Kohl’s (KSS) earning surprise sent the stock higher last week. We take a look at the news coupled with a reading of the current stock chart and industry trend to get a sense of whether KSS is a stock worth putting on your investment radar.
In our previous installment we set forth the case as to why REITs, with an exposure to the Florida market, will be in a increasingly friendly for investors in the years to come.
What options exist for investors looking to following such an investment strategy? Two REITs that speak directly to the theme of an aging Baby Boomer population and their desire for warmer climates are LTC Properties (LTC) and Senior Housing Properties Trust (SNH). Both companies provide exposure to independent and assisted living facilities. Both have a good deal of exposure to the Florida market, as well as the Texas, Arizona and California market. These markets, like Florida, are historical hot beds for retirement relocations.
Both of these companies provide a good deal of geographic and property type diversification. Dividends for both stocks are healthy and sizeable. Historical evaluation for both operations show a history of consistent dividend payments with increasing distributions. SNH has a higher volatility rating as measured by beta compared to LTC.
As you go forward in your research to evaluate these companies and other REITs, keep in mind the company’s use or overuse of debt. This can be done by looking at the debt to equity ratio and then looking at what is standard in the industry. Past practices of selling additional stock to finance projects can also be a potentially negative sign for investors. In addition, the dividend payout percentage can be helpful to identify possible signs of dividend sustainability or in-sustainability. We could compile a very long list of financial ratios and metrics that need to be evaluated…research is a requirement. Otherwise you should buy darts and throw them at stock labels for your selection method.
The point is that when you’re evaluating the companies listed or others, you need to have a sense of what the company is looking to accomplish and their strategy in doing so. A financial ratio held independently does not tell much of a story. Having a sense of the company as a whole is critical. In addition, knowing where the market is in terms of value is critical. While the long-term trend discussed in this entry is set to push such REITs higher in value, it would be foolish to believe any of these companies is set for perpetual increases without correction. The overall market will have a heavy hand in dictating their general direction. It does not hurt to wait for a broad market sell-off to establish an entry point.
Disclosure: No Position
If El Nino results in a winter and spring comparable to that of what was seen in ’97-’98, a good deal of California will experience extreme weather that will result in flooding and other negative outcomes. For insurance companies, such conditions don’t necessarily spell above average, but for disaster service companies the outlook could be quite bright.
ServiceMaster (SERV) is one company that is well footed to benefit from an increase in weather related disasters from El Nino or other sources. The company’s two main operations are its franchise services and Terminix. The franchise portion provides a wide variety of disaster recovery services. For example, when your building is flooded, SERV provides industrial fans and other drying devices to mitigate the damage of water in a commercial or home structure. Terminix is a pest control service provider, which is primed to deal with greater insect and rodent activity based on the impending shift toward a period of more inclement weather.
The basic fact is that if we assume El Nino will bring a break in the drought California has been in for the past 4-5 years, then the changes of local and regional flooding will increase significantly. Whether it is large scale run off of water from hills into homes or simply roofs that have not been tested with a sizable rainfall in years, the potential for flooding in California is much higher than normal because of the extended drought. Flooding translates into increased business for SERV. When disaster strikes, SERV benefits. The stronger the El Nino, the better the business for SERV.
Note – SERV is currently trading near its 52-week high. You may want to watch for a pullback to establish a position within the stock. At the current price, the dividend yield is 1.2% annually.
Disclosure: No Position
The world we live in is evermore connected. As the days, months and years pass by, it is assumed that the devices we use and interact with will grow exponentially in their level of connectivity. We are far from the days when the home PC was standalone connected device in a home or office. With change typically comes investment opportunities. Buggy whips and Kodak cameras no longer exist, yet we travel and take more pictures than we have in the history of mankind. Such examples are termed by economist and the business community as creative destruction.
When you visit a home goods/hardware store such as Lowes or Home Depot, take a look around at items that are electronic in nature. What you will find is an emergence of ‘connected’ devices. These devices range from light-bulbs to large appliances that can be controlled remotely (typically via smart phone). The scope of possibilities is already wide and will continue to expand in the coming years. Your smart phone will enable you to orchestrate activities in your smart home. Technology has developed to the point where it is becoming practical and affordable to incorporate Wi-Fi and Bluetooth connectivity in smaller items such as thermostats, power outlets, light bulbs, coffee makers and the list goes on.
The change in electronics from stand-alone items to those that are now connected is similar to what occurred around 10 years ago with HDTV. Television’s value proposition changed, which led to an upgrade cycle in the television market. Plasma/LCD/LED flat screen televisions became practical and affordable for the regular person and adoption took hold. The adoption will be less dramatic for smart appliances and peripheral equipment, but will be revolutionary, nevertheless.
Which companies stand to benefit from this shift? One major manufacture is General Electric (GE). GE makes items from light bulbs to dishwashers and much more. They are a major player and well diversified not only on the consumer side, but on the commercial side, as well. The larger the operation, the greater the potential benefit is from having a connected system. Security and cost control translates into a more stable and efficient operations whether in your house or business. In the case of businesses, when value can be directly translated into dollars and sense, then it’s much more likely to be done. In the case of connectivity and integration, the quantification of the argument ($$$) should be relatively straight forward.
Beyond the business world, a trend pertaining to the U.S. homeowner should be noted. A large swath of the Millennial generation is now in its late 20’s to early 30’s. Already delayed in the purchase of a first time home, this group continues to move toward the prime age for purchasing their first home. Of all the ‘working’ generations, Millennials are most comfortable and active with existing and new technology. Therefore, as this generational group moves into the home owner market, an increased focus will be placed on home connectivity; whether the home is new or existing.
As an investor what are you to do faced with this emerging trend? Below I am providing a sampling of companies that stand to benefit from the trend. This is very far from an all inclusive list and should be used as a starting point to identify areas where companies might exist that are providing solutions to the connectivity revolution.
Last Friday’s terrorist attacks in Paris were yet another reminder of the way in which the Western world has changed. No matter what Western leaders do or do not do in reaction to the current and future attacks, public and private organizations will take steps to ensure security is maintained and future attacks are thwarted, if possible.
When investing, you are in a sense voting for the services and goods you believe will thrive (be demanded). As the West is dragged further into a war with radical Islam and other malcontents, the need for terrorism deterrents and solutions will be needed within the communities and cities we live in.
Here are some public traded companies that are working to provide anti-terrorism solutions.
- American Science & Engineering (ASEI) – X-ray equipment specifically used by homeland security.
- FLIR Systems (FLIR) – Manufactures and distributes thermal imaging systems, visible-light imaging systems, locater systems, measurement and diagnostic systems and advanced threat-detection solutions.
- Analogic Corporation (ALOG) – Is in the business of making and marketing security technology products, explosive detection systems, and weapon and threat detection aviation security systems, in addition to their medical imaging business.
For a more extensive list of anti-technology stocks, see http://wallstreetnewsnetwork.com/AntiTerrorismStocks.xls
We live in a data driven age. Today data is being collected at every turn; from what you’re visiting online to the type of food you’re buying at the supermarket. Concurrently, data captured in decades prior is being unlocked to the public. This mass of data can be overwhelming, yet create various potential opportunities for idea seeking investors.
National Parks across the U.S. attract millions of domestic and foreign tourists annually. It’s a big business for the Park Services. Now, you can’t invest in the actual Park Service, which is part of the Federal government, but you can think about businesses that profit from increased tourism to National Parks. The first thing that comes to mind is outdoor sporting goods manufacturers and stores.
Changes in attendance to our National Parks, in my mind, reveal a larger trend that is occurring. If more people are visiting these parks, the general trend is likely the same for all general outdoor actives. Thus, their should be increased demand for outdoor gear and accessories. This is how trend tracking can lead you to investment ideas.
From the mid 90’s until 2014 you will notice a similar trend occurring within the three most popular National Parks in the U.S. In the mid to late 90’s Yosemite, Yellowstone and the Grand Canyon all experienced declines in visitation that continued for about 10 years. In the latter part of the first decade of the 2000’s, visitation began to increase and has continued to trend higher year after year.
What explains the change in the trend that happened in the 90’s and then reversed about 10 years later? I speculate that demographics played the most significant role. A large part of the echo-boom population was in or around their teenage years. This age range in general is not very interested in family vacations, especially the outdoor flavor. If you look back at the early 90’s and 80’s the attendance at these parks was experiencing growth. The demographic group was younger and more conducive to outdoors family functions. Fast forward to around 10 years ago and you find the echo-boomers starting families and thus a increase in attendance starts to occur at the parks; a signal that more outdoors activities are occurring.
I can only speculate what cause the trend to shift, but I do know that the current trend is for more year over year park visitations. This implies more outdoor activities happening across the country. If the general public behavior is shifting to more outdoor functions, then companies that provide such products for those functions are going to have an easier time growing their existing business. This creates a more hospitable climate for investors in such companies.
Where do you turn to when looking for pure plays in the outdoor recreation market? One option is Sportsman Warehouse Holdings (SPWH). SPWH operates 49 stores in 18 states that provide outdoor sporting goods including hunting, shooting, fishing and camping gear. It’s very well positioned to benefit from any increase in society’s inclination to venture into the great outdoors.
The bottom line is that piles of data are now accessible to us with the click of the mouse. A little work can reveal helpful observations that can lead us to achieving investment success.
Unless you’ve been living in a cave for the past few months, you are aware that the price of oil has dropped considerably. To the public, this change in price has been evident via every gas station. What was once around $4 per gallon (in California markets), is now sub $3. Two dollar gasoline has not been seen in years. While this is music to the ears of automobile drivers, it has huge implications for oil exploration companies.
Over the last 6-8 years North America has experienced a shale gas/oil exploration boom. The reason for the great expansion hinged upon two key drivers. First, drilling techniques and technology had advanced to the point where previously inaccessible oil reservoirs were accessible. Secondly, the price of oil had remained at such an elevated level that the assumed profit from drilling in these oil fields made financial sense. With oil plummeting (chart below), investors are running from companies heavily exposed to shale oil extraction. At the depressed levels we are currently seeing, these companies will need to make some very difficult financial decisions in the near term. Many companies, such as shale darling Linn Energy (LINE), have been high dividend yield plays for a number of years. High payout ratios and regular increases to the dividend payout were common practice. Even with hedged oil contracts, the ability to maintain operations with yesterday’s oil pricing only can last so long.
The winds of change are blowing in the oil commodity market. Right now the discussion we are seeing is based around whether this is a temporary fluctuation or a game changing fluctuation. If oil prices stay in the 60’s or below, what changes not only in the shale arena, but also in the automotive, refinery, rail car, pipeline and other businesses that are influenced by the price of energy? The implications are far from limited to one industry or sector.
On October 20th (my last posting), I recommended Winnebego (WGO) as an investment play on declining gas prices and increasing amounts of baby boomers retiring. Since 10/20 the price has gone from $20.47 to $25.18 per share. This represents a 23% jump in valuation within a little over one month. What other companies thrive in a cheap oil environment? Or another way to think about this situation would be; what stocks got clobbered in the latter part of the last decade when oil prices skyrocketed?
If you haven’t noticed, the price of oil has taken a tremendous dive in the past weeks. This already has translated to reduced prices at the pump. When these events occur, it’s good to think of the auxiliary industries that stand to benefit. A lot of noise has been made as to how this is going to impact highly leveraged shale oil drilling firms, yet other industries exist that have been suffering from over a decade long spell of steep prices at the gas pump.
One industry is the recreational vehicle industry (RV). RV’s at one point where all the rage amongst traveler’s within the U.S. They offered a unique combination; mobility of the road and the quasi comfort of home. In the last decade, escalating fuel prices put a significant damper on RV sales. The single digit miles per gallon made them unaffordable to most and the Great Recession didn’t help an already poorly positioned industry.
Now, we’re in the midst of an at least temporary break in fuel prices at the gas pump along with a wave of Baby Boomers hitting their retirement years. The trend could be shifting in favor of the RV companies.
One of the standards in the RV industry is Winnebago (WGO). The stock has actually been on a pretty steady decline and a recent earnings call noted a reduction in their backlog and inventory level that rose. These two issues aren’t bright spots, but given what we are experiencing in terms of gas prices, this should help bring buys in to dealerships. If this holds true, then the projections for WGO are likely low and in quarters to come will be revised upward.
In short, weak gas prices should be a catalyst for increasing WGO sales, which will give rise to its currently beaten down stock price. Baby boomers entering retirement will be the 2nd positive force for WGO and related companies.
WGO is a stock where I see it reasonable to ‘buy the weakness’ if you’re a long-term investor and keep an eye on the spot rate of oil.
Disclosure: No Position
Before the telegraph took hold, the fastest was of transcontinental communication in the U.S. was the Pony Express.
In 1860 the Pony Express was born and ran (literally and figuratively) from Missouri to California. It was so impressive it cut communication from the Atlantic to the Pacific to roughly 10 days. It’s almost impossible to consider in today’s state of instant and constant worldwide communication. To say we’ve had a revolution in communication is almost too subtle of a description for the transformation between the speed of the Pony Express to the speed of email, text messages, Facebook updates and Twitter postings.
The change experienced in communication over the last 150 years is astonishing. Yet, it would be foolish to conclude that we have reached the precipice of communication’s progress.
Today’s leaders of communication play in the arena of cellular communication. Samsung and Apple are the two companies that are currently engaged in a heavyweight battle for smart phone supremacy. In terms of hardware, they are on the front-lines of innovation. Samsung Electronics (005930.KS) has been beaten down since June of this year (2014). How long will this trend remain?
Hardware is only one dimension to the continuing development in communication. Infrastructure is a huge component. American Tower Corporation (AMT) is a cellular tower operator and property owner. The company has shown constant growth in stock prices over the past 5 years and pays a consistent dividend around 2%.Communications will always be a valued aspect within human civilization. We’re in the midst of a continuing information revolution. Certain companies make the tools for consumers to use to be part of the process and others establish the infrastructure to enable all the pieces to work. If you’re looking for a trend, the explosion in communication/information technologies has been on-going for around a century and half and I don’t see an end in sight.
It’s late in the evening and typically I find myself searching for some sort of snack. Tonight, in my mind’s never ending capacity for all things food, I’ve come across a company that you should put on your investing radar. WhiteWave Foods (WWAV) might not sounds familiar, but you’ve probably heard of the company’s brands, particularly if you’re into more of the ‘health’ foods area.
Since it’s inception on the NYSE in the latter part of 2012, WWAV has steadily increased in share price. WWAV has implemented a pretty aggressive acquisition and product development plan from the latter part of the 90’s up until current times. So far things have worked out well.
Here are some very brief observations as an investor looking at WWAV from a 30,000 foot view level…
-The health food trend is very strong. Whole Food, Fresh Market, Sprouts and other similar grocery stores are a reflection to how predominate this trend is throughout society.
-People with money are driving the health food trend. In our current economy, the only area that has shown modest growth is amongst high income earners. Therefore, this group is carrying this trend and has the ability to continue the trend.
-As the Baby Boomers move further into the retirement, they will put a greater focus not only on their health, but in maintaining whatever youth they have. Eating healthy foods will be part of the potion to achieve this goal.
-The observations made above will help WWAV to earn higher margins than your run of the mill food company. While competition will increase, WWAV’s brands have very good exposure and are well established in the market. This will help maintain the company’s momentum and enable WWAV to capitalize on the continuation of the health food trend.
-A company that is successful and well entrenched in a market that is riding an expanding trend may cause WWAV to become a takeover target by a larger company looking to gain exposure in the market.
Put WWAV on your radar, do some research and consider if WWAV is a good fit for your portfolio.
Disclosure: No Position