While the yield curve recently inverted, there are no clear sign of an imminent recession, notes sen...
PowerTrends and Profits
03/02/2015 10:00 am EST
Chris Versace assesses stocks based on a variety of proprietary PowerTrends; enduring fundamental trends. Here, the editor of PowerTrends Growth & Dividend Report highlights a healthcare sector REIT, a smartphone chip maker, and a charge card outfit benefiting from the move away from cash transactions.
Steven Halpern: Our guest today is Chris Versace, editor of PowerTrends Growth & Dividend Report. How are you doing today, Chris?
Chris Versace: I’m doing fine, Steve. Thanks for having me on again.
Steven Halpern: Well, thank you so much for joining us. Now, for our listeners, you publish several newsletters focusing on various aspects of the risk spectrum, from investing and trading, all the way to options, but underlying all these publications is what you call your “PowerTrend Framework.” Could you explain what these PowerTrends are and how you apply them to the investing process?
Chris Versace: Happy to Steve. For a long time, I’ve been using what I call PowerTrends, which is really the intersection of the shifting economic demographic, psychographic, technological landscape. I tend to look at other things too—such as regulatory mandates and pain points—to really try and understand where these demonstrative tailwinds are.
Then, I roll up my sleeves and I try and identify the companies that are best positioned to benefit from these tailwinds, or these PowerTrends as I call them, irrespective of the industry we’re in, and I love it because it really kicks out strong companies that people could invest in, not for one month, two months, three months, but something that we can hold for 12-24 months and really get big profits in the process.
At the same time, it also identifies those companies that are going to be left behind, and sometimes that’s as important, because the last thing you want to do is invest your money in a company that is just poorly positioned for what’s ahead.
Steven Halpern: Your latest service is called the Growth & Dividend Report. Could you share the reasoning behind your decision to launch that service now that’s focused on income?
Chris Versace: Well, Steve, I have to be honest with you, Growth & Dividend Report is really the old PowerTrend Profits. We decided to rename it because we were looking back at what we were investing in—and we had a fantastic 2014, to be honest with you—but when we were looking at the portfolio from a different prospective, it really broke down into two categories; growth companies that were riding some of the PowerTrends.
For example, Always On, Always Connected is a great one because it really looks at the involving technological landscape and the impact on our lives and a number of ripple effects there, but the other half, believe it or not, were all in dividend paying companies, and some of them, my favorites, the dividend dynamo companies that continue to increase their dividends no matter what.
We thought that we would step back and really rename the service to help people understand what we’re really doing, but the tagline is still “Powered by PowerTrends.”
Steven Halpern: Let’s look at your PowerTrend strategy in light of some specific investing ideas. One that you’re recommending is HCP (HCP), which is a real estate investment trust that focuses on the healthcare industry. What’s the attraction there?
Chris Versace: Well, this is an interesting one because it kind of blends a little bit between growth and dividends. Obviously, REITs tend to be higher dividend paying companies, and HCP certainly is one, that was one of the first things that caught my eye, but underneath it, what is it working in, what industry?
As you pointed out, the healthcare industry. There’s no slowdown in what I call the aging of the population or us simply living longer lives. To me, that says that healthcare is a booming industry, not just one year out, but really over the next several years. When we look at HCP, it has both of those qualities and I was also attracted to it because there was some concern that the Fed was going to increase rates and we started to see those high dividend companies getting hit in the marketplace.
But when you sit back and you look at the economic data, you realize that there is no increase coming from the Fed until sometime in the back-half of 2015 and that gave us a fresh bite at the HCP apple, as it were.
Steven Halpern: Now, you also recently recommended the smartphone chip maker Qualcomm (QCOM). Could you share your thoughts on that?
Chris Versace: I have been a big, big bull on Qualcomm and there’s an issue early in 2015 that saw the stock kind of gets pulled back. It’s been resolved. Like I said, we tend to look at the long-term here at the Growth & Dividend Report, really focusing on those PowerTrends.
When we do that, we see that mobility is only now starting to move beyond smartphones and tablets. Some of the opportunities out there are wearables and we’re all waiting to see what Apple has with the Apple watch.
But there’s more, the connected home, the connected car, eHealth, and other things that are starting to bubble up. Imagine Steve, being able to control your thermostat from your car to warm your house up on your way back home from the airport and that’s just one of the things.
Steven Halpern: Now, another stock that you’ve highlighted, which some may consider a contrarian play lately, is American Express (AXP), which has been the subject of some negative news recently. What makes you optimistic on the fund’s outlook?
Chris Versace: Well, I think when we, again, step back and take a look at the shift in how people are paying, there is this shift not only here in the US, but outside the US away from cash, check, towards plastic, and now with Apple Pay and other forms—Google Wallet, for example—electronic payments, and I see American Express uniquely positioned.
I say that because it is a closed system type of company, right, whereas Master Card and Visa are more open transaction networks. American Express owns the whole thing and they’ve made a number of investments over the last few years, really beefing up their security. In a lot of ways, it kind of fits with my cashless consumption PowerTrend as well as my safety and security PowerTrend.
Now, Steve, let me give you a quick example. I can walk into a store, pay with Apple Pay that’s tied to my American Express card, and before I leave the store, on my phone, I have a receipt and conformation from American Express.
Anybody who tries to use my American Express card, I’m going to know about it. To me, that’s invaluable and a key differentiator. By remember too, the company is in growth mode and it’s a dividend payer. Again, a number of intersections on the growth and dividend front.
Steven Halpern: Finally, in regards to the overall stock market, you’ve noted a hint in caution in your recent newsletter commentary, particularly pointing out that valuations are appearing to get stretched. Could you explain your concerns?
Chris Versace: Sure, Steve, if we take a look at where the S&P 500 is, and I focus in on that because that’s the benchmark that most of the institutional investor community and mutual funds and hedge funds use, we see that it is trading about 17.5 times 2015 earnings, now, you might go, “okay.”
Context is always key here. If we look at the earnings growth rate for 2015, which now is expected to be less than 3%, it is the slowest that we have seen since 2008.
Meanwhile, the index is trading, as I said, at 17.5 times. Its average over the 2001 to 2014 period was only 17 times. When we look at this, we have a high valuation and we have some of the worst earnings growth over the last several years. That, to me, says that things are more likely than not, kind of getting a little toppy here.
Remember Steve, the first quarter we had impacted the Pacific ports, which Macy’s just said is really going to hit it to about 10% to 12% of it’s revenues.
Then, we take a look at the severe winter weather, which believe it or not is still continuing, and it tells me that growth expectations for the current quarter are going to get revised out. Put those things together and I wouldn’t be surprised, Steve, if we have a pullback before too long.
Steven Halpern: Well, thank you so much for taking the time to join us, today.
Chris Versace: Thank you, Steve.
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