Questions Answered!
February 6, 2019
Image shown: The S&P 500 (SPY) performance and the timing of when we went to “fully invested” in the simulated newsletter portfolios, the Best Ideas Newsletter and Dividend Growth Newsletter. No changes to simulated newsletter portfolios. By Brian Nelson, CFA Hi everyone! Trust you are doing great. Here’s what you need to know about the broader market backdrop. 1) We’ve been expecting a more dovish Fed as the yield curve continues to threaten material inversion. We doubt the Fed will materially and purposefully invert it. The behavioral risks of actually causing a recession by doing so are too great. That means yield-oriented equities may continue to breathe a sigh of relief. This is good for ideas in the simulated Dividend
Arista Networks’ Overview and Holly Energy’s Dropdowns Dried Up
February 6, 2019
We often receive specific questions from members for research requests on stocks not within our coverage universe and specific questions regarding companies already within our coverage universe. Let’s take a look at one of each such situation in this article. By Kris Rosemann Arista Networks (ANET) – Scalable Business But Not Without Challenges Arista Networks is a leading supplier of cloud networking solutions that utilize software to address demand from large-scale Internet companies, cloud service providers, and next-generation data centers. According to third-party estimates, the company has the second-largest market share in datacenter 10/25/40/50/100 Gigabit Ethernet switch ports as of 2017. Arista Networks operates in the large and growing cloud networking space, and it is working to take advantage of
Alphabet Working to Balance Rising Spending and Driving Revenue Growth
February 5, 2019
Alphabet’s top-line growth remains impressive, but rising costs continue to pressure margin performance. Free cash flow generation is still robust, which provides the backbone for its fortress-like balance sheet, but capital spending levels advanced at a significant rate in 2018. By Kris Rosemann Simulated Best Ideas Newsletter portfolio idea Alphabet (GOOG, GOOGL) turned in a strong finish to 2018, but rising mobile-driven traffic acquisition costs are expected to continue weighing on margin performance. Revenue at Alphabet in the fourth quarter, results released February 4, jumped 22% on a year-over-year basis as reported thanks to its continued strength in Mobile Search as well as support from YouTube, Cloud, and Desktop Search, but operating income growth came in at only ~7% as
The Dividend Cushion Ratio Was Ahead of Tupperware’s Cut
February 4, 2019
Image shown: Tupperware’s landing page at Valuentum after the company announced a ~60% dividend cut. Tupperware slashed its dividend before the Dividend Growth Newsletter hit your inboxes Friday evening. The company was included at the bottom of a list of companies with the highest multiplicative combination of Dividend Yield x Dividend Cushion ratio (mostly due to its outsize yield). The Dividend Cushion ratio flagged it as an outsize risk, nonetheless, and it was not included in any simulated newsletter portfolio. By Kris Rosemann On January 30, prior to the release of the February Dividend Growth Newsletter, Tupperware (TUP) announced that it would cut its dividend. The company had been yielding at a high-single-digit rate, but that was a red flag, as
Our Reports on Stocks in the Truck Machinery Industry
February 4, 2019
Image Source: Oliver Bildesheim Structure of the Truck Machinery Industry Firms in the oligopolistic truck machinery industry make commercial vehicles, diesel engines, and aftermarket truck parts. A strong brand name and reputation, a fuel-efficient and regulatory-compliant vehicle portfolio, efficient manufacturing operations, an expansive dealer network, and a rock-solid balance sheet to finance customers are keys to success. Still, demand for commercial trucks is cyclical, severe price discounting remains present, and meeting emissions rules can be costly. Rising commodity prices can also keep a tight lid on profit expansion. We’re neutral on the structure of the group. —– We’ve discontinued coverage of the Truck Machinery Industry. << Our Dividend Reports
In The News: M&A Activity, Clorox Offsets Cost Headwinds, Sony Cuts Expectations
February 4, 2019
Let’s take a look at some of the top stories around the markets February 4. By Kris Rosemann Shares of Ultimate Software Group (ULTI) jumped on the announcement of its agreement to be taken private by a consortium of investors led by Hellman & Friedman for $331.50 per share, or roughly $11 billion. We like the deal for Ultimate Software shareholders as it represents a material premium to both our fair value estimate for shares and its recent share price levels. Microcap developer and manufacturer of energy solutions Maxell Technologies (MXWL) has agreed to be acquired by Tesla (TSLA) for $4.75 per share in stock. Shares of Maxwell will be exchanged for a fraction of Tesla stock that will be
Earnings Roundup: Amazon, Facebook, Honeywell, PayPal, Visa
February 1, 2019
Let’s talk about our views on Amazon, Facebook, Honeywell, PayPal, and Visa. We think Facebook’s equity offers the biggest bargain, but Visa remains our top idea, as it has been for some time. By Brian Nelson, CFA Amazon’s Shares Are Trading Below Our Fair Value Estimate But Sensitivity to Assumptions Is Great Image shown: The probability distribution of our fair value estimate range for Amazon. The company is trading below our fair value estimate of ~$2,000, but above the low end of the fair value estimate range of ~$1,500. We think shares are fairly valued if they are trading on the yellow line. Amazon’s fair value estimate is very sensitive to its operating margin. Here are the three things that
Our Reports on Stocks in the Wireless Telecom Services Industry
January 31, 2019
Image Source: American Tower Structure of the Wireless Telecom Services Industry Most firms in the wireless telecom services industry lease antenna space on communication sites/towers to wireless service providers, radio and television broadcast companies, and tenants in other industries. Tenant leases are typically long-term, noncancellable, have high renewal rates (98%+) and include attractive built-in annual rent escalations. Tower operators enjoy consistent demand for their sites, have high operating leverage (incremental costs to add new tenants are minimal), and require little capital expenditures to maintain their communication sites. We like the structure of the group. We have dropped coverage of the Wireless Telecom Services Industry. We cover other telecom stocks: Telecom Services: BCE, CTL, DCM, EQIX, FTR, S, T, TMUS, VOD,
Altria’s Sprawling Business to Underperform Long-Term Bottom-Line Target in 2019
January 31, 2019
Image Source: Melanie Tata Altria’s business has grown increasingly complex recently as it has levered up to add exposure to new growth opportunities. We don’t find the convoluted company attractive, even after considering its lofty yield, and its core cigarette business continues to face material industry-wide volume declines. By Kris Rosemann We extinguished Altria (MO) from the simulated Dividend Growth Newsletter portfolio December 21 after assessing the announcement of its deal to acquire a 35% stake in US e-cigarette leader JUUL Labs. Here’s our conclusion from the announcement of our decision, “Parting with Altria on News of Stake in JUUL:” We think Altria may have thrown in the towel on harvesting its core smoking demographic and may now be entering
Microsoft’s Free Cash Flow Strong Despite Robust Strategic Growth Investments
January 31, 2019
Image Source: Mike Mozart Microsoft continues to take advantage of strong demand for its hybrid cloud portfolio, and it is winning business from leading enterprise customers. Free cash flow generation remains strong despite significantly higher levels of strategic growth investments. By Kris Rosemann Shares of simulated Dividend Growth Newsletter portfolio idea Microsoft (MSFT) faced a bit of selling pressure following its fiscal second quarter report, results released January 30, as investors digested mixed quarterly results, a relative slowdown in Azure revenue growth, and roughly in-line guidance for the full fiscal year. We still like shares, and operating margin expansion and robust free cash flow generation drive optimism while management continues to focus on strategic growth investments. Overall revenue growth in the
