Question:
My “broker’s”—who is my father-in-law—latest pick is semiconductor maker Cree. Before I indulge him on his latest pick, can you let me know what you think about it?
Answer:
Cree, Inc. (NASDAQ: CREE) seems like one of those high flyers that we recommend avoiding right now. It has doubled in price over the past 12 months.
Cree operates in an exciting market, manufacturing LED bulbs (light emitting diode), which use about 80% less energy. the bulbs last an expected 25 times longer than the old school incandescent bulbs. In fact, LED bulbs actually use less energy than the compact fluorescent bulbs. While consumers have grown more receptive to these products, competition will certainly increase to take advantage of the growth opportunities. Either way, Cree is already working to reduce factory costs and improve utilization rates before the inevitable fall in prices, as more LED bulbs come to market.
After sinking 25% over the last month on weak company guidance, Cree shares now “only” trade about 70 times earnings. This is four times more expensive than the market. While Cree has no debt, again, at a ridiculously high valuation, we recommend you steer clear of these shares for the time-being.
Question:
So Jim Cramer came out this week and said, “Apple is dead in the water.” He thinks that the consumer’s love affair with Apple is done, and it’s back to Apple’s lackluster ways. As big fans of Apple, where do you stand? Has Apple just become a mature, stable company like Microsoft?
Answer:
While Apple has certainly matured, it is still a growth story, with a projected 18.18% growth rate and a PE that is less than its five-year average. The company also pays a healthy dividend of $3 per share. As Apple continues to grow, the law of averages will come into play and growth will decrease, but for now the company still has innovative products that should keep it growing. In our opinion, other technology companies have a long way to go to catch up with Apple in terms of quality product and ease of use. Samsung may outsell Apple on units because the Android platform is available on so many different devices. However, Apple is still more profitable per product. One other factor we look at is the company’s EVA spread, which is the return on capital minus the company’s cost of capital. Apple’s EVA spread is at 15%, which is higher than most anything you’ll find in the market.
Question:
We have shares of Smuckers and Tyson Foods. They’ve been good holdings the past two years. We’re just wondering if we should make any changes to our non-cyclical holdings.
Answer:
The J.M. Smucker Company (NYSE: SJM) is a well-run company that has met our financial criteria for many years. The company is expensive, with a price to earnings to growth ratio of 2.28% and its long-term growth projected at 8.18%. If you own it, you should be OK to hold it, providing it has not grown to be too large a percentage of your total portfolio.
Tyson Foods, Inc. (NYSE: TSN) does not meet our financial strength or safety criteria, but it does look more attractive on valuation. The cost of feed, a commodity, is expected to fall, which should benefit Tyson, the world’s largest processor and marketer of chicken, beef and pork products. The company has a projected growth rate of 8% and a PEG ratio of 1.46. We tend to shy away from a company that has a concentrated customer base. Wal-Mart is Tyson’s largest customer, accounting for nearly 14% of 2012 sales; however, in this case we believe this cannot be avoided. Most major markets carry Tyson foods; therefore, we do not see this as a problem. Tyson Foods should be OK to hold as well. If you are looking for growth, you are more likely to see it from Tyson.
At Henssler Financial we believe you should Live Ready, and that includes understanding the fundamentals of the stocks you are invested in. If you have questions regarding your equity 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.
