Apple’s Looming ‘Watch X’ Likely a Game Changer in Smartwatches
August 14, 2023
Image Source: Wiyre Media By Brian Nelson, CFA Apple (AAPL) is expected to do a refresh of its Apple Watch this year, but the changes won’t be as significant to draw many to upgrade. However, as we look out to fiscal 2024 and fiscal 2025, exciting things could happen. According to a report from Bloomberg, the “Watch X,” marking the 10th anniversary of the rollout of the first Apple Watch, is targeted to include a blood-pressure monitoring tool, among other upgrades. Not only do we think a blood-pressure monitoring tool will drive considerable adoption from many that do not have a smartwatch, but it could also drive a huge market share shift to the device from Samsung (SSNLF) (SSGFF) and Alphabet’s
Will Crude Oil Prices Hit $100 Again?
August 9, 2023
By Brian Nelson, CFA If you’ve been reading the headlines, you’ve probably seen these: Michigan gas prices increase to highest in 2023, Florida gas prices reach new 2023 high: AAA, Gas prices are higher again, hitting consumers ‘very directly and very profoundly.’ A month ago, the national average for gas prices stood at $3.54, but they have risen to $3.83, according to AAA. Though these levels are still down from the $4.03 average gallon price a year ago, investors have started to take notice. The intensifying war between Russia and Ukraine coupled with expectations that this hurricane season may be a troubling one have driven crude oil prices to the mid-$80s. The energy sector (XLE) was the place to be
Berkshire’s Stake in Apple Has Been a Boon for Shareholders
August 6, 2023
By Brian Nelson, CFA Warren Buffett is one of the greatest qualitative teachers of the discounted cash-flow (DCF) model, also known as enterprise valuation, without saying as much. He doesn’t like dividends in part because he knows they are a reduction to the intrinsic value of Berkshire Hathaway (BRK.A) (BRK.B). He understands that there are not really “value” and “growth” stocks because growth is but a component of valuation. An entity that is growing free cash flow at a pace much larger than that of another company should warrant a higher valuation multiple, of course. Valuation multiples tell us very little about a company’s intrinsic value. That’s what the DCF is for. Image: Apple has been a blessing for Berkshire Hathaway. Image
Apple Breaks Through Uptrend; Expect Modest Market Pullback
August 5, 2023
Image: Apple has been a strong performer thus far in 2023, but the stock has broken through its uptrend. Further selling may be ahead of shares. In light of Apple’s weighting across major market indices, investors should expect a modest pullback in the markets. By Brian Nelson, CFA On August 3, Apple Inc. (AAPL) reported third-quarter fiscal 2023 results that gave the market a reason to sell its shares. Though the iPhone maker’s quarterly results largely matched the consensus forecasts for both the top and bottom line, year-over-year declines in iPhone, Mac, and iPad sales, while expected, were evident in the quarter, even as its Services business grew meaningfully from last year’s period. A technical breakdown in its uptrend sparked
Best Idea Booking Holdings Soars!
August 4, 2023
Image: Booking Holdings’ free cash flow conversion is about as good as it gets. The company remains a key idea in the Best Ideas Newsletter portfolio. Image Source: Booking Holdings By Brian Nelson, CFA We initiated a position in Booking Holdings (BKNG) in the Best Ideas Newsletter portfolio in June due in part to its extremely attractive valuation at that time, of which we highlighted graphically in this April 19 note. Booking Holdings’ price-to-fair value disconnect was rather large back in April following a huge fair value estimate increase around that time. Shares of the company have now surged past our fair value estimate of $3,164, as indicated in post-market trading following its fantastic second-quarter 2023 results, and we’re sticking
Not Expecting Much From Consumer Staples Stocks
August 3, 2023
By Brian Nelson, CFA Within the discounted cash-flow [DCF] modeling process (also known as enterprise valuation, or the free cash flow to the firm model), there are two primary sources of cash-based intrinsic value: net cash on the balance sheet and future expected enterprise free cash flows. The sum of net cash on the balance sheet and the present value of future enterprise free cash flows divided by weighted average diluted shares outstanding results in a fair value estimate per share, which then can be divided by earnings to arrive at a value-derived price-to-earnings (P/E) ratio. Only when this value-derived P/E ratio is compared to the price-observed P/E ratio—the latter calculated as price divided by estimated earnings–can a company then be
Albemarle Is One of the Best Growth Stories on the Market Today
August 3, 2023
Image: Albemarle is a low-cost producer of lithium derivatives, an end market that is expected to experience tremendous demand in the coming years. By Brian Nelson, CFA On August 2, Albemarle Corp. (ALB) reported excellent second-quarter 2023 results that showed net sales advancing 60% and adjusted diluted earnings per share more than doubling in the quarter. For the full-year 2023, net sales are now expected to be between $10.4-$11.5 billion (was $9.8-$11.5 billion) thanks in part to continued strength in electric vehicle (EV) demand. Our fair value estimate for Albemarle stands at $257 per share, well above where shares are currently trading. We think the market is underestimating not only its growth potential but also mid-cycle levels of profitability. Albemarle
ICYMI: Let’s Play Devil’s Advocate: What’s the Bear Case for Realty Income?
August 2, 2023
By Brian Nelson, CFA We like Realty Income Corp. (O) a lot, but it’s not hard to see that the REIT could potentially have all the makings of a black swan. For one, the stock is loved by almost everyone–REIT investors, income investors, and dividend growth investors alike. Many are simply enamored by its monthly dividend, which it has raised nearly 120 times since it was listed on the NYSE in 1994. Over its 54-year history, the REIT has paid 632 consecutive monthly dividends, too. There’s a ton of things to like about Realty Income, but for this note, let’s build and examine the bear case, one that can be broken into three pillars: 1) its retail exposure, 2) its
Trash Taker Republic Services’ Outlook Keeps Getting Better
August 1, 2023
Image Source: Republic Services By Brian Nelson, CFA Republic Services (RSG) reported solid second-quarter 2023 results July 31, and it raised its full-year 2023 guidance across the board. During the period ending June 30, 2023, total revenue advanced 9.1% with more than half coming via organic means, while GAAP earnings per share of $1.41 exceeded the consensus forecast by $0.10. Republic Services continues to experience strong pricing power, helping to drive double-digit EBITDA expansion in the quarter. Adjusted free cash flow came in at ~$1.265 billion through the first six months of the year. Earlier in July, Republic Services increased its dividend ~8% to a quarterly payout of $0.535 per share (was $0.495). Shares yield ~1.4% at the time of this
Johnson & Johnson Belongs in the “Too Hard” Bucket
July 31, 2023
Image Source: Johnson & Johnson By Brian Nelson, CFA Johnson & Johnson (JNJ) recently entered the “too hard” bucket for us. We dropped J&J from the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio on March 13 of the year, as we lost interest in the company given the uncertainties surrounding talc liabilities and the Kenvue (KVUE) split-off. We prefer simplicity across our newsletter portfolios, and J&J’s results have often been messy, to say the least. Though J&J’s second-quarter 2023 performance, released July 20, was a bit better, we no longer have much interest in the name, given its net debt position and contingent talc liabilities. We’re also not interested in shares of its split-off Kenvue, having completely removed
