Tag Archives: Time

It's Time For Social Media to Change the World (Again)
February 17, 2019 6:00 pm|Comments (0)

In the summer of 2007, soon after a college intern convinced me to join Facebook, I remember thinking, “This is going to change everything. This is going to change the world.”

Facebook, Twitter, LinkedIn, Snapchat, and other social networks, blogs, and interactive online media have undoubtedly impacted billions of people over the past 12 years. Social media has helped topple dictatorships and given a voice to many millions of people previously unheard. It has reunited families, reconnected old friends, and rekindled romances. It has created opportunities for a massive number of small business owners, authors, and entrepreneurs. My wife and I are two of those people.  

But there has also been a dark side to the last 12 years of social media: Cyber-bullying, negative headlines, data and security breaches, Russian interference in elections, impact on mental health,–the list of harmful elements of social media, sadly, goes on and on.

Whether you log on and see someone complaining about something small, like how boring a tv show was last night, or something big, like how toxic our current political environment is, it’s impossible to use social media these days without constant exposure to negativity.

Forty-one percent of Generation Z social media users recently said that social media makes them feel sad, anxious, or depressed. A 2017 study found that the more time 18-22-year-olds spent on social media per day, “the greater the association with anxiety symptoms.” Disinformation Twitter accounts continue to publish more than a million tweets per day. The majority of teens have come across racist or sexist hate speech on social media. Nearly 43% of teens have been bullied online, and 41% of all Americans have experienced online harassment. The data is all startling, but we don’t need the data to know how we feel when we log in and check our feeds.

What then can we do to combat the negativity? Could we all quit social media? No, in 2019, social media is an unavoidable part of our lives, for better or for worse. We could put the responsibility in the hands of the social media companies themselves, but they haven’t exactly proven trustworthy lately. So really, the only thing we can do is to change our individual behavior. And it starts with small acts of kindness that will have a ripple effect.

Here’s one idea: #BeLikeableDay, a global movement which asks people and organizations to pledge to take one minute out of the day on February 26th to commit to an act of kindness on social media. Compliment a friend on their outfit on Instagram, share gratitude for a neighbor on Facebook, or leave an unsolicited recommendation for a colleague on LinkedIn. Re-tweet a charitable cause on Twitter, or simply say something nice on the social network of your choice.

Together, one person and one act of kindness at a time, we can start to make social media a more positive place to spend our time, first, on February 26th, and then, maybe eventually, every day. And here’s the good news: Online acts of kindness don’t just change the world of social media for the better, they change you for the better.

recent study by Yale and UCLA researchers suggest that performing small, kind gestures diffuses stress and improves mental health. In a Berkeley study, participants reported greater feelings of calmness and increased self-esteem after helping others. Committing acts of kindness even lowers your blood pressure: According to Dr. David R. Hamilton, author of The 5 Side Effects of Kindness, acts of kindness release the hormone oxytocin. Oxytocin causes the release of nitric oxide, which in turn reduces your blood pressure. Yes, there is science to being nice online! 

So, instead of complaining about all of the negativity and toxicity of social media, and making it even more negative, how about choosing positivity on social media, on #BeLikeableDay and every day? You might improve your mood. You might even change the world.

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Tesla cuts Model 3 price for second time this year
February 6, 2019 6:12 am|Comments (0)

FILE PHOTO: Rows of new Tesla Model 3 electric vehicles are seen in Richmond, California. REUTERS/Stephen Lam/File Photo

(Reuters) – Electric carmaker Tesla Inc is lowering the price of its Model 3 by $ 1,100, citing the end of a costly customer referral program, a company spokeswoman said on Wednesday.

The second price cut to the Model 3 this year now brings the cost of its least expensive variant to $ 42,900, according to the company’s website here.

Tesla’s customer referral incentive plan ended on Feb. 1 after Chief Executive Officer Elon Musk had tweeted that the referral program was “adding too much cost to the cars, especially Model 3”.

Tesla delivered fewer-than-expected Model 3 sedans in the fourth quarter and cut prices for all its vehicles in the United States to offset a reduction in a green tax credit.

The company is rapidly increasing production of its Model 3 sedan and lower prices could help it reach a broader customer base than its pure luxury vehicles.

Reporting by Sanjana Shivdas in Bengaluru; Editing by Gopakumar Warrier

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It’s Time to Rethink Who’s Best Suited for Space Travel
January 27, 2019 12:30 pm|Comments (0)

In 1961, a college student named David Myers traveled from Washington, DC, to the US Naval School of Aviation Medicine in Florida to take part in a new experiment. “I had a very limited understanding of what I was getting myself into,” Myers told me recently over email. “So I was extremely curious and mildly excited that first day.”

Myers was one of 11 men specifically recruited by Dr. Ashton Graybiel to help test the feasibility of human spaceflight, at a time when nobody knew whether the human body could withstand a trip beyond our atmosphere. For nearly a decade, the US Navy put 11 eleven men through countless tests. Four of the men spent 12 straight days inside a 20-foot room that rotated constantly. In another experiment, they were sent out to notoriously rough seas off the coast of Nova Scotia. On the boat, the men played cards while the researchers were so overcome with seasickness that they had to cancel the test and go home. Others were sent up in the so-called “Vomit Comet,” an aircraft designed to simulate zero gravity. That’s the test Myers is still most fond of. “This free floating was a fascinating experience,” he says. “No other tests came close as my favorites.” But Myers and the other men would never go to space. In fact, they would never be allowed. They were recruited for these tests for the exact reason they would never pass the NASA astronaut qualification exams: All 11 men were deaf.

Rose Eveleth is an Ideas contributor at WIRED and the creator and host of Flash Forward, a podcast about possible (and not so possible) futures.

Now known as the Gallaudet Eleven, Myers and his colleagues were recruited from Gallaudet College (now Gallaudet University), a school for d/Deaf students. (“Big D” Deaf refers to Deaf culture and community, while “small d” deaf refers to people who don’t identify with that community.) Ten out of the 11 men had become deaf because of spinal meningitis, an infection of the fluid in the spinal cord. The infection ultimately damaged each man’s inner ear, including their vestibular system, which also happens to be the system that is mainly responsible for motion sickness. This made the men perfect test subjects for a space program that was trying to understand what might happen to people in places where the inner ear can’t sense up and down. “Through their endurance and dedication, the work of the Gallaudet Eleven made substantial contributions to the understanding of motion sickness and adaptation to spaceflight,” wrote Hannah Hotovy of the NASA History Division. Harry Larson, another one of the Gallaudet Eleven, put it this way: “We were different in a way they needed.”

It’s no secret that it’s incredibly difficult to become an astronaut. NASA’s selection process is notoriously rigorous—strict enough that it was the most plausible kind of place to set the movie Gattaca, where only the perfectly genetically engineered get to board rockets bound for space. Writer Tom Wolfe documented the space program’s strenuous astronaut training program in his book The Right Stuff.

The assumption has long been that this training is a necessity—traveling to space is a mentally and physically grueling endeavor. We need the strongest, smartest, most adaptable among us to go. But strength comes in many forms, as do smarts. And if you want to find people who are the very best at adapting to worlds not suited for them, you’ll have the best luck looking at people with disabilities, who navigate such a world every single day. Which has led disability advocates to raise the question: What actually is the right stuff?

“Crip bodies were built for space travel. Crip minds already push the outer limits,” Alice Wong, founder of the Disability Visibility Project, tweeted last year. “We already master usage of breathing apparatuses and can handle challenging situations.” Wong went on to coedit an issue of the literary magazine Deaf Poets Society called “Crips in Space” with writer and performer Sam de Leve.

Take, for example, people who use ostomy bags. Right now, pooping in space is actually an important technical challenge. During takeoff, landing, and spacewalks, astronauts wear diapers. While in the space station, they use a toilet that requires a fair amount of precision and training to use. Astronauts have told all kinds of stories about rogue poop, or situations in which the toilet has backed up or generally gone awry. In 2008, NASA spent $ 19 million on a Russian toilet for the International Space Station. None of this would be an issue for an astronaut with an ostomy bag. “I could plug into the wall and just empty the container that’s been collecting,” says Mallory K. Nelson, a disability design specialist who uses an ileostomy bag—a pouch that connects to her intestine and collects waste. “I’ve moved the output location of poop, which creates a lot more flexibility in the kind of systems I can have. I could attach it to a space suit.”

Or consider movement in space. You’ve certainly seen videos of astronauts zipping around the space station using their arms and legs to push off surfaces and direct their motion. This is a type of movement that people who use wheelchairs and other mobility aids are already familiar with. In fact, the various devices and ways of moving the body in space are likely more familiar to people with disabilities than to able-bodied people. “We move our bodies in so many different ways, and the disabled community has an exuberant amount of options,” says Nelson, who is an amputee and who has used crutches, a wheelchair, a scooter, and a prosthetic to get around. Nelson even coined a term for this recently: transmobility, the idea that there are lots of ways to get around besides putting one foot in front of the other.

Nelson also points out that most astronauts have no prior experience relying on technology for their movement and lives, whereas people with disabilities do so every day. In a space suit, for a space walk, an astronaut has to be trained in how to move their body in unison with a piece of technology. They have to get used to the idea that, if that technology should fail, they could be in grave danger. This, again, is an experience people like Nelson live with every day. “I’m always moving my body in motion with another object. That’s all we do,” Nelson says.

Or take blind astronauts. In a piece for Scientific American, Sheri Wells-Jensen lays out the case for designing spaceships for blind space travelers:

“After all, in a serious accident, the first thing to go might be the lights! This generally means that the first thing a sighted astronaut must do for security is ensure visual access to the environment. He hunts for a flashlight, and if emergency lighting comes on, his eyes take a moment to adjust. Meanwhile, the blind astronaut is already heading toward the source of the problem. In the fire aboard the Russian Mir space station, in 1997, the crew struggled as smoke obscured their view. The blind astronaut, while still affected by the lack of good air, would not be bothered by either dim lighting or occluding smoke. She would accurately direct the fire extinguisher at the source of heat and noise.”

In the Mir fire that Wells-Jensen mentions, one of the problems that arose was the sighted astronauts’ inability to locate the fire extinguisher through the smoke. Had the ship been laid out with a blind participant in mind, there would have been a nonvisual signal already built in to such a critical piece of equipment.

Or consider d/Deaf astronauts once again. The Gallaudet Eleven were tapped for their immunity to motion sickness—John Glenn even reportedly said he was envious of their ability to withstand the tests without getting sick—but there are other reasons why bringing a d/Deaf astronaut along could be useful. “Studies have shown that using sign languages confers cognitive advantages in one’s visual working memory, enhancing how we see, remember, and manipulate objects in our mind,” says Joseph Murray, a professor at Gallaudet University and the scholar behind the term Deaf Gain, the idea that deafness should not be considered a loss of something but, rather, a gain of a whole host of other things. “The challenge Deaf Gain offers for NASA and all workplaces is to rethink their automatic assumptions about deaf people’s capabilities,” Murray says. “If there is a mission need for people with advanced spatial processing skills who do not get motion sick, then there are quite a few deaf people ready and willing to serve.”

And it’s not just on a trip to space that people with disabilities might have an advantage. Take a situation in which astronauts are going somewhere to settle: Able bodies might no longer behave the way we expect. “Humans have an environmental niche on Earth, like all other creatures do, and we exploit it in different ways,” says Ashley Shew, a professor at Virginia Tech. Mars, or even a space station, is nothing like that niche. “The conditions in which our bodies have grown up are so drastically different that our existence in space will be much more like being a disabled person on Earth than like being an abled person on Earth.” Who better to send than those who are used to navigating environments not built for them—those who experience that every day on Earth? “Disabled people will fare better in space because disabled people have learned to negotiate hostile situations in ways that able bodied people are completely unaware of,” Shew says. Wong agrees. “The way we communicate, function, and exist with our diverse bodyminds sets us up as ideal space explorers and ambassadors of Earth, ready to make first contact with sentient beings,” she told me.

Whether this will actually happen is hard to say. NASA didn’t respond to my request for comment on their astronaut selection policy (like all government agencies, NASA personnel are currently not working due to the government shutdown). Nor did Mars One or SpaceX. Online, Mars One has a whole page of qualifications for candidates for their proposed Mars mission, stating, “In general, normal medical and physiological health standards will be used” and disqualifying anybody without “normal range of motion and functionality in all joints,” anybody with less than 20/20 vision, and anybody who is deemed not “healthy.” NASA’s FAQ section says that “for maximum crew safety, each crewmember must be free of medical conditions that would either impair the person’s ability to participate in, or be aggravated by, space flight, as determined by NASA physicians.”

Changing these requirements won’t be easy. Spacecraft are designed with certain assumptions about what kinds of bodies will be sitting in the seats and operating the controls. The opportunity to change those parameters is small and must be seized while ships are being designed, not down the road. Plus, many people with disabilities who might want to go to space can’t get access to the pipeline that delivers so many astronauts: “Astronauts come via the military and that’s a closed door for disabled individuals,” Myers says. “Those kinds of obstacles need to be removed for those individuals who are otherwise qualified.” And NASA itself has had no reason to rethink their stance, because no one has really pushed them to. Yet, that is.

But all that could change. In 2017, Johanna Lucht became the first Deaf engineer to work at NASA. Eddie Ndopu, a South African activist and humanitarian, has said he wants to be the first disabled person in space. He plans to book a flight on a commercial trip into space and deliver an address to the UN while he’s up there. (MTV is slated to film the entire thing.) Julia Velasquez, a Deaf woman from California, has gone through many of the steps traditionally taken by astronauts—she’s interned at NASA, recently received her pilot’s license, and even lived in a simulated Mars colony in Hawaii.

When I asked Myers if he ever wished he could have been an astronaut, he said, “Yes, absolutely. At one point I told Dr. Graybiel, ‘If you ever develop an experiment involving a flight into space, I want to be first in line.’” Myers likely won’t wind up in space in his lifetime. But he might live to see a disabled person make the journey, opening up space to a whole new set of uniquely qualified astronauts.


More Great WIRED Stories

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Delta Air Lines Just Got Some Incredibly Good News. (and Just In the Nick of Time)
January 5, 2019 12:01 pm|Comments (0)

If one raises checked bag fees, almost all the rest quickly follow suit. If one squeezes more passengers into basic economy, then most of the rest do as well.

Often, the only way an airline can stand out is to do the single, basic thing that they’re paid to do–but be better at it than competing airlines do. In other words, get you from point A to point B, safely and on time.

Thank God, the safety part of the equation has been near-perfect in the United States recently, with the single exception of a Southwest Airlines passenger who died in an in-flight incident last year. 

That leaves only the race to be on time. It’s why American Airlines treats on-time departures as the number-1 metric by which employees are judged.

And it’s why Delta Air Lines must be absolutely thrilled with the news that the airline got this week. That’s because Flight Global released its list of the most on-time airlines in the world.

And for the second year in a row, Delta is number-1 on the list. It’s the only U.S. airline ever to earn the distinction, which is based on a year’s worth of analysis of 124,000 flights every day.

If a flight arrives within 15 minutes of its scheduled arrival time, it’s considered on-time according to Flight Global. By that standard, Delta gets an 89 percent on-time arrival rate.

Here’s the full list of 10:

  1. Delta
  2. Qatar Airways
  3. KLM Royal Dutch Airlines
  4. ANA
  5. Aeroflot
  6. Alitalia
  7. Emirates
  8. United Airlines
  9. American Airlines
  10. SAS

Not everything is rosy for Delta. If you’re an investor, you might be a little concerned about the financials Delta released this week, which dropped its stock and led to questions about the airline industry as a whole.

But if you’re a passenger, or if you’re an airline trying to improve this one metric because you think it’s one of the main remaining differences between you and many of your rivals, it’s welcome news indeed. 

Published on: Jan 5, 2019

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It's Time to Ditch New Year's Resolutions. Do This Powerful 25-Minute Exercise Instead
January 3, 2019 12:01 pm|Comments (0)

I have always found new year resolutions difficult (with the exception of Woody Guthrie’s beautiful 1942 version). I prefer writing manifestos when it comes to the future.

I wrote about the Manifesto Exercise around this time last year. Denny Post, CEO of Red Robin, shared it on Facebook at the end of this year, recommending it to her friends as a different way of doing their new year resolutions. That inspired me to do mine, below, and update it with some new categories.

“Ayse Birsel authored this piece last year in INC – it’s a practical, efficient and inclusive approach to setting yourself up for the New Year!” Denny Post

The Manifesto Exercise will help you think like a designer about your work for 2019.

I recommend that you do one alone and then do it again with your team. Remember you’ll be thinking like a designer–with optimism, looking at the big picture, and with empathy for yourself (and each other, if you’re doing it with your team).

Ground rules are the same as last year: Give yourself 25 minutes total. If you run out of time, take a short break before you complete it. Speed is part of the game in that it helps you go with your gut and leaves less room for unnecessary self-judgment. Remember to do it playfully, because when we’re playful we’re like kids, fearless and open to learning by doing.

Time: 25 minutes, sometime in early January 2019.

A. DECONSTRUCT:

Map out your work life in 2018 across the following 6 categories (see my diagram and use it as a cheat-sheet). 

Note: This year I found it useful to make loose notes for my deconstruction, adding items as things popped into my head, before sitting down to do it all in one go.

1. Emotion: Start with how you feel in this moment. Then think back to how you felt in 2018 and how you want to feel in 2019. List your feelings as they come to mind in one column. 

Note: Emotions at work often run in opposite pairs–love/hate, success/failure, having a sense of purpose/feeling lost.”  

2. Information: Think about what you know about your work going into 2019. This can be your salary, the size of your team, the number of projects you’re working on. List tangible information or data in this column.

3. Constraints: What holds you back you back or limits you? Your own constraints, like procrastinating and leaving things to the last minute, and constraints that you cannot control, like budgets. 

4. Joy: What brings you joy at work? Thinking about what makes you happy will help you think about what matters to you at work and will help you to be more intentional about increasing your instances of joy.

Note: Last year Opportunity was #4. I intentionally moved it to #6, wanting you to circle through joy and gratitude (#5) first, to inspire your opportunities.

5. Gratitude: What were you grateful for in 2018? While joy is more personal, gratitude is often in relation to others. It’s about getting the relation between ourselves and others right, one of the three foundations of happiness according to Jonathan Haidt, social psychologist and Professor of Ethical Leadership at New York University’s Stern School of Business.

6. Opportunity: What are your opportunities as you start in 2019? These are things that align with your values, purpose and personal growth. They’re positive, exciting, empowering.

Tip: Try turning your constraints into opportunities (for example, as one of our clients put it, many voices and opinions can be a constraint but it is also an opportunity.)

Note: Last year #5 was Out-of-the-box Opportunity (OOBO) for big dreams and leaps, “revolutions” versus “evolutions”. This year they’re inside the Opportunity column (See my OOBO in my diagram, daring me to think big.) 

B. REFLECT:

Reflect on your deconstruction, above. Deconstruction helps you break a complex idea into its parts to make it more manageable. It visualizes your life at the cross-section of 2018 and 2019 so that you can decide what to keep, what to discard and what to change. 

Now do your own dot-voting, picking one thing that rises to the top in each column. Go with your gut. You can put a star next to it (I underlined mine in red.) These are your 6 key ingredients for 2019. 

C. WRITE YOUR MANIFESTO:

Your Manifesto is your declaration for 2019 based on the top 6 ingredients you chose above. Write it by combining them together in a paragraph:

Your Manifesto = Emotion + Information + Constraint + Joy + Gratitude + Opportunity.

Once you have your manifesto, gather your team–this can be over breakfast or lunch–to do the exercise together and to share your manifestos. Based on each other’s manifesto, talk about what you need help with, what you can do together, and who can be your mentors, mentees or an accountability partners to collaborate with to bring your vision to life in 2019.

We use this tool to shift with our clients’ mindsets from problems to opportunities, from feeling stuck to action, with great success. The process is almost mathematical in its simple formula yet vision-creating in its results. It’s a key component of Design Quotient (DQ), our practice to teach leaders how to think like a designer and imagine tomorrow based on what you know today.

Wishing you a happy and creative 2019.

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Stocks To Watch: Time To Connect The Dots
December 16, 2018 12:01 am|Comments (0)

Welcome to Seeking Alpha’s Stocks to Watch – a preview of key events scheduled for the next week. Follow this account and turn the e-mail alert on to receive this article in your inbox every Saturday morning.

There are two monster meetings on the agenda next week that could shake things up for investors now officially stuck in a stock market correction. The Federal Reserve’s policy makers meet from December 18-19 in the U.S., while China’s leaders are expected to gather December 19-21 to hold their annual economic policy-setting meeting. The overwhelming consensus of economists is that the Fed is likely to raise its benchmark interest rate by a quarter-point to a range of between 2.25% and 2.50% and that the closely-watched dot plot will indicate two rate hikes in 2019. If there is going to be any sort of drama out of the Fed event, it will probably occur during Fed Chairman Jerome Powell’s last presser of the year. Meanwhile, the word from Beijing is that pro-growth measures will be fired off during the economic meeting and more signs of “opening up” markets will be showcased. It’s possible that the two events could cool off anxiety over global growth, interest rates and tariffs – but in a year of wildcards we’re not taking any bets. There is also the matter of that little government shutdown that could arrive next week, although it’s being categorized in large part as political theater more than an actionable trading event.


Notable earnings reports: Oracle (NYSE:ORCL) and Red Hat (NYSE:RHT) on December 17; Micron (NASDAQ:MU), Carnival (NYSE:CCL), Darden Restaurants (NYSE:DRI), FedEx (NYSE:FDX) and Navistar (NYSE:NAV) on December 18; General Mills (NYSE:GIS), Pier 1 Imports (NYSE:PIR), Paychex (NASDAQ:PAYX) and Winnebago (NYSE:WGO) on December 19; Nike (NYSE:NKE) and BlackBerry (NYSE:BB) on December 20; CarMax (NYSE:KMX) on December 21. See Seeking Alpha’s Earnings Calendar for the complete list of earnings reporters.

IPOs expected to begin trading: Aptorum on December 18.

IPO lockup expirations: Eidos Therapeutics (NASDAQ:EIDX) on December 17; I3 Verticals (NASDAQ:IIIV), Magenta Therapeutics (NASDAQ:MGTA), Avrobio (NASDAQ:AVRO), Essential Properties Realty Trust (NYSE:EPRT), Kezar Life Sciences (NASDAQ:KZR) and Xeris Pharmaceuticals (NASDAQ:XERS)on December 18.

Analyst quiet period expirations: Taiwan Liposome (TLC), Tiziana Life Sciences (NASDAQ:TLSA) and TuanChe (NASDAQ:TC) on December 17.

Projected dividend changes (quarterly): Fifth Third (NASDAQ:FITB) to $ 0.22 from $ 0.18, Lamb Weston (NYSE:LW) to $ 0.195 from $ 0.1913, Pfizer (NYSE:PFE) to $ 0.36 from $ 0.34, ABM Industries (NYSE:ABM) to $ 0.180 from $ 0.175, Andersons (NASDAQ:ANDE) to $ 0.170 from $ 0.165, Cantel Medical (NYSE:CMD) to $ 0.10 from $ 0.085.

60 Minutes: CBS (NYSE:CBS) says the news show will broadcast a report on Sunday night about opioid makers, distributors and manufacturers. Keep an eye on McKesson (NYSE:MCK), AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH), Mallinckrodt (NYSE:MNK), TEVA Pharmaceuticals (NYSE:TEVA), AbbVie (NYSE:ABBV), Dr. Reddy’s Laboratories (NYSE:RDY), Insys Therapeutics (NASDAQ:INSY), Endo International (NASDAQ:ENDP), Reckitt Benckiser Group (OTCPK:RBGLY) among others if any sharp elbows are thrown.

Capitol Hill watch: An early test of Senate Republicans’ desire to talk about marijuana reform arrives next week when Senator Cory Gardner attempts to attach the States Act to the criminal justice reform bill. It’s possible some marijuana-related names such Cronos Group (NASDAQ:CRON), Canopy Growth (NYSE:CGC) and Tilray (NASDAQ:TLRY) could be active if the GOP senators tip their hands.

GM pressure cooker: While shares of General Motors (NYSE:GM) continue to sputter along on headline risk, analysts see upside down the road. There’s Deutsche Bank pointing to deep corporate restructuring and industry consolidation as potential GM catalysts, as well as Bank of America Merrill Lynch saying the current dividend is likely safe. If the automaker can turn around the political broadsides it’s taking on the focus could turn to long-term initiatives such as the autonomous EV fleet (Cruise Automation + Bolts), car sharing (Maven) and connectivity (OnStar).

M&A tidbits: First-round bids are due in on Campbell Soup’s (NYSE:CPB) Arnott’s business before Christmas. Kraft Heinz (NASDAQ:KHC), Mondelez International (NASDAQ:MDLZ) and Ferrero are reported to be interested in the biscuits brand. Shareholders at Enbridge Energy Partners (NYSE:EEP) and Enbridge Energy Management (NYSE:EEQ) will vote on the merger on December 17. The $ 2.1B acquisition of Endocyte (NASDAQ:ECYT) by Novartis (NYSE:NVS) goes to a vote on December 20. Medtronic’s (NYSE:MDT) acquisition of Mazor Robotics (NASDAQ:MZOR) is expected to close on December 21. Sprint (NYSE:S) and T-Mobile (NASDAQ:TMUS) expect to land U.S. security clearance approval next week for their planned combination.

Strategic update: Achillion Pharmaceuticals (NASDAQ:ACHN) is hosting a live webcast and conference call on December 17. CEO Joseph Truitt and Chief Medical Officer Dr. Stephen Zelenkofske will present the company’s 2019 development plans along with interim data on Phase 2 clinical trials in PNH and C3G as well as initial Phase 1 data on Achillion’s next generation factor D inhibitors.

Guidance update: Eli Lilly (NYSE:LLY) has an investor community meeting set for December 19. The company will update its 2019 guidance expectations during the meeting. Shares of Eli Lilly are up 36% YTD.

FDA review deadlines: Pdufa dates arrive this week on Shire’s (SHPG, OTCPK:SHPGF) prucalopride NDA and Jazz Pharmaceutical’s (NASDAQ:JAZZ) solriamfetol NDA.

JV talk: Albemarle (NYSE:ALB) is scheduled to discuss its agreement to form the Wodgina Lithium joint venture in Western Australia during a webcast presentation on December 17.

Strategy talk: Cisco (NASDAQ:CSCO) is scheduled to host an Enterprise Strategy conference call on December 17.

Banking updates: Credit card charge-offs and delinquencies reports are due in on December 17 from Alliance Data Systems (NYSE:ADS), American Express (NYSE:AXP), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Capital One Financial (NYSE:COF), Discover Financial (NYSE:DFS), JPMorgan (NYSE:JPM) and Synchrony Financial (NYSE:SYF).

Box office: Sony (NYSE:SNE)/Marvel feature Spider-Man: Into the Spider-Verse is expected to dominate the weekend box with a projected haul of $ 40M, while Warner Brothers’ The Mule is forecast to bring in $ 17M. At the end of next week, the Christmas/New Year’s rush launches with Aquaman (Warner Bros.), Bumblebee (Paramount), Second Act (STX Entertainment), Welcome to Marwen (Universal) and Cold War (Amazon Studios) arriving in theaters. The U.S. box office is up 10.1% YTD through December 12.

Barron’s mentions: The publication compiles a list of its top ten stock picks for 2019. Alphabet (GOOG, GOOGL), Apple (NASDAQ:AAPL), Bank of America (BAC), BlackRock (NYSE:BLK), Caterpillar (NYSE:CAT), Chevron (NYSE:CVX), Daimler (OTCPK:DDAIF), and Delta Air Lines (NYSE:DAL), Energy Transfer (NYSE:ET) and Toll Brothers (NYSE:TOL) all make the list. Other stocks singled out as potential market outperformers next year include PayPal (NASDAQ:PYPL), Visa (NYSE:V), Mastercard (NYSE:MA), NextEra (NYSE:NEE) and Applied Materials (NASDAQ:AMAT). Overall, the market strategists interviewed by Barron’s see a +10% return for the major stock indexes.

Stocks to Watch: Our publication is taking a short break for the holidays. We will be back on January 5 to help get you ready for the first full trading week of 2019. In the meantime, if you have any suggestions for our weekly preview of the market, please add them to the comment stream below or e-mail us at [email protected]

Sources: Nasdaq, EDGAR, Bloomberg, CNBC

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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How a Turkish Airlines Jet Flew an Extra 800 Miles and Landed On Time
October 23, 2018 12:00 am|Comments (0)

Most of the time, passengers on Turkish Airlines Flight 800, flying from Panama City to Istanbul, can look down on Puerto Rico just after takeoff, then the blue of the Atlantic Ocean for a few hours, then Southern France and Northern Italy before arcing south over Greece and touching down. But those who made the trip on Sunday got a view of a very different set of locales: Cuba, then the eastern coast of the United States and the southern tips of Greenland and Norway, finally reaching the Turkish city by way of Poland and Romania.

Compared to the “great circle distance” between the two airports (meaning the shortest path) of 6,739 miles, Flight 800 traveled 7,553 miles, according to aviation tracking site FlightRadar24. That’s an extra 814 miles. And while it takes two and a half hours to fly the same distance from New York City to Jacksonville, Florida, the Turkish Airlines Airbus A330 took just 27 minutes longer than average, and landed just 11 minutes after its scheduled arrival time, per FlightStats.com. By airline standards, that counts as officially on time.

Bananas, right? Not so much.

As Turkish Airlines Flight 800 caught the jet stream over the Labrador Sea, its speed surged to 600 knots (710 mph), way above the Airbus A330’s cruising altitude. The red dotted line shows the shortest path between Panama City, Panama, and Istanbul. Courtesy of FlightRadar24.

“From an air traffic control perspective, it’s not unusual,” says Sid McGuirk, chair of the Department of Applied Aviation Sciences at Embry-Riddle Aeronautical University. Especially not once you take a look at the weather conditions at the time. When the Airbus A330 jet was getting ready to unglue from the tarmac in Panama, the jet stream over the Labrador Sea was blowing something fierce. As the plane tracked north along the Eastern Seaboard, it was flying around 540 mph, its standard cruising speed. When it caught the wind, however, its speed surged, peaking at 700 mph—without burning any more jet fuel than usual.

This map of wind speeds at the time of the flight (red means fast) seems to explain why the plane went so far out of its way, and how it managed to land on time. Courtesy of FlightRadar24.

FlightRadar24

“Sometimes we go way out of the way, for one reason or another,” says says Doug Moss, a commercial pilot and aviation consultant. Why? Because economics. Airlines operate on thin profit margins, so letting wind do the work usually done by expensive jet fuel is a no-brainer. And wind can do a lot of work: In January, a Norwegian Air 787 set a speed record for non-supersonic commercial aircraft thanks to a 202-mph tailwind, flying from New York’s JFK to London’s Gatwick in 5 hours and 13 minutes. But they also have to consider factors like overflight fees, the tolls set by countries for the right to zip through their airspace (in the US, it’s $ 60.07).

Of course, saving money on the flight only works if the plane doesn’t land so late, its passengers miss their connections, and the airline has to put everyone up in a hotel for the night. Keep doing it, and the carrier risks driving away future customers with poor on time performance. And while flying slowly saves fuel, it also means putting more time on the aircraft, and shortening the time before it has to be grounded for mandatory maintenance. (Turkish Airlines did not immediately reply to questions about this flight.)

“The computer goes through essentially a Monte Carlo simulation, and it looks at all the possible routes available,” Moss says. “It’ll run probably a thousand different scenarios, and it’ll pick the one that’s the cheapest.”

Such ever-changing conditions are the reason Singapore Airlines Flight 22, from New York to Singapore, can make the trip along one of three general routes: over the Pacific, over the Atlantic, or over the North Pole. And why Air India flies east from Delhi to San Francisco—and east from San Francisco to Delhi.

And while the folks flying on Turkish Airlines Flight 800 may have wondered why they could see Norwegian fjords on their trip from Panama to Istanbul, they probably stopped caring once they touched down, safely and on time.


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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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AT&T CEO says ready to invest, keep culture at Time Warner: CNBC
June 15, 2018 6:05 pm|Comments (0)

(Reuters) – AT&T Inc is committed to spend as much as needed on the media business of newly acquired Time Warner Inc, Chief Executive Randall Stephenson told CNBC on Friday, with a plan to invest $ 21 billion to $ 22 billion in the combined company.

FILE PHOTO: Chief Executive Officer of AT&T Randall Stephenson arrives at a U.S. District Court in Washington, D.C., U.S. April 19, 2018. REUTERS/Carlos Barria/File Photo

“We’re not going to be penny-wise and pound-foolish here,” Stephenson said in an interview on the financial news channel. “We intend to invest.”

The No. 2 U.S. wireless carrier closed its $ 85 billion acquisition of Time Warner on Thursday and now faces the task of integrating a media company into its operations as it seeks to rival Netflix Inc , Amazon.com Inc and other technology companies providing entertainment directly to customers.

That will be the job of John Stankey, who will lead the company’s combined entertainment business. Stephenson said on Friday AT&T intends to preserve Time Warner’s creative culture.

He acknowledged such differences in an email to AT&T and Time Warner employees late on Thursday, a copy of which was seen by Reuters.

“As different as our businesses are, I think you’ll find we have a lot in common,” wrote Stephenson. “We’re big fans of your talent and creativity. And you have my word that you will continue to have the creative freedom and resources to keep doing what you do best.”

Stephenson told CNBC he expects AT&T’s debt levels to come down quickly in about a year, returning to normal levels within four years at about 2.3 times earnings before interest, tax, depreciation and amortization.

Some analysts have raised concerns about the high level of debt the company took on to acquire Time Warner, about $ 180 billion at the close of the merger, Stephenson said.

AT&T’s spending plans include investing more in HBO, the premium TV channel with the hit show “Game of Thrones,” and expanding HBO’s direct-to-consumer platform, Stephenson said.

Reporting by Sheila Dang; Additional reporting by Diane Bartz in Washington; Editing by Bill Rigby

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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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