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Author Archives: Chris Versace, Chief Investment Officer

About Chris Versace, Chief Investment Officer

I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."
Verizon and AT&T Go Unlimited Data, Now Chevrolet Does Too

Verizon and AT&T Go Unlimited Data, Now Chevrolet Does Too

We’re seeing Connected Society mobile carriers morph their business models toward Content is King given their thinking that people will want to consume content on all these mobile devices. It’s true, so true in fact that Chevrolet is following AT&T and Verizon in offering an unlimited data plan for Chevrolet owners who have an in-vehicle OnStar 4G LTE Wi-Fi hotspot. Priced at $20/month, it’s another step forward for the Connected Car; in 2016 Chevrolet owners and their passengers streamed the equivalent of more than 17.5 million hours of video. Let’s just hope the driver had his or her eyes on the road and hands on the wheel… that said does it mean movie time will now be had in the car once self-driving cars go mainstream?

The new plan is priced at $20/month with service provided by AT&T.AirPodsChevrolet is claiming to be the first major automaker to offer an unlimited in-vehicle data plan.

The automaker shared interesting data about its customers who have been using the OnStar LTE hotspot in Chevrolet vehicles over the last few years. In 2016 in-vehicle data usage grew almost 200% as compared to 2015.To put this data usage in perspective, Chevrolet owners and their passengers streamed the equivalent of more than 17.5 million hours of video in 2016.

“We have contractors bidding jobs in their Silverados, families streaming movies in their Suburbans and Malibus and everyone tapping into the cloud for music,” said Alan Batey, president of GM North America and global head of Chevrolet. “With the most affordable unlimited 4G LTE data plan in the auto industry, the widest availability of Apple CarPlay and Android Auto and new connected services like OnStar AtYourService, our momentum can only grow.”

As the first automaker to offer 4G LTE connectivity across its entire retail portfolio, Chevrolet has sold more than 3.1 million OnStar 4G LTE-connected vehicles since June 2014 and has more vehicles on the road equipped with 4G LTE than any other automaker.

Chevrolet’s new unlimited prepaid data plan via OnStar and AT&T will be available starting tomorrow for $20/month. It doesn’t seem to be a limited time offer (as least for now) and looks to be a great deal as currently the $20/month option is for 4GB with $40/month giving customers 10GB.

Source: Chevrolet is first automaker to offer in-vehicle unlimited data for $20/month | 9to5Mac

Cocktail Investing Ep 6: The growing divide between the hard & the soft economic reports, boxed.com CEO Chieh Huang

Cocktail Investing Ep 6: The growing divide between the hard & the soft economic reports, boxed.com CEO Chieh Huang

In this week’s program, Tematica’s cocktail mixologists, Chris Versace and Lenore Hawkins talk about everything from the market’s reaction to Trump’s speech before Congress to the widening divide between the real hard economic data reports coming in, (spoiler alert – not so hot) and the softer sentiment reports which are on fire, as well as the latest Thematic Signals. From mobile carriers moving more and more into content in our Connected Society in which Content is King to McDonald’s experimenting with different delivery models for our Cash Strapped Consumer who is eschewing quick service restaurants, preferring Foods with Integrity.

This week we saw the wind down to the December quarter earnings season, Trump’s first speech before Congress and Amazon Web Services wreaked havoc on businesses far and wide when it went down. Snap, the parent company of Snapchat, traded publicly for the first time and despite iffy fundamentals, the share price jumped up dramatically.

January’s real personal income growth weakened materially while real spending growth was the weakest since 2009 – not exactly consistent with the jubilant headlines. It also raises questions for our consumer spending led economy. With signs of inflation picking up both in and outside the US per February data from Markit Economics and ISM, the Fed is looking more like it will hike in March, despite their recent Beige book being full of terms like “modest”, “moderate”, “mixed” and subdued” – go figure.

McDonald’s is looking to offer mobile ordering alongside curbside pickup as it experiences declining foot traffic and same store sales. As we share on the podcast, we think embracing technology is not going to get at the heart of McDonald’s problems.

Mobile carriers are finding more and more they need to feed their networks with content as more than 80 percent of 18 to 34-year-olds in the U.S. use mobile platforms to consume content, spending more than two hours on average every day viewing videos or using apps. We think this is bound to result in a boom for the eye-glass and contact lens industry in a few years time – we’re only half kidding.

If that all wasn’t enough, we had the great pleasure of speaking with Chieh Huang, CEO of our latest online shopping obsession, Boxed.com. In just four years Chieh and his team have grown the business from operating out of Chieh’s garage to now generating over $100 million in revenue while getting their products to 96 percent of their customers in just two days or less. We spoke with him about just how his team has generated such stellar growth and his insights into the incredible level of pain we see in the retail sector. We couldn’t have enjoyed ourselves more talking with a guy who is deep in the thick of a Disruptive Technology with a compelling offering for the Cash Strapped Consumer in our Connected Society.

Companies mentioned on the Podcast

  • ALDI
  • Amazon.com (AMZN)
  • Apple (APPL)
  • AT&T (T)
  • Boeing (BA)
  • Comcast (CMCSA)
  • Costco (COST)
  • Dycom (DY)
  • Goldman Sachs (GS)
  • Facebook (FB)
  • Lidl
  • McDonald’s (MCD)
  • Snap (SNAP)
  • United Parcel Service (UPS)
  • Verizon (VZ)
  • Walmart (WMT)
  • Wegmans Food Markets

 

Chris Versace Tematica Research Founder and Chief Investment Officer
Lenore Hawkins Tematica Research Chief Macro Strategist
Trump’s strong performance pushes the market up even further

Trump’s strong performance pushes the market up even further

Last night President Trump addressed a joint session of Congress, and while it sounded somewhat like a campaign speech, the overall tone was far tamer and optimistic than we saw on the campaign trail and lacked his signature attacks. Even though there were no major policy shifts and as we expected few details, Trump called for both political parties to work together to get the country back on track after the last 8 years. That call for unity was far from surprising, given that in order to move tax reform ahead and replace the Affordable Care Act, Trumps needs a united GOP and support from at least some Senate Democrats. Given the quick exit of Democrats following Trump’s concluding remarks, odds are the President will have much work to do to get his agenda flowing.

There were a few surprises last night, including Trump’s softening stance on immigration as well as his calling on Congress to pass legislation to pave the way for a $1 trillion public-private infrastructure project. Trump has been rather vocal about the need to fix the country’s aging highways and byways, so the call itself isn’t surprising even though the price tag is larger than many expected. Again, the devil will be in the details for this public-private proposal given concerns for increasing the national debt even further than it has over the last several years.

All in all, it was a good speech and one that in our view signals a more presidential Trump, but for those looking for harder details there was little to be had and it looks like the policy timetable has probably been extended. While the stock market is gapping higher yet again today, it looks to us like it’s increasingly further out along its skis.

 

Recapping the Week’s Economic Data Thus Far

 

 

This morning we received the January reading on Personal Income & Spending, which showed income ticking up modestly month over month to 0.4 percent, but spending in January tumbled vs. that in December. Yes, there tends to be a seasonal dip following the holiday filled December, but even so, the January spending figure of 0.2 percent came in below the expected 0.3 percent reading. After dipping to 5.4 percent in December, the Personal Saving rate inched higher in January to 5.5 percent.

Now, that is a modest miss on the personal spending side of the equation, but when we pair it with January’s weaker than expected core capital goods orders and shipments, it’s another sign the domestic economy as a whole likely remains stuck in low gear this quarter. We talked about this earlier this week, as well as the current mismatch between GDP forecasts for the first half of 2017. Later this morning, we’ll get both the ISM Manufacturing Index and Markit Economics Final February Manufacturing PMI reports and we’ll be going over them to see what’s what when it comes to the current quarter’s GDP.

This morning also brought the final February Manufacturing PMI figures for the Japan and the Eurozone as well as the first viewing of the same for China. The final data for both the Eurozone and Japan are very much in line with the Flash reports we received last week, pointing toward a firming global economy from a  production and order perspective. The data also showed that their weaker currencies relative to the dollar is generating stronger export business; in the Eurozone, February saw the fastest growth of new export business in almost six years. While the February Manufacturing PMI figures of 53.3 and 51.7 in Japan and China clocked in lower than the 55.4 recorded for the Eurozone, the underlying economies continued to improved compared to several months ago. One of the key signs that we watch as an indicator of future business, orders, trended higher leading to the first expansion in work backlog levels in Japan since the end of 2015.

One other key element from these Final PMI reports was the pick-up in input costs due primarily to higher commodity and raw material costs. We’ll look for confirmation in both the Final Manufacturing PMI for the US as well as ISM’s February Manufacturing Index. Per data published by ISM, over the last few months prices have been expanding at a stronger pace and if this continues, we expect Federal Reserve representatives to talk more about inflationary prospects ahead of the March Federal Open Market Committee meeting.

On the back of President Trump sharing a $1 trillion infrastructure spending plan last night, should the February ISM and Markit data show continued manufacturing strength, we are likely to see share prices for companies like US Concrete (USCR), Ingersoll-Rand (IR), Home Depot (HD), and Granite Construction (GVA) that fit our Economic Acceleration/Deceleration investment theme benefit. The same can likely be said for shares of The Industrial Select Sector SPDR Fund (XLI) as well as Financial Select Sector SPDR Fund (XLF) should the market mentality shift to one that thinks a March rate hike for the Fed looks increasingly likely. Given the run several of these have had, we’re taking a hard look at what entry points offer subscribers a favorable risk vs. reward profile.

 

Dycom Trounces Expectations and Lifts Its Outlook

Early this morning Connected Society holding Dycom Industries (DY) a specialty contractor that serves the wireless and wireline industries, reported stronger than expected quarterly revenue and guided the current quarter ahead of expectations. For the January quarter, Dycom delivered EPS of $0.82, well ahead of the expected $0.69 and $0.54 in the year-ago quarter, on revenue that rose 25 percent year over year to $701.1 million, also well ahead of the $659.4 million that was expected.

Breaking down the quarterly revenues, organic contract revenue rose just under 23 percent and acquired businesses during the year added another $13.4 million. Year over year, adjusted EBITDA rose more than 29%, which in our view reflects solid cost control at its installations and projects, but we also recognize the 4 percent decline in the share count helped improve year over year EPS comparisons. Even so, it was a solid beat all the way around.

Details tend to be scant in the earnings press release, but the company does provide some additional details ahead of the earnings call. Peering over that material, we saw that Dycom’s customer composition that has had AT&T (T), Comcast (CMCSA), CenturyLink (CTL) and Verizon (VZ) among its top customers remained largely unchanged during the quarter. On a combined basis those four companies accounted for just over 70 percent of Dycom’s revenue in the quarter vs. just over 69 percent in the prior quarter and just under 63 percent in the year-ago quarter. We attribute that improvement to Dycom’s position with the wireless and wireline players that are building out network capacity and prepping to bring next generation networks to market in order to deploy more advanced service offerings.

We’ve noted previously the combined 2017 capital spending plans for AT&T, Verizon, CenturyLink and Comcast for broadband and wireless will be up modestly year over year with a greater portion of spending on network capacity and new technologies (5G, Gigabit fiber). We continue to see Dycom as a prime beneficiary of that wireless and wireline capital spending. In the earning press release, Dycom guided revenue for the current quarter, which is benefitting from mild winter temperatures, in the range of $715-$745 million vs. the consensus of $715.75 million with EPS in the range of $1.11-$1.24 compared to the consensus of $1.13. We expect far more details to emerge on the company’s earnings call that will be held this morning at 9 AM ET.

On the housekeeping front, this morning Dycom’s Board authorized an additional $75 million share repurchase.

  • Ahead of the earnings call this morning, we continue to rate Dycom Industries (DY) a Buy with a $110 price target.

 

Yet again, we’re boosting the Price Target for this Disruptive Technology company

Yet again, we’re boosting the Price Target for this Disruptive Technology company

Our shares of Universal Display (OLED) continued on a tear yesterday as they climbed more than 7 percent, bringing the year to date return to a staggering 55 percent. Last week the company reported robust quarterly revenue and earnings, which as we commented had a bullish outlook. In recent weeks, we’ve seen a positive piling on with regard to the shares and the robust outlook for organic light emitting diode displays, which includes adoption in Apple’s (AAPL) next iPhone iteration, but a number of other applications as well. We’ve used the last few days to revisit our 12-24 month price target on the shares, and we are boosting that one again to $100 from $85. At the current share price that new price target offers roughly 18 percent upside.

Given the sharp rise over the last few days, we aren’t surprised by the shares giving back some of the gains today. As we commented yesterday, President Trump’s speech to Congress tonight could present a bump in the road for the stock market, which has been on a steady move higher over the previous 12 days. We interpret that march higher as the market expecting some degree of details from Trump in his speech tonight. If the speech does underwhelm with scant details, we could see the market interpret that as a push out in the timing for Trump’s fiscal stimulus agenda and tax overhaul. Again, as we shared this morning, our view has been that we are not likely to see any impact from Trump’s initiatives until late in the second half of 2017 and the stock market needs to recognize that.

That’s a long way of saying we could see OLED shares pullback further tomorrow should the market get a case of digestion mixed with expectation resetting. Subscribers that are underweight OLED shares should view that as an opportunity given the ramping demand and industry capacity for organic light emitting diode displays.

  • Our new price target on OLED shares is $100, which has us keeping our Buy rating intact.
  • We continue to have a protective stop loss at $70 for the shares.
Reasons To Be Cautious Ahead of Trump’s Feb. 28 Speech?

Reasons To Be Cautious Ahead of Trump’s Feb. 28 Speech?

Subscribers to Tematica Investing received this commentary on Monday, Feb. 27 with specific instructions pertaining the Tematica Select List.

If you’ve missed our weekly Monday missive that is the Monday Morning Kickoff, we’d encourage you to pursue it later today as it offers both context and perspective on last week, including much talk about the Fed, and sets the stage for this week. We’ve got a lot of data coming at us, more corporate earnings that prominently feature our Cash-strapped Consumer and Fattening of the Population investing themes. There are a number of events and conferences as well, and before too long we’ll have some thoughts on this week’s Mobile World Congress, an event that meshes very well with our Connected Society, Disruptive Technology and Cashless Consumption investing themes. We expect to see a number of announcements ranging from new smartphone models, connected as well as autonomous vehicle developments, voice digital assistant initiatives, drones, and payment systems to name a few. We’ll be watching these with regard to a number of positions on the Tematica Select List,

As Mobile World Congress gets underway, however, we have another event that should capture investor attention. After presenting what’s called a “skinny budget” today, (which we view as the “opening bid budget”) tomorrow night, President Trump will be speaking to a joint session of Congress. Typically this is referred to as the State of the Union Address, but it’s not called that for a newly elected president. Trump has already shared that he will be talking about health care reform – “We’re going to be speaking very specifically about a very complicated subject…I think we have something that is really going to be excellent.”

As we’ve said before, we’re optimistic and hopeful, but thus far it seems Republicans have yet to find common ground on which to move forward on this. In addition to healthcare reform, investors, including us, will be listening for more details on Trump’s fiscal policies. The issue is speeches such as this tend to be lacking in specifics, and we would be rather surprised to see Trump deviate from that tradition.  Moreover, we’ve already seen the Treasury Secretary push out the timetable for a tax report to late summer, and Trump himself suggested that we are not likely to see his tax reform proposal until after the healthcare reform has been addressed.

As we shared in this morning’s Monday Morning Kickoff, with the S&P 500 trading at 18x expected earnings, it looks like the stock market is out over its ski tips. Two drivers of the market rally over the coming months have been the improving, but not stellar economic data and the hope that President Trump’s policies will jumpstart the economy. We’ve been saying for some time that the soonest we’d likely get any meaningful impact from Trump’s policies would be the back half of 2017. That’s been our perspective, but as we know from time to time, the stock market can get ahead of itself, and we see this as one of those times. The stock market’s move reflects expectations for an accelerating economy – it’s the only way to get the “E” that is earnings growing enough to make the market’s current valuation more palatable.

One of the common mistakes we see with investors is they almost always only focus on the upside to be had, without keeping an eye on the downside risks. If Trump is successful when it comes to the domestic economy, and we’d love nothing more than to see acceleration here, earnings will likely grow materially.

One of the potential risks we see this week is the market being disappointed by the lack of details that Trump will share tomorrow night, which might be read as a push out in timing relative to what the stock market expects. As we said on last week’s Cocktail Investing podcast, resetting expectations is a lot like children that open presents on Christmas morning to find something other than what they expected — it’s far from a harmonious event and more like one that is met with mental daggers, confusion, and second guessing. In short, not a fun time at all.

Again, our thought is better to be safe than sorry given where the market currently sits. Some investors may want to utilize stop losses across positions like Universal Display (OLED), CSX Corp. (CSX), Skyworks Solutions (SWKS), Activision Blizzard (ATVI) and others that have been robust performers thus far in 2017 in order to preserve gains should the stock market get its post-Trump speech jiggy on. More aggressive investors may wish to utilize inverse ETFs, such as ProShares Short S&P500 ETF (SH), ProShares Short Dow30 ETF (DOG), or ProShares Short QQQ (PSQ), while traders implement call options on those inverse ETFs or employ the use of select puts.

 

 

Prepping for Dycom’s Earnings This Week

Prepping for Dycom’s Earnings This Week

While we are finally starting to see the pace of corporate earnings reports subside, there are still a number of stragglers on the Tematica Select List. One of those is Dycom Industries (DY), which will report its quarterly results on Wednesday (Mar. 1) before the market open. Consensus expectations call for this communications heavy specialty contractor and Connected Society company to deliver EPS of $0.69 on revenue of $661.8 million and guide the current quarter to EPS of $1.09-$1.18 on revenue of $708-$725 million.

We’ve noted that as Dycom customers have been reporting and sharing their 2017 capital spending plans over the last few weeks, the combined 2017 capital spending plans for Dycom’s core customers — AT&T (T), Verizon (VZ), CenturyLink (CTL) and Comcast (CMCSA) — for broadband and wireless will be up modestly year over year with a greater portion of spending on network capacity and new technologies (5G, Gigabit fiber). We continue to see Dycom as a prime beneficiary of that wireless and wireline capital spending.

As we noted earlier today, this week the 2017 iteration of Mobile World Congress is being held and its one of the major wireless trade shows of the year. We expect a number of announcements to be had, some of which should shed light on expected 5G deployments. We see those items as filling in between the lines for Dycom’s core customers, many of which continue to build out existing 4G LTE networks as they begin to test their 5G offerings.

As we get ready for Dycom’s earnings and follow on management comments during the follow-up conference call, we are inclined to sit tight and be patient with the position given our view that, worst case, it’s only a matter of time for next-generation network technologies to be deployed. Keep in mind, in order for them to be deployed, they first have to be constructed.

  • We continue to rate DY shares a Buy with a $110 price target.
Putting Some Defensive Measures in Place Ahead of Tuesday’s Trump Speech

Putting Some Defensive Measures in Place Ahead of Tuesday’s Trump Speech

If you’ve missed our weekly Monday missive that is the Monday Morning Kickoff, we’d encourage you to pursue it later today as it offers both context and perspective on last week, including much talk about the Fed, and sets the stage for this week.

This week, we’ve got a lot of data coming at us, more corporate earnings that prominently feature our Cash-strapped Consumer and Fattening of the Population investing themes. There are a number of events and conferences as well, and before too long we’ll have some thoughts on this week’s Mobile World Congress, an event that meshes very well with our Connected Society, Disruptive Technology and Cashless Consumption investing themes.

We expect to see a number of announcements ranging from new smartphone models, connected as well as autonomous vehicle developments, voice digital assistant initiatives, drones, and payment systems to name a few. We’ll be watching these with regard to a number of positions on the Tematica Select List, including Universal Display (OLED), Nuance Communications (NUAN), AT&T (T), Dycom Industries (DY), CalAmp (CAMP) and Alphabet (GOOGL) as well as Amazon (AMZN). Already Amazon has announced it will bring its Alexa VDA to Motorola’s smartphones, and we see that as the tip of the proverbial iceberg his week.

As the Mobile World Congress gets underway, however, we have another event that should capture investor attention. After presenting today what’s called a “skinny budget”, (which we view as the “opening bid budget”) tomorrow night President Trump will be speaking to a joint session of Congress. Typically this is referred to as the State of the Union Address, but it’s not called that for a newly elected president. Trump has already shared that he will be talking about health care reform — “We’re going to be speaking very specifically about a very complicated subject…I think we have something that is really going to be excellent.”

As we’ve said before, we’re optimistic and hopeful, but thus far it seems Republicans have yet to find common ground on how to move forward on this. In addition to healthcare reform, investors, including us, will be listening for more details on Trump’s fiscal policies. The issue is speeches such as this tend to be lacking in specifics, and we would be rather surprised to see Trump deviate from that tradition. Moreover, we’ve already seen the Treasury Secretary push out the timetable for a tax report to late summer, and Trump himself suggested that we are not likely to see his tax reform proposal until after the healthcare reform has been addressed.

As we shared in this morning’s Monday Morning Kickoff, with the S&P 500 trading at 18x expected earnings, it looks like the stock market is out over its ski tips. Two drivers of the market rally over the coming months have been:

  • The improving, but not stellar economic data
  • The hope that President Trump’s policies will jumpstart the economy.

We’ve been saying for some time that the soonest we’d likely get any meaningful impact from Trump’s policies would be the back half of 2017. That’s been our perspective, but as we know from time to time, the stock market can get ahead of itself, and we see this as one of those times. The stock market’s move reflects expectations for an accelerating economy – it’s the only way to get the “E” that is earnings growing enough to make the market’s current valuation more palatable.

 

Need to Keep Our Eyes on Both Sides of the Equation

One of the common mistakes we see with investors is they almost always only focus on the upside to be had, without keeping an eye on the downside risks. If Trump is successful when it comes to the domestic economy, and we’d love nothing more than to see acceleration here, earnings will likely grow materially.

One of the potential risks we see this week is the market being disappointed by the lack of details that Trump will share tomorrow night, which might be read as a push out in timing relative to what the stock market expects. As we said on last week’s Cocktail Investing podcast, resetting expectations is a lot like children that open presents on Christmas morning to find something other than what they expected — it’s far from a harmonious event and more like one that is met with mental daggers, confusion, and second guessing. In short, not a fun time at all.

For that reason, we’re going to make some defensive adjustments to the Tematica Select List, which has enjoyed the market rally over the last few months and led to strong moves in our Universal Display (OLED), AMN Healthcare (AMN), Costco Wholesale (COST) shares as well as several others.

 

With an eye toward preserving profits, we are going to introduce the following stop losses:
  • Alphabet (GOOGL) at $800
  • Universal Display at $70
  • AMN Healthcare at $37
  • PowerShares NASDAQ Internet Portfolio ETF (PNQI) at $90

 

Alongside these new stop losses, we’re also going to raise several existing ones:
  • Boost our stop loss on AT&T (T) to $36 from $31
  • Raise our stop loss on International Flavors & Fragrances (IFF) to $115 from $105
  • Boost our stop loss on Costco Wholesale to $170 from $165
  • Increase our stop loss on Disney (DIS) shares to $100 from $87

 

Again, our thought is better to be safe than sorry given where the market currently sits. We’ll continue to review other positions on the Tematica Select List with similar actions where and when it makes sense.

 

Cocktail Investing Ep 5: M&A activity among Consumer Staples, fast food thematic signals, Fed-Speak, and what exactly is the Border Adjustment Tax (BAT)?

Cocktail Investing Ep 5: M&A activity among Consumer Staples, fast food thematic signals, Fed-Speak, and what exactly is the Border Adjustment Tax (BAT)?

In this week’s program, Tematica’s cocktail mixologists, Chris Versace and Lenore Hawkins sit down to discuss some of the week’s economic data, relevant political events and share where they have spotted a few of the latest Thematic Signals, such as:

  • What McDonald’s (MCD) soft drink promotional price cuts mean to our Cash Strapped Consumer
  • How the Connected Society is pushing UPS to up its game as online shoppers increasingly expect two-day shipping.
  • Major League Baseball looks to remain relevant in our Content is King world by potentially partnering with Facebook (FB), which in turn is placing its app on Apple TV (AAPL), as the way we consume content and connect with each other continues to evolve.

This week saw some telling moves in the M&A arena with Kraft (KHC) calling off its prematurely disclosed bid for Unilever (UL) as consumer staples companies such as JM Smucker (SJM) and General Mills (GIS) struggle — not exactly a robust sign for the economy despite what we see in the headlines. Others like Restaurant Brands (QSR) that are looking to buy growth get an agreement done with Popeye’s Louisiana Kitchen (PLKI), and we talk about the whys behind that strategic rationale.

Of course, this week we received the clear-as-mud minutes from the latest Federal Reserve’s Open Market Committee meeting, which we dig into as well as dish out the 411 on what this Border Adjustment Tax is all about and how it could affect you and the companies in which you invest.

The teflon market continues to push up as valuations get further into the stratosphere and forward EPS estimates get revised downward. We’ve now gone an unprecedented 8 years without a 20 percent correction and the VIX 65-day moving average has dropped down into territory that normally precedes a pullback. While we are optimistic when it comes to the economy, we have to acknowledge our Aging of the Population theme means the first baby boomers are turning 70 this year with 1.5 million doing so each year over the next 15 years, which will have a dramatic impact on spending as well as health care costs. That’s especially the case when only 50% of them have saved enough for retirement.

But with CEO’s of major U.S. manufacturers making the headlines that Trump is the most pro-business president since the founding fathers, stocks are holding up just fine… for now. More on that on the podcast. Listen now.

Companies mentioned on the Podcast

  • Amazon.com (AMZN)
  • Apple (APPL)
  • Campbell Soup (CPB)
  • Facebook (FB)
  • General Mills (GIS)
  • Houlihan Lokey (HLI)
  • JM Smucker (SJM)
  • Kraft Heinz (KHC)
  • Macy’s (M)
  • Major League Baseball
  • McDonald’s (MCD)
  • Nordstrom (JWN)
  • Popeyes Louisiana Kitchen (PLKI)
  • Restaurant Brands Intl (QSR)
  • Twitter (TWTR)
  • Unilever (UL)
  • United Parcel Service (UPS)
  • Whole Foods Market (WFM)

 

Lenore Hawkins Tematica Research Chief Macro Strategist
Chris Versace Tematica Research Founder and Chief Investment Officer
Boosting Our Price Target on this Disruptive Technology Company Again

Boosting Our Price Target on this Disruptive Technology Company Again

Last night shares of Disruptive Technology company Universal Display (OLED) popped more than 10% in after-market trading as the company delivered substantially better than expected December quarter results and instituted a new dividend program. Granted the quarterly dividend of $0.03 per share equates to an extremely low dividend yield, but the program, which is expected to include regular quarterly dividend payments, is a signal that Universal sees enough cash generation to invest in the business and return capital to shareholders as the organic light emitting diode market expands.

 

Details Behind Universal Display’s Performance

For the quarter, Universal reported EPS of $0.55 per share, $0.14 ahead of consensus expectations on revenue that rose 20% year over year to $74.6 million, besting expectations of $69 million for the quarter. Breaking down the company’s revenue, licensing fees grew 27% year over year to $43.6 million (58% of revenue), material sales rose 5% to $29.2 million (39%) with the remainder generated by Universal’s contract research business (2%). Simply put, we see licensing business and materials business responding to the rising industry demand for organic light emitting diode displays, a phenomenon of which we are still in the early innings.

As expected, on the earnings call, Universal’s management team trotted out a number of examples of new products and market opportunities that are increasing demand for organic light emitting diode displays, which in turn drive demand for the company’s materials and licensing businesses. We see those examples, which included smartphones from ASUS and Huawei, TVs from Panasonic, LG, automotive lighting applications (tail lights, interior lighting, indicator lights and displays), augmented reality, virtual reality,  as solid reminders that organic light emitting diode display adoption spans far more than just Apple (AAPL) and the next generation iPhone.

If we were to be nit-picky, the only issue to be had with Universal’s earnings report was that management guided 2017 revenue in line with expectations. Coming into last night’s earnings report, consensus revenue for 2017 stood at $242.7 million across just over a handful of analysts and Universal’s guidance put revenue at $230-$250 million. Baked into that company guidance are two $45 million royalty payments from Samsung that land in the second and fourth quarter. In our view that guidance seems conservative, but we also recognize the biggest swing factor in the company’s revenue is not so much new capacity additions, but when that capacity moves past installation and testing, and into active production.

Given expanding capacity from a number of companies including Samsung, LG Display, AUO Optronics, Japan Display, Sharp and China BOE Technology, which is reflected in the order book at capital equipment company Applied Materials (AMAT) and its competitors, there is ample confirmation of expanding capacity over the next few years. Where it gets tricky is predicting the quarterly timing of productive capacity coming on stream. Given our long-term investment horizon, we’re inclined to sit back and be patient as the continued step up in capacity likely means an expanding business at Universal Display and boosting our price target on the shares along the way.

Earlier this week, shares of Applied Materials joined Universal Display shares on the Tematica Select List, and we continue to rate AMAT shares a Buy with a $47 price target.

 

If Social Media Giant Inks a Deal with MLB It Could be More Than a Connected Society Play

If Social Media Giant Inks a Deal with MLB It Could be More Than a Connected Society Play

Earlier today, Reuters is reporting that Connected Society company Facebook (FB) is in talks with Major League Baseball (MLB) to live stream at least one game per week during the upcoming season. We’ve seen Facebook live stream other sporting events, like basketball and soccer, but should the company ink a deal with MLB it would mean a steady stream of games over the season.

Given the nature of live sporting events, as well as the strong fan following, we see Facebook’s angle in offering this kind of program as threefold — looking to attract incremental users, drive additional minutes of use, and deliver more advertising to its user base, which should improve its monetization efforts. All three of those are very much in tune with Facebook’s existing revenue strategy and meshes rather well with its growing interest in attacking the TV advertising market.

From a high level such a deal pushing Facebook not only deeper into the increasingly Connected Society, but pulling it into our Content is King investing theme as well. Sporting events are one of the last holdouts in the move to streaming services, and its loyal fan base is likely to shift to video consumption alternatives that allow them to get events where they want, when they want and on the device they have at the time be it TV, smartphone, computer or tablet. With the recent deployment of its app for Apple’s (AAPL) Apple TV and others soon to follow, Facebook has all of these modalities covered.

To date, Netflix (NFLX) has shied away from streaming such events, and while there have been rumblings about Amazon (AMZN) entering the fray with its Prime video platform, Twitter (TWTR) has been one of the few to venture into this area live streaming Thursday night NFL games last season. Between Facebook and Twitter, we see MLB and others opting for Facebook given its larger and more global reach as well as far greater success at monetizing its user base.

Should a deal with MLB come through, we would see this not only as a positive development but one that likely paves the way for more streaming video content on Facebook’s platforms — sports or otherwise. As avid consumers of streaming content, we would welcome this with open arms; as investors, depending on the scope of such a rollout there could be upside to our $155 price target for the Facebook stock.

 

On the Major League Baseball / ESPN side of the Equation

Today’s news report about this potential Facebook / MLB deal doesn’t mention Major League Baseball’s other media and streaming activities, particularly ESPN.  This spring will make the beginning of the fifth year of a $5.6 billion agreement between MLB and ESPN that keeps the national pastime on that network through 2021. Of course, the struggles of Disney-owned ESPN have been well-documented recently as its cable subscriber numbers continue to decline as chord-cutting activity increases, as well as seeing consumers trade down to smaller cable packages that omit ESPN.

Major League Baseball, on the other hand, has been at the forefront of the streaming of its games and app-driven content through BAMTech, the digital media company spun off by Major League Baseball’s MLB Advanced Media. Just last year, The Walt Disney Co (DIS) stepped up to make a $1 billion investment in BAMTech, joining MLB and the National Hockey League as co-owners.

So while this Facebook/MLB story makes no mention of Disney and ESPN, it’s pretty clear from the tangled web of BAMTech ownership, that ESPN will either be somehow involved in the streaming of these live events on Facebook (possibly producing the broadcast and using ESPN announcers) or in the very least Disney will financially benefit from the deal given its ownership in BAMTech.

We’ll be watching to see if any such move develops.

  • We continue to rate FB shares a Buy with $155 price target.
  • We continue to rate AMZN shares a Buy and our price target remains $975
  • We continue to rate DIS shares a Buy with a $125 price target.