Copyright © Daniel Cullinane CPA.
AUGUST NEWSLETTER 7
Any way you look at it the market is expensive, but the one counterargument many of the bullish Wall Street analysts and strategists play is a good one. Earnings have grown sharply higher, and without earnings growth, there is no justification for the current high multiples. In addition, while the president has plenty of detractors, small business doesn’t seem to be among them as sentiment is very positive, and that can also drive earnings.
In a new research report, while Jefferies remains cautious, the firm does feel that certain areas of the market, including the industrials and technology, have some room to run. We screened the firm’s Franchise Picks list of high conviction ideas and found four top tech or tech-related companies that still look like solid ideas now.
This stock remains a top pick on Wall Street and Jefferies says to buy the shares now. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide. It develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers.
The company reported outstanding results that the beat estimates and raised forward guidance. The Jefferies team feels that the guidance is conservative, and with multiple game releases coming the rest of this year, the stock remains a top buy.
The key drivers for the company include the planned launches of “Call of Duty: WWII” (November 3 release date), for which management is already guiding to sales growth for the franchise in the fourth quarter, and “Destiny 2,” which is scheduled to debut September 8.
Shareholders are paid a small 0.50% dividend. The Jefferies price target for the shares is $75, and the Wall Street consensus target is $64.25. The stock closed Monday at $62.51 per share.
The search giant continues to expand and is even working on a driverless car now. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused around key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.
Alphabet offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
The company reported solid second-quarter results and, despite its massive size, continues to grow revenue at a double-digit rate on a year-over-year basis. While profit was down this quarter, that’s only on account of a one-time, $2.7 billion fine levied by regulators in the European Union.
For the first three months of this fiscal year, Alphabet reported just over $26 billion in revenue, up 21% from the same period last year. Without the EU fine, it would have notched $6.87 billion in operating income, up around 15% from the second quarter of 2016. With the punishment, Alphabet managed a very respectable $4.1 billion in operating income.
Jefferies has a price target for the stock of $1,275. That compares with the much lower consensus estimate of $1078.42. The shares ended trading on Monday at $945.75 apiece
Most firms on Wall Street focus on large and mega-cap stocks, as they provide a degree of safety and liquidity. Unfortunately, many investors are limited in the number of these shares they can buy. Many of the biggest public companies, especially the technology giants, trade in the low to mid hundreds of dollars — all the way up to over $1,000 per share. At those steep prices, it is pretty hard to get any decent share count leverage.
Many investors, especially more aggressive traders, look at lower-priced stocks as a way to not only make some good money but to get a higher share count. That can really help the decision-making process, especially when you are on to a winner, as you can always sell half and keep half.
We screened our 24/7 Wall St. research database and found that SunTrust favors five stocks trading under the $10 level that could provide investors with some solid upside potential. While more suited for aggressive accounts, these plays could prove exciting additions to portfolios in search of solid alpha potential.
This company faces more and more competition, and it is often mentioned as a takeover target. Pandora Media Inc. (NYSE: P) provides internet music streaming services in North America. It allows its listeners to create personalized stations to access free music and comedy catalogs, as well as a personalized playlist generating system.
The company also offers Pandora One, a paid subscription service to listeners. And it sells audio, display and video advertising to advertisers for delivery on computer, mobile and other connected device platforms.
While Pandora is clearly not the only company with a big desire to be in the music streaming business, it is the current leader in installation and use in the automotive world, and it has a decent collaboration deal with Comcast.
SunTrust has an $8.50 price target on the shares, and the Wall Street consensus target price was last seen at $8.83. The stock closed Friday’s trading at $7.94 a share.
Northern Oil and Gas
The SunTrust analysts are very positive on this small-cap energy play. Northern Oil and Gas Inc. (NYSE: NOG) is engaged in the acquisition, exploration, development and production of oil and natural gas properties, primarily in the Bakken and Three Forks formations within the Williston Basin in North Dakota and Montana.
The company holds working interests in over 2,630 gross (204.3 net) producing wells, including over 2,630 wells targeting the Bakken and Three Forks formations and over two wells targeting other formations. Northern Oil and Gas leases approximately 165,910 net acres, all located in the Williston Basin. The company engages in oil exploration and production through non-operated working interests in wells drilled and completed in spacing units that include its acreage.
SunTrust has set its price target at $5, which is essentially the same as the consensus figure of $5.05. The shares closed at $3.23 on Friday.
This is another small-cap energy play on which the SunTrust team remains very positive. Earthstone Energy Inc. (NYSE: ESTE) is a growth-oriented independent oil and gas exploration and production company engaged in developing and acquiring oil and gas reserves through an active and diversified program that includes acquiring, drilling and developing undeveloped leases, asset and corporate acquisitions and exploration activities. Its primary assets are located in the Midland Basin of west Texas, the Eagle Ford trend of south Texas and the Williston Basin of North Dakota.
The $14 SunTrust price target for the stock is less than the $14.79 analysts’ consensus target. The stock ended the week changing hands at $8.40 a share.
This is yet another small-cap energy play that has big upside potential. Lonestar Resources Ltd. (NASDAQ: LONE) is an independent oil and gas company. It is focused on the development, production and acquisition of unconventional oil, natural gas liquids and natural gas properties in the Eagle Ford Shale in Texas.
The company is conducting resource evaluation on approximately 44,084 gross acres in the West Poplar area of the Bakken-Three Forks trend in Roosevelt County, Montana. Its properties in Eagle Ford Shale Trend-Western Region include Asherton, Beall Ranch, Burns Ranch Area and Horned Frog.
Lonestar also operates Southern Gonzales County property in Eagle Ford Shale Trend-Central Region, as well as Brazos and Robertson Counties in Eagle Ford Shale Trend-Eastern Region. It has leased approximately 1,450 gross acres in its Cyclone project area.
The SunTrust price target is a whopping $17. The posted consensus target is much lower at $6.50, while the shares closed way above that on Friday at $8.70.
ALSO READ: Merrill Lynch Has 3 Preferred Financials to Buy for the Rest of 2018
Lastly, another small-cap energy play that has huge upside potential. Lilis Energy Inc. (NYSE: LLEX) is an upstream independent oil and gas company that is engaged in the acquisition, drilling and production of oil and natural gas properties and prospects. The company drills for, operates and produces oil and natural gas wells through its land holdings located in Wyoming, Colorado and Nebraska.
The company’s vertical well produces approximately 690 net million cubic feet per day. The well holds the lease to all depths, from the surface down to approximately 22,000 feet, including the Wolfcamp, Bone Springs and Avalon formations.
The SunTrust price target is $7 a share. The consensus target is $7.67, and the stock ended trading on Friday at $4.12 per share.
Nike Inc. (NYSE: NKE) was the Dow Jones industrial average’s top-performing stock for most of July, following a reported resurgence in U.S. sales during its fiscal fourth quarter. For the year to date, Nike stock is up just over 29%, and shares added 2.5% last week.
The second-best performer among the Dow index equities so far this year is Microsoft Corp. (NASDAQ: MSFT), which is up 27.3%. That is followed by Apple Inc. (NASDAQ: AAPL), up 22.6%, Visa Inc. (NYSE: V), up 22.6%, and UnitedHealth Group Inc. (NYSE: UNH), up 18.1%. Of the 30 Dow stocks, 16 have managed to post a gain to date in 2018.
The blue-chip index dropped nearly 150 points last week to close at 25,313.14, down about 0.6% compared to the previous Friday’s close. The Dow closed up less than 1% for the second quarter but down 1.8% for the first six months of 2018. For the year to date, the index is up 2.0%, trailing both the S&P 500 (up 5.1%) and the Nasdaq Composite (up 11.9%).
Nike set a new 52-week high Thursday afternoon despite a stellar earnings report from rival Adidas. Also on Thursday, Nike was named one of the Drucker Institute’s Management Top 250 companies. The company ranked second in the consumer goods category, behind only Procter & Gamble.
Shares dipped on Friday following the announcement of a new lawsuit against the company alleging discrimination on the basis of gender in pay and career advancement. Included in the lawsuit were allegations of inappropriate workplace behavior. Plaintiffs are seeking class-action status for the suit.
On one hand, the company gets top scores for management. On the other, it draws another lawsuit based on discrimination and harassment against women. Nike already has removed more than 10 executives following complaints about inappropriate workplace behavior.
Nike shares closed Friday at $80.73 in a 52-week trading range of $50.35 to $81.88. The consensus 12-month price target on the stock is $81.24, and the forward price-to-earnings ratio is 25.88.24/7 Wall St
The world's biggest seller of generic drugs last a quarter of its market share thursday as concerns mounted about the future of the company which has no chief executive and is struggling under the weight of an acquistion streak. Adding to the woes, Teva Pharmaceutical Industries LTD's biggest shareholder said it planned to sell its stake further weighing on the stock. Teva's shares tumbled 24% on thursday . Since the end of 2015, Teva's shares are down 64%, a decline that has erased more then $40 billion in market capitalization. The Isreli drugmaker posted desappointing second quarter results, cut it s full year outlook and slashed its dividend, blaming the rapid deterioration of its all important US generic drug business.
A series of deals has transformed Teva, founded before the state of Israel to ship drugs by camel across Ottoman controlled Palestine from an obscure player in generic drugs to the industry's most important . One in every seven prescriptions in the US is for a Teva drug. Last year's acquisition of Allergan's generics unit, Teva's biggest ever, handed the company a hugh debt pile that it is struggling to pay down amid an industrywide slow down. Allergan acquired its 9.9% stake in the company when it sold its generics business to Teva for $40.5 billion in 2016 On a conference call Thursday Allergan's chief financial officer said the company intended to sell the shares now that a one year lockup period had expired
As cord cutters ditch paid tv in droves leaving cable, satellite and other relevision service at an accelerating pace that will continue for year. The media business is racing to adjust. The swift disruption is rerouting billions of dollars in advertising, subscriptions and programming fees from traditional TV firms to tech giants and others What is behind the shift? Fierce competition from web streaming services that give folks far cheaper options than $100 per month cable bills. Netflix started as a DVD mailing service in 2007, now has about 52 million streaming users in the US Plus a growing addiction to mobile devices where free apps such as Facebook and YouTube steal attention away from live, commercial heavy TV. Technology giants smell blood in the water and are investing heavily in their own video services. Expect a bigger play for rights to live sports by Amazon, Alphaber, Facebook, Apple and Twitter They will drive up bidding adding to the billions of dollars spent already on sports, still a top ratings getter
Cable firms are betting in part on improved tech to overcome TV losses, investing in better mobile apps, voice recognition, targeted ads and virtual reality. Comcast, Charter Verizon AT&T Altice and Frontier will also roll out faster broadband, a big money maker. Most television networks are reeling form the shakeup caused by cord cutters. Viacom, AMC 21st Century Fox, Descovery, etc will struggle with hugh subscriber losses and flagging ratings. Even Disney's ESPN a powerhouse in the industry is hurting from lost sales. More networks will try to sell their channels directly to users online but it will be technically difficult and far less profitable live online TV will gain It is still a tiny business for networks. DirectTV Hulu Live TV and Sling TV stream dozens of live channels for $20 to $70 pwe month.
Marketers are playing catch up with the dizzing changes. Attention spans on smartphones are fleeting, so they are testign commercials as short as six seconds. New TV ads will be harder to ignore. Split screen spots will fill NFL games. Advertixers will spend $73 billion on TV in 2017, less than digital's $83 billion take Coming wireless advances will sir up even more turmoil in the market. Folks will soon cut not just cable but wired broadbankd too as cell service becomes speedy and cheap enough to a viable substitut to home internet plans
International Business Machines Corp. (NYSE: IBM) has had a habit of putting out large numbers of press releases that say little or nothing about the company’s prospects. At times, it will post more than one of these a day. With its future as a viable large tech public corporation in doubt, the practice has become more and more bizarre.
Most recently, IBM posted this news about itself on August 4:
IBM today announced that Codify Academy, a San Francisco-based developer education startup, tapped into IBM Cloud’s cognitive services to create an interactive cognitive chatbot, Bobbot, that is improving student experiences and increasing enrollment.
Using the IBM Watson Conversation Service, Bobbot fields questions from prospective and current students in natural language via the company’s website. Since implementing the chatbot, Codify Academy has engaged thousands of potential leads through live conversation between the bot and site visitors, leading to a 10 percent increase in converting these visitors into students.1
IBM Cloud with Watson provided Codify Academy with the speed and scale needed to immediately start building with cognitive intelligence. Bobbot can answer more than 200 common questions about enrollment, course and program details, tuition, and prerequisites, in turn enabling Codify Academy staff to focus on deeper, more meaningful exchanges. For example, students can ask questions such as “What kind of job will I be able to find after I complete the program?” or “How do I apply, and what are tuition rates?”
Codify Academy does not appear to be an even modest sized start-up.
On July 27:
IBM announced today that it has been selected as the strategic partner of Bank of Cyprus, the leading banking and financial services Group in Cyprus, for the implementation of the Bank’s digital transformation.
Bank of Cyprus provides a wide range of financial products and services to individuals and businesses in Cyprus, holding significant market shares across all business segments. The Bank is committed to implementing a modernization agenda that is designed to transform its business model to ensure that it can compete efficiently and better serve the needs of its customers. To facilitate momentum in delivering these changes through an accelerated multi-year Digital Transformation Program, Bank of Cyprus has selected IBM as a strategic partner.
The Bank’s Digital Transformation Program is designed to create a more modern and efficient IT platform, supported by streamlined processes. Improving the customer experience through visible and positive changes to how the Bank interacts with its customers is a key deliverable for this program.
In the world of global banking, Bank of Cyprus is barely on the radar.
None of this “news” can distract investors from IBM’s ongoing disastrous financial results and the stock market’s reaction. Its shares have dropped 17% in the past six months to $145, against a 52-week high of $182. IBM cannot turn itself around, but it is good at press releases.
Qatar, isolated by its Arab neighbors in an intensifying diplomatic standoff is accelerating efforts to bolster its economy and security. The oil rich country approved a draft law that will grant permanent residency to some foreigners, such as highly skilled workers, the official Qatar News Agency said Wednesday That is unprecedented in the Gulf region aimed at making Qatar a more attractive destination for expatriates vital to its development. The foreign ministry also announced the conclusion of a deal it initially signed in June 2016 to buy seven Italian naval vessels valued at nearly $6 billion buttressing its military capabilities. Sheikh Tamim bin Hamad Al-Thani Qatar's ruler has directed the government to focus on strengthening sectors important to the country, the news agency said as it copes with the worst crisis in decades
Saudi Arabia, the United Arab Emirated, Bahrain and Egypt in June broke diplomatic and some commercial ties with Qatar, accusing it of supporting Islamist groups and citing its alleged links to terrorist groups like al Queda. Saudi Arabia and its Sunni Muslim allies are also critrical of Qatar'sties with Shite Iran, their biggest rival for power and influence in the Middle East. Facing a prolonged boycott Qatar has sought to leverage its ties with Western allies to help resolve the Gulf crisis, which is also hurting its economy.
The Saudi led alliance's transport ban disrupted the Gulf states' trade routes affecting vital imports such as food, and construction material Qatar's only land border is with Saudi Arabia while it also routed a big chunk of its goods through ports in the UAE. Analysts tracking Qatar's economy say imports contracted by 40% year over year in June weighing on its nonoil economy.
Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778
2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778