Brian Nelson

We Could Have Done Better with Hewlett-Packard

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In investing, there are always trade-offs, and one of the challenges we face as a publisher is being crystal clear about this. For example, within the personal computer (PC) supply chain, we held the view that PC demand stabilization would be a key driver behind price-to-fair value convergence among a number of participants. But while we were pounding the table on Intel (INTC) and Microsoft (MSFT) for much of the past few years, we were less-enthused about the prospects of a turnaround at Hewlett-Packard (HPQ). Since the inception of the Best Ideas portfolio, May 2011, Microsoft’s shares (yellow) have surged 80%+, Intel’s shares (orange) have jumped more than 45%, while Hewlett-Packard’s shares (bottom line) have been roughly flat (bottom line). … Read more

Financial Analysis 501: Understanding Cash-Burn Scenarios

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A version of this article appeared on our website November 20, 2013. This article is for educational purposes only and does not reflect our current opinion on J.C. Penney. Please view the firm’s 16-page report for our updated take on the firm. J.C. Penney’s (JCP) third-quarter 2013 results, released November 20, left much to be desired, despite the market’s positive reaction. In fact, the performance confirmed our greatest fear, and we are maintaining our significantly below-market fair value estimate of the firm. Investors should be cognizant, however, that we don’t expect a path directly to our below-market fair value estimate of J.C. Penney’s stock, but one that has fits and starts before an inevitable decline takes hold over the next couple years. … Read more

Walgreen’s and Target Distracted; Dollar General Enters the Fray

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Walgreen’s (WAG) and Target (TGT) have been in the news quite a bit as of late–Walgreen’s bowing to political pressure from the proposed ban on tax ‘inversion deals’ and Target as a result of its delayed disclosure of the magnitude of its credit card data breach. Both items have been a major distraction to the respective executive suites, and it is starting to show. In the case of Walgreen’s, the CFO and pharmacy chief lost their jobs today, in part as a result of a ~$1 billion forecasting error related to its prescription-drug business. Though the revision is not an act of illegal wrongdoing (companies change forecasts all the time), the revision is still an embarrassment for the company, especially in light … Read more

Home Depot’s and Lowe’s Performances Diverge

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Home Depot (HD) and Lowe’s (LOW) reported calendar second-quarter results this week. Home Depot continues to execute better than its peer, with the company witnessing strong performance in its spring seasonal business and across all geographies during the second quarter. Home Depot’s comparable sales growth of 6.4% in the US was also a full two percentage points better than Lowe’s second-quarter performance. Home Depot also upped its outlook for the remainder of the year, showcasing fantastic double-digit bottom-line expansion: Based on its second quarter performance and its outlook for the year, the company raised its fiscal 2014 diluted earnings-per-share guidance and now expects diluted earnings per share to be up approximately 20.2 percent to $4.52 for the year. This earnings-per-share guidance includes … Read more

Coca-Cola Expanding Its Dominance; SodaStream in Play

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Coca-Cola (KO) has recently become a savvy asset manager, and we think recent moves speak volumes about the company’s strategy to retain dominance in the non-alcoholic beverage space for decades to come. Coca-Cola’s management is capitalizing on what we’d describe to be the ‘Hidden Advantage‘—something more commonly witnessed in activist dealings in which small initial stakes turn into large gains once news is made public. In February, for example, Coca-Cola scooped up 10% of Green Mountain at $74.98 per share (it subsequently increased its stake to 16%). With shares of Green Mountain (GMCR) now trading at ~$115 each, the deal for just a small portion of Green Mountain looks incredibly savvy—especially in the event Coca-Cola ends up buying Green Mountain … Read more

Dividend Increases/Decreases for the Week Ending August 15

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Below we provide a list of firms that raised/lowered their dividends during the week ending August 15. 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 Briggs & Stratton (BGG): now $0.125 per share quarterly dividend, was $0.12. CAE (CAE): now C$0.07 per share quarterly dividend, was $0.06. Connecticut Water Service (CTWS): now $0.2575 per share quarterly dividend, was $0.2475. General Growth Properties (GGP): now $0.16 per share quarterly dividend, was $0.15. Green Plains Renewable Energy (GPRE): now $0.08 per share quarterly dividend, was $0.04. Home Loan Servicing Solutions (HLSS): now $0.18 … Read more

Cisco: Not the Best Idea in Big Cap Tech

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It’s hard not to like Cisco’s (CSCO) strong free cash flow generation, solid cash balance, and dominance in the communications networking market, but fiscal fourth-quarter results (ended July 26), released Wednesday after the close, weren’t great. We continue to prefer Apple (AAPL) in the Best Ideas portfolio and Microsoft (MSFT) in the Dividend Growth portfolio as the large cap technology exposure, among others. The Best Ideas portfolio seeks to find firms that have good value and good momentum characteristics and typically holds each idea from a Valuentum Buying Index rating of a 9 or 10 (consider buying) to a rating of a 1 or 2 (consider selling). The goal of the Best Ideas portfolio is to generate a positive return … Read more

Kinder Morgan Grows Leery of MLP Structure; Consolidates Holdings

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Kinder Morgan is the largest midstream and the fourth-largest energy company (based on combined enterprise value) in North America. The entity owns an interest in or operates ~80,000 miles of pipelines and 180 terminals. The firm’s publicly-traded companies include Kinder Morgan (KMI), Dividend Growth portfolio holding Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR) and El Paso Pipeline (EPB). KMI owns the general partner and limited partner interests in both KMP and EPB. KMP is one of the largest publicly traded pipeline master limited partnerships in America. KMR is a limited liability company and its only significant assets are the partnership units it owns in KMP. EPB is a publicly traded pipeline master limited partnership. — source The convoluted … Read more

Rio Tinto Remains One of Our Favorite Ideas for Commodities Exposure

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Firms in commodities-driven industries are notoriously difficult to value–not only is there execution risk related to their cost structures but the price they receive for the respective commodities that they produce is cyclical—and driven by external factors beyond their individual control. For example, BHP Billiton (BHP) can’t necessarily raise its prices on standard-grade iron-ore at a high-single-digit pace unless the market colludes (others follow along with its price hike). This is unlike a company such as Hershey (HSY) that can hike prices almost at will to offset rising cocoa costs. That’s why commodities firms can only carve out competitive advantages by being the low-cost provider (their prices are set by the marketplace). Though it is more difficult for a commodities-producing … Read more