Gilead’s Harvoni Sales Dip Considerably in the US
July 27, 2016
Image Source: Gilead’s second quarter report “There’s nothing quite like market instincts. They can’t be taught from reading textbooks, in the classroom, in a valuation model, or even with years and years of experience. It’s the intangibles that sometimes count the most…When we removed Gilead (GILD) from the portfolio of the Best Ideas Newsletter, “Alerts: High-grading! GILD–>JNJ… (Jan 2016),” we just knew something wasn’t right. Sure the introduction of Merck’s (MRK) once-daily single-tablet combination therapy, Zepatier, a significantly less expensive therapy to Gilead’s prized hepatitis C franchise was one major concern at the time, but the market is often not this inefficient when valuing equities. Almost counterintuitively, it became worrisome to us that for a company that was generating so
Nelson’s Warning to the Board Rooms of America
July 26, 2016
Image Source: Robert Lyle Bolton “In some ways, a cash dividend is like paying shareholders with their own money, and making a big deal about it!” — Brian Nelson, CFA To the Board Rooms of America: We learn a lot from the culture we live in, the education system we promote, and the games we play. Who hasn’t played Monopoly, the age-old game that Hasbro scooped up from Parker Brothers, first published in 1935? For more than 80 years now, men and women of all ages have been collecting $50 from the “bank” after pulling one of the more-fortuitous Chance cards. Ingrained in society has become the belief that a “dividend” is incremental, that something is “given” to shareholders that
Industrial Bellwethers Hit by Global Economic Growth Concerns
July 22, 2016
By Kris Rosemann Shares of newsletter portfolios holding General Electric (GE) and its rival Honeywell (HON) took a hit early July 22 after both conglomerates indicated a more difficult operating environment in their second quarter reports. First, let’s address GE. The company has kept the momentum going in its GE Capital exit plan as it has now signed $181 billion in asset sales, completed its de-designation as a significantly important financial institution (SIFI), and closed GE Asset Management. In addition, the firm unloaded its GE Appliances business to Haier for $5.4 billion in the second quarter, a streamlining-oriented removal of a somewhat immaterial portion of GE’s overall business. We like what the progress in its exit plan and de-designation as
Reiterating Our $50 Fair Value Estimate on PayPal
July 22, 2016
Image Source: PayPal 2Q presentation, page 10 By Brian Nelson, CFA A quarterly “beat and raise” and a new agreement with Visa (V) weren’t good enough to drive shares of PayPal (PYPL) higher July 22, but we’re not worried. Revenue growth of 19% on a foreign-currency neutral basis and non-GAAP earnings per share growth of 11% wasn’t bad at all. Operating cash flow and free cash flow generation of $696 million (up ~12% year-over-year) and $495 million (up 27% year-over-year) in the quarter wasn’t too shabby either. Through the first six months of 2016, the company has generated $1.1 billion in free cash flow, better than the $740 million mark generated during the same period a year-ago. Active customer accounts
Yahoo! Should Still Buy eBay’s “Free Cash Flow”
July 21, 2016
Image Source: eBay According to the latest from CNBC, there are five bidders left for Yahoo’s (YHOO) core business, and it’s very likely the company will make the sale to one of them soon. Many are saying that Verizon (VZ) is the front-runner, but we can’t rule out the buying power of the group led by Quicken Loans’ Dan Gilbert, who has the backing of the Oracle of Omaha himself, Warren Buffett, or a high-ball bid from private equity, perhaps TPG Capital. AT&T (T), Time (TIME), and other private equity giants KKR and Bain Capital might still be in the game as well. We think breaking apart Yahoo! or selling it outright, instead of merging it with eBay (EBAY) isn’t
We Care: Perspective Is Reality
July 21, 2016
Perspective is so important. Let’s talk about two of our calls recently, and how we look at them. Feel free to comment. Microsoft (MSFT): A Double Since It Was Added To the Dividend Growth Newsletter Portfolio Possible Perspective: “I admire your cajones for taking credit for unloading MSFT at ~$50/share 5 weeks before running up 12%. We all make bad calls. What I would expect, especially from a professional, is to admit a mistake and explain the error in your thought process so that we can all learn. Instead, you tout this obvious incorrect call as somehow correct? This gives me great pause in following your advise [sic] in future.” Kinder Morgan (KMI): One of the Best High-Profile Round Trip
Intel’s Top Line Still Growing
July 21, 2016
By Brian Nelson, CFA We said 2016 was going to be a big year for Intel (INTC) and during the past few months, its stock has come roaring back after a sluggish and disappointing start. The company’s second-quarter report, released July 20, won’t help to drive shares to multi-year highs yet (so close!), but the chip-making giant put up some decent numbers (regardless of the media headlines). During the quarter, revenue of $13.5 billion advanced 3% on a year-over-year basis, while GAAP and non-GAAP gross margins in the period exceeded the executive team’s internal targets by nearly a percentage point. Backing out restructuring charges, the company earned $0.59 per share, six cents better than the consensus mark. The Intel “story”
Microsoft With Its Head in the Clouds?
July 20, 2016
By Kris Rosemann We couldn’t believe our eyes in mid-June after Microsoft (MSFT) agreed to acquire LinkedIn (LNKD) for more than $26 billion, “What?!?! Microsoft Acquires LinkedIn; NO!” Management must’ve had its head in the clouds. Microsoft remains a 2%+ weighting in the Dividend Growth Newsletter portfolio, more than a double since it was added at ~$26 per share December 2011. Yes, we took some profits several weeks ago (think prudent reduction of outsize exposure within a portfolio context), but we continue to be extremely happy “playing with the house’s money” (a phrase used to describe a big winner where only the raw profits remain with the principal taken “off the table”). While others were snoozing about owning Microsoft in
The J&J-Gilead Trade-off Update
July 19, 2016
By Brian Nelson, CFA I think we need to admit that adding Gilead (GILD) to the Best Ideas Newsletter portfolio several months ago when we did was a bit tardy, but we think we have made up for that miscue when we swapped out its shares completely with Johnson & Johnson (JNJ), which has experienced steadily-advancing returns since that trade. Certainly we took a loss in the Best Ideas Newsletter portfolio on Gilead, and we’re not happy about it, but the alpha of this J&J-Gilead trade is now at 15 percentage points. As investors, we understand that we’re not going to get everything right all of the time, and we continue to showcase to readers that it is okay to
Netflix: The Painful Slowdown Begins
July 19, 2016
By Brian Nelson, CFA We’re not going to say much about Netflix’s (NFLX) quarterly “miss” other than adding 1.7 million members, as it did during its second quarter 2016, wasn’t horrible. The media outlets and sell-side analysts will tell you that this came in below Netflix’s 2.5 million net new member forecast and below the 3.3 million net-add mark in the prior-year. This is no surprise to the Valuentum readership. We had been expecting significant weakness at Netflix. The stock is ~15% lower in after-hours trading. What to do now? Well, the air is slowing coming out of the Netflix bubble. The market is slowly realizing that growth in the US is grinding to a halt. On a trailing 12-month
