Phillips 66 Rounds Out Cash-Rich 2022; Dividend Remains Solid
January 31, 2023
Image Source: Phillips 66 By Brian Nelson, CFA On January 31, Phillips 66 (PSX) reported messy fourth-quarter 2022 results. Adjusted earnings, however, came in at $1.899 billion, which showed a nice advance from the $1.298 billion mark in the year-ago period. The company’s adjusted earnings, however, fell from the $3.122 billion number it recorded in the prior sequential period. On a sequential basis, adjusted earnings in its refining business fell to $1.626 billion from $2.883 billion. Here’s what drove the weakness: The decrease was due primarily to lower realized margins. Realized margins declined from $26.87 per barrel in the third quarter to $19.73 per barrel in the fourth quarter mainly due to lower market crack spreads and clean product differentials.
Visa’s Q1 Fiscal 2023 Solid, Puts Up 64%+ Operating Margin
January 30, 2023
Image: Visa is a free cash flow generating powerhouse and is insulated from rising delinquency and charge offs, unlike others in the credit card space. Image Source: Visa By Brian Nelson, CFA On January 26, Best Ideas Newsletter portfolio holding Visa (V) reported excellent first-quarter fiscal 2023 results. Net revenues advanced 12% in the quarter, and Visa leveraged that top-line expansion into 17% growth in non-GAAP net income. The company’s operating margin for the period came in at an impressive 64.1%, a decline from last year’s quarter but still a sight to see. Non-GAAP earnings per share leapt 21%, to $2.18, which came in better than the consensus estimate. Shares of Visa have jumped more than 11% so far in
We Don’t Think Intel Will Spoil the Tech Rally
January 28, 2023
Image Shown: The Invesco QQQ ETF (QQQ) has broken through its technical downtrend, and we don’t think Intel’s poor outlook will derail this tech rally. Image Source: TradingView By Brian Nelson, CFA The Invesco QQQ ETF (QQQ) has rallied more than 12% to start 2023, and we don’t think much will derail the advance. The pace of inflation looks like it peaked in June 2022 and save for a few big quarterly earnings misses from Goldman Sachs (GS) and Intel (INTC), fourth-quarter 2022 earnings season is shaping up better than feared for a lot of companies. The labor market is easing a bit, and a breakout of both the equal-weight S&P 500 (RSP) and the market-cap weight S&P 500 (SPY)
Market-Cap Weighted S&P 500 Breaks Out; Have We Already Seen the Bottom?
January 26, 2023
Image: The market-cap weighted S&P 500 (SPY) has broken through its downtrend. The markets could be headed meaningfully higher. Image Source: TradingView By Brian Nelson CFA Excess savings in consumer bank accounts from the pandemic stimulus and government intervention that was issued during the worst of the COVID-19 pandemic will start to deplete almost entirely by the middle of this year. Talk of the debt ceiling on the U.S.’s national debt of $31.5 trillion is emerging, and interest on the debt will start to crowd out other spending with respect to the national budget. The markets, however, are forward looking, and many of these concerns are largely “baked in.” Within the discounted cash-flow model, for example, we take into consideration
Manpower Group’s Massive Free Cash Flow Yield Facing Some Pressures; Shares Have Dividend Yield of ~3%
January 24, 2023
Image: Manpower Group is a tremendous generator of free cash flow, though performance can be lumpy at times. Image Source: Manpower Group By Brian Nelson, CFA Manpower Group (MAN) continues to be a fantastic free cash flow story, and we think shares have upside potential on the basis of our discounted cash-flow-derived fair value estimate of $100 per share. Manpower Group is a global workforce solutions company, and it helps to find employment for millions of job seekers every year. It works with companies in the Fortune 100 as well as small- and medium-sized companies, too. We’re highlighting Manpower Group because it stood out in our data screener as it relates to a non-energy equity with an outsized free cash
What So-Called Statistical “Value Premium?”
January 22, 2023
Image: The iShares Russell 1000 Growth ETF has outperformed the iShares Russell 1000 Value ETF by nearly 250 percentage points over the past two decades. Image Source: TradingView By Brian Nelson, CFA Quantitative analysts are trained to believe that the quantitative stylistic area of “value” outperforms (and generally should outperform) the quantitative stylistic area of “growth” over long periods of time. After all, this was one of the findings of University of Chicago Eugene Fama’s three-factor model, published in the early 1990s–that on a historical basis through the time of the publishing of the influential backtest, that stocks with high book-to-market (low price-to-book) ratios–so-called “value” stocks–outperformed those with low book-to-market (high price-to-book) ratios–so-called “growth” stocks–with emphasis placed on the work
Energy Pipelines: What a Difference A Few Years Have Made!
January 20, 2023
Image: Midstream energy companies have significantly improved their free cash coverage of their payouts in recent years. We’ve taken note. Source: Relevant 10-Q filings. By Brian Nelson, CFA As of our last check, no longer are the vast majority of energy pipeline players not covering their dividends/distributions with traditional free cash flow, as measured by cash flow from operations less all capital spending. Said another way, free cash flow after dividends, distributions is positive for a great many energy pipeline players these days. We’re pleased by the developments across midstream, and we expect to make some moves in the simulated newsletter portfolios to potentially add the Alerian MLP (AMLP) ETF to the simulated newsletter portfolios as a result. This is
Why Are the Dividends of REITs So Risky?
January 20, 2023
By Brian Nelson, CFA Not all REIT dividends are safe. Many REITs remain capital-market dependent, and some office REITs, retail REITs, and healthcare REITs may be difficult places to generate dependable long-term income in the coming decades, in our view. Office REIT SL Green (SLG) recently cut its payout 13% on December 5, 2022, while another office REIT Vornado Realty Trust (VNO) cut its dividend 29% on January 18, 2023. These are just two of the latest high-profile REIT dividend cuts, and there may be more to come. Contrary to popular opinion, the REIT sector has not been a great source of dependable, reliable income, particularly during the COVID-19 crisis. Five REITs cut their dividends in 2019: Medalist Diversified REIT
