Tuesday, April 28, 2015

To book profits or not? Try rebalancing portfolio instead

Below is the verbatim transcript of Rustagi's interview with CNBC-TV18.

Q: Gold has slipped below USD 1,400 per ounce levels and a lot of investors have again highlighted the dilemma of whether to stay invested or book profits when the going is good. In fact, equity investors face this dilemma time and again. So should they continue to stay invested? How should one book profits?

A: There are two major decisions to be made for any investor especially when it comes to asset class like equity and gold because it becomes a bit of complicated because talking about the current market scenario, for example one has seen the market going up and also crash is seen on the gold side. Therefore, it becomes a bit difficult to decide as to whether one should be staying investing or should be exiting from this. So, it is very important for investors to have a strategy in place.

Things to know before redeeming investments

As I mentioned earlier, one dilemma is to buy and that can be taken care of especially when one is investing in a disciplined manner by investing regularly but when to sell remains a tricky one. Therefore, it is important for investors to have a strategy in place.

As investors has the tendency to allow portfolio to ride on especially when the going is good but when they face with volatility, they become very nervous and so one see investors taking decisions in a haze either getting out of the asset class completely or allowing the portfolio to continue in the hope that there will be some recovery.

I think both decisions expose them to some kind of risk and that is why it is important for every investor to have a strategy in place once the strategy is to rebalance the portfolio. Rebalancing means to bring the asset allocation back to the original level. That is of different asset classes like equity, gold or debt.

Here's how you can generate extra returns on gold

How it is done is that when an investor has an overexposure to equity from the expected level, he will book profit when the going is good and he will invest the money when market is down also rebalancing is very important because every portfolio is designed to tackle an accepted level of risk by doing nothing when the going is good basically exposes to much higher risk. However, I believe that the profit booking should be done when the allocation drifts by 10 percent or more. Doing it frequently also defeats the purpose.

Second, any other investor who wants to book profit but is not sure about when to do it then I would like to mention here about the mutual fund investor; those who invest in equity or equity oriented balance fund can opt for a dividend payout option. These funds typically pay dividend once in a year. The tax-free nature of this dividend makes the whole exercise very tax efficient and also they do not have to worry about timing the market. Therefore, it is evident that booking profit is necessary otherwise one is exposing oneself to more risk.

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Tags: Hemant Rustagi, Wiseinvest Advisors, Gold, investor, equity, allocation, mutual fund, ETF, asset allocation, ICICI Prudential Focused Bluechip Equity Fund, IDFC Premier Equity Fund
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FPO Inks Lease Deal - Analyst Blog

First Potomac Realty Trust (FPO) – an industrial real estate investment trust (REIT) – recently penned a lease deal with a professional services firm for 30,036 square feet of space at its Md.-based Class A office property, Redland Corporate Center. With this transaction, the property is now 100% leased.

The Redland Corporate Center, comprising multi-storied office buildings, 520 and 530 Gaither Road, spans 348,469 square feet. The property is positioned in I-270 corridor of Montgomery County and is close to famous landmarks such as Rio Washingtonian Center, Fallsgrove Village Center and King Farm Village Center.

Notably, the asset was acquired by First Potomac in Nov 2010, in a joint venture with Perseus Realty, LLC. This was the largest premium buyout by First Potomac that year.

Redland Corporate Center's prime location and high-class amenities make it an ideal property among First Potomac's assets in the Maryland area. We expect the deal to boost the company's rental revenues and strengthen its tenant base.

First Potomac owns, manages, develops and redevelops office, business parks and industrial properties in the greater Washington D.C. region. As of Mar 31, 2013, the company's portfolio spanned about 14 million square feet. The portfolio consists of 43% office property, 23% industrial property and 34% business parks.

First Potomac is expected to release second-quarter 2013 results on Jul 25. The company has an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of 0.00% and it carries a Zacks Rank #3 (Hold). Thus, we are not so confident about a positive earnings surprise.

Some better performing REITs include DCT Industrial Inc. (DCT), DuPont Fabros Technology, Inc. (DFT) and CubeSmart (CUBE). All these stocks carry a Zacks Rank #2 (Buy).

Monday, April 20, 2015

What Panera Could Learn From Chipotle

Panera Bread (NASDAQ: PNRA  ) is in unfamiliar territory. After logging industry-trouncing sales growth for years, its latest results put it much closer to plain old average. That could be bad news for a stock that's trading at a premium to other casual dining giants.

For the quarter that just ended, Panera saw comparable sales growth of just 3.8%. That was lower than the 4%-5% annual target it forecast last quarter, which itself was below the 4.5%-5.5% that Panera was expecting two quarters ago. Something clearly isn't working at the bakery-cafe.

What's working
Store growth isn't the issue. Panera opened 37 new locations in the quarter, bringing its total to 1,708 restaurants. The company sees loads of potential for boosting its store footprint and expects to hit the high end of its full-year openings goal of 115 to 125 new units.

Profitability is on track, too. Operating margin inched up by 60 basis points, keeping Panera firmly ahead of Darden Restaurants (NYSE: DRI  ) , and closing in on Chipotle Mexican Grill (NYSE: CMG  ) .

PNRA Operating Margin TTM Chart

PNRA Operating Margin TTM data by YCharts

What's not working
But Panera is coming up short where it counts the most -- during peak lunch hour. After average food production times spiked last quarter, Panera has called out its throughput as a major operational weakness. It seems that for many of the company's locations last quarter, the customer traffic was there, but service just wasn't quick enough to satisfy it.

That could be due to Panera's increasingly complex menu. The company recently added a full line of pasta dishes to its offerings. And while that's been great for boosting check averages, it might have slowed down the kitchen and limited total output.

It doesn't have to be that way. For clues on mastering the art of high-volume feeding, Panera can look to Chipotle. The burrito slinger's most efficient restaurants process 350 orders over lunch hour, moving one through the line every 11 seconds. Sure, that's mostly thanks to Chipotle's buffet-line concept that keeps the kitchen humming. But the company has also been extremely careful about adding anything to its menu for fear of gumming up the works.

A tough road ahead
The good news is that Panera is aware of the production issue and plans to meet it head-on. But it won't be an easy fix.

Management warned of "choppy" results over the next few quarters -- and a potential drop in profitability -- as it makes the investments required for getting throughput numbers up. That spending will be worth it if it helps Panera serve all of its customers at peak hours, lifting the company's sales growth back to above average in the process.

If you're an investor who prefers returns to rhetoric, you'll want to read The Motley Fool's new free report "5 Dividend Myths ... Busted!" In it, you'll learn which stocks provide premium growth and whether bigger dividends are better. Click here to keep reading.

Tuesday, April 14, 2015

Are Investors Paying Too Much for This Consumer Products Stock?

On Tuesday, shares of WD-40 Company (NASDAQ: WDFC  ) rose by as much as 12% before giving back all of those gains to trade flat by the end of the session.

More specifically, quarterly net sales rose 7% year over year, to $93.1 million, while net income for the quarter came in at $10.3 million, representing an even more impressive 13.2% increase over last year. Meanwhile, diluted earnings per share rose 15.8% year over year, to $0.66.

To be sure, these earnings crushed analysts' estimates by $0.10, and the company raised its full-year earnings guidance by around 3.4% to boot, telling investors they now expect to earn between $2.40 and $2.48 per share.

So what happened?
So why did shares of WD-40 retreat as the day wore on?

As fellow Fool Jeremy Bowman pointed out Tuesday, some investors are worried that WD-40's growth doesn't seem to support its valuation. And, on the surface, with the stock trading at 22 times next year's estimated earnings, those concerns certainly look valid. 

In addition, there's a sense of disappointment that WD-40 can't have its cake and eat it, too, as it chose recently to purposefully reduce its expanded focus on low-margin cleaning products. This includes its Carpet Fresh, Spot Shot, and 2000 flushes toilet bowl cleaners, the sales for which declined by 48%, 29%, and 12%, respectively.

In effect, WD-40 is leaving money on the table -- albeit from low-margin products -- and allowing competing consumer products stalwarts like Procter & Gamble and Kimberly-Clark to mop up that extra income with cleaning products of their own.

Remember, though, the market capitalizations of Kimberly-Clark and Proctor & Gamble currently clock in around $38.3 billion and $223 billion (yes, with a "b"), respectively. By contrast, with WD-40, we're talking about a comparatively minuscule $900 million business, whose global reach and pricing power still can't come anywhere near those of its massive industry rivals.

Then again, while the big boys enjoy their superior economies of scale and wide arrays of popular products, WD-40 investors can take solace in knowing it will take much less growth in any one single segment to move the company's income needle.

Here's where WD-40 gets its growth...
That's why WD-40 has chosen to focus its efforts on reinforcing the market position of its widely known multipurpose maintenance products category, which includes all variants of its namesake multi-use WD-40 lubricant, and boasts much more appealing margins than its secondary cleaning products. 

Most recently, this category expanded with the introduction of its new WD-40 BIKE products, with which the company is focusing on independent bike distributors around the globe. As a result, and thanks to a broad performance in the product line, sales from this segment grew 12% last quarter and accounted for 88% of WD-40's global total.

By expanding the scope of, and focus on, products incorporating the well-known WD-40 brand and its respective favorable margins, then, WD-40 Company is assuring it can continue to achieve its ongoing goal of maintaining at least 50% gross margin, 30% or less in operating expenses, and (as a direct result of the first two), 20% or higher earnings before interest, taxes, depreciation, and amortization, or EBITDA -- or, as WD-40 CFO Jay Rembolt refers to it, their 50/30/20 rule.

...but it doesn't need high growth to succeed
In addition, remember the company's diluted earnings per share did outpace the sluggish revenue growth, largely thanks to its share repurchase efforts in spending around $9.8 million buying back 182,000 shares of WD-40 stock during the quarter.

For those of you keeping track, that also leaves about $6.5 million remaining from the company's existing $50 million share repurchase authorization, which WD-40 plans to exhaust by the end of the year. At that time, they will continue repurchasing shares under their new, already-approved $60 million buyback plan, which expires in August, 2015. Given today's share price, those repurchases alone could enable WD-40 to reduce its total number of shares outstanding by more than 7%.

In addition to its share repurchases, investors should also remember WD-40 also aims to pay out at least 50% of its net income to shareholders each quarter in the form of dividends.

Finally, the company's balance sheet remains solid with $52.3 million in cash, and $35.2 million in short-term investments. Curiously, though, WD-40 also recently maintained a line-of-credit balance of $63 million at the end of the third quarter.

However, in an Apple-esque move, management also explained that investors should be more than comfortable with this arrangement considering that much of the cash they're generating is held offshore, enabling them to continue to pursue their growth initiatives while at the same time returning capital to shareholders without suffering the resulting domestic tax consequences.

Foolish takeaway
To be honest, while WD-40's branding power is solid, I certainly don't expect the company's revenue to go through the roof anytime soon. And, while I can't claim the stock is especially "cheap" at 22 times next years' estimated earnings, there is much to be said for finding a predictable income stream from a solid business that maintains a consistently shareholder-friendly culture. And that, my fellow Fools, is exactly why WD-40 investors are willing to pay a premium for the stock absent spectacular growth.

Over the long term, then, largely because of WD-40's impressive efforts to maximize shareholder value through dividends and share repurchases, I see no reason the stock won't be able to continue to outperform the broader market indexes.

But remember, WD-40 certainly isn't the only solid dividend payer out there. If you're on the lookout for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.

Sunday, April 5, 2015

Cablevision Sells Clearview Cinemas to Bow Tie

With a history that spans use of the nickelodeon, Vaudeville, and the creation of the motion picture theater, Bow Tie Cinemas was handed the velvet rope to 41 Clearview Cinemas yesterday, making it the eighth-biggest theater operator in the country.

Both Bow Tie and Cablevision (NYSE: CVC  ) , which owned the Clearview chain, announced yesterday they had completed the transfer of ownership of the theaters, which was first announced in April, though financial terms for the transaction were not disclosed. As the oldest cinema company in the U.S., Bow Tie says it now has the largest number of theater locations in the New York metropolitan area, and operates 63 movie theaters with 388 screens in seven states.

Bow Tie said in April it planned to " make a substantial investment in the newly acquired Clearview theaters," including Chelsea Cinemas, which will become its Manhattan flagship.

Cablevision bought the Clearview chain in 1998 and tried to sell it in 2003 but couldn't obtain a satisfactory price for it. At the time Forbes estimated its value to be about $135 million. It put it back on the market again last year.

Williams Mullen acted as legal advisor to Bow Tie Cinemas and Anchin, Block & Anchin acted as financial advisor. Citigroup acted as financial advisor to Cablevision and Hughes Hubbard & Reed LLP acted as legal advisor.