Question:
I’m going through my mom’s investments, since my Dad passed last year. I’ve come across Schweitzer-Mauduit International. Mom said that Dad bought it in the late 90s because a family friend was on the board or something. I’m guessing this is a local company. Can you provide me your opinion on this stock?
Answer:
Schweitzer-Mauduit International, Inc. (NYSE: SWM) is a local company, based in Alpharetta, Ga., that provides paper and reconstituted tobacco products to the tobacco industry. They have a global presence with operations in more than 90 countries. Unfortunately, shares are down nearly 20% on an earnings miss announced on Nov. 7th. The company’s sales have fallen 5% year over year, as tobacco sales volumes decreased 21%. With smoking rates falling, particularly in the United States (18%), Schweitzer doesn’t benefit from a shift to e-cigarettes. We don’t recommend shares at this time. If you want to buy a tobacco stock, we recommend Altria Group, Inc. (NYSE: MO).
Question:
CNBC had a segment on their show a few weeks ago about stocks with big gains but no profit. Boston Scientific was one company they mentioned. The company looks interesting. What do you guys think? Is this one a buy?
Answer:
Boston Scientific Corporation (NYSE: BSX) does not meet our minimum criteria for financial strength, so it is not a stock we consider. Boston Scientific makes medical devices for a variety of uses, from cardiology to oncology to gynecology.
True, the stock has doubled in price this year. However, in at least the last 10 years, Boston Scientific has posted a profit in all but one quarter. In other words, over the last 40 quarters, they’ve made money 39 times. That’s not to say their growth hasn’t been dreadful. The company has averaged less than 2% growth over the past five years.
Regardless, the Affordable Care Act medical device tax and a high valuation on Boston Scientific shares makes us very hesitant to recommend these shares.
Question:
We’ve held Cerner Corp. since 2005. It’s grown to about 7% of our portfolio, so we were thinking we should trim some shares based on your advice. How much should we trim? What else could we buy that would give us similar growth?
Answer:
Cerner Corp. (NASDAQ: CERN) is a worldwide healthcare solutions company that helps optimize clinical and financial outcomes by increasing operational efficiencies. The stock meets the Henssler criteria for investment based on financial strength and safety. It has a price-to-earnings-to-growth ratio of 2.22 and a price-to-earnings ratio of 44.27. The company’s expected long-term growth is 18%. The company is very attractive for profitability and efficiency, but too expensive to buy at its current price. If you hold it, we recommend keeping it, but trimming it to a market weight. You may want to consider a company like Universal Health Services, Inc. (NYSE: UHS), as it looks like insurance companies are increasing rates under the cover of providing everyone with every service conceivable under the sun. This is likely to make insurers more profitable, if Obamacare continues in its current form. If you do not own Cerner, we recommend waiting for a better price point before purchasing shares.
Question:
I’ve held Lumber Liquidators for a year, so I’d like to take my profits since I bought it around $48. Should I trim my position and hold on to this stock for a while longer? Is there a better stock in this industry? I was considering Beacon Roofing Supply.
Answer:
First, neither Lumber Liquidators Holding, Inc. (NYSE: LL) or Beacon Roofing Supply, Inc. (NASDAQ: BECN) meets our strict criteria for investment.
Lumber Liquidators is the largest specialty retailer of hardwood flooring in the United States. The company has grown sales at 11%, annually, over the past five years and earnings at 19% annually, which is impressive. The stock’s performance is reflective of this, with shares up 116% year-to-date. As a result, the valuation looks pretty high in terms of both PE and PEG, 44 and 2.3, respectively. Additionally, the stock doesn’t pay a dividend. The shares have been driven by the housing recovery and the possibility of a rise in rates on the horizon. We do not recommend of Lumber Liquidators at this time. If you own shares, we recommend taking profits. As far as an alternative in the industry, we prefer The Home Depot, Inc. (NYSE: HD). It trades at a P/E half that of Lumber Liquidators, a PEG of a little over 1, and pays a 2% dividend.
Beacon Roofing Supply Inc. distributes roofing materials and other building materials, including siding, windows and specialty lumber products. While we do not recommend it because it does not meet our criteria, it looks much more affordable than Lumber Liquidators. It’s not all pretty though. Beacon’s business is very cyclical and is very sensitive to weather conditions. This has taken a toll on results so far this year, as a rainy and cool June quarter along with a lack of damaging storm weather has weighed on the top line. Nearly 80% of the company’s revenue comes from roofing, so while the company doesn’t rely solely on roofing, you don’t get the diversification that you could with Home Depot.
At Henssler Financial we believe you should Live Ready, which includes understanding the diversity of your holdings business. If you have questions regarding your stock investments, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
