Why Bitcoin Is Flying Even Higher And Faster

If you’re going to invest in Bitcoin then you need to wrap your head around the fact that there’s an entire market of cryptocurrencies. In other words, there’s competition. As a result, this opens up opportunities for speculation and trading. There might be a short term play (or two) worth considering.

First, take a look at Coinbase to see how Bitcoin has moved in the last month:

Pretty easy to see that it’s up over 42%.

Now, take a look at Ethereum:

Up about 5%. That’s pretty weak compared to Bitcoin.

Typically, the top cryptocurrencies have moved in tandem, although they are are not perfectly correlated. To provide further clarity and provide you with some real numbers, take a look at this correlation matrix:

Source: sifrdata

You can see that Ethereum (and LiteCoin) are 0.66 correlated with Bitcoin.

  • 0.5 to 1: Strong positive relationship
  • 0.3 to 0.5: Moderate positive relationship
  • 0.1 to 0.3: Weak positive relationship

The 0.66 correlation tells us that there is a strong albeit not 1:1 correlation between Bitcoin and Ethereum. In fact, they are all kind of “hot” and moving upward in price.

So, we know that over the last 90 days Bitcoin [BTC] and Ethereum [ETH] have moved together but we also know from the price charts that Bitcoin moved “big time” compared to ETH; eight times as much in the last 30 days.

The Bitcoin Cash History Lesson

The best explanation for the BTC movement versus ETH is that Bitcoin is getting close to forking again. Let’s start with, “What’s a fork?”

A “fork” is a change to the software of the digital currency that creates two separate versions of the blockchain with a shared history. Forks can be temporary, lasting for a few minutes, or can be a permanent split in the network creating two separate versions of the blockchain. When this happens, two different digital currencies are also created.

While many people think about Bitcoin as an investment or a currency, it’s important to remember that it’s also a technology. Yes, Bitcoin is software and it’s a network.

Now, for some quick history, back on August 1, a hard fork of the Bitcoin blockchain created Bitcoin Cash [BCH].

As a result of this, money was practically created out of thin air. “Bitcoin” [BTC] itself barely moved from that fork and then just kept moving up again. See for yourself:

The Bitcoin fork creating Bitcoin Cash didn’t hurt a bit. Plus, this new Bitcoin cash went from a value of $0.00 (because it didn’t exist) to this:

Bitcoin Cash is worth about $470 right now and until the fork it didn’t even exist. In other words, since Bitcoin didn’t lose value and Bitcoin Cash was created out of thin air. Basically, you’re looking at free money.

Yes, the fork created free money for most people holding Bitcoin. Therefore, it’s pretty obvious why everyone is so interested in holding regular Bitcoin again right now.

With a new fork coming in late November, Bitcoin investors are hoping for another Bitcoin Cash to happen, where holders get the new token just for holding on to BTC.

To add some color to this, here’s exactly what Coinbase has to say:

The Bitcoin Segwit2x fork is projected to take place on November 16th and will temporarily result in two bitcoin blockchains. Following the fork, Coinbase will continue referring to the current bitcoin blockchain as Bitcoin (BTC) and the forked blockchain as Bitcoin2x (B2X).

Any customer with a BTC balance on Coinbase at the time of the fork will be credited with an equal amount of the B2X asset on the Bitcoin2x blockchain. No action is required — we will automatically credit your account. So, if you have 5 BTC stored on Coinbase before the fork; you will have 5 BTC and 5 B2X following the event. (Emphasis Coinbase)

Again, you don’t need to understand the technology perfectly here. What matters is that with history and experience from the Bitcoin Cash fork, investors are clearly loading up on Bitcoin.

It’s hard to ignore what this is doing to the entire cryptocurrency market right now. Ethereum and Litecoin, for example, are barely moving up compared to Bitcoin. Given the normally high correlation of BTC to ETH, and BTC to LTC, this is quite clear to my eyes.

Two Quick Trades to Consider

Obviously, because of the flow to Bitcoin in anticipation of the fork, there are some opportunities. What trades work here?

First, you might wish to invest in some Bitcoin in anticipation of the fork. There’s no guarantee that this will work out like Bitcoin Cash. But, it’s definitely an opportunity if you can tolerate the risk.

Per the notes above, Coinbase is one place to invest to keep it simple. Clearly, they are responding to demand and they are keeping their community updated on the Bitcoin Segwit2x fork, and what that means for a new currency.

So, that’s the first trade. It’s pretty simple and it’s something of a gamble based on previous fork history. It’s absolutely not meant to be sophisticated but it could pay a nice little dividend, of sorts.

The second trade comes very shortly after the Bitcoin Segwit2x fork. Once that for happens in November, a relatively simple guess is that investors will turn their eyes to the alternatives.

To keep things very clear, I’m talking about how fiat money (U.S. dollars for example) and Bitcoin will move into Ethereum and LiteCoin, as well as many other cryptocurrencies. The money that’s been pouring into Bitcoin will likely slow down a bit, but others like Ethereum and Litecoin will pick up steam.

I generally don’t like trying to guess or use a crystal ball, but I feel like this is the right story. Bitcoin is getting extra benefits from the fork and Ethereum, Litecoin and the others are being suppressed a bit. Bitcoin is the big winner right now. However, once the fork happens, the pressure will then move sideways into other cryptos. Ethereum and Litecoin, for example, will start pushing up even faster. I wouldn’t be surprised if ETH and LTC grow 2-3x faster than BTC after the fork. Of course, all of this assumes that there’s no general cryptocurrency catastrophe (e.g., regulation). Stay safe out there.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Long BTC, ETH, LTC

Wall Street Breakfast: Bitcoin Sets New All-Time High

Just a week after pushing past $6,000, bitcoin broke through the $6,300 mark for the first time late Sunday, taking gains this year to well over 500%. Investors appear to be shrugging off some of the negative news associated with last week’s “hard fork,” which resulted in the creation of a new cryptocurrency called bitcoin gold. It’s also been an eventful year for cryptocurrencies in general, with bitcoin garnering the most attention from analysts and regulators across the world.


With pressure building, Puerto Rico has moved to cancel Whitefish Energy’s $300M contract to rebuild the territory’s electrical grid. Roughly 70% of the island remains without power, more than a month after Hurricane Maria struck on Sept. 20. Private companies like Tesla (NASDAQ:TSLA) have stepped in amid a tumult in responding to the natural disaster, helping to restore power to a children’s hospital in San Juan.

The decision is not final, but at this point President Trump has settled on Fed Governor Jerome Powell as next Fed Chairman, WSJ reports. If confirmed, he would take up the reins at the central bank in February. In an Instagram post on Friday, the president said he had “somebody very specific in mind” for the job and would announce his choice sometime this week.

Following a week of stability during China’s 19th Communist Party Congress, local stocks stumbled in early Monday trade. The Shanghai Composite fell as much as 1.7%, the most this year on an intraday basis, before clawing back losses to close down 0.8%. It comes as sovereign bonds extended a monthly rout amid mounting deleveraging concerns in the nation’s financial sector.

Catalonia’s ousted leader, Carles Puigdemont, has called for peaceful opposition to Spain’s decision to take direct control of the region, declaring that he will keep “working to build a free country.” However, many government workers returned to their jobs today, in the first signs of whether separatists will adhere to his call. Euro +0.3% to $1.1639.

The U.K.’s Brexit department has lost its third minister in four months after Joyce Anelay resigned from the government citing health reasons. The department, headed by David Davis, had already seen the departure of two junior ministers and its permanent secretary since June’s general election, raising questions about its readiness for upcoming Brexit negotiations.

Iraqi Kurdish President Massoud Barzani is stepping down, a month after an independence referendum he orchestrated angered Baghdad. An overwhelming majority of voters approved secession, triggering fighting with Iraqi government troops who seized Kurdish-held oil fields accounting for about 40% of their revenue. The move also reversed years of political gains by the Kurds, dashing their dreams of statehood.


“Our pivot to Asia is driving higher returns and lending growth,” HSBC CEO Stuart Gulliver declared after reporting earnings. Pretax profit at Europe’s largest bank totaled $4.6B during Q3, up from $843M in the same period a year ago. That will lay a foundation for HSBC’s new leadership after a tough period of post-crisis restructuring.

The Comptroller of the Currency wants to loosen the leash on Wells Fargo (NYSE:WFC), making it easier for the bank to vet incoming executives and clear severance payments, Reuters reports. The restrictions were heaped on the institution following its phony accounts scandal, but the bureau has advocated easing up sanctions since Keith Noreika took control of the OCC in May.

Confirming rumors from Friday, Akzo Nobel (OTCQX:AKZOY) said it was in “constructive talks” to buy Axalta (NYSE:AXTA), in a merger that would create a multibillion-dollar coating and paints giant. The possible deal under consideration would involve the Dutch company first proceeding with its existing plans to spin off its specialty chemicals business. AXTA +2.6% premarket.

Signing an agreement with CVC Capital, Owens Corning (NYSE:OC) will scoop up Paroc Group, a European mineral wool maker, for an enterprise value of about €900M. The transaction, which is expected to be immediately accretive to 2018 EPS, is likely to yield a run rate of operational synergies of €15M by the end of 2019.

Nintendo has raised its sales forecast for its latest console, the Switch, following another quarter of strong performance. The company now expects to ship 14M units in its financial year ending March 2018, up from its previous prediction of 10M. Nintendo (OTCPK:NTDOY) also upped its annual profit outlook to ¥85B ($748M), well above an earlier estimate of ¥45B.

Shouqi Limousine & Chauffeur, a car-hailing operator, and Baidu (NASDAQ:BIDU) are partnering to develop driverless vehicles, including software, hardware and mapping technology, Xinhua reports. Baidu also recently signed an agreement with BAIC Group to mass produce Level 4 autonomous vehicles by 2021 and is targeting mass production of autonomous buses with King Long by 2018.

Tesla shares fell almost 2% on Friday amid worries about Model 3 production. The stock has also experienced a swift decline since hitting a high of $385 last month, falling 17%, near bear market territory. Falling knife or buying opportunity? The last time Tesla (TSLA) was in a bear market the stock fell 32% over the course of seven months (April 2016 – Nov. 2016), but in the following period (Nov. 2016 -Sept. 2017) shares rallied 122%.

Overturning a decision to quit the country, Chevron (NYSE:CVX) is staying in Bangladesh and will invest $400M at Bibiyana, the country’s largest gas field. In April, the U.S. oil company said it would sell to China’s Himalaya Energy its wholly owned subsidiaries that operate three gas fields, which together account for 58% of Bangladesh’s gas production.

The head of the New York Stock Exchange (NYSE:ICE) has not given up on the IPO of Saudi Aramco (Private:ARMCO), even as the kingdom’s bourse operator said it aspired to be the exclusive venue for the listing. The $100B IPO is aimed at helping raise the nation’s profile in the eyes of overseas investors, a key part of its Vision 2030 plan to diversify the economy away from oil.

The dismemberment of Jeff Immelt’s legacy continues. Citing sources familiar with the matter, the WSJ reported that General Electric (NYSE:GE) executives did not notify the board about the practice of trailing the former CEO with a spare jet anytime he traveled. Management for years also withheld from directors an internal complaint it received about the empty plane.

Kobe Steel has withdrawn its full-year profit guidance and said it wouldn’t pay an interim dividend, preparing for a potential blow to earnings from its data falsification scandal. It comes as Kobe (OTCPK:KBSTY) reported net profit of ¥39.3B ($346M) for the first six months of the financial year ending in March, beating its forecast of ¥25B, as the company’s steel business recovered.

Helping strengthen its oncology business, Novartis (NYSE:NVS) has announced a $3.9B deal to buy Advanced Accelerator Applications (NASDAQ:AAAP). AAA makes radio pharmaceutical products which contain radioisotopes and are used clinically for both diagnosis and therapy of tumors. It was spun off from Europe’s physics research center CERN 15 years ago and listed on Nasdaq. AAAP +2.9% premarket.

The U.S. distributor of Corona is chasing a new type of buzz, according to the WSJ. Constellation Brands (NYSE:STZ) has agreed to take a 9.9% stake in Canopy Growth (OTCPK:TWMJF), the world’s largest publicly traded cannabis company, with a market value of 2.2B Canadian dollars on the Toronto Stock Exchange. It also plans to work with the firm to develop and market cannabis-infused beverages.

Retirement Strategy: One For Income, One For Growth, Both For My Retirement Portfolio

If you can find a stock that can provide a great dividend right now and probably increase its dividend for years to come, you might want the stock in your retirement portfolio, right? Obviously I am right, and that is a silly question.

On the flip side we have our growth investors always looking for capital appreciation either in the near term or the long term. If those folks can find one that is ringing a big fat bell that its share price will rise, growth investors will pay attention, I think. I could be wrong, of course, but I don’t think so.

Now let’s wave a magic wand and find 2 stocks that are literally screaming for all types of investors to look at them and perhaps build a retirement portfolio around them, right this minute. Folks I believe we have a match made in “portfolio heaven”: AT&T (T), and Bank of America (BAC).

The Following Facts Cannot Be Disputed

I realize that there are plenty of issues to point to with both of these stocks that have been written about ad nauseam, such as the T debt load and relatively high payout ratio, and the widely held disdain for BAC and its history with Countrywide, the mortgage and housing crisis, as well as the beating its share price took that crippled many investors’ portfolios. However, there are some irrefutable facts that should grab everyone’s attention


  • The current dividend yield is 5.82%
  • T is a dividend aristocrat.
  • For every 100k invested right now in this stock, the income produced would be about $5,820 annually. There is NO other dividend aristocrat that can match this one.
  • The share price has dropped to 52-week lows.

I will defer to those folks who refuse to see T for what it is – a pure income investment for now – and agree that the company has debt issues that should not be ignored. What always seems to be lacking by the “negative nabobs” is how this company will be transformed when the merger of Time Warner (TWX) is completed by the end of the year. Here is a peek:

Time Warner beat expectations with Q3 earnings with broad gains, where HBO saw its highest quarterly growth in 13 years and Turner Broadcasting added subscriber strength.

Revenues grew 6% overall, and adjusted operating income was up 13% to $2.3B with support from all divisions.

HBO revenues grew nearly 13%, helped no doubt by the record seventh season of hit series Game of Thrones, which due to a delay fit entirely in Q3 this year.

Revenue by segment: Turner, $2.77B (up 6.1%); Home Box Office, $1.6B (up 12.6%); Warner Bros., $3.46B (up 1.7%).For the first nine months, cash from continuing operations hit $4B (up 12%) and free cash flow came to $3.6B (up 8%).

It reaffirmed its full-year outlook, expecting adjusted operating income to rise in the high single digits (exclusive of any merger effects or costs tied to the AT&T acquisition).

For Q4, it’s expecting steady subscription growth from Turner, with ad revenues increasing low single digits and operating income to “increase significantly.” HBO is expected to increase subscription growth but also see higher programming cost growth, with a net increase for operating income. Warner Bros. operating income is expected to decline due to the release mix (including last year’s release of Suicide Squad).

All of the above will be part of T’s balance sheet soon, and if you do not believe this will make AT&T a stronger, and more profitable company, then T is not for you and you are not for T. I happen to be a huge bull on T and have added even more shares personally just the other day.

Here is a chart to ponder:

T data by YCharts

To encapsulate: Dividend yield is up, forward PE ratio is down, the share price basically made new 52-week lows. These are facts. NOT opinions. Formulate your own, but mine is that T is a bargain, will continue paying and increasing its dividend, and will become a bigger and better company when the Time Warner deal finally closes.

Bank of America

  • BAC has become leaner in the last 6 years and is making a lot of money, both on the top and bottom lines.
  • Interest rates are on their way UP, even if it is a very slow trip, and that means greater profits and revenues on every type of loan for BAC.
  • The current administration has been loosening the reigns of banking regulations and is PUSHING for even greater relaxation (think Dodd-Frank) of all the rules.
  • The share price now has momentum and has been upgraded by various analysts to a “buy or strong buy”.

I will not make any social commentary on the long term affects that the economy might face if banking regulations are rolled back. Suffice it to say that all of us are living in the present, and jumping on an opportunity for right now is what matters for immediate needs and goals. Not the past, and not the guesses about the future. Right now, BAC should be considered for any type of portfolio, plus you get about a 1.75% dividend yield while you own it, which is about 3 times the bank’s regular savings interest rate.

Here is a chart to consider:

BAC data by YCharts

The share price has not completely rebounded, but it does have lots of momentum lately, and the price to book value is well off of the pre-crisis average of 1.60 (currently 1.16). Perhaps I am being overly optimistic to say that the stock has about a 40% upside over the long term (24-36 months), or about $40/share? OK, so I will be a bit more reasonable and put an optimistic share price of 20% over the next 2 years to about $33/share based on price to book value currently.

At the same time, the current dividend of .48/share annually is likely to be increased significantly in the near term, if for nothing else than to keep Warren Buffett continuing to hold his shares!

I have been “banging the table” on BAC since it was at about $22-$23/share and wrote this article about it at $24/share. I have just added even more several days ago to my personal account. Yes, I believe BAC will give me GROWTH.

The Bottom Line

For retired folks, and the younger investors just starting out, T and BAC seem to make sense to me right now for the “holy” grail of BOTH income and growth. I can almost visualize them as “bookends” for a retirement portfolio.

You might want to assess the risks of each, as well as your own risk tolerance. to see if these stocks could help YOU reach some financial goals.

Read, Decide, Invest (or not), it’s up to you!

Not To Bore You, But…

Knowledge is power and many folks shy away from the investing world because that very world makes it more confusing each and every day in an effort to sell you something: stock picks, technical strategies, books, videos, subscriptions with “secret ideas,” gadgets, and even snake oil.

My promise to you is that my work here will remain free to all of my followers, with the hope of giving to you some of the things that took years for me to learn myself. That being said, let me reach out to you with my usual ending:

**One final note: The only favor I ask is that you click the “Follow” button so I can grow my Seeking Alpha friendships. That is my personal blessing in doing this and how I can offer my experiences to as many regular folks as possible, who might not otherwise receive it.

Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance. The long positions held are based upon what the model portfolio holds and I personally could have held all of the stocks noted at one time or another.

Disclosure: I am/we are long BAC, T.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

21 Quotes to Carry You Through The Tough Times

21 Quotes to Carry You Through The Tough Times | Inc.com

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CVS And Aetna: A Marriage Made In Money Hell

It’s no secret that fears over Amazon (NASDAQ:AMZN) breaking into the mail order drug delivery business, and also potentially launching its own pharmacy benefits manager or PBM, has wreaked havoc on pharmacy chains such as CVS Health (CVS) and Walgreens Boots Alliance (WBA).


CVS data by YCharts

Recently, I explained why I believe these concerns are overblown, and so I added both companies to my real money EDDGE 3.0 portfolio.

A big part of the thesis behind owning CVS is that it was substantially undervalued, both on a historical basis (trading at forward PE last seen during the financial crisis) and based on its future growth prospects.

In addition, I have confidence that CVS’s quality management team will be able to adapt to fast changing industry conditions (as they have in the past) to keep the company’s sales, earning, free cash flow, and dividend growing nicely in the years and decades to come.

However, now the Wall Street Journal is reporting that CVS is in talks to buy Aetna (AET) for $ 200 per share, or $ 66.9 billion ($ 87 billion deal with assumed debt) in one of the largest medical mega mergers of all time.

I’ve carefully studied the idea, both from a strategic and financial perspective, and have concluded that such an acquisition would likely be a terrible idea.

In fact, if management did end up making such a poor capital allocation decision, I fear that CVS’s dividend growth thesis would be substantially degraded, potentially making it a far weaker income investment, and potentially forcing me to eventually sell my shares.

CVS Buying Aetna Makes Sense… Kinda

The St. Louis Dispatch has learned that Amazon has received wholesale pharmacy licences in at least 12 states, stoking concerns that the destroyer of numerous retail worlds is gunning for CVS and Walgreens.

Purchasing Aetna would certainly be defensive against Amazon since it would put CVS in an entirely different industry, one which, at least so far, Jeff Bezos has shown no interest in (health insurance).

In addition, CVS could move away from retail entirely, and install minute clinics as low intensity ERs in all its stores, thus disrupting the entire industry’s business model before Amazon has a chance to.

And as my fellow contributor Wayne Toepke recently explained buying Aetna for the vertical integration could make sense given that the future of medicine is likely to be ruled by those players with the largest economies of scale, who can drive as much cost out of the medical supply chain as possible.

In fact, there is some precedent for this including CVS’s $ 26.5 billion acquisition of Caremark in 2007 (which was another merger of equals meaning CVS bought a company of roughly the same size).

By buying Caremark, CVS was able to become a dominant player in the fast growing pharmacy benefit manager space. In fact, CVS just announced major deals with Express Scripts (ESRX), Cigna (CI), and UnitedHealth (UNH). These three companies combined have 243 million customers and fill over 3 billion prescriptions a year.

In addition, CVS just signed a five-year deal with Anthem (ANTM) to provide back office support for its own PBM service, IngenioRx, beginning in 2020.

In other words, CVS purchasing Caremark was a brilliant strategic move that led CVS to become a much larger, more profitable and dominant company; despite the massive amount of shareholder dilution that resulted from the merger.

Source: YCharts

In fact, the Caremark merger was immediately accretive to both EPS and FCF/share because Caremark was able to add enough earnings and free cash flow to more than offset the new shares issued to pay for it.

That allowed CVS to continue maintaining a very safe payout ratio, and continue quickly growing the dividend, which as an income growth investor is ultimately my primary concern.

However, in this case, buying Aetna isn’t likely to result in nearly as fortunate an outcome. That’s because the economics of a merger between these companies just doesn’t make sense.

CVS Is Ludicrously Undervalued While Aetna Is Monstrously Overvalued

Ultimately, for CVS shareholders, there are three main problems with buying Aetna.

Company Forward PE Historical PE Yield Historical Yield Percentage Of Time Yield Has Been Higher
CVS Health 10.9 17.1 2.9% 1.2% All Time High
Aetna 17.2 12.6 1.2% 0.8% 35%

Sources: Gurufocus, YieldCharts

The first is that right now Aetna is trading at very lofty valuations, far in excess of its historical norms.

In fact, if CVS were to in fact pay $ 200 per share for Aetna that would represent 35.1 times trailing 12-month free cash flow.

But what about the future? Perhaps Aetna’s growth prospects are superior to CVS’s and thus tell us something that historical valuation metrics don’t?

Company FCF/Share 10-Year Projected FCF/Share Growth Fair Value Estimate Growth Baked In Discount To Fair Value
CVS Health $ 5.90 10.1% $ 96.12 6.1% 28%
Aetna $ 5.42 10.6% $ 118.02 16.6% -70%

Sources: Gurufocus, Morningstar, Fast Graphs

While true that analysts expect Aetna to grow slightly faster in the next decade than CVS, the difference is nowhere near big enough to justify paying $ 66.9 billion for Aetna.

In fact, using a 9.0% discount rate (the opportunity cost of money based on the S&P 500’s historical return), I estimate that Aetna, at $ 200 a share, would represent a 70% premium to its fair value, as estimated by a 20-year discounted free cash flow analysis.

Meanwhile, CVS shares are trading at a deep discount to fair value, meaning that now is precisely the worst possible time to print new shares to make big purchases.

Which brings me to the biggest issue with CVS purchasing Aetna, the massive negative hit it will cause to CVS’s EPS and FCF/share.

The Math Just Doesn’t Add Up

Company Revenue Net Income Free Cash Flow Shares Outstanding EPS FCF/Share
CVS Health $ 180.8 billion $ 5.3 billion $ 6.2 billion (2017 guidance) 1.05 billion $ 4.98 $ 5.90
Aetna $ 62.2 billion $ 1.6 billion $ 1.9 billion 347 million $ 4.51 $ 5.42
CVS + Aetna (all stock deal) $ 243.0 billion $ 6.9 billion $ 8.1 billion 2.04 billion $ 2.86 $ 3.36

Sources: Morningstar, Gurufocus

Aetna’s margins, especially its net and FCF margin, are simply too low for the currently described deal to be accretive to CVS shareholders.

In fact, if CVS where to buy Aetna in an all-stock deal, it would effectively have to double its share count, resulting in EPS and FCF/share declining by 57% and 43%, respectively.

But wait what about synergistic cost savings? While there may be some of those, say from elimination of overlapping administrative departments (such as HR and accounting), it isn’t going to make anywhere near enough of a difference to make this kind of deal structure make sense.

After all, this deal is for increased vertical integration rather than horizontal, meaning it brings in an entirely different business, which limits long-term synergistic cost saving opportunities.

Of course, another option in this low interest rate environment is for CVS to take on a large amount of debt to partially or even fully fund the acquisition. This would greatly diminish the dilution of CVS shareholders.

However, there too we run into the grim realities of math that just doesn’t add up.

Buying Aetna Means Crazy High Leverage

Company Debt EBITDA Debt/EBITDA Annual Interest Cost EBITDA/Interest
CVS Health $ 27.5 billion $ 12.1 billion 2.27 $ 1.02 billion 11.93
Aetna $ 20.7 billion $ 3.9 billion 5.36 $ 638 million 6.04
CVS + Aetna (all stock deal) $ 48.2 billion $ 16.0 billion 3.02 $ 1.65 billion 9.66
CVS + Aetna (all debt deal) $ 115.1 billion $ 16.0 billion 7.19 $ 4.1 billion 3.88

Sources: Morningstar, Gurufocus

Another problem with buying Aetna is that the company is far more leveraged than CVS, meaning that even if CVS were to pay for it with all stock, it would still result in taking on a lot of debt (about $ 21 billion worth).

That could result in a credit downgrade, a bad thing to have happen in a rising interest rate environment. In addition, we can’t forget that one of the proposed changes to the tax code is a potential elimination of interest deductions, which would hit highly leveraged companies especially hard.

It also means that there is essentially no way that CVS can fund this deal with a lot of debt (to avoid diluting shareholders). It would result in debt levels rising to dangerous levels ($ 115 billion) and would likely result in CVS being downgraded to junk status by credit rating agencies.

Deal Structure Pro Forma EPS/Share Pro Forma FCF/Share EPS Change FCF/Share Dilution
All Stock $ 2.86 $ 3.36 -57.4% -43%
50/50 Stock/Debt $ 3.89 $ 4.57 -8.2% -22.5%
All Debt $ 4.91 $ 5.78 -1.4% -2.0%

Sources: Morningstar, Gurufocus

The problem is that the only way for the CVS/Aetna merger to make any kind of sense, from a dilutionary perspective, is to do the deal entirely with debt, meaning borrowing nearly $ 67 billion to overpay for Aetna.

Of course, CVS’s actual interest costs are likely to be even higher than in my model, since CVS is currently enjoying an average interest rate of 3.7%, and it would almost certainly need to pay over 4% to borrow such a significant sum.

Even worse? Whereas even highly overvalued mergers usually end up becoming accretive to shareholders, in the case of CVS buying Aetna, this isn’t likely to be the case.

Company 2026 Projected Net Income 2026 Projected FCF 2026 Projected Shares Outstanding EPS FCF/Share
CVS Health $ 12.6 billion $ 14.7 billion 838 million (2% buyback rate) $ 15.03 $ 17.59
Aetna $ 3.9 billion $ 4.7 billion 317 million (1% buyback rate) $ 12.23 $ 14.69
CVS + Aetna (all stock deal) $ 16.5 billion $ 19.4 billion 2.0 billion (2% buyback rate) $ 8.23 $ 9.70

Sources: Morningstar, Gurufocus, Fast Graphs

That’s because CVS and Aetna are essentially growing at the same rate, meaning that the large amount of dilution created by this deal won’t ever be overcome by increased sales, earnings, or free cash flow from the combined companies.

Not unless CVS can execute brilliantly on strategic synergies, such as somehow convincing all of its pharmacy customers to switch to Aetna health insurance. Another unlikely option would be create a loyalty program similar to Amazon Prime that convinces all its customers to make CVS their one-stop shop for all medical needs.

In other words, vertical integration for its own sake isn’t necessarily worth the negative dilutionary effects of this deal. For example, if CVS really wants to dominate every aspect of medicine (and thus be safe from Amazon), it might as well dilute shareholders into oblivion by also purchasing:

  • drug maker Pfizer (PFE)
  • medical device maker Medtronic (MDT)
  • America’s largest medical distributor McKesson (MCK)
  • America’s largest hospital and nursing home owners Ventas (VTR) and Welltower (HCN)

All of these acquisitions would certainly be “strategic” and achieve vertical integration, but with CVS shares this cheap, they would also so dilutionary that CVS’s dividend would need to be cut so that management could go about its empire building in a desperate attempt to “do something”.

The bottom line is that any way you cut it, there is no way to structure a CVS/Aetna merger at this time that doesn’t result in CVS shareholders being made much worse off.

And as for the hopes that CVS’s crack management team can somehow pull off a miracle and achieve long-term strategic synergies that we can’t yet predict (i.e., corporate buzz words), well this might indeed happen as it did with Caremark.

But keep in mind that the bigger the acquisition, the harder it is to pull off successfully. In fact, a study by the National Bureau of Economic Research found that of 12,023 large scale mergers over a 20-year period, 87% destroyed shareholder value, to the collective tune of over $ 200 billion.

The risk of this unfortunate outcome only increases with the size and valuation of the deal, and since Aetna is trading so richly right now, this bodes poorly for the ultimate outcome of such a merger.

However, my biggest problem with CVS potentially buying Aetna is what it could mean for CVS’s future dividend growth potential.

Deal Could Blow A Hole In CVS’s Dividend And Total Return Profile

Company Yield FCF Payout Ratio 10-Year Projected Dividend Growth 10-Year Potential Annual Total Return
CVS Health 2.9% 32.4% 12.1% 15.0%
Aetna 1.2% 22.9% 8.8% 10.0%
CVS + Aetna (all stock deal) 2.9% 59.5% 6.1% 9.0%
S&P 500 1.9% 35.4% 6.1% 8.0%

Sources: Management Guidance, Morningstar, Fast Graphs, Gurufocus, CSImarketing, Multipl.com

For me, the ultimate reason I own any dividend growth stock is because of its strong payout and total return profile. That means an attractive yield, a safe dividend (strong balance sheet and low payout ratio), and in the case of lower yielding companies (such as CVS), good long-term dividend growth potential.


CVS Dividend data by YCharts

CVS has historically been very good at rewarding dividend lovers, with 14 straight years of increasing its payout at double-digit rates.

Currently, CVS expects to generate long-term EPS and FCF/share growth of 10% to 12%, and analysts expect this to translate into double-digit payout growth over the next decade.

Combined with CVS’s highly undervalued shares, this means that CVS is a very attractive dividend growth investment.

BUT if it buys Aetna, through an all-stock deal (which is the most likely way the deal would be structured), then the massive FCF/share dilution would result in not just a much less safe payout, but one that’s likely to grow at about half the rate over the next 10 years.

That’s because management has said that it wants to maintain a long-term payout ratio of 35%, and buying Aetna would likely result in the payout ratio nearly doubling to 60%.

In other words, if CVS were to announce it was buying Aetna in an all-stock deal, then I would expect management would begin giving us token $ 0.01 per quarter per year increases.

While theoretically management’s payout goals could result in a dividend cut, given CVS’s dividend friendly track record, I think this kind of worst case scenario is unlikely.

However, the math is clear, that buying highly overvalued Aetna shares by issuing highly undervalued CVS shares is a major long-term blow for CVS investors, as it would likely reduce the long-term total returns by about 40%.

The good news is that this is still likely to beat the S&P 500, which is so overvalued that it’s likely to underperform its historical 9.1% total return since 1871. That means that if you are a long-term CVS owner, you shouldn’t necessarily sell it, even if this merger is announced and goes through.

However, personally, I have a policy of targeting 10+% long-term total returns, so if CVS ends up missing my 7.5% dividend growth minimums in 2018 and 2019 (two years in a row), I’ll be selling it in favor of other highly undervalued, low-risk dividend growth stocks.

Bottom Line: CVS Buying Aetna Seems Like An Ill Conceived Knee-Jerk Reaction

Please don’t misunderstand me, I’m not recommending that CVS shareholders sell shares (especially at these undervalued prices) over mere rumors of a potential merger with Aetna.

After all, CVS hasn’t announced anything yet, and the idea of potentially buying Aetna is just one of about a dozen potential strategies the Board is considering. And even if the two companies were to agree to a merger, it would likely require a long regulatory approval process whose success is far from guaranteed.

That being said, I’m opposed to this potential acquisition because I don’t see the obvious strategic rationale behind it, especially given the massive amount of dilution that CVS shareholders would have to endure to make the deal happen.

Dilution so extreme that even a decade down the road it would likely fail to be accretive to EPS and FCF/share, and thus could result in far slower dividend growth, and weaker total returns.

In other words, overpaying for Aetna with highly undervalued shares seems like an ill conceived, knee jerk reaction to Amazon’s potential entrance into CVS’s space, one that is likely to end up destroying shareholder value if it happens.

Disclosure: I am/we are long CVS, WBA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


Sentiment Speaks: It's Time To Challenge What You Think You 'Know' About The Stock Market

Recent price action

The S&P500 dropped from the resistance region I had cited, and provided us with the minimum 30 point drop I was looking for (we dropped 34 points from the prior all-time high). As we caught the lows last week in real time, the market is trying to push up towards our next higher target in the 2611SPX region.

Anecdotal and other sentiment indications

I know I am not the traditional author you come across here on Seeking Alpha. Most others will provide you with traditional notions of the stock market based upon rationalities. So, many authors will suggest that we “cannot separate public policy and geopolitics from the markets,” they will focus on “market valuations,” they will claim that “fundamentals do not support this rally,” and will provide you with many, many other reasons as to why they have continually believed that this rally would never happen.

Yet, they have been left on the sidelines, scratching their heads for the last year and a half, as the US equity markets have rallied over 45% since February 2016.

I mean, think about all the reasons they have put before you over the last year and a half regarding the imminent risks facing the stock market, which they have lead you to believe will stop the market in its tracks. I have listed them before, and I think it is worthwhile listing them again:

Brexit – NOPE

Frexit – NOPE

Grexit – NOPE

Italian referendum – NOPE

Rise in interest rates – NOPE

Cessation of QE – NOPE

Terrorist attacks – NOPE

Crimea – NOPE

Trump – NOPE

Market not trading on fundamentals – NOPE

Low volatility – NOPE

Record high margin debt – NOPE

Hindenburg omens – NOPE

Syrian missile attack – NOPE

North Korea – NOPE

Record hurricane damage in Houston, Florida, and Puerto Rico – NOPE

Spanish referendum – NOPE

Las Vegas attack – NOPE

And, each month, the list continues to grow.

Yet, the same authors you have read for years just continue to repeat their mantras that we “cannot separate public policy and geopolitics from the markets,” they continue to focus on “market valuations,” and they continue to claim that “fundamentals do not support this rally.”

Einstein was purported to suggest that insanity is doing the same thing over and over while expecting a different result. But, you see, in the stock market, there is a bit of a difference. Just as trees do not grow to the sky, the stock market will not rally indefinitely. So, we will eventually see a bear market. Then, the broken clock syndrome will prove these authors to be “right,” rather than simply insane, and we will hear it from them incessantly about how they tried to warn us. Yes, warn us indeed.

Now, that does not mean we should expect analysts to be right all the time. Clearly, I was expecting the set ups we have seen in the metals market to spark a big rally in 2017, but when we broke upper support back in September, it caused me to turn quite cautious until 2018. But, the difference is that I use an objective methodology that listens to what the market is saying rather than trying to force a predetermined linear perspective on the market.

And, that is the issue with most of the bearish presentations you have read for the last year and half about the stock market, while they claim they are simply “opening your eyes to the inherent risks in the stock market.” Let me ask you a question: Is there anyone reading this article that believes the stock market does not have risk at all times? I will not belabor this point, but, needless to say, these bearish presentations couched as “risk awareness” is not based upon objective perspectives on the stock market.

My friends, look at the events I have listed above yet again. None of them (nor ALL of them cumulatively) have been able to put a dent in this market advance over the last year and a half. So, rather than view the market from a perspective of insanity, maybe one should come to the conclusion that public policy, geopolitics, market valuations, or fundamentals are really not what drive the stock market. Clearly, we have seen that none of this has mattered one iota. So, maybe we need to consider that there is a stronger force at work which overrides any of the traditional perspectives you were lead to believe drives the market?

Bernard Baruch, an exceptionally successful American financier and stock market speculator who lived from 1870– 1965, identified the following long ago:

All economic movements, by their very nature, are motivated by crowd psychology. Without due recognition of crowd-thinking … our theories of economics leave much to be desired. … It has always seemed to me that the periodic madness which afflicts mankind must reflect some deeply rooted trait in human nature — a trait akin to the force that motivates the migration of birds or the rush of lemmings to the sea … It is a force wholly impalpable … yet, knowledge of it is necessary to right judgments on passing events.

Price pattern sentiment indications and upcoming expectations

The upcoming week is rather simple, and centered around the 2572SPX region. As long we hold over the 2572SPX early in the coming week, we are on our way to the 2611SPX region.

However, if we break down below 2572SPX early in the coming week, it opens the market up to another decline which will revisit the 2520-2550SPX support region before we finally rally to the 2611SPX region.

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Housekeeping Matters

For those looking for accurate insight into various markets, including VIX/VXX, FOREX, Dow Jones, etc., I also HIGHLY suggest you read Michael Golembesky’s work on Seeking Alpha.

Lastly, it seems that Seeking Alpha has changed the way they tag articles. So, while my articles used to be sent out as an email to those that follow the metals complex, they are now only being sent out to those that have chosen to “follow” me. So, if you would like notification as to when my articles are published, please hit the button at the top to “follow” me. Thank you.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.


Facebook Friends With Your Co-Workers? Survey Shows Your Boss Probably Disapproves

You and your colleagues pitch in together on difficult projects, lunch together, and have drinks together after work. You probably think it’s the most natural thing in the world to friend them on Facebook or follow them on Twitter or Instagram. Your boss, though, probably thinks you shouldn’t.

That’s the surprising result of a survey of 1,006 employees and 307 senior managers conducted by staffing company OfficeTeam. Survey respondents were asked how appropriate it was to connect with co-workers on various social media platforms. It turns out that bosses and their employees have very different answers to this question.

When it comes to Facebook, 77 percent of employees thought it was either “very appropriate” or “somewhat appropriate” to be Facebook friends with your work colleagues, but only 49 percent of senior managers agreed. That disagreement carries over to other social media platforms. Sixty-one percent of employees thought it was fine to follow a co-worker on Twitter, but only 34 percent of bosses agreed. With Instagram, 56 percent of employees, but only 30 percent of bosses thought following a co-worker was appropriate. Interestingly, the one social platform bosses and employees seem to almost agree about is Snapchat, with 34 percent of employees thinking it was fine to connect with colleagues, and 26 percent of bosses thinking so too.

What should you do if you want to connect with a colleague on social media–if you get a connection request from a colleague? Here are a few options:

1. Use LinkedIn.

LinkedIn was not included in the OfficeTeam survey, but because it’s a professional networking tool, few bosses will object to you connecting with coworkers there. And LinkedIn has many of the same features as Facebook–you can even send instant messages to your contacts.

2. Keep your social media connections secret.

Most social networks give users the option to limit who can see what they post and who their other connections are. You can use this option to keep your social media interactions limited to the people you choose. If that doesn’t include your boss, he or she may never know that you and your co-workers are connected.

3. Talk to your boss.

He or she may not agree with the surveyed bosses who said connecting on social media was inappropriate, in which case there’s no problem. And if your boss does object, he or she may have some good reasons you hadn’t thought of to keep your professional life separate from your social media one. The only way to find out is to ask.

4. Consider the future.

It may be perfectly fine to connect with your co-workers on social media when you’re colleagues. But what happens if you get promoted to a leadership position? You may regret giving your former co-workers access to all the thoughts you share on Facebook or Twitter. So if a colleague sends you a social media request, or you want to make one yourself, take a moment to think it through. Will you be sorry one day–when you’re the boss yourself?


Tezos Rebuffs Rumors of SEC Probe Into $232 Million Crypto ICO

The founders of the blockchain startup Tezos moved to quell rumors of an investigation by the Securities and Exchange Commission, stating on Friday that the agency has not contacted them.

The denial, which came in response to an inquiry from Fortune, could tamp down some of the recent drama around Tezos, which raised $ 232 million this July in a high-profile “initial coin offering,” or ICO.

The Tezos ICO followed a familiar model in which participants handed over money, in the form of crypto currencies bitcoin and ethereum, in the hopes of receiving digital tokens in the future. In the case of Tezos, the plan is to create tokens (known as “tezzies”) for use on a new type of software that governs contracts on a blockchain.

The Tezos sale, however, came amid growing concern by regulators that ICOs can amount to the unlicensed sale of securities, and be used to fleece investors. In July, the SEC broke its silence on the issue by describing ICOs as “a new paradigm” for fundraising, while also warning that the agency would take action against companies whose tokens too closely resembled speculative investments.

All of this led some people to suggest that Tezos, and its young husband-and-wife co-founders, Kathleen and Arthur Breitman, had fallen afoul of U.S. securities law. These people, who made the claims on the condition they not be identified, include prominent figures in bitcoin and crypto-currency circles.

Rumors of possible investigations surged anew last week in light of a very public spat between the Breitmans and the director of the Tezos Foundation, a Swiss non-profit tasked with using the proceeds of the ICO to support the development of the Tezos platform.

The spat involves the foundation’s director, Johann Gevers, accusing the Breitmans of threatening the foundation’s independence. The Breitmans, meanwhile, have accused Gevers of incompetence and self-dealing, and claimed he misrepresented to foundation’s board the size of a $ 1.5 million bonus he sought to receive.

The situation, which is so far unresolved, has given rise to headlines like one in the Financial Times this week that said “Acrimony over $ 232M ICO to intensify regulatory scrutiny.”

Any trouble Tezos may be facing, however, does not appear to include an SEC investigation, which would be a devastating development and pose potential civil or criminal trouble. In two phone interviews with Fortune, Kathleen Breitman said Tezos has not received any inquiries from the SEC.

This is not proof Tezos is out of the regulatory woods. But in regard to an SEC investigation, it is reasonable to surmise the agency would have probably have contacted the Breitmans by now if something was afoot. (The SEC, meanwhile, last week announced its decision to prosecute another individual over two ICOs that took place in August).

A spokesperson for the agency, which does not disclose investigations unless they lead to disciplinary action, declined to comment.

Following the publication of this story, the Breitmans provided the following statement: “While an investigation would certainly be a distraction, other projects have weathered regulatory issues and so far the SEC’s approach in this area has been measured and reasonable. We will cooperate fully with any investigation if one materializes.”

Mess in Switzerland

The absence of an SEC investigation would be good news for Tezos supporters, who have grown skittish amid the negative publicity and questions about when the promised tokens would arrive (the Breitmans say that February is most likely).

Nonetheless, the Tezos project still faces challenges given the ongoing acrimony between the Tezos founders and Gevers over the direction of the Tezos foundation in Switzerland.

Under a complex legal arrangement, the foundation is supposed to purchase a company from the Breitmans that holds the code and other intellectual property related to the Tezos platform. But given the clash with Gevers, it’s unclear when or if that will happen.

Meanwhile, Gevers has told the Wall Street Journal that the Breitmans’s move to influence the foundation goes against Swiss law. The couple has since challenged the claim by obtaining a legal opinion that anyone may seek the removal of a foundation director in situations such as mismanagement.

The upshot is that the fight might take months or more to untangle, and could lead to litigation. And while the Breitmans claim their current focus is on completing the software, the foundation fight will likely create uncertainty—which is reflected in reports that the value of tezzies tokens has dropped significantly in futures markets.

Finally, it’s unclear who exactly is controlling the hoard of wealth Tezos is now sitting on. Since July, when the token sale took place, the value of bitcoin and ethereum have soared, which means the $ 232 million collected at the time is now worth much more. According to Reuters and others, the foundation is slowly converting the digital currency to cash.

As for how the cash is being managed on a day-to-day basis, Arthur Breitman said the question is one for the foundation, and that he could only say there are mechanisms in place to safeguard the funds.

Gevens did not respond to a request for comment, made after business hours in Switzerland, about how the money is being managed or about the salary allegations against him.

(An earlier version of this story incorrectly stated Gevens received, rather than sought to receive, a $ 1.5 million bonus)


These 3 Companies Are Set For A Horror Story

For investors, the end of October is quite a busy time of the year. With several earnings reports coming out every day, your head could be spinning if you tried to follow all of them. Today, I’m doing you a favor by highlighting 3 stocks you should seriously consider selling now that I have read their earnings report. And I’m not going after some small names here; I’m going for popular dividend stocks that have blinded investors either with their yields or promises. I’m talking about AT&T (T), IBM (IBM) and Polaris Industries (PII).

AT&T is a zombie disguised as Snow White

Behind its perfect reputation of a long time dividend payer and its high yield hides a hideous dead company.

Source: T Q3 2017 presentation

Great! Some will tell me free cash flow has increased by 13% compared to last year. But this is only because the company spent less money in CAPEX. The company is generating the same level of cash flow as it did in 2016. The problem is that the cash flow stagnation has been around for a while now:

Free cash flow hasn’t moved a dime over the past decade. How can you explain that? The company is getting bigger and bigger, but the cash flow isn’t. A known problem for all telecoms is the increasing amount of money required to build the strongest network possible. We all know future spending will happen to manage various situations:

  • 5G is coming.
  • Competition is growing with T-Mobile (TMUS) and Sprint (S) going after AT&T and Verizon (VZ) customers.
  • The integration of Time Warner.
  • Something to do with DirecTV.

Speaking of DirecTV, this acquisition doesn’t seem to be going anywhere. Although T-Mobile offers free Netflix packaged with its unlimited data plans, AT&T thinks it can do better by offering its own service. However, what I see is that AT&T is killing DirecTV and hopes DTVnow will fill the empty space and generate growth in the future.

Source: AT&T Q3’17 Investor Briefing

In the good news department, AT&T’s yield will shortly reach 6% as the stock drops like a rock. With rising debts and a payout ratio around 90%, I think it’s time to wonder how many years T will be able to sustain its current dividend raise streak. After all, management keeps raising its payouts year after year, but you can’t really call an 8.89% total growth over 5 years a dividend growth policy.

In the end, I’m afraid AT&T will be more preoccupied with figuring a way to integrate Time Warner and DirecTV into its activities than building its 5G network. At some point, the company will not have enough cash to support all its projects.

IBM is making promises it can’t keep

IBM celebrated its 22nd consecutive quarterly report with declining revenue. 22 quarters means 5½ years of poor results. What did the market do to celebrate with IBM? Yup, it threw up a party and the stock soared by 9%. But the enthusiasm is rapidly fading away:

Source: Ycharts

Strategic imperatives revenue was up by 10% and cloud revenue was up by 12%. Ah! That’s a reason to boost share value through the roof isn’t it? While I totally get that it’s good news that management has finally found a way to get the business growing again, its other business segments are still decreasing faster. Considering the choices you have in the techno sector, I think you are way better off with Microsoft (MSFT), which didn’t need 5 years to figure out to make money with the cloud business.

On the dividend side, once could argue that buying IBM at a 4% yield is a unique opportunity (similar to buying AT&T at a 6% yield, I suppose). The problem is that IBM is buying back shares and increasing its payout to seduce income seeking investors.

Source: Ycharts

Please note this graph shows the variation in %, not the actual payout ratios. As shares are being bought back and dividends being raised, you can see management is not following its earnings growth. While IBM’s payout ratios were around 20% 5 years ago, they have doubled since then. As they are getting closer to 50%, you can expect a smaller dividend growth rate in the years to come, not to mention the rising debts siphoning future money away from its bank account.

Polaris Industries is not out of the woods yet

Polaris is making a strong comeback after 2 years of desolation. Sales weren’t good and many recalls hurt Polaris’s brand (and earnings). However, the stock is now back up with a strong quarter showing sales increases of 20%. PII stock price surged on earnings by $ 16 on a single day. The stock is now up almost 50% since the beginning of the year (as of October 25th at closing). Unfortunately, this hype is not about growth, but rather about hope:

Source: Ycharts

Polaris benefits more from a PE expansion than a growing business. Although investors tend to forget, there were still many recalls in 2017 and I’m not convinced Polaris is done dealing with its quality issues.

Polaris Industries has increased its dividends for 22 consecutive years. This make it part of the elite Dividend Achievers list. The Dividend Achievers Index refers to all public companies that have successfully increased their dividend payments for at least ten consecutive years. At the time of writing this article, there were 265 companies that achieved this milestone.

Based on its strong dividend growth history, I was willing to give PII a second chance. I then used the dividend discount model to find its fair value. I’ve been more than generous with dividend growth rates of 8% and 7% and I still can’t get a value that makes sense with today’s price:

Input Descriptions for 15-Cell Matrix


Enter Recent Annual Dividend Payment:

$ 2.32

Enter Expected Dividend Growth Rate Years 1-10:


Enter Expected Terminal Dividend Growth Rate:


Enter Discount Rate:


Discount Rate (Horizontal)

Margin of Safety




20% Premium

$ 162.30

$ 107.85

$ 80.64

10% Premium

$ 148.78

$ 98.86

$ 73.92

Intrinsic Value

$ 135.25

$ 89.88

$ 67.20

10% Discount

$ 121.73

$ 80.89

$ 60.48

20% Discount

$ 108.20

$ 71.90

$ 53.76

I understand that I would have gotten a better valuation if I had used a 9% discount rate but this just seems wrong considering the numerous issues Polaris just went through with the quality of its 4wd. The company may turn around and achieve more success with its motorcycle business. However, if I were a shareholder, I would take the 50% gain this year and run.

Final Thought

There have been many major reactions towards earnings over the past 2 weeks. We have seen several companies going up or down by 10% or more. In both cases, I think investors are over reacting. A single quarter won’t change the entire business and doesn’t justify such fluctuations. However, it creates buying and selling opportunities for some.

Disclaimer: I do not hold T, IBM or PII in my DividendStocksRock portfolios.

If you like my analysis, click on FOLLOW at the top of the article near my name. That will allow my articles to display on your homepage as they are published.

Additional disclosure: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


Facebook says will make ads more transparent

(Reuters) – Facebook said on Friday it will make advertising on its social network more transparent and ask for documentation from advertisers, especially for political and election-related ads.

FILE PHOTO: Facebook logo is seen at a start-up companies gathering at Paris’ Station F in Paris, France on January 17, 2017. REUTERS/Philippe Wojazer/File Photo

Advertisers will be required to include a disclosure in their election-related ads, which will read: “Paid for by,” Facebook said.

Reporting by Laharee Chatterjee in Bengaluru; Editing by Sai Sachin Ravikumar

Our Standards:The Thomson Reuters Trust Principles.


Telecom Italia Chairman says network 'strategic', talking with Italy government: paper

MILAN (Reuters) – Telecom Italia’s (TIM) fixed-line network is a strategic asset and the group is examining the dossier with the national government to find a shared solution, chairman Arnaud De Puyfontaine said in a daily on Friday.

Vivendi’s Chief Executive Arnaud de Puyfontaine attends the company’s shareholders meeting in Paris, France, April 25, 2017. REUTERS/Jean-Paul Pelissier

“For us the network is strategic,” De Puyfontaine said in an interview to la Repubblica, adding a separation of the network could make sense to create an even more neutral platform for all companies and reduce the digital gap in the country.

“(CEO Amos) Genish and I are working on this front with pragmatism. We understand the national interest, we will examine the dossier with the government: the important issue is to meet the interest of all stakeholders,” he said.

De Puyfontaine added that it was “premature” to discuss the possibility of new shareholders joining the backbone network, amid speculation that state holding Cassa Depositi e Prestiti could take a stake if the network is spun off.

Asked whether competition between Telecom Italian and rival Open Fiber to roll out ultra-fast broadband was damaging, he said competition was always a good thing.

The chairman added that French media group Vivendi was in talks with private broadcaster Mediaset to resolve a legal dispute between the two groups.

Reporting by Giulia Segreti, editing by Stephen Jewkes

Our Standards:The Thomson Reuters Trust Principles.


Equifax Ignored Warning of Breach, Says Researcher

Bad to worse.

A security researcher claims to have warned Equifax of major vulnerabilities to its computer systems last December. If true, this contradicts the company’s claim to have only learned about the problems this spring—and provides more evidence Equifax could have prevented a catastrophic data breach that affected at least 145 million Americans.

The new allegations, reported by a security reporter at tech news site Motherboard, say the unnamed researcher scanned servers and public-facing websites, and discovered it was easy to access troves of personal data of Equifax customers.

In at least one case, a website that appeared to be an internal employee portal for looking up customer information could be accessed by anyone on the Internet. Overall, the security vulnerabilities appeared to have offered easy access to a staggering amount of sensitive data:

[T]he researcher couldn’t believe what they had found. One particular website allowed them to access the personal data of every American, including social security numbers, full names, birthdates, and city and state of residence

The researcher, who asked for anonymity out of “professional concerns,” claims to have told Equifax about the vulnerabilities immediately after discovering them, and urged it to take down exposed websites, but says the company failed to act.

These allegations, if accurate, reinforce indications that Equifax—which has a significant business selling data protection tools—was shockingly negligent and incompetent when it came to security. Earlier accounts of the breach have already indicated that hackers got in because the company failed to update its software, which should be standard practice for any corporation, and especially for those who handle sensitive consumer data.

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As Motherboard notes, all of this also suggests that the gaping security holes could have been exploited repeated by multiple hackers.

“If it took me three hours to find that website, I definitely think I’m not the only one who found it. It wasn’t just one breach. It was maybe dozens,” the researcher claimed.

Equifax has yet to provide a public response to the new allegations, beyond saying the company doesn’t comment on “internal security operations.”

Equifax is currently facing dozens of lawsuits over the data breach from consumer class action attorneys and from state and city governments. The new allegations are likely to provide the plaintiffs with new ammunition to obtain damages. As Fortune has reported, the Equifax hacking incident is likely to differ from earlier mass data breaches in that the company could pay out real money to the consumers affected.


Hydrogen fuel-cell car push 'dumb'? Toyota makes a case for the Mirai

TOKYO (Reuters) – Having invested heavily in hydrogen, a technology derided by Tesla chief Elon Musk as “incredibly dumb”, Toyota Motor Corp is making a renewed push for fuel cell cars to fill a role in a future dominated by electric battery vehicles.

FILE PHOTO – The Toyota Mirai, an hydrogen fuel cell vehicle, is displayed on media day at the Paris auto show, in Paris, France, September 29, 2016. REUTERS/Benoit Tessier/File Photo

Japan’s biggest automaker believes both technologies – all-electric battery cars like the Tesla Model X on one hand and Toyota’s hydrogen Mirai on the other – will be needed to fully usurp gasoline cars. 

“We don’t really see an adversary ‘zero-sum’ relationship between the EV (electric vehicle) and the hydrogen car,” Toyota chairman Takeshi Uchiyamada told Reuters ahead of the Tokyo auto show. “We’re not about to give up on hydrogen electric fuel-cell technology at all.”

Toyota began pitching its fuel-cell car as a mainstream gasoline car alternative in 2014 when it launched the Mirai with a price tag of 7.24 million yen – almost $ 70,000 at the time.

The car has since been launched in the United States and other countries around the world. But initial excitement has faded as major markets including China and Europe have tilted heavily toward electric vehicles.

Just 4,300 Mirais have been sold, compared to around 4 million units of the Prius, Toyota’s blockbuster hybrid that ushered in the age of the EV.

Uchiyamada, who is known as the “father of the Prius”, says Toyota isn’t anti-EV and is investing heavily in technologies such all solid-state lithium-ion batteries to make them more desirable.

But it also sees some advantages for hydrogen cars, which are propelled by electricity generated by fuel cells.

One major issue facing EVs is the length of time they take to charge – up to 18 hours in some cases – and a problem being amplified as automakers pack in more batteries to extend range.

Rapid charging technology is helping to solve this issue. But a 30- to 40-minute wait is still too long for many ordinary drivers with busy lives, says Yoshikazu Tanaka, the chief engineer in charge of Toyota’s Mirai.

What’s worse, rapid charging when used too often compromises battery life significantly, he and other engineers say.

While a hydrogen car can refuel in under five minutes, the high cost of the technology and a lack of refuelling stations is a problem, something Toyota has been focused on addressing.

The company has joined forces in Japan with rivals Nissan Motor Co and Honda Motor Co, and with energy companies such as JXTG Nippon Oil & Energy to build a network of refuelling stations that now totals 91.

FILE PHOTO – The Toyota Mirai, Toyota Motor Corporation’s first commercially available, mid-sized hydrogen fuel cell sedan, is seen at a press preview in Newport Beach, California, November 17, 2014. REUTERS/Lucy Nicholson/File Photo

Tanaka also wants to significantly extend the car’s driving range to compensate for the lack of fuelling stations.

While still at the concept stage, Tanaka wants to raise the “practical driving range” of the Mirai to about 500 km (310 miles) from the current 350-400 km (190-250 miles). A fuel cell car’s practical range usually dips to 65-70 percent of its “sticker” range – 650 km for the Mirai – because drivers often use air-conditioning and accelerate with abandon.

Making the fuel cell system more efficient and trying to gain more propulsion power from a given amount of hydrogen will be key, Tanaka said. He also wants to package the vehicle more efficiently to gain more storage space for larger fuel tanks.


Toyota says one of the most promising markets for hydrogen cars is China – a key advocate of electric cars but one which is beginning to embrace fuel-cell technology as well.

Last month, Shanghai announced plans to promote development of fuel-cell vehicles by adding hydrogen refueling stations, subsidizing companies developing fuel-cell technologies and setting up R&D facilities. The city’s goal is to put 20,000 hydrogen fuel-cell passenger vehicles and 10,000 commercial vehicles on the road by 2025.

”Chinese policymakers visit us and we visit them frequently” to discuss Toyota’s hydrogen fuel-cell technology, says Katsuhiko Hirose, a green tech engineer at Toyota. 

Toyota was set to test hydrogen fuel-cell cars in China this month as part of an effort to determine the feasibility of selling the Mirai there.

But it’s not all just about cars.

In an effort to encourage other industries to use hydrogen, Toyota and Air Liquide S.A. helped set up the Hydrogen Council, a global lobby launched in January on the sidelines of the World Economic Forum in Davos.

With 27 members including automakers Audi, BMW, Daimler, Honda, Hyundai, and energy companies such as Shell and Total, the Hydrogen Council has lobbying policymakers and investors on hydrogen.

The council’s main argument is that electricity supplies can be limited and unstable in high demand. That’s because power grids have small buffers as electricity cannot be stored easily and transported. Large-scale adoption of hydrogen can solve that issue, said Toyota’s Uchiyamada, who is also co-chair of the Hydrogen Council. 

Electricity generated during the night, which usually goes to waste when unused, and electricity generated by solar and windmills can be stored and easily transported as liquid hydrogen, much like gasoline.

“Elon Musk is right – it’s better to charge the electric car directly by plugging in,” said Tanaka. But hydrogen has a place as a viable alternative to gasoline, he added.

Reporting by Norihiko Shirouzu; Editing by Lincoln Feast

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Three women sue Uber in San Francisco claiming unequal pay, benefits

SAN FRANCISCO (Reuters) – Three women engineers have sued Uber Technologies Inc [UBER.UL] for discrimination based of their gender and race, the latest blow to the ride-services company that is straining to overcome a year of controversies over its workplace culture.

FILE PHOTO: A man arrives at the Uber offices in Queens, New York, U.S., February 2, 2017. REUTERS/Brendan McDermid/File Photo

The lawsuit, filed Tuesday at the Superior Court in San Francisco, follows a widely read blog post in February from another female engineer that described Uber’s work environment as one that tolerated and fostered sexual harassment.

The lawsuit filed by Ingrid Avendano, Roxana del Toro Lopez and Ana Medina, who described themselves as Latina software engineers, says that Uber’s compensation and other practices discriminate against women and people of color. As a result, the three women have lost out on earnings, promotions and benefits, the lawsuit says.

Avendano and Toro Lopez left Uber this summer after more than two years with the company. Medina is still employed there, according to the lawsuit.

Uber spokesman Matthew Wing declined to comment.

The lawsuit describes an employee ranking system that is “not based on valid and reliable performance measures” and favors men and white or Asian employees. Women, Latino, American Indian and African American employees are given lower performance scores, making it more difficult for them to advance professionally and confining them to more menial tasks, according to the lawsuit.

“In this system, female employees and employees of color are systematically undervalued compared to their male and white or Asian American peers,” the lawsuit says.

Women, black and Latino employees also lose out on pay raises, bonuses, stock options, benefits and other wages because of the company’s discriminatory practices, the lawsuit alleges.

“These three engineers are seeking to ensure that Uber pays women and people of color equally for the hard work they’ve done – and will continue to do – to help make Uber successful,” said lawyer Jahan Sagafi of Outten & Golden which is representing the plaintiffs. 

Outten & Golden have also represented employees in gender discrimination lawsuits against Goldman Sachs and Microsoft Corp (MSFT.O).

Avendano and Toro Lopez brought their complaints to the California Labor and Workforce Development Agency this summer, an administrative step that precedes a public lawsuit. News site The Information reported on the complaint Tuesday.

In August, Uber made a series of changes to address pay equity, including increasing pay of employees who were paid below the median salary for their job and providing an annual 2.5 percent raise.

Reporting by Heather Somerville; Editing by Cynthia Osterman

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Apple acquires New Zealand wireless charging company

SINGAPORE (Reuters) – Apple, which recently said it was including wireless charging in its latest iPhone X and iPhone 8 smartphones, has acquired New Zealand firm PowerbyProxi that designs wireless power products for consumers and industry. 

A broken iPhone is seen in this illustration picture, October 21, 2017. REUTERS/Kacper Pempel

An Apple spokesman confirmed the acquisition, which was earlier reported in New Zealand media. Both companies declined to provide details of the purchase.

Wireless charging allows users to recharge devices by placing them on a pad or other surface rather than inserting them in a cradle or attaching a cable.

Apple has been slow to adopt the technology, lagging behind its biggest rival Samsung Electronics Co Ltd and other mobile phone companies that have offered wireless charging in some of their devices for several years.

Apple joined the industry body that develops the Qi wireless charging standard, the Wireless Power Consortium, in February. The iPhone 8 and X both support the standard.

Apple’s interest in PowerbyProxi may be driven by the latter’s other products, some of which can support transferring up to 150 watts through any non-metallic material, for wirelessly charging industrial machinery and medical equipment, said Jake Saunders, Asia Pacific vice president of ABI Research.

This could allow Apple to offer much larger pads that could quickly charge multiple consumer devices, including laptops and even electric scooters, he added. 

For consumers, charging a single device on one pad may not be that appealing, “but when you get into multiple device charging it starts to get attractive”, Saunders said. 

Apple recently announced its own AirPower accessory which it said would simultaneously charge up to three devices, including new versions of the Apple Watch, iPhone and AirPod charging case. 

PowerbyProxi was founded in 2007 as a spin-out of the University of Auckland. Samsung Ventures, global investment arm of Samsung Group, invested $ 4 million in the company in 2013. 

PowerbyProxi will continue its “growth in Auckland and contribute to the great innovation in wireless charging coming out of New Zealand”, its founder and CEO, Fady Mishriki, said in a statement.

Reporting By Jeremy Wagstaff; Editing by Himani Sarkar

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