Best stock investments – Friday File: ‘Cuba Portfolio Foundation Stocks,’ Venture update, REITs, and What I’m Thinking of Buying



Best stock investments

I’ve got a few thoughts to share with you about GSV Capital and a few other areas where I’ve seen questions or interest from readers recently, but first I want to get a quick teaser solution or two out for my favorite Irregulars….

One pitch that’s sent a lot of questions our way of late, though the ad has been around for at least a few months, is the Cuba pitch from Nicholas Vardy — he lays out a long argument for why sanctions will be lifted more fully this year, why Cuba is such a huge opportunity because of its lack of development and connection to the world over the last 50 years, and how he thinks you can set yourself up to make 65X your money on some “Cuba Portfolio Foundation Stocks” that he thinks look good now (as well, presumably, as other Cuba-connected ideas that might occur to him in the future).

I won’t run through the ad, but the broad opportunity is pretty well understood — President Obama is intent on opening the Cuban economy to the US and lifting sanctions, and has relaxed many restrictions already… and the objections to re-engaging with Cuba have gotten much more tepid of late, particularly as power has passed to Fidel’s brother Raul, so the trend seems to be firmly in place and the US business community is clearly pushing for it (especially the tourism folks, but others as well). Cuba is a relatively small nation, about the same land area and population as Ohio, but that’s still a large group of people who are generally educated and healthy but don’t have cars or cell phones or many consumer products, and it’s a big caribbean tourist destination that’s so very sadly missing the expanses of waterfront Marriotts and Hiltons, ubiquitous McDonald’s Restaurants, and shiny new Fords and Toyotas that are the gift of globalization. It’ll be fascinating to see how Cuba re-opens to the world, and to the US in particular, but there’s certainly some commercial opportunity.

So we’ll jump straight through to the clues about the stocks he likes:

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“CUBA PORTFOLIO FOUNDATION STOCK #1:
“THE LITTLE AIRLINE WITH THE GREAT BIG CUBAN ADVANTAGE


“Everyone’s salivating over the profit potential of a sector that’s sure to take off first once the embargo and travel restrictions on Cuba are lifted…

“Tourism.

“In most years lately, around 100,000 Americans visit Cuba, on average…

“But credible estimates project that virtually overnight, that number could jump to several million per year once the embargo falls.

“In fact, this boom in tourism is already beginning.

“In just the first five months after Obama relaxed travel restrictions to Cuba for Americans who fall into 12 specific categories…

“Folks like entertainers, musicians, competitive athletes, researchers, humanitarian aid workers, etc.…

“U.S. travel to Cuba jumped a stunning 36%, and international travel to Cuba overall increased a sizeable 14%.”

The fight is on for the prime landing slots in Havana, but there will probably only be 100 or so daily flights on offer for US airlines — and that’s not enough to move the needle very dramatically for even fairly small airlines, at least not right away (maybe other Cuban cities will emerge as big secondary tourist destinations, but that’s not going to be a hot ticket right away). So which airline is this? A few clues:

“Now, a lot of investors’ eyes are focused on American Airlines right now for their perceived advantages in the Cuban travel market.

“That’s because they’re the leading U.S. air carrier servicing the Caribbean — with as many as 150 flights a day to 31 regional destinations.

“They’ve also been a major provider of charter flights to Cuba itself since 1991….

“There’s another, smaller airline that I believe is better positioned to cash in on the Cuban travel boom.

“The company I’m talking about is a U.S.-based airline that started off life in 1980 as a private charter carrier, specializing in entertainment destinations…

“Including Cuba’s next-door neighbor, the Bahamas.

“Now they specialize in various Caribbean and Latin American destinations…

“So they’re very familiar with international air travel in the Cuba region.

“They’re also small, nimble, and flexible enough to quickly jump into the Cuban air trade with both feet once the embargo is lifted….

“The best part: This stock has only been publicly traded for a little over four years, so it’s not on very many investors’ radar yet.

“This spells the potential for bigger, faster profits that investing in one of the bloated, expensive mega-carriers…”

This is Spirit Airlines (SAVE), the “ultra low cost” carrier that has its main hub in Fort Lauderdale and does fly super-cheap flights focused on leisure travel, with a lot of flights to Latin America. They’ve been teased before several times, mostly by Louis Navellier because of their rapid growth in 2013 and 2014 — but the stock had a terrible 2005 (getting cut in half, from $80 to $40 or so) before recovering a little bit in the last few months.

I like airline stocks still (more on JetBlue, my favorite in the space, in a moment), but I’ve never been very interested in SAVE. Their operating performance doesn’t seem to have faltered particularly last year, but it looks like they’ve fallen victim to the pricing wars they’re trying to create… which means they have to eat into their margins a little bit if big competitors (like American) are willing to take a loss and match them on price in a lot of their markets, which seems to have happened some last year as capacity continue to increase across the industry. The stock is certainly nicely priced at just a little over 10X earnings, but expectations for growth have really moderated — still, they do keep costs low and they should be able to remain profitable as long as vacation travel doesn’t drop too much. I don’t know what their fuel hedging situation is currently.

Another Cuba play?

“CUBA PORTFOLIO FOUNDATION STOCK #2:
“STEALTH WINNER OF THE BIG-MONEY CUBAN “CRUISE WARS”

“Carnival Cruises is getting all the press right now with regard to Cuban travel.

“That’s because on July 7th of this year…

“Carnival was granted U.S. government approval to begin operating cruises to Cuba as an integral part of “cultural exchange” programs….

“Virtually all of the 21 U.S.-based cruise companies will be fighting tooth and nail for billions of dollars’ worth of America-to-Cuba travel trade.

“In my opinion, one particular cruise company is going to win this war…

“And it’s NOT Carnival Cruises.

“No, it’s not Royal Caribbean Cruises, either…

“Or Disney or Princess or Viking or Celebrity — or any of the other companies you’re probably thinking of right now.

“The firm I’m talking about is smaller than Carnival or Royal Caribbean…

“Yet it’s growing faster than either of them.

“Through mid-2015, they’ve posted a stunning 41.71% year-over-year sales growth.

“They’ve also recently completed a $3 billion acquisition that boosted their capacity by nearly 20%, in the lucrative “luxury cruise” segment.”

Who’s that? Norwegian Cruise Lines (NCLH), which bought the luxury operator Prestige Cruises in late 2014. Both companies had heavy private equity ownership who seemed to engineer the deal, and it seems like part of the reason Norwegian’s shares took a fall last year was the selling pressure from those big investors, but that’s about all I know about Norwegian Cruise Lines and I’ve never owned a cruise stock. It’s not very expensive now, if analyst estimates are at all accurate — trades at a 2017 PE of about 10, but that’s based on earnings growing by 30% this year and another 25% or so next year, so performance expectations are fairly high.

“CUBA PORTFOLIO FOUNDATION STOCK #3:
“THE RED-HOT HAVANA HOTEL PLAY NO ONE’S SEEING YET

“Even the moderate increase in tourism Cuba has seen since the new, more relaxed U.S. travel rules went into effect…

“Has severely strained their current inventory of around 60,500 hotel rooms.

“That means they’re woefully under-equipped to handle the tidal wave of people they’ll see once general American tourism is allowed.

“Of course, all the U.S. hotel heavyweights are eyeing up Cuba like a pack of wolves on the other side of a fence from a pile of fresh veal…

“Hilton’s ready to jump back in with both feet, if an agreement is reached.

“And the CEO of Choice Hotels went on record back in December saying, ‘The minute it’s available, we’ll be down there.’

“Marriott International’s CEO went on an exploratory visit to Cuba in July of this year.

“Upon his return, he not only remarked on the extraordinarily warm reception he got from the Cuban people…

“He also released a statement saying, ‘We are ready to get started right now.’

“He also said that foreign hotel companies are racing furiously to lock up as much future Cuban hotel business as they can….

“I know a way in which you can started reaping the benefits of this incredibly lucrative sector today…

“And it’s not with any of the major hoteliers I’ve mentioned, or others like them.

“It’s a foreign company — but one you can easily play on the NYSE…

“And they’ve got a well-deserved reputation for successfully managing hotels in some of the most politically challenging nations on Earth.

“Notice I said ‘managing.’

“Even though this company is in charge of over 700,000 rooms in nearly 100 countries — including many in Asia, Africa, and the Middle East…

“They actually own less than 1% of them.

“That means they let other companies take all the brick-and-mortar risks, in sometimes politically unstable nations…

“While they rake in hefty management and franchise fees, plus profit-sharing.

“Add it all up and this company is perfectly positioned to make an overwhelming impact on the Cuban hotel scene for the foreseeable future…

“And they’re already laying the groundwork to do exactly that.”

Most of the big hotel chains follow that “managing” model, of course — they’ve either sold down their properties into REITs or they’ve focused on being managers instead of owners, since that’s how you get to big profit margins without big debt burdens. Marriott and Hilton, I’m sure, would be willing to put some capital at risk to get into Havana in a big way, but they probably wouldn’t own properties for very long unless they had to.

But anyway, this is almost certainly Intercontinental Hotels Group (IHG), which is a UK company that owns luxury brands like Intercontinental and Crowne Plaza but also controls the boutique Kimpton hotels and the mass market Holiday Inn brand. They don’t have any hotels in Cuba now, though many European brands do (mostly Spanish brands, including Iberostar and several owned by the Barcelo group, a lot of the same big, all-inclusive resort operations you’d see in Cancun or elsewhere in the Caribbean)… but all of the existing hotels are also at least partially government controlled, so if things change on that front (with Cuba allowing foreign ownership of hotels) then some of those other existing players who run the current all-inclusive resorts in Cuba might expand. None of them are publicly traded, as far as I can tell in a quick scan.

IHG is certainly in lots of areas where there is political risk, but that’s true of any big international hotel company. On EV/EBITDA valuations it’s roughly similar to Marriott and Hilton, though Marriott is the one that stands out for growth potential, in part because of their merger with Starwood. This is all “of the moment” news, with Cuba getting a state visit from President Obama next weekend, so I’m sure lots of other hotel chains will be talking it up as well… but I don’t think any of those hotels will see a material impact from Cuba specifically over the next five years, building big resorts and developing a new tourist destination takes a long time and a huge investment even if it’s not a hot-button location like Cuba. They don’t look like terrible investments, and I’d probably put Marriott at the top of my list of possible hotel investments right now, but I wouldn’t invest in any hotel company just because of Cuba.

And more? This might end up being the longest Friday File ever…

“CUBA PORTFOLIO FOUNDATION STOCK #4:
“A CAN’T-LOSE BET ON CUBA’S IMPENDING ‘CREDIT CRISIS’

“… even though travel and trade are increasing between the U.S. and Cuba…

“The embargo is still in place. And it’s severely hampering travelers’ ability to purchase goods with American-issued credit cards.

“Commercially speaking, these are totally uncharted waters — and there’s a lot of murky gray area in them…

“Especially when you’re subject to the whims of a Communist dictatorship.

“It’s not just an issue of ironing out which U.S. credit cards to accept, starting when. That’s the easy part.

“The hard part is the other stuff: The vendor relationships, payment processing infrastructure, and purchase-tracking software…

“The automated kiosks and customer support centers and cash-advance ATMs…

“The toll-free helplines and security systems and fraud prevention services…

“The training and maintenance and phone lines and swipe machines and tons more.

“The truth is, the care and feeding of millions of credit transactions (especially across international borders) is an incredibly difficult undertaking…

“And right now, the Cubans don’t know a thing about it.

“But the company I want you to buy into RIGHT NOW certainly does.

“Believe it or not, they’ve been quietly — and successfully — processing Cuban transactions on American-issued credit cards since March 1st of this year.

“In other words, they’ve got a HUGE jump on Visa, Amex, Chase, Capital One, Bank of America, Discover, Wells Fargo…

“Plus just about every other major U.S. bank and credit card issuer aiming to do business in Cuba.

“Perhaps that’s why their current 40.5% net profit margin is far above average for their particular niche within the credit sector.”

This must be Mastercard (MA), which is a fine blue chip company, sure, and perhaps a great investment still… but it’s a huge stretch to call it a Cuba play. Getting a little head start over Visa (V), the only peer Mastercard really has, is not going to be a determining factor in anyone’s eventual success in Cuba… and the impact of winning market share in Cuba will be a rounding error on the income statement of either of the big credit card companies for at least the next decade, I’d guess.

But yes, they do have a net profit margin around 40%… which is pretty much exactly the same as Visa’s (a bit lower, actually, of late), and that’s “above average” for the niche only if you include completely different kinds of companies (like the equipment makers, or the banks who actually hold credit card debt instead of the processing networks) in the basket with V and MA. Credit and debit cards from both Visa and Mastercard have been usable in Cuba for a long time, at least for tourist-type purchases, but only those that are from non-US banks, Mastercard seems to have been the first to lift the block on Cuban transactions for US cardholders, but presumably this will all shake out over the next couple years and everyone will be on the same footing. I don’t see why this is a huge opportunity for one $100 billion company over another — getting more banking services to the Cuban people will probably be a bigger deal, but that’s going to take a lot longer and require quite a bit more openness, I expect.

And one more, if you can stand it:

“CUBA PORTFOLIO FOUNDATION STOCK #5:
“A DIVERSIFIED PLAY ON THE COMING CUBAN AG RUSH

“Agriculture is a big deal in Cuba.

“With some of the world’s most fertile soil and ideal growing climates…

“It’s no surprise that Cuba produces some of the world’s best tobacco, coffee, and substantial amounts of top-quality sugar.

“They’re also known for their fruits and fruit juices.

“The funny thing is, for as fertile as their land tends to be — and as talented as they are at coaxing high-dollar crops from it…

“Cuba must still import huge quantities of agricultural products to feed their citizens….

“Why isn’t Cuba growing (or raising) enough food to feed themselves, despite having plenty of good land and workers?

“Well, there are several reasons for that…

“But one of them is, quite simply, a lack of equipment.

“You see, tobacco, sugar, coffee, and fruits can be grown and harvested on a fairly large scale with basic hands tools, carts, animals, and elbow grease.

“But hundreds of thousands of acres of wheat, corn, and soybeans can’t…

“Not without tractors, threshers, reapers, harvesters, sprayers, and combines.”

I don’t know much about Cuban agriculture, other than knowing that sugar and tobacco are big crops, but apparently there’s less farm equipment used in Cuba than there was 50 years ago — presumably that has something to do with the Soviets pulling out in 1990 and with the end of their influence on what little mechanized agriculture there was following the nationalization and breakup of farms in the revolution. Farms in Cuba have gotten smaller over the years because of the impetus to prevent a “landed class” forming, and, of necessity, less reliant on foreign fertilizer or equipment.

More from Vardy:

“According to the new, liberalized U.S. trade rules with Cuba enacted in January by the Commerce and Treasury departments…

“U.S. companies may indeed now be allowed to sell ‘tools, equipment, supplies and instruments for use by private-sector entrepreneurs’ in Cuba.

“Now, I haven’t scrutinized the letter of that law…

“But it sounds to me as though this would allow the sale of American-made tractors and other equipment in Cuba — as long as it was NOT to the government.

“There have also been recent changes in the payment and credit rules between the two nations that would facilitate heavy equipment sales….

“Whether the embargo ends tomorrow, in 2016, or even if it never happens at all…

“Every single tractor, implement, and farm equipment maker in America is now looking toward the rich market emerging 90 miles south of Key West, Florida.

“But only ONE of these companies gets my ‘buy now’ recommendation.

“It’s an American brand with a strong presence in the agricultural and construction equipment market…

“Yet unlike a lot of their peers, they’ve developed exceptional diversity and versatility beyond those sectors.

“Among other things, they’re also into forestry equipment, diesel engines, drive train components for equipment of all types, lawn care supplies and gear…

“Utility vehicles, specialized GPS-based guidance systems — even financial services….

“Not just tractors for private farms…

“But heavy equipment for all the coming construction…

“Utility vehicles for general use on resorts, golf courses, hotels, beachfront communities, and more…

“Plus modern replacement motors and drivetrain components for existing, outdated equipment (there’s a huge demand for these things in Cuba).”

This could, honestly, be either Caterpillar (CAT) or Deere (DE) — both make just about all of that stuff, and I’m sure both would like to get a toehold in Cuba. But I expect Vardy is hinting at Deere, since they have a bit more of an agriculture focus… and because, thanks to their lack of reliance on the mining industry, their business has been a little bit steadier than Cat’s over the past couple years. You’d have some good company if you decided to get into DE, Warren Buffett’s Berkshire Hathaway is the largest shareholder in Deere (they own a bit over 7%), but it’s not exactly a burner right now… even just today they announced that demand has been slack and they’re laying off workers at a couple of their plants. It may be a reasonable opportunity to buy a storied brand with deep roots in agricultural innovation (John Deere’s plows were what turned the tall grass prairie into farmland), but at this point you’d be buying for “contrarian” and “long term value” reasons, Deere is expecting to see revenue fall by about 30% this year. They do pay a decent dividend, with a yield of almost 3%, and they should be able to keep that dividend up even with the current weakness (though they haven’t raised it in 7 quarters). I’ll let Berkshire Hathaway provide me with John Deere exposure, I don’t feel compelled to buy this (or CAT, should my guess be wrong), and I don’t imagine that the expected growth in construction and agricultural investment in Cuba will do enough to turn around the moribund current performance at either company in the near future.

So there’s your teaser solution for the day… now into some updates and assorted blatheration:

When I featured GSV Capital (GSVC) as our “Idea of the Month” just a week ago, I knew (and noted) that we were taking some risk — they were due to report their fourth quarter (and annual) results soon, and that could always force a meaningful revaluation of the shares if something surprising was announced.

Turns out, not really much news to move the stock this quarter — GSVC did release their results yesterday, and it was more or less as expected. There was some revaluation of their portfolio due to both rising and falling values of different investments, they invested some more in one of their larger holdings (Spotify this time), they did some exits and partial exits after the quarter closed (none in the fourth quarter, however), and the NAV dropped primarily because of the impact of the special dividend paid in December as a condition (at least partially) of their new tax status. They’re all cool and techie, so they even have a video announcement of the quarter if you want to see that — though the transcript of the conference call and the actual filing obviously have a lot more info.

Last week the core of my argument was that I thought GSVC was too cheap, and that buying shares between $5.50-6.50 would likely mean you’re paying half of NAV in order to get access to a portfolio of appealing pre-public companies. The company has high operating expenses relative to its asset value, and has not been a consistent value creator, so this is not a long-term idea… but my opinion hasn’t changed. The stock is, I think, too cheap and has a good chance of returning to ~$10 over the next two years.

The history of GSV Capital is not that long, but valuation is pretty clearly influenced heavily by a couple things — when the IPO market is bursting with excitement and there are hot new companies coming public, the shares trade at lofty premium valuations… when the IPO market is moribund or no one’s excited about the fund’s major investments, it trades at a substantial discount. Right now the IPO market is nearly dead, everyone is chattering about how the pre-public “unicorns” might be in a bubble, and there’s no excitement about GSV’s top holdings. In the past, the highest prices GSV reached, with the stock trading at significant premiums to book value, were just before the Facebook and Twitter IPOs (GSVC owned shares of both). The lowest prices reached before now were when everyone gave up on Twitter, which GSV continued to hold a significant stake in after the IPO…. and now, when investors have largely given up on big IPOs and “hot new tech stocks” entirely in a flight to safety. It’s not easy to buy something that everyone else say is in a terrible market… but I don’t think the market is as terrible as the pundits are shouting, and I think the pessimism will fade and enthusiasm will return at some point in the next year or two. I don’t necessarily like the company, but I like the cheap valuation.

GSV Capital now has a NAV of about $12 a share, as of December 31 (that will change again next quarter, of course, up or down depending on how they assess the value their portfolio companies), and I still think buying it near $6 is a reasonable speculation that the valuation will improve as, at some point, their major companies will have the opportunity to test the public markets if enthusiasm returns. My guess is that Palantir will have the next opportunity to cause a bump up in GSVC shares, and that company is quite secretive and not compelled to IPO in the immediate future (though it will happen someday, most likely — too many employees own shares now and want flexibility, and the shareholder base is growing with each funding round), but it could be someone else — they sold a little Lyft this quarter but it’s still a big holding, Spotify could finally get their finances to match their growth rate, their education stocks could get some excitement going, who knows… there is more than one possibility for profit. So… one week later, quarterly report in hand, no real change in my assessment.

What else is going on these days?

Well, everyone’s got their nose twisted in knots about “negative interest rates,” and about the continuing competitive currency devaluations around the world that are making the dollar’s performance look downright spectacular… and interest rates still, paltry though they are, look relatively rich here in the US. Both Germany and the US have similar sovereign default rates, one would assume (“0% chance of default” for both, roughly speaking), but the yields are wildly different… the 10 year German bond rate is 0.3%, and if you go shorter (two or five years) the yield is negative, meaning you get back less than your principal at the end. In the US, though our rates are absurdly low given the relative strength of the economy, the 10-year note has come back off its lows of last month and is back at 1.9%.

What does that all mean? Well, it means there is no economic return in risk-free assets, unless you’re just manipulating currency markets and borrowing in Germany to buy US bonds and hoping that the euro/dollar exchange rate doesn’t move so quickly that you lose your edge (or your shirt). And it means that we’ve now hit a point where 100% of prognosticators say the Fed can’t raise rates at the next meeting, despite the fact that the economy is growing (albeit fairly slowly) and unemployment is not a systemic concern (even the U-6 rate, which includes discouraged “gave up looking” folks, forced part-timers, etc., is finally back below pre-crisis levels at 9.7%).

And if you want some reminder that we’re all still dealing with a lot of fear, and a lot of worries about currencies, it’s worth noting that December-February was the first period in quite a while when the US dollar and the gold price in US dollars moved up together. Gold has been an “anti-dollar” trade for so long now that it’s nice to see a little decoupling there, and see it perhaps get back to a “fear of armageddon” or “fear of continuing global currency devaluation” trade. The gold stocks have been getting sexy again, so I’m sure we’ll keep seeing more teasers for them (I bought a little more First Mining Finance (FF.V, FFMGF) last week, though that’s probably more of a long term “maybe the gold market will see speculative excitement again” bet, and little Sandstorm Gold (SAND) has been surging ahead as a levered play on gold, which is what gold stocks are supposed to provide (and, of course, many of us felt that leverage quite strongly when it was moving the other direction).

So the US economy is chugging along, despite the fact that every presidential candidate seems to believe we’re in a depression. It’s not looking like a recessionary economy in my opinion (though there’s always a chance, and plenty of folks who are wiser than me do see a recession coming in the next year or so), and there continues to be almost no safe place to earn a decent yield on your money even after our one teensy little Fed rate hike last year.

You can probably get 4% on municipal bond funds without taking a huge amount of risk (using closed-end funds like NXP, for example), or a bit more with funds that use leverage, but I think now’s a good time to buy equity income. Equity income that’s produced by hard assets is underappreciated right now, as is inflation protection (since non one seems able to create inflation just yet), which is why REITs have been so volatile. That’s starting to change as most REITs have come back up in price quite a bit in recent weeks, but the spread between the 10-year Note and the average REIT yield remains absurd to me. Here’s the chart for the yield on the 10 year note (represented by the IEF ticker) minus the yield on the VNQ REIT ETF:best-stock-investments

The only times in a decade that REITs have had a yield more than 2.5 percentage points above the 10-year note were during the financial crisis, from roughly January-May of 2009… and this month. That doesn’t mean the trend couldn’t continue to move downward, of course, but to me it means fear is in control — REIT dividends can and do rise along with inflation and improved performance, bond yields don’t, so REITs should yield a little bit less than bonds most of the time. Unless you’re primarily concerned not with income, but with safety. And if we move to even lower interest rates, as the European yields are telling us is at least possible, then asset-backed and reasonably stable businesses that pay yields of 4% and can raise those yields are going to look fantastic to our tens of millions of new retirees who need both current income and some growth.

That’s not meant to imply that I think we should all go “all in” on REITs, I sure haven’t — just that I’m not afraid of them, as much of the market seems to be, and I think we’ll continue to see pockets of opportunity in these simplest of businesses as interest rate talk heats up every few months this year (buy a building, rent it out, pay the income to your shareholders). Some REIT sectors seem too risky to me (especially malls, given the continuing weakness of department store retail and the continuing Sears collapse) and some seem pretty expensive (several of the big public storage and office REITs, some of the data center REITs), but I think the sector as a whole is still worth a solid allocation chunk for those, like me, who want some yield and inflation protection over the long term.

I should disclose that I personally have an options straddle out on VNQ at the moment, since I’ve been expecting that REITs could be quite volatile around the Fed meeting next week — and I do have sell orders in place for those options, so it might trade within my three day trading hold period. Not a big position, but sometimes I have to take small bets on things to keep me from doing big and stupid things with real money.

Other news? Well, if I were forced to buy a few stocks today I would be looking most closely at Disney (DIS) or Jetblue (JBLU) (both of which I already own), or adding a position in NXP (NXPI) because it’s beginning to get compellingly cheap and seems to hold such a strong position in analog chips… but I haven’t made any of those trades this week.

Disney percolates to the top because they continue to knock it out of the park in terms of performance (successful park attendance, more hit movies), and the world continues to overreact to the threat of ESPN’s declining subscriber numbers. I imagine I’ll keep nibbling on Disney as long as folks continue to fret, and that’s largely a management bet — no one in entertainment or consumer products has ever, as far as I can tell, been as good at branding as Disney (with the possible exception of Apple), and I continue to be very impressed with both their sustained excellence and their long-term vision (in addition to huge investments in the parks they just ordered two cruise ships that won’t be delivered for five or six years, multi-billion-dollar investments in the future that demonstrate their confidence). It’s not cheap or riskless, but this is a company that I want to own for a long time.

And Jetblue (JBLU), which I suggested (and bought) back in December, is taking it on the chin a little bit. I think that’s largely Zika (though capacity and competition are rising on some routes), and I think it’s likely to be a buying opportunity — their revenue per seat mile is down recently, mostly, I think, because of Zika and Jetblue’s exposure to Puerto Rico and other southern and Caribbean destinations and their decision to offer refunds for travel to Zika-impacted areas… but for the core of the business profitability should easily cover that as we enter the huge vacation travel season with oil fuel prices presumably remaining low.

I almost added to JBLU at $20 this week, and may well buy more if prices remain compelling after my three day waiting period — infectious disease fears hit airlines every now and again, but they usually bounce back pretty quickly… I just don’t know if this is the worst of it yet, or if Zika might bring more fearmongering and flight cancellations for a few more months (or longer) and drive the shares down further. If it wasn’t for the possibility of that kind of escalating fear hitting airlines for a few more months, I’d have a larger position in JBLU already — you have to remember that airlines have been quite cyclical, and you can’t hold them for decades unless you have a strong stomach, but the business has been stronger in recent years than we’ve seen in a long time, and sometimes good, cyclical companies are too cheap to ignore.

And NXPI I’ve never owned, but most of you have probably seen me write about it one of the many, many times it’s been teased by newsletters as either an “Internet of Things” or a NFC/touchless payments stock. With their recent merger, they are approaching the huge scale and dominance (in autos, touchless payments, and a few other high-growth segments) that gives some confidence in the chip sector… which is often so competitive that it can really wash out smaller players. It’s probably being too optimistic to buy in to the analyst projection that NXPI will grow earnings at 25% a year for the next five years… but even if they grow at half that rate, the current valuation (a PE of about 10 on 2017 estimates) is too low. I’m looking into this one more, and I haven’t yet bought, but it’s certainly on my short list at this price.

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