Question:
I was doing some research and I saw some stocks that I thought were interesting. Copa Holdings SA looks like an interesting stock, Beta is not too high, P/E is not too bad and has a good dividend. I’d also like to know about Cinemark Holdings.
Answer:
Neither of these stocks meet our strict financial criteria for investment. However, let’s start with Copa Holdings (NYSE: CPA). The company is a leading Latin American airline offering more than 340 flights daily to some 64 destinations. Latin America is expected to be the second fastest growth region in terms of air passenger traffic in 2014 and 2015 at 8.7% and 8% respectively. Copa is nearly three times as profitable as Delta Air Lines Inc. (NYSE: DAL) with profit margins of about 18% compared to Delta’s of 6.8%. The company has grown earnings at an annual rate of 14% over the past five years, and is expected to grow at 11% in the coming three to five years. Shares also trade in-line with the peer average P/E.
Airline regulation is different in Latin America than it is in the United States, allowing Latin American airlines to be more profitable. There are much higher barriers to entry. For example, there is a 20% cap on foreign investment in Brazilian airlines, making it tough for the large U.S. or other global airlines to establish a presence in Brazil and other Latin American countries.
Copa also utilizes excess belly capacity on its plains to carry cargo, which improves fleet utilization. This cargo segment is also less sensitive to price sensitivity, as there is a time sensitivity nature of the delivery.
Cinemark Holdings, Inc. (NYSE: CNK) operates movie theaters in the United States, Brazil, Mexico, and other Latin American countries. The company generates about a quarter of its revenue from Latin America, which is expected to be its catalyst for growth as the movie markets continues to expand rapidly in Latin America. This should help offset the slowing in North American ticket sales.
The company has grown earnings at an annual rate of 13% over the past five years and is expected to grow at more than 18% annually for the next three to five years. The shares pay a nice dividend of almost 3.5% which is expected to grow at 7% per year. Shares trade at a slight premium to their historical average but are in-line with their peer average.
We do not recommend Copa Holdings, we would be ok with a small position in Cinemark.
Question:
What do you think about Dominion Diamond Corp?
Answer:
We do not think a whole lot about Dominion Diamond Corp. (NYSE: DDC) because it does not meet our quality standards for financial strength. We do know that Dominion Diamond is a miner and marketer of rough diamonds. The company is based out of Canada, mines for diamonds in Canada’s Northwest Territories, and sells its jewels in Canada, Belgium, and India.
Analysts have a target price on these shares that is about 50% higher than its current price, but we do not understand why. The company has lost money in the past 12 months, and even when it made money, its earnings fell short of analysts’ expectations by an average of about 35% in the previous six quarters.
We recommend avoiding this stock. It’s too much of a commodity-play. Not only are Dominion Diamond’s earnings dependent upon finding diamonds near the Arctic Circle, but also on the price of those diamonds it can attain on the market.
Question:
With Apple’s split will that make the stock better to buy or worse? I know you have loved the stock and I own a little, I am just wondering if this is the time to buy more.
Answer:
Last Wednesday, Apple Inc., (NASDAQ: AAPL) announced its largest stock split ever, a 7:1 stock split set for June 6th. This is the company’s fourth stock split since going public in 1980. Splitting 7 for 1 doesn’t change our view on the stock, nor does it change the value of your current holdings.
On the company’s conference call, CEO Tim Cook explained that the reason for the split was to make Apple stock more accessible to a larger number of investors. One downside has been brought up is that this now lower stock price encourages more short-term traders to start trading the shares, which could add volatility to the stock. It’s obviously easier to buy 1,000 shares of a $75 stock than it is to buy 1,000 shares of a $500 stock.
We still like Apple. It looks cheap relative to its historical price ratios, trading at a discount to its three- and five-year price to earnings and price to sales ratios as well as a discount to the Technology sector. Apple’s growth prospects still appear to be intact. While not the almost 29% the company’s earning have grown at over the past five years, the 15% annual growth rate is still impressive.
Furthermore, the company continues to return cash to shareholders in the form of dividends (which were just increased) and share buyback (also just increased). We still like Apple and recommend the shares. As is always the case, you don’t want any single stock to take up too large of a portion of your portfolio, so be mindful of that if adding to your current position.
Question:
I’m interested in buying Questcor Pharmaceuticals. Does the company have room to grow, and do you think it is a buy-out target?
Answer:
Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR) provides central nervous system drugs mainly for the treatment of multiple sclerosis. The stock price is currently “reasonable” even after a 50% increase year-to-date. The company is expected to grow earnings by 26.14% annually in the next three to five years. Even though mergers and acquisitions have been driving the market lately, especially in pharmaceuticals, never bet on the buy-out. The company does not meet Henssler’s investment criteria.
The company’s key drug is ACThar gel, a melanocortin peptide which binds to receptors in the human body including those in the nervous system and kidneys. The company hopes ACThar may have uses in treating other maladies.
The company looks like a good growth story, but the product is not without risks. The U.S. Food and Drug Administration recently reported one of the two product samples submitted to them by Questcor had been unsealed prior to their receiving it. Additionally, the company missed 2014’s first quarter earnings expectations by 6.33%.
Question:
I own Shaw Communications for the dividend. My new adviser wants me to sell in favor of Cablevision Systems. Should I make the switch?
Answer:
Both Shaw Communications (NYSE: SJR) and Cablevision Systems Corp. (NYSE: CVC) offer television, internet and phone services. Cablevision also operates several local TV stations as well as local newspapers.
We recommend you stick with Shaw Communications over Cablevision. Shaw currently yields more than 4% in dividend compared to about 3.5% for Cablevision. On the other hand, Cablevision has grown its dividend at an annual rate of about 6% over the past three years compared to Shaw’s growth rate of just 3.6%.
The higher yield isn’t the main reason we prefer Shaw. A company’s ability to cover their dividend payment is crucial in picking dividend paying stocks. By our calculations, Cablevision is not generating enough cash to pay their dividend, which means they are either depleting their cash on hand or borrowing to pay the dividend.
While Shaw doesn’t meet our strict criteria for investment, it is the better choice of the two for a dividend payer.
At Henssler Financial we believe you should Live Ready, and that includes understanding the fundamentals of the stocks you own. If you have questions regarding your holdings, 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.
