

    The Ave Maria World Equity Fund invests at least 60% of its assets in companies with headquarters outside the U.S.  The World Equity Fund has yielded 4.16% since its inception on April 30, 2010.  This beats its benchmark, the S&P Global 1200 index, which yielded 3.23% over the same period.

    Opportunity Fund (MUTF:AVESX)

    Their Opportunity Fund invests in companies of all capitalizations (small-cap, mid-cap, and large cap) for long-term capital appreciation.  Since inception in 2006, this fund has yielded 2.51% compared to the Russell 2000 yield of 0.48% and the S&P 600 small cap index yield of 1.28% over the same time.

    Growth Fund (MUTF:AVEGX)

    The Ave Maria Growth Fund seeks long-term capital appreciation via growth stocks.  This fund has won the Lipper Fund Award twice: in 2009 for the three year period ending 12-31-2008 and again in 2011 for the five year period ending 12-31-2010.  The Lipper award was given for the best fund in the multi-cap core funds category.  The Growth Fund yielded 9.05% since its inception in 2003, compared to the S&P 500 yield of 5.57% over the same time. 



    Catholic Value Fund (MUTF:AVEMX)

    This fund seeks long-term capital appreciation in equity investments.  The Catholic Values Fund has yielded 6.06% since its inception in 2001 vs. the S&P 500 yield of only 1.56% over the same period.  This fund invests in established companies of various market caps.

    Conclusion

    There are many good mutual fund choices here to combine solid market beating performance with beliefs that are consistent with Catholic teachings.  Investing in these funds is something that you can feel good about. They also offer a bond fund to diversify your portfolio.  If you would like more detailed information, visit their website avemariafunds.com.  

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Sep 18 3:22 PM | Link | Comment!
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