Excellent Earnings Everywhere

“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control."

- Charlie Munger

The Portfolio

Our blog portfolio continues to perform well and volatility in the portfolio remains low vs the overall market. Year-To-Date the portfolio is up +21.73%. Our benchmark index, the S&P 500 is up a phenomenal 21.31% YTD. If you've been able to stay in an index fund through the ups and downs of this years market I applaud you as volatility has been high.

My apologies for not writing more on earnings and new ideas. Contrary to popular belief, I do have a day job. Besides, a lot of the stocks I'd like to buy are a little pricey right now.

If you're an investor looking for diversification and growth, and you'd like to know more about the way I build a portfolio; please feel free to email me. clay@claybaker.com

Earnings

I'm looking forward to hearing earnings calls from Royal Caribbean Cruises, Sony and Fox Factory Holdings on October 30th. Below are notes on the companies that have reported so far.

ASML: Chip equipment maker ASML Holdings matched on earnings but missed on revenues. The stock dropped 3.62% after the call to $253.76, but has recovered to $264.60. We're up over 79% on our investment.

SAP: This is a stock being held down by uncertainty, not performance or the financials. If these results didn't impress investors, nothing will. This is normally the kind of reception we get when a stock is priced to perfection, but something else seems to be going on here.

  • New Cloud Bookings Up 39%, Software License Revenue Down 1%

  • Cloud Revenue Up 37%

  • Cloud Gross Margin Up More Than 5 Percentage Points

  • IFRS Operating Profit Up 36%; Non-IFRS Operating Profit Up 20%

  • IFRS Operating Margin Up 4.2pp; Non-IFRS Operating Margin Up 1.7pp

  • Q3 Operating Cash Flow Up 28%, Free Cash Flow Up 116%

The uncertainty seems to be stemming from management changes. Recently Mark Parker, CEO of Nike stepped down. John Donahoe, CEO of ServiceNow will be replacing Parker at Nike. Bill McDermott, CEO of SAP will be replacing Donahoe at ServiceNow. McDermott is being replaced by two board members, Jennifer Morgan and Christian Klein, who will be co-CEO's. I won't make any changes to our position. I think once the dust settles we'll see SAP restart its climb up. We're up 38% year-to-date.

MPWR: Another of our Semi-conductor companies is Monolithic Power Systems. MPWR reported a beat on both earnings and revenues, we saw a 5.5% rise in share price. The quarter was good and the stock is currently priced below the lowest analysts estimate. Normally I'm very bullish about a stock with an asymmetrical trade. But considering how much we're already up, and no end yet to the US/China trade war, I'm going to leave our position alone. We're up over 40% year-to-date.

NOC: Northrup Grumman has long been one of my favorites companies for diversity in their products and services, diversity in management and board of directors, corporate governance and consistent performance. NOC beat on earnings by $0.70, but missed on revenues. The stock is down almost $10 per share since earnings were reported on October 24th. This is one of the companies where I wish I had taken at least a 50% position instead of the 25% position, but at this point we may need to wait until next year. With our target price another 12.4% higher, year-end selling coming soon and lots of uncertainty in the markets, we can afford to wait. We'll wait either for a significant pull-back in the stock price or for the stock to go high enough that adding shares won't damage our cost basis too much. We're up over 40%.

AMTD: TD Ameritrade delivered a great quarter with an 8.2% earnings surprise. Revenues were were up, as was net interest margin. Most notable, average customer trades were up showing increased interest from investors willing to trade. Recall that we were losing money on AMTD, but on October 3rd, after the stock tanked on the news that Schwab would offer commission free trades I added 100 shares to the blog portfolio at $33.00. That purchase lowered our cost basis and now AMTD is up 4.25% year-to-date.

MA: MasterCard reported today before the bell. Analysts had a lofty earnings estimate that would be 13%-14% but the company reported earnings rose 21% to $2.15 per share. Revenue also grew 14%. Of course the stock declined 0.59% on the news. So is MasterCard expensive? That depends how you look at this company. Most investors think of MasterCard as a credit card company, I prefer to see it as a payments processing company. If you believe in the consumer, the engine that fuels 70% of the US economy, you have to believe in MasterCard and other payment processing companies. I have a $356 price target on MA and would happily double our position for that 30% upside. I'm looking for a greater pull back as doubling our holding now would increase our cost basis to $263 per share; diminishing our margin of safety. We're up 8.85% year-to-date.

V: Visa reported on October 24th and delivered another solid quarter. Visa is another beneficiary of the strong consumer and reported double-digit revenues and earnings growth, but also provided upbeat guidance for 2020. Visa saw 7.4% volume growth and also saw growth in cross-border volumes. Analysts have started raising their price targets a little closer to my own. Two primary analysts have raised to $207, we're at $231. Those analysts are projecting 17% upside from the current price of $177. Visa pulled back 1.23% today, I'm looking for a little more decline, somewhere closer to $173 to add shares. The blog only owns 5 shares, so I'm looking to add another 5 shares which will bring our cost basis to $152.88. We're up 38.63% year-to-date.

STZ: Constellation brands was added to the portfolio for its broad selection of great beverage brands and for its $4 billion dollar investment in cannabis company Canopy Growth Corporation. The distributor of more than 100 famous brands of beer, wine and spirits such as Corona, Modelo beers, Robert Mondovi wines and High West whiskey has made no secret that its frustrated with its cannabis add-on. While the company delivered a beat on earnings and a match on revenues, even after taking charges, Canopy Growth was responsible for most of the charges. STZ has a lot to like, but I have concerns that it may be another year or two before we see real growth in this company. I'm not planning to make any changes unless something significant breaks down in the business. We're up 23.7% year-to-date.

EW: Edwards Life Sciences was a late addition to the portfolio that I've been very happy with. Earnings per share came in up 31.8% year-over-year on growth in all business segments. Q3 sales also increased 20.7% year-over-year. Before we assume this healthcare companies profits are coming as the result of gouging patients, lets look deeper. Revenues were up primarily because of significant growth in Transcatheter Aortic Valve Replacement (TAVR). The FDA recently gave EW a label expansion making this medical device available to a larger patient group. In addition the number of procedures in the US surged 30% year-over-year and in the teens in Europe. The company is experiencing growth in nearly every business segment while they are reducing costs. To finish out a great call Edwards raised guidance for the rest of 2019. We're up 9.77% year-to-date.

"Markets don't go to zero, Portfolio's do.

Buy quality, be patient...and look twice for motorcycles."

- Clay Baker

Stay Invested,

Clay

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Keep Me Honest

  1. S&P 500 declines to 2,350 or more (1-3-2019)

  2. Healthcare and Biotech sectors outperform (1-3-2019)

  3. S&P reaches 3,000 by year end (1-11-2019)

  4. CSCO reaches $60/share (1-18-2019)

  5. VEEV reaches $145/share (2-14-2019) (achieved $145.23 on 5-10-2019)

  6. CVS reaches $91.50 (2-27-2019)

  7. Bull market takes another leg up (4-7-2019)

  8. The Fed will lower rates 1-2 times (5-13-2019)

Clay's Rules

Rule #1: Don't lose money

Rule #2: See Rule #1

Rule #3: Portfolios go to zero, markets don't, Stay Invested

Rule #4: When a good stock you own drops 10% below your cost basis, add shares

Rule #5: Bull markets aren't sustained without the Transports

Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase

Rule #7: When an investment bank sells below book value, buy it

Rule #8: Tips are for waiters. Do your research.

Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:

BSTC, CVS, CSCO, VEEV, STZ, AMZN, NVDA, BCRX, GS, BDSI, VEEV, VTI, GLD, HD, AWR, XLNX, MRVL, NBRV

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved