Berkshire Hathaway Prepares Itself for COVID-19
May 6, 2020
Image Source: Berkshire Hathaway Inc – 2019 Annual Report By Callum Turcan Berkshire Hathaway Inc (BRK.A) (BRK.B) reported first quarter 2020 earnings on May 2, which due to significant unrealized losses in its investment portfolio (a product of the market swoon in the early months of 2020) the firm swung to a large loss on a GAAP basis. As Berkshire Hathaway’s leadership team has often noted, the 2018 accounting rule change that forces companies to recognize unrealized gains and losses in the income statement can make GAAP net income and GAAP diluted EPS figures near meaningless without digging deeper into the firm’s financials. For convenience and to better showcase its actual performance, Berkshire Hathaway also includes its ‘operating earnings’ within
Tyson Faces Operational Hurdles
May 6, 2020
Image Source: Tyson Foods Inc – Second Quarter of Fiscal 2020 Earnings IR Presentation By Callum Turcan On May 4, the major meat and prepackaged food provider Tyson Foods Inc (TSN) reported second-quarter earnings for its fiscal 2020 (period ended March 28, 2020) that missed consensus estimates on both the top- and bottom-line, sending its shares sharply lower during the regular trading session that day. The ongoing coronavirus (‘COVID-19’) is hurting its production capabilities, in particular the operations of its meatpacking plants as numerous confirmed COVID-19 cases (that unfortunately includes fatalities) have emerged at those facilities and the facilities of its peers across the US, prompting many to close or scale back. For instance, Tyson was forced to temporarily close
Public Storage Currently Has the Financial Strength to Support Its Payout
May 6, 2020
Image Source: Public Storage – 2019 Annual Report By Callum Turcan High Yield Dividend Newsletter portfolio holding Public Storage (PSA) reported its first quarter results for 2020 on May 1. The self-storage real estate investment trust’s (‘REIT’) core funds from operations (‘FFO’) per share grew by 2% year-over-year last quarter, hitting $2.58 per share, while its occupancy rate (as measured by its rentable square feet) grew by ~60 basis points year-over-year, reaching 93.1%. Public Storage was also able to push through marginal same-store rent increases, though rising operating costs (particularly property taxes, payroll expenses, and marketing expenses) chipped away at its margins last quarter. As of this writing, shares of PSA yield ~4.4%. Public Storage owns and operates self-storage facilities
COVID-19 Idea Apple Raises Dividend, Continues With Massive Share Repurchases
May 4, 2020
Image Shown: Shares of Apple Inc have sharply rebounded since falling precipitously from the start of 2020 through March, keeping in mind we removed shares of AAPL from our newsletter portfolios back on January 13, 2020 (link here), when shares of Apple were trading well over $300 per share. We announced on March 17, 2020, that we like Apple as a way to ride out the ongoing coronavirus (‘COVID-19’) pandemic. By Callum Turcan Apple Inc (AAPL) reported earnings for its second quarter of fiscal 2020 (period ended March 28, 2020) that beat both consensus top- and bottom-line estimates. The company also pushed through a 6% sequential increase in its quarterly payout, bringing it up to $0.82 per share or $3.28
Visa Reports That Global Spending Levels May Have Started to Stabilize in April
May 4, 2020
Image Source: DeclanTM By Callum Turcan One of our favorite companies and a top-weighted holding in our Best Ideas Newsletter portfolio, Visa Inc (V), reported second-quarter earnings for fiscal 2020 (period ended March 31, 2020) which beat both consensus top- and bottom-line estimates. Going forward, while Visa’s very lucrative travel-related businesses (which includes payment processing and foreign currency transaction solutions) will take a hit from reduced travel worldwide due to the ongoing coronavirus (‘COVID-19’) pandemic, management is focused on controlling expenses to offset exogenous headwinds. Specifically, management noted that Visa would pull back on “discretionary spending especially related to personnel, travel, professional services, and marketing” which we appreciate. Outlook Commentary In the fiscal second quarter, Visa reported a 7% increase
Lloyds Banking Group Navigates Competitive Markets
May 4, 2020
Image Source: Lloyds. The UK banking market is highly competitive with too many players, and we think this is the cause for the low returns on capital across the cycle. We’re paying close attention to the key banking players in Europe, including Lloyds Banking Group, to assess the likelihood of a global financial contagion that may accompany the global pandemic that has become COVID-19. By Matthew Warren Lloyd’s Banking Group (LYG) posted a very difficult first quarter, results released April 30, with net income (IFRS equivalent of GAAP revenue) down 11% to GBP 4.0 billion and statutory profit before tax down 95% to GBP 74 million. One can see many of the highlights (or more realistically lowlights) in the graphic
Staying Focused on the Long Term
April 30, 2020
Image Source: The final lesson to learn from financial crises. Value Trap: Theory of Universal Valuation. — By Brian Nelson, CFA — Dear members, — Hope you and yours are well, and staying safe during this crisis. I know it’s difficult to be optimistic during these challenging times, but sometimes it’s okay to take a step back and relax. Things are going to be alright. Many of you have read my book Value Trap: Theory of Universal Valuation. In it, I talk a lot about the lessons from the Great Financial Crisis. Above any other, however, what I’ve found is that the most difficult lesson to accept is that moral hazard will (once again) be rewarded. — As I outlined in our prior note,
Alphabet Surges Higher
April 30, 2020
Image Shown: Shares of Alphabet Inc surged higher on April 29 after reporting a stellar earnings report, and we continue to like Alphabet Class C shares as a top-weighted holding in our Best Ideas Newsletter portfolio. By Callum Turcan After the market close on April 28, Alphabet Inc (GOOG) (GOOGL) reported first-quarter earnings for 2020 that beat top-line consensus estimates and missed bottom-line consensus estimates, with sales supported by the strength of its digital advertising business and its growing Google Cloud business. Alphabet’s advertising revenue (comprised of revenue from its Google Search, YouTube, and Google Network Members’ properties operations) was up 10% year-over-year to $33.8 billion while Google Cloud reported 52% revenue growth year-over-year, reaching $2.8 billion last quarter. All-in-all,
Deutsche Bank Suffering From Lack of Earnings Power
April 30, 2020
On April 29, Deutsche Bank reported another measly quarter in a long string of them. While Deutsche Bank is well-capitalized with a Common Equity Tier I ratio of 12.8% and its Investment Banking segment grew earnings nicely this quarter during rapid client trading and bond origination activity as the markets melted down in March, it suffers from a lack of earnings power at this stage. We blame this on the bank itself, but also on the overcapacity in European banking in general, which pressures margins across the entire industry. By Matthew Warren On April 29, Deutsche Bank (DB) reported another measly quarter in a long string of them, with revenue in the first period of 2020 flat at EUR 6.350
ALERT: Going to “Fully Invested” — The Fed and Treasury Have Your Back
April 29, 2020
Image Source: BEA. Real GDP fell at an annual pace of 4.8% in the first quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. Summary For members to our new options commentary service, the second April options idea will be released tomorrow. We’re taking the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to “fully invested,” scaling up our existing positions to reflect that status. We plan to consider put options to hedge against downside risk, if or when the time comes. Moral hazard continues to run rampant, and the Fed and Treasury may have no choice but to continue artificially propping up this market, even buying stocks through certain vehicles, if necessary.
