Cash-Rich Cisco Stock: Perpetually Misvalued

There are two types of non-beginner mistakes that I try to warn against. The first is that people shouldn’t generate a cash-generating asset simply because it has experienced a change in the business cycle that demanded a dividend cut, particularly if the business deals in commodities (see Conoco’s fall to $31 shortly after its dividend cut compared to the current price of $43 for an example). The other mistake involves ignoring companies with truly superior balance sheets–the Berkshire Hathaways, Googles, Microsofts, Johnson & Johnsons, and Ciscos of the investment world that are much stronger and have the capacity to quickly increase their earnings power in ways that a cursory P/E analysis do not make apparent.

If I had to create a buy-and-hold tech portfolio, the leading candidates would be Google/Alphabet, Amazon, Microsoft, and Cisco. I disqualify Amazon from consideration in almost all of my writing because there is no connection … Read the rest of this article!

Synchrony Financial: The Search for 20% Annual Returns

Sometimes, it is helpful to start an analysis with the converse inquiry: “What stock am I familiar with today, don’t own, but think has a fair chance of being one of those omitted regrets ten to fifteen years from now?”

When framed like that, I come back regularly Synchrony Financial (SYF), the spun-off consumer lending arm of General Electric back in 2014 that is 2.6% owned by Berkshire Hathaway.

It did not really gain much attention in the investor’s eye during its inception because spun-off companies take a year or two for their standalone operational results to become clear, and, prior to 2016, Synchrony did not pay out a dividend. Even then, the initial dividend payout was de minimis, well below 1%.

But, of course, those are information asymmetry and evolving capital allocation issues. Those do not address the merits of whether Synchrony is a great investment.

As you may Read the rest of this article!