2 Dividend Growth Stocks Trading Near 52-Week Lows Worth Buying Today

I’m a contrarian investor by nature, meaning I’m more than willing to buy what I consider to be quality companies with safe dividends and bright futures just when the market hates them most.

In fact, my EDDGE 3.0 real money portfolio is stacked to the rafters with companies I bought at 52-week lows, including:

So I’d like to point out two more beaten down companies that I consider to be great contrarian value investments, Qualcomm (QCOM) and Kroger (KR).

Let’s take a closer look at why Wall Street hates these stocks. More importantly, why those fears are likely overblown, and these companies represent potentially excellent additions to your diversified dividend growth portfolio in this extremely frothy market.

Why Wall Street Hates Qualcomm

Chart QCOM data by YCharts

It’s been a rough few years for Qualcomm, with a rash of bad news that has soured the market on the company’s growth prospects.

For one thing it faces growing competition on the low end from low-cost manufacturers such as Mediatek, and on the high end from phone makers such as Samsung (OTC:SSNLF), Apple (AAPL), Xiaomi, and Huawei going in house.

However, by far the biggest cause of Qualcomm’s recent woes is the licensing disputes it’s facing.

QTL Getting Hammered

Qualcomm’s huge number of telecom patents makes its QTL licensing division its main profit driver, thanks to 73% operating margins compared to just 14% for its chip business.

The way it works is that Qualcomm licenses its patented tech to phone makers for a fixed percentage of the phone’s wholesale price, generally 3% to 5%.

In recent years, numerous companies have cried foul, claiming that this is outrageous because it allows QCOM to benefit from all value added propositions the phone maker brings to the unit that have nothing to do with QCOM’s tech.

For example, if Apple licenses Qualcomm’s modem technology, and then releases a new phone, such as the iPhone X for a 20% higher price, then why should Qualcomm’s royalty be 20% greater for the same exact chip?

In April of 2017, Apple suspended all royalty payments to QCOM claiming its licensing model was “illegal” which resulted in a 42% decline in QTL (licensing) revenue compared to Q2 2016.

Sources: Earnings Releases, Motley Fool

Now analysts are worried that this legal challenge, in which Apple claims that the licensing fees paid to a percentage of total phone sales are too high, could be triggering other phone makers to also refuse to pay until the legal challenges are resolved.

In fact, on August 18th, Evan Chesler, chief legal counsel for QCOM, admitted that a large phone maker has stopped paying royalties (possibly Huawei) as well.

This is far from the company’s only legal issue. The Seoul High Court recently ruled against QCOM’s appeal of an earlier $ 913 million fine over its licensing practices.

China also fined the company to the tune of $ 975 million in 2015, and regulators in Europe, Taiwan, and the US have launched antitrust probes against the company.

The basis of those claims is from the likes of Intel (INTC) which claims that Qualcomm refuses to license to direct competitors, while phone makers such as Samsung have claimed that Qualcomm threatens to charge more for certain licenses if you try to go to a competitor for certain chips.

Understandably all these setbacks to the high margin QTL licensing business have Wall Street running scared, with management guiding for QTL revenue in fiscal Q4 to decline by 31% to 47%. This has caused analysts to predict the company’s full-year sales and earnings to decline by 2% and 6% respectively.

This is also why Qualcomm is attempting to buy NXP Semiconductors (NXPI) for $ 47 billion to allow it to diversify away from its troubled QTL segment.

However, here too the company has recently run into trouble.

Growth Plans Hit A Wall

Qualcomm’s management expects the NXP deal to close by the end of the year; however, there are two snags it’s currently facing.

First, EU regulators are now holding up the deal on antitrust concerns, implying that QCOM might use NXP’s market share in auto computer chips (it’s the world’s largest supplier) and NXP’s rich patent portfolio to gouge suppliers and raise prices.

In addition, Elliott Management, an activist investor in NXP, has said that the $ 110 per share tender offer QCOM is willing to pay for NXP shares is way too low.

Susquehanna, an analyst firm, has reported that “some investors believe that Qualcomm should pay up to $ 130 per share for NXP.” That would mean that QCOM might end up having to pay 18% more, or $ 55.5 billion.

In other words, there is now significant doubt about whether or not the NXP deal can close at all, which adds to the company’s numerous other problems to suppress the share price.

Here’s Why I See Value In Qualcomm

First, while true that big phone makers have been shifting to in-house SOC chip designs, Qualcomm’s QCT (chip business) continues to generate solid top line growth (5% in the most recent quarter), but more importantly shows continued strong operating earnings growth.

I’m confident that Qualcomm’s continued drive to innovate and branch out into new Snapdragon lines, including drones, cameras, wearables, and cars, should allow this business segment to drive solid double-digit bottom-line growth for years to come.

Now, as for the well founded concerns about QTL, there too we have some good news.

While the Apple litigation could drag on for years, ultimately Qualcomm is likely to win simply because Apple spent five years licensing the company’s patented tech under a contract that it voluntarily signed.

Thus, Apple now deciding years later that this contract was unfair, or even illegal, and to withhold payment isn’t likely to fly in court.

Now we may see a judge rule, such as in China in 2015, that the licensing terms were too high, but the point is that Qualcomm is likely to get some large catch payments from Apple (and Huawei) in the next year or two.

In fact, speaking of China, where a judge ruled in 2015 that Qualcomm needed to pay a large fine and reduce its royalty terms, we can’t forget that Qualcomm’s QTL segment is thriving in China, where it still enjoys 3% to 5% royalties on 65% of wholesale phone prices.

Source: Qualcomm Investor Presentation

And lest we forget Qualcomm has a rich patent portfolio that applies to pretty much all aspects of wireless telecom technology.

That number, which stands at nearly 47,000 granted patents, is steadily climbing over time and should ensure that the QTL segment is able to continue growing in the long term, monetizing the growth of smartphones for the next 10 to 20 years at least, though the royalty rate may be smaller than it is today.

Next, while it may take longer than expected, and potentially cost more than anticipated, I fully expect the NXP deal to close, and when it does, Qualcomm is going to see a nice boost to its struggling top and bottom lines.

Company TTM Sales TTM Earnings TTM FCF EPS FCF/Share
Qualcomm Today $ 22.6 billion $ 3.9 billion $ 3.78 billion $ 2.61 $ 2.54
QCOM + NXP $ 31.9 billion $ 5.9 billion $ 5.74 billion $ 3.93 $ 3.85

Source: Morningstar

In fact, thanks to the NXP deal being all cash and debt (non dilutive), the EPS and FCF/share accretion for the acquisition is 51% and 52%, respectively.

In other words, assuming the deal closes, as I and several other analysts expect, Qualcomm will immediately face a strong price recovery.

Of course, that’s in the short-term, but my concern is with the long-term growth prospects of the company, and there too the situation is far less bleak than the market currently anticipates.

In fact, I think that all of Qualcomm’s recent legal troubles have caused the market to lose the big picture, which is that the company is one of the best positioned in the world to take advantage of several major megatrends that will dominate the next century.

Specifically, QCOM isn’t just a chip maker, but a great, long-term investment into the future of computer expansion into all aspects of our lives including the internet of things, autonomous cars, 5G, data centers, and cybersecurity.

That in turn should allow Qualcomm to continue richly rewarding dividend growth investors as it has for the past 14 years.

Why Kroger Has Been Gutted…

Chart KR data by YCharts

Kroger has had a terrible few years, with shares now down over 50% from their all-time highs.

This is understandable given market concerns about increasing competition in the grocery space, not just from traditional rivals such as Wal-Mart (WMT), and Target (TGT), but also now from Amazon (AMZN), whose $ 14 billion purchase of Whole Foods is its largest single acquisition in that company’s history.

After all, recently Kroger broke an impressive 13-year streak of comps growth, and with low cost grocers such as Aldi and Lidl making a bigger play for the American market, Kroger has had to slash food prices and invest more heavily into technology in order to compete in a notoriously low margin industry.

Company Operating Margin Net Margin FCF Margin ROA ROE ROIC
Kroger 2.4% 1.3% 1.2% 4.3% 24.1% 9.8%
Industry Average 2.5% 1.7% NA 5.2% 24.6% NA

Sources: Morningstar, GuruFocus

That means worse short-term earnings performance, and management’s recent decision to stop issuing long-term forward guidance certainly adds to the market’s uncertainty about its future growth prospects.

However, here’s why I bought Kroger anyway, despite all the fears, uncertainty and doubt.

…And Why It Will Likely Thrive In The Future

Source: Business Insider

The $ 800 billion US grocery market is highly fragmented, but Kroger currently has just over 10% market share, and is the largest grocery-only national chain.

Source: 2016 Factbook

Currently Kroger operates:

  • 2,793 full grocery stores in 35 states
  • 783 convenience stores in 19 states
  • 307 premium jewelry stores under the Fred Meyer Jewelers and Littman Jewelers brands
  • 38 manufacturing facilities for its own private label (higher margin) foods
  • 1,472 fuel centers
  • 2,258 pharmacies

Thanks to well executed acquisitions over the years, Kroger is today a food empire that serves 8.5 million customers daily, but more importantly, has managed to increase its market share for 12 consecutive years (through 2016).

This has allowed the company to become the number one or two sales leader in 98 of 120 markets in the US and number one in 46 of 51 major markets.

The reason that matters is because it allows Kroger to leverage its fixed costs (distribution system) better and not just win and protect market share, but achieve better bottom line growth.

This accomplishment isn’t just done through acquisitions of other brands and grocery chains but through two main competitive advantages that few other grocers have.

The first is that Kroger is very strong at private label foods (26% of total sales vs. 18% industry average) such as its Simple Truth organic foods. And since it manufactures its 40% of the private label brands it sells, Kroger benefits from higher margins (about 10% better gross margins) on these products.

Second, few grocers have been as effective at data mining its customers, courtesy of the company’s in-house 84.51 degrees analytics firm (fed by over 25 million digital accounts), which provides Kroger with deep insights into customer preferences and regional ordering patterns.

This has helped make Kroger a leader in online ordering and curbside pickup via its Clicklist and ExpressLane locations, which it now offers at 640 locations with plans to double that. In fact, this increased focus on omni-channel sales should allow Kroger’s e-commerce sales to grow at about 20% a year through 2021.

Source: Quarterly Filings, Motley Fool

In fact, thanks to online ordering, which more than doubled year over year, Kroger’s comps growth came in at 0.7% in the last quarter, and management expects 0.5% to 1% growth in the second of the year.

And while true that about 0.75% comps growth in the second half of the year would be a pale imitation of the kind of strong comps growth enjoyed in recent years, the fact is that it’s still moving in the right direction.

This indicates that management is capable of adapting to very challenging industry conditions. In addition, analysts expect Kroger’s long-term comps to return to 2.5%, which I believe is a potentially conservative estimate.

Let’s also not forget the company’s relentless focus on cost cutting via supply chain optimization and closing underperforming stores that has allowed sales per square foot to grow steadily over time and that can make a huge difference in earnings growth in the future.

In fact, at $ 650 in revenue per square foot, Kroger is the second best retailer in this industry, behind only to Costco (NASDAQ:COST) at $ 1,100.

All these reasons are why I as a contrarian investor like Kroger. Because the essence of what I do is to look at a historical winner, one trading at beaten down valuations (and preferably at 52-week low), and determine whether or not “this time is different”.

The simple fact is that the challenges facing Kroger right now, while different in specifics, are not meaningfully different than the kind of brutal competition it’s faced for decades from the likes of dividend aristocrat Wal-Mart and dividend king Target.

Chart KR Revenue (Annual) data by YCharts

And as you can see, Kroger has done fine, growing sales, FCF/share, and EPS at 6.7%, 5.3%, and 10.0% CAGR respectively over the past 27 years.

Chart KR Total Return Price data by YCharts

In fact, Kroger has historically been a solid market beater, even after accounting for the recent 50% crash.

This tells me that this is a company that I’m more than comfortable owning for the long term, given management’s track record and its future growth plans.

Dividend Profiles Point To Market-Beating Returns

Company Yield TTM FCF Payout Ratio 10 Year Projected Dividend Growth 10 Year Expected Annual Total Return
Qualcomm 4.3% 84.4% 9% to 10% 13.3% to 14.3%
Kroger 2.4% 32.2% 7% to 8% 9.4% to 10.4%
S&P 500 1.9% 34.7% 6.1% 8.0%

Sources: GuruFocus, Morningstar, Multpl.com, CSImarketing.com

Ultimately as a dividend growth investor I’m counting on a combination of generous, secure, and growing dividends to generate market-beating total returns.

In this case both Qualcomm and Kroger offer far better yields than the market today, and despite QCOM’s temporarily elevated payout ratio (will come way down once the license dispute is resolved and or the NXP deal closes), I’m confident in the strong security of both dividends.

More importantly, I think that they will continue to grow at moderately strong rates that will allow for double-digit total return potential that should result in far superior total returns in the coming decade than what the overheated S&P 500 will generate.

Of course, those long-term dividend growth projections could end up being lumpy, meaning that short-term struggles to grow the top and bottom line might mean that payout growth might be slower in the next few years, but likely catch up later on.

Valuation Is Highly Attractive On Both

Chart QCOM Total Return Price data by YCharts

Both Qualcomm and Kroger have had a terrible year, which is exactly what I love to see, because it means the valuations are now at historically excellent levels.

Company Forward PE Historical PE Yield Historical Yield Yield Percentile
Qualcomm 12.8 19.6 4.3% 1.6% 1%
Kroger 10.3 16.0 2.4% 1.5% All Time High
S&P 500 18.5 14.7 1.9% 4.3% NA

Source: F.A.S.T. Graphs, Multpl.com, Jeff Miller, GuruFocus, Yieldchart.com

For example, on a forward PE ratio basis, both companies are way below the market’s overheated levels, as well as significantly below their historical norms.

More importantly for dividend investors, the yield for QCOM and KR is sky-high. For example, Kroger’s yield is near its all-time high while Qualcomm’s yield has only been higher 1% of the time.

Company TTM FCF/Share 10 Year FCF/Share Fair Value Estimate Growth Baked Into Current Share Price Margin Of Safety
Qualcomm $ 2.54 10.9% $ 65.65 6.6% 20%
Kroger $ 1.49 6.3% $ 24.25 3.6% 15%

Sources: Morningstar, GuruFocus, F.A.S.T. Graphs

Another thing I like to look at is the longer-term, 20-year outlook using a discounted free cash flow model, using a 9.0% discount rate (the post expense ratio historical return on an S&P 500 index ETF, i.e. the opportunity cost of money), and a conservative 4% 10-year terminal growth rate.

This allows us to get a rough estimate for the intrinsic fair value of a company, and in this case, we can see that Wall Street is being overly pessimistic about the future growth rates of both stocks, resulting in strong margins of safety.

Normally I like to buy quality DGI stocks at a 15% or higher discount to fair value, which makes both Qualcomm and Kroger some of the few undervalued names you can buy in today’s frothy market.

Bottom Line: Qualcomm and Kroger Will Likely Turn Things Around Presenting A Potentially Great Opportunity For Higher-Risk Investors

Don’t get me wrong, contrarian value investing isn’t for everyone. You need to be comfortable taking a VERY long-term, big-picture view and dealing with plenty of fear, uncertainty, and doubt in the short to medium term. It also means potentially experiencing a lot of volatility, which is something most investors would rather avoid.

Then again, it can also be an exceedingly profitable endeavor, and if you have a long enough time horizon and a high enough risk-tolerance, both Qualcomm and Kroger could prove excellent, contrarian income growth investments.

That’s because, based on the excellent track records of both companies to navigate their respective, challenging industry conditions over past decades, as well as the long-term growth potential, I’m confident that both QCOM and KR will once more rise like a Phoenix from the current short-term ashes (Amazon can’t dominate every industry).

Which is why I’m more than happy to lock in their highest yields in over a decade (or ever) and patiently wait for their likely turnarounds to play out and their share prices to recover nicely.

Disclosure: I am/we are long QCOM, KR.

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.

Tech

Wipro is buying cloud consultant Appirio for $500M

It’s India meets Indianapolis: Bangalore-based consulting firm Wipro is buying Appirio for $ 500 million to bulk up its cloud applications business.

With more resources behind it, cloud services vendor Appirio will be in a better position to fight back against big consulting firms like Accenture and Deloitte, which “have garnered disproportionate market share” in the cloud services market in recent years, Appirio CEO Chris Barbin wrote in a blog post explaining the deal.

Appirio, based in Indianapolis, offers a range of cloud applications integration services, many of them built around Salesforce.com — a logical fit since it grew out of Salesforce’s AppExchange startup incubator. The 10-year-old company also partners with Workday, Google and Amazon Web Services, and numbers Facebook, eBay and Coca-Cola among its customers.

To read this article in full or to leave a comment, please click here

Computerworld Cloud Computing

3 no-bull takeaways about Google buying Apigee

From the outside, Google picking up API management outfit Apigee doesn’t seem like a high-profile acquisition. But it may turn out to be strategically important, as APIs drive the enterprise IT Google wants to make a major part of its business.

Here are three key insights into what Apigee will mean for Google, its own enterprise customers, and Apigee’s existing user base.

1. APIs matter more than ever to Google and its users

This goes beyond plugging into Google’s public APIs for their services; everyone’s been doing that for years. Applications created by businesses — running in their private clouds, in hybrid environments, and in public clouds like Google’s — are becoming API-driven affairs by necessity. An app without an API is like a car with no dashboard and maybe no steering wheel either.

To read this article in full or to leave a comment, please click here

InfoWorld Cloud Computing

It’s time to revisit Apple buying Dropbox

Dropbox once told Apple’s Steve Jobs that it wasn’t for sale, but now might be a good time to change its tune.

The bottom’s dropped out of Dropbox’s market. In 2011, it was invaluable. But now, in 2015, it’s clunky — an unnecessary step that feels a bit too far removed from the dozen or so apps we use regularly. Dropbox is decently integrated, but it doesn’t feel like enough now, when we can easily send files through interoffice chat and collaboration platforms like HipChat and Slack that do much more than file-sharing. While many individuals did (and still do) use Dropbox for sharing photos and big, totally legal files, Dropbox is largely for business, used by colleagues to exchange big folders and files. In fact, Dropbox says that 60 percent of its basic and pro users use Dropbox primarily for business.

It’s vital to businesses, this service of making file-sharing easy. Unfortunately for Dropbox, file-sharing is just a portion of the connected service suite that digital work today requires. To put it simply, Dropbox is underpowered for 2015. And given it’s incredibly (read: actually insane) high valuation, that’s a big ol’ $ 10 billion problem.

A better solution than iCloud

While we’re on the subject of services that just don’t quite pull their weight in 2015, let’s chat about iCloud.

My mom calls me all the time to ask if a photo she mistakenly deleted is in iCloud. I tell her what I’ve told everyone else who has ever asked me anything about iCloud: “I have no earthly idea.”

I don’t know what’s in my iCloud. 22.1GB worth of miscellaneous things, apparently, but I don’t actually know what makes up all of those mysterious gigabytes (edit: I checked — it’s a lot of photos, Contacts, and maybe half of my total Reminders), and I definitely don’t know how I would go about retrieving any of that purportedly precious data in the event of a catastrophic iDevice meltdown. I’m confident that I could figure it out, but I haven’t attempted it.

I don’t use iCloud at all. And that’s because iCloud is garbage. It’s only recently graduated from “glorified landing page” to “somewhat usable interface”, but it remains a part of my Apple life that I feel no real need to interact with at all, unless something goes absolutely and horrifically wrong and I’m forced into the iCloud interface as a data Hail Mary.

To be fair, I’m glad that iCloud exists. I’m glad that Apple’s making an effort to save the data that I’m too stubborn or lazy to back up. I’m glad that it’s trying to save me from myself. Or maybe it’s just trying to save a Genius or two from having to explain to a customer that all of his photos are gone because he carelessly dropped his iPhone 6 Plus into a chocolate fondue fountain. Maybe it’s both.

Either way, the fact remains that iCloud is trash, even when it’s helpful, and that’s largely because it is so underachieving. iCloud could be better, but first it has to be useable, and maybe that’s where Dropbox comes in. Because iCloud, too, is underpowered.

When Dropbox founder Drew Houston met with Steve Jobs in 2009 to talk about Dropbox, Houston famously shut down Jobs’ approach to buy the file-sharing service. According to a report from Forbes in 2011, Jobs let Houston know that he was making something of a mistake banking on Dropbox’s service to sustain a company, telling him that Dropbox was “a feature, not a product.”

Now, it sort of feels like Jobs was right. Dropbox doesn’t feel like it’s future trajectory is up. In fact, it kind of feels like the rain has started and the Dropbox is getting soggy. Dropbox isn’t going to get much further without becoming easier, more meaningful and high-powered. Dropbox isn’t going anywhere but down as a standalone app, but if it can find a way to make itself a part of our lives the way it began to before iCloud, Google Docs, Box and the rest, it might stand a chance. And, well, if there’s one company that’s become the leading expert on making itself an essential part of daily life, it’s Apple.

Theoretically, if Dropbox were to see the soft, brushed aluminum, backlit writing on the wall and decided that it wanted to take Apple’s offer six years later, would Apple even want to buy?

Well, yeah. It should, anyway.

Tiptoeing into enterprise with iPad Pro

Apple wants a bigger piece of the enterprise pie. iPad Pro proves that. Dropbox has a very solid base of enterprise users (for now), and perhaps a more robust file sharing, synching and management platform for the super-sized tablet would tip the business scales in favor of Apple’s answer to the Surface Pro.

Furthermore, as previously discussed, Apple’s iCloud leaves a lot to be desired–bringing in the world’s most valuable cloud service is far from the worst idea Apple’s ever had (a right that I have assume is reserved for the rollerball on the Mighty Mouse). Beyond that, Apple could really benefit from something of an ecosystem overhaul. Between iPads, Apple Watches, iPhones, Apple TVs and iMac/MacBook/MacBook Pros, many people now find themselves with more than one iDevice. The better those devices communicate and sync data, files, photos, contacts, etc., the more things “just work”, as Apple likes to say.

Perhaps best of all, never again would a Genius have to try to explain what the hell iCloud actually does.

It’s time to revisit Apple buying Dropbox originally published by Gigaom, © copyright 2015.

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Cloud

Is Buying Items Online Safe?

Buying a any items online is the most convenient way to shop now a day. How To Shop Safe Online? But the main question is that is it really safe? and it is! But of course, no matter ho safe it is you still need to have some precaution. Shopping online can give you choices to purchase anytime of the day or night, see how convenient! People will be informed quickly and precisely about the items and may have decisions that they won’t regret at all. You can buy almost everything like kitchen items to health items such as bowtrol colon cleanse. This is what innovation and technology brings to people today. Almost everyone is into online shopping.

Check for links of any identity assurance third party like Verisign, TrustUK, Thawte, Comodo, and a lot more. To know if the site you are visiting uses an encryption, check it on the bottom right corner of both IE and Netscape browsers. Always check your complete privacy and your complete security when giving information online. Never neglect your safety.

Have some personal assessment on every webpage you visit, so both your money and PC are safe. Automatically in a matter of minutes, viruses and spyware programs can infect your pc while you surf. It is needed for us to run and keep our anti-virus software up to date. File-sharing program is a huge problem too. You can check some security patches from Microsoft online. Let your local computer technician check your PC regularly.

Try using a sole credit card for your online purchasing. So it will be easy to raise any credit card discrepancies with the retailer. Don’t just give your credit card’s info to anyone on the net(not the card number). Don’t forget to check for retailer’s contact details, terms and conditions or policy. On secure page of the website, you can view security information about the page. When the padlock is visible it means that your transaction is encrypted.

This is the season of holiday rush. With all this tips, you can buy products online such as affiliate internet marketing magazine or some latest gadgets like Iphone. Just bear this in mind, you are always responsible for your safety. Never forget vital information of your purchases. Then purchasing will be much more enjoyable next time. Just remember those tips above incase you need to shop online. Enjoy your shopping. Have a blessed Christmas and a wonderful new year.

It maybe inside the store or just infront of your laptop, buying products online like bowtrol colon cleanse or any of those affiliate internet marketing magazine can never be safer if you have the lead. Then you can be sure of another enjoyable shopping next time.

Items such as bowtrol colon cleanse, LCD tv or affiliate internet marketing books are all available online. Visit there website