Well, it’s bound to happen once in a while. When shorting a stock, the two terrible things that I always fear are the company being purchased or having a breakthrough in earnings. Yesterday, that second scenario happened as Travelzoo (TZOO) announced solid numbers which I will be digging into this weekend if all goes well. In the meantime, that trade easily reached my stop loss and I’ll be closing the trade which stands at -56%! That actually brings me slightly into negative territory for the year, unfortunately.
A couple of weeks ago, I updated this blog with my latest thoughts about the ecosystem play. I followed that up with a more detailed analysis of Apple (AAPL) and why I think it remain a screaming buy. This week, I spent more time looking at the other plays and in an unexpected way, I ended up seeing the need to write about both Google (GOOG) and Facebook (FB) together. As you can imagine from my previous writings, I’m much more convinced about Facebook’s long term growth potential but I think both companies compete much more than most would imagine. Both companies are convinced that the most important factor in growing their businesses is growing the online audience. Facebook has its Internet.org initiative and has been working hard on helping several emerging countries connect to the web. Google has several such initiatives both in emerging countries such as Loon but also through what looks like an increasingly serious effort to become an ISP (Google Fiber). They are making great progress in connecting more and more people online. The big question of course is.. what is the web?
Phase #1 – The Search Era
When Google became a major online player, it offered a unique way to search the web and thanks to its innovative Pagerank algorithm, Google quickly became the best search engine out there and the only search engine that was able to index (most of) the entire web and deliver quick and solid search results. That is mostly how internet users discovered content. They’d open a browser, go to Google and find whatever they were looking for. At this point, Facebook was a non-factor. I won’t go on and on but search has obviously been the biggest battle on the web to date and Google emerged as the very clear winner.
Winner of Search Era: Google
After years of having users searching the web through search engines, a transformation started happening thanks in large part to Facebook and Twitter as most users started spending time on social websites to share thoughts, photos, videos and more. Google certainly tried with several different efforts (Blogger, Orkut, Google Wave, Google Buzz and Google+). There are many different theories as to why Google has failed so badly over and over and my personal opinion is that Google started by underestimating the impact of social and was simply too much of an algorithmic company. In contrast, Facebook not only launched the most successful social network in history with over 1 billion users but also was able to buy what is possibly its biggest competition in Instragram. This is proving a bigger and bigger problem for Google as Facebook is not only hosting content from users and businesses but now moving to a phase where it will be hosting content within its walls. The web is moving outside of Google’s reach both in social networks but also inside of mobile apps.
Winner of Search Era: Facebook
Phase #3 – The Mobile Web (apps,o/s)
A couple of years ago, Google looked like the clear winner in mobile. Not only was it dominating in terms of market share with Android but Google remains the biggest player in mobile search and owns one of the major app stores (Google Play). That has however been more and more contested as mobile moves to an “app world”. With most users now spending most of their time inside of apps rather than searching the web, the battle has turned to apps and in that world, Facebook is the clear winner. Not only does it have the top app in terms of usage (Facebook) but it also ranks very high with other apps such as Instagram, Messenger, WhatsApp, etc. It will be interesting to see how Google will try to turn this around.
Winner of Search Era: Facebook but Google is obviously still in the run
Phase #4 – Video
As video continues to gain in importance, most big players are making some kind of play. Some such as Twitter have several different angles including the recently launched Periscope. Clearly though, the top video player is Youtube which Google purchased for $1.65B back in 2006 (what a bargain!). Youtube remains the dominant player but Facebook seems to be emerging as a credible threat and its recent changes to allow embeddable videos will make it an even stronger one. Some metrics including the number of videos viewed tell a story of Facebook overtaking Youtube which seems like a stretch given how Facebook has enabled the autoplay function. But the trend remains clear:
Winner of Video Era: Google so far but it’s clearly still in play
Phase #5 – Messenging
I wish I could call this a battle but for some reason Google has barely even tried to compete in messenger services. I 100% agree with this quote: I wish I could call this a battle but for some reason Google has barely even tried to compete in messenger services. I 100% agree with this quote:
Google’s neglect of messaging is insane. Their best people should be working it. It’s almost more important than Search.
Google’s neglect of messaging is insane. Their best people should be working it. It’s almost more important than Search. — dustin curtis (@dcurtis) March 25, 2015
— dustin curtis (@dcurtis) March 25, 2015
Yes, messenger has only one basic use – sending messages to friends and family but as has been displayed in Asia already, it can become a platform in itself as messenger services gain the ability to be used to send payments, used by businesses, etc. Facebook displayed its clear intentions at its last F8 developers conference and with 2 of the dominant messenging services (messenger and WhatsApp), it is clearly in a great position. Yes, messenger has only one basic use – sending messages to friends and family but as has been displayed in Asia already, it can become a platform in itself as messenger services gain the ability to be used to send payments, used by businesses, etc. Facebook displayed its clear intentions at its last F8 developers conference and with 2 of the dominant messenging services (messenger and WhatsApp), it is clearly in a great position.
Phase #6 – VR/AR
It is very early but it certainly looks like at some point the big battle will be somewhere between augmented reality (AR) and virtual reality (VR) players. It’s very early to call winners and I’d have to give Google the edge here given its massive investments in things like artificial intelligence, etc. That being said, Google’s first actual product, Google Glass was quite a failure given the hopes that Google’s Larry Page had for it. Facebook bought one of the leading players, Oculus which is one if not the biggest name out there.
Winner of VR/AR: Google slightly although it’s very early to tell
In The End
As I look at things, it becomes increasingly clear why Facebook has been doing so well. Yes, Facebook remains a non player in online search but that is just one of 6 phases and in all phases it is either leading or quickly gaining ground. As a Facebook investor, I’m confident that the company will continue to grow extremely quickly as it leverages its app, messenger, social and video platforms. I’m much more concerned about Google though. Search is a decreasing part of the online experience and apart from video, where Google’s Youtube is dominant but losing ground to Facebook and others, Google has yet to establish its presence in other phases. Yes, Android remains dominant but it’s less and less clear how Google will be able to use that in a world where forked versions of Android can now exclude Google’s core services.
Disclosure: Long Facebook (FB)
Today, I’m back with a look at the top dividend stocks (in terms of yield) in the S&P500. Today I also decided to add a metric that my biz partner and I have been working on, the DSR score. It is a score that includes all kind of data including the dividend yield, the growth in dividends (short and long term), revenues, earnings, debt and payout ratios, etc. We’ve been using it for some time and the results have been very solid. It’s one of many features that we offer on DividendStocksRock. No surprise at all that most of the top dividend payers on this month’s list do not have a great DSR score. Paying a high yield is great but it’s only one metric.
Here is the full list!
|Ticker||Name||Price||Dividend Yield||Payout Ratio||Ex-Dvd||DSR score|
|NE||Noble Corp plc||14.28||10.51||N/A||05/07/2015||24|
|FTR||Frontier Communications Corp||7.05||5.96||308.73||06/09/2015||7|
|PM||Philip Morris International Inc||75.33||5.31||81.61||6/23/2015||53|
|IRM||Iron Mountain Inc||36.48||5.21||321.43||6/24/2015||36|
|CNP||CenterPoint Energy Inc||20.41||4.85||66.78||5/15/2015||65|
|WYNN||Wynn Resorts Ltd||125.88||4.77||86.23||5/21/2015||55|
|TE||TECO Energy Inc||19.4||4.64||96.51||5/14/2015||2.5|
|WMB||Williams Cos Inc/The||50.59||4.59||66.73||06/10/2015||43|
|VZ||Verizon Communications Inc||48.63||4.52||89.18||07/08/2015||45|
|PBCT||People's United Financial Inc||15.2||4.34||77.86||4/29/2015||67.5|
|KMI||Kinder Morgan Inc/DE||42.06||4.28||194.91||4/29/2015||42.5|
|HCN||Health Care REIT Inc||77.36||4.26||221.55||05/07/2015||46|
|ED||Consolidated Edison Inc||61||4.26||67.59||5/18/2015||37|
|MO||Altria Group Inc||50.02||4.16||77.94||6/15/2015||57.5|
|STX||Seagate Technology PLC||52.03||4.15||35.85||05/01/2015||55|
|DUK||Duke Energy Corp||76.78||4.14||90.57||5/20/2015||45|
|GAS||AGL Resources Inc||49.65||4.11||41.46||5/13/2015||77.5|
|SE||Spectra Energy Corp||36.17||4.09||85.27||05/06/2015||60|
|PCL||Plum Creek Timber Co Inc||43.45||4.05||145.79||5/20/2015||16|
|HP||Helmerich & Payne Inc||68.07||4.04||37.52||5/13/2015||92.5|
|POM||Pepco Holdings Inc||26.83||4.03||112.4||06/10/2015||-7.5|
|HST||Host Hotels & Resorts Inc||20.18||3.96||77.4||6/29/2015||59|
|OXY||Occidental Petroleum Corp||73||3.94||#VALUE!||06/10/2015||45.5|
|RAI||Reynolds American Inc||68.91||3.89||99.38||06/11/2015||47.5|
|GM||General Motors Co||37.5||3.84||68.76||06/12/2015||53|
|TEG||Integrys Energy Group Inc||72.02||3.78||78.63||5/29/2015||1|
|AEP||American Electric Power Co Inc||56.25||3.77||61.08||05/08/2015||56|
|PNW||Pinnacle West Capital Corp||63.75||3.73||64.59||4/30/2015||49.5|
|PEG||Public Service Enterprise Group Inc||41.92||3.72||49.33||06/08/2015||45|
|F||Ford Motor Co||16.14||3.72||61.25||4/28/2015||40|
|GE||General Electric Co||24.81||3.71||58.32||6/18/2015||61.5|
|NOV||National Oilwell Varco Inc||49.99||3.68||28.69||06/10/2015||89|
|XEL||Xcel Energy Inc||34.81||3.68||59.56||6/16/2015||74|
|D||Dominion Resources Inc/VA||70.87||3.65||106.75||5/27/2015||22|
|KIM||Kimco Realty Corp||26.85||3.58||118.94||6/29/2015||36|
|WIN||Windstream Holdings Inc||7.4||3.56||#VALUE!||6/26/2015||4|
|DOW||Dow Chemical Co/The||47.98||3.5||52.19||6/29/2015||75|
|CINF||Cincinnati Financial Corp||53.28||3.45||54.86||6/15/2015||72|
|DTE||DTE Energy Co||80.69||3.42||52.49||6/18/2015||81|
|WEC||Wisconsin Energy Corp||49.5||3.41||59.82||5/13/2015||69|
|CMS||CMS Energy Corp||34.91||3.32||61.36||05/06/2015||58.5|
|EMR||Emerson Electric Co||56.62||3.32||56.36||5/13/2015||70|
|CVC||Cablevision Systems Corp||18.3||3.28||51.45||5/14/2015||41|
|XOM||Exxon Mobil Corp||85||3.25||35.57||05/07/2015||76|
|ETN||Eaton Corp PLC||67.94||3.24||51.83||05/07/2015||89.5|
|MRO||Marathon Oil Corp||26.11||3.22||56.14||5/18/2015||41|
|PBI||Pitney Bowes Inc||23.32||3.22||50.53||05/06/2015||-6|
|LYB||LyondellBasell Industries NV||87.8||3.19||33.57||5/19/2015||56|
|DRI||Darden Restaurants Inc||69.34||3.17||157.37||07/06/2015||36|
|PG||Procter & Gamble Co/The||81.94||3.14||61||4/22/2015||41|
|MRK||Merck & Co Inc||57.48||3.13||43.26||06/11/2015||56.5|
|GIS||General Mills Inc||56.6||3.11||53.41||07/06/2015||56.5|
|CSCO||Cisco Systems Inc||27.525||3.05||47.85||6/30/2015||80|
|BAX||Baxter International Inc||68.5||3.04||57.1||06/03/2015||74|
|UPS||United Parcel Service Inc||96.94||3.01||82.03||5/14/2015||56.5|
|MUR||Murphy Oil Corp||46.6||3||23.06||5/15/2015||57|
|NEE||NextEra Energy Inc||104.05||2.96||51.11||06/04/2015||72|
|LMT||Lockheed Martin Corp||202.96||2.96||48.12||5/28/2015||59|
|MCHP||Microchip Technology Inc||48.9||2.92||71.14||5/18/2015||54|
Other DSR Top Scores
Of course, you might be curious about finding out what the top DSR scores are that could be missing on this list, I’d love you to give us a try here
One of the key metrics/charts that I always look at when trying to judge Apple is the distribution of revenues for the company. Analyst Horace Dediu (a must follow @Asymco) updates several charts after each earnings update and here is the most recent one following the 2014 Q4 results:
Clearly, Apple is all about iPhones at this point and that is likely to remain the case as long as the smartphone is at the center of our digital lives. I would also argue that as the ecosystem continues to expand, the revenues coming from the periphery will expand. In terms of hardware, that will translate into more sales of accessories from simple cables and cases to Beats headphones and a lot more. The even bigger sector, though, is likely to be services which some expect to grow to 20% of Apple’s earnings in the next two years. Apple will be able to be a part of its users lives not only in terms of entertainment (movies, tv, music, etc) but also in helping them live healthier lives, have a more enjoyable experience in their cars, gyms, etc. Here is another chart from Asymco:
Valuation (P/E of AAPL vs S&P500)
I’d argue that it’s very difficult to justify Apple trading so close to the S&P500 average valuation when it’s been growing much faster. I also consider the downside risk to be very small given the strength of Apple’s ecosystem. There are many different ways to compare valuations but here is one example from Morningstar’s numbers:
That seems difficult to justify given the fact that by some estimates, Apple is among the 10 fastest growing companies in the S&P500 in terms of revenue growth.
Let’s agree on the fact that the main reason Apple is not trading higher is the belief that Apple will not be able to keep growing. Yes, that argument has been around for many years but it’s still the main argument for non Apple believers. Let’s look at Apple’s core to see if growth can persist:
-iPhone: I’d argue that while growth may slow down, in many ways, Apple faces less competition in the high end and that as the smartphone business continues to expand, so will Apple’s sales. Yes, they might continue to lose market share but as long as they hold on to their current users and continue adding more, they’ll be more than fine.
-iPad’s+MacBooks+Watches+TV’s: There seems to be a good opportunity here for Apple and while there is a wide range in the sales estimates for products such as Apple Watches, I tend to think that in the long run, these will do well and that while the upgrade cycle might be closer to what we’re seeing with MacBooks and iPad’s, those will continue to be strong businesses.
-Enterprise: An area that has been dominated mostly by Microsoft (MSFT) and Blackberry (BBRY) is now slowly but surely opening up to Apple and those big enterprise and government contracts are not only big dollars but they are also very stable revenues that will help a great deal to keep up the growth. The partnership with IBM is another clear sign of promising things to come.
-Services (App Store, Apple Pay, Music, Video, HealthKit, HomeKit, CarPlay, TV): Apple has been very smart in recently increasing its release speed for these ecosystems. With more developers and hardware builders than ever ready to start building around Apple’s ecosystem, the company can now expand its lead and continue to make its ecosystem the most valuable out there not only for developers, but also for users. As cars, home, clothes, TV’s and more gain the ability to interact better with our phones, Apple is likely to have a very valuable spot right in the middle of this ecosystem, even if only by continuing to sell (an increasing numbers of) its iPhones. There are also multiple other ways, such as a rumoured Apple web TV offering that could have a significant medium to long term impact.
Competition Is Crumbling
One main argument that I would hold for Apple is that it faces so little competition. For a company like Apple to face a decline, it would either need the entire market to mature or competitors to start eating away at its market share. I think it’s fair to say that the phone/electronics markets will continue to grow for the foreseeable future and digital services growth is likely to accelerate in the coming years. In terms of competitors, I guess it depends on how you look at each one:
-Google (GOOG): The search giant is clearly Apple’s top competitor. While it does not really compete on the hardware part (yes, Google sells some Nexus devices and owns Nest), it does compete in plenty of other spaces. The top area of course would be Android, the dominant (in terms of #users) mobile O/S. I think it’s fair to say that both have very different target markets and do not threaten each other at this point. The other more problematic area in my opinion is web services where Apple has needed to make several moves to compete with Google. Some worked well, others took some time (maps being a primary area) and in many others (Youtube, Search and ISP being a few examples), Apple has no answer. I don’t consider those a threat to Apple at this point, but they’re certainly a challenge.
-Samsung: When Apple CEO Tim Cook says that Apple’s focus is on making money by selling its devices, not selling ads, it obviously means that Apple needs to maintain its pricing power on those devices and for some time it looked like Samsung might create some issues. Samsung was the only company that seemed both willing and capable of competing on the very high end devices that Apple dominates. That did not last, though, and while the sales of iPhones have increased over time, Samsung’s Galaxy is under increased pressure:
-Xiaomi: Clearly, Xiaomi is a force to be reckoned with. Yes, it mainly operates in China but that is a major market for Apple and Xiaomi could obviously expand well beyond China. That being said, its products are not yet up to par with Apple, it (mostly) operates in one country and Xiaomi’s brand is not very well known in major Western markets, so to say that it is a threat to Apple in the near to medium term is a stretch in my opinion.
-Other Hardware Makers: A few years ago, you could say that companies such as Dell, HP, Compaq, Lenovo offered competition but they have all been losing ground.
So really, I do not see a major player that can take on and disrupt Apple at this point. That challenge is likely to become even harder over time as Apple’s rich ecosystem continues to grow both in terms of hardware and software… Overall, I continue to think that Apple remains an obvious pick in terms of upside vs. downside.
Disclosure: Long Apple (AAPL)
As many of you know the Ultimate Sustainable dividend portfolio was built over a year ago as an attempt to slowly become financially free. I usually do monthly updates but I got late on this latest update and one month slow became 2-3… but I’m back, and ready to get more active:) There is certainly good and bad news here:
As is always the case, you can get extra information in my newsletter, it’s free to sign up for here:
Without further wait, let’s get started. Here are the portfolio holdings as of last night:
|Ticker||Name||Shares||Mar 18 Prices||Mar 18 Values|
|OMC||Omnicom Group Inc||34||$78.13||$2,656.42|
|JCI||Johnson Controls Inc||45||$50.28||$2,262.60|
|ITW||Illinois Tool Works Inc||31||$99.81||$3,094.11|
|SJM||JM Smucker Co/The||24||$112.61||$2,702.64|
|TROW||T Rowe Price Group Inc||34||$83.88||$2,851.92|
|OXY||Occidental Petroleum Corp||27||$74.01||$1,998.27|
|XOM||Exxon Mobil Corp||24||$86.07||$2,065.68|
|ADI||Analog Devices Inc||49||$59.67||$2,923.83|
|TXN||Texas Instruments Inc||35||$58.30||$2,040.50|
|VWO||Vanguard FTSE Emerging Markets||62||$40.94||$2,538.28|
|BND||Vanguard Total Bond Market||39||$83.35||$3,250.65|
This is a very interesting portion as there is solid growth in the monthly income
Ultimate Sustainable Dividend Portfolio News
-bonds: we added some other types of exposure such as bonds, through ETF’s which will tend to outperform in tough markets and underperform in rising ones.
-Mattel: clearly, this has been a difficult one to hold on to and I’ll certainly review it but just look at this chart:
With almost $5000 in cash in the portfolio, it will soon be time to start trading, expect some news on that front perhaps as soon as next week.
Last night I saw a very interesting video about the main ecosystems which got me thinking. It’s a quick view if you have a few minutes:
Then this morning I decided I’d write a bit more and started looking back for my previous posts about the ecosystem play. My first post about it seems to have been posted 2 years ago to the day. In that article, and many others that followed, I argued that the ecosystem companies will dominate the tech space and that as technology enters our daily lives, they will become incredibly powerful. I’ve said multiple times that owning all of them would be a smart play. Some of you would be surprised to learn that since then I only took significant stakes in Apple Inc (AAPL) and Facebook (FB). Those have obviously been the right picks:
Apple and Facebook are actually the only 2 names that have outperformed the Nasdaq Index (qqq). And to this day, I remain very hesitant about buying either Amazon (AMZN) or Google (GOOG). What am I waiting for? I’m not exactly sure. Both remain at least as dominant as they were and I have little doubt that their ecosystems will continue to gain ground. So what’s the problem?
It’s All About Focus
If I ask you what these companies are about (leaving Microsoft aside for now), I’d have an easy time describing that for 2 companies:
Apple: Building and expanding its current ecosystem that starts from the iPhone but is quickly expanding its reach both in terms of hardware and software (Apple Pay, HealthKit, HomeKit, etc). Apple is about producing the best phones, tablets, smart watches, and is increasingly moving into the luxury arena. Apple has generally been good about building a core infrastructure (think app store, Health Kit, Home Kit) and letting developers and companies build content and hardware around those.
Facebook is all about connecting people and has been doing so for over a billion people on its main Facebook platform. As the younger generation has moved towards platforms, Facebook bought the most powerful of those, Instagram and also is the dominant player in terms of messenging services with both Facebook Messenger and WhatsApp. Facebook is about connecting users with friends and family but also with brands which has been an incredible source of profit.
It becomes more difficult for the 2 others:
Google continues to be the dominant search service in the world even though its search market share has declined mostly because of its lost Mozilla deal. Google is also behind the dominant mobile O/S and while the high end users are almost exclusively with Apple, Android remains the dominant player when looking at pure user numbers. The main problem though is that it’s not exactly clear how that will work out as more mobile players such as Xiaomi and Samsung attempt to move away from the “pure” Google services powered Android. Google is also attempting to offer its own fiber service (Google Fiber), working on a wireless internet service, offers online storage, builds its own devices, cars, drones, has a shipping service, etc. It’s unclear to me which of these activities are core, which will be 10 years from now and what type of business Google will be a decade from now.
Amazon is even more difficult for me to understand. It’s first layer of being the everything store is incredibly powerful and through building (by very far) the top online commerce and distribution chain, Amazon has set itself up to command a large part of the growing online commerce and successfully compete with the likes of Walmart (WMT), Best Buy, etc. That being said, Amazon is hardly focused on that part alone. It has also been vocal about its ambitions to move into very different industries ranging from online groceries to building tablets, phones, buying a gaming video website, producing tv shows and movies, its own streaming service, etc. For most of those efforts, you could see logical reasons behind those moves (such as the threat of a smaller presence in a mostly mobile world) but I think it’s rather clear that building a phone from scratch and spending billions of dollars into a product that ended up being a major flop is a big reason to be worried about Amazon.
Is The Ecosystem Play Still Attractive?
I’m less of a believer in the overall ecosystem play (as in owning all 5 of these names) as I was a few years ago and I think the main thing I will be tracking going forward is the company’s focus. Companies that try to do “everything” are not only much more difficult to value but I would also argue unlikely to succeed against smaller, more nimble operations that have clear focus. Apple is now moving into a product category with rumors about many others coming (such as cars) so I will certainly track the company’s focus but I think it’s safe to say that Apple and Facebook remain my top picks going forward as ecosystem plays. I’ll likely write a more complete, separate post about Microsoft in the near future as that company has been going through a very interesting transition in the past few months.
What are your thoughts on the ecosystem play? Would you agree that Apple and Facebook are the two clear picks as of right now?
Disclosure: Long Apple (AAPL) and Facebook (FB)