The performance of the S&P in the coming week may very well reflect the prior week. In the new week the S&P is likely to be flat or down. The 29th is a projected turning point and is the beginning of the April-May period of end-of-month (EOM) strength. That date is likely to be the next short-term low.
The weekly price cycle for PulteGroup bottoms now. In the last year, eight of nine buy signals have been profitable. The three-up chart that is below the cycle graph depicts the daily, weekly and monthly technical action. The top strip in each time frame is the closing price, the middle strip is a momentum measure and the bottom strip is the relative strength versus the S&P 500. The weekly section shows higher lows in momentum. The monthly section depicts an upturn in momentum and a long relative strength base. The stock may reach $32-$33 by the time of the next cycle peak on May 11th.
The weekly cycle for Sealed Air has bottomed. All seven buy signals have been successful in the last twelve months. The stock could rally to $46.9-$47.0 by the projected cycle peak on May 7th. The monthly price graph is constructive. The momentum oscillator is oversold and has turned up. Relative strength has broken a three-year downtrend. This suggests continued outperformance through 2019.
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(Reuters) — Canopy Growth Corp. said on Thursday it had secured a right to buy Acreage Holdings Inc. for $3.4 billion once the United States legalizes the production and sale of cannabis.
Shares of Smiths Falls, Ontario, Canada-based Canopy Growth surged 7.5% after the two companies said the deal value was at a premium of 41.7% over the 30-day volume weighted average price of Acreage subordinate voting shares ending April 16.
“Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally permissible pathway exists,” Canopy Chairman and co-CEO Bruce Linton said.
A growing number of companies are trying to push into the U.S. cannabis industry, with the recreational use of cannabis now legal in 10 states and the District of Columbia and medical marijuana legal in 23 states.
Bank of America Merrill Lynch estimates an addressable market for the global cannabis sector at $166 billion, with the United States accounting for more than one-third.
Reuters had reported on Wednesday that Canopy and Acreage were nearing a deal.
The companies said they would also execute a licensing agreement granting Acreage access to Canopy Growth’s brands, including Tweed and Tokyo Smoke, along with other intellectual property.
Once Canopy exercises its right to buy Acreage, it will have access to Canopy’s markets beyond the United States, the companies said, adding that they operate independently until then.
We are all waiting to see what Microsoft is going to do in the next console generation after Sony doled out some PlayStation 5 info yesterday. Early rumors pair a powerful box with Microsoft’s upcoming cloud-streaming game system for multiple options going forward, but they’ve announced one current gen item that says to me they’re not…terribly in touch with the market.
That would be the all-digital Xbox One S, one that does not have a disc drive and literally just looks like a normal Xbox One S with the disc slot airbrushed out. I don’t mind the concept of an all-digital console. My Xbox One has been all-digital for years now, the last disc game I even own is The Division 1, and that’s only because that’s how Ubisoft sent me my review copy.
And yet it’s the price on this I don’t understand at all. It’s $250, which is $50 less than the $300 Xbox One S, but a price point that still seems way too high this late in the game.
We are almost six years into the life cycle of the Xbox One. I’m not understanding who has been waiting this long to pick one up, but also doesn’t want the ability to buy used games and resell discs. But past that, the price doesn’t make sense because it’s blindingly easy to find an Xbox One S, with a disc drive, for that same price or even less. In two seconds of Google searching I found an Xbox One S priced at $250 on Microsoft’s own website. It says it’s discounted, but I genuinely can’t find an Xbox One S listed at full price at any retailer at all. And this Xbox One S digital version isn’t going to debut on sale for $200, so…what’s the point? Two more seconds Googling has also found me this $200 Xbox One S, complete with Battlefield V, at Walmart, making its price effectively ~$150 if you’re into that game.
I really don’t understand what Microsoft was going for here. Not only who this is for, but what they’re thinking with this price point when it’s readily apparent anyone can get the exact same console with the flexibility of a disc drive for the same price, or even less.
The debate about digital-only consoles is one for another day. Microsoft coming out with a disc-free Xbox One S now implies they may be considering that for their next console, and they already essentially tried this once with the original Xbox One which was veering away from discs until everyone yelled about it. Sony, meanwhile, has already confirmed that it will support discs, including PS4 backward compatibility, though at this point pretty much all games are digital downloads with 50+ GB “installs” even if you have the disc.
Just a weird move from Microsoft here. I suppose there’s no active harm in it, but it does not tell me that they understand the market terribly well at the current moment. We’ll see how this plays into next-gen.
Most in the media are touting that the Dow Jones Industrial Average, S&P 500 and the Nasdaq Composite will soon be setting new all-time closing highs. This measure is meaningless as technicians draw trends through all-time intraday highs. It is so misleading in hindsight if an average sets a new closing high then fails to set a new intraday high.
I am not saying that closes are not important. They are used to track moving averages and weekly, monthly, quarterly, semiannual and annual closes are the inputs to my proprietary analytics.
Here’s an important reason for tracking both closing highs and lows and intraday highs and lows. Most think all five major averages set their lows on Christmas Eve. Not so, the Dow and S&P set their intraday lows on December 26. This is true for so many stocks! For almost all tickers that set their intraday lows on December 26 that day was a “key reversal,” which was a signal that a tradeable rally would begin. If you tracked only closing lows, you missed this important buy signal.
All five major equity averages are in bull market territory from their December 14 or Decenber 26 Christmas lows. The Dow Jones Industrial Average is up 21.6% from its December 26 intraday low of 21,712.53 and is just 2% below its all-time intraday high of 26,951.81 set on October 3. The S&P 500 is up 23.9% from its December 26 intraday low of 2,346.58 and is just 1.1% below its all-time intraday high of 2,940.91 set on September 21. The Nasdaq Composite is up 29% from its December 24 intraday low of 6,190.17 and is just 1.8% below its all-time intraday high of 8,133.30 set on August. 30.
To complete the analysis, the Dow Jones Transportation Average is up 26.3% above its December 24 intraday low of 8,636.79 but is 6.1% below its all-time intraday high of 11,623.58 set on September 14. The Russell 2000 is 25.1% above its December 24 intraday low of 1,266.92 but is 9.0% below its all-time intraday high of 1,742.09 set on August 31.
Here’s Last Week’s Scorecard
- The Dow Jones Industrial Average (26,412.30 on April 12) is above its annual pivot at 25.819 and above its 200-day simple moving average of 25,267.37. My monthly and semiannual value levels are 25,513 and 24,340, respectively, with its annual pivot at 25,819 and weekly pivot at 26,125. The all-time intraday high of 26,951.81 was set on October 3 and its second quarter risky level is 27,891. Its weekly chart is positive but overbought.
- The S&P 500 (2,907.41 on April 12) is above its 200-day simple moving average of 2,762.55 and above its annual pivot at 2,867.1. My monthly and semiannual value levels are 2,728.5 and 2,668.8, respectively, with the annual pivot at 2,867.1 and weekly pivot at 2,892.1. The all-time intraday high of 2,940.91 was set on September 21 with its second quarterly risky level at 2,985.1. Its weekly chart is positive but overbought and has become an “inflating parabolic bubble.”
- The Nasdaq Composite (7,984.16 on April 12) remains above its 200-day simple moving average of 7,501.17. My monthly, annual and semiannual value levels are 7,373, 7,370 and 7,274, respectively, with a weekly pivot at 7,972. The all-time intraday high of 8,133.30 was set on August 30 with the quarterly risky level at 8,367. Its weekly chart is positive but overbought and has become an “inflating parabolic bubble.”
- The Dow Transportation Average (10,912.19 on April 12) remains above its 200-day simple moving average of 10,499.16. My monthly and semiannual value levels are 9,858 and 8,858, respectively, with a weekly pivot at 10,433 and annual and quarterly risky levels at 10,976 and 11,372, respectively, with its all-time intraday high of 11,623.58 set on September 14. Its weekly chart is positive but overbought.
- The Russell 2000 (1,584.80 on April 12) is just above its 200-day simple moving average at 1,571.79 and a weekly pivot at 1,553.66. My semiannual and monthly value levels are 1,504.17 and 1,436.97, respectively, with annual and quarterly risky levels at 1,612.54 and 1,667.15, respectively, with its all-time intraday high of 1,742.09 set on August 31. Its weekly chart is positive, but its weekly stochastic reading is just below the overbought threshold of 80.00.
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on December 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an “inflating parabolic bubble” as a bubble always pops. I also call a reading below 10.00 as being “too cheap to ignore.”
These companies have plenty of chance to deliver strong share price growth next month. Now’s a great time to go shopping, then.
Full-year numbers for Bloomsbury Publishing are scheduled for Tuesday, May 21, and if March’s trading update is anything to go by I’m expecting another cheery market reception.
The House of Harry (Potter) can still rely on the escapades of the boy wizard to keep earnings rising year after year and for cash flows to continue impressing. But Bloomsbury isn’t a one-trick pony and it has a broad range of global bestsellers to drive the top line across its fiction and non-fiction titles.
What really gets me excited, though, is the vast investment the small cap is devoting to its Academic and Professional division, an area which is ripe with potential and which the company declared put in another “strong performance” in the 12 months to February 2019.
It’s not a shock to find that City analysts are expecting profits growth at Bloomsbury to rev from low-single-digit percentages in fiscal 2019 to 14% in this year, then, and for dividends to keep rising through this period. Thus an 8.3p per share annual dividend is forecast for the present period, resulting in a chubby 3.7% yield.
The publishing colossus looks in great condition to make good on these forecasts as well. Not only are predicted rewards covered by anticipated profits by two times, bang on the widely-regarded security benchmark, but Bloomsbury’s position as a terrific cash creator — net cash leapt to £27m as of February from £16.9m six months earlier — also sets it in good stead to keep hiking shareholder payouts.
Another great income share to buy today is Reckitt Benckiser Group as I believe a set of strong trading first-quarter figures will be forthcoming on Thursday, May 2.
The household goods company saw its share price fall below £60 per share last week following news that charges of illegal marketing were being brought against its Indivior by the US, raising speculation that the Footsie firm could be facing hefty legal bills related to the heroin-treatment manufacturer which it spun off five years ago.
I would consider this to be a decent dip-buying opportunity for long-term investors, though, and particularly as those forthcoming trading details could well remind the market of its brilliant defensive qualities and the subsequent likelihood of solid and sustained earnings and dividend growth. It certainly did this when full-year results were unveiled back in February,
Now City analysts aren’t expecting earnings at Reckitt Benckiser to blow anyone away in the immediate future at least, a bottom-line increase of only 2% being predicted. What the calculator bashers do believe, though, is that provides the base for dividends to keep on improving as well — a total annual reward of 176.6p per share is estimates, a target which yields a decent-ish 3%. An added bonus: this projection is covered two times over by predicted earnings.
Clearly larger yields can be found, but the ubiquity of its beloved products means that Reckitt Benckiser can be relied on to keep increasing profits and thus bumping dividends higher year after year, too. And this makes it a great selection for income investors, in my opinion.
Are you invested in self-driving cars yet? If not, I hope you’ll read this article carefully.
I’ll show you a unique opportunity to invest in this megatrend at a bargain price.
And it isn’t some risky stock with unproven technology. It’s a dominant, profitable company that’s leading the self-driving universe.
And because of a rare situation in the markets, you can buy it today for practically nothing.
Self-Driving Cars Aren’t Mainstream Yet, but They Will Be Very Soon
Fully robotic self-driving cars are already cruising around the suburbs of Phoenix, Arizona. The flat, wide roads and sunny skies there make for ideal driving conditions.
These robocars are operated by Google’s subsidiary (GOOG) called “Waymo.”
In the Driverless Car Race, Waymo Is the Unquestionable Leader
The following chart is so darn important. It shows Waymo cars have driven more driverless miles than all competitors combined:
This is key because its self-driving cars run on one centralized computer “brain” that learns from every mile driven.
Waymo has run laps around its competitors for several reasons. But the company’s biggest advantage is its sensor technology.
Waymo’s Technology Can “See” Better than Anything Else Out There
As I discussed recently, true self-driving cars must be able to reliably detect and interpret everything around them.
Waymo has invested billions—likely far more than any of its competitors—to develop this ability. Its biggest breakthrough is the creation of cutting-edge LIDAR, which stands for Light Detection and Ranging.
In short, LIDAR sensors measure distance with laser pulses.
Tiny sensors that resemble a lawn sprinkler are affixed to the roof and front grill of the car. These sensors then send out roughly 160,000 pulses per second in all directions. These pulses can detect the smallest detail, like a leaf blowing in the wind.
You might call LIDAR Waymo’s “crown jewel.” Insiders agree it’s hands-down the best LIDAR sensor available today.
In fact, this technology is so important that competitor Uber allegedly tried to steal it by hiring away a key Waymo engineer in 2016.
Waymo Is Now Preparing to Sell LIDAR to the World
Early last month, Waymo announced it would start selling its cutting-edge sensors to other companies in non-automotive industries.
LIDAR has dozens of uses. For example, waste management companies are beginning to use it to collect trash and sweep sidewalks.
Grocery giant Walmart (WMT) uses a LIDAR robot to stock the shelves.
And John Deere (DE) equips some of its tractors with LIDAR so they can navigate through crop fields.
In all, LIDAR sales topped $1.7 billion last year. Research from BIS Research estimates it will hit $5.8 billion in four years.
This Decision Is a Big Deal for Google’s Stock
Google has quietly pumped billions of dollars into Waymo since 2009.
Google keeps its total investment in Waymo a secret. But my independent research suggests it has invested well over $5 billion. In 2018, Waymo ordered 62,000 Chrysler Pacific minivans, which cost $2.79 billion alone.
With this move, Google is sending a clear signal: It’s finally “flipping the switch” to start harvesting profits from Waymo.
Google Is What I Call a Disruption “Incubator”
Google is what I call a “disruptor stock.” You can find my top favorite disruptor stocks for 2019 here.
Google has formed a dozen or so disruptive offshoots separate from its core business of internet search.
Waymo is one. Another you likely know well is YouTube. YouTube.com is the second most-viewed website on earth, behind only google.com.
In the past three years, Google has pumped close to $15 billion into its disruptive offshoots. And they all lose money.
Together they’ve been a huge drag on Google’s profit. In 2018, they produced a $3.4-billion loss.
Google’s “Disruption Incubation” Program Is a Genius Long-Term Move
Google was one of the first big American companies to invest in self-driving car research way back in 2009. Now, 10 years later, it’s finally about to start reaping the rewards.
But here’s the key that most investors overlook: 10 years is a long time to keep sinking cash into a money-losing program. Especially for a publicly traded company like Google.
Most investors are obsessively focused on quarterly results. For 40 quarters in a row, Google’s commitment to developing self-driving car technology has hurt its financial results.
Which has led to the opportunity we have today…
Google Trades at 25X Earnings—Near Its Lowest Valuation Since 2015
For context, it’s the same valuation that seller of “basics” Proctor & Gamble (PG) trades for. And P&G is not growing at all.
Meanwhile, Google’s sales have exploded 530% over the past decade.
25X earnings is a good price for just Google’s extremely profitable core business of internet search. 92 of every 100 internet searches flow through Google.
Buying Google at Today’s Price of $1,215 is Like Getting Waymo (and YouTube) for Free
Markets are completely overlooking this. Keep in mind, Waymo is transforming from a business that burns billions into one that makes billions.
As I mentioned, Waymo’s LIDAR is the best on the market. My calculations show that within three years it could easily make $2.5 billion a year selling its LIDAR systems alone.
And that’s nothing compared to the huge opportunity is has as it expands its robocar ride-sharing service. Within three years, that should rake in roughly another $10 billion a year.
I recommended buying Google at $1,070/share a couple of months back. Today it’s selling for $1,215/share. I see it hitting $2,000 in the next couple of years.
Oil prices have been locked in a tight range for five years—and I know I don’t have to tell you that this has been a disaster for energy investors.
Oil Fails to Launch
With the benchmark Energy Select Sector SPDR (XLE) unable to hold its gains for long (let alone recover to pre-crash levels), even the most conservative energy investor has been clobbered.
Why is this happening?
After all, you’d think a growing global population and emerging-market growth would drive up the price of a limited resource like oil. But the tables have turned. I’ll get into why shortly.
These Dividend Payers Are Better Buys Than Oil
For now, though, I recommend that income-seekers go a different route and pick stocks (and closed-end funds [CEFs]) that benefit from cheaper oil and gas—like utilities.
The reason is simple: these companies will pay less to fuel their plants, driving up their profit margins—and their dividend payouts, too.
So what’s the best way to buy in?
You could choose a utility ETF, like the Utilities Sector SPDR Fund (XLU). With a 3% yield, it pays 70% more than an index fund like the SPDR S&P 500 ETF (SPY).
But my favorite method probably won’t surprise you: CEFs! The Cohen & Steers Infrastructure Fund (UTF), for example, pays a 7.6% dividend now, while trading at a 4.6% discount to net asset value (NAV, or what it’s underlying portfolio is worth). It also holds major electric utilities like NextEra Energy (NEE) and Atmos Energy (ATO).
What’s Weighing on Oil
Now let’s dive into some of the other issues that are bound to keep energy down for a long time to come.
Energy Efficiency: Oil’s Nemesis
We hear a lot about alternative fuels these days, but if you’re reading this, you’re still likely using more power generated by oil, coal and nuclear power than wind and solar.
The real story is a bit more boring: people are simply using less energy—and utilities are learning to provide more power with less energy inputs, raising their profit margins.
A European Union study, for example, found that more efficient thermal-power production meant less energy needed to be used to satisfy consumers’ needs. The trend was nowhere near slowing:
Europe’s Lean Energy Machines
The same trend holds in the US, where from 1980 to 2014, the fuel economy of vehicles fell by over 25%, industrial energy efficiency rose 40%, and lost energy from transport fell by 25%, according to the American Council for an Energy Efficient Economy.
And if you’re looking for China for growth, think again. It’s getting better at using energy, too.
Chinese Power Consumption Falls Relative to Economic Growth
Note the one line going down? That’s the ratio of total produced energy to GDP, indicating that China has been more efficient in its use of energy (the IEC estimates energy production to GDP fell by over 3% in 2018, continuing the trend).
Another problem for oil bulls: population growth is slowing.
A (Slower) Growing Population
With slower population growth, the natural growth of energy demand will slow, as well. Meantime, alternative-energy costs are tanking, making it easier to replace oil with other fuels.
Solar Gets Cheaper …
The continued decline in solar-power costs has helped keep solar installations growing over the last decade. The cost of wind-power production has also been on a steady decline since 2008:
… And so Does Wind
While alternatives still face a few hurdles (the largest of which is storage), it’s clear that lower costs for alternative fuels will mean companies and consumers will choose them more often, creating another headwind for oil.
Action to Take: Avoid Oil
While oil companies can pivot to alternative energies (Royal Dutch Shell [RDS] has been particularly good on this front), the transition is slow and full of risks that constantly need to be repriced in. RDS said it will likely spend between $1 billion and $2 billion on alternative energy per year in 2019, which is just 4.3% of the company’s operating expenses in 2018 and 0.4% of its annual revenues.
But RDS’s sales still depend on oil prices, and little has changed in the last five years; the company’s 2018 revenues were still down 7.8% since 2014.
The bottom line? These companies are clearly not set for a future of steadily declining oil demand, and we need to invest for the future, not the past. The risks of betting on oil firms turning around are simply too high.
These shares all offer double-digit dividend yields. But are they really all that great?
Capital & Regional
At first glance Capital & Regional may appear a very attractive destination for dividend hunters. Supported by an expected 5% earnings rise in 2019 the firm is expected to pay a 3.4p per share reward, a figure that yields a super 13.3%.
What’s more, the shopping centre operator’s low, low valuation, a forward P/E ratio of 6.1 times, adds an extra layer of appeal . However, dig down a little and suddenly Capital & Regional isn’t the star attraction it appears to be — it slashed the annual payout by more than a third in 2018, to 2.42p per share from 3.64p previously, and further reductions are quite possible as it battles against high gearing and saves cash for capital expenditure purposes.
Things are made all the more difficult by the twin pressures of e-commerce and fading consumer spending power which is smashing footfall at its retail sites. That yield, then, looks too good to be true and in my opinion it is. This stock is best avoided at all costs.
It’s not all doom and gloom, though. My next pick, PayPoint, is a little-known dividend stock that I reckon’s a great buy today.
Why am I so bullish? Its retail technologies — which allow shop owners to carry out a variety of tasks from logging parcels and taking bill payments from customers, to accepting card payments and conducting EPoS functions — are being adopted by retailers at an astounding pace. And to illustrate this fact, PayPoint in January upped its rollout target for its PayPoint One terminals during the year ending March 2019 to 12,700 sites from 12,000 previously.
It’s not a mystery as to why City analysts expect the small cap to report a 5% profits uplift in the current fiscal period, then, and that it will also raise the full-year dividend to 84.4p per share from the anticipated 84p for last year, resulting in a chubby 9.5% yield. A final reason to buy? PayPoint’s rock-bottom price, as shown by its prospective P/E multiple of 13.3 times.
My final selection for this piece is Reach, a stock where transformative M&A activity looks set to drive revenues skywards and deliver terrific cost savings.
In particular, the acquisition of the Express and Star newspapers (and related websites) early last year has boosted the small cap’s scale in the digital publishing arena and this helped full-year revenues boom 16% in 2018 to £723.9m. Print advertising may be in structural decline but Reach’s bulked-up online operations mean that the future still looks bright, and this — allied with the company’s excellent cash generation and low debt — is enabling it to continue paying market-mashing dividends.
The City expects this trend to continue in 2019, too, a 6.4p per share reward currently predicted. As a result Reach yields a stunning 10.1% and this, combined with the company’s dirt-cheap forward P/E rating of 1.6 times makes it a great buy today, in my opinion.
It’s an unfortunate state of the world, but few see a chance on the horizon for a decline in demand for military and defense related products and services. From cybersecurity to naval ships and missiles to drones, seven leading financial experts — and contributors to MoneyShow.com – highlight their top investment ideas in the defense sector.
Orbital has added about 15% to Northrop’s revenue base. So far there have been no hiccups, with Orbital being nearly fully integrated into the whole. Margins have remained at pre-acquisition levels. That’s a bit disappointing but not unexpected in that the company’s business lines, while largely dedicated to defense, do not directly overlap with those of other Northrop divisions.
Specifically, IS is dedicated to small space systems and satellites (for both defense and commercial) while prior to IS, Northrop concentrated on much larger space systems. Other areas promise rising margins over the longer term because the Defense Department has specified them as necessary, including missile products, ammunition, electronics, aerospace and propulsion structures, and launch vehicles.
By and large these areas are new and fully complementary to Northrop’s existing operations. The company continues to target $150 million in cost savings by 2020, which means we should begin to see margins rise with the next quarterly report.
The one area where we have seen a synergistic contribution is in international sales, where IS has a much stronger presence than Northrop. In the most recent quarter, international sales were the largest ever for Northrop.
With the Northrop brand supporting IS, international sales should continue to grow faster than when IS was a stand-alone entity. Compared to other defense companies, international sales for Northrop had been lagging as a percentage of total sales. Street recognition of its increased international presence could lead to an increase in Northrop’s P/E.
Also positive is that free cash flow (FCF) in the fourth quarter reached record levels, with the gains more than commensurate with the added revenues brought in by IS. Prior to the Orbital acquisition we were projecting profits of about $23 a share in 2021. Now assuming cost synergies live up to their estimates and the signs of revenue synergies continue, 2021 profits could approach $25 a share.
We also expect FCF to grow faster than earnings and potentially reach $3.7 billion by 2021, resulting in an FCF yield of nearly 8% based on the current price. Overall the acquisition is on target for increasing earnings and FCF growth as well as broadening the company’s scope both geographically and in areas of competence. A higher P/E paired with accelerating earnings should result in strong gains in the years ahead.
We believe that
An October 2018 paper from the US Navy provided a strong assessment of the US Government’s Naval needs and where the Navy should be over the next 30 years with respect to naval ships backlog.
The Navy made the proposal to create one of the largest shipbuilding proposals since Reagan, as a number of major ships (nuclear, non-nuclear, submarines etc.) have not been updated in decades.
The company has a $22 billion backlog that will continue to grow given the ongoing needs and strategic nature of the US Navy versus the rest of the armed forces.
However, there is also another catalyst to the firm’s growth, which is their Technical Advisory business unit. This business unit provides IT, cybersecurity and other professional services to the US Government and large multinationals like
The company entered into a bear market in Q4 of 2018 and provided tremendous value in December, but we believe it is not too late to enter into the stock. We have a 2-year price target of $303.91 per share.
Imagine a squadron of battle ready drones flying alongside U.S. military fighter jets. It’s not a video game. It’s part of a Pentagon plan to reduce costs. A jet powered Valkyrie drone successfully buzzed the skies of Yuma Arizona , according to an
Military aircraft are expensive and often plagued with development problems. The standard version of the F-35 fighter jet costs $89.2 million. The XQ-58A Valkyrie project might provide a solution. At only $2 million to $3 million a pop, it’s cheaper than the cost of a Patriot missile.
But its real appeal is the potential to fly alone or as part of a swarm, controlled by a manned aircraft or from ground control. Squadrons of Valkyrie could serve as wingmen to expensive, piloted fighter jets, flying ahead to strike or surveille enemy targets — just like in video games.
The best way for investors to play wingman drones and other cutting edge aircraft is
TransDigm managers don’t think like engineers. They behave more like investment bankers, looking to acquire businesses that will spin off private equity-type returns to investors.
Since 1993, they have acquired 60 OEM aerospace parts businesses with these profiles. The company is now the sole supplier for 80% of the end markets it serves. And 90% of the items in the supply chain are proprietary to TransDigm.
In other words, the company is operating a monopoly for parts needed to operate aircraft that will typically be in service for 30 years. Sales grew 8.8% in fiscal 2018, to $3.8 billion. The company earned $905.4 million in profits. That trend continued in the fiscal first quarter results, as the company earned $196 million in profits on $993 million in sales.
While shares trade at 6x sales and 25.3x forward earnings, expensive by aerospace standards, the company is more like a successful private equity fund. Managers are uniquely motivated to increase shareholder value and they have an enviable record. Shares are up 2,503% since 2009. TransDigm has pulled back in recent weeks; you can buy it now around the $430-$435 area.
And it specializes in intelligence support. That includes cybersecurity. And that’s the future of U.S. defense. is one of the top government contractors. And it specializes in intelligence support. That includes cybersecurity. And that’s the future of U.S. defense. LDOS is positioned to keep growing as long as the U.S. government continues to exist.
We award the stock an earnings grade of “A”. The company has beat or met estimates in four of the past four quarters.
In recent news, Leidos received $962M Navy contract. Leidos beat earnings last month, but issued downside EPS guidance for the future. So the stock sold off a little bit. It recovered quickly after the company announced a new $962 million contract with the
But it’s finished the month flat. Year-to-date, however, we’re up about 20%. Leidos is one of the top government contractors. And it specializes in intelligence support. That includes cybersecurity. And that’s the future of U.S. defense.
The company is positioned to keep growing as long as the U.S. government continues to exist. The stock is still a “Buy” for anywhere under $75, and the 12-month target is $100.
Northrop Grumman (NOC), featured in our Portfolio Selector Focus List, is a global defense contractor with a focus on aerospace and, increasingly, electronic programs (including cybersecurity).
As well, no sector outside technology is embracing the digital economy as fully and quickly as industrials, where sensors, connectivity, and AI-based automation are transforming the modern factory
The company’s balance sheet is clean, and management has a history of meeting and beating analyst expectations. The shares are susceptible to headlines about cuts in defense spending and budget ceilings, as well as tweets and threats about trade and tariffs.
However, we believe that recent defense-spending developments bode well for the industry for at least the next two years, and management has a history of navigating volatile political environments.
For the March quarter, Hexcel (HXL) is projecting gross profit margin to climb nearly a percentage point to 27.0%. The company posted its highest margins of 2018 in the December quarter, reflecting productivity gains and manufacturing improvements.
A leading maker of advanced composites, Hexcel focuses on carbon-fiber materials used in aerospace, defense, and space markets. The company is benefiting from strong market positions and a sizable order backlog.
One overhanging risk is a concentrated customer base that includes Boeing (BA), which accounted for 25% of sales last year. Over the past 90 days, analyst profit estimates for Hexcel have risen for full-year 2019 and 2020. Hexcel seems reasonably valued considering its bright growth outlook.
For 2019, per-share profits are projected to climb 14% on sales growth of 11%. Over the next five years, per-share earnings are expected to advance 10% annually. Hexcel, with an Earnings Estimates score of 83, is rated Buy.
Nearly a century after its founding,
By the end of World War II, every U.S. patrol torpedo boat was equipped with the Raytheon radar, allowing them to see at night and to search and destroy U-boats. After the war, Raytheon began offering civilian products; the most famous was the microwave.
Over the following decades, Raytheon introduced the first missile capable of intercepting inflight objects; helped guide the Apollo 11 and transmit the TV signals back to Earth; and developed the Patriot missile defense system.
During the past five years, Raytheon has grown revenues at a steady 4.3% annual rate. During the same period, net income and EPS have compounded at striking 7.1% and 9.9% annual rates, respectively. Raytheon’s profit margin averaged more than 9% during the previous five years, including an impressive 10.7% during 2018.
Return on equity has averaged more than 20% for the last ten years, demonstrating the company’s strong competitive advantages. Raytheon has increased their dividend for 14 consecutive years with the dividend compounding at a 9.4% annual rate during the past five years.
During 2018, Raytheon generated $2.7 billion in free cash flow and returned $2.3 billion to shareholders through dividends of $975 million and the repurchase of 6.7 million shares for $1.3 billion. Since 2007, Raytheon has repurchased shares each year reducing their share count by 35%.
The company’s strong position in missiles and radars coupled with increased defense spending under the current administration provide a solid foundation for 2019. Long-term investors should place Raytheon on their radar, a high-quality global market leader with growing dividends, solid growth, durable competitive advantages and profitable operations. Buy.
Ned Piplovic, StockInvestor
After retreating more than 25% from its all-time high of nearly $230 in March 2018, the
While drops of that magnitude generally indicate deeper troubles, General Dynamics does not show any fundamental weaknesses and the its earnings keep exceeding investors’ and analysts’ expectations. While lower than the all-time high, the current closing price is clearly still in the average range of the uptrend over the past two decades.
The Aerospace segment designs, manufactures and supports business-jet aircraft, primarily under the Gulfstream brand. The Combat Systems segment designs, develops and manufactures combat vehicles, weapons systems and munitions.
Additionally, the Mission Systems segment offers mission-critical Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) products and systems such as cyber systems and products for intelligence gathering and space exploration.
The Marine Systems segment designs and builds nuclear-powered submarines and surface combat vessels, as well as auxiliary and combat-logistics ships for the U.S. Navy and Jones Act ships for commercial customers.
On January 30, 2019, General Dynamics reported fourth-quarter 2018 revenues of $10.4 billion, which was 25.4% higher than revenues in the same period last year. All five of General Dynamics’ business segments contributed to the revenue growth in the last quarter.
Net earnings of $909 million were equivalent to $3.07 earnings per share (EPS), which was an improvement of almost 45% over the same period last year. Additionally, the $3.07 EPS beat analysts’ expectation of $2.98 by 3%.
Full-year revenues of $36.2 billion were nearly 17% above the $31 billion revenues in 2017. Net earnings advanced 15% to $3.35 billion, which was equivalent to an $11.22 adjusted earnings per diluted share.
During 2018, General Dynamics returned $2.8 billion to shareholders. Nearly 65% of those funds came through repurchasing of more than 10 million shares and $1 billion was the total of all dividend income distributions in 2018.