Fresh Paint

In This Issue: Fresh Paint A Sharp Dressed Stock Not Immune to Profits Five Australian Millionaire-Makers According to a Credit Suisse report, Australians are the richest people on the planet. That's not hard to believe when you learn that they increased their wealth by $1 billion a day last year… and created 43,000 new millionaires. If you're looking to diversify some of your money outside of the overheated U.S. market, I have some good news. I've prepared a special report that details my top five Australian millionaire-makers. Click here to get a copy for yourself. Fresh Paint 9/18/2014 By Thomas Scarlett The U.S. housing market continues to recover, but the Federal Reserve just said that it will continue its easy money policy for the foreseeable future with no intentions to lift interest rates until next year. That's a positive indicator both for new home sales and for increased remodeling and addition activity on existing homes. And that's good news for paint maker Sherwin-Williams (NYSE:SHW). The company has already benefited from the housing market's rebound, mainly through its Paint Stores Group, which supplied 54.3 percent of its 2013 sales. This division has 3,520 company-operated outlets in the U.S., Canada and Caribbean that sell a range of products, including paints, stains, coatings, caulks, and wall and floor coverings. In addition, Sherwin-Williams' Consumer Group (13.9 percent of sales) sells branded and private-label paints, stains, varnishes and other products through retailers across North America and in parts of Europe. Sherwin-Williams traces its roots back 147 years, to 1866, when Henry Sherwin invested $2,000 that he had managed to save while working as a bookkeeper in Truman, Dunham & Co., an importer and seller of home decorating supplies, including paint. When Truman shifted its focus toward manufacturing in 1870, Sherwin teamed up with two other partners, including Edward P. Williams, to take over Truman's retail stores and turn them into Sherwin, Williams & Co. Today, Sherwin-Williams has exposure to a wide variety of geographic regions and industries. For example, Sherwin-Williams' Global Finishes Group, which accounted for 20.6% of its 2012 sales, makes primers and coatings for airplane interiors and exteriors under a number of brands, including SkyScapes, JetGlo and JetFlex. This business has strong prospects as global aircraft sales soar. A recent report found that $4.5 trillion worth of new passenger jets are expected to be sold over the next two decades. Two-thirds of those planes will be headed for the Asia-Pacific region, as rising wealth in the area drives up demand for air travel. In addition, the airline industry is facing tighter environmental regulations, which is supporting sales of new aircraft. Jet fuel accounts for 30 percent of airline operating costs, second only to labor. New planes are much more economical in fuel usage when compared to older models. Boeing's Dreamliner, for example, is 20% more fuel-efficient than jets currently in use. In addition to aviation products, the Global Finishes Group sells paints and finishes for many industrial clients in over 120 countries, including makers of cars and boats, construction firms, auto-body shops, fleet operators and car dealerships. Sherwin-Williams has announced that it is buying Consorcio Comex, S.A. de C.V., Mexico's leading paint supplier, for $2.34 billion, including assumed debt. Comex also has deep roots, tracing its history back to 1952. It posted sales of $1.4 billion in 2011. To put that in context, Sherwin's sales were $8.8 billion that year. Comex sells its paint through 3,300 points of sale throughout Mexico. It also sells paint and related products under a number of banners through 240 company-operated stores in the U.S. As well, Comex has 78 company-operated stores in Canada and sells through 1,500 independent dealers in that country. The acquisition should fit nicely with Sherwin's Latin America Coatings Group (8.8% of 2012 sales), which operates 276 outlets in Mexico, Brazil, Chile, Ecuador, Uruguay and Colombia. In the most recent quarter, Sherwin-Williams' sales rose 2.4 percent, to a record $2.64 billion from the year-ago figure. Overall sales at the Paint Stores Group rose 4.0%, and same-store sales rose 3.2%. That offset a 3.7% sales decline at the Consumer Group, mainly due to the elimination of a paint program with a large retail customer, and a 2.9% decline at the Latin America Coatings Group, where unfavorable currency rates offset contributions from acquisitions and price hikes. The Global Finishes Group's sales rose 0.8%, The price-earnings ratio on Sherwin-Williams is around 30, which may seem a bit high. But it has been at that level for a few years, and has continued to post gains in both profits and share price. The company's performance has justified its price. While Sherwin is taking steps to diversify its business, it remains heavily reliant on its North American paint stores and sales through other retailers for growth. Still, the company reiterated its earnings-per-share guidance of $7.65 to $7.85 for the year. Its balance sheet also remains healthy, with cash of $603.9 million and little long-term debt. In addition, Sherwin frequently rewards investors through share buybacks and dividend hikes: in 2012, it repurchased 4.6 million shares at an average cost of $121.25 each, for a total investment of $558 million. And don't forget the dividend yield: The annual rate of $2.20 yields 1.1 percent. It all adds up to a dependable stock for your portfolio. Tom Scarlett is an investment analyst with Personal Finance. 4 Ways to Profit from the Internet's Next Big Thing The Internet is going through another change that will rock your everyday life – again. It's a new wave in Internet capabilities led by cloud-computing technologies. Businesses are starting to use the cloud at breakneck speeds. Barron's estimates cloud computing will soar by 44% a year. McKinsey & Co estimates a $6.2 trillion impact by 2025. That's just one leg of the wave. There are three more that are detailed here. Plus, here are 4 ways to profit from the wave. Click here. A Sharp Dressed Stock 9/17/2014 By Jim Fink We've had a lot of winners in the Roadrunner portfolio. One of the best has been G-III Apparel (NasdaqGS: GIII) , which recently released yet another strong earnings report. A while back, the clothing company continued its legacy of growth through acquisition when it agreed to purchase shoe manufacturer G.H. Bass from PVH Corp for $50 million in cash. The purchase price was modest, but the potential synergistic benefits are huge, which is why I loved that deal. G.H. Bass's 158 retail outlets will be absorbed by the Wilson's Leather chain of 167 stores, essentially doubling the size of Wilson's and significantly reducing G.H. Bass's overhead expenses. In addition, acquiring a manufacturer of high-quality footwear transformed G-III Apparel from a limited apparel-only company to a full-service "fashion" retailer of apparel and shoes for both men and women. G.H. Bass sells both footwear (65%) and apparel (35%), but its apparel is lackluster and will be vastly improved by G-III's apparel expertise. The flip side is that G.H. Bass's 158 stores will act as customer magnets that give G-III an opportunity to market its traditional apparel offerings to an entirely new demographic of high-end shoe wearers. Analysts at Brean Capital call G.H. Bass a "treasure" and expect its acquisition to be earnings accretive for G-III in fiscal 2015 and add $250 million in sales to G-III's coffers. As I noted, G-III Apparel recently announced operating results for the second quarter of fiscal 2015. For the quarter endedJuly 31, 2014, G-III reported that net sales, driven by a strong wholesale performance across several categories, increased by 39% to$424.0 millionfrom$304.2 millionin the year-ago period. Of this increase,$53.6 millionwas the result of net sales by the G.H. Bass business. The Company's net income for the second quarter was$6.2 million, or$0.29per share, compared to net income of$3.6 million, or$0.17per share, in the prior year's comparable period. Morris Goldfarb, G-III's Chairman, Chief Executive Officer and President, said, "We are pleased to report a strong second quarter. In spite of losses related to the transition and repositioning of our recently acquired G.H. Bass business, we were able to show higher overall profits due to strong shipments in our licensed and non-licensed businesses. There were strong performances by a number of Calvin Klein divisions and several of our outerwear and dress businesses, all of which enabled us to exceed our forecast for the second quarter." Goldfarb added, "We intend to continue to execute our growth strategy which calls for both organic growth and for acquisitions. Our recent public offering, which added net proceeds of$128.7 million to our balance sheet, is expected to support our growth initiatives. Our presence in several wholesale businesses, including sportswear, dresses, and handbags, continues to provide us with organic growth opportunities, as does our ongoing initiatives to grow our productivity and store count in each of our major specialty retail businesses. Our new G.H. Bass products are arriving in our stores this month and we are confident in our ability to make this a profitable business. We continue to be well positioned to take advantage of acquisition opportunities, deploy our strategic capital and drive enhanced returns for our shareholders." G-III also released a great third-quarter financial report that saw sales grow 23% to a record high, combined with solid earnings growth of 19%. Both figures blew past analyst estimates and marked the fifth earnings beat time in the past seven quarters. Even better, the company raised its guidance for full-year fiscal 2014 (ending Jan. 31st), with CEO Morris Goldfarb reporting "across-the-board strength in our business." Based on the G.H. Bass footwear acquisition and the accelerating rollout of both the Ivanka Trump apparel line and Calvin Klein handbags, analysts expect earnings growth of 17.9%in fiscal 2015, which is above the industry average, and yet G-III still trades at a below-average earnings multiple of 20.6. Good combination! The Q3 reported prompted Brean Capital to raise its price target on the stock to $80 from $60 and conclude: We remain buyers of G-III and believe the company is among the best upside-positioned plays in our universe and ideally positioned to beat top- and bottom-line expectations. The company' success has resulted in its G-III stock being added to the S&P Small Cap 600 Index on the first trading day of 2014. The company is undergoing a positive transformation into a full-service fashion retailer and continuing to execute flawlessly. It's one of the biggest winners in the Roadrunner portfolio -- but far from the only one! This article originally appeared in the Small Cap All-Stars column. Never miss an issue. Sign up to receive Small Cap All-Stars by email. What to do when the market falls… USA Today reports, "Warning signs are flashing on Wall Street." CNN Money, Fortune, and Marketwatch are worrying about a big market fall. The bull market is well into its fifth year fueled by artificially high valuations. But the law of gravity will take hold soon, bringing it crashing back down. Are you protected? You can be – with the one investment Wall Street hates. They're too boring. We call them Rushmore Plans. They can generate gains of 1,477%. You can bank steady gains, no matter the ups and downs of a fickle market. I have four you might want to look at. Details here. Not Immune to Profits 9/18/2014 By Benjamin Shepherd What most of us don't know -- or simply choose not to think about -- is that we all probably have hundreds of cancers over the course of our lives but in most cases our immune systems destroy them before they take hold. Given the important role the immune system plays in fighting cancer the holy grail of cancer treatment is figuring out how to teach the immune system to fight cancers that slip past it, a field known as immunotherapy. Immunotherapies targeting cancer are already in use and generated about $1.1 billion in revenue in 2012. The market is expected to grow to $9 billion by 2025, with annual average growth of 23.8% per year, as new immunotherapy products continue coming to market. Analysts at Citigroup believe that if you include all immunotherapy drugs the market will be worth closer to $35 billion a year by 2025. PDL BioPharma (NSDQ: PDLI) plays a major role in developing that technology by providing tools for other researchers to make advances of their own. A major benefit of PDL's business model and its involvement in a cutting edge market is the generous payout it makes to investors: Its dividend yield is 6.3%. Its quarterly dividend is 15 cents for a total annual payout of 60 cents. And because the payout is only about 36% of earnings, the dividend is unlikely to decline and that leaves plenty of room for future increases. The company owns a portfolio of patents and licenses for making humanized antibodies. Antibodies are the basic building blocks of the human immune system, with each antibody coded by the immune system to fight a specific disease. Many of those antibodies can be produce in laboratories using mice, but our immune systems recognize these as invaders, so they must be "humanized" by reorganizing the mouse antibodies to look more human and trick our bodies into accepting them. While there are several ways of doing that, PDL's patents cover one of the most common. Several drug companies, including major outfits such as Roche, Genetech, Wyeth and Novartishave licensed PDL's technology to produce blockbuster drugs such as the cancer treatment Herceptin, the macular degenerative disease treatment Lucentis and the asthma drug Xolair. The technology is also used to produce Perjeta, a breast cancer treatment that was approved in mid-2013 and is widely predicted to become a new blockbuster drug with annual sales in excess of $1 billion. Under the licensing agreements which allow other companies to use technology protected by PDL's patents, PDL collects a sliding percentage of total sales of the drugs the technology helped to develop. PDL's revenues have grown an average of 8.5% over the past five years while earnings have skyrocketed by 28.7% over the same period. That rapid earnings growth is because PDL's margins are so large, with operating margins in excess of 90% for the past three years. Since the technology behind PDL's patents was developed more than 20 years and forms the basis on which future developments are made by others, PDL doesn't do research-intensive work and its staff consists of only about a dozen employees. PDL is also working to earn money from new technologies being developed that aren't related to its antibody business. In 2011, it began providing financing to late-state healthcare companies in exchange for royalties on future products. It also buys bonds and notes from companies developing new technologies and drugs. Analysts are bullish on the company's growth, boosting their third quarter earnings estimates from 56 cents per share to 71 cents, a better than 40% increase over the same period last year. The full-year earnings per share outlook as also jumped from $2.22 to $2.44 over the past month, well above last year's $1.89. This article originally appeared in the Income without Borders column. Never miss an issue. Sign up to receive Income Without Borders by email. A New Economic Superpower Imagine investing in the birth of a new economic superpower. It would be like investing in Japan in 1946 after the war ended. Japan catapulted into the #2 economy in the world, and savvy investors made out like bandits. Well, now you're in luck. A new superpower is about to emerge to claim the #1 spot as the world's major global energy source, with 1.7 trillion barrels of oil. It's 40 times bigger than Bakken. Sadly, it's not the U.S., but it's very close. I have 6 stocks that deserve your attention if you're hoping to pile up profits in the next decade. Worth a look? Click here. You are receiving this email at benjamart.ss.stock@blogger.com as part of your subscription to Investing Daily's Stocks To Watch, published by Investing Daily. To ensure delivery directly to your inbox, please add postoffice@investingdaily.com to your address book today. Email Preferences | About Us | Premium Services | Contact Us | Privacy Policy Copyright 2014 Investing Daily. All rights reserved. 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