Daniel Cullinane CPA
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Copyright © Daniel Cullinane CPA.
A number of reports indicate that Amazon.com Inc. (NASDAQ: AMZN) may pull out of New York City as a location for its second headquarters. The “second headquarters” distinction is actually split with Northern Virginia, which got a part of the new operations as well. The potential of 25,000 new jobs for the New York area has not stopped a loud chorus of objections to the billions of dollars of tax benefits Amazon will get, or local residents worried about rising real estate values and strains on local infrastructure. If Amazon decides against New York, several of the 20 cities the company initially viewed as finalists will be back on the table. Many analysts originally thought Boston would get Amazon’s nod. It now becomes a favorite, if not the favorite, alternative.
Of the original 20 cities, near the end of the contest, a very small number were handicapped as probable picks. These included those with large amounts of commercial space, proximity to international airports, a ranking of local technology worker skills, the numbers of these workers and their likely competition. A rating by recode, which handicapped the cities, put Boston near or at the top of each of these. Office costs were well below New York’s, as were wages. Boston has long been a major location for tech companies, and the area along Route 128 that circles the city has been the home to tech operations and startups for years.
Boston may have made the most detailed proposal to Amazon of any other city. Its formal pitch was over 200 pages long and said:
As the higher education capital of the world, Boston attracts and retains the best and brightest from around the globe and we are proud to be home to the highest concentration of young adults of any of the 25 largest cities in the country. In July 2017, we released the first citywide plan in more than fifty years, Imagine Boston 2030. Shaped by more than 15,000 voices, this plan lays the framework and vision for our future. With Imagine Boston 2030, we are ready to welcome Amazon’s second North American headquarters.
Boston is one of only three locations in the northeast that were part of the Amazon list of finalists. The other two were New York and Newark. Newark almost certainly was demographically the worst-off city. This could affect how easy it would be to get high-level workers, locate good housing in large volume and be located in a city that could afford huge tax credits without undermining its own future.
Amazon has, if media reports are correct, started to consider its options if New York City becomes less attractive. If Boston is not at the top of the list as the next place Amazon would look, it is close.
Boeing Co. (NYSE: BA) is the world’s largest commercial aircraft maker and among the biggest defense contractors in the world. It is also an old-style manufacturing company with tens of thousands of workers located in factories both inside the United States and outside. It is an odd candidate to be the hottest stock among large American companies. However, its value is up over 25% this year, handily outpacing any other member of the Dow Jones industrial average.
Many analysts believed Boeing would be in deep trouble this year. The trade war with China could cap Boeing’s sales in what is quickly becoming the world’s largest consumer airline market. Friction with NATO might slow the purchase of Boeing weapons by EU member nations. Frictions with the Saudi government might do the same. However, the Trump administration problems with the People’s Republic have not spilled over into aircraft purchases, and the long list of items which may receive higher tariffs has not meaningfully touched Boeing planes. In the meantime, there have been no canceled orders of Boeing military products, either by the Europeans or the Saudis.
One of Boeing’s strengths is the massive breadth of its defense products, which is not matched by any other company. According to 24/7 Wall St., Boeing is the second largest defense contractor in the world, with arms sales of $30 billion in 2016. 24/7 editors pointed out that Chicago-based aeronautics company Boeing reported $29.5 billion in arms sales in 2016, the most of any company in the world, after only Lockheed Martin. The U.S. Navy, Air Force and Marines — in addition to allies abroad — rely on long-range munitions from Boeing’s Harpoon Weapon System. Boeing also manufactures and sells such fixtures in the U.S. arsenal as the Apache attack helicopter, the Chinook transport helicopter, the B-52 bomber and the F-15 Eagle and F/A-18 Super Hornet fighter jets.
Boeing’s earnings are the best marker of its progress. Revenue rose 8% last year to $101.2 billion. The number was an all-time record. Net earnings were up 24% to $10.5 billion. Deliveries of commercial aircraft rose 6% to 806. For 2019, Boeing expects that number to be between 895 and 905.
Among Boeing’s largest advantages is its “moat.” Only one other company in the world, Airbus, has had the tens of billions of dollars necessary to field the levels of R&D, manufacturing facilities, skilled employees and carrier relationships to be in the commercial aircraft sector. The industry worldwide is a duopoly. While some nations, including Russia and China, have relatively small commercial aircraft businesses of their own, none can field a line of airplanes that runs from $400 million wide-bodies that seat over 300 people to $150 million planes that carry 150 people for short hauls among hundreds of cities around the world. And Boeing has performed better in terms of both deliveries and revenue compared to rival Airbus.
Boeing’s shares do not show any sign of fatigue. A rally that started in mid-December has not been broken. And Boeing’s guidance for 2019 forecasts another strong year.
FEBRUARY NEWSLETTER 2
While most of Wall Street focuses on large and mega cap stocks, as they provide a degree of safety and liquidity, many investors are limited in the number of shares they can buy. Many of the biggest public companies, especially the technology giants, trade in the low-to-mid hundreds, all the way up to over $1,000 per share. At those steep prices, it’s 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 five stocks trading under the $10 level that could provide investors with some solid upside potential. While more suited for aggressive accounts, they could prove exciting additions to portfolios looking for solid alpha potential.
If things go right for this small cap biotech, investors may get huge returns. Corbus Pharmaceuticals Holdings Inc. (NASDAQ: CRBP) is a Phase 3 clinical-stage pharmaceutical company, focused on the development and commercialization of novel therapeutics to treat rare, chronic and serious inflammatory and fibrotic diseases.
The company’s lead product candidate, lenabasum, is a novel, synthetic oral endocannabinoid-mimetic drug designed to resolve chronic inflammation and fibrotic processes. Lenabasum is currently being evaluated in systemic sclerosis, cystic fibrosis, dermatomyositis and systemic lupus erythematosus.
Canaccord Genuity has a massive $38 price target on the shares, which compares to the lofty but lower Wall Street consensus target of $23.71. The shares were trading on Friday’s close at $7.68 apiece.
This energy stock has had a nice run off the bottom but still holds huge upside potential. QEP Resources Inc. (NYSE: QEP) is a holding company that engages in the exploration and production of oil and natural gas properties. It focuses in the Northern Region (primarily in North Dakota, Wyoming and Utah) and the Southern Region (primarily in Texas and Louisiana).
Aethon Energy Management recently announced the completion of its acquisition of natural gas assets from wholly owned subsidiaries of QEP Resources. The assets are located in the Haynesville basin in northwest Louisiana. The QEP assets comprise approximately 49,700 net acres and 607 operated wells of natural gas producing properties and undeveloped acreage in the Haynesville. Aethon III also acquired all of QEP’s associated gas gathering and treating systems related to these assets, supporting up to 600 MMcfe/d of production.
The collective reserve base of QEP’s assets combines low risk, long life and highly predictable production with attractive development opportunities.
Oppenheimer has put a solid $13 price objective on the stock, while the consensus target was last seen at $11.01. The stock closed Friday at $7.75 per share.
This top small-cap play could make sense for more aggressive accounts. Ryerson Holdings Inc. (NYSE: RYI) offers a line of stainless steel, aluminum, carbon steel and alloy steels, as well as nickel and red metals in various shapes and forms, including coils, sheets, rounds, hexagons, square and flat bars, plates, structurals and tubings.
The company also provides value-added processing and fabrication services, such as sawing, slitting, blanking, cutting to length, leveling, flame cutting, laser cutting, edge trimming, edge rolling, roll forming, tube manufacturing, polishing, shearing, forming, stamping, punching, rolling shell plate to radius and processing materials to a specified thickness, length, width, shape and surface quality pursuant to specific customer orders.
The $10 Deutsche Bank price target compares with the $8.92 consensus target. The shares closed trading on Friday at $7.02.
This company could be poised for big gains as liquefied natural gas (LNG) exporting continues to ramp higher. Tellurian Inc. (NASDAQ: TELL) is an LNG development company headquartered in Houston. The company plans to develop a 27.6 metric tonnes per annum LNG terminal with five plants near Lake Charles, Louisiana, as well as upstream assets and pipeline infrastructure.
The initial phase likely will include three plants (16.6 metric tonnes per annum, capacity). The Driftwood project will be financed by equity customer/partners as well as project debt financing. Tellurian will own 28% to 42% of Driftwood Holdings and 100% of Tellurian Marketing.
The company recently announced that the U.S. Federal Energy Regulatory Commission issued the final Environmental Impact Statement for Driftwood LNG export facility and an associated 96-mile pipeline (Driftwood project), proposed near Lake Charles on the U.S. Gulf Coast. When and if the agency grants authorization, Tellurian should be ready to make a final investment decision and begin construction in the first half of 2019, with the first LNG expected in 2023.
The Merrill Lynch energy team’s Buy rating comes with a $12 price objective. The posted consensus target price is $11.38, and the stock traded most recently at $9.50 a share.
Since the recent IPO, this stock has been hammered and offers investors an incredible entry point. Uxin Ltd. (NASDAQ: UXIN), through its subsidiaries, operates a used car e-commerce platform in China. Its Uxin Used Car app provides consumers with customized car recommendation, financing, title transfer, delivery, insurance referral, warranty and other related services. Uxin Auction is an app that helps business buyers to source vehicles through online auctions.
The company also facilitates used car transaction services and financing solutions offered by third-party financing partners to buyers for their used car purchases. Uxin announced on Jan. 14 that its key cross-regional transaction service volume exceeded 10,000 units this past December. The 2018 figures were more than 75 times higher than those from the same period in 2017.
JPMorgan rates the stock at Overweight, but its $7 price target is way below the $11.72 consensus target. The shares closed trading at $3.22 on Friday.
For years we were told that interest rates were going higher and we will get back to the normal yields of the early 2000s. Then a funny thing happened on the way to those yields — we never got there. Oh sure, interest rates have increased; the federal funds rate has gone from literally zero to the current 2.5%. However, the difference between the one-month Treasury bill and the 30-year Treasury bond is just 57 basis points, or barely more than one-half of 1%.
While things have improved for savers, as CD rates for short-term guaranteed investments have gone up solidly, they are still a long way from the 7% five-year certificate of deposit that was available 20 years ago. So we decided to screen the Merrill Lynch research database for stocks that were rated Buy that had a yield over 5%.
While not suitable for ultra-conservative accounts, these stocks do make sense for those with higher risk tolerance who are looking for dependable income and the potential or some growth.
This stock has been absolutely hammered and is on the Merrill Lynch US 1 list. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE.
The company’s fourth-quarter revenue of $47.99 billion fell short of analyst estimates. AT&T also reported net additions of 134,000 phone subscribers, well below analyst estimates of 308,000. The company also lost 403,000 satellite TV subscribers and 14% of its DirecTV Now streaming subscribers in the quarter.
AT&T shareholders are paid rich 6.93% dividend. The Merrill Lynch price target for the share is $37, while the Wall Street consensus target is $35.36. The stock closed trading on Thursday at $29.45 a share.
This maker of tobacco products offers value investors a great entry point now. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.
Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008 it spun off its international cigarette business to shareholders. In December 2018, it acquired 35% of JUUL Labs. Fourth-quarter numbers were solid, and the Merrill Lynch analysts said this:
Altria reported fourth quarter 2018 earnings per share of $0.95, in line versus Merrill Lynch consensus estimates. Smoke-able net sales beat our forecast by $9 million due to stronger price/mix. Altria’s smoke-able shipments were in line. Management provided color on US industry trends, a mid-term category outlook, and insights on its recent investments. We believe that management has made proactive steps to secure long term growth with its evolving platform.
Altria investors are paid a huge 6.57% dividend. Merrill Lynch has a price target of $56, though the posted consensus price objective is $57.22 The stock closed at $48.72 on Thursday.
Kraft Heinz Co. (NYSE: KHC) was formed almost three years ago via the merger of H.J. Heinz and Kraft Foods. The company is a leading global food company, with $29 billion of annual revenues generated by well-known brands such as Kraft, Heinz, Oscar Mayer and Maxwell House.
The company is the third largest food and beverage manufacturer in North America, and it derives 76% of revenues from that market and 24% from international markets. The company’s many brands also include ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Ore-Ida, Philadelphia, Planters, Plasmon, Quero, Weight Watchers Smart Ones and Velveeta.
Kraft Heinz shareholders are paid a huge 5.29% dividend. The $52 Merrill Lynch price target is less than the $56.33 consensus target price. The shares closed most recently at $47.23 apiece.
The volatile price of natural gas over the past year has weighed some on this top energy company. ONEOK Inc. (NYSE: OKE) primarily engages in natural gas transportation, storage and natural gas and natural gas liquids (NGLs) gathering, processing and fractionation in the Bakken, Mid-Continent and Permian. The company recently closed the roll-up of its underlying master limited partnership, ONEOK Partners.
The company has a strong presence in the Oklahoma SCOOP/STACK (NGL gathering/takeaway system, G&P), the Williston Basin (G&P, NGL takeaway) and the Permian Basin (NGL gathering, NGL takeaway, natural gas takeaway), which the RBC team feels provides high-return growth opportunities.
Many on Wall Street remain very positive on the company’s primarily fee-based earnings, which account for 90% of total earnings.
Investors in ONEOK are paid a very solid 5.28% dividend. Merrill Lynch has set its price objective at $67. The consensus target was last seen at $70.16. The shares ended Wednesday’s trading at $65.14 apiece.24/7 Wall St.
5 Jefferies Franchise Picks Stocks With Huge Total Return Potential
Royal Dutch Shell
This is a top international play for investors looking to add energy exposure, and it is another company that posted solid results. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and NGLs.
Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.
In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, LNG for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.
The Merrill Lynch team remains bullish on the shares and noted this when the earnings were released:
Fourth quarter 2018 saw solid earnings (8% beat vs. consensus) and $12.2 billion organic operating cash flow ahead of our already above-consensus estimate. $27 billion organic free cash flow in fiscal year 2018 significantly de-risks the company’s outlook for $25-30 billion in 2020 – funding $25 billion buybacks. Ongoing buybacks also underline continued capex discipline.
Investors in Royal Dutch Shell are paid a huge 5.09% dividend. The Merrill Lynch price objective is $70. The posted consensus figure is $78.13, and the stock was last seen trading at $62.84.
Citing a 35% increase in customer visits to its online home goods destination, Walmart Inc. (NYSE: WMT) on Friday launched a new exclusively online brand of home furnishings called MoDRN. The brand includes nearly 650 items for every room in the house with pricing ranging from $20 to $60 for barware up to $700 to $899 for sofas.
The MoDRN brand is starting out with three curated collections that Walmart describes as “incredibly stylish”: Retro Glam, Refined Industrial and Scandinavian Minimal. Each collection includes furnishings for every room in a home. Walmart unveiled its online home goods site about a year ago.
Anthony Soohoo, senior vice president and group general manager for Walmart’s U.S. e-commerce home division, said:
I’m proud of the shopping experience we’ve developed. Customers are telling us how easy we’ve made it to discover the latest home products and trends. Now, they can shop for everything they need for their modern homes too.
While buying furniture sight unseen from a website may sound a bit iffy, Wayfair Inc. (NYSE: W), a pioneer in online home furnishings sales, has seen its share price more than triple since coming public in October of 2014. Of course, neither Wayfair nor Walmart sells only furniture. Less expensive decor items like pillows and rugs are also available.
And, as if further proof were needed that online home furnishings are now a thing, last week, Credit Suisse analyst Stephen Ju upgraded Wayfair stock from Neutral to Outperform and lifted its price target from $117 to $130. He believes that competition from Amazon.com Inc. (NASDAQ: AMZN), among others and presumably including Walmart, has been priced into the stock
Far from posing a threat to Wayfair, Walmart’s announcement has helped push Wayfair’s stock price higher by about 2.7% to $119.73 on what is an otherwise down day on U.S. markets. Walmart’s doubling-down on the home-furnishings market is another signal to investors that Wayfair is onto something.
As for Walmart, it’s stock traded down about 1.2% just after noon Friday, at $95.55 in a 52-week range of $81.78 to $96.69. The 12-month consensus price target is $106.93.
On Thursday, a bipartisan group of four U.S. Senators introduced legislation titled the No Oil Producing and Exporting Cartels Act (NOPEC) that would give the U.S. Department of Justice authority to sue members of the Organization of the Oil Exporting Countries (OPEC) for antitrust violations. Similar legislation was passed out of committee in the House of Representatives Thursday and now needs approval by the full House.
The four Senators were Republicans Chuck Grassley of Iowa and Mike Lee of Utah, along with Democrats Amy Klobuchar of Minnesota and Patrick Leahy of Vermont. Missing from the group were any Senators from big oil-producing states like Texas, North Dakota and Louisiana.
Perhaps that’s because the oil patch is not well-pleased with the NOPEC legislation. Earlier in the week, American Petroleum Institute CEO Mike Sommers sent a letter to Senate and House leaders of their respective Judiciary Committees pointing out why the legislation “threatens serious, unintended consequences for the U.S. natural gas and oil industry.”
Sommers also says that the NOPEC legislation is unnecessary because the Sherman Antitrust Act already covers activities by other nations, even if the activities occur overseas. He goes on:
Second, the apparent focus on the legislation – improper influence on energy markets – has been mitigated significantly in recent years. The success of America’s natural gas and oil industry coupled with continued integrations with our NAFTA partners has significantly increased the energy security and self-sufficiency of the United States. This energy renaissance has made America much less susceptible to efforts that may be undertaken by foreign organizations.
He is referring, of course, to booming U.S. crude oil production (currently running at about 11.9 million barrels a day) resulting from horizontal drilling and fracking. Although Sommers doesn’t say this, U.S. production has rendered OPEC virtually toothless. If the cartel cuts production, there is every reason to believe that rising prices will spur more U.S. production. If the cartel tries to flood the market with crude, the price could drop in the $30 a barrel range as it did several years ago.
Complicating matters further is a move by some current members of OPEC to create a formal partnership with Russia and nine other countries that have become known as OPEC+ because they have cooperated with the cartel in cutting production in order to lift prices. Adding Russia to the cartel only makes increasing U.S. production a better bet.
And while Russian President Vladimir Putin may want to poke his finger in President Trump’s eye, Putin also has to keep his oil oligarchs happy. They do not support production cuts because it cuts into the wealth, nor do they want to risk losing access to U.S. capital through their business relationships with American companies. As energy industry consultant Bob McNally told The Wall Street Journal that the Russian oligarchs “want to do the absolute minimum to leverage Saudi cuts.”
Where President Trump comes down on the issue is also arguable. He has made lower pump prices a key point in the run-up to the 2020 elections. On the one hand, spiking retail gasoline prices do not help his chances for re-election. On the other, reduced supply drives up the prices for the U.S. oil industry, a dependable source of campaign cash for Republicans running for office.
The signal to watch for is if (as is likely) the Judiciary Committee reports the NOPEC bill out of committee for a full Senate vote. Majority leader Mitch McConnell will only let that vote take place if Trump supports it and it does not threaten to unveil a split in Republican solidarity. If McConnell shelves the NOPEC legislation, then low gas prices are a good bet to figure strongly in Trump’s 2020 bid for a second term.