Tag Archives: Best

The 7 Best Ways to Stop Micromanaging
October 10, 2018 12:00 pm|Comments (0)

1. Take a second look at recruiting, hiring and training.

Micromanaging often has a root in bringing someone into the company who wasn’t the best fit in terms of culture or skills. That can cause the worker to clash with you or have trouble following protocols or policies, which in turn might make you feel like you have to watch the employee like a hawk. Review how you describe positions and what you require of your recruiters to see if you can’t find more ideal candidates. Once you’ve hired, make sure that workers have access to resources they need to learn and complete the tasks you expect.

2. Keep your schedule full.

The idea here isn’t to work yourself into the ground. Rather, it’s to keep yourself just busy enough that you’re less tempted to constantly watch over everyone. Try to schedule activities with others for accountability and network expansion, and get yourself out of the office when it’s practical.

3. Take a 360 picture of your life and do more self-care.

While some individuals naturally are a little more prone to micromanaging because of their personalities, you might also do it if you feel like there are other areas of your life that you can’t control. In this case, micromanaging employees can be a way of trying to find balance and cope with personal stress. Consider making some lifestyle changes that can put you back in the driver’s seat outside of the office, and talk with people you trust about what you find challenging.

4. Improve your own skills and creativity.

Micromanaging can be a way to live vicariously–if you don’t feel like you have specific competencies or capabilities, you might want to control the people who do so you can feel connected to those positive traits and take credit for their outcomes. Take classes or find other opportunities to affirm your own talents. Always ask yourself whether your requirements satisfy you or whether they satisfy the interests of the business.

5. Improve your communication.

Good communication between you and your employees reassures you that the workers are progressing as you wanted, which alleviates the worry that can prompt you to micromanage. It also builds rapport and trust, which can make you more confident that the workers will follow your directions even when you’re not looking over their shoulders. Schedule regular check-ins and establish an open-door policy so your team knows they can come to you. Make sure your operational routines and protocols discourage siloing and allow time for interaction. Lastly, outline clear goals and constraints for each project so there isn’t any confusion as you delegate.

6. Get more data.

Just like a lack of control in personal areas of your life can make you tighten your grip on workers, a lack of data can make you scared that you’re missing something or will lose out. Instead of keeping tabs on how workers spend every minute, stay focused on the bigger picture. Get other facts and figures that can reassure you that you’re on target, or that can give you better insights about what your employees can and can’t control. Use that data to evaluate team and company goals and adjust processes or resources on a regular basis.

7. Let workers call you out.

Address the elephant in the room and tell your team outright that you’re trying to be better and eliminate the micromanaging habit. Ask them to let you know when they need some breathing space so you can learn about their needs and what typically triggers you to be most watchful. Most employees will be impressed at your willingness to address the fault and just need some reassurance that they won’t be punished for pointing out what you’re doing.

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5 best Chromebooks for school in 2018
August 9, 2018 12:00 am|Comments (0)

I started my “portable” computer life with a 22-pound KayPro II in 1982. Since then, I’ve used IBM and Lenovo ThinkPads, Compaq luggables, Nec Ultralites, Dell XPS 13s, the list goes on and on. These days, my laptop of choice is the Google Pixelbook.

At a starting price of $ 999, this is not a Chromebook for everyone. But, if you want to make the most not just from Chrome OS, but from Android and Linux as well, it’s your Chromebook.

There are often discounts for the Pixelbook. You can also get a 10-percent discount on the Pixelbook if you’re a student.

At a minimum the Pixelbook comes with a 1.2GHz 7th gen Intel Core 7Y57 processor, 256GB of SSD storage, and 8GB of RAM. Unlike the others, the Pixelbook comes not with a 100GB free Google Drive storage for two years, but 1TB of free storage for two years. That’s a value of almost $ 240 alone.

The Pixelbook also has Google Assistant, built-in. You can get to it via its own dedicated button on the Pixelbook’s keyboard or by simply saying “OK Google.” It’s context sensitive, so it will open with search results for what you already have on screen.

This luxury-model Chromebook comes with a pair of USB-C ports. One of these, however, is used to power the system up. For Wi-Fi, it uses 802.11ac.

With a battery life of about 10 hours, it won’t last long as some of the others, but then you can do a lot more with it. On my high-end model, I’ve had over 100 tabs open, while running Android and Linux applications.

You sure wouldn’t want to give this Pixelbook to an elementary student, but an advanced high-school or college student would be another matter. The Pixelbook is meant for power users and developers, if that describes your daughter or son, then get them this one. You’ll be glad you did.

Back-to-school tech: More resources

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Google Roundup: July's Best New Features For Google's Apps And Devices
July 29, 2018 12:00 pm|Comments (0)

What’s new for Google’s apps and devices.Credit: Alexas Photos/Pixabay

Google is always modifying its apps and devices with upgrades and new features. The pace of change is so relentless that trying to keep track can be overwhelming. In case you missed them, here are some of the best new features Google introduced during July.

Site Isolation for the Chrome browser

Site Isolation a major security update for the Chrome browser that protects users from malicious websites that steal sensitive data like passwords and encryption keys. Site Isolation puts content from a website’s domain in a sandboxed process that is prevented from sharing memory with other domains. Malicious websites and threats like Spectre can’t steal what they can’t access.

Site Isolation can increase memory overhead by 10 to 13% in some cases. This change produced a flurry of misleading headlines implying the memory increase is some kind of major problem. It isn’t. The increased memory demands are only likely to result in a performance decline for some users in some circumstances. If you’re a Windows user, it’s a simple matter to find out if Chrome is stressing your system memory with the Task Manager. If it is, easy solutions range from closing some tabs to using any one of a number of Chrome extensions that put background tabs to sleep.

Site Isolation is currently operating in Chrome for Windows, Chrome OS, Mac and Linux. Google estimates that 99% of Chrome users on these operating systems are protected. More information about Site Isolation can be found here.

Chrome 68 labels HTTP websites “Not Secure”Credit: Google

Chrome 68 arrives

Site Isolation wasn’t July’s only security enhancement for the Chrome browser. Warning labels were attached to unsafe websites and users were protected from malicious redirects in Chrome 68 which rolled out several days ago.

While most websites have migrated from the unsafe HTTP network protocol to the much safer HTTPS, some haven’t. Data is sent in clear text over HTTP which means anyone who intercepts it can read it. This is not good if, for example, you enter your credit card information when you buy something online. HTTPS is a secure version of HTTP. Communication between the website and the browser is encrypted and if it is intercepted, it can’t be read without the encryption key.

Chrome 68 adds a “Not secure” warning label in the URL bar at the top of the page on websites that still use HTTP. If you see the label, be aware that any communication with the website is easily stolen.

A website redirect sends the user to a different website or pops up a new window when the user opens a page. Redirects have many legitimate uses, but they are also commonly employed to pop up annoying ads or surreptitiously send users to malicious websites. Chrome 68 interferes with redirects that are frequently used for malicious purposes by opening a window that gives the user the option of moving to the new website or staying where they are.

More information about Chrome 68 can be found here.

The For You tab in Google MapsCredit: Kevin Murnane

Google Maps adds personal recommendations and neighborhood tracking

Google Maps now surfaces information tuned to your tastes and interests with a redesigned Explore tab and a new For You tab. For You also lets you keep track of what’s going on in the neighborhoods where you hang out. Here’s what’s new.

  • The Explore tab gives eating and drinking recommendations for any location you choose. Recommendations can be filtered by type of food.
  • If you’re trying out the places on a trending list, Maps will keep track of the ones you’ve visited and the ones you haven’t.
  • Explore also surfaces upcoming events and activities that can be filtered for the kind of thing that interest you in an area of your choosing. 
  • Restaurants and bars have a numerical rating that reflects Google’s best guess about whether you’ll enjoy the place. The ratings are ennabled on Android but not iOS and location sharing has to be turned on.
  • For You lets you track establishments and neighborhoods. It’s a great way to find out if a new place that caters to your interests has opened in your neighborhood or if something about one of your favorite places has changed.

The revamped Explore tab is available for Android and iOS worldwide. For You is only available for Android in the US, UK, Canada, Australia and Japan.

Visual Snapshot brings personalization to the Assistant

Maps wasn’t the only app that received enhanced personalization features in July. Visual Snapshot brings the defunct Google Now’s summary of information that helps you navigating through your day to the Assistant.

Visual Snapshot adds reminders, weather and traffic reports, events on your schedule and more to the Assistant app. It can interact with both Google and third-party apps to corral information from a variety of sources into one convenient location. Visual Snapshot is accessed through an icon that looks like a radiant inbox in the upper right corner of the Assistant app. Tap the icon to see what the Assistant can tell you about the rest of your day.

The perimeter and area of the National Mall in Washington DC.Credit: Kevin Murnane

Google Earth adds a measurement tool

How long is the route you take when you walk your dog? How many acres is your property? What’s the difference between the straight-line distance from your home to your job and the route you actually take to get to work? You can answer all of these questions with Google Earth’s new measurement tool.

Place an anchor on any two points and Google earth will return the distance between them. You can drop a string of anchors on corners and along curves to measure route distances. Enclose a space and Google Earth gives you both the perimeter and the area.

Google Earth’s new measurement tool is available on the web and Android with support for iOS promised sometime in the future.

Waze added to the Android Auto app

Waze was added to Android Auto for in-car displays last July and now it’s finally available for the Android Auto app on phones. Whether you’re using Android Auto on a head unit or a phone, Waze lets you

  • Launch navigation by tapping on a pre-programmed destination or by saying “OK Google” to wake up the Assistant.
  • Get video and audio alerts about upcoming problems and find alternate routes on a large map.
  • Access your personalized Waze experience and view your ETA panel.
  • Report accidents, road hazards or traffic jams through a visual report menu.

Waze for Android Auto is available for Android 5.0 (Lollipop) and up and is optimized for use with a car dock.

Continued Conversation arrives for Google Home devices in the US.Credit: Google

“OK Google” no longer needed before every interaction with a Home device

Google rolled out Continued Conversation in late June but it’s such a huge improvement in ease of use for the company’s Home devices that I had to include it here. With Continued Conversation you don’t have to repeat the wake-up phrase before every subsequent command or query once you’ve begun an interaction with the Assistant in Home. The Assistant has an eight-second window during which it will respond to another input without hearing the wake-up phrase. If it doesn’t hear a command or query after eight seconds, it shuts down. The Assistant will also shut down if you say “Thank you” when you’re finished. Talking to the Assistant in Home feels much more like having a conversation than it did before.

Continued Conversation is toggled off by default. You can turn it on through either the Home or Assistant apps on a smartphone, tablet or Chromebook. More information about continued Conversation can be found here.

These seven new features were the most useful for me, but Google added a lot more during July and you may discover something different that makes your life easier or more enjoyable. Take a look at these articles for more of the new features Google added to it’s apps and devices in late June and July.

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Science Says This is the Best Way to Persuade Someone Who's Wrong (Jeff Bezos Will Hate It)
June 17, 2018 6:11 pm|Comments (0)

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek. 

In today’s America, we tend to feel gray areas are a touch passé.

You’re either right or you’re wrong. And if you can’t see which you are, then you’re two slices short of a sandwich.

How, though, can you even begin to persuade someone who’s mistaken — or even worse, vehemently disagrees with you?

A new study makes a curious suggestion, one that won’t please everyone.

The study, conducted by Brendan Nyhan of Dartmouth College and Jason Reifler of the University of Exeter, is entitled The roles of information deficits and identity threat in the prevalence of misperceptions.

They’re very polite about the fountains of knowledge pouring into today’s humans.

“Why do so many Americans hold misperceptions?” the researchers ask. 

To which I reply: “Why do many Americans now put mis in front of pleasant words, instead of calling them that they really are? Lying has become misspeaking? Oh, I don’t think it has.”

Anyway.

Nyhan and Reifler come to a startling, even painful conclusion: “In three experiments, we find that providing information in graphical form reduces misperceptions. A third study shows that this effect is greater than for equivalent textual information.”

Yes, if you want to persuade your half-cut, halfwitted neighbor or colleague about the parlous state of the world and the dangers of fascism/socialism/democracy/self-help books, your best bet is to show them a chart.

Worse, it seems that a chart is better than even text. Goodness, is that where I’ve been going wrong all my life?

I can, though, already see Jeff Bezos’s eyes rolling into the back of his head and emerging with a very red hue.

As the Amazon CEO explained in his latest letter to shareowners: “We don’t do PowerPoint (or any other slide-oriented) presentations at Amazon. Instead, we write narratively structured six-page memos. We silently read one at the beginning of each meeting in a kind of ‘study hall.'”

So no slides or charts and graphics for Bezos. All he wants is a short story. Could he, perhaps, misperceive the benefits of charts? 

Still, charts surely can’t be so effective, otherwise everyone would have tried them. 

Moreover, it’s not as if you can create a chart to describe every false belief. How, for example, do you create a chart for a CEO who simply thinks his touch and feel is always right?

Nyhan and Reifler explain that a considerable reason why people hold on to false information is purely psychological. It confirms their world view.

“On high-profile issues, many of the misinformed are likely to have already encountered and rejected correct information that was discomforting to their self-concept or worldview,” they say.

Yes, but it’s not as if that nice man on CNN with his Election Night charts has ever persuaded many people, is it?

Expect, though, the rising stars in many companies now rushing to create charts in order to show that they’re right and their brain-manacled bosses are wrong. 

Expect, too, that American politics will now be revolutionized with the presentation of definitive charts of right and wrong.

You think I’m wrong about that? 

Send me a chart to show me why.

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My Father Invented The Best Business Quotes Of All Time
June 17, 2018 6:03 pm|Comments (0)

My dad, who would be mortified if he knew I was doing this, has been my greatest inspiration in business. Thanks to his disdain for any sort of self-aggrandizement, I’m doing this behind his back (sorry, dad).

If I’ve had any success in business, it’s because my dad lived his life according to the doctrine of entrepreneurship and I got to watch from the sidelines. He was living proof that you’re not confined to the hand you’ve been dealt and you can determine your own outcomes in this life.

Over the years, my dad’s shared countless bits of wisdom with me that we endearingly refer to as, “The Marty Lecture Series.” Today, in honor of Father’s Day, I’d like to share some of my personal favorite “Lecture Series” quotes with you. 

When You Lose, Don’t Lose The Lesson 

My dad never took “no” as no. “No” was always a starting point for negotiation. Where others saw obstacles or setbacks, my dad saw (and still sees) opportunity. 

Every time I came home with a perceived failure, he’d reframe it with how it taught me something or made me stronger. 

It was infuriating as a 14-year-old who relished in self-pity and just wanted a “normal parent” who would indulge her, but it’s been invaluable as an entrepreneur. It’s impossible to be derailed by failure when you’re forced to find a lesson.

Sometimes You Gotta Be Ok With “Good ‘Nuff”

I was complaining about a mediocre grade on something when my dad spit this quote at me for the first time. Irate, I thought he meant you should settle for less than you deserve or are capable. It took me years before I realized what he meant was “done is better than perfect.”

He was teaching me how to ship

Patience and Shuffle the Cards 

In a world where my contemporaries are obsessed with quick Instagram-worthy wins, my dad always shared this quote from Cervantes. He was never impressed with status, fame, or fancy things. Perhaps it was the Texan in him, but he was never influenced by those who projected the illusion of success.

He was impressed with people who had passion, determination, and (most importantly) the wherewithal to endure the setbacks that come at you as you go down the road less traveled. People who played the long game. 

Any day I felt like everything was over, the world was collapsing, and I should quit (aka: every other day in business), he’d remind me today was one of many.

This is a long game. You gotta have patience and shuffle the cards.

Some Days Just Need to Be Over 

This one is a crowd favorite, especially in a culture obsessed with self-improvement and maximizing everything. Some days, you gotta accept that you can’t win. 

Don’t dwell on it. Accept your losses, go for a run, do something else productive, but don’t waste your time beating yourself up over a crap day. 

Some days just need to be over. 

You Gotta Fight Em In The Streets 

This one is my favorite. 

To my dad, there’s nothing more respectable than someone who is “fightin’ em in the streets.” In other words, there is no substitute for doing the work. The tireless work that no one sees, the stuff people won’t thank you for, the things no one will recognize or know you did. All the “not sexy” parts of entrepreneurship. 

This mentality also inspired the name of my virtual co-working space, The Arena. The Arena is a metaphor for “fighting in the streets.” It’s where you show up and do your best. Win, lose, or draw, you show up. You fight. You do your best. 

My dad always said he’d never judge me for losing. He’d judge me for not having tried. 

To my dad and all the other entrepreneurial father’s out there, Happy Father’s Day.

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Cyber Saturday—Apple iPhone Phishing Trick, Zscaler as Best Tech IPO, Facebook Fails
June 9, 2018 6:14 pm|Comments (0)

Good morning, Cyber Saturday readers.

A month ago I was milling about a hotel room in New Orleans, procrastinating my prep for on-stage sessions at a tech conference, when I received a startling iMessage. “It’s Alan Murray,” the note said, referring to my boss’ boss’ boss.

Not in the habit of having Mr. Murray text my phone, I sat up straighter. “Please post your latest story here,” he wrote, including a link to a site purporting to be related to Microsoft 365, replete with Microsoft’s official corporate logo and everything. In the header of the iMessage thread, Apple’s virtual assistant Siri offered a suggestion: “Maybe: Alan Murray.”

The sight made me stagger, if momentarily. Then I remembered: A week or so earlier I had granted a cybersecurity startup, Wandera, permission to demonstrate a phishing attack on me. They called it, “Call Me Maybe.”

Alan Murray had not messaged me. The culprit was James Mack, a wily sales engineer at Wandera. When Mack rang me from a phone number that Siri presented as “Maybe: Bob Marley,” all doubt subsided. Jig, up.

There are two ways to pull off this social engineering trick, Mack told me. The first involves an attacker sending someone a spoofed email from a fake or impersonated account, like “Acme Financial.” This note must include a phone number; say, in the signature of the email. If the target responds—even with an automatic, out-of-office reply—then that contact should appear as “Maybe: Acme Financial” whenever the fraudster texts or calls.

The subterfuge is even simpler via text messaging. If an unknown entity identifies itself as Some Proper Noun in an iMessage, then the iPhone’s suggested contacts feature should show the entity as “Maybe: [Whoever].” Attackers can use this disguise to their advantage when phishing for sensitive information. The next step: either call a target to supposedly “confirm account details,” or send along a phishing link. If a victim takes the bait, the swindler is in.

The tactic apparently does not work with certain phrases, like “bank” or “credit union.” However, other terms, like “Wells Fargo,” “Acme Financial,” the names of various dead celebrities—or my topmost boss—have worked in Wandera’s tests, Mack said. Wandera reported the problem as a security issue to Apple on April 25th. Apple sent a preliminary response a week later, and a few days after that said it did not consider the issue to be a “security vulnerability,” and that it had reclassified the bug as a software issue “to help get it resolved.”

What’s alarming about the ploy is how little effort it takes to pull off. “We didn’t do anything crazy here like jailbreak a phone or a Hollywood style attack—we’re not hacking into cell towers,” said Dan Cuddeford, Wandera’s director of engineering. “But it’s something that your layman hacker or social engineer might be able to do.”

To Cuddeford, the research exposes two bigger issues. The first is that Apple doesn’t reveal enough about how its software works. “This is a huge black box system,” he said. “Unless you work for Apple, no one knows how or why Siri does what it does.”

The second concern is more philosophical. “We’re not Elon Musk saying AI is about to take over the world, but it’s one example of how AI itself is not being evil, but can be abused by someone with malicious intent,” Cuddeford said. As we continue to let machines guide our lives, we should be sure we’re aware how they’re making decisions.

Have a great weekend—and watch out for imposters.

Maybe: Robert Hackett

@rhhackett

robert.hackett@fortune.com

Welcome to the Cyber Saturday edition of Data Sheet, Fortune’sdaily tech newsletter. Fortune reporter Robert Hackett here. You may reach Robert Hackett via Twitter, Cryptocat, Jabber (see OTR fingerprint on my about.me), PGP encrypted email (see public key on my Keybase.io), Wickr, Signal, or however you (securely) prefer. Feedback welcome.

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OnePlus 6 Review: The Best Affordable Android Phone of 2018
May 21, 2018 6:00 am|Comments (0)

OnePlus is an odd duck in the smartphone business. It tends to make one phone at a time with a simple and clear goal: to pack all the latest trends and tech into an Android phone that costs about $ 500. It doesn’t waste time developing a ton of custom features, like LG’s crazy AI-powered camera, nor does it make any effort to woo U.S. wireless carriers. If you want a OnePlus phone, you have to buy it unlocked, directly from OnePlus. For as offbeat as it seems, the strategy appears to be working.

The 2017 OnePlus 5T sold out faster than anticipated and now OnePlus is back a mere six months later with its successor. If you obsessively follow smartphone trends, you can probably guess the OnePlus 6’s new features: A longer screen with a notch cutout up top, glass on the back, Android 8 Oreo, and a top-shelf Qualcomm Snapdragon 845 processor.

The OnePlus 6 holds no major surprises, and that’s exactly how OnePlus likes it.

Gestures and Glass

Metal frame. Gorilla Glass back with curved edges. If you’ve held a top-tier smartphone in the last year, you can imagine exactly what the OnePlus 6 feels like.

The 6 is roughly the same size as the 5T, with a taller 6.28-inch 1080p AMOLED screen (spoiler warning: it looks great in spite of its HD resolution) that stretches from the bottom (almost) all the way up to the tippy top. Unlike LG’s G7, OnePlus makes no major effort to hide its notch. It’s only 3/4 of an inch across, which makes it less distracting than Apple’s iconic (or, depending on how you feel, infamous) iPhone X notch, which is so wide that there’s little room for anything else along the top edge.

The fingerprint sensor sits a bit lower on the back of the phone, but I noticed that it seemed less capable than before. It’s still speedy at unlocking, but one of my favorite features on the 5T was the ability to swipe the fingerprint sensor to pull down the notification tray. The 6 cannot do that. Luckily you can still swipe down from anywhere on the home screen to open notifications, or swipe up to pull out the app drawer. These are simple features that make life with a large-screened phone way more enjoyable. I can only hope that OnePlus adds this functionality with a software update.

OnePlus’s mute switch is now on the right side of the phone, letting you easily switch to vibrate and silent modes, much like the toggle on the side of every iPhone. The built-in audio jack is also a godsend if you love music. You get the versatility of USB-C and a 3.5mm headphone jack, so you can jam out while you charge the device.

The slick glass back may give you trouble, though. It’s more slippery than some Android phones, which has led to a few slip-ups where I had to catch the phone before it hit the ground. It also attracts fingerprints and converts them into a gross, gunky patina at an alarming rate. To my surprise, OnePlus includes a semi-transparent plastic case with each OnePlus 6, which makes it a bit easier to grip, and should offer some protection. If you’re paranoid, this Dretal case should buy you even more peace of mind.

The screen protector that comes preinstalled on the OnePlus 6 should also help the phone stay protected. That is, as long as you don’t accidentally tear it off like I did. Oops.

Snappy and Speedy

OnePlus doesn’t mess with Android Oreo much with its variant it calls OxygenOS. My unit got the latest security patch (hopefully the first of many), and the experience is nearly identical to a Google Pixel 2—currently our favorite Android phone because of its camera and thanks to feature and security updates direct from Google.

OnePlus/Bluehole

The OnePlus 6 is particularly snappy. Apps and menus seem to open even faster than the LG G7, another 2018 phone with a Snapdragon 845 chip. OnePlus explained that this added quickness is because it prioritizes what parts of an app it needs to load, increasing speeds by about 10 percent. It also made small efforts to increase performance in games and can boost network speed of those games by slowing down any apps sucking up data in the background.

Battery life is about 1.5 days—nothing dramatic but also no worse than most high-end phones. There’s no wireless charging, but the custom USB-C charger does juice up the phone very quickly by offloading some charging management to the included fast charger.

A Capable Cam

Photo quality continues to slowly improve with each new OnePlus. The 16-megapixel main rear camera has a bigger sensor this time around, and does an adequate job under most conditions, even if it still struggles in low light sometimes. The background-blurring portrait mode seems to be more reliable, but it’s still not uncommon for the phone to accidentally blur part of a foreground object.

There’s a super slow-mo mode now (netting you 480 fps at 720p), and added optical image stabilization for video, which can record in 4K at 60 frames per second.

The 16-megapixel selfie cam takes a sufficient selfie that’s noticeably less washed out in bright light, but I’m still bothered by the odd way it saves them mirrored (backward) by default. You can fix this by swiping up from the bottom of the camera app and hitting the settings button that’s hiding in the corner.

I’d be remiss if I didn’t mention the convenient Face Unlock feature. It’s quick and works well enough that I hardly notice it, though I worry about security since it’s not nearly as robust as a Galaxy S9 or an iPhone X in that regard. Hopefully there aren’t a lot of phone thieves out there with 3D-printed copies of my face. If there are, I might be in trouble. Then again, maybe not.

On the whole, the camera is good relative to the cost of the phone, but it’s nowhere near the quality of the Pixel 2.

A Bargain Without the Bin

I might not love its fragile glass construction or its middle-of-the-road camera, but let me make it abundantly clear: the OnePlus 6 is a kickass Android phone and the best unlocked device you can buy for around $ 500. The only big caveat worth highlighting is carrier compatibility. The OnePlus 6 still only works on AT&T, T-Mobile, U.S. Cellular, and others that use similar networks. Even though it technically has the right bands, it won’t run on CDMA carriers like Sprint or Verizon.

OnePlus sells two unlocked versions of the 6: a $ 529 model with 6GB RAM and 64GB of file and photo storage and a $ 579 upgrade with 8GB RAM and 128GB of storage. If you have a lot of photos or apps, get the 128GB version. There is no way to expand the phone’s memory, so once you’re out of storage space, you’ll have to start micromanaging your memory, which isn’t fun. For most folks, 64GB should be enough, but check the capacity of your current device just to be sure.

If you want the best of the best, you can purchase Android phones that edge out the OnePlus 6 in one regard or another, but it’s hard to beat a phone that’s as powerful as a Galaxy S9, yet nearly $ 200 cheaper. OnePlus continues to offer stellar value here, making the OnePlus 6 a true bargain.

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10 Quotes From The 2 Best Entrepreneurial Minds Alive
May 5, 2018 6:00 am|Comments (0)

Having spent the past 10 years relentlessly studying psychology, self-improvement, and entrepreneurship, there are many people who have inspired and influenced my thinking.

However, over the past 3 years, I’ve come across two thinkers who stick out. Not just in their thinking, but their overall approach to life and business.

Naturally, both of these entrepreneurs are highly aligned, synergistic, and yet very different.

These two entrepreneurs are Dan Sullivan and Joe Polish. Dan is the founder of Strategic Coach, which is considered by many to be the #1 entrepreneurial coaching program in the world. Joe is the founder of Genius Network, GeniusX, and Genius Recovery. Genius Network is considered the #1 entrepreneurial mastermind group in the world. 

DAN SULLIVAN

“Always make your future bigger than your past.”―Dan Sullivan

“Who, not how.”―Dan Sullivan

“As an entrepreneur, you’ve removed yourself from the restrictions and limitations of other people’s systems. Still, it’s amazing how many of us strive to meet others’ expectations and demands – or set up rigid, impossible ideals for ourselves.”―Dan Sullivan

“Over scheduled entrepreneurs can’t transform.”―Dan Sullivan

“For a company to achieve 10x, it doesn’t need you managing – it needs self-managing.”―Dan Sullivan

JOE POLISH

“Life gives to the giver and takes from the taker.”―Joe Polish

“Wherever there is anxiety, there is opportunity. Transform bad news into good news, and leverage that with marketing.”―Joe Polish

“Any problem in the world can be solved with the right Genius Network.”―Joe Polish

“Opposite of addiction is connection.”―Joe Polish

“Be willing to destroy anything that isn’t excellent.”―Joe Polish

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Best Fitness Trackers (2018): Fitbit, Suunto, Garmin, Nokia, Apple Watch
April 1, 2018 6:05 pm|Comments (0)

This stark, minimalist device is a hybrid between an analog watch and a smart one. It looks like an elegant fashion accessory, but connects to the Nokia Health app on your phone to show stats like your heart rate, steps, and distance traveled. It’s simple and slim, with a velvety silicone band, and can transition from surfing to a wedding brunch without skipping a beat. And, at $ 180, it is one of the most affordable fitness trackers out there.
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Now Is The Time To Buy The 2 Best Dividend-Paying Pharma Stocks
March 28, 2018 6:05 pm|Comments (0)

(Source: imgflip)

My dividend growth retirement portfolio has an ambitious goal of generating 12% total returns over time. The cornerstone of my strategy is a highly diversified portfolio of quality dividend companies bought at fair price or better.

That means I use a lot of watchlists and patiently wait to buy the right company at the right price. Well, the market correction, plus a disappointing drug trial result, mean that two of my favorite blue-chip drug makers, Johnson & Johnson (NYSE:JNJ) and AbbVie (NYSE:ABBV), have finally fallen to levels at which I can recommend them.

Let’s take a look at why these two industry leaders likely have what it takes to continue generating years, if not decades, of generous, safe, and steadily rising income. Traits that history indicates will lead to market-beating total returns, especially from their currently attractive valuations.

Johnson & Johnson: The Most Trusted Name In Pharma Continues Firing On All Cylinders

The pharmaceutical industry is both wide-moat and defensive (recession-resistant). That can make it a potentially attractive industry for low-risk income investors. And when it comes to big drug makers, none are lower-risk than Johnson & Johnson, which was founded in 1885 and is the world’s largest medical conglomerate. The company has over 250 subsidiaries operating in over 60 countries, making it the most diversified drug stock you can own.

(Source: JNJ Earnings Presentation)

All three of its business segments posted strong growth in 2017, resulting in company-wide operational revenue growth of 6.3%.

Metric

2017 Results

Revenue Growth

6.3%

Free Cash Flow Growth

14.4%

Shares Outstanding

-1.6%

Adjusted EPS Growth

8.5%

FCF/Share Growth

16.2%

Dividend Growth

5.4%

Dividend FCF Payout Ratio

51.3%

FCF Margin

23.3%

(Source: JNJ Earnings Release, Morningstar)

Excluding major acquisitions, such as the $ 4.3 billion purchase of Abbott Medical Optics and the $ 30 billion purchase of Actelion, operating revenue was up 2.4%. However, what ultimately matters to dividend growth investors is the company’s free cash flow, or FCF. That’s what’s left over after running the business and investing in future growth, and it grew by an impressive 16.2% last year. And despite the lower-margin medical products and consumer goods segment, JNJ still managed to convert 23.2% of its revenue into free cash flow in 2017.

FCF is what funds the dividend, and with an FCF payout ratio of 51.3% JNJ’s track record of 54 straight years of rising dividends is all but assured. In fact, the company will raise it again next quarter, with the analyst consensus being for about an 8% hike for 2018. That’s thanks to highly positive management guidance, including:

Metric

Mid-Range 2018 Growth

Operational sales

4%

Operational sales ex acquisition

3%

Total sales

6%

Operational EPS

8.20%

Adjusted EPS

11%

(Source: JNJ Earnings Presentation)

This is largely thanks to the strength of its pharmaceutical segment, particularly the oncology division, which saw worldwide sales growth of 25% and generated $ 7.3 billion in sales for the company. The strength of JNJ’s cancer drug business was largely fueled by such drugs as:

  • Darzalex (multiple myeloma): Worldwide sales up 117%
  • Imbruvica (lymphoma, Leukemia): Worldwide sales up 51%

These offset the small (9.3%) decline in global Remicade sales, which is the company’s blockbuster immunosuppressant that treats rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis, Crohn’s disease, plaque psoriasis, and ulcerative colitis. This decline was caused by the loss of patent exclusivity.

The good news is that while Remicade is in decline, other immunology drugs like Stelara (psoriasis and arthritis) are quickly stepping up to fill the gap. For example, in 2017, Stelara’s worldwide sales grew 24% to $ 4 billion, nearly matching Remicade’s $ 6.3 billion revenue.

In addition, JNJ is partnering with Theravance Biopharma (NASDAQ:TBPH) in a $ 100 million deal to develop its potentially far superior immunology drug to replace falling Remicade sales. That drug, TD-1473, is highly effective in very small doses. Early trials indicate it shows no significant broadscale immunosuppression, which has been the main side effect of all previous drugs in this category.

If future trials go well, then JNJ will likely pick up the tab for the drug’s registration costs, and its giant sales force will be responsible for marketing the drug. That’s in return for 2/3rd of US profits, as well as all global profits minus a double-digit royalty to Theravance.

This is great example of smart capital allocation, which reduces development risk immensely. JNJ has done this kind of co-development/co-marketing deal before. In 2011, it paid Pharmacyclics (now owned by AbbVie) $ 150 million to help it develop Imbruvica. Today, that cancer drug is one of Johnson & Johnson’s top sellers with nearly $ 2 billion in sales.

Pharmaceutical market analysis firm EvaluatePharma expects that figure to hit $ 7.5 billion by 2022, which is projected to make it the 4th-best selling cancer drug in the world. JNJ and AbbVie each have about 50% rights to Imbruvica, though AbbVie also enjoys royalty rights that it acquired when it bought Pharmacyclics.

Edurant, an HIV drug, also saw strong sales growth of 24.6%. This shows the major strength of JNJ. Which is that while most of its profits come from volatile, patented pharmaceuticals, it remains highly diversified, with even its largest medication representing only 8.2% of companywide revenue in 2017.

Best of all, JNJ’s drug development pipeline is deep, with 19 drugs in late-stage clinical trials for 85 indications in the US and the EU. And those are just late-stage phase three trials. In total, the company’s pipeline has 34 drugs, including 10 potential blockbusters that it expects to receive approval for by 2021. These are drugs the company thinks could generate over $ 1 billion in sales each.

This includes prostate cancer drug Erleada, which EvaluatePharma thinks could generate $ 1.6 billion in annual sales by 2022. Meanwhile, JNJ has Imbruvica in trials for seven more indications, four of which are expected to boost annual sales by at least $ 500 million each. All told, EvaluatePharma expects JNJ’s new drug/indication expansions over the next five years to drive $ 14.9 billion in additional sales, or nearly $ 3 billion per year.

And while it’s the least sexy part of the company, I like the consumer goods segment for its strong record of innovation.

(Source: JNJ Investor Presentation)

Consumer products has numerous highly trusted brands that have given the company a strong, non-patent reliant source of global revenue, including 55% from outside the US. In 2017, this segment’s sales grew 2.2%.

(Source: JNJ Investor Presentation)

In the last three years, JNJ has managed to use its enormous economies of scale to cut $ 1.7 billion in annual operating costs, resulting in operating margins rising by 4.5%. Going forward, the company expects to be able to achieve 1-2% above industry average growth, while achieving 20.3% operating margins.

Meanwhile, medical devices give the company much-needed diversification. It also provides a long growth runway given that in the future, global demand for surgical, orthopedic, cardiovascular, vascular, and vision devices is set to grow strongly.

Medical devices is a wide-moat industry, with JNJ controlling dominant positions in both orthopedics and endo-surgical devices (minimally invasive surgical tools). Surgeons are generally loath to switch suppliers, since they train and gain expertise using particular medical devices. This creates a stickier ecosystem and stronger pricing power.

The segment generated 5.9% growth in 2017. This was led by 46% growth in vision care (Abbott Medical Optics acquisition) and cardiovascular’s 13.4% growth in global sales.

The bottom line is that JNJ is a world-class drug maker, but also so much more. It has a strong track record of innovation and medical product invention in drugs, consumer products, and medical devices. Combined, these create a relatively steady river of free cash flow that has resulted in the industry’s best dividend growth track record – one that is likely to continue for many years and even decades to come.

AbbVie: Despite Recent Trial Failure, The Best Name In Biotech Still Has Plenty Of Growth In The Tank

Chart

ABBV Price data by YCharts

It’s been a rough few days for AbbVie, with shares plunging on news of disappointing phase two results for its Rova-T lung cancer therapy. Lung cancer, due to the large number of smokers in the world, is the most profitable sub-segment of the already very lucrative oncology market.

AbbVie paid $ 9.8 billion for Stemcentrx in 2016, including $ 5.8 billion up-front ($ 2 billion cash and $ 3 billion stock). The deal also included potentially $ 4 billion in cash earnout payments if the drugs developed from Rova-T hit certain milestones.

The reason that investors are reacting so negatively is that the results showed only 16% of cancer patients responded to the treatment, instead of the expected 40% response rate. So, AbbVie is abandoning plans to file for an early approval with the FDA.

This poor trial means higher risks of failure for the drug’s other trials, including much more important first- and second-line treatment indications. It also calls into question the Rova-T/Opdivo combination trial that AbbVie is partnering with Bristol-Myers Squibb (NYSE:BMY) on, and for which results should be in by 2019.

The biggest reason this freaked out investors so much is because AbbVie was spun off from Abbott Labs (NYSE:ABT) in 2013 with all of that company’s pharmaceutical assets. By far the most valuable has been the immunology drug Humira, which is used to treat arthritis, psoriasis, ankylosing spondylitis, Crohn’s disease, and ulcerative colitis. For several years now, Humira has been the best-selling drug in the world.

(Source: Statista)

This is why AbbVie has continued to put up incredible growth. In fact, in 2017, it had the best sales growth in the industry and came in number two in terms of adjusted EPS growth.

Metric

2017 Results

Revenue Growth

10.1%

Free Cash Flow Growth

43.7%

Shares Outstanding

-1.7%

Adjusted EPS Growth

16.2%

FCF/Share Growth

46.2%

Dividend Growth

5.4%

Dividend FCF Payout Ratio

44.1%

FCF Margin

33.4%

(Source: ABBV Earnings Release, Morningstar)

More importantly for income investors, AbbVie’s free cash flow exploded, thanks to the incredible margins it’s earning on its patented drugs.

Better yet? Thanks to tax reform, the company raised its 2018 Adjusted EPS guidance from about 17% to 32%, which is why management decided to hike the dividend for this year by 35%. However, the FCF payout ratio should still remain about 50%, due to the company’s strong growth in sales and free cash flow.

But if AbbVie is booming, then why is the market freaking out so much over Rova-T? Because AbbVie’s success with Humira is a double-edged sword. The drug was responsible for 65% of the company’s sales in 2017. This means that its prodigious profits and cash flow have a lot of concentration risk.

Investors are worried that AbbVie might end up going the way of Gilead Sciences (NASDAQ:GILD), where a single (in GILD’s case, two) blockbuster drug ends up seeing sharp sales declines that drag on earnings growth for years. That’s because in 2017, Humira lost EU patent protection. In addition, every major drug maker has a biosimilar rival in development.

The biggest risk was Amgen’s (NASDAQ:AMGN) Amjevita, which won approval in 2016. AbbVie has been battling in the courts to keep that rival off the market. In 2017, AbbVie and Amgen agreed that Amjevita would remain off the US market until 2023. That’s because while the FDA approved the rival drug, it didn’t take into account the 61 patents that AbbVie still has in effect.

Rather than proceed with a costly trial scheduled to begin in 2019, Amgen has backed down. This is why AbbVie CFO Bill Chase says that management has “come to the conclusion that this product [Humira] is durable.” And that investors are “not going to see anything catastrophic,” such as Humira sales falling off a cliff anytime soon.

In fact, AbbVie expects that with no biosimilar competition until 2023, it has a clear runway to keep steadily growing the drug’s sales.

(Source: AbbVie Investor Presentation)

But the point is that even if AbbVie’s rosy forecasts of Humira sales do come true, the company still needs to diversify if it’s going to avoid a major future decline in profits and cash flow.

After all, by 2023, the drug is going to face an onslaught of biosimilar rivals that will likely steal a lot of market share, or at the very least force AbbVie to reduce its prices significantly. In fact, by 2025, three years into competition with biosimilars, AbbVie expects Humira sales to fall to just $ 12 billion a year.

Which is why Rova-T was so important. Management believed that if approved for all indications, it could be a $ 5 billion blockbuster by 2025.

(Source: AbbVie Investor Presentation)

That was about 14% of the $ 35 billion in risk-adjusted (expected sales adjusted for probability of drug approval), non-Humira sales the company was forecasting for 2025.

In other words, Rova-T was such a big deal that the company spent a lot of money in order to try to reduce its Humira revenue concentration from 65% in 2017 to just 26% in 2025. However, the fact is that even if you assume a total failure on Rova-T, AbbVie’s sales should still come in at $ 42 billion by 2025, with Humira representing about 29% of revenue.

AbbVie: Lots Of Potential Growth Catalysts Ahead

Right now, AbbVie is all about Humira, the world’s most popular immunology drug and top-selling pharmaceutical period. But while immunology is indeed a booming industry, it’s far from the only growth avenue for this company.

(Source: AbbVie Investor Presentation)

In total, AbbVie thinks there is about a $ 200 billion market for the four key segments it’s targeting.

And the company has one of the deepest and most potentially profitable drug pipelines in the industry. In fact, in 2017, EvaluatePharma estimated that AbbVie’s new drugs in development could generate $ 20.4 billion between 2018 and 2022. That meant it had the third-strongest development pipeline in the world. Even if you assume a total failure of Rova-T, the new drug sales projection drops to $ 15.4 billion, which means that AbbVie’s pipeline drops to number four, just above Johnson & Johnson’s $ 14.9 billion. That’s because it still includes drugs like:

  • Risankizumab (psoriasis, ulcerative colitis, Crohn’s disease): $ 5 billion in projected 2025 sales off at least four indications
  • Upadacitinib (rheumatoid arthritis, dermatitis, Crohn’s disease): $ 6.5 billion in projected 2025 sales off at least six indications

And that’s just immunology. We can’t forget that oncology is going to become a major growth market in a fast-aging world where cancer becomes more common.

The leukemia drug Venclexta won approval in 2016, and is expected to generate peak sales of up to $ 2 billion. And of course, there’s Imbruvica, co-marketed with JNJ, which continues to put up massive growth as its number of approved indications increases. That drug’s peak $ 7.5 billion in annual sales potential would mean about $ 4 billion per year for AbbVie’s top line. Meanwhile, the drug maker has 23 drugs in development for solid tumors, with over 10 more expected to enter trials within a year.

Other opportunities to profit from demographics include Elagolix, an endometriosis drug. This is expected to generate up to $ 1.2 billion in annual sales by 2022.

And keep in mind that Rova-T’s results, while disappointing, were not necessarily a disaster. That’s because the results showed that Rova-T increased one-year survival probability from 12% with current treatments to 17.5%. That is why Morningstar’s pharmaceutical analyst Damien Conover thinks it might still obtain approval for most of its first and second line indications. That could mean total peak sales come in at $ 1 billion, down from Morningstar’s $ 3 billion projection before the trial results came in.

The point is that even if you assume the worst-case scenario – i.e., zero revenue from Rova-T – AbbVie is still looking at potential sales growth of 5.2% CAGR through 2025. And if Rova-T manages to get approved, then that figure could rise to 5.3%. And with strong operating leverage from economies of scale (cost savings driving EPS growth faster than revenue growth), that means that AbbVie’s long-term EPS and FCF/share should still come in between 10% and 15%.

Which, in turn, means that AbbVie investors can likely expect some of the best dividend growth from any drug maker in the coming years. Combined with its mouthwatering yield, that makes it a very attractive income investment right now.

Dividend Profiles: Safe And Growing Dividends Likely To Result In Market-Beating Total Returns

Stock

Yield

2017 FCF Payout Ratio

Projected 10-Year Dividend Growth

Potential 10-Year Annual Total Return

Johnson & Johnson

2.60%

51.30%

7% to 8%

9.6% to 10.6%

AbbVie

4.00%

44.10%

10% to 14.2%

14% to 18.2%

S&P 500

1.80%

32%

6.20%

8.00%

(Sources: Company Earnings Releases, Morningstar, F.A.S.T. Graphs, Multpl.com, CSImarketing)

The most important part of any dividend investment is the payout profile, which consists of three parts: yield, dividend safety, and long-term growth potential. This determines how likely it is to generate strong total returns and whether or not I can recommend it or buy it for my own portfolio.

Both Johnson & Johnson and AbbVie offer far superior yields to the market’s paltry payout. More importantly, both dividends are very well-covered by free cash flow.

However, dividend safety isn’t just about a reasonable payout ratio. It also means checking to see whether a company’s balance sheet is strong enough to support continued investment in future growth as well as a rising dividend.

Company

Debt/EBITDA

Interest Coverage

Debt/Capital

S&P Credit Rating

Average Interest Cost

Johnson & Johnson

1.4

26.0

32%

AAA

2.7%

AbbVie

3.6

9.0

72%

A-

3.1%

Industry Average

1.8

12.5

41%

NA

NA

(Sources: Morningstar, GuruFocus, F.A.S.T. Graphs, CSImarketing)

Here is where JNJ takes a clear lead over AbbVie. Johnson & Johnson’s leverage ratio is below the industry average, and its sky-high interest coverage ratio indicates that the company has no trouble servicing its super cheap debt.

In fact, JNJ is just one of two companies (the other being Microsoft (NASDAQ:MSFT)) with a AAA credit rating, which is one notch higher than the US Treasury’s. That’s why it is able to borrow at such attractive rates.

AbbVie, thanks to a slew of acquisitions in recent years, has a much-higher-than-average leverage ratio. In addition, its interest coverage is below that of most of its peers. However, while this high debt load is something I plan to watch carefully going forward, it isn’t yet a danger to the dividend. After all, AbbVie still has an A- credit rating and is able to borrow at very cheap rates as well. But in a rising interest rate environment, that might change. So it’s good that management plans to hold off on more acquisitions for now, while it uses the company’s enormous and fast-growing river of FCF to pay down debt.

As for dividend growth potential, this is of key importance, because studies indicate that a good rule of thumb for future total returns is yield + dividend growth. This is because, assuming a stable payout ratio, the dividend growth rate must track earnings and cash flow growth. And since yields tend to be mean-reverting over time, this combines both income and capital gains into one formula.

JNJ’s dividend growth rate potential is smaller than AbbVie’s, due mainly to its larger size. This makes it harder to grow quickly. However, analysts still expect about 7-8% earnings growth from this Dividend King. That should allow for similar payout growth and result in market-beating total returns.

AbbVie’s dividend growth outlook is more uncertain, though larger, thanks to its strong development pipeline. Unlike JNJ, AbbVie has no diversification into non-drug businesses, and so, its growth is more unpredictable and volatile.

However, I conservatively estimate that AbbVie should be able to achieve 10% dividend growth, while analysts expect about 14%. When combined with today’s attractive yield, that should be good for about 14% total returns. That’s far above what the S&P 500 is likely to provide off its historically overvalued levels.

Valuation: JNJ Is Finally Fair Value, While AbbVie Is On Sale

Chart

JNJ Total Return Price data by YCharts

Up until a few months ago, both JNJ and AbbVie investors were enjoying a very solid year. JNJ was tracking the market during a freakishly low-volatility 20% run in 2017. AbbVie was booming thanks to strong growth in Humira and the news that its cash cow wouldn’t get any competition until 2023. However, in recent weeks, JNJ and ABBV have suffered major losses that make them both potentially attractive investments.

Company

Forward P/E

Historical P/E

Yield

Historical Yield

Percentage Of Time Yield Has Been Higher

Johnson & Johnson

15.5

22.4

2.60%

2.90%

40%/30%

AbbVie

13.0

21.5

4.00%

3.00%

11%

(Sources: GuruFocus, F.A.S.T. Graphs, YieldChart)

JNJ and AbbVie are now trading at lower forward P/E ratios than their historical norms. More importantly, AbbVie’s yield is much higher than it’s been since the company’s 2013 spin-off. JNJ’s yield is not, but keep in mind that the company’s about to announce its 55th straight annual dividend bump. This should raise the forward yield to about 2.8%.

And even at a 2.6% dividend yield, JNJ’s payout has only been higher 40% of the time. And going off the likely 2.8% forward yield in a few months, 30%. Meanwhile, AbbVie’s yield has only been higher 11% of the time, indicating that it’s likely highly undervalued.

(Source: Simply Safe Dividends)

A rule of thumb I like to use for determining fair value is that I want to buy a stock when the yield is at least at the 5-year average. Taking into account the upcoming JNJ dividend hike, I now estimate that it is fairly valued. And under the Buffett principle that “It’s better to buy a wonderful company at a fair price than a fair company at a wonderful price”, I have no issue recommending JNJ today. After all, it’s the ultimate pharma blue chip, with the best dividend growth record in the industry.

Meanwhile, AbbVie is about 17% undervalued, which is why I consider it a more attractive investment today. That’s why I added it to my own portfolio during the recent correction and during the Rova-T freakout.

Note that if I had the cash, I’d have bought JNJ as well, and I highly recommend owning both blue chips in your diversified income portfolio. That’s assuming, of course, that you are comfortable with the complex risk profile of any pharma/biotech company.

Risks To Consider

When it comes to complexity and uncertainty, few industries are as challenging as pharma/biotech. That’s because of numerous risk factors that make it very challenging for companies to consistently grow safe dividends.

For one thing, the same regulatory hurdles that provide a wide moat and windfall profits for a time also make new drug development incredibly tricky and time-consuming.

(Source: Douglas Goodman)

For example, fat profit margins are created by patent protection, which usually lasts for 20 years. However, drug makers need to file for a patent at the start of the development process, which usually takes 10-15 years to complete. That means drug companies only enjoy patent-protected margins for a relatively short time before patent cliffs kick in and generic competition can steal market share.

And we can’t forget that the process itself is highly unpredictable, monstrously expensive, and only getting more so over time.

(Source: Tufts Center For The Study Of Drug Development, Scientific American)

When factoring in all the preclinical, clinical, and follow-up studies, it can cost as much as $ 2.6 billion to develop a new drug. And as we just saw with Rova-T, a promising drug can fail at any time. That can potentially result in a total write-off and gut-wrenching short-term price volatility.

Worse yet, because only about 1 in 10,000 compounds/treatments ends up making it through the FDA regulatory gauntlet, drug makers often have to acquire rivals to obtain promising pipeline candidates in late-stage development. All major M&A activity is inherently packed with risk.

For example, if a company overpays, then even a successful blockbuster drug can end up not contributing much to EPS or FCF growth. Meanwhile, synergistic cost savings, which are often counted on to make deals profitable, might not be fully realized. And what if a key drug that was a major reason for a large acquisition fails in trials? Then large write-offs can result, as may happen with Stemcentrx and Rova-T. And don’t forget that a failed acquisition can lead to a costly break-up fee. For example, in 2014, AbbVie abandoned the $ 55 billion attempt to buy Shire (NASDAQ:SHPG), resulting in a $ 1.6 billion break-up cost to shareholders.

The good news is that according to AbbVie’s CFO, when it comes to additional short-term acquisitions, investors shouldn’t “expect anything major.” That’s because, he said, “Running out and buying something of size doesn’t make sense.” Holding off on more acquisitions for a few years means that the company will have time to deleverage its balance sheet while it brings its strong development pipeline to market.

In addition, AbbVie does have a pretty good track record on acquisitions, since the $ 21 billion purchase of Pharmacyclics in 2015 was reasonably priced. It gave the company the blockbuster Imbruvica, which is its second-largest but fastest-growing seller.

But even if everything goes right, a company makes a smart acquisition at the right price, and the potential blockbusters in the pipeline are approved, there’s the issue of massive competition to contend with. For instance, patents on drugs are highly specific. Competitors are free to create alternate versions, including of highly profitable biological drugs. That’s why every pharma/biotech and their mother is constantly racing to develop biosimilars to the hottest blockbusters on the market.

In this case, Remicade faces competition from over 20 potential rivals, including Pfizer’s (NYSE:PFE) Inflectra, which is selling at a 10% discount to Remicade. And without patent protection, analysts expect Remicade sales to continue to deteriorate at an accelerating pace. Meanwhile, JNJ prostate drug Zytiga is also expected to see generic competition this year, due to patent expirations.

In order to keep their pricing power, pharma companies are also fighting constant legal battles. That’s to protect patents and also to try to block generic and biosimilar competition for as long as possible. All legal challenges are themselves highly uncertain, and a negative outcome can have a large impact on both the share price and future cash flow growth.

And we can’t forget about the other kind of legal uncertainty: class action lawsuits in case an approved drug ends up being harmful to consumers. For example, Merck (NYSE:MRK) had to pull popular pain drug Vioxx from the market in 2004 when post-clinical studies showed it significantly increased the risk of heart attack and stroke. The company has spent over 12 years in and out of courts, as a plethora of class action suits have continually pushed up the final settlement costs. In 2007, Merck settled most of the cases for $ 4.9 billion. But individual holdouts have continued suing the company, and the total cost is now at $ 6 billion, with several cases left to be settled.

And that is just one extreme case of what can go wrong. Often, legal liability is a death from a thousand cuts. For example, AbbVie recently lost a case in Chicago where a man successfully sued over AndroGel, a testosterone replacement cream. The plaintiff claims that AbbVie’s cream caused him to have a heart attack. While the jury did not find the company strictly liable, it still awarded him $ 3 million. The company faces about 4,000 more such cases over AndroGel. Each case is likely to have a different outcome, and some of them might be thrown out or be reduced on appeal. But the point is that even non-blockbuster products can end up as a major financial liability.

Meanwhile, in the past, JNJ has faced its own legal hassles, including numerous consumer product recalls, defective knee, hip implants, surgical mess, and a $ 2.2 billion settlement over antipsychotic drug Risperdal.

Finally, we can’t forget the other major legal risk: government regulations and healthcare policy, both in the US and abroad.

(Source: HCP)

In the US alone, the rapidly aging population means that healthcare spending is expected to increase by about $ 2 trillion per year by 2025 and consume 20% of GDP. This means that the US government as well as private payers will be desperate to bend the cost curve lower. Blockbuster drugs and their high profit margins are an easy target for populist politicians to go after in this country and around the world.

For example, President Trump announced that:

“One of my greatest priorities is to reduce the price of prescription drugs. In many other countries, these drugs cost far less than what we pay in the United States. That is why I have directed my Administration to make fixing the injustice of high drug prices one of our top priorities. Prices will come down.”

The president has also said in the past that drug makers were “getting away with murder”, a sentiment many Americans share. And it is true that foreign countries do enjoy lower drug prices, largely because government involvement in healthcare is far more common. Of course, that is why most R&D recoupment is generated in the US.

But that’s not guaranteed to continue. Because even if Congress doesn’t enact outright price controls on drugs, it can easily lift the current ban on Medicare/Medicaid negotiating bulk drug purchases at a discount. That’s a far less controversial proposal that represents low-hanging, cost-saving fruit – one that could potentially hit margins across the entire industry.

In the meantime, Joaquin Duato, JNJ’s executive vice president and worldwide chairman of its pharmaceuticals segment, has said that insurers and pharmacy benefit managers are putting on extra pressure to lower drug prices. This is why the company’s pharma growth plans are focused on volume and not price. It wants to grow profits by expanding indications and launch new medications to treat more conditions, specifically in immunology and oncology.

The bottom line is that pharma is a wide-moat industry with huge potential for future growth. However, it’s also fraught with peril and risk. Drug makers face a never-ending hamster wheel of uncertain, time-consuming, and costly drug development. This means steady growth in sales, earnings, and cash flow is very challenging.

Only enormous economies of scale, highly skilled capital allocation by management, and safe and growing dividends make it worth considering the industry at all. Which is why I avoid all but the most proven blue chips in the industry, and recommend most investors do the same.

Bottom Line: These 2 Industry-Leading Blue Chips Are Likely To Make For Strong Long-Term Income Investments At Current Prices

The drug industry has a lot of favorable characteristics. It’s recession-resistant, wide-moat, and is potentially poised to enjoy a major secular global demographic growth catalyst in the coming years and decades.

That being said, it’s also one of the most complex, cyclical, and competitive industries in which you can participate. That means the best course of action for most investors is to stick with industry-leading, blue-chip dividend stocks – those with shareholder-friendly corporate cultures and proven management teams.

Johnson & Johnson and AbbVie represent the top names in pharma and biotech, respectively. And at current valuations, I am able to recommend both for anyone looking for low-risk exposure to this defensive industry. That being said, AbbVie has better total return potential, and its recent disappointing drug trial results mean that the company is far more undervalued. That’s why I bought it over JNJ for my own portfolio during the correction.

Disclosure: I am/we are long ABBV.

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.

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