Penn Wealth Publishing

2021.01.10 Penn Wealth Report Vol 9 Issue 01

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10 Jan 2021 penn wealth Report volume 9 issue 01 23 Penn Wealth Report Copyright 2021. All Rights Reserved. weekly Business Report weekly Business Report Some of our favorite current stories, pulled from "Penn...After Hours"... that company announced it will acquire Aerojet for the equivalent of $56 per share, or $4.4 billion. Just over one-third of Aerojet's revenue comes from Lockheed, meaning the $100 billion Maryland-based firm will now own a key supplier. As a major defense supplier to the United States government, one cutting-edge arena that certainly hastened the purchase was hypersonic technology. With Putin bragging about Russia's new generation of hypersonic weapons and China making similar claims, it is impera- tive for the United States to remain in the lead with respect to these weapon systems. Hypersonic weapons can travel five times the speed of sound, and Aerojet is the world leader in the engine technology which makes these speeds possible. e all-cash deal should close in the first quarter of 2021. While we don't like losing a pure-play space investment, Lockheed looks even more undervalued after announcement of the deal. With a 15 PE ratio, solid financials, and a growing revenue stream, investors seem to be ignoring a very compelling growth story. the Jc penney ceo carousel continues as the firm Begins search for its sixth leader in the span of a decade To keep one of their major anchor stores from shutting down, mall owners Simon Property Group (SPG $86) and Brookfield Property Partners agreed to rescue JC Penney (OTC: JCPNQ $0.15) from bankruptcy in an $800 million deal—$300 million in cash and $500 million in debt assumption. While this may have been comforting news for most of the 80,000 or so remaining employees of the belea- guered retailer, one particular employee is probably not too happy: the new owners just fired CEO Jill Soltau. Sadly, the news doesn't mean much for a company seeking its sixth leader in the span of a decade. Soltau, the former head of Jo-Ann Fabrics, probably had the best shot of any of the firm's recent lead- ers to bring about positive change; at least until the pandemic forced the company to declare bankruptcy this past May. Now, with Simon's chief investment officer, Stanley Shashoua, temporarily in charge, the new owners begin the search for someone who can bring yet another new vision to the 119-year-old retailer. e right person is out there, we just have no faith in Simon to find that individual. Maybe they can woo the hapless Ron Johnson back. We are rooting for the retailer, which now has a market cap of just $48 million, and we do believe that a creative leader could still turn the ship around. Even with the shares sitting at fifteen cents on the OTC exchange, however, we are not willing to place money on that bet. e following chart shows recent CEOs of the firm. should we sell our rocketing Qualcomm now that one of our favorite ceos is aBruptly stepping down? Fundamental analysis, as opposed to technical analysis, is at the heart of selecting the right investments for a portfolio (though chartists would certainly disagree). And fundamental analysis goes beyond the financial statements; a wise investor must consider the strategic vision of a company, and the tactics being employed to achieve that vision. Weak or mediocre management teams have an excuse at the ready for every problem that arises. Strong teams, led by a true leader at the helm, create the right strategy, deploy the right tactics, and embolden the workforce to excel. American semiconductor giant Qualcomm (QCOM $155), led by the analytically-minded Steve Mollenkopf, certainly fits the template of the latter. While an engineer by training (he holds two electrical engineering degrees), Mollenkopf is one of those rare individuals who is equally at ease with semiconductor schematics and boardroom meet- ings. He is the quintessential leader. at is why we were shocked to hear that the 52-year-old CEO of the San Diego-based firm would be retiring this year. He will be replaced this coming June by the compa- ny's president, Cristiano Amon, who also hails from an engineering background. e challenges that Mollenkopf faced in his tenure were massive, from a hostile takeover bid by Broadcom to a licensing fight with Apple to regulatory scrutiny from numerous countries. He handled all of them masterfully, but how will Amon face the similar challenges which are sure to arise in this cutthroat industry? e 50-year-old has been with Qualcomm most of his career and has worked directly under Mollenkopf for the past several years, so he certainly has his bona fides in place. Only time will tell how adept he will be at navigat- ing through crises, but the company is on the right course to take full advantage of the coming 5G revolution. Qualcomm collects royalties on the majority of 3G, 4G, and 5G handsets sold, holding the essential patents for the components used in these networks. All major handset OEMs are under license, with a total of 110 5G deals on the books. Our Qualcomm holding, which is in the Penn New Frontier Fund, is up triple digits from its purchase, and we see plenty of growth ahead. at being said, we are putting the company on our watch list simply due to the change in leadership. LMT looks even more undervalued after announcement of the acquisition. multiline retail multiline retail

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