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Covanta and IDT earnings follow-ups, minor BGC & CTL news ?3

12:27 31-Jul-18


The same analyst community who, at best, didn't understand technology well enough to predict how it would play out for IDT, or at worst, were dishonest enough to pan Covanta as nonviable, is now pumping those stocks.  Counting dividends, CVA has earned investors over 50% since it was put back on the pick list in February of 2016.  IDTI has nearly doubled since its addition earlier that same month.  Both companies earned dedicated coverage from me long ago, and that is NOT changing since I think both have sustainable long-term advantages which will eventually propel them much higher than they are today.

Nonetheless, for those who either have been following all along and have long-term gains, or who don't mind short term gains, there is a pretty good argument for taking profits.  I expect that Covanta will be unable to raise its dividend for a least a few more quarters and the yield is now down to 5.5%, below that of household names like AT&T, which is rebounding as expected.  Although I think Covanta has far better long-term growth prospects than AT&T, the market dynamics that have been dominated by zombie capital for decades now indicate an unfavorable comparison.  If those dynamics were to finally start unwinding, then that's all the more reason to take CVA profits now and seek a better price point later.

In the growth segment, IDT management spoke about being the next billion dollar communications and chipset franchise. Those of you who have been asking Qualcomm questions should already know what I'm talking about from my responses.  You can add the memory business that I've been harping on into the mix as the likes of Google start innovating what we've all been calling the cloud into something rather different than just shared hardware by integrating AI (which is very memory intensive) and sensing-as-a-service.  The story is quite credible coming from IDT management, but they echo what I've been saying in acknowledging that the pace of roll-outs is uncertain.  There were many questions about delays from Intel, which has also dropped as expected.  In wireless communications, there was also mention of sub 6GHz frequencies getting the most attention for 5G and IoT, and that satellite could finally give other solutions a run for their money.  This is progress, but it is the sort of good-enough progress that winds up being the enemy of more dramatic innovation.

Another, smaller and less certain reason to take profits now is a potential change in capital gains taxation.  Just to give you both sides of the story, the danger in selling CVA is that Covanta announces a new partnership before a rebuy.  The timing of that is necessarily unpredictable, as is market sentiment.  I think there is less danger in selling IDTI, for although its story is well-understood, it is balanced by macro concerns and (legitimately) high expectations.  My tendency leans towards being unafraid of missing out, since the nature of zombie capital and the misinformation it requires means there are always new opportunities, as currently embodied by Vodafone and BGC Partners on the value/income side, Resonant, CUI Global, Westport and AMSC on the growth side, and CenturyLink in both.  As always, what to do depends on individual circumstances, but I hope these notes provide information and perspective that enables more informed consideration.