BUYERS’ STRIKE AND SOME LOW-TIDE DETRITUS
The stock market is resuming its downward slump, creating a drag on investor enthusiasm for buying shares. In many ways, this effect is no different from how consumers approach the purchase of any other item – if you are reasonably confident that the truck/house/trinket/whatever you are wanting to buy will be cheaper in a few weeks, you will wait to make your purchase.
In economics, when consumers boycott a product over an extended time period in order to reduce the price, it is called a buyers’ strike. We see this mindset creeping into the market as share prices tumble.
Even contrarian/value investors aren’t immune to this effect. We focus on valuations, but are just a bit hesitant to buy as the market tumbles. Why not wait maybe a few days to see if the shares get even cheaper?
Our list of interesting stocks is getting longer. But every time we are nearly ready to pull the trigger, the price ticks lower. At some point, we’ll be buyers again. But inflation isn’t easing, nor are the forces behind it. The Fed seems primed to fight inflation at any cost (recall its comments a year ago about knowing how to fix high inflation) and that cost may be 5% or 6% yields on the 10-year Treasury bond. Yields this high would weigh heavily on share prices.
While we build our “buy” roster and wait for better prices, we continue to wonder with some amusement about the thinking by supposedly savvy Wall Street types:
- Goldman Sachs is facing over $1.2 billion in credit and other losses in its new-ish consumer banking business – much greater and longer-lasting than they have previously forecast. The bank speaks highly of its growing customer list and rising volume of deposits, but these outcomes shouldn’t be a surprise: giving away money is a ready-made winning tactic for gaining customers, and offering above-market yields is a time-honored way to gather a lot of deposits. But these gains in no way provide a solid foundation for a profitable business. I’ve studied and invested in banks for decades: one valuable rule of thumb is to avoid banks that are growing rapidly. Anyone can lend money – the tricky part is getting it all back. Goldman’s customers seemed to have figured this out, given the elevated credit losses ahead. Ironically, in the classic movie, “The Big Short”, a Goldman character says, “… this is Wall Street, Dr. Burry, if you offer us free money, we are going to take it.”
- Related, Goldman’s CEO David Solomon has compared the profit potential of its Main Street lending business to that of Amazon’s AWS cloud service, which overcame large early losses to become a major profit engine. But Solomon should know better: money lending is a pure commodity business with possibly a million competitors while AWS has only two serious competitors in a rapidly-growing industry.
- Accounting firm Ernst & Young was fined $100 million by the SEC because as many as 50 of its staffers cheated on the ethics portion of the CPA exam. Worse, the SEC said that EY seemed to not care about the cheating, nor did it make haste to put a halt to it.
As this market tide flows out, we will no doubt see more detritus left behind on the beach.
Share prices in the table reflect Tuesday (June 28) closing prices. Please note that prices in the discussion below are based on mid-day June 28 prices.
Note to new subscribers: You can find additional color on our thesis, recent earnings reports and other news on recommended companies in prior editions of the Cabot Undervalued Stocks Advisor, particularly the monthly edition, on the Cabot website.
Send questions and comments to Bruce@CabotWealth.com.
Today’s Portfolio Changes
None
Last Week’s Portfolio Changes
None
Growth/Income Portfolio
Cisco Systems (CSCO) is facing revenue pressure as customers migrate to the cloud and thus need less of Cisco’s equipment and one-stop-shop services. Cisco’s prospects are starting to improve under a relatively new CEO, who is shifting Cisco toward a software and subscription model and is rolling out new products, helped by its strong reputation and entrenched position within its customers’ infrastructure. The company is highly profitable, generates vast cash flow (which it returns to shareholders through dividends and buybacks) and has a very strong balance sheet.
While Cisco shares round-tripped from our initial recommendation at 41.32 to 64 and back to 45 or so is frustrating, this is not the time to sell the stock. The fundamentals remain reasonably stable and likely to tick back upward, and profits seem likely to improve, as well. The shares will likely come back to life as earnings reports show favorable growth and profit trends, so investors will need some patience. If we have a recession in global tech spending, Cisco would likely feel the downturn but not as severely as other technology companies due to the mission-critical nature of its products and services.
Cisco won a reversal of a $2.75 billion payment for damages to Centripetal Networks. In the case, a judge was seen as biased due to his wife’s ownership of 100 shares of Cisco.
Separately, the company announced its withdrawal from Russia in response to that country’s invasion of Ukraine. Cisco also said it will exit Belarus.
The valuation is attractive at 8.8x EV/EBITDA and 13x earnings, the shares pay a sustainable 3.5% dividend yield, the balance sheet is very strong and Cisco holds a key role in the basic plumbing of technology systems even if its growth rate is only modest. We are keeping our Buy rating.
CSCO shares slipped 1% in the past week and have 51% upside to our 66 price target. BUY
The Coca-Cola Company (KO) is best known for its iconic soft drinks yet nearly 40% of its revenues come from non-soda beverages across the non-alcoholic spectrum. Its global distribution system reaches nearly every human on the planet. Coca-Cola’s longer-term picture looks bright but the shares remain undervalued due to concerns over the pandemic, the secular trend away from sugary sodas, and a tax dispute which could cost as much as $12 billion (likely worst-case scenario). The relatively new CEO James Quincey (2017) is reinvigorating the company by narrowing its over-sized brand portfolio, boosting its innovation and improving its efficiency, as well as improving its health and environmental image. Coca-Cola’s balance sheet is sturdy, and its growth investing, debt service and dividend are well-covered by free cash flow.
There was no significant company-specific news in the past week.
KO shares rose 3% in the past week and have 10% upside to 69 price target. We recently moved the shares to a HOLD as rising interest rates and the market’s weakness put a lid on the target valuation multiple.
Coca-Cola’s fundamentals remain sturdy with respectable revenue, profit and free cash flow growth. Management continues to focus on execution in its core business while generally avoiding any major non-core commitments. HOLD
Dow Inc. (DOW) merged with DuPont to create DowDuPont, then split into three companies in 2019 based on product type. The new Dow is the world’s largest producer of ethylene/polyethylene, the most widely-used plastics. Investors undervalue Dow’s hefty cash flows and sturdy balance sheet largely due to its uninspiring secular growth traits, its cyclicality and concern that management will squander its resources. The shares are driven by: 1) commodity plastics prices, which are often correlated with oil prices and global growth, along with competitors’ production volumes; 2) volume sold, largely driven by global economic conditions, and 3) ongoing efficiency improvements (a never-ending quest of all commodity companies). We see Dow as having more years of strong profits before capacity increases signal a cyclical peak, and expect the company to continue its strong dividend, reduce its pension and debt obligations, repurchase shares slowly and restrain its capital spending.
Industry conditions are healthy. The most basic measure of demand (volumes) remains steady with modest growth. Supply constraints and input costs are driving up the ability of producers to raise prices, which currently is the primary driver of higher profits. In such an environment, Dow remains well-positioned to generate immense free cash flow that is backed by a solid balance sheet. If the U.S. and/or global economic growth rate slips or turns negative, volumes will likely stall or turn negative but pricing could remain reasonably healthy. Dow is prioritizing maintaining its dividend – unless new capacity from competitors ramps quickly, or if demand falls sharply in China or elsewhere or if the industry loses its ability to pass through high natural gas and other inputs, we believe the dividend is highly-sustainable.
There was no significant company-specific news in the past week.
Dow shares slipped 4% in the past week as investors worry about the outlook for the US and global economy. Estimates for 2022 and 2023 earnings are ticking fractionally lower – this could be due to analysts’ factoring in an economic slowdown or from management giving soft downward sentiment on analysts’ estimates. We will get considerably more color on the post-earnings conference call.
The shares have 48% upside to our 78 price target and offer an attractive 5.3% dividend yield. BUY
Merck (MRK) shares are undervalued as investors worry about Keytruda, a blockbuster oncology treatment (about 30% of revenues) which faces generic competition in late 2028. Also, its Januvia diabetes treatment may see generic competition next year, and like all pharmaceuticals it is at risk from possible government price controls. Yet, Keytruda is an impressive franchise that is growing at a 20% rate and will produce solid cash flow for nearly seven more years, providing the company with considerable time to replace the potential revenue loss. Merck’s new CEO, previously the CFO, is accelerating Merck’s acquisition program, which adds return potential and risks to the story. The company is highly profitable and has a solid balance sheet. It spun off its Organon business in June 2021 and we think it will divest its animal health segment sometime in the next five years.
Recent favorable trials for Merck’s Keytruda and other treatments offer some encouragement regarding the company’s ability to maintain its revenue base.
Merck shares rose 4% in the past week and touched an all-time high of 95.72. The shares have about 8% upside to our 99 price target. The company has a strong commitment to its dividend (3.0% yield) which it backs up with generous free cash flow, although its shift to a more acquisition-driven strategy will slow the pace of dividend increases. While the shares have pulled back, we are retaining our Hold rating as rising interest rates reduce the upside potential value of its shares. HOLD
Buy Low Opportunities Portfolio
Allison Transmission Holdings, Inc. (ALSN) – Allison Transmission is a midcap ($6.4 billion market cap) manufacturer of vehicle transmissions. Many investors view this company as a low-margin producer of car and light truck transmissions that is destined for obscurity in an electric vehicle world. However, Allison produces no car and light truck transmissions, instead it focuses on the school bus and Class 6-8 heavy-duty truck categories, where it holds an 80% market share. Its 35% EBITDA margin is sharply higher than its competitors and on-par with many specialty manufacturers. And, it is a leading producer and innovator in electric axles which all electric trucks will require. Another indicator of its advanced capabilities: Allison was selected to help design the U.S. Army’s next-generation electric-powered vehicle. The company generates considerable free cash flow and has a low-debt balance sheet. Its capable leadership team keeps its shareholders in mind, as the company has reduced its share count by 38% in the past five years.
There was no significant company-specific news in the past week.
Allison shares rose 2% in the past week and have 23% upside to our 48 price target. The stock pays an attractive and sustainable 2.2% dividend yield to help compensate for the wait. BUY
Arcos Dorados (ARCO), which is Spanish for “golden arches,” is the world’s largest independent McDonald’s franchisee. Based in stable Uruguay and listed on the NYSE, the company produces about 72% of its revenues in Brazil, Mexico, Argentina and Chile. The shares are depressed as investors worry about the pandemic, as well as political/social unrest, inflation and currency devaluations. However, the company has a solid brand and high recurring demand and is well-positioned to benefit as local economies re-open. The leadership looks highly capable, led by the founder/chairman who owns a 38% stake, and has the experience to successfully navigate the complex local conditions. Debt is reasonable relative to post-recovery earnings, and the company is currently producing positive free cash flow.
Macro issues, including issues in Brazil related to its economic conditions (in particular, inflation, running at a 11.3% rate), currency and the chances that a socialist might win this year’s Brazilian presidential elections, will continue to move ARCO shares.
There was no significant company-specific news in the past week.
ARCO shares fell 3% in the past week and have 24% upside to our 8.50 price target. BUY
Aviva, plc (AVVID), based in London, is a major European company specializing in life insurance, savings and investment management products. Amanda Blanc was hired as the new CEO in July 2020 to revitalize Aviva’s laggard prospects. She divested operations around the world to re-focus the company on its core geographic markets (U.K., Ireland, Canada), and is improving Aviva’s product competitiveness, rebuilding its financial strength and trimming its bloated costs. Aviva’s dividend has been reduced to a more predictable and sustainable level with a modest upward trajectory. Excess cash balances are being directed toward debt reduction and potentially sizeable special dividends and share repurchases.
Much of our interest in Aviva is based on its plans for returning its excess capital to shareholders, including share repurchases and dividends. These distributions could be substantial. We also look for incremental shareholder-friendly pressure from highly regarded European activist investor Cevian Capital, which holds a 5.2% stake.
There was no significant company-specific news in the past week.
Aviva shares fell 3% in the past week and have about 36% upside to our 14 price target. Based on management’s estimated dividend for 2023 (which we believe is highly credible), the shares produce a generous 8.1% yield. Based on this year’s actual dividend, the shares offer an attractive 5.4% dividend yield. BUY
Barrick Gold (GOLD), based in Toronto, is one of the world’s largest and highest quality gold mining companies. About 50% of its production comes from North America, with the balance from Africa/Middle East (32%) and Latin America/Asia Pacific (18%). Barrick will continue to improve its operating performance (led by its new and highly capable CEO), generate strong free cash flow at current gold prices, and return much of that free cash flow to investors while making minor but sensible acquisitions. Also, Barrick shares offer optionality – if the unusual economic and fiscal conditions drive up the price of gold, Barrick’s shares will rise with it. Given their attractive valuation, the shares don’t need this second (optionality) point to work – it offers extra upside. Barrick’s balance sheet has nearly zero debt net of cash. Major risks include the possibility of a decline in gold prices, production problems at its mines, a major acquisition and/or an expropriation of one or more of its mines.
There was no significant company-specific news in the past week.
Over the past week, commodity gold ticked down 1% to $1,824/ounce, holding its value in a sliding market for financial assets. The 10-year Treasury yield drifted down to 3.20% after touching nearly 3.50% a few weeks ago. The spread between this yield and inflation of 8.6% remains exceptionally wide compared to a 10-year average of perhaps one to two percentage points of a premium of the Treasury yield over CPI. From 1955 to about 2010, the Treasury had an average yield premium of about 2.5 percentage points over inflation. These spreads strongly suggest that many more interest rate hikes are ahead. Chatter about the “real” yield turning positive is based on other yields and expected inflation rates so we consider them to be less useful. The US Dollar Index, another driver of gold prices (the dollar and gold usually move in opposite directions), was unchanged at 104.38.
Barrick shares fell 4% in the past week and have about 43% upside to our 27 price target. The price target is based on 7.5x estimated steady-state EBITDA and a modest premium to our estimate of $25/share of net asset value. BUY
Big Lots (BIG) – Big Lots is a discount general merchandise retailer based in Columbus, Ohio, with 1,431 stores across 47 states. Its stores offer an assortment of furniture, hard and soft home goods, apparel, electronics, food and consumables as well as seasonal merchandise. Our bullish case for Big Lots rests with its loyal and growing base of 22 million rewards members, its appeal to bargain-seeking customers, the relatively stable (albeit low) 5.5% cash operating profit margin, its positive free cash flow, debt-free balance sheet and low share valuation at 3.1x EV/EBITDA and 7.3x per-share earnings based on conservative January 2023 estimates.
Our thesis was deeply rattled by the company’s dismal first quarter results. Offloading its bloated inventory will require sharp discounts, which will weigh on profits while the $271 million in new borrowing ramps up the risk. We are retaining our HOLD rating for now: investor expectations are sufficiently depressed to provide some downside cushion, while management should be able to extract itself from the worst of the inventory problem over the next few quarters. Nevertheless, the Big Lots investment is now high-risk due to the new debt balance, the lost value from the inventory glut and the potential for a dividend cut.
There was no significant company-specific news in the past week.
Big Lots shares rebounded 8% in the past week. The shares have 53% upside to our recently reduced 35 price target. HOLD
Citigroup (C) – Citi is one of the world’s largest banks, with over $2.4 trillion in assets. The bank’s weak compliance and risk-management culture led to Citi’s disastrous and humiliating experience in the 2009 global financial crisis, which required an enormous government bailout. The successor CEO, Michael Corbat, navigated the bank through the post-crisis period to a position of reasonable stability. Unfinished, though, is the project to restore Citi to a highly profitable banking company, which is the task of new CEO Jane Fraser.
Citigroup passed the Federal Reserve’s stress tests. However, it will be required to maintain an 11.5% CET1 capital ratio later this year and a 12.0% ratio starting next January. Its current ratio is 11.4%, suggesting that the bank will need to boost its capital over the next six months – which may derail any meaningful share repurchases or dividend hikes. The bank said it has the capacity to maintain its current $0.51/share quarterly dividend even in a severe economic downturn as defined by the Fed tests.
The bank says that a deal to sell its entire consumer and middle market Banamex operations in Mexico will likely be signed by next January and then take another 12-18 months to be completed. While there was no price talk disclosed, Citi said that several parties expressed interest. We’d like to see the business earn a high valuation, as it is a bit of a crown jewel for Citi.
The spread between the 90-day T-bill and the 10-year Treasury note, which approximates the drivers behind Citi’s net interest margin, narrowed by 25 basis points to 1.48%. There are 100 basis points in one percent. When commentators discuss the “flat yield curve,” they are referring to the current situation where yields on maturities of two years and longer are all essentially the same at around 3.2% or so.
A recession would increase Citi’s credit losses, a flatter yield curve would weigh on its net interest margin and weaker capital markets would mean fewer investment banking revenues.
Citi shares fell 1% over the past week. The shares have about 79% upside to our 85 price target. Citigroup investors enjoy a 4.3% dividend yield and perhaps another 3% or more in annual accretion from the bank’s share repurchase program once it reaches its new target capital ratio and if a slowing/stalling economy doesn’t meaningfully raise its credit costs. BUY
Molson Coors Beverage Company (TAP) is one of the world’s largest beverage companies, producing the highly recognized Coors, Molson, Miller and Blue Moon brands as well as numerous local, craft and specialty beers. About two-thirds of its revenues come from the United States, where it holds a 24% market share. Investors worry about Molson Coors’ lack of revenue growth due to its relatively limited offerings of fast-growing hard seltzers and other trendier beverages. Our thesis for this company is straight-forward – a reasonably stable company whose shares sell at an overly-discounted price. Its revenues are resilient, it produces generous cash flow and is reducing its debt. A new CEO is helping improve its operating efficiency and expand carefully into more growthier products. The company recently re-instated its dividend.
There was no significant company-specific news in the past week.
TAP shares jumped 8% in the past week and have about 22% upside to our 69 price target. The stock remains cheap, particularly on an EV/EBITDA basis, or enterprise value/cash operating profits, where it trades at 9.2x estimated 2022 results, still among the lowest valuations in the consumer staples group and below other brewing companies. The 2.7% dividend yield only adds to the appeal. BUY
Organon & Company (OGN) was recently spun off from Merck. It specializes in patented women’s healthcare products and biosimilars, and also has a portfolio of mostly off-patent treatments. Organon will produce better internal growth with some boost through smart yet modest-sized acquisitions. It may eventually divest its Established Brands segment. The management and board appear capable, the company produces robust free cash flow, has modestly elevated debt and will pay a reasonable dividend. Investors have ignored the company, but we believe that Organon will produce at least stable and large free cash flows with a reasonable potential for growth. At our initial recommendation, the stock traded at a highly attractive 4x earnings.
There was no significant company-specific news in the past week.
OGN shares rose 6% in the past week and have about 31% upside to our 46 price target (using the same target as the Cabot Turnaround Letter). The shares continue to trade at a remarkably low valuation while offering an attractive 3.2% dividend yield. BUY
Sensata Technologies (ST) is a $3.8 billion (revenues) producer of nearly 47,000 highly-engineered sensors used by automotive (60% of revenues), heavy vehicle, industrial and aerospace customers. About two-thirds of its revenues are generated outside of the United States, with China producing about 21%. Investors undervalue Sensata’s durable franchise. Its sensors are typically critical components that generally produce high profit margins. As the sensors’ reliability is vital to safely and performance, customers are reluctant to switch to another supplier that may have lower prices but also lower or unproven quality. Sensata has an arguably under-leveraged balance sheet and generates healthy free cash flow. The relatively new CEO will likely continue to expand the company’s growth potential through acquisitions. Electric vehicles are an opportunity as they expand Sensata’s reachable market.
There was no significant company-specific news in the past week.
ST shares rose 3% in the past week and have about 73% upside to our 75 price target. Our price target looks optimistic in light of the broad market sell-off, but we will keep it for now, even as it may take longer for the shares to reach it. BUY
Disclosure:The chief analyst of the Cabot Undervalued Stocks Advisor personally holds shares of every recommended security, except for “New Buy” recommendations. The chief analyst may purchase or sell recommended securities but not before the fourth day after any changes in recommendation ratings has been emailed to subscribers. “New Buy” recommendations will be purchased by the chief analyst as soon as practical following the fourth day after the newsletter issue has been emailed to subscribers.
| Growth/Income Portfolio | |||||||
| Stock (Symbol) | Date Added | Price Added | 6/28/22 | Capital Gain/Loss | Current Dividend Yield | Price Target | Rating |
| Cisco Systems (CSCO) | 11-18-20 | 41.32 | 43.06 | 4.2% | 3.5% | 66.00 | Buy |
| Coca-Cola (KO) | 11-11-20 | 53.58 | 62.28 | 16.2% | 2.7% | 69.00 | Hold |
| Dow Inc (DOW) * | 04-01-19 | 53.50 | 52.53 | -1.8% | 5.3% | 78.00 | Buy |
| Merck (MRK) | 12-9-20 | 83.47 | 91.89 | 10.1% | 3.0% | 99.00 | Hold |
| Buy Low Opportunities Portfolio | |||||||
| Stock (Symbol) | Date Added | Price Added | 6/28/22 | Capital Gain/Loss | Current Dividend Yield | Price Target | Rating |
| Allison Transmission Hldgs (ALSN) | 02-22-22 | 39.99 | 38.67 | -3.3% | 2.2% | 48.00 | Buy |
| Arcos Dorados (ARCO) | 04-28-21 | 5.41 | 6.85 | 26.6% | 2.3% | 8.50 | Buy |
| Aviva (AVVID) | 03-03-21 | 10.75 | 10.22 | -4.9% | 5.5% | 14.00 | Buy |
| Barrick Gold (GOLD) | 03-17-21 | 21.13 | 18.55 | -12.2% | 2.2% | 27.00 | Buy |
| BigLots (BIG) | 04-12-22 | 35.24 | 22.27 | -36.8% | 5.4% | 35.00 | Hold |
| Citigroup (C) | 11-23-21 | 68.10 | 47.21 | -30.7% | 4.3% | 85.00 | Buy |
| Molson Coors (TAP) | 08-05-20 | 36.53 | 55.76 | 52.6% | 2.7% | 69.00 | Buy |
| Organon (OGN) | 06-07-21 | 31.42 | 34.79 | 10.7% | 3.2% | 46.00 | Buy |
| Sensata Technologies (ST) | 02-17-21 | 58.57 | 42.65 | -27.2% | 1.0% | 75.00 | Buy |
*Note: DOW price is based on April 1, 2019 closing price following spin-off from DWDP.
Buy – This stock is worth buying.
Strong Buy – This stock offers an unusually favorable risk/reward trade-off, often one that has been rated as a Buy yet the market has sold aggressively for temporary reasons. We recommend adding to existing positions.
Hold – The shares are worth keeping but the risk/return trade-off is not favorable enough for more buying nor unfavorable enough to warrant selling.
Sell – This stock is approaching or has reached our price target, its value has become permanently impaired or changes in its risk or other traits warrant a sale.
Note for stock table: For stocks rated Sell, the current price is the sell date price.
| CUSA Valuation and Earnings | |||||||
| Growth/Income Portfolio | |||||||
| Current price | Current 2022 EPS Estimate | Current 2023 EPS Estimate | Change in 2022 Estimate | Change in 2023 Estimate | P/E 2022 | P/E 2023 | |
| CSCO | 43.57 | 3.36 | 3.56 | 0.0% | 0.0% | 13.0 | 12.2 |
| KO | 62.82 | 2.47 | 2.65 | 0.0% | 0.0% | 25.4 | 23.7 |
| DOW | 52.83 | 8.06 | 7.25 | -0.5% | -0.5% | 6.6 | 7.3 |
| MRK | 91.85 | 7.39 | 7.42 | 0.0% | 0.0% | 12.4 | 12.4 |
| Buy Low Opportunities Portfolio | |||||||
| Current price | Current 2022 EPS Estimate | Current 2023 EPS Estimate | Change in 2022 Estimate | Change in 2023 Estimate | P/E 2022 | P/E 2023 | |
| ALSN | 39.03 | 6.24 | 7.21 | 0.0% | 0.0% | 6.3 | 5.4 |
| ARCO | 6.88 | 0.48 | 0.49 | 0.0% | 0.0% | 14.3 | 14.0 |
| AVVID | 10.31 | 1.10 | 1.37 | -6.6% | -4.9% | 9.4 | 7.5 |
| BIG | 22.86 | (2.61) | 2.18 | 0.0% | 0.0% | (8.8) | 10.5 |
| GOLD | 18.85 | 1.14 | 1.19 | -4.5% | -5.6% | 16.6 | 15.8 |
| C | 47.47 | 6.81 | 7.29 | -0.7% | -0.8% | 7.0 | 6.5 |
| TAP | 56.37 | 3.94 | 4.28 | 0.3% | 0.0% | 14.3 | 13.2 |
| OGN | 35.00 | 5.32 | 5.69 | 0.0% | 0.0% | 6.6 | 6.2 |
| ST | 43.46 | 3.86 | 4.49 | 0.0% | -0.4% | 11.3 | 9.7 |
Current price is yesterday’s mid-day price.
CSCO: Estimates are for fiscal years ending in July.