Analyzing Healthcare REITs
August 6, 2015
The market seems to be unforgiving these days. The threat of rising interest rates continues to weigh on everything REIT-related. The healthcare REITs are tied to the most favorable long-term trend within our coverage universe (the aging population), but that may not be enough to completely offset worries. With many REITs priced on “cap” rates, or the discounting mechanism for future adjusted funds from operations, a looming increase in this measure means that REITs are worth less, all else equal. For some, higher net operating income and funds from operations will help mitigate inevitably higher cap rates, while others may feel ongoing pressure. Let’s walk through the second-quarter performance of three of the best healthcare REITs on the market today.
Assessing the Fallout from the Collapse in China’s Stock Market…Thus Far
August 5, 2015
No longer do we live in an isolated world. If you weren’t convinced of this before the Global Financial Crisis, the credit crunch of late last decade should have changed that. Just as the interconnectedness of global financial markets is undeniable, we think the significance of the health of the Chinese economy is as critically important to the trajectory of equity prices across the globe. That’s why we’re not taking the recent collapse in the Chinese stock market lightly. Here’s what we’re hearing. China’s major restaurant bellwether, Yum! Brands (YUM), owner of KFC, addressed whether a decline in the country’s equity market has impacted sales. Though the company noted that “a very small percentage of customers have been impacted,” we’re
The Priceline Group Soars!!!
August 5, 2015
It’s difficult to be patient with new ideas, and we understand. But the efficacy of the Valuentum Buying Index in picking winners continues to be a big head-turner. The methodology’s batting average—or the number of ideas that “work out”—is among the best of any systematic process that we’ve seen (if not the best), and we point to the logic behind its conceptual underpinnings as to the reasons why. The Valuentum Buying Index, which combines valuation and technical/momentum indicators, hits at the heart of what makes a good equity investment idea. Companies that we think are undervalued and ones in which the market also believes are undervalued—i.e. stocks whose shares are moving higher—should, by definition, be top performers. After all, the
FAQ: ETP and MLPs
August 4, 2015
Answer: Thank you for your question. It is a good one. The Valuentum process considers both value and momentum in considering ideas. Just because a firm is undervalued does not guarantee that it will be added or remain in the newsletter portfolios. We use the Valuentum Buying Index rating system as a guide for idea consideration (addition and removal), which considers both the attractiveness of the entity from a valuation standpoint and market conviction via its share-price activity. As of late, our fundamental view on MLPs has deteriorated, and we have grown more cautious on the space, a view that has been reinforced through the broad-based sell-off and weakness in shares. We think this has warranted a removal in ETP shares from
Social Media Posts Mixed Trends
August 3, 2015
Image: Twitter has tumbled significantly following the release of the past two of its quarterly earnings reports. The difference between a social media network success story and failure is simple: product iteration and innovation coupled with disciplined execution. This has been the difference between social media giant Facebook (FB) and Twitter (TWTR). While Twitter has spent time fighting through management shifts and attempting to discover its true calling as a social media platform, Facebook has been busy growing its global scale. LinkedIn (LNKD) continues to navigate its wide range of fair value outcomes, and we maintain our view that the company’s business model has yet to be tested. Twitter’s Valuation Distribution: A Lotto Ticket Twitter is still in the midst
FAQ: What Is the Difference Between the Raw Unadjusted Dividend Cushion Ratio and the Adjusted Dividend Cushion Ratio?
August 3, 2015
FAQ: What Is the Difference Between the Raw Unadjusted Dividend Cushion Ratio and the Adjusted Dividend Cushion Ratio? A number of quarters ago, we rolled out additional transparency with respect to the Dividend Cushion ratio methodology for master limited partnership (MLP) and real estate investment trusts (REIT) we cover in order to help readers understand how much of the adjusted Dividend Cushion ratio is supported by external capital-market assistance. Both the adjusted and unadjusted ratios are worth keeping a close eye on. For example, should an MLP and/or a REIT have ongoing access to the capital markets, its highly probable that its dividend/distribution will be supported, as revealed by an adjusted Dividend Cushion ratio that would be comfortably north of
Household Products Stocks Round Up
August 3, 2015
Clorox (CLX) Clorox may be executing the best in its peer group. In its fiscal fourth-quarter report, released August 3, reported sales advanced 4% as the company drove an 11% increase in diluted earnings per share in the period. The pace of top-line expansion would have been even better were it not for currency-related headwinds. A benign combination of “cost savings, price increases and lower commodity costs” worked wonders on the firm’s financials. During the quarter, Clorox recorded 3% volume growth, and the company continues to gain share across its brand portfolio. Clorox disinfecting wipes continue to fly off the shelves at a double-digit pace at retailers, and the firm pushed a nice price increase on Clorox bleach in February
The Game Is Nearing an End for MLPs…
August 1, 2015
The game is nearing an end for master limited partnerships (MLPs) in this energy cycle, in our view. We no longer feel comfortable, if we ever did, including any MLP in the Dividend Growth Newsletter portfolio. Linn Energy (LINE, LNCO), of the upstream variety, may have taken on far too much debt as an E&P entity, but its free-cash-flow management during the first half of 2015 has actually been decent…stronger than better-known upstream and midstream operators. Yet, despite Linn’s positive free-cash-flow execution, even after distribution payments, the entity’s bankers appear to be circling like sharks, ready to take a further bite out of its borrowing capacity (due to lower energy resource pricing). Fairly, the company simply can’t afford to take
Agricultural Equipment Industry Stuck in the Mud
July 31, 2015
The agricultural equipment industry is dependent on a global economy that remains mired in mediocrity. Durable goods orders fell in both April and May 2015–as well as 9 of the 10 months prior–and the solid 3.4% increase in June is misleading due to the extraordinary number of aircraft orders. Excluding transportation orders, the increase for the month of June was a slight 0.8%. Economic conditions in the US, if construed as positive, in the words of Caterpillar (CAT), the global economy “remains relatively stagnant,” with ongoing weakness in China and Brazil and uncertainty across the Eurozone given the crisis in Greece. Weak commodity prices are not suggestive of a near-term recovery for the overall economy either. Crude oil prices are
The Scary Reality of Indexing
July 30, 2015
The S&P 500 Index Fund, and derivative ETF products such as the widely-followed S&P 500 SPDR (SPY), are perhaps the most common equity-based indexing instruments on the market today. The pioneer of index mutual funds, the Vanguard Group, defines indexing as follows (1): Instead of hiring fund managers to actively select which stocks or bonds the fund will hold, an index fund buys all (or a representative sample) of the securities in a specific index, like the S&P 500 Index. The goal of an index fund is to track the performance of a specific market benchmark as closely as possible. That’s why you may hear it referred to as a “passively managed” fund. Vanguard’s founder Jack Bogle launched the first
