My thoughts about earnings so far.

My thoughts about earnings so far.

Here’s a little recap on what I think of earnings on some of my stocks.

FB - I had been out of my small position in FB because their earnings growth seemed to be stagnating, but they had great earnings this time, with great customer metrics, so I added a small position this week (0.77% of my portfolio).

AMZN - Yesterday was a strange day. I had a small (3.5%) position. Amazon shot up to $635 on anticipation of earnings, then fell off to $550 in after hours after they announced. I thought they had great results and bought all I could at $549 to $552 in after hours, increasing my position to over 5.2%. Those purchases look okay as they are now at $584 at midday. Those who sold off apparently did so because earnings missed estimates. As I’ve explained earlier, I follow Cash Flow instead.

Here’s what Operating Cash Flow (TTM) looks like for the past three years.


2013:  4.2  4.5  5.0  5.5
2014:  5.3  5.3  5.7  6.8
2015:  7.8  9.0  9.8  11.9 

You can see that something happened in 2015 as OCF took off. Now let’s look at Free Cash Flow (TTM)


2013:  0.2  0.3  0.4  2.0
2014:  1.5  1.0  1.1  1.9
2015:  3.2  4.4  5.4  7.3 

The same thing happened there in 2015, with a very strong fourth quarter for each.

By the way they have about $24.74 per share in TTM Operating Cash Flow, and $15.18 per share in Free Cash Flow. No longer a company that can’t make money, it seems to me. And sales were up 22%.

INBK - I was a bit disappointed at first as earnings were flat, but anirban explained what was happening so clearly that even I could understand it. Their primary banking earnings are Net Interest Income, which is the major part of their earnings and is growing at 30% annually. They also make non-interest income, which is smaller and bounces around. It bounced down this quarter. Soon Net Interest Income will be big enough that the bounces in non-interest income won’t matter.

CELG - Biotechs in general have sold off, and taken Celgene, which is a 4% position for me, along. Their revenue was $2.54 billion, up from $2.05 billion, which looked fine to me. Earnings were $1.18 up from $1.01, but reduced 7 cents by a milestone payment that they paid to OncoMed during the period. I figure that having to make the payment is good news and implies that things are progressing. For the first quarter their outlook is for $1.27 to $1.30. I have no worries about CELG.

MITK - Is a little microcap brought to the board by Neil. I have about a 1.4% position. Their earnings were 4 cents, down from 5 cents a year ago, and down from 9 cents sequentially. However they let us know in advance that they would be spending to build out the business. Revenue was up over 30% from a small base of $5.4 million the year before. In other words it’s really a tiny company! And therefore risky.

SBNY is a new small position recommended by Ophir Gottlieb at the CML Pro newsletter. (I have a 1.5% position). Their earnings were up 25% for the quarter and 23% for the year. They are larger than INBK, and growing a bit slower than INBK and BOFI, but they are more stable than INBK and don’t have the problems that BOFI is fighting. I was happy with their results.

SWKS is interesting. There was so much negative hype that when they did exactly what they said they would everyone breathed a sigh of relief. I was slightly disappointed as I hoped they would do even better than that. They forecast next two quarters to be up a small amount from the year before, and that then the business will really take off in the second half of 2016. They specified that that was not just wishful thinking but that they have pre-knowledge of what they will be in in the second half of the year. It remains my largest position.

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Hi Saul, just one question on your thinking.

Regarding MITK, you say, they let us know in advance that they would be spending to build out the business. And it sounds like you feel that is OK here and you’ve kept your position.

How come for AIOCF, you sold because of a similar company plan of spending to build out the business?

Although I know it worked out great for you to get out of AIOCF when you did (and you can get back in if/when you want), why wouldn’t you get out of MITK if they’re doing the same thing?

Is it because it seemed like it would be a much longer period of “investing in the business” (a couple years) for AIOCF and you don’t think it will be that long of a spending period for MITK?

As always, thanks for your thoughts and analysis.

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How come for AIOCF, you sold because of a similar company plan of spending to build out the business?

I guess I didn’t have the same confidence in AIOCF because there were a lot of companies in the security camera business. Remember also that I have a quite small position in MITK.

Saul

SWKS is interesting. There was so much negative hype that when they did exactly what they said they would everyone breathed a sigh of relief. I was slightly disappointed as I hoped they would do even better than that. They forecast next two quarters to be up a small amount from the year before, and that then the business will really take off in the second half of 2016. They specified that that was not just wishful thinking but that they have pre-knowledge of what they will be in in the second half of the year. It remains my largest position.

Given the many headwinds, I thought their performance was amazing.

One very important point that was made twice, I believe, in the conference call is that they are already working on 2018 designs with their large customers…that be Apple, and presumably Samsung.

So for Apple, that cements their position at a minimum through the iPhone 8s. In other words, for at least four years. And given that, I can’t imagine Apple isn’t using them to try to cram cellular into the tiny Apple Watch package. And once they’ve accomplished that heroic feat, it’s going to be near impossible from someone to knock them out of that (Apple Watch) position. And once the Apple Watch ramps up (and it will…though never the same as iPhone) and Apple is partnering with Skyworks on that, it’s just going to be that much more unlikely that they’d switch to an alternate supplier for iPhone. Very sticky relationship going here.

And this huge business with the best-in-class Apple has ramifications elsewhere. For as they pointed out in the CC, 1) what gets the contract is performance (e.g., not price), and 2) what matters in performance is the end-to-end package…not simply an RF or two. And how does a business get better at designing, engineering, and manufacturing such a complex solution? By doing more and more of it. I believe this is very much going to be a matter of the rich getting richer (i.e., Skyworks), and the poor getting poorer. Indeed, this is precisely what has been happening, per the CEO (and Skyworks numbers and position with all the top OEMs seems to bear this out). While the ever-growing gap between rich and poor may not be good for society, I love to see that here with Skyworks.

The more I get to know this, the more I am thrilled with this business. I just hope they stay independent, so we can ride this wave for a very long ride. Buffett has said if you find three wonderful businesses in your life, you’ll become very rich (this assumes you load up on it accordingly, and hold on for the ride); I believe Skyworks is going to be one of those for me…as long as they don’t get acquired.

Saul, thanks again for pointing me to this treasure.

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Recently I have read several articles featuring a allegedly outstanding technology companies considered to have been unfairly knocked down and have been surprised to find SWKS not among them. SWKS has better figures than all of them and from what I read here, prospects better than most. Curious.

Lam (LRCX) seems to be the favorite.

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Strelna,

Could you put a link to the article so that I can evaluate the information? That would be very helpful.

Thanks,
Andy

No, I read a few articles but the most recent is in this weekend’s Barrons.