Brian Nelson

The Fed Freezes; Outlook as Bad as Feared or Worse?

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The cheering on CNBC has been short-lived. The sell-off we had expected irrespective of the Fed’s decision has ensued. Selling pressure in the markets may only intensify in coming weeks as uncertainty regarding Fed policy continues to take center stage. Broader market valuations remain stretched, market technicals remain weak, and sentiment is the worst it has been in some time. On September 17, the Fed announced that it has reaffirmed its view that the current 0%-0.25% target range for the federal funds rate “remains appropriate.” Though acknowledging US economic activity is expanding at a moderate pace and that both the housing sectors and labor markets have improved, it also indicated that “recent global economic and financial developments may restrain economic … Read more

Setting the Record Straight on Kinder Morgan

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Most, if not all, MLPs report distributable cash flow (DCF), which does not in the calculation consider growth capex, an important driver behind the generation of increased cash flow from operations in the future. When MLPs report distribution coverage ratios, this particular calculation also backs out growth capex from the equation, instead using only ‘sustaining capital expenditures.’ There are a number of contractual reasons why the data is presented in such a way, but from a valuation standpoint, we’ve always taken an issue with the MLP universe being implicitly valued on a future distributable cash flow stream that “covers” the distribution than on future free operating cash flow, which is a better measure of the free operating cash flow that … Read more

Altria Benefits from Major Beer Deal Talks

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Altria (MO) may be finally cashing in on its “hidden” assets that we have been highlighting for some time. The company owns a 27% stake in SABMiller (SBMRY), and its shares are receiving a nice bump as a result of increased merger talks surrounding the brewer after speculation began early September 15. Rumors have been swirling for some time around beer giants AB-InBev (BUD) and SABMiller, but this time the news is coming from the two companies themselves. The acquisition, which has been intimated to be in the works, would be the largest in the industry’s history and would create a company that produces approximately one third of the world’s beer. No proposal has been received, but AB-InBev reportedly plans … Read more

Microsoft Raises Dividend in a Big Way!

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It hasn’t been but a few days since we talked about Microsoft (MSFT) and the company’s tremendous dividend growth potential in San Jose (see ). We covered the software giant’s huge net cash position on the balance sheet and its significant free-cash-flow generating capacity. Microsoft’s Dividend Cushion ratio stood at 3.3 times. Well, today Microsoft raised its quarterly dividend 16.1%, to $0.36 per share, or $1.44 on an annualized basis, translating into a 3.3% yield at the last closing price of $43.98 per share. That’s a sizable increase, a nice yield, and we still believe shares are cheap. Here’s the press release: http://news.microsoft.com/2015/09/15/microsoft-announces-increase-in-quarterly-dividend/ There’s nothing quite like seeing the Dividend Cushion ratio in action! Microsoft remains one of the top holdings … Read more

As the World Turns

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Our growing concern over market participants’ lackadaisical approach to what will inevitably become a contractionary monetary cycle has been evident for months. The US market crash of August 24 has disrupted the comfort levels of many investors, however, but it has not derailed the confidence of long-term planners, nor has it interrupted the conviction of optimists that believe the sky is the eventual limit for equity prices in their lifetimes. We take a more measured and cautious view of risky assets at Valuentum, and we’ll never tell investors to ignore the information contained in market prices. The risk of a recession in the US beginning this year is remote, but concerns are mounting for 2016. US gross domestic product continues … Read more

Major Grocers Growing Sales But Not Clean Stories

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Firms in the mature food retailers industry generally have slim profit margins and face significant competition from brick-and-mortar locations (discount, department, drug, dollar, warehouse clubs and supermarkets) as well as Internet-based retailers–including Amazon (AMZN). Though the industry is not terribly cyclical, economic conditions, disposable income, credit availability, fuel prices, and unemployment levels drive ticket size and traffic trends. Offering consumers a compelling value proposition is a must, even as higher-priced organic food offerings proliferate. The national average for gas prices are over $1 lower than at this time a year ago, according to reports, though places in the Midwest continue to feel the pinch at the pump from a key refinery shutdown in Indiana. Other economic conditions have been relatively … Read more

iPhone Demand Remains Strong

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The demand for new iPhones remains as strong as ever. A holding in both newsletter portfolios, Apple (AAPL) announced September 14 that it is on pace to break last year’s first weekend iPhone sales record of 10 million units sold following the unveiling of its most recent product updates, a review of which can be found here. There are a few important distinctions between this round of iPhone upgrades and previous cycles, however. Apple pushed the release date back to September 25 this year, compared to the release date of September 19 for last year’s unveiling of the iPhone 6 and 6 Plus. This will give the company more time to improve the logistics of its actual release date; it … Read more

The Puzzling Attack on Alibaba

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A large publisher ran a negative article on Alibaba (BABA) last weekend, “Alibaba: Why It Could Fall 50% Further (1)” As the article has successfully struck fear into the hearts of US investors in light of ongoing Chinese market collapse, it has also successfully hurt Alibaba’s stock. There are a few things that we think are worth emphasizing that were lacking in the piece. 1) Alibaba is significantly free cash flow positive. Unlike the many Internet sensations of the late 1990s and early 2000s that were burning through millions and millions of cash every quarter, Alibaba is significantly free cash flow positive (cash flow from operations less all capex). In the June quarter alone, assuming a USD-to-RMB exchange rate of … Read more

Dividend Increases/Decreases for the Week Ending September 11

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Below we provide a list of firms that raised/lowered their dividends during the week ending September 12. 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 American Tower (AMT): now $0.46 per share quarterly dividend, was $0.42. Armanino Foods (AMNF): now $0.019 per share quarterly dividend, was $0.018. Atlantic Tele-Network (ATNI): now $0.32 per share quarterly dividend, was $0.29. Brady (BRC): now $0.2025 per share quarterly dividend, was $0.20. Brookfield Canada Office Properties (BOXC): now C$0.1033 per share monthly dividend, was C$0.0797. Fort Dearborn Income Securities (FDI): now $0.1625 per share quarterly … Read more

Business as Usual at Apple

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Apple (AAPL) is at it again. The tech giant revealed its most recent updates and advancements in a special event on September 9. Featured in the event were the latest iterations of the iPhone, iPad, iOS, Apple TV, WatchOS, and Apple Watch. Apple’s flagship product, the iPhone, has undergone its routine iteration, but the end result is anything but routine. The iPhone 6s and 6s Plus are perhaps the most advanced smartphones the world has seen thus far. The addition of 3D touch sensors was the highest touted new feature by Apple. With this feature, users are now able to use the amount of pressure they apply to the screen to select a variety of functionality options from one ordinary … Read more