Zone 6B Garden Calendar: March

Generally speaking March is when spring fever starts to set in. The weather makes a turn for the good, the snow melts away, and you start to see more activity in the form of blooming flowers and woodland animals running around.

This year happened to be the exception. We had very little precipitation in the form of snow this year, but just as you think old man winter is on the way out the door, he drops 18 inches of snow on you in the 3rd week of March! The funny part of this story is we had two days of 80+ degree weather the week prior. Oh well.

On to the garden.

Consider tilling in cover crops. I like to till in any cover crop about 2-3 weeks before planting. This leaves enough time for the crop to decompose and have some availability for the newly planted seedlings to uptake this resource. I generally do not get everything planted until around June 1st, so I am in no hurry to till in cover crops. There are exceptions however in my potato, broccoli, cauliflower and pea sections of the garden.

Finish up any equipment maintenance that slipped through the cracks over the winter. Tractors, mowers and tillers should have fresh oil, air and fuel filters if needed and sharp blades.

Any cool weather seedlings that have been started up to this point should be in the cold frame or garden/raised beds by now making room for the warmer season seed starts like tomatoes, peppers, etc.

Now is a good time to work on trellises and stakes for climbing plants.

 

 

 

Consider turning the compost pile one more time to finish the cook, and see what is in the middle. It is always gratifying to see the final turn, knowing all of your work will soon be put to use.

Items to start indoors in early March are: celery, lettuce, broccoli, cabbage, and onions. Late march seed starts include: brussel sprouts, cauliflower, tomatoes, peppers, basil and eggplant.

Outdoor direct sowing can be completed for potatoes, horseradish, onion sets, beats, peas, and strawberries.

The most difficult part of working in the garden in March, is not getting too far ahead of the game. I have to keep reminding myself that the last frost is still almost a month away. Had I tried to get ahead of the game, and planted during the 80 degree days, I would have been sorry a week later when 18 inches of snow obliterated it.

 

Thought Experiment: Buying on the 20 Day SMA

I had a thought. Generally speaking I like to buy any equity on the dip, however there are a few exceptions, like AAPL, MTN, etc. Good, solid companies that are fairly valued and keep going up and up.

I have been fairly successful when I buy on the dip, provided I am able to keep my whits about me and not put any emotion into it. I am obviously able to track companies that I have ended up buying and selling, but what about the companies that I have not purchased? Until now I have not had a way to track these equities so I came up with the bright idea to track my watch list, keeping a record of buys and sells as well as ones I have passed over.

A few ground rules before we get started. In order to make this DIP watchlist, any company in consideration, must be financially stable. Tesla and Snap Inc. will not likely make the cut anytime soon.

Ground Rules:

FUNDAMENTALS:
ROE > 15%, ROA & ROI > 5%, Positive earnings that are growing, positive balance sheet (showing growing cash flow, revenue, and operating income), PE (present and forward) under industry average, low 5 year PE range, reasonable P/S & P/B, PEG < 2.5, positive margins (gross, net, and operating), sales growth, debt to capitol ratio < 70% (if more must show reasonable quick ratio and positive cash flow), safe dividend (payout < 80% and EPS to cover).

TECHNICALS:
A one year daily chart must show some significant pullback or mimic a previous bottom. Other considerations would include adequate volumes, and favorable MACD-OBV-RSI. A buy signal is when the price crosses above the 20 day SMA at the close of the day. If the 20 day SMA is crossed a limit order may be placed for the following trading day for a buy. A sell will occur when the 20 day SMA is crossed on the downslope at the close of the day. If a buy and sell occurs within 2 weeks of each other, a hold or sell may occur depending on the situation, but if sold this equity cannot be purchased again for 30 days as it will be deemed too volatile for this type of trading.

Obviously there wil be very few stocks that completely follow these guidelines, but many will come close. There is some subjectivity to this, but if they don’t approach these standards, I likely would not consider them a buy anyway.

Now then, here are the qualifiers.

Stocks that made the cut and the entry price:

AKRX- $20.54
BMY- $52.00
CRI- $83.01
DUK- $78.90
ELY- $10.40
ETH- $28.35
GIL- $24.78
JNS- $12.45
KO- $41.46
RGR- $50.55
RH- $31.34
SIMO- $41.36
VFC- $50.37

So there we are. Let’s see where this little experiment gets us. I don’t actually expect much from this to be perfectly honest. I’m not the sharpest tool in the shed, and if this actually works someone would have written a dozen books on it by now…..

IPO’s: The Average Investors Nightmare

I had a discussion with a friend the other day regarding investments and the topic of (Initial Public Offering) IPO’s surfaced. He had been trying to convince me that this new IPO that just came out is a fantastic opportunity and he thought I should get on board. My stance on IPO’s has always been, and always will be the same: just don’t do it.

In a nutshell, an IPO is a company that is making the transition from private industry to the public sector. The IPO is generally looking to expand their business through public support and will hire an underwriter to evaluate the company in order to establish the type, price and amount of shares to be issued to the public.

This process can be quite complicated, but here is how I generally see it:

Company A wants to expand so they go through the IPO process. They establish their market cap and offer a number of shares at an established price. Sounds reasonable so far huh? This is where it gets tricky. The IPO price is rarely the price offered to you and I, the average investor. Often only investors that are able to get in on the initial public offering price are large institutions such as mutual funds and large brokers. When the offering eventually comes down to the little guy (you and me) it is often well above the established IPO price.

When the average investor is able to buy into the IPO, they usually must do so when it hits the market and is available for trading for everyone, the big guys already got their slice of the pie. The real kicker in my opinion is what happens over the next several months. After the IPO has been publicly traded for 6 months, the big name players (initial investors, insiders, etc) are now allowed to sell their existing shares, which often creates a sell off and drops the price of the stock significantly.

Let’s look at a recent example of an IPO. This IPO opened at $27 a share. And is now $22 a share after only 3 days. The real IPO investors got in for around $17 or so. So then, where does this leave us? The average guy has already seen an 18% drop in the initial offering. The big guy has seen a roughly the same percentage, albeit in the black because they got in at a significantly lower price via the real IPO pricing.

So now lets actually take a look at the fundamentals of this new IPO. Currently this IPO is showing negative earnings, and will do so at least for the foreseeable future. In fact, a major administrator in this company has said that they can’t say if this company will ever show profitable earnings. What?!?!?

OK lets continue, this IPO currently shows a Price to Sales (PS) of 68 and a Price to Book (PB) of 18. Earnings, growth, ROE, ROA, ROI are all in the negative digits. This company has NEVER made any money.

I know what you are saying, this is some little rinky dink company that has a microscopic market value and I am using it to skew the data and make my point right? Wrong. The market cap was evaluated at 33 billion dollars when it entered public trading. After roughly 3 days of trading, the largest cap is around 20 billion.

At an evaluation of 33 billion dollars, this IPO is bigger than Lockheed Martin, Morgan Stanley, Colgate, Netflix, GM, Ford and Kraft-Heinz, just to name a few. It is twice as large as Boston Scientific, Exelon, Activision, Deere, Target and Allstate. How can I possibly consider this evaluation anything other than a joke considering a new company, with no earnings and such poor evaluations has a higher market cap than Ford, GM, Deere, Lockheed Martin and Morgan Stanley?

What is the name of this IPO you ask? Snap Inc. (SNAP). That’s right, snapchat has an evaluation higher than all of these companies and sits roughly in the top 1/3 largest companies traded in the US, hasn’t made a dime, and may never do so.

In six months there will be a lot of average Joe’s like you and I sitting back, scratching their heads and saying “Where did my money go?” I’ll tell you, right into the pockets of the management of Snap and the initial investors. Don’t get me wrong, I doubt Snap will fall below the $17 entry price that the big guys had access to, they will simply throw more money into it thus supporting it until the big sell off later down the road.

Well the Snap enthusiast may argue that “Apple, Amazon and Facebook were IPOs once and look what happened to them? You would be rich if you got in when they first started.” This is true, but there have been a lot of people who significantly increased the value of their portfolio, and continue to do so today using these companies, with infinitely less risk. I’m interested to see where Snap will fall to in another year or so. If I am wrong I will certainly admit it, but this simply makes no sense to me.

“You can never hit the game winning home run in the bottom of the 9th inning to win the World Series if you never get up to the plate.” This is true, but the ball boy (average investor) will never have the opportunity to take the swing. We have to work hard, save and invest wisely and not swing for the fences. Consistent dedicated investing is the way to grow wealth for the Average Joe, otherwise you might have better luck with lottery tickets.

Investment Snapshot: Duke Energy Corp (DUK)

 

Duke Energy Corp (DUK) is a $54 Billion, large value market cap utility company with a primary focus on electrical generation along the east cost and  parts of the mid west. DUK generates and sells electrical power, natural gas and natural gas liquid internationally. DUK has a stake in renewable energy sources as well in the form of wind and solar farms by managing 2,400 megawatt operations across 10 states via 20 commercial wind farms and 50 solar farms.

FUNDAMENTAL ANALYSIS:

Earnings have been steady for the last few years as well as projections into 2018, roughly in the $4.55 – $4.81 range. Revenue has increased by 9.38% over the last 5 years. Dividends have also increased over that time period by 2.5% as well. DUK does have positive cash flow, although it did pull back slightly in 2016, however it is projected to recover easily over the next few years.

The current P/E is 21.12 with the industry average around 24. The 5 year PE range is 19 – 34 and with the forward PE projected at 16.3, DUK is looking relatively cheap at this point.

Margins and effectiveness are not stellar, but this is the life of a utility company. ROE is 6.34 (7.28 Industry Average), and the ROA and ROI fall in at 2.03 (2.12 IA) and 2.23 (2.4 IA) respectively. Correspondingly, the ROE is expected to grow steadily in the next year by 4.34% and over the next 5 years by 2.5%. Debt to equity ratio is slightly higher than industry average (55.4% vs 51.64%) however this by no means appears to place them in any financial jeopardy.

Current growth is not stellar with evaluations slightly higher than industry average in the form of gross, operating and net profit margins. However, the 3 year average revenue growth of DUK holds an approximate 7 fold advantage over the industry average.

TECHNICAL ANALYSIS:

At a current price of $78.36 DUK has recently crossed the 20, 50, and 100 day simple moving average (SMA) and is quickly approaching the 200 day SMA based on a 1 year daily chart. OBV, MACD, and RSI look very healthy at this point, positioning itself for further movement upward.

DISCUSSION:

DUK appears to have some room to move upward in price, in my opinion by as much as $5 – $10 respectively. Overall profits and earnings did slip slightly, but this is likely due to the cost of power generators, infrastructure and environmental upgrades recently completed. Based on DUK’s modest growth projection they should have no problem recovering from these much needed improvements.

Some resources evaluate DUK as having a narrow moat, but I tend to disagree. Considering their influence in multiple energy generation avenues as well as an international presence, albeit a small one, I feel DUK is well balanced to grow over the next several years. As we all know, President Trump’s policies are gearing toward energy and deregulating the energy restrictions, which will place potential savings in the energy equities pockets, and therefore the investors pockets. Considering DUK is the second largest energy carrier in the U.S., they should reap significant benefit from Trump’s energy plan.

I like the position DUK is in right now for a buy for all of these reasons stated, as well as a dividend of 4.36% that is very attractive to income investors. Even if the economy doesn’t decline in the next 12 – 24 months (thus historically increasing the stock price of utility equities) as some pundits are calling for, DUK offers a current price at a modest discount, potential for steady growth as well as a very nice dividend to collect all while you sit back and watch it grow.

I am not telling anyone to buy this or any stock I discuss in this blog, this is simply a vehicle for me to share my thoughts. The stock market can be extremely volatile, and is not suitable for most investors. Do your own homework and invest at your own risk.