High-Quality Hidden Gems (Continued)

As previously discussed, to achieve superior returns, investors may want to look for stocks that are way under-covered. We continue our search for hidden gems, this time in the US market. US stocks are generally more liquid, receiving more exposures, which makes it harder for us to land on high-quality hidden gems. Be aware that liquidity is a positive factor and analyst coverage is a negative factor in my proprietary stock quality ranker. Additionally, US market is overvalued probably by all metrics, including this Warren Buffett Indicator. Therefore, we loosen the screening/filtering criteria a bit as followed:

  1. Return on assets: no less than 10% for the past 10 years;
  2. Return on equity: no less than 12% for the past 10 years;
  3. Return on invested capital: no less than 12% for the past 10 years;
  4. Net margin: no less than 5% for the past 10 years;
  5. Gross margin: no less than 30% for the past 10 years;
  6. Operating margin: no less than 10% for the past 10 years;
  7. Free cash flow margin: no less than 5% for the past 10 years;

Again, I put the screening result into my stock ranker which further takes into consideration factors, such as growth/momentum, industry/sector, shareholder friendliness, financial strength. Overall, my combination of screener and ranker gives high weights to managements’ capital allocation skills, profitability, and cash flow. Below are the top-ranked ones with limited coverages here in the Seeking Alpha community. We include their respective valuation analysis in the end.

Federated Investors (FII)

Since 1955, Federated Investors has been a leading provider of investment management products and related financial services and is now one of the largest investment managers in the U.S. with $397.6 billion in assets under management (AUM) at the end of 2017.

Source: Federated Investors Annual Report 2017.

The majority (more than 60%) of the AUM is held through money market strategies and/or products at Federated. The heavy emphasis on money market assets lends to a stable AUM revenue stream regardless of market volatility. Actually, the money market portion of the business is a hedge on stock market volatility as any sell-off in the stock market may contribute to money market investments as the safe haven. Moreover, the rising interest rate would benefit Federated’s money market funds due to less likelihood of the fee waiver program, which cost losses to the company for many years during the low-rate period.

Federated Investors employs a super capital-light business model, consistently generating high returns on capital over the past decade (see below) and currently earning 1195.8% return on tangible equity. The business produces strong free cash flow (around 28% FCF margin) for its owners and spends less than 1% CAPEX on sales.

Source: Morningstar; data as of 8/5/2018.

The dividend is safe regardless of the current high yield (4.5%), thanks to its strong balance sheet (i.e., 3.6x current ratio, 0.22 Debt/Equity).

There is limited coverage on FII here in the Seeking Alpha community, with only three articles on the stock for the past year and no article for the past two months. The share is currently trading at a discount if compared to its historical levels in terms of P/E, P/B, P/S, P/CF and dividend yield (see below). Hence, FII is a strong buy on our hidden gems list.

Source: Morningstar; data as of 8/5/2018.


NIC Inc. is the leading provider of digital government services that help governments use technology to provide a higher level of service to businesses and citizens and increase efficiencies. It was founded in 1992 and is now headquartered in Kansas with 950+ employees nationwide and partnerships with 6,000 federal, state, and local government agencies in the US.

Source: Investor Presentation 2018.

NIC takes a flexible approach to funding digital government solutions. While most enterprise partnerships are funded through a transaction-based funding model, others are funded through fixed fees or a hybrid of fixed fees and transaction-based funding. The transaction-based model saves taxpayers’ money on upfront development cost and generates recurring revenue whenever users enjoy the efficiency through digital/online services provided by NIC. It is a win-win solution for all parties (i.e., governments, taxpayers, NIC), benefiting from user population growth, government promotion, and service monopoly.

The long-term contract, high switch cost, B2G (business-to-government) relationship and niche market play get NIC a wide moat to it economic castle with high profitability and returns on capital (shown below).

Source: Morningstar; data as of 8/5/2018.

The company’s balance sheet is another reason investors should be comfortable with the stock: over 2x current ratio with no debt.

There are only four articles on EGOV stock in the Seeking Alpha community during the past year and only five analysts covering the stock according to WSJ.com. Like FII, the share is quietly trading at a discount if compared to its historical levels in terms of P/E, P/B, P/S and P/CF (see below). Hence, EGOV is another buy on our hidden gems list.

Source: Morningstar; data as of 8/5/2018.

Atrion Corporation (ATRI)

Atrion is a leading supplier of medical devices and components to niche markets in the global healthcare and medical industry. While it is a comparatively small company in the sector, Atrion is the leading U.S. manufacturer of products in several market niches, including soft contact lens disinfection cases, clamps for IV sets, vacuum relief valves, surgical loops used in minimally invasive surgery, and check valves.

The company has been and will be benefiting from the industry tailwind as the growth of health care spending is consistently exceeding the overall GDP growth (see below) due to the aging population.

Source: Statista.

The management team has done an exceptional job allocating capitals efficiently, indicated by a stable and high margin and return on capital (shown below). The business also maintained its typical profitability and growth during the 08/09 great recession, thanks to the recession-proof nature of the industry. The niche market play and sufficient R&D spending have been giving Atrion the durable competitive advantage.

Source: Atrion Corporation Annual Report 2017.

The stock (as shown below) has consistently outperformed the market benchmark and the sector benchmark. It has its track record of raising dividends consecutively for 15 years now, with a super clean balance (i.e., no debt, plenty of cash, and a current ratio of over 9x).

For the past 12 months, there has been only one article on ATRI in the Seeking Alpha community and no Wall Street analyst following the stock according to WSJ.com. Nonetheless, the valuation appears to be a bit rich if we compare the price multiples to their historical averages (see below P/E, P/B, P/S and P/CF). Therefore, we would like to put Atrion on our watch list for now.

Source: Morningstar; data as of 8/5/2018.


Warren Buffett once mentioned that he has confidence in getting as high as 50% returns on a small amount of money to invest in stocks. Likewise, we believe it is not hard to beat most investment funds with large scales or financial professionals. To achieve so, investors (especially those individual ones with a relatively small amount of investable fund) should take advantage of small caps with little popularity and coverage. Thankfully, size is not an advantage in the investment world and being popular or not has no correlation with investment results.

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

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

Soros Fund Management adds popular tech names, BlackRock in second-quarter

NEW YORK (Reuters) – Soros Fund Management LLC added Facebook Inc (FB.O), Apple Inc (AAPL.O) and Twitter Inc (TWTR.N), but trimmed stakes in Alphabet Inc (GOOGL.O) and Amazon.com Inc (AMZN.O) in the quarter through June, according to a regulatory filing on Tuesday.

Billionaire hedge fund manager George Soros speaks during a discussion at the Clinton Global Initiative’s annual meeting in New York, September 27, 2015. REUTERS/Brendan McDermid/File Photo

The family office of billionaire George Soros also bought stakes in AT&T Inc (T.N), Chevron Corp (CVX.N) and T-Mobile US Inc (TMUS.O) and divested stakes in eBay Inc (EBAY.O), Nvidia Corp (NVDA.O), Snap Inc (SNAP.N) and Paypal Holdings Inc (PYPL.O).

Soros Fund Management also dramatically boosted its shares in BlackRock Inc (BLK.N) – the world’s largest asset management firm, overseeing $6 trillion – by nearly 60 percent to 12,983 total shares in the second quarter.

Other notable adjustments included paring stakes in Netflix Inc (NFLX.O), Citigroup Inc (C.N) and Wells Fargo & Co (WFC.N), but raising its shares of Pandora Media Inc (P.N) and Salesforce.com Inc (CRM.N).

Soros Fund Management took share stakes in Facebook of 159,200 class A shares during the second quarter and 54,500 shares in Apple.

A number of prominent fund managers sharply cut their holdings in Apple only weeks before it became the first publicly-traded U.S. company to be worth more than $1 trillion.

Einhorn’s Greenlight Capital slashed its stake by 77 percent, while Philippe Laffont’s Coatue Management unloaded 95 percent. Advisory firm Diamond Hill Capital Management cut its stake by 27 percent.

Other big holders, including Sanders Capital and Adage Capital Partners, only trimmed small amounts in the second quarter.

Soros also rejigged his energy holdings, raising stakes in Devon Energy Corp (DVN.N) and Kinder Morgan Inc (KMI.N), while dissolving his stake in the VanEck Vectors Oil Services ETF (OIH.P) and cutting exposure to Canadian Natural Resources Ltd (CNQ.TO) and Williams Companies Inc (WMB.N).

Quarterly disclosures of hedge fund managers’ stock holdings, in what are known as 13F filings with the U.S. Securities and Exchange Commission, are one of the few public ways of learning what the managers are selling and buying.

But relying on the filings to develop an investment strategy comes with some risk because the disclosures come 45 days after the end of each quarter and may not reflect current positions. Still, the filings offer a glimpse into what hedge fund managers saw as opportunities to make money on the long side.

The filings do not disclose short positions, or bets that a stock will fall in price. As a result, the public filings do not always present a complete picture of a management firm’s equities holdings.

Reporting by Jennifer Ablan; additional reporting by Trevor Hunnicutt, editing by G Crosse

8 Management Behaviors to Drive Change Before the Competitive Crisis

In this era of rapid market and technological change, I know I have to challenge my small business advisory clients to keep innovating and stay ahead of the game.

As you can imagine, it is human nature to look for a stable and unchanging business process, after all the pivots and chaos of starting your business. Innovation driven only by crises is not leadership and growth.

For example, I’m even getting worried about Apple not showing the kind of innovative leaps that Steve Jobs was famous for. Per a well-known Apple evangelist, Guy Kawasaki, real innovation is a lot more than “simply making the iPhone smaller or the iPad bigger.”

Apple needs a product that jumps to the next curve. Customers and analysts are always looking for innovation indicators.

These indicators are a mindset and actions that every one of us can develop and demonstrate, without any special birthright, genes, or advanced intelligence.

I will suggest to you as a business owner and entrepreneur that focus on certain key behaviors will drive innovation without waiting for the next competitive crisis:

1. Be outspoken in communicating proactive required change.

Andy Grove was a master at this, with his well-known motto that only the paranoid survive. His mantra was built on evidence that the number of transistors on a chip doubles every 18 months, changing everything.

He didn’t wait for competitors to prove current products obsolete.

2. Always be looking “around the corner” for paradigm shifts.

Other champions of innovation, including Elon Musk with SpaceX and Hyperloop, always seem to be building future opportunities from trends and technology turns. They have the courage to make bold decisions, often contrary to conventional market research and linear thinking.

3. Tie your business to a higher social purpose for inspiration.

I find that entrepreneurs who change ahead of the times usually start with the “big” vision of making the world a better place.

If you, like John Mackey with Whole Foods, are driven by a cause, rather than just money, you may be bending the market rather than have it bend you.

4. Create and maintain a sense of urgency for the future.

Too many companies try to force a sense of employee urgency through deadlines and performance goals. The best companies, including Google, create urgency within their team by engaging them in the business, addressing personal needs and flexibility, and building win-win relationships.

5. Isolate new product teams from decimation by daily crises.

Today’s business teams are typically understaffed, so expecting them to create the next generation of innovations will not work.

Make sure that new projects are an ongoing part of your business, with control of resources, and responsibility to deliver results, like other business components.

6. Allocate funds for intrapreneurship and acquisitions.

In addition to investing in internal new innovative ideas, every successful company regularly looks outside to buy innovation, and use it to change their business. IBM, for example, regularly buys about a dozen companies a year to supercharge their own innovation efforts.

7. Create positions for exemplary talent from other disciplines.

If your business hires only to fill existing openings, it is falling behind, and ripe for competitive crisis.

You need to always be scouring your industry and universities for thought leaders and influencers, and working to attract them to your company with new and creative positions.

8. Set metrics and rewards specifically for innovation.

What would happen in your company if all bonuses were predicated on at least 20 percent of revenue coming from products launched within the last three years? People work on what they get measured on. Metrics can be used to change ingrained behavior, as well as build revenue.

These behaviors which accelerate innovation apply to you as a leader at all levels – from an entrepreneur with a small team, to every business executive in a large corporation, to the chief executive of a multi-national conglomerate.

Every one of us must actively be inventing the future, rather than reacting to it. It’s a key part of working on the business, rather than just working in it.

Reiterating $2 Price Target After Rite Aid Cancels Albertsons Merger

On the eve of the Rite Aid (RAD) tallying votes for its merger with Albertsons, the drug store scuttled the deal. The news, along with downgrades and warnings from Moody’s, sent the stock down nearly 20 percent on the week. Is the selling overdone?

Rite Aid

These bearish reports against Rite Aid do not recognize that the future value on the RAD-Albertsons firm would have been worth even less. The combined firms would have had competition from multiple fronts: from supermarkets like Walmart (WMT) and Kroger (KR) to drug stores like Walgreens (WBA) and Amazon.com (AMZN), through the latter’s online ambitions. Now that Rite Aid is on its own again, what will it take for the stock to get to my fair value of $2.00 a share, a forecast that assumed shareholders would reject the deal.

Removing management

Rite Aid’s management will re-visit its options in October, a full two months from now. The current management and oversight committee (board of directors) still have only two things on their mind: selling the company and finding a grocery chain partner to turn the business around. Rite Aid needs new, fresh leadership. It needs a leadership team that will revitalize the store sales, organically. Accelerating the expansion of RediClinics at all stores would do just that. The reason is simple: it is upselling services to existing customers.

Customers always need support for minor illnesses, preventive care, and travel health services. These offerings are available at competing stores but Rite Aid already has the real estate locations and staff to grow this offering. Amazon.com cannot in any way offer the same level of care for customers: the online giant may only compete on price. Conversely, Rite Aid would become a one-stop shop for the three above-mentioned services.

As SA user Catalyst7 wrote in the comments, naturopathic products like minerals, vitamins, and supplements may have higher profitability than prescriptions. Besides, CVS (CVS) and Walgreens could compete effectively against Rite Aid in this space. Although it is a stretch, Nutrisystem (NTRI) is the kind of approach Rite Aid could approach in improving the lives of its customers. Nutrisystem sells eating plans at a daily rate of between $10.18-$13.93 a day to that help customers lose weight.

The sooner Rite Aid identifies its niche in the drug store space, the faster it will reverse EBITDA deterioration. If the company had a “Plan B” that prepared for the merger not going through, it would not have lowered its adjusted EBITDA from the $615 million-$675 million range down to the $540 million-$590 million range.

Below: NTRI stock on the rebound since April.


NTRI data by YCharts

Rite Aid’s stock is down 24.9 percent while CVS and Walgreens are down by less.


RAD data by YCharts


Walgreens completed the purchase of 1,932 stores for around $2.2 million a store. Albertsons would have acquired the 2,500 stores left at Rite Aid for under $1 million. At the midpoint of $1.6 million, Rite Aid’s stores would be worth $4 billion, compared to its $1.62 billion market cap (at $1.48 a share). With markets valuing the stores at a considerable discount, management has a low bar to clear for realizing profitability from each and every store.

Simply Wall St., which may not have updated its financial model with the lowered EBITDA forecast, believes RAD’s stock is worth $3.98 based on future cash flow:

Source: Simply Wall St.

Thanks to the sale of drug stores to Walgreens, Rite Aid substantially cut its debt by more than half:

Source: Simply Wall St.

Moody’s warning on a negative default credit is unusually timed. The drug store is better off without Albertsons and has a better debt profile on its own. It now needs to grow operating cash flow to service and to reduce the debt levels.

Buy More RAD Shares?

Investors deep underwater on Rite Aid could double-down on RAD’s stock to lower the average cost, but this could prove risky. Unless the company demonstrates it is turning around the business in the next 2-3 quarters, the stock could move nowhere or worse, fall to the $1.00 level predicted by bearish analysts. Other analysts have not yet updated their view on the stock. The average price target, based on two analysts, is $2.05 a share, implying upside of $38.51. Here is the full position call from six analysts:

Source: tipranks

Your Takeaway

Investors who held the stock to vote against the deal have little to lose at this point. A management shuffle and strategic change in the company’s direction could bring the stock back to the $2.00 level and above.

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

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

How To Retire Comfortably By 62 With A Million

Let’s say you and your spouse both are 50-years old right now. You have saved about $200,000 in retirement savings in addition to some equity in the house. It is not bad at all. In a short 12 years from now, you will be 62. You may or may not retire at 62, but you decide to at least make plans to retire at 62. You also plan to accumulate retirement assets worth $1 million.

To help with an illustration of this journey, we take the help of our hypothetical couple, John and Lisa.

Why Retire at 62?

We admit it is just a number and so many people, continue to work beyond 62 years of age. However, it is significant in many ways. At 62, you become eligible to draw on your social-security benefits even though your benefits are lower than if you were to wait until the full retirement age between 66 and 67. After you are 59 and a half, you can withdraw money from your retirement saving vehicles like IRA and 401K without any penalty. However, please note that one does not qualify for Medicare until the age of 65. So, if one does decide to retire at 62, he/she would have to buy their own medical insurance for the intervening period (from 62 to 65).

Another reason 62 is a good number from a planning perspective. Even if you continue to work beyond 62, it is better to plan for early to cover any exigency.

Is $1 Million Enough To Retire?

Until the early 2000s, there used to be a consensus amongst the financial planners that one million dollars were sufficient to have a very comfortable retirement. However, not everyone agrees to this milestone anymore. Obviously, one million dollars are not the same as it used to be 20 years ago. Even though the inflation has been low in the last 20 years, one million in the year 2000 would be the same as $1.45 million in 2018 due to inflation. A one million dollar mark does not guarantee a rich retirement, but with some prudent planning and strategies, one million dollar worth of savings can go a long way to fund a comfortable retirement for a couple provided we believe that the other pillars of retirement security like Social Security and Medicare will remain viable.

On the other side of the fence, there is an argument to be made that it is too high a target for so many folks, who may have done everything right but invariably run into the tough times due to corporate layoffs, constant shift in the job market and age discrimination in later years. This is why it is so important to have an emergency reserve of one year worth of living expenses.

Start Saving Early Is Critical:

Still, we believe, the most important factor that determines how rich you are going to be later in life has to do with how soon you are willing to start saving paying yourself first, in other words, start saving for retirement. The table below shows how the early savings can impact the quality of life in later years. Mark starts contributing $6000 a year ($500 a month) at age 29 and increases it by 3% every year until 62. However, Steve waits for another 10 years but starts saving the same amount as Mark at age 39. Assuming they both get 8% return annually, Mark ends up almost double what Steve could accumulate.

Table: Power of saving early in life.



Net balance


Net Balance






































































































































































You are 50 and have saved $200,000:

According to the Economic Policy Institute, the national average of retirement savings for 45-49 years olds is $81,000 and $124,000 for 50-54-year-olds. So, 50 being right in the middle would be about $100,000. Considering that for a couple, it should be twice of that figure, let’s assume that you have saved $200,000. Obviously, it is not enough. Once you get to the retirement planning process, suddenly the seriousness of the matter downs upon you. You realize you cannot delay it any further. Sure, you may have other pressing needs such as saving and paying for kid’s college tuition fees. As a good parent, you want to fund the college for the kids, but there are other ways to meet these needs like tuition loans at least partially. Also, kids can work part-time to fund their own education partly. At this stage, retirement savings have to become the priority number one.

Let’s bring in our hypothetical couple: John and Lisa

In the past, we have taken help of our hypothetical couple John & Lisa for our retirement case studies. This time is no different, and we will seek their help.

This is where John & Lisa stand today. Both of them are 50 years old. Their combined annual salary is modest at $125,000. They have $200,000 in their retirement accounts. John and Lisa decide to take their retirement planning to the next level. After all if not now, when will it be? They only have about 12 years left for retirement. Sure they can work longer, but that may not always be their choice.

  • John and Lisa decide to save 16% of their salary towards their 401Ks. These savings will be tax-deferred and reduce their tax liabilities. Until now they have been saving only 6% of their incomes.
  • Their employers, on average, match 80% of the first 6% of the contributions.
  • They have had no IRAs until now. They will put away $10,000 ($5,000 each) towards IRAs. Since they qualify for tax-deductible IRAs, they will use this option instead of Roth IRAs. This will also help bring down their taxes.
  • They will also open a college education fund for their kid and deposit $5,000 every year. However, this will be after-tax, but the qualified tuition withdrawals including the growth will be tax-free.
  • Their target is to reach one million in retirement savings, excluding the primary house.

With the above decisions, and after accounting for the tax-savings (due to pre-tax contributions), their take-home income will reduce by $1,500, even though they will be saving an extra $1,980 every month.

Where to find an extra $1,500 a month?

There are several ways that they can cut down their monthly budget to save this extra $1,500. They are going to look at the several options and choose the ones that are appropriate for them. Some of the options that they are going to look for are:

  • They could cut their spending budget drastically from every expense item and save $1,500 a month. Though doable, but seems difficult to achieve.
  • Alternatively, sell the current house and move to a smaller but newer house, and keep the same standard of living

Their house is worth about $350,000. They still have a mortgage balance of $150,000. After mortgage payout and commissions, they can get about $190,000 net. If they move a little further out in the suburbs and buy a smaller house, they could get a new house for $250,000. If all that works out, they can take only about $100,000 new mortgage on a 15-year term, put 150,000 cash down on the house, put $25,000 away as an emergency fund, and still will be left with $15,000. They will use this $15,000 towards paying off one of the cars. Their monthly mortgage would be about $775. After property taxes, insurance, etc. their monthly expense would be approximately $1,500.

They save about $500 a month in house payments, plus they will immediately save $400 in car payments. Also, the house is new and smaller, so they would save about $150 a month in utilities; however, that will be a washout partially since Lisa will spend more fuel on the car for office commute.

They realize that they spend an unbudgeted amount of about $1,500 a month on things that are wants and mostly not essentials. They can easily cut $600 a month without too much sacrifice.

With the budgeted savings of about $1,500, they can fund the college savings as well as fund the 16% pre-tax contributions to 401K and $5,000 each to the IRAs.

Retirement Planning Part-II: Investing Successfully

The first very important part of the retirement planning is to save enough and save regularly. It is best achieved when it is done on auto-pilot. Being on auto-pilot means you always get paid first before you get money into your checking account to spend on things that essential, and non-essentials.

The second part of the retirement planning is the Investment Planning. This is equally important if not more because after all, you cannot get rich by just sitting on cash. You have to protect your cash from inflation. You also need to compound it over time. After all, Albert Einstein famously called “Compound interest being the eighth wonder of the world.”

John & Lisa decide to take charge of their investments and implement the following strategy:

John’s 401K:

John decides to deploy a risk-adjusted strategy to ensure that he gets most of the gains of the market, but at the same time, he will hedge the risks in case of this bull market turns into a bear market. This strategy is discussed in the later section.

Lisa’s 401K:

Lisa’s company provides a set of funds that she can choose from. Lisa decides the following combination of funds. Once this has been set-up, rest would really be on auto-pilot. Every pay-check, her contributions will be invested in the proportions as selected by her. Since this portfolio is very balanced, she hopes to get growth of about 8% annual for the next 12 years.

  • 20% in S&P500 fund
  • 20% in the equal-weighted S&P500 fund
  • 20% in the Developed International fund
  • 5% in Emerging Markets fund
  • 20% in Bonds
  • 10% in Treasury funds.


Since both John and Lisa will be funding their IRAs every year to the extent of $5,000 each, they will self-manage these funds.

Lisa is a fan of DGI (Dividend Growth Investing) stocks and decides to implement a DGI Portfolio (described in the later section).

John decides to be a little aggressive and will like to implement an income-oriented strategy for his IRA. He will implement a “ High-Income portfolio,” which would aim to generate about 8% income. John does not need income today, so all of the distributions/income will get re-invested. Also, since they are going to contribute the funds gradually for many years, they will be taking advantage of dollar-cost-average while building this portfolio. Since this portfolio is a bit high-risk, the staggered buying approach will reduce the risks as he will be buying high as well as low.

Investment Portfolios:

Lisa’s DGI Portfolio:

This is the portfolio that Lisa will be building for her IRA. She decides to build a portfolio of about 20-30 blue-chip stocks, which in theory she could hold for the next 10-20 years. Obviously, things will change over time, and occasionally she may have to make changes. All the stocks will generally meet the following conditions, however, exceptions can be made sometimes:

  • Market cap > 20 Billion
  • The company has paid dividends in the last 10 years and never cut the dividend.
  • It has increased the dividend payout at least 5 times during the last 10 years.
  • The yield at the time of buying is at least 2%, but preferably more.
  • The price is at least 10% below the 52-week high.

Keeping these rules in mind, she shortlists the following 20 stocks to start with:

Company Name


in Billions

Div. Yield %

5 Yr Hist. Div. Growth %


52-week high

The Kraft Heinz Company





Consumer Staples


Philip Morris International Inc.







PPL Corporation







AbbVie Inc.







UBS Group AG





Financial- Wealth Mgmt.


General Mills, Inc.





Consumer Staples


Broadcom Limited







CVS Health Corporation







Anheuser-Busch InBev SA/NV







3M Company







Lam Research Corporation







Walmart Inc.







AT&T Inc.







MetLife, Inc.







Dominion Energy Inc.







Ventas, Inc.





REIT – Healthcare


Starbucks Corporation







Enbridge Inc







Lockheed Martin Corporation







Johnson & Johnson












John’s High Income Portfolio:

John’s IRAs will be used to implement this strategy. This basket will consist of high-income securities to generate roughly 8% income.

The funds will be divided into three types of securities:

Realty Income Corp. (O), Omega Healthcare Investors (OHI), STAG Industrial (STAG), STORE Capital Corporation (STOR), Ventas, Inc. (VTR).

  • BDCs/ mREITS:

Ares Capital Corporation (ARCC), Main Street Capital Corporation (MAIN), Annaly Capital Management, Inc.(NLY), Golub Capital BDC (GBDC), New Residential Investment Corp. (NRZ).

Cohen & Steers Tot Ret Realty (RFI), Cohen & Steers Infrastructure (UTF), BlackRock Taxable Municipal Bond (BBN), Kayne Anderson MLP (KYN), Tekla Healthcare Investors (HQH), PIMCO Dynamic Credit Income (PCI), Columbia Seligman Premium Tech (STK).

John’s Risk-Hedged Strategy (for 401K):

Since John is implementing this strategy within his 401K, the strategy needs to be simple and implantable. Most 401K accounts offer a limited number of funds that one has to choose from. John decides to implement one such strategy which rotates on a monthly basis. This strategy may not be most efficient or provide the most return, but it is simple and easy to implement.

The strategy will be invested in one of the following 3 securities (or equivalent funds), which are:

  • Vanguard 500 Index Investor (VFINX)
  • Vanguard Total Intl Stock Index Inv (VGTSX)
  • Vanguard Total Bond Market Inv (VBMFX)

VBMFX is the hedging asset and will be used only when the other two main securities are not performing well. By deploying this strategy, since 1997, the worst year return was -7.86% in 2015. In the year 2008, it was down only -5.50% compared to -37% for S&P500.

Equivalent ETFs for the above mutual funds:







Every month, the strategy will check the performance of the three assets for the previous six months and select the best performing asset. The portfolio will be invested in the top performing asset for the next month. The process will be repeated every month. Below is the back-testing results since 1997 and performance comparison with S&P500. The model portfolio accumulated more than double of the S&P500, mainly because of smaller drawdowns during the bear markets of 2001-2003 and 2008-2009.

Portfolios Values at 62 years:

Lisa’s Returns:

Assumed annual growth for Lisa’s 401K: 8%

Assumed annual growth for Lisa’s IRA: 9.5%





Starting capital


Ending Capital

Starting capital


Ending Capital


Growth %




Year 2019
























































































Year 2030








John’s Returns:

Assumed annual growth for John’s 401K: 9.5%

Assumed annual growth for John’s IRA: 9.0%







Ending Capital



Ending Capital




Growth %




Year 2019
























































































Year 2030








Total Savings for both Lisa and John at 62 years of age:





As you would observe, in the above model, John and Lisa actually exceeded their targets. Some would question the constant rate of return in the above portfolios. It is almost guaranteed that some years, they would have negative returns but then high returns in some other years. So, we do expect them to balance out. We particularly feel confident of the long-term performance of the DGI portfolio and the Rotational Portfolio using SPY/VTI/TLT. The idea here is that John and Lisa are not only diversifying in various stocks, but also in the form of various strategies and assets.

Also, another important message this exercise is trying to send is the importance of a high rate of savings. Out of the final total $1.25 million, their own contributions were nearly 50% at $616,000, besides $627,000 from growth. Savings and Investing wisely are the two legs of the three-legged retirement stool, the third being the Social security.

Disclaimer: The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Please always do further research and do your own due diligence before making any investments. Every effort has been made to present the data/information accurately; however, the author does not claim 100% accuracy. Any stock portfolio or strategy presented here is only for demonstration purposes.


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

Spotify Is Testing Letting Free Users Skip All the Ads They Want

A big change might be coming to Spotify’s free tier.

The music streaming service is running a test in Australia that allows users to skip as many ads as they like, regardless of the ad, according to Ad Age.

The move would bring another upgrade to Spotify’s free tier, which the company has said sees a good deal of engagement and typically leads to paying subscribers. Spotify recently brought a number of changes to its app for free users.

Under the new system Spotify is testing called “Active Media,” advertisers also wouldn’t have to pay for ads that are skipped.

“Our hypothesis is if we can use this to fuel our streaming intelligence, and deliver a more personalized experience and a more engaging audience to our advertisers, it will improve the outcomes that we can deliver for brands. Just as we create these personalized experiences like Discover Weekly, and the magic that brings to our consumers, we want to inject that concept into the advertising experience,” Danielle Lee, Spotify’s global head of partner solutions, told Ad Age.

Lee added that Spotify hopes to move beyond Australia and bring Active Media global, Ad Age reported.

Intel Is Starting To Look Attractive Again

Like many “old tech” names, Intel (INTC) seems to be a bit of a battle ground stock. In other words, it’s a company that people love to hate. I’m not quite sure why, but I see the same sort of sentiment when it comes to other old school big tech names like IBM (IBM), Cisco (CSCO), Microsoft (MSFT), Oracle (ORCL), etc. Basically, if a company was around during the dot.com boom, the history associated with that sort of survival in the volatile tech space is going to have created a lot of friends and foes.

Money is made and lost with fierce velocity in this space. I’m not surprised that emotions run rampant when it comes to the old tech names. It’s hard to let go of a grudge. However, this piece isn’t about emotion, but instead a hyper focus on the rationality of fundamentals. I’ve owned Intel for years now, but after its recent sell-off, I thought it was time to revisit the name and see if its fundamental valuation pointed towards a buy.

The last piece I wrote on INTC was published on September 20th, 2017. I was bullish then, though not enough to add to my position. In hindsight, I was being greedy. I compared INTC’s recent performance to its peers and saw that it had massively underperformed. This was concerning, but then again, I like to buy weakness and INTC’s 12.7x P/E ratio at the time was attractive. It was yielding 2.95% with a healthy 49% TTM payout ratio. Sure, the company’s 5-year DGR of 5.86% wasn’t extremely attractive, but ~6% growth on a ~3% yield isn’t anything to sneeze at.

In the end, I passed, deciding to simply let the shares I already owned run, instead of adding more. Unfortunately for me, this turned out to be a mistake. In relatively short order, INTC shares ran up from the $37 they were trading at when I wrote that piece to the nearly $58 that they hit in mid-2018. During this run, the P/E ratio shot up from 12.7x to nearly 15x on a TTM basis. Well, after its recent sell-off, the TTM P/E is back down to that 12.7x range, and now I must ask myself, am I going to play it safe and potentially let history repeat itself?

Before I go on, I want to highlight the fact that my goal with this piece is to focus solely on Intel’s fundamentals. I know there’s been a lot of debate lately regarding the quality of INTC’s management, especially with CEO Brian Krzanich out and a lot of changes going on in the c-suite. Investors and analysts alike have been concerned with chip delays and potential market share being taken away from Intel by peers. In short, I’m not a Silicon Valley insider and I know it’s not my place to make calls on those sorts of things. But, what I can do well is take a look at Intel’s fundamentals, past, present, and future, using the various consensus estimates and make valuation-based decisions.

So, with that being said, let’s start at my favorite place when it comes to relative value analysis: F.A.S.T. Graphs. As you can see below, after cresting above their 10-year normal P/E for a bit back in June, shares have crossed back below that long-term average (I use the 10-year chart for INTC’s long-term average instead of the 20-year because the 20-year includes P/Es of ~50x back during the early 2000s and those really distorted the average and made the comparisons unrealistic).

Source: F.A.S.T. Graphs

I don’t think INTC is absurdly cheap by this relative metric. Shares were much cheaper than they are today back in 2012-2013 and during the summer of 2017. With that said, INTC has made 5 runs up to the ~15x range since 2014, and I wouldn’t be surprised to see sentiment change and push shares higher again.

15x has served as a pretty strong ceiling for INTC, and I think at this point, it makes sense for investors to consider using the ~12x and ~15x areas as boundaries for a potential trade since the company has been essentially stuck in this range since the start of 2014.

But, for longer-term oriented investors who don’t like the idea of trading in and out of the stock at the peaks/troughs, it’s also worth noting that INTC’s EPS continues to rise, which means that the stock’s price at both the low and high end of this multiple spectrum also rises over time. INTC has been in a bumpy uptrend since the bottom of the Great Recession, and although growth is expected to slow over the next year or two, I think the bull market in the semiconductor space will be powerful enough to continue to serve as a tailwind for this longer-term trend.

Speaking of the semiconductor industry as a whole, I think it’s important to note that Intel remains cheaper than many of its peers. There are the highflying names like NVIDIA (NVDA) and Advanced Micro Devices (AMD) that trade in the 40-50x range. Texas Instruments (TXN) trades for 22x. Analog Devices (ADI) trades for 17.7x. Taking a broader step back, the iShares PHLX SOX Semiconductor ETF (SOXX) trades for 24.5x (which is essentially double Intel’s valuation).

And as much as haters like to hate, while INTC has certainly underperformed its peers in the recent past, it has outperformed the broader market by a wide margin.

Are there other semis with better growth prospects than Intel? Sure there are. However, when you factor in Intel’s cash flows and dividend yield, I have a hard time believing that it deserves to trade at such a discount to the market and its peer group.

Broadcom (NASDAQ:AVGO) trades with a similarly low P/E ratio, but that company has been mired down with M&A news. Micron’s (MU) P/E is much lower than Intel’s even, but it focuses primarily on the DRAM/NAND memory chip area which many believe to be much more cyclical than Intel’s much more diversified portfolio of products. I understand that Intel has its problems too. C-suite uncertainty is never viewed in a positive light by the market. And maybe I’m biased because of it, but I’ve made good money buying Intel shares on CEO related weakness before (I originally bought INTC shares when Paul Otellini stepped down and Krzanich took over.

I realize that move has little bearing to the present, though I typically believe that high-quality, mega-cap operations like Intel aren’t dependent on just one person to succeed, and when billions of dollars are shed from the market cap because of a CEO’s departure, I feel comfortable buying on what I deem to be an overreaction.

This is especially the case after INTC raised both top- and bottom-line guidance during the most recent quarter. FY18 estimates for revenues increased from ~$67.5b to ~$69.5b. The midpoint of FY GAAP EPS estimate is $4.10 a share now, up from $3.85 before. The management is guiding for ~$15b of free cash flow on a non-GAAP basis. All in all, these are numbers that I like to see as a DGI investor.

After Friday’s sell-off, shares are yielding nearly 2.5%. This yield isn’t quite as attractive as it was last time INTC was trading for ~12.7 earnings, but it is still well above the S&P 500’s yield.

I didn’t add to my position on Friday because I’ve become averse to making purchases on Fridays since the trade war spats have begun (a lot of market moving news seems to come out over the weekend). With that said, Intel has moved to the top of my watch list, and assuming nothing major changes before now and then, I will be strongly considering buying share early next week.

Disclosure: I am/we are long INTC, AVGO, NVDA, IBM, CSCO, MSFT.

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

The Dead Stocks Are Coming Back – Cramer's Mad Money (8/9/18)

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Thursday, August 9.

There are lot of ways to win in the stock market, and looking at stocks that were left for dead is one sure-shot way of winning. Thursday was one of those days where stocks that were ignored by the Street for long soared.

Viacom (NYSE:VIA) reported a great quarter after it saw a good turnaround, which was started in December 2016 by CEO Bob Bakish. Viacom, which owns film and television properties, including MTV, Nickelodeon, Comedy Central, BET, VH1 and Paramount Pictures, has been put through cost-cutting and has boosted its intellectual property wares. The company is also refurbishing the company’s balance sheet and driving sales with low-budget hits. “You know what’s the most amazing thing about this turn? So few people know that it’s happening – most people aren’t even aware that Viacom even owns this stuff,” said Cramer.

“After today, I wouldn’t be so sure CBS is the better business. However, I’d certainly rather own Viacom here than CBS. Everyone’s given up on Viacom, which means it’s got much more opportunity for upside than a stock everyone fawns over, like CBS,” added Cramer.

Century Link (NYSE:CTL) also surprised the Street with a good quarter, rising guidance, which led to the stock rallying 13%. The company had merged with Level 3 Communications, and its turnaround has been incredible.

Talking about turnarounds after being left for dead, how can Yelp (NYSE:YELP) be left behind? The company reported good earnings and beat on all counts, which led to the stock rallying 26%. It’s back in the spotlight. DowDuPont (NYSE:DWDP) also went up after its CEO, Ed Breen, purchased $2 million worth of stock.

Other stocks that were left for dead but are coming back into the spotlight are Michael Kors (NYSE:KORS), Spotify (NYSE:SPOT) and Roku (NASDAQ:ROKU).

CEO interview – Magna International (NYSE:MGA)

The stock of Magna International is down 5% for the year after the company missed in its recent quarter and cut guidance. Cramer interviewed CEO Don Walker to find out more about the quarter.

Walker said that the company had a record quarter in terms of revenue. Though it missed consensus, there were headwinds in the form of tariffs and the China joint venture. “If the tariffs stay the way they are – and who knows if anything more gets ratcheted up in China – it’s about a $60M a year hit,” he added.

There is no clarity on how much of the increased costs will be passed on to customers. “But I also think, at some point in time, NAFTA does get re-negotiated and the tariffs within NAFTA go away, because it’s bad for all three countries,” said Walker.

The company has entered into JVs with Lyft (LYFT) and Beijing Automotive Group, and it sees brighter times ahead. “I think the industry is the highest-tech industry in the world. We have lots of technology, we’re spending a lot in R&D, so I think there’s huge opportunities globally in the automotive industry,” he concluded.

World Wrestling Entertainment (NYSE:WWE)

The stock of WWE is up 250% since Cramer first recommended it in March 2017. “When you’ve got a triple, you need to take something off the table. That’s common sense. It’s portfolio management,” he said. Is it too late for investors to buy in? Cramer digs deeper to find out.

In the past few years, WWE has transformed itself from a traditional television and pay-per-view play to a direct-to-consumer colossus. Its digital properties are driving growth, and the company’s online streaming platform has made it the most followed sports brand in the world on social media.

Despite digital subscriber growth, the company has not overlooked its traditional TV roots. It extended its long-time deal with NBCUniversal subsidiary to air Monday Night Raw, and it agreed to air WWE Smackdown on Fox Sports (FOX, FOXA). “The really amazing thing with this story, though, is that WWE has both a thriving online subscription business, where people pay them directly for premium content, and they can negotiate better deals with their traditional TV partners,” added Cramer.

The company not only produces content for paid television, but also different content for YouTube and Facebook. “On the 2020 numbers, WWE’s trading at less than 25 times earnings, which seems a lot more reasonable, doesn’t it, when you’ve got a 37% long-term growth rate? WWE has caught fire here, so if you already own it from when I first recommended it, book partial profits,” Cramer concluded.

For those who do not own the stock, wait for a pullback before buying some.

CEO interview – CyberArk Software (NASDAQ:CYBR)

CyberArk reported good earnings and the stock rallied. Cramer interviewed chairman and CEO Udi Mokady to find out what lies ahead.

Mokady said the company had a good quarter in all three geographies. The new regulations in EU gave it momentum, government spending on cybersecurity in the US has increased and companies are taking cybersecurity seriously to protect their sensitive assets.

Mokady adds that cybersecurity is getting important which each day as threats from North Korea and Iran still loom. With the upcoming elections, the interference remains a top focus.

Viewer calls taken by Cramer

Mylan (NASDAQ:MYL): Cramer doesn’t like the company because it doesn’t have good margins and it did not have a good quarter either.

Boot Barn Holdings (NASDAQ:BOOT): The sales momentum and rising same-store sales are impressive.

AMC Entertainment Holdings (NYSE:AMC): Cramer did not opine on the stock, as the viewer knew more about it than he did. He said he needs to work more on the stock.


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Scientists Take a Harder Look at Genetic Engineering of Human Embryos

The distant future of designer babies might not seem so distant after all. The last year has been full of news about genetic engineering—much of it driven by the the cut-and-paste technique called Crispr. And at the top of the list: news that Crispr could modify human embryos, correcting a relatively common, often deadly mutation.

The researcher who spearheaded that work in the US, a controversial cell biologist named Shoukhrat Mitalipov, said not only that his team had used Crispr to correct a mutation in a newly fertilized embryo, but that they’d done it via a mechanism that was, if not novel, at least unusual. The response from the scientific community was immediate and negative. They just kinda didn’t buy it. So Wednesday, in the journal Nature—where Mitalipov published the initial work—two groups of researchers published pointed, acronym- and infographic-filled critiques of Mitalipov’s 2017 paper, and Mitalipov attempted to respond. Because the ethics don’t matter—well, not yet—if the science doesn’t actually work.

You know how babies are made, right? Well, Mitalipov’s team didn’t do it that way. Using existing human embryos for scientific research is mostly a no-no in the US, so the scientists took normal human eggs and fertilized them with sperm containing a mutant version of a gene called MYBPC3. That version underlies a disease called hypertrophic cardiomyopathy, the most common cause of sudden death in young athletes. People with two copies of mutant MYBPC3—one from mom and one from dad, or homologous for the allele, in the language of genetics—rarely survive childhood. People with just one copy—heterozygous—often have heart problems as they get older.

To try to correct the mutation, Mitalipov’s team used Crispr to cut the mutant gene from the paternal chromosomes and then insert a synthetic, corrected version. But that second step didn’t happen. Instead, according to Mitalipov’s analysis, the cell copied the wild type gene from the maternal chromosomes and inserted that instead. The result: embryos with two wild type alleles. It’s called “homology-dependent repair” or “inter-homolog homologous repair.”

“Some of these authors had been studying DNA repair, and somehow they missed this elephant in the room,” says Mitalipov, the director of the Center for Embryonic Cell and Gene Therapy at Oregon Health and Science University. “We’re pointing to a huge gap in knowledge about how genes repair. We’re not sure if it happens in somatic lineages, but in embryonic lineages, we’ve now proved it.”

Embryologists and cell biologists didn’t think they’d missed an elephant. They didn’t think there was one. “We thought there was an alternative interpretation,” says Paul Thomas, director of SA Genome Editing at the South Australian Health and Medical Research Institute and a lead author of one of the critique articles. Thomas’ work has shown that in mice, Crispr tends to cut big chunks of DNA out of the genome, so-called large deletions. He suspects that’s what happened in the Mitalipov embryos, too—they were missing large-deletion failures. “If there’s a large deletion created on the chromosome, you need to look specifically for that event,” Thomas says. “And if you use the assay they used, a pretty standard assay, that won’t detect it.”

It’d be like trying to figure out how many kinds of bagels a bakery makes by counting what’s on the shelf at the end of the day. Your stats would say the bakery mostly makes blueberry, but that’s because the good flavors like poppy seed, garlic, salt, and plain were invisible—bought before you got there. Your count would overestimate blueberry output as a proportion of overall bagelry.

Could this just be a problem of mice and men? Sure. “It’s certainly the case that more and more people are seeing large deletions in mouse embryos. What’s not clear is whether large deletions are occurring in human embryos, because really we only have this study and a handful of others,” Thomas says.

So Mitalipov’s group went back to the lab. They took their old samples and re-ran the assay, a technique called polymerase chain reaction that makes large enough volumes of DNA to sequence and analyze. This time, they looked at a longer stretch of the chromosome. “We did assays with large-scale PCR, up to 10,000 base pairs, and we still didn’t see any deletions,” Mitalipov says. He didn’t expect to find any. His group’s first paper reported a success rate—which is to say, a rate of fixing the mutation—of around 70 percent. Mitalipov says it’s hard to believe that he’d have Crispr-induced large deletions in 70 percent of his embryos. That’d render the technique broadly unusable, he says.

Case not closed, though. “We’re quite surprised they don’t see any evidence of deletions in any of the samples in their response paper,” Thomas says. “We don’t think they’ve fully excluded the possibility.” Fatwa Adikusuma, one of Thomas’ co-authors, suggests a more precise assay like qPCR (which looks at the amount of DNA quantitatively—hence the Q) would work. Mitalipov didn’t try that.

Other teams had other questions. For example, a group led by Dieter Egli of Columbia University and Maria Jasin of Memorial Sloan Kettering Cancer Center (and including the outspoken Harvard biotechnologist George Church) wondered how the Crispr complex could’ve gotten ahold of the maternal wild-type gene, since the mom-contribution and the dad-contribution are separate for the early parts of cell division. Mitalipov says the clusters of parental DNA, contained in envelopes called pronuclei, come into contact with plenty of time for the repair process to work. “If that’s correct, then it’s puzzling that they don’t report more mosaicism in those embryos,” says Paul Knoepfler, a cell biologist at UC Davis. “Mosaicism” is when a single organism has different genomes in different cells. “Crispr acting so late, such as at the two-cell embryo stage, would likely cause variable genetic outcomes,” Knoepfler says—and that could make for less healthy embryos later on.

So is it possible that Mitalipov got it right? “As presented, the new data is consistent with gene correction,” Jasin writes in an email. But, she says, Mitalipov’s own response shows how tough this kind of research is. One of his embryos showed “allele dropout,” when his team couldn’t detect alleles from both parents. “It is uncertain whether gene correction by inter-homolog recombination occurred in all of the embryos, some of the embryos, or, in the most extreme case, none of the embryos,” Jasin adds.

Everyone, including Mitalipov, says it’ll take more research to be sure. That’s fine with him; he understands that people have plenty of concerns about what he says he did. If his method really works, it only works in embryos with one wild-type copy of a gene, for one thing—there has to be a wild type version of the gene for the cell to copy. But more than that, it takes time and work for new ideas to penetrate a field. “There are dogmas, particularly in biology,” Mitalipov says. “And we just bumped in with our result, saying this is an unknown but strong repair pathway in human embryos.”

It’ll certainly take time for that “dogma” to make way for this approach. “Mitalipov’s team has strengthened their case somewhat,” Knoepfler says. “Maybe this is pointing us in the direction of understanding fundamentally new mechanisms in early human embryos, but it’s also possible that a year from now we’ll view this entirely differently.” Either way, for something to get to the clinic, it’ll have to perform better than 70 percent. That means it’s time for more work in the lab.

More Great WIRED Stories

Saudi sovereign fund builds 3 to 5 percent stake in Tesla: FT

(Reuters) – Saudi Arabia’s sovereign wealth fund, overseen by Crown Prince Mohammed bin Salman, has built a significant stake in Tesla Inc, the Financial Times reported on Tuesday, citing people with direct knowledge of the matter.

FILE PHOTO: A Tesla sales and service center is shown in Costa Mesa, California, U.S., June 28, 2018. REUTERS/Mike Blake/File Photo

Saudi’s Public Investment Fund built the undisclosed stake of between 3 and 5 percent of the electric car maker’s shares this year, according to the report. (on.ft.com/2vq9b39)

Tesla’s shares were up nearly 5 percent at $357.91 in afternoon trading.

PIF did not immediately respond to a request for comment, while Tesla declined to comment.

Reporting by Sonam Rai in Bengaluru; Editing by Shounak Dasgupta