BY MALCOLM BERKO
RELEASE: WEDNESDAY, JANUARY 10, 2018
Constellation Getting High
Dear Mr. Berko:
This year, I plan to put $6,500 in my individual retirement account into the American Funds Global Balanced Fund, which my stockbroker says will outperform the stock market in the coming decade. I am 60 and intend to work till I’m 70. What is your opinion of American Funds?
Also, a friend working for Constellation Brands suggested I buy stock in his company because it’s going to be big in the cannabis business. He says it’s public knowledge. I’d appreciate your thoughts. — LD, Moline, Ill.
Of course the broker wants to sell a mutual fund. The American Funds Global Balanced Fund (GBLAX) pays your broker a 5.75 percent sales fee, but that fund’s poor record is an embarrassment. Go to Charles Schwab and buy 30 shares of Constellation Brands.
Marijuana is surreptitiously everywhere but difficult to get in most states unless you’re intimate with the dark alleys, motorcycle bars and seamy edges of your city. Constellation Brands (STZ-$221) is an $8 billion producer and marketer of beers, wines and the harder stuff. If you’ve gotten a buzz from a Corona, a Modelo, a Robert Mondavi, a Woodbridge, a Taylor, a Paul Mason, a Ruffino or a Manischewitz, you’re an STZ customer. Black Velvet, Wild Irish Rose, McMasters, Svedka and Casa Noble are also popular STZ drunk kits. STZ markets a passel of outstanding craft beers — plus an intriguing range of craft whiskeys produced by High West, a recent STZ acquisition. Because these labels provide a high-end buzz, they augur top- and bottom-line growth. Some 93 percent of sales derive from the U.S., while Canada, New Zealand and Europe claim the remaining 7 percent. STZ has been on a buying spree for the past few years, recently acquiring Funky Buddha, a craft brewer that’s among the fastest-growing labels in Florida. While beer is STZ’s most significant growth product, management’s diversification is aimed at growing the company’s long-term revenue and earnings. Read on. As your friend said, the best is yet to come.
Constellation is chasing a new buzz and recently took a 9.9 percent stake in Canopy Growth (11L1-$8.51), with an option to acquire another 9.9 percent. Canopy Growth is a Canadian company that’s the world’s largest cannabis grower. It’s listed on the Toronto Stock Exchange with a $1.7 billion valuation. This $191 million acquisition gives STZ a good grip in an industry that many believe will be fully legalized by the U.S. in a couple of years. Canopy and STZ intend to develop and market cannabis-infused beverages. And given what’s happening at the state level, Canopy may soon be marketing drinkable cannabis without alcohol, such as laced sodas, coffees and other elixirs. STZ’s management has no plans to sell cannabis products in the U.S. until pot is legalized nationwide. However, STZ plans to retail these products in Canada, where edible and drinkable cannabis products are expected to be legalized by the end of the year. Cannabis is a multibillion-dollar market that can produce multibillion-dollar profits. And I suspect that most of STZ’s corporate board and management, as far down as midlevel executives, are sampling product in the interest of research.
When the stock market melted in 2007, Constellation’s share price imploded to $11. Earnings were an uninteresting $1.44 a share, and revenues were $3.7 billion, while the dividend was a miserly $1.24. This year, management expects to report share earnings of $8.40 on revenues of $7.8 billion, and the board, after sampling some product, decided to pay a $2.08 dividend. During the same time frame, net profit margins have improved fourfold, to 22.6 percent. Cash flow has grown fivefold, and return on capital has grown nearly threefold. By 2022, share earnings could exceed $12.25. Revenues could come in at $10.5 billion, and it’s possible that the dividend will be $2.55. And none of those numbers includes anticipated sales from marijuana products. I believe that by 2024, cannabis products could account for 30 percent of STZ’s revenues and 60 percent of its profits, and I think the dividend could be $3.25. However, before those numbers have a chance to prove themselves, I suspect that Amazon will buy STZ’s business, allowing for the possibility that high-flying drones will deliver the product to your doorstep.
Zacks, Standard & Poor’s, Market Edge, Bank of America, Thomson Reuters, Argus Research, J.P. Morgan and Citigroup are recommending the stock. I am, too.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]
To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
COPYRIGHT 2018 CREATORS.COM
Here’s Why The ‘Cockroach Portfolio’ Is Gaining Popularity
Ray Dalio, the founder of Bridgewater Capital, calls it the “all-weather portfolio” and it’s helped his investment management firm amass roughly $140 billion in assets.
Former Libertarian presidential candidate Harry Browne called it his “fail-safe investing” portfolio. Additionally, It just had its best three-month return ever. It returned 18%, far exceeding its average annual return of 7%.
Browne’s investing philosophy was that when times are good, stocks do well. Meanwhile, bad times are good for Treasury bonds, and gold does well during stagflation. Also, cash is king during a recession or crisis.
Since we don’t know what the future holds, Browne advocated for putting 25% of your portfolio into each asset class. He also suggests being prepared for whatever comes. With bonds, gold, and Treasury’s in your portfolio, you’ll underperform during a bull market. However, you can more than make up for it by softening the blow during a down market.
The “Cockroach” Portfolio
Back in 2012, Dylan Grice, a former strategist with SG Securities, called that type “the cockroach” portfolio. He dubbed it as such due to its ability to survive anything thrown at it.
“What I like best about cockroaches,” wrote Grice, “isn’t just their physical hardiness, it’s the simple algorithm they use to survive. According to Richard Bookstaber, that algorithm is ‘singularly simple and seemingly suboptimal: it moves in the opposite direction of gusts of wind that might signal an approaching predator.’ And that’s it. Simple, suboptimal, but spectacularly robust.”
Grice has calculated that for long-term investors, this type of portfolio has done at least as well as the traditional 60/40 stock and bond mix since the early 1970s. But most importantly, it managed to avoid any massive drawdowns.
And just like cockroaches, your first job is surviving as an investor, says Groce, while prospering is job number two.
A Similar Approach
Fortunately for investors who are looking for this type of portfolio, an ETF has recently launched that follows the same approach as the “cockroach” portfolio.
It’s called The Advanced Research Investment Solutions Risk Parity ETF (RPAR) and was launched last November. Alex Shahidi, the managing partner and co-chief investment officer, says they’re up to $620 million in assets so far.
He says the ETF has returned 12% so far this year compared to 1% for the S&P 500.
Most importantly, during the crash in March it fell just 15%, less than half of the drop in the S&P 500.
According to Shahidi, the fund is 25% stocks, 15% industrial commodities, 17.5% gold, 20% long-dated Treasury inflation-protected securities and 42% long-term Treasury bonds. Total exposure to the market is 120%, because the fund is 20% leveraged.
The stock mix is half U.S. and half overseas stocks, with the overseas portion tilted toward high volatility emerging markets.
Nobody knows what the market will do next, so Shahidi says you want to be prepared for any outcome. “You want to be diversified to (different) economic environments,” he added.
He did say that “If I had to pick an asset class for the next 10 years, it would be gold.”
How To Buy Gold For Your Investment Portfolio – Part 2
Yesterday was part one of buying gold and silver coins for your investment portfolio. With gold and silver both on a hot streak, investors are looking for the fastest way to gain exposure to and buy precious metals. You must be prudent and exercise caution so you don’t make a mistake and find yourself with a bad investment.
Do: Buy Gold With Your Savings
Don’t borrow money to buy gold. Use your savings so when you take possession of your gold, it’s yours without any claims against it. With volatile gold prices, you don’t want to be paying back a loan on your gold if the price suddenly dips.
Don’t: Buy Gold With Credit
The current financial system is built on fiat currency and debt with dollars being printed out of thin air. The reason to own gold is the opposite of that. So to purchase gold by using the system it is protecting against defeats the purpose of owning gold. Just use your savings and own your gold outright from day one.
Do: Store Coin Nearby
If a crisis hits and you need access to your gold, you don’t want to be out in public trying to retrieve your gold. So whether it’s in a small safe hidden in your house or buried in your yard, keep your gold nearby for easy access.
Don’t: Store Coins In a Safety Deposit Box
Storing your gold at a bank sounds like a safe decision. But it’s a bad idea for a few reasons. The first is that if there were ever a crisis, you have to go to the bank to retrieve your gold. That assumes the banks will be open during a crisis. Then you have to get access to your safety deposit box, retrieve your coins and safely get them home. That’s a lot of things that need to go right during a crisis. Additionally, gold has been confiscated before. Here in the US, gold was confiscated in 1933 under Franklin Roosevelt. If it were to happen again, gold stored at home, where there is no record if it, is much safer.
Do: Only Invest With Money You Don’t Need For Awhile
Nobody knows when inflation will hit, or the dollar will collapse, or when gold prices will finally take off. But we aren’t trying to time any of those occurrences. The reason to own gold is a long term store of value. So you don’t want to speculate in gold. We could see prices move higher or significantly lower. But long term, history has shown that gold prices steadily march higher as the dollar steadily declines in value. So when buying gold, make sure it’s with money that you don’t need in an emergency. We suggest using savings or other funds that you don’t need to worry about getting access to for at least five years.
If you have any more questions about investing in gold, find a reputable gold coin dealer near you. They will be glad to answer questions.
Tech Companies Report Record Earnings, See $200 Billion Added To Market Cap
A day after their CEO’s spent five-and-a-half-hour-long testifying at a congressional hearing on anticompetitive practices, four of the largest tech companies in the world grew even larger after each reported strong earnings in the second quarter.
Yesterday alone, Apple, Amazon, Alphabet (Google’s parent company) and Facebook added about $200 billion to their cumulative market cap after they announced earnings. This shows just how dominant each business is. Combined the companies are now valued at more than $5 trillion.
Apple reported more than $11 billion in earnings despite shutting down most of their retail stores during the pandemic. On the earnings call the tech company reported strong demand for the smaller, lower-cost iPhone 11. It also reported a surge in sales for the iPad and Mac products.
“Mac and iPad, these are productivity tools that people are using to stay engaged with their work or stay engaged with their schoolwork,” Apple Chief Executive Tim Cook said during the call. “And we believe we’re going to have a strong back-to-school season sitting here today, it certainly looks like that.”
The company also surprised analysts during the call by announcing a 4-for-1 stock split. Investors who currently have shares will receive three additional shares for every one they own. The share price is also adjusted down to roughly 25% of the current price, helping to make shares more affordable.
Tens of millions of Americans stuck at home during the shelter-at-home restrictions. With this, Amazon was perhaps the biggest winner and reported a record net income last quarter. On the earnings call, Chief Financial Officer Brian Olsavsky said that online grocery sales had tripled in the quarter and video streaming had doubled from a year ago. The company also saw an increase in its cloud computing business.
Alphabet reported earnings and net income in line with expectations. However, it announced the tech company’s first-ever drop in revenue for display ads on Google.
“The macroeconomic environment costs by the pandemic created headwinds for our business,” Alphabet CEO Sundar Pichai said on the call, but said that indications in the third quarter are a stabilization in users and expectations are for revenue to return as well. “This was true across most of our advertising verticals and geographies. Of course, the economic climate remains fragile.”
Facebook, though, had the biggest after-hours jump in its stock price after it beat Wall Street expectations by topping $5 billion in quarterly profit. Also, Facebook said that its traffic grew during the pandemic, with more people at home online, but that the average price per ad declined due to the economic fallout of COVID-19.
“Facebook has been a lifeline of economic activity,” said Chief Financial Officer David Wehner on the earnings call. Also, the company announced $5 billion in quarterly profit.
It said that with more people at home all day due to the pandemic site traffic grew, but like Alphabet, saw a decrease in the average price per ad due to the economic fallout of COVID-19.
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