Investment Snapshot: Teva Pharmaceutical Industries (TEVA)

Large Cap Value

Current Price: $29.03

Teva is a pharmaceutical company based in Israel that develops generic and specialty drugs. Teva is a 29 billion dollar company thus classifying it as a large cap value. This company has come into hard times recently with both the healthcare industry decline as well as some internal turmoil associated with a management shakeup.

FUNDAMENTALS:

Teva has noted a slight earnings decline over the last several quarters, but appears to be picking up steam again. They are sporting a very attractive forward P/E of around 6 and seems to have turned around any issues with cash flow and revenue declines. Profitability is expected to increase over the latter part of 2017 due to several product launches and multiple cost savings programs initiated. Teva faces little competition from the other generic industry, and is certainly a major player in this realm. I like their positive P/B (0.97) and well as P/FCF (14.56). Sales over the last 5 years has been 3.6% but the Q/Q sales has spiked to 17%.

TECHNICALS:

It appears that Teva has hit a bottom or is near a bottom technically speaking. They are well under the 5 year low of PE range (sub 10 – 35) and are showing oversold signals from a RSI perspective. Teva is well below any major moving averages, but has recently shown interest to approach its 20 day SMA. Fibonacci retracement does not show any significant resistance levels until around $37.

DISCUSSION:

From a fundamental and technical aspect, Teva does not look as promising as some other companies in the stock market. However, digging deeper into this picture, this is a 30 billion dollar company that appears to have hit bottom and has most, if not all, of their pricing burden already built in to their current price around $30 a share. Teva is approaching answers for the leadership gaps in a CFO and CEO as well as picking up steam in the generic market.

I like Teva a lot in this space as it has really no where to go but up. This coupled with the current 4.68% dividend yield and anywhere near approaching the resistance levels of $35-$37 dollars price growth over the next year could account for 20% plus gains for the patient investor. I think this is an attractive choice not only for the income investor, but those seeking growth as well.

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.

Investment Snapshot: Advance Auto Parts (AAP)

Advance Auto Parts (AAP)

Mid Cap Growth (10 Billion Dollar Market Cap)

Current Price: $146.84

Advance Auto Parts is an aftermarket automobile parts supplier to professional garage repair businesses as well as DIY’ers. Advance offers brand name, original equipment manufacturer, and private label automobile replacement parts to both customer bases. It serves customers through traditional brick and mortar stores as well as e-commerce. Data shows that at the end of the year, December 2016, AAP operated in 5,062 stores.

FUNDAMENTALS:

AAP reported earnings of $7.15 a share in 2016, a decrease of 8.6% from the previous year, but will improve by 5.2% this year and another 13.8% in 2018. Current P/E is at 23.69, but has a forward P/E of 16.78, well below the industry average of 39. Operating profit margins are slightly above industry average at 8.23%. The dividend is a minuscule 0.16% and growing slowly. ROE is a healthy 17% as well as a ROA of 5.59%, both of which are in my personal wheelhouse of acceptance. Debt to Equity is moderate at 0.4, about half of the industry average.

TECHNICALS:

AAP has hit the low $140 range 4 times in the last 12 – 16 months, and each time has risen to the $160 – $175 price point. Past performance does not equal future profits, but with a trend like this, it can certainly be part of the discussion. Advance has recently crossed above the 20 day SMA and is showing bullish chart indications. Fibonacci retracement shows little resistance up to the $175 level and has shown little resistance pushing through 50, 100, and 200 days SMA’s in the recent past.

DISCUSSION:

Earnings dipped in 2016, but is projected to increase by 19% over the next two years. This slip in earnings in 2016 appears to be built into the current price of ~$141, down roughly 18% from the previous 52 week high. Growth and cash flows have dipped recently as well, but still remain healthy. The fundamentals are slightly above average at best, so why do I like this company?

There are several reasons why I feel AAP has a place in my portfolio. The earnings growth over the next two years is undervalued in my opinion. The economy is staggering and less people are buying new cars, as evidenced in staggering new vehicle market. If more people are saving money from not buying new vehicles, the need for parts will increase over the next few years for the advanced age of the used car population.

Recent company restructuring are now finally showing positive results on the books, and investors are noticing. AAP has become more efficient in their procedures, and the investors should reap the reward of this.

The technical data shows AAP is primed for a move of 15% – 20% over the next 18 months or so. They didn’t quite hit a double bottom in April 2017, but it was close, generally suggested as a bullish sign. The P/E is near the 5 year low.

The most recent dip in price appears to have come from a several month discussion and concern regarding, who else AMAZON, and their competition as with most other retailers. It appears that Advance Auto Parts will not be impacted by Amazon, or at least not as much as previously anticipated. Almost 60% of AAP’s sales come in the form of professional business, and the needs of these buyers require a quicker service than Amazon Prime 2 day shipping can deliver, often within the hour. Most repair shops don’t have the time or space to hold a vehicle for 48 hours to wait for an Amazon shipment, and in this day of instant gratification, customers are unwilling to wait 2-3 days for their repair to be completed.

The attraction of Advance to the DIY generation cannot be matched by online retailers or most garage shops. Often buying a new battery or wiper blades at Advance will also come with free instillation by the service desk staff at the time of purchase. The service staff can also run some basic diagnostic tests to assist the customer in purchasing needs. I have also seen some stores offer free basic and unique tool lending for customers, which I thought was a brilliant move for those unwilling or unable to acquire some of the tools necessary to make the simplest of repairs.

With a 10 billion dollar market cap and over 5,000 stores, AAP has established a large, but not too large to make the brand inefficient, that focuses on quick delivery to the retail and DIY customer. Advance also offers several self help options for the occasional home mechanic to complete smaller jobs in a timely fashion, while saving the exuberant labor costs of most garages.

Advance currently sits in the 37% tax rate bracket. IF the Trump policies actually come to fruition, and corporate tax rates drop by even 10% (Trump has proposed a 20% flat corporate tax rate), this will be of significant value to investors of these high tax rate companies, essentially meaning earnings will go up by whatever tax cut comes across the presidents desk immediately.

The bottom line is AAP is a much needed player in this time of aging vehicles, and increasing services to DIY’ers only make this company more attractive. There is a legitimate reason to believe AAP’s current price is at a significant discount, maybe as much as 20% over the next 24 months, and this creates a space in my portfolio.

I purchased this company for my portfolio a few weeks ago and have already seen a 4.2% profit gain in less than 2 weeks.

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.

Investment Snapshot: Express Script Holding Co (ESRX)


Express Scripts is a  large cap blend (40 Billion) pharmacy benefit management (PBM) company that provides healthcare management and administrative services to managed care organizations, health insurers, third party administrators, employers, government health plans, union sponsored benefit plans and workers compensation plans. Some of the services provided are specialized pharmacy care, home delivery pharmacy services, retail network pharmacy administration, said benefit design consultation, drug utilization review and formulary management.

FUNDAMENTALS:

ESRX has a current PE of 11.97 (21.84 Industry), forward PE of 8.55, and a 5 year PE range of 12 – 20. PS (.39/.96), PB (2.43/3.33) are all significantly under the industry average. PEG is slightly above industry average (.98/.89), but below 1.00 which is very healthy.

Profit Margins are fair with Growth (8.6/14.15), Operational (5.02/6.84), and Net (3.42/3.99) margins below industry average, but respectable non the less. Earnings growth is at (51%/24.5%) however revenue growth is (-1.4/11.9) for the trailing twelve months (TTM).

ROE (20.26/18.8), ROA (6.53/5.1), and ROI (9.6/4.66) are very healthy along with reasonable debt (Debt/Capitol Ratio 48.9%) right at the industry average. ESRX should have no trouble covering the debt interest with an interest coverage ratio of 10.59x. Quarterly revenue appears to be stuck in a range of 24 – 26 billions dollars.

Insiders are not heavy investors @ 0.3%, but remember this is a 40 billion dollar company. Institutions have invested at 88% and are not moving in or out at an overly worrisome rate.

TECHNICALS:

ESRX is currently at a price of $65.55 with a 52 week range of ~$63-$80 and appears to have recently hit bottom at the $63 area and rebounded nicely over the last several weeks.  ESRX appears to easily push through the 20 and 50 day SMA, but meets significant resistance at the 200 day SMA level, which currently resides at $72.

DISCUSSION:

Express Scripts is a dominant player in the recently beat up pharmacy sector. Along with CVS and United Health, Express Scripts is the largest of the three which control almost 80% of prescription volume in the US allowing it to have an upper hand in drug price negotiations.

Most analysts estimate the fair value price of ESRX to be between $80 – $100. Considering it hit $80 during it’s 52 week high, I have no reason to believe it can’t get there again, at least.

Express Scripts has healthy competition, but as stated before, is the biggest player in the game. The true risk to ESRX is, unfortunately, the government and its proposed regulations and uncertainty concerning Trump’s healthcare initiative. With the recent stall in congress, investors appear to be more comfortable with the healthcare sector in general, as demonstrated by the recent rise in stock price after the congressional stall.

The market can take good news and bad news and investors are able to respond predictably. However, what really irritates the market is indecision and we appear to be on a hiatus from government threats regarding healthcare for the time being. It appears that the damage has been done in the pharma and healthcare sector making it very appealing to investors looking for value and bargains. At $65 a share, ESRX looks like a good bargain to me and I think it has a strong potential to see a 15% – 20% gain over the next 12 – 24 months, at least having a smooth ride to the $72 resistance level.

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.

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.

Investment Snapshot: Direxion Daily Gold Miners Bull 3X ETF (NUGT)

Simply put, NUGT is a leveraged gold miners ETF. It attempts to seek 300% of the NYSE Arca Gold Miners Index. I may be naive but I am not a fool, although some of you will likely say otherwise considering I am choosing to highlight this ETF for my Investment Snapshot.

In some respect, I would agree with those calling me foolish, but hear me out on this one. It has taken me years to consider a leveraged fund, and it will likely be years before I ever consider another one in the future.

Generally speaking, I do not like leveraged funds at all because of the risk associated with them. Yes, they claim a 3x leverage, however, I know full well that these funds rarely achieve these lofty goals, but some do come close. For the most part leveraged funds leave investors with 300% less in their pocket than when they started.

I invested a small portion of my portfolio (~5%) in NUGT, not for the fundamentals, but because of the momentum of gold, more specifically, the falling dollar. During the last gold run I made a nice profit, but not as much as most other investors. I did not enjoy the 200% – 300% gains as had by some, simply because I realize that gold has been a terrible investment vehicle over time, and I chose to stay out.

Over the last year gold has been a terrific investment, and actually gold miners have done even better. The fundamentals of gold and gold miners are not impressive to say the least, however this is a trade for me, it is not a long term investment by any means.

There are several factors that lead me to believe that gold and gold miners are heading for another sprint, but mostly I am basing this on three things. 1) Gold miners are showing improved earnings 2), the technical’s look strong for another gold run and 3) the dollar is simply too high.

EARNINGS:

Annual earnings have more than doubled in the gold mining industry over the last few years, and it looks like this trend will continue, at least in the short term. The perfect case in point are my two favorite miners, ABX and MUX. Granted, earnings were pathetic for these companies prior to this but they have really turned things around, with most focusing on debt reduction.

TECHNICAL ANALYSIS:

I have always lived by the mantra that fundamentals tell you what company to buy, and the technical analysis will tell you when to buy it. In this case I am willing to make an exception. Other than the earnings growth of gold miners and their focus on debt control, there is really very little to like regarding fundamentals for the value investor.

Most of the miners that I have been tracking over the last year appear to have rebounded from their most recent dip in the industry, likely due to the Trump rally. Although many have not hit their bottoms of last year, they were close. NUGT rebounded off its bottom of February last year and has increased nicely over the last month or so. Looking at a chart of NUGT, there is little denying the strong technical aspects including a nice rebound, along with strong showings in OBV, MACD, RSI, and the fact that it just blew by the 50 dSma.

WEAKENING DOLLAR:

The USD index spiked to over 102.5 in January ’17 from 92.5 in May of last year. That’s a 10 point upswing in just over 6 months. Generally speaking I wouldn’t get too exceited about this, but this spike is mostly based on rumors and news. The economy is doing slightly better over the last year, but certainly not enough to justify these kinds of movements in the indexes.

The Trump rally was simply the icing on the cake for me, showing that the dollar has nowhere to go but down. Although I am fairly confident our economy will improve over the next 4 years, we are just not there yet, and I can’t justify the growth of the dollar based on this

For this reason, I am going to forget everything I know about gold miners and gold evaluations. The bottom line is the USD index, when it falls, gold will rise. I’m keeping a short leash on this one, and hopefully reap the reward of being patient and alert.

To be clear, NUGT is not a long term investment by any means. This investment should be monitored closely, for me on a daily basis. I have made a small investment in NUGT and it is my opinion over the next month or so, it will prosper. This is a trade with an outlook of weeks, as opposed to months or years. As I write this today, I am already up about 15% for a 2 week investment. As you will see by the monthly averages below, this can fall apart very quickly, it is my objective to catch this at the right moment as this is primed for a nice run.

I will be setting loose stops on this in the beginning, and will tighten them as this moves upward to protect any gains.

2016

December: – 0.39%

November: -48.5%

October: -24.57%

September: +8.09%

August: -88.8%

July: +16.94%

June: +93.91%

May: -40.49%

April: +120.5%

March: -0.76%

February: +121.32%

January: -3.06%

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. Leveraged funds are extremely volatile, and are not suitable for most investors. Do your own homework and invest at your own risk.

Investment Snapshot: Gilead Sciences (GILD)

Gilead Sciences Inc (GILD)

Healthcare Biotechnology, Large Cap Value

Company Profile:

Gilead Sciences is a research based biopharmaceutical company. Principal areas of discovery/focus include HIV, Hepatitis B, C, as well as cardiovascular, hematology/oncology, and hematology/respiratory drugs and therapies.

Fundamentals:

PE = 6.87. Forward PE = 6.82

Price/Sales = 3.1

Price/Book = 5.81

Price/Free Cash Flow = 6.59

Debt/Equity = 1.6

EPS Next Year = -5.31%

EPS Next 5 Years = -0.64%

Insider Transactions = -19.81%

Institution Transactions = -5.32%

ROA-ROE-ROI = 29.3%-93.7%-45.9%

Operating Margin = 60.8%

Profit Margin = 47.7%

Dividend/Payout Ratio = 2.54%/16.4%

Target Price = $95 – $98

Discussion:

Gilead has a strong presence in the HIV market however Glaxo Smith-Kline (GSK) and Johnson and Johnson (JNJ) are offering some meaningful competition. Gilead does have patent protection with Genvoya, Odefsey, and Descovy establishing a safety net into the 2020’s. Solvadi has revolutionized the Hepatitis C field, with an incredible cure rate, however AbbVie and Merck should significantly cut into Gilead’s market share.

Gilead does a great job with their present market as evidenced by the fantastic profit margins as well as outstanding ROI, ROE, and ROA. The underlying concern however stems from Gilead’s future growth, sales and earnings. There is no question Gilead is doing unbelievable work in the markets of HIV and Hepatitis, but unfortunately from a competition standpoint, Gilead is losing ground. Sales, earnings and ultimately growth of the company are declining and will continue to decline for the next few years. Institutions and insiders are selling off as well.

There is valid evidence to suggest Gilead has some promising drugs in the HIV pipeline, however in this highly competitive field these drugs had better show significant improvements in efficacy and safety to make enough of an impact to affect Gilead’s balance sheet.

Superficially Gilead looks like a great value play, but peel back a few more layers of this onion and you will see a relatively poor future earnings potential making this a value trap. For this reason, I like many other biotech companies in this market that offer more compelling profit potentials. There is significant competition in the bread and butter sectors that have layed the golden egg for Gilead. This competition in combination with the increased pressures of pharma and health care pricing make Gilead look more like fools gold than the golden goose.

Investment Snapshot: Omega Healthcare Investors (OHI)

Omega Healthcare Investors (OHI)

Healthcare REIT, Mid Cap Value

Company Profile:

OHI is a self administered healthcare REIT. The company invests in income producing healthcare facilities and long term healthcare facilities located throughout the US and UK through long term leases and mortgage financing. Sites include 950 facilities in over 40 states and greater than 80 third party operators in the UK.

PRIMARY INDICATORS SECONDARY INDICATORS
AVG Volume 2.34 M Dividend ($) 2.44
ROE 8.10% Dividend (%) 8.24%
Debt / Equity 1.16 Payout Ratio  70%
Current Ratio PEG 10.87
52 Week Range 25.55 – 37.37 P/S  6.59
52 Week Low 15.89% P/FCF 
52 Week High -20.76% Quick Ratio 
Intrinsic Value $24.13 Insider Own 1.40%
Current Price $29.61 Insider Change 1.95%
Target Price FinViz $35.06 Institution Own 85.60%
P/B  1.5 Institution Change -1.02%
P/E 19.56 ROA 3.50%
Fwd P/E 14.54 ROI 5.60%
Industry P/E 34.49 Beta 0.53
PE Range 18 – 27
EPS Growth This Year -28.50% PURCHASE CRITERIA
EPS Growth Next Year 18.22% Price 29.61
EPS Growth Next 5 Years 1.80% Target 35.06
Profit Margin 34.50% 52 Week Range 25.55 – 37.3
Industry PM 25.49% P/E Range 18 – 27
RSI 37

Discussion:

Obviously this security is on my watchlist largely because of its solid dividend. Having said this, the fundamentals and profit potential are somewhat appealing as well, for a REIT. This stock has taken a beating recently, dropping over 20% this year, but EPS next year is estimated at 18%. Institutions own almost 86% and is steady. The ROE isn’t great, falling below the 15% that I like to see, but it is reasonable for a REIT. Considering the industry PM average is less than 5, this looks healthy. The payout ratio is much higher than I like to see as well, but this company has done some restructuring to increase the probability that the dividend is safe, projecting the ratio to drop to around 70%. Since 2012, OHI has increased its dividend payment about 8.7% each year. The RSI sits at 37 making it appear fairly priced. With a target price of about $35 there is some room to move up which would be a bonus and secondary to the dividend payment.

This company is growing steadily over the last few years with increasing cash flows, operational income, and total revenue. The debt is significant, but considering the profile of this company mostly in mortgages and long term leases this is to be expected, the healthy balance sheet certainly offers a lot of support and protection in my opinion.  

A chart review shows OHI headed toward some resistance levels and if it can push through, I would like to buy this when it crosses $30.50. The 10 SMA is right around $31.25, and the 50 day SMA is @ $33.18. Fibonacci retracement is showing 38.2% @ $30.50 and the 50% level around $31.48.

All in all OHI is a reasonable priced security that offers a lot of upside potential, especially in this atmosphere where I believe healthcare can only go up. Medicare changes likely to take effect will allow longer stays in rehab and extended care facilities which should also increase profit margins.