Facebook, Apple and Other Big Tech Stocks Aren’t Too Expensive. Here’s Why.

Shipping Giant Maersk Raises Guidance Again and Launches $1.6 Billion Share Buyback. U.S. Demand Is Leading the Recovery.

Lately, investors have taken note of the drastic surge in the five stocks’ valuations. Since September 2, the group is down about 3% on average. Meanwhile, large-cap value stocks, judging by the Vanguard S&P 500 Value ETF (VOOV), have climbed 5.2%. Now, the so-called FAAMG group is trading at roughly 31 times earnings, compared with 20 times for the other 495 stocks.


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Many on Wall Street are wary of big tech as these multiples would seem bound to continue falling after their meteoric rise this year, and as interest rates rise when the economy starts to see a more solid recovery. Tech stocks, after all, would see less of a benefit from a firming economy. Mostly, growth stocks such as these five tend to have idiosyncratic revenue drivers that aren’t affected by changes in the economy—while the revenues of value stocks like consumer discretionary are very much tied to consumer spending trends and economic growth.

Evercore strategists recently said they only see S&P 500 gains of roughly 5% in the next year or so because they don’t expect big tech to outperform the way it has in recent history.

But David Kostin, Goldman Sachs’ chief US equity strategist, argues in a note that “fundamentals support higher valuation for FAAMG.”

Kostin noted that the near-term earnings outlook for FAAMG stocks supports the current valuations. Goldman is looking for S&P 500 companies to post a median annual earnings per share growth of 8% for the next few years. The tech group is expected to see EPS growth of about 17%.

Comparing these companies’ earnings multiples to their near-term earnings growth rates—which many analysts do to determine how fair a valuation is—further justifies Kostin’s point. Facebook’s PEG ratio—calculated by taking the stock’s forward price-to-earnings ratio and dividing by its projected earnings growth rate—is 1.2 times, roughly in line with in its five-year average of 1.1, according to data from FactSet. Amazon’s PEG ratio is 1.6 times, notably lower than its five-year average of 2.4. Alphabet’s PEG is at 1.9 against an average of 1.5, although its five-year high is above 2. Microsoft’s PEG is 2, in line with its average. Apple is the most overvalued by the metric, with a PEG of 2.6 against an average of 1.5.

With the exception of Apple, these companies are expected to see EPS compound an annual rate between the midteens in percentage terms to above 30%. If investors are willing to pay top dollar for these stocks, earnings growth could continue to take them higher.

All five have dominant platforms that create seemingly endless synergies. Amazon’s new online drug business, for example, offers perks to their roughly 70 million Prime members. This can drive adoption of the new offering, but can also drive new prime customers.

The point is tech stocks are pricey for good reason—don’t count them out.

SHL Telemedicine Ltd. (VTX:SHLTN) Is Going Strong But Fundamentals Appear To Be Mixed : Is …

SHL Telemedicine (VTX:SHLTN) has had a great run on the share market with its stock up by a significant 71% over the last three months. But the …

SHL Telemedicine (VTX:SHLTN) has had a great run on the share market with its stock up by a significant 71% over the last three months. But the company’s key financial indicators appear to be differing across the board and that makes us question whether or not the company’s current share price momentum can be maintained. In this article, we decided to focus on SHL Telemedicine’s ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. Put another way, it reveals the company’s success at turning shareholder investments into profits.

See our latest analysis for SHL Telemedicine

How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for SHL Telemedicine is:

5.1% = US$1.8m ÷ US$35m (Based on the trailing twelve months to June 2020).

The ‘return’ refers to a company’s earnings over the last year. So, this means that for every CHF1 of its shareholder’s investments, the company generates a profit of CHF0.05.

What Is The Relationship Between ROE And Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.

A Side By Side comparison of SHL Telemedicine’s Earnings Growth And 5.1% ROE

On the face of it, SHL Telemedicine’s ROE is not much to talk about. A quick further study shows that the company’s ROE doesn’t compare favorably to the industry average of 8.9% either. In spite of this, SHL Telemedicine was able to grow its net income considerably, at a rate of 57% in the last five years. We reckon that there could be other factors at play here. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that SHL Telemedicine’s growth is quite high when compared to the industry average growth of 8.2% in the same period, which is great to see.

past-earnings-growth
SWX:SHLTN Past Earnings Growth November 14th 2020

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). Doing so will help them establish if the stock’s future looks promising or ominous. Is SHL Telemedicine fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is SHL Telemedicine Making Efficient Use Of Its Profits?

SHL Telemedicine’s very high three-year median payout ratio of 162% suggests that the company is paying more to its shareholders than what it is earning. Despite this, the company’s earnings grew significantly as we saw above. Having said that, the high payout ratio is definitely risky and something to keep an eye on. To know the 5 risks we have identified for SHL Telemedicine visit our risks dashboard for free.

Besides, SHL Telemedicine has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

On the whole, we feel that the performance shown by SHL Telemedicine can be open to many interpretations. While no doubt its earnings growth is pretty substantial, its ROE and earnings retention is quite poor. So while the company has managed to grow its earnings in spite of this, we are unconvinced if this growth could extend, especially during troubled times. Up till now, we’ve only made a short study of the company’s growth data. You can do your own research on SHL Telemedicine and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.

5 Ways Growers Can Boost Profits

While there’s still a lot of red tape on cannabis business investments in the United States, restrictions are loosening, and more venture capitalists and …
November 13, 2020 4 min read

This story originally appeared on Green Market Report

As a cannabis grower, small increases in your profit margins can make a big difference in the success of your business. And if you want to scale your operations, you need to focus on getting the small details squared away.

As cannabis becomes destigmatized as a legitimate industry, it’s imperative that growers and retailers become even more focused on cleaning up business processes and optimizing for profitability. Here are some specific ways you can do just that:

RELATED: How To Fully Maximize Your ROI

1. Get to Know Your Numbers

You can’t strategically boost profit margins if you don’t know what your profit margins are to begin with. To find your profit margin, simply subtract your total business expenditures from your total revenue. This provides your net income. Then take your net income and divide it by your total revenue. This leaves you with your profit margin.

It’s also important to know metrics like how much it takes you to produce an ounce or a gram of marijuana; how much you can sell different products for; which products are most profitable; which products have lower margins; etc.

You don’t need to be a CPA to understand the basic numbers behind your business. Any time you invest in analyzing this side of your company will serve you will over the long run.

2. Optimize floor space

As expensive as warehouse space is in most parts of the country, it makes sense that you’d want to make better use of your floor space. In fact, optimizing your floor space is one of the smartest things you can do to boost profits. The more you can grow within a limited footprint, the better your numbers will be.

In addition to vertical cultivation strategies, which allow you to make better use of limited space, you should find the correct crop density for each specific strain you’re growing.

“When you begin to work with tighter plant density, your nutrient requirements are less, you can utilize labor better, you can more easily cycle plants so your harvest can [be continuous],” says Jim Ott, CEO of Precision Cultivation, which focuses on plant genetics. “If you’re making it like a manufacturing [facility], in terms of your workflow, those are ways to bring some efficiencies.”

Ott encourages growers to stop thinking in terms of traditional measurements, like pounds per bulb, and instead focus on more comprehensive formulas and calculations, such as cost per square foot.

RELATED: Looking For Help Improving Productivity? Here’s How A Centuries-Old Cannabis Company Is Doing It

3. Automate where you can

Anything you can do to reduce labor with automation is going to benefit you in the long run. Labor is by far one of the greatest expenses. Whether it’s hand watering, trimming, moving plants around, or packaging, overreliance on laborers will cost you.

Automate wherever you can. One good option is to use automatic grow light lifters, which make it easier to move lights, increase production, and achieve more consistent and faster harvest rates.

A fertigation system is also useful. It will automatically inject important nutrients into your hydroponic grow, which eliminates the need for manual involvement. Again, major savings.

4. Consider outside investments

As the saying goes, it takes money to make money. If you’re struggling to scale your operation to the level that’s required to maximize profitability, perhaps you should think about welcoming in an outside investor.

While there’s still a lot of red tape on cannabis business investments in the United States, restrictions are loosening, and more venture capitalists and investors are looking for ways to get involved. This could be a good way to inject some cash into the business and fund necessary improvements or expansion.

RELATED: Where the ‘Gold Rush’ Turns Green: the Profit in Legalized Marijuana

5. Cut energy costs

Energy is obviously a significant expense. One strategy is to lower energy use by ensuring all equipment is appropriate to the specific needs of your site. Under- or over-sized equipment can dramatically impact energy efficiency, hurt production, and kill cash flow. Furthermore, you need to know the hours of peak demand so you can minimize energy use during these hours.

The beauty of our industry is that there are so many different strategies, business models, and avenues for success. But regardless of which paths you choose to pursue, profitability must be one of your primary concerns. And the more you’re able to grow your profitability, the more you’ll be able to scale and expand in ways that are meaningful.

Why It Might Not Make Sense To Buy Marathon Oil Corporation (NYSE:MRO) For Its Upcoming …

Regular readers will know that we love our dividends at Simply Wall St, … If earnings decline and the company is forced to cut its dividend, investors …

Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Marathon Oil Corporation (NYSE:MRO) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 17th of November in order to be eligible for this dividend, which will be paid on the 10th of December.

Marathon Oil’s next dividend payment will be US$0.03 per share, and in the last 12 months, the company paid a total of US$0.12 per share. Last year’s total dividend payments show that Marathon Oil has a trailing yield of 2.4% on the current share price of $5.07. If you buy this business for its dividend, you should have an idea of whether Marathon Oil’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.

Check out our latest analysis for Marathon Oil

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Marathon Oil’s dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Marathon Oil didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Marathon Oil paid out more free cash flow than it generated – 163%, to be precise – last year, which we think is concerningly high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:MRO Historic Dividend November 12th 2020

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Marathon Oil reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Marathon Oil’s dividend payments per share have declined at 19% per year on average over the past 10 years, which is uninspiring.

Get our latest analysis on Marathon Oil’s balance sheet health here.

To Sum It Up

Is Marathon Oil worth buying for its dividend? First, it’s not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow.” It’s not an attractive combination from a dividend perspective, and we’re inclined to pass on this one for the time being.

So if you’re still interested in Marathon Oil despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we’ve found 2 warning signs for Marathon Oil (1 is potentially serious!) that deserve your attention before investing in the shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.

Why Triton International passes this dividend checklist

But the big challenge for investors is deciding which stocks offer the best balance of attractive payout and dividend sustainability. After all, the last thing …

The return ‘boost’ you get from cash dividends is a vital part of the total profits that can be had from investing in shares. In times of market volatility, these payouts from shares like Triton International (NYQ:TRTN) are more important than ever.

With tens of billions paid out in dividends across the stock market each year, dividend income is an appealing source of returns. But the big challenge for investors is deciding which stocks offer the best balance of attractive payout and dividend sustainability. After all, the last thing you want is to suffer from a dividend cut.

To help you find the best dividends possible, there are a few key measures to remember. Let’s take a look at the dividend paid by Triton International as an example of what to look for…

GET MORE DATA-DRIVEN INSIGHTS INTO NYQ:TRTN »

1. High (but not excessive) dividend yield

Yield is an important dividend metric because it tells you the percentage of how much a company pays out in dividends each year relative to its share price. That makes it easy to compare dividend payouts right across the market.

High yields are obviously appealing but be careful of excessively high yields (usually above 10%) because they can be a sign of problems. When the market suspects a company may be unable to sustain its dividend, the share price will fall and actually push the yield higher – and this can be a trap. So it pays to be wary of excessive yields.

2. Dividend safety

Attractively high yields obviously turn heads – but it’s important to know that a dividend is affordable. Dividend Cover (similar to the payout ratio) is a go-to measure of a company’s net income over the dividend paid to shareholders. It’s calculated as earnings per share divided by the dividend per share and helps to indicate how sustainable a dividend is.

Dividend cover of less than 1x suggests that the company can’t fund the payout from its current year earnings – and might be relying on other sources of funds to pay it.

3. Dividend growth

Another important marker for income investors is a track record of dividend growth – and evidence that the growth will continue. Consistent dividend growth can be a pointer to companies that are carefully managing their payout policies – and rewarding their shareholders over time. Rather than aggressively dishing out earnings, dividend growth companies tend to have more modest yields, but are better at sustaining their payouts.

  • Triton International has increased its dividend payout 6 times over the past 10 years – and the dividend per share is forecast to grow by 3.61% in the coming year.

What does this mean for potential investors?

Yield, Growth and Safety are the three main pillars that support some of the most popular dividend investing strategies. But it’s important to know that dividend payouts can be cut or cancelled very quickly when the outlook changes.

To get a fuller understanding of the dividend prospects for any stock, it’s important to do some investigation yourself. Indeed, we’ve identified areas of concern with Triton International that you can find out about here.

Alternatively, if you’d like to find more dividend shares that might be worth investigating, you can find ideas on this Dividend screen.