Send Message
View as an RSS Feed
  • Dividend Cut Risk Of The 6 Oil Super Majors  [View article]
    Buck and Dale, Slavishly following the Dividend Achiever's Index is not a good strategy. Those who sold WFC right after the dividend cut got burned. Those who bought right after the cut made out very well. The Index is a useful tool to building a dividend-paying portfolio but nothing is a substitute for common sense. WD
    Feb 6, 2016. 11:53 AM | Likes Like |Link to Comment
  • Dividend Cut Risk Of The 6 Oil Super Majors  [View article]
    Steve, At the rate E&P budgets are being cut-and to me the magnitude of the cuts is almost unbelievable, it is only a matter of time before demand exceeds production. I think XOM's capital budget cuts really drove this home. I am guessing that the two will be converging by the end of this year but the exact crossover is difficult to predict. Once demand exceeds production the price of oil will rise in anticipation of inventory reduction. XOM's decisions indicate to me that the ratings agencies are being very conservative and are not necessarily anticipating an upturn in prices by the end of this year. XOM must act according to the ratings agencies to avoid a credit downgrade and the reduced capital spend is probably for that purpose. WD
    Feb 6, 2016. 11:48 AM | Likes Like |Link to Comment
  • Retirement Strategy: Having Cash Is Not A Sin, It Is Smart!  [View article]
    RS, I am always about 25% cash and fixed income securities overall. On the taxable side, I have a large position in short duration (about one year) fixed income. That is essentially cash and pays almost enough interest to keep up with inflation. I don't time the market, so whether it is going up or down, I have the fixed income side. It is also good to have investments that are implicitly for and against a strong dollar. KO, with its large overseas presence, has an implicit bet against the dollar. On the other hand, preferred stocks or domestic REIT's tend to do better with a strong dollar. I am not a big fan of REIT's but they are an example of that type of asset. I make adjustments over time according to my expectations of interest rates, inflation, and FX.

    At present I think we are in a protracted period of a strong dollar (FX headwinds), low inflation (CPI), and anemic WW economic growth. This is a very challenging time to invest. I have a good position in longer duration fixed securities because, unlike some, I do not see a rapid rise in interest rates coming anytime soon. At the same time I have the "classic" stocks like JNJ, PEP, KO, XOM, PG, etc., that are generally experiencing FX headwinds. Times like these can test your patience, but I have been at it for about 40 years and will just weather it out.

    Feb 6, 2016. 11:32 AM | 6 Likes Like |Link to Comment
  • Why ConocoPhillips Cut Its Dividend But BP Hasn't  [View article]
    There is also OXY. They are kind of a hybrid - being mostly upstream (Permian probably the majority of their upstream assets) but also having chemicals and midstream. They also have an AA- bond rating because their debt is only about 17% of assets. They can probably keep paying their dividend until oil prices rise again to above $60. Unfortunately COP's debt percentage is quite a bit higher and they have nothing but upstream assets.

    I am speculating that the production/demand imbalance will be resolved in about one year but there is much uncertainty in such any estimate.

    Feb 5, 2016. 02:33 PM | 6 Likes Like |Link to Comment
  • Johnson & Johnson: Why We Just Bought More  [View article]
    Long JNJ and KO eh? Same here. These high quality issues don't add much anxiety. WD
    Feb 5, 2016. 02:27 PM | Likes Like |Link to Comment
  • Occidental Petroleum says no plans to cut dividend  [View news story]
    Relative to COP, OXY has much lower leverage and AA- bond rating or thereabouts. Also OXY has downstream assets. So OXY can go longer without a dividend cut. WD
    Feb 4, 2016. 04:28 PM | 1 Like Like |Link to Comment
  • The Real Threat To UPS Is UPS  [View article]
    UPS is one of my favorite holdings. There is still a lot of additional untapped potential for this company-the strongest one in the delivery business. The current dividend yield and growth rate going forward make the stock attractive. WD
    Feb 4, 2016. 12:46 PM | 2 Likes Like |Link to Comment
  • ConocoPhillips Shareholders Should Expect A 66% Dividend Cut  [View article]
    Congrats Tim! This oil price weakness is longer term than some folks expected.
    Feb 4, 2016. 10:10 AM | Likes Like |Link to Comment
  • Qualcomm: I'm Not Buying The Panic, But I Am Buying More Shares  [View article]
    Annualized free cash flow this fiscal year should be roughly 10% of enterprise value and just over 8% of market capitalization. If Qualcomm starts to get catch-up payments on the licensing fees in China then the FCF percentage number could go higher. I am holding QCOM as well but am not adding more at present because I see long term risks for the licensing business. The short to intermediate term risk seems fairly low given the current valuation.
    Feb 3, 2016. 03:56 PM | 3 Likes Like |Link to Comment
  • When Alphabet Pleases The Street, Watch Out Below  [View article]
    Google's FCF (free cash flow) is 3% of enterprise value and the FCF has declined over the last two years. And this is a good value? Apple's FCF is 15% of enterprise value and FCF is up 56% over two years. Oh, and Apple's FCF is 6+ times that of Google. So Google is a better investment to some on this forum? Whatever.
    Feb 2, 2016. 05:39 PM | 5 Likes Like |Link to Comment
  • Apple: If iPhone Keeps Shrinking  [View article]
    Paulo, Interesting and useful article - you quantified things as promised. One interesting metric is the free cash flow for Apple in relation to enterprise value. The enterprise value is in the range of $400-450 billion. The free cash flow (FCF):

    $70 billion in FY 2015 (up from $50 billion the prior year)
    $23.5 billion in the latest quarter (down from $30.5 billion the prior quarter)

    The fluctuation in FCF may be somewhat cyclical and inventory reduction related. But based on prior years it seems reasonable that Apple will generate FCF of $60-70 billion this fiscal year. This seems very significant because it is the actual cash usable for acquisitions, stock buybacks, and dividends, although much resides overseas. It can be borrowed against. It is an impressive 13-18% of enterprise value. In the long term it is difficult to know how changes in the business will affect FCF. Lower margins long term will weight on FCF.

    My biggest concern for Apple is that, in their "desperation", they will make some dilutive acquisition like some of those recommended by SA authors :-). Not likely, but it is always a risk.
    Feb 2, 2016. 10:16 AM | Likes Like |Link to Comment
  • China's Burgeoning Car Market Could Pull World Oil Prices Out Of The Doldrums  [View article]
    MB, I am already well invested in the energy business but I may add more shares of select companies. My preference is for the companies having the stronger bond ratings and downstream business such as XOM and OXY because I don't know how long this price weakness will last. OXY has a very strong position in the Permian, a substantial chemical and midstream business, and an AA- bond rating. WD
    Feb 1, 2016. 11:07 AM | Likes Like |Link to Comment
  • What Tim Cook Must Do To Turn Apple Around, 2013 Vs. 2016  [View article]
    I estimate that Apple's free cash flow will be about 15% of enterprise value for FY 2016. By comparison, Google's free cash flow is less than 3% of enterprise value. With zero growth in earnings, a constant valuation, and no acquisitions Apple would provide a return of 15% to investors. With Google, the same assumptions would result in a 3% return. The investing market is valuing Apple with the premise that earnings will shrink by roughly 7% per year because the expectation for a stock is roughly 8% per year. That seems unlikely to me-Apple will likely find a way to offset "peak iPhone" with earnings from other offerings. That said, we may see a down quarter or two due to normal sales cycles.

    Regarding giving Apple recommendations as to how to run their business, I see little reason to do so. I would assume that they will keep making incremental product improvements along with new platform introductions. But when free cash flow is $70 billion, as it was in FY 2015, it is very hard for anything to move the needle upwardly. At the same time, Apple has the assets to maintain a great business.

    Long Apple.
    Jan 31, 2016. 12:58 PM | 10 Likes Like |Link to Comment
  • No More Tears For J&J Holders?  [View article]
    EMHUTCHINS, For a youthful guy in your 30's, you have a lot of knowledge and common sense. I have been through what you described above more than once and agree 100%. I was part of one of those companies that alternated between splitting and merging and saw little but grief ensue. Moreover, I am wearied by ill-advised calls to break up great companies like JNJ, PEP, XOM, MSFT, etc.

    Regarding XOM in particular, there was one author who was pushing for a breakup and talking about how much better run COP is as an independent producer. The author has, for some reason, stopped writing articles. Perhaps having invested more in a well run company with a AAA bond rating and more diversified revenue streams would have served him better?

    Jan 30, 2016. 03:05 PM | Likes Like |Link to Comment
  • Apple's Problem Is That It Has Conquered The World  [View article]
    From the Author: "However I'm not interested in receiving a dividend either. I would however be a buyer on technical strength, for swing trade purposes only."

    George K, it sounds like you invest based on price momentum. For those of use who invest based on dividends and EPS growth, having a company like Apple whose free cash flow is a double digit percentage of the market capitalization makes a lot of sense. I would agree that the absolute value of the earnings are probably not going to show a great deal of forward growth. However, as long as the valuation stays low then the EPS and dividends can advance strongly.
    Jan 30, 2016. 11:31 AM | 2 Likes Like |Link to Comment