Monday, July 21, 2014

Valuation in the Aerospace and Defense Sector

The Aerospace & Defense sector makes for some great investments. The stocks discussed here are United Technologies Corp (UTX), The Boeing Company (BA), Lockheed Martin Corp (LMT), General Dynamics Corp (GD), Raytheon Company (RTN), Northrop Grumman Corp (NOC) and L-3 Communications Holdings Inc (LLL). All the stocks except BA are Dividend Contenders in David Fish's CCC list; companies that have raised dividends consecutively for 10-24 years. BA saw a freeze in dividend raises from 2009 to 2011.

Each company discussed here has its own specialty and is the leader in manufacturing defense related products and services. I have not read enough about the sector to comment or recommend one stock or another based on the technology and business-outlook side of things. For now, I will simply be looking at the valuations and the financials/dividend history to compare the stocks. I recommended readers to do their own research before investing in any of the stocks discussed.

The US spends a massive 3.8% of its GDP (numbers as of 2013) on military and defense budget. That amounts to about $640B - a number much larger than any other country on this planet. To put things into perspective, the military/defense budget of the next 10 highest spending countries need to be put together to get close to that number. Suffice it to say, that the defense contractors discussed here make for some juicy returns for your investment money.

Saturday, July 19, 2014

Chatter Around the World - 53

Chatter Around the World is a weekly link update of economics, investing, dividends and personal finance articles that have caught my eye. In these weekly updates, I also capture my blog updates and news related to my holdings.

Sector quilt updated Jun 30, 2014

New Blog Posts

Let's dive into the links that caught my attention this week.

Friday, July 18, 2014

Recent Buy - Qualcomm Inc (QCOM)

I added to my position in Qualcomm Inc (QCOM). Qualcomm designs, develops, manufacturers and markets digital communication products. Qualcomm's business segments include mobile device chipset manufacturing, mobile device royalties and strategic investments. Qualcomm is the leader in ARM-based chipset processors which can be found in the bulk of Android (GOOG), BlackBerry (BBRY) and Windows (MSFT) mobile devices. The licensing segment is used by almost all mobile device manufacturers including Apple (AAPL). The real winner from the smartphone/tablet/connected-cars wars really is Qualcomm. Qualcomm charges royalties on each handset sold based on its technology and one time licensing fees from handset vendors to use its proprietary technology.


Qualcomm's revenue per share, earnings per share (EPS) and free cash flow (FCF) per share are extremely healthy. In addition, Qualcomm has no debt and holds $16.63B in cash.

Qualcomm's industry leading processors are not only found in the latest Android, BlackBerry and Windows phones, but Qualcomm commands a formidable patent portfolio. Qualcomm currently generates 2/3 of its revenue from sales of mobile device chipsets and 1/3 of its revenue from royalties by licensing the technology. On  the earnings side, the numbers flip around - 2/3 from licensing and 1/3 from chip sales.

Thursday, July 17, 2014

Recent Sell - CHSCP, Mutual Fund

Some more 'Recent Sells' in the portfolio last/this week. 

Partially Closed: Scotia Canadian Balanced Fund (mutual fund)
This holding was part of my wife's portfolio and being an expensive fund (with an MER close to 2%), we sold this position, but only partially for now. The funds will not be invested elsewhere as we need the cash for our home downpayment.

Closed: CHS Inc (CHSCP)
CHS Inc was a high yielding, low-beta stock that I had used over the year to park my cash. I initiated this position in mid 2013 as I was unsure of where to invest. While I was going to make up my mind, I decided to get some juicy yields on the cash. That trade did not turn out that great as the stock price has remained fairly flat while the rest of the index has run off skyward. However, I can't really complain with the yield close to 6% I was receiving on a quarterly basis. Going forward, I will be investing the cash from this sale into dividend growing companies which will result in a drop in my passive income initially, but should see a better total return over the long term. 

Full Disclosure: My full list of holdings is available here.

The Importance of Diversification: Part 2

This is part 2 of a two-part series where I discuss the importance of diversification in finances. In part 1, we saw the importance of diversification when it comes to investments and how the risk mitigates by selecting investments from various asset classes, sectors and geographical regions. This article will focus on the diversification of income. 

Income is the single biggest factor in wealth build up. To ensure that the build up can accelerate or simply to protect from unforeseen circumstances, you can employ various strategies to protect yourself from risks which could affect your future earnings.