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
Yum! Separation on Track; China Picking Up in 3Q?
July 15, 2016
Image Source: Yum! Brands, 2015 Annual Report By Jessica Bishop Squashing a recent report from Bloomberg that suggested the Yum! (YUM) separation had been delayed, the executive team heading the KFC, Pizza Hut and Taco Bell franchises said in its second quarter 2016 report, released after the close July 14, that all is well with plans to separate its fast-growing operations in China from the rest of the company. We outlined our latest thoughts on the China separation in our late June piece, “Yum! Does One Plus One Equal More Than Two?” and while not much has changed in the past few weeks, we continue to monitor Yum! — not only in the event the separation causes a mispricing with
Frozen Capital: What Nobody Is Talking About…Anymore
July 13, 2016
Image Source: Janet Ramsden UK property funds have frozen redemptions. What happens when they finally allow investors to flee the country? The US equity markets continue to set new highs, but many risks remain, not the least of which is the fallout to come from Brexit. In some respects, we’re surprised nobody is really talking about it much anymore, but UK property funds have suspended redemptions, even beyond the previous three we reported on, “The Next Banking Crisis? No… Well, Not Yet (July 2016).” This is a big deal because it is just the beginning of the capital-flight process. We think it is wise that such funds are limiting redemptions to avoid an all-out collapse in property prices across the
Best Idea Kinder Morgan Working To Solve Debt Problem
July 12, 2016
Image Source: Benson Kua By The Valuentum Team Kinder Morgan is on its way to righting its debt problems, and we love it! When the US government seemingly raises the so-called debt ceiling every few months, how can the public view towards massive leverage and effectively being unable to repay future obligations without making significant changes hold a stigma? In many ways, it has now become “okay” to be buried under mountains of debt. Is it now the norm? Each citizen in the US, for example, owns a piece of its country’s $19.3 trillion national debt, amounting to a whopping $60,000 per person, and this number is growing. That means that each new baby born in America is saddled with
Understanding the Market Melt Up
July 11, 2016
Image Source: Martin Thomas A previous version of this article appeared on our website April 15, 2016, “The Bubble Is Still Inflating.” No – things are not getting better. The discount rate is shrinking – and that means rising equity values. The laws of finance continue to be bent. NIRP (negative interest rate policy) has changed everything. The world is upside down, and it seems as though every week, we hear of another country or yet another long-er duration bond that has breached below the 0% threshold, “Japan’s 20-Year Government Bond Yield Goes Negative for First Time (July 2016).” The 10-year Treasury yield hit all-time lows just last week. We wrote extensively on the NIRP topic in the February 1,
New Coverage Additions
July 8, 2016
Image Source: Eric Golub Alliant Energy Alliant Energy (LNT) is a utility holding company, providing regulated electricity and natural gas services to residential, commercial, industrial, and wholesale customers in the Midwest of the US, particularly Wisconsin and Iowa. Moving forward, the firm will continue to grow its exposure to natural gas and wind and other renewables, while reducing its dependence on coal and oil. Despite its regulated operations and competitive dividend yield, we think there are better income ideas for investors looking for exposure to utilities due in part to growth in its debt load in recent quarters. However, management continues to target a dividend payout ratio of 60%-70% of consolidated earnings. Shares appear fairly valued at the moment.. First
Sharp Curves Ahead for US Auto Market?
July 7, 2016
“Auto is clearly a little stretched, in my opinion…Someone is going to get hurt…We don’t do much of that.” — JP Morgan CEO Jamie Dimon, Yahoo Finance, June 2016 The month of May saw many major automakers report significant declines in sales in the US. Could the effect of pent-up demand for autos finally be slowing? An overheated loan market is adding concern to the situation. By Kris Rosemann Major automakers will be forced to make some important decisions in coming months. The US auto market is clearly slowing from the breakneck pace it set last year, particularly late last year, as total US auto sales fell 6% in May 2016 from May 2015. The strength of the rally in recent
