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Posted by Martin June 07, 2016
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Relypsa’s Drug Treatment Success Threatened By Looming New Player Entranceent as Big Pharma


Biopharmaceutical company Relypsa Inc. (NASDAQ: RLYP) continues to enjoy being the sole provider of a drug used to treat hyperkalemia. Its stock is up and analysts are bullish that it has more room to run.

However, there are some catalysts that could move the stock downward. Because of some issues that could affect shareholder value, investors considering whether or not they should jump on the bandwagon now and buy the stock may want to hold off for now.

The stock’s price has increased steadily since May 19, when it closed $14.14, just shy of its 52-week low of $14. The company is trading around $19 now. The catalyst behind that upward move stemmed from the bad news AstraZeneca received concerning a drug it has developed to compete with Relypsa’s drug.
 

 · Winner by default?

 
Relypsa has benefitted from being the only supplier of a drug meant to treat patients with potentially life threatening levels of potassium in their blood. The condition is called hyperkalemia. Relypsa’s drug, which is called Veltassa, had been the only FDA-approved drug in the market used to treat the condition.

But then came Big Pharma company AstraZeneca (NASDAQ: AZN) with its ZS-9 drug, which can also be used to treat hyperkalemia. Its approval by the FDA was thought to be a slam dunk, and observers thought Relypsa’s days of being the sole treatment provider would be over once ZS-9 was approved.

In May, the Food and Drug Administration shocked AstraZeneca and investors when it did not approve the company’s ZS-9 drug. The FDA found fault in the manufacturing of ZS-9, and rejected the drug’s approval. That means Relypsa maintains its position as the sole provider of an FDA-approved drug to treat hyperkalemia in the U.S. – at least for now.

That’s huge considering the market for treating the condition has been estimated to be potentially worth $6 billion.
 

 · Not so fast, say some observers

 
Morgan Stanley on Tuesday downgraded Relypsa to underweight from equal-weight. Morgan Stanley has a $9 price target on Relypsa.

Irina Rivkind Koffler, an analyst at Mizuho, noted that the delay of ZS-9 was the “best possible” outcome for Relyspa because it gives its drug “more time to gain traction in the market as first-mover.”

It may very well need that time.

Koffler is one of the naysayer’s about Relyspa’s future value to stockholders. Her stance is despite her acknowledgement that Veltassa received positive coverage around its launch with one reason being that it is the first drug in 50 years to be approved to treat hyperkalemia. Mizuhu upgraded Relypsa to neutral from underperform on June 1.

In addition to calling the Veltassa’s launch trajectory “quite slow.” Koffler said the stock is expected to remain relatively range-bound until growth becomes more tangible.

Koffler has a $12 price target on Relypsa, marking a 33% potential downside. but notes that this price target will be re-evaluated after speaking with management.
Despite Koffler concerns, of the analysts that cover Relypsa, 80% of them are bullish, 10% are neutral, and 10% are bearish, according to Tip Ranks, which TipRanks is a comprehensive investing tool that allows private investors and day traders to see the measured performance of anyone who provides financial advice.

TipRanks points out that the average 12-month price target between these analysts is $31, marking a 72% potential upside from where shares last closed. Koffler is one of the analysts featured on the site.

On the news of the FDA not approving ZS-9, Relypsa’s stock soared more than 23%, but observers had mixed feelings as to whether the small cap firm would be able to maintain its higher stock price.

For example, Maria Goldstein, an analyst at Cantor Fitzgerald, said the approval delay of AstraZeneca’s drug was a positive factor for Relypsa’s share price appreciation. Furthermore, the lack of competition could go a long way in removing what the firm sees as an overhang on Relypsa’s valuation. It could also drive short covering. The amount of Relypsa’s float that is shorted was a whopping 36.74%.

“We think Relypsa’s shares reflect execution risk for Veltassa’s launch in spite of what we see as a positive trend line,” Goldstein said. “We continue to believe that Veltassa sales will be back-end loaded in 2016, and the ultimate arrival of ZS-9 in the market at some point is likely to serve as a positive driver of market growth overall.”




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Posted by Martin June 05, 2016
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May Auto Sales Slip While Five-Year Loans Prosper

May Auto Sales Slip While Five-Year Loans Prosper

Last week was an interesting week in the automobile space. Top automakers reported declines in the number of cars sold, and auto loan financiers were highlighted for offering loans with historic terms in regards to how long they go out.

These issues show some of the headwinds that are facing the auto industries. The auto sector had been one of the positives that had been pointed to as an indication that the U.S. economy was improving. However, reports that indicate that the number of people who bought actual cars, not trucks and SUVs had dropped significantly. Those who were buying cars, or any vehicle for that matter, were financing loans for up to 68 months, which set a record.

The questions raised by these revelations create several questions, including:
Are consumers becoming more reluctant to purchase such big ticket items as vehicles?
Are consumers becoming less willing to part with their vehicles in fewer years than in the past, hence their willingness to sign up for loans that stretch out five years or more?
 

 · Auto industry and the economy

 
Auto sales are considered to be solid economic indicators in gauging how well the overall U.S. economy is performing. In light of the 2008 financial crash that led to bankruptcies in the auto sector, this indicator is extremely valuable in determining how well the U.S. economy is recovering.

We recently reported a story in which we noted that General Motors (NYSE: GM) ended up filing for bankruptcy in 2009 and received roughly $80 billion in government bailout money. Ford (NYSE: F)had to put up its Blue Oval as collateral for roughly $23 billion in loans it received from a syndicate of banks to keep it from filing for bankruptcy. That was in 2006, when the auto industry was in turmoil.

Automakers are recovering. Ford has its Blue Oval back and GM has paid back the government. The companies have reported growth in purchases of their vehicles, but their stocks have been range bound for the past five years. Ford has not managed to reach$18 a share; the closest it came was in 2014 when it traded around $17.42. GM has not been able to move above $50 a share. It nudged the number at the end of 2013 when it hit $40.99.

And while they are recovering, the issues noted above continue to hang a cloud over the industry.
 

 · A look at the numbers

 
So far this year, monthly auto sales have been mixed. The latest sales results released last week showed auto sales in the U.S. weakened in May. They were down 6% compared to May 2015.

May numbers show Fiat Chrysler (NYSE: FCAU) and Toyota beat estimates, while GM and Ford missed estimates. GM not only missed estimates, but it also so its sales drop in May.

Slowing production in North American and a decline in the estimated import of shipments played a role in the declines.

The month-to-month drop was not much above the typical April-to-May falloff, but could be a sign the industry will avoid a big summer sell-down of ’16 models prior to the start of the ’17 model year in the fourth quarter, according to WardsAuto.
 

 · So-called stretch-loans

 
As consumers search for ways to finance their vehicles, the so-called stretch-loans are becoming increasingly popular. In fact, last month marked the first time that the length of financing for such loans stretched out to 68 months. If you recall, these types of loans ran rampant during the Great Recession.

The theory that stretching your loan out longer could lower your payments is being proven to be incorrect. According to Experian, despite the longer terms, consumers are still seeing their payments increase. New loans during the first quarter of 2016 rose to $503 from $488 during the first quarter of 2015.

That can be chalked up to the average loan amount increasing to $30, 032, which is up from $28, 711 during Q1 2015.

CBS financial analyst Mellody Hobson in March warned of the ramification of auto loans that span more than five years. She said that consumers who pay for their vehicles over such a long period render them like homes, which can end up “underwater.” Furthermore, Hobson said that over the years, not only will these consumers end up paying more in interest, they also wind up with a car worth less than the payment they’re making.

Let’s hope that the next few months of auto sales will be stronger, reflecting the economy is regaining its footing due to consumer spending. If consumers are willing to spend on such big-ticket items as vehicles…even if it means financing them for more than five and a half years that could be a good thing. On that same note, it could be horrendous if consumers are buying things they cannot afford, as indicated with their willingness to accept longer financing terms. This could definitely create an economic situation rivaling the 2008 financial collapse.




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Posted by Martin June 04, 2016
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Investors Await Latest Round of Bank Stress Test Results


Bank officials and their shareholders are holding their breaths as they wait to see how they fared under the Federal Reserve’s stress tests.

They are also readying for even more stringent capital requirements that the Fed is putting in place for them for future stress tests. These measures are mainly meant to make sure that banks have enough capital, and acceptable debt exposure, to avoid, and deal with the mess we saw when the financial markets collapsed in 2008.
 

 · What’s there to stress about?

 
Investors that held bank stocks prior to 2008 had little to stress about. They enjoyed regular dividends from banks, like JP Morgan (NYSE: JPM), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC) and Citigroup (NYSE: C).

However, after the markets collapsed in 2008, that changed. Banks were teetering on the edge of disaster. Lehman Bros. was the first casualty, filing for bankruptcy after not being able to cover its obligations. Concerned that other banks would go the way of Lehman, the federal government bailed out the others to the tune of $475 million. The program called Troubled Asset Relief Program (TARP) was meant to help stabilize America’s banking system during the financial crisis.

While the goal was admirable, many investors frowned. Investors in banks that received funds from the saw their dividend payments slashed shortly after 2008. Dividend.com pointed out that after TARP, dividend yields surged as the share prices fell.
 

 · The birth of the stress act

 
From TARP, came the Dodd-Frank act and these stress tests. The act requires national banks and federal savings associations with more than $10 billion of consolidated assets to conduct annual stress tests. The tests are meant to assess banks’ risk profiles and capital adequacies. The goal is to ensure that institutions have robust, forward-looking capital planning processes that account for their unique risks, and to help ensure that institutions have sufficient capital to continue operations throughout times of economic and financial stress, according to the Office of the Comptroller of Currency.

The OCC uses the stress test results to determine whether additional analytical techniques are needed to identify, measure and monitor risk. These stress test results can also be used to support ongoing improvement in stress testing practices when it comes to assessing a bank’s capital adequacy and overall capital planning.
 

 · More stringent requirements to come

 
The stakes are huge for banks when it comes to passing the stress tests. Passing allows them to make capital distributions like share buybacks and dividend payouts, without the Fed’s approval. Failing could negatively affect a bank’s share price as the main pluses of investing in them are not available until the failing bank passes and receives Fed approval.

Federal Reserve officials plan to go further in toughening the requirements for banks as they relate to the annual stress tests. This raises concerns about the Feds possibly going too far in their regulation of banks, which could negatively affect banks’ profitability.

The more stringent guidelines could make it harder for banks to pass the stress tests. When that happens, the regulations handicap them in being able to increase dividend payouts or participate in share buyback programs.

Fitch Ratings found that banks’ dividend and buyback requests through the annual comprehensive capital analysis and review (CCAR) process have increased in recent years. The median capital distribution request rose to 1.2% of stressed capital in 2015 from 0.8% of stressed capital in 2013. In a statement released on June 1, the rating agency stated that it believed dividend and buyback requests could rise again this year and that banks are likely to press the 30% dividend payout threshold, which the Fed has said it will scrutinize more closely.
 

 · It’s for the best

 
You may recall last year when Bank of America flunked the stress test, and the Fed rejected its request to increase its dividend. The bank went into proactive mode, and focused on building its capital and absorbing the losses from its mortgage business. This helped put it on a more solid financial footing.

Investors should take solace in the bank stress tests being key to banks being able to continually increase value to their shareholders. No one wants to see a repeat of 2008. On that same note, we don’t want to see the regulatory oversight, via increasingly stringent requirements, handicap banks.

The banking sector has enjoyed recovery over the past few years, although it has been a slow one. Banks seem to have become more comfortable with the stress test process, and they’ve become “creative” with their capital requests, notes Fitch.

For these reasons, I continue to see banks as providing long-term investment opportunities.




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Posted by Martin June 03, 2016
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Unprecedented FCC Change Helps Wireless Companies Obtain More Spectrum


Verizon, AT&T, Sprint, T-Mobile and even Dish are thought to be among the companies that are bidding on wireless spectrum that is being auctioned off by the Federal Communications Commission. These players are hoping to benefit from a first-of-its kind method being used by the FCC to allow wireless providers to bid for spectrum

These companies consider spectrum to be the life blood for the wireless industry because without it, they would not be able to meet the demands of customers who rely on wireless connections for everything from their smartphones to their tablets. This could spell disaster for these companies, which already face the challenge of operating in a highly competitive space.

Given the unprecedented move the FCC is making this year in auctioning off spectrum, investors should take solace in these companies having a better chance to secure the amount of spectrum they need to meet their customers’ demands.
 

 · Doling out the finite resource

 
The problem with spectrum is that there is a finite amount of it available. Some observers point to 2020 as the year when consumers will see their connections fail due to what has been named the “spectrum crunch.”

To get an idea of the magnitude of the demand for wireless connectivity in the U.S., consider this. It is thought that there are more connected devices than there are people living in the U.S. When you couple that with estimates that say 70% of Americans use smartphones, which are notorious for the amount of data they use, you can see why a shortage of spectrum can cause angst among providers.

This horrible, but very real, nightmare about a “spectrum crunch” is not loss upon wireless providers that already operate in a highly competitive space.

Nor is it loss upon the FCC, which is charged with keeping track of what companies are using spectrum. Back in 2010, it released its National Broadband Plan. In it, the FCC acknowledged that mobile broadband networks, devices and applications are critical components of the overall broadband landscape. Referring to spectrum as the nourishment for mobile broadband, the FCC began seeking new sources of spectrum to feed what it called the “rapidly accelerating demand for mobile broadband services.”

It zeroed in on broadcast television bands, which have the technical characteristics that are well-suited for current and next generation mobile broadband services. Wireless carriers are chomping at the bits to be able to offer 5G.

Also attractive, according to the FCC, is that the TV bands, in their current use, have a substantially lower market value than similar spectrum that has been auctioned primarily for mobile broadband use.
 

 · Who benefits

 
The top wireless carriers are Verizon (NYSE: VZ), AT&T (NYSE: T), Sprint (NYSE: S) and T-Mobile (NASDAQ: TMUS). Then there is satellite-TV provider Dish (NYSE: DISH), which wants to enter the wireless space, too.

As mobile broadband providers, they only have a certain amount of spectrum allocated to them. That’s where the auctions come into play as the providers are trying to get as many blocks as possible to keep up the demand.
Dish chief executive Charlie Ergen added a wrinkle to spectrum war when he started bidding on spectrum, too. It’s no secret that Ergen has been eager to get into the wireless broadband space. Unlike the others mentioned above, however, it does not have a network, and has slow to build one out.

Ergen has said that he may consider splitting Dish in half, with one side being made up of its satellite-TV business. The other half could be made up of its spectrum, which could be sold or leased. He’s also said that the best long-term choice for Dish shareholders would entail being able to “compete with the big guys.”

 

 · In conclusion

 
This year’s auction, which began at the end of May, could set precedent as spectrum that has traditionally been used for broadcast television will be re-purposed for wireless mobile services. Consumers are driving up demand for wireless connectivity as they increasingly use gadgets, such as smartphones and tablets.




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Posted by Martin June 02, 2016
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Medtronic Brain Therapies Make its Stock Attractive


Medical device maker Medtronic (NYSE: MDT) is tapping into the brain with its cutting-edge technology, and the strides it is making can help conditions that include Parkinson’s disease and aneurysms.

Medtronic has invested a considerable amount of money in the treatment of these brain conditions, including its $50 billion acquisition of Covidien in 2015. In this piece, we’ll examine challenges the company faces. We’ll also look at this large cap company’s fundamentals to determine if it makes for a solid investment.

 

 · Medtronic’s fundamentals

 

The company’s fundamentals reflect increases in its net income, positive cash flow, and reasonable debt levels and revenue growth.

When the company released its fourth quarter earnings for fiscal 2016, it reported a 4% increase in earnings compared to the same period in fiscal 2015. They rose to $7.6 billion compared to the $7.3 billion reported last year. That compared to analysts’ estimates for $7.49 billion.

Its earnings per share and net income also increased. Fourth quarter GAAP net income and EPS were $1.1 billion and $.78, respectively.

 

 · Parkinson’s disease addressed with Medtronic solutions

 

As noted above, there are two main areas in brain-related conditions where Medtronic’s devices are used. Its deep brain stimulation (DBS) therapy is used to help manage tremors, and rigidity that are associated with Parkinson’s disease. Its flow diversion devices treats aneurysms.

Fierce Medical Devices explains that DBS systems include a small pacemaker-like implant in the chest that is connected via lead wires to the brain and managed via an external controller. They provide regular electrical stimulation with a goal being to only offer stimulation as needed instead of continuously as it is now, according to Fierce. It noted that Medtronic has said its therapy has shown improvement in motor complications, quality of life, activities of daily living and reduction in medication usage in Parkinson’s patients.

Despite this, when Medtronic’s reported earnings for the last quarter, it said that there were declines in its DBS. The company’s chief executive Omar Ishrak acknowledged that there has been an increase in competition, and that its DBS therapy could be under some pressure “for the next several quarters” as a result.

 

 · Medtronic’s treatments for brain aneurysms are faring better

 

For the last quarter, Medtronic credited the growth in revenue from it neurovascular unit sales to its Pipeline Flex device in the U.S. and Japan and its Pipeline Shield in Europe that are used for the treatment of intracranial aneurysms. It said neurovascular fourth quarter revenue of $159 million increased 20%.

Last year, Medtronic’s became the first and only company to develop a flow diversion device to be approved by the Food & Drug Administration. Medtronic’s neurovascular products include the Pipeline Flex Embolization device, which is used to treat aneurysms.

Aneurysms are defined by the John Hopkins School of Medicine as bulging, weakened areas in the middle layer of the wall of a blood vessel in the brain. Flow diversion is a technique used to treat large or giant wide-necked brain aneurysms in which the device is placed in the parent blood vessel rather than in the aneurysm sac.

Medtronic’s treatment devices for aneurysms can restore original, natural blood circulation while providing permanent long-term occlusion. During the procedure, the Pipeline device, which is a braided cylindrical mesh, is implanted across the aneurysm neck. This slows the flow of blood into the aneurysm, which allows for the diseased vessel to heal.

However, observers have questioned the long-term viability of these flow diversion devices.

There simply may not be enough demand. Healthcare providers are increasingly using flow diversion devices. But the problem relates to supply outstripping demand as the rate of aneurysm ruptures is relatively low and the subsequent need for these devices may not be that great.

According to iData Research, the U.S. neurovascular market, which includes flow diversion devices, will grow to more than $600 million by 2020. The researcher found that the market will be driven by the conversion from surgical procedures to endovascular techniques.

The director of stroke and Cerebrovascular Center at Baptist Health in Jacksonville, Fla. Called flow diversion a major breakthrough therapy for large or giant wide-necked brain aneurysms that are complex and have considerably higher risk of rupture and higher rates of complication with conventional treatment.

 

 · What’s to come

 

Medtronic’s guidance for 2017 revenue is positive. The company’s baseline goal is to consistently grow revenue in the mid-single digits on a constant currency basis. In fiscal year 2017, given current trends, the company expects constant currency revenue growth to be in the upper-half of the mid-single digit range, which is in the range of 5% to 6%.

In fiscal year 2017, the company expects non-GAAP diluted EPS in the range of $4.60 to $4.70. Ishrak said this:

“As we enter our new fiscal year, we look forward to delivering on our robust pipeline of products and services, expanding our global reach to serve more patients, and partnering with others around the world to develop new value-based business models.

Investors should consider Medtronic as a solid investment. It market leading position in the area of brain treatment should continue to contribute to its top and bottom line growth. Just be prepared for some bumps in the road as it deals with headwinds, such as competition and a possible slowing in demand.




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Posted by Martin June 01, 2016
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Internet of Things Spurs All Sorts of Investment Opportunities


The Internet of Things (IoT) continues to evolve as businesses in all sectors are taking advantage of the solutions and applications that can make their operations run more smoothly. From the birth of IoT is IoMT, which is the Internet of Medical Things.

Over the past few years, there has been a surge in the number of healthcare providers that are taking advantages of the solutions from IoMT. At the forefront of many of these IoMT strides are small, privately-held companies. Many of their inventions are cutting edge, which could make them excellent takeover targets by larger, publicly-traded companies.

We’ll review some of these privately-held companies in this piece. We’ll also touch on how these companies are using the technologies developed by larger, more established companies to help their own products work.

 

 · What does IoMT entail?

 

The IoMT entails collecting medical and patient information from medical devices and uploading that data into a cloud platform. In addition to medical devices, applications are used in conjunction with online networks to connect healthcare IT systems, as explained by Intersog.com.

These medical devices typically run on Wi-Fi to ensure that the connection to other devices is as seamless as possible. The IoMT also often entails the use of cloud services where the data collected from the devices is stored. And there’s security, which is important given the many regulations that govern healthcare providers to make sure that patient records are protected and private.

Therefore, the companies that provide any of these services stand to gain just as much as the developers of the products. Keep an eye on how wireless providers like AT&T (NYSE: T) and Verizon (NYSE: VZ) participate in the IoMT space. Amazon, Microsoft and Salesforce could see their revenue streams from their cloud services receive a boost if they make strides in penetrating the IoMT markets. And companies that provide Internet security solutions, such as Palo Alto, can also benefit from working with the developer of some of these medical devices.

 

 · Smart pill bottles

 

There are a host of products that consumers use in their everyday lives that have been enhanced thanks to IoMT solutions. This includes pill bottles that could be the solution to one of the most aggravating situations faced by healthcare providers. Called medication adherence, healthcare providers have said that the incidences of patients forgetting to take their medicines as prescribed continues to be a growing health concern.

To answer this problem, a privately-held company called AdhereTech, has developed a pill bottle that helps patients remember to take their prescribed medicines.

AdhereTech’s smart wireless pill bottles are built with cellular technology and numerous sensors. These bottles collect and send adherence data in real-time to AdhereTech’s servers where it is automatically analyzed and populated on the company’s secure dashboard. If doses are missed, AdhereTech’s system can notify the patient via automated phone calls and/or text messages.

AdhereTech’s pill bottles are currently only being used by patients in pharmaceutical and research trials.

Considering AdhereTech’s pill bottles depend on wireless connections, it must have the help of wireless providers. Wired has reported that the company was in the process of setting up contracts with a wireless provider, as well as a cloud service provider, such as Amazon.

 

 · IoMT helping to fight smoking addiction

 

Another example of the breadth of the use of the IoMT, are companies whose wearable devices are being aimed at combating addictive behaviors. One such device, called SmartStop, is a wearable that offers programmable, transdermal nicotine replacement therapy in combination with real-time behavioral support, according to the device’s developer, Chrono Therapeutics.

The company points to research that shows that smokers have clear, consistent and predictable daily peak nicotine craving patterns. Chrono Therapeutics boasts that SmartStop is designed to automatically vary nicotine levels throughout the day to match those patterns. The device uses Bluetooth technology to wirelessly communicate with the SmartStop behavioral support mobile app, providing real-time guidance to help smokers cope with cravings as well as a means for promoting compliance to the NRT and overall quit process.

Just as with AdhereTech’s smart wireless pill bottle, SmartStop’s reliance on players that offer wireless and cloud services, as well as Internet security solutions, can benefit for having their applications used with this device that was created through the IoMT.

 

 · The future

 

I expect to see more and more versions of IoT, such as IoMT, come to light. It’s being said repeatedly how the Internet is becoming a daily, integral part of our lives. As an investor, look for these small companies that are privately-held companies based on the significance of their creations. Also watch the larger publicly-traded companies to up their game by creating competitng products, or simply acquiring the “little guy.”




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Posted by Martin May 30, 2016
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May 2016 trading, investing, and dividends results


At first, May 2016 trading started slow and I had a very low expectation of it. Many of my trades got in the money and I had to roll them away in time. I thought I would not be able to repeat my income from the previous month. But then the trades turned all around and this month ended even better than the last one.

In April I made $938.00 in collected option premiums but this month I finished with $1,262.00 my goal on collecting min. $1,000 per month.

Now, I just need to be able to repeat this in the next month and the following ones.

May dividend income was lower as May seems to be a slow month. The dividend income was only $57.75 vs. $84.49 last month.

Options Income = $1,262.00 (account value = $2,910.54 +14.60%)
Dividend Income = $57.75 (account value = $19,398.29 +1.26%)

If you wish to see details about each account, continue reading below.


 

 
You may be interested in:

 
Where Do Dividends Come From? By Dennis with Dennis McCain Investing

 
Recent Buy: Valero Energy Corporation By Ferdis with DivGro

 
Smart Financial Investments For 2016 And Beyond By Keith with DivHut

 
Lanny’s May Dividend Income Summary By Lanny with Dividend Diplomats

 
The Importance of Revenue Growth In Selecting Winning Investments By JC with Dividend Growth Investor

 
The Power of Dividends By DL with Dividend Ladder
 

 

Read More




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Posted by Martin May 28, 2016
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Hot Housing, Food Services IPOs Shed Light On Economy’s State


You may have heard by now that the initial public offering market got a boost last week, with several solid companies bringing their deals to the market. Let’s look at two of them that are considered to be staples of the food and housing spaces as their performance can shed some light on how much confidence investors have in the economy.

We’ll begin by reviewing how the IPO market ran cold in recent years and what’s behind it starting to look appealing again. Then we’ll look at how US Foods (NYSE: USFD) and Gypsom Management & Supply (NYSE: GMS) positioned themselves to go public and the challenges they face moving forward.
 

 · Why the IPO market slowed

 
Overall, the companies did well, trading above their offering prices. An estimated $1.5 billion was raised by the companies that went public last year.

To get an idea of how unappealing the IPO market had been this year before last week’s flurry of activity, consider this. Thirty one deals priced during the first quarter of this year, raising roughly $5.4 billion, which is a decrease of about 55% from last year.

So far this year, there have been just 10 IPOs. That includes the five from last week, and another five in February. The lack of the deals has shaped up for 2016, so far, being the slowest year for IPOs since 2009.

There is a laundry list of reasons why the IPO market stalled. Market volatility is a problem. The volatility index, or VIX, which measures the amount of investor fear in the market, was as high as 30 in February. It has since come down to about 13.12 as of Friday.

Then there are the concerns about the global economy. Just as China remains a thorn in the side of the global economy, it is having an effect on how investors see a company’s valuation. Bob Blee, head of corporate finance at Silicon Valley Bank, told U.S. News that the value of a company’s equity is related to the cash it can generate now and into the future. Furthermore, he noted that changes in the world’s economic outlook create uncertainties in a company’s future cash flows and add another layer of complexity to the valuation analysis.

Investors are also looking at the performance of companies that went public last year. Not too many are doing well. It is estimated that almost three-fourths of them are trading at prices below their IPO price and their overall return was a meager 2%.

If you are interested in investing in a newly publicly listed stock, be cognizant of the risks, which are typically higher than that of established public companies.
 

 · Last week’s IPOers

 
The companies that made headlines last week for their IPOs ran the gamut, indicating that companies from all spaces may be comfortable enough with the economics of the market to go public. All together, they raised $1.5 billion. That means this was the market’s biggest day in terms of the number of the amount of money raised.

US Foods raised the most; $1.02 billion with the sale of 44.4 million shares. It debuted with a share price of $23 on Thursday. By the market’s close, it was trading at $24.91 a share. That gives it a valuation of just over $5 billion.

Its net sales for the fiscal year ended Jan. 2 were $23 billion. It’s carved out about 9% of the food services market.

Those numbers are impressive, but there is a blemish that investors must keep in mind. US Foods has a ton of debt, to the tune of roughly $5 billion. The company can use the proceeds to help pay down this debt, but it will clearly still have some ways to go.

On an enterprise value to EBITDA basis, US Foods is cheap compared to its main competitor, Sysco. It trades at a “justifiable” discount to fast-growing Sysco, notes TheStreet.com.

I wouldn’t consider US Foods to be a growth stock, especially considering they were operating at a loss just one year ago, and have struggled to profit in other years, including this one. I’d wait to see how its finances shake out over the long-term before jumping in to US Foods. If you decide to get in, watch carefully in future earnings reports how the company plans to pay down its debt.

GMS is a distributor of wallboard and suspended ceiling systems. These systems provide a comprehensive solution for its core customer, the interior contractor who installs these products in commercial and residential buildings. A boost in its revenues indicates a pick up in the housing industry.

GMS opened at $22.50 a share, which was 7.1% above the IPO price of $21. It raised $147 million, and has the potential to raise another $22 million if the underwriters of the deal buy additional shares.

The company’s chief executive officer told The Street that its company is thriving due to the surge in housing starts. He noted that there is a shortage in housing, with homes being listed and sold above the asking price. He also told The Street that GMS’s business is 40% residential and 60% commercial.

Investors should take note that U.S. housing starts are rising, and are expected to grow further this year. With a network of vendors that distribute more than 10,000 unique products from the manufacturers across the nation, GMS is well positioned to benefit from the uptick in housing starts. I would consider it to be a growth stock that would make a sound long-term investment.




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Posted by Martin May 27, 2016
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Jump On Board These Cruise Names; Space is Ripe for Growth


Despite several negative news events over the past few years, the cruise line industry is proving to be quite resilient. Cruise lines continue to attract a record number of passengers each year, who seem to have deep pockets when it comes to spending on activities while on board.

For these reasons, and others, you should consider some of the players in this space of the leisure industry if you are in search of strong growth stocks.

The lines that dominate the cruise industry include Carnival Cruise Lines (NYSE: CCL), Royal Caribbean (NYSE: RCL) and Norwegian Cruise Lines Holdings (NASDAQ: NCLH). The latest quarterly earnings reports they have posted for fiscal 2016 indicate that they are well-positioned to weather the sometimes volatile nature of the cruise line business and maintain strong balance sheets.

Each of them has upwardly revised their full-year guidance for 2016, and observers note that this year is shaping up to be a banner year like last year.
 

 · Reasons for growth

 
According to Barron’s, cruise lines will see revenue gains of at least 20% this year. That’s partly due to the uptick in global demand. Specifically, in China, the country’s wealthiest are flocking to cruise ships.

The Cruise Line International Association expects 24 million passengers to sail this year. That’s up from the 10 million passengers that sailed 10 years ago.
Cruise lines are also enjoying lower fuel costs, which is significant as the lines continue to roll out larger vessels. Royal Caribbean already boasts having the world’s largest ship, and it just announced that another ship of the same, or larger, size will be on line in 2021.

Cruisers know that the low rates they may have received for booking their trips will likely be mitigated by the myriad expenses they will have to pay for their onboard activities. For example, although many food services may be free, passengers may have to pay for some restaurants. This is part of the cruise line industry’s effort to bump up the meal options onboard the ships.
 

 · Strong earnings

 
Cruise lines did well during the last quarter, with most of them beating analysts’ estimates. Norwegian, which is the smallest of the three noted in this story, were up roughly 48% on a year over year basis. Net income was $73.2 million, or $0.32 per share compared to a loss of $21.5 million or $.10 per share in the prior year.

Norwegian raised its full year guidance for 2016. It sees earnings now being between $3.65 and $3.85 versus previous guidance of between $2.80 and $2.90.

Royal Caribbean rolled out a plan in 2014 to meet aggressive revenue targets, and so far it is on path to meet them. Called double double, the company’s chief executive said the initiative “sets demanding, but realistic targets” that give the plan its name: double the company’s 2014 earnings per share by 2017 and increase return on invested capital to double digits.

So, during the last quarter, adjusted net income was $124 million or $.57 per share, versus $45.2 million, or $.20 per share in 2015. The company increased its full year earnings guidance by $.25 per share. It now ranges from $6.15 to $6.35, which, compared to 2015, would be an increase of 27% to 32%. Some analysts say the earnings could reach at least $7.20 per share next year.

Royal Caribbean continues to implement its $500 million share repurchase program. Since the program was announced in October 2015, the company has repurchased $450 million worth of shares.

Lastly, there’s Carnival. As a reflection of its positive financials, Carnival received an upgrade to some of its debt by Moody’s Investors Service. The ratings agency said the upgrade acknowledges Carnival’s continued strong earnings growth, which has led to its operating margins reaching the levels it maintained prior to the 2012 and 2013 ship incidents when people onboard became ill.

During the last quarter, Carnival’s income was $301 million, or $.39 a share. That compares to income of $159 million during the first quarter of 2015, or $.20 a share. Revenues for the first quarter of 2016 were $3.7 billion compared to $3.5 billion in the prior year.

Carnival raised its full year guidance to between $3.20 and $3.40 a share. The previous outlook was between $3.10 and $3.40 a share.
 

 · Carnival’s earnings

 
The earnings growth of these cruise lines is expected to remain strong as more people board due to the larger vessels coming on line. Low fuel prices and competitive pricing will play a role in the company’s maintaining strong balance sheets.




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Posted by Martin May 26, 2016
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These Retailers Should Be Avoided


Earnings season is coming to an end, but there is a sector that has a few companies that are still reporting and their numbers are very important because they show how consumers feel about spending.

The sector is retail. A handful of retailers reported this week, and of those, there are two that investors should steer clear of as their financial results for the quarter make it unlikely they will be able to turn around in the short term. They are Sears Holding Corp. (NASDAQ: SHLD) and Abercrombie & Fitch (NYSE: ANF).
 

 · The softer side fades

 
Sears’ performance continues to disappoint. It saw its sales in the first quarter fall to $5.4 billion from $5.9 billion for the same period in 2015. Its losses widened to $471 million from $303 million during the first quarter of 2016.

One of the problems is Kmart. Its same-store sales fell 5%. Sears has closed many of the Kmart stores, seemingly to no avail. I would champion selling off or closing the remaining stores, however Sears is taking a different route that may worsen its situations.

To stem the company’s overall losses, Sears is considering ways to monetize its most popular assets. They include its Kenmore, Craftsman and DieHard brands. The Sears Home Services repair business could also be done away with.

Plans entail using those assets the finance the company’s transformation strategy. It has closed a $750 million term loan, and together with a $500 million secured loan facility, it has $1.25 billion of committed financing. The goal is to enhance its liquidity.

“As we have consistently demonstrated, we will continue to take actions to adjust our capital structure and manage our business to enable us to execute on our transformation while meeting all of our financial obligations,” said the company’s chief financial officer.

It could also partner with other companies to expand the sale of its brands, which are now only sold in Sears and Kmart.

Also, the company, earlier this month, announced that it would open small appliance stores to compete with J.C. Penny, which recently began selling appliances again. That is a much better idea because it would allow the company to hold on to its most valuable assets.

The effects of the fickle teen market
When Abercrombie & Fitch came on to the retail scene, it popularized its brand with racy, sometimes offensive ads featuring scantily clothed teens. Now the company is struggling on its top and bottom lines, as it continues to face a variety of issues.

For the last quarter, its earnings per share loss were $.53, compared to analysts’ estimates of $.51. The company’s executive chairman said the results reflect “significant” traffic headwinds, particularly in international markets and in its U.S. flagship and tourist stores. He added that in the face of the headwinds, the company was encouraged by its U.S. business, where comparable sales improved in the Hollister brand, and its gross margin rate increased “meaningfully” for both brands.
 

 · The challengess

 
Stock performance for the retail sector is down almost 14% since the beginning of the year. Many assumed that retailers would benefit from the trickle-down effect of lower gas prices. It was thought that consumers would take those dollars and go shopping.

Well, they did…just not to the traditional retail shops. Amazon has grown to be a formidable player in the retail space as consumers choose it for their shopping needs. Amazon’s low prices and convenience in delivering services are two of the reasons it is thriving. While it took time for customers to warm up to online retailers like Amazon over brick-and-mortar companies, that has changed.
By the time brick-and-mortar retailers came around and began selling via the Internet or improving their websites, Amazon was well ahead in the game.

Also, it seems that consumers have become spoiled when it comes to how much they are willing to pay for items. If it’s not on sale, consumers are less likely to buy it. Even more attractive to consumers are discounters like those that make up The TJX Companies. One of the stores it owns is Marshalls, which does not offer sales at all. Still, you’d be hard pressed to not find one of their stores filled with customers on any given day.

Sears and Abercrombie & Fitch face the challenges that require long-term strategic plans to fix. At this point, I don’t see that happening this year. I would carefully review these stocks on their fundamental strengths and potential to greatly improve before investing in them.




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