Author: Eric Volkman

CME – Buy This Stock Before It Becomes a Dividend Aristocrat

There are few income stocks more elite than the Dividend Aristocrats. These are the rare S&P 500 component companies that have lifted their dividends at least once per year for a minimum of 25 years running.

While these are understandably popular with investors because of their exemplary payout track records, there is a clutch of stocks with shorter streaks that are just as worthwhile. One would-be Aristocrat in the financial sector is particularly worthy of investor consideration, in my view. 

A woman looking at a set of indexes and graphs.

Image source: Getty Images.

It’s good to be the middleman

Step onto the stage, CME Group (NASDAQ:CME). CME Group is the operator of the Chicago Mercantile Exchange (hence the initials), which is the largest and most important derivatives exchange on these shores. It also operates three smaller derivatives markets.

Like other such operators — equity market kings Nasdaq and Intercontinental Exchange (which owns the New York Stock Exchange) being two notable examples — CME Group makes its money on trading. The bulk of its revenue comes from clearing and transaction fees related to trades effected on its exchanges.

That middleman position is a nice one to be in. By facilitating trades — and not being more deeply involved in them — this financial sector mainstay operates in a high-margin business. Actually, that’s something of an understatement. Check out the margins enjoyed by CME Group, Nasdaq, and Intercontinental Exchange:

CME Profit Margin (Quarterly) Chart

CME Profit Margin (Quarterly) data by YCharts

By the way, notice that of the three, CME Group’s margins are the only ones that have not recently dived into negative territory. They’re also more consistent (typically floating around the 40% level) than either Nasdaq’s or Intercontinental Exchange’s.

The fundamental performance of all three is, naturally, dependent on trading volumes. While there’s some justifiable concern that these might be tapering off, CME Group’s robust business and its relatively modest costs should keep profitability high.

And as for the dividend, the company’s free cash flow is solidly in the black. Even though that line item in its most recently reported quarter was relatively light at just over $460 million, it was more than enough to fund the $322 million-plus in dividend payouts. The company’s debt, meanwhile, is manageable, with interest expenses putting only a small dent in its finances.

So CME Group is happy to share its profits with stockholders. In 2011, with the rubble of the financial crisis still smoldering around it, the company began to raise its dividend once every year, and it has shown no intention of stopping. From then to now, the distribution has advanced steadily from $0.28 to $0.90 per share — a more than three-fold increase.

What’s more, at the end of every good year (and there have been plenty of those) CME Group also pays out a variable dividend depending on how it performed. Some of these variables have been rather generous; the last two were $2.50 apiece, which alone would yield 1.2% — a higher rate than many finance sector peers. Taken together, the four quarterly 2020 payouts plus the variable made for a combined dividend yield of 3.1% at recent prices.

Stock exchanging

Dividend stock investors who’ve piled into CME Group might be concerned that the company is heavily rumored to be buying its longtime colleague Cboe Global Markets for $16 billion. Any acquisition, particularly an 11-figure one, can put a real strain on even a monster company’s finances.

However, according to the latest media reports (which CME Group is denying), the company is offering an all-stock buyout of Cboe. So while the deal would be expensive, it apparently would be funded purely with equity, which won’t directly affect the cash pile that funds the dividend.

To sum up, I think the dividend from the ever profitable and cash-vacuuming CME Group is not only safe, but almost certainly set to grow — to the point where, some years from now, it ultimately earns its Dividend Aristocrat badge.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

SESN – Why Sesen Bio Stock Crashed Today

What happened

Sesen Bio (NASDAQ:SESN) had a tumultuous Friday. On a generally fine day for stocks, the company’s shares fell by almost 10%. A clutch of law firms are coming for it, and investors are stepping away.

So what

On Friday, several fresh lawsuits against Sesen Bio were announced. As they were, other law firms took the opportunity to remind shareholders of their existing suits.

Stethescope and gavel on desk with caduceus ornament and books.

Image source: Getty Images.

These center on the biotech company’s lead pipeline drug, cancer treatment Vicineum. In one of the cases, brought by the Schall Law Firm, Sesen Bio is accused of “making false and misleading statements to the market.”

According to Schall, these statements glossed over the fact that “Vicineum suffered from more than 2,000 violations of trial protocols including 215 ‘major’ violations.” The law firm also claims that company clinical investigators were found guilty of noncompliance, and that Vicineum was shown to leak into the body, causing harmful side effects.

Now what

Not coincidentally, the lawsuits are piling in shortly after Sesen Bio had its Biologics License Application (BLA) for Vicineum to treat a form of bladder cancer rejected by the Food and Drug Administration. The regulator did leave the door open somewhat, offering a set of recommendations aimed at bolstering Vicineum’s chances with a revised BLA.

Major business setbacks, and resulting share-price dives like in this case, often generate opportunistic lawsuits backed by aggrieved stockholders. Sesen Bio hasn’t specifically addressed the accusations it faces; it’s hopefully more busy strategizing about the next FDA submission. If I were a shareholder, I’d be more concerned with that than the unsurprising legal blowback.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

SESN – Why Sesen Bio Stock Fell off a Cliff Monday

What happened

It’s tough when any onetime highflier falls precipitously from its height. Such was the case with ambitious biotech Sesen Bio (NASDAQ:SESN), which saw its share price decline by a queasy 42% on Monday following continued fallout from a very discouraging communication from the FDA.

So what

A few hours short of market close on Friday, Sesen Bio announced that it received a Complete Response Letter from the healthcare regulator about its leading drug candidate, Vicineum. The FDA was the bearer of bad news, informing that company that it could not approve Vicineum “in its present form.”

A researcher studying a sample in a petri dish.

Image source: Getty Images.

The regulator provided recommendations for additional data and analysis that might bolster the chances for the BLA to succeed in the future.

Sesen Bio had filed a Biologics License Application for its medication in the treatment of non-muscle-invasive bladder cancer (NMIBC) that does not initially respond to the first-line Bacillus Calmette-Guerin (BCG) therapy.

Now what

As typically happens with FDA rejections in the biotech world, Sesen Bio put a hopeful spin on the regulator’s response. “We remain dedicated to our mission to save and improve the lives of patients by bringing new treatment options to patients, and we intend to work closely with the FDA to understand next steps,” it quoted CEO Thomas Cannell as saying.

The company added that it aims to request a Type A meeting as soon as possible with the regulator, in order to discuss how it might increase Vicineum’s chances for approval. Regardless, the FDA’s decision is a stinging defeat for the company, particularly since Vicineum had performed well in late-stage clinical testing.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

ONDS – Why Ondas Holdings Plummeted on Monday

What happened

Ondas Holdings (NASDAQ:ONDS) wasn’t exactly a hit with investors on Monday. The specialty networking services company reported disappointing second-quarter earnings, and investors responded by trading the stock down; it closed the day nearly 14% lower.

So what

One large problem with Ondas’ performance was net revenue, which fell on a year-over-year basis and landed well short of analyst expectations. For the quarter it totaled $887,400, 23% below the Q2 2020 result. Analysts following the stock were collectively anticipating just over $1.2 million.

Dapper man using smartphone.

Image source: Getty Images.

On a slightly happier note, the tech company narrowed its net loss and managed to come above prognosticator expectations for the line item. The shortfall was $2.82 million, or $0.10 per share, against the year-ago loss of $3.22 million. On average, analysts were modeling a per-share deficit of $0.12.

In its earnings release, Ondas touted the momentum of its key business unit Ondas Networks, which it says “continued to make significant business development progress” during the quarter. It also talked up the acquisition of drone specialist American Robotics, a deal that was completed earlier this month. Finally, it pointed out that it raised $51.5 million in a June secondary stock offering that helped it retire 95% of its existing debt.

Now what

Another point of concern for investors, however, might be Ondas’ somewhat cloudy future. While the company believes that “Ongoing investments in market expansion and deeper penetration of select verticals are expected to continue supporting customer activity,” it said that due to fluctuations in its business, it is not proffering guidance for the current quarter. 

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

CODX – Why Co-Diagnostics Zoomed Almost 10% Higher Today

What happened

Co-Diagnostics (NASDAQ:CODX) was an investor-pleasing machine at the tail end of the week. After reporting highly encouraging Q2 earnings after market close on Thursday, the company’s stock unsurprisingly leapt by just under 10% the following day.

So what

Co-Diagnostics beat every collective analyst estimate for its most important metrics during the quarter. The company, which has risen to prominence even among non-healthcare investors because of its COVID-19 diagnostic products, said that its revenue was $27.4 million. That was nearly 14% higher on a year-over-year basis, and easily topped the average prognosticator forecast of almost $20.8 million.

A smiling doctor making a consultation.

Image source: Getty Images.

On the other hand, net income saw a decline, to $9.8 million from the year-ago figure of $15 million. Yet at $0.33 per share, the former was well above the $0.22 average analyst estimate.

In its earnings release, Co-Diagnostics quoted CEO Dwight Egan as saying that the revenue improvement was due in no small measure to success in “cultivating distributor relationships throughout the United States and abroad.”

As for the future, he added that “we are well-positioned to maintain our trajectory of growth as our significant investments in talent and [research and development] continue to yield positive results.”

Now what

Co-Diagnostics also proffered guidance for its current quarter. The company believes revenue will land in the $23 million to $25 million range, with per-share net earnings coming in at $0.19 to $0.22. Like in the trailing quarter, both ranges topped the average analyst projections ($18.1 million for revenue, and $0.18 per share for net earnings).

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

EDIT – Why Editas Medicine Beat the Market on Monday

What happened

Editas Medicine (NASDAQ:EDIT) got a spoonful of good medicine on Monday that gave its shares a healthy lift; ultimately, the stock closed the day more than 4.4% higher.

So what

That boost was delivered by Truist Securities biotech analyst Joon Lee. On Monday morning, he upgraded his recommendation on Editas stock to buy from the previous hold. He also substantially increased his price target from $45 per share to $80.

Three strands of DNA.

Image source: Getty Images.

Lee’s new bullishness on the company, which utilizes gene-editing technology to develop medications, is due to several positive factors. First, he believes Editas’s leading pipeline drug EDIT-101 (which is aimed at treating Leber congenital amaurosis, an eye disorder) “could show signs of efficacy” when the company publishes the first data from an early-phase clinical trial. This is slated to occur in September.

Second, the prognosticator is also enthusiastic about gene-editing intellectual property that Editas licenses, which has recently been the subject of a legal dispute that is lately tipping in favor of licenser the Broad Institute. Finally, in his research note, Lee touted the company’s “scarcity value as a relatively unencumbered CRISPR-Cas platform company making [it] attractive as a potential partner or a target.”

Now what

The Truist Securities analyst isn’t the only Editas observer entering the bull pen for the stock. Last week, Evercore ISI’s Liisa Bayko upped her recommendation and price target on the shares even more drastically. She flipped the former from underperform (i.e., sell) to outperform (buy), tripling the latter from $20 per share to $60.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

XENT – Why Intersect ENT Shot 12% Higher on Friday

What happened

Intersect ENT (NASDAQ:XENT), a medical device maker specializing in technology for the ear, nose, and throat segment, had a memorable Friday. On the same day it delivered its latest quarterly results, a peer announced it was acquiring the company.

So what

That peer is medical device giant Medtronic (NYSE:MDT), which has signed a definitive agreement to purchase Intersect ENT for $28.25 per share in a deal with an enterprise value estimated at around $1.1 billion. The news comes less than a month after it was revealed that Medtronic had made a formal buyout offer.

That per-share price is 15% higher than Intersect ENT’s closing level on Thursday, hence Friday’s price leap. 

The deal is subject to approval by Intersect ENT shareholders. Given the stock price premium and the company’s absorption into a device segment leader, it’s hard to imagine there will be much objection. Medtronic said that if approved, the acquisition should close by the end of its current fiscal year.

Piggy bank with stethoscope.

Image source: Getty Images.

Meanwhile, for its Q2, Intersect ENT’s revenue came in at $27.3 million, which was 180% higher year over year. The non-GAAP (adjusted) net loss was $16.6 million ($0.49 per share), narrower than the $21 million the company lost in the year-ago quarter.

On average, analysts tracking the stock were modeling a top-line figure of just over $28 million, and an adjusted net loss of $0.43 per share.

Now what

While there have been higher premiums in the recent history of healthcare industry buyouts, this one is fairly generous given Intersect ENT’s habitual bottom-line losses. Investors should unhesitatingly vote in favor of this deal.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

CWBHF – Why Charlotte's Web Holdings Popped Then Flopped Today

What happened

A jump-and-slide trading day is not unusual in the ever-volatile world of cannabis stocks. So it was for hemp products specialist Charlotte’s Web Holdings (OTC:CWBHF) on Friday. A hopeful reaction to the company’s intriguing news about a research project ultimately couldn’t overcome a general pull-back in pot sector stocks, and the shares ended up closing 2.3% lower on the day.

So what

That morning, Charlotte’s Web announced that its CW Labs science division, in collaboration with Colorado State University, has completed one of three research studies on hemp.

In Charlotte’s words, the project is aimed at “researching the complex chemical profile of full spectrum hemp extracts made from the company’s U.S. patented hemp cultivars.” 

A field of hemp seen against a rising or setting sun.

Image source: Getty Images.

It added that “The collaboration examines cannabinoid profiles in hemp extracts under varying cultivars and conditions.” 

If such research breaks new ground, Charlotte’s Web might be positioned to concoct new and compelling hemp-based products. 

But the company isn’t necessarily the master of its own destiny. Oftentimes, its popularity as a stock depends on general market sentiment about the wider cannabis sector. This week, investors got excited about the unexpectedly strong fourth-quarter results from Canadian weed company Tilray, but that stock saw a retreat on Friday, followed by other top industry names.

Now what

Charlotte’s Web bulls, then, shouldn’t be too discouraged by the modest Friday decline in their investment. No research project is ever guaranteed to result in the discovery of gold, but this one certainly has potential, and investors should keep their ears to the ground for news and developments regarding it.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.