Microsoft – I Love the Company but maybe not the Stock

This month, we’re going to dig into Microsoft.  This is one that I’ve been looking at for a while for my son since they are the owner of Mojang and Minecraft.

Let’s start by looking at Microsoft’s financial ratios.  Their Debt-to-Equity ratio is the highest of their industry segment at 1.2.  That doesn’t particularly scare me as they brought in about $11 billion dollars in cash in the last quarter, according to their SEC filings.  $11 billion in cash generation puts them at a run rate of about 21 months to generate enough cash to equate their total debt load.  Most of their debt is being used to buy back shares of the company as well as pay their dividend.  They are borrowing very short term funds at less than .5% interest rates.

They are currently trading at 30.40 times their earnings.  This is quite expensive for Microsoft historically.  Their 5 year average P/E ratio is 21.65 and the 13 year average P/E ratio is 15.95.  These indicate to me that the stock is pretty highly valued right now.  Their current annual earnings adding the last quarter of the previous annual report  is $2.27 per share.  We’re primarily interested in seeing where the stock will be in a year, so with a projected growth in earnings of 9.7% over the next year that would put earnings per share at $2.49.  If we use their historic average P/E ratios that puts the stock price between $39.71 and $53.91.  If you review their earnings reports, you’ll notice that their sales have been consistently transitioning from the old stoic aspects of their business to primarily cloud based.  Along with the improved technology advancement in the cloud, Microsoft is very conscientiously buying back shares of their own stock.

Let’s dig into their share repurchase program next.  In the last quarter they bought back $1.6 billion dollars worth of their stock.  These repurchases were done at an average price of $64.  That should give us some additional insight as to what the directors feel the company should be valued at and give us somewhat of a faux floor under the stock price.  That is approximately 7.2% below the current stock price.  Their total outstanding repurchase agreement has the authority to purchase an additional $38.6 billion dollars worth of the company stock.  That consists of about another 559 million shares, which if they are all purchased would boost the stock value by about 7.25%.  Using the P/E ratios we figured in the last paragraph, if you increase the stock price by the 7.25% that could come from the repurchase you’d have the stock price between $42.59 and $57.82.

I also am a fan of the fact that they are continuing to improve and increase their dividend.  A really interesting fact about their dividend, is that they are able to borrow commercial paper at well under 1% in order to fund growth as well as pay dividends if they need the cash for the dividend payment.  At 2.26% currently, the dividend is solid (around the 10 year treasury bill) and they generate free cash flow of around $2.20 a year so their current dividend of $1.56 yearly is a little higher on the scale than I would like to see.  Also, of great importance to the dividend consideration is the fact that they are buying back large portions of the company, so that doesn’t show as free cash flow but they could always slow down the repurchase if they need to do that in order to keep the dividend strong.  Also, within the last year they have raised their dividend by just under 10% from .36 a quarter to .39 a quarter.  That is an excellent way for an investor to continue to compound their wealth through a stock investment.  Dividend growth may be better for the long term investor than actual stock price appreciation.

They have done a great job at transitioning from a hardware company (PC) to a software, service, and cloud company, which improves their ability to obtain recurring monthly income over just selling a product that will last for a couple of years.

I wouldn’t want to buy Microsoft at this time, unless I could get in under $60 per share.  I’d be willing to sell cash covered puts at $60 until the shares were forced onto me.  That way we’re collecting premiums and wouldn’t be worried about the actual stock price.  We’ll update our target and buy price as we get new information, but I could see this stock falling over the next year to somewhere in the $62 range.

Make every day great,
Chris

NHL Playoff Probabilities as of 3-26-17

Let’s start in the East!

We now have 3 teams that have clinched playoff spots and a fourth that will clinch with a win today.  There are 2 others that are in a very strong position to make the playoffs and 4 that are battling for the final two spots.  There are 5 teams that are pretty much eliminated at this point, one of those five could make a real run if they get on a winning streak.  In the East the target is 92 points to make the playoffs and 99 points is now the requirement to clinch a spot.

  1. Washington Capitals have clinched a playoff spot, they can still finish between 1st and 5th.
  2. Columbus Blue Jackets have clinched a playoff spot, they can still finish between 1st and 6th.
  3. Pittsburgh Penguins have clinched a playoff spot, they can still finish between 1st and 6th.
  4. New York Rangers have surpassed 92 points and are at a 98.44% chance to score 99 points.
  5. Montreal Canadiens have surpassed 92 points and are at a 85.98% chance to score 99 points.
  6. Ottawa Senators are 99.88% likely to reach 92 points and 51.81% chance to score 99 points.
  7. Toronto Maple Leafs with 57.62% chance to reach 92 points and 2.48% chance to score 99 points.
  8. Boston Bruins with 54.37% likely to reach 92 points.
  9. Tampa Bay Lightning with 39.32% chance to reach 92 points and .48% chance to score 99 points.
  10. New York Islanders 30.59% likely to reach 92 points.
  11. Carolina Hurricanes with 5.11% chance to reach 92 points.
  12. Philadelphia Flyers with .2% chance to reach 92 points.
  13. Florida Panthers with .16% chance to reach 92 points.

Detroit and Buffalo cannot reach 92 points and the New Jersey Devils have been eliminated from playoff contention.

We now have 2 teams that have clinched playoff spots and a third that will clinch with a win today.  There are 5 others that are in a very strong position to make the playoffs and a very limited chance for the remaining teams.  Los Angeles really needs to go on a run to have a shot.  There are 3 teams that are eliminated at this point, and three others that are virtually eliminated (those three include Los Angeles).  In the West the target is 90 points to make the playoffs and 94 points is now the requirement to clinch a spot.

  1. Chicago Blackhawks have clinched a playoff spot, they can still finish between 1st and 6th.
  2. Minnesota Wild have clinched a playoff spot, they can still finish between 1st and 8th.
  3. Anaheim Ducks have surpassed 90 points and are 97.93% likely to reach 94 points.
  4. San Jose Sharks have surpassed 90 points and are 96.84% likely to reach 94 points.
  5. Edmonton Oilers have surpassed 90 points and are 95.66% likely to reach 94 points.
  6. Nashville Predators 99.75% likely to score 90 points and 88.81% likely to reach 94 points.
  7. Calgary Flames 99.68% likely to score 90 points and 85.98% likely to reach 94 points.
  8. St. Louis Blues 97.93% likely to score 90 points and 72.13% likely to reach 94 points.
  9. Los Angeles Kings 2.48% likely to score 90 points.

Winnipeg and Dallas cannot reach 90 points, Vancouver and Arizona have been eliminated, and Colorado will finish in 14th place in the West.

The New York Rangers and the Anaheim Ducks can punch their playoff tickets with wins today.

Playoff Probability Google Spreadsheet

Have a great one,

Chris Mealick

NHL Playoff Outlook after 3/18 games

Let’s start in the East!

We have 7 teams that have put themselves in front as favorites to make the playoffs, and one of those teams have clinched a playoff spot now.  We have another 3 teams that are battling for the last position and we have 6 teams that are pretty much eliminated at this point.  In the East we’ve moved the target up to 92 points to make the playoffs and 100 points is now the requirement to clinch a spot.

  1. Washington Capitals have clinched a playoff spot, they can still finish between 1st and 8th.
  2. Columbus Blue Jackets have surpassed 92 points and have a 99.99% chance to score 101 points.
  3. Pittsburgh Penguins have surpassed 92 points and are at a 99.99% chance to score 101 points.
  4. New York Rangers have surpassed 92 points and are at a 96.16% chance to score 101 points.
  5. Montreal Canadiens 99.83% likely to reach 92 points and 43.27% chance to score 101 points.
  6. Ottawa Senators 99.48% likely to reach 92 points and 35.95% chance to score 101 points.
  7. Boston Bruins 79.91% likely to reach 92 points and 1.09% chance to score 101 points.
  8. Toronto Maple Leafs with 27.75% chance to reach 92 points and .13% chance to score 101 points.
  9. Tampa Bay Lightning with 25.88% chance to reach 92 points.
  10. New York Islanders 20.09% likely to reach 92 points.
  11. Carolina Hurricanes with 1.54% chance to reach 92 points.
  12. Philadelphia Flyers with .9% chance to reach 92 points.
  13. Florida Panthers with .69% chance to reach 92 points.

Now, let’s look at the West where our numbers are a little lower to make the playoffs and likely playoff spots.  In the West we have 8 teams that are in great shape, 1 that is trying to catch up to the 8th spot, and 4 that are virtually eliminated and one that is already eliminated.  In the West, it should take approximately 90 points to make the playoffs as of right now and it takes 100 to guarantee a spot in the playoffs as of today.  Colorado Avalanche are now completely eliminated.

  1. Chicago Blackhawks are 99.98% likely to reach 100 points.
  2. Minnesota Wild are 98.83% likely to reach 100 points.
  3. San Jose Sharks are 88.99% likely to reach 100 points.
  4. Anaheim Ducks 99.33% likely to score 90 points and 22.12% likely to reach 100 points.
  5. Calgary Flames 98.83% likely to score 90 points and 21.66% likely to reach 100 points.
  6. Edmonton Oilers 98.11% likely to score 90 points and 16.53% likely to reach 100 points.
  7. Nashville 89.55% likely to score 90 points and 3.63% likely to reach 100 points.
  8. St. Louis Blues 79.91% likely to score 90 points and 1.09% likely to reach 100 points.
  9. Los Angeles Kings 16.74% likely to score 90 points.
  10. Winnipeg Jets .01% likely to score 90 points.

Key match-ups today are Los Angeles vs. Calgary Flames.  If Calgary beats L.A., Chicago will clinch a spot in the playoffs and the playoff hunt for the West will continue to clarify as the top 8 separate themselves from Los Angeles.  In the East, the big game is the Columbus Blue Jackets and New Jersey.  If the Blue Jackets win they will join the Capitals in clinching their playoff spot.

Playoff Probability Google Spreadsheet

Have a great one,

Chris Mealick

NHL Playoff Probabilities after 3/6/17 games

Let’s start in the East!

We still have 7 teams that have put themselves in front as favorites to make the playoffs.  We have another 5 teams that are battling for the last position and we have 4 teams that are pretty much eliminated at this point.  In the East we’ve moved the target up to 90 points to make the playoffs and 107 points is now the requirement to clinch a spot.

  1. Washington Capitals are at 99.86% chance to score 107 points which would guarantee them a playoff spot.
  2. Columbus Blue Jackets 100% likely to reach 90 points and 84.1% chance to score 107 points.
  3. Pittsburgh Penguins 100% likely to reach 90 points and 80.42% chance to score 107 points.
  4. New York Rangers 100% likely to reach 90 points and 44.41% chance to score 107 points.
  5. Montreal Canadiens 99.73% likely to reach 90 points and 3.4% chance to score 107 points.
  6. Ottawa Senators 98.6% likely to reach 90 points and 1.56% chance to score 107 points.
  7. Boston Bruins 64.5% likely to reach 90 points.
  8. New York Islanders  30.72% likely to reach 90 points.
  9. Toronto Maple Leafs with 21.93% chance to reach 90 points.
  10. Philadelphia Flyers with 16.5% chance to reach 90 points.
  11. Florida Panthers with 13.37% chance to reach 90 points.
  12. Tampa Bay Lightning with 9.84% chance to reach 90 points.
  13. Carolina Hurricanes with 1.06% chance to reach 90 points.
  14. Buffalo Sabres with .61% chance to reach 90 points.
  15. Detroit Red Wings with .06% chance to reach 90 points.
  16. New Jersey Devils with .03% chance to reach 90 points.

Now, let’s look at the West where our numbers are a little lower to make the playoffs and likely playoff spots.  In the West we have 7 teams that are in great shape, 2 that are vying for the final playoff spot, and 4 that are virtually eliminated and one that is realistically already eliminated.  In the West, it should take approximately 86 points to make the playoffs as of right now and it takes 103 to guarantee a spot in the playoffs as of today.

  1. Minnesota Wild are 99.42% likely to reach 103 points.
  2. Chicago Blackhawks are 98.68% likely to reach 103 points.
  3. San Jose Sharks 100% likely to score 86 points and 80.11% likely to reach 103 points.
  4. Edmonton Oilers 99.75% likely to score 86 points and 4.92% likely to reach 103 points.
  5. Calgary Flames 98.36% likely to score 86 points and .06% likely to reach 103 points.
  6. Anaheim Ducks 97.89% likely to score 86 points and .76% likely to reach 103 points.
  7. Nashville 81.74% likely to score 86 points and .1% likely to reach 103 points.
  8. St. Louis Blues 59.27% likely to score 86 points and .01% likely to reach 103 points.
  9. Los Angeles Kings 42.34% likely to score 86 points.
  10. Winnipeg Jets 7.44% likely to score 86 points.
  11. Dallas Stars 2.3% likely to score 86 points.
  12. Vancouver Canucks 2.06% likely to score 86 points.
  13. Arizona Coyotes .00% likely to score 86 points.

Detroit at Toronto tonight is a major match-up in the playoff race for the East.  If Detroit were to beat Toronto, the playoff chase gets easier for those teams that are currently in the top 8.  If Toronto wins their likelihood goes up, but we would still project the Islanders as our 8th team.  In the East, any team that would go on a win streak of 5 straight wins from the top down to Tampa Bay would boost their playoff likelihood to over 50%, so I’d give the teams through the top 12 still a shot at making it.  In the West, we’re basically down to the top 9 teams that can still make a run at the playoffs but if Winnipeg could win their next 5 games they would be above a 50% likelihood to get to 86 points.

NHL Playoff Probability Google Spreadsheet

Have a great one,

Chris Mealick

NHL Playoff Probabilities after 3/1/17 games

Let’s start in the East!

We now have 7 teams that have put themselves in front as heavy favorites to make the playoffs.  We have another 4 teams that are battling for the last position and we have 5 teams that are pretty much eliminated at this point.  In the East we’ve moved the target up to 90 points to make the playoffs and 110 points is now the requirement to clinch a spot.

  1. Washington Capitals are 100% likely to score 90 points.  They are at 97.04% chance to score 110 points which would guarantee them a playoff spot.
  2. Columbus Blue Jackets 100% likely to reach 90 points and 66.9% chance to score 110 points.
  3. Pittsburgh Penguins 100% likely to reach 90 points and 46.9% chance to score 110 points.
  4. New York Rangers 100% likely to reach 90 points and 25.12% chance to score 110 points.
  5. Montreal Canadiens 99.74% likely to reach 90 points and .23% chance to score 110 points.
  6. Ottawa Senators 91.01% likely to reach 90 points and .04% chance to score 110 points.
  7. Boston Bruins 76.07% likely to reach 90 points.
  8. New York Islanders  41.68% likely to reach 90 points.
  9. Florida Panthers with 30.87% chance to reach 90 points.
  10. Toronto Maple Leafs with 25.84% chance to reach 90 points.
  11. Tampa Bay Lightning with 17.11% chance to reach 90 points.
  12. Philadelphia Flyers with 8.06% chance to reach 90 points.
  13. Carolina Hurricanes with 1.11% chance to reach 90 points.
  14. New Jersey Devils with .72% chance to reach 90 points.
  15. Detroit Red Wings with .48% chance to reach 90 points.
  16. Buffalo Sabres with .44% chance to reach 90 points.

Now, let’s look at the West where our numbers are a little lower to make the playoffs and likely playoff spots.  In the West we have 7 teams that are in great shape, 2 that are vying for the final playoff spot, and 4 that are virtually eliminated and one that is realistically already eliminated.  In the West, it should take approximately 86 points to make the playoffs as of right now and it takes 105 to guarantee a spot in the playoffs as of today.

  1. Minnesota Wild 100% likely to score 86 points and 99.42% likely to reach 105 points.
  2. Chicago Blackhawks 100% likely to score 86 points and 88.77% likely to reach 105 points.
  3. San Jose Sharks 100% likely to score 86 points and 58.4% likely to reach 105 points.
  4. Edmonton Oilers 100% likely to score 86 points and .79% likely to reach 105 points.
  5. Anaheim Ducks 98.68% likely to score 86 points and .27% likely to reach 105 points.
  6. Nashville 93.99% likely to score 86 points and .27% likely to reach 105 points.
  7. Calgary Flames 93.95% likely to score 86 points.
  8. St. Louis Blues 59.65% likely to score 86 points.
  9. Los Angeles Kings 42.26% likely to score 86 points.
  10. Winnipeg Jets 4.35% likely to score 86 points.
  11. Dallas Stars 1.09% likely to score 86 points.
  12. Vancouver Canucks 1.07% likely to score 86 points.
  13. Arizona Coyotes .00% likely to score 86 points.

 

Los Angeles against Toronto tonight is a major match-up in the playoff races for both the East and the West.  Whichever team loses will lower the required points to make the playoffs in their respective conference.  In the East, any team that would go on a win streak of 5 straight wins from the top down to Philadelphia would boost their playoff likelihood to over 50%, so I’d give the teams through the top 12 still a shot at making it.  In the West, we’re basically down to the top 9 teams that can still make a run at the playoffs.

NHL Playoff Probability Google Spreadsheet

Have a great one,

Chris Mealick

Let’s start in the East!

We still have 6 teams that have put themselves in front as heavy favorites to make the playoffs.  We have another 4 teams that are battling for the other two positions and we now have 6 teams that are pretty much eliminated at this point.  The number in the East has increased from needing 89 points to likely make the playoffs to 90 points based on wins since 2/17/17.  Also, it now only takes 113 points to guarantee a playoff spot.  Here are the updated projections:

  1. Washington Capitals are 100% likely to score 90 points which right now appears be the cut off point for the East playoffs.  They are at 91.36% chance to score 113 points which would guarantee them a playoff spot.
  2. Pittsburgh Penguins 100% likely to reach 90 points and 32.71% chance to score 113 points.
  3. Columbus Blue Jackets 100% likely to reach 90 points and 31.25% chance to score 113 points.
  4. New York Rangers 100% likely to reach 90 points and 11.89% chance to score 113 points.
  5. Ottawa Senators 93.74% likely to reach 90 points and .01% chance to score 113 points.
  6. Montreal Canadiens 91.65% likely to reach 90 points.
  7. Boston Bruins 41.59% likely to reach 90 points.
  8. Toronto, Florida, and the New York Islanders all 40.26% likely to reach 90 points.
  9. Tampa Bay Lighting 10.67% chance to reach 90 points.
  10. Philadelphia Flyers with 8.35% chance to reach 90 points.
  11. Buffalo Sabres with 4.49% chance to reach 90 points.
  12. Carolina Hurricanes with 1.73% chance to reach 90 points.
  13. New Jersey Devils with 1.09% chance to reach 90 points.
  14. Detroit Red Wings with .19% chance to reach 90 points.

Now, let’s look at the West where our numbers are a little lower to make the playoffs and likely playoff spots.  In the West we have 5 teams that are in great shape, 4 that are vying for the final 3 playoff spots, and 3 that are virtually eliminated.  In the West, it should take approximately 85 points to make the playoffs as of right now and it takes 109 to guarantee a spot in the playoffs as of today.

  1. Minnesota Wild 100% likely to score 85 points and 94.57% likely to reach 109 points.
  2. Chicago Blackhawks 100% likely to score 85 points and 34.71% likely to reach 109 points.
  3. San Jose Sharks 100% likely to score 85 points and 12.33% likely to reach 109 points.
  4. Edmonton Oilers 99.52% likely to score 85 points and .25% likely to reach 109 points.
  5. Anaheim Ducks 98.55% likely to score 85 points and .03% likely to reach 109 points.
  6. St. Louis Blues 88.95% likely to score 85 points.
  7. Nashville Predators 72.14% likely to score 85 points.
  8. Calgary Flames 58.41% likely to score 85 points.
  9. Los Angeles Kings 46.73% likely to score 85 points.
  10. Winnipeg Jets 7.95% likely to score 85 points.
  11. Vancouver Canucks 4.45% likely to score 85 points.
  12. Dallas Stars .44% likely to score 85 points.
  13. Arizona Coyotes .01% likely to score 85 points.
  14. Colorado Avalanche can not reach 85 points, so we consider them eliminated from playoff contention.

Key match-ups for this evening are:
Rangers at Maple Leafs, a Toronto loss will bring the points required to lock up a playofff spot down.

Islanders at Canadiens, same scenario as above for the Islanders.

Boston at Los Angeles, a Los Angeles loss will bring the required points down in the West.

Calgary at Tampa Bay, the same scenario that Los Angeles is facing.

Below is the link to the Google Spreadsheet where I will update hopefully each morning.  I will highlight the wins column of the teams that are playing that day and highlight the 8 teams in each division that still have the highest mathematically achievable point totals.

NHL Playoff Probability Google Spreadsheet

Have a great one,

Chris Mealick

NHL Playoff Picture after 2/17/17 Games are Completed

Let’s start in the East!

We basically have 6 teams that have put themselves in front as heavy favorites to make the playoffs.  We have another 5 teams that are battling for the other two positions and we have 5 teams that are pretty much eliminated at this point.  Now, if one of the bottom five teams can get on a roll they can definitely become a factor again.  Just before the All-Star break I was figuring New Jersey as about a .04% chance to make it, and now they are at 2.26% chance.  Considerably better but still a long way to go, if they can win 5 straight games they are definitely within striking distance.

  1. Washington Capitals are 100% likely to score 89 points which right now appears be the cut off point for the East playoffs.  They are at 86.6% chance to score 115 points which would guarantee them a playoff spot.
  2. Columbus Blue Jackets 100% likely to reach 89 points and 30.29% chance to score 115 points.
  3. Pittsburgh Penguins 100% likely to reach 89 points and 24.24% chance to score 115 points.
  4. New York Rangers 100% likely to reach 89 points and 8.13% chance to score 115 points.
  5. Montreal Canadiens 91.33% likely to reach 89 points.
  6. Ottawa Senators 89.36% likely to reach 89 points.
  7. Toronto Maple Leafs 43.15% likely to reach 89 points.
  8. Boston Bruins 41.94% likely to reach 89 points.
  9. Florida Panthers and New York Islanders both with 28.65% chance to reach 89 points.
  10. Philadelphia Flyers with 17.04% chance to reach 89 points.
  11. Tampa Bay Lightning with 6.27% chance to reach 89 points.
  12. Carolina Hurricans with 6.19% chance to reach 89 points.
  13. Buffalo Sabres with 4.4% chance to reach 89 points.
  14. New Jersey Devils with 2.26% chance to reach 89 points.
  15. Detroit Red Wings with .07% chance to reach 89 points.

Now, let’s look at the West where our numbers are a little lower to make the playoffs and likely playoff spots.  In the West we have 6 teams that are in great shape, 3 that are vying for the final 2 playoff spots, and 3 that are virtually eliminated.  In the West, it should take approximately 85 points to make the playoffs as of right now and it takes 110 to guarantee a spot in the playoffs as of today.

  1. Minnesota Wild 100% likely to score 85 points and 90.82% likely to reach 110 points.
  2. Chicago Blackhawks 100% likely to score 85 points and 18.98% likely to reach 110 points.
  3. San Jose Sharks 99.98% likely to score 85 points and 7.49% likely to reach 110 points.
  4. Edmonton Oilers 98.58% likely to score 85 points and .23% likely to reach 110 points.
  5. St. Louis Blues 96.2% likely to score 85 points and .01% likely to reach 110 points.
  6. Anaheim Ducks 96.08% likely to score 85 points and .03% likely to reach 110 points.
  7. Nashville 65.67% likely to score 85 points.
  8. Calgary Flames 58.06% likely to score 85 points.
  9. Los Angeles Kings 57.75% likely to score 85 points.
  10. Winnipeg Jets 4.45% likely to score 85 points.
  11. Vancouver Canucks 4.4% likely to score 85 points.
  12. Dallas Stars .17% likely to score 85 points.
  13. Arizona Coyotes .01% likely to score 85 points.
  14. Colorado Avalanche 0% likely to score 85 points.

The two 10 p.m. games tonight are key match-ups to watch for the playoff probabilities.  Florida Panthers at the Los Angeles Kings will pit the two teams just outside of my playoff projections against one another as 9 from the East plays 9 from the West.  Calgary at Vancouver is an important game for the West playoff outlook.  I am also interested in the Islanders game at the Devils at 7 p.m. tonight for the East Conference playoff outlook.

Below is the link to the Google Spreadsheet where I will update hopefully each morning.  I will highlight the wins column of the teams that are playing that day and highlight the 8 teams in each division that still have the highest mathematically achievable point totals.

NHL Playoff Probability Google Spreadsheet

Have a great one,

Chris Mealick

 

Apple, can it keep going up from here?

Full disclosure, I’ve never bought Apple, as a matter of fact I have primarily been a Warren Buffett type of investor for my whole career.  I have shied away from most anything technology related.  It’s not that I am completely non-technologically savvy, just that I’ve never really tried to understand their balance sheets nor really read their annual reports.  I will admit I did buy Facebook on their IPO at $38 a share, and then watched it drop to around $16 a share, held through the trough and got out around $42.  Yes, I am aware of what the current stock price is and recognize that I completely missed the boat on that investment, which also likely plays into my nervousness around the Technology sector.   I did mention to my wife in the summer of 2016, I don’t have this recorded anywhere so it can’t be proven, that I like Apple at $90 a share but I’m afraid to buy it because I don’t know what will be the catalyst to drive the stock price higher.  Again, I missed the boat so now I am going to do a full review to see where I think Apple is headed in the next year.

Let’s start by looking at Apple’s financial ratios.  Their Debt-to-Equity ratio is the highest of their industry segment at .60.  That doesn’t particularly scare me as they brought in about $27 billion dollars in cash in the last quarter, according to their SEC filings.  $27 billion in cash generation puts them at a run rate of about 18 months to generate enough cash to equate their total debt load.

They are currently trading at 15.42 times their earnings.  This is actually a little bit expensive for Apple historically.  Their 5 year average P/E ratio is 13.45 and the 10 year average P/E ratio is 15.46.  These indicate to me that the stock is pretty fairly valued right now.  Their current annual earnings (backing out the first quarter of last year and adding in the most recent quarter) is $8.43 per share.  We’re primarily interested in seeing where the stock will be in a year, so with a projected growth in earnings of 13% over the next year that would put earnings per share at $9.53.  If we use their historic average P/E ratios that puts the stock price between $128.18 and $147.33.  They did ramp up their Research & Development cost, so that is potentially a bright spot for the company going forward.  Along with that ramp in research and development, their earnings over the last quarter only grew due to the fact that there so many fewer shares of stock outstanding due to their share repurchase program.

Let’s dig into their share repurchase program next.  In the last quarter they bought back $10.85 billion dollars worth of their stock.  $5 billion dollars worth of their repurchases were done in the open market at an average price of $112.78.  That should give us some additional insight as to what the directors feel the company should be valued at and give us somewhat of a faux floor under the stock price.  That is approximately 12.6% below the current stock price.  They also have another program together where they are doing “Accelerated Share Repurchases” where they work with a financial institution and have an agreement on the amount of stock they will buy back from that institution.  There is still an outstanding $6 billion dollars sitting out there to purchase at the end of February.  Their total outstanding repurchase agreement has the authority to purchase an additional $31 billion dollars worth of the company stock.  That consists of about another 275 million shares, which if they are all purchased would boost the stock value by about 5.22%.  Using the P/E ratios we figured in the last paragraph, if you increase the stock price by the 5.22% that could come from the repurchase you’d have the stock price between $134.87 and $155.02.

I also am a fan of the fact that they are continuing to improve and increase their dividend.  A really interesting fact about their dividend, is that they are able to borrow commercial paper at well under 1% in order to fund growth as well as pay dividends if they need the cash for the dividend payment.  At 1.77% currently, the dividend is not huge but they generate free cash flow of $7.63 a year so a $2.28 yearly dividend is not difficult at all for them to continue to pay.  Also, of great importance to the dividend consideration is the fact that they are buying back large portions of the company, so that doesn’t show as free cash flow but they could always slow down the repurchase if they need to do that in order to keep the dividend strong.  Also, within the last year they have raised their dividend by just under 10% from .52 a quarter to .57 a quarter.  That is an excellent way for an investor to continue to compound their wealth through a stock investment.  Dividend growth may be better for the long term investor than actual stock price appreciation.

I did notice a few things that are of significant concern in their most recent quarterly report.  The first one is that the company actually lost sales in China.  Their China sales were down 12% from the year prior.  All of the other areas where they track sales did see an increase year over year, but with China being one of the fastest growing and the second largest economy of a country that is of some concern.  Apple sales indicates China as their third largest economy behind the Americas and Europe.  The other portion of their sales that concerns me has a bright spot within it as well.  Apple saw a 5% increase in their Iphone sales due to the 7 being introduced.  I am concerned though that 69% of their sales comes from the Iphone, so essentially they are a smart phone company right now.  There was another great bright spot in the sales and that is an 18% increase in the sales within their services segment.  They are slowly transitioning from a hardware company to a software and service company, which improves their ability to obtain recurring monthly income over just selling a product that will last for a couple of years.

I am targeting a price of approximately $148 for the stock by this time next year.  When completing fundamental analysis and review of the annual reports, I don’t like to buy stock in a company unless I can foresee approximately a 20% increase over the next 12 months.  In order to obtain a 20% increase based on my $148 target, I would only be willing to buy the stock up to $125.23.  Therefore, if we see a 5-6% pullback of the stock I would be interested in buying at that time.  I always put a stop loss on any stock I purchase, with Apple I would put a 25% stop loss in place.  Then we’ll continue to revise our number as we’re presented additional information throughout the year.

Make every day great,

Chris Mealick

Aflac: An Update – Why I wouldn’t be buying now

It’s been a little over a year since we first discussed Aflac here on the blog, so let’s rehash the position and see if it still looks like a winner going forward.  They have continued in their profitability as well as their dividend payments and even better, their dividend growth.  Right at the end of 2016 they decided to increase their quarterly dividend again by almost 4.9%.

As mentioned last time, there is something that is always important to understand when looking at a dividend paying company, do they have the cash flows to continue support the dividend, and if the dividend has consistently grown can they continue to support that growth?  Ok, so now that we have our first couple questions let’s start to answer them. Aflac has been growing dividends for over three decades (the actual number is 34 years). Now, let’s consider the dividend payment and the free cash flow. The company just announced an increase in their dividend by 4.9% as we noted above from 41 cents a quarter to 43 cents a quarter. The continued growth of the dividend is a very positive sign for an investor in this company. With the $1.72 per year in dividends, that is a yield of 2.44% which is slightly lower than last year due to price appreciation they saw in 2016.  If you compare the yield for this company to the U.S. Treasury bond yields it falls slightly below the 2.52% yield of the 10 year.  Not great, but not terrible either, considering you would have to lock your money up in a 10 year bond in order to get basically the same yield.

Their free cash flow position of around 13.50 a year per share hasn’t changed much, so they can easily handle the 1.72 dividend without having to be concerned about the ability to pay or increase them in the future. If they just stay at the current free cash flow levels they can handle more than a dollar per quarter before they would start to feel any pressures on their financial well-being. The other thing to consider is with that much free cash flow and the small amount being utilized for dividends, is that they have the ability to either buy-back a significant amount of shares or look at purchasing other companies.

That brings us back to another significant thing to look at when you are considering investing in Aflac. They currently have approved the re-purchase of approximately 7.25% of the outstanding shares of their company over the next 2 years, which accounts for 29.6 million shares. They have been rampantly repurchasing shares of their company, which tells me that they believe the stock is undervalued.  If they didn’t feel that they were getting good value on their money, they could purchase other insurance companies to grow, but they obviously feel that buying back shares of their own company is a better value.  During the first nine months of 2016 the average share price of their buybacks was approximately $63.82 per share.  That tells me that they have put a faux floor on the price of their stock likely in the $63 range.  When I look at valuations, I try to compare their P/E ratio to their historic ratios rather than against competitors, because it gives us a better feel for the public’s opinion of that company only. So, let’s consider the 10 year median and 5 year medians for their P/E ratios historically of 11.18 for the 10 year and 9.75 for the 5 year. The company is currently trading above both of these figures, so it appears right now it could possibly be fairly valued.  If Aflac drops to the 10 year number of 11.18 that is a price drop from $70.46 (writing this on 1/25/17) to $70.42 or a .06% decrease. If it falls to its 5 year median P/E it would drop to $61.42 or a 12.83% decrease. Obviously if they do complete their entire share repurchase that is authorized, we are talking about a company that would increase their earnings to $6.79 from their current earnings of $6.31. This earnings growth would put them in between $66.22 and $75.93 based on their historic P/E ratios before we even consider revenue growth.

That brings me to the negative things or concerns around Aflac as a company. Their latest quarterly report indicates that approximately 61% of their revenues come from Japan. The strength of the United States dollar (USD) has had a negative impact on their earnings of Aflac due that high reliance on overseas sales. The historical 5 year and 10 year average USD/JPY exchange rates are 103.11 and 99.46 respectively, versus the current status of basically 113 right now. I should explain further that this exchange rate tells you how many yen you would get for one United States dollar.  The big concern here is, does the USD continue its strength in the next few years especially now that we are looking at rate increases by the United States Federal Reserve? This would give foreign investors additional interest in buying bonds within the United States, above the fact that the USD is the world reserve currency, if they can start getting higher rates of interest more people may be putting more money into the United States economy. This is my biggest concern on buying into Aflac right now, because I’m afraid that the bull market in the USD/JPY isn’t over and it may continue up to what would be around the 25 year high of 145 before things start to level out and it would settle back in around the 100-105 range.  These things would all take a significant amount of time to occur, but let’s look at the possible scenarios around the currency exchanges. I used 100 for the bottom and 145 for the top, and that brings the current earnings in between $5.47 and $6.79. Then when you complement those with the potential shifts in P/E ratios and the share repurchase growth to a range between $57.50 and a high of $81.85.

All of this is before you even consider any actual growth in the Aflac market share or organic earnings growth that is not brought on by those scenarios mentioned above. The earnings estimates include roughly a 6% decline next year and a 7% average gain over the next five years. They have struggled to grow on the income side recently, and the majority of their share price growth has come from the repurchase of outstanding stock. Thus, with a 6% earnings decline next year we’re in the range of $54.05 and $76.94.  With those kinds of figures, if I were not currently holding shares in Aflac I would not be interested in buying at this time.  I want to look for companies that even before we contemplate the dividend, they have a possible growth of 20% in the next year and a smaller downside.

If you got into this stock when we first published the article on Aflac, in November of 2015, and at our buy up to price of $67.50 you’ve seen the stock gyrate both above and below that buy up to price.  It would have almost hit that 20% stop loss in January of 2016, when it dropped down to $55.55, but then turned around and went all the way up to $74.50.  With the 20% stop loss in place, this would put our exit point at $59.60 if the stock goes against us from here, while right now it is trading at right around $70.50.  In the meantime, we have collected over $1.60 per share in dividends and can continue to let it run while the dividend compounds and builds wealth.

All the best,

Chris Mealick

Ohio D4 Region 15 week 7 update

So, the burning question in the heart of football fans today is “How does tonight’s game affect our playoff hopes?”

Let’s dive in to that here, starting with the highest amount of maximum points available and going down:

Johnstown (7-0) currently 1st in the region with 17.39 points.  They are already guaranteed at worst a finish of 18th in the region with a minimum amount of points to finish with of 17.2 points but could still score as high as 25.15 points without winning another game.  They are guaranteed at worst a 7th place finish if they win out with a minimum of 25.5 and the greatest amount of maximum points of 34.75.  We’re expecting them to win out and finish with 28.95 points to be the top seed going into the playoffs.

Heath (7-0) currently 3rd in the region with 14.35 points.  They are guaranteed at worst a finish of 22nd in the region with minimum points to finish with of 14.3 points and could still score as much as 21.7 points without another win.  They are guaranteed at worst a 7th place finish if they win out with a minimum of 25.1 and the 2nd most amount of maximum points with 29.85.  We’re expecting a 9-1 finish  and 23.2 points as they will match-up with Johnstown in week 10, and we project them as the 3rd seed in the playoffs for this region.

Steubenville (6-1) currently 2nd in the region with 14.59 points.  They are guaranteed at worst 23rd in the region with minimum points to finish with of 13.67 points and could still finish with 23.02 without winning another game.  They are guaranteed at worst 17.15 points if they win out, which guarantees an 18th or better finish, and maximum points of 28.73.  We expect them to win out and finish with 24.05 points to give them the 2nd seed and a home playoff game in week 11.

Shelby (6-1) currently 4th in the region with 12.66 points.  They are guaranteed at worst 24th in the region with minimum points of 12.15 points and could finish with as many points as 20.15 without winning another game.  They are guaranteed at worst 18.9 points if they win out, which guarantees a top 16 finish, and maximum points available of 27.75.  We expect them to finish 8-2, with a loss to Bellevue, and finish with final points of 17.25 and the 7th seed which would send them to Steubenville for week 11.

Cambridge (5-2) currently 5th in the region with 12.02 points.  They are guaranteed at worst a 26th place finish with minimum points of 10.88 points and could finish with as many as 18.66 points without winning another game.  They are guaranteed at worst 18.29 points if they win out, which guarantees a top 18 finish, and maximum points available of 26.98.  We expect them to finish 7-3, with a loss to New Philadelphia, and finish with 16.98 points for the 8th seed and a trip to Johnstown for week 11.

Licking Valley (3-4) currently 9th in the region with 9.16 points.  They are guaranteed at worst 27th place in the region with minimum points of 8.5 points and could finish with as many as 13.5 points without winning a game, which would put them at best 4th.  If they win out they will score a minimum of 18.65 points which puts them at worst 17th and could still score a maximum of 25.6 points.  We project them to finish 4-6 and out of the playoffs in 11th with final harbin points of 12.25.

Bloom Carroll (5-2) currently 6th in the region with 11.5 points.  They are guaranteed at worst 26th place in the region with minimum points of 10.9 and could finish with as many as 17.6 points without winning another game.  If they win out they are guaranteed 20.7 points which would be at worst 14th and could still score as many as 25.55 points.  We are projecting them to finish 7-3, with a loss to Hamilton Township and finish 6th in the region with 18.5 points.  This would send them to Heath for a week 11 match-up.

Indian Creek (6-1) currently 10th in the region with 9.04 points.  They would finish between 2nd and 27th without winning another game, with their point range between 9.25 and 15.4 points.  If they win out they would finish between 17.1 and 23.95 points, which places them between 1st and 18th.  We are projecting them to finish 8-2 with a loss to South Range and finish with 19 points for 5th in region and a week 11 game at Amanda-Clearcreek.

Philo (6-1) currently 8th in the region with 9.99 points.  They would finish between 2nd and 27th without winning another game, with their point range between 10.05 and 16.05 points.  If they win out they would finish between 20.3 and 23.45 points, which places them between 1st and 15th.  We are projecting them to finish 8-2 with a loss to Tri-Valley and finish with 15.15 points for 9th in region.

Ontario (4-3) currently 15th in the region with 6.8 points.  They would finish between 5th and 28th without winning another game, with their point range between 6.45 and 11.2 points.  If they win out they would finish between 18.25 and 23 points, which places them between 1st and 18th.  We are projecting them to finish 4-6 and finish with 8 points for 17th in region.

Lakewood (4-3) currently 12th in the region with 6.97 points.  They would finish between 5th and 28th without winning another game, with their point range between 6.65 and 11.15 points.  If they win out they would finish between 17.1 and 22.8 points, which places them between 1st and 18th.  We are projecting them to finish 4-6 and finish with 8.45 points for 16th in region.

Amanda-Clearcreek (4-3) currently 7th in the region with 10.1 points.  They would finish between 2nd and 27th without winning another game, with their point range between 10.2 and 14.35 points.  If they win out they would finish between 18.4 and 21.9 points, which places them between 1st and 18th.  We are projecting them to finish 7-3 and finish with 19.5 points for 4th in region and to host a week 11 game.

St. Clairsville (3-4) currently 13th in the region with 6.93 points.  They would finish between 7th and 28th without winning another game, with their point range between 6.35 and 10.54 points.  If they win out they would finish between 15.53 and 21.54 points, which places them between 1st and 19th.  We are projecting them to finish 4-6 and finish with 10.94 points for 13th in region.

Canal Fulton Northwest (4-3) currently 11th in the region with 7.39 points.  They would finish between 4th and 28th without winning another game, with their point range between 6.55 and 12.75 points.  If they win out they would finish between 11.05 and 20.7 points, which places them between 1st and 26th.  We are projecting them to finish 6-4 with a loss to St. Charles and finish with 11.75 points for 12th in region.

Claymont (4-3) currently 14th in the region with 6.87 points.  They would finish between 7th and 28th without winning another game, with their point range between 6.5 and 10.74 points.  If they win out they would finish between 14.11 and 20.52 points, which places them between 1st and 2nd.  We are projecting them to finish 6-4 with a loss to Coshocton and finish with 12.4 points for 10th in region.