Ruckus Wireless (ticker RKUS)

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Company: Ruckus Wireless
Ticker Symbol: RKUS
Action: Buy up to $18.50

4/24/13 Analysis… I am adding 10% to Ruckus Wireless. This is a good buy up to $18.50. Ruckus Wireless Inc. engages in the provision of Wi-Fi solutions. It provides routers, adapters, and wireless access gateways, as well as managed wireless local area network, backhaul, and triple-play carrier services. The company sells its products to enterprise customers in various industries, including hospitality, education, healthcare, warehousing and logistics, corporate enterprise, retail, state and local government, and public venues, as well as to mobile operators, cable companies, wholesale operators, and fixed-line carriers. Ruckus Wireless Inc. is headquartered in Sunnyvale, California. I am seeing a good amount of option activity leading into its next earnings report on May 6th.

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VF Corp (ticker VFC)

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Company: VF Corp.
Ticker Symbol: VFC
Action: Buy up to $185

4/23/13 Analysis…

VF Corp. Vs Nike: VFC has faster EPS growth!

Many investors flock to Nike as the leader in athletics and footwear, but this hybrid company trumps Nike in many ways…

VF Corp. (NYSE:VFC) is a hybrid company both a retailer and wholesaler. The company produces apparel and footwear products primarily in the United States and Europe.The company sells its products to specialty stores, department stores, national chains, and mass merchants. The company is known for its outdoor adventure-oriented, skateboard-inspired, surf-inspired, and outdoor gear footwear and apparel products.

VF Corp. has shelf space in stores from Walmart to Bloomingdale’s, Nordstrom to Kohl’s, and increasingly in their own stores. The company’s sportswear and outdoor products are offered under such brand names as The North Face, Timberland, Vans, Reef, JanSport, Lucy, and Eagle Creek. The company also provides denim and casual bottoms, and tops under Wrangler, Lee, Riders, and Rustler. In addition, the company offers athletic apparel products under MLB, NFL, and Harley-Davidson brands. Further, VF Corp. provides premium denim and casual bottoms, sportswear, and accessories, as well as premium women’s sportswear under brand names such as 7 For All Mankind, Splendid, Ella Moss, and Nautica. The company was founded in 1899 and is headquartered in Greensboro, North Carolina.

VF Corp. is the world’s largest apparel and footwear manufacturer of powerful apparel brands producing in the consumer goods sector in the textile industry. In 2012, the company recorded total revenues were up 15% of $10.9 billion.The gross margin was up 75 basis points to 46.5% and the adjusted EPS was up 17% to $9.63. In 2013 revenues are expected to increase about 6% and the adjusted EPS is expected to grow 11% to $10.70. The gross margin is expected to improve by 100 basis points, while operating margin should improve by nearly 100 basis points in 2013. The 2013 cash flow from operations is expected to approach $1.4 billion.

Acquisitions are not the only success that has led to VF’s success. The company strives to be innovative and ahead of the curve. The company aims to build leading lifestyle brands that excite customers around the world. To do this VFC has found ways to embrace today’s youth culture. For example, the company works with outside collaborators who use blank Van athletic shoes as a canvas for their creativity. The North Face, as another example, has invested in China to build enthusiasm for outdoor activities and to connect the brand to such experiences. In the denim category, Wrangler is developing a new innovative jean designed to appeal to today’s youth.

VF Corp’s Total Revenue has increased moderately over the past 3 years and so have their Operating Income and Net Income. The Total Cash from Operating Activities has also increased over the past 3 years.

In 2012 VF paid out three different dividends (prices of $0.72 on 6/06/12, $0.72 on 9/06/12, and $0.87 on 12/06/12). In 2013 VF has already paid out a dividend of $0.87 on 3/06/13. The frequent disbursement of dividends and dividend price increase shows that the company has a value on keeping its shareholders happy. In total VF pays $3.48 per share per year in annualwith a dividend yield of 2.1%.

VF Corp’s competitors consist of companies such as Nike (NKE), Burberry Group (BRBY.L), Under Armour Inc. (UA), and SuperGroup (SGP.L), just to name a few. Compared to its competitors VFC has a lower P/E ratio of 17.43 whichindicates a better value and future growth potential. Since VFC is a retailer, wholesaler, and manufacturer it makes it hard to compare to other companies that only retail or manufacture because there is not one company that is exactly like VFC. VFC has a market cap of 18.64 B and VFC’s P/B ratio is 4.97. A higher market value than book value indicates expected growth in the company. A higher EPS of 9.70 indicates that VFC has higher earnings per share compared to NKE and UA who’s EPS are 2.57 and 1.21, respectively.

VF Corp. trumps Nike in virtually every category:

Nike, Inc.

VF Corp

Revenue Growth (3 Year Average)

8.0

14.6

Operating Margin (%, ttm)

11.8%

13.5%

Net Margin (%, ttm)

8.2%

10.0%

ROE, ttm

20.8

22.5

Debt/Equity

0

0.3

P/E

26.2

17.1

P/B

4.7

3.6

Forward P/E

18.8

13.3

 VF Corp. has faster revenue growth with higher margins and generates stronger ROE as compared to Nike.

 

Action to take:  As 2013, enters into warmer weather and summery conditions VFC will start to sell more outdoor products. Although revenues are expected to increase only 6%, that is still an increase and the company will still gain revenue. People will continue to buy active wear, sports gear, and luxury items. No other company is like VFC as this company is well rounded in retailing and manufacturing.  It is a good buy up to $185 a share. It has raised it’s dividend every year since 1973 and currently pays a 2.2 percent dividend.

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Senior Housing Properties (ticker SNH)

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Company: Senior Housing Properties
Ticker Symbol: SNH
Action: Buy up to $32

4/22/13 Analysis…
Get a 5.5% Yield While This Company Helps Battle the Senior Housing Crisis

As our population continues to age, the demand for quality care and housing is going to explode. With properties in 40 different states and a yield of 5.5% this real estate company is poised to see its profits explode during these unprecedented times.

By Jay Peroni, CFP®

The significant growth in the U.S. senior population has already begun as aging baby boomers have begun entering their retirement years. Demographic forecasts show the growth of seniors is expected to affect over 25% of the population in the U.S. by 2022. With the aging population, the big question remains “how will we keep up this overwhelming demand”?

The demand for senior housing is not only driven by demographics, but it is also mainly need-driven as there is a significant necessity for those facing the chronic care issues of aging. Unlike discretionary needs that can be postponed, senior care needs often comes on quickly as daily living skills rapidly deteriorate.

For those in the senior care real estate business, trends look quite favorable. The demand for senior housing is expected to continue to increase as more than 10,000 people will turn 65 each day for the next 20 years. So the demand is clearly there, but what about the supply?

By all accounts, the current supply of senior housing that will be available to serve the coming aging boom will be far less than the demand for such services. According to Ziegler, the U.S. market will need to add 3,400 units every year over the next 25 years to maintain current market share. The real challenge for senior housing providers is keeping up with the demand. That is where Senior Housing Properties Trust (NYSE: SNH) is helping prepare for current and future needs.

It is a Maryland real estate investment trust that invests in senior housing income producing real estate, including senior apartments and assisted living, congregate care and nursing home properties. Senior apartments are marketed to residents who are generally capable of caring for themselves. Residence is generally restricted on the basis of age. Purpose built properties may have special function rooms, concierge services, high levels of security and centralized call buttons for emergency use.

5 Reasons I like Senior Living Properties:

1. Well diversified: As of Dec 31 2012, the company owned 392 properties located in 40 states and Washington, D.C. The company’s portfolio includes: 260 senior living communities; 120 properties leased to medical providers or medical related businesses, clinics and biotech laboratory tenants; and 10 wellness centers.

2. Conservative financial approach: It has conservative balance sheet and is investment grade rated (Moody’s: Baa3; S&P: BBB-). Since it was first rated in 2001, its debt has averaged only 35% of total book capital. It has well laddered debt maturities with approximately 96% coming due after 2014.

3. Minimal Medicare exposure: Only 4% of its net operating income (NOI) comes from skilled nursing facilities, which is among the lowest concentration levels of the publicly traded healthcare REITs.

4. Quality properties: It owns high quality assets with low historical per unit, per square foot or per bed costs. Property types include private pay senior living communities, medical office, clinic and biotech lab buildings, private pay wellness centers, skilled nursing facilities and rehabilitation hospitals.

5. Strong, consistent rising dividends: Over the past decade, SNH has achieved consistently solid financial performance and dividend growth. Since inception, SNH has paid out over $1.5 billion in distributions to investors through December 31, 2012, including dividend increases every year since 2002.

Take a look at Senior Housing Properties over the past 6 months:

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Risks to consider: Regulatory changes ranging from accounting practices to new state regulations have affected higher care segments of the senior housing industry during the last decade. These changes can impact future profitability of senior care housing providers.

There is also quite a bit of operational risk. The senior housing industry is both an operating service business and a real estate investment and, depending on the level of service provided, may require up to five times the amount of operating personnel than does a multi-family property. It is difficult for management to realize operating efficiencies through the various activities of staffing, catering, administrative expenses and insurance.

Additionally, there are risks associated with the perception that many seniors view these facilities as less desirable than remaining in their own homes. The preference for homeownership and certain lifestyle amenities may significantly undermine market penetration.

However, even given these risks, Senior Housing Properties is an attractive opportunity.

Action to take –> Senior Housing Properties Trust (NYSE: SNH) is a good buy up to $32 a share. It pays a 5.56%. It has raised its dividends every year since 2002. This stock should see a 10-15% increase over the next year, outpacing the broader market.

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Abbott Labs (ticker ABT)

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Company: Abbott Labs.
Ticker Symbol: ABT
Action: Buy up to $40

4/22/13 Analysis…

Should you own Abbott Labs or Abbvie Inc?

It’s tough to find solid dividend paying stocks in the health care sector, but this medical devices giant has raised its dividend every year since 1973 and now offers investors two investment choices.

By Jay Peroni, CFP®

Searching the health care sector for quality, dividend-paying stocks is no easy task.  It takes a lot of time and effort to find stable and consistent winners. There are many dividend opportunities in the health care space with equipment makers like Stryker Corp. (NYSE:SYK) paying a 1.5% dividend or a drug manufacturer like Johnson & Johnson (NYSE:JNJ) paying a 2.9% dividend or you could always go the diversified route with a health care ETF like Health Care Select Sector SPDR (NYSE: XLV) comprised of 53 health care stocks paying an average of 1.7% in dividends.

Whatever path you choose, the choices are tough in the health care sector as many companies in this industry seek to reinvest in research and development and grow rather than pay out income to investors.  This limits the field, but there are still quite a few attractive choices.  Abbott Laboratories (NYSE: ABT) has been a favorite of mine for many years.

On January first of this year, this longtime Pharmaceutical giant separated into two publicly traded companies, one in diversified medical products, which will retain the Abbott Laboratories (NYSE: ABT) name, and the other in research-based pharmaceuticals, which will be known as AbbVie Inc. (NASDAQ: ABBV). This transaction was what commonly is referred to as a spin-off.  Now that we have three full months of history, let’s check in and see which has fared better and see if either or both are worth investing in going forward.

Shares of Abbvie Inc. opened trading on January 2nd, 2013 at $34.92 a share.  Since then shares have taken off like a rocket to $44.27 as of April 22, a shopping gain of 26% in a few short months!

Take a look at this climb:

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Shares of Abbott Labs opened January 2nd at $32.20 and have since climbed to $36.91 as of the April 22nd, showing a respectable gain of 14.6%, but about half the return of its spin off.

See the difference: 

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So which will be the better long-term play?

There’s AbbVie (ABBV) a slow growing pharma play with an attractive 3.7% yield or the new thinner, more nimble Abbott Labs (ABT), a faster growing company, but a much smaller 1.5% dividend yield. Historically, when you see this kind of break up in the healthcare sector, the newly spun off company tends to outperform the parent dramatically over first 12 months and the results typically continue that trend for an additional two years.

Both stocks have advantages and disadvantages, let’s look at both.

Four Reasons to stick with Abbott Labs (NYSE: ABT):

  1. Free to grow: The spin-off was all about freeing Abbott Labs from its pharma business.  This should allow it to grow much faster than its peers.
  2. Healthier profit margins: With a diversified product line up in nutritionals, medical devices, diagnostics, and generic drugs, it should be able to expand its margins and see higher profitability.  Its nutritional business could see 35% compound annual growth rate over the next three years. Q1 3013 sales for the division were $1.7 billion, up 8.7% versus the same quarter of 2012.
  3. Access to the emerging markets: Abbott already has substantial market share in the emerging markets with 40% of its revenues coming from the emerging market countries like China and India.  This growth could climb to as high as 50% from emerging markets where most competitors revenues only get about ten to twenty percent of their sales from emerging markets.
  4. Key leadership: Miles White will remain as the CEO for Abbott. As one of the best executives in the health care business, having a leader like White can make a huge difference.  Look at Apple post Steve Jobs.

Bottom line on Abbott:  From a price perspective, the old Abbott Labs sold for 12 times forward earnings with a 9% long-term growth rate, yet the new, improved Abbott now sells for 17 times forward earnings, but it has a much higher growth rate in the low-teens. Abbott Labs should have more growth potential than AbbVie, but will have a much smaller dividend payout.

Abbott recently reported its first numbers post spinoff- and they looked quite impressive. Adjusted earnings for the first quarter came in at $0.42 per diluted share beating the average analyst estimates of $0.41 per share. It reported total sales for the first quarter of $5.38 billion, up 1.8% compared to the same quarter last year. More importantly, Abbott confirmed its prior full-year 2013 adjusted earnings guidance of $1.98 to $2.04 per share.

Four Reasons to go with Abbvie Inc. (NASDAQ: ABBV):

 

  1. Higher yield and safety:  AbbVie has a sweet 3.7% dividend yield.  For income investors, this dividend stream is very attractive. AbbVie will pay $1.60 per share in dividends, which should act as valuation support, as the cash flows to support the dividend are very secure over the next five years.
  2. Double-digit growth potential: AbbVie now has the blockbuster arthritis drug Humira — along with its growth power. Humira represents one of the best immunology drugs for RA, Crohn’s disease, and psoriasis, and we expect it will continue to penetrate these markets. This could provide double-digit growth for Abbvie for quite some time.
  3. Future opportunities:  Abbott’s hepatitis C pipeline drugs could take a meaningful piece of a market that should grow to over $20 billion by 2020.
  4. Fast start:  Since the spin-off Abbvie has outperformed Abbott nearly two to one.  History says this trend will continue.

Bottom line on Abbvie: AbbVie is a research-based biopharmaceutical company with great upside potential and a strong dividend yield.  It develops and markets therapies that address diseases such as rheumatoid arthritis, psoriasis, Crohn’s disease, HIV, cystic fibrosis complications, low testosterone, thyroid disease, Parkinson’s disease, ulcerative colitis, and complications associated with chronic kidney disease, among other indications. With increased demand for its drugs, Abbvie is poised to see strong growth for years to come.

Action to take –> Abbott Labs (NYSE: ABT) is a good buy up to $40. It pays a 1.5% dividend and has raised its dividend every year since 1973.  My target price over the next 12 months is $45 representing 20% upside. Abbvie Inc (NASDAQ: ABBV) is a good buy up to $50 per share and this could hit $60 within the next 12 months representing a 30% potential gain. Both stocks represent great opportunities and my suggestion is to own both as part of a growth and income portfolio.  If owned in equal parts, you will get a combined 2.6% yield with plenty of room for growth.

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W.W. Grainger (ticker GWW)

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Company: W.W. Grainger
Ticker Symbol: GWW
Action: BUY (up to $250)

4/22/13 Analysis

This Industrial Leader has been able to Deliver Strong Returns and Raise its dividend for 41 Straight Years

Many industrial companies go through wild booms and busts through volatile economic times, yet this industrial distributor has returned an average of 19% per year for the past decade.

By Jay Peroni, CFP®

Sometimes being in the right place at the right time can be rewarding, especially when it comes to investing. Being in the right asset class, the right country or even the right sector when they are in favor can pay off big time and boost your portfolio’s returns. Though it’s difficult to time the market, clearly some investors have advantages when it comes to stock picking.

Though choosing winning stocks is not easy, it pays to find quality companies. For example, I often look for industry leaders that continue to reward shareholders year after year. One of the sectors that sometimes give investors trouble is the industrials sector. It is a highly sensitive sector that often lives and dies by the overall health of the global economy. When times are good, manufacturing takes off, but when things slow down, the sector can see very difficult times. Just ask shareholders of companies like Caterpillar (NYSE: CAT), Boeing (NYSE: BA), or Precision Castparts Corp. (NYSE: PCP) who have seen a rollercoaster ride over the past 5 years.

One of the ways I like to play this volatile sector is through industrial distributors. The industrial distribution industry is highly fragmented with the top 50 distributors representing about 30% of the roughly $140 billion North American market. Though this is a highly competitive field with low customer switching costs, not much protection from new entrants into the market, and plenty of choices, one company has clearly been able to rise above the pack and deliver solid, consistent returns for its shareholders.

The company I am referring to is W.W. Grainger (NYSE: GWW). Since 1927, it has been an industrial distributor of maintenance, repair, and operations supplies for businesses and institutions primarily in the United States and Canada. Grainger helps customers save time and money by providing them the right products to keep their facilities up and running. It serves over 2 million businesses and institutions in 157 countries. It works with more than 3,500 suppliers to provide customers with access to more than 1 million products including adhesives, fasteners, hand tools, lighting, motors, office furniture, plumbing supplies, and much more.

Through increasing its product offerings and scale, Grainger has been able to offset cost inflation expanding its gross margins from 32% in 2002 to 43.8% in 2012. It has been able to boast 17% returns on invested capital for the past 15 years while many of its competitors are still in single digits. Because it is the largest customer for 7 of its 10 largest suppliers margins should continue to expand and shareholder could continue to see solid returns for years ahead.

One of the ways Grainger has been able to stand out is by aggregating demand on a national level. This enables manufacturers to operate closer to optimal utilization levels and minimize inventory risk. Manufacturers prefer partners like Grainger because it performs the selling functions for suppliers who then have to spend less on marketing and sales. Grainger also has a competitive advantage by upselling its services beyond inventory supply. When it creates on-site accounts with clients, revenues typically grow 2-3 times the normal growth rate of the company. The online sales channel has grown at double the company’s overall growth rate and now represents almost 20% of its total sales. As Grainger places further emphasis on this sales outlet, it should boost profitability because online selling is the firm’s most profitable avenue.

Today, Grainger controls approximately 5% of this market and this could double over the next decade. I believe with its current pace, Grainger should be able to go from $9 billion in revenue, which it saw in 2012 to $18 billion by 2022. With an annual growth rate in excess of 10% Grainger should be able to boost its North American sales and expand internationally.

Take a look at Grainger since 2009:

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Grainger is in solid financial shape with over $486 million in cash, modest financial leverage at a 15% debt/capital ratio, and EBIT interest coverage ratios well above 90 times during the past three years. It recently reported record earnings per share for its 2013 first quarter as management now expects 2013 sales growth of 5%-9% and earnings per share of $11.30-$12.00.

It also reported daily sales increased 6%, gross margins increased 0.80% to 45.2%, while operating margins expanded 1.2% basis points to 15.1%, its highest quarterly level since 2006.

Risks to consider: Industrial distributors have not been able to gain much of a foothold in the emerging markets thus far. Though Grainger has presence in places like India and China, it has not seen the impressive international growth one would expect. If manufacturers move more production overseas, this could impair Grainger’s profitability. Additionally about 70% of Grainger’s sales volume is shipped to customers based on a requisition order, not in-store purchases. This allows its customers to comparison shop and limits Grainger’s ability to raise prices.

Action to take –> W.W. Grainger, Inc. (NYSE:GWW) is a good buy up to $250. It pays a $3.20 dividend, which is about a 1.3% yield and has raised its dividend every year since 1972. My target sell is $325, representing a 35% upside over the next 12-18 months.

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