03/10/2018
This article is intended to give you some examples of how the stock market is in the long run rational. I’m gonna propose you 3 stocks (mega big caps), who are and have been solid all the way with good fundamentals, looking to shift to new and more profitable niches, and excellent balance sheets. These stocks are Cisco (CSCO), MSFT (msft) and Intel (INTC).
Cisco.
I’ve been long the name since Cisco (CSCO) plummeted two years ago around February 2016 to around 21$/Sh. After a good quarter and a dividend rise, in a matter of 1-month shares were rounding 26. Cisco is a company trying to shift from a commoditized space to a more profitable segment like security and software.
The Income statement is healthy, the Balance sheet is in one word strong, the dividend at the moment was attractive (bonds yields at that time were lower than today), and even better, the company had a strategic plan to return to growth. The result is… two years after CSCO is trading around 45$/Sh as of March 2018. If you have been long for this time, you are close to a 100% gain, even though all the turmoil and instability in this time frame. Not a bad profit for a solid and “boring” company. Right?. The forward P/E valuation at 17.21 seems to be even under the average for the S&P500.
Microsoft.
After we have Microsoft. Satya Nadella (MSFT CEO) has been a key in all this transformation, like CEO he has been an excellent driver for his company, heading the behemoth to a better future. Similar to Cisco, for last quarter’s FY2015 MSFT was trading around 40$/Sh. The company also shows a strong balance sheet, a decent dividend, and a shifting model from the old software selling business to subscriptions and cloud, plus all the hardware business around the new products like surface and Xbox. AS of March 2018, MSFT shares are trading around 95 $/Sh. Plus Two-fold in this time-frame. The Forward P/E valuation looks lofty at 23.75, but the name has been resilient amid the recent downturns, so, It seems that investors understand that this is a stronghold
INTEL.
Lastly, one of my favorites, Intel Corporation (INTC). Intel was trading around 28$/Sh for the same period of the companies named above.
In this case, same we find the same qualities, excellent balance sheet, good dividend, excellent management (though it has been criticized for being late to the mobile migration, and losing another great opportunity). Intel has a massive Moat in the Morningstar sense, or in Michael porter sense a substantial Competitive Advantage. The scale of this company is an advantage. Other rivals like Qualcomm (QCOM), AMD, and even NVDA are still far from Intel scale. It is not the fastest grower as is Nvidia (NVDA), but the pe*******on and size have no comparison. The started to other market segments, and the move in data center has been brilliant. For moving the needle of a company this big, you got to bring something good and huge, and the did it with this segment, in the middle of a world transformation on internet of things, data centers, artificial intelligence, etc. The world is changing fast, the technology and the integration with the web are pushing our frontiers beyond, and for all that change we need chips, memory, data centers, digital security, and that is Intel’s business. As of March 2018, INTC is trading around 52$/Sh, almost another two-fold, and analyst ratings in 2018 oscillating between of 53 – 61$. Forward P/E valuation seems dirt cheap at 14.47.
On the long run, fundamentals prevail in sound companies with good leadership, good balance sheet, and positioned on the right business for this era. These are examples of amazing yields in stock in a two-year timeframe. Good Companies + Conviction = $$.
