Credibility. It's awfully hard to come by. It can be lost easily. But when you have it, then you can keep the valuation of your stock and dips are made for buying.
In a market like this, you are getting a lot of dips, so this might be a good opportunity to go over who has credibility and who doesn't so you can make some adjustments yourself in what you own both with these companies and with those of so many others.
Let's start with someone who has credibility in spades: Rick Clemmer. Don't know Rick? He's the man who last year merged his semiconductor company, known largely as a supplier to cellphones, especially Apple (AAPL) , with Freescale, a thought-to-be-beleaguered Internet of Things and auto semiconductor company, for $11.8 billion.
Four private equity firms had led a leveraged buyout of Freescale back in 2006, paying $17.6 billion for this monstrosity, and it had always been one step from death's door. But Rick saw it another way and coveted the diversification of its footprint, especially how it would make the company much less reliant on the cellphone.
The result? This stock of this company, NXP Semiconductor (NXPI) , which started at $80 at the beginning of the year, will go out at $110, the price that Qualcomm (QCOM) paid to buy it last month, a monster return vs. an S&P 500 up 3%. He's the definition of bankable. Fitting that Qualcomm's trying to do the exact same strategy, diversifying away from cellphones by buying Rick's and our company -- I say "our" because my charitable trust has ridden this one all the way up.
Speaking of fitting, you know who has no credibility? James Park of Fitbit (FIT) . You may like the product. You may or may not think it helps you lose weight. But one thing you know about the stock, it loses you fortunes. Last night, Park came out with numbers that were horrendous and a forecast that was even worse. This is astounding to me because last month, mind you, I interviewed Park and when I asked him about channel checks that were showing dramatic weakness for his products, he dismissed them out of hand, referring to how well his products were doing on Amazon (AMZN) . (Amazon is part of TheStreet's Growth Seeker portfolio.)
I don't think he was dissembling. They were the top sellers on Amazon. But if he was operating his company at a higher level or if his company was run better, he wouldn't have to wait to find out how stupendously terrible his company was really doing. I don't know what to say about this stock except I am glad I said don't buy the day before it reported because this company's credibility and the respect for its CEO's ability to manage the company are now nil.
Jeff Bewkes has credibility in spades. The CEO of Time Warner (TWX) has created a huge amount of wealth for individuals by getting rid of a lot of extraneous properties and becoming a pure media company. However, once he was finally done cleaning things up, on July 14, 2014, along comes Twenty-First Century Fox (FOXA) with an $85-per-share bid in cash and stock, a $14 premium at the time. Bewkes just point-blank refused to negotiate, saying the price was a non-starter because he wanted an offer "well over $100 a share." Fox walked away.
Last month, AT&T (T) agreed to pay $110 a share for Bewkes' company. Now that's what I call credibility. (Qualcomm and AT&T are part of TheStreet's Dividend Stock Advisor portfolio.)
But then there is Vicki Hollub, CEO of Occidental (OXY) , who this week reported a devastating, undisciplined and completely inconsistent quarter with a frightening forecast and foolhardy spending to boot. Hollub followed Stephen Chazen as CEO and apparently they couldn't be more different. Chazen was rigorous and tightfisted, always concerned that his balance sheet not be stretched and his dividend never be in doubt. In an analyst meeting back in May, incoming CEO Hollub traced a very similar vision and my charitable trust, which has a position in OXY, committed more capital to it.
Then when this quarter was announced, we learned that Occidental, which had a fabulous position in the Permian, has spent $2 billion buying more Permian assets, except this time at absolute top dollar. Just when we thought the Permian was getting too frothy, Hollub steps up to the plate and does buying? Not only that, but after listening to the call I began to get chills about the dividend. This is no longer Chazen's company. It's gone from one I have coveted to one I wish the trust didn't own, and if oil bounces it's out the door for certain. No wonder the stock dropped from $72 to $67 in a straight line. It deserved to.
I am tired of Tim Cook not receiving the benefit of the doubt. When he took over as Apple CEO in August 2011, the stock as at $53. It is now at $110. That's 105%. The S&P is up 78% and the Dow is up 59% during that period. This is a huge capitalization stock and for it to trump the market by that much is quite a statement.
But Cook has been doubted continuously. He was doubted when his stock was at $93 before what was supposed to be a notoriously panned recent quarter and he was pilloried when the company reported when the stock was at $115. We keep hearing that under Cook no real innovation has occurred. Then why is customer satisfaction so high? Why is switching at a high? Because the phones have massive innovation, that's why.
Plus he's getting almost no credit for the high-margin service stream the company is building, one that will be the size of a Fortune 100 company with a gross margin of more than 50%. Even here the doubters, who almost universally say the best days are behind the company, can't bring themselves to talk about it, and when they do they say it's accidental and Cook just backed into it.
I wish more of the companies I follow would back into a $28 billion business like that, $28 billion being the smallest-revenue company in that esteemed list.
How about another no-credibility fellow? Nick Woodman, the man who developed the GoPro (GPRO) toy and fashioned an ecosystem that really never took off. Like the Fitbit, once you had one, you didn't need another even as they keep coming up with iterations. It simply isn't special and the company's managed in a way that always makes you think it's doing incredibly well. It's not.
There are two others that are in question at this very moment that I want to weigh in on. First is the executive team at Facebook (FB) . Today the stock got shelled and I think it is simply a victim of its own success. I have been saying don't trust stocks that run up into quarters, and this, as great as it is, is still one of them. I think the company was simply managing down conservatively and will show you that its caution was simply a desire not to get expectations ahead of itself as it does the impossible, tries to recruit another billion people to its properties while simultaneously push enough ads to them that don't make the user experience unfulfilling. It's not a lack of demand and it's not competition from Snapchat. The comments about having a meaningful slowdown in the rate of growth of ad load were factored in by many and I think it's a buy.
Finally, there's CEO Brent Saunders and Allergan (AGN) . Saunders has made a ton of money for you wherever he has been, but this run with Allergan, which was the result of the merger of Actavis with Allergan, has become a loser. Actavis paid the equivalent of $219 a share for Allergan, which then survived as the name of the new company. At one point last year, Pfizer (PFE) was going to merge with Allergan at a price that took the latter as high as $340 a share until the Treasury Department changed tax rules on inversions -- something it said it would not do when the deal was put together. It's been all downhill since, a brutal comeuppance. (Apple, Facebook and Allergan are part of TheStreet's Action Alerts PLUS portfolio.)
Yesterday, Saunders announced a big buyback and a dividend but also missed estimates and the stock's been crushed, falling from $209 to $190, almost half of where it was in the summer of 2015.
We've been telling members of our Action Alerts PLUS club over at TheStreet that Saunders isn't getting enough credit in this vicious environment for pharma companies, especially ones that miss numbers and that, when it hits $180, you should buy some because Saunders will create value again and because at that price it sells at a lower price to earnings multiple than Johnson & Johnson (JNJ) , Pfizer, Merck (MRK) , Bristol-Myers (BMY) , GlaxoSmithKline (GSK) and Eli Lilly (LLY) , even as it is a faster grower than all of them. That's insane. But it's what happens when the market takes away your credibility prematurely.
So, remember track records. Remember what's been said. Remember what's been done. Make a judgment on words and deeds and performance and character and rigor and stick by it. Or else be prepared to accept the consequences.
