Why These 2 Stocks Turned Sour on Thursday

When certain high-profile stocks get above a certain level of market captialization, their prices can become very sensitive to earnings beats or misses. Even if a company otherwise does well, it can be punished for failing to meet expectations.

This was the case with two top stocks on Thursday: One apparently didn’t record beats that were high enough in its latest quarter, while the other delivered a clear set of misses. Here’s a little bit about both companies.

Facebook

Facebook (NASDAQ:FB), it seems, is a victim of inflated expectations. On Thursday the company reported its Q4 of fiscal 2019 results, and the headline figures beat analyst estimates. For this, investors punished the stock by trading it down by more than 6% on the day.

Revenue for the quarter was nearly $21.1 billion, a 25% improvement over the same period last year. This filtered down into net income of $7.3 billion ($2.56 per share) for year-over-year growth of 7%. In terms of visitor metrics, the average number of daily active users (DAUs) rose by 9%.

Both financial figures eclipsed the average analyst estimates, if not by much. On average, prognosticators were expecting $20.89 billion on the top line, with per-share net profit coming in at $2.53.

The company appears to be executing as well as it has in the past; maybe the rub is those growth numbers and/or analyst beats. In the past Facebook has posted significantly higher year-over-year improvements in both headline numbers, and some of its quarters have thoroughly squashed estimates.

But no company, not even mighty Facebook, can keep up sky-high growth forever. Now that everyone and her cousin seem to have Facebook profiles, it’s getting to be a mature business.

Still, I think it’s only going to get bigger and attract more of those crucial advertising dollars. The site is still frequently the only social media outlet many people use, and it’s an unavoidable destination for a great many advertisers. I’m a Facebook shareholder myself, and I’m far from pushing the panic button on this stock. This reactive price dip doesn’t spook me.

Royal Dutch Shell

Royal Dutch Shell‘s (NYSE:RDS.A)(NYSE:RDS.B) Q4 of 2019 earnings release kicked off what we might term Oil and Gas Earnings Season. If the company’s performance is any indication of what’s to come, it won’t be much of a party — both share classes of the energy giant’s stock fell on the day, with the A shares sliding by more than 3%. 

The quarter saw Royal Dutch Shell post an attributable net income on a current cost of supplies (CCS) — considered its key profitability metric — that was 48% down on a year-over-year basis (to $2.9 million, some distance below analyst expectations of $3.15 billion). Revenue also turned south, tumbling by 18% to just over $84 billion.

Declines weren’t entirely unexpected; lower prices for the oil and gas sector’s major products are negatively affecting company results. The same can be said for petrochemicals, of which Royal Dutch Shell is a major producer.

Still, this latest performance has led Royal Dutch Shell to say it’ll likely scale back its huge, $25 billion share buyback program. Large buybacks frequently help support a stock’s price, so the news didn’t help sentiment on this particular one.

Roller-coaster prices are a rule rather than an exception in the oil and gas business. It just so happens that we’re not in an up cycle right now.

Still, Royal Dutch Shell remains profitable and it spits out a generous dividend (yielding almost 7% for both share classes at the moment). With potential cuts to the buyback program and a fierce adherence to at least maintaining its dividend, I think that payout is safe. I also don’t believe investors should give up on Royal Dutch Shell solely on the basis of its latest results.

These 3 Stocks Are Too Cheap to Pass Up

Whether you’re a value investor or you just want to limit your potential risk in the markets, focusing on stocks that are well-priced can be a great way to help you earn a better overall return.

These stocks are cheap buys that are trading at attractive multiples, and they can add some great diversification for your portfolio. 

1. Delta Air Lines

Delta Air Lines (NYSE:DAL) is not a popular stock at the moment, with another concerning flu virus in the headlines making people wary of traveling. However, that’s precisely why Delta belongs on your watch list. There could be a lot of bearishness that sends Delta’s stock down in the coming weeks as investors pull away from aviation stocks. And with Delta already trading at a very modest 7.7 times earnings and a PEG ratio of less than 1, it’s already a good deal today.

It’s hard to go wrong with a stock that Warren Buffett is a fan of, with the billionaire investor holding an 11% stake of the company today. And it’s easy to see why Buffett would like Delta — the company is a consistent performer. Sales have steadily climbed from $39.6 billion in 2016 to more than $44.4 billion in 2018. The airline’s bottom line looks solid as well, with profits of at least $3.5 billion in each of its past three years. 

To make things even better, Delta also pays its shareholders a steadily increasing dividend that currently yields 2.8%, topping the S&P 500’s average around 1.8%.

2. Canadian Imperial Bank of Commerce

Canadian Imperial Bank of Commerce (NYSE:CM) may be an even safer pick than Delta. The Canadian big-five bank is one of the more stable investments you’ll find on the markets. The company’s profit margins have been north of 26% in each of the past five fiscal years, while profits have risen from 3.5 billion Canadian dollars to more than CA$5 billion during that time. In fiscal 2019, the bank also accumulated more than CA$18 billion in free cash flow. 

Falling interest rates and a concerning outlook for the economy’s future have made investors bearish on financial stocks. The good news is that has made CIBC a cheap buy, as it’s currently trading at less than 10 times its earnings and less than 1.5 times its book value.

The stock is down slightly over the past 12 months, which is disappointing since the S&P 500 is up about 20% during that same period. However, over the long term, bank stocks are generally safe investments to hold on to, and CIBC is likely to rise in value once the economic outlook improves.

Investing in a top Canadian bank stock will help add some geographical diversification to your portfolio while you also earn a great dividend. CIBC currently pays its shareholders a quarterly dividend of CA$1.44, which is a yield of 5.3%. That’s a great payout, well supported by the bank’s 50% payout ratio — it’s well above the S&P 500 average and what you’d normally expect from a safe bank stock.

3. Trulieve Cannabis

Trulieve Cannabis (OTC:TCNNF) is the riskiest stock on this list, but that’s only because of the industry it operates in — marijuana. The company has turned a profit in each of the past four quarters, and those numbers may only get stronger as Trulieve begins to focus on states outside its Florida base. Recent expansions into California, Connecticut, and Massachusetts are sure to help the company’s top and bottom lines grow in the quarters and years to come.

Although Trulieve’s net income has been distorted as a result of fair value gains and nonoperating items, making its price-to-earnings (P/E) of 8.5 a little misleading, the stock still trades at a very reasonable forward P/E ratio of less than 16. And at a price-to-sales multiple of 5.8, the stock is cheap compared to industry giant Canopy Growth, which trades around 30 times its revenue. 

Unlike the other stocks on this list, Trulieve doesn’t pay a dividend, but it can more than make up for that with the growth potential that it possesses.

Analysts project that just the U.S. market alone could be worth as much as $41 billion by 2028 if pot were entirely legal across the country. And with more than 30 states legalizing cannabis for medical use already, it seems more likely than not that some type of federal legalization may be around the corner. With Trulieve now a multistate operator, it could stand to benefit significantly if that happens.

Which is the best stock to own today?

All three of the stocks listed here are good value buys and could net you some good returns. But if you need to pick just one, it’ll depend on what you want to focus on.

If growth is what you’re after, Trulieve is hands-down the best option, as it has the most potential to rise in value in the years to come. For income investors, it’s hard to argue with the stability and dividends that you can get by holding shares of CIBC. But if you prefer to stay local and you’re a Buffett fan, then Delta is also a solid choice that you can safely hold in your portfolio for many years.

Avast CEO Says Company Will Shutter Data-Sucking Subsidiary, Apologizes for the Data-Sucking

The “global leader” in cybersecurity—Avast—announced today it would be shutting down its analytics arm Jumpshot that was recently found harvesting the data of the hundreds of millions installing Avast’s free browser extension. Apparently, the optics of a company that prides itself on privacy-forward approaches and honoring user’s personal security exploiting users’ data for profit was just a bridge too far.

“Protecting people is Avast’s top priority and must be embedded in everything we do in our business and in our products. Anything to the contrary is unacceptable,” wrote Avast CEO Ondrej Vlcek in a statement released yesterday.

“For these reasons, I—together with our board of directors—have decided to terminate the Jumpshot data collection and wind down Jumpshot’s operations, with immediate effect.”

Like many popular adtech companies, Jumpshot relied on user data gleaned through some sort of third-party—Avast in this case—to do the heavy lifting. While users had the Avast extension installed, the company could package all of the clicks and on-screen browsing behavior of a given user, bundle it up, and share it with a given brand—say, Nike—that might want to know the types of people clicking on its site, and when.

And while this particular data might not be “personally identifiable,” per the CEO, we’ve already explained again and again why that’s a bullshit excuse—perhaps, even more so when your entire browsing history is on the line.

The closure is a move that craters the jobs of the “hundreds” of Jumpshot employees that’ll be forced to pack up, but it’s ultimately the right one. While the company prided itself on “always acting within legal bounds” and making privacy settings freely available to anyone using the extension, the truth is—as anyone in the data game will tell you—that doesn’t mean jack shit when those privacy settings are, by and large, unreadable. Besides, this is a statement that puts all of the onus on users that are, ostensibly, downloading a security app to feel more secure. Why would they think about looking under the hood?

In a letter to investors about the “press speculation” regarding Jumpshot, the Avast secretary Alan Rassaby noted that this arm alone was expected to rake in $36 million from the major brands—which, per the initial report, included Pepsi, Home Depot, and more—that were plugged into the partner. According to a follow-up note, this was a mere 7% cut of the more than $400 million Avast earned in all of 2019.

GM resurrecting Hummer as an all-electric ‘super truck’ with 1,000 horsepower

DETROIT – General Motors is resurrecting the Hummer, best known as a gas-guzzling, military-style SUV, as an all-electric “super truck” with massive horsepower, acceleration and torque.

The Detroit automaker confirmed the plans Thursday and released three online teaser videos for the “GMC Hummer EV” pickup ahead of a 30-second Super Bowl ad for the vehicle featuring NBA star LeBron James. The spot is scheduled to air during the second quarter of Sunday’s game.

The Hummer EV pickup, according to GM, will feature 1,000 horsepower; 0 to 60 mph acceleration of three seconds; and 11,500 pound feet of torque. It didn’t announce a price.

“It’s a combination of an incredibly capable truck and a supercar. Those sorts of times are in that ballpark,” Phil Brook, GMC vice president of marketing, told CNBC. It’s an “all-electric super truck.”

The Hummer EV pickup is expected to go into production in the fall of 2021 at a plant in Detroit, followed by sales starting toward the end of the year.

The teaser videos detail the specifications and preview the front of the pickup, which features a new iteration of Hummer’s well-known slotted grille with “HUMMER” backlit across the front of the truck.

“It is very different from anything we’ve ever done before,” Brook said. “This is the start of big things in the electric space. … This is GMC and how we’re moving into that space in a big way.”

GM is branding the Hummer EV as a “quiet revolution.” It’s a play on the quietness of all-electric vehicles and the performance of the Hummer EV. It’s also the title of the Super Bowl ad.

Brook declined to discuss additional information, including plans to potentially produce an all-electric GMC Hummer SUV, ahead of the pickup’s global debut on May 20.

GM’s previous Hummer brand included an SUV and a short-lived pickup variant. The design was based on the military vehicle known as the High Mobility Multipurpose Wheeled Vehicle, or “Humvee.” During the early 2000s, the Hummer was a popular vehicle but also a source of criticism because of its size and poor gas mileage at around 15 mpg.

The Hummer brand was discontinued as part of GM’s 2009 bankruptcy amid stalling sales, high gas prices and a sour reputation for polluting the planet. The automaker stopped production of the vehicles in 2010.

GM has no plans to build a gas-powered Hummer with an internal combustion engine, according to Brook.

The plan to sell Hummer under the GMC brand is expected to save the automaker substantial capital compared with launching it again as a stand-alone brand. It also will provide GMC with its first all-electric vehicle as part of GM’s pivot to all-electric vehicles, including releasing at least 20 new vehicles globally by 2023.

The GMC truck and SUV has become a profitable workhorse for the Detroit automaker with an affluent and educated customer base. Adding the Hummer EV, which is expected to command high transaction prices as a lifestyle pickup, will likely add to the brand’s profits and customer base.

“I think there’s an opportunity for us not just to extend where GMC is today from a customer base but also bring new customers in who hadn’t considered us before as well,” Brook said.

The GMC Hummer EV is expected to be part of a new lineup of all-electric pickups and SUVs for GM that will extend across brands and price ranges. GM President Mark Reuss on Monday broadly detailed those plans when he announced plans to invest $3 billion for the production of such vehicles.

“Our offering won’t just be one pickup,” Reuss said at the Detroit plant that will build the vehicles. “This is architected to be scalable and used for multiple brands with multiple variants with multiple customers.”

The Hummer EV is expected to be part of a surge of new all-electric pickups to enter the U.S. market in the coming years. Ford Motor, Tesla and Amazon-backed EV start-up Rivian are expected to release pickups through next year.

Scientists learn how plants manipulate their soil environment to assure a cheap, steady supply of nutrients

The next time you’re thinking about whether to cook dinner or order a pizza for delivery, think of this: Plants have been doing pretty much the same thing for eons.

Researchers in Rice University’s Systems, Synthetic and Physical Biology program detailed how plants have evolved to call for nutrients, using convenient bacteria as a delivery service.

Their open-access report in Science Advances looks at how plants read the local environment and, when necessary, make and release molecules called flavonoids. These molecules attract microbes that infect the plants and form nitrogen nodules—where food is generated—at their roots.

When nitrogen is present and available, plants don’t need to order in. Their ability to sense the presence of a nearby slow-release nitrogen source, organic carbon, is the key.

“It’s a gorgeous example of evolution: Plants change a couple of (oxygen/hydrogen) groups here and there in the flavonoid, and this allows them to use soil conditions to control which microbes they talk to,” said Rice biogeochemist Caroline Masiello, a co-author of the study.

The Rice team, in collaboration with researchers at Cornell University, specifically analyzed how flavonoids mediate interactions between plants and microbes depending on the presence of abiotic (nonliving) carbon. Their experiments revealed, to their surprise, that an excess of dissolved—rather than solid—carbon in soil effectively quenches flavonoid signals.

Understanding how carbon in soil affects these signals may provide a way to engineer beneficial interactions between plants and microbes and to design effective soil amendments (additives that balance deficiencies in soil), according to the researchers. Plants use flavonoids as a defense mechanism against root pathogens and could manipulate the organic carbon they produce to interfere with signaling between microbes and other plants that compete for the same nutrients.

Overall, they showed that higher organic carbon levels in soil repressed flavonoid signals by up to 98%. In one set of experiments, interrupting the signals between legume plants and microbes sharply cut the formation of nitrogen nodules.

Rice graduate student Ilenne Del Valle began the study when she became interested in the subtle differences between the thousands of flavonoids and how they influence connections between plants and microbes in soil.

“We had studied how different soil amendments change how microbes communicate with one another,” said Del Valle, co-lead author of the paper with former Cornell postdoctoral associate Tara Webster. “The next question was whether this was happening when the microbes communicate with plants.

“We knew that plants modulate symbiosis with microbes through flavonoid molecules,” she said. “So we wanted to learn how flavonoids interact with soil amendments used for different purposes in agriculture.”

Scientists learn how plants manipulate their soil environment to assure a cheap, steady supply of nutrients
Scientists learn how plants manipulate their soil environment to assure a cheap, steady supply of nutrients

Because she counts two Rice professors—Masiello and synthetic biologist Joff Silberg—as her advisers, she had access to tools from both disciplines to discover the mechanisms behind those subtleties.

“We came into this thinking there was going to be a big effect from biochar,” Silberg said. “Biochar is charcoal made for agricultural amendment, and it is well-known to affect microbe-microbe signals. It has a lot of surface area, and flavonoids look sticky, too. People thought they would stick to the biochar.

“They didn’t. Instead, we found that dissolved carbon moving through water in the soil was affecting signals,” he said. “It was very different from all of our expectations.”

The Rice and Cornell team set up experiments with soils from meadows, farms and forests and then mixed in three slightly different flavonoids: naringenin, quercetin and luteolin.

They found the most dramatic effects when dissolved carbons derived from plant matter or compost were present. Plants employ naringenin, a variant of the flavonoid that gives grapefruit its bitter taste, and luteolin, expressed by leaves and many vegetables, to call for microbial nitrogen fixation. These were most curtailed in their ability to find microbes. Quercetin, also found in foods like kale and red onions and used for defense against pests, did not suffer the same fate.

Masiello noted there’s a cost for plants to connect with microbes in the soil.

“These relationships with symbionts are metabolically costly,” she said. “Plants have to pay the microbes in photosynthesized sugar, and in exchange the microbes mine the soil for nutrients. Microbial symbionts can be really expensive subcontractors, sometimes taking a significant fraction of a plant’s photosynthate.

“What Ilenne and Tara have shown is one mechanism through which plants can control whether they invest in expensive symbionts,” she said. “Among a wide class of signaling compounds used by plants for many purposes, one specific signal related to nutrients is shut off by high soil organic matter, which is a slow-release source of nutrients. The plant signal that says ‘come live with us’ doesn’t get through.

“This is good for plants because it means they don’t waste photosynthate supporting microbial help they don’t need. Ilenne and Tara have also shown that signals used for other purposes are slightly chemically modified so their transmission is not affected at the same rate.”

The researchers checked flavonoid concentrations in soil with standard chromatography as well as unique fluorescent and gas biosensors, genetically modified microbes introduced in 2016 with the support of a Keck Foundation grant, which also backed the current project. The microbes release a gas when they sense a particular microbial interaction in opaque materials like soil.

“The gas sensor ended up being very useful in experiments that looked like tea, where we couldn’t image fluorescent signals,” Silberg said.

SpaceX boosts 60 more Starlink satellites into orbit after weather delays

After waiting more than a week for good weather, SpaceX launched a Falcon 9 rocket Wednesday from Cape Canaveral with 60 more satellites for the company’s Starlink Internet network, continuing to build out a fleet of fleet of orbiting broadband relay stations that could eventually number in the thousands.

The 229-foot-tall (70-meter) Falcon 9 rocket fired up at 9:06:49 a.m. EST (1406:49 GMT) Wednesday and climbed away from from Cape Canaveral’s Complex 40 launch pad. An incandescent flame from the rocket’s nine Merlin 1D main engines — collectively generating 1.7 million pounds of thrust — trailed more than 20 stories behind the launcher.

A roar from the Falcon 9’s engines reached spectators a few seconds later as the rocket arced toward the northeast into clear skies over Florida’s Space Coast.

The liftoff Wednesday came after a series of weather delays since last week. After performing a standard pre-launch test-firing of the rocket, SpaceX pushed back the launch from Jan. 21 to Jan. 24, then to Monday, Jan. 27, to wait for improved weather conditions in the Atlantic Ocean, where SpaceX stationed ships to retrieve the first stage and payload fairing from the Falcon 9 rocket.

SpaceX scrubbed a launch attempt Monday due to strong upper level winds, then bypassed a launch opportunity Tuesday, again wait for better weather in the downrange recovery area.

Weather conditions at Cape Canaveral appeared ideal for a launch Wednesday, and SpaceX’s 80th Falcon 9 flight put on a spectacular show.

Two-and-a-half minutes after liftoff, the rocket’s first stage shut down its engines and dropped away from the Falcon 9’s second stage. Seconds later, the upper stage’s single Merlin engine — modified with an enlarged nozzle for better performance in space — ignited to accelerate the 60 Starlink satellites into orbit.

The Falcon 9 jettisoned its clamshell-like payload fairing nearly three-and-a-half minutes into the mission.

Flying tail first, the rocket’s first stage booster reignited three of its nine engines to guide it toward SpaceX’s drone ship “Of Course I Still Love You” positioned around 400 miles (630 kilometers) northeast of Cape Canaveral. A final landing burn using the center engine slowed the booster for a controlled vertical touchdown on the football field-sized barge, marking the 49th time SpaceX has recovered one of its rockets intact.

The booster flown Wednesday was making its third trip to space, following successful launches and landings in March 2019 and June 2019 on flights carrying SpaceX’s Crew Dragon spacecraft and Canada’s Radarsat Constellation Mission. With Wednesday’s mission, the booster has launched from all three of SpaceX’s active launch pads in Florida and California.

The two halves of the Falcon 9’s payload shroud used cold gas thrusters to maneuver into the proper orientation for descent, then unfurled parafoils for a gentle fall toward the Atlantic Ocean. SpaceX’s two fast-moving fairing recovery boats — named “Ms. Tree and “Ms. Chief” — tried to catch both halves of the Falcon 9’s aerodynamic fairing.

SpaceX confirmed Ms. Tree caught one side of the shroud in a giant net. Ms. Chief, equipped with a similar net, failed to snag the other half of the fairing before it fell into the sea, but teams were expected to pull the hardware from the ocean for inspections and refurbishment.

SpaceX’s recovery boat “Ms. Tree” caught one half of the Falcon 9 rocket’s two-piece payload fairing after Wednesday’s launch. Credit: SpaceX

While SpaceX’s teams in the Atlantic were busy recovering pieces of the Falcon 9 rocket for reuse, the launcher’s upper stage — which is not reusable — fired its engine two times to place the 60 Starlink satellites into a targeted 180-mile-high (290-kilometer) orbit inclined 53 degrees to the equator.

SpaceX said the rocket did its job placing the satellites into the proper orbit, and live video from the Falcon 9’s second stage showed the 60 flat-panel satellites separating from the launch vehicle as it flew south of Australia about one hour after liftoff from Cape Canaveral.

The spacecraft were expected to extend their power-generating solar panels, and krypton ion thrusters on each satellite will begin raising their orbits to an altitude of around 341 miles (550 kilometers), where SpaceX intends to operate its first 1,584 Starlink platforms to provide worldwide Internet service.

The Starlink satellites, built at a SpaceX facility in Redmond, Washington, filled the volume of the Falcon 9’s payload fairing. Each satellite weighs around 573 pounds, or 260 kilograms, and the Starlink craft stacked together form the heaviest payload SpaceX has ever launched.

With Wednesday’s launch, SpaceX has deployed 240 Starlink satellites on four dedicated missions since last May. That makes SpaceX the owner of the world’s largest fleet of commercial satellites.

SpaceX, founded by billionaire Elon Musk, has regulatory approval from the Federal Communications Commission to eventually field a fleet of up to 12,000 small Starlink broadband stations. But SpaceX has said the size of the Starlink fleet will grow with demand after the company launches its initial block of 1,584 satellites.

SpaceX says 24 launches are needed to provide global broadband service through the Starlink service. But the company could provide an interim level of service over parts of the Earth later this year, once SpaceX has launched around 720 satellites on 12 Falcon 9 flights.

Gwynne Shotwell, SpaceX’s president and chief operating officer, told reporters in December that the Redmond factory was producing as many as seven satellites per day.

“Because Starlink satellites fly in a global constellation, we can bring high-speed Internet to places that previously had terrible service or no service at all,” said Lauren Lyons, a SpaceX engineer who provided commentary on SpaceX’s webcast of Wednesday’s mission. “Some of the most exciting opportunities for Starlink are rural or remote locations where traditional fiber or cable just isn’t practical.”

Cruise ships, airplanes and the U.S. military are also likely customers of Starlink services.

SpaceX has not announced a price for the Starlink service, or downlink and uplink speeds customers can expect through the network.

“Building a constellation that can provide this level of service is incredibly challenging, but we are making steady progress toward that goal with every Starlink launch,” Lyons said.

A view of the 60 Starlink satellites stacked before Wednesday’s launch. Credit: SpaceX

Scientists have raised concerns that thousands of Starlink satellites in low Earth orbit could interfere with astronomical observations. The Starlink spacecraft launched last year were more visible from the ground than predicted, prompting criticism from some scientists and amateur astronomers.

The satellites are especially bright soon after launch, when they are bunched together and flying at lower altitudes.

SpaceX debuted an experimental darkening treatment on one of the Starlink satellites launched Jan. 6, but none of the 60 satellites delivered to orbit Wednesday have the darker coating, which is aimed at minimizing reflectivity of sunlight down to the ground.

“It takes a few weeks for those satellites to reach their final orbit destination, so we don’t have the results of that DarkSat experiment just yet, but we’ll be sure to share what we’ve learned as the data becomes available,” Lyons said.

With Wednesday’s launch, SpaceX has sent 120 Starlink satellites into orbit on two Falcon 9 missions just this month. At least one Starlink launch with approximately 60 additional satellites is scheduled in February on another Falcon 9 rocket.

More than half of SpaceX’s 35 to 38  launches scheduled in 2020 will carry Starlink satellites, Shotwell said last month.

6 Smaller-Cap Stocks to Buy Right Now

The six stocks discussed all have market caps less than $10 billion and all look like good values — but that’s about all they have in common. Let’s take a closer look at what makes these stocks attractive to investors.

They range from those with relatively safe end-markets like infrastructure maintenance machinery company Alamo Group (NYSE:ALG) to those with highly cyclical end-markets like axle, gear, and brake manufacturer Meritor (NYSE:MTOR) and automation and power transmission company Altra Industrial (NASDAQ:AIMC).

Industrial software company PTC (NASDAQ:PTC) looks like it has a favorable secular tailwind from spending on smart factories, while aviation services company AAR (NYSE:AIR) looks relatively undervalued in its sector. Finally, marine engine and boat manufacturer Brunswick (NYSE:BC) offers investors a way to play the theme of an aging U.S. demographic that is spending more money on leisure.

Valuation

Let’s start by considering their valuations in terms of enterprise value (calculated as market cap plus net debt) divided by earnings before interest, taxation, depreciation, and amortization. To put these figures into context, the current EV/EBITDA ratio on the S&P 500 is slightly above 14. As a rough rule of thumb for investing, I would argue that any company with an EV/EBITDA below 11 is a good value.

Valuation multiples for the six stocks,
DATA SOURCE: MARKETSCREENER.COM AND YAHOO FINANCE. EV VALUES ARE BASED ON CURRENT VALUATION. FIGURES AFTER 2018 ARE GENERATED USING ANALYST ESTIMATES

PTC 

Industrial software company is an obvious outlier on this list based on our chosen valuation metric — but it probably isn’t best measured that way, because it’s transitioning away from a perpetual-license model and toward a subscription-based revenue model. That means it’s foregoing upfront revenue in favor of long term revenue/earnings from subscriptions. A better way to judge PTC is on its average recurring revenue growth (up 11% year over year in its most recent quarter) and its free cash flow (FCF).

PTC’s growth is driven by its customers’ willingness to use web-enabled devices to connect their physical assets to the web in order to manage them better — in other words, to climb on board the Internet of Things trend.Given the substantive productivity benefits generated by such moves, the company has a long runway for growth. Indeed, analysts foresee it generating $500 million in FCF in 2022, while PTC’s management predicts a figure in the $700 million to $900 million range in 2024. The analyst consensus for 2022 puts PTC on a price-to-FCF multiple of 19 — that’s too cheap for a company growing FCF at such a rapid clip.

Alamo Group

Alamo’s collection of infrastructure maintenance and agricultural equipment (think street sweepers, mowers, snow-removal equipment) has relatively stable end-markets and there’s a clear need for the U.S to invest in infrastructure. Moreover, Alamo has a good track record of acquiring companies and niche markets, then expanding its profit margins. As the chart below shows, the company’s doubling of revenue over the last decade has led to a near tripling in its EBITDA. If Alamo can continue along this course, its stock will look like a strong value in a couple of years.

ALG EBITDA (TTM) Chart

Meritor and Altra Industrial

Before buying either of these stocks, investors should weigh the warnings. Meritor’s exposure to heavy trucks — a market set to decline significantly in 2020 — and Altra’s exposure to heavy industries (including trucks) means that each is at a high risk of delivering near-term disappointments to shareholders. The management of truck manufacturer Navistar recently lowered its expectations for industry deliveries and its own revenue in 2020 during its fourth-quarter earnings call in December.

That said, if you can tolerate the likelihood of a stream of bad news in the short term, history suggests that, barring a recession, truck sales will bounce back in a year or two. In the context of that eventuality, the sector would look cheap at current values, and present a good long-term investment. 

US Heavy Truck Sales Chart

AAR Corp.

Commercial air passenger growth is undoubtedly slowing from the high-single-digit percentage rates of the last few years, and headed toward something closer to 4% in 2020 and 2021, so there’s potential for some disappointment in the industry in 2020.

That said, it’s still a mid-single-digit growth outlook, which implies ongoing demand for AAR’s commercial aviation supply, and maintenance repair and operations. Moreover, the stock’s absolute valuation (see chart above) and relative valuation (see chart below) make it a rare value in a rich sector.

AIR EV to EBITDA Chart

Brunswick

Now that it has sold off its Life Fitness exercise equipment division, Brunswick is fully focused on recreational boats, marine engines, and parts and accessories. The valuation numbers above look good — the question is whether Brunswick can hit analysts’ estimates. A lot will depend on the strength of the ongoing recovery in the recreational boat market, and specifically, the outboard boat market that Brunswick has been positioning itself in.

New boat sales in the U.S.

Ultimately, demand will depend on a combination of the state of the economy, the housing market, and consumer preferences. According to the National Marine Manufacturers Association President Frank Hugelmeyer, new powerboat sales in 2019 were close to 2018 figures, but “with the economy on solid footing and key economic indicators like consumer spending remaining strong, we expect another healthy year for new boat sales, which could be up as much as 2%.” That would be good news for Brunswick. All told, on a risk/reward basis, this stock looks like a good value.

3 “Strong Buy” Dividend Stocks Yielding At Least 6%

After hefty gains in 2019, when the S&P 500 added 29%, most analysts are predicting that markets will show decidedly more modest gains in 2020. The consensus view is, that stocks will appreciate between 3% and 5% in the coming year. While it’s not a gloomy picture, it does mean that investors will need to look outside of share prices for strong returns.

This will naturally pull many investors right into dividend stocks. The reasons are simple. Interest rates are low, after 3 Fed cuts in 2019 brought them down to just 1.5% to 1.75%. With the Fed’s key rate pared so far back, Treasury bond yields are also low, holding between 1.5% and 2%. Among S&P listed companies, the average dividend yield of 2% still beats interest rates and bond returns. And remember: there is no ceiling on dividend yields.

We’ve used TipRanks’ Stock Screener tool to seek out small- and mid-cap stocks with high dividends – that is, with yields exceeding 6%. To narrow it further, we looked only at stocks with ‘Strong Buy’ consensus ratings. TipRanks has a database encompassing over 6,500 stocks; our search parameters narrowed that down to 30. Here is the low-down on three of those.

Hess Midstream Operations (HESM)

The energy industry, especially the crude oil and natural gas extraction activities, has given a turbo boost to the US economy in recent years. Providing jobs and energy at the wellheads, in the midstream, and at the customer’s point of purchase, energy products also provide the fuel of our daily lives.

Hess Midstream provides infrastructure system for oil companies in the Bakken Shale of North Dakota and Montana. The company owns a variety of assets, including crude oil, natural gas, and water gathering pipelines, pipeline and rail line terminal facilities, and natural gas plants.

Last month, Hess completed an organization change that marked its transition from a small-cap limited partner to a mid-cap independent midstream operator. The company conducted a merger between the midstream operator branch and the corporate partnership. In short, Hess Midstream Partners successfully acquired Hess Infrastructure Partners. The HESM ticker inherited HIP’s market history. Shares are up 15% since the December 16 announcement.

The company didn’t just reorganize and simply its partnership – it also maintained its lucrative dividend. HESM currently pays out 41 cents per quarter, and has raised that dividend payment every quarter since August 2017. At $1.64 annualized, the dividend gives a yield of 6.91%, well over triple the average in the broader market.

Writing from Credit Suisse, market analyst Spiro Dounis says of final quarter projections, “We expect sequentially higher results, largely driven by volume ramp on LM4 and continued strength in Tioga volumes as spare capacity is backfilled with third-party volumes.” He adds that, “This should be a noisy accounting quarter with HESM reporting consolidated results for the first time following the close of the HIP acquisition on December 16.”

Dounis is upbeat about HESM, and gives the stock a $26 price target, indicating room for 10% growth to the upside.

HESM has built its Strong Buy consensus rating on solid performance which has attracted 3 “buy” ratings in the last three months, as opposed to only 1 “hold.” This stock is selling for $23.91, so the $26.50 average price target implies an upside of ~11%.

Summit Hotel Properties (INN)

Next on our list is a Real Estate Investment Trust, a natural stock to consider when looking for high dividends. REITs are holding companies for properties, and derive their earnings and profits from management fees and rents. Summit owns 73 non-food service hotels around the United States, with over 10,000 rooms available, serving middle and upscale customers.

Last spring, Summit announced a sale of six hotels, in various locations around the country and under several different brands and totaling over 800 guest rooms, for a total of $135 million – netting the company a profit of $36.6 million. The sale of the six hotels was part of a capital improvement plan, and net proceeds were used to pay down debt carried on the company’s revolving credit facility. Summit currently has access to $395 million in credit.

A strong credit line is not the only strength to INN shares. The stock gained 35% in 2019. And, Summit complies with US tax codes that require REITs to return profits to shareholders – by paying out a generous dividend. The 18 cents per share paid out quarterly annualizes to 72 cents, but even better, implies a yield of 6.2%. INN pays out a dividend three times higher than the S&P average.

5-star analyst Wes Golladay, from RBC Capital, is impressed with Summit’s management. He writes of the stock, “We like INN’s platform as the company has been able extract value at the property level including implementing ideas that were a first for the hotel brand. We remain impressed with the asset recycling, which improves what we believe is already a high-quality portfolio.”

Golladay puts a Buy rating on INN, and his $13 price target implies an upside of 12%.

Summit’s Strong Buy consensus rating is unanimous, based on 3 Buy ratings recently given. The $11.62 trading price is a bargain, considering the high dividend return, and the $13.50 average price target suggests an upside potential of 16%.

Gaming and Leisure Properties (GLPI)

The third company on today’s list is another REIT, this one specializing in casino properties. Pennsylvania-based Gaming and Leisure owns 43 casino properties, and operates 2 of them directly. The company is also involved in the mortgage financing of 2 additional casino properties. Casino gaming is both popular and lucrative, and GLPI shares have been gaining steadily for the past five years.

Momentum is on GLPI’s side in other ways, too. The company has beaten EPS forecasts in each of the last four quarters, and the upcoming Q4 2019 report is expected to show 85 cents per share in bottom line earnings. That’s 1-cent higher than the year-ago number.

High earnings make this REIT’s high dividend easily sustainable. GLPI pays out 70 cents per quarter, which the earnings, at over 80 cents, can readily fund. The annualized payment of $2.80 gives the dividend a yield of 6.05%. GLPI has been raising the dividend periodically for the past five years.

Carlo Santarelli, 5-star analyst with Deutsche Bank, took a bullish stance on this stock recently, but strong share appreciation has pushed the stock value right up to his price target. Santarelli pointed out several points supporting optimism: “1) GLPI shares have broadly outperformed gaming triple net peers, which is generally a fairly good place to start when arguing for change, 2) GLPI governance is strong, 3) GLPI’s historical deal activity has been best of breed in terms of accretion generated on a deal by deal basis…”

Santarelli’s price target of $46 may be obsolete, as the stock has a current price of $46.31. His rating here is, of course, a Buy.

With 5 recent Buy ratings, and only 1 Hold, GLPI gets a Strong Buy from the analyst consensus. As noted, shares are selling for $46.31 after rapid gains in recent weeks. This price is just a shade below the current average price target of $46.58, suggesting a mere 0.59% upside. Expect analysts to recalibrate their price targets here in coming weeks.

Axiom wins NASA approval to attach commercial habitat to space station

NASA has selected Axiom Space, a Houston-based startup partnering with Boeing and other aerospace contractors, to attach a commercial habitat to the International Space Station and begin constructing an orbiting complex that the company says could ultimately replace the international research outpost.

Axiom won a NASA competition to connect a commercial module to the forward port on space station’s Harmony module, or Node 2, officials announced Monday. NASA made available the port in a commercial solicitation last June, asking companies for proposals to join a public-private partnership with the space agency to develop and demonstrate technologies for a future commercial space station.

“Axiom’s work to develop a commercial destination in space is a critical step for NASA to meet its long-term needs for astronaut training, scientific research, and technology demonstrations in low Earth orbit,” said NASA Administrator Jim Bridenstine in a statement. “We are transforming the way NASA works with industry to benefit the global economy and advance space exploration. It is a similar partnership that this year will return the capability of American astronauts to launch to the space station on American rockets from American soil.”

NASA said it will begin negotiations with Axiom on a firm-fixed-price contract to build and deliver the module to the space station, with a five-year base performance period and a two-year option. NASA selected Axiom through a solicitation known as Appendix I in the space agency’s Next Space Technologies for Exploration Partnerships 2, or NextSTEP 2, program designed to foster public-private partnerships in spaceflight.

Axiom was founded in 2016 by Kam Ghaffarian, an aerospace industry entrepreneur, and Mike Suffredini, who was NASA’s program manager for the International Space Station from 2005 until 2015.

“We appreciate the bold decision on the part of NASA to open up a commercial future in low Earth orbit,” Suffredini said in a statement. “This selection is a recognition of the uniquely qualified nature of the Axiom team and our commercial plan to create and support a thriving, sustainable, and American-led LEO ecosystem.”

NASA says it selected Axiom to provide at least one commercial module for attachment to the space station. But Axiom has more ambitious objectives.

Axiom says it plans to build and launch several modules to form the “Axiom Segment” of the International Space Station. The company said it targets launch of the first module in the latter half of 2024.

The elements planned by Axiom include a node module, an orbital research and manufacturing facility, a crew habitat, and a “large-windowed Earth observatory” that is similar in appearance to the International Space Station’s cupola module. Axiom said the new commercial segment will add more research and habitation facilities to the ISS, and provide “novel avenues of research in areas such as isolation studies and Earth observation.”

Research currently conducted on the ISS could be transferred to the new commercial facility gradually to prevent interruptions with the ISS is retired, Axiom said in a statement.

While its partnership with NASA is focused on connecting a module to the International Space Station, Axiom plans to detach its commercial modules when the ISS reaches its retirement date, forming a standalone, free-flying commercial orbital station. Before the International Space Station is decommissioned and the Axiom Segment is detached, Axiom aims to launch a solar power platform to provide the commercial modules the electricity and cooling previously provided by the ISS.

Axiom also plans to launch crewed flights to the ISS and the ISS/Axiom complex at a rate of about two to three missions per year, the company said in a statement.

The industry team assembled by Axiom includes Boeing and Thales Alenia Space of Italy. Boeing and Thales built most of the pressurized modules on the U.S. segment the International Space Station, and Boeing’s Starliner commercial crew capsule could fly private astronauts to and from the ISS and the Axiom station.

Other partners identified by Axiom include Intuitive Machines and Maxar Technologies. Intuitive Machines was also co-founded in Houston by Ghaffarian, and Maxar is a leading manufacturer of large commercial satellites, including the Power and Propulsion Element for NASA’s planned Gateway mini-space station to orbit the moon.

“Axiom exists to provide the infrastructure in space for a variety of users to conduct research, discover new technologies, test systems for exploration of the moon and Mars, manufacture superior products for use in orbit and on the ground, and ultimately improve life back on Earth,” Suffredini said in a statement. “As we build on the legacy and foundation established by the ISS program, we look forward to working with NASA and the ecosystem of current and future international partners on this seminal effort.”

The U.S. government is in the process of approving an extension to NASA’s support for the International Space Station to 2028 or 2030. By that time, NASA managers hope commercial operators like Axiom could take over management of a replacement space station in low Earth orbit.

“We know the space station can’t last forever, and we need to move as quickly as we can to make sure we don’t have a gap in low Earth orbit,” Bridenstine said.

Turning over operations in low Earth orbit to the private sector would allow NASA to focus government spending on deep space exploration, such as human missions to the moon and Mars.

“The goal is we need to make sure we don’t have a gap in low Earth orbit, so we need to accelerate as fast as possible commercial capabilities,” Bridenstine told Spaceflight Now last month. “That means we’ve got to have commercial resupply, commercial crew … and, of course, we need to have a day where we have commercial space stations.

“In order to have commercial space stations, we need demand for activities in low Earth orbit, commercial demand,” Bridenstine said. “So things like we’re working on on the International Space Station, things like industrialized biomedicine and advanced materials, those are two areas where I think there’s a lot of promise for a demand for human habitation in low Earth orbit.”

NASA released studies performed by 12 companies last May assessing potential growth of a commercial market for a crewed research facility in low Earth orbit. The studies submitted to NASA came from Axiom Space, Blue Origin, Boeing, Deloitte Consulting, KBRWyle, Lockheed Martin, McKinsey & Company, NanoRacks, Northrop Grumman, Sierra Nevada Corp., Space Adventures and Maxar.

Weeks after the studies were released, NASA announced it was opening up a port on the space station for a commercial company to connect its own module to the ISS. Axiom won the competition, and a NASA spokesperson said Monday that Axiom is the only company the agency will select for the Harmony port.

NASA also announced a pricing structure for private astronauts who launch on Boeing or SpaceX commercial crew spacecraft to live and work aboard the International Space Station.

There is already one experimental commercial module attached to the space station. The Bigelow Expandable Activity Module, or BEAM, was built by Bigelow Aerospace and launched to the station aboard a SpaceX Dragon cargo mission in 2016.

BEAM was built to test the viability of an expandable, or inflatable, soft-sided module to provide habitation for space crews, and NASA has been satisfied with the module’s performance. After analyzing technical results from the module’s first few years in orbit, NASA determined BEAM can safely remain at the ISS until at least 2028 to provide extra stowage volume.

In an interview last month with Spaceflight Now, Bridenstine said developing a commercial market and commercial technology for space habitation has been a “stumbling block” for NASA.

The space agency’s earlier emphasis in commercialization focused on launch and transportation for cargo and crews. Now it’s time to take the next step and commercialize human operations in low Earth orbit, Bridenstine said.

“It is a stumbling block, and yes we need to solve it,” he said. “There are two elements to it. One is the demand for habitation, and one is the supply. NASA has made huge investments in the supply of launch for both cargo and crew. We need to probably make some bigger investments into habitation in low Earth orbit.

“So there is no doubt a need there where NASA needs to lead, and we’re going to have to step up to the plate and do that,” Bridenstine said.

“NASA intends to have a presence in low Earth orbit forever,” Bridenstine said. “We don’t ever want to leave low Earth orbit, but in order to do that, we’re going to have to be the customer. And probably at the beginning, we’re going to have to be the biggest customer. We’re going to probably have to be the tenant customer. But the goal is that over time, there will be enough demand to where there will be more habitation than just what NASA is needing.”

Other companies with concepts for a commercial space station in low Earth orbit, like Bigelow and NanoRacks, can propose their plans to NASA in a separate competition to develop a free-flying, independent commercial space station. NASA has not yet released the solicitation NextSTEP 2 solicitation for an orbital free-flyer.

“I would say there are commercial partners out there that don’t necessarily need the port (on ISS),” Bridenstine said.

Due To New California Law, Uber Allows Some Drivers To Set Their Own Rates

Uber is testing a new feature in California that allows some drivers to set their own rates.

The move comes in response to a new state law that requires more companies to convert their contract workers to employees, which means offering them benefits and added protections. Companies including Uber, Lyft and delivery app Postmates argue that doing so would upend their business model and eliminate the flexibility inherent to the gig economy.

Uber is currently testing a feature at airports in Sacramento, Palm Springs and Santa Barbara that allows drivers to increase fares in 10% increments, up to five times the base rate. Riders are then matched with the lowest fare.

In the coming days, Uber says it will also allow drivers to decrease their prices below the base rate and opt out of surge pricing. It’s part of an effort to give drivers more control — and bolster the argument that they’re truly contractors rather than employees.

The company acknowledges the experiment could have unexpected consequences.

“It could create more volatility for riders who expect a level of consistency in prices that could change as a result of this,” said Daniel Danker, head of driver product at Uber. “And this does add some meaningful complexity to the driver’s experience that gives them even more control on how their earnings work.”

Driver and rider confusion

Nar Bustamante, a traveler at Sacramento International Airport returning from Las Vegas, said he read about the new pricing experiment before landing.

“I think it opens up the road to many misinterpretations between rider and driver,” he said. “I don’t really know what the normal rate is. It didn’t say: ‘Here’s what the normal rate would be.’ So, I’m curious to see where this particular ride ends up.”

Drivers in Sacramento appear to be split on the new feature.

Adnan Badaoui, who has been driving for Uber for four years, began using it last week. He says even a small rate increase can add up for drivers.

“It’s not that much difference my friend, but it makes a difference to us, as a driver,” he said.

But driver Kim Beaver hasn’t had much luck. When the feature launched, she set her fare 50% higher than the base rate and waited for an hour without any activity.

“It’s just going to be chaos and frustrating for people,” Beaver said. “You’ll be waiting an hour to two hours to God knows how long.”

Gig companies continue to negotiate with state officials, seeking relief from the new labor law that requires companies to convert many contract workers to employees.

But Francis J. Mootz III, professor of law at McGeorge School of Law in Sacramento, says efforts like Uber’s new pricing feature may not be enough to convince lawmakers.

“Two or three years ago, if Uber and Lyft and other ride-share companies had really tried to restructure in a way to give workers true independence, true entrepreneurial opportunities, it might’ve been different,” Mootz said.

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