Brian Nelson

Cloud Lifting Microsoft Shares Toward All-Time Highs

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“…Microsoft flexed its free cash flow generating muscles in the first quarter of fiscal 2017. The software giant reported free cash flow of just under $9.4 billion, an increase of nearly 25% from the year-ago period despite capital expenditures jumping approximately 60%. Such strong free cash flow generation helped the firm advance its net cash position, excluding long-term equity and other investments of ~$10.5 billion, to an impressive $62.2 billion, up from $59.8 billion at the beginning of the quarter.” – Kris Rosemann By Kris Rosemann Microsoft (MSFT) reported a strong quarter October 20, both in terms of financial performance and in terms of ongoing momentum in the transformation of its business. Non-GAAP revenue, which takes into account revenue deferrals … Read more

Pharma Momentum Builds for Johnson & Johnson

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Image Source: J&J By Kris Rosemann Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio holding Johnson & Johnson’s (JNJ) third quarter report October 18 was an impressive display of the success of its new product launches and the strength of its ‘Pharmaceutical’ business, which it expects is only just heating up. Johnson & Johnson is a long-time holding in the Dividend Growth Newsletter portfolio and was recently added to the Best Ideas Newsletter portfolio in January 2016 as a diversified pharma replacement for the more speculative Gilead (GILD), “Alerts: High-grading! GILD–>JNJ; EBAY–>FB (January 2016),” “The J&J-Gilead Trade-off Update (July 2016).” We see no reason to adjust our positions in Johnson & Johnson in either newsletter portfolio following the solid … Read more

After-Hours: MSFT +5.9%, PYPL +4.6%

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A holding in the Dividend Growth Newsletter portfolio and a holding in the Best Ideas Newsletter portfolio are indicated up after hours October 20. You may remember us taking some profits on Microsoft (MSFT) following its deal to acquire LinkedIn (LNKD), but did you know the company has been the prime example of our cash-flow-based dividend methodology for years? Microsoft was added to the Dividend Growth Newsletter portfolio at inception at a tender price of ~$26 per share. Our roughly 2.5% current weighting (yes, it is still one of our favorite dividend growth ideas!) is indicated up in after-hours trading, now to all-time highs near $61 per share, even past those of the dot-com bubble days! We’re not going to … Read more

Hasbro Heads into Holiday Season with Record Quarter

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“…the highlight of the firm’s portfolio was its performance in the ‘Girls’ product category, where revenue leapt 57% in the quarter and 48% in the first nine months of 2016 on a year-over-year basis. The Disney Princess and Frozen product lines remain the core drivers of such strong performance, with ancillary growth coming from the Dreamworks’ Trolls as well as the Baby Alive and Furby product lines.” – Kris Rosemann By Kris Rosemann Dividend Growth Newsletter portfolio holding Hasbro (HAS) reported one of the most successful quarters in company history October 17. The firm registered company records in quarterly revenue and earnings as each of its major operating segments generated sales growth. US and Canada revenue advanced 16% on a … Read more

This Just In: Netflix’s Stock Is Volatile!

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Key Takeaways Netflix unit subscriber growth is not accelerating, having flattened through the first nine months of 2016 (12 million net additions). The current market capitalization of Netflix implies the company must grow consolidated operating earnings by 8-fold to be considered fairly valued. The content cost thesis is a well-traveled one, but the market is missing the vast overhead expenses (marketing, G&A) related to Netflix’s business, which punish earnings and are excluded from segment profit calculations often used in buy side valuations. Netflix’s sources of upside: pricing leverage, contribution margin improvement, a potential buyout, and new ancillary business lines: advertising, licensing, consumer products, etc. We continue to believe shares of Netflix are vastly overpriced, with a beta-driven sell-off the catalyst … Read more

Are MLP Structures Phony?

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“What the parent has done in this example is financially engineer the future distribution stream and capital structure of a brand new distribution-paying entity with effectively no new capital or assets at all. The parent is just standing behind the subsidiary reinforcing its investment-grade borrowing capacity, which supports the distribution that supports the equity price, which provides incremental equity capital that can also be used to support the distribution and so on.” — Brian Nelson, CFA By Brian Nelson, CFA Using a hypothetical example of an MLP and its parent, let’s explain how MLP stock value can essentially be created from “nothing.” The following example is purely hypothetical and for educational purposes only. Let’s say the parent holds a pristine … Read more

Breaking the Bank…

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Image Source: Tony Webster By Brian Nelson, CFA Financial institutions (XLF, KBE) are unique entities. In good times, the growth of pre-tax pre-provision earnings and return on equity often have more influence over banking entities’ stock prices than anything else, but in bad times, the health of their loan/derivative books and the strength of their capital bases are the most important factors when it comes to buying and selling activity. Throw in outsize leverage, huge derivatives books, and market psychology, and you have, in my opinion, still one of the riskiest sectors out there. As followers know, we don’t like firm-specific exposure to the banking sector. We perform valuation exercises on banks in a rather straightforward way, using a residual … Read more

Dividend Increases/Decreases for the Week Ending October 14

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Below we provide a list of firms that raised/lowered their dividends during the week ending October 14. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week Ameren (AEE): now $0.44 per share quarterly dividend, was $0.425. Brown & Brown Insurance (BRO): now $0.135 per share quarterly dividend, was $0.1225. Cantel Medical (CMN): now $0.07 per share semi-annual dividend, was $0.06. Eaton Vance (EV): now $0.28 per share quarterly dividend, was $0.265. Gladstone Land (LAND): now $0.0425 per share monthly dividend, was $0.04125. Healthcare Services (HCSG): now $0.185 per share quarterly dividend, was … Read more

I’m Proud of You

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Image Source: Jim Makos “If you’re asking why you’re NOT getting a lot of email transaction alerts related to the newsletter portfolios, you’re finally recognizing the secret to portfolio outperformance: we don’t trade a lot, and we like to get our selections correct…the first time! Isn’t that how it’s supposed to be? Our best ideas for consideration are always included in the newsletter portfolios themselves. They’re in there.” – Brian Nelson, CFA Brian Nelson, CFA When I pat our team on the back by showcasing Valuentum’s performance, you have to know that I envision you doing as well or better. You’re a member. You mean the world to us. That’s why I’m excited about the performance Valuentum puts up. Because … Read more