Insiders Just Bought A 15% Yield At Below Book Value: USA Compression Partners LP

Looking for a dependable high-yield vehicle? The management at USA Compression Partners LP (USAC) have maintained the company’s $.52 quarterly through previous boom and bust cycles:

(Source: USAC site)

If you’ve ever researched how natural gas gets pulled out of the ground, you’ve already discovered that compression is an increasingly important part of the operation. Compression also is a vital element in shale fracking production, which requires more compression than traditional techniques.

Although you wouldn’t know it from its current low price, which is near its 52-week low, USAC is in a good place now – demand for its large horsepower units is robust, and the major acquisition it made of the assets of CDM in early 2018 put it into a dominant position in its industry.

Management referenced this on the recent Q3 ’18 earnings call:

“The overall market for compression services remains very strong, driven by solid natural gas fundamentals and the continually midstream infrastructure buildup, which does not just combine to one region, but rather it’s taking place across the country in areas which we operate. We continue to take advantage of the strong market to push through rate increases while prudently investing capital in the business. Our utilization metrics demonstrate the current strength of the market and we expect continued strength throughout 2019, based on the current visibility for compression services demand.”

Natural gas has multiple drivers – increasing utilization as a replacement for coal at power plants, LNG exports, exports to Mexico, and demand as a feedstock for petrochemical companies, which continue to ramp up their presence in the US, in order to take advantage of larger natural gas supplies:

(Source: USAC site)

Many have posed the age-old question, “Does size matter?” with advocates on both sides of the argument.

However, when it comes to the scintillating world of compression, size does matter, and here’s where USAC has a distinct advantage over its competitors. The trend is toward outsourcing, particularly for large equipment, which tends to be “sticky” – it’s expensive for a customer to demobilize this type of equipment, ($60K – $200K plus), which promotes longer contracts and increasing prices for USAC.

“The market for large horsepower equipment has remained very tight as we’ve experienced throughout the entire year. Demand continues to be especially strong for the very largest horsepower categories in which USA Compression specializes.”

“Compression – the way forward continuing to outsource actually is trending to accelerate. So, I think you’re actually in a very unique time right now that you’ve got limitations on access to capital, you’ve got limitations on access to people and you have limitations on access to new equipment. So, all of those three things together can provide for a perfect storm which we think plays well to our strength of large horsepower infrastructure equipment and will allow us to re-price our book upward over time.”

“We’re in the equivalent of a seller’s market right now where there is a lot of demand and not a lot of supply.” (Source: Q3 call)

(Source: USAC site)

Looking forward, USAC should be able to capitalize on a better pricing environment: “When we look at the spot pricing on the new units we’re deploying, 120,000 some odd horsepower for next year, these are extremely attractive new unit economics, effectively five-year or less cash on cash type of payouts, low 20s, IRR on an levered type of basis.” (Source: Q3 ’18 call)

Distributions:

USAC’s next distribution should have an ex-dividend date sometime in early February. It pays in the usual Feb/May/Aug/Nov LP cycle for LPs, and issues a K-1 at tax time. At a $13.50 price/unit, USAC yields 15.56%, with trailing coverage of 1.02X.

DCF coverage was just 1.01X in Q3 ’18. However, moving forward, management sees additional cost savings synergies from the CDM deal kicking in for 2019, as it finalizes the transition. The entire 900 employees of the company are now using the same customer, contract and asset data systems. This should improve coverage going forward, in addition to forward price increases.

No More IDR’s:

USAC closed on the CDM deal on 4/2/18. CDM was the compression services arm of Energy Transfer Partners LP, and Energy Transfer Equities, which merged into Energy Transfer LP (ET). CMD was valued at ~ $1.8B.

This deal included the following:1. The contribution of ETP’s subsidiaries, CDM Resource Management LLC and CDM Environmental & Technical Services LLC, to USAC.2. The cancellation of the incentive distribution rights in USAC.3. The conversion of the general partner interest in USAC into a non-economic general partner interest. As part of the transaction, ETE acquired the ownership interests in the general partner of USAC, and approximately 12.5 million USAC common units from USA Compression Holdings.

(Source: USAC site)

Earnings:

This table illustrates the impact that the CDM deal has had on USAC’s operations. It was transformative, ramping up revenue and EBITDA by well over 100% and DCF by over 54% in Q3 ’18, while Q2 ’18 saw even larger increases.

USAC had a larger than normal number of legacy CDM field technicians after the CDM deal closed, and also used outside parties to perform routine maintenance on some compression units, which was much more expensive than using internal personnel. It took a while to find the right caliber of technicians, due to a strong marketplace environment, but they’ve fixed the situation, and upgraded their staff talent level.

USAC’s coverage has improved dramatically over the past four quarters, rising from a sub-par .87x (when the GP was relinquishing IDR rights to support the payouts, up to 1.09X in Q2 ’18, and averaging 1.02x over the past four quarters).

Looking forward to 2019, if we use an average of the post-CDM deal Q2 and Q3 2018 DCF figures of $47.5M and $51.4M, respectively, that gives us an average DCF of ~$49.45M/quarter.

We compared and extrapolated that $49.45M DCF average to the Q3 ’18 total cash distributions of $47.02M, which were higher than the Q2 ’18 total of $43.5M.

If USAC’s DCF and total distributions stay flat, we should see 1.05X coverage in 2019. This is without the benefit any cost savings, or additional revenues from price hikes.

Fleet Utilization:

Fleet horsepower was over 3.6M, as of 9/30/18, an increase of more than 53,000 horsepower vs. Q2 ’18. Active horsepower increased 61,000 to over 3.2M, up ~2% over Q2 2018.

Another positive is that management has been able to redeploy ~353,000 horsepower of idle horsepower from the combined fleets at nominal additional capex costs. (CDM’s fleet had a lower utilization rate.) Most of its idle equipment is in the small horsepower category – long before the CDM deal, management had been shifting USAC’s emphasis toward large horsepower equipment.

USAC has had a very stable fleet utilization rate of ~93% for more than a decade:

(Source: USAC site)

Guidance vs. Performance:

Management narrowed its full-year 2018 adjusted EBITDA guidance range to $310 – $320M, and its 2018 DCF guidance range to $170m – $180M.

We pro-rated this 2018 guidance to three quarters to get an idea of USAC’s actual Q1 ‘3 ’18 results compare to the guidance. So far, EBITDA looks roughly in line with the low end of 2018 guidance, while DCF is ~4% above it.

Risks:

Natural Gas downturn – If there’s another protracted downturn in the energy patch, this could lead to a cutback in rigs, and potential demand for compression services, even the large units, which are in tight demand now.

Unlike crude oil, which has had a rough go of it in 2018, natural gas futures are up 34% over the past month, and 46% year to date in 2018. However, producers need compression to get their product out of the ground, which gives USAC a cushion in energy cycles, as its fleet utilization has had a strong, long term record of 93% utilization.

IRA Holders – Holding an LP in an IRA may result in tax complications for IRA holders due to UBTI. You’ll also get more tax deferral advantages from investing in USAC in a taxable account. You should consult your accountant about these aspects of investing in LPs.

Valuations:

At $13.50, USAC is less than 5% above its 52-week lows – its price hasn’t been this low since April 2016. It’s also selling at .85x of book value, and its price/DCF is one of the lower valuations we’ve seen recently.

Analyst’s Price Targets:

That $13.50 price puts it nearly 26% below analysts’ lowest price target of $17.00, almost 44% below the $19.43 average price target.

Insiders Are Buying:

Management just upped its skin in the game last week – they bought 45,000 units at a price range of $13.40 to $13.90.

(Source: finviz)

Financials:

Due to negative net income, which includes heavy non-cash depreciation and amortization charges, USAC has negative ROA and ROE valuations.

The interest coverage factor of just .69X looks poor, when compared to the 1.45X average, but, again that includes a great deal of non-cash depreciation and amortization charges.

USAC’s EBITDA/Interest coverage factor for Q1-3 ’18 was 4.49X.

Debt and Liquidity:

“As of September 30, 2018, the Partnership had outstanding borrowings under the revolving credit facility of $1 billion, $578.2 million of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $309.7 million. As of September 30, 2018, the outstanding aggregate principal amount of the Partnership’s 6.875% senior notes was $725 million.”

(Source: USAC site)

USAC’s Credit Agreement has an aggregate commitment of $1.6B, with a further potential increase of $400M, and has a maturity date of April 2, 2023.

Its 6.875% senior notes Senior Notes mature on April 1, 2026.

Options:

We have options picks for USAC in our Double Dividend Stocks service, which we can’t divulge here, but you can see trade details for over 25 other option-selling trades in our Covered Calls Table and Cash Secured Puts Table.

Summary:

We rate USAC a long-term buy. Demand for its natural gas compression services isn’t going away any time soon, just the opposite. USAC has a strong position in its niche industry, and is well-positioned to benefit from increasing demand for large-scale horsepower compression.

All tables furnished by DoubleDividendStocks.com, unless otherwise noted.

Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

CLARIFICATION: We have two investing services. Our legacy service, DoubleDividendStocks.com, has focused on selling options on dividend stocks since 2009.

Disclosure: I am/we are long USAC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

7 Awesome Cyber Monday 2018 Deals for Millennials and Young Adults

It’s predicted that $23B will be spent online between Thanksgiving Day and Cyber Monday. In fact, Cyber Monday is slated to set a record as the biggest online shopping day of the entire year, up almost 18% from 2017.

Here are 7 excellent Cyber Monday deals (some of which are available from Black Friday all the way through the weekend):

1. A MacBook Air for under $350

Need a new laptop? Walmart is selling a refurbished Apple MacBook Air (11.6-inch) for $319.99.

Apple itself is also doing a Black Friday through Cyber Monday sale. If you buy a MacBook Air for $999, you get a $200 Apple Store Gift Card.

2. Lucky Brand jeans

Wanna get Lucky? Cyber Monday will see 50%-60% off deals, with free shipping on purchases $50 or more. Last year, you could even stack this with another 25% off coupon code for even more savings.

3. A new snowboard

Been thinking of investing in a big-ticket sports item this season? Dick’s Sporting Goods is doing 25% off site-wide for Cyber Monday. Free shipping (or buy online and pick up in store).

4. Cruelty-free makeup and bath products

If you’re into high-quality, ethical makeup and bath products (or shopping for someone who is), this is a very good deal: for Cyber Monday, The Body Shop is expected to offer 50% off its entire line of skincare and body products, with free shipping. This is arguably their best sale of the year.

5. 60-minute massages for $27 or less

Groupon is offering up to 91 percent off everything from physical items to services like massages. In the LA area, for example, you can get a 60-minute massage at Sparadise with aromatherapy and reflexology for $49 (down from $115); or a couples massage with foot reflexology for $49 (down from $100).

6. A $3,100 vacation for $499

If you’ve ever wanted to do a classy, resort-style winter getaway, this is the time to go: Bluegreen Vacations is running a Cyber Monday deal that’s 80 percent off. They’re offering customizable, 7-night resort packages for $499. Pick from 20 properties around the country, including places like the beautiful Wilderness Club in the Ozark Mountains of Missouri (picture snowshoeing followed by a mug of cocoa by the fire).

7. Swarovski earrings for $7

Need a great gift for a lovely lady? These stud earrings with Swarovski elements retail for $79, but you can get them for $6.99 right now.

8. BONUS TIP: Wait until Tuesday to buy airfare

Air travel company Hopper has analyzed flight pricing data over time and says the best airfare sales are on the Tuesday after Thanksgiving (not Cyber Monday).

According to the company’s chief data scientist Patrick Surry, “Last year, we sent more deal notifications on Travel Deal Tuesday than Black Friday and Cyber Monday combined. In 2016, we saw fare sale activity spike by 2X the normal volume.”

A few of their predictions for this Tuesday’s flight deals:

  • Honolulu: 27% off
  • New York: 26% off
  • Rio de Janeiro: 32% off (it’s worth remembering that it’s summer in Rio right now)
  • Aruba: 32% off
  • London: 40% off

Happy hunting.

George Orwell's Advice on How to Tweet Effectively

George Orwell has been in the news lately, not because he authored the classic dystopian novel 1984 but because he wrote a famous set of rules for clear writing which, if followed, might resemble Trump’s tweets.

I say “famous” with some reservations since I had never heard of them before (or forgot about them if I had). Anyway, since I’m always looking for pointers on good writing, I decided to check them out.

What I discovered is that, whatever his original intentions for these rules, they’re a concise and valuable summary of how to write great tweets or, more generally, the short slices of writing that work well when you’re communicating online. Here they are:

1. “Never use a metaphor, simile, or other figure of speech that you are used to seeing in print.”

Most journalists write on deadline and write articles that must be of a pre-defined length. Since most journalists don’t have much to say, they tend to add a lot padding in order to hit their target article length.

That’s why you see figures of speech in mainstream journalism like “In this day and age,” “ballpark figure,” “when all is said and done,” “make no mistake,” etc. These sort of clichés are boring and add bulk to your writing without adding meaning. They waste space even as they fade into the background.

Brevity, however, is the soul of tweet.  When you’re tweeting, texting, commenting, or doing anything online other than writing articles or long emails, you want everything to be crisp and vivid as possible. Online readers won’t wade through fluff; they’ll just move on.

2. “Never use a long word where a short one will do.

Twitter famously has an artificial limitation of 140 (and now 280) characters. While it’s easy to do multiple 1,2,3… tweets, the more wordy you get, the less likely readers are to keep reading. 

An easy way to shorten the character count of a tweet is to substitute short words for long words that have the same meaning. Examples: “use” rather than “utilize,” “absurd” rather than “ludicrous,” etc.

However, when you apply this rule, the long and short words in question must have identical meanings. When words have different implications, a long word might pack more punch than a short one and thus be worth the extra length.

For example, while “spectacular” and “showy” have almost identical meanings, the sentence “she wore a spectacular dress” has a different flavor and emotional connotation than “she wore a showy dress.” 

3. “If it is possible to cut a word out, always cut it out.”

Extra words add bulk without adding meaning. And since bulk is the enemy of good in the twitter-sphere, removing words or restructuring sentences to eliminate words are both good habits to cultivate. Examples:

BAD: “The reason people believe in him is that they’re gullible.”

BETTER: “People are gullible and hence believe him.”

BAD: “This application was designed to enable users to reduce cycle time.”

BETTER: “This application reduces cycle time.”

4. “Never use the passive where you can use the active.”

There are two reasons why the active voice works better for online communications than the passive voice:

  1. The active voice (e.g. “he hit me”) is more vivid than the passive voice (e.g. “I was hit by him.”).
  2. The active voice requires fewer words, thereby making your writing tighter. 

I might note that this advice to use the active and eschew the passive is less important in longer form writing because the passive can be quite effectively used to throw emphasis on what’s important in the next sentence.

The sentence above (“I might note”…) makes this point. Converting it to the active voice…

“Because if you want to throw emphasis on an idea that’s going to appear in the next sentence you can use the passive to stick the word you want to emphasize at the end of the sentence.” 

…is pretty awkward. 

5. “Never use a foreign phrase, a scientific word or a jargon word if you can think of an everyday English equivalent.”

Foreignisms, techie-talk and jargon are how insiders communicate among their own. They must therefore be avoided whenever your intent is to transfer ideas to those outside your in-crowd. I might add that acronyms have the same limitation.

Obviously, some tweets (like the Instagrams my kids share with their friends) are intended to be understood only by a limited audience (not including parents) and are thus intentionally use jargon. That’s fine, as long as you know what you’re doing. LOL

6. “Break any of these rules sooner than say anything barbarous.”

Expletives, slurs, obscenity, and profanity, as communications tools, can be both vivid and crisp. As such, “barbarous” communication can easily fall within the restrictions of the five rules provided above.

However, using such language can come back to bite you, big time, especially since nothing ever really disappears on the Web. 

BTW, Orwell included this rule because he observed that politicians use neologisms and misdirection to tart up dumb ideas, make banal observations seem profound, and hide bad intentions behind high-minded rhetoric.

He believed that following the five previous rules would make those communication strategies impossible. Trump is an excellent example of this. He’s never attempted to use eloquence to hide dumb ideas, banal observations, or bad intentions.

The problem–from the Orwellian perspective–is that Trump says “barbarous” things that actually reflect how he thinks and what he believes. That’s good, in a way, because nobody is being bamboozled by fancy verbiage.

A Driver Returned to His Car to Find a Note and An Incredible Lesson on Doing the Right Thing. The Note Was From a 6th Grader

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek. 

A grasp of ethics is becoming slightly more popular in business these days.

Well, we can thank the Valley’s abject disregard for ethics, one that’s finally caught up with many of its companies. Why, even Stanford has begun to discover the concept.

Still, when you run a business you don’t always — often? ever? — expect people to do the right thing.

Which is, perhaps, why the story of Andrew Sipowicz and his car has moved so many this week.

He returned to his car last Monday, parked in Buffalo, New York, to experience a sinking feeling. 

He also experienced something he never expected.

His car, you see, had endured a substantial dent in its front left side. It seemed as if there had been a hit and a run. 

Yet perched inside his windshield wiper was a note. A very detailed note, as it happened, from a 6th grader.

The spelling wasn’t perfect. The sentiment certainly was.

It read: 

If your wondering what happen to your car.

Bus: 449 hit your car It stops here everyday to drop me off.

At 5:00pm.

What happened? She was trying to pull off and hit the car. She hit and run. She tried to vear over and squeeze threw but couldn’t. She actually squeezed threw. She made a dent and I saw what happened.

-Sorry

-Driver seat left door

-A lady in the bus driver seat 499.

-Buffalo Public School bus

-A 6th grader at Houghten Academy

It sets a good example for a lot of students. Not just students, but just people in general.

What resulted is that the bus company is covering the cost of repairs and giving Sipowicz a loaner car. The bus driver, reports CNN, will be fired.

We get wrapped up in the bad deeds of companies because they appear to have such large consequences.

At heart, though, the bad deeds of companies are merely the bad deeds of individuals, written in capital letters and involving large amounts of capital.

Yet simple stories of goodwill also spread around the web, as this one has. 

It’s almost as if people want to be reassured that, in the midst of a world that seems to bathe delightedly in corruption, there still are good people. 

That story led to unexpected consequences and national attention. 

These days, we watch as so many who could say something, end up saying nothing.

We’re told that kids don’t bother with anything but themselves, buried as they are in their phones. 

Here, though, is a simple lesson of a 6th-grader who stopped, looked around and did the right thing. A generous thing.

Perhaps we should all do that a little more often.

Switching Jobs? Your 401(k) Balance Could Be Automatically Transferred Under a New Federal Rule

Workers changing jobs could have their retirement savings automatically transferred to plans at their new jobs under a proposed federal rule.

The U.S. Department of Labor is considering allowing Retirement Clearinghouse LLC to run a program that automatically transfers small 401(k) balances into individual retirement accounts when employees leave a job. Then, when they start a new job, RCH would automatically transfer the savings into the new employer’s 401(k) plan.

Why This Matters

This would help solve what Retirement Clearinghouse calls a “cash-out crisis.” Many people cash out their 401(k) savings when they change jobs rather than going through the process of transferring them to a new job. This hurts their long-term savings, the company said in a statement. Spencer Williams, CEO of Retirement Clearinghouse, did not immediately return a call seeking comment.

How the Program Works

The RCH Auto Portability Program rolls over balances of less than $5,000 from the old 401(k) plans into an IRA (here’s a cheat sheet on the difference between the two). The company sends a letter to departing employees tell them their 401(k) will be placed into an IRA unless they respond.

The company uses technology called “locate, match and transfer” to detect when the IRA owner starts a new job. It then moves the money from the IRA into the new job’s retirement plan. Employers and plan providers can sign up for the program.

Dennis R. Nolte, a certified financial planner and vice president of Seacoast Investment Services, said most planners would be happy to be rid of the headache of dealing with small leftover account balances. More programs like this could help make sure retirement savings stay invested in a plan, he said.

Are There Downsides?

Jon L. Ten Haagen, certified financial planner and founder of Ten Haagen Financial Group, said he wouldn’t want a company deciding on its own what to do with his retirement savings. Moving your money into a new company’s 401(k) isn’t always the best choice, he said, because it “may or may not be a piece of garbage.” The company managing the IRA in between jobs may also not make the right investment choices for you, he said.

Companies should educate departing workers about their best options for their retirement savings instead.

“There are many questions to be answered,” Ten Haagen said.

What’s Next?

The Department of Labor is taking comments on whether to allow RCH to take a fee when it transfers money to a new employer’s account without the IRA holders explicit permission. The comment period lasts until December 24.

Starting a new job? Aside from dealing with your old retirement plan, don’t forget these money tasks.

This article originally appeared on Policygenius and was syndicated by MediaFeed.org.

How Blockchain Technologies Can Enhance Cross-Industry Transparency

Now, blockchain technologies are poised to enhance cross-industry transparency via improvements to charity and donation programs.

I spoke with Changpeng Zhao, CEO of the cryptocurrency exchange company Binance, which runs the Blockchain Charity Foundation (BCF)–a wing of the company that’s devoted to global sustainable development. He shared how blockchain technologies can enhance transparency within a huge range of industries by making donation and charity systems easier to track and understand.

The Trouble with Current Donation Systems

There are so many disparate industries these days that it can be challenging to find any commonalities beyond death and taxes. But here’s one thing most industries have in common: At least some people and organizations within said industries are likely to participate in charity or donation programs.

That’s good news for society, but there’s just one problem: Donation systems notoriously lack transparency, which can lead to corruption and wear down the public’s trust–thereby decreasing the odds that people and organizations will continue to donate to worthy causes.

After piloting disaster relief donations via a campaign for West Japan flood donation, Zhao is intimately familiar with the lack of transparency that pervades so many charity programs.

“It was quite hard to push money to the ultimate beneficiaries–to identify who they are and who needs help,” Zhao says. Because the process of collecting and distributing donations is generally an opaque one, Zhao says not many people can understand where the money goes unless they’re provided with a detailed written report.

“Everyone sees one layer of transaction,” Zhao says. “The people who donated to us trust us to make good use of the money, but they no longer know where the money went until we publish that report.”

Zhao is concerned this can limit people’s willingness to donate. “In addition to being worried that the money may or may not be put to good use, the lack of transparency also reduces the sense of personal achievement,” he says. “If you can see where the money is going, that will help a lot in terms of personal feelings of achievement–so that’s very important.”

All of this helps explain why the BCF is committed to developing a fully transparent charity platform.

Making Charity Programs More Transparent

Zhao and his BCF maintain that employing blockchain technology within the charity ecosystem will yield a more efficient and transparent system and enhance the odds that donations will be distributed to those most in need.

“When it comes to the BCF program, our aim is to focus on transparency through this tracking portal,” Zhao says. “We want a completely transparent system.”

“Looking at the UN Sustainable Development Goals, the first few in the list could all be easily enhanced with a more transparent charity program,” Zhao says. “This increased transparency will prompt people to donate more and that will help a number of the initiatives including poverty, health, quality of education, gender equality and more.”

Rather than advocating for a specific charity, the BCF aims to help all charity initiatives via its blockchain charity platform.

Making Donation Systems More Transparent

In order to establish a fully transparent charity system, it’s necessary to track donations through multiple layers of donors, charity programs, NPOs, local supporters, and the ultimate beneficiaries.

That’s a tall order, but Zhao says Binance’s blockchain donation portal is capable of achieving it.

“As long as all of the transactions stay on-chain (done via cryptocurrency), blockchain tracks everything automatically,” Zhao says. “The job of the BCF portal is to collect the information on the blockchain and present it in an easy to understand manner. You can see the number of transactions of the incoming donations and the number of outgoing transactions for beneficiaries. And in between these two, there could be multiple layers for NPOs, local partners… etc., so we can track all of those in an easy to visualize way.”

The emphasis here is on easy to understand. Revealing oodles of data in and of itself doesn’t enhance transparency; it’s making that data accessible and understandable by all parties involved that provides greater clarity within donation systems.

The Importance of Education

In order to onboard more charitable organizations, governments, corporations, and grassroots communities, Zhao says the BCF first has to educate people about the value of the blockchain and cryptocurrencies.

The foundation is approaching this effort in several ways. For starters, the BCF is beginning to partner with universities and governments to educate teens and university students about cryptocurrency, blockchain, and so on.

“We also try to push very hard for the ultimate beneficiaries to accept cryptocurrency, so that will be a good way [for] people to learn,” Zhao says. “If users receive donations via crypto and these users need to learn about cryptocurrency or require help installing a wallet to receive the donation, there is a high incentive to learn that.”

Zhao is also hopeful that an increasing number of people and organizations from far-ranging industries will get on board with the blockchain in pursuit of a transparent charity platform.

“There [are] a lot more people that understand blockchain… [compared to a] few years ago, so today it is easier to push,” Zhao says. “I think the most significant challenge in expand[ing] BCF’s impact is really just educating people on blockchain. The more people who understand blockchain, the easier it is for BCF to push our impact.”

Who Should Sit on Facebook’s Supreme Court? Here Are 5 Top Candidates

Facebook CEO Mark Zuckerberg said this week the company will create an oversight board to help with content moderation. The move is a belated acknowledgement Zuckerberg is out of its depth when it comes to ethics and policy, and comes six months after he first floated the idea of “a Supreme Court … made up of independent folks who don’t work for Facebook.”

The idea is a good one. If carried out properly, a “Supreme Court” could help Facebook begin fixing the toxic stew of propaganda, racism, and hate that is poisoning so much of our political and cultural discourse.

But how would a Facebook Supreme Court actually work? Zuckerberg has offered few details beyond saying it will function something like an appeals court, and may publish some of its decisions. Meanwhile, legal scholars in the New York Times have suggested it must be be open, independent and representative of society.

As for who should sit on it, it’s easy to imagine a few essential attributes for the job: The right person should be tech savvy, familiar with law and policy, and sensitive to diversity. Based on those attributes, here are five people that Facebook should select if it is serious about creating an independent Supreme Court.

Zeynep Tufekci

(Julia Reinhart/ Getty Images)

(Julia Reinhart/ Getty Images)

A Turkish sociologist and computer programmer, Tufekci was one of the first to raise the alarm about the moral and political dangers of social media platforms. She is a public intellectual of the internet age, using forums like the New York Times and Harvard’s Berkman Center to denounce Silicon Valley’s failure to be accountable for the discord it’s fostered. Tufecki has also taken aim at Facebook’s repeated use of “the community“—a term that is meaningless to describe 2 billion users—to defend its policies.

Peter Thiel

(Photo by Stephanie Keith/Getty)

(Photo by Stephanie Keith/Getty)

An iconoclast who has built several public companies, Thiel is also a lawyer who started the venture capital firm Founders Fund. A gay conservative and a supporter of Donald Trump, Thiel is deeply unpopular with Silicon Valley’s liberal elites—which is why his appointment would ensure ideological diversity on Facebook’s Supreme Court. Thiel is an early investor in Facebook and a longtime board member, which gives him a deep knowledge of the company. He would have to give up these positions to preserve the body’s independence.

Judge Lucy Koh

Koh has presided over numerous high-profile technology trials and is highly regarded in Silicon Valley. Her work as a federal judge includes the long-running patent trial between Apple and Samsung, as well as a case involving an antitrust conspiracy between Google, Adobe, and other firms. Her work on the bench and inspiring personal biography made her the subject of a flattering 2015 Bloomberg profile. Koh’s familiarity with the political and legal strategies of tech giants would provide invaluable expertise for Facebook’s Supreme Court (provided federal ethics rules permitted her to do so).

Tim Berners Lee

(Nicolas Liponne via Getty)

(Nicolas Liponne via Getty)

Sir Berners Lee is a computer science professor at Oxford University and MIT, who is best known as the inventor of the World Wide Web. Highly regarded in tech circles for his humility and vast knowledge, Berners Lee in recent years has become a vocal critic of the advertiser-based business models of the Silicon Valley tech giants. Appointing him to Facebook’s Supreme Court would show the company is serious about fixing its systemic problems with privacy.

Bozoma Saint John

(Wesley Hitt/Getty Images)

(Wesley Hitt/Getty Images)

Saint John, who was raised in Ghana, became a familiar name in tech circles when she became Apple’s head of music marketing after the company acquired her former employer Beats. She also worked at Uber before moving to the talent agency Endeavour. Saint John’s outspoken views on Silicon Valley’s white male culture would help inform Facebook’s Supreme Court in tackling hard issues of diversity.

Recent Purchase: Apple

It wasn’t long ago that I wrote a focus ticker article on Apple (AAPL) that raised concerns that I had about its weighting in my portfolio and the potential for me to trim shares. Ultimately, I didn’t follow through (though it’s too bad because in hindsight, I would have timed that trade up pretty well). However, I decided that there wasn’t another company in the market that I would rather own (which is why AAPL is by far my largest holding in the first place), so selling any shares would just result in a downgrade of quality. More recently, I penned a piece highlighting the potential for AAPL’s share price to rise above the $300/share mark in the next 12-18 months, in response to an analyst’s call. Obviously with that sort of short-term price target, I remain really bullish on shares. So, with that in mind, I put my asset allocation concerns and added to my AAPL position today as shares dipped more than 20% below their recent 52-week highs, buying shares at $186.50.

The reason that my AAPL position has grown so large is because I’ve bought shares on just about every dip that the company has experienced since I began my investing career. I’ve said it time and again, AAPL shares are the easiest stock in the market for me to buy and own. These shares check all of the boxes that I’m looking for from both a fundamental perspective and a shareholder rewards one as well. AAPL is the core building block on my long-term dividend growth portfolio. Even after recent weakness, I see no reason to change that sentiment.

Speaking of dividend growth, that seems like the best place to start here. AAPL is not included in many DGI portfolios because it doesn’t have a very long annual dividend increase streak. The company didn’t begin paying its dividend until 2012; however, since then Apple management has rewarded shareholders with annual increases each and every year. Since initiating its dividend AAPL’s dividend growth CAGR is ~10%. Being that AAPL’s dividend payout ratio remains low at ~24% and the company is expected to continue to post double digit EPS growth into the foreseeable future, I expect for these double digit annual increases to continue. Simply put, if I had to pick one company to give me double digit dividend growth over the next decade or two, the pick would be AAPL.

Assuming that the current ~10% annual increase rate is maintained over the long-term, the passive income that AAPL generates for me will double every 7 years or so. I know that some investors look at AAPL’s low, ~1.5% yield and like to place negative focus on that. However, I think it’s important to point out that the reason AAPL’s yield is currently so low is because of the stock’s recent price appreciation. This is a great problem to have.

Furthermore, as a long-term investor, I think it’s probably more important to focus on the compounding potential of Apple’s dividend rather than its yield in the short-term. I’ve only been a shareholder of AAPL for 6 year or so, yet my yield on cost has already risen significantly. After my recent AAPL purchase, the cost basis of my overall position has risen to $106.79, meaning that my yield on cost is ~2.75%. At the current 10% annual increase rate, it won’t be long before that percentage rises significantly higher. This is the beauty of owning an equity that posts double digit dividend growth.

But, as amazing as AAPL’s dividend growth potential is, it’s honestly dwarfed by the power of the other half of the shareholder return proposition: buybacks. For years, AAPL has been known for its enormous cash hoard. With so much of its cash locked up overseas due to unfavorable tax rates, AAPL’s wealth grew and grew to levels that the majority of countries on earth were envious of. And now that the tax rates have changed, AAPL management has mentioned that it would like to go cash neutral on the balance sheet, meaning that there are hundreds of billions of dollars that the company is looking to spend.

AAPL will undoubtedly continue to investing billions into R&D. There is potential for large scale M&A as well, though historically, AAPL management has been hesitant to go with route, favoring organic innovation for growth. AAPL used some of its repatriated cash hoard to give investors a slightly largest dividend increase than normal in May, but it appears that the vast majority of those funds will be dedicated towards AAPL’s share buyback. Management authorized $100b+ for share buybacks earlier in the year and we’re beginning to see he power of this repurchase with management spending ~$73b on share repurchases during the trailing twelve months.

I know that many investors wish that these billions were paid out in dividends, but looking out longer term, we really begin to see the power of AAPL’s share buyback. Since 2013, AAPL has reduced its outstanding share count by 22.7%. This plays a large role in the company’s strong EPS growth, which in hand, lowers the payout ratio and makes long-term dividend growth more sustainable.

Here’s how I look at it. Since 2013, AAPL has retired ~1.4b shares. Right now, AAPL’s quarterly dividend payment is $0.73/share. This means that AAPL’s buyback program is saving the company $1b+ per quarter in dividend related expenses. This cost savings figure will only continue to grow as more and more shares are retired and the quarterly dividend in continued to be increased.

I think that AAPL management can realistically retire 5-8% of the company’s outstanding share count over the next year or so. A lot of the recent pullback has been centered around fears of a sales slowdown. Well, even if that were to the case and AAPL only posted moderate revenue growth and margins stayed flat (which is unlikely due to the fact that ASP’s and high margin service revenues are rising) AAPL will post strong bottom line gains because of the reduced share count. Supply and demand is on my side as a long-term shareholder with AAPL reducing its float.

What’s more, Warren Buffett and Berkshire Hathaway (NYSE:BRK.A)(BRK.B) continue to increase their position and I can only assume that they’re planning on AAPL being a long-term stake for them. Between the buyback and Berkshire, I suspect that a large percentage of AAPL’s shares are going to be removed from the market which should help to put a floor under the stock in the short-term.

But even if Buffett wasn’t bullish on the name, I would still consider the recent sell-off to be irrational. I understand that the market doesn’t like question markets. Apple removing the hardware unit data from its future reports is probably a concern to certain analysts who try to make short-term projections, but to me, it doesn’t matter much. Actually, I agree with Apple CEO, Tim Cook, and his belief that the company is valued too low because of the market’s focus on hardware and if removing the unit sales data shifts that focus to the fundamentals (like rising sales, margins, earnings, etc) then I think it will be a great thing for the stock.

I know that some analysts and investors alike see the data reporting change as a dubious means to hide demand issues, but I simply don’t see it. Apple remains the leading brand globally in the smart phone space. Apple’s brand is aspirational and synonymous with success across the world. If I had an Apple share for every time that I’ve heard someone talk about the death of the smart phone/iPhone, then I’d be a millionaire many times over. Sure, peak smart phone may be on the horizon. Maybe hardware refresh cycles will continue to grow longer as it becomes harder for companies like Apple to make meaningful innovations in the hardware space. Either way, the service revenue streams will likely continue to grow alongside the global active user base.

Shares are irrationally cheap at this point even if the company’s sales are flat (or slightly negative). Sure, if iPhone sales fall off of a cliff, then an AAPL sell-off is justified, but I see no catalyst for this to happen. My point is this: Apple doesn’t need to continue to post double digit iPhone growth to be a great investment.

Why? Because the company’s share are cheap, valued at ~14x 2019 EPS expectations. This means that the most profitable company on earth is valued with a premium below the broader market’s. With this in mind, i’s no wonder that Apple is willing to spend so much money on a buyback.

Source: F.A.S.T. Graphs

Any shift in sentiment should result in multiple expansion. I think a 17x multiple is fair for a company with Apple’s fundamentals. If this were to happen, we’d be looking at gains of nearly 20% from here based upon 2019 EPS expectations. And, as previously discussed, I think those EPS estimates are low and will end up being well above the current $13.50 average. I think it’s feasible for AAPL to earn $15 or so in 2019, meaning that shares could easily rise to a $250/share price or more in the next 12 months or so and still be priced fairly.

Source: F.A.S.T. Graphs

As you can see on the F.A.S.T. Graph above, even if shares continue to trade in this sub-market 15x range, investors are likely to experience double digit long-term total returns. Only time will tell. But, in the meantime, I’m content to accumulate shares alongside Buffett and collect this rising dividend.

Disclosure: I am/we are long AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Netflix Subscribers Will Pay Less (Or Possibly More) Depending on Where They Live, According to 2 Surprising Reports. Here Are the Details

It’s releasing 700 new shows this year. Think about that. It’s almost two new shows per day, counting new seasons of existing series.

And it turns out many subscribers absolutely love it. In fact, a new study by a Wall Street firm says a majority of U.S. Netflix users would be willing to pay a lot more for the service –40 percent or more than they currently pay.

That has to be tempting to Netlix, which simultaneously has spent $8 billion to produce and license new shows.

And it’s why the same Wall Street firm, Piper Jaffray, is predicting that Netflix will “bump pricing up across many of its markets in 2019,” according to Business Insider, because a “primary determinant in the ability of Netflix to raise price is subscriber perception of content quality.”

Or to put it a bit more plainly: people like it, so they’re willing to pay more, so you can expect Netflix to charge more.

That makes sense. But the news comes in the context of another report–one that says Netflix is actually playing around with an idea to charge less in other parts of the world.

Last week, a Malaysian news site called The Star Online reported that Netflix was trying a somewhat stripped down, mobile device-only subscription plan that goes for 17 Malaysian ringgit a month–which works out to about $4.25 in U.S. currency, and is less than half what a regular Netflix subscription costs in Malaysia.

Netflix confirmed to TechCrunch and USA Today that it’s running these cheaper, mobile-only subscriptions “in a few countries,” but didn’t provide further details. But it’s in keeping with what CEO Reed Hastings told Bloomberg last week, about want to experiment with different pricing strategies around teh world.

Of course, as Netflix users know, the content that you see in one part of the world isn’t always the same as what you’ll see in other parts of the planet. And Netflix has been emphasizing local content recently in Asia, where it faces stiff competition from lower-priced streaming services.

Besides meaning that Netflix, not Apple or Alphabet, keeps the customer data, it also means Netlix doesn’t have to pay a 15 or 30 percent cut to those companies to reach its own subscribers.

That could free up more opportunity to drive prices down in some markets. But not, analysts predict, in the United States and perhaps other wealthier countries. 

It might literally be a first world problem, but if these analysts’ predictions are right, we’ll likely be paying a bit more before long. Either way, you’ll probably keep watching.

By the way, I contacted Netflix via email to ask them for comment on these reported price fluctuations, but I haven’t heard anything back. If they do reply I’ll update this column. 

Is Apple Stock A Buy After The 16% Decline?

Apple (AAPL) stock has declined by about 16% from its all-time high of $233.47 reached on Oct. 3, 2018. The sell-off has mainly been driven amid worries of the slowing demand for iPhones, Apple’s biggest revenue-generator. Should you consider buying Apple stock following the dip?

Source: Yahoo Finance

Apple’s suppliers are cutting forecasts

One of Apple’s key suppliers to watch is Lumentum Holdings. The company provides Apple with 3D chips for the facial recognition system on Apple’s iPhones. The company reduced its earnings forecast for the current quarter, expecting it to be between $1.15 and $1.34, and lowered its sales forecast by $20 million. The company stated that this was due to lower demand from a customer it did not name, which the market strongly believes is Apple.

Furthermore, another supplier, Japan Display, also reduced its sales and earnings forecasts, which is further pulling down Apple’s shares. The fact that suppliers are cutting their financial forecasts is certainly a sign that Apple’s iPhones sales growth is in jeopardy. Given that 60% of the company’s revenue comes from iPhones, a significant slowdown in this segment spells trouble for its future financial performance.

Services segment is delivering strong growth

The ‘services’ segment of Apple’s revenue consists of app-store sales, use of AppleCare, Apple Pay and music-streaming subscriptions. While Apple’s unit sales are declining, one positive thing to note is that Services revenue is showing strong revenue growth. Apple has been focusing on shifting the company from a hardware company to a services-led company. The company has experienced great success in this segment, as revenue from Services grew by 17% yoy according to its latest earnings data, contributing about $9.98 billion in revenues.

However, it is important to note that Apple can only continue maintain this growth in Services if people continue using Apple’s devices, most notably the iPhone. Therefore, the decline in the unit sales numbers for Apple’s hardware devices is a major concern, because this could translate into lower use of Apple’s services. In fact, the services segment is already showing slower growth than the previous quarter that ended June 2018, in which it delivered Services revenue growth of 31%. Hence, while the 16% decline in Apple’s stock may seem overblown to some, there are solid reasons to be less bullish on the stock at the moment.

Valuation

Valuation Metric

Apple

S&P 500

Price to Earnings Ratio

17.2

19.1

Price to Book

9.1

3.1

Price to Sales

3.8

2.8

Price to Cash Flow

13.2

12.8

Data Source: Morningstar

Apple is trading at a Price to Earnings ratio of 17.2, which is quite an attractive multiple to pay for a financially solid company like Apple, and in comparison to the P/E ratio of the S&P 500 at 19.1. Furthermore, the company is trading at a mere 15.2x forward earnings, hence the pullback in the stock has certainly brought the company down to quite appealing earnings multiples. However, as the table above shows, every other valuation metric for the stock is notably above that of the S&P 500.

Bottom Line

The fact that Apple’s key suppliers are cutting earnings forecasts is a negative signal for the outlook of Apple’s unit sales, which are already in decline. While the company’s services revenue is growing, its future growth is heavily dependent on use of Apple’s hardware devices. The 16% decline in Apple’s stock price has brought certain valuation multiples to enticing levels for this financially sound company. However, investors that are looking to buy into the dip should remain cautious of further stock price volatility as the market digests the slowdown in Apple’s unit sales.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.