Stock Thoughts
AN INVESTMENT IN KNOWLEDGE PAYS THE BEST INTEREST ~ Benjamin Franklin
Video: Medtronic: 3.6% Dividend Yield, Streamlining Portfolio with 50% of Free Cash Returned to Shareholders
• 3.2% Dividend Yield.
• High cash flow generation with a good cash position. Targeting 50% Free Cash Flow (FCF) return to shareholders.
• Leverage existing customer relationships to grow its subscription and cybersecurity model.
• Fulfillment constraints subsiding as parts shortages decline.
• Earnings per Share (EPS) growth accelerating towards 7%.
Video: Cisco: 6-7% per Year Dividend Growth. Core Growth and Repositioning Yields Huge FCF and EPS Increase
• 3.2% Dividend Yield.
• High cash flow generation with a good cash position. Targeting 50% Free Cash Flow (FCF) return to shareholders.
• Leverage existing customer relationships to grow its subscription and cybersecurity model.
• Fulfillment constraints subsiding as parts shortages decline.
• Earnings per Share (EPS) growth accelerating towards 7%.
[Ben Speaks at 35:30] Money Life with Chuck Jaffe: It’s ‘The biggest inflection point for most investors in their lifetime’
Benjamin Halliburton, founder and chief investment officer at the Building Benjamins investment newsletter, says that inflation and interest rates bottoming out last year after a decline/trend that lasted for 40 years has now put investors into a new territory, forcing them to consider areas and industries that benefitted from decades of disinflation. It’s the biggest inflection point of most investors’ lifetimes, he says, but it’s an adjustment that people will need to make to keep the profits rolling in the changed conditions they’ll see for years to come.
Video: BIDU and BABA speculative purchases. Both down 72% from their highs. Baidu and Alibaba too cheap.
BABA:
• Chinese e-commerce leader. 22% Revenue growth with significant pullback since high.
• Strong cash position of $45 billion.
• 70% of FY22 cash flow went toward repurchasing 63 million shares for $5.6 billion.
• Compelling base of growth businesses outside of e-commerce, including cloud computing, digital marketing, and media.
BIDU:
• BIDU stock has pulled back from its high of $283 in February 2021.
• Repositioning away from traditional advertising toward SaaS.
• Autonomous driving paving the way for the next decade in addressable market growth.
• Strong balance sheet and high cash flow coupled with a low valuation.
BABA: International Expansion and Domestic Success
• Stock decline over past two years creates inexpensive growth stock.
• Chinese e-commerce leader.
• 22% Revenue growth.
• Strong cash position of $45 billion.
• 70% of FY22 cash flow went toward repurchasing 63 million shares for $5.6 billion.
• Compelling base of growth businesses outside of e-commerce, including cloud computing, digital marketing, and media.
• Over 1.3 billion active annual customers, with 75% domestically in China and 25% global.
• Official cloud provider for Beijing Winter Olympics.
Medtronic is a Compelling 3.6% Dividend Grower
• 3.6% Dividend Yield. Dividend increased 8% last fiscal year.
• World’s largest medical device producer and developer.
• High 80% cash flow conversion with 50% Free Cash Flow (FCF) shareholder return target.
• Huge growth portfolio, with 230 products entering the trial phase and 200 approvals in FY22.
• Portfolio streamlining including a spinoff of low-growth segments into NewCo.
• Repositioning toward a higher growth portfolio.
• Chinese drag being offset with double-digit growth in other developing markets.
Cisco: Repositioning Success Yields Huge FCF
• 3.2% Dividend Yield.
• High cash flow generation with a good cash position. Targeting 50% Free Cash Flow (FCF) return to shareholders.
• Leverage existing customer relationships to grow its subscription and cybersecurity model.
• Fulfillment constraints subsiding as parts shortages decline.
• Earnings per Share (EPS) growth accelerating towards 7%.
BIDU: Expanding Reach to Drive Growth
• BIDU stock has pulled back from its high of $283 in February 2021.
• Repositioning away from traditional advertising toward SaaS.
• Autonomous driving paving the way for the next decade in addressable market growth.
• First of-its-kind Robo-taxi service which has already delivered 280k autonomous fare-rides in China’s largest cities.
• Strong balance sheet and high cash flow coupled with a low valuation.
• Biden-Xi talks indicated a thaw in China-US relations after the countries agreed to more open dialogue.
Recent Sale: Leggett & Platt
We have sold Leggett & Platt (LEG) based on macroeconomic slowdown. As we enter an economic downturn, consumers will be spending less money on furniture and bedding, and auto manufacturers will sell less vehicles. This means that LEG will enter a more difficult operating environment and will see contraction on its earnings and cashflow
ON Semi: Driving the Future of Automotive Automation
• Backlog grows $5.3 billion in 3Q22 to hit over $14 billion.
• Repositioning initiative to focus on free cash flow and margin growth, exiting inefficient product lines and focusing on long-term supply agreements with OEMs.
• Quickly growing total addressable market, particularly in automotive, where ON has swelled total value per vehicle to $715
• 50% of FCF targeted at share repurchases, strong customer base and strong long-term outlook despite shorter-term softness.