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Jubak’s Picks – Sells


Company Symbol Date Sold Sell Price Price Now Today's Change Gain/Loss Since Sale
Toyota Motor TM 07/16/2015 $135.77
Update : Update: May 4, 2015.  One of my core rules of investing—one that I find especially useful for not falling in love with a stock—is that when the reason that you... more    Read Jim's Original Sell
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

Update Toyota

Update: May 4, 2015.  One of my core rules of investing—one that I find especially useful for not falling in love with a stock—is that when the reason that you bought a stock disappears, vanishes, or just proves to be wrong, you should re-evaluate the purchase. And most of the time you should sell. What about that “most of the time”? When should you hold on even when the reason for your original buy has vanished? The best reason is that if another reason for the purchase—and I mean something other than a wish to get back to breakeven—steps forward. If the new reason is convincing on its own, enough so that you’d buy the stock on that basis even if you didn’t own it already, then hang on, I’d say. Toyota Motor (TM), a member of my Jubak’s Picks portfolio, is exactly such an example. Back in February 2013 when I added these ADRs (American Depositary Receipts) to the portfolio, a major reason was the weak yen policy being pursued by the Abe government and the Bank of Japan. By making massive asset purchases, the Bank of Japan would drive down the price of the yen against the U.S. dollar and other currencies. That would give a boost to overseas sales of Japanese exporters—since Japanese goods would be cheaper in dollars or whatever. The shares of these exporters would get an extra boost when sales in their stronger currencies were translated back into weaker yen on the company’s Japanese balance sheets Toyota has been a pretty good play on the weaker yen. Back in February 2013 when I added the ADRs for Toyota to the portfolio the yen traded at 93.53 to the dollar. Today, May 4, 2015, the yen closed at 120.12 to the dollar. That’s a move of 28% lower on the yen against the dollar. My position in Toyota Motor’s New York traded ADRs is up 42% in this period with some of the gain coming from the weak yen and some coming from new products and improved sales in North America. But now the Bank of Japan looks like it has lost its belief in its own weak yen policy. Growth in Japan has slowed to a crawl and the central bank pushed its goal of 2% inflation off into 2016. And despite that, the Bank of Japan says, there’s no need for more stimulus or larger asset purchases. The yen is not going to fall precipitously against the dollar over the next few quarters. So time to re-evaluate Toyota? Certainly. Time to sell? I don’t think so. For two reasons, one short term and one longer term. On the short-term side, there’s a lag between the assumptions Toyota used on the yen/dollar exchange rate in its last set of financial projections and the exchange rate now. Back in February 2015 the company forecast that the yen would trade at 115 to the dollar from January to March 2015. The yen traded at 120 to the dollar on May 4 so Toyota still has a foreign exchange wind at its back. Although, I’d say that most of that wind has been exhausted. The longer-term reason to hold onto Toyota here has to do with a significant change in the attitude of Japanese companies toward dividends and stock buy-backs. After years as among the least shareholder friendly companies in the world and with an economy-wide preference for holding onto cash rather than passing it along in dividends or buy-backs to shareholders, Japanese companies seem to be changing. A recent campaign by U.S. activist investor Daniel Loeb to get robot-maker Fanuc to distribute some of its $1.9 billion in cash to shareholders has resulted in the company deciding to double its dividend payout. Historically most campaigns to increase shareholder distributions have died quietly from neglect at Japanese companies. What’s changed is that Prime Minister Shinzo Abe has energetically pushed for Japanese companies to distribute more of their $1.9 trillion in cash to shareholders as part of his campaign to revive growth in Japan. Combined with efforts to get Japanese companies to raise wages, the two efforts are aimed at putting more cash in Japanese pockets so the Japanese will turn into more active consumers. It hasn’t hurt Abe’s campaign that Japanese companies haven’t been investing their cash either. It has just been piling up in company bank accounts. Fanuc, for example, had 20% more in cash and short-term investments at the end of calendar 2014 than it did a year earlier and almost double the level it had in 2010. Fanuc will raise its dividend payout ratio to 60% with this distribution from 30%. The payout among the companies in the Nikkei 225 Stock index was just 20% at the end of 2014 so there’s a lot of catching up to do. (That payout ratio compares to 42% for the Standard & Poor’s 500 and 62% for the EuroStoxx 50.) Toyota reports earnings for the January to March 2015 quarter on May 7 and the company is expected to announce a dividend increase for calendar 2015 and a share buyback. Management has indicated that its goal, in the short-term at least, is to increase cash returns to shareholders, either through dividends or buybacks, to 40%. A change in policy governing returning cash to shareholders could be a big deal for Toyota in global stock markets. Right now the yield on Toyota’s ADRs is just 1.8% in comparison to 4.1% at General Motors (GM) and 3.8% at Ford Motor (F) Toyota has grown its dividend by just an annual 3.8% over the last five years. How big a change should investors expect? I see a significant move by Toyota but I really don’t know how aggressively the company will join the trend in Japan. But I do think that anything which flags that Toyota has joined the movement to increase returns to shareholders will push up the share price. And increases in shareholder returns should be enough to pick up where the weak yen left off. It’s certainly worth holding through May 7 to find out.

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/.


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