Brian Nelson

Apple Beats Expectations, Excitement for Future Drives Shares Higher

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By Kris Rosemann Tech giant and holding in both newsletter portfolios Apple (AAPL) reported sharp drop-offs in both its top and bottom lines in its fiscal third quarter on a year-over-year basis July 26, but its shares have surged back into triple digits ($100+) since then thanks in part to stronger than expected customer demand driving reported results past expectations. Revenue fell more than 14% in the quarter, and diluted earnings per share dropped 23% from the year-ago period as iPhone unit sell-through was down 8% from the third quarter of fiscal 2015. Though this 8% drop is not appealing on an absolute level, it is better than what the firm was expecting, and continued improvement is anticipated as we … Read more

Chicago, Wings, Beer, Sports, and Smokes

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Image Source: Kevin Dooley By Brian Nelson, CFA Best Ideas Newsletter portfolio Buffalo Wild Wings (BWLD), the bar-and-grill giant that prides itself on serving a delicate balance of “wings, beer, and sports,” is back. Shares have been soaring as of late thanks in part to some strong institutional support–Marcato Capital now owns more than 5% of the company and is pushing for franchising growth—but also due to better visibility into why its operations haven’t been going “gangbusters,” as some may have described it in the past. Well, the answer appears to be rather straightforward, and it all falls squarely on the shoulders of the Windy City. Chicago? – that’s correct. Here is what B-dubs’ CEO Sally Smith said on the … Read more

Facebook Flying, Twitter Tumbling

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Image Source: Esther Vargas By Kris Rosemann Best Ideas Newsletter portfolio holding Facebook (FB) continues to report incredible growth across its business, while remaining in the heart of the buzz surrounding the future of the Internet. We added the company to the Best Ideas Newsletter portfolio January 29, and we maintain our view that we haven’t seen anything yet. Facebook meshes with society so well that the company may eventually turn into the “next Internet” if humankind lets it. Let’s talk numbers because that’s what matters. Total revenue leapt nearly 60% in Facebook’s second quarter of 2016 on a year-over-year basis, while diluted earnings per share nearly tripled. The firm’s mobile growth continues to be nothing short of impressive in … Read more

McDonald’s Menu Initiatives Slipping

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By Kris Rosemann McDonald’s (MCD) shares took a hit after the burger giant reported second quarter results July 26, and we can’t say we are the least bit surprised. In fact, if we did, we would be flat out lying; we’ve been skeptical of its turnaround plan since it was released in May 2015, “Turnaround Plan at McDonald’s Does Not Fly With Franchisees.” It seems as though we’re beginning to see what we had been expecting, and what bullish McDonald’s investors had been hoping they wouldn’t so soon; that is a slowdown in comparable-store sales growth, particularly in the US. Global comparable store sales growth came in at 3.1%, not a bad number in itself, but short of consensus expectations … Read more

Gilead’s Harvoni Sales Dip Considerably in the US

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Image Source: Gilead’s second quarter report “There’s nothing quite like market instincts. They can’t be taught from reading textbooks, in the classroom, in a valuation model, or even with years and years of experience. It’s the intangibles that sometimes count the most…When we removed Gilead (GILD) from the portfolio of the Best Ideas Newsletter, “Alerts: High-grading! GILD–>JNJ… (Jan 2016),” we just knew something wasn’t right. Sure the introduction of Merck’s (MRK) once-daily single-tablet combination therapy, Zepatier, a significantly less expensive therapy to Gilead’s prized hepatitis C franchise was one major concern at the time, but the market is often not this inefficient when valuing equities. Almost counterintuitively, it became worrisome to us that for a company that was generating so … Read more

Nelson’s Warning to the Board Rooms of America

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Image Source: Robert Lyle Bolton “In some ways, a cash dividend is like paying shareholders with their own money, and making a big deal about it!” — Brian Nelson, CFA To the Board Rooms of America: We learn a lot from the culture we live in, the education system we promote, and the games we play. Who hasn’t played Monopoly, the age-old game that Hasbro scooped up from Parker Brothers, first published in 1935? For more than 80 years now, men and women of all ages have been collecting $50 from the “bank” after pulling one of the more-fortuitous Chance cards. Ingrained in society has become the belief that a “dividend” is incremental, that something is “given” to shareholders that … Read more

Industrial Bellwethers Hit by Global Economic Growth Concerns

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By Kris Rosemann Shares of newsletter portfolios holding General Electric (GE) and its rival Honeywell (HON) took a hit early July 22 after both conglomerates indicated a more difficult operating environment in their second quarter reports. First, let’s address GE. The company has kept the momentum going in its GE Capital exit plan as it has now signed $181 billion in asset sales, completed its de-designation as a significantly important financial institution (SIFI), and closed GE Asset Management. In addition, the firm unloaded its GE Appliances business to Haier for $5.4 billion in the second quarter, a streamlining-oriented removal of a somewhat immaterial portion of GE’s overall business. We like what the progress in its exit plan and de-designation as … Read more

Reiterating Our $50 Fair Value Estimate on PayPal

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Image Source: PayPal 2Q presentation, page 10 By Brian Nelson, CFA A quarterly “beat and raise” and a new agreement with Visa (V) weren’t good enough to drive shares of PayPal (PYPL) higher July 22, but we’re not worried. Revenue growth of 19% on a foreign-currency neutral basis and non-GAAP earnings per share growth of 11% wasn’t bad at all. Operating cash flow and free cash flow generation of $696 million (up ~12% year-over-year) and $495 million (up 27% year-over-year) in the quarter wasn’t too shabby either. Through the first six months of 2016, the company has generated $1.1 billion in free cash flow, better than the $740 million mark generated during the same period a year-ago. Active customer accounts … Read more

Yahoo! Should Still Buy eBay’s “Free Cash Flow”

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Image Source: eBay According to the latest from CNBC, there are five bidders left for Yahoo’s (YHOO) core business, and it’s very likely the company will make the sale to one of them soon. Many are saying that Verizon (VZ) is the front-runner, but we can’t rule out the buying power of the group led by Quicken Loans’ Dan Gilbert, who has the backing of the Oracle of Omaha himself, Warren Buffett, or a high-ball bid from private equity, perhaps TPG Capital. AT&T (T), Time (TIME), and other private equity giants KKR and Bain Capital might still be in the game as well. We think breaking apart Yahoo! or selling it outright, instead of merging it with eBay (EBAY) isn’t … Read more

We Care: Perspective Is Reality

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Perspective is so important. Let’s talk about two of our calls recently, and how we look at them. Feel free to comment. Microsoft (MSFT): A Double Since It Was Added To the Dividend Growth Newsletter Portfolio Possible Perspective: “I admire your cajones for taking credit for unloading MSFT at ~$50/share 5 weeks before running up 12%. We all make bad calls. What I would expect, especially from a professional, is to admit a mistake and explain the error in your thought process so that we can all learn. Instead, you tout this obvious incorrect call as somehow correct? This gives me great pause in following your advise [sic] in future.” Kinder Morgan (KMI): One of the Best High-Profile Round Trip … Read more