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

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