Saturday, November 8, 2014

Disney's Earnings Commentary {And how I plan to give Disney stock to the children in my family instead of gifts}

 

I purchased shares of Disney the very beginning of this year—mid January to be exact. If I could do just two things differently I would have:
1. trusted my very initial instincts {and research} and would have bought shares a lot sooner than I did.
2. I would have started a larger position.
Regardless of not getting the shares “cheaper” by buying sooner or not making this stock 50% of my portfolio; one thing I am grateful for is that I made the decision to buy shares in this phenomenal company. The stock is up 21.6% since I purchased. I encourage you to take a look, do your own research, and decide for yourself whether this company can benefit your investment portfolio.
Original Investment Thesis:
Strong brand, strong earnings, very minimal competition. As a matter of fact, one of the factors that attracted me so much towards Disney as an investor is the lack of direct competition. Before I made my initial investment in the company, I thought long and hard about who or what exactly competes with a company like Disney and I couldn’t come up with anything concise. Sure- it can be argued, for example, that Disney competes in the entertainment category and that a “competition” may be perhaps a family deciding to take a vacation to a Caribbean island, take a cruise, go visit grandma, or do nothing at all instead of going to a Disney resort. Or, if we are talking about television & sports (Disney owns ESPN) it can be argued that sports fanatics can choose another venue for their watching. However, I am not so sure how easy that would be. I don’t follow sports much but I can only deduct that ESPN probably has exclusive contracts that give it the sole right to show certain sports or events, etc. Hence, not sure there is an ‘immediate substitute’ for that.
ESPN is the most profitable network for Disney but lets not forget the company owns many other channels. Here is an overview:
 
My conclusion after a lot of research was that Disney, like other solid companies in my portfolio, is in a league of its own and it would take a lot of work for a start up to even come close to Disney's status. You can read my full investment thesis for Disney on this post which I wrote back in March shortly after I purchased shares.

Highlights of the earnings:
The best part from reading the earnings report and press release was a quote from Disney CEO  Robert A. Iger: “Our results for fiscal 2014 were the highest in the company’s history, making our fourth consecutive year of record performance”. I think is pretty incredible that a company as old as Disney is still growing and reaching record highs in financial performance.
In summary…
  • Revenues for full year 2014 increase 8% (in comparison to full year 2013) reaching a record high of $48.8 billion.
  • Net income increased 22% (compared to 2013 results) reaching $7.5 billion, another record high in this category.
  • Earnings per share for the full year increased 26% to a record $4.26 per share compares to $3.38 in 2013.
  • Cash provided by operations up 3% to $9.7 billion in comparison to last year’s $9.4 billion
Read full press release here.

{I encourage you to read the full report. Is not a very long read and it provides a quick summary on how each segment within the company contributted to a year of great results}.

My Two Cents {Plan I have in mind for my niece & nephew involving DIS shares}
Disney is not a company that was born yesterday. It has been around for nearly a century and this company is a prime example of business that has been able to remain relevant and highly acclaimed for generations. Disney was around when my grandparents were growing up, when my parents were growing up, obviously as I grew up and will likely be there for my kids and the kids of my kids as well. I don’t know exactly how they do it but whatever it is, keep it going!
One idea I’ve had for my niece and nephews is to start a position for them on Disney stock and add a share or two every year. Instead of buying gifts I would add on to their position each time they have a birthday and as a Christmas gift. I would make sure the shares are involved in DRIPS so that each time dividends are paid out, the money goes back to buying more shares creating a mini money machine for them as they grow up.
They may hate me now wondering why they are not receiving any toys or articles of clothing from me but they’ll thank me 20 years from now when their investment has grown significantly. My niece is only 2 years old and my nephew is 7. If Disney continues its track record, I wonder how far they can go in the course of two decades when they are 22 and 27, respectivery. The stock price is a bit high now. I’d like to wait for a nice pullback before starting said position. However, who knows what will happen and whether I’ll see any major pull backs. So, we’ll see what I decide to do.
Oh! And one more thing— The stock also pays dividends with an annual yield of 0.90% (or .86 cents per share).
Tell me, What are your thoughts on Disney? Ever thought of starting a position for your kids or the kids in your family? Do you think this company can be disrupted by an up and coming start up or any other kind of competition? Would love to hear your thoughts.
*I am LONG on disney stock.

Tuesday, November 4, 2014

Day Trading Vs. Investing: Five reasons why day trading is not for me

When you first think about getting involved in the stock market one of the first questions you may want to ask yourself is this: "...am a trader or am I an investor?". You may also want to look deep inside yourself and identify what exactly is your risk tolerance. It is possible you'll likely fall in to one of the categories below:


I got this diagram from a Wall Street journal article about a year ago and I loved it so much I framed it! I think is extremely important to identify your tolerance for risk before jumping head on in to the wonderful world of stocks.

The phrases "investing" and "trading" may often be used interchangeably. However, it is important to know that they mean different things. Below is a "formal" definition for each one, obtained from Investopedia.com:

Day Trader: An investor who attempts to profit by making rapid trades intraday. A day trader often closes out all trades before the market closes and doesn't hold any open positions overnight. Some day traders use leverage to magnify the returns generated from small stock price movements.

Investor [,long term]: The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit. Holding an asset for an extended period of time. depending on the type of security, a long term asset can be held for as little as one year or for as long as 30 years or more. 

Almost every time I find myself at a social gathering and the stock market conversation comes up; the first questions I get is about day trading and "penny stocks". I immediately tell people that I don't invest in penny stocks nor do I have any interest in them. I also try to explain that I invest for the long term. I often get puzzled looks from people and thus, I have to explain this a little further. Unfortunately, many people I have encountered tend to have a perception that the stock market is a "get rich quick" machine or a place where you either make a million dollars in 2 months or you loose everything you have. I'd like to think this perception is changing and I am doing my part in explaining to whomever is interested, what real long term investing is all about.

From very early on in my "investing career" I realized that I clearly fell in to the long term investor category rather than the day trader side of the fence. Here are the top reasons why I don't have the tolerance to day-trade in the stock market nor trade Penny stocks. 

1. I like my peace of mind and my serenity-- I cannot stare at a screen all day wondering "what will happen" or whether or not is a right time to "jump in" or "jump out" of a position. Even if I had all the time in the world to sit in front of a screen all day; this strategy is simply too nerve wrecking for me personally; just not for me. 


2. I have more interest in fundamentals than technical analysis-- Although I would like to learn, simply out of curiosity I cant say I fully understand exactly what goes on in technical charts and I have more interest in the financial fundamentals and prospects of a company. I feel that if you truly pick a quality stock; whether or not you grab shares at the "bottom" or at the "top" of a range, wont make much difference in the long term. It has never made much of a difference in my personal portfolio. Again, this tides back to the first point of me sitting down staring at charts all day, not for me. 


3. The idea of being a "part owner" of a company is exciting to me on a personal level- being able to say that I own a 'small piece' of Disney, visa, Mastercard, etc. and being able to succeed as these companies succeed as well, is one of the reasons why I am so passionate about the stock market. The other side of the coin, being a day trader means grabbing and selling stocks consistently. You don't really care about the company. Instead, your interest is in the technical graph and what is going on. I am far more interested in the business than its "chart" at a period of time. 


4. I have zero interest in "penny stocks" also known as "hot stocks" "get rich quick" (or get poor quick) trades. Simply not for me. I rather make sure my money is going towards a legit company that discloses all financials necessary for my review. 


5.  Trading costs can add up significantly- Keep in mind that unless you are lucky enough to buy and sell stocks for free (which I am not) every time you make a trade- it costs money! So, this is another reason why I am not a fan of day trading. For me to trade consistently it would mean spending either $4.95 every hour or so or $9.99 depending on whether I use Tradeking or TDameritrade. I would probably end up loosing a lot more than gaining. Also, the stress is simply not worth my time personally.


Perhaps you can relate to some of these or perhaps you feel you can handle all of the above. The choice is yours. As the famous saying goes: "Know thyself" that's the first key to success.

PLEASE NOTE: I am not saying day-trading is a negative thing. I have in fact met people that have been successful day trading. I recall a finance professor I had a couple of years ago; he was an active day trader and didn't believe in 'long term investing'. As a matter of fact, he shared with the class one day that he tried to be an "investor" by holding a stock for about 2 weeks and he lost too much money so he went back to trading (obviously his perception of long term is not the norm). He would come in to class one day saying he just made $5,000 and the next day he would come in bummed because he had "lost $10,000", and vice versa--- all in a days work. 

The purpose of this post is to encourage you to know yourself and truly look inside yourself and understand your tolerance for short term or long term risk. We can never predict the future. Maybe one day I'll gather enough interest or courage to try out this day-trading thing. HOWEVER, I know where my true fundamentals stand; I know what makes me feel comfortable and confident and what I truly enjoy and that is to be a "part owner" of a growing, successful company for more than a few hours a day. 

Thank you for reading!

Would love to heard your thoughts on this one-
Tell me, are you more of a day trader or a long term investor? 

Cheers to profits,
Mabel


*I am long Disney, visa, Mastercard

Sunday, November 2, 2014

Stocks I'll have my eye on for November 2014

Happy first Monday of November. Hope we've all managed to make it to work on time. I am personally thankful for that extra hour of sleep!

But anyways, I was recently inspired by this post and so I decided to write my own list of companies I will be keeping my eye on during the month of November. These are companies where I am hoping to own shares. Welcome to Mabel's watch list.



When would I buy? Well, I'll let you in to this little secret-- the perfect times for me to buy shares in a company is when the entire stock market is panicking about some macro-economic news that has absolutely nothing to do with a specific company. When wall street is busy panicking and selling off left and right, that's when I like to come in and take advantage of nice discounts. So, lets see if anything like that happens this month.

Without giving you any heavy financial stuff; I'd like to keep this post light with simply fundamental reasons as of why I would like to invest in each of the companies below. As a general rule, please know I've done my research and know that these are companies that are either highly profitable already or are doing a phenomenal job positioning themselves to be very profitable at some point in the future. So, without further 'ado here are the companies I am keeping me eyes on:


Amazon {AMZN}: I wrote a post about this company recently and the reasons why it is on my watch list. If you missed it, check it out here. I am actually disappointed at the fact I didn't pick up shares after their recent earnings announcement. Once again amazon disappointed on earnings and so there was a very heavy sell off bringing this stock down to around $284, a price I had not seen in a very long time. Unfortunately (for me), institutional investors apparently came back to their senses on how  amazing this company truly is and the stock is back over at above the $300 mark. I feel about amazon just like I felt about Google when I purchased shares 6 years ago; that this is a company that will be sticking around for many, many years. I truly believe that patient investors will have a nice pay off in the future. I believe that CEO Jeff Bezos knows exactly what he is doing with his strategy and the fact that he is taking a loss on services is all part of the "master plan" to take over the world. Patience is key with amazon. This company goes under my "visionary" category. Lets see if I can get it at a discount at some point this month. Otherwise, I'll have to wait it out.

Apple {AAPL}: I owned shares of Apple for about 4 years. It was actually one of the first companies I invested in when I first got started in the stock market. This company blew the ball out of the park for my personal portfolio and I can say I owned it when it reached $705! It was my gem for a very long time. Unfortunaly when the stock price started tumbling down a couple of years ago; I sold my shares. I wanted to buy shares immediately after the split at the beginning of this year but didnt buy and missed my chance to get shares in the ~$95 range. Lets see if something happens that can allow me to get this one. I would consider starting a position again if the price goes under $98 or so.

The TJX Companies, Inc. {TJX}: I never owned shares in TJ Maxx but I am a regular customer of ALL of its stores. My mother is completely and utterly obsessed with Marshalls, TJ Maxx and home goods. She is a true "Maxxinista". And honestly, who wouldn't be obsessed?! Getting in-season articles of clothing or furniture and everything in between for a deep discount is surely a deal no women (and many man) would not pass on! Some may be skeptical about the fact that TJX stores are brick and mortar and may get eaten alive by competition from online retailers. However, from studying this company closely I came to understand the business model this company possesses is very clever, hard to beat, and somewhat difficult to imitate. In addition, the experience of actually leaving your home and going out to shop and browse around is very much alive and well. This is a phenomenal company. The thought that I could have purchased shares when it was trading in the ~$50 range makes me feel like I missed out. As I type this post; the stock is trading at $63.32. I would be willing to buy shares if the price goes under $59 but the way this company is performing I am not sure if I'll see those numbers. But lets see what happens. 

Berkshire Hathaway Inc. B-shares {BRK-B}: Are you familiar with Warren Buffet? Well, he is my virtual mentor (he just doesn't know it yet) and one of the best investors of all time. Often recognized as the "best investor of the 20th century". He has this little company called Berkshire Hathaway for which he has two different classes of shares. Class A-Shares are currently worth $210,000 (yes, you read that right). That's actually a tad bit rich for my blood. Thankfully he also offers Class-B shares of his company for a more affordable price of $139 (price as I type this post). Owning BRK-B shares will allow me to be part owner of multiple successful companies under the Berkshire Hathaway umbrella including Geico insurance, Heinz ketchup, Brooks running, See's candy, among several others. See full list here. Warren Buffet is known for his advanced experience in investing in solid, profitable companies and we get to be part {and profit} from his wisdom by owning shares in this great company. Price is obviously high but not if we look at it as a "long term" investor. And definitely super cheap if we consider that one day class B shares may also reach the $200K mark. I'd be willing to buy shares around $130. Keeping my eyes open for a discount. 

And that is my list for now. New months are always exciting times for me as I see it as a chance for new beginnings, new adventures, and new experiences. Lets see what the market brings for us this upcoming month. I also cannot believe the year will be over soon. Lets make the best out of the remainder 2 months. Any goals in the back burner? Why not start taking steps today? is never too late.

Tell me, any companies you have the eye on for this month? Any comments or questions on the ones listed? Let me know.

Thank you for reading!

Cheers to profits,
Mabel

Saturday, November 1, 2014

Starbucks (SBUX) reports record high earnings; Wall Street responds by selling off shares: Why Im keeping mine {Earnings Commentary}

Good day my dear followers!

 
 

Welcome & Happy Saturday. Take a seat, grab a coffee (pun intended), and welcome to Starbucks earnings commentary. The company announced earnings for the quarter and full year 2014 after hours on October 30th 2014. Without yet reading the results on thursday, I took a quick glance at the stock price and noticed a somewhat significant drop. I decided to go directly to the source first and foremost (sbux investors relations site) before going on to read commentaries from outside analysts.

As I read the press release all I kept thinking was "wow, they did pretty well". I was even pleasantly surprised to see the company had actually reached record highs in several financial metrics. I wasn’t sure what the issue was. I then proceeded to go outside of the Starbucks universe and read some outside reports. As suspected, Starbucks failed to meet "wall street expectations" and so, the street punished the company with a nice sell off, and thus, down went the stock price.

Highlights of the call:

-Consolidated net revenue increased 10% for the quarter year over year reaching a record 4th quarter revenue of $4.2 billion. For full year 2014; this represented an increase of 11% reaching a record $16.4 billion.

-Global comparable store sales for the quarter increased 5%; for full year 2014 the increase was 6%. This was the 19th consecutive quarter in which starbucks reached sales of 5% or greater. {*generally, comparable store sales refers to the sales generated in already existing stores that have been in operation for one year or longer.}

--Consolidated operating income for the quarter reached $854.9 million. For full year 2014; consolidated operating income was $3.1 billion representing an expansion in profit margin which increased to 18.7%. {*Meaning that starbucks was able to retain approximately  $0.19 cents for every dollar of sales}.

-Earnings per share increased to $0.77 for the quarter and reached $2.71 for full year 2014.

-Starbucks openned a total of 503 net stores globally during the quarter alone. For full year 2014; total of net new stores reached 1,599.



-During the quarter, the company also announced an increase of 23% in their dividends, now paying $0.32 per share.

 
My Two Cents

My original thesis for purchasing shares in Starbucks remains intact. The fact that they failed to meet wall street numbers doesn’t really phase me. One thing we must learn as long term investors in quality companies is to quiet the outside noise and focus on the reasons why we bought in the first place as well as focus on the facts rather than the hype. If we sold or purchased stocks based on the actions of Wall Street, we'd probably end up very poor. So, please keep that in mind. This is specially targeted to those investors just starting out! This is one of the reasons why keeping track of "why" you buy a stock is such a valuable tool and it helps quiet down unnecessary hype.
 
With that said, I am even more excited with the company's plan for strategic growth and expansion. They also seem to be well aware of technology trends and are making strides towards making sure the business is well aligned with the increasingly high tech consumer. I liked the fact that this company seems to clearly understand that, despite being a leader in their industry, they must continue working hard if they wish to maintain their competitive advantage. Starbucks CEO Howard Schultz said it best during the conference call:
 
"Starbucks performance in fiscal 2014 was extraordinary by any metric or comparison...but we cannot be content with the status quo, as consumers continue to demand more and more in terms of convenience and excellence. You will see us continue to invest where it counts most, in mobile commerce, innovation, in the customer experience and the partners who drive it and in the quality of our coffees."
 
I also enjoyed this quote by the CFO, Mr. Scott Maw:
 
"In Q4, each of our segments delivered strong and balanced revenue and profit growth, consistent with the prior three quarters of fiscal 2014. The increasing global strength of the Starbucks brand, a robust pipeline of innovation, strong global comparable store sales growth and impressive margin expansion in conjunction with a company-wide emphasis on operational excellence and expense management give me great confidence in achieving our 2015 growth targets."
 
Complacency is not in Starbucks vocabulary and although words may be just words I am confident that this company can deliver what they promise. I will be collecting my dividends and sipping on some coffee {or green tea} while I keep my eye on this company's growth as the quarters and years go by.
 
Thank you for reading!
 
Tell me, what are your thoughts on Starbucks? the company and/or its products?
 
Cheers to profits,
Mabel