Apple, Hanesbrands Power Higher
August 1, 2017
Image shown: Performance of the S&P 500 SPDR (SPY) since the beginning of 2017. There aren’t two other companies within the Dividend Growth Newsletter portfolio that may be more controversial positions than Apple and Hanesbrands — one is on the cutting edge of technology and the other makes T-shirts and underwear, a very interesting dichotomy. By Brian Nelson, CFA The stock market continues to roar ahead, and the latest rally is starting to set some new records. According to Charlie Bilello at Pension Partners, the S&P 500 (SPY) currently has the fourth-longest streak in history without a 5% drawdown, at 275 consecutive trading days. That’s incredibly low volatility. The S&P 500 now also has had 9 consecutive months where it
Coca-Cola, Pepsi, Kimberly-Clark: Great Businesses But Lofty Earnings Multiples and Net Debt Positions
August 1, 2017
We love the business models of some of the most well-known consumer-staples equities, namely Coca-Cola, Pepsi, and Kimberly-Clark, but lofty earnings multiples and net debt positions complicate their investment prospects. Little to no top line growth only further muddies the picture. The biggest risk to the (consumer staples) group, in our view, has little to do with the underlying fundamentals of the businesses, which are solid to a very large degree, but more due to the overall sector valuation. According to FactSet, as of July 2017, the forward 12-month price-to-earnings ratio for the consumer staples sector is roughly 20 times at the time of this writing, significantly higher than its 5-year and 10-year averages of 18.3 and 16.2 times, respectively.
Business Models of Garbage Haulers “Hitting on All Cylinders”
August 1, 2017
Image Source: Waste Connections In a sign of the health of the US economy, garbage haulers are experiencing rates of top-line growth not witnessed in years, but their earnings multiples reflect share prices that may be disconnected from normalized fundamentals. No matter how much we love their business models, we’ve already “cashed in” our chips. By Brian Nelson, CFA Industry economics in the municipal solid waste industry are generally easy to understand. Industry pricing power essentially emanates from disposal operations. Waste generated, for example, must end up somewhere, and therefore whichever entity has the disposal operations has the power to set the bar with respect to pricing, directly or indirectly, from transfer facilities all the way through collections within certain
Amazon’s Free Cash Flow and Balance Sheet Health Impressive
August 1, 2017
Amazon’s share-price performance is a sign of these “frothy” times. By Brian Nelson, CFA We love Amazon’s (AMZN) products and how it makes millions of people’s lives better each and every day. We hear what the “bulls” are saying, too–about top-line expansion and the company’s second quarter being a period of greater investment–but earnings and free cash flow matter. If not today or tomorrow or a few years from now, they will eventually. For Amazon, as strong as its free cash flow generation and net cash position on the books are, the combination doesn’t justify its current lofty valuation. The stock trades at over $1,000 per share at the time of publishing, and it’s almost laughable, by comparison, that we
Intel’s Shares Trading at Huge Discount to Market
August 1, 2017
Image Source: Intel Newsletter portfolio holding Intel continues to put up strong results, and the market is simply not giving it credit for them. By Brian Nelson, CFA We were generally pleased by Intel’s (INTC) second-quarter report, released July 27. In a market environment, where other equities with little-to-no-growth are garnering outsize multiples, Intel registered top-line expansion of 9% on a year-over-year basis in the quarter, while it raised its non-GAAP earnings per share outlook for 2017 by $0.15, to $3.00, implying shares are trading at a very modest ~12 times current-year numbers. We would say Intel’s shares are a bargain in most any market, but especially in this one, where the average S&P 500 company is trading at 17.7
Newsletter Notifications — July 31
July 31, 2017
Boeing (BA) has been an incredible performer since it was added to the portfolio of the Dividend Growth Newsletter just a few short months ago. We are making a number of changes to the newsletter portfolios today. Important upcoming dates Release date of August Dividend Growth Newsletter — the evening of August 1. Release date of August Nelson Exclusive publication — the evening of August 5. Release date of August Best Ideas Newsletter — the evening of August 15. Newsletter portfolio changes Boeing (BA): We added the top-performing stock in the Dow Jones Industrial Average in 2017 to the Dividend Growth Newsletter portfolio in January of this year at $168.44 per share. Shares have simply surged, and we’re not
A Review of Johnson and Johnson’s Pharmaceutical Division
July 31, 2017
Image Source: J&J Let’s take a deep dive into Johnson and Johnson’s pharmaceutical division Janssen Pharmaceuticals. Janssen traditionally serves as an area of clinical innovation adding an element of growth to the more stable product categories such as consumer health. However, there may be a few cracks in the Janssen revenue stream that could make growth at J&J harder to come by over the next few years. By Alexander J. Poulos Overview The venerable Johnson and Johnson (JNJ) has earned the sterling reputation that the firm has built over the countless decades of steady performance. J&J is a bedrock of the health care sector sporting a sterling credit rating along with the ability to seemingly consistently churn out revenue and
Amgen’s Pipeline Continues to Disappoint
July 31, 2017
Image Source: Amgen The ability to generate commercially-viable products via the clinical pipeline is crucial to grow profits and offset revenue declines from the loss of patent protection. We remain unimpressed with the progress shown thus far by biotech stalwart Amgen. Let’s review the clinical pipeline along with a consideration of the recently-released earnings report. By Alexander J. Poulos Clinical Pipeline We believe the three most promising molecules in Amgen’s (AMGN) pipeline in order of importance are Repatha, Evenity, and Erenumab. Amgen’s ability to develop and market these products will go a long way to shore up the top-line revenue as older products begin to face biosimilar challenges that continue to sap revenue and profits. Let’s examine each in further
Alphabet’s Financial Health Unfazed By European Commission Fine
July 31, 2017
Image Source: Open Grid Scheduler Alphabet’s second-quarter results revealed a one-time charge that made headlines, but the fine is a drop in the bucket when considering the size of Google’s balance sheet and free cash flow generation. By Brian Nelson, CFA Shares of Alphabet (GOOG, GOOGL), the company formerly known as Google, sold off following the release of its second-quarter report July 24. We’re not making much of the market’s negative reaction to a quarter that revealed 23% year-over-year revenue growth (on a constant-currency basis) and earnings per share north of $5, both the top line and bottom line coming in above Street consensus expectations. Adjusting for the widely-publicized European Commission (EC) fine of $2.7 billion*, which Alphabet accrued in the
Altria Keeps Smoking; Is Smokeless the Future for Big Tobacco?
July 28, 2017
Tobacco giant Altria reported another solid quarter thanks in large part to its pricing power, but big tobacco may be altering its strategy as it finds an unexpected ally. By Kris Roseman Newsletter portfolio holding and tobacco giant Altria (MO) reported a solid second quarter of 2017 with top- and bottom-line growth before the open July 27. Its quarterly strength was largely driven by pricing power, a line we’ve written many times over in recent years with respect to the tobacco industry. Cigarette volumes continue to decline–the decline was more pronounced in the second quarter of 2017 due to a large excise tax increase in California–as industry-wide volumes fell 4.5%, but Altria and its peers continue to grow the overall
