Rising Risk Free Rates Threatening Market, Removing CVS and Hanesbrands
February 8, 2018
The most important variable to keep your eye on, the 10-year Treasury, is rising, and the long-term implications on equity values could be considerable. We don’t think the moves thus far have been too disruptive, but continued concerns over US tax receipts and infrastructure/defense spending could send sovereign yields roaring higher. As fourth-quarter earnings season marches on, let’s take a look at some meaningful recent quarterly reports. We’re also shedding two companies from the simulated newsletter portfolios. By Kris Rosemann and Brian Nelson, CFA The market continues to be on edge as it considers what the borrowing cost of US debt might be in the event of the next downturn, the timing the only uncertainty, now that it has significantly
The Turnaround at Novartis Has Begun
February 8, 2018
Image Source: Novartis We believe Novartis is poised to accelerate from the patent cliff caused by the loss of protection of Gleevec, its former top-selling product. The company has a stellar dividend growth history, and the market is anticipating a turnaround once it anniversaries the patent cliff. By Alexander J. Poulos Novartis Innovative Medicines We will begin our analysis of Novartis (NVS) by breaking down the European pharma giant into three distinct divisions to gain a better perspective of the various moving parts that make up this very innovative company. The Innovative Medicines division houses the patent protected molecules that make up the bulk of the group’s revenues and an outsize portion of its profitability. The star of the show
Hasbro, Boeing Pop as Market Bounces Back
February 7, 2018
Image Source: US Missile Defense Agency. June 22, 2014 – The Missile Defense Agency’s Flight Test 06b Ground-Based Interceptor launches from Vandenberg Air Force Base, Calif. on June 22, 2014. The markets have finally been getting the volatility that we’ve all been waiting for, and we don’t like the idea that the market is now trading more like a cryptocurrency. Granted, it’s important to stay focused over a long-term time horizon, which irons out the ups and downs, but there’s just something about 1,000+ daily swings on the Dow Jones Industrial Average that really doesn’t sit well with us, regardless of what that implies with respect to the percentage change. Can you imagine — All of this over just a
Newsletter Portfolio Idea GM Powers Higher, Markets Calm Down…a Bit
February 6, 2018
The US markets still faced quite a bit of volatility during the trading session February 6, but it wasn’t anything compared to the bloodbath from Groundhog Day and the subsequent Monday. We can only hope that the worst has passed, but it probably hasn’t. By Kris Rosemann and Brian Nelson, CFA After overnight fears February 5/6 of a significant drop at the stock-market open–the Dow Jones Industrial Average (DIA) had been indicated down as much as 1,000 points at one point–stocks jumped between positive and negative during the trading session February 6, and the last 24-48 hours have seen more than its fair share of volatility. The CBOE Volatility Index (VIX) rose above 50 for the first time since August
The Sell Off February 5 Remains Minimal Compared to the Gains of Past Years
February 5, 2018
Image shown: The SPDR Dow Jones Industrial Average ETF (DIA) share price performance since mid-2009. The pullback the past few days hasn’t amounted to much, but it has caught the attention of investors. Recent equity market price declines don’t add up to much compared to the huge gains of recent years. Typical bear markets result in the evaporation of nearly 40% of investor wealth, on average. By Kris Rosemann and Brian Nelson, CFA The recent sell-off in equities accelerated in the trading session February 5 as concerns regarding an uptick in inflation (embedded in discount rates within valuation frameworks) and potentially materially tightening monetary policy in the US are weighing on investors’ minds. When the dust finally settled at
What Goes Up… Well, You Know the Rest
February 2, 2018
Groundhog Day proved to be painful for the markets. Though a few companies disappointed with respect to their earnings reports, the real reason for the sell-off is two-fold: the market is overpriced by most metrics and Treasury rates, used within valuation frameworks, are rising. By Brian Nelson, CFA Many were surprised by the market’s big fall during the trading session February 2, 2018. We’re not. We wrote up a recent piece that said even a 1%-2% decline may be nothing when it comes to truly evaluating historic bear markets, which can zap as much as 40% of wealth in just a couple years, “2018 Starts Out with a Bang!:” Though we continue to believe that readers should exercise caution due
Boeing!
January 31, 2018
Image shown: Boeing’s shares have been rocketing higher of late! We couldn’t be more pleased with how one of our best ideas for consideration has performed: Boeing! By Kris Rosemann Dividend Gowth Newsletter portfolio idea Boeing (BA) continues its tremendous share-price run of late, hitting all-time highs following its earnings report before market open January 31. The aerospace giant turned in 9% revenue growth on a year-over-year basis, while GAAP earnings per share doubled from the year-ago period to $5.18. Free cash flow remained robust in the full-year 2017, advancing to ~$11.6 billion from ~$7.9 billion in 2016. The company expects operating cash flow to climb to ~$15 billion in 2018 (up from $13.3 billion in 2017), and its revenue
The 10-year US Treasury Yield, Trump and Trade and More
January 29, 2018
We continue to pay very close attention to the benchmark 10-year Treasury yield as it has implications on borrowing costs and discount rates across valuation methodologies. By Kris Rosemann The 10-year US Treasury yield (TLT, TBT) continues its recent climb, hitting its highest level in nearly four years as of the morning of January 29, and some equity bears have begun to wonder when the soaring stock market will begin to take notice. With central banks around the globe expected to continue cutting back on bond purchasing activity, yields may be poised for a prolonged rise and equity prices could be headed for a similar fate as bond prices. It’s important not to forget, “Why the Fed Matters.” President Trump
Dropping Coverage of the Book Publishing Industry
January 29, 2018
Image shown: The first seven annual volumes of Valuentum’s Best Ideas Newsletter. Valuentum is dropping coverage of the book publishing industry to focus resources elsewhere. Structure of the Book Publishing Industry Firms in the book publishing industry compete primarily on the basis of quality and price. Rivals include numerous book, ebook, textbook, library, reference material, and Internet resellers. Industry constituents can carve out advantages by offering a comprehensive offering, as in the case of Scholastic’s suite of reading intervention products and services. Still, firms are subject to rapid changes in consumer preferences, especially within the ebook market, which is just beginning to take shape. We’re neutral on the group’s structure. Barnes & Noble (BKS) We’ve lowered our fair value estimate
