Archives for November 2017

Model Guidance: I want you to close out both the long and short positions on the Short-term Bull & Bear Portfolio at the open today. Based on yesterday’s close if you initially invested $90,000 in the nine long positions in the model you have made close to $9,000 in only two months. A $30,000 investment in the three short positions has lost only about $2,200. The net gain on my Short-term Bull & Bear Portfolio is $6,742, or a 7.5% gain assuming $90,000 in starting capital. You’ve done better than the Dow with less stock market risk.

The Short-term Bull & Bear Portfolio was the first feature of my new digital-only Young’s World Money Forecast. There will be much more to come in 2018.

About two months in, how is my Short-term bull-bear model performing?

I couldn’t be happier. The bull-bear model has made almost 8.8% on the longs and lost only 6.4% on the shorts.

If you started with $90,000 in capital and invested $10,000 in each of the long positions and sold short $10,000 of the three short positions, you are sitting on a gain of 6.4% in only two months. The Dow is up 5.6% over the same time-period.

So six of one, half dozen of the other, right?

Not exactly, a 6.4% return in the bull-bear portfolio was achieved with only two-thirds of the stock market exposure of a long-only portfolio. You are making more by taking less stock market risk. If the long portfolio and the short portfolio would have matched the performance of the Dow, the bull-bear model would have been up 3.83% or two-thirds of the Dow’s 5.6% return. See the correlation? Two-thirds market exposure would have resulted in about two-thirds of the return.

But the bull-bear model is doing much better than that. What’s driving the performance? Caterpillar, Microsoft, and Intel are all big winners. All three are up double digits on the back of stronger than expected earnings. Intel is the standout with a return of more than 21%.

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Company: Intel Corporation (NASDAQ:INTC)

In 1968, the year 2001: A Space Odyssey was released, mankind was looking to the stars and the future of technology. The Apollo space program was heating up in preparation for the moon landing the year after. Computers were being made smaller and more powerful in order to the meet the demands of the space program and other advanced technological undertakings.

That same year, two men named Bob Noyce and Gordon Moore founded Intel. The company’s first product would be produced in 1969. It was the 3101 Schottky bipolar random access memory (RAM). The team would also break ground by introducing the world’s first metal oxide semiconductor static RAM, the 1101. By 1970 Intel had upended the entire industry by introducing the 1103 DRAM, a new standard in computer memory technology.

Intel’s hits would keep on coming. In 1974 the company introduced the first general-purpose microprocessor. In 1975 Intel processors were shipped on one of the first PCs, the Altair 8800. In 1981, computing giant IBM would select Intel’s processors for its line of PCs. In 1992 Intel became the world’s largest semiconductor supplier. Through the 1990s Intel would introduce and continuously improve its Pentium line of processors. In 2006 Intel introduced the world to the first quad-core processor for desktop computers.

Today Intel is transforming its business from a focus on PCs to a focus on the cloud and smart devices. Intel is pushing forward cloud technology with its innovations like the Intel Optane. The product is the first to combine memory and storage, making the cloud faster and more efficient.

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Company: General Electric (NYSE:GE)

America’s Most Venerable Blue-Chip No Longer

GE, America’s most venerable blue-chip industrial company, and the Dow’s oldest constituent, had what may be the company’s worst week on record this week. For only the second time since the Great Depression, GE announced a dividend cut. The 50% dividend cut was announced in conjunction with a restructuring program delivered by new CEO Jim Flannery on Monday.

Sadly, the dividend cut wasn’t the worst of the news. The restructuring program that Flannery hyped up for months fell flat with Wall Street. GE shares plunged during the presentation. After months of buildup, investors were looking for something spectacular, but Flannery delivered a plan for basic blocking and tackling that he could have announced the first week he took over as CEO.

He told shareholders, GE will focus on three primary areas moving forward, Power (in need of help), Aviation (today’s crown jewel), and Health. GE will look to exit its remaining businesses.

Young Research has followed GE for decades and advised it on and off in Intelligence Report. GE has most often been a reliable dividend payer, with a rock-solid balance sheet, and a solid record of making regular annual dividend increases. The company did cut its dividend during the financial crisis as its finance arm had to tap government liquidity programs, but that looked like a one-off. Dividend growth resumed soon after the crisis passed.

GE has always had strong franchises, and it has been a market leader in the industries it has participated in. The company was one of Fortune’s most admired companies for years and it was once viewed as America’s best run big company. GEs managers were sought after to fill CEO roles, its management training program was the envy of corporate America, and it received high marks for efficiency and profitability.

GE still has strong franchises, but under the leadership of former CEO Jeff Immelt, GE’s reputation has suffered immensely and so has its stock price. Immelt was a disaster. He waited too long to exit the financial business, then sold near the bottom and entered the oil business near the industry’s top, only to participate in the oil downturn. You couldn’t have done worse if you tried. Immelt also allowed expenses to inflate, and cash flow to dwindle, which led to the mess GE finds itself in today.

Flannery’s promise to maintain the dividend and his hype of the analyst meeting were obviously mistakes, but his back to basics plan for the company is a move in the right direction. GE needs to get simpler and more profitable. Unfortunately, that doesn’t happen overnight and Flannery’s plan isn’t without risk.

Turnarounds take time and often don’t go as smoothly as management or shareholders would like. For conservative investors and those in or nearing retirement, GE’s dividend cut and now significant execution risk are disqualifying. Predictability, reliability, dividend growth, and low-risk are what we look for in dividend stocks, and GE offers none of the above today.

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Company: UnitedHealth Group (NYSE:UNH)

In 1974 a group of doctors and health professionals founded Charter Med to provide health coverage. In 1977 United Healthcare Corporation was born to reorganize Charter Med. Its founder, Richard Burke started the business with the goal of helping people live healthier lives. Burke was assisted by Dr. Paul Ellwood, a “health policy guru” who coined the term “health maintenance organization.” UnitedHealthcare would go on to introduce the first network-based health plans for seniors, and to create EverCare, a care coordination program for people in nursing homes. Later the company would develop modern pharmacy benefits management and develop many other innovations in the industry.

Each year in over 125 countries, UnitedHealth processes over 750 billion digital transactions. In the United States alone UnitedHealth provides its customers access to over 1 million healthcare professionals, at about 6,000 hospitals and healthcare facilities. That includes 4 out of every 5 hospitals in America. UnitedHealth’s millions of customers have access to more than 67,000 pharmacies.

According to the U.N., “The global share of older people (aged 60 years or over) increased from 9.2 per cent in 1990 to 11.7 per cent in 2013 and will continue to grow as a proportion of the world population, reaching 21.1 per cent by 2050. Globally, the number of older persons is expected to more than double from 841 million people in 2013 to more than 2 billion in 2050.”

As the world ages, it demands more medical care and UnitedHealth Group provides access to that care. The company has paid dividends since 1990 and shares yield 1.42% today.

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Company: Home Depot (NYSE:HD)

After Hurricanes Harvey and Irma pounded Texas and Florida with devastating wind and rain, there has been a frenzy of construction to rebuild and replace all that was lost. Estimates are that $200 billion worth of damage was done. Crews are busy all around Key West where Debbie and I live, and in and around Naples where my family run investment advisory firm, Richard C. Young & Co., Ltd. has its office. In Houston, residents are hoping to recover from Harvey, which affected as much as 14.2 percent of the city’s housing. If there can be a silver lining, it is that unemployment among construction workers, many of them out of work or underemployed since the financial crisis began, is at record lows.

In October, unemployment for construction workers matched its lowest recorded level for that month, 4.5%. Over 6.93 million Americans were employed in construction jobs, the highest of any time outside the height of the building boom from May 2004 to November 2008.

The recovery in the construction industry really took off in late 2011 when housing starts finally broke out of the depressed range they had found themselves in after the bust. In November of 2011, starts broke through 700k a month and never looked back. In September 2017, there were 1.127 million starts.

Standing ready to supply the rebuilding effort are companies like Home Depot. Back in 1978, the same year I began writing the first iteration of Young’s World Money Forecast, Bernie Marcus and Arthur Blank were sitting in a coffee shop in Los Angeles laying out their plans for a superstore that would not only sell customers tools and hardware, but even teach the customers how to use them.

By 1979, with help from investors, their vision—The Home Depot—was born in Atlanta, Georgia. The first store was a 60,000 square foot warehouse with more items for sale than any other hardware store. The model was a hit. Today The Home Depot is the world’s largest home improvement retailer. Stores are now usually around 105,000 square feet in size, and there are more than 2,200 locations across North America.

I added Home Depot as a long position in my initial Short-Term Bull & Bear Portfolio. The company has been paying a dividend since 1987. Home Depot has never cut its dividend, but it did leave the payout flat for two years during the depths of the housing market bust. Since then, HD has been quickly raising its dividend each year, with a 29% boost in 2017.