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Jubak’s Picks – Sells


Company Symbol Date Sold Sell Price Price Now Today's Change Gain/Loss Since Sale
Apple AAPL 02/24/2015 $132.17
Update January 31, 2015: Watch Apple (AAPL) today: Is there enough hope for more good news next quarter to keep Apple shares moving up after today’s blowout quarter? For the company’s fiscal first quarter that... more    Read Jim's Original Sell
DaVita HealthCare Partners DVA 03/20/2015 $81.86
Update July 8, 2013: I guess Warren Buffett’s Berkshire Hathaway (BRK.A) is a bigger short-term risk taker than I am. Buffett’s company increased its stake in DaVita Healthcare Partners (DVA) by $73.4 million after the... more    Read Jim's Original Sell
Qualcomm QCOM 04/06/2015 $67.76
Update December 14, 2014: Qualcomm (QCOM) has a China problem. A big China problem. China is the reason that the shares are up just 0.73% in the last 12 months. And why 2015 could well... more    Read Jim's Original Sell
SeaDrill SDRL 05/12/2015 $14.54
Update February 24, 2014: Seadrill (SDRL), the owner of the world’s second largest deepwater drilling fleet, knows only one speed—full throttle ahead. And right now that’s making investors and traders nervous. The Norwegian company... more    Read Jim's Original Sell
Home Inns and Hotels HMIN 06/15/2015 $32.83
Update March 14, 2014: We’ve been down this road with Home Inns and Hotels Management (HMIN) before. Which doesn’t make it any less scary. The stock is down 22.2% in the last ten days—despite solid... more    Read Jim's Original Sell

Update Apple

January 31, 2015

Watch Apple (AAPL) today: Is there enough hope for more good news next quarter to keep Apple shares moving up after today’s blowout quarter? For the company’s fiscal first quarter that ended in December, Apple reported yesterday after the close, the company earned $3.06 a share, a huge 46 cents a share above the Wall Street consensus. Revenue for the quarter of $74.6 billion easily beat the Wall Street projection of $67.69 billion. iPhone unit sales of 74.5 million set a new record and buried the Wall Street consensus of 66 million for the quarter. Earnings per share grew 48% from the first quarter of fiscal 2014. Operating cash flow of $33.7 billion hit an all-time record for Apple. Apple had closed down 3.5% or $3.96 a share to $109.14, for the day as traders decided to sell before the news. In after hours trading the shares climbed $6.26 or 5.74%, to $115.40. That leaves the stock short of its 52-week high of $119.75—but not all that short. Today will it be sell on the news or buy because today’s great report will raise hopes that next quarter will be even better. I’d vote for the second alternative. There was enough in the company’s guidance and enough in analyst post-earnings comments to make me think the momentum will continue. For example, the company’s guidance was typically conservative but significantly not, for a change, below the Wall Street consensus for the quarter that ends in March. Revenue will total $52 billion to $55 billion versus the current consensus forecast of $53.79 billion and well above the $45.6 billion in the March quarter of fiscal 2014. Gross margins will climb to 38.5% to 39.5% vs. 39.3% in the year earlier quarter. The December quarter is always the company’s big quarter, of course, and Apple was riding the momentum of iPhones with bigger screens and a refreshed line of Macs. Next quarter needs the promise of its own excitement for the shares to rise above the $119.75 52-week high. Apple will probably be able to build on its big momentum for the quarter in China. The iPhone 6 and 6 Plus only hit China in October, but sales in China climbed by 70%. Apple has said that it will open 25 new stores in China in the next two years And new products? Right now the Apple Watch is planned to hit the market in April 2015. There are persistent rumors of a bigger iPad with a 12- or 12.9-inch screen to match the 12-inch screens that Samsung introduced on its tablets in January 2014. March 2015 is possible but mid-2015 seems more likely. A MacBook Air with Apple’s Retina display could see the market in mid-2015. And, of course, there are the once and future rumors of a new Apple TV something. Is that enough to keep the hope alive? It’s not the strongest lineup—and Apple is a September and December quarter story in most years. But with the revenue momentum the company has coming out of the December quarter, it might be enough. I wouldn’t go wild on Apple here. And it’s certainly not time to load up the truck. But if you own it, I think holding on for a while to see how the momentum goes is a reasonable play. After all, it’s not like the market is over-run with growth stocks right now. As of January 28, I’m raising my Jubak’s Picks portfolio http://jubakam.com/portfolios/ target price for Apple to $132 by March from the current $120 a share.

Warren Buffett buys more of stock pick DaVita on the drop

July 8, 2013

I guess Warren Buffett’s Berkshire Hathaway (BRK.A) is a bigger short-term risk taker than I am. Buffett’s company increased its stake in DaVita Healthcare Partners (DVA) by $73.4 million after the stock dropped by almost 6% on July 2 after the U.S. Medicare System proposed cutting its payments for dialysis services by 9.4% in 2014. (For more on the proposal, the drop, and DaVita and its major competitor in the sector, Fresenius, see my post http://jubakpicks.com/2013/07/03/davita-takes-a-hit-on-proposed-medicare-cuts-but-i-still-like-the-business-model-for-this-stock-pick/ ) Berkshire Hathaway now owns 15.6 million shares. In my July 3 post on DaVita I had recommended waiting to buy because I felt that Wall Street analysts would be busy cutting their earnings estimates on the news until the company reported earnings n August 11. The stock might show further weakness then if the company cut guidance for the rest of 2013. DaVita is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ . The shares closed up 2.03% today. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of DaVita HealthCare Partners as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/  

Qualcomm

December 14, 2014

Qualcomm (QCOM) has a China problem. A big China problem. China is the reason that the shares are up just 0.73% in the last 12 months. And why 2015 could well turn out to be another dead year. The issue for this stock is whether the risk of another year as dead money outweighs the upside long-term potential—and whether or not you believe that company’s estimate/wish that at least some of the company’s China issues will be over in 2015 (or so.) In its recent guidance for fiscal 2015 (the company’s fiscal year ends in September) Qualcomm guided for revenues of somewhere between $7.3 billion and $8.3 billion. The reason for that big spread is uncertainty over China. Chinese makers of handsets did not pay Qualcomm royalties on sales of roughly 215 million units in fiscal 2014 and the company estimates that the non-payment problem will rise to upwards of 300 million handsets in fiscal 2015. The root of the problem is an investigation by China’s National Development and Reform Commission looking at the question of whether the relationship between Qualcomm’s chip sales business and its technology licensing business violates China’s laws on competition, rebates, and fair and reasonable links between chip purchases and technology licensing. (Before you jump to the conclusion that this is just another example of China using its trade laws to advantage domestic companies—which it is to a degree—you should note that U.S. and European Union regulators are looking at similar issues at Qualcomm.) Chinese companies have used the investigation as an excuse to postpone licensing deals, to delay payments to Qualcomm, and to under-report sales. (One of the reasons that I like Qualcomm as a stock and have put it in my Jubak’s Picks portfolio http://jubakam.com/portfolios/ is that because of the company’s ownership of key parts of wireless technology (the code-division multiple-access (CDMA) part) Qualcomm collects royalties from the sale of phones that use that technology even if they don’t use Qualcomm’s own chips.) From a long-term perspective Qualcomm’s prospects look much brighter. The company is introducing its fifth generation LTE chip, when most competitors are working with first generation technology. As network operators try to get more performance out of available spectrum and introduce more complex services to grow revenue, Qualcomm’s technology edge becomes more valuable. That’s likely to give Qualcomm about 45% of the wireless chip market in the long term, Credit Suisse estimates. Which doesn’t mean that the company doesn’t face challenges even outside of China. Handset makers looking to duplicate the features of top-end smart phones but at much lower price points are looking for chips that deliver more performance for few dollars or renminbi. That will keep average selling prices falling at low single digit rates. On the upside, Qualcomm sees 15% annual growth in 3G and 4G devices and a doubling of the installed smartphone base to 3.4 billion from 1.6 billion units. The company is also making a big push into the automotive market and has signed 40 agreements with automotive original equipment makers. Qualcomm estimates that 60% of new cars shipped in 2018 will be mobile phone connected. And finally Qualcomm is targeting the Internet of Things. The company sees 200 million such systems by 2018 with opportunities in chips that connect these devices to the Internet. Because of the near-term problems in China, I think you may have to wait a while to see those long-term prospects reflected in the share price but I think your patience will be rewarded.

With a yield above 10%, Seadrill pays you–reasonably–to hold through recent volatility

February 24, 2014

Seadrill (SDRL), the owner of the world’s second largest deepwater drilling fleet, knows only one speed—full throttle ahead. And right now that’s making investors and traders nervous. The Norwegian company has 8 drill ships, 3 semis, and 11 jackup rigs on order at a time when day rates for rigs are slipping and worries are rising about oversupply due to cuts in capital spending at oil companies. Shares of Seadrill that traded as high as $47.78 on September 18 have tumbled to close at $37.68 on February 24. That’s a drop of 27% in five months. That drop in share price has taken Seadrill’s dividend yield up to 10.11%. That’s not all a result of a falling share price though—the company raised its dividend payout by 4% in the fourth quarter. (Seadrill is a member of both my Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ and Dividend Income portfolios http://jubakpicks.com/jubak-dividend-income-portfolio/ .) That’s a very attractive yield—unless, of course, the yield is signaling deep trouble at the company or in its sector. We’re talking about a sector that, historically, has been subject to big swings as companies order lots of rigs during flush times when the day rates that oil companies will pay are high and then see all those orders create an oversupply of rigs that sends day rates tumbling. Most of the companies in the sector cope with those swings by building strong balance sheets that can withstand the rigors of an extended downturn. Seadrill has never worked like that since John Fredriksen put the company together in 2005. Seadrill uses leverage, lots and lots of leverage, to get the most cash flow it can out of its rigs in the shortest possible time. Seadrill typically finances a rig with debt rather than cash flow and then uses sales and leasebacks to recoup cash from those rigs as quickly as possible rather than over the 30-year lifetime of a rig. Right now, for instance, Seadrill is using a master limited partnership, Seadrill Partners (SDLP) to raise cash in the financial markets. Seadrill Partners then uses that cash to buy assets—such as drilling rigs--from Seadrill itself. Seadrill owns about 80% of Seadrill Partners (which yields 5.6% currently.) Selling rigs to Seadrill Partners lets Seadrill leverage cash for its building program (without diluting existing shareholders.) In addition the structure gives Seadrill enhanced liquidity—the company can sell the partnership units it owns far more easily than it could sell a rig--if it needs to raise cash. And the structure of the limited partnership gives Seadrill an added dividend payout if cash available for distribution exceeds payouts established in the master limited partnership offering for common and subordinated partnership units. (This structure is currently a big favorite at Seadrill. Last year the company created another partnership North Atlantic Drilling (NATDF). North Atlantic Drilling currently pays a 10.34% yield These financial structures—a hallmark of a Fredriksen company—do indeed provide useful leverage, some downside protection, and a high dividend yields to owners of Seadrill stock (including Fredriksen who owns about a third of the company’s shares.) But the ultimate direction of Seadrill shares depends on whether the recent slippage in rig day rates—down to $575,000 in November from $600,000 on average for deepwater rigs, Pareto Securities estimates--is a temporary blip or the beginning of a cyclical downturn. Looking at Seadrill’s customers, I’m inclined, so far, to the temporary blip camp. Seadrill is heavily exposed to Mexico’s Pemex, for example, and that national oil company looks to be increasing its deepwater drilling in the Gulf of Mexico. In November Seadrill announced a tentative agreement with Pemex for five jackup rigs. There’s good reason to believe that even in the current market Seadrill will be able to collect premium day rates. Seadrill’s fleet is heavily biased toward deep water and ultra deepwater rigs, which earn the highest rates. 92% of Seadrill’s floaters are ultra deepwater rigs. (Ensco (ESV) has the second highest concentration of ultra deepwater rigs at 55%.) And the company’s fleet is substantially younger—again increasing day rates--than those of competitors. Seadrill’s average floating rig is just a little over five years old. The next youngest fleet, that of Ensco, averages 12 to 13 years old. Seadrill itself believes that supply of drilling rigs will remain tight. The company is seeing customers push out drilling projects by a year rather than cancel them and it points out that delivery of new ultra deepwater rigs looks to peak in 2014. In the jackup rig segment the extreme age of the fleet has led to a pickup in scrapping and salvage beginning in 2011. I certainly wouldn’t call Seadrill a dividend stock for the cautious. But at better than a 10% yield, I think you’re getting well paid to ride out the current drop in the share price. As of February 24, I’m leaving my target price at $49 a share but stretching it out to February 2015 Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Seadrill as of the end of December. For a full list of the stocks in the fund see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.

Home Inns and Hotels plunges on China worries–despite solid fourth quarter results

March 14, 2014

We’ve been down this road with Home Inns and Hotels Management (HMIN) before. Which doesn’t make it any less scary. The stock is down 22.2% in the last ten days—despite solid but certainly not spectacular results for the fourth quarter reported on March 12. The recent sell off on worries about a slowdown in China’s economic growth pretty much mirrors the January plunge on China and emerging market worries. Then the shares fell 23.7% from December 31 to February 3 before rebounding, along with emerging market shares in general, by 15.1% from February 3 to March 4. When China’s markets slump and fear rises, Home Inns and Hotels Management is sold early and hard because 1) as the big dog in the mid-to-low end of the lodging market in China the company is seen as very exposed to shifts in growth in China’s economy, and 2) because the stock is so liquid that it is easy and cheap to sell at the slightest worry—and easy and cheap to rebuy when the trend shifts. I don’t know if that makes Home Inns and Hotels a swing trade for you—it shows the volatility and (perhaps) the predictability of a good swing trade—or if you’ve got the cast iron constitution that will let you hold through this kind of volatility, but in either case you should still care about the most recent fundamentals. So let me run through them here. (Home Inns and Hotels is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ .) For the quarter Home Inns and Hotels reported earnings of 27 cents a share, a 92.9% increase from the fourth quarter of 2012. Revenue climbed 9.9% to $249.6 million. Analysts had been expecting $260.3 million. Because the company continues in expansion mode, I think you can get a better picture of how Home Inns and Hotels is doing by looking at other measures besides earnings and revenue. (The company opened another 437 hotels in 2013 to bring its total to 2,180. On March 10 the company announced that it would acquire Yunshang Siji Hotel Management, a chain of 35 hotels principally located in Yunnan Province.) What measures? Occupancy rate. The occupancy rate edged upwards to 84.08% in the quarter from 83.8% in the fourth quarter of 2012. Revenue per available room (RevPAR). RevPAR held almost steady at $137 for the quarter versus $138 in the fourth quarter of 2012. Why are those numbers so important First, because when a company is expanding as fast as Home Inns and Hotels Management is, investors want to see evidence that the expansion isn’t over-saturating the market and that, as newly built hotels mature, they are generating the same kinds of occupancy and revenue numbers as older hotels. That looks to be the case here. Second, because the company is making a transition from a leased-and-operated business model to a franchise model. That shift reduces the company’s need for capital to expand—or more accurately gives it another revenue stream of franchise fees to fund expansion—and promises steadier and more predictable revenue and income growth. That’s all to the good—especially when China’s financial system is experiencing so much uncertainty and stress—but as an investor you don’t want to see the company give up too much growth to achieve that greater predictability. That doesn’t look to be the case here. For the first quarter of 2014 the company told analysts to expect total revenue of $1.46 billion to $1.49 billion yuan versus the analyst consensus of $1.52 billion yuan. I’m not expecting the volatility in these shares to go away until investors get reasonably comfortable with the growth trend in China’s economy. As of March 14, I’m leaving my target price at $43 a share by August. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Home Inns and Hotels Management as of the end of December. For a full list of the stocks in the fund see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/


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