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August 7, 2018

There are many deals in the works, nothing has closed and there is regulatory risk. These potential deals are risky reasons to invest in Disney. However, looking at Disney itself, this is the best monetization machine in the industry. For example, when they bought LucasFilm, they turned Star Wars into film, theme parks, TV shows, and consumer products. They’re also working on streaming, but there are risks with this. Aside from the sports franchise, they’re doing everything right. And the sports-related issues are well known by investors. The price consolidated for a while. It’s been rising again, but not too much. Disney is a discipline acquirer, so if the deals do come through, they will be good. However, he can’t buy the company at this time because media, as a group, is not showing market leadership. He will wait until the industry that includes Disney starts to perform better. Much of the recent rally in media is M&A premium, which is not a good basis for a long-term investment.

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Walt Disney (DIS-N)
August 7, 2018

There are many deals in the works, nothing has closed and there is regulatory risk. These potential deals are risky reasons to invest in Disney. However, looking at Disney itself, this is the best monetization machine in the industry. For example, when they bought LucasFilm, they turned Star Wars into film, theme parks, TV shows, and consumer products. They’re also working on streaming, but there are risks with this. Aside from the sports franchise, they’re doing everything right. And the sports-related issues are well known by investors. The price consolidated for a while. It’s been rising again, but not too much. Disney is a discipline acquirer, so if the deals do come through, they will be good. However, he can’t buy the company at this time because media, as a group, is not showing market leadership. He will wait until the industry that includes Disney starts to perform better. Much of the recent rally in media is M&A premium, which is not a good basis for a long-term investment.

COMMENT
COMMENT
August 7, 2018

He likes the sector. This is a very broad-based materials name, with exposure to chemicals, agriculture, and so on. Some parts of their business are working well now, others not so much. For example, its coating business depends on the success of the auto industry, which might be pulling back. That’s normal for a business that is this broad. In general, materials is a late-stage performer and he has invested in a basket of stocks in this sector. DowDuPont recently reported a good quarter. However, the company’s future plans concern him. The company merged in order to reorganize and align its businesses and then split into three separate companies. He has never seen this intentional process of building to a 3-way split before. This is a multi-year strategy that is working very well so far. It has good global exposure. So he is comfortable with it, but he prefers to go to a broader basket of companies in this late stage rather than buying one and suffering the idiosyncratic risk. But if you were going to pick just one company, this one is broad and could make sense. (Analysts’ price target is $80.78)

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DowDuPont Inc. (DWDP-N)
August 7, 2018

He likes the sector. This is a very broad-based materials name, with exposure to chemicals, agriculture, and so on. Some parts of their business are working well now, others not so much. For example, its coating business depends on the success of the auto industry, which might be pulling back. That’s normal for a business that is this broad. In general, materials is a late-stage performer and he has invested in a basket of stocks in this sector. DowDuPont recently reported a good quarter. However, the company’s future plans concern him. The company merged in order to reorganize and align its businesses and then split into three separate companies. He has never seen this intentional process of building to a 3-way split before. This is a multi-year strategy that is working very well so far. It has good global exposure. So he is comfortable with it, but he prefers to go to a broader basket of companies in this late stage rather than buying one and suffering the idiosyncratic risk. But if you were going to pick just one company, this one is broad and could make sense. (Analysts’ price target is $80.78)

COMMENT
COMMENT
August 7, 2018

The caller has a large profit in Apple and is considering selling half his position. Hurst commented that he loves the strategy of de-risking. Then he commented on the high quality of Apple’s performance. It is delivering in technological development, growth of revenue stream, stock buybacks, dividends, etc. He also thinks that the market has not yet appreciated the potential of Apple’s augmented reality technology, which is just in its infancy today. So, even though he would de-risk a position that had grown large because of a big profit, he would not exit Apple and sees strong reasons to continue to invest in it.

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Apple (AAPL-Q)
August 7, 2018

The caller has a large profit in Apple and is considering selling half his position. Hurst commented that he loves the strategy of de-risking. Then he commented on the high quality of Apple’s performance. It is delivering in technological development, growth of revenue stream, stock buybacks, dividends, etc. He also thinks that the market has not yet appreciated the potential of Apple’s augmented reality technology, which is just in its infancy today. So, even though he would de-risk a position that had grown large because of a big profit, he would not exit Apple and sees strong reasons to continue to invest in it.

PAST TOP PICK
PAST TOP PICK
August 7, 2018

(A Top Pick August 9, 2017. Up 50%). He thinks this has largely played out. There is now a lot more competition, including head-to-head price competition with Fidelity. Fee compression is unrelenting, putting pressure on the whole industry. The rise in interest rates should help companies like E*Trade because they can earn money from the customer’s cash. However, last quarter, they disappointed, showing decelerating growth. Their growth is still significant, but not as much as it has been. The stock trades at a discount to Schwab and to TD Ameritrade and the main reason to own them at this point is the expectation that if they don’t do better, they’ll sell the company. He stepped away because that’s now what he would hold this company for. Someone who wants to speculate on a takeover could reasonably buy the company now, but he would not.

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(A Top Pick August 9, 2017. Up 50%). He thinks this has largely played out. There is now a lot more competition, including head-to-head price competition with Fidelity. Fee compression is unrelenting, putting pressure on the whole industry. The rise in interest rates should help companies like E*Trade because they can earn money from the customer’s cash. However, last quarter, they disappointed, showing decelerating growth. Their growth is still significant, but not as much as it has been. The stock trades at a discount to Schwab and to TD Ameritrade and the main reason to own them at this point is the expectation that if they don’t do better, they’ll sell the company. He stepped away because that’s now what he would hold this company for. Someone who wants to speculate on a takeover could reasonably buy the company now, but he would not.

DON'T BUY
DON'T BUY
August 7, 2018

(A Top Pick August 9, 2017. Up 6%). He stepped away from emerging markets earlier this year but India still offers a good multi-year story. India adopted a biometric identity card system that puts everyone into the standard economy and away from the shadow economy. Deposits at banks are way up because of this. There are many other healthy signs in the economy. BUT, if emerging markets suffer, India will suffer. Because he doesn’t have to be in EM, he’s out of this for now.

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(A Top Pick August 9, 2017. Up 6%). He stepped away from emerging markets earlier this year but India still offers a good multi-year story. India adopted a biometric identity card system that puts everyone into the standard economy and away from the shadow economy. Deposits at banks are way up because of this. There are many other healthy signs in the economy. BUT, if emerging markets suffer, India will suffer. Because he doesn’t have to be in EM, he’s out of this for now.

BUY
BUY
August 7, 2018

(A Top Pick August 9, 2017. Up 12%). He still really likes this. The stock has come down because geopolitical risk seems less urgent to many people, but he thinks the risk is still there and that it supports continued investment. It has consolidated and could be starting to break out again.

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Raytheon (RTX-N)
August 7, 2018

(A Top Pick August 9, 2017. Up 12%). He still really likes this. The stock has come down because geopolitical risk seems less urgent to many people, but he thinks the risk is still there and that it supports continued investment. It has consolidated and could be starting to break out again.

SELL
SELL
August 7, 2018

He is negative on the space of drug distributors and pharmacy benefits managers. He thinks that policy pressures and pricing pressures make the PBM side of CVS a bad investment. The unrelenting pressure is driving more business to United Health, which is very efficient. Going top down: He doesn’t like consumer staples at this time and within that he doesn’t like distributors, and within that is all the difficulty in distribution of pharma. He thinks they’ve make good strides improving the retail, but the back end will be very tough for a long time. He would recommend cutting losses for someone who owns this and investing in medical devices or in a more general healthcare ETF. (Analysts’ price target is $85.47)

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CVS Health Corp (CVS-N)
August 7, 2018

He is negative on the space of drug distributors and pharmacy benefits managers. He thinks that policy pressures and pricing pressures make the PBM side of CVS a bad investment. The unrelenting pressure is driving more business to United Health, which is very efficient. Going top down: He doesn’t like consumer staples at this time and within that he doesn’t like distributors, and within that is all the difficulty in distribution of pharma. He thinks they’ve make good strides improving the retail, but the back end will be very tough for a long time. He would recommend cutting losses for someone who owns this and investing in medical devices or in a more general healthcare ETF. (Analysts’ price target is $85.47)