Berkshire Scoops Up Duracell; Hasbro Ponders Dreamworks
November 13, 2014
Edited November 14, 2014. We should have known that Warren Buffett (BRK.A, BRK.B) was interested in acquiring Procter & Gamble’s (PG) battery business, Duracell. Today, we found out that he was. In exchange for a recapitalized Duracell Company, including $1.7 billion in cash at closing, Berkshire Hathaway will fork over $4.7 billion worth of Procter & Gamble shares to the former parent to bring Duracell’s operations into Berkshire Hathaway. The transaction is expected to close in the second half of 2015. We think it’s mostly a win for Procter & Gamble. The company had announced its decision to shed Duracell in its most recent quarterly report, a move we had been heavily in favor of. Based on trading action following
A Sneak Peek at Valuentum’s Slides for the AAII Presentation in Chicago This Saturday!
November 11, 2014
Let’s take a sneak peek at President Brian Nelson’s slides for this weekend’s presentation in Chicago! Firms mentioned: MSFT, GOOG, AIR, BRCM, CSCO, SPY, AAPL, QCOM, MA, DPZ, SVU, RNDY, DDE, STRA, EXC, CLF, PBI, CTL, JCP and others. <select image to download the slide deck>
Homebuilders Bucking Downtrend
November 10, 2014
Homebuilders have a reason to be optimistic as of late. Not only has the SPDR S&P Homebuilders ETF (XHB) firmed up, but Toll Brothers (TOL) released strong fundamental news, helping to buoy the industry. Toll Brothers operates at the high-end of the homebuilding industry. Its average home price, for example, has historically been ~$650,000 compared to ~$300,000 for its publicly-traded peers. As a result, we’d view Toll’s main competitors as small private builders catering to luxury demographics, not necessarily the large public builders. The firm’s performance, however, is worth watching as yet another data point with respect to the industry’s health. Pent up housing demand has been accruing for years, and new home inventory is limited, which makes for an
Dividend Increases for the Week Ending November 7
November 10, 2014
Below we provide a list of firms that raised their dividends during the week ending November 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 Aaron’s (AAN): now $0.023 per share quarterly dividend, was $0.021. Acadia Realty Trust (AKR): was $0.24 per share quarterly dividend, was $0.23. Agrium (AGU): now $0.78 per share quarterly dividend, was $0.75. Atmos Energy (ATO): now $0.39 per share quarterly dividend, was $0.37. AmTrust Financial Services (AFSI): now $0.25 per share quarterly dividend, was $0.20. Cantel Medical (CMN): now $0.05 per share semi-annual dividend, was $0.045.
Sears Has Stopped Shrinking But Is This Really Good News?
November 9, 2014
It appears that when things at a company are so bad, any glimmer of hope can result in an outsize upside stock-price reaction that is often unjustified on the basis of fundamentals. This appears to be what happened to Sears’ (SHLD) stock last week. The company was at the center of a massive short squeeze Friday, to a magnitude we haven’t seen in some time. We don’t think fundamentals at Sears have changed all that much. The struggling retailer said that EBITDA in the third quarter of 2014 would be equally as poor as that of the same period in 2013. The measure could be a $325 million loss (-$325 million) in the quarter, and this would be worse than the $178
4 Friday Earnings Reports for Your Radar
November 7, 2014
Let’s dig into a number of reports from firms in the news Friday. Abercrombie & Fitch (ANF) Investors in teen retail stocks are literally trying to catch lightning with respect to fashion trends. Predicting fashion in any demographic isn’t easy, but we’d point to anticipating teen behavior as the most difficult analytical proposition within any retail segment. It shouldn’t be surprising that fundamentals within the teen retail space are volatile, and Abercrombie & Fitch’s third-quarter update matched such a profile. During the period, net sales in its third quarter fell 12% and comparable store sales dropped 10%. From the release: Sales during the quarter were below expectations with comparable sales in September and October being significantly weaker
Third Quarter Earnings Season Pushes Forward
November 6, 2014
The equity markets continue to propel higher despite what we would describe to be a mixed third-quarter earnings season. Let’s walk through a number of earnings reports from popular companies reporting so far this week. Some of them we include in the newsletter portfolios. Others we don’t. But all are worth keeping tabs on. Annaly (NLY) Annaly is a mortgage REIT (mREIT) with principal business objective to generate net income for distribution to shareholders. Being critical of the mREIT business is certainly unpopular, and we understand that many retirees generate vital income streams from such investments. Bulls and bears, however, both benefit from our independent voice, and we call out risks as we see them. Annaly and American Capital Agency
Sprint Falls Back Down to Under $5 Per Share
November 6, 2014
To us, there really never was an investment case for Sprint (S). Let us explain. In investing, the “capital stack” represents the firm’s capital structure, beginning with net debt at the bottom and moving up to equity at the top. In order for any firm to have any equity value, the present value of its risk-adjusted future free cash flows must sum to a value greater than its net debt. The hypothetical firm shown below in the image has equity value because the present value of its risk-adjusted future free cash flows is greater than the sum of its net debt. At Valuentum, we spend most of our time paying attention to the firm’s regulatory filings. In Sprint’s most recent
Alibaba Still Has Upside to $125+ Per Share
November 5, 2014
Warren Buffett (BRK.A, BRK.B) hasn’t bought an initial public offering (IPO) in fifty years. The Oracle of Omaha has often said that IPOs are almost always bad investments, which may often be the case. Such a view is great guidance for new and inexperienced investors, but the key word of emphasis in his view is ‘almost.’ Some IPOs are, in fact, worth looking into. Remember: an asset in any form can be mispriced, whether it is a house, rental car, piece of equipment, secondary stock sale, and yes, even an IPO. An asset’s value in any and all cases will be the present value of risk-adjusted future free cash flows after accounting for the current balance sheet net cash/debt position
AIG Still Our Best Idea in Insurance
November 4, 2014
Members know that we’re not fans of the investment prospects of the insurance industry, but they also know that we have liked American International Group (AIG) for some time. We were saying that shares were attractive as early as November 2012, and we reiterated the opinion that AIG was our favorite idea in the insurance industry in November 2013. Today, the company registers a 9 on the Valuentum Buying Index, and . Shares closed at $53.80 each yesterday. AIG reported excellent third-quarter results that revealed outperformance relative to expectations on both the top and bottom lines. Third-quarter after-tax operating income advanced 23% to $1.7 billion, or $1.21 per diluted share (up from $0.96 in the year-ago period). AIG noted that
