E Portfolio Highlights

Quarterly Movers & Shakers

FACEBOOK NEW $9 BILLION BUYBACK

During the past three months, the S&P 500 Index rose 3.8% as concerns over slowing growth and rising rates abated. The following high-quality stocks all generated double-digit gains during the same period. 

Facebook (FB) reported 2018 revenue increased 37% to $55.8 billion with net income up 39% to $22.1 billion and EPS up 40% to $7.57. Return on shareholders’ equity for the year was a likable 26%. During the year, Facebook posted $15.4 billion in free cash flow, down 12%, as the company invested $13.9 billion in capital expenditures to build out its data centers, servers, network infrastructure and office facilities. The company repurchased $12.9 billion of its shares during the year,and the Board approved an additional $9 billion repurchase program. In the past three months, Facebook’s stock rebounded a friendly 23% as investors realized that users and advertisers had not abandoned the company due to security and privacy issues which management is addressing. Buy.

NIKE DOUBLE-DIGIT GROWTH

Nike (NKE) reported strong second quarter results with sales and earnings each jumping 10% to $9.4 billion and $847 million, respectively.Sales grew in nearly every key category led by Sportswear with double-digit growth across footwear and apparel globally. During the second quarter, Nike repurchased 16.1 million shares for about $1.3 billion at an average price of $80.74 per share. Nike raised their financial outlook with sales in fiscal 2019 expected to increase at a high single-digit rate to low double-digit rate on a constant- currency basis. In the pas two years, Nike has raced higher, providing a 52% total return. Hold.

MASTERCARD INCREASED DIVIDEND 32%

In 2018, Mastercard (MA) reported revenues increased 20% to $15 billion. Excluding the impact of U.S. tax reform and other one-time items, adjusted net earnings charged 38% higher to $6.8 billion. During 2018, the company generated $5.9 billion in free cash flow, up 10% from last year, and returned nearly $6 billion to shareholders through dividends of $1 billion and share repurchases of $4.9 billion at an average cost per share of $187.02. Mastercard recently increased the dividend 32% and approved a new $6.5 billion share repurchase program. For 2019, management expects revenue growth in the low-teens with operating expenses in the high-single digits and an effective tax rate of 19% to 20%. Over the past five years, Mastercard has delivered a masterful 200% total return. Hold.

MAXIMUS CASH FLOW UP 57%

Maximus (MMS) reported first quarter revenues rose 7% to $664.6 million with net income down 5% to $55.9 million. During the quarter, operating cash flow increased 57% to $59.3 million. Maximus was not significantly impacted by the government shutdown as work for the Federal government was either in areas with approved funding or were considered essential operations. Maximus started the year off strongly with nearly $1 billion in new contract awards in the first quarter. Management reaffirmed guidance for 2019 with revenue of $2.925 to $3.0 billion expected. Earnings per share are projected in the range of $3.55 to $3.75 for the fiscal 2019 year. Maximus constructed a 13% gain over the last three months. Hold. 

STRYKER INCREASED DIVIDEND 11%

In 2018, Stryker (SYK) reported a healthy 9% increase in sales to $13.6 billion. Excluding the impact of U.S. tax reform and other items, net earnings rose nearly 13% to $2.8 billion. During 2018, Stryker generated $2.0 billion in free cash flow and returned more than $1 billion to shareholders through dividends of $703 million and share repurchases of $300 million. Stryker increased its dividend 11% for 2019. Over the past decade, Stryker has provided a striking 524% total return. Hold.

CISCO SYSTEMS INCREASED DIVIDEND 6%

Cisco Systems (CSCO) reported second quarter revenues rose 5% to $12.4 billion with adjusted EPS up 16%. As part of its commitment to return cash to shareholders, Cisco Systems announced a 6% increase in its dividend and the authorization of an additional $15 billion for share repurchases, bringing the total authorization to $24 billion. Management’s outlook for the third quarter is for 4%-6% revenue growth and EPS in the range of $.63 to $.68. Over the last 22 years, Cisco has routed up an impressive 874% total return. Hold.

PAYCHEX $1.2 BILLION ACQUISITION

Paychex (PAYX) is acquiring Oasis Outsourcing, an industry leader in providing human resources (HR) outsourcing services. Paychex will now serve more than 1.4 million worksite employees through its HR outsourcing services. Oasis serves more than 8,400 clients across all 50 states. The total cash purchase price is $1.2 billion which will be financed with cash on hand and new debt. Paychex has provided a nice paycheck over the last eight years with a 217% total return. Hold.

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Disclosure: None.

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