I posted brief informal reviews of the stocks in my portfolio in April, and again in May, and people seemed to find them valuable, so I thought I’d give you a pre-earnings update. Remember that I do them mostly for myself, so they will vary in quality, thoroughness, and length. The stock prices are as of Friday’s close. Please remember that my conclusions may change anytime.
I’ll start with an update on how I’m doing since Brexit: I finished Friday on a happy note, hitting a record high for the year of 100.9% of where I started. (I did briefly hit 100.2% in April, but have been negative all the rest of the year).
I’m up 5.6% from the Friday before Brexit.
I’m up 2.7% from the day before Brexit.
I’m up 12.7% from the Brexit bottom, two days after Brexit. And that was only eight trading days ago. Up 12.7%!
Brexit wasn’t the end of the world after all! :
July 2016 – AMZN - My Review
I love Amazon and feel they have both online commerce and the cloud sewed up, as much as any one company can sew them up. I was adding small amounts whenever I could. However, AMZN is now up to about 11.7% of my portfolio, so I have slowed down on adding. The price has risen as well. I started my position this time at about $550. It was $711 when I wrote in May and is now at $746, so it’s risen 5% since May. My only concern is the absence of significant earnings (which is a real lack). Even the $1.07 in earnings last quarter is a drop in the bucket for a $700 stock. They are however producing growing positive Cash Flow and I’ll accept that.
July 2016 – ANET - My Review
Arista used to have a much higher PE. A year and a half ago it had a PE of 80, but now, at $63.65, it has a PE of about 26. That’s much more reasonable, and why I established a position in spite of the ongoing lawsuit with Cisco, and the (minimal?) threat of “white box” competition. Cisco has won some rulings, which was expected, but Arista has already issued its work-arounds, and the majority opinion seems to be that they won’t really be much affected by losing the patent cases (but what do I know?) For the March quarter Revenue was up 35% and EPS was up 36%. Trailing earnings are up 47% so that quarter they slowed somewhat. I’ve been building my position slowly and it’s only at currently at 5.7% of my portfolio. I’ll keep going slow. Especially as I’m not a techie. Remember that Arista’s product is not so much hardware, but software.
July 2016 – CBM - My Review
Cambrex supplies little pieces, and finished compounds, and generic meds to big drug companies like Gilead, and many others, but Gilead is still a big part of their business. They’ve just built out a large facility with plenty of empty space so they can “keep up with demand”. But at the same time they give very conservative guidance of maybe 15% revenue growth. On the other hand, EPS is up 135%, from 99 cents to $2.33, between 2013 to 2015.
I started to buy at $36 in February and to my surprise it’s now up to $54. Its PE is 21.3 and it has gone from 7.1% to a 5.8% position due to my using some shares for cash to buy other stocks that had gone down unreasonably. They successfully provide shovels to all the miners who want them, but they will never shake the world. I wrote in April that I was expecting quite good first quarter earnings comparisons, but earnings were actually up 72%, which was better than I anticipated. However they are still giving that very conservative guidance of 15% CAGR for revenue. It’s still my 6th largest position, just ahead of Arista.
July 2016 – CRM - My Review
Salesforce provides SaaS in the cloud to large enterprises, and keeps introducing new clouds. Their Revenue last quarter was up 27%. Their adjusted earnings were up 50%. Their adjusted 12-month trailing earnings were up 46%.But even this isn’t the whole story. The headline numbers mask what business is really accomplishing. They sell a lot of multiyear deals of software as a service (SaaS), but they can only recognize three months at a time (and if they signed a big deal at the end of a quarter, they may only be able to recognize a few days of revenue). So they have a lot of sold business they can’t recognize, and a lot of deferred revenue. But their expenses are here and now, so the bookkeeping system distorts both the GAAP and non-GAAP pictures against them. Their revenue, earnings and cash flow go up every quarter and they raise guidance regularly. I like the company and found out about it from Bert Hochfeld’s write-up. As you probably have figured out, I have a lot of confidence in him. For confirmation, the CEO has a 97% Glassdoor approval rating and it’s been twice recommended by MF RB’s. Here are all of Bert’s articles:
http://seekingalpha.com/author/bert-hochfeld/articles#view=r…
July 2016 – CYBR - My Review
In May I wrote that it’s obvious to everyone that security from hackers is more and more important in the modern world and that this little company has an important niche where it has become the dominant player. It’s growing rapidly, profitable, cash flow positive, has plenty of cash and no debt, all the things you’d hope to see in a little company in early expansion, but rarely do see. So what’s the catch?
First, it has earnings of $1.06 and a price of $51.70, which gives it a PE of 52 ! The good news is that roughly a year ago it had a stock price of $75, earnings about 71 cents or less, and a PE of over 100. (This is a much better price).
Second, there’s always a threat that one of the much bigger cybersecurity companies will decide to make a determined move into their little niche, with a better mousetrap. (Not sure it will happen as all those companies with CYBR’s products already installed are unlikely to change their whole internal security system unless they have a good reason. And CYBR’s niche may be too small for the big guys to want to get in a fight over it.)
Three, it’s an Israeli company which gives it more of a war-risk than most. (It has offices and manufacturing all over though.)
In April it was my smallest position because of its high PE, and I said I was in cautious mode. In May I reprted that I had I exited it for cash, but that I was keeping it on my radar. I’m now back in, but it’s my smallest position again at just 0.5%
July 2016 – HUBS - My Review
This is one of those rapidly growing companies that isn’t profitable yet. Really rapidly growing. Neil brought it to the board a year ago. Here was his description of what they do (abbreviated):
HubSpot provides a comprehensive cloud marketing and sales platform aimed at medium-sized businesses (especially B2B) that is formed around the concept of “inbound” marketing, which its cofounders pioneered (and literally wrote the book on).
Inbound marketing is based on the idea of bringing customers to you, rather than going out and chasing them. As customers get more empowered with technology, reaching out to them isn’t as effective as it used to be: customers do their own research online, they don’t answer their phones if they don’t recognize the caller’s number, unsolicited marketing emails go to their spam folders, ad-blockers block your online ads, etc. Inbound marketing is about building up an online presence that will bring in leads over time.
HubSpot’s integrated applications include social media, search engine optimization, blogging, website content management, marketing automation, email, CRM, analytics and reporting — and everything is stored in a single database with full integration amongst all the tools.
Their 12-month trailing operating cash flow looks like this (in millions):
-12.5
-10.7
-06.8
-04.8
-00.4
+03.6
So, as you can see, they’ve broken into positive trailing operating cash flow. On the other hand, 12-month trailing earnings still has a way to go, but trailing losses come down every quarter. Revenue was up 49% from 2013 to 2014, and up 57% from 2014 to 2015. Not only are those extraordinary rates of growth, but they are accelerating. Customer count rose 33% last year, so a 57% rise in revenue means that each customer is spending a lot more on average from year to year. And Bert wrote them up in June, which is when I bought in to stay (see link above at CRM). I have just a small 2% position.
July 2016 – LGIH - My Review
You don’t get much better than this. Annual Revenues of $143, $241, $383, $630 million dollars. Annual Earnings of 43, 107, 138, 250 cents. In the March quarter, earnings were up 73%. The stock price fell from $35.50 to $19.50 in the February panic, amid fears that the oil crunch would kill the market for houses in Texas and the west. That hasn’t happened at all, at all, at all !!! It’s my biggest position now at 18.5% of my portfolio, with a PE of 12. The price, which was at $25.60 when I did my review in May, is now back up to $34. I reduced a little, a week or two ago, when it hit 18.5% of my portfolio, but it came right back to 18.5% again because its price was rising faster than the rest of my portfolio. I won’t be adding more because it’s such a big position, but I decided to accept it at 18.5% for now, and not try to reduce the size.
July 2016 – MITK - My Review
This a really small company (Market Cap $270 million). It has some great things going for it though, and it is expanding as fast as it can. In fact, they said that expansion and hiring new sales teams for cross selling will cut earnings growth to zero this year, but first quarter earnings were up 40% from 5 cents to 7 cents so I’m not sure what to make of it. The good news is that they keep signing up large new clients. The bad news is the expenses mentioned above, and the legal expenses that they are now taking out when figuring their adjusted earnings. I bought at about $4.40 about six months ago, and to my amazement they hit $9.30, up 110%, about 6 weeks ago. This means their PE had grown to 34, which made me quite nervous! I reduced my position at prices from $9.20 to $8.10 and then bought back what I had sold from at prices from $7.80 to $6.80. They are now at $7.70, up about 75% from where I bought initially. Granted, they have a huge open field in front of them, but a PE of 29 with little growth expected for this year, is a bunch. My position is now about 4%. I plan to just hold now.
What the stock has done: This is a very high-beta stock. The price went up over 50% from $6.00 to $9.30 in 5 weeks, and the very next 4 weeks dropped back to $6.80, finally hitting $6.40 Monday, a week ago, the Monday post-Brexit. Now it’s back at $7.80. What a ride! The current price happens to be below all my sales and above all my buys, but that’s sheer, total, luck and doesn’t mean anything. Who knows where it will be tomorrow?
July 2016 – PAYC - My Review
Andy first brought PayCom to the board in June of 2015. It’s been off and on my radar ever since, and I started a serious position In May. It’s a 2.7% position at the current price of $45.50. That makes it a small, but not tiny, position. It has a current PE of roughly 75, which is much larger than I like, but it is growing trailing earnings currently at 126% yoy. I figure that for 2016, it will slow down to about 80%, and I’m willing to tag along with a small position for now. It does have a lot of things I like such as: significant ownership by founders who are still active, positive cash flow, renewable revenue, that kind of thing. And Bert wrote a nice article about them in May. (see link to his articles above).
What the stock has done: This is the opposite of Mitek, although they have both risen in price. This is a very low-beta stock. I first purchased it at $37.50 and during the two following weeks I took the largest part of my position at about $39.75. Over the next four weeks it stayed between $39.75 and $42.00. The Monday after Brexit, the bottom, it closed at $39.30. Now, less than two weeks later, it’s ridden the wave to $45.40. At one point, because it was so relatively stable, I sold a small amount for cash, but relented and bought it back a few days later.
July 2016 – PYPL - My Review
Probably 75% of the people on this board have a PayPal account, so you all know about the company. I just started a position in in the stock last week, when Bert wrote them up. For those who like verification, it’s also a MF SA recommendation. It’s a tiny 1% position for me at present, but it will probably grow.
Last quarter they did the following: Revenue growth of 23% on a foreign currency neutral basis. Adj earnings up 28% to 37 cents from 28 cents, Trailing earnings up 26%, Operating cash flow of $738 million, Free cash flow of $605 million, Repurchased 17 million shares at an average price of $35.
And payments isn’t all they do. They are constantly innovating: Recent new product launches include One Touch and Venmo, added through their acquisition of Braintree. One Touch is PayPal’s fastest rollout, and people used Venmo to transfer more than $1 billion in January, up 250% y/y. You might like to take a look.
July 2016 – RUBI - My Review
I wrote a long review on RUBI in May here: http://discussion.fool.com/rubicon-project-rubi-8211-my-quarter-…
There haven’t been any earnings since, so that will have to hold you. Its current price is $13.90 and it makes up 3.3% of my portfolio. Its PE is just 10.5 inspite of huge levels of growth. It’s gone nowhere since May. This seems to be because of their constipated low guidance. (They’ve beaten guidance by at least 100% every quarter since their IPO). We’ll see what happens.
July 2016 – SBNY - My Review
I still have to say that Signature Bank remains one of the best banks in the world! I’m not exaggerating about this. Forbes rates the largest 100 banks in America on a series of metrics, weights them mathematically, explains explicitly how they rated them, and publishes the results as “The Best Banks in America” or somesuch. SBNY has been in the top ten for six years running. In 2014 they scored 2nd in the Americas, in 2015 they were first, actually number one, and this year, in 2016, they scored 6th out of the hundred on their metrics. In the March quarter they had very good, but not outstanding, earnings (which were up 23%), great growth in Book Value, incredible Efficiency Ratio of 32.2%. Some concern over their exposure to taxi medallion loans, but those are only about 4% of their total loans. They are my 4th biggest position at 8.9% of my portfolio, with a PE of 16.5 at the current price of $126. (Price has been as high as $162 and as low as $115 the Monday after Brexit). I’ve been in since January and I had bought from $140 to $120 and back. I added in the last two weeks at $116 to $122. I’ve never sold a share.
July 2016 – SHOP - My Review
They have been doing wonderfully, doubling revenue every year compounded: 24, 50, 105, 205 million dollars. Still no earnings but ttm losses are shrinking every quarter (40, 33, 21, 15, and 13 cents). Revenue seems to be all recurring. They dominate their space. Even AMZN closed their competing product in 2015 and told people to use Shopify. It’s quite expensive with a P/S ratio of about 10. It’s very atypical for me. It’s my 8th largest position out of 18 positions at 5.1%. Current price is $26.50, down from $32.00 in the past two weeks in response to an earnings report in which revenues were up 95% (!), but they are still putting off positive earnings and concentrating on massive growth. I got into it when MF RB’s recommended it two months in a row. That got my attention. Bert wrote a nice article on it in May, but I already had my position. Since I bought at $26 the price has varied between about $26 and $32, up and down each month, and is now at $31.
July 2016 – SKX - My Review
This company is doing wonderfully, with no obvious threat in sight. It sold off for no particular good reason except that the price had risen a lot. I’m comfortable with it as my 2nd largest, and oversized, position. It’s currently about 14.4% of my portfolio, at a price of $30.80, and a PE of 16.7. Last quarter its earnings were up 70%, its trailing earnings were up 57%, and its revenues were up 27%. Does a PE of under 17 make sense to you? This is a great company, and selling at a very low price when compared to other companies in the same field.
July 2016 – SNCR - My Review
This isn’t a company that is going to take over the world, but it’s an interesting, relatively unknown, boring sounding, but surprisingly innovative little company that is quite profitable, moving into new areas, and consistently growing revenue, and consistently growing earnings at 25%. It’s at a very low PE of 15 at its current price. It also has started positive Free Cash Flow, which went from $0 in 2014 to over $60 million in 2015. Its cloud revenue, which is recurring, is now over 50%, and growing more rapidly than the legacy activation revenue. They are spending money building out products with Goldman Sachs and Verizon. This spend affected EPS negatively in the first quarter, so that it was flat with the year before. Some of he products were released near the end of the June quarter.
What worried me was whether they would be able to compete with the big boys in the cloud area (AMZN, MSFT, GOOGL, etc), but SNCR is in customer cloud, not enterprise cloud. The price dropped from $52 to $22.50 on these fears, but it’s now back to $33.70, having bounced back as high as $36 or so. When it bounced back I reduced my position at prices from $30.50 to $36.00. Now its just a 3.3% position and I’ll hold for now. I got into this as a MF RB a year and a half ago (they recommended it at $45.70), but if you’d like to learn more about it, Bert has written an article on this one too, to my surprise. (How did he ever run across it?)
July 2016 – SSNI - My Review
This is a little position I got into because of an article by Ophir Gottlieb. It’s an internet of things company that does smart lighting and stuff for utilities and cities. They just signed up Con Edison for all of NY City, which is a big deal. They have cities from Manchester England, to Miami and Sao Paolo, and lots more. Lots of recurring income. Their trailing earnings were (-50) in Dec 2014, (-42) in Mar 2015, (-20) in June, +04 in Sept, +09 in Dec, and +22 after the recently announced Mar quarter. That’s pretty impressive but it still gives them a PE of 56 at their price of $12.30. I have a 4.25% (middle-sized to small) position.
July 2016 – SWKS - My Review
Although I really like the company, its prospects, and the management, I decided I had had too much in SWKS (and in other companies that make and sell tech products like AMBA, INFN, SEDG, etc). I also was concerned about all the competition that seems to be coming out of the woodwork, while on the other hand management keeps saying “Nothing to worry about”. I’m not tech savvy enough to evaluate the competing claims so I’ve been gradually nibbling away at my position for cash now and then, as I have described elsewhere. I will now just hold it, especially as the price is only $62.90, and the PE is 11. It’s still one of my top five, but I can understand the other four (LGIH, SKX, AMZN, and SBNY) and their prospects, a lot better.
Exited positions:
July 2016 – FB - My Review
I wrote in May that I’ve sold small positions twice because of concerns about PE or growth rate, and each time it’s been a mistake, and that I’d take a small position and keep it. It was my smallest position in May. I decided that I just can’t warm up to Facebook, and got out recently for a third and final time. Sorry. It’s just not my thing.
Jul 2016 – PN - My Review
I wrote in my review in May that I wasn’t really sure what to do about this one. Since, I’ve written at some length about why I sold out. It seems to be an interesting company which has found its niche and is growing like a weed, even if a large part is by acquisitions. And it’s profitable. The price had fallen to $3.65 in early March in connection with manipulation over warrant exercises, and in May, it was at $8.20, up over 100% from the bottom. Although the PE was quite low, I just didn’t feel comfortable. First there was the price manipulation in March. Then, in the last earnings call, analysts asked questions about related party transactions, lawsuits that I didn’t know anything about, and something about “changing control” or something like that that was denied by management, all together made me more uncomfortable. I sold out some time ago. Since there has been an offer by EBIX to buy them at $9.50, but the stock price is just at $7.66, which is bizarre. It’s just me, and it may be a big mistake, but I wouldn’t touch it.
Jul 2016 – SEDG - My Review
I recently had a small position in SolarEdge, but I exited it. There was too much controversy about the pros and cons of their kind of inverter, and I really am not techie enough to figure it out. I just figured I had safer places for my money. I think I’m leaning away from buying tech companies who make things instead of software.
Jul 2016 – TSLA - My Review
I recently took a truly tiny position (maybe 0.3%) in TSLA when it fell more than $25 after offering to buy SCTY, but I exited it this week at a nice profit. I thought the price fall was ridiculous considering it was more loss of market cap than the entire price they were offering for SCTY. That was the closest I ever come to a trade, though I thought I was starting a regular position when I bought it.After reading up on Tesla were too many moving parts, way too many “if”s, to keep my position as a long term position.
Hope you found this useful!
Saul
