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Why Microsoft’s Warning Could be Good News

Fuzzy math seems to be going out of style.

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Fuzzy math seems to be going out of style.

Just a few months ago, being a tech company meant something very specific and brought a certain cachet to most market watchers.

After riding the ebbs and flows of the Great Recession, weathering the pandemic and finding itself more popular than ever as bored users on lockdown binged its products, tech was riding high.

That was particularly true for the FAANG companies — Facebook (now Meta  (FB) - Get Meta Platforms Inc. Class A Report), Amazon  (AMZN) - Get Amazon.com, Inc. Report, Apple  (AAPL) - Get Apple Inc. Report, Netflix  (NFLX) - Get Netflix, Inc. Report and Google (now Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report)  — which seemed at one point to be almost bullet-proof in a market whipsawed by volatility and subject to the whims of skittish investors and anxious institutional players.

Now, however, those same companies are facing a reckoning.

Battered by a series of disappointing earnings, fleeing users and missed forecasts, the mighty fortress of FAANG has fallen upon tough times.

These are times so tough that even Mark Zuckerberg, chief executive and founder of Facebook, has had to pull back on some of his favorite products like the Metaverse.

He's done that in in order to focus on things most tech companies used to scoff at, things once considered crazy in Silicon Valley like the actual bottom line and the old fashioned concept of profitability.

Some experts said on June 2 that at least one big tech bellwether, Microsoft, is finally getting it right.

Trim Those Forecasts, Fellas

The idea that Microsoft is a cutting edge leader of anything in tech is in itself both ironic and a little alarming. 

The usually staid, office and enterprise-oriented company is best known for its conservative approach to market news and a toe-the-the-line management style.

Still, if you wait long enough almost everything comes back into style, and for now, being staid and conservative about the future of your company and what it may earn or lose is very in fashion.

Microsoft harnessed that trend on June 2 when it trimmed its forecasts for its fourth-quarter results.

The company has about 50% of its overall business abroad, and it said that a strong dollar is likely to erode some of its profits over time.

"Software companies including Microsoft have significant operations outside the U.S. and I think Microsoft is being prudent here to get ahead of (market) expectations and be transparent around currency impacts," Steve Koenig, managing director at SMBC Nikko Securities, told Reuters.

How is This Good News?

Normally, a company projecting lower earnings so far ahead of time would be met with distress and anxiety by traders and investors alike.

But tech's recent wobbling has cast a new light on the industry's ability to thrive. 

For the first quarter of 2022:

-- Facebook offered a disappointing forecast by projecting second-quarter revenue of $28 billion to $30 billion, versus the $30.74 billion Wall Street projected; 

--Amazon whiffed on revenue, posting $67.09 million short of estimates; 

-- Google skidded on advertising revenue projections and posted earnings of $24.62 a share, below the $25.94 forecast; 

-- And even Apple stumbled on $83.4 billion in revenue, below expectations of $84.85 billion. 

So What Now?

After all of those unwelcome surprises, investors are very interested in knowing exactly what they can expect.

The answers for why are two-fold.

Firstly, when all the major tech companies brought in disappointing results after years of nothing but stellar production, the market didn't like it.

"The tech-heavy Nasdaq 100 index closed Monday’s trading down more than 26% year-to-date, and the Dow Jones U.S. tech sector has also shed more than 26%," CNBC reports.

That has lead to a tech rout that is still licking its wounds in some sectors, as naysayers continue to assert that tech stocks are vastly overvalued.

“Clearly there is a question of what should the exact market value be of some of these models, but the underlying business models are true business models — not only now but for the future, in terms of delivering services, advice and what have you digitally,” UBS CEO Ralph Hamers told CNBC at the World Economic Forum on May 24.

Secondly, if you know you'll be getting at least some bad news, you can prepare yourself for the worst. 

Bracing for some bad news helps traders bake in some of the negatives they are expecting to see, which keeps the market more stable.

That is because if even a shred of that news turns out to be more positive than expected, it could push share prices up higher.

If not, it won't be a huge surprise that depresses the entire sector and loses people billions of dollars in the process.

Tech's Squishy Math

At the heart of the issue is a longstanding suspicion that institutional investors and more traditional banks and trading shops have about how tech actually measures its profitability and failures.

Past examples of questionable mathematical slights of hand have include WeWork's "community-adjusted" EBITDA, which actually turned out to mean the work-sharing firm was on the hook for $47 billion to office owners from which it had leased space.

"We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level," the firm said in its S-1 filing, "for the foreseeable future."

Investors didn't find that out until the company filed to go public, quickly scuttling the deal and devaluing the company from a $47 billion valuation to close to bankruptcy in a 33 days.

Then there was, of course, biotech startup Theranos, which never even had a working product but still brought in big names like former Secretary of State George Schultz and Oracle's Larry Ellison.

It raised $1.3 billion in funding before a whistleblower brought the whole operation down, leading to criminal charges and the conviction of its CEO Elizabeth Holmes, who is awaiting sentencing in the case.

Now, with inflation over 8% and a recession looming on the horizon, tech companies that want to survive are going to need to be as absolutely transparent as they can be.

“Transparency benefits companies as well as investors," a study from the Kellogg School of Management at Northwestern University has found. 

"A number of studies have shown that investors are more willing to buy stock in a company when they have a clear understanding of the company’s finances.”

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Spread & Containment

How to Use Dividends to Find the Best Tech Stock

Investors Alley
How to Use Dividends to Find the Best Tech Stock
When we talk about tech stock investing, we hear discussions of all sorts about different…

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Investors Alley
How to Use Dividends to Find the Best Tech Stock

When we talk about tech stock investing, we hear discussions of all sorts about different measures used for picking stocks.

For example, some tech investors use year-over-year revenue growth. Others subscribe to a theory that has been floating around for many years, that the secret to picking tech stocks was looking at the percentage of cash flows spent on research and development.

All too often, tech stock analysis consists of storytelling and searching for ideas that will change the world, something I’ve heard thousands of times during my career. The number of companies that actually did change the world probably totals up to a few dozen over three decades.

Some of those beat the market. Others did not.

I have found a variable that can help tech investors spot promising opportunities to identify technology companies that have higher probabilities of providing market-beating returns: dividends.

Note a stock’s dividend yield: investors who want higher dividends with an overall total return would be smart to look into high-yield tech stocks as part of their income strategy. The key to using dividends to find market-beating tech stocks is to look at the rate of their dividend growth. It doesn’t matter how high the dividend is at any given time. We want to see companies that are consistently growing their dividends.

A tech company that pays a dividend is making a statement. It tells the world: “We are generating enough cash to pay the bills, hire great people, and fund our future growth plans as well as R&D. In fact, we are generating so much cash we have some left over to pay out to our investors.”

Ideally, we want to limit our universe of companies to those who are increasing their payout by at least 20% annually. Growing a dividend at that high a rate says that things are just continuing to get better.

Once we have a universe of tech companies that are growing their payouts at high levels, we want to make sure we only own those that really do have a wonderful business that just keeps getting better. We want to use a financial checklist to make sure our companies are in excellent financial shape and have what it takes to keep growing the business.

I prefer the nine-point checklist developed by Professor Joseph Piotroski when he was at the University of Chicago – known as the “Piotroski F-Score”. This is a list of nine criteria of profitability, leverage, and efficiency. On each criterion, a firm can either get one or zero points – pass or fail.

I limit my universe of tech stocks with paid dividend growth to just two to three with the highest scores on the Piotroski checklist.

Using this simple method for picking tech stock winners has crushed the S&P 500 over the past decade and even edged at the tech-heavy NASDAQ 100.

Texas Instruments (TXN) makes the current list of technology companies with high dividend growth and outstanding fundamentals and prospects. The company makes most of its revenues from semiconductors, but it does still have some revenues from its calculators and other business machines. (I have had one of these, a Texas BAII calculator, within arm’s reach for most of my career.)

Texas Instruments had a solid second quarter and increased its guidance for the third quarter. The company has not suffered the China slowdown problems that have plagued some of their competitors so far. The brightest spot in the recent report was semiconductors being sold to the automobile industry, which were up 20%.

Although we have seen some slowdown in semiconductors due to the supply chain issues created by the pandemic, Texas Instruments has powerful tailwinds from all the developments we see in technology over the next decade.

Every one of the hottest trends in the economy—from renewable energy to artificial intelligence and everything in between—is going to increase demand for semiconductor chips. There are thousands of semiconductors in every electric vehicle, which will be another massive source of demand for the industry.

Texas Instruments has a yield of 2.5% right now, and has been growing that payout by 20.5% annually.

Another semiconductor company, Broadcom (AVGO) has the fastest-growing payout on our list right now. The company makes chips for smartphones, networking, broadband, and wireless connectivity. Broadcom’s recent purchase of Symantec’s Enterprise Business also puts it in the cybersecurity business.

Broadcom’s shares currently yield 2.97% and the payment has risen by an average of 49% annually for the past five years.

Most investors will never think of using dividends as part of the stock selection process. Rigorous testing shows that dividend growth is actually an important part of identifying companies with the potential to be huge winners.

My favorite way to invest in those companies isn’t to buy their stock, though. Instead, I like to use a special, little-known investment that lets me invest in these companies for up to 18% less than what others pay…

While collecting twice or more the dividend yield!

All without any more risk. I’m tracking 5 opportunities like that right now, and I lay them all out right here.

Only 3% of investors even know these funds exist

But using them, I can beat the market 2-to-1 while collecting 2-10X MORE yield from regular dividend stocks.

I learned this trick while I was rubbing elbows with some of the biggest fund managers in US history.

They too are buying these little known funds, cashing in huge discounts and collecting income while they do it.

Click here to learn the secret yourself.

 

How to Use Dividends to Find the Best Tech Stock
Tim Melvin

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Government

Where Carnival, Norwegian, Royal Caribbean Sit on Covid Vaccines

Do You still need to be vaccinated to go on a Royal Caribbean, Carnival, or Norwegian Cruise?

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Do You still need to be vaccinated to go on a Royal Caribbean, Carnival, or Norwegian Cruise?

Cruise line covid-19 vaccination and testing rules, which were imposed by the Centers for Disease Control and Prevention at the beginning of the pandemic, have been stricter than most. After the pandemic started in early 2020, the CDC signed a No Sail Order on March 14, 2020, which was finally lifted after nearly eight months on Oct. 30, 2020.

After the No Sail Order was lifted, the CDC enacted extremely restrictive rules and regulations to help keep passengers safe with the covid pandemic still raging throughout the world. The rules and regulations were set forth to begin to return cruise lines to operational status.

The cruise lines first had to be staffed accordingly and set up with the ability to test, treat and quarantine for covid medical emergencies. Testing for crew and passengers before embarkment and before dis-embarkment was required. The testing at pre-embarkment was a measure to protect those boarding, while the post-trip testing was for determining if an infection started on the cruise line itself. Being able to track the virus was very important in the prevention of spreading the virus and protecting patrons.

Image source: Shutterstock

Vaccination Still Not a Free Pass to Board

Once the vaccination was developed and approved, it became part of the CDC guidelines for cruise line adult passengers to have their vaccination before boarding. Even with a vaccination, guests still needed to test before they boarded the cruise lines. As the vaccine was approved for younger age groups, those age groups were then also required to have the vaccine to travel. Passengers were required to be fully vaccinated unless they are exempt by some status.

Before boarding, cruise line passengers who tested positive, as well as their travel companions, were not allowed to board, depending on the cruise line and how long the cruise may be. Some passengers were allowed to board and then isolate, others would have to reschedule their trip. Trip insurance is a good buy these days.

Cruise Lines Letting Loose on Vaccine Policies

Carnival Cruise Line  (CCL) - Get Carnival Corporation Report has now removed pre-cruise testing for vaccinated guests and also welcomes unvaccinated guests to travel. Fully vaccinated guests traveling less than 16 nights with the cruise line will no longer be subjected to testing, but still must provide proof of their vaccination status. Unvaccinated travelers will only need to provide a negative covid test result to board the ships. All rules and regulations are still subject to the destination country’s guidelines.

According to the Healthy Sail Center for Royal Caribbean  (RCL) - Get Royal Caribbean Group Report, the cruise line has updated its covid vaccination protocol. The cruise line will now allow passengers regardless of vaccination status to board in some ports if the travelers meet the testing requirements. Testing requirements vary by cruise departure and destination. Check the cruise lines port departure for updated information on requirements.

There is, however, a major exception, at least for now, which is obvious when you look at the specific wording shared by the cruise line:

"Starting with September 5 departures, all travelers regardless of vaccination status can cruise on the following itineraries, as long as they meet any testing requirements to board.

  • Cruises from Los Angeles, California.
  • Cruises from Galveston, Texas.
  • Cruises from New Orleans, Louisiana.
  • Cruises from a European homeport.

Notice that Florida, a major port for the cruise line, is not currently on the list.

In the U.S. aside from Florida, any guest with a valid negative covid test within the last three days will be able to board. These guests will also not be required to take a second test at the boarding terminal. Fully vaccinated guests do not need to provide proof of a negative covid test for shorter cruises. See the cruise line website for all updated information as it is subject to change.

Beginning Sept. 3, Norwegian Cruise Line  (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report is dropping its covid vaccine requirements for all its cruises. The cruise line stated that it is continuing to follow requirements for all destination countries, so guests traveling will want to check on destination vaccine and testing requirements. All guests 12 and older regardless of vaccination need to show proof of a negative test within 72 hours. Check NCL online for further instructions prior to travel.

The CDC has taken the stance that travelers are now well informed enough to make their own decisions when it comes to traveling on cruise lines. The travelers are taking their own assumed risk for their health and well-being. Cruise lines are now welcoming this new freedom for their passengers. 

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Government

Here’s Where Carnival, Norwegian, Royal Caribbean Stand on Covid Vax Rules

The three major cruise line have all made big changes to their vaccine policies and some passengers may be very happy (while some won’t.)

Published

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The three major cruise line have all made big changes to their vaccine policies and some passengers may be very happy (while some won't.)

Cruise line covid-19 vaccination and testing rules, which were imposed by the Centers for Disease Control and Prevention at the beginning of the pandemic, have been stricter than most. After the pandemic started in early 2020, the CDC signed a No Sail Order on March 14, 2020, which was finally lifted after nearly eight months on Oct. 30, 2020.

After the No Sail Order was lifted, the CDC enacted extremely restrictive rules and regulations to help keep passengers safe with the covid pandemic still raging throughout the world. The rules and regulations were set forth to begin to return cruise lines to operational status.

The cruise lines first had to be staffed accordingly and set up with the ability to test, treat and quarantine for covid medical emergencies. Testing for crew and passengers before embarkment and before dis-embarkment was required. The testing at pre-embarkment was a measure to protect those boarding, while the post-trip testing was for determining if an infection started on the cruise line itself. Being able to track the virus was very important in the prevention of spreading the virus and protecting patrons.

Image source: Shutterstock

Vaccination Still Not a Free Pass to Board

Once the vaccination was developed and approved, it became part of the CDC guidelines for cruise line adult passengers to have their vaccination before boarding. Even with a vaccination, guests still needed to test before they boarded the cruise lines. As the vaccine was approved for younger age groups, those age groups were then also required to have the vaccine to travel. Passengers were required to be fully vaccinated unless they are exempt by some status.

Before boarding, cruise line passengers who tested positive, as well as their travel companions, were not allowed to board, depending on the cruise line and how long the cruise may be. Some passengers were allowed to board and then isolate, others would have to reschedule their trip. Trip insurance is a good buy these days.

Brittany Murray/MediaNews Group/Long Beach Press-Telegram via Getty Images

Cruise Lines Letting Loose on Vaccine Policies

Carnival Cruise Line  (CCL) - Get Carnival Corporation Report has now removed pre-cruise testing for vaccinated guests and also welcomes unvaccinated guests to travel. Fully vaccinated guests traveling less than 16 nights with the cruise line will no longer be subjected to testing, but still must provide proof of their vaccination status. Unvaccinated travelers will only need to provide a negative covid test result to board the ships. All rules and regulations are still subject to the destination country’s guidelines.

According to the Healthy Sail Center for Royal Caribbean  (RCL) - Get Royal Caribbean Group Report, the cruise line has updated its covid vaccination protocol. The cruise line will now allow passengers regardless of vaccination status to board if the travelers meet the testing requirements. Testing requirements vary by cruise departure and destination. Check the cruise lines port departure for updated information on requirements.

In the U.S., any guest with a valid negative covid test within the last three days will be able to board. These guests will also not be required to take a second test at the boarding terminal. Fully vaccinated guests do not need to provide proof of a negative covid tests for shorter cruises. See the cruise line website for all updated information as it is subject to change.

Beginning Sept. 3, Norwegian Cruise Line  (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report is dropping its covid vaccine requirements for all its cruises. The cruise line stated that it is continuing to follow requirements for all destination countries, so guests travelling will want to check on destination vaccine and testing requirements. All guests 12 and older regardless of vaccination need to show proof of a negative test within 72 hours. Check NCL online for further instructions prior to travel.

The CDC has taken the stance that travelers are now well informed enough to make their own decisions when it comes to travelling on cruise lines. The travelers are taking their own assumed risk for their health and well-being. Cruise lines are now welcoming this new freedom for their passengers. 

Read More

Continue Reading

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