Unable Investment
Club
March, 2024 Meeting Minutes
March 28, 2024
The monthly meeting of
Unable Investment Club was held at El Dorado Saloon & Grill in El Dorado
Hills on Thursday, March 7, 2024. The
meeting commenced at 3:05 pm with KS presiding for GR. PR, HT and JL were also in
attendance.
Unable Investment Club has 3 vacancies.
The Valuation and Member
Status reports were reviewed and the checks were collected.
Late: None.
Old Business:
The
following nominations for UIC club officers were accepted: President; Dave Cox
(CX), Treasurer; Ken Bauman (KS) and Secretary; Joy Jones (GC).
New Business:
UIC election for club officers will be held at the
April meeting; vote at the meeting or submit by email here.
Write-ins accepted. Term is May, 2024 through April, 2025.
Stock News:
AMT American Tower is an American REIT that owns and
operates wireless and broadcast infrastructure. This company’s properties help
connect the world’s technology and are partnered with many of the largest global
wireless brands. As of March, 16 analysts cover these REIT stocks with a
one-year price target range of $183.00 to $245.00 and an average price target
of $226.69. This REIT is one of the few that operate in the world’s wireless
and broadcast industries. Who exactly does American Tower provide cellular
towers for? The likes of AT&T, Verizon, T-Mobile, DISH, Telefonica, and
Bharti Airtel. AMT also pays out a quarterly dividend which has been raised for
twelve consecutive years with an average annual increase of 20% since 2012. American
Tower has a similar AFFO CAGR to Realty Income Corp. The company expects about
5.0% AFFO growth this year despite global interest rates remaining high. AMT is
another popular REIT that has underperformed in 2024, providing a negative
return of -7.8%. With mobile data usage expected to increase at a 20% CAGR
through 2028, American Tower is a great way to play the rebound in the real
estate market.
AAPL On March 21, Apple fell 4.1%, marking the worst
single-session drop since it fell 4.8% on Aug. 4, 2023. The sell-off last
August was in response to Apple's fiscal 2023 third-quarter earnings. But this
latest sell-off had nothing to do with quarterly financial reports. The U.S.
Department of Justice (DOJ) filed a civil antitrust lawsuit against Apple for
monopolizing smartphone markets. Here's what the DOJ said and why it's yet
another piece of bad news weighing Apple down. Big tech companies like Apple
are no strangers to antitrust threats. However, as Apple has grown in value, it
has become a bigger target. The DOJ's 88-page document is chock-full of helpful
context, including how Apple purposely built a system to protect itself from
competition. "If you read our lawsuit, what you'll see is that our
concerns are not necessarily with what Apple is doing with Apple's products;
our concerns are with restrictions when Apple tells others what they can and
can't do with their products. That is our primary area of concern and that is
the primary area of focus in our lawsuit," said Jonathan Kanter, assistant
general for antitrust, in an interview with CNBC on March 22. To quote the
seventh point from the DOJ's report: Apple's smartphone business model, at its
core, is one that invites as many participants, including iPhone users and
third-party developers, to join its platform as possible while using
contractual terms to force these participants to pay substantial fees. At the
same time, Apple restricts its platform participants' ability to negotiate or
compete down its fees through alternative app stores, in-app payment
processors, and more. Whether you agree or disagree with the suit, the danger
is that it targets Apple's high-margin services segment, which has been the
saving grace of an otherwise low-growth period for Apple. Apple has expanded
its services offering to fuel growth despite sluggish product sales. The
company still relies heavily on selling devices -- particularly iPhones. But
the business model is still effective as long as Apple is adding users across
devices and boosting engagement with services to enhance the Apple ecosystem.
Services include iCloud, Apple TV, Apple Music, Apple News+, Apple Podcasts,
Apple Pay, and more. For its fiscal 2024 first quarter (ended Dec. 30, 2023),
Apple reported 11.3% year-over-year growth in services revenue but just a 0.1%
increase in products revenue. The high-margin services segment contributed to
all-time-high diluted earnings per share and a 10-year high quarterly gross
margin of 45.9%. Despite the strength of its services, Apple would be nothing
without app developers. Just imagine if Meta Platforms' Instagram wasn't on the
iPhone. This absence would degrade the utility of an iPhone, but because of
Apple's dominance, it would be even worse for Meta Platforms. Apple's best
argument is that developers need Apple more than Apple needs them. But overall,
Apple can't succeed without third-party developers. There are valid points that
Apple is overcharging for its services. A good example is Apple Pay. To quote
the DOJ report: Apple also uses its smartphone monopoly to extract payments
from banks, which need to access customers that use digital wallets on iPhones.
Since Apple first launched Apple Pay -- long before it achieved meaningful
adoption -- Apple has charged issuing banks 15 basis points (0.15 percent) for
each credit card transaction mediated by Apple Pay. Payment apps from Samsung
and [Alphabet] Google are free to issuing banks. Apple's fees are a significant
expense for issuing banks and cut into funding for features and benefits that
banks might otherwise offer smartphone users. The volume of impacted
transactions is large and growing. In some ways, Apple is a victim of its own
success, but that's the nature of antitrust suits. Apple provides more value to
its users than ever before, but it will continue to face scrutiny the more it
enters new industries like mobile payments. The DOJ lawsuit is yet another
thorn in Apple's side, especially because it targets the highest growth segment
of Apple's business. The lawsuit doesn't break the investment thesis. Still, it
could eventually lead to margin compression for Apple. Apple's other key issues
right now include slowing global growth, particularly in China. Apple has also
failed to make a splash in artificial intelligence and has largely missed out
on the gains that have rippled throughout the tech industry as a result of that
theme. If Apple stock were crushing the market and expensive, then there would
be cause for concern, but that simply isn't the case. Apple is down over 11%
year to date compared to a 9% rally in the Nasdaq Composite -- a substantial
underperformance considering Apple is the second-largest component in the
Nasdaq behind Microsoft. Zoom out further, and Apple is down over the past six
months and up less than 10% over the last year. Apple's price-to-earnings (P/E)
ratio is now just 26.6, a discount to the S&P 500's multiple of 28.4. Apple
has its challenges, but it's too good of a company to have a lower valuation
than the broad market. Given its challenges, Apple stock could remain pressured
in the short term, so there's no rush to dive headfirst into the stock.
However, Apple has the qualities of an excellent long-term investment for
patient investors, so it's worth opening a starter position, holding, or at the
very least, adding to the top of your watch list.
AMAT Semiconductor giant Applied Materials recently announced
a whopping 25% boost to its quarterly dividend, taking its total to $0.40 per
share, up from $0.32 previously. That incredibly strong increase came on the
heels of a 23% increase in 2023 and is part of the company's previously
announced plan to double its payout over the next few years. A monster dividend
increase like that is a great reward to long-term shareholders, handing them a
tangible cash return for the risks they've taken by holding the company's
stock. Of course, for those of us who don't own Applied Materials' stock, that
boost raises a key question: Are you missing out on this stock's monster
dividend raise by not owning its shares? On one hand, Applied Materials can
certainly afford to boost its dividend to $1.60 per share per year. Over the
past four reported quarters, it has earned $8.50 per share, making its payout
ratio a modest 19%. In addition, even with that increase, its dividend yield to
shareholders remains below 1%. That modest payout ratio and yield mean that
Applied Materials is still pretty new to providing its shareholders with direct
returns through dividends. In addition, with earnings growth expected to clock
in around 15% annualized over the next five years, the market is expecting more
in total returns from growth than from dividends in the near term. Put
together, those factors mean that looking at what's just going on today, those
who don't own Applied Materials' stock aren't really missing out on much from a
dividend perspective. Despite the large raise, the low base and modest yield
mean that investors who are looking for current dividend income can easily find
greener pastures elsewhere. On the other hand, in 2023, when Applied Materials
first announced its plan to double its dividend over several years, it made it
clear that it felt confident in its prospects to do so. As Applied Materials is
boosting its dividend by around 25% at a time when its growth prospects are
around 15%, it is keeping enough cash around to reinvest for growth while
boosting its payout. When it comes to dividends, nothing is certain until the
payment is formally announced. Still, if you look at both Applied Materials'
expected dividend trajectory and its anticipated earnings trajectory, you can
make a case that it is setting itself up to offer a decent income stream over
time. From that perspective, people considering making and investment in its
shares today might not be getting a great current income stream but might be
getting an awesome future one. As the company's shares trade around a
reasonable 23 times its trailing earnings, investors aren't paying an
outrageously inflated price for its overall prospects. Net, while those
investors most interested in current income from their dividend stocks might be
disappointed, those who care more about future income growth could be excited.
For an investor looking for a rising dividend as a signal of a strong and
growing company, Applied Materials' combination of a rapid dividend growth rate
and modest payout ratio looks appealing. As a result, its dividend should be
considered the icing on the cake. Overall, the company looks like it offers the
prospects of a decent total return over time driven by a combination of rising
earnings and a rising dividend. Nothing in investing is guaranteed until it
unfolds, but the way Applied Materials looks today, it certainly appears to be
at least worth considering for investors with a long-term time horizon.
CNI Most investors are no doubt familiar with Bill
Gates, billionaire philanthropist and co-founder of Microsoft. After helming
the technology company for a quarter of a century, the chief executive stepped
down to spend more time on his charitable endeavors. Since then, Gates has
grown his wealth and is now worth an estimated $127.7 billion, according to
Forbes, making him the seventh-richest person in the world. Gates' charitable
efforts are mostly focused on the Bill & Melinda Gates Foundation Trust.
The mission of the trust is "to create a world where every person has the
opportunity to live a healthy, productive life." The foundation has spent
nearly $54 billion since 2000, "taking on the toughest, most important
problems." As a result, the trust's holdings are in a constant state of
flux. While it holds stakes in dozens of companies, four well-known stocks
dominate the list: Microsoft, Berkshire Hathaway, Canadian National Railway and
Waste Management. When Berkshire Hathaway snapped up ownership of Burlington
Northern Santa Fe in 2009, Buffett noted that railroads were a very
"cost-effective way" to move goods, while releasing "far fewer
pollutants into the atmosphere." After spending so much time with Buffett,
the appreciation of trains must have rubbed off. The Gates Foundation owns
nearly 55 million shares of Canadian National Railway, valued at $6.9 billion. It's
easy to see the allure. Railroads are viewed as a linchpin of economic
prosperity and are much more efficient for moving goods than competing methods,
including trucking. Add to that a long operating history, wide economic moat,
and steep barriers to entry, and you have the recipe for the perfect Buffett
stock -- and, by extension, a perfect Gates stock as well. Finally, Canadian
National has consistently increased its dividend for 18 consecutive years and
currently yields 1.9%. Its relatively low payout ratio of 37% suggests there's
likely plenty more where that came from
COST It's not just companies with exposure to the
hypergrowth artificial intelligence space that have registered huge returns.
Even a boring retailer, such as Costco, is up bigly. Its shares have more than
tripled just in the last five years. For comparison's sake, the S&P 500 is
up 86% during the same time. This has undoubtedly been a magnificent stock.
It's already up double digits in 2024 (as of March 21) as the momentum
continues. And it was a longtime favorite of the late great Charlie Munger. However,
you shouldn't buy Costco shares right now. There's a very obvious reason for
that. The era of ultra-low interest rates and cheap debt during the 2010s led
to surging stock prices that were disconnected from business fundamentals. In
this environment, it seemed like investors cared less about valuation, instead
prioritizing growth and business quality above all else. That's not necessarily
a bad thing, but it ignores the fact that valuation is still a critical
component of successful investing. Here's where Costco's monster stock return
in recent years has become a reason not to buy shares. As of this writing, the
stock trades at a nosebleed price-to-earnings (P/E) ratio of just under 49.
Except for earlier this month, shares haven't been this expensive this century.
This tells me that the optimism surrounding Costco is at high levels right now.
And that's precisely why it's not smart to buy the stock. Yes, Costco has
reported strong fundamentals. However, its P/E ratio has also soared by 60% in
the past five years. The market continues to bid up the stock, even as the
business's growth opportunities become limited over time. No one argues with
the fact that Costco has far less expansion potential today than it did even a
decade ago. But back then, the P/E multiple was at 25. When expectations are
this elevated, it leaves no margin of safety for prospective shareholders.
Consequently, there is a lot more downside risk than upside. Investors should
wait until there's a major pullback before buying. But what valuation is
appropriate? Everyone's opinion is different, but I wouldn't invest unless the
P/E multiple got back to the mid-20s range. Part of the reason Costco's stock
has performed so well is its strong financial performance. Net sales climbed
60% between fiscal 2019 and fiscal 2023, a disruptive period of time that
included the onset of the coronavirus pandemic, inflationary pressures, and
rapidly rising interest rates. There are still fears about a recession these
days, but Costco was still able to grow same-store sales by 5.6% in the latest
quarter (Q2 2024 ended Feb. 18). This is a steady and consistent business and
that has clearly deserved a premium from investors. During the previously
mentioned four-year stretch, Costco's diluted earnings per share increased at a
faster clip. The operating margin might look low, but the fact that the bottom
line has expanded more than revenue shows that Costco can scale up. Costco's
massive scale is exactly what creates its most important competitive advantage.
As the world's third-largest retailer, it has unrivaled purchasing power and
negotiating leverage with its suppliers. And these lower per-unit costs are
passed on to shoppers in the form of low prices. However, not just anyone can
shop at a Costco warehouse. The business operates a successful membership model
that has an outstanding renewal rate of 92.9% in the U.S. and Canada. This also
drives loyalty. Succeeding over the long term in the retail sector is the
exception to the rule. Costco has established itself as a dominant presence in
the industry. However, the market more than fully appreciates this, so you
shouldn't buy the stock right now.
GOOGL Alphabet reported solid results in the fourth quarter,
beating estimates on the top and bottom lines. Total revenue increased 13% to
$86.3 billion on particularly strong sales growth in the cloud computing
segment. Meanwhile, GAAP net income soared 52% to $20.7 billion as cost control
efforts led to a 300-basis-point expansion in operating margin. Investors can
expect similar revenue growth in the coming quarters, though earnings growth
will undoubtedly slow. Alphabet subsidiary Google has a durable competitive
advantage in its ability to source data from across the internet. Specifically,
the company owns 15 products that serve at least 500 million users, and six
products that serve more than 2 billion users. That includes internet search
engine Google Search, streaming platform YouTube, the Android mobile operating
system, and the Chrome web browser. The upshot is that Google dominates the
digital advertising market because it has a deep understanding of consumer
behavior that media buyers find valuable. The company accounted for 39% of
digital ad spending last year, according to Statista. Google is working to
strengthen its position by infusing its ad tech ecosystem with new artificial
intelligence (AI) capabilities, including the recent addition of generative AI
capabilities to Google Search. Meanwhile, Alphabet has steadily gained share in
cloud computing due to investments in product development and go-to-market
capabilities. Google Cloud Platform accounted for 11% of cloud infrastructure
and platform services revenue in the fourth quarter, up one percentage point
from the prior year. Google still trails Amazon and Microsoft by a wide margin,
but the recent release of Gemini could help the company gain more market share.
Gemini is a machine learning model that can outperform GPT-4 (the engine behind
ChatGPT Plus) across a range of benchmarks, according to the company. Gemini
lets Google Cloud customers build AI applications, such as conversational
chatbots and intelligence search agents. Gemini also integrates with Google Workspace
applications to automate tasks like drafting content in Google Docs,
synthesizing data in Google Sheets, and generating images in Google Slides. Going
forward, Wall Street expects Alphabet to grow sales by 10% annually over the
next five years, but that estimate leaves upside if the company merely
maintains its market share in advertising and cloud computing. I say that
because digital ad spending is expected to grow at 15% annually through 2030,
and cloud computing revenue is expected to grow at 14% annually during the same
period. However, the current valuation of 6.4 times sales look
reasonable even if the Wall Street consensus is correct. Patient investors
should feel comfortable buying this growth stock today, but I would be much
more conservative on position sizing than Bill Ackman.
LIN Linde is another industrial gas and chemical
company. Hailing from the U.K., it sells the standard range of atmospheric
gasses. It also has another attractive line of business in building turnkey gas
plants for customers. Linde is currently reporting solid earnings. This has
made Linde stand out from the pack as so many hydrogen and renewable energy
stocks underperformed this past year. Linde, by contrast, is the model of
consistency. Analysts are forecasting between 9% and 12% earnings per share
growth for each of the next three years. Linde has demonstrated a consistent
and repeatable pattern for successful growth. For example, the company is
building out its own hydrogen production facilities, including a new plant
expansion in Alabama. In addition to its own operations, the third-party
offerings allow Linde to cash in more broadly as the overall hydrogen industry
continues to expand in size. While LIN stock is not the cheapest of the
hydrogen names, its high-quality business and stable prospects make it a great
blue-chip play within the industry.
MSFT Given Microsoft’s stock multiple, huge opportunities
and the extremely effective management of its CEO, Satya Nadella, I expect MSFT
stock to continue to outperform the market over the longer term. Consequently,
I view the shares as a Buy for investors looking for exposure to Big Tech and
AI. The entire cloud infrastructure sector benefited last quarter from
increased spending on “generative AI technology and services,” John Dinsdale,
Chief Analyst at Synergy Research Group told The Channel Co. But Azure grew
significantly faster than its peers, as its share of the overall cloud sector
rose by almost two percentage points versus Q4 of 2022 to 24%. The revenue of
the firm’s “intelligent cloud” unit, which features Azure, jumped 19%
year-over-year in Q4 to $25.9 billion. Given MSFT’s strength in AI services, I
believe that the unit can continue to expand by similar rates going forward,
providing MSFT stock with a huge, positive catalyst. Microsoft’s ability to
significantly expand the use of its Microsoft 365 cloud software offering
should meaningfully lift Microsoft’s financial results and MSFT stock going
forward. Both of those businesses should be helped considerably by the
increasing demand among companies and governments for IT security systems. On
March 7, Jared Spataro, MSFT’s Corporate Vice President of Modern Work &
Business Applications told Morgan Stanley that the company could benefit from
getting Microsoft 365 into the hands of more frontline workers such as sales
people and warehouse employees. There are 2 billion of those employees
globally, and many of them could be helped by using Teams, MSFT’s collaboration
and communication software, to connect with their employers’ “digital
infrastructure,” Spataro stated. Those employees’ firms could also benefit in
many cases by equipping them with 365’s security offerings, he indicated. Further,
the tech giant can move the needle by selling more Microsoft 365 licenses in
emerging markets, Spataro reported. Finally, the firm is successfully
convincing more businesses to adopt the most expensive version of 365, called
E5, primarily because of its security features, the executive noted. But since
the penetration of E5 is rather low, the firm believes that it can generate
significantly more revenue by convincing more businesses to adopt it. MSFT
released its AI assistant, Microsoft Copilot, late last year. According to
Spatoro, 70% of Copilot users report that it’s making them more productive. And
among “typical information worker task people,” Copilot increases the speed
with which they complete their tasks by “almost 30%.” Also noteworthy is that
the product can save users as much as ten hours per month, according to the
executive. Unlike competing products, Copilot can write summaries of specific
parts of meetings, while its ability to summarize emails is proving to be very
helpful for its users, Spatoro noted. Finally, the company is selling Microsoft
Copilot for Security which uses AI to “detect cyberthreats” and enhance firms’
ability to respond to cyberattacks very quickly. Given companies’ fear of being
victimized by costly cyberattacks, I expect the demand for Microsoft Copilot
for Security to be very strong. In the 2010s, Nadella was able to identify
before most others that cloud infrastructure was going to become a huge market,
and he successfully built Azure into a powerhouse. Years later, he saw before
most others that AI was the “next big thing,” and he has left the firm very
well-positioned to get a gigantic boost from that technology. Given these
points, I’m very confident in his ability to lead the firm in the right
direction going forward.
SPGI No news.
TSM Taiwan Semiconductor stock is the backbone of the
burgeoning semiconductor industry. As the world’s leading contract chip
manufacturer, TSMC produces the chip that powers everything from smartphones
and laptops to advanced AI applications and electric vehicles (EVs). Wall
Street remains bullish on the company’s growth prospects in FY24, as AI
tailwinds suggest strong growth ahead. Management forecasted 20% revenue growth
in 2024, driven by increased demand for high end AI GPUs. With a strong track
record, strategic investments, and a booming market for advanced semiconductor
chips, TSMC presents a compelling opportunity for investors in 2024. Artificial
intelligence is rapidly transforming industries as we know it, and its growth
hinges on the powerful semiconductor chips. TSMC is well positioned to
capitalize on this long-term trend, given the nature of their operations. The
company is a major supplier of leading AI chip companies like Nvidia, who
require the most advanced chips for their products. With the industry moving at
such a fast pace, their customers are in need of rapid scaling ability and time
to market to meet the demands. According to AMD, the AI GPU market will reach a
staggering $400 billion by 2027, growing at a 70% CAGR. TSM stock is already
investing significant CAPEX to expand its production capacity, ensuring they’re
well equipped to their customer’s needs. As AI adoption accelerates in 2024,
the demand for TSMC’s advanced chips will translate into significant revenue
and EPS growth. The chip shortage that plagued various industries in the past
few years highlighted the crucial role of foundries like TSMC stock. Unlike
companies like Intel who design their own chips, TSMC focuses solely on the
manufacturing process. This has allowed them to specialize and become the most
important company in the semiconductor industry. Currently the company holds
more than 50% market share in foundry services. This monopoly gives them a
clear competitive advantage and significant pricing power. Furthermore, TSMC’s
more than 3 decades of experience has made them the preferred partner for
companies developing advanced AI chips. There obviously exists competition like
Samsung and GlobalFoundries, however, they do not have nearly the same market
dominance. They are also set to benefit from the U.S. Chips & Science Act,
after being awarded a blockbuster $5 billion grant to build a new fabrication
plant in Arizona. TSMC is also making strategic investments in Europe and Asia,
with new planned advanced fab facilities in Germany and Japan. While
recognizing the significant market opportunities in advanced AI chips, TSMC
stands to be a significant beneficiary. They continue to make strategic
investments to solidify their position in manufacturing advanced semiconductor
chips. It is not just AI chips that will fuel growth over the next decade, it
will also fuel the burgeoning global electronics industry. This includes
meeting the rapid demands of IoT and 5G technologies as the world sees the
biggest transition in history. Management has already guided more than 20%
revenue growth in the 2024 fiscal year, and TSM stock remains a key enabler of
AI applications. The company’s market dominance, strategic investments, and
alignment with the booming AI market positions them for long term growth.
TTD In late 2022, Netflix shook the streaming world when
it started to offer subscription tiers supported by advertising. It didn't take
long for other streaming services to follow suit, including The Walt Disney
Company with its Disney+ streaming service. There's a lot happening in the
background with digital advertising and Disney just announced major upgrades.
Moving forward, the company is looking to Alphabet and The Trade Desk to better
monetize its streaming services. Here's what it means for investors. Disney is
a publisher -- it publishes video content on various platforms, including
Disney+, Hulu, and ESPN+. These platforms have slots available for advertising,
and it's the company's goal to sell these slots for maximum revenue. Back in
2021 -- before the launch of an ad-supported subscription tier for Disney+ --
Disney laid out a five-year advertising plan to automate its platform. The plan
necessarily had incremental steps, and its announcement on March 20 of
partnerships with Alphabet and The Trade Desk was just the latest step forward.
Disney is unlike many of its streaming service peers. The company has a massive
first-party dataset because of how many subscribers it has and because of how
long it's been in business -- many competing services are either much smaller
or relatively new. Therefore, Disney's consumer data is extremely valuable when
trying to sell ad slots for maximum revenue. For years now, Disney has worked
with supply-side platforms (SSPs) such as Magnite to sell its slots. However,
Magnite works with many content publishers. Any advertiser that goes through
Magnite bids on ad inventory that includes Disney but isn't limited to it. But
advertisers and demand-side platforms (DSPs) such as The Trade Desk want a more
direct connection to Disney's audience. It's understandable: Disney+ has around
150 million subscribers worldwide -- the audience is massive on its own. Alphabet's
DV360 platform and The Trade Desk will now connect to Disney's DRAX (Disney's
Real-Time Ad Exchange). DRAX Direct will let these two DSP adtech platforms
peek into Disney's ad slots and audience information to allow for more targeted
advertising. This should be a win for everyone: Disney, Alphabet, and The Trade
Desk. And if Disney's management is to be believed, it's surprisingly not a
loss for Magnite. For Disney, this is a win because it moves the company
forward in its goal to maximize revenue. In theory, Alphabet's DV360 and The
Trade Desk will direct more advertising dollars to the company's various
streaming platforms. This will increase competition for the ad slots and
consequently push rates up, which is good for Disney stock. For Alphabet and
The Trade Desk, both companies are trying to deliver better results for their
advertising customers. The direct integration with Disney's DRAX could provide
better data for targeting. It seems likely that both companies will have more
satisfied customers because advertisements will reach target demographics
within Disney's massive audience more precisely. That said, Alphabet's market
capitalization is $1.9 trillion compared to a market cap of just $42 billion
for The Trade Desk. Therefore, this news has a better chance of moving the
needle for the latter as a much smaller company. Finally, Magnite stock has
plunged on this news that Disney is working more directly with DSPs, but
according to AdExchanger, management teams at Disney and The Trade Desk don't
believe this is bad news for SSPs like Magnite. Disney's move to allow direct
access to its DRAX platform can be seen as a way to increase demand without
taking business away from Magnite. Indeed, Disney reportedly works with around
30 DSPs, and the company only partnered with Alphabet's DV360 and The Trade
Desk for direct access because these two have the most scale. Giving these
biggest players more buying options is just a sensible business decision. However,
Alphabet and The Trade Desk can still do both: They can use some ad dollars
when shopping for ad slots directly and leave some for transacting through
SSPs. Moreover, there are still plenty of DSPs working with Disney as they
always have, providing ongoing business for Magnite. That said, I believe the
two biggest winners here are Disney and The Trade Desk. Disney should see
material improvements to its streaming business as it finds way to grow
advertising demand. And The Trade Desk continues to be one of the biggest
beneficiaries of advertising's multiyear migration from linear content to
digital.
V Visa Inc. have reached a landmark antitrust
class action settlement with U.S. merchants. Subject to approval by the U.S.
District Court for the Eastern District of New York, the settlement is one of
the largest in U.S. antitrust history, according to a statement. The settlement
aims to resolve claims for injunctive relief in “In re Payment Card Interchange
Fee and Merchant Discount Antitrust Litigation.” “The Settlement Agreement
opens competitive doors that have been closed for decades, while providing rate
relief to every merchant that accepts Visa or Mastercard credit cards,” said
Nobel laureate economist Dr. Joseph Stiglitz, who submitted a declaration on
the settlement and its effects. The class includes all merchants who accepted
Visa or Mastercard debit or credit cards in the U.S. at any time during the
period between December 18, 2020, and the date of entry of final judgment by
the court. At least $29.79 billion in savings will be realized in the five
years following approval of the settlement from agreed-upon caps and rollbacks
on credit card processing fees, or “swipe fees.” Merchants have become more
outspoken in recent years against these fees, averaging around 2% per purchase
and totaling over $100 billion last year, Bloomberg reported. Visa and
Mastercard determine the fee levels, but it’s the banks issuing the cards, such
as JP Morgan Chase & Co. Last year, JPMorgan, the largest U.S. bank, earned
$31 billion from interchange and merchant processing, resulting in $4.8 billion
in card income after factoring in customer rewards, payments to partners, and
other expenses, Bloomberg added. As a part of the settlement, Visa and
Mastercard will roll back the posted swipe fee of every merchant by at least
four basis points for at least three years. For a period of five years, Visa
and Mastercard will not raise the swipe fees of any merchant above the posted
rates that existed as of December 31, 2023. For a period of five years, the
average effective systemwide swipe fee for Visa and Mastercard must be at least
seven basis points below the current average rate. An independent auditor will
verify the calculations. “By negotiating directly with merchants, we have
reached a settlement with meaningful concessions that address true pain points
small businesses have identified,” said Kim Lawrence, President, North America,
Visa, in a press release. “Importantly, we are making these concessions while
also maintaining the safety, security, innovation, protections, rewards and
access to credit that are so important to millions of Americans and to our
economy.”
WM WM handles the entire waste management value chain,
from collection to transportation, separation, treatment, and reuse. The
business is pretty self-explanatory, until recently when the reuse side of the
equation has expanded far beyond recycling. WM's capex has exploded in recent
years, doubling over the last three years. The company's capex growth rate has
far exceeded its net income growth rate, which makes sense given WM won't see a
return on some of these investments for years. The big driver of WM's
investments is sustainability through recycling projects and renewable natural
gas (RNG). Landfill gas (LFG) is produced when bacteria break down organic
waste. According to the Environmental Protection Agency, LFG contains about 50%
methane and 50% carbon dioxide -- not a good combination when released directly
into the atmosphere. WM is working on trapping and processing that LFG into
pipeline quality gas that can be reused. The sustainable process is why the
finished product is called "renewable" natural gas. RNG production is
far more expensive than fossil-based gas. But there are credits to make RNG a
good investment. On its Q4 2023 earnings call, WM discussed the stability of
the credit program and why credits can be stacked together to make the program
more profitable. WM is a leader in the LFG to RNG industry, which has decades
of potential especially as the pace of the energy transition accelerates. WM is
putting up excellent numbers despite these long-term investments. Profits are
near an all-time high and margins have recovered from the pandemic-induced
slowdown. WM stock has rather quietly surged over 108% in the last five years,
outperforming the S&P 500. The company has made meaningful raises to its
dividend, and returned $2.44 billion to shareholders in 2023, but the yield is
low because the stock has done so well and WM is investing in long-term growth,
not just the dividend.
Stock Picks:
KS
& JL: Save cash for future investing opportunities.
PR: Buy shares of Nu Holdings Ltd. (NU), a holding company which engages
in the provision of digital banking services and is headquartered in George
Town, Cayman Islands.
HT: Buy additional TSM.
On Friday, March 8, 2024 the following order(s) filled:
Buy 8 TSM @$146.00/share; total $1168.00
Buy 180 NU @ $11.20/share; total $2016.00
Meeting adjourned at 3:44
PM.
Respectfully submitted by
Ken Bauman.
Next Meeting: Tuesday, April 2, 2024 at 2:30 p.m. at:
El
Dorado Saloon & Grill
879 Embarcadero Dr
El Dorado Hills, CA 95762
916-941-3600