q=%24UAL&src=ctag&ref_src=twsrc%5Etfw">$UAL and positive corporate news.
-reached an agreement with Boeing and Wisk to enter into autonomous flight collaboration and settle litigation matters. -Midnight… pic.twitter.com/wUgEajcMD0— Stone Fox Capital (@Stonefoxcapital) August 11, 2023
This model was down 0.5% in July versus a 1.3% gain for the
benchmark S&P 500. Oddly the model has fluctuated a lot in recent months with
large cap stocks in the model moving up or down 10% on earnings reports. While
typical of smaller companies this usually doesn’t happen in companies with
market caps exceeding $10B.
As mentioned previously, one goal of this model is to slowly
trim the amount of positions back closer to 20 after reaching 26 due to mergers and partial positions.
Hence, the model sold the remaining holdings in Home Depot (HD) and added to existing small positions in Hartford Financial (HIG) and WellPoint (WLP).
Home Depot was unloaded as the stock finished a long run
from October last year where the stock went from just over $30 to the selling
price over $51. This considerable gain pushed the Net Payout Yield (NPY) down
as the company dropped buybacks. Not to mention that competitor Lowes (LOW) remains a Top 5 holding.
The two purchases were of stocks with small positions in the
model that needed to be added to or sold to reach the goal of reduced amount of
WellPoint consistently ranks in the top of any NPY reports
with yields typically exceeding 15% and sometimes approaching 20%. Though the
stock was added to in the low $60s after it plunged based on the Obamacare
ruling, the timing was still off as it plunged even further to the lower $50s
following a weak earnings report.
Hartford has been equally weak as well. The property and
life insurance provider trades at roughly 35% of book value providing a unique
opportunity as every buyback adds to book value.
These trades further highlight the benefits of a model that
sells stocks after big runs and buys stocks after significant declines.
With a decent market in July, this model underperformed for
two primary reasons: Lowes and WellPoint. Both companies had disappointing
earnings outlooks that sent the stocks down considerably.Odd for large cap stocks with market
caps both over $18B, but conversely each company has a buyback and strong
balance sheets that will benefit from the stock price drops.
As mentioned above, WellPoint was particularly weak again
following a disappointing earnings report for Q2 2012. This occurred after the weak June
following the Supreme Court ruling upholding Obamacare. The stock fell over $10
during the month to end at $53.29. On top of that the stock was near $73 in the
middle of June. Per the earnings report, the company expects to utilize $1.5B
in the 2H of the year on repurchases and dividends. An incredible 8% return of
capital to shareholders for a 6 month period.
Lowes dropped more than 10% in August as analysts continue
to reduce analyst estimates for 2012 and 2013. The company is the 2nd
largest home retailer behind Home Depot. It currently has an 11% NPY focused
primarily on buybacks.
Several stocks in the model had a good month with retailers Gap (GPS) and Kohls (KSS) having the
best months. In fact, the majority of stocks had positive returns for July, but
with no stocks having outsized gains the losses from WellPoint and Lowes
swamped the gains.
With a market hungry for yield, it has become increasing
popular to own dividend paying stocks. Even to the point where dividend yields
for certain sectors have been pushed down to multi year lows. With Treasury
yields at all time lows, dividend stocks might not be in bubble territory yet
though investors need to be careful.
This is where the concept of the NPY pays dividends (no pun
intended). An investor isn’t restricted to either the dividend or buyback
discipline like most funds that focus on these concepts. As dividends become
more popular, those stocks gain and push yields down automatically forcing this
model into more buyback stocks. In essence, the cheap and ignored stocks rise
to the top of the list.
So while investors are busy chasing the 4.5% dividend yields
on AT&T (T) and Verizon (VZ), this model is chasing the
20% yields on ConocoPhillips (COP), Kohls,
and Goldman Sachs (GS).Or grabbing similar dividends on Lorillard (LO) and Lockheed Martin (LMT) while also obtaining 8-10% buybacks. Signs
that the latter stocks are much cheaper than the wireless giants loved by the
markets. See our article on the subject here.
As speculated in the last couple of reports, as each day
passes the market gets more and more comfortable with the ability to avoid a
major financial collapse in Europe. As the market tires of the relentless
headline risk that never comes to fruition, investors have been slowly moving
out of cash into dividend stocks.
The main risk for domestic markets and stocks remains the
fiscal cliff and pending election. Any inability to keep the markets calm
regarding fiscal and tax issues in the US could lead to healthy losses. The
most at risk stocks could be those of high dividend payers that have had an
exceptional 19 month run. These stocks might face the headwinds of higher tax
rates that pushed them down at the end of 2010.
Regardless of the markets, the average stock in this model
yields greater than 10% with the majority of yields coming from buybacks. This
provides huge support if the market turns weak again.
Disclosure: Long all positions mentioned. Please review the disclaimer page for more details.
Stocks to watch at week end: Lyft (LYFT) - the launch of Lyft Rentals isn't smart. The ridesharing service appears set to create another way to lose money. A prime benefit of the service is the door-to-door service where customers get a $20 ride credit each way. In essence, Lyft is giving away rides where the company already loses money in order to obtain what might only be a daily rental for $35. A lot of the service appears better for consumers, but the company is actually offering these ride credit discounts. Until Lyft can charge premium fees, avoid the stock. Canopy Growth (CGC) - the Ontario govt has approved a plan to license 20 stores a month starting next April. Canopy Growth expected 40 stores per month starting in January leaving a 300 store gap from expectations. This stock is still headed to $10. More research: Canopy Growth: Constellation Bid Appears Unlikely, For Now Stitch Fix (SFIX) - here comes the expected dip following another solid quarterly report.
Kohl's has activists wanting the company to spin off the e-commerce division to unlock value. The company already has plans to grow the business and activists have yet to show how a full omni-channel business can operate as two different companies. The stock is absurdly cheap at 7x EPS targets and Kohl's will repurchase over 15% of the outstanding shares this year. Looking for more investing ideas like this one? Get them exclusively at Out Fox The Street. Learn More » After an outstanding quarter with business booming, Kohl's ( KSS ) faces activists wanting to break up the business. The omni-channel retailer is facing the same pressure as other department stores to separate the e-commerce business in what amounts to financial engineering. My investment thesis remains very bullish on the retailer as the company reinvents the shopping experience. Read the full article on Seeking Alpha. Disclosure: Long KSS. Please read the disclaimer page for more details. Update -
Update - Mar. 27, 2023 Ouster missed a great opportunity to promote the combined business of Velodyne Lidar and Ouster and the company decided to pass. The stock trades below $1 for this reason and management has to own this incompetence. -Q4 GAAP EPS of -$0.23 misses by $0.03. -Revenue of $10.94M (-7.7% Y/Y) misses by $4.9M. -Secured company record $70 million in bookings in 2022 - Q1'23 revenue guidance of $15 to $17 million, excludes Velodyne revenues through merger close on Feb. 10. The Q4 revenue total was closer to $25 million and the Q1'23 pro-forma revenue total was probably closer to $21 million. Update - Mar. 15, 2023 Pretty nice deal here with 100 Lidar sensors shipped at the end of '22. Ouster shouldn't be trading back below $1. -Fieldin has already deployed dozens of kits at its customers’ farms and plans to deploy over 100 autonomy retrofit kits on tractors, each equipped with an Ouster OS1, to major customers across the United States in 2023. Ouster