20. Internet Software & Services. The anti-American Paris Agreement. The mainstream media headline read: "China Affirms Commitment to Climate Deal." Of course they do! Why wouldn't they? After all, when you are the greatest generator of man-made pollution on the face of the earth, why wouldn't you be thrilled to be part of a "climate" accord that doesn't hold you accountable until 2030, but hamstrings the giant economy that overshadows your own? The ugly truth about the Paris Agreement (and what a fitting city to be named after) is that it punishes the strongest economy in the world (ahem, the American economy) and lets "developing" economies like China off the hook. Under the PA, China has committed to peak greenhouse gas (GHG) emissions around the year 2030! What a bold and magnanimous offering. That is up there with the commitment from the Iranian mullahs to limit its nuclear power ambitions to energy production. And the Neville Chamberlains of the world buy it! The politically-correct action would be to remain in the PA, but if there is one attribute we can definitely assign to President Trump, it is his lack of concern for political-correctness.
19. Internet Software & Services. Cybersecurity firm Palo Alto Networks pops 15% on open. Network security equipment maker Palo Alto Networks (PANW $107-$136-$166) jumped 15% Thursday morning after investors digested the company's most recent earnings release. Revenue for the quarter grew from $346 million to $432 million, year over year—a 25% gain. On another good note, we suppose, the company only lost $49 million this past quarter, as opposed to $59 million in the same quarter last year. The growth story is there for PANW, but we prefer some other companies in the space. We hold one competitor in the Global Leaders Club and three others in the Penn New Frontier Fund.
18. Credit Market. Merkel threw a temper tantrum because Germany was called out. Like a little kid caught cheating on a test, Germany's Angela Merkel didn't like being busted. .
07. Latin America. True to form, Goldman Sachs helps prop up Venezuelan dictator. I truly cannot stand Goldman Sachs (GS $138-$218-$255). Were it a country, it would be France. When the mega-bank has a chance to turn a profit, the unique circumstances surrounding a situation rarely seem to matter much. Just ask the poor Venezuelan citizens who are trying to loosen President Maduro's grip on power. Goldman Sachs threw the Maduro government, which is slowly starving its citizens, a lifeline this week when it announced it would purchase $2.8 million face value of Venezuelan government bonds, to the shock of opposition forces. The bank got a sweet deal for sure, paying 31 cents on the dollar for the bonds, or $865 million. Despite the haircut on the notes, that $865 million will allow the government even more time to decimate the population. Anything for a buck, huh GS?
06. National Defense. US successfully tests missile defense system. The US Air Force successfully intercepted a mock ICBM launched from the Marshall Islands this week as the Department of Defense ratchets-up its response to the North Korean threat. The intercept vehicle, part of the Ground-Based Midcourse Defense program, was fired from Vandenberg Air Force Base in California. While these tests were going on, B-1B Lancer bombers were performing maneuvers along the Korean Military Demarcation Line separating North from South.
05. Oil/Gas Storage & Transportation. British Columbia makes a hard left turn, threatening Kinder Morgan's pipeline plans. Ironic. Just as the Keystone and Dakota XL pipelines are (finally) getting approval from the US government, opposition to a Canadian pipeline is coming to fruition. Midstream energy interest Kinder Morgan (KMI $17-$18-$23) fell 4.3% after British Columbia's Green Party announced its support of the New Democratic Party (NDP) in the formation of a government. What brought the two leftist parties together? Opposition to KMI's Trans Mountain Pipeline project. The Canadian government has already given its blessing to the expansion project, but provincial opposition could delay or even derail the effort at a time when Kinder Morgan is near the launch of the IPO for its Canadian unit.
04. Stock of the Day. AV Homes is riding the Baby Boomer retirement wave. Based out of Scottsdale, Arizona, AV Homes (AVHI $11-$16-$19) is a micro-cap ($355 million) homebuilder catering, primarily, to the active senior community. The company is focused on building communities in four states most amenable to an aging demographic group: Arizona, North and South Carolina, and Florida. As of the end of last year, AVHI owned 5,000 developed residential lots, 2,500 partially developed lots, and 8,000 undeveloped lots. Both revenues and net income (yes, real profit!) have been growing for each of the past five years, and the company has a crazy-low P/E ratio of 2.77.
03. Entertainment. ESPN continues to be a big, fat drag on Disney. We stopped watching ESPN, at least as much as possible, when they decided to wade into the political arena via bloviating commentaries (we turn to sports to get away from politics, idiots). Apparently we weren't the only ones tuning out. According to the latest Nielsen ratings, the Disney (DIS $90-$108-$116) subsidiary lost an extraordinary 3.8% of its subscriber base in May alone. It takes a ton of money for networks to effectively bid on sports broadcasting rights, and the continued erosion of its subscriber base will make that task all the more difficult for ESPN.
02. Lodging. Hilton unveils in-room fitness option. OK, let's admit it: how many of us throw our running shoes and workout gear into our suitcase before a trip—taking up prime space—just to have it return home in mint condition. After all, who wants to get up early just to wait for an elevator to take us to a tiny room packed with five other knuckleheads? Well, our favorite hotel chain, Hilton Worldwide (HLT $52-$66-$66), is doing something about it. At select hotels (more will follow), certain rooms will be outfitted with their own little workout area, complete with a stationary bike, strength training equipment, and a touchscreen fitness kiosk, loaded with hundreds of targeted fitness videos (stretching, cardio, yoga, strength, etc.). There will be a premium to book these rooms, of course, but we believe this is an excellent concept which will force other chains to follow. In this era of corporate mediocrity, it is refreshing to see some creative thinking by an industry leader.
01. Apparel Manufacturing. Michael Kors gaps down 9% on tough outlook. It wasn't that the earnings report for luxury retailer Michael Kors (KORS $32-$33-$53) was that bad; rather, it was the company's lowered guidance that made the stock drop to a 52-week low. Underlining the company's outlook was the announcement that it would close between 100 and 125 of its full-price locations over the next two years—nearly 20%. With the exception of this past quarter, the company has been profitable, and CEO John Idol has a plan to generate more excitement around the brand, but he warned shareholders it will take time. To bring an aura of "luxury" back to the brand, the company will slash by 40% the number of days its goods are on sale. For that to work, the right design team must be in place, and the right message must be conveyed to their target audience. With an 8 P/E, if investors believe in management's turnaround story now just might be the time to pick up some shares of this undervalued former golden child.
19. Internet Software & Services. Cybersecurity firm Palo Alto Networks pops 15% on open. Network security equipment maker Palo Alto Networks (PANW $107-$136-$166) jumped 15% Thursday morning after investors digested the company's most recent earnings release. Revenue for the quarter grew from $346 million to $432 million, year over year—a 25% gain. On another good note, we suppose, the company only lost $49 million this past quarter, as opposed to $59 million in the same quarter last year. The growth story is there for PANW, but we prefer some other companies in the space. We hold one competitor in the Global Leaders Club and three others in the Penn New Frontier Fund.
18. Credit Market. Merkel threw a temper tantrum because Germany was called out. Like a little kid caught cheating on a test, Germany's Angela Merkel didn't like being busted. .
07. Latin America. True to form, Goldman Sachs helps prop up Venezuelan dictator. I truly cannot stand Goldman Sachs (GS $138-$218-$255). Were it a country, it would be France. When the mega-bank has a chance to turn a profit, the unique circumstances surrounding a situation rarely seem to matter much. Just ask the poor Venezuelan citizens who are trying to loosen President Maduro's grip on power. Goldman Sachs threw the Maduro government, which is slowly starving its citizens, a lifeline this week when it announced it would purchase $2.8 million face value of Venezuelan government bonds, to the shock of opposition forces. The bank got a sweet deal for sure, paying 31 cents on the dollar for the bonds, or $865 million. Despite the haircut on the notes, that $865 million will allow the government even more time to decimate the population. Anything for a buck, huh GS?
06. National Defense. US successfully tests missile defense system. The US Air Force successfully intercepted a mock ICBM launched from the Marshall Islands this week as the Department of Defense ratchets-up its response to the North Korean threat. The intercept vehicle, part of the Ground-Based Midcourse Defense program, was fired from Vandenberg Air Force Base in California. While these tests were going on, B-1B Lancer bombers were performing maneuvers along the Korean Military Demarcation Line separating North from South.
05. Oil/Gas Storage & Transportation. British Columbia makes a hard left turn, threatening Kinder Morgan's pipeline plans. Ironic. Just as the Keystone and Dakota XL pipelines are (finally) getting approval from the US government, opposition to a Canadian pipeline is coming to fruition. Midstream energy interest Kinder Morgan (KMI $17-$18-$23) fell 4.3% after British Columbia's Green Party announced its support of the New Democratic Party (NDP) in the formation of a government. What brought the two leftist parties together? Opposition to KMI's Trans Mountain Pipeline project. The Canadian government has already given its blessing to the expansion project, but provincial opposition could delay or even derail the effort at a time when Kinder Morgan is near the launch of the IPO for its Canadian unit.
04. Stock of the Day. AV Homes is riding the Baby Boomer retirement wave. Based out of Scottsdale, Arizona, AV Homes (AVHI $11-$16-$19) is a micro-cap ($355 million) homebuilder catering, primarily, to the active senior community. The company is focused on building communities in four states most amenable to an aging demographic group: Arizona, North and South Carolina, and Florida. As of the end of last year, AVHI owned 5,000 developed residential lots, 2,500 partially developed lots, and 8,000 undeveloped lots. Both revenues and net income (yes, real profit!) have been growing for each of the past five years, and the company has a crazy-low P/E ratio of 2.77.
03. Entertainment. ESPN continues to be a big, fat drag on Disney. We stopped watching ESPN, at least as much as possible, when they decided to wade into the political arena via bloviating commentaries (we turn to sports to get away from politics, idiots). Apparently we weren't the only ones tuning out. According to the latest Nielsen ratings, the Disney (DIS $90-$108-$116) subsidiary lost an extraordinary 3.8% of its subscriber base in May alone. It takes a ton of money for networks to effectively bid on sports broadcasting rights, and the continued erosion of its subscriber base will make that task all the more difficult for ESPN.
02. Lodging. Hilton unveils in-room fitness option. OK, let's admit it: how many of us throw our running shoes and workout gear into our suitcase before a trip—taking up prime space—just to have it return home in mint condition. After all, who wants to get up early just to wait for an elevator to take us to a tiny room packed with five other knuckleheads? Well, our favorite hotel chain, Hilton Worldwide (HLT $52-$66-$66), is doing something about it. At select hotels (more will follow), certain rooms will be outfitted with their own little workout area, complete with a stationary bike, strength training equipment, and a touchscreen fitness kiosk, loaded with hundreds of targeted fitness videos (stretching, cardio, yoga, strength, etc.). There will be a premium to book these rooms, of course, but we believe this is an excellent concept which will force other chains to follow. In this era of corporate mediocrity, it is refreshing to see some creative thinking by an industry leader.
01. Apparel Manufacturing. Michael Kors gaps down 9% on tough outlook. It wasn't that the earnings report for luxury retailer Michael Kors (KORS $32-$33-$53) was that bad; rather, it was the company's lowered guidance that made the stock drop to a 52-week low. Underlining the company's outlook was the announcement that it would close between 100 and 125 of its full-price locations over the next two years—nearly 20%. With the exception of this past quarter, the company has been profitable, and CEO John Idol has a plan to generate more excitement around the brand, but he warned shareholders it will take time. To bring an aura of "luxury" back to the brand, the company will slash by 40% the number of days its goods are on sale. For that to work, the right design team must be in place, and the right message must be conveyed to their target audience. With an 8 P/E, if investors believe in management's turnaround story now just might be the time to pick up some shares of this undervalued former golden child.