Best Ideas Newsletter Portfolio Holdings Are Surging!
November 4, 2020
Image: The holdings in the Best Ideas Newsletter during the trading session November 4. We continue to pound the table on our best ideas. By Brian Nelson, CFA If you were like me, you stayed up as long as you could last night watching the U.S. election coverage before it became too difficult to keep your eyes open. When I went to sleep, it seemed as though Donald Trump would be re-elected. The only state that appeared to flip to the Democrats from the 2016 election was Arizona, meaning Trump would still retain greater than the 270 electoral votes required to gain re-election. Well, that was last night, and this is today. As more and more votes came in last
Our Thoughts on Magellan Midstream’s Latest Earnings
November 4, 2020
Image Shown: Keeping the many headwinds facing the energy infrastructure space in mind, Magellan Midstream Partners LP remains one of our favorite midstream master limited partnerships. Image Source: Magellan Midstream Partners LP – October 2020 IR Presentation By Callum Turcan On October 30, Magellan Midstream Partners LP (MMP) reported third quarter 2020 earnings that beat both top- and bottom-line consensus estimates. The midstream master limited partnership (‘MLP’) space has faced enormous headwinds due to the ongoing coronavirus (‘COVID-19’) pandemic, though the firm was still able to generate sizable free cash flows during the first nine months of 2020. Magellan Midstream is a modestly-weighted holding in the High Yield Dividend Newsletter portfolio, and as of this writing, units of MMP yield
We Expect to Raise Our Fair Value Estimate of Honeywell
November 4, 2020
Image: Honeywell’s Third Quarter 2020 Earnings Release Slide Deck By Brian Nelson, CFA With GE’s (GE) fall from grace years ago, Honeywell (HON) has taken the reigns as one of Valuentum’s top industrial ideas. That said, we don’t include Honeywell in any newsletter portfolio given weakening fundamentals and an increased net debt position, but it remains top of mind should our existing holdings start to register ratings on the Valuentum Buying Index that may start to point to some profit taking. Honeywell yields just north of 2%. We continue to expect our newsletter holdings to perform relatively better against a strengthening economic backdrop, and that means for us, Honeywell will remain on the bench. During Honeywell’s third quarter, results released
Coca-Cola’s 3.3% Dividend Yield Not Bad
November 4, 2020
Image: Coca-Cola By Brian Nelson, CFA There are few companies that have stood the test of time like Coca-Cola (KO). With consumer preferences seemingly changing at the drop of a hat, it is hard to believe that the first glass of Coca-Cola was served in Atlanta more than 100 years ago, in 1886. That’s just 10 years after the first commercially successful combustion engine was invented and more than 20 years before the first Model T Ford rolled off the production line. The next 100 years for Coca-Cola won’t be as easy as the first, in our view, given health trends against sugar consumption and efforts to combat the obesity epidemic, but ongoing innovation may continue to keep this beverage
Digital Realty’s Momentum Continues, Raises Outlook
November 4, 2020
Image Shown: An overview of Digital Realty Trust Inc’s asset base. Image Source: Digital Realty Trust Inc – Third Quarter of 2020 IR Earnings Presentation By Callum Turcan On October 29, the data center real estate investment trust (‘REIT’) Digital Realty Trust Inc (DLR) reported third quarter 2020 earnings that beat consensus revenue estimates and consensus funds from operations (‘FFO’) estimates. Please note that while FFO is an imperfect metric, particularly because it does not incorporate the REIT-in-question’s need to refinance maturing debt and tap capital markets for funds for growth, it provides a useful snapshot of how well the REIT-in-question can maintain its dividend in the near term. Digital Realty posted $1.54 per share in core FFO last quarter
We’re Reiterating Our $200 Fair Value Estimate for PayPal
November 3, 2020
We continue to be big fans of PayPal. The company has a pristine balance sheet, high quality cash flow profile, impressive growth outlook, and is trading well below its fair value estimate as of this writing. Though investors initially sold off shares of PYPL following its third-quarter report November 2 due to its expected growth trajectory slowing down in the near term, we’re reiterating our fair value estimate of $200 per share as PayPal continues to deliver impressive fundamental performance. PayPal’s medium- and long-term growth outlooks remain stellar. Venmo could be a source of significant upside in the medium-term, and we are monitoring events closely. By Callum Turcan On November 2, PayPal Holdings Inc (PYPL) reported third quarter 2020 earnings
Kraft Heinz Shows the Power of the VBI
November 2, 2020
Image: Years ago, shares of Kraft Heinz registered a rating of 1 on the Valuentum Buying Index (VBI) on two separate occasions, highlighting the company’s overpriced nature and weakening technicals. Rare and extreme ratings on the VBI, 1 = worst; 10 = best, tend to be the most informative and/or the most actionable for investors. There are just too many net cash rich, free cash flow generating powerhouses with tremendous competitively advantaged business models tied to secular growth tailwinds that taking a flier on an overleveraged turnaround such as Kraft Heinz almost feels irresponsible. That said, shares yield ~5.2% as of this writing, so income investors might find a decent risk reward at the right price. With a 27% stake,
ICYMI — Dividend Growth Strategies Struggle
November 2, 2020
Image: A large cap growth ETF (orange) has significantly outperformed an ETF tied to a dividend growth strategy, the SPDR S&P Dividend ETF (SDY), which mirrors the total return performance of the S&P High Yield Dividend Aristocrats Index. — By Brian Nelson, CFA — To no surprise to many members, several dividend growth strategies have faced tremendous pressure during 2020. The Journal recently wrote a piece on the topic, but from our perspective, the problem with many dividend growth strategies is that they tend to be balance-sheet agnostic and pay little attention to traditional free cash flow expectations, focusing only on the yield itself, sometimes dismissing future fundamentals in favor of historical growth trends and the inferior EPS-based dividend payout ratio. — In many dividend-targeted
Clorox Is Thriving in a Post-COVID-19 World
November 2, 2020
Dividend growth investors looking for consumer staples exposure coupled with a hedge against future epidemics/pandemics might view Clorox as an excellent consideration for their portfolios. Shares yield a healthy ~2.1% at the time of this writing. By Brian Nelson, CFA On November 2, Clorox (CLX) reported stellar fiscal first-quarter earnings (period ending September 30) and raised its fiscal 2021 outlook. Revenue during the fiscal first quarter advanced 27% while diluted earnings per share more than doubled, to $3.22. Both figures came in better than expected. Fiscal 2021 revenue growth is now targeted at 5%-9% (versus guidance for a flat- to low-single digit increase previously) while diluted EPS is now expected in the range of $7.70-$7.95 for the year (versus $7.64
Earnings Brief: Facebook and Alphabet
October 30, 2020
Image: Facebook (orange) and Alphabet (blue) have advanced 26% and 20%, respectively, thus far in 2020 versus roughly flat performance of the S&P 500. We continue to like both names as the highest-weighted constituents in the Best Ideas Newsletter portfolio. By Brian Nelson, CFA We’re not making any changes to our fair value estimates of Facebook (FB) and Alphabet (GOOG) following their respective third-quarter reports, released October 29. Both Facebook and Alphabet are the highest-weighted positions in the Best Ideas Newsletter portfolio, and they have been for some time now. Collectively 26% of the newsletter portfolio at the high end of their respective weighting ranges, shares of Facebook and Alphabet have advanced more than 20% this year, while the S&P
