Copyright ©​ Daniel Cullinane CPA.

MARCH NEWSLETTER 5

Hand it to Virginia M. (Ginni) Rometty, Chairman, the President and Chief Executive Officer of IBM (NYSE: IBM). After a long period of quarterly revenue drops and mixed attempts to turn the more than century-old tech company into a cloud and artificial intelligence behemoth, many on Wall St. have become believers. The firm’s share price is up 22.68%, pacing ahead of all other stocks which are components of the Dow (DJIA).

The move upward began in earnest in late January. IBM announced its fourth quarter 2018 and full year numbers. The figures exceeded most expectations. Revenue erosion has not stopped entirely but is better. For the full year, revenue was $79.6 billion up from $79.1 billion in 2017. For the fourth quarter, revenue was $21.8 billion, down from $22.5 billion. The real turnaround was on the 2018 bottom line. Net income for the entire year of 2018 was $8.7 billion against $5.8 billion in 2017.

Rommetty has said almost the same thing when each quarter has ended over the last three years. However, the comments were more believable this time, based on IBM’s numbers. Commenting on the year, she said: “In 2018 we returned to full-year revenue growth, reflecting growing demand for our services and leadership solutions in hybrid cloud, AI, analytics and security.” IBM’s financial statements about its results in these areas are still muddled, but one message was clear. Cloud revenue was $19.2 billion, higher by 12% above 2017. IBM may still lag behind Amazon.com (NYSE: AMZN) and Microsoft (NYSE: MSFT) by this measure, but its overall revenue for its cloud business is finally a meaningful part of the whole.

IBM still has to struggle with falling demand for its hardware and tech support systems, and that problem will persist for years. It is a problem its primary rivals do not have to any considerable extent.

The jury is still out on IBM’s future but has turned from one about which there has been mostly pessimism to one with some hope. Widely regarded Morningstar analyst Andrew Lange: “IBM’s pervasiveness across the enterprise IT landscape is undeniable, as the company has been at the forefront of providing high-quality IT hardware, software, and services on a global scale for decades. Still, enterprise adoption of cloud computing, commoditization of hardware, and exposure to legacy IT services mean that IBM needs to pivot. Its core operations are stagnant, and the company is doubling down on higher-growth “strategic imperatives,” to counteract the growth shortfall.”

The kind of comment IBM did not get just a few quarters ago.

ONEIL

Daniel Cullinane CPA

25 Plaza 5 25th fl Jersey City NJ                                          phone 732-516-1648 fax 732-516-9778

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BEST PERFORMING STOCK

Friday brought on major selling in the stock market, with the Dow Jones industrials down over 400 points and the S&P 500 down almost 50 points earlier in the day. The plunge is driven by weak economic readings in the United States and abroad, and recession fears from the dreaded inverted Treasury yield curve. Unfortunately, the mainstream and financial media alike love reporting about how the next recession is right around the corner. It doesn’t seem to matter if that’s not exactly true. The reality is that Friday’s big sell-off was long overdue after the Dow and S&P 500 had recovered in the double-digit percentages so far in 2019.

24/7 Wall St. already has evaluated the “why” about Friday’s selling, and investors always have to remember to be opportunistic when they need to. Despite our jaded view of financial news coverage these days, the reality is that the sell-off could easily continue to gain steam in the coming days and weeks. A lot has to do with trade woes, but the international situation is far more cautious than the domestic situation, without even considering any trade wars and tariff woes.

During times of uncertainty and fear, many investors have to look for a place to hide when they know that they have to keep having income from investments to supplement their income, retirement or financial planning needs. This is when investors have to look for stable and defensive stocks that will hold up in bad times and still do well in good times.

There will be another recession one day, but all the available data today just doesn’t show it as a real risk for the coming months, even if the slower economic growth may feel weak. Media forecasts for the next recession seem to be very far ahead of market gurus and economists who just evaluate the raw numbers and data.

A news search of Google Trends indicates that the term “recession” saw a sharp rise in interest on the web on March 22. Another term that saw an even larger surge in Google Trends was “inverted yield curve.”

With multiple financial stories calling the recession lights and indicators as flashing red, they are really referring to the flat yield curve turning into an inverted yield curve. This is where short-term interest rates are higher than intermediate and long-term interest rates. Market participants often consider that a recession indicator because the Federal Reserve has short-term interest rates higher than the long-term growth prospects would indicate — and it also can imply that the Fed has overshot to the upside on its rate hikes that ended at the end of 2018.

Since it is already a foregone conclusion that investors have to keep at least some money in stocks for dividends and long-term appreciation, we have offered a view of 15 stable and defensive stocks and investments outside of bonds that will hold up if the market selling persists for days or weeks. They might not exactly rally in bad markets, but they should take less of a beating than the market if they act normally.

The list includes the most recent share prices, a 52-week trading range, and the current dividend yield on each company. We also have included information about each company’s history, revenue or the size of its customer base. Expected revenue figures are from Thomson Reuters.

Investors should always consider that there are no assurances that defensive stocks will hold up in a down market. If the market loses 10% or 20% of its value in a short period, it tends to hurt most equities, although defensive stocks might hurt less. Here are 15 top defensive stocks that investors are likel
y to pour money into if they become worried about the next selloff turning into a major correction or even a bear market.


​1. American Water Works Co. Inc. (NYSE: AWK), $106.00
> Industry: Utilities
> Yield: 1.8%
> 52-week range: $77.73 – $107.71
> Market cap: $19 billion

This is America’s largest pure-play water utility, serving drinking water, treating wastewater and other related services to roughly 14 million people in 45 states. The reality is that people are going to drink water, use water at home for food and cleaning, and shower every day.

Source: David McNew / Getty Images

2. American Electric Power Co. Inc. (NYSE: AEP), $85.00
> Industry: Utilities
> Yield: 3.2%
> 52-week range: $62.71 – $85.71
> Market cap: $42 billion






















































































American Electric Power is a major electric utility in America and has operated for more than 100 years. At last look, it served nearly 5.4 million regulated electricity customers in 11 states, and it uses nearly all sources of energy to produce electricity.

ALSO READ: 40 Places Young People Are MovingSource: jeepersmedia / Flickr

3. Clorox Co. (NYSE: CLX), $158.00
> Industry: Consumer products
> Yield: 2.4%
> 52-week range: $113.57 – $167.70
> Market cap: $20 billion

Clorox may not be as large as some of its consumer products competitors, but the company has operated for more than 100 years and markets many consumer goods outside of its cleaning and bleach products, including household chemicals, petcare products, water filtration, food, and so on. Its shares soared more than 40% from trough to peak in 2018 — proof that it can withstand rocky markets. The shares previously pulled back in 2019.

Source: Justin Sullivan / Getty Images

4. Coca-Cola Co. (NYSE: KO), $45.90
> Industry: Beverages
> Yield: 3.5%
> 52-week range: $41.45 – $50.84
> Market cap: $197 billion

Dating back to the late 1800s, Coca-Cola is perhaps the most widely recognized beverage maker in the world. The company has increased its beverage choices outside of soda drinks over the years, adding water, sports drinks, health drinks, tea, coffee, and so on. Revenues are expected to grow to $33 billion in 2019, an increase of more than 5%. Its shares have pulled back so far in 2019 after a disappointment in earnings.

Source: Justin Sullivan / Getty Images

5. Dollar General Corporation (NYSE: DG), $117.50
> Industry: Discount retail
> Yield: 1.0%
> 52-week range: $85.54 – $121.27
> Market cap: $31 billion

The nation’s most dominant dollar store retailer turned in positive gains in 2018, and it continues to find new niche geographies in which to open new stores. It dates back to before World War II during the Great Depression, and it has now expanded to offer higher priced goods with more than 15,000 stores in 44 states. Dollar stores proved to have a strong business model during and after The Great Recession a decade ago. Its shares pulled back handily in March on earnings but have since recovered.


6. Duke Energy Corp. (NYSE: DUK), $90.50
> Industry: Utilities
> Yield: 4.15%
> 52-week range: $71.96 – $91.66
> Market cap: $66 billion

Duke Energy is one of America’s largest electric utilities by coverage and by market cap. It also provides gas and infrastructure services to consumers and organizations alike. It had roughly 7.6 million electricity customers in six states at last count. The company’s annual revenue is nearing $25 billion.

Source: Chris Hondros / Getty Images

7. Johnson & Johnson (NYSE: JNJ), $137.00
> Industry: Health and consumer products
> Yield: 2.6%
> 52-week range: $118.62 – $148.99
> Market cap: $360 billion

Household name Johnson & Johnson produces and markets not only consumer products, but also drugs and other medical products and devices, meaning it is diversified enough to withstand good times and bad. A recent wave of bad news relating to asbestos in talcum powder has kept a cloud over J&J, but the company has a long history of overcoming and surviving any hiccup that come its way. Revenues are expected to rise be close to 2% to almost $83 billion in 2019.

ALSO READ: Most Dangerous Countries for WomenSource: Tim Boyle / Getty Images

8. Kimberly-Clark Corp. (NYSE: KMB), $122.00
> Industry: Consumer products
> Yield: 3.4%
> 52-week range: $97.10 – $123.50
> Market cap: $42 billion

Kimberly-Clark is one of the world’s best-known consumer brands companies, with products in personal care, tissues, soaps, paper towels, and so on, many of which familiar household names. Revenues have been flat, but shares performed well during much of the stock market malaise in late 2018 and again into 2019.

Source: Justin Sullivan / Getty Images

9. McDonald’s Corp. (NYSE: MCD), $187.50
> Industry: Fast food
> Yield: 2.6%
> 52-week range: $146.84 – $190.88
> Market cap: $144 billion

The home of the Golden Arches has made major changes to its menu and food quality, and it has become as defensive as you can get for a fast food company. McDonald’s has made efforts to sell higher quality food to attract younger people, and it is still more than affordable as a place to feed a whole family.

Source: Erik S. Lesser / Getty Images

10. Merck & Co Inc. (NYSE: MRK) $82.00
> Industry: Pharmaceutical 
> Yield: 2.8%
> 52-week range: $52.83 – $83.45
> Market cap: $210 billion

The Big Pharma giant was the Dow’s top stock in 2018, with a gain of more than 35% on the year. While many pressures exist regarding drug prices and patent expirations, Merck’s reputation has been boosted by a strong pipeline of drugs, including the cancer treatment Keytruda. While the risks mentioned might put pressure on the stock, Merck more than proved it was a top defensive stock throughout 2018. Merck has continued to deliver upside in 2019.


11. PepsiCo Inc. (NYSE: PEP), $120.00
> Industry: Beverages
> Yield: 3.15%
> 52-week range: $95.94 – $122.51
> Market cap: $167 billion

Pepsi is perhaps even more diversified than rival Coca-Cola because it has that giant snack food business on top of its carbonated beverages, water, and other drinks. The company is more than 100 years old and revenues are expected to increase by about 3% to roughly $66.5 billion in 2019.

Source: Justin Sullivan / Getty Images

12. Procter & Gamble Co. (NYSE: PG), $102.00
> Industry: Consumer products
> Yield: 2.9%
> 52-week range: $70.73 – $103.15
> Market cap: $250 billion

Being the world’s largest consumer products company and selling soap, shampoo, diapers, and dozens of other recession-proof items seems to have its positives. Sales are expected to rise by 3% to almost $69 billion in 2019. The stock has continued to perform well since January in 2019 and recently hit an all-time high.

ALSO READ: Worst States for WomenSource: jeepersmedia / Flickr

13. Verizon Communications Inc. (NYSE: VZ), $59.00
> Industry: Telecommunications
> Yield: 4.1%
> 52-week range: $46.09 – $61.58
> Market cap: $244 billion

Verizon avoided the same extreme acquisition path as rival AT&T, and it is now considered much more defensive as it remains a pure-play among the top domestic cellular phone carriers. Verizon keeps hiking up its dividend each year, and it has expected revenue growth of 1% in 2019 to $132 billion.

Source: Chris Hondros / Getty Images

14. Walmart Inc. (NYSE: WMT), $98.40
> Industry: Retail
> Yield: 2.2%
> 52-week range: $81.78 – $106.21
> Market cap: $285 billion

With a retail climate disrupted by Amazon and other online competition, Walmart has the lead in brick-and-mortar stores by miles. Walmart is also targeting online sales, pick-up, and delivery. The company is now facing less pressure about wages and work conditions, and sales are expected to grow by almost 3% and reach nearly $530 billion in fiscal 2019.

Source: Mario Tama / Getty Images

15. Altria Group Inc. (NYSE: MO), $56.00
> Industry: Tobacco
> Yield: 5.9%
> 52-week range: $42.40 – $66.04
> Market cap: $105 billion

Altria has been considered to be a top defensive stock for decades, but it is still being listed last for 2019 defensive stocks due to its very poor stock performance in 2018 and into earlier 2019. The good news is that its shares have handily recovered from their lows. Big Tobacco is still considered a key defensive industry when stock market volatility gets in the way. With investments into legalized marijuana, vaping, biotech, and chewing tobacco, Altria is planning to be in business in the decades ahead — even as the number of combustible cigarette smokers shrinks.I'm interested in the  Newsletter
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​Papa John’s International Inc. (NASDAQ: PZZA) announced Friday morning that NBA Hall of Famer Shaquille O’Neal is teaming up with the company as a member of the board of directors and an investor in nine Papa John’s restaurants in the Atlanta area. O’Neal will also sign a marketing agreement with the company to be an ambassador for the brand.

Getting O’Neal onboard is one of the best moves the company has made since it parted ways with its founder and former board chair and chief executive, John Schnatter, who was not only Papa John’s namesake but had also become its most visible spokesman. Replacing him with an instantly recognizable and congenial spokesman was imperative. It was either that or change the company’s name and branding.

Getting Shaq likely did not come cheap. In 2018 the company paid directors a retainer of $50,000 plus a standard equity grant valued at $125,000 in equally valued portions of restricted stock and stock options. Excluding Schnatter, who received $660,018 in option awards last year, and Christopher Coleman, the board chair who received $415,372 in 2018 compensation, the four board members who served for the full year earned around $280,000 each.

O’Neal’s marketing deal to be Papa John’s ambassador was surely the key to this deal. We won’t know until about this time next year how the company will compensate O’Neal for his ambassadorship. Assume that he will have to give up all his other promotional deals and work for Papa John’s exclusively. With the right creative juice, though, O’Neal is probably worth every penny the company will pay him. Papa John’s CEO Steve Ritchie acknowledged O’Neal’s standing:

In addition to his business acumen, Shaquille understands how to build lasting connections with consumers and energize employees. I look forward to working with him as a board member and brand partner to advance the many initiatives we are pursuing across the organization to create even greater success for Papa John’s and our stakeholders.

Schnatter’s name and face were the previous “lasting connection” Papa John’s had with customers. Given some time, O’Neal could replace him and put the company back on its feet (it’s faced four straight quarters of downward revisions to earnings and same-store sales). Will activist investor Starboard Value and its CEO Jeff Smith, who was recently named chair of Papa John’s board, give O’Neal the time and money to make that happen? Will we see Shaq and Joe Montana in commercials by next fall? Lots of questions; answers coming soon.

The company’s stock traded up about 4% around noon Friday, at $48.80 in a 52-week range of $38.05 to $64.18. The stock’s 12-month consensus price target is $50.00.

​SOLID STOCKS

Daniel Cullinane CPA

2500 Plaza 5 25th fl  Jersey City NJ 07311                                                          phone 732-516-1648  fax 732-516-9778

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