Vertex Pharma Hits All-Time Highs!
November 7, 2023
Image: Vertex Pharma is one of our favorite biotech ideas, and the company continues to power to new highs. By Brian Nelson, CFA Shares of Vertex Pharma (VRTX) have advanced nearly 35% so far year-to-date, and the company remains one of the best positioned biopharma names, boasting a lucrative cystic fibrosis (CF) franchise and potential novel therapies in acute pain management and other areas, including CRISPR gene-editing therapy. Though revenue didn’t quite come in-line with expectations in its third quarter report, released November 6, Vertex did raise its full year 2023 product revenue guidance to ~$9.85 billion as the firm will launch its CF therapy TRIKAFTA in the 2-5 age group and as its TRIKAFTA/KAFTRIO combination experiences increased demand internationally. Here
Business as Usual at Berkshire
November 5, 2023
Image: Berkshire Hathaway continues to be a strong free cash flow generator. By Brian Nelson, CFA Berkshire Hathaway (BRK.A) (BRK.B) reported third-quarter results on November 4 that were about in-line with what we were expecting. A huge cash balance and strong free cash flow are par for the course at Berkshire, and the company’s stake in Apple (AAPL) continues to power its equity securities portfolio. Year-to-date, shares of Berkshire are up more than 13%, but we do admit that some of the luster has come off shares in light of the performance of asset-heavy names across the utilities and energy sectors. Given Berkshire’s strong run the past few years, we’re not as enamored with shares as we once were, but
Booking Holdings Is a Net-Cash-Rich, Free-Cash-Flow Generating Powerhouse!
November 4, 2023
Image: Booking Holdings remains an asset-light, free-cash-flow generating powerhouse. By Brian Nelson, CFA On November 2, Best Ideas Newsletter portfolio holding Booking Holdings (BKNG) reported excellent third-quarter results with revenue advancing 21.3% and non-GAAP earnings per share coming in ahead of the consensus forecast. People around the world continue to book travel and accommodations as pent-up demand from the COVID-19 pandemic continues to showcase itself in Booking Holdings’ results. Gross travel bookings advanced 24% (21% on a constant-currency basis) in the quarter on a year-over-year basis, and the firm converted this strong demand into a 51% increase in net income. We like the asset-light, free-cash-flow generating nature of Booking Holdings, and we continue to believe it belongs in the Best
Apple Doesn’t Disappoint in Fourth Quarter Fiscal 2023 Earnings
November 2, 2023
By Brian Nelson, CFA On November 2, Apple (AAPL) put up solid results in its fourth quarter of fiscal 2023 for the period ending September 30, 2023. The company’s iPhone sales ($43.8 billion) came in in-line with Street expectations, squashing concerns about demand for its new iPhone 15. Its high-margin Services business put up a nice growth rate (+16.3%) in the period, reaching a new all-time high. Though the firm’s Mac sales didn’t impress and accounted for most of the weakness in the quarter, Apple is optimistic that the holiday season will make for a strong comeback. We don’t expect to make any changes to our fair value estimate in light of the report, which was about as expected. For
Ferrari’s Results Speak to Resilience in Ultra-Luxury Markets
November 2, 2023
Image: Ferrari raised its guidance for 2023. By Brian Nelson, CFA On November 2, sports car maker Ferrari N.V. (RACE) reported excellent third-quarter results that showed net revenues advancing 23.5% on a year-over-year basis, with total shipments up 8.5% from the same period a year ago. Adjusted earnings before interest and taxes (EBIT) advanced 41.6% from last year’s period, as the firm hauled in industrial free cash flow of €301 million in the quarter. Net industrial debt stood at €233 million at the end of September. As shown in the image above, management raised its year-end guidance thanks in part to a strong product mix and improved revenue from racing activities, and the firm noted that its “order book remains
AMD Continues to Enhance Artificial Intelligence Capabilities
November 2, 2023
By Brian Nelson, CFA On October 31, Advanced Micro Devices (AMD) reported solid third-quarter results with revenue advancing 4% on a year-over-year basis and non-GAAP earnings per share coming in slightly better than expectations, with net income up more than four-fold, to $299 million. Management expressed excitement about demand for its Ryzen 7000 series PC processors and noted that its data center business is progressing well thanks to its 4th Gen EPYC CPU portfolio and Instinct MI300 accelerator shipments across various markets, including artificial intelligence [AI]. Here’s what CEO Lisa Su had to say about AI on the conference call: In PCs, there are now more than 50 notebook designs powered by Ryzen AI in market, and we are working
Caterpillar’s Pricing Power Remains Phenomenal
November 1, 2023
Image: Price realization remains a key driver behind Caterpillar’s strong performance. On October 31, Caterpillar (CAT) reported better-than-expected third-quarter results, with revenue advancing 12% and non-GAAP diluted earnings per share handily beating the consensus forecast. Caterpillar continues to benefit from significant pricing power, but the firm is also experiencing volume increases. The firm’s adjusted operating profit margin expanded to 20.8% in the third quarter compared to 16.5% for the third quarter of 2022. Caterpillar ended the third quarter with $6.5 billion in cash and cash equivalents, short-term borrowings of ~$4.2 billion, and long-term debt of ~$1 billion and ~$7.6 billion in its ‘Machinery, Energy & Transportation’ and ‘Financial Products’ divisions, respectively. Its balance sheet, while not showcasing a net cash
3 Mid Caps With Net Cash And Strong Free Cash Flow
October 31, 2023
By Brian Nelson, CFA We continue to reiterate that the key components of a company’s valuation are the following: net cash on the balance sheet and future expected free cash flows. These two cash-based sources of intrinsic value generally account for almost all of the value of a firm. There are some exceptions, where contingent liabilities and a more complicated capital structure come into play, but when it comes to simplifying what drives share prices, that’s about it. It’s probably no wonder then that we love net-cash-rich, free-cash-flow, secular growth powerhouses, and it’s also probably no wonder why these companies have grown into some of the strongest-performing stocks on the market, dominating last decade. Most of big cap tech and
The Dividend Growth Newsletter Portfolio’s Outperformance
October 30, 2023
The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%. Note: This article corrects the degree of outperformance of the simulated Dividend Growth Newsletter portfolio, as of the date of the calculation (~3.6% –> ~9.4%). By Brian Nelson, CFA Excluding dividends, we estimate that the simulated Dividend Growth Newsletter portfolio is down roughly 4.9% through the interim session October 30 from the beginning of 2022, beating the
Staying Far Away from Intel; McDonald’s a Better Play
October 30, 2023
By Brian Nelson, CFA On October 26, Intel (INTC) reported third-quarter earnings that left a lot to be desired. Revenue fell 8% on a year-over-year basis, while the company’s earnings per share dropped 72%, to $0.07. Management tried to spin the quarter as coming in better-than-expected, but the reality is that Intel’s business transformation is testing even the most patient of investors. At the end of September, Intel held ~$25 billion in cash versus short-term debt and long-term debt of ~$2.3 billion and ~$46.6 billion, respectively. For the first nine months of 2023, Intel’s cash flow from operations dropped to ~$6.8 billion, and it spent ~$19.1 billion in additions to property, plant and equipment. Revenue and earnings pressure, a massive
