Brian Nelson

COVID-19 Idea Apple Raises Dividend, Continues With Massive Share Repurchases

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Image Shown: Shares of Apple Inc have sharply rebounded since falling precipitously from the start of 2020 through March, keeping in mind we removed shares of AAPL from our newsletter portfolios back on January 13, 2020 (link here), when shares of Apple were trading well over $300 per share. We announced on March 17, 2020, that we like Apple as a way to ride out the ongoing coronavirus (‘COVID-19’) pandemic. By Callum Turcan Apple Inc (AAPL) reported earnings for its second quarter of fiscal 2020 (period ended March 28, 2020) that beat both consensus top- and bottom-line estimates. The company also pushed through a 6% sequential increase in its quarterly payout, bringing it up to $0.82 per share or $3.28 … Read more

Visa Reports That Global Spending Levels May Have Started to Stabilize in April

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Image Source: DeclanTM By Callum Turcan One of our favorite companies and a top-weighted holding in our Best Ideas Newsletter portfolio, Visa Inc (V), reported second-quarter earnings for fiscal 2020 (period ended March 31, 2020) which beat both consensus top- and bottom-line estimates. Going forward, while Visa’s very lucrative travel-related businesses (which includes payment processing and foreign currency transaction solutions) will take a hit from reduced travel worldwide due to the ongoing coronavirus (‘COVID-19’) pandemic, management is focused on controlling expenses to offset exogenous headwinds. Specifically, management noted that Visa would pull back on “discretionary spending especially related to personnel, travel, professional services, and marketing” which we appreciate. Outlook Commentary In the fiscal second quarter, Visa reported a 7% increase … Read more

Lloyds Banking Group Navigates Competitive Markets

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Image Source: Lloyds. The UK banking market is highly competitive with too many players, and we think this is the cause for the low returns on capital across the cycle. We’re paying close attention to the key banking players in Europe, including Lloyds Banking Group, to assess the likelihood of a global financial contagion that may accompany the global pandemic that has become COVID-19. By Matthew Warren Lloyd’s Banking Group (LYG) posted a very difficult first quarter, results released April 30, with net income (IFRS equivalent of GAAP revenue) down 11% to GBP 4.0 billion and statutory profit before tax down 95% to GBP 74 million. One can see many of the highlights (or more realistically lowlights) in the graphic … Read more

Staying Focused on the Long Term

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Image Source: The final lesson to learn from financial crises. Value Trap: Theory of Universal Valuation. — By Brian Nelson, CFA — Dear members, — Hope you and yours are well, and staying safe during this crisis. I know it’s difficult to be optimistic during these challenging times, but sometimes it’s okay to take a step back and relax. Things are going to be alright. Many of you have read my book Value Trap: Theory of Universal Valuation. In it, I talk a lot about the lessons from the Great Financial Crisis. Above any other, however, what I’ve found is that the most difficult lesson to accept is that moral hazard will (once again) be rewarded. — As I outlined in our prior note, … Read more

Alphabet Surges Higher

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Image Shown: Shares of Alphabet Inc surged higher on April 29 after reporting a stellar earnings report, and we continue to like Alphabet Class C shares as a top-weighted holding in our Best Ideas Newsletter portfolio. By Callum Turcan After the market close on April 28, Alphabet Inc (GOOG) (GOOGL) reported first-quarter earnings for 2020 that beat top-line consensus estimates and missed bottom-line consensus estimates, with sales supported by the strength of its digital advertising business and its growing Google Cloud business. Alphabet’s advertising revenue (comprised of revenue from its Google Search, YouTube, and Google Network Members’ properties operations) was up 10% year-over-year to $33.8 billion while Google Cloud reported 52% revenue growth year-over-year, reaching $2.8 billion last quarter. All-in-all, … Read more

Deutsche Bank Suffering From Lack of Earnings Power

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On April 29, Deutsche Bank reported another measly quarter in a long string of them. While Deutsche Bank is well-capitalized with a Common Equity Tier I ratio of 12.8% and its Investment Banking segment grew earnings nicely this quarter during rapid client trading and bond origination activity as the markets melted down in March, it suffers from a lack of earnings power at this stage. We blame this on the bank itself, but also on the overcapacity in European banking in general, which pressures margins across the entire industry. By Matthew Warren On April 29, Deutsche Bank (DB) reported another measly quarter in a long string of them, with revenue in the first period of 2020 flat at EUR 6.350 … Read more

ALERT: Going to “Fully Invested” — The Fed and Treasury Have Your Back

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Image Source: BEA. Real GDP fell at an annual pace of 4.8% in the first quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. Summary For members to our new options commentary service, the second April options idea will be released tomorrow. We’re taking the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to “fully invested,” scaling up our existing positions to reflect that status. We plan to consider put options to hedge against downside risk, if or when the time comes. Moral hazard continues to run rampant, and the Fed and Treasury may have no choice but to continue artificially propping up this market, even buying stocks through certain vehicles, if necessary. … Read more

Santander Remains Well-Capitalized

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Europe is overbanked with too much capacity, which means little or no earnings power for many of the players involved, including Santander Europe. We’re paying close attention to the key banking players in Europe to assess the likelihood of a global financial contagion that may accompany the global pandemic that has become COVID-19. By Matthew Warren Banco Santander (SAN) reported tough first-quarter results April 28, with total income (the IFRS equivalent of GAAP revenue) down 2% and attributable profit down 82% to EUR 331 million. Profit before the provision build would have been up 1%, so clearly the expectations for upcoming bad debts are what really sunk the quarterly results, which one can see in the below graphic. Image Source: Santander … Read more

Detroit Automakers on the Ropes, Tesla Continues to Dominate

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Image Source: GM We’re not sure the Detroit automakers will ever be the same after COVID-19. The global pandemic might be the knock-out blow that keeps them on the canvas for a long time, as the group continues to face changing consumer preferences and the rise and dominance of Tesla. Cash preservation is the name of the game at the moment, as they await a restart to some of their U.S. operations May 18. By Brian Nelson, CFA The legacy automakers continue to be in a world of hurt as environmentally conscious consumers begin to dominate the landscape. It is an irreversible trend that General Motors (GM), Ford (F) and Fiat Chrysler (FCAU) once had in their hands to capitalize … Read more

Good News for Facebook Ahead of Earnings Report

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Image Shown: Facebook Inc’s top-line has experienced meaningful growth in recent years. Image Source: Facebook Inc – Fourth Quarter and Full-Year 2019 Earnings IR Presentation By Callum Turcan One of our favorite Best Ideas Newsletter portfolio holdings is Facebook Inc (FB), and we appreciate its pristine balance sheet (plenty of cash on hand and no debt on the books as of the end of 2019), promising growth trajectory (short-term headwinds aside, digital advertising is a secular growth market and likely to bounce back strongly once the pandemic subsides), and we would like to highlight that shares of FB trade at a meaningful discount to our fair value estimate (which sits at $234 per share) as of this writing. Recently, several … Read more