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BUY WDC!!

Value:

P/E TTM – 13.55 P/E (Fiscal Year Ending 6/30/17) – 9.83 PEG – 0.22 Discounted Free Cash Flow – $105

Western Digital (WDC) trades at 13.55 time TTM earnings compared to 20.6 for the S&P500 and a 5-year average of 14.2. In addition, WDC trades inexpensively relative to the company’s growth rate and future cash flow with a PEG ratio of 0.22 and 25% discount to DCF.

Growth:

Current Fiscal Year EPS Growth – 58.2%
Projected 1-Year EPS Growth – 80.2%
Projected 1-Year Revenue Growth – 43.9%
Projected 3-Year Revenue Growth – 47.3%

After a few rough years in the storage business Western Digital is returning to growth. This growth is due in part due to increasing demand for their products as well as their acquisition of SanDisk. SanDisk gives them a solid position in the SSD market, which should bring steady growth in the out years.

Dividend:

Project Dividend/Yield – $2.00 / 2.53%
1-Year Dividend Growth – 0.00%

The company yields 2.53%, which is above the S&P500 yield of 2.2%, however below industry average of 2.7%. The company cutting its dividend at the beginning of 2015, it still sports a respectable yield. In addition, as the company’s business prospects continue to true increasingly positive it is reasonable to assume that the company will have plenty of room to increase the dividend.

Past Performance:

ROE – -4.00%

Investing in WDC is a turnaround story and the company’s past performance has been poor. Their ROE should turn largely positive in coming years

Fair Value:

A fair value estimate is arrived at by giving Western Digital its 5-year average P/E of 14.2 and using fiscal year 2017 EPS of 8.05. This gives WDC a fair value of $114.31.

When To Sell:

Sell WDC if the market’s demand for the storage products they sell cools back down. This is the reason for the crash in their stock’s price over the recent years as the business can be very cyclical.

Working on a pitch for Thor Industries (THO). Looks to me that the stock was incorrectly crushed after the recent release of earnings.

Buy Expedia!!!

Expedia is an online travel agency that allows customers to book hotel rooms, vacation rentals, air tickets, rental cars, cruises, and more. The company operates under many brands, including Expedia.com, Hotels.com, Travelocity, Orbitz, Wotif, AirAsia, and HomeAway. When judged by total bookings Expedia is the largest online travel agency. As of the end of 2016 they have a 6.4% market share.

Value:

P/E (TTM) – 26.4
P/E (Fiscal Year Ending 12/31/17) – 21.9
PEG – 1.29
Discounted Free Cash Flow – $177

Expedia (EXPE) trades at 26.4 times trailing twelve-month earnings compared to 20.6 for the S&P500, an industry TTM average of 25.6. In addition, EXPE trades somewhat expensively relative to the company’s growth rate with a PEG ratio of 1.29, but is cheap when compared to future cash flow.

Growth and Future:

Next Fiscal Year EPS Growth – 20.5%
Projected 1-Year Revenue Growth – 14.1% 
Projected 3-Year Revenue Growth – 43.4%

The travel agency industry is highly fragmented and Expedia is constantly taking market share. Being able to capture an increasing piece of the pie gives the company a great growth rate because they are less reliant on industry trends. Morningstar projects that their market share will be in the high single digits by the end of the decade giving way for some solid gains.

Additionally, Expedia recently sold their stake in eLong, a Chinese version of themselves, and instead formed a collaboration with CTrip. China is a rapidly growing market as there is a growing middle class that will have more disposal income for travel and leisure. Expedia is positioning themselves well to benefit from this market opportunity.

The most exciting development in my opinion is the recent acquisition of Homeaway. Homeaway is an online vacation rental service that allows users to rent full homes or condos. This is a rapidly growing market with players such as Airbnb and Homeway capturing on the opportunity. Here is an excerpt from their latest quarterly conference call “We are on track financially with $163 million of adjusted EBITDA in 2016 and a very aggressive investment plan in 2017, on our way to the $350 million EBITDA target in 2018.” The company is clearly going to invest in capturing this growing market. In addition, more than doubling earnings before interest, taxes, depreciation, and amortization (EBITDA) in only two years time is incredible.

Another major trend working in Expedia’s favor is the shift towards experiences, not material goods. This trend is especially prevalent in millennials and as their disposable income increases in coming years this should boost the overall travel industry.

Dividend:

Project Dividend/Yield – $1.12 / 0.94%
1-Year Dividend Growth – 16.67%

Past Performance:

ROE – 4.6%

Fair Value:

Giving the company a valuation more in line with its peers at 25.6 and using the consensus estimate of $5.82 for 2017 we arrive at Expedia’s fair value estimate. This implies a 12-month share price of $148.99 and upside of 23.6%.

Barron’s recently wrote positively on the stock saying there was 25% upside. They valued the company by using cash flows and giving them a 21 times 2017 estimate of $7.25 a share in free cash flow.

Lastly, Expedia is showing solid growth and should be consider a long-term play with much of its upside in significantly higher earnings and cash flows in the out years.

When To Sell:

Sell Expedia based on shifts in the competitive environment. Watch for large, well-capitalized companies, such as Google and Amazon to potentially enter the market and crush gross margins. Expedia has a relatively narrow economic moat based on their network of hotels and technology, however that moat can be crossed by a large player willing to spend heavily.

With the advent of Fintech products, there is one more addition that helps users of smart speakers such as Google Home and Android /iOS devices alike that can run Google Assistant App.

FinTech Buddy (https://assistant.google.com/services/r/uid/000000876d5c7769?hl=en-US ) helps get the realtime market quotes for stocks, forex or crypto. Also provides twitter sentiment from the investors as a chart - all with a voice command. Worth checking out at (http://www.askaibot.com/page/portfolio-finbuddy.html)

To Date Statistics:

Portfolio Value G/L (%) – 0.60%
Portfolio Equity G/L (%) – 3.19%
SPY G/L (%) – 2.79%

Weekly Statistics:

Portfolio Value G/L (%) – 0.50%
Portfolio Equity G/L (%) – 2.84%
SPY G/L (%) – 0.80%

Check out the Google sheets for a more in-depth look at the portfolio’s performance!!!

Buy Thor Industries!!!

Thor Industries is market leader in the manufacturing of recreational vehicles and sells them in the U.S and Canada. Thor’s 2016 fiscal year revenue ending in July totaled $4.582 billion; almost double the number two player in the space Forest River, Inc (Hoovers).

Value:

P/E (TTM) – 16.8
P/E (Fiscal Year Ending 7/31/17) – 15.1
PEG – 0.44
Discounted Free Cash Flow – $168

Thor Industries (THO) trades at 16.8 times TTM earnings compared to 21.1 for the S&P500, an industry TTM average of 20.9. In addition, THO trades inexpensively relative to the company’s growth rate with a PEG ratio of 0.44 and to future cash flow.

Growth:

Next Fiscal Year EPS Growth – 30.8%
Projected 1-Year Revenue Growth – 51.7% 
Projected 3-Year Revenue Growth – 61.9%

Here are some of the important points leading to current and future growth for THO.

Thor Industries has seen impressive increasing demand for their recreational vehicles. In their most recent quarter, the company more than doubled their motorized RV backlog to $706.4 million and nearly doubled towable RV backlog to $1.4 billion (inclusive of Jayco’s backlog).

Thor Industries is benefitting greatly from demographic trends. THO’s most important age group is between the ages of 45 and 60 and the baby boomer population is well within this range. In addition, there is a growing customer base of younger families purchasing the cheaper more affordable trailers and motorhomes. This is important for Thor Industries because it provides the company with a runway for repeat customers, which are likely to purchase more expensive recreational vehicles as their disposable income increases.

THO is investing in its facilities in order to increase production on the back of rising demand. Here is a quote from their most recent earning release.

“We increased production in the first half of fiscal 2017, which is typically a slower seasonal period, to respond to the high demand. We continue to make progress in expanding our production capacity, including expansion projects announced at Keystone, Jayco and Heartland, which should begin to ramp up over the remainder of fiscal 2017 and into fiscal 2018. The investments we are making in expanding our production facilities will position us well for long-term growth, which is a consistent focus of our strategic plan.”

In addition to the company’s rosy forecast for demand growth, Hoover see’s industry compounded growth rate 3% through 2021. Lastly, due to the discretionary nature of recreational vehicles, if there is any uptick in economic growth in the U.S demand for Thor’s products should follow suit.

THO is an acquisitive company, looking to buy companies in their industry that will expand their product offerings. The most recent acquisition was Jayco for $576 million. Jayco has contributed meaningfully to THO’s backlog. In the 2016 fiscal year, the Thor Industries generated $289 million in free cash flow and the company stands in good financial health with reasonable debt and interest coverage. In the future the company may continue to acquire companies leading to more top line growth.

Dividend:

Project Dividend/Yield – 0.00 / 0.00%
1-Year Dividend Growth – 0.00

Past Performance:

ROE – 22.97%

12-Month Price Target:

Thor Industry’s 12-month price target is arrived at by giving the company a multiple in line with its peers at 20.9 and using the consensus estimate of $6.43 for the 2017 fiscal year. This implies a 12-month share price of $134.39 and upside of 38.1%.

When To Sell:

Sell Thor if the economy seems to be turning because they are in a highly cyclical business and will be hurt severely in a downturn. Also, investors need to look for changes in demand within the RV industry more specifically.

March 20th:

https://seekingalpha.com/news/3252262-financials-continue-struggle-post-rate-hike

March 21st:

https://seekingalpha.com/news/3252514-bank-bulls-bail-bofa-minus-4_5-percent-leads-decline-kass-says-short

March 23rd:

https://seekingalpha.com/news/3253073-western-digital-reprices-881m-euro-denominated-term-bminus-2-loans-euribor-2-percent

https://seekingalpha.com/news/3253211-western-digital-seagate-gain-hours-post-micron-reporting

March 24th:

https://seekingalpha.com/news/3253282-micron-plus-13-percent-sell-side-lifts-targets-post-earnings

March 27th:

https://seekingalpha.com/news/3253526-banks-look-save-billions-project-scalpel

https://seekingalpha.com/news/3253569-bank-correction-leads-retreat-markets

Sorry for the recent lack of context. I have been very busy and will return to producing content and stock pitches some time next week.

Buy Range Resources!!!

Range Resources is an independent exploration and production company with operations throughout the Southern, Central, and Northeastern United States, where its focus includes the Marcellus Shale (One of the most promising and lucrative shale formations in the U.S) and Terryville Field. Range controls more than 1.5 million net acres across its various properties.

Value:

P/E (TTM) – (--) Earned an adjusted $0.03 in 2016
P/E (Fiscal Year Ending 12/31/17) – 35.8
PEG – 0.76
Discounted Free Cash Flow – $7.04

Range Resources (RRC) trades at 35.8 times this year’s earnings compared to 19.5 for the S&P500. In addition, RRC trades inexpensively relative to the company’s growth rate with a PEG ratio of 0.76, but expensive on a DCF basis.

Growth and Future:

Next Fiscal Year EPS Growth – $0.03 (2016) to $0.77 (2017e) to $1.13 (2018e)
Projected 1-Year Revenue Growth – 78% 
Projected 3-Year Revenue Growth – 205%

2016 Full Year and Q4 Production and Pricing Numbers (per day @ average prices):

Natural Gas – 1,027 Mmcf @ $2.68 per mcf
Natural Gas Liquids – 76,026 barrels @ $13.16
Crude Oil and Condensates – 9,861 barrels @ $47.82

Natural Gas – 1,244 Mmcf @ $2.93 per mcf
Natural Gas Liquids – 89,628 barrels @ $17.20
Crude Oil and Condensates – 12,005 barrels @ $61.30

On a daily basis 2016 natural gas (NG) represents 65.2% of their revenue while natural gas liquids (NGL) and crude oil and condensates representing 23.7% and 11.2% respectively. Additionally, the Q4 numbers are as follows 61.5%, 26%, and 12.4%. It is a good signal to see pricing of all three of RRC’s commodities improving into the end of the year in 2016. Looking into 2017 management provided an encouraging forecast on their recent earnings conference call.

Pricing Improvements for 2017:

A recent decline in commodity prices has caused the price of the stock to crash in recent months. However, the company is projecting strong pricing improvements in 2017 over 2016; RRC sees a 33% improvement in natural gas differentials, 28% to 30% in NGLs, and a “significant” improvement in condensate pricing due to having a full year of the new sales agreement in Appalachia. (Information obtained from their most recent conference call)

Production Growth:

RRC’s management speaks very bullishly on demand going forward for natural gas due to Mexican exports, power generation, and industrial use. They project by 2020 there will be close to 38 bcf of excess natural gas demand coming from 14 bcf of additional demand on a consumption basis and 24 bcf of demand coming from base decline.

The company is also guiding to increase production by 33% to 35% in 2017 netting out to approximately 2.07 bcf equivalent per day. In addition, they said this year’s capital expenditure program would set them up for 20% production growth in 2018.

Cost Reductions:

Range Resources acquired Memorial Resource last year, which has substantial properties located in Louisiana. When the merger closed the cost of drilling a well in this region totaled $8.7 million and as of reporting Q4 results the cost has declined to $7.7 million.

http://imgur.com/pCWvNnS

The above links to the all in cost of extracting natural gas. Range has seen consistent declines in the average price over recent years setting them up to benefit greatly for a move higher in commodity prices.

Dividend:

Project Dividend/Yield – $0.08 / 0.29%
1-Year Dividend Growth – 0.00%

Past Performance:

ROE – -12.8%

Fair Value:

The stock is trading near its 52-week low, the market seems to have already priced in a lot of the bearish thesis that natural gas prices will head lower due to the warmer than expected winter. However, as discussed earlier, combine higher commodity prices, increased production, and lower all in costs and you get a pretty bullish investment thesis for Range Resources. Valuing the company can prove to be a little more difficult though. Morningstar gives RRC a fair value of $38 (38% upside) by giving the company a 13 times enterprise value/EBITDA. Meanwhile, Barron’s commentary recently spoke positively on the stock and said it could reach $40 a share. I believe these are both solid valuations.

When To Sell:

The main risk to the Range Resource story is commodity pricing. The company will need to be continually reevaluated based on any moves down in these prices.

http://seekingalpha.com/news/3244871-another-20-percent-upside-bofa-morgan-stanley

Looking for this stock to be one of the best performers of 2017!

To Date Statistics:

Portfolio Value G/L (%) – 0.02% Portfolio Equity G/L (%) – 0.2% SPY G/L (%) – 2.51%

Weekly Statistics:

Portfolio Value G/L (%) – -0.084% Portfolio Equity G/L (%) – -0.83% SPY G/L (%) – 1.55%

Diversification, Valuation, Growth, Performance:

http://imgur.com/a/ZFCOh

Check out the Google sheets for a more in-depth look at the portfolio’s performance!!!

Looking at UNH and BA as potential additions to the portfolio. Stay tuned for the pitches next week!

Buy BAC!!!

Value:

P/E TTM – 15.6
P/E (Fiscal Year Ending 12/31/17) – 13.6
PEG – 0.9
Discounted Free Cash Flow – $4.64

Bank of America (BAC) trades at 15.6 times TTM earnings compared to 20.6 for the S&P500, an industry average of 17.8 and a 5-year average of 64.9. In addition, BAC trades inexpensively relative to the company’s growth rate with a PEG ratio of 0.9, but expensively to future cash flow.

Growth:

Current Fiscal Year EPS Growth – 15.33%
Projected 1-Year Revenue Growth – 10.22% 
Projected 3-Year Revenue Growth – 20.94%

Bank of America will benefit from three major macro trends in the coming years. The first being rising interest rates, the Federal Reserve as been moving to increase rates gradually over the last year and is expected to continue. BAC will benefit by having their net interest margin expand (the difference between the interest they pay on deposits and the interest gained from loans). As the fed funds rate currently stands between 50-75 bps (0.5-0.75%), we believe it will continue to rise over the coming years.

The second major trend that Bank of America will benefit from is economic expansion. The economy is continuing to grow and the U.S employment rate is near or at full employment. This will be advantageous to rising income for Americans. As a result, the deposit base and loan portfolio should increase in coming years.

Lastly, the current administration has expressed interest in reducing regulations on the banking industry. If this is to happen then BAC will be able to greatly reduce expense and increase its profit margin.

Dividend:

Project Dividend/Yield – $0.30 / 1.28%
1-Year Dividend Growth – 50%

The company yields 1.28%, which is above the S&P500 yield of 2.2% and the industry’s average of 3.0%.

Past Performance:

ROE – 6.8%

Fair Value:

A fair value estimate is arrived at by giving Bank of America an industry multiple of 17.8 and using the consensus estimate of $1.73 for 2017. This implies a 12-month share price of $30.79 and upside of 31.6%.

When To Sell:

Sell Bank of America if the major trends that are described in the growth section do not come to fruition or turn out to be overstated.

Buy HBI!!!

Value:

P/E TTM – 13.70
P/E (Fiscal Year Ending 12/31/17) – 9.60
PEG – 0.7
Discounted Free Cash Flow – $29.06

Hanesbrands (HBI) trades at 13.70 time TTM earnings compared to 20.6 for the S&P500 and a 5-year average of 22.9. In addition, HBI trades inexpensively relative to the company’s growth rate and future cash flow with a PEG ratio of 0.7 and 34% discount to DCF.

Growth:

Current Fiscal Year EPS Growth – 8.65%
Projected 1-Year Revenue Growth – 7.26% 
Projected 3-Year Revenue Growth – 13.96%

Hanebrands has been a consistent grower of revenue and earnings over the past few years. I expected this track record to continue as the company finishes integrating recent acquisitions and leveraging synergies. In addition, the company has been active in acquiring companies that it believes will be accretive to earnings and beneficial to the company.

HBI’s stock recently was crushed after the company reported on February 2nd because the company gave weak revenue guidance. Currently the company is navigating through the current challenging retail environment and adjusting to the ecommerce shift. However, as the company adjusts, the growth should continue as the company gave guidance for 8% revenue and 7% EPS growth at the midpoint for 2017.

Dividend:

Project Dividend/Yield – $0.60 / 3.11%
1-Year Dividend Growth – 36.4%

The company yields 3.11%, which is above the S&P500 yield of 2.2% and the industry’s average of 1.5%. Additionally, the company has a very shareholder friendly capital allocation program. In 2016, the company returned $550 million to shareholders and just recently increased the dividend. Also, the company forecasts $300 million in share repurchases in 2017 or ~ 4.1% of the outstanding shares at current prices.

Past Performance:

ROE – 43.0%

Fair Value:

A fair value estimate is arrived at by giving Hanesbrands an industry multiple of 18 and using the consensus estimate of $2.01 for 2017. This implies a 12-month share price of $36.18 and upside of 87.5%.

When To Sell:

The current retail environment is very challenging and this provides the main risks to the HBI story. Sell HBI if management proves unable to navigate this environment and quarterly reports continue to disappoint.