The US Dollar, GDP Expansion, and Earnings
January 28, 2018
Investors wouldn’t think news flow is that robust given that stock market volatility in recent months has been practically nil, but news is coming in fast. Let’s check up on the performance of the US dollar, the rate of GDP growth as well as key companies reporting fourth-quarter earnings. Intel’s quarterly report was fantastic, for one! By Kris Rosemann The US dollar (UUP, UDN, USDU) hit a three-year low against the euro, but US Treasury Secretary Steven Mnuchin suggests a weaker dollar may be good for the US, which is a change from traditional US policy, though he was sure to note that the government is not concerned about short-term fluctuations in the currency. Meanwhile, of course, the euro
Our Overview on Merck in Light of Recent Clinical Events
January 28, 2018
Clinical data reads can have an outsize impact on the fortunes of the research-based pharma industry, irrespective of the size of the organization. We came away very impressed with the recent release from Merck and felt a timely overview of the various pharmaceutical products developed by the company would be of value to readers. By Alexander J. Poulos Third Quarter Results Image Source: Merck On October 27, Merck (MRK) released its third-quarter results. The results were met with an immediate sell-off in the shares as the pace of the clinical pipeline disappointed. To say the least, we were surprised by the aggressiveness of the sell-off–the catalyst for the leg down in the share price, in our view, is the declaration
Update on Global Blood Therapeutics
January 28, 2018
As the calendar flips over, the new year has seemed to have reignited investors’ passion for the biotech sector. Bioverativ has been acquired, and we’re happy about that, but a timely update on the fortunes of Global Blood Therapeutics is now in order, too. By Alexander J. Poulos A look at the performance of the equity markets in general speaks to an investment community that is fine with taking on great risks. The performance of the iShares Nasdaq Biotechnology ETF (IBB) has also been stellar, rising more than 10% since the start of the new year. We can’t complain, and we hope that some of our risk-seeking readers we’re blown away with excitement when Sanofi (SNY) announced that it would
Dividend Increases/Decreases for the Week Ending January 26
January 27, 2018
Below we provide a list of firms that raised/lowered their dividends during the week ending January 26. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week 3M (MMM): now $1.36 per share quarterly dividend, was $1.17. AGCO (AGCO): now $0.15 per share quarterly dividend, was $0.14. Air Products and Chemicals (APD): now $1.10 per share quarterly dividend, was $0.95. Alaska Air (ALK): now $0.32 per share quarterly dividend, was $0.30. ALLETE (ALE): now $0.56 per share quarterly dividend, was $0.535. Alliance Data Systems (ADS): now $0.57 per share quarterly dividend, was $0.52.
Airlines to Start a Price War?
January 24, 2018
Some have said the airline industry has changed. We’ve always been cautious on the structural characteristics of the airline business, and United Continental has reminded us why. By Kris Rosemann and Brian Nelson, CFA The US Treasury is scheduled to announce its plans to finance the government’s shortfall over the next three months January 31, and many are forecasting a significant rise in the sale of government paper. 2018 could mark the first year the government will increase Treasury bond sales, and some estimates have the issuance at more than $1 trillion, the highest level since 2010. The current 10-year Treasury yield is ~2.65%, and a significant influx of supply into the Treasury bond market could drive prices meaningfully lower,
Bioverativ’s Takeout, Visa’s Surge, and General Electric’s Pain
January 23, 2018
From Bioverativ’s takeout to Visa’s stock price surge to General Electric’s continued pain, there’s a lot going on in the stock market. Let’s cover some ground. By Kris Rosemann and Brian Nelson, CFA It’s hard to believe this but our best idea in the Best Ideas Newsletter portfolio, Visa (V), is now a $124+ per share stock. We know how to pick ‘em, would you say? We don’t get everything correct, of course, but if you’ve read anything on our website, we can only hope that you’ve witnessed Visa’s meteoric rise. The high end of our updated fair value estimate range for Visa is north of $130 per share. What a wild ride it has been, to say the least,
Dropping Coverage of A Few Apparel Makers
January 23, 2018
Valuentum is dropping coverage of a few apparel makers to focus resources elsewhere. Structure of the Retail–Apparel Industry The retail clothing space is incredibly competitive, very fragmented, and heavily exposed to cyclical pressures and consumer spending patterns. Distribution and storefronts remain crucial, but online threats are becoming ever more apparent. Predicting the correct fashion styles during various seasons of the year continues to be the primary driver impacting the operating results of constituents, and brands can fall out of favor with consumers relatively quickly. Though some firms have developed a dedicated customer following that has helped mitigate abrupt market share shifts, we’re generally neutral on the industry. Ascena Retail (ASNA) Ascena Retail continues to face meaningful comparable sales declines, and
GlaxoSmithKline: Not All Dividends Are Created Equal
January 23, 2018
Many seeking ideas to generate dividend income may be drawn to slow-growing entities with large dividend yields. However, without proper examination of the balance sheet and competitive position, an investor may enter a position banking on a steady dividend stream only to be caught by a sudden cut in the dividend. It is growing increasingly likely that GlaxoSmithKline may be ready to sacrifice the dividend on the altar in the name of additional M&A, in our view. By Alexander J. Poulos GSK Overview GlaxoSmithKline (GSK) remains a venerable European entity with a number of business lines similar to its US rivals such as Pfizer (PFE). At GSK’s core is its heavy reliance on research to bring forth additional novel branded
Gilead Sciences’ HCV Guidance Is the Star of the Show
January 22, 2018
Shares of Gilead Science have been held hostage due to the vagaries of the HCV business. The shares blasted through $100 as the initial sales ramp for its suite of HCV meds took the market by storm. The record revenues posted in 2015 proved to be unsustainable, however, as the curative nature of the treatment meaningfully decreased the eligible pool of patients much to the benefit of society. The Street subsequently punished shares of Gilead as the equity made a near roundtrip back down the high $60’s. The investment community has maintained a near-maniacal obsession with the HCV pipeline with the latest fear of a new competitor stealing share. Let’s examine these key points a bit further. By Alexander J.
Hanesbrands Leaps, IBM Falters and More
January 21, 2018
We were pleased to see the recent performance of Hanesbrands, and we continue to think IBM is not yet out of the woods, despite some life with respect to revenue trends. Let’s cover this and more. By Kris Rosemann There are a lot of things happening in the markets these days. For starters, growth in the world’s second-largest economy accelerated for the first time in seven years as China’s reported growth of 6.9% in 2017 was slightly higher than the 6.7% it achieved in 2016 and the projected growth rate for 2017 of ~6.5%. However, many observers are anticipating a return to the slowing trends of years past as the Chinese government works to reduce risky lending in areas such
