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Retail

BJ’s Wholesale Club (BJ) at $65: HOLD for Stability, But Look for Better Opportunities

source:bjs

BJ’s had been a decent performer, starting from the $40’s range in 2020, to $65. (A lot of it Covid outperformance)

That’s about 16% per year. Though in the past year, BJ’s has had a negative return of 10%.

Currently it’s priced at 15x earnings with forward estimates of 5-6% in earnings and 4-6% in revenues, so that’s a Price to Earnings Ratio (P/E) of 15, with growth of 5, that’s a PEG ratio (P/E to Growth) of 3, which is high. I normally try not to pay more than 2, unless there is really superior growth. Not likely in this sector.

Contrast that with closest competitor Costco, which has earnings growth of 10 to 11% but at a P/E of 35 and – that’s even more expensive!

That said, Costco is a far superior business, with more stable margins, operating efficiencies and scale, which attracts both high volume sellers and customers. Costco is about 10X BJ’s and both started out around the same time. BJ’s unlikely to take market share from Costco, 

Bottom line – If the stock becomes a bargain around $55 I could see it returning around 7-8% a year. On the other hand a company like this doesn’t fall as much in bad times, it’s a low risk stock.

Categories
Finance/banking

HDFC Bank (HDB) $55 – Hold: Evaluating Post-Merger Impact and Future Prospects

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HDFC Bank (HDB) $55 – Hold

Its merger with HDFC decreases overall operating margins and valuation multiples a little bit; earlier it was one of India’s fastest growing banks mostly on consumer and retail strengths, now we have a giant which is less nimble and owns a lot of wholesale slower earning assets.

However, there are a lot of benefits such as cross selling and the combined entity gains from HDFC’s strong exposure to mortgages, which will continue to grow fast in India.

It’s expensive at 19x earnings, which is pretty high for a bank and for one with mid single digit growth. Overall HDB has returned 7-9% in the last 5 years, which is not bad, but given India’s great growth story it is much lower than even the Indian market (Sensex and Nifty)

I would take a second look below $50; let’s see another quarter of how the merger pans out.

I compared it with ICICI Bank (IBN), which has actually done a lot better as a return on Investment, however that too is expensive right now around $24.36, and could be worth buying if it came down about 10-15%.

Banks are cyclicals, don’t tend to outperform and are not usually fast growers, so entry prices are important.

Categories
Cloud Service Providers

Microsoft (MSFT) Hold at $407 – Impressive Earnings, Awaiting Guidance

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Microsoft (MSFT) Hold $407

Earnings: $2.93 per share, vs. $2.78 per share expected, 33% Higher YoY

Revenue: $62.02 billion, vs. $61.12 billion expected, 18% Higher YoY.

CLOUD DOES WELL – Intelligent Cloud revenue $25.88Bn V 25.29Bn expected, 20% Higher YoY contains Azure cloud infrastructure, SQL Server, Windows Server, Nuance, GitHub and enterprise services. Within that segment, revenue from Azure and other cloud services grew 30%. Analysts polled by CNBC had expected 27.7% growth, and the StreetAccount consensus was 27.5%. The metric for the previous quarter was 29%.

This is impressive growth – but most of it is already in the current price.

I own Microsoft but haven’t had a chance to add Microsoft during this rally, and it’s already up 9% this year.

The guidance will be out during the earnings call starting at 5:30 and will update after the call.

Categories
Stocks

Palantir and TSMC: Strong Long-Term Investment Opportunities in Data Analytics and Semiconductor Industry

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*Palantir: (PLTR) Buy, $16.50  One year target $20.* 

*Invest 5 Years, 18-20% annual return.*

EPS Growth P/E PEG Sales Sales Growth P/S PS/G

0.30 29% 55 1.9 2.2 24% 16 67%

Palantir is a solid performer in the Data Analytics and AI space.

Their government business segment is a massive cash cow and a moat, because of long duration and sticky contracts and switching costs. 

The commercial segment is growing much faster at 50%, and will be its growth engine, with the help of its Artificial Intelligence Platform (AIP), which  tripled the number of users in the past quarter, with over 300 organizations using the new product in the last 5 months.

The stock is expensive especially after doubling last year but can be bought in installments and declines. I own some with an average cost of $15.

CPI Report: Inflation was slightly higher than expected.

Taiwan Semiconductor  Manufacturing(TSM) Buy, $100  One year target $120. 

Invest 5 Years, 15 % annual return. P/E 20, 3-5 year EPS growth 18-20%.

The Semiconductor foundry (manufacturing) leader by far with about 50% market share has large and deep moats in new processes, scale and costs. The semiconductor industry would collapse without it – it would take years for Global Foundries, Intel, Samsung, et al to even come close to catching up. Consider that TSM is spending up to $40Bn to set up a new foundry in Arizona,  and it’s having trouble finding enough qualified people for its plant. 

Revenue growth of 12-14% and earnings growth of 18-20% for the next three years augur well for the company. Normally TSM would be priced at over 40X earnings and closer to 10x sales, about twice the current price. Unfortunately, it being located in Taiwan and with China’s open design on it – multiples will always stay lower because of these geopolitical tensions. Still, the stock has rewarded investors well in the past with steady appreciation in the mid teens. It’s a must have for the portfolio specially for long term steady growth.

Palantir: (PLTR) Buy, $16.50  One year target $280. 

Invest 5 Years, 16-20% annual return. P/E 34, 3-5 year EPS growth 14-16%.

CPI Report: Inflation was slightly higher than expected.

December Consumer Price Index: +0.3% M/M vs. +0.2% expected and +0.1% prior.

+3.4% Year on Year  vs. 3.2% expected and +3.1% prior month

Core CPI, which excludes food and energy: +0.3% M/M vs. +0.2% expected and +0.3% prior. +3.9% Year on Year vs. 3.8% expected and +4.0% prior.

Stock Futures are flat as is the 10 year Treasury yield at 4.02%