Apple Will Go Lower… And It Will Be “Forced” Into Acquisitions
January 27, 2016
By Brian Nelson, CFA We have a few regrets for not “lightening up” more on the position in Apple (AAPL) in the newsletter portfolios during the past few weeks, “Looking to Trim Apple…” and while our lack of action may cost the newsletter portfolios a few basis points in the near term, we’re not too concerned. For one, in this “type” of market, we want to stick with quality, and Apple fits that bill quite well, particularly with the cushion that its balance sheet provides. The iPhone giant’s equity price may go lower as some sell the “headlines” around its fiscal 2016 performance, but the company’s financial health puts it in a class by itself, in our view. The Journal
Johnson & Johnson Reports Strong Underlying Performance
January 26, 2016
By Kris Rosemann As US-based multinational corporations continue to battle currency headwinds related to the strong US dollar, Johnson & Johnson (JNJ) reported solid underlying results in its most recent quarter and full-year report, released January 26. Johnson & Johnson reported full-year sales in 2015 of $70.1 billion, which represents a 5.7% decrease on a reported basis from 2014 due to a negative currency headwind of 7.5 percentage points. On an operational basis, sales grew 1.8%, domestic sales advanced 2.6%, international sales grew 1.1% on an operational basis, and sales excluding acquisitions, divestitures, and hepatitis C sales on an operational basis increased 6.5% on a year-over year basis. The underlying growth witnessed in 2015 at Johnson & Johnson was driven
Not Doom and Gloom – But Just Cautious…
January 26, 2016
You wouldn’t know it on the basis of the strong US market action January 26, but it wasn’t all quiet in overnight trading. Local markets in China (FXI) took another hit, with Shanghai and Shenzhen exchanges experiencing declines to the magnitude of 6%-7%+ on the session. Though some optimistically dismiss the local China markets as irrelevant, the implications on weakened Chinese banks, other Asian nations via trade, and interconnected financial institutions from Standard Charted to HSBC (HSBC) and even Citigroup (C) are material, in our view, and we’re paying close attention. Some may even say that China stocks represent less than 15% of household financial assets in the country — certainly not enough to cause a global calamity… Or is
What’s Working in Today’s Market?
January 25, 2016
By Brian Nelson, CFA As emerging markets around the world suffer from commodity-price-led economic weakness, capital continues to find a safe-haven in US government bonds (TLT, TBT), but for those equity-oriented funds that mandate a fully-invested status, not something we’re particularly advocates of, assets within US equities have favored “lower-beta” utilities (XLU) and consumer staples (XLP) sectors while cyclically-dependent and credit-levered sectors such as the financials (XLF) and materials (XLB) have suffered thus far in 2016. The industrials (XLI) and energy (XLE) sectors have also encountered higher-than-normal selling pressure in the first few weeks of the New Year, as investors evaluate the global economic landscape and what a prolonged period of low energy prices may mean for the lowest quality
Johnson Controls and Tyco Announce First Major Merger of 2016
January 25, 2016
By Kris Rosemann Despite expectations that M&A activity would remain subdued due to the high level of volatility in the markets, Johnson Controls (JCI) and Tyco (TYC) have announced the first major merger in 2016, creating a leader in building products and technology. Under the terms of the deal, Johnson Controls shareholders will own ~56% of the combined company and receive an aggregate cash consideration of $3.9 billion while current Tyco shareholders will own the remaining 44% of the company. The current terms of the deal represent an 11% premium to Tyco’s January 22 closing price for Tyco shareholders. Immediately prior to the merger, Tyco will undergo a reverse stock split that will result in Tyco shareholders receiving a fixed
General Electric’s Results Remain “Messy”
January 24, 2016
There’s something to be said about a company that can handle just about anything thrown at it. Since the founding of the Dow Jones Industrial Average (DIA) just before the turn of the 20th century, the composition of the 30 stock index has changed more than 50 times. There’s one company, however, that has retained its relevance in the broad market benchmark the longest. That company is General Electric (GE), which has been a staple of the DJIA since 1907, well over a century now. For long-term investors, there’s no better example of a company that has handled just about every market cycle than the industrial giant. In recent years, General Electric has been working to shake off the stigma
Valuentum Commended for “Impeccable” Research and Analysis
January 23, 2016
A humble student of the markets, Valuentum’s President Brian Nelson was commended for Valuentum’s work on Kinder Morgan in a Barron’s online article last Thursday. The article that says Nelson’s call on the midstream giant was “impeccable” can be accessed at the following link: “Is Kinder Morgan on Road to Recovery:” http://www.barrons.com/articles/is-kinder-morgan-on-road-to-recovery-1453421112 Jim Cramer noted that, “It (Kinder Morgan) was the greatest short in history.” The Mad Money host’s statement means quite a bit in the context of all the market cycles he has witnessed. Who can forget his pounding the table in the rant, “They know nothing…” in the midst of the financial crisis? Was Valuentum’s call on Kinder Morgan even better than the calls in the movie, “The
Moody’s Puts Oil & Gas and Mining Sectors on Review
January 22, 2016
By Kris Rosemann On January 22, Moody’s placed 120 oil and gas companies (XLE) from across the globe on review for a credit rating downgrade. The list ranges from massive global producers such as Royal Dutch Shell (RDS.A, RDS.B) and Total (TOT) to nearly 70 US exploration and production and services (“E&P”) companies. It also includes 55 mining companies (XLB) that have been punished by the recent rout in commodity prices. Alcoa (AA), Rio Tinto (RIO) and Vale (VALE) are a few notables that made the list for a potential downgrade. The news is not completely unexpected, however, and may likely be a response to several executive teams pointing to legacy (outdated) counterparty/customer ratings as reasons to not be concerned
Stocks Rallying, But Keep Perspective…
January 22, 2016
Starbucks: One of the Lowest-Rated Equities on the Valuentum Buying Index
January 21, 2016
Boy do people love coffee! Perhaps even more than they like the controversy surrounding Starbucks’ (SBUX) plain red holiday cups… Whatever your fancy, one thing is clear: shares of Starbucks are not cheap. Our latest fair value estimate pegs intrinsic value of the coffee giant in the high-$40s, and we think this darling may be shaping up for a larger-than-normal “correction” in the event materially adverse weakness strikes the market. Shares hit as high as $63+ at the end of October, and the company’s fiscal first-quarter results, released January 21, may spark the “kind of” profit-taking that drives eventual price-to-fair value convergence in the coming months. To be completely fair, Starbucks’ holiday performance wasn’t bad. It achieved 9% comparable store
