Late last year, the S&P Dow Jones Indices and MSCI Inc., provider of research-based indexes and analytics, announced the Telecommunication Services Sector will be changed to Communication Services and will evolve to include companies that facilitate communication and offer information through various media.
The changes, expected to take place September 28th, 2018, will move the weighting of the sectors and could increase your existing investment risk so it’s important to understand them. Companies that were classified as Information Technology such as Alphabet (Google) and Facebook will move into this new Communication Services sector, along with Disney and Netfix.
Before the change, Telecommunications made up just 3% of the S&P but under it’s new structure it will account for over 10%, making it the fourth largest sector after Information Technology, Financials, and Healthcare.
How does this affect you?
Telecommunication Services – now named Communication Services will change greatly. Prior to the change, the 5 largest companies in the sector as of 2018 were Verizon, China Mobile Ltd, AT&T, Vodaphone Group, and Japan’s Softbank Corp. Alphabet and Facebook alone will now make up 49.9% of the total market cap for the Communication Services sector.
The Information Technology sector will feel the loss of Alphabet and Facebook as Apple, Inc’s percentage of the total market cap will move from 15% to 20%. Amazon, which falls under Consumer Discretionary in the Communications Services sector will now account for 35% of Consumer Discretionary up from 27%.
The takeaway for us here is to pull up our investments including our 401k’s and evaluate how these changes might affect our investment strategies and certainly our risk tolerances, and rebalance where necessary. For example, if you are invested in any Telecommunication ETFs such as Vanguard’s Telecommunication Services ETF you will want to consider how these changes could possibly add additional risk to your investments. We learned this year that just one negative news cycle about customer data and privacy can cause a 20% drop in stock price. If you were invested in a telecommunications ETF to avoid volatility, now is the time to pull up your investments and make changes that fit with your risk tolerance.
Chances are you use a Square product regularly, whether it is paying for your cup of coffee, craft beer, haircut, or use one in your own business. This financial technology company has grown rapidly along with mobile device sales over the last eight years and the stock (NYSE: SQ) is up 180% in just the last 12 months. We have enjoyed 56% of this gain here and with strong expecations and new products hitting the market, we can only expect more growth ahead.
The first Square Point-of-Sale device, and it’s largest to date, has two displays one for the seller and one for the customer. Square CFO Sarah Friar notes that Square Register is it’s the priciest POS device thus far, but customers are loving the display and it’s attracting larger retailers.
Square For Restaurants
Square has indeed came a long way from it’s single product beginning in 2010 with Square Reader, which accepted credit card payments by connecting to a mobile device’s 3.5 mm audio jack. Another new product from Square this year is taking on the restaurant Point-of -Sale competition in a fierce way. Beyond payments, to inventory, menus, table map, and full on marketing, Square Restaurant is a complete out of the box solution.
Setting up the system is a very ‘user-friendly process’ says Square CEO Jack Dorsey, and says that 60% of new Square for Restaurants customers are able to easily set up their own system. “That includes their table map, all the menus, basically all the operations that they need to focus on to run the restaurant … the ability for a restaurant to take that on and self-onboard and do all their menus, do all their table layouts with our software is pretty awesome because it creates efficiencies.”
Based on the first eight years of business this innovative fin tech has a very strong future. Square is expanding it’s hardware line to attract more verticals and rapidly growing it’s software and services business including employee management, payroll, appointments, and customer solutions to name just a few. Expect much more to come from Square.
It’s starting to feel like 1999 again.
Not in the ‘Party like it’s…’ kind of way, but in the ‘stock bubble’ kind of way. It’s called a Melt-Up, and it happens at the end of the bull market when everyone on your block and their yellow dog is suddenly buying or talking about stocks. It’s the herding in of otherwise wouldn’t be investors who are afraid they are going to miss out on the market’s rapid rise. It’s what happens right before the lights go out on the fun and there’s a market Melt-Down, crash, or major correction.
Let’s look at how we know we are actually in a Melt-Up.
- There’s a kind of stock mania everywhere you go. References to the stock market in unfamiliar publications and media. Talk of the bull market by those around you at the store, at work. Remember the last high of Bitcoin when suddenly everyone was talking about Bitcoin when six months earlier they didn’t even know what it was? Like that.
- High investor sentiment. Consistently above 50% is how the professionals gauge it. This week we are ending at around 30%. Of course it fluctuates all the time, but this could indicate there is still room to run in this market.
- There is a high inflow of both new money into the market, especially ETFs, and a flood of new online trading accounts set up.
- There is usually a strong focus on one area of the market. Like the Bitcoin example earlier this year, or the most famous of all, the tech stocks (aka the ‘Dot Com Bubble’) that began it’s burst in March of 2000. Before the burst, however, there was indeed a Melt-Up. The NASDAQ, which usually travels in the general path of the Dow Jones and is the market that trades many of the tech stocks, suddenly diverged and drastically outperformed the Dow.
This is the Dow Jones compared with the NASDAQ July, 1999 to March, 2000.
This is where we are today from November, 2017.
See the similarities as the NASDAQ is beginning to launch into orbit away from the Dow? It certainly feels like the mid-stage of a Melt-Up.
So how do we proceed? One, with caution and ownership of those that are driving the NASDAQ higher: strong tech companies.
Two, remember to not be greedy and maintain smart position sizes relative to your portfolio. This could be the final push of this bull market and if history has taught us anything … one with incredible gains.
Recent legalization across Canada and parts of the U.S. has sparked growth and stabilization for several cannabis-related companies. Today we look through the smoke and beyond the hype at two top players to consider for your portfolio this year.
Over the past several years there has certainly been a lot of noise coming from the media and investment writers with headlines like ‘Pot stocks are making people rich’ and articles about ‘marijuanna millionaires’. Headlines like these are causing young people in their 20s to suddenly consider opening brokerage accounts to ‘get rich’ by investing in their favorite party past-time without doing their due diligence. Not all pot stocks are going to be winners but now that more laws are passing, more doctors are recommending, and the stigma is fading, we are beginning to see which small companies are emerging as leaders positioned for even greater success going forward. Here’s two with strong foundations and bright futures.
Canopy Growth Corp.
Canadas biggest cannabis grower and the first to be listed on the New York Stock Exchange, Canopy has shown returns of nearly 200% over the last 12 months, but it’s been a bumpy ride. Cannabis related stocks can be extremely volatile, and Canopy is no different.
Their business results, however, are solid and the numbers don’t lie. In 2017 Canopy’s revenues doubled, and it’s sales from oils, concentrates and consumables grew 9% –and it’s this area that has an enormous upside.
The popular use of Cannabidiol (CBD) oil is set to grow exponentially over the next two years from $7.7 billion to $31 billion by 2021. It’s used by some cancer patients and people with chronic pain. Made from cannabis, CBD is a cannabinoid (compound found in hemp and marijuana plants) and can reduce inflammation and pain without the high you normally associate with smoking the plant which comes from THC. Unlike habit forming meds such as opioids CBD can provide some relief without the side effects. People want relief and to still be able to function in their daily life.
Aside from it’s already strong distribution position in the US and Canada, Canopy also has already completed export agreements with at least six other countries.
ACTION: Buy shares of Canopy Growth Corp. (NYSE: CGC) on next dip below $27.
All these buds and oils have to move to the consumer in safe packaging and Kush Bottles has emerged as the first major player in this area. Kush has a giant head start on the medical marijuana (food grade) packaging competition, as well as “about a dozen provisional patents” filed for new products according to Nick Kovacevich, Kush Bottles CEO.
Established in 2010 in California, Kush has been able to quickly grow as more states and countries pass legalization. Over 240% year over year revenue growth has allowed Kush to invest and grow it’s business. They acquired a company called Summit Innovations which distributes hydrocarbon gases that help turn cannabis plants into oils. Kush also opened a new division for the veterinary and pharmaceutical industries to aid in diversification of their business model.
Certainly, more competition will come after Kush, but with a strong start out of the gate, this is the one to own if bought at the right price.
ACTION: Buy shares of Kush Bottles (OTC: KSHB) below $4.75
In good times and bad, people love a bargain. Today we have an opportunity to own a company who provides bargains at a bargain –with the possibly of 40% growth in stock price while earning a dividend of 6.2% along the way.
Understand, I’m not someone who loves shopping, and evidence of what some call the retail armageddon is clear. Thousands of stores are closing every year, bankruptcies for retailers are at an all time high, and ecommerce hit it’s crescendo last holiday. I never would have believed that I would be recommending a stock based on brick and mortar retail, but amidst the rubble and destruction there are winners, and Tanger Factory Outlet Centers is one worthy of our consideration.
eCommerce hasn’t put a dent in this outlet powerhouse who’s been in business since 1981. Outlet stores in general have doubled their sales over the past 5 years to $50 billion, and Tanger, who has properties in both the US and Canada continues to grow as well through thoughtful planning and execution. With high profile tenants such as Nike and Polo Ralph Lauren, their occupancy rates have not dipped below 96% since the company went public 1993.
CEO Steven B. Tanger, in their Annual Report, proudly reported their 14th consecutive year of net operating income growth and their 24th year of consecutive dividend increases.
Tanger is still family owned, and the business is organized as a real estate investment trust (REIT). If you’re familiar with REIT’s you know this model doesn’t pay corporate income taxes, but is required to return most of it’s cash flow back to investors via distributions or dividends. Their annual payout per share has only grown since 1993 as well, from $0.1338 to it’s current day $1.3525. At it’s current price, this is a 6.2% yield – not too shabby.
Our opportunity here is that Tanger’s share price has temporarily fallen because Wall Street has mistakenly lumped it in the same basket as retail stocks most of which I wouldn’t touch with any length of pole. Today we can load up on this bargain below $25 (it’s at $23 as of this writing) and wait for it to return to it’s 2017 high of over $37 per share.
So what would investing in 108 shares today look like in 5 years’ time?
Investment cost: $2,484; 108 shares @ $23/share, 6.2% dividend yield reinvested for 5 years
You would end up with $3,403.66 for a total gain of 37.02%. Since this is over 5 years, that would make your average annual gain 7.40% and this is doesn’t even factor in any rise in share price, which could easily be in the double digits.
ACTION: Buy shares of Tanger Factory Outlet Centers (SKT) up to $24.50
If you missed out on the 196% gain on Bluebird Bio (BLUE), the 81% gain on Tencent Holdings (TCEHY) or the 28% gain on Apple Inc. (AAPL) over the last 12 months don’t despair, today we sit before another exciting opportunity at huge gains.
Despite it’s sometimes volatile markets, China is on the move, and a great place to park your money for the next four years to capture gains like those above. Last week, after the American media and financial pundits drove down the share price of some Chinese companies with their talk of tariffs and trade wars, Alibaba Group (BABA) released their earnings -proving what we’ve known for a while now: this is a great time to have exposure to the Chinese markets.
Think of Alibaba as China’s version of Amazon, but with even better upside potential and faster growth who already controls over 50% of the Chinese online retail market. Alibaba reported 62% yearly growth to $8.2 billion and cloud revenues up 103%. Their digital media / entertainment revenues were up 34% year over year to $840 million. Their active consumers were up 37 million to hit 552 million, and their monthly active users hit 617 million. Yes, they have almost more than twice the number of active users as the entire population of the United States. And growing.
One of it’s many platforms, Taobao.com, added 27 million new active users last year. Think of Taobao.com like eBay except with storefronts owned by everyday users.
Alibaba also said it will also take a 33% stake in Ant Financial –a leading provider in China’s mobile-payment market and has broadened it’s services to wealth management, consumer lending, and has expanded to overseas markets. Ant nearly doubled their revenue in 2017 and is eyeing an initial public offering (IPO) possibly this year, which made this a smart investment play for Alibaba.
Many are estimating Alibaba’s share price to hit north of $250, which is a 30% gain in the coming year based on today’s share price of $188.89. Alibaba is up over 10% already in the last 30 days.
Get in now and lock in a 25-30% trailing stop. Add to your position during any pullbacks.