Pullbacks are necessary for efficient share buybacks.

When you see some of your holdings going through price pullbacks of 10-25 % in a short period of time on no particular fundamental reason, you tend to focus on the negative short term sentiment going through the market. One group of companies will benefits from price declines though, those with big share buyback programs.

The mechanism is quite simple when price are lower, the company can buy back a lot more shares and increase future earnings per share therefore increasing profitability.

Some of the biggest beneficiaries are:

Visa

Between 2008 & 2018 over 50 % of the float went away. Look at the price chart…

visa stock chart

 

Apple computers

between 2012-2018 around 31% of the float went away.

aapl

Granted, this is not the only factor providing price increases on stock, but anything helping a profits will push in the right direction. So embrace pullbacks they will make you richer in the long run.

 

 

Building a dividend House

 “A picture is worth a thousand words.“
I am sharing with you today the House dividend analogy.

PLEASE BE AWARE THAT I DO NOT ENDORSE ALL THE STOCKS THAT ARE QUOTED IN THIS PICTURE.

dividend house

This Picture respects the fundamentals of a 3 tier portfolio. In this house you don’t touch the foundations once it is in concrete state. ( 1st tier stocks)

The supporting walls are representing the 2nd tier stocks which you can change but not often, you don’t replace the roof every year, but most likely every 10-15 years.

Every stocks outside the house are the 3rd tier stocks, which are the return booster and capital gain solution to strengthen the house in the long run. Those are open to Market opportunities that can come your way at any time.

 

 

 

United Technologies is a buy

logo utx

 

This company could be a good ad on to your portfolio, if you are looking for a diversified and well managed company in the commercial aerospace sector.

What is the business about?

UTX 1UTX 2UTX3UTX 4

what about the investor metrics 

I like the dividend graph and so should you….

utx 6

 

Now let’s dig in the numbers

 

Sales are growing

sales growth utx

 

Net income and Earnings per share are less impressive but they have just announced an increased outlook for future quarters.

EPS 55

 

let’s look at the share outstanding, it is stable which is a neutral they don’t have a huge buyback to help future Earning per share results.

shares outstanding

What is the economic Moat?

  1. This company has been developing their expertise for decades with customers, suppliers, and the Brand name is well established.
  2. This area is very sophisticated and it is not easy to switch providers like deciding to buy a pair of jeans elsewhere = fairly low competition should help them maintain margins.

What about the price to earnings multiple?

As you can see below it’s not exactly cheap valuation historically, but it is hard to say when it will go back to 10…. and in a long time horizon it will not make a sizeable difference.

 

valuation utx.PNG

 

 

Overall this is a good company for the long run, you can easily get 10% annualized return on your investment over 10 to 20 years period.

 

Macro trends are still healthy

Since march 2009 we have been witnessing the run of  a long term secular bull market. Of course it is only visible on a graph in 2018. Granted valuations are not as attractive as they used to be, however there are still very good long term growth opportunities.

What is supporting the Macro trend?

  1. The US labor market is very healthy and jobs are still growing.
  2. GDP numbers are strong & the federal reserve is tightening interest rate policy.

What is supporting the selective investor?

  1. Corporations specifically in Tech, healthcare, some financials will post strong earnings due to the 1 trillion dollar combined buybacks &  favorable corporate fiscal policy.
  2. Strong labor market will continue to support demand for those businesses.
  3. Bonds face value is still way to expensive compared with historical data, which supports higher stock valuation.

I would like to point your attention on the graph below:

If you look carefully we have been since 2013 above the 2000 & 2007 levels.

This means that from 2000 to 2013 we have witnessed a long term secular bear Market

This secular bull market might not be around 10 years old but 5.5 years old…. to be continued.

 

secular 2018

 

Trade disputes are real but just another bump on the road to wealth

Lately we have been witnessing trade disputes between the US & China not to mention the tension between the US & ( Canada + the European Union). Tariffs are tools from the past to get a concession from a trade partner. If we take the US & China the recent trade goes around – 350 billions for the US. ( China imports around 150 billions of goods from the US & The US imports around 500 billions). Trump’s desire is to “level the playing field to diminish the negative yearly balance on the trade. Will those tariffs have a meaningful impact in the future? : I don’t think so.

tarrifs

  1. Presidents come and go, the next one might have a completely different vision on this matter.
  2. You can not artificially bent a natural competitive advantage a country might have on producing a product or providing a service.
  3. Even if those tariffs apply for a few years the consumer will  not sense it that much because the effect is diluted on thousands of products that most are not essential to your every day living.

 

SO PLEASE DO NOT FREEK OUT AND DO NOT LET THE MEDIA SCARE YOU OFF

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