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
Valuentum: Time to Load Up on Kinder Morgan?
January 21, 2016
On January 20, Kinder Morgan (KMI) reported fourth-quarter results, and absent 1) a large goodwill impairment charge related to its core midstream natural gas assets, 2) a reduction to its estimate for backlog of future potential business, and 3) warning that further goodwill impairments are around the corner if energy resource pricing remains depressed, quarterly performance wasn’t all that bad (or at least not as bad as some had been expecting). Kinder Morgan had previously announced a 75% dividend cut and a very costly preferred equity issuance just a few weeks ago as it continues to work to get its financial house in order. Our $20 per share fair value estimate is unchanged at this time. We’re starting to like what we’re
Value (Soon) to Be Had in Retail?
January 21, 2016
By Kris Rosemann Department stores have had a rough go of it lately. Consumers have turned their attention to niche stores that sell branded products at material discounts, and online shopping continues to be a draw. The holiday season did not provide as strong of a boost as some retailers have been used to due in part to the unseasonably warm weather across the northern US. Macy’s (M), for example, expects that 80% of the year-over-year decline in its comparable sales numbers in the November/December period can be attributed to weakened demand for cold-weather goods. Investors have taken note of the changes in consumer preference, leaving major department stores to contemplate material changes to their businesses, and the tough sledding
Breaking: Markets in Free Fall
January 20, 2016
By Brian Nelson, CFA I was up late last night watching the 10-year Treasury fall below 2%, crude oil drop below $28 (and now below $27) per barrel, and the Dow futures collapse more than 500 points. Asset correlations are going to 1 — so much for modern portfolio theory, right? The benefits of diversification are sometimes absent at the very time you need them the most. If market observers didn’t learn this during the Great Depression, certainly they must have learned it during the Financial Crisis of 2008-2009. That’s why we like cash so much at times. We have a 35%+ cash weighting in both newsletter portfolios. The Dow Jones Industrial Average (DIA) is now down ~400 points (-2.5%),
