Summary: We take a look at the highlights of the newsflow surrounding Cerner, Facebook, Walt Disney, Mobileye, Tata Motors, Bayer, Schlumberger, New Relic, Lenovo, Google, Xilinx, Pfizer, Amazon and Gilead.
Key take-out: For any investor with an appetite for international shares, it's worth keeping up with the newsflow surrounding targetted companies - and ensuring the stories come from a reliable source.
Key beneficiaries: General investors. Category: International investing, shares.
Newsflow matters. Newsflow informs (usually). Newsflow can also drive stock prices just as much as earnings releases. Equity investors need to keep up to date on a daily basis but also be able to sort out the “wheat from the chaff”.
Consider a week or two of stories concerning our model portfolio stocks and other Eureka recommendations.
Last week Cerner announced a sizable $US245 million share buyback (1.2 per cent of the float). Buybacks are usually well received and usually done where the company believes the shares are undervalued by the market. Cerner rallied 4.4 per cent on the news.
Facebook is continuing its recent efforts to aggressively monetize its 300 million-plus monthly active users (MAU) Instagram business. It has expanded the availability of its ads to more than 30 additional countries, including Italy, Spain, India, Mexico, and South Korea.
Instagram’s photo/video streams lend themselves well to brand advertising and now support landscape photo and video ads (only portrait ads were supported before). It has doubled its maximum video ad length to 30 seconds.
It has also launched a new premium ad format called Marquee which lets advertisers quickly reach large numbers of users in a short amount of time. Instagram calls it "perfect for events like movie premieres and new product launches."
In June, Instagram unveiled "call-to-action" ads that let users place e-commerce orders and install apps (among other things) after clicking on a button.
Walt Disney will begin construction on two 14-acre Star Wars-themed parks - one at Disneyland, another at its Hollywood Studios resort in Orlando, Florida, in 2016, earlier than expected. They are the biggest single-theme expansions in Disney's history.
As the company said at an expo in August, the new developments will include re-creations of the films' iconic Millennium Falcon spacecraft and guests will be able to "take the controls."
Also, the build up to Star Wars' "Force Friday" is under way, with an eighteen-hour toy roll-out on the company’s YouTube channel.
"Force Friday" is an all-out promotional effort, coming more than three months before Star Wars: The Force Awakens (the film). The merchandise will likely add hundreds of millions of dollars to Disney's next year revenues and leads up to another Star Wars film in December 2016.
Analysts are estimating potential merchandise sales of over US$5bn from Star Wars alone over the next 12 months.
Films merchandise TV syndication revenues = a nice recurring revenue stream.
In the US, the Department of Transport (DOT) has announced that ten automakers - Toyota, Volkswagen, GM, BMW, Mercedes-Benz, Ford, Mazda, Audi, Volvo, and Tesla - have agreed to make automatic emergency braking (AEB) standard on new US vehicles. Mobileye, a market leader Advanced Driver Assistance Systems (ADAS), and traded up after the news after previously falling sharply on a short sellers report.
The automaker announcement comes three months after the National Transportation Safety Board recommended making collision-avoidance systems standard on new passenger and commercial vehicles. Citibank analysts had previously estimated Mobileye receives a $50-plus Average Selling Price for its AEB/pedestrian-detection solution.
Mobileye is also short seller Citron Research's latest target. Citron predicts competition from Bosch, Continental, Delphi, Denso, and Autoliv will pressure the company.
Mobileye has argued its algorithms and driving data act as a long-term differentiator for its ADAS solutions. I would agree.
Citibank analyst Itay Michaeli vigorously defended Mobileye saying “We are aware of a negative article (published on Reuters) this afternoon from a firm that sees substantial downside for Mobileye stock. We have reviewed the discussion and respectfully, but very strongly disagree with the points made. We don't believe this article revealed anything new and believe it rehashed recent misinformation that we have previously written about”.
“We have been hosting Mobileye at Citi's NYC Technology conference for the last two days, and firmly believe that the recent data points from the conference were incrementally positive to the story (as we wrote in our note last night). We remain bullish on Mobileye.” Hear Hear.
Tata Motors new mid- size Jaguar XE, which will compete against the Mercedes “C” class and BMW 3 Series, has received good early reviews from the automotive press in the US, Europe and Australia. The XE will enter the US market in 12 months as a 2017 model. As a lifelong “car guy” I predict it will do well.
At the end of August, Bayer said it will conduct final-stage tests on Finerenone, an experimental drug (and potential blockbuster) to treat chronic heart failure and diabetic kidney disease following successful mid-stage trials.
Bayer said the latest studies determined the right dosing levels for the medicine in a statement released on August 31. The company will now examine the drug’s efficacy and safety in a large trial of some 15,000 patients.
The company also said: “Study results so far make us very confident to move finerenone forward into Phase III across two important indications of high unmet medical need” That’s a real positive for Bayer’s pipeline.
Finerenone is the next generation of treatments to block the damaging effects caused by the hormone aldosterone, which is secreted by the adrenal gland, in patients with chronic heart failure.
Schlumberger says it is teaming up with German oil field equipment supplier Bauer to develop and build a new generation of larger, more efficient drilling rigs. Bauer will create custom-built rigs for SLB as well as offer other rigs to international drilling companies in a joint venture expected to generate revenue of more than €100m ($112m).
New Relic received three “overweight” upgrades from brokerage analysts at Morgan Stanley, Oppenheimer, and First Analysis. Of the 11 analysts that follow the company, nine now have a buy rating. New Relic shares gained some 10 per cent on the announcement.
Lenovo’s new “Moto X”, the first flagship phone produced by Chicago's Motorola since Lenovo purchased the company from Google in October 2014, has received numerous positive reviews in the press.
It has a 21 megapixel camera which Motorola says is best in class as well as has industry leading battery life. Even with top-of-the-line specs, the price starts at $US399, around half the price of competitors.
Other recent and notable newsflow for our other recommended Eureka international stocks would include:
Is Google serious about driverless cars? Well it just announced that it hired auto industry veteran, John Krafcik, to lead the driverless cars initiative and turn it into a real business. Krafcik spent a decade at Hyundai, where as head of US operations, he helped the Korean automaker increase its market share by some 50 per cent. According to some analysts, the autonomous car business is believed to be a prime candidate to be spun out from Google's parent company, although it will stay on as part of Google X for now.
Goldman Sachs analyst James Covello has upgraded Xilinx to a Buy, and hiked his price target by $US10 to $US50. Said Covello: "when undershipment of 10 per cent or more has occurred in the past, communications revenue has recovered by an average of over 30 per cent in the following year ... Inventory dollars in the communications supply chain are down 6 per cent quarter on quarter and are 10 per cent below the three-year average ... There are early signs of improvement, with catalysts including China Telecom and China Mobile and the beginning of LTE deployments in India."
He also expects Xilinx to continue grabbing share from Altera (set to be acquired by Intel) in the medium-term, as sales of its 28 nanometer field-programmable gate arrays continue growing as a percentage of industry sales, and that government programs should help aerospace/defence-related rebound in 2016. Our thesis exactly.
Pfizer is a prime beneficiary of Glaxo Smithkline’s decision to sell prime vaccine assets (in order to meet the EU’s directive in the Novartis transaction). Pfizer will acquire both the Nimenerix and Mencevax vaccines business which protect against various strains of meningitis. A nice top-up to their successful and profitable vaccines franchise.
We predicted Amazon would cut back on its device business and it has… sort of. Last week Amazon has apparently discontinued sales of its so-called Fire Phone. Apparently, according to industry sources, Amazon has depleted its inventory and has no plans to offer more of the smartphone, which was unveiled last year in June and proved to be a flop.
At the same time it announced plans to release a $US50 tablet with a 6-inch screen, in time for this year’s holidays. That would make it one of the least-expensive tablets on the market and half the price of the company’s current Fire HD 6-inch tablet.
Does it make sense? Well at least the device would potentially attract buyers looking for a simple — and effectively disposable — device for straightforward tasks like streaming video at home and shopping on Amazon.com
Last week, Gilead Sciences announced a $US10bn debt offering. The announcement has led to speculation that Gilead might be considering acquisitions. Gilead has uncharacteristically remained on the sidelines so far in spite of numerous M&A deals in the biotech arena.
Analysts in the know have flagged a possible area - the liver space. Since the company already dominates Hep C, an acquisition in the Hep B or NASH (Nonalcoholic steatohepatitis or fatty liver disease) space or both could significantly strengthen Gilead's position.
Of course, the company has development programs in both areas.
Newsflow versus “noise”
The amount of newsflow depends on the company and the industry it operates in.
Some companies have large investor relations and PR departments and inundate the market with press releases (many self-promoting) while others barely say anything at all except for earnings reports.
High profile industries, like cybersecurity and social media, produce innumerable stories daily. Railroads? Not so much.
Newsflow may not originate with the company itself but rather from the financial press or the brokerage community. Television sources such as CNBC and Bloomberg TV (both available here on cable) are also prolific in terms of company news. Newswires such as Dow Jones, Reuters and of course Bloomberg produce copious amounts of company information daily.
As you can see newsflow can be material, informative, or of absolutely no consequence whatsoever – in other words, “noise”!
As well, the blogosphere is always awash with information and rumours. I’d avoid that avenue, as the quality and veracity of the information is often questionable.
How to keep up
Wow, that’s a lot of information in just a week or two! That’s one of the reasons I suggested that holding just 10 stocks in the model portfolio was enough for individual investors.
There are ways to intelligently keep up however.
As a shareholder or potential shareholder you can subscribe to a company’s corporate website. It’s free of course and you’ll be emailed all the corporate press releases.
If you are investing overseas you really need a digital subscription to The Wall Street Journal, Barron's, or the Financial Times. It will pay off.
The best financial websites for retail investors are Bloomberg.com, Seeking Alpha.com and MarketWatch.com. They are all free and if you register you will also receive investor alerts and articles concerning your stocks. Some will allow you to track your portfolio.
Periodicals such as Fortune and Forbes as well as Bloomberg Businessweek are also worth looking at online as they have many in depth articles on US and global companies.
You can also follow the companies and some CEOs on Twitter or Facebook!
A number of companies also have their own YouTube channel with some great videos profiling processes, products, people, and strategies.
The resources are there for the taking. Good luck!