Nvidia stock has taken off this year, but revenue fell year-over-year in the company’s fiscal third quarter.Photograph by Justin Sullivan/Getty Images
Nvidia is getting a New Year’s Eve boost from Benchmark analyst Ruben Roy, who repeated his Buy rating on the chip maker’s shares, while lifting his target for the stock price to $275 from $240.
While Nvidia stock (ticker: NVDA) is up 75% in 2019, demand for the company’s graphics processors in recent quarters has been soft. In Nvidia’s fiscal third quarter, ended Oct. 27, revenues were down 5% year over year.
But Roy foresees a huge rebound in 2020. He is projecting that revenue will increase by 20% and earnings will rise 34%.
Roy wrote in a research note Friday that he expects the company to benefit from a rebound in data-center spending, as well as improving demand for chips for playing videogames on PCs. Roy expects those factors and the pending completion of the company’s acquisition of Mellanox Technologies (MLNX), a data-center networking company that Nvidia agreed to buy in March, to serve as catalysts for the stock.
The analyst also sees Nvidia’s hefty investment in software as boosting the company’s opportunity in artificial-intelligence applications.
“Intel’s recent acquisition of Habana Labs, a privately held developer of deep learning accelerator devices for data center applications, illustrates the increasing importance of AI in emerging data center workloads,” he wrote, referring to the task of developing AI processes. “Nvidia’s first mover advantage in AI training workloads and software leadership should, in our view, position Nvidia to be a primary beneficiary of AI related market expansion.”
Roy expects the company to reveal details about its plans for future products either at the CES trade show next week or at the company’s own GPU Technology Conference in March. That information could give a boost to the company’s shares, he said.
The Benchmark analyst noted that the stock is trading at about 32 times the $7.31 in earnings per share he expects Nvidia to achieve in fiscal 2020—a little below the 33.5 times forward EPS the stock has averaged over five years. The valuation peaked at more than 50 times in 2017, he said.
“As the data center segment improves, which should also drive margin expansion, we expect NVDA’s multiple to expand,” he wrote.
The stock was up 1.1% to $234.96 on Friday afternoon.
Need a cup of sugar or a gallon of milk? Maybe aspirin for that hangover? Unlike Christmas, you shouldn't be out of luck.
Many more national chains are swinging open their doors on New Year's Day, which is also National Hangover Day.
But don't try to ring in the new year with an impromptu shopping expedition without first checking if your favorite grocery store is one of them. Some stores will have shortened hours.
Fair warning: Some major outlets – including Aldi, Trader Joe's, Costco and Sam's Club – will be closed Wednesday. Drug store chains including CVS and Walgreens will be open, along with convenience stores.
What restaurants are open New Year's?: Chick-fil-A, Starbucks, Dunkin' and many more
Ring in 2020 with freebies: Here's where to get free coffee, meal deals, drink specials on New Year’s Day
New Year's Day grocery store hours
Check with your closest location to confirm hours, as they may vary. Store names below link to retailers' websites.
Acme Market: Most stores open 8 a.m. to 8 p.m., all pharmacies closed.
Albertsons: Hours vary.
Big Y: All stores close at 9 p.m.
BI-LO: Open until 10 p.m.
Cub Foods: Regular hours.
CVS: Most stores open regular hours New Year's Day, but several have special hours. Most pharmacies are closed.
Earth Fare: Call individual stores to confirm.
Food Lion: Varies.
Fresh Market: 9 a.m. to 7 p.m.
Fresh Thyme: 8 a.m. to 8 p.m.
Giant: Regular hours.
Giant Eagle: 8 a.m. to 6 p.m.
Harris Teeter: Normal hours.
H-E-B: Regular hours.
Hy-Vee: Regular hours.
Kroger: Varies.
Lowes Foods: Stores will open at 7 a.m.
Lucky's Market: 9 a.m. to 9 p.m.
Meijer: Varies.
Publix: Varies. Many stores will close at 7 p.m.
Ralphs: Hours vary.
Safeway: Hours vary.
ShopRite: Hours vary.
Shipt: Delivery times are based on retailer store hours.
Sprouts Farmer Market: Regular.
Stop & Shop: Varies.
Target: Most open regular hours, which vary.
Walgreens: Most stores open regular hours, but several have special hours and most pharmacies are closed.
Walmart: Most open regular hours, which vary.
Wegmans: Stores open at 6 a.m.
Weis Markets: Regular.
Whole Foods Market: Hours vary, but stores close early.
WinCo Foods: Varies.
Winn-Dixie: Open until 10 p.m.
What grocery stores are closed New Year's Day?
Aldi
Costco
Sam's Club
Trader Joe's
Follow USA TODAY reporter Kelly Tyko on Twitter: @KellyTyko
VELVA, N.D. - Winter storms hit the eastern side of North Dakota last week caused massive shutdowns of freeways and roads.
This led to massive delays in shipments of food and other necessities across the state.
Rural areas are finding it hard to keep their shelves stocked this week. This past weekend's winter storm shut down state highways, causing delays for food shipments from warehouses in Bismarck and Fargo.
Shipment delays could mean serious trouble for rural areas like Velva where smaller, mom and pop shops may be the only grocery option in town.
Velva grocery store owner Shawn Vedaa owns the only grocery store in the area. He says delays are making it difficult to keep items in stock, particularly for perishable foods.
“A lot of the problems we run into with a smaller grocery store is, those dated products for instance like Miracle Whip, we don't carry a lot of it on hand so we wait a lot of times until we're down to one product. And in cases like this when we have this storm to the east of us, we could end up with product that we just don't have on the shelves,” Vedaa said.
Many areas in the state are one grocery store away from becoming a food desert. With a few highways reopening and travel advisories being lifted, shipments are slowly expected to get back on track.
However, some stores in far-out areas that have seen delays could have to wait between one to two weeks for certain items to be available again.
Following a horrendous final three months of 2018 and the first yearly declines since 2008, equity markets bucked bad headlines to record all-time highs in 2019, offering ample proof that stocks love to climb a “wall of worry.”
Negative news was everywhere, from an inverted yield curve and a manufacturing slowdown that seemingly signaled recession, to a trade war with China and an impeachment inquiry in Washington. Through it all, however, the economy continued to grow, interest rates remained at historically low levels, and the Federal Reserve cut rates for the first time in ten years, providing a potent mix for market gains.
The ride higher for stocks has not been without occasional selloffs, which provide opportunities for enterprising investors. Election years tend to be positive ones for stocks, but not always. When the tech bubble burst two decades ago the S&P 500 lost 9% in 2000, and went on to lose another 12% in 2001, and 22% in 2002.
Picking stocks for your portfolio during times like these can be difficult so I turned to some of Forbes’ top investment newsletter editors for potential opportunities in fundamentally sound growth stocks, dividend-payers and income-oriented ETFs.
With more than 1,100 stores, Menominee, Wisconsin-based Kohl’s is the largest U.S. department store chain. The stock looks cheap after it was thrashed in November due to lackluster quarterly results and lower forecasted profits. Kohl’s trades 20% below its five-year average multiples of earnings and cash flow, and 25% below its average price-sales ratio. Revenue in the year ahead is expected to grow 1.8% to $19.3 billion, with earnings stagnant at $4.88 per share. Kohl’s is a cash machine, generating $10.81 per share in free cash flow in the past year. That’s four times the annual dividend payout of $2.68 per share. It has a current yield of 5.3%.
Recommendation: Kronos Worldwide (KRO)
Dallas, Texas-based Kronos Worldwide manufactures and sells titanium dioxide pigments used in a variety of coatings for automobiles, traffic paint, aircraft, machines, appliances and both commercial and residential interiors and exteriors. Revenue in 2020 is expected to grow 3.4% to $1.8 billion, with earnings rising 14% to $0.88 per share. Despite the growth, Kronos shares trade almost 40% below their five-year average P/E ratio and enterprise value-to-Ebitda multiple. The quarterly dividend has grown 20% over the past two years, and at $0.18 per share gives the stock a yield of 5.4%.
Edgewell Personal Care produces a wide range of branded consumer goods, including Schick and Edge shaving products as well as Playtex, Stayfree, Hawaiian Tropic and Wet Ones. EPC shares have declined nearly 70% since the June 2015 spinoff of Energizer Holdings as pricing and volume headwinds are slowly but steadily trimming the company’s revenues and profits.
However, Edgewell is aggressively reshaping its portfolio, recently announcing deals to sell its infant and petcare business and acquire shaving start-up Harry’s. Helping to lead the company’s turnaround is a new CEO and a new CFO, along with some oversight by GAMCO Investors that holds a 5.3% stake. While Edgewell’s debt will increase significantly with the Harry’s deal, the attractive valuation and turnaround plan offer interesting turnaround potential.
Recommendation: Alliance Data Systems (ADS)
Alliance Data Systems manages store-branded credit card programs. After producing a stunning 10-fold gain since the 2009 financial crisis, ADS shares have fallen about 160% from their 2015 high on weak card volumes and a disappointing price from its Epsilon marketing platform divestiture this past April.
Partly due to a campaign by respected activist ValueAct Capital, the company’s board is more assertively tackling the company’s problems. The headquarters was moved to Columbus, Ohio, and the board just announced the hiring of an impressive new CEO who previously led Citigroup’s U.S. credit cards business.
While ValueAct has divested much of its prior holdings, I believe this is largely due to regulatory requirements that otherwise would prevent them from gaining a valuable board seat at (ironically) Citigroup. There are plenty of risks but also sizeable turnaround potential in ADS shares. The stock trades at an attractive 6 times estimated 2019 earnings per share.
Party City is the leading party goods retailer in North America and the largest vertically-integrated supplier of such products globally by revenue. It’s also a company that’s seen its stock lose more than 80% of its value so far this year as a result of much weaker-than-expected operating results driven by several headwinds. The biggest of these has been the worldwide shortage of helium, which led to materially lower sales of the company’s high-margin latex and metallic balloons.
But with the stock now trading at a ridiculously low 2 times even the low end of its revised full-year adjusted earnings guidance range of 89-96 cents per share, I think the potential recovery in the stock in 2020 could be enormous and well worth the risk—especially if Party City’s recent assurance that helium supplies at its retail store were approaching 100% and resulting in a bounce back of helium impacted categories proves to be true.
Recommendation: Natural Grocers by Vitamin Cottage (NGVC)
Driven by growing consumer demand for organic and all-natural food and dietary supplement options, specialty natural and organic grocery store retailer Natural Grocers by Vitamin Cottage has seen its store count climb by 76% over the past five years to 153. While this led to a similarly impressive 74% rise in sales, earnings are actually down during this span due to the elevated capital expenditures to support this growth and improve its operating efficiency. I think that’ll begin to change in 2020 where the payoff from these investments should become increasingly more significant and help send its shares higher.
Recommendation: Cohen & Steers Infrastructure Fund (UTF)
Cohen & Steers Infrastructure Fund seeks total return, with an emphasis on income, by investing in such businesses as utilities, pipelines, railroads, toll roads, airports, marine ports and telecom companies. At $26.19, UTF carries a 7.1% current annualized yield and is trading very near its $26.61 net asset value. The fund has performed very well lately, recording a 43.97% total return over the past 12 months. Buy up to $33.00, for a 5.6% annualized yield.
Recommendation: Brandywine Realty Trust (BDN)
Brandywine Realty Trust, which is based in Philadelphia, is one of the nation’s largest publicly traded REITs. It develops, builds and manages Class-A office and mixed-use properties in the Mid-Atlantic States and Texas. As of September, occupancy stood at 93.2%. Dividends on this stock are taxable as ordinary income. It is suitable for low- to medium-risk tax-deferred portfolios. Buy up to $19.00 for a 4.00% annualized yield.
The market has priced Amazon like a runaway monopoly—killer of all industries, especially retail. And the perception has been that Walmart was destined to become another rise and fall story of a dominant American retailer. But Walmart has been transforming. It has been aggressively investing in online. The company bought Jet.com in 2016, an American online retailer. That same year Walmart took a large stake in the number two online retailer in China, JD.com.
So, Walmart is positioned well to take advantage of the growth in the middle class in China. Amazon has yet to find its way in China. It has about 1% market share. Add to this, Google came in last year with a $550 million investment to help position JD to challenge Alibaba and Amazon on a global scale. Walmart is 40% of the market value of Amazon, but the gap is closing.
Corning is the leading maker of glass and ceramic substrates found in liquid crystal displays, fiber-optic cables, automobiles and laboratory products. Despite a solid third quarter, a disappointing outlook due to idled capacity and reduced spending in optical communications has sent the shares lower to a favorable entry point. Corning expects to return $8 billion to $10 billion to holders between 2020 and 2023 and plans to spend $10 billion to $12 billion on growth initiatives. Sales are expected to grow at a pace of 6% to 8%, while the target EPS growth rate is 12% to 15%. I think GLW trades at a discount and offers exposure to best-in-class products. Plus it has a 2.8% dividend yield.
Hold on, we have a late contender for the most adorable video of 2019.
A 2-year-old California girl got a little help with her grocery shopping earlier this week from a kindhearted stranger in a video that’s gone viral on Twitter.
The adorable exchange went viral on Twitter, racking up nearly 10 million views. (Cherisa Vogel)
Lily Belle Vogel was pushing around her pint-size grocery cart on Wednesday in Victorville, Calif., with her parents after spending the day before getting tests down at Children’s Hospital, her mother wrote on Twitter.
The small girl had been “sleeping for most of the day,” so when she woke up and “had a little energy,” the family took her to the grocery store to go “shopping for some ‘shnacks’ with her cart.”
Lily Belle was clearly happy to be pushing her little cart down the grocery aisles when another customer strolls by and asks her if she’s shopping too.
Lily Belle Vogel was pushing around her pint-size grocery cart on Wednesday in Victorville, Calif., when another customer stopped and asked her about her shopping. (Cherisa Vogel)
“What are you buying?” the older gentleman asks her before reaching into her pocket and pulling out a dollar bill.
“I know Lily Belle needed it and I'm sure he gained something from it as well,” Lily Belle's mom wrote in a post on Twitter. (Cherisa Vogel)
Lily Belle’s mother, Cherisa Vogel, 32, explained that the sweet moment could not have come at a better time after Lily Belle’s health struggles.
“She was still pretty quiet and not as social as she normally is but this gentleman definitely lifted her spirits without even knowing how rough the last couple days have been for her!” she posted on Twitter.
“I know Lily Belle needed it and I'm sure he gained something from it as well,” she said in another post.
FORT COLLINS, Colo., Dec. 31, 2019 /PRNewswire/ -- In the last year, keto approved products have seen a surge in availability everywhere from your local grocery to large retail outlets like Costco. In the swell of popularity, low-carb and keto friendly brands have been emerging bringing forward new options for hungry dieters. The Keto diet (a diet made up mostly of the avoidance of carbs) is creating a new market segment: treats and foods that won't take you out of ketosis or raise your blood sugar.
"As well intentioned as grocery outlets are, they're not able to keep up with the Keto demand..." says Rob Benson of Explorado Market. Benson continues, "...and more importantly, there are keto brands that just can't scale efficiently, given the cost of ingredients and distribution." Rob and his wife Kendra, in 2018, opened one of the first brick and mortar, keto-specific grocery stores in the U.S. The opening of the store came after the build out of their own facility to produce retail-ready Keto products.
"We didn't know if there were enough people locally to support a Keto diet themed grocery store. We just went for it." There were; the store and the Explorado Market brand is seeing exponential growth month after month in a hot market. Trends indicate that Keto isn't going anywhere anytime soon.
Explorado Market not only produces grain free and keto friendly baked goods, bake mixes, chocolate chips, nut butters, and more… their local Keto themed grocery store and bakery is thriving. Unlike their competitors, the Explorado Market concept is more than just online or retail distribution. A hybrid of brick and mortar grocery, online sales, and product manufacturing for Explorado Market is working well. Will it last and will we see similar concepts popping up in your town?
If you don't have a dedicated Keto bakery and grocery in your area, don't worry. Explorado Market ships their delicious baked goods, shelf stable products, and other brand's options all in one place online too. Check them out at ExploradoMarket.com
Stocks? Buy ’em. Bonds? Back up the truck. Gold? Why not. Hogs? Sure!
There’s usually a tension across financial markets: If risky bets like stocks or junk bonds are doing well, super-safe assets such as government securities might be terrible investments. Wall Street’s titans and armchair investors alike expend tremendous amounts of time and sweat trying to predict what will be in and what will be out, hoping to beat everyone else with a cleverly constructed portfolio.
This year, however, a simpler strategy would have worked: Buy almost anything.
The S&P 500 index was up 28.5 percent, through Monday, its best performance since 2013 and one of the best in decades. Broad indexes of the American bond markets are up nearly 9 percent. Gold jumped 18.5 percent and silver nearly 16 percent, and other commodities were also up. (Futures prices for hogs, in case that had been your pick, gained about 18 percent.)
It was a remarkable across-the-board rally of a scale not seen in nearly a decade. The cause? Mostly a head-spinning reversal by the Federal Reserve, which went from planning to raise interest rates to cutting them and pumping fresh money into the financial markets.
“Rarely in my career has everything worked simultaneously,” said Mark Vaselkiv, chief investment officer for fixed income at the asset management firm T. Rowe Price.
Analysts at Ned Davis Research tracked eight types of investments — large and small domestic stocks, developed and emerging market stocks, Treasuries, corporate bonds, commodities, and real estate — going back to 1972. In 2019, all eight generated profits and — for the first time since 2010 — each rose 5 percent or more.
In fact, the gains were much better than that, with a median gain of 21 percent for the eight asset classes.
The Nasdaq Composite index is up more than 30 percent, its best showing since 2013. Small-cap stocks are up nearly 24 percent, their best gains since 2013. The more than 14 percent gain for high-quality American corporate bonds is the best showing since 2009. European shares, up 23 percent, are likewise having their best year in a decade.
Those gains can have a knock-on effect on the economy outside Wall Street, creating a feedback loop that helps encourage more buying.
The rally in bond prices, which move in the opposite direction from yields, has helped keep borrowing costs low for companies, municipalities and the federal government. And the stock market’s surge is supporting spending by consumers, who are the main driver of growth in the American economy.
Not everyone benefits when markets rise like this. Some investors bet on certain markets to fall, either because they think they’re due for a drop or because they expect that the traditional relationships among different assets — where some go up so others go down — will help them hedge their portfolios.
(And we should note that not absolutely everything rose in 2019: Natural gas was a losing bet. So was cobalt. And even a rising stock market contains more than a few sinking ships. Macy’s, for instance, dropped more than 40 percent in 2019.)
There’s little reason to assume that these kinds of uniform gains will continue. Usually, different investments are driven by different kinds of dynamics: Stock prices, for example, have climbed at a faster clip than expectations for profit growth. That means the market is looking more and more overvalued. If corporate profits don’t catch up, stocks could stumble.
And while bond markets have soared, increasing loads of corporate debt could prompt investors to sell if they think these companies are taking on too much risk.
One factor behind the rise in bond prices in 2019 was a growing worry about the impact of the trade war. Even though the trade war isn’t over, Washington and Beijing have reduced the tension between them, and the economy isn’t faring as poorly as people had feared. (Good for stocks, but bad for bonds.)
But for now, concerns about such market fundamentals seem set squarely on the back burner, after the Fed reinvigorated risk-taking in the markets by cutting interest rates three times out of concern that the trade war and a global growth slowdown would drag the United States economy lower.
The cuts were an about face for the Fed, which in 2018 raised interest rates four times and unnerved financial markets along the way.
In fact, instead of the rise in asset prices that investors enjoyed in 2019, the previous year was marked by a uniform decline, reflecting worries that higher interest rates and the trade war would tip the economy into a recession.
The central bank also started to buy securities again in 2019, pumping about $60 billion into the financial markets every month. While the most recent round of purchases has been billed as a technical fix — instead of one meant to bolster the economy — bond-buying programs put in place after the financial crisis were widely credited for driving markets up sharply.
For much of the last decade, similar moves by the Fed aimed at shoring up economic growth helped supercharge returns in financial markets. Most close observers think this is precisely what happened in 2019.
“When people look back on this year, they’ll say the Fed did this,” said Evan Brown, head of multi-asset strategy at UBS Asset Management.
Finding a good dividend stock can be a challenge, as investors need to consider more than just the size of a stock's payouts. The company's stability, its ability to continue paying the dividend, and whether it's likely to increase its dividend payments over time are some other considerations that investors also need to take into account when selecting an income stock.
Although Johnson & Johnson(NYSE:JNJ) may not be having the best year, constantly finding itself in the news for all the wrong reasons, the stock ticks a lot of those boxes off and could be an appealing option for dividend investors. Let's take a look to see if it belongs in your portfolio today.
Dividend has been among the best of the best
At first glance, J&J's dividend of 2.6% may not warrant much enthusiasm. There are plenty of higher-yielding dividend stocks out there that investors can choose from if their main priority is a good payout. Where J&J's dividend stands out from the pack is in its stability and growth.
Image Source: Getty Images.
When the company announced back in April that it would be raising its quarterly dividend from $0.90 per share to $0.95, an increase of 5.6%, it was the 57th straight year that J&J had boosted its payout. Amid recessions big and small, varying company performances, the stock has continued to not only pay dividends but increase them as well. It falls into the category of a Dividend Aristocrat, having hiked its payments for at least 25 straight years, and it has one of the longest dividend-growth streaks going.
The reason that matters for investors is that if you invest $10,000 in J&J's stock today, you're earning $260 a year. However, if the company continues growing its dividend at a rate of 5.6% every year, here's how much that dividend can grow to be 10, 20, and 30 years from now:
Year
Dividend
% of Original Investment
10
$448.35
4.48%
20
$773.13
7.73%
30
$1,333.19
13.33%
The longer you hold J&J stock, the more potential there is for the dividend to rise in value. This is assuming that the company will continue raising its payouts at a consistent rate, which is no guarantee. There's also no obligation for J&J to raise its payouts or even for the dividend payments to remain the same. Companies can cut or even eliminate dividend payments with no warning whatsoever.
Can it continue paying its dividend?
A good way to tell if a stock's dividend is sustainable is by looking at its statement of cash flow. If it's generating more free cash flow than it is paying out cash in dividends, that suggests the payments could be in good shape, at least for now.
Over the trailing twelve months, J&J's free cash flow has totaled $19.7 billion. During the same period, the company has paid out $9.8 billion in dividends, or about half of its free cash flow. There definitely looks to be ample room there for the company to not only continue paying its dividend, but to continue increasing it as well.
The stock isn't without its risks
The problem for J&J is that the company is facing a lot of legal uncertainty today. In October, jurors hit J&J with an $8 billion fine, and in November the company lost a class action lawsuit in Australia relating to faulty transvaginal mesh. Its talc baby powder issue isn't going away anytime soon, either.
If these issues keep coming up and the company continues to incur big fines and expenses, it could pose a risk to the stock's dividend. While it's not a scenario that looks imminent today, it's a risk that investors should be aware of and take into consideration before buying shares of J&J.
Why J&J's still a good choice for income investors
J&J is facing a lot of bad press these days, but while there is some risk surrounding the stock, it shouldn't be enough to deter investors from what's still a good and stable company to invest in. The company still has strong financials and the resources capable of getting past these issues and continuing to be a top healthcare stock in the industry.
No stock is going to be entirely risk-free, and for the dividend income that J&J offers and the positive results it continues to generate, it's one of the better stocks that income investors can buy today.
Investors looking for a strong return can choose one of two main strategies: they can seek out stocks with high share price appreciation, or they can look for high dividends.
Dividends are profit sharing payments sent out to stockholders. Companies have a variety of reasons for paying them, ranging from simply sweetening the pie to attract investors to compliance with tax law. But whatever the motive behind them, dividends are cash in the investor’s pocket.
Companies usually make the payments quarterly, and they are analyzed by several metrics. The payment, of course, is the cash sent out. It can be stated as a quarterly or annualized sum. The yield is the annualized sum as a percentage of the share price – or, how much of the stock value is paid back to investors. Among S&P listed companies, dividend yields average near 2%. The payout ratio is the quarterly payment as a percentage of quarterly earnings, and is a measure of the dividend’s sustainability. Obviously, investors like high ratios, but if the ratio is too high a company simply cannot afford it.
With all of that in mind, we’ve opened up the Stock Screener tool from TipRanks, a company that tracks and measures the performance of analysts, to find stocks with high dividend yields. Setting the screener filters to show stocks with "strong buy" consensus rating and a high dividend yields exceeding 5% gave us a manageable list of stocks. We’ve picked three to focus on.
Real estate investment trusts (REITs) are companies formed to buy, own, and manage various forms of real property – residential and commercial real estate – and to derive income from them. Investors provide the capital needed for purchases, and tax regulations require the companies to pay back a high percentage of income to shareholders. That last is the reason behind the high dividend yield offered by REITs like Two Harbors. It is not unusual to find an REIT with a payout ration that occasionally exceeds 100%.
Two Harbors owns both real properties and mortgage-backed securities, with a focus on residential properties. Ownership of both properties and mortgages is a hybrid strategy in the sector, designed to minimize the risks attached to either one, while maximizing income from varied streams. TWO has leveraged the hybrid strategy to build a steady revenue stream, which at $58.66 million beat the forecasts in the third quarter.
That revenue translated to an EPS of 24 cents, a 33% miss of the forecast, and down 50% yearly. Despite the low quarterly results, the company maintains its dividend, per compliance with tax law, at a high 40 cents per quarter. The annualized payment, $1.60, puts the yield at 10.96%, more than 5 times the S&P average. TWO has a history of adjusting the quarterly dividend to ensure that it can meet the obligation, even with a high payout ratio.
Wall Street’s analysts are bullish on TWO’s ability to maintain both its revenue stream and its dividend payment. Writing from Credit Suisse shortly after meeting with TWO management earlier this month, 4-star analyst Douglas Harter said, “The meeting highlighted the attractive returns available to TWO in Agency MBS and MSR. In the short-term, some of this return will be recognized in terms of gains and not through core earnings. The company’s track record of delivering economic return gives us confidence in the strategy despite the near-term core earnings shortfall.” In line with his optimism on TWO, Harter gave the company a Buy rating with a $14.50 price target. In recent days, TWO stock has surpassed that target. (To watch Harter’s track record, click here)
Jason Weaver, of Compass Point, agrees that TWO is a buying proposition. He writes, “In our view, the company offers a streamlined portfolio with attractive risk/reward characteristics in the current market environment, with sufficient ROE generation capacity to sustain the current dividend and grow book value over the long run.” Weaver’s $15.20 price target suggests a modest upside to the stock, of 4.1%, which is compensated for by the high dividend yield. (To watch Weaver’s track record, click here)
Two Harbors stock has shown gains this year, although at 14.5% those gains have underperformed the overall markets. The shares get a Strong Buy from the analyst consensus, based on 6 reviews that include 5 Buys and 1 Hold. The average price target, of $15.20, matches analyst Weaver’s, above. (See Two Harbors price targets and analyst ratings on TipRanks)
REITs are not the only place to find great dividend yields. The energy industry may get a bad rap from environmentalists and conspiracy theorists, but it typically gets a thumbs up from investors. As an industry, it tends to drip cash, and energy companies are well known for paying out, over the long term, high dividends. MPLX, a spin-off partnership of Marathon Petroleum which maintains a controlling interest, is no exception.
MPLX primarily handles midstream operations. The company has an array of assets, from pipelines to inland river shipping to oil and gas terminals to refinery storage, along with loading and dock facilities. In effect, Marathon shrugged off its product transport and created a company – MPLX – to handle that aspect of the business. It allows both companies to sharpen their focus and operate more efficiently.
Midstream is not MPLX’s only area of operation. It also has a significant natural gas business, with gathering and extraction systems. These operations produce industrially important natural gas derivatives such as ethane, ethylene, butane, propane, and propylene. MPLX also handles transport of these products.
MPLX has been a profitable endeavor, on its own and for parent company Marathon. Q3 presents a good example. MPLX beat the forecasts on both revenue and EPS, with total sales coming in at $2.28 billion against the estimated $2.24 billion. EPS, at 61 cents, beat the forecast by 3.3%. The company announced a dividend for the quarter, of 67.5 cents per share, which annualized to $2.71 and yields 10.66%. Even better for investors, MPLX has a history of gradually raising the dividend payment; it was 59 cents in November 2017, and has gone up 1 cent every quarter since.
Michael Blum, 4-star analyst from Wells Fargo, reviewed MPLX and set a Buy rating on the stock. Of his $36 price target, he writes, “Our price target is based on a blend of (1) a three-stage distribution/dividend discount model, which assumes a required rate of return of 9% and long-term growth rate of 0.5%, (2) a 2021E EV-to-EBITDA multiple of ~11x, and (3) a sum-of-the-parts valuation based on our 2021 forecast.” The target implies an upside of 41% for MPLX shares. (To watch Blum’s track record, click here)
MPLX sells for an affordable price, just $25.43, making it a fine option for investors seeking both high upside and high dividends. The average price target, $31.75, indicates room for 24% growth in the coming year. The shares’ Strong Buy analyst consensus comes from 6 Buys and 2 Holds given in recent months. (See MPLX’s stock analysis at TipRanks)
By this time, we all know about the huge successes of the US oil extraction industry in the past decade. The US has become the world’s single largest producer of crude oil, and in September 2019, for the first time since WWII, the US exported more oil and oil products than it imported. In short, energy is a big and growing business in the US.
That business has to start somewhere, and that’s where companies like Brigham Minerals come in. Brigham is an acquisition company, buying oil and gas mineral rights in the western US. The company’s main properties are located in the Delaware and Midland basins Texas and the Bakken region in North Dakota – some of the most productive oil and gas fields in the US. MNRL also has extensive interests Oklahoma, Colorado, and Wyoming.
The value of MNRL’s acquisitions can be seen by the company’s Q3 revenues. Total income, at $25.11 million, beat the estimate by 1.4%. EPS, however, was down at 6 cents per share. Volatility is somewhat to be expected, as MNRL only started trading in April of this year. Management was unfazed by the lower EPS and announced a dividend of 33 cents. It was the company’s second quarterly dividend and equaled the previous payout. The dividend annualized to $1.32 per share and gives a yield of 6.3%. While lower than the stock above, this is still more than triple average dividend among S&P companies, and three and a half times higher than the Federal Reserve’s key rate.
5-star analyst T J Schultz, writing from RBC Capital, was impressed enough with MNRL’s position to reiterate his Buy rating. He says of the stock, “MNRL’s superior acreage position and strong counterparty producers are expected to drive >25% production growth in 2020. We think this level of production growth can translate into double digit dividend growth with >1.1x coverage. Furthermore, a strong balance sheet provides optionality to flex growth higher in 2020 via acquisitions.” Schultz puts a $25 price target on MNRL, suggesting an upside of 18%. (To watch Schultz’s track record, click here)
Overall, MNRL gets a good rap from Wall Street. The company has a Strong Buy consensus rating, based on 3 recent Buy reviews. The average price target, $25, matches Schultz’s, giving the stock a robust potential. Combined with the high dividend and the 21% gain since MNRL started trading, and the upside is clear. (See Brigham Minerals price targets and analyst ratings)
2019 wasn't a great year for Pfizer(NYSE:PFE). The company's shares decreased by 10% during the year, whereas the performance of the pharmaceuticals industry -- as measured by the SPDR S&P Pharmaceuticals Index -- was much better, with a return of 24% over the same period. That being said, there are things to admire about Pfizer.
First, the company is currently trading at about 13 times future earnings, which is a relatively attractive valuation. Second, Pfizer offers investors a juicy dividend yield of 3.9%, and the company recently raised its quarterly dividend payout to $0.38 per share (up from $0.36 per share).
Pfizer's dividend might be appealing, but what about the company's prospects? Let's see whether the pharma giant can deliver solid returns from here on out.
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Pfizer goes through a metamorphosis
Pfizer made several moves in 2019 to transform itself. First, the company acquired Array BioPharma -- a commercial stage pharmaceutical company that focuses primarily on cancer treatments -- in a cash transaction valued at approximately $11.4 billion; this acquisition was completed in July. Second, Pfizer formed a joint business with GlaxoSmithKline, dubbed GSK Consumer Healthcare. The joint venture, which closed in early August, will combine both companies' consumer healthcare segments and create the world's largest over the counter (OTC) healthcare business. Pfizer owns a 32% stake in GSK Consumer Healthcare. Third, Pfizer merged its "off-patent branded and generic established medicines business," Upjohn, with Mylan, to create a "new global pharmaceuticals company." Given the terms of the deal, Pfizer's shareholders will have a 57% stake in this new entity, dubbed Viatris. The merger is expected to close in mid-2020.
Pfizer's CEO Albert Bourla explained the purpose of these moves during the company's second-quarter earnings conference call:
When all these actions are complete, Pfizer will be a smaller, more focused, science based company with a singular focus on innovative pharma. We believe we will be in a position where our pipeline will be able to move the needle even more dramatically in terms of our long-term growth prospects.
Pfizer's strategic moves -- particularly its decision to spin off its Upjohn division -- seem to be justified. During the third quarter, Pfizer's Upjohn unit posted revenue of $2.2 billion, a whopping 28% decrease year over year. According to the company, this decline was primarily due to its losing its patent exclusivity for nerve pain medicine Lyrica. Sales of Lyrica will continue to decline, which is why it made sense for Pfizer to spin off Upjohn.
Pfizer's lineup
The likely star of Pfizer's current lineup is Eliquis, a product used to prevent blood clots. Sales of Eliquis increased by 20% year over year during the third quarter, and the research firm EvaluatePharma expects Eliquis to become the top anti-coagulant and one of the five best-selling drugs in the world by 2022. However, Pfizer markets Eliquis with Bristol-Myers Squibb. Pfizer also has other products that has sales growing fast. Most notably, the company's cancer drug Ibrance recorded sales of $1.3 billion during the third quarter, good enough for a 25% year over year increase.
Furthermore, cancer drug Inlyta posted sales of $139 million during the third quarter, a 95% increase year over year, while Xeljanz, a product used to treat rheumatoid arthritis, recorded sales of $599 million, which represented a 38% increase compared to the year ago period. Lastly, Pfizer boasts two dozen products in its late-stage pipeline, and many more in their early testing phases. These include PF-06802861, a potential medicine for an illness called dilated cardiomyopathy, a rare condition that hinders the heart's ability to pump blood.
Should you buy?
Pfizer's moves to become a smaller and more focused company will likely pay off, as it improved its oncology lineup thanks to the acquisition of Array BioPharma, and the company will no longer have to contend with Lyrica, which will see its sales continuing to decline for the foreseeable future. Pfizer also boasts several products that have sales growing rapidly. Lastly, Pfizer offers a juicy dividend yield and a low payout ratio (which is currently at about 49%), and the company could keep rewarding its shareholders by way of dividend increases. For all those reasons, Pfizer looks like a solid buy at the moment.
If you're trying to build wealth, then you should absolutely avoid buying penny stocks. Individuals drawn to the low, low share prices offered by micro-cap companies often let emotions get the best of them and fail to accurately characterize the risk involved.
Rather than gambling away your hard-earned money, it makes more sense to invest in sound businesses at great prices. To be blunt, that can be a little boring. So, if you want to have a little fun and potentially earn an eye-popping return, then consider buying a small stake in a risky small-cap stock with promise. Here's why Pacific Biosciences(NASDAQ:PACB) and Avid Bioservices(NASDAQ:CDMO) may fit that label.
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A failed merger, but a rapidly improving technology platform
It appears that the merger between Illumina(NASDAQ:ILMN) and Pacific Biosciences will be nixed by trade authorities in the United Kingdom and the United States. At first glance, it's easy to think that's a worst-case scenario for the small-cap DNA sequencing company. Shares of Pacific Biosciences currently trade well below the proposed acquisition price of $8 apiece, while the business was on track to lose over $100 million from operations in 2019.
But a closer survey of the details leaves much room for optimism. If the merger fails, then Pacific Biosciences could earn a $98 million termination fee (with some strings attached). While it has by no means proven itself as a sound investment in the last decade, the scientific community would gladly use the company's newest Sequel II machines interchangeably with -- or even instead of -- those offered by Illumina if the economics were right.
Intriguingly, it appears that recent technology upgrades are lowering costs for the platform just as the merger with Illumina is unraveling. Pacific Biosciences reported a 117% year-over-year increase in gross profit in the third quarter of 2019. Considering that sequencing costs on the Sequel II could potentially be much lower with continued technology upgrades than what Illumina can offer, the recent trend could be one worth watching for investors.
Pacific Biosciences is definitely a risky small-cap stock. But if the company's unique sequencing approach finally lives up to its potential, then it could become the go-to platform for reading DNA for personalized medicine applications. That could make it a prime acquisition target by another industry player such as Roche or Agilent or even 10X Genomics. It would also likely earn the business a market valuation above its current $800 million market cap. Investors willing to stake a small position in the stock could be rewarded for their patience.
Image source: Getty Images.
Moving in the right direction
Most investors have probably never heard of Avid Bioservices. The $450 million company is a contract development and manufacturing organization (CDMO) that helps pharmaceutical customers develop drug manufacturing processes and manufacture active pharmaceutical ingredients. It struggles from choppy revenue generation due to the fact that its business model hinges on contracts, and it has never generated a profit, but the business appears to be heading in the right direction.
In the fiscal second quarter of 2020 (the three-month period ending Oct. 31), Avid Bioservices reported greatly improved financial results. The company reduced its quarterly operating loss to just $529,000, compared to an operating loss of over $3 million in the fiscal first quarter of 2020. Fiscal first-half 2020 gross margin nearly doubled compared to the year-ago period, while revenue jumped 47% in that span.
Importantly, the CDMO is planning to make important facilities upgrades during the fiscal year that should help it land more and larger contracts. Avid Bioservices recently opened a process development lab to aid customers in scale-up and troubleshooting efforts, while a new pharmaceutical-grade water system should be operational by the year's end.
The business expects fiscal full-year 2020 revenue of only $64 million to $67 million, but if it can achieve consistent operating profits in the next year or so, the company will have significantly improved financial flexibility. If the CDMO uses that leverage to expand operations or capabilities, it could rise above its current $450 million market cap. Investors willing to open a small stake in the business could be rewarded under the right conditions -- something that virtually never happens with penny stocks.
