Brian Nelson

Gilead Sciences’ Top Line to Remain Muted

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Image shown: Gilead holds an impressive share of the US HIV market, both on an infected and diagnosed basis. Source: Gilead Sciences fourth quarter presentation. Simulated newsletter portfolio idea Gilead Sciences continues to battle intensifying competition in the HCV market, which has been able to offset its strength in HIV. Top-line growth has been nothing short of elusive, and management does not expect to return to material growth in the near term. By Kris Rosemann Shares of simulated newsletter portfolio idea Gilead Sciences (GILD) faced a bit of selling pressure following the February 4 release of its fourth quarter results, as it continues to be unable to drive top-line growth. HCV product sales continued to drop precipitously in the period … Read more

Questions Answered!

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Image shown: The S&P 500 (SPY) performance and the timing of when we went to “fully invested” in the simulated newsletter portfolios, the Best Ideas Newsletter and Dividend Growth Newsletter. No changes to simulated newsletter portfolios. By Brian Nelson, CFA Hi everyone! Trust you are doing great. Here’s what you need to know about the broader market backdrop.  1) We’ve been expecting a more dovish Fed as the yield curve continues to threaten material inversion. We doubt the Fed will materially and purposefully invert it. The behavioral risks of actually causing a recession by doing so are too great. That means yield-oriented equities may continue to breathe a sigh of relief. This is good for ideas in the simulated Dividend … Read more

Arista Networks’ Overview and Holly Energy’s Dropdowns Dried Up

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We often receive specific questions from members for research requests on stocks not within our coverage universe and specific questions regarding companies already within our coverage universe. Let’s take a look at one of each such situation in this article. By Kris Rosemann Arista Networks (ANET) – Scalable Business But Not Without Challenges Arista Networks is a leading supplier of cloud networking solutions that utilize software to address demand from large-scale Internet companies, cloud service providers, and next-generation data centers. According to third-party estimates, the company has the second-largest market share in datacenter 10/25/40/50/100 Gigabit Ethernet switch ports as of 2017. Arista Networks operates in the large and growing cloud networking space, and it is working to take advantage of … Read more

Alphabet Working to Balance Rising Spending and Driving Revenue Growth

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Alphabet’s top-line growth remains impressive, but rising costs continue to pressure margin performance. Free cash flow generation is still robust, which provides the backbone for its fortress-like balance sheet, but capital spending levels advanced at a significant rate in 2018. By Kris Rosemann Simulated Best Ideas Newsletter portfolio idea Alphabet (GOOG, GOOGL) turned in a strong finish to 2018, but rising mobile-driven traffic acquisition costs are expected to continue weighing on margin performance. Revenue at Alphabet in the fourth quarter, results released February 4, jumped 22% on a year-over-year basis as reported thanks to its continued strength in Mobile Search as well as support from YouTube, Cloud, and Desktop Search, but operating income growth came in at only ~7% as … Read more

The Dividend Cushion Ratio Was Ahead of Tupperware’s Cut

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Image shown: Tupperware’s landing page at Valuentum after the company announced a ~60% dividend cut. Tupperware slashed its dividend before the Dividend Growth Newsletter hit your inboxes Friday evening. The company was included at the bottom of a list of companies with the highest multiplicative combination of Dividend Yield x Dividend Cushion ratio (mostly due to its outsize yield). The Dividend Cushion ratio flagged it as an outsize risk, nonetheless, and it was not included in any simulated newsletter portfolio. By Kris Rosemann On January 30, prior to the release of the February Dividend Growth Newsletter, Tupperware (TUP) announced that it would cut its dividend. The company had been yielding at a high-single-digit rate, but that was a red flag, as … Read more

Our Reports on Stocks in the Truck Machinery Industry

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Image Source: Oliver Bildesheim Structure of the Truck Machinery Industry Firms in the oligopolistic truck machinery industry make commercial vehicles, diesel engines, and aftermarket truck parts. A strong brand name and reputation, a fuel-efficient and regulatory-compliant vehicle portfolio, efficient manufacturing operations, an expansive dealer network, and a rock-solid balance sheet to finance customers are keys to success. Still, demand for commercial trucks is cyclical, severe price discounting remains present, and meeting emissions rules can be costly. Rising commodity prices can also keep a tight lid on profit expansion. We’re neutral on the structure of the group. —– We’ve discontinued coverage of the Truck Machinery Industry. << Our Dividend Reports

In The News: M&A Activity, Clorox Offsets Cost Headwinds, Sony Cuts Expectations

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Let’s take a look at some of the top stories around the markets February 4. By Kris Rosemann Shares of Ultimate Software Group (ULTI) jumped on the announcement of its agreement to be taken private by a consortium of investors led by Hellman & Friedman for $331.50 per share, or roughly $11 billion. We like the deal for Ultimate Software shareholders as it represents a material premium to both our fair value estimate for shares and its recent share price levels. Microcap developer and manufacturer of energy solutions Maxell Technologies (MXWL) has agreed to be acquired by Tesla (TSLA) for $4.75 per share in stock. Shares of Maxwell will be exchanged for a fraction of Tesla stock that will be … Read more

Earnings Roundup: Amazon, Facebook, Honeywell, PayPal, Visa

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Let’s talk about our views on Amazon, Facebook, Honeywell, PayPal, and Visa. We think Facebook’s equity offers the biggest bargain, but Visa remains our top idea, as it has been for some time. By Brian Nelson, CFA Amazon’s Shares Are Trading Below Our Fair Value Estimate But Sensitivity to Assumptions Is Great Image shown: The probability distribution of our fair value estimate range for Amazon. The company is trading below our fair value estimate of ~$2,000, but above the low end of the fair value estimate range of ~$1,500. We think shares are fairly valued if they are trading on the yellow line. Amazon’s fair value estimate is very sensitive to its operating margin. Here are the three things that … Read more

Our Reports on Stocks in the Wireless Telecom Services Industry

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Image Source: American Tower Structure of the Wireless Telecom Services Industry Most firms in the wireless telecom services industry lease antenna space on communication sites/towers to wireless service providers, radio and television broadcast companies, and tenants in other industries. Tenant leases are typically long-term, noncancellable, have high renewal rates (98%+) and include attractive built-in annual rent escalations. Tower operators enjoy consistent demand for their sites, have high operating leverage (incremental costs to add new tenants are minimal), and require little capital expenditures to maintain their communication sites. We like the structure of the group. We have dropped coverage of the Wireless Telecom Services Industry. We cover other telecom stocks: Telecom Services: BCE, CTL, DCM, EQIX, FTR, S, T, TMUS, VOD, … Read more

Altria’s Sprawling Business to Underperform Long-Term Bottom-Line Target in 2019

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Image Source: Melanie Tata Altria’s business has grown increasingly complex recently as it has levered up to add exposure to new growth opportunities. We don’t find the convoluted company attractive, even after considering its lofty yield, and its core cigarette business continues to face material industry-wide volume declines. By Kris Rosemann We extinguished Altria (MO) from the simulated Dividend Growth Newsletter portfolio December 21 after assessing the announcement of its deal to acquire a 35% stake in US e-cigarette leader JUUL Labs. Here’s our conclusion from the announcement of our decision, “Parting with Altria on News of Stake in JUUL:” We think Altria may have thrown in the towel on harvesting its core smoking demographic and may now be entering … Read more