Friday Portfolio News: Ed’s Daily Notes for October 25th   2 comments

Time to review the news about some of the stocks in my portfolio and on my watchlist:

Wall Street Journal: Will Android Be the One Operating System to Rule Them All?

Android, the mobile-phone operating system that powers most of the world’s smartphones, was never intended just to be used on phones, even though that is where it has had the greatest success. London’s Droidcon conference, which closes Friday, is full of developers trying to integrate it into every device they can think of.

…Kevin McDonagh, CEO of Novoda Ltd., a London-based Android development agency, and organizer of Droidcon, is as passionate an evangelist as you are going to find. He sees a future where it will be in everything—”the one operating system to bind them all.”

“Android was envisaged as an operating system of interconnected devices,” he said.

Why would you want such a thing? Well, putting smarts in dumb machines makes a lot of sense. Domestic machines have for a very long time had microprocessors in them to optimize processes, but the problem for many is that they exist in their own silos. Can a washing machine talk to a dryer?

Adding a common platform like Android makes it easier to integrate devices, easier for developers to build on them, easier for consumers to interact with them (controlling them over the Internet or via a mobile phone, for example), easier for them to interact with consumers. If your washing machine could talk to your TV, it could tell you when the wash was done.

There is some confusion between what is Android and what is Google. Typically when people talk about Android they mean Google, but, said Mr. McDonagh, they are not synonymous. There is an open-source (meaning it is free for anyone to download and do as they like with it) project called AOSP (Android Open Source Project), and there is Google’s version of Android, augmented by its own proprietary services (maps, Gmail, etc.).

But if every device from your phone to your rice maker is running the same operating system, isn’t this a huge vulnerability? “Yes,” Mr. McDonagh said bluntly. “But having it open to a global pool of experts to tackle the problems is much more reassuring than the secular scrutiny of Microsoft or Apple. I am sure they have incredible experts, but they don’t have a world of experts.”

I have to disagree with him on that last point. Open system versus secular system is irrelevant to security.

Bloomberg: Microsoft Relying on Gaming, Cloud to Weather PC Storm

Microsoft reported earnings:

Microsoft Corp. (MSFT) is weathering slumping personal-computer sales by focusing on Xboxes, business software and cloud services, as departing Chief Executive Officer Steve Ballmer seeks to make the company less dependent on its Windows operating system.

Microsoft reported fiscal first-quarter sales and profit yesterday that topped analysts’ average estimates on demand for Office programs and database servers. The company’s revenue forecast for the current quarter was also ahead of projections.

…Net income in the period that ended Sept. 30 rose to $5.24 billion, or 62 cents a share, from $4.47 billion, or 53 cents, a year earlier, Microsoft said. Sales climbed 16 percent to $18.5 billion. Analysts on average had predicted profit of 54 cents on $17.8 billion in revenue, according to data compiled by Bloomberg.

For the current quarter, Microsoft forecast higher sales of its commercial products and services, which includes corporate sales of Office and server software, as well as strong Xbox demand as a new game console is rolled out. While the company didn’t provide a projection for total revenue, at the low end of the ranges provided for each of five divisions, sales for the fiscal second quarter would exceed the $22.9 billion average estimate of analysts polled by Bloomberg.

…First-quarter sales from devices and consumer hardware, including Surface tablets and Xbox game consoles, increased 37 percent to $1.49 billion, more than the $1.14 billion average estimate. Devices and consumer licensing, which includes Windows pre-installed on computers, fell 7.2 percent to $4.34 billion, compared with analysts’ average estimates for sales of $4.24 billion.

Surface did better than some analysts projected. Microsoft said it sold $400 million worth of the tablets in the period. Goldman Sachs Group Inc. had estimated the devices and their accessories would pull in $181 million in sales. Microsoft sold more than two times the number of Surface units as the previous quarter, Hood said.

I would have to call Mister Softee’s 3rd quarter results a pleasant surprise, but that still leaves as open questions how Microsoft will increase their smartphone market share, and who will be their next CEO. The main takeaway is that Microsoft will be in good shape while they redesign their business. Among tech stocks, Microsoft is certainly one of the best to own on a long-term basis, and even more if you are looking for a safe play.

Motley Fool: The Stock Picker’s Guide To BHP Billiton plc

Above is a great article which summarizes BHP Billiton’s (BBL) business perfectly. I would call BBL the best blue chip in the entire basic materials sector. Their diversity is unparalleled, and their dividend is one of the best among blue chip stocks. I would call it a “must own” for retirement portfolios.

Wall Street Cheat Sheet: Is Disney’s ‘Star Wars Episode VII’ in Trouble?

In a post on StarWars.com on Thursday, Lucasfilm President Kathleen Kennedy announced that former Pixar writer Michael Arndt has exited Star Wars Episode VII, leading the way for Lawrence Kasdan and director J.J. Abrams to handle writing duties. Kasdan, who had previously been working on the film in a consulting position and had been set to take on larger roles in Episode VIII, IX, and the Star Wars spinoffs, is the writer behind Star Wars Episode V: The Empire Strikes Back, Star Wars Episode VI: Return of the Jedi, and Raiders of the Lost Ark.

…The script news is also likely to put the film’s previously announced May 2015 release date in jeopardy. The press release now only mentions an unspecific “expected 2015 release” while the film’s original production start date is now Spring 2014 rather than February 2014. However, the press release did note that pre-production is still continuing at full speed.

My view as a Disney shareholder, as well as a Star Wars fan? I want the movie done right, not quickly. I am willing to wait longer for a better movie. Strictly speaking as a shareholder, I would rather see the movie released later and be a huge blockbuster, because that will have a more positive impact on the share price. I am pleased to see Disney working to get it right.

Zacks (via Yahoo Finance): Bull of the Day: Netflix (NFLX)

If you want to understand Netflix’s recent bullish run, consider this fact:

The company hasn’t missed on earnings since 2010 and only has 1 miss in the last 5 years.

I still can’t recommend it as anything more than a day/week/month trade, and even then it can only be played as a momentum stock. One earnings miss and this stock could easily lose 75% of it’s value.

Zacks (via Yahoo Finance): Strong Q3 Earnings for Norfolk Southern

I picked the wrong railroad stock (kudos to Marshall for picking this one):

Leading U.S. railroad company, Norfolk Southern Corp. (NSC) reported third quarter 2013 earnings of $1.53 per share, handily beating the Zacks Consensus Estimate of $1.39. The bottom line rose 23.4% from $1.24 earned in the year-ago quarter.

Strong performance by the company’s chemical, metal and construction, intermodal and automobile business coupled with higher productivity led to the impressive showing.

…Total operating revenue was up 4.9% year over year at $2,824 million, which also beat the Zacks Consensus Estimate of $2,769 million.

Operating income was $849 million, up 16.1% year over year. Operating expenses increased 8.0% year over year to $1,975 million, resulting in an operating ratio of 69.9%.

Business Wire (via Yahoo Finance): Provectus Awarded PV-10 Patent by U.S. Patent and Trademark Office

Provectus Pharmaceuticals, Inc. (PVCT), a development-stage oncology and dermatology biopharmaceutical company, has received U.S. Patent No. 8,557,298 from the United States Patent and Trademark Office (USPTO), a continuation-in-part of U.S. Patent No. 7,648,695. Both patents provide coverage for new chemotherapeutical medicaments and medical uses for the treatment of cancer.

The new patent, entitled “Medicaments for Chemotherapeutic Treatment of Disease,” provides detailed protection of the Company’s investigational oncology drug PV-10, which is an injectable formulation of Rose Bengal. The coverage complements the Company’s recently received patent (U.S. Patent No. 8,530,675) covering processes for manufacturing Rose Bengal for pharmaceutical use and Rose Bengal analogs covered in the earlier patent (USP ‘695).

Dr. Craig Dees, PhD, CEO of Provectus, said, “This is our 27th patent awarded in the United States, and it expands and deepens the protection of our flagship drug candidate PV-10, which has successfully completed Phase 2 clinical testing for the treatment of metastatic melanoma, and is making progress in the treatment of other cancers.”

I have been watching Provectus (PVCT) this week, as it has been moving near the bottom of it’s recent range, around 77 cents/share. If it stays there today, I might double my small position.

Associated Press (via Yahoo Finance): Santander Q3 profit jumps to $1.46 billion

The newest addition to my watchlist had a good 3rd quarter:

Spain’s Banco Santander SA posted a profit of 1.06 billion euros ($1.46 billion) in the third quarter, a near nine-fold increase from last year, when the government had forced it to take major provisions to cover soured real estate loans.

The largest bank by market value in the 17-country eurozone said profit in the July-September period rose from 122 million euros a year earlier. Gross income dropped to 9.74 billion euros from 10.71 billion euros.

Santander President Emilio Botin said that after years of making provisions for bad investments, the bank was now in a position to build profits.

For the first nine months, net profit jumped 77 percent to 3.3 billion euros.

CNNMoney: How Yahoo CEO Mayer fixed 1,000 problems

I like how Yahoo’s CEO thinks:

When Marissa Mayer landed at Yahoo (YHOO) as its new CEO 15 months ago, some employees told her, “There are 1,000 things you need to fix.”

“It’s really overwhelming when people come up and say that to you because, how are you going to fix 1,000 things?” she said on stage last Thursday at the Fortune Most Powerful Women Summit.

What enabled Mayer to fix 1,000 things was a piece of advice she got from Eric Schmidt, her former boss at Google (GOOG). “Eric says that good executives confuse themselves when they convince themselves that they actually do things. It’s your job to be defense [rather than] offense. Clear the path. Get obstacles out of the way”—and then let employees run “as far and fast as they can.”

A self-proclaimed geek, Mayer translated Schmidt’s advice into her own science-based theory of leadership. She told the MPW audience—including Warren Buffett (BRKA) and Xerox (XRX) chief Ursula Burns—that she thinks of culture as DNA. “I don’t know a lot about genetics, but I know a bit,” Mayer said. “You want the genes that are positive to hyper-express themselves.”

To motivate Yahoo’s 12,000 employees around the world, Mayer says she’s tried to “take some of the negative genes that are getting in the way and shut them off. It’s not about injecting new mutant DNA. It’s not about changing the culture. It’s about making the culture the best version of itself.”

Her tactic has been a program she launched called PB&J, which is designed to rid Yahoo of poisonous processes, useless bureaucracy and jams. As part of PB&J, Mayer and her new management team created an online tool to collect employee complaints and employee votes on whether the problems are worth trying to fix. Any complaint—such as underpowered laptops or onerous rules at the company gym—that generates at least 50 votes gets management attention–and the onus on the rank and file to fix the problem. Employees get evaluated on how they do that.

One year in, Mayer reported at the Summit, “We fixed 1000 things, some big, some small.”

Admittedly, Yahoo still has a long way to go. But little things like this make me feel good as a shareholder about their potential.

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Posted October 25, 2013 by edmcgon in Market Analysis, News, Portfolio, Stocks, Technology

2 responses to “Friday Portfolio News: Ed’s Daily Notes for October 25th

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  1. Good morning Ed,
    Three questions please.
    You say “BBL …must own for retirement portfolios.” In saying this, I surmise that you also consider it a sleep-well-at-night yield stock? Is today’s price a good entry point?
    YHOO – current price still good?
    Thoughts on DVA?
    As always, many thanks.

    • Curious George,
      Your description of BBL is apt. It is a stock that only requires minimal babysitting. However, I wouldn’t call today’s price ideal. I would initiate a position closer to $62, with a plan to pick up more in the $58-60 area.

      For YHOO, anything under $32 would be a decent price. The closer to $30, the better.

      DVA is an intriguing stock. I wouldn’t have thought kidney dialysis was a growing business, yet DVA seems to be growing nicely, with clean financials, and is even fairly priced for some growth. The subjective question is: How much growth will they get? I don’t have a guess on that one, but that is the main question you have to answer before buying.

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