Jeremy Ryan

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Facebook Inc (FB) and Altria Group, Inc. (MO) – Buy

  

Once again, I added more to my positions today in Facebook Inc (FB) at $132.76 and Altria Group, Inc.(MO) at $48.79.

Facebook is now my 3rd largest holding and Altria is my 9th largest holding. Rankings for top holdings are located here.

FACEBOOK

I’m very bullish on Facebook at these prices. I’ve been waiting a long time for the opportunity to get shares this cheap. Trading at a PEG of only .6 and a forward PE of 18.01! I believe that Facebook is one of the greatest ways to grow a business now. My monthly expenditures on ads on Facebook and Instagram for my own and client’s businesses have continued to grow. Facebook and Google are the best opportunities for lead/sales generation. Increased privacy regulation will only make them stronger as smaller/new entrants will have difficulty keeping up just as tobacco legislation helped Altria remain dominant. I would continue to add to your position if it continues to go down. I’ve bought a few times so far and plan to add more making it one of my largest positions.

ALTRIA

I agree with their strategy to pivot towards cannabis and vaping. I think this is very smart considering declining tobacco-based product sales. Their acquisition interests in JUUL and Cronos help with this concern and get them in to two high growth categories related to their market. Altria can use it’s vast distribution network and experience with government regulation to help expand vaping and cannabis products worldwide.

The increased debt to make the purchases is a bit concerning, but necessary to ensure the future of the company. Assuming they get a rate of around 4% on the loan and the cost reduction plan they mention in this release would cover the majority of the interest and a portion of the principal for JUUL. Cronos is relatively small in comparison.

The dividend yield is also great at 6.16%. I really nice income stock to have in your portfolio during a volatile market.

Valuation

  • PE of 8.7
  • Price/Book of 5.9
  • Dividend yield is 6.16%

Threats

The biggest threats I see to Altria are declining sales of tobacco and increased regulation. There will most likely be more regulation on vaping and as marijuana is legalized it will come come with a heavy load of regulation as well. Also, there is a current proposal to ban methanol. However, concerns over this seem to overblown. Also, Altria is experienced in dealing with government regulation. In fact, I believe government regulation is responsible for their success. The intense regulations of the tobacco industry ensured their dominance for many years and could do the same with vaping and marijuana. I would say that anyone interested in getting exposure to marijuana investing should definitely take a look at Altria to get the exposure with minimal risk.

Here is my previous analysis on all three:

Facebook Inc (FB), Carrols Restaurant Group, Inc. (TAST), and Amazon.com, Inc. (AMZN) – Buy

   

Once again, I added more to my positions today in Facebook Inc (FB) at $144.41, Carrols Restaurant Group, Inc. (TAST) at $9.60, and Amazon.com, Inc. (AMZN) at $1587.31

The continued price drop in all three of these are a great opportunity. Retail sales are strong and Amazon and Facebook will benefit from this. Amazon with actual sales and advertising, and Facebook with advertising on Facebook itself and Instagram.

Amazon has been very aggressive with increasing it’s share of holiday sales and we are seeing that personally with our Wondermugs business. We have sold over twice as many mugs on Amazon this year compared to last year. With Facebook, we are personally spending significantly more this year on ads as well as for our clients of Advantage Creations.

With Carrol’s the price drop is just making the company very cheap. At today’s price, the market is valuing the 828 stores at only $729,773 each. To start a brand new store, you are typically looking at an initial investment of $1,200,000 to $2,800,000. These are mostly proven stores with excellent management in place.

Some are thinking the economy is going negative. If that’s the case, people still need to buy goods, will still use social media and go out to eat. Amazon and Carrols provide great prices on products. Facebook/ Instagram will still be used.

There are of course other pressures on these specific companies. Facebook with it’s privacy concerns, Amazon with other retailers getting more competitive and Microsoft with cloud services and Carrols with McDonalds, but I believe at these prices all of these concerns are priced in and then some.

Here is my previous analysis on all three:

Community Bancorp (CMTV) – Buy

Once again, I added more to my position today in Community Bancorp (CMTV) at $16.10.

Still my largest holding and a great opportunity.

Why Community Bancorp?

The stock has fluctuated a lot most likely due to overall market pressures and due to trading over the counter.  However, the company is very stable, growing and is located in a market that has good loan growth potential.

Like Merchant’s Bank, it’s a smaller local bank that doesn’t engage in risky financial business. Since Community Bancorp is local and it’s market is more local/small business, it should be less impacted by national issues such as the trade war with China.

Update on Valuation

Community Bancorp currently trades at a:

  • PE of 10.7
  • Price/Book of 1.4
  • Earnings Growth rate of 10.84%
  • PEG of .99
  • PEG payback in years is 7.22
  • Dividend yield is 4.72% (based on most recent dividend payouts of .19).

One of the better dividend yields for the low risk nature of this business. It’s got a low book value and PEG, not as low as Capital One (another recent holding), but with a less risk in my opinion and the dividend is a big good selling point.

However, if it should have a significant increase from this point I will probably sell some if other opportunities arise as I have a larger percentage of my portfolio in this single company than I’m usually comfortable with.

However, I’m fairly comfortable parking a significant portion of my capital here while waiting for other opportunities to diversify.

See more comments on Community Bancorp here.

Amazon.com, Inc. (AMZN) – Buy

I initiated a new position last week in Amazon.com, Inc. (AMZN) at $1,657.24. It is our 8th largest position at this time.

Reason for current opportunity

The share price for Amazon has been under pressure because of a variety of threats:

  • Inability to make significant profits from the amazon.com retail business.
  • Political/social pressure from their growing size and influence on the retail industry.
  • Slowing growth in revenue.
  • International expansion difficulties.
  • Amazon Web Services competition from well capitalized competitors: Microsoft (MSFT) and Google (GOOG).

Why Amazon?

Amazon has been on my watch list for a while as I currently sell various products on Amazon and use their advertising system to advertise products. I shop there, but not nearly as much as I used to. For the last year or so, I moved more of my shopping to Walmart (WMT) due to lower prices mainly. I usually buy from Amazon if I cannot find the product at Walmart.com. Although it seems that many that shop at Amazon don’t necessary care about the lowest price and it has been shown to be a favorite among Generation Z and Millennials.

While Amazon has been reluctant to monetize Amazon.com due to aggressive plans to acquire market share, they have been able to grow and monetize Amazon Web Services, which produces the majority of their profits.

What I’m most excited about is their ability to collect ad revenue from vendors that promote their products on Amazon.com. This is how Facebook and Google make most of their revenue and by relying more upon 3rd party sellers, Amazon doesn’t need to worry about cost of goods. They make money no matter what, more like Ebay’s (EBAY) business model.

It seems that over time many consumers are skipping searching on Google and going right to Amazon.com first to do product research and on the flip side, many brands are putting more effort on selling on Amazon over selling directly on their own websites. Some will create a website just to direct customers to make the purchase on Amazon.com. It’s seems that over time, more brands could push more of the sales to a few marketplaces such as Amazon.com, Walmart.com and Ebay.com along with some niche players such as Etsy.com making less of need for many of the other retailers currently out there. While I don’t believe Amazon will end up with all retail, I do think that over time, we will end up with a lot less retailers and few large marketplaces where most online sales and maybe bricks and mortar business is done. The struggles of Bon Ton, Sears, Kmart, Circuit City, Toys ‘R’ Us to name a few show this is the case.

Valuation

Amazon currently trades at a:

  • 59.2 forward PE
  • Price/Book of 20.5
  • PEG of 1
  • PEG payback in years is 6.7
  • Dividend yield is 0

The forward PE and Price/Book are higher than I like and I usually prefer companies that pay a dividend. However, they have a huge earning potential and I think that this will grow significantly at some point. They could keep their margins on retail low, but make significant amounts from ad revenue like Facebook and Google do. The current PEG of 1 is very attractive to me and is why I see the stock is a bargain at this time.

I believe the current stock price drop represents a great opportunity for those not currently invested or with a small position in AMZN. If the price should continue to drop, I will most likely add to this initial position.

Capital One Financial Corp (COF) – Buy

I initiated a new position last week in Capital One Financial Corp (COF) at $86.01. It is our 11th largest position at this time.

Reason for current opportunity

The share price for Capital One alone with most financials seem to be under pressure with the broad market selloff which started partially due to increasing fed interest rates, which is odd when most banks due better with higher interest rates. However, with a credit card centric business such as Capital One, it doesn’t matter too much since the rates they charge are not directly related to the fed rate like some of our other banking holdings like Community Community Bancorp Vermont (CMTV) and Community Bank System, Inc. (CBU).

However, that being said, there are some threats to their business, which are:

  • Increased competition in auto lending, which is a part of the revenue.
  • Threats from technology disruption (ie. Cryptocurrencies, digital wallets, Paypal (PYPL), Google (GOOG) /Apple (AAPL) /Amazon (AMZN) credit/payment options, other online banking businesses)
  • The need to increase rewards to obtain/retain customers using their credit cards

Why Capital One?

Capital One has been on my watch list for a while since I replaced my Paypal debit card with a Capital One credit card. While the Capital One credit card charges an annual fee, which the Paypal card did not, the Capital One card pays 2% back on ALL purchases, and the reward payments are made monthly in cash. I get a lot more back even with the annual fee. I find their online system better than Paypal’s in that it the reports/exports are easier to understand and work with and customer service has been better in my opinion.

Some strengths I see in the business are:

  • They are diversified into consumer and commercial lending which should help them to cross promote credit cards.
  • They have been able to acquire assets at competitive pricing increasing book value.
  • They’re good at what they do and they have a large share of the markets they serve.
  • Millennials are increasingly looking to use credit card debt for purchased which bodes well for future growth.
  • The trend is towards cash-less transactions and online/mobile buying which favors credit cards.

I feel at the current stock price, it’s become an increasingly good value.

Valuation

Capital One currently trades at a:

  • 7.7 forward PE
  • Price/Book of .8
  • PEG of .3
  • PEG payback in years is 3.8
  • dividend yield is 1.8%

These numbers are significantly better than the industry average in every way.

I believe the current stock price drop represents a great opportunity for those not currently invested or with a small position in COF. If the price should continue to drop, I will most likely add to this initial position.

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