Tag Archives: apple

Taiwan Semi, InvenSense Stumble Over Apple’s iPhone Shortfall

Taiwan Semiconductor Manufacturing ( TSM ) stumbled into Apple ‘s ( AAPL ) iPhone shortfall early Tuesday when it reported Q1 sales that missed by $30 million. Those results came a day after InvenSense ( INVN ) posted its first-ever year-over-year sales fall and guided to a steeper dip in June. In early trading on the stock market today , InvenSense stock crashed 20%, and Taiwan Semiconductor’s U.S. shares were down 0.5%. The stocks have lost 16% and 6%, respectively, since Apple’s fiscal Q2 sales miss — its first in 13 years — on April 26. For the March quarter, TSM reported $6.14 billion in sales and 38 cents earnings per American depositary receipt ex items, down 13% and 21%, respectively, vs. the year-earlier quarter. Sales lagged the consensus view of eight analysts polled by Thomson Reuters for $6.17 billion, but earnings met the 38-cent model. Current-quarter sales guidance for $6.66 billion to $6.75 billion would be flat at the midpoint vs. the year-earlier quarter. TSM didn’t provide an earnings view, but analysts model 40 cents per ADR ex items. Last Monday, InvenSense reported $79.5 million in fiscal Q4 sales and 2 cents earnings per share ex items, down 20% and 83%, respectively, vs. the year-earlier quarter, but in line with the consensus of 13 analysts polled by Thomson Reuters. On a year-over-year basis, fiscal Q4 was the first time InvenSense’s sales have fallen after decelerating for five consecutive quarters. It was also InvenSense’s biggest-ever EPS topple. InvenSense wrapped fiscal 2016 with $418.4 million in sales and 49 cents EPS ex items, up a respective 12.5% and 7%. Sales missed the consensus for $420.9 million, but EPS beat the 47-cent model. For the current quarter, InvenSense expects sales to fall 44% at the midpoint of its range of $58 million to $62 million and, for the first time, a 5-cent to 7-cent per-share loss ex items, swinging from a 14-cent gain in the year-earlier quarter.

Best And Worst Q2’16: Healthcare ETFs, Mutual Funds And Key Holdings

The Health Care sector ranks seventh out of the ten sectors as detailed in our Q2’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Health Care sector ranked sixth. It gets our Dangerous rating, which is based on aggregation of ratings of 22 ETFs and 80 mutual funds in the Health Care sector. See a recap of our Q1’16 Sector Ratings here . Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Health Care sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 351). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Health Care sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Saratoga Advantage Health & Biotechnology Portfolio (SBHIX, SHPCX) and Live Oak Health Sciences Fund (MUTF: LOGSX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. iShares Global Healthcare ETF (NYSEARCA: IXJ ) is the top-rated Health Care ETF and Schwab Health Care Fund (MUTF: SWHFX ) is the top-rated Health Care mutual fund. IXJ earns an Attractive rating and SWHFX earns a Neutral rating. BioShares Biotechnology Products Fund (NASDAQ: BBP ) is the worst rated Health Care ETF and Alger Health Sciences Fund (MUTF: AHSAX ) is the worst rated Health Care mutual fund. Both earn a Very Dangerous rating. 354 stocks of the 3000+ we cover are classified as Health Care stocks. Gilead Sciences (NASDAQ: GILD ) is one of our favorite stocks held by IXJ and earns a Very Attractive rating. Gilead has built a highly profitable business in the biotech industry and has grown after-tax profit ( NOPAT ) by an impressive 39% compounded annually since 2005. Over the same time frame, Gilead has increased its return on invested capital ( ROIC ) from an already high 37% in 2005 to a top-quintile 88% in 2015. Over the past five years, Gilead has generated a cumulative $26 billion in free cash flow. Despite the operational successes, GILD remains undervalued. At its current price of $98/share, GILD has a price-to-economic book value ( PEBV ) ratio of 0.6. This ratio means that the market expects Gilead’s NOPAT to permanently decline by 40%. However, if Gilead can grow NOPAT by just 4% compounded annually for the next five years , the stock is worth $181/share today – an 85% upside. Eli Lilly (NYSE: LLY ) is one of our least favorite stocks held by AHSAX and earns a Dangerous rating. Over the past five years, Eli Lilly’s NOPAT has declined by 12% compounded annually. The company’s ROIC has fallen from 21% in 2010 to only 8% in 2015. NOPAT margins have followed a similar path and fallen from 24% in 2010 to 14% in 2015. In the meantime, LLY has increased 25% over the past two years, which has left shares overvalued. To justify its current price of $75/share, Eli Lilly must grow NOPAT by 8% compounded annually for the next 14 years . This expectation seems awfully optimistic given the deterioration of LLY’s business operations. Figures 3 and 4 show the rating landscape of all Health Care ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Hedging Disney Ahead Of Earnings

If guests have the nerve to die, they wait, like unwanted calories, until they’ve crossed the line and can do so safely off the property. – The Project On Disney, via Snopes Disney: Estimize Versus Value Investor’s Edge With Disney (NYSE: DIS ) reporting earnings after the close, the nearly 1,200 Disney analysts reporting to Estimize collectively predict the company will beat Wall Street’s consensus earnings estimate, as the graph below shows. Click to enlarge The Estimize consensus earnings estimate shown above, $1.46, is 6 cents ahead of the Wall Street consensus of $1.40. Since its analysts include private investors as well as those from independent research shops, buy-side firms, and sell-side firms, Estimize says its estimates tend to be more accurate than those from Wall Street analysts alone. On the bearish side is Seeking Alpha premium author J Mintzmyer, who runs the Seeking Alpha Marketplace service Value Investor’s Edge . In a Pro Research column ( Time To Short Disney ), Mintzmyer argued the stock was “horribly expensive” (in the comments, Mintzmyer clarifies that, while he still finds the stock overvalued, he is no longer short Disney and feels there are better short opportunities available now). Limiting Downside Risk For Disney Longs For Disney longs boosted by the bullish Estimize earnings prediction, but looking to hedge their downside risk over the next several months, we’ll look at a couple of ways of doing so below the refresher on hedging terms. Refresher On Hedging Terms Recall that puts (short for put options) are contracts that give an investor the right to sell a security for a specified price (the strike price) before a specified date (the expiration date). And calls (short for call options) are contracts that give an investor the right to buy a security for a specified price before a specified date. Optimal puts are the ones that will give you the level of protection you want at the lowest cost. A collar is a type of hedge in which you buy a put option for protection, and at the same time, sell a call option, which gives another investor the right to buy the security from you at a higher strike price by the same expiration date. The proceeds from selling the call option can offset at least part of the cost of buying the put option. An optimal collar is a collar that will give you the level of protection you want at the lowest cost while not capping your possible upside by the expiration date of the hedge by more than you specify. In a nutshell, with a collar, you may be able to reduce the cost of hedging in return for giving up some possible upside. Hedging Disney With Optimal Puts We’re going to use Portfolio Armor’s iOS app to find an optimal put and an optimal collar to hedge Disney, but you don’t need the app to do this. You can find optimal puts and collars yourself by using the process we outlined in this article if you’re willing to take the time and do the work. Whether you run the calculations yourself using the process we outlined or use the app, an additional piece of information you’ll need to supply (along with the number of shares you’re looking to hedge) when scanning for an optimal put is your “threshold”, which refers to the maximum decline you are willing to risk. This will vary depending on your risk tolerance. For the purpose of the examples below, we’ve used a threshold of 15%. If you are more risk-averse, you could use a smaller threshold. And if you are less risk-averse, you could use a larger one. All else equal, though, the higher the threshold, the cheaper it will be to hedge. Here are the optimal puts as of Monday’s close to hedge 200 shares of DIS against a greater-than-15% drop by late October. As you can see at the bottom of the screen capture above, the cost of this protection was $424, or 2.01% of position value. A few points about this hedge: To be conservative, the cost was based on the ask price of the put. In practice, you can often buy puts for less (at some price between the bid and ask). The 15% threshold includes this cost, i.e., in the worst-case scenario, your DIS position would be down 12.99%, not including the hedging cost. The threshold is based on the intrinsic value of the puts, so they may provide more protection than promised if the investor exits after the underlying security declines in the near term, when the puts may still have significant time value . Hedging Disney With An Optimal Collar When searching for an optimal collar, you’ll need one more number in addition to your threshold, your “cap,” which refers to the maximum upside you are willing to limit yourself to if the underlying security appreciates significantly. A logical starting point for the cap is your estimate of how the security will perform over the time period of the hedge. For example, if you’re hedging over a five-month period, and you think a security won’t appreciate more than 6% over that time frame, then it might make sense to use 6% as a cap. You don’t think the security is going to do better than that anyway, so you’re willing to sell someone else the right to call it away if it does better than that. We checked Portfolio Armor’s website to get an estimate of Disney’s potential return over the time frame of the hedge. Every trading day, the site runs two screens to avoid riskier investments on every hedgeable security in the U.S., and then ranks the ones that pass by their potential return. Disney didn’t pass the two screens, do the site didn’t calculate a potential return for it. So we looked at Wall Street’s price targets for the stock via Yahoo Finance (pictured below). We usually work with the median target, but in this case, it’s pretty low relative to the price of the stock. The $110.50 12-month price target represents about a 2% potential return between now and late October. On the other hand, the high target of $130 implies a return of about 9.6% over that time frame. By using a cap of 9%, we were able to eliminate the cost of the hedge in this case, so we used that. As of Monday’s close, this was the optimal collar to hedge 200 shares of DIS against a greater-than-15% drop by late October while not capping an investor’s upside at less than 9% by the end of that time period. As you can see in the first part of the optimal collar above, the cost of the put leg was $328, or 1.56% of position value. But if you look at the second part of the collar below, you’ll see the income generated by selling the call leg was a bit higher: $364, or 1.73% of position value. So, the net cost was negative, meaning an investor opening this collar would have collected an amount equal to $36, or -0.17% of position value. Two notes on this hedge: Similar to the situation with the optimal puts, to be conservative, the cost of the optimal collar was calculated using the ask price of the puts and the bid price of the calls. In practice, an investor can often buy puts for less and sell calls for more (again, at some price between the bid and the ask), so in reality, an investor would likely have collected more than $36 when opening this collar. As with the optimal puts above, this hedge may provide more protection than promised if the investor exits after the underlying security declines in the near future, due to time value (for an example of this, see this recent article on hedging Apple (NASDAQ: AAPL ), Hedging Apple ). However, if the underlying security spikes in the near future, time value can have the opposite effect, making it costly to exit the position early (for an example of this, see this article on hedging Facebook (NASDAQ: FB ), Facebook Rewards Cautious Investors Less ). Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.