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 Analysis:

Earnings reports are coming in from the big Dow companies I have advised as long positions in my Bull & Bear portfolio. I don’t spend any time worrying about companies “beating” estimates, or achieving artificial guidance benchmarks created by management to control Wall St. analysts’ opinions. What is helpful though are the actual details about the business you may glean from an earnings report. Here are a few I’d like to share from the recent earnings season.

3M: The business with the best momentum in the last quarter at 3M was its electronics and energy business. Particularly strong was 3M’s displays unit. 3M builds multi-touch projected capacitive (PCAP) display systems that can be from 7 inches to 65 inches wide. The glass is bezel-free, for the glass-to-edge designs you see on the most advanced technologies. The PCAP systems use 3M’s proprietary Ultrafine Metal Mesh designs to get accurate responsive behavior from display screens. 3m debuted its 65”, 4k ultra-high definition display last year at a tech gathering known as InfoComm. The machine is targeted at large public venues and retail applications. 3M’s innovative technology has always kept it ahead of its peers.

Caterpillar: A highlight in Caterpillar’s last quarter was strong sales in China. After getting completely shut out of China in the 1950s and 1960s, Caterpillar returned to the Middle Kingdom in 1972, after a 23 year absence. The reopening of China’s doors to Cat employees revolved around an order for 38 pipelaying machines and replacement parts the Chinese wanted to buy. Now, years after that humble start of 38 machines, Caterpillar has sold in the first eight months of 2017 over 85,000 excavators, according to the China Construction Machinery Association. And Cat has recently unveiled its next generation of hydraulic excavators at a Beijing trade show. Sales of mini-excavators are doing so well in China that Caterpillar is planning on increasing capacity at its Chinese production facility.

Microsoft: The story this quarter at Microsoft was all about the Cloud. Sales of Microsoft’s Azure cloud system increased by 90%. Without getting too technical, Azure is a cloud system used by app developers to build and deploy their creations on Microsoft’s servers around the world. Azure is a direct competitor to Amazon’s Web Services (a.k.a. the profitable part of Amazon). After getting a late start in the cloud, Microsoft has come roaring back to amass loads of market share. Unlike Amazon, Microsoft is a Dividend Achiever with over a decade of consistent dividend increases under its belt.

Intel: In the company’s third quarter earnings release Intel CEO Brian Krzanich said the company’s product-line is “the strongest it has ever been.” He singled out markets like artificial intelligence and autonomous driving as places Intel is focused on innovating. Intel is building a new chip called Nervana to supply the booming demand for artificial intelligence technology. The Nervana is a neural network processor (NNP), and Intel has been developing it for over three years. Naveen Rao, who began the Nervana project before it was acquired by Intel said of the work the chips will do “Machine Learning and Deep Learning are quickly emerging as the most important computational workloads of our time.” Existing hardware just won’t cut it under these new demands. Rao continues “We designed the Intel Nervana NNP to free us from the limitations imposed by existing hardware, which wasn’t explicitly designed for AI.”

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: 3M (NYSE:MMM)

Back in 1902, five men came together to found the Minnesota Mining and Manufacturing Company. Their target that day was corundum, an extremely hard mineral that can be used as an abrasive. Their first mining operation, called Crystal Bay, didn’t turn out very well. The men however endured the failure and continued on, developing other products and materials to sell.

In 1907 a man named William McKnight would join Minnesota Mining and Manufacturing Co. (later known as 3M) as an assistant bookkeeper. No one knew then that McKnight would change the company and its culture forever. The assistant bookeeper quickly rose through the ranks, ultimately becoming 3M’s chairman of the board in 1949. McKnight would firmly establish the core philosophy of innovation and collaboration at 3M.

Innovation has been at the heart of the 3M’s business model since the very beginning. Along the way the company would make a number of product breakthroughs; developing masking tape, the first waterproof sandpaper, the Thermo-Fax copying process, Scotch-Brite Cleaning Pads, Scotchgard Fabric Protector, videotape, and innumerable other new products and processes for making people’s lives easier. Today there are over 60,000 products from 3M in homes, businesses, schools and hospitals around the world.

3M isn’t satisfied to sit on its accomplishments of the past. The company is innovating for the future. Today 3M scientists are developing new nanomaterials for dental work, polarizing films to protect smartphone screens, and hundreds of other technologies to make lives easier.

3M has paid a dividend every year since 1916 and increased its dividend every year for over half a century. Today the shares yield 2.2% and I am looking for dividend growth of almost 6% in 2017.

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.

Click to enlarge.

Featured Company: Microsoft (NASDAQ: MSFT)

Back in 1975 two young men, Bill Gates and Paul Allen, founded a company they named Mircosoft. That year the two made their first sale to MITS Computer. The company purchased a PC programming language called BASIC. In 1981 Microsoft was incorporated, and IBM adopted its 16-bit operating system for its first personal computer. In 1985 Microsoft would introduce Windows 1.0. The operating system was the first in a family of operating systems that would expand in usage across most of the computers in the world. In 1990 Microsoft became the first PC software firm to generate over $1 billion in sales in a single year.

In tandem with its ubiquitous operating system, Microsoft has developed and acquired a number of software programs that have come to be known collectively as Office. The Microsoft Office Suite of programs, including Word, Excel, PowerPoint and others, is found on almost every computer used for real work. Office has been a powerhouse performer for Microsoft. When misadventures like the Zune mp3 player let shareholders down, Office held steady.

Now Microsoft is integrating Office into its next big endeavor, the Cloud. Microsoft’s cloud systems, led by its Azure application platform, is one of the fastest growing parts of the company. The cloud is the future, and Microsoft is a leader. With more companies adopting cloud services to increase their efficiency and redundancy, Microsoft is once again sitting at the leading edge of a technological plate shifting. Unlike many other tech companies though, Microsoft has developed a strong dividend record. MSFT shares have paid dividends since 2003, and have increased them each year for the last 12 years. Over the last five years dividends have grown at an annualized rate of 14.3%.

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: Visa Inc., (NYSE: V)

In 1958 Bank of America launched the first consumer credit card for middle-class Americans and small to medium-sized merchants. The business grew rapidly, going international in 1974 and adding a debit card in 1975. In 1976 the Bank Americard became Visa. In 1995 Visa co-created EMV which allowed interoperability between all chip-enabled cards and terminals. In 2001 Visa surpassed 1 billion cards issued. In 2007, a restructuring of Visa’s global network was begun, creating Visa Inc. In 2008 Visa went public on the New York Stock Exchange.

Today Visa operates the world’s largest consumer-payment system, with nearly 2.5 billion credit and other payment cards in circulation across more than 200 countries. Visa is the #1 player in the electronic payments industry, with a market share of nearly 60%. Visa connects and clears transactions between banks and merchants. The company’s vast network creates high barriers to entry and a durable competitive advantage.

Visa sports a dividend yield of only 0.66%, but the company is a dividend growth powerhouse. Over the last five years, Visa has compounded its dividend at a rate of almost 26%. Not surprisingly, the total return on Visa shares over the same period is also 26%.

Visa’s growth is closely tied to that of the global economy, but the company also benefits from the ongoing transition to electronic payments. Cash still accounts for 85% of the world’s transactions and 40% of transactions in the United States. The shift to electronic payments has a long way to go. That means more potential market share for Visa to gain as it expands its business further around the globe.