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Emerging Markets : India – Reliance industries (RELIANCE)

If you are living in India you are probably a customer of Reliance industries’ product at some point of time. There are six verticals (Lines Of Businesses) in which Reliance Industries operates.

Exploration & production , Refinery & Marketing ,Petrochemicals(Plastics),Reliance Jio, Reliance Retail and Reliance Media & Entertainment. Reliance owns the largest refinery in the world (Jamnagar, India). Reliance Jio is the largest telecom operator in India and second largest operator in the world.

Competitors in the oil and gas industry are ONGC, Petronet LNG, Oil India and HOEC . The competitors in retail & telcom are Amazon, Airtel and Vodafone Idea as here is where the real growth is.
Reliance has EPS of Rs. 63.64 which is greater than that of Airtel, Vodafone Idea, ONGC, Petronet LNG, Oil India and HOEC.
Reliance has a P/E of 31.28 which is very attractive when compared to its competitors. Petronet LNG, Oil India and HOEC have better P/E ratios but their growth is limited. With Reliance you pay the premium for the massive growth in the next 5 to 10 years.
Reliance has a P/B of 2.8 and P/S of 2.083 which makes it very attractive when compared to its competitors.
Coming to financials – total assets are Rs.12266.49 Billion and total debt is Rs 2552.41 Billion and gross profit is Rs.297.3 Billion. Reliance declared itself Net Debt free in June.
Revenues have gone up year over year. 3.3 trillion rupees revenues in 2017 to 5.97 Trillion rupees in 2020. Earnings have dropped slightly compare to last year.
Saudi Aramco invested around $15 Billion into Reliance’s Oil, Gas & Petrochemical business. Reliance gets liquidity and Aramco gets around 20% stake in the above businesses.
Facebook invested $5.7 Billion for 9.99% stake in Reliance Jio. This is the largest FDI in tech sector in India.
Goal is to unify Mom & Pop shops (Kirana stores) and use whatsapp as a payment gateway on Jio platform. This give sFB an opportunity to monetize 400 million whatsapp users in India and Reliance not only gets liquidity but also access to whatsapp users.
KKR & co, Silver Lake and Mubadala investment companies committed more than $20 billion to digital services and $6.4 billion to retail.

News

Facebook Whatsapp might embed Jiomart within 6 months (19-Jan-2021)
Amazon files appeal with Indian courts against Future Retail sale to Reliance (11-Jan-2021)
Reliance says it has no plans to enter contract farming (4-jan-2021)
SEBI imposes fine of Rs. 15 crore on Mukesh Ambani, Rs. 25 crore on Reliance Industries for “manipulative trades”(1-Jan-2021)
Punjab Farmers vandalized Reliance mobile towers (28-Dec-2020)
Jio to roll out 5G in second half of 2021(08-Dec-2020)

Pros

Reliance Industries is pivoting to retail, digital services and telecom which has massive growth potential. Google, Facebook investing in Reliance is a great sign that Reliance is going to be key in India’s digital revolution.
Reliance has multiple lines of business generating revenues and so their businesses will not be impacted by any changes in certain sector.
Being Net Debt Free gives them access to funds which will be used to expedite their growth plans.

Cons

Decline in Annual Earnings.
Decline in Quarterly Earnings.
Being in the news for the wrong reasons – Fine by SEBI.

Final Thoughts

Reliance stock is a great investment. If you have money which you don’t need for next 5 years, you invest this money in this stock by Rupee Cost Averaging(RCA). Here is an example of RCA.

For example : If you have Rs100,000 and want to invest it in Reliance. Investment in 25 weeks by buying Rs 4000 a week. Irrespective of the price – pick a day and time of your choice and keep adding every week like clock-work. By doing this you are getting an average price over 6 months (including ups and downs).

How many weeks you want to break it up and how much you want to invest every week is your choice.Reinvest the dividends if possible. Hold them for 5 years and watch them compound.

You can either get rich slowly or become poor quickly.

INTC: Analysis of Intel Corporation and its Q4 2020 results

Intel was founded in 1968 and is headquartered in Santa Clara, California. Intel designs and manufactures chips for personal computers, data centers etc., Its competitors include AMD,NVIDIA,TSMC, Samsung etc.,

Intel’s business includes PC Centric(50%),Data Center Group(35%),Internet of things(5%), Non Volatile Memory solutions group(5%), Programmable Solution Group(4%) and Mobileye(<1%). Please note that these are approximate percentages.
Intel has been behind on its next generation chips which has caused loss in its market share causing decline in its stock price. For instance, last July Intel announced that their 7nanometer chips are delayed till 2023 whereas AMD was already selling them.
Intel’s customers – Amazon, Microsoft and Apple have started making their own chip designs and plan to get them manufactured in East Asia. This is a loss but not a big part of Intel’s revenue.
Third Point hedge fund has around $1Billion stake in Intel. In Dec’2020 its Chief Executive wrote to Intel chairman Omar Ishrak calling for immediate action to boost Intel’s position in PC Centric and Data Center Group businesses. Following which Intel announced that Pat Gelsinger will take over as the new CEO on 15-February-2021 from Bob Swan.
Pat Gelsinger comes from VMWare where served as CEO from Sep,2012 to Feb,2021. He worked at Intel Corporation for 30 years and left with a title CTO in Jan,2005. Bob Swan was from finance background and investors demanded a CEO with engineering background to take over. Engineering background and his career at Intel in the past could be possible reasons for his appointment.
Splitting the chip design from manufacturing operations is one of the options discussed by the company. This would help Intel to produce better chips at lower cost by outsourcing manufacturing operations. This option has been rejected by Intel’s executives.
Market Cap =$224.46B, PE Ratio = 11.22, Quarterly Profit Margin =26.84% (Good,>10%)

Quarterly Results:

Fourth-quarter revenue was $20.0 billion, exceeding October guidance by $2.6 billion and down 1 percent year-over-year (YoY). Full-year revenue set an all-time Intel record of $77.9 billion, up 8 percent YoY.
Delivered outstanding fourth-quarter earnings per share (EPS) of $1.42 ($1.52 on a non-GAAP basis, exceeding October guidance by 42 cents).
In 2020, Intel generated a record $35.4 billion cash from operations and $21.1 billion of free cash flow (FCF) and returned $19.8 billion to shareholders.
Forecasting first-quarter 2021 revenue of approximately $18.6 billion (non-GAAP revenue of $17.5 billion); expecting first-quarter EPS of $1.03 (non-GAAP EPS of $1.10).
Cash dividend increase of five percent to $1.39 per share on an annual basis. The board declared a quarterly dividend of $0.3475 per share on the company’s common stock, which will be payable on March 1 to shareholders of record on February 7.

Pros:

Current Assets($47.249B)> Current Liabilities ($24.754B).
Shares outstanding have gone down from 4.69B in 2017 to 4.06B.
Dividend Yield forward = 2.38%. Dividend Payout ratio=26.72% indicates there is room for dividend increases in future.
During last four years, Revenue grew from $62.76B to $77.87B and earnings grew from $9.6B to $20.9B , Free Cash Flow grew from $10.332B to $20.931B a
Average FCF per share = 4.33. Shares are trading at 12.76 times the FCF which is good.

Cons:

Selling Intel’s manufacturing facilities may not be easy as they are customized to Intel’s processes. Also, getting an approval would be difficult from US National Security Agency to divestment.
Intel lost its dominant position in microprocessor manufacturing to TSMC(Taiwan Semiconductor Manufacturing Co) and Samsung Electronics Co Ltd.
Intel is losing its share in PC Centric and Data Center Group businesses to AMD(Advanced Micro Devices)
NVIDIA Corp is dominating the computational models used in AI applications where Intel is yet to make an impact.

Final Thoughts:

There is not much wrong with Intel fundamentally as its made out to be. Pat Gelsinger understands requirements of cloud technology. Turnaround has started.

When compared to the competition– Intel ‘s stock price is a steal for what you are getting. P/E ratio of AMD is 41.83,NVIDIA is 85.56, TSM is 54.86 – Intel at 11.22 is very attractive. Invest in Intel if you are ready to hold for 5 years.

Be fearful when others are greedy, and greedy when others are fearful.

Pandemic Stock Picks : Chegg,Inc

Chegg,Inc operates direct-to-student education platform. Chegg began textbook rentals in 2007 and expanded in to educational platform offering service to high school and college students. It was founded in 2005 and head-quartered in Santa Clara, California. Here are a few notes:

Chegg’s top competitors include Barnes & Noble, upGrad, Zhangmen and Cluey Learning.
Revenue increased from $250M to $410M in the last 4 years. Earnings increased from -$45M to -$10M during the same period.
Beat Earnings estimates last four quarters straight.
Total Debt is $931.5M. Gross Profit $318.74M. Revenue is 445M. Current Ratio is 7.93.
Market Capitalization of $7B, P/E: Not Available, PEG ratio : 1.58, EPS : -$0.09
Shares are currently trading at $60.39 with 52W-High of $67.98 and 52W-Low of $25.89 with support level at $39.04 and resistance level at $61.15.
Acquired Mathway (Education mobile app) for approximately $100M in cash in order to expand its international coverage. May pay up to $15M additional payments over next 3 years subject to performance.Net Revenue of Mathway for 2019 was $13M.
On 6/16/2020, announced that its board of directors has authorized $500M share buyback.
Reported Q1 subscription to services increased 35% to 2.9M students and revenue went up by 35% ($131M).
Forecast for the Q2 – subscriber growth to be more than 45% and revenue to $137M.
Chegg hit a low of $25.89 on 18-March-2020. It is now at $60. That is 2.3 times!
The free cash flow has more than doubled when compared to Q1 2019.
The stock is trading at 16 times the revenue per share, 22 times gross profit per share, 44 times operating Cash Flow per share and 98 times levered free cash flow per share.

Pros:

Good company with massive growth potential. Acquisitions and stock buybacks show confidence of the management. Pandemic has expedited the need for digital education. This caused increase in subscriptions and generating higher revenues. Revenues and earnings have been going up in the last 4 years. The financial health of the company appears to be good.

Cons:

Digital Education might be the way for the future. Given massive student loans, more students might opt for this mode of education. However, we will also have to see what happens once things come back to normalcy and college campuses are open for students again.

Given the high valuation and how quickly the stock went up so fast to $60 from $26 in less than 3 months tells me there might be a correction on the cards.

Final Thoughts:

Chegg is a good company to buy but NOT a good price to buy at. Once bought we need to wait for the growth story to unfold and it could be a few years.

Timing is everything. If it is meant to happen it will, at the right time for the right reasons.

Dividend Stock Series: HBI: My views on investing in Hanesbrands Inc.

At some point in our lives, we might have bought products of Hanesbrands Inc. If not, you might have seen someone wearing their products. They are present at most of the malls.

Hanesbrands Inc., founded in 1901 is headquartered in Winston-Salem, North Carolina and sells its products all over the world. Operates 240 retail stores in the US and 690 stores worldwide.

Here are some notes on the company and its stock.

Markets T-shirts, bras, panties, shapewear, underwear, socks, hosiery, and activewear under some of the world’s strongest apparel brands, including Hanes, Champion, Bonds, DIM, Maidenform, Bali, Playtex, Lovable, Bras N Things, Nur Die/Nur Der, Alternative, L’eggs, JMS/Just My Size, Wonderbra, Berlei, and Gear for Sports.
Hanesbrands Inc’s top competitors include Nike, adidas, Gildan Activewear, Under Armour and MACK.
Pays a dividend of $0.6 (5.36%). Paying dividend since 2013 and increased it overtime.
Dividend Payout ratio is 42.86%.
Missed Q1 2020 EPS estimates by $0.09. However met EPS estimates for prior three quarters.
Revenue increased from $6B to $6.97B in the last 4 years. Earnings increased from $539M to $600M during the same period.
Total Debt is $5.01B. Gross Profit 2.78B. Revenue is 6.7B. Current Ratio is 2.21.
Market Capitalization of $4.07B, P/E: 8.33,PEG ratio : 4.02
Shares are currently trading at $11.72 with 52W-High of $17.69 and 52W-Low of $6.96 with support level at $9.31 and resistance level at $14.85.
Recently (June 2020) Hanesbrands appointed Walmart vet, Stephen Bratspies to chief executive position.

Pros:

Good company with worldwide presence marketing in multiple segments. Good Dividend payout and dividend raises. Payout ratio low and so chances of eliminating/cutting the dividend is low. The company has been around for a long time with low debt, no fear of bankruptcy.

Cons:

These are trying times for Hanesbrands with malls closed for some time during the pandemic. Hanesbrands Inc., has taken a major hit to its revenues. The stock price went down 47% when the market crashed and recovered back to $11.72. New CEO appointment would mean changes are coming to make his own impact and need to see how this is going to pan out.

Final Thoughts:

With brick and mortar stores out of favor, pandemic and new CEO I will wait on the company for some more time. Not buying now.

Be patient. Some things take time.

Dividend Stock Series: ABBV: My views on investing in Abbvie Inc.

Abbvie Inc has been recommended by many market pundits citing their strong business model, pipeline, dividends and dividend growth.

Abbvie is a biopharmaceutical company, develops products worldwide for treatment of various diseases. Here are a few items that I look at when I am researching dividend stocks.

Has a good pipeline of various drug developments.
- AbbVie’s top competitors include GlaxoSmithKline, Novartis, Roche, Johnson & Johnson, Amgen, Merck Group, Abbott and Bristol-Myers Squibb.
- Pays annual dividend of 5.24%($4.72) which is $1.18 per quarter per share.
- Increased its dividend since 2013.
- Payout ratio : 77.70%, EPS: $5.65, Dividend : $4.72
- Beat market earnings estimates comfortably for last 4 quarters.
- Revenues grew from $25.64B to $33.27B and earnings grew from $5.95B to $7.88B during the period of 2016-2019.
- Market Capitalization of $163B, P/E: 16.4,PEG ratio : 1.28
- Cash: 41B,Investments: 49B ,Debt: 67B,Current Ratio: 3.14
- Institutions own 76.76% of the outstanding shares.
- Shares are currently trading at $92.67 with 52W-High of $97.86 and 52W-Low of $62.55 with support level at $78.76 and resistance level at $93.95.

Pros

Here are the things I like about Abbvie Inc. Abbvie stock has a healthy pipeline of drugs coming, pays a good dividend increasing since 2013. Good business performance over the last year consistently beating market estimates. Massive market capitalization with massive revenues, cash and good Assets/Debt ratio. This is one solid company.

Cons

Here are the things that I have concerns with Abbvie stock. Pay out ratio is 77.70% , EPS: 5.65, Dividend : $4.72 which tell me that dividend increases may not be certain. The stocks are trading at very close to 52W High and just below the resistance level. 76.76% of the shares are owned by institutions which tells me there is a risk that they might dump it when we get to the end of the crisis.

Final thoughts

This is a solid company but at current levels I don’t think I will be buying. I will wait for the time probably when the stock price comes down to my liking. In the meanwhile, I will keep looking into other stocks.

Patience is the virtue of a Genius!

My favorite quotes from TV series Billions. -Kudos to the writers.

“The greats never sacrifice the important for the urgent. They handle the immediate problem and still make sure to secure the future.” – Bobby Axelrod.
I am a survivor, and I will do whatever it takes to avoid my fate. – Bobby Axelrod.
“Then again, what’s the point of having fuck you money if you never say fuck you?” – Bobby Axelrod.
“It is all about tolerance and risk. You cannot win, you don’t get to where I am without tolerating a lot of risk.” -Bobby Axelrod.
“No one quits while they are ahead. This isn’t France. It’s America.” – Chuck Rhoades.
“Play subservient in order to win dominance.” – Catherine Brant
“I don’t lie to myself and I don’t hold on to a loser. The moment doesn’t feel right. I let it go and get away from it.” – Bobby Axelrod.
“We used to live in a world that rewarded those who were very good at their jobs.Do you know what you get now for being very good? You get keistered.” – Dr.Gus
“New things can be fun too unless you are afraid of a change.” -Elise
“When we weren’t friends the world was very uncomfortable place.” – Bobby Axelrod.

Wallstreet says market is going DOWN. Do I sell ?

Jim is a 10 year old kid and was fascinated how magicians predict the number they would roll on a dice at their will. Jim thought he could practice and do the same. He kept practicing for a year and one day he did it. The very next day , he puts on a show for his friends he rolled the number he predicted correctly a few times but not always. What happened there? Most of us would think he got lucky the previous day.

Now on wall street there are many analysts who make these predictions on regular basis. We would read that “Analyst A got 7 out of 10 prior predictions right!” just like Jim was able to correctly predict the number he would roll 7 out of 10 times. The ones who know ,never tell the market what is going to happen just like a magicians who keep their secrets.

Nobody knows whether the market goes UP or DOWN. Remember Lehmann brothers, the investment bank that went broke in 2008 after 169 years in business. Whether the market goes DOWN or UP just stay invested. When the market is DOWN, your 401K contribution will buy you more units of your fund. When the market goes UP, your portfolio value goes up too. Don’t make decisions based on some news. Look at the market today in 2019 after the worst recession in 2008, the market has recovered and is making new highs every day. I understand that past performance is not an indicator of future performance. However this is a data point.

When your predictions are not holding up then predict often. This is what the wall street analysts follow. They keep putting out their analysis and their predictions. There are very few good analysts, some average analysts and others who want to be good analysts.

The oracle of Omaha, Warren Buffett of Berkshire Hathaway said he missed out on Amazon. He is the man everyone looks up to. One thing he has been right about the US stock markets is that markets will keep going up even though there will be brief periods of recessions and market downturns. He has seen every market crash since 1940 (Warren Buffet was born in 1930) and he has done well.

Late John Bogle, founder and chief executive of Vanguard Group created the first index fund. He says stay invested , if you want to protect yourself stay 50% in stock and 50% in bonds and if you can take a little more risk stay 75% in stock and 25% in bonds based on your risk appetite.

Here is an exercise. Take a few past analyst reports and read them. Also see if they are invested in the security or not which they do mention at the end of the article. Then see how many times their predictions came true and then decide if they are geniuses or just lucky.

Ignore the noise!

What is the right time to sell your old fund and change to a new fund?

Bruce and Mark work for a mid-sized technology company and they both have been contributing to 401k for years together . They learn at the year-end benefits meeting that a low fee Index fund will be added to their 401k plan from beginning of the next year. Bruce says “I am going to transfer all the money in my current fund to the new index fund in the beginning of the year and also direct my future contributions to the new index fund.”. Mark says “ I’m going to invest all my future contributions to the new index fund but not sure about timing the fund transfer.”.

We all had to make these decisions at some point of time since benefits meetings happen every year and whenever there are changes, we think what is best for our investment. After careful analysis if we decide that the new fund is better than the old fund, we need to decide when to transfer money from the old fund to the new fund. Here are the following factors one thinks about.

Expense ratio – If the expense ratio of the new fund is lower than the old fund, why pay the old fund more fee which can be saved and reinvested into the new fund. Now is the time. If both of them have the same expense ratio, then you will have to consider the other factors.
Dividend yield – If the dividend yield of the new fund is greater than the old fund assuming expense ratio of new fund less than or same as the old fund, move your investments to the new fund at once. If the dividend yield of the new fund is same as the old fund assuming expense ratio of new fund less than the old fund, move your investments to the new fund at once.

You may want to reconsider why you would want to move your money to new fund if the dividend yield together with expense ratio of the new fund costs you more than the old fund.

Risk/Reward Ratio – If dividend yield and the expense ratio are the same, you need to consider diversification and returns. You need to look for the right balance. As diversification increases, returns go down. Here is an example below, VTI provides more diversification than VOO and it slightly costs you more. VHGEX has even higher diversification but its expense ratio is 16 times that of VOO & VTI. Its Return and Dividend yield is way lower. In the long term, it will compound to huge amount. I guess you get the point.

2019	VOO (S&P 500)	VTI(Total Stock Market Index)	VHGEX(Global Market)
YTD Return	29.79%	29.12%	24.24%
Dividend yield	1.88%	1.71%	1.21%
Expense Ratio	0.03%	0.03%	0.48%

Market Overbought or Oversold – This should not be a factor at all. If market is overbought or oversold both the funds are affected in similar way give or take a few percentage points. In the long term market timing doesn’t have significant impact.

Just Do it!

Target Funds or Index Funds?

Many people invest their 401K contributions in Target Funds based on their planned retirement year. Target Funds are composed of different financial instruments like stocks, bonds, commodities. They claim to have a magic formula which calculates what percentage of your contribution should be allocated to each asset. By this approach they mitigate risk against any market crashes.

I have invested in Target funds during my initial years and soon realized that there is no data to support the claims. It is just the fear taking over logic. My conclusion was during Bull markets, Target fund is going up by less compared to the market and during stock crashes, it will go down less compared to the market. It didn’t make any sense to me. I don’t win big during up market but lose mediocre amount of money during down market.

Here is an exercise to prove my point, check various target funds in your 401K account. You will notice the following

Most of the actively managed and target funds available are from the administrator.
The expense ratios are higher compared to cheap Vanguard funds
No data on how the portfolio performed during 2000-2003 or 2008-2010(Market slumps).
No clear information on fees, dividends or risk mitigation of the portfolio for Target Funds.

Some 401K administrators don’t provide you with cheap vanguard funds to invest in but their own index fund whose expense ratio is way higher than that of Vanguard. I had this problem with a plan administrator, plan admin’s S&P500 index fund was available but the expense ratio was very high, probably 10-20 times that of the Vanguard equivalent. There were plan admin’s very own various actively managed funds, Target funds available. Luckily there was one Vanguard fund which was income fund and NOT index fund. I took it for the following reasons.

	Plan Admin’s Target Fund	Vanguard Income Fund
Expense Ratio	0.48%	0.18%
Composition Details Available	Partial details.	Yes. Complete details.
Return for 2019	16%	21%
Dividend Yield	0	2.5%
Performance Data YoY	Not Available	Available on internet

Based on this information I decided to invest in Vanguard’s Income fund which was available. With this I could track not only how the fund is doing now and historically but also of any changes.

Once retired smart investors withdraw small pieces of the fund based on their requirement. I am yet to come across someone who withdraws the whole fund in one shot. When market goes down you want your dividends to buy the units at cheap so that they go up when market does.

Logic & Wisdom Over Fear!

Manhattan was sold for $24 dollars in trinkets…

Peter Minuit worked for Dutch North American Colony in the early part of 1600s. Why are we talking about him? You say. He made the greatest trade ever! If it is to be believed he purchased Manhattan island for the Dutch from Lenape Native Americans for $24 in trinkets. What is Manhattan worth today? It is probably around $1.74 trillion or even more.

Benjamin Franklin gifted $5000 to two of his favorite cities Boston and Philadelphia in 1790.

He had 2 conditions – this money needed to be invested and could be paid out at two dates. After 100 years, each city could withdraw $500,000 for public works projects. After 200 years which happened to be in 1991 the money grew to $20 Million.

In 1906, Dow closed at 100.25 points. In 2019, Dow is above 28000 points.

Walmart stock grew from 10 cents to $120 (adjusted for splits) not including dividends over 50 years.

1000 USD invested in Microsoft stock in 1986 would be roughly greater than $2 Million today (2019).

Now you might have figured out what I am alluding to. You are right! I am talking about power of compounding. “Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn’t pays it.” – Albert Einstein.

Everybody respects Warren Buffett who is a strong believer in compound interest. Per Forbes, he is the third richest man in 2019. Here is his net worth at different ages. Warren earned more than 99% of his wealth after his 50^th birthday.

Year	Warren’s Age	Net Worth in USD
2019	89	88.8 Billion
2002	72	36 Billion
1996	66	17 Billion
1982	52	376 Million
1966	36	8 Million
1960	30	1 Million
1951	21	20K

“Context please!” you say? When you invest in your 401K from the age of 21 to 67 you will notice that your nest egg keeps growing exponentially. Especially from the age of 60 to 67.

Stay invested and retire rich!