Monthly Archives: September 2016

Apple loses patent retrial to VirnetX, owes $302.4 million

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER






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Apple loses patent retrial to VirnetX, owes $302.4 million

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER






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VirnetX Wins $302.4 Million Trial Against Apple in Texas

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER

Apple Inc. was told to pay $302.4 million to VirnetX Holding Corp. for infringing patents covering secure computer and mobile communications, following a federal jury trial in Texas.

The jury in Tyler, Texas, said Friday Apple infringed two patents related to its FaceTime calling feature. The damage award also includes the amount Apple must pay for use of VirnetX technology in Virtual Private Network on Demand, also called VOD.

This was the third trial in a case that began in 2010. An appeals court upheld a portion of the first verdict, which found Apple’s VOD infringed two patents, leaving the jury only to determine how much Apple should pay. Separately, the appeals court ordered a reconsideration of whether FaceTime infringed two other patents.

The last time a jury heard the case — the second trial — VirnetX was awarded $625.6 million, though that also involved newer versions of the two Apple products. A trial judge threw out that case in July, saying it was unfair to Apple to combine all the issues.

The amount was on point with what VirnetX argued it was entitled to during Sept. 26 opening arguments, based on the billions of dollars worth of products sold by Cupertino, California-based Apple. The iPhone maker countered that VirnetX was entitled to no more than $25 million.

VirnetX, which had 20 full- and part-time employees as of Dec. 31, has been unsuccessful in marketing its own software and relies on patent licensing for revenue. Its last big payout was from a $23 million settlement with Microsoft Corp. announced in December 2014.

Company Founders

VirnetX was founded by former employees of government contractor SAIC Inc., and the company has said that its technology stemmed from work done for the U.S. Central Intelligence Agency to develop secure communications.

The U.S. Patent and Trademark Office conducted parallel reviews of the four patents and on Sept. 9 said none covered new inventions. The agency uses a different standard of review and it’s easier to have a patent found invalid by the patent office than a district court.

Still, the ultimate decision will lie with the U.S. Court of Appeals for the Federal Circuit in Washington, which specializes in patent law.

The Federal Circuit will use the patent office’s legal standard when reviewing the agency’s decisions, and the district court’s legal standard when ruling on the jury verdict. That means VirnetX needs to win in both instances to ultimately get money from Apple.

The case is VirnetX Inc. v. Apple Inc., 10cv417, U.S. District Court for the Eastern District of Texas (Tyler).

Before it’s here, it’s on the Bloomberg Terminal. LEARN MORE






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Warren Buffett’s Co-Pilot Loves This Kind of Company

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER

Gettyimages

Image source: Getty Images. 

Charlie Munger is Warren Buffett’s co-pilot and one of the brightest investing minds ever. Munger believes investors should focus on high-quality companies and hold them for the long term, and he clearly knows what he’s talking about. Let’s take a look at some of what Munger has said and some companies that might fit his criteria.

Why quality matters

To some degree, business quality is in the eye of the beholder, and there are many aspects to consider when analyzing a company’s quality. However, one of the most unmistakable traits of a high-quality business is its ability to sustain elevated returns on capital over the long term. The higher the returns a company can make on its capital, the higher the gains investors can expect over the years. 

In Munger’s own words:

We have really made the money out of high-quality businesses. In some cases, we just bought the whole businesses. And in some cases, we just bought a big block of stock. But when you analyzed what happened, the big money has been made in the high-quality businesses.

Over the long term, it is hard for a stock to earn a much better return than the business which underlies its earnings. If the business earns 6% on capital over 40 years and you hold it for 40 years, you are not going to make much different than a 6% return, even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive-looking price, you end up with one hell of a result. 

There are different ways to measure return on capital. Investors can focus on return on equity (ROE) or they can use a wider measure such as return on invested capital (ROIC). Leaving mathematical considerations aside, it’s of the utmost importance to understand the main drivers behind elevated returns of capital and, above all, the sustainability of those factors.

In a free-market economy, success attracts competition, so when a company is making above-average returns, other industry players try to steal away a share of those returns. That’s why investors need to pay close attention to a company’s competitive strengths, meaning the factors that allow it keep the competition at bay, protecting its markets and profit margins. In Buffett’s language, we’re talking about a company’s “moat.”

Brand power can help fill a moat. Let’s look at a few companies with strong brands.

Powerful brands for superior returns

Brand power is an extraordinary source of competitive differentiation, and it can make all the difference in the world for companies in the consumer sector. When a company owns a valuable brand, customers are willing to pay more than they would for similar products from the competition, with obvious implications in terms of profitability and return on capital.

Apple (NASDAQ:AAPL) is a textbook example. According to a Forbes brand ranking, Apple is the most valuable brand in the world. In addition to brand value, Apple offers a sticky ecosystem of software, services, and applications embedded in its devices, and customers are notoriously loyal to the company. 

Most industry players in consumer electronics struggle to make money, but Apple is the exception to the rule. According to data from Morningstar, Apple generated a ROE ratio around 37.9% over the past 12 months, while the ROIC ratio stands at nearly 23.5%.

Nike (NYSE:NKE) is another high-quality business generating strong returns on capital thanks to its powerful brand. The Nike swoosh is one of the most recognized logos in the world, and the company has invested massive amounts of money into sponsoring the most renowned athletes in various sport disciplines. That commitment has made the company the undisputed heavyweight champion in sports shoes and apparel on a global scale.

In addition to brand differentiation, scale advantages and a massive distribution network provide extra layers of competitive strength for Nike, and the company enjoys a ROE ratio of 30.1% and a ROIC ratio in the area of 26.6%.

With almost 24,400 stores in 74 countries, Starbucks (NASDAQ:SBUX) is building a global coffee emporium, and management is still finding new opportunities for profitable expansion, especially in emerging markets such as China. The company has nearly 2,300 stores in 100 Chinese cities, and it’s planning to open 500 new stores per year in the country over the coming five years.

Starbucks is all about providing a differentiated customer experience, and the brand is associated with quality and a very particular cultural footprint. Even if Starbucks charges higher prices than the competition, customers don’t seem to mind paying a few extra bucks. Thanks to these strengths, Starbucks makes an impressive ROE ratio of 46.11%, while the company’s ROIC ratio is around 29.3%.

There is no infallible formula to picking winning stocks, but names such as Apple, Nike, and Starbucks look well-positioned to continue delivering above-average returns on capital in the years ahead. And I agree with Munger that that’s something we should look for when picking stocks.

Andrés Cardenal owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Nike, and Starbucks. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.






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Nvidia: A Brilliantly Cloudy Outlook, Says Global Equities

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My 2014 Best Performers, Looking Ahead To 2015

A couple Street folks today were sounding upbeat about prospects for chip maker Nvidia (NVDA) based on today about two product announcements this week in the world of cloud computing.

One bit of news was Amazon.com (AMZNannouncing this morning it will rent use of Nvidia’s graphics processing unit (GPU) chips in its Amazon Web Services, as what are called “P2 Instances,” boasting, “With up to 16 NVIDIA Tesla K80 GPUs, P2 instances are the most powerful GPU instances available in the cloud.”

The other bit of news was Microsoft (MSFTyesterday saying it’s forming a new division, “Microsoft AI and and Research Group,” which will be staffed with more than 5,000 people brought together from across the company. The company also said it will be rolling out some Azure offerings with Nvidia chips.

Global Equities Research’s Trip Chowdhry wrote this morning that Nvidia will get a lift from Amazon’s new services, as will Amazon.

He runs down the details of

AMZN is offering GPU-as-a-Service with just released P2 Instances […] AMZN Machine Images include CUDA libraries from NVDA, preinstalled on Amazon Linux, and Machine Learning frameworks – MXNet, Caffe, TensorFLow and Theano The above is positive for both NVDA and AMZN-AWS AMZN benefits from P2 Consumption NVDA benefits from selling into AMZN-AWS (now) and into MSFT-Azure (by year-end).

Chowdhry likes the Microsoft move as well, both for Microsoft and for Nvidia:

AMZN-AWS: Replicating on-premises Software Stack into AWS… MSFT-Azure: Replicating Azure Stack to on-premises MSFT strategy is super smart and clever – MSFT is focused on Azure Adoption, while AMZN is focused migration to AWS Right now Industry is in Land Grab mode…so investors should not worry too much right on whose, AMZN or MSFT, strategy is superior, as right now only about 10% of workloads are in the Cloud…. …however, 2 years from now…both MSFT-Azure and AMZN-AWS will be colliding with each other…and hence we need to continue to monitor the Industry to gauge the Wins-Loses Machine Learning is front and center in Azure – which is Positive for NVDA (Nvidia)… MSFT’s use of FPGA in Azure for hardware acceleration and network acceleration is Negative for Cavium.

Also today, Raymond James’s Tavis McCourt and colleagues put out a brief item noting the Microsoft news and Nvidia’s involvement:

News this week was highlighted by developments out of Microsoft’s Ignite conference, including plans to extend its Project Catapult datacenter platform across all Bing, Azure, and Office 365 functions – deploying FPGA-accelerated servers as a common global platform, currently based on Altera/Intel FPGAs. Within the Azure business, Microsoft announced three new types of instances, with one (“N-Series”) platform running NVIDIA GPUs for graphics rendering; AI, machine learning, and deep learning were highlighted as increasingly important competitive factors in cloud services. Separately, NVIDIA announced “Xavier,” its next- next-gen (after Parker) AI platform, featuring one Volta GPU and eight custom ARM CPU cores, targeted for sampling in DRIVE PX 2 implementation by late-2017. Finally, on the M&A front, Qualcomm is reportedly in talks to acquire NXP and Micron appears closer to completing the acquisition of Inotera.

Nvidia stock ended Friday’s session up $1.12, or 1.7%, at $68.52. The shares were up over 5% for the week.






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Warren Buffett’s Co-Pilot Loves This Kind of Company

This post was originally published on this site



Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER

Gettyimages

Image source: Getty Images. 

Charlie Munger is Warren Buffett’s co-pilot and one of the brightest investing minds ever. Munger believes investors should focus on high-quality companies and hold them for the long term, and he clearly knows what he’s talking about. Let’s take a look at some of what Munger has said and some companies that might fit his criteria.

Why quality matters

To some degree, business quality is in the eye of the beholder, and there are many aspects to consider when analyzing a company’s quality. However, one of the most unmistakable traits of a high-quality business is its ability to sustain elevated returns on capital over the long term. The higher the returns a company can make on its capital, the higher the gains investors can expect over the years. 

In Munger’s own words:

We have really made the money out of high-quality businesses. In some cases, we just bought the whole businesses. And in some cases, we just bought a big block of stock. But when you analyzed what happened, the big money has been made in the high-quality businesses.

Over the long term, it is hard for a stock to earn a much better return than the business which underlies its earnings. If the business earns 6% on capital over 40 years and you hold it for 40 years, you are not going to make much different than a 6% return, even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive-looking price, you end up with one hell of a result. 

There are different ways to measure return on capital. Investors can focus on return on equity (ROE) or they can use a wider measure such as return on invested capital (ROIC). Leaving mathematical considerations aside, it’s of the utmost importance to understand the main drivers behind elevated returns of capital and, above all, the sustainability of those factors.

In a free-market economy, success attracts competition, so when a company is making above-average returns, other industry players try to steal away a share of those returns. That’s why investors need to pay close attention to a company’s competitive strengths, meaning the factors that allow it keep the competition at bay, protecting its markets and profit margins. In Buffett’s language, we’re talking about a company’s “moat.”

Brand power can help fill a moat. Let’s look at a few companies with strong brands.

Powerful brands for superior returns

Brand power is an extraordinary source of competitive differentiation, and it can make all the difference in the world for companies in the consumer sector. When a company owns a valuable brand, customers are willing to pay more than they would for similar products from the competition, with obvious implications in terms of profitability and return on capital.

Apple (NASDAQ:AAPL) is a textbook example. According to a Forbes brand ranking, Apple is the most valuable brand in the world. In addition to brand value, Apple offers a sticky ecosystem of software, services, and applications embedded in its devices, and customers are notoriously loyal to the company. 

Most industry players in consumer electronics struggle to make money, but Apple is the exception to the rule. According to data from Morningstar, Apple generated a ROE ratio around 37.9% over the past 12 months, while the ROIC ratio stands at nearly 23.5%.

Nike (NYSE:NKE) is another high-quality business generating strong returns on capital thanks to its powerful brand. The Nike swoosh is one of the most recognized logos in the world, and the company has invested massive amounts of money into sponsoring the most renowned athletes in various sport disciplines. That commitment has made the company the undisputed heavyweight champion in sports shoes and apparel on a global scale.

In addition to brand differentiation, scale advantages and a massive distribution network provide extra layers of competitive strength for Nike, and the company enjoys a ROE ratio of 30.1% and a ROIC ratio in the area of 26.6%.

With almost 24,400 stores in 74 countries, Starbucks (NASDAQ:SBUX) is building a global coffee emporium, and management is still finding new opportunities for profitable expansion, especially in emerging markets such as China. The company has nearly 2,300 stores in 100 Chinese cities, and it’s planning to open 500 new stores per year in the country over the coming five years.

Starbucks is all about providing a differentiated customer experience, and the brand is associated with quality and a very particular cultural footprint. Even if Starbucks charges higher prices than the competition, customers don’t seem to mind paying a few extra bucks. Thanks to these strengths, Starbucks makes an impressive ROE ratio of 46.11%, while the company’s ROIC ratio is around 29.3%.

There is no infallible formula to picking winning stocks, but names such as Apple, Nike, and Starbucks look well-positioned to continue delivering above-average returns on capital in the years ahead. And I agree with Munger that that’s something we should look for when picking stocks.

Andrés Cardenal owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Nike, and Starbucks. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.






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Nike’s Fall From Grace; Pennies From Heaven?: Best of Kass

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER

Doug Kass fills his blog on RealMoney every day with his up-to-the-minute reactions to what’s happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:

  • How Nike fell from grace.
  • How junk bonds could be a key market influence.

Click here for information on RealMoney, where you can see all the blogs, including Doug Kass’–and reader comments–in real time.


 
The Lesson of Nike’s Fall From Grace
 
Originally published Sept. 28 at 12:36 p.m. EDT

Nike (NKE) has been an institutional darling and sell-side favorite for years; in early 2016 its price-earnings multiple reached nearly 30.

As Jim “El Capitan” Cramer relates, the historical enthusiasm for the shares was not surprising considering the company’s doubling in sales since 2007 and large gains in profitability.
 
Nike’s shares, after peaking in November 2015 at about $70 a share, now stand at under $54 a share after reporting two consecutive quarters of slowing comp sales (the minuscule rise in North American future orders were eye opening) and a contraction in gross margins. The stock is the worst-performing equity (year to date) in the Dow Jones Industrial Average. (Note: I have chronicled my ” Peak Sneakers” thesis in my Diary over the last year and I have occasionally traded Nike on the short side).
 
The (downside to the) life cycle of companies is swift these days, with innovation transforming the competitive landscape of numerous industries and companies and, especially in consumer franchises, with the ebb and flow of popularity moving as swiftly as a Sandy Koufax baseball.
 
Like Nike, I see a shifting competitive landscape for similarly popular companies like Apple  ( AAPL) , Starbucks ( SBUX) , Coca-Cola  ( KO) and Disney  ( DIS) (all of these I am short) and, in the fullness of time, reduced secular profit-growth prospects (compared to both history and consensus expectations).
 
Each of these companies, as I have written in my Diary, have different challenges. Some sell an expensive product that is exposed to demand elasticity, commoditization, a possible consumer slowdown and/or a maturing market. Others face changing consumer tastes, and others are threatened by technological innovation.
 
But, from my perch, they all share a common characteristic of Nike: Both their rate of EPS growth and the returns on invested capital have likely peaked, and they’re substantially higher (with the exception of Apple) than market valuations are vulnerable.
 
They also all share marked reductions in share prices from recent highs:
  • Apple $132 to $115
  • Starbucks $63 to $54
  • Coca Cola $47 to $42
  • Disney $120 to $91
And with my forecast of less-than-stellar future earnings prospects could come even lower stock prices and a cheer from the ursine crowd who, through hard-hitting analysis and skepticism, adopted (ahead of the consensus) a negative and contrarian point of view.
 
This, as I mentioned in my opener, is the essence of what I try to deliver in my Diary.
Position: Short AAPL, KO, SBUX (small), DIS (small).
 

 
Pennies From Heaven?
 
Originally published Sept. 28 at 2:51 p.m. EDT

Here are several reasons why I have been aggressively adding to J.C. Penney (JCP) .






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Tips For Picking ETFs Like A Pro

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER

Some personal news: today is my last as Barron’s funds blogger, although magazine readers will see my byline in the weeks ahead. It’s been an entertaining two years reporting on the industry, particularly the fast-growing world of exchange-traded funds.

Barron’s readers are among the savviest out there and it’s been great to hear from so many of you. I sifted through my column archives in order to highlight a few big-picture ideas that, to me, are worth reiterating about ETF due diligence. Consider what follows to be a quick summary of lessons I’ve learned on the ETF beat.

1) Exchange-traded fund offerings have become increasingly varied and complex. Most investors should bother with only the simplest ones. Big funds are, across the board, good options — but that doesn’t make them the same.

For instance, the Vanguard Total World Stock ETF (VT) and the iShares MSCI ACWI ETF (ACWI) both own stocks in developed and emerging markets, with their top holdings nearly identical, including Apple (AAPL) at No. 1. They are each great choices for long-term investors. There are key differences: the Vanguard ETF owns shares of small companies, while its iShares counterpart does not. These differences become more significant as investors build out the rest of their portfolio. One way to skirt unexpected gaps and overlaps in ETF portfolios is to pick an ETF brand and stick with it, at least for the most important slugs of your portfolio.

2) Make sure that you know your ETF’s index. Aside from management fees, the first thing ETF investors should look at is index type. Market-cap weighted benchmarks like the Standard & Poor’s 500 work just great for most investors, but this configuration puts the biggest and often priciest stocks in the cockpit to drive performance. And this is especially true for niche funds.

For instance, the Consumer Discretionary Select Sector SPDR ETF (XLY) has benefited mightily from a years-long surge in top holding Amazon.com (AMZN). However, Amazon’s strength doesn’t much help owners of the SPDR S&P Retail ETF (XRT), an equally weighted scheme that gives dressbarn parent Ascena Retail Group (ASNA) the same position size. At the same time, an investor who anticipates a boom in mergers and acquisitions in biotechnology, for instance, would get more pop from the equally weighted First Trust NYSE Arca Biotechnology Index ETF (FBT) than the iShares Nasdaq Biotechnology ETF (IBB). The key is managing expectations. Equal weighting will win when smaller stocks are on top, but not all the time. Just know what you’re buying going in.






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Apple: September, December Could See iPhone Upside, Says Morgan Stanley

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Year-To-Date Winners: We Have Found The Market And It's Apple

APPLE – THE BEST OPPORTUNITY EVER?

I SEE APPLE GOING BACK ABOVE $300, SOONER RATHER THAN LATER






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