Stocks-in-Depth

Realty Income has a diversified portfolio by sectors within the single parcel commercial property market. What are the risks of each sector, and how does management approach each?

Zeltiq has single handedly created a new market for reducing fat that targets the moderately overweight segment. It has become the fastest growing aesthetic treatment, which was already notable for the tremendous demand for neuromodulators like Botox and hyaluronic acid fillers like Restylane and Juvaderm. In Part 1 of this podcast, we explore how Zeltiq's high margin consumables and systems have permitted the company to break through the barriers that often restrain new aesthetic products. We also discuss why cyrolipolysis, an affordable and non-surgical procedure, is popular with a new group of women and also men who are approaching practitioners for help in sculpting difficult areas of their bodies that they can't control with dieting or exercise alone.

Mitel has was long relegated to obscurity within the institutional investment community. However, the discussion in this series of episodes will broadly portray what we find are Mitel’s underappreciated competitive strengths. In episode 39, we first lay out how Mitel came to be a major, if little known, player in providing cloud telephony services to businesses.

Donald Trump is about to be inaugurated as the 45th president of the United States. As far as we can tell, every other country in the world advances a self-serving industrial policy, to the detriment of the United States, which embraces free trade. In this final episode of Stocks-in-Depth’s review of Ian Fletcher’s 2010-2011 book, Free Trade Doesn’t Work, we start by presenting the author’s case that China, Japan, and Europe have emphasized industrial policy over free trade for years. Fletcher’s solution for the U.S. is a flat tariff, which would eliminate the influence of lobbyists and the inefficiencies of propping up dying industries. We suspect that Trump's appointment of Peter Navarro to run the National Trade Council might signal that this proposal is on the table. If the Trump administration considers imposing a flat tariff to balance the trade deficit and stimulate job creation, what would the economic outcome be? What are the investment implications? Are there second and third order effects that might be considered? Might inflation result? In this conclusion to its 4-part series on free trade and the flat tariff solution, Stocks-in-Depth moderator Bill Baker, CFA examines each of these questions and more in this exciting extension of thought to what Ian Fletcher wrote prophetically in 2010-2011.

We described in Part 1 how Cree, Inc. ramped up its headcount in its LED fabrication operation during the major up-cycle that occurred from 2006 through 2010. Although fewer bodies have been added since then, there's "only" been a 10% reduction in corporate headcount since the all-time peak in fiscal 2014, and LED sales are now back to where they were before fiscal 2010.

Although Cree has changed course to emphasize lighting fixtures, the company still suffers from low gross margins and excessive operating expense relative to sales. It also pays out a generous stock comp package even though its stock has underperformed Acuity, a pure-LED comparable that has treated its shareholders to the above average returns one might expect when being a leader in such a rapidly growing category.

In this podcast, we recap the operations discussion from part 1 (including thoughts about how our model has been changing over time), document how well the rest of the industry is doing, talk about the nature of excess Chinese capacity that was accumulated to accommodate flat screen TV manufacturing back in 2010-2011, and provide some color on what it's been like to participate in the commercial, residential, and overseas markets for LED lighting.

Having heard parts 1 and 2, we think you will now have the building blocks to ask the right questions and properly think through whether Cree's breakthrough SC5 technology might separate high power LEDs from those made by commodity LED fabricators, mirroring what happened coming out of the cycle downturn nearly a decade ago. Importantly, you will want to consider whether Cree, Inc. can continue to grow in line with industry leaders on the lighting fixture side and if downstream margins might improve.