‘Value Trap’ Shoots and Scores!
February 10, 2020
Author Brian Nelson is the President of Investment Research at Valuentum. In his role, he has updated and overseen over 20,000 discounted cash flow models during the past 10 years. Prior to Valuentum, he worked as the Director of Methodology at Morningstar, a large independent research firm in Chicago, developing the company’s discounted cash-flow model used to derive the fair value estimates for the company’s coverage universe. Key Takeaways Based on how we interpret the latest from Fama/French, a new study released a couple weeks ago, the long-advertised quant value factor, the book-to-market (B/M) ratio, may not have even existed. By extension, in our view, it reinforces our thesis that many quant value factors that are based on traditional valuation
Disney Reports Earnings and Provides an Update on the Novel Coronavirus Epidemic
February 10, 2020
Image Shown: Walt Disney Company recently reported earnings and provided an update as to what investors should expect going forward given the ongoing novel coronavirus epidemic in China. By Callum Turcan On February 4, Walt Disney Company (DIS) reported earnings for the first quarter of its fiscal 2020 (period ended December 28, 2019). While Disney beat both consensus top- and bottom-line estimates, shares sold off modestly the next trading day over fears concerning the ongoing novel coronavirus epidemic (abbreviated as ‘2019-nCoV’) in China, and how that would impact its financial performance going forward. On January 13, 2020, we added shares of DIS to our Best Ideas Newsletter portfolio (link covering our portfolio changes here) with a modest weighting given
Our Reports on Stocks in the Alcoholic Beverage Industry
February 10, 2020
Image Source: Jhong Dizon Structure of the Beverages (alcoholic) Industry The beer industry is structured as an oligopoly, with three players generating over half of industry profits. Though smaller industry constituents may price competitively at times, we view the overall industry structure as a rational oligopoly. Further consolidation in the space cannot be ruled out, and we would not be surprised to see larger players continuing to participate. Global operators will benefit from exposure to Asia, Africa, and Latin America, where beer consumption is growing at a pace several times that of mature markets such as North America and Western Europe. We like the structure of the group. We’ve reallocated our resources to cover more recession-resistant stocks. See here.
GasLog MLP Family Highlights Problems with Flawed Model
February 7, 2020
Image Source: GasLog Ltd – 2018 Analyst Day Presentation By Callum Turcan We’ve written about it many times in the past and we’re writing about it again: the master limited partnership (‘MLP’) model is fundamentally broken. Equity holders in this arrangement have little to no say over how the family of companies are run, and management is often beholden to no one. Only by converting to a C-Corp can this arrangement be rectified. Massive Payout Cut As you can see in the graphic below, the ownership structure of GasLog Ltd (GLOG), the general partner (‘GP’), and GasLog Partners LP (GLOP), the limited partner (‘LP’), is quite convoluted. This MLP family leases own vessels that transport liquified natural gas (‘LNG’) and
Our Reports on Stocks in the Sporting Goods Retailing Industry
February 7, 2020
Structure of the Retail – Sporting Goods Industry The seasonal retail sporting goods industry is heavily tied to sporting trends and relies on large athletic partners to create desirable athletic goods and apparel. Exclusive licenses can help certain firms achieve competitive advantages, and while scale helps, small companies have been able to carve out favorable niches. Online competition continues to grow from non-traditional retailers, causing potential pressures on margin and pricing performance. Potential firearm regulation could negatively impact sales, but most companies are well diversified. We’re neutral on the space, but continued consolidation could ultimately benefit industrywide pricing and margins. We’ve optimized our coverage of stocks tied to discretionary spending; the reports can be found here.
What to Do with Tesla?
February 6, 2020
Image Shown: Tesla’s shares have surged during the past 7-8 months driven by a confluence of factors from fundamental improvements, a massive short squeeze, quantitative momentum traders and speculators anticipating its addition to larger indexes. We’re maintaining our view that shares of Tesla are overvalued, and investors need to be careful dabbling in these types of equities where price-agnostic trading is running wild. By Brian Nelson, CFA Tesla (TSLA) is a cult stock. There are those that either love it or hate it, and we seem to be among the few that are in the middle camp. We think the company makes awesome products, and we’re excited to learn more about the Cyber Truck, but its stock has served as
Alphabet Reports Earnings and Its Fundamentals Remain Stellar
February 5, 2020
Image Shown: Shares of Alphabet Inc Class C, a top weighted holding in our Best Ideas Newsletter portfolio, continued their upward climb in 2019 and maintained their stellar trajectory. By Callum Turcan On February 3, Alphabet (GOOG) (GOOGL) reported fourth quarter and full year earnings for 2019. The firm’s bottom-line beat consensus estimates, but Alphabet’s top-line miss sent shares modestly lower the next day on Tuesday, February 4. We continue to like Alphabet’s Class C shares as a top weighted holding in our Best Ideas Newsletter portfolio with our fair value estimate sitting at $1,440 per share of GOOG (under our base case scenario) and the top end of our fair value estimate range sitting at $1,800 per share of
Our Reports on Stocks in the Management Services Industry
February 5, 2020
Image Source: GovWin Structure of the Management Services Industry The management services industry is primarily comprised of advisory and consulting firms. The reputation and performance track record of constituents is necessary to drive a high level of repeat/referral business and attract/retain top professionals. Most industry constituents produce consistent cash flows and require very little capital spending to maintain operations. Still, firms remain exposed to capital market changes, including M&A activity and legal/regulatory requirements, which may impact demand for their business and utilization of professionals. We generally like the structure of the group. We’ve optimized our coverage. For consumer discretionary equities, please look here.
Amazon Posts Blowout Earnings, Shares Back Near 2018 Highs
February 5, 2020
Image Shown: After reporting fourth quarter earnings for 2019, shares of Amazon Inc have returned to their 2018 highs as of this writing. By Callum Turcan On January 30, Amazon Inc (AMZN) reported fourth-quarter earnings for 2019 that handily beat consensus expectations. Shares of AMZN are now trading back near their highs first reached in 2018. We like Amazon’s growth trajectory but don’t include Amazon in our newsletter portfolios due to the enormous uncertainty in the company’s key valuation drivers, which has a magnified impact on changes in its fair value estimate. That’s a product of its high operating leverage. Even a ~50 basis point difference in its expected gross margins versus its realized gross margins, for example, could have
Visa Reports Earnings and Mildly Adjusts Guidance
February 4, 2020
Image Shown: Shares of top weighted holding in our Best Ideas Newsletter portfolio Visa Inc continues to outperform the S&P 500. By Callum Turcan On January 30, Visa Inc (V) reported earnings for the first quarter of its fiscal 2020 (period ended December 31, 2019). While shares sold off on the news, V has since recovered some lost ground and it’s important to keep in mind Visa is up ~42% over the past year as of this writing while the S&P 500 (SPY) was up just ~19% during this period. We continue to like Visa as a top weighted holding in the Best Ideas Newsletter portfolio and given the combination of the firm’s strong long-term technical and fundamental performance (on
