Growing Cautious on Teva Pharma
February 21, 2016
By Paul Tait and Kris Rosemann Since Teva Pharmaceuticals’ (TEVA) addition to the Best Ideas Newsletter portfolio in mid-2013 in the low-$40s, the company has been a strong performer, even though the past several months have been rather rough. Following difficult fourth-quarter results, we’re ready to take profits on the equity, and we plan to release an alert in the coming days, hopefully on market strength. Last year was a transformational year for Teva, or in the words of management, a year of “exceptional strategic, operational and financial performance.” The company has pursued a number of growth-driving acquisitions to offset headwinds mounting for its leading drug Copaxone, a top treatment for multiple sclerosis. The spotlight has shifted to the development
Saturday Morning Musings: Nelson’s Two Pet Peeves
February 20, 2016
Brian Nelson, CFA First, my pet peeve #1. In the case of our call on Kinder Morgan (KMI) from last June, “5 Reasons Why We Think Kinder Morgan’s Shares Will Collapse, (which they did)” we believed market observers and analysts were exploiting investors’ lack of knowledge regarding the specificity of various measures of “cash flow.” To no surprise perhaps, they are still doing it! There are at least a half dozen measures of “cash flow,” three on the cash flow statement alone (CFO, CFI, CFF), one derived from the cash flow statement (CFO less all capex = FCF), and a handful associated with valuation (FCFF = EFCF, FCFE), and at least one associated with master limited partnerships, the most inappropriately-named
5 Things New Subscribers (or Not-So-New Subscribers) Should Do
February 18, 2016
Here are the top 5 things new subscribers (or not-so-new subscribers) should do: 1. Send an email to President Brian Nelson, CFA If haven’t touched base with Brian yet, please make it a priority over the next few weeks. Brian strives to answer all questions received personally, with your needs in mind. Some members often note that having access to Brian is worth the few dollars a month subscription alone. It’s important to get your questions answered – the website is only part of the service. We have an analyst team on call. 2. View the newsletters The newsletter portfolios, the Best Ideas Newsletter and Dividend Growth Newsletter, are prime real estate. If you haven’t visited the portfolios found within
Warming Up to IBM, Walmart Disappoints Again
February 18, 2016
Most of us woke up to the news February 18 that Apple (AAPL) would be vigorously defending the privacy of its customers against a potential “overreaching” by the Federal Bureau of Investigation and/or others. The crux of the matter is whether Apple should unlock a phone that had been used by a shooter in the San Bernardino attacks early December, per the request of the FBI, as doing so may eventually jeopardize the personal safety and security of all Americans. Several tech CEOs have come out to support Apple, but any outcome on the matter will be difficult to predict. In a day and age where privacy is a major hot-button issue, CEO Tim Cook knows he needs to step
Netflix Shareholders Need to Get Real?
February 17, 2016
By Brian Nelson, CFA “Netflix is valued as if it will have the economics of three US operations, without having to pay at all for the next two…” We have no problems with investors playing with “fire” if they know that they are and don’t mind losing their shirts, but we posit that, given the popularity of the acronym, FANG, which stands for Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google, now Alphabet (GOOG, GOOGL), many unsuspecting investors have been lured into Netflix believing these four companies share similar qualities. They absolutely 100% do not. On one hand, Facebook, Amazon, and Alphabet have incredibly strong balance sheets and generate copious amounts of free cash flow, as measured by cash flow
Alerts! Adding to PCLN & CSCO on Strength; Initiating KMI
February 17, 2016
Good morning. We were met February 17 with some fantastic news from Best Ideas Newsletter portfolio holding Priceline (PCLN), which is trading up over 10% at the time of this writing, to $1,230 per share, following a fourth-quarter earnings beat, where it exceeded the bottom line consensus estimate by more than $0.80 per share. Though recent unfortunate news regarding terrorist activity across the globe has given pause to sentiment with respect to travel-oriented stocks, the collapse in crude oil prices and distillates (jet fuel) may be stimulating incremental demand in light of the reduced cost of vacationing. We’ll be roughly doubling our position in the Best Ideas Newsletter portfolio at the prevailing price, to a 3.5% weighting. Priceline’s bookings growth
We Like the News! Buffett Scoops Up Kinder Morgan; FVE: $20
February 16, 2016
It looks like crude oil (USO) overproduction will continue. Dashing hopes that any rational behavior would prevail in the energy resource markets, member nations of OPEC February 16 said not that they would cut output but that they would not increase crude-oil output any further, as if the current pace of production isn’t already drowning the world in the black liquid. It turns out the rumor from last week had some basis to it, “Your Hard-Earned Money,” but it didn’t have much substance, in our view, especially since the deal hinges on cooperation from Iran, which remains dedicated to increased production to reach pre-sanction levels. We’re not reading much into the news, as Saudi Arabia, while included in the parties
Alert: 5 Reasons Why We Think Netflix’s Shares Will Collapse
February 15, 2016
Pictured: The “black space” a Netflix user encounters after searching for movies that include one of Hollywood’s biggest superstars, Jennifer Lawrence. By Brian Nelson, CFA Netflix’s (NFLX) shares are considerably vulnerable. The content distributor’s business model is in jeopardy in light of rising cash content costs amid a subpar product offering, and we don’t believe there is an easy answer to its woes — either ever-higher cash streaming content costs will obliterate equity value over the long haul despite member growth, or a cut in such necessary cash content obligations will hurt its streaming product assortment and therefore member growth and subscriber retention. We’re pointing investors to the low end of the fair value estimate range for shares, the low-$60s, but we believe there may be further downside
Your Hard-Earned Money
February 12, 2016
By Brian Nelson, CFA It was Thursday afternoon, February 11, crude oil prices just hit a 13-year low, and the S&P 500 (SPY) was about to break below key technical support. Then, just as the markets were to fall further, rumors again emerged that OPEC may be scheduling a meeting to curb crude oil output, driving crude oil prices from the depths and the market higher off technical support. A barrel of crude oil continues to trade below the $30 mark, but it was quite the “save.” From where we stand, the market hasn’t been this fragile than at any time during the past decade or so, including during much of the Financial Crisis. Optimists may be whistling past the
Falling Knives among Internet-Based Equities
February 12, 2016
Image Source: Spencer E Holtaway By Kris Rosemann The firestorm among Internet equities didn’t stop with LinkedIn’s (LNKD) fourth-quarter catastrophe, “Three Blow Ups after the Close February 4.” Twitter (TWTR), Zynga (ZNGA), Zillow (Z, ZG), and Pandora (P) also remain challenged. We’ve never liked Twitter, and we don’t think we ever will, “Twitter’s Valuation Enigma (Feb 2015)” The company’s investment opportunity-to-news ratio is practically nil, in our view, but that won’t stop investors from talking about it, and we do so, if only to explain why the firm is but a lotto ticket, not likely to pay off. Twitter recently turned free cash flow positive in 2015, but most of the cash flow boost came from non-cash stock-based compensation, a tangible
