The “Luck” and “Randomness” of Index Funds
March 12, 2018
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Toys ‘R’ Us Liquidation News Transient to Toy Makers
March 9, 2018
Image Source: Hasbro Another icon from past decades announced that it may have to liquidate. Though we expect the toy makers to experience a transient impact, we don’t expect it to be lasting. Digital entertainment licensing remains a faster-growing, higher-margin business for them than physical toy sales, and we expect the focus for many toy makers going forward will be on the former, particularly given Disney’s Frozen success. By Brian Nelson, CFA There’s nothing like the announcement of a customer’s possible liquidation to send shares of suppliers tumbling. That’s what happened when Toys ‘R’ Us announced that it may have to cease operations as nobody appears to be coming to the rescue. Hasbro (HAS), Mattel (MAT), and JAKKS Pacific (JAKK)
Dividend Growth: The SPDR Dividend ETF Is One of Many Ideas
March 9, 2018
The dividend is a symptom of a company’s free cash flow, and therefore not a driver behind an estimate of a company’s intrinsic value. Dividend-paying and dividend-growing stocks have done very well in the past, but it may be equally important to pay attention to the underlying valuations of ideas, too. You just can’t stop at analyzing the dividend payment. Don’t let the “yield” tail wag the “value” dog. By Brian Nelson, CFA There is a reason why we call ourselves Value-ntum. That’s because we put value first! But there are instances where share prices can catch sustained favor in part due to a dividend payment. The growth component of the dividend may also offer investors an ever-rising income stream,
Protectionists Gaining Control, Implications on Europe and China
March 7, 2018
It looks like the US-imposed tariffs are moving forward, and we’re starting to hear chatter about retaliation from Europe. Canada and Mexico may be exempt from the tariffs, however. By Kris Rosemann Mr. Market reacted unfavorably to President Trump’s top economic advisor Gary Cohn’s resignation announcement March 7, as Cohn was seen as a voice for Wall Street in the White House. Though the reaction may be short-lived, fears of the implications of increasing control from protectionists probably shouldn’t be ignored, and the probability of a trade war, particularly with China (FXI, MCHI) and with Europe, presumably moves higher with Cohn’s exit. Canada (EWC) and Mexico (EWW) may be exempt from the tariffs, however. The European Union is already reportedly
Facebook – Still One of Our Favorites
March 7, 2018
Image Source: Facebook Let’s not beat around the bush with this article. Let’s talk about why we like Facebook in layman’s terms. The company is a veritable free-cash-flow generating powerhouse, and its balance sheet is pristine. We value shares at $238 each, and its rating of 7 on the Valuentum Buying Index isn’t bad considering the frothiness of the market. By Brian Nelson, CFA Shake off the idea that technology is riskier than any other sector because it might not be. Don’t worry about the concept of “fake news” tarnishing the Facebook (FB) brand, as that’s just noise. Facebook operates at the heart of society, and while there will inevitably be changes to its platform along the way, literally everyone
Updating Our Thoughts on Celgene
March 6, 2018
Image Source: Celgene Q4 2017 Earnings presentation Although the combination of disruptive new discoveries coupled with burgeoning demand thanks to the aging demographics of the world’s population sets the biotech space for a potential virtuous long-term cycle, we’re not too happy with with the recent developments at Celgene. Let’s dig in. By Alexander J. Poulos Pipeline Woes Continue The share price of Celgene (CELG) was accelerating heading into the Fall of 2017 as the strength of its existing oncology pipeline coupled with a few late-stage molecules augured well for a continued advance in the share price. As detailed in a recent piece aptly named “Celgene Implodes,” the costly discontinuation of Mongersen cast doubt on Celgene’s ability to hit its long-term
Retail Weakness Not Gone Yet; Is J.C. Penney a $0?
March 5, 2018
Let’s talk J.C. Penney, Foot Locker, American Outdoor Brands, and Vista Outdoor. By Kris Rosemann We’ve been watcing the retail landscape closely as it relates to the health of the consumer. Department store operator JC Penney (JCP) bucked the positive trend of department stores rallying following their respective earnings releases with its fiscal fourth quarter report before the open March 2. Shares sold off aggressively following the announcement of results, despite comparable sales climbing 2.6% from the year ago period. Gross margin improved 50 basis points thanks largely to lower promotional activity, a positive development across department stores this quarter as consumer spending remains robust (US consumer sentiment jumped to 99.7 in the month of February from 95.7 in January,
Trump’s Tariffs Ignite Concerns about Protectionism, Rising Input Costs
March 1, 2018
Image Source: Michael Vadon President Trump is making true on his promises to protect the domestic steel and aluminum industries. Input costs may move higher for many global industrials, and the long-term implications of protectionist policy will be tested. We’re not expecting retaliation, but we can’t rule it out either. Rising rates remain our primary concern. Kris Rosemann and Brian Nelson, CFA If rising interest rates aren’t enough to give the market heartburn, President Trump announced March 1 that he will impose tariffs on the importation of steel and aluminum to the tune of 25% and 10%, respectively, citing national security concerns. Steel and aluminum stocks rallied hard on the news, but it left many of its industrial brethren under
Fed Chair Powell’s Debut, Retail Earnings Roundup, and the Dividend Cushion!
February 28, 2018
The 10-year Treasury yield continues to outpace that of the average dividend yield of an S&P 500 stock, and portfolio managers continue to evaluate long-term allocations as a result. We evaluate the initial testimony from new Fed chairman Jay Powell, report on developments in the crude oil markets, and survey the retail landscape to offer incremental insight into the health of the consumer. The Dividend Cushion ratio continues to prove its worth. By Kris Rosemann and Brian Nelson, CFA The month of February was a wild ride for investors, and it wasn’t pleasant. The stock market experienced incredible swings, both to the upside and to the downside, like no other time in recent memory as the very real risk of
Buffett’s Berkshire, Corporate Buybacks on Pace for Record; Lithium, Steel Prices on the Move
February 27, 2018
Image Source: Berkshire Hathaway, Shareholder Letter (2017). “Fifteen common stock investments at year end that had the largest market value.” “The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own.” – Warren Buffett, Shareholder Letter (2017) By Kris Rosemann and Brian Nelson, CFA Simulated Best Ideas Newsletter portfolio holding Berkshire Hathaway’s (BRK.A, BRK.B) fourth-quarter results didn’t disappoint, and commentary from the Oracle of Omaha, Warren Buffett, was at its finest in the company’s Shareholder Letter. The letter was chock full of insights, from an emphasis on normalized earnings power, to buying stocks at a “sensible purchase price,” to warning about the dangers of “purchasing frenzy” with respect to M&A,
