Retire In Half The Time With Dividend Growth Investing [View article]
The assumption that a dividend growth stock has equal dividend yield and annual price appreciation seems unrealistic to me. A stock paying 1% dividend yield is not likely to have a 1% annual price appreciation, any more than is a stock paying 10% dividend yield to have a 10% annual price appreciation on top of that.
Johnson & Johnson Could Double In 5 Years [View article]
Thanks Cesc for adding your insight to this article. The Synthes acquisition is a valid concern. I agree JNJ probably overpaid for growth, as most most M&A deals pay 3-4 times sales.
I think you are also right that the acquisition is still not reflected in the financial statements, so there will probably be a dilution for JNJ shareholders. 2/3 of 20 billion is about 13 billion, which is about .21 billion shares, about 7% of shares outstanding, not huge, but significant. JNJ's shares have stayed relatively flat since the acquition announcement in April , so the market appears to have discounted the news somewhat. I think the market is taking a long term view that the acquisition will turn out ok and should generate enough cash flow to buy back the shares in dilution in 5 years or so. Overall, I think JNJ is a solid long term play, and the current price is reasonable. If there is a short term pullback to $57 or less, that would be great for an entry point. If not, the current price should provide enough margin for a long term position.
Hi rossj: Thanks for your comment and adding insight to the discussion. Those are clearly most promising things to focus on for future growth. I think some of the efforts should prove fruitful. How things will turn out, we shall see. I think the current valuations are low enough, so patient investors (i.e. at least 10 years) should be rewarded.
Thanks Jeremy for adding your great insights. Everything you mentioned are valid and real risks to contend with. Medtronic's growth has slowed in recent years, and the difficulty of bringing new products to market and the temporary credit delinquencies in Europe are certainly real problems. The good news, in my mind, is that the market apparently has factored much of these in account by giving the stock its lowest valuation in years, from a P/E of 53 10 years ago, down to a current P/E of 12. Could MDT's valuation continue to go down to single digit P/E? Sure, but that is not guaranteed. The current valuations already assumes zero growth besides the dividends, so even modest single digit growth would allow the stock to do quite well. Medtronic has weathered worse troubles before, and I believe the company is in good financial situation to come back from this one. Contrast this situation with the one we had 10 years ago, when things were rosy, the recent growth was great, and the market rewarded the stock with a high P/E. Great expectations lead to great disappointment. The market tends to project growth based on the growth trends over the past 3 years or so. This is now good for MDT because the growth trends over the recent past has been poor, offering patient investors a buying opportunity, as the low expectations are much easier to beat.
Johnson & Johnson Could Double In 5 Years [View article]
Thanks for your comment. I like Chevron and think the fundamentals are great for the long term. The stock is a little high right now, and earnings might be at or near a cyclical high. I would probably wait for a pullback, and would favor TOT or perhaps XOM right now.
Move Over S&P 500: Here's A Tougher Benchmark To Beat [View article]
Just because midcap and small cap stocks outperformed large cap stocks over the past 10-15 years does not means this outperformance will continue. Past performance does not guarantee future performance.
Johnson & Johnson Could Double In 5 Years [View article]
Good point and thanks for your comment. It appears that the entire healthcare/drug industry was overbought 10 years ago. PFE (-49%) and MRK (-37%) underperformed the S&P500 even worse, making JNJ's lackluster 10-y performance look good by comparison. I think any time a stock is trading at above P/E of 20, or above 25 using average earnings over past 3-5 years (as JNJ did 10 y ago), it is expensive and probably a risky bet.
With Its P/E Ratio Stabilized, Apple Is Looking At $850 Per Share By 2014 [View article]
where is the growth coming from if Apple does not come up with any new products for the next 2-3 years? It has grown at high double digits rates because it has been coming up with new products every 6 months or less. The market is pretty much saturated now for its current products. Most people who wanted an ipod or ipad have bought already. Without successful new products, AAPL could go downhill very fast, probably as fast as the maddening speed it has come up with new products recently.
With Its P/E Ratio Stabilized, Apple Is Looking At $850 Per Share By 2014 [View article]
Just take a look at AAPL's earnings over the past 10 years, with EPS ranging from 0.09 to 27.68. Projecting high future earnings based on 3-4 years of past earnings is dangerous. Cyclical stocks go from years of very low earnings, followed by years of very high earnings, and back to very low earnings again. AAPL is at its cyclical high right now, but this won't last forever.
With Its P/E Ratio Stabilized, Apple Is Looking At $850 Per Share By 2014 [View article]
PE is not be all, end all. Apple is a stock with extremely volatile earnings and is currently enjoying its shining moments with abnormally high earnings right now. It is clearly a bubble when people are willing to project high double digit growth to continue with a half trillion market cap company. If PE of 15 is cheap and that means Apple is a buy, does PE over 100 mean Apple was a sell 10 years ago, when the stock was selling at less than $10 a share? That would be absurd.
For cyclical stocks with extremely volatile earnings, the best time to buy is when PE is high because E is low, and the best time to sell is when PE is low because E is high. AAPL falls overwhelmingly in the latter category right now.
Beware Of Technology Bubble 2.0: Lessons From An American Sucker [View article]
We don't have a widespread technology bubble yet, but one is developing in young internet companies, of which FB, ZNGA, LNKD, P, ANGI, GRPN, etc. are examples. Whether this will become full blown or not, we have yet to see, which is why I said "beware".
Genuine Parts Company: A Hold For Now [View article]
5 percent growth rate is not overly optimistic or unrealistic at all. I don't see any reason why the company cannot maintain that rate of growth for the next 5 years. As a practical matter, we need to reassess yearly to see if the growth rate would continue. I don't necessarily expect 5 percent growth indefinitely till 2100 and beyond. Even if that were the case, however, GPC will still not own the entire country, probably, thanks to inflation.
Thanks for all your insightful comments! I agree that PEP's recent performance has been lackluster, and management certainly has a lot of work to do to revitalize the company. KO is a higher quality stock and deserves a slight premium around 5-10 percent, but current valuations would favor PEP over KO. Overall, I think PEP is still a high quality stock, and the only time we can buy high quality stocks inexpensively is when the company is having problems, which I believe is temporary for PEP.
After A Lost Decade And Now At 52-Week High, Microsoft Is Still A Buy [View article]
I'm not sure about Nokia. It looks cheap, but its earnings record has been spotty for the past decade. Its margins are low and declining, and ROE is not great. My gut feeling is to avoid it, but I would have to look into it more to see if it may turn around and be worthy of a buy.
Retire In Half The Time With Dividend Growth Investing [View article]
Johnson & Johnson Could Double In 5 Years [View article]
I think you are also right that the acquisition is still not reflected in the financial statements, so there will probably be a dilution for JNJ shareholders. 2/3 of 20 billion is about 13 billion, which is about .21 billion shares, about 7% of shares outstanding, not huge, but significant. JNJ's shares have stayed relatively flat since the acquition announcement in April , so the market appears to have discounted the news somewhat. I think the market is taking a long term view that the acquisition will turn out ok and should generate enough cash flow to buy back the shares in dilution in 5 years or so. Overall, I think JNJ is a solid long term play, and the current price is reasonable. If there is a short term pullback to $57 or less, that would be great for an entry point. If not, the current price should provide enough margin for a long term position.
It's Time To Buy Medtronic [View article]
It's Time To Buy Medtronic [View article]
Johnson & Johnson Could Double In 5 Years [View article]
Move Over S&P 500: Here's A Tougher Benchmark To Beat [View article]
Johnson & Johnson Could Double In 5 Years [View article]
With Its P/E Ratio Stabilized, Apple Is Looking At $850 Per Share By 2014 [View article]
With Its P/E Ratio Stabilized, Apple Is Looking At $850 Per Share By 2014 [View article]
With Its P/E Ratio Stabilized, Apple Is Looking At $850 Per Share By 2014 [View article]
For cyclical stocks with extremely volatile earnings, the best time to buy is when PE is high because E is low, and the best time to sell is when PE is low because E is high. AAPL falls overwhelmingly in the latter category right now.
Beware Of Technology Bubble 2.0: Lessons From An American Sucker [View article]
Genuine Parts Company: A Hold For Now [View article]
Pepsi's A Buy At Current Levels [View article]
After A Lost Decade And Now At 52-Week High, Microsoft Is Still A Buy [View article]
After A Lost Decade And Now At 52-Week High, Microsoft Is Still A Buy [View article]