Major Automakers Lead July Sales Charge
August 13, 2015
Key Takeaways –> The three months from May-July mark the best three month stretch in terms of vehicles sold in the US since August-October 2000. –> Truck and SUV demand remains high. Ford is gaining momentum as the F-Series nears full supply, and GM trucks continue strong sales growth. Honda set a July record for truck and SUV sales. –> The safety of connected vehicles and advanced auto technology has come into question recently. Fiat Chrysler has been hit by the largest safety fine in the industry’s history after failing to recall millions of vehicles. The US auto market continues on its pace for the best year in the past decade. A seasonally adjusted annual rate (SAAR) of 17.55 million
How Large Will Alibaba Be in 2035… That’s the Right Perspective
August 12, 2015
We’re not happy with Alibaba’s (BABA) share price performance. It has been one of our rare losers in the Best Ideas Newsletter portfolio. Our thesis on Alibaba continues to be a long-term one, however, and unless China enters a 20-year bear market, never again reaching the heights of yesteryear, we’re not worried about it. But that said, we’re not oblivious to the near term and may lighten up on the dwindling position in hopes that a better, lower price can be established. We won’t do so without emailing an alert first, which is standard practice with newsletter constituents. We won’t harp on Alibaba’s fiscal first-quarter results, released August 12, which showed revenue advancing nearly 29% and earnings coming in a
The “Fully Invested” Argument May Only Make Sense…
August 12, 2015
…if stock market indices always go up over the long haul. Speaking the obvious… We often receive questions from new members about why we have such large (30%+) cash positions in both newsletter portfolios. Some believe it to be a mistake because they have been taught that “timing the market” and/or assessing overall market valuations is a fool’s errand. For most all investors, it is generally accepted that staying “fully-invested” is a good idea. But let’s take the recent example of Warren Buffett’s Berkshire Hathaway (BRK.A) buying Precision Castparts (PCP). The latter is certainly not a new company, having been around since the late 1940s, and Buffett has admittedly known about the metal bender for some time. So, then, why
3 Anomalies Across Pipeline Equities
August 12, 2015
Kinder Morgan’s Credit Should Be Junk Status The corporate’s investment-grade credit rating does not add up. On a reported basis, adjusted for impairments, our estimate for Kinder Morgan’s (KMI) leverage is 7 times annualized first-half EBITDA, nearly a half turn greater than that of perhaps its closest peer Energy Transfer Equity (ETE), which is rated Ba2/BB/BB (Stable) by the credit rating agencies. That’s two full notches below the lowest level of investment grade and Kinder Morgan’s credit rating, despite Kinder Morgan’s dividend obligations being $350 million more during the first half of this year alone (~$750 million annualized) relative to Energy Transfer Equity, and its absolute level of debt standing above any other on this list. Kinder Morgan’s plans to
Rio Tinto Focused on Cutting Costs
August 11, 2015
Best Ideas Newsletter portfolio holding Rio Tinto (RIO) has been under significant pressure as global macroeconomic weakness and challenges facing the mining industry have not been kind to the company. The iron ore giant is focused on cutting costs as never before amid the turmoil in the global commodities markets, where some commodity prices have fallen to levels not witnessed since the Global Financial Crisis. China’s equity market collapse and the uncertainty in the Eurozone as it relates to the Greece debt negotiations haven’t helped. Ongoing flawless cost control will remain vital for Rio, as we expect the global surplus of iron ore to continue to prevent a strong recovery in iron ore prices, at least in the near term.
Dividend Increases/Decreases for the Week Ending August 7
August 10, 2015
Below we provide a list of firms that raised/lowered their dividends during the week ending August 7. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week American International Group (AIG): now $0.28 per share quarterly dividend, was $0.125. AmTrust Financial Services (AFSI): now $0.30 per share quarterly dividend, was $0.25. Aqua America (WTR): now $0.178 per share quarterly dividend, was $0.165. Atrion (ATRI): $0.90 per share quarterly dividend, was $0.75. Carlisle (CSL): now $0.30 per share quarterly dividend, was $0.25. Chemed (CHE): now $0.24 per share quarterly dividend, was $0.22. Colony Financial
Buffett Planning to Scoop Up a Valuentum Favorite
August 10, 2015
We’re hearing that Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) is nearing a deal to buy one of our favorite commercial aerospace suppliers and former Best Ideas Newsletter holding Precision Castparts (PCP). We’ve always been fans of Precision Castparts and believe its management team is one of the best in all of the industrial sector. This was likely something that convinced the Oracle that Precision Castparts was right for the Berkshire portfolio. As we’ve yet to hear specific deal terms, we believe Berkshire can pay up to $34 billion in equity value, or ~$240 per share and still make this deal work from an economic-value standpoint. Precision Castparts’ shares closed at ~$194 each Friday. We expect aerospace suppliers to catch a
Earnings Brings Out Volatility of Speculative Entities
August 9, 2015
Tesla Falls on Lowered Delivery Guidance Tesla’s (TSLA) shares fell following the release of its second-quarter results August 5, despite beating consensus estimates on revenue and earnings per share. The firm reported non-GAAP revenue growing 40% from the year-ago period to $1.2 billion, and a non-GAAP loss of $61 million or $0.48 per share. The company was significantly cash flow negative through the first half of 2015 due in large part to capital expenditures for capacity expansion and tooling associated with the new Model X and the construction of the Tesla Energy Gigafactory. Management claims its capital spending is more efficient than ever in terms of capital spend per unit of incremental capacity, which will be necessary to get the firm
Disney’s Disappointment
August 7, 2015
On August 4, media giant and consumer spending bellwether Walt Disney (DIS) put up decent fiscal third-quarter results, but concerns about the future of pay-TV left investors a bit cautious on its outlook. We don’t expect a material change to our $94 per share fair value estimate of the company (we have been far below the market price of $120+), and we point to most of the sell off as profit-taking following a very strong multi-year share-price run. During the fiscal third-quarter (ended June 27, 2015), revenue leapt to $13.1 billion from $12.5 billion in the year-ago period (a 5% increase), while diluted earnings per share advanced at a nice 13% clip, to $1.45 per share. On display yet again
The Great Pipeline Cash Flow Deficiency
August 7, 2015
A myopic view on the energy sector may lead one to ask the question whether the distributions of energy master limited partnership are safe. A broadminded view would answer that question in two words: absolutely not. Through the first six months of 2015, almost every energy-related MLP has spent more in total capital expenditures and distributions than they generated in cash flow from operations. Business models with financials such as these cannot be sustainable over the long haul without infinite access to capital via the debt or equity markets. We learned that housing prices don’t always go up (and that they can fall on a national scale) during the Financial Crisis, and we’ll eventually learn that debt-infused business models that
