Microsoft – MSFT $374
Microsoft is the largest software provider in the world led by its teams M365 suite of apps including Word, Excel, Power Point, Publisher, and leading communication tools. Microsoft leverages its cloud services to provide applications. In the September 3rd quarter, sales rose 13% and earnings rose 27%, truly remarkable given the size of Microsoft. Looking forward to Microsoft incorporating its AI product offering Co-Pilot as an overlay with a rollout that started with large corporate customers. Although Microsoft’s stock is among the top performers in 2023, AI sales could dramatically increase profits over the next five years. And hopefully leading to further stock gains.
Palo Alto Networks – PANW $290.90
Palo Alto is one of the largest security network service providers to primarily large corporations and government agencies. Palo Alto focuses on software that protects their clients from cyber-attacks that are increasing globally and pose a significant risk to all organizations. Recent hacks at MGM in Las Vegas shut down betting and lodging activities, presenting the threat and need for cyber protection. AI technology is being implemented in protecting offerings while hackers are also advancing their techniques. Palo Alto’s stock has been on a terror rising 25% in the past month.
Vertex Pharmaceuticals – VRTX $351
Vertex develops and sells pharmaceutical products, addressing life threating diseases where there is no other treatment. On December 8th, the FDA will rule on their sickle cell drug which could be the first drug approved by employing gene editing technology. In addition, Vertex has a non-opioid pain management drug in phase 3 in clinical trials that a filing to the FDA is expected in the first quarter of 2024. Recent financial results included sales rising 8% and earnings 7%. High premarketing and drug trial expenses will hurt profitability until the new drug revenues become material. Vertex operates at the highest level of sophistication. Revenues could double over the next 3 to 5 years with FDA approvals for new drugs.
Garmin – GRMN $124.05
Garmin’s origins date back to the dashboard navigational device you may have bought for someone as a holiday present 20 years ago. Today, Garmin is a leader in navigation devices used in marine, fitness, aviation, outdoor, and auto markets. After strong pandemic sales, present results at face value look unappealing, but renewed growth in sales is evolving from new product innovation. The investment community pays little attention to Garmin as they have no need for capital rise since they have no debt and have produced $1.3 billion in free cash flow over the last year. Garmin may be one of the few stocks’ worth holding forever. As an owner of multiple Garmin devices, I need to watch being biased.
Oneok – OKE $69.67
Oneok recently acquired Magellan to become the largest fuel pipeline in the U.S. Given the barriers in constructing new pipelines, owners of existing pipelines benefit from a huge barrier to new competition. In addition, growth from the Magellan acquisitions that added transporting jet fuel, crude oil, and other refined products, Oneok is positioned to benefit from the exporting of L.N.G. (liquified natural gas). We expect the 6% dividend yield to increase when the debt raised recently is paid down.
Nvidia – NVDA $462.03
In the emerging AI market Nvidia is the leading semiconductor provider by a very wide margin. Their technology leadership in high end competition needed for AI applications is unmatched at present, although competitors are attempting to catch up. While the stock of Nvdia have risen by almost 3-fold this year, earnings estimates have risen by a greater margin from $4.50 to $12.30 for fiscal year end of 2024, truly amazing growth. Nvdia has a strong competitive advantage in continuing to be leaders of AI growth. Although the stock may experience profit taking in the short term as investors will harvest the recent gains.
Linde – LIN $403.56
Linde is a world leading industrial gas provider. Industrial gases are used in many industries from manufacturing health care and energy for large customers. Linde “builds” a gas production facility on site. The significant up-front investment creates a large barrier to losing a customer. Linde’s financial performance has been consistently steady over time.
Hydrogen offers an excellent long-term opportunity as the gas may be the fuel for large engines such as ships, buses, and power plants. Producing cost effective hydrogen is the challenge.
Deere – DE $368
Deere is the world leader in farm equipment. Also, it receives about 30% of revenues from construction products. Financial services contribute about 10% to earnings before taxes. In Deere’s case, the stock has been stuck in a range for two years and recently the company reduced its profit outlook for 2024 by 15%. Lower farm income due to the fall in commodity prices was the culprit. Given the long-term demand for food and Deere’s lead in AI and innovation, a long-term position is warranted from a portfolio perspective, holding out of favor positions of quality companies is a good strategy as business prospects.
Next Era Energy – NEE $58.10
We have recently re-established a position in Next Era Energy after eliminating NEE from the portfolio prior to a plunge in the stock price earlier this year. Renewable energy stocks are in the “penalty box” with investors. The big issue is interest rates. Renewable energy projects require large upfront investments with dramatically lower operating expenses in the future, often reducing or eliminating fuel expenses. Solar and wind (on shore) are good examples and make up a growing portal for NEE’s energy production portfolio. Here is the problem; higher interest rates to finance projects kills the profitability of the investment.
While NEE’s stock is down 30% for the year so far, operating results have exceeded expectations due to a hot summer and growth in customers coming to Florida. The investment opportunity in NEE is a quality company with growing earnings but out of favor with investors.