Brian Nelson

Valuentum’s November Edition of Its Best Ideas Newsletter!

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The Best Ideas Portfolio Continues to Trounce the Market, by Brian Nelson, CFA For our new members, this is our Best Ideas Newsletter. We house our Best Ideas portfolio in this monthly publication. The Best Ideas portfolio can always be found on page 8 of the Best Ideas Newsletter. The Best Ideas portfolio includes companies that have passed the test of our analyst team. First, these firms generally have scored highly on the Valuentum Buying Index, a rating system that ranks the timeliness of ideas on the basis of 1 through 10 (with 10 being the best). Once a best idea is added to the portfolio, we typically hold on to it until it registers a 1 or 2 on … Read more

Wal-Mart’s Free Cash Flow Tumbles; Earnings Outlook Continues to Deteriorate

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On Thursday, Wal-Mart (WMT) issued relatively lackluster third-quarter results. Consolidated net sales advanced 1.6% (2.7% on a constant-currency basis), but comparable store sales fell 0.3% in Walmart US and only nudged 1.1% higher at Sam’s Club (both measures exclude the impact of fuel). Consolidated operating income increased 3.6% thanks to improved performance across the board. Reported third-quarter diluted earnings per share from continuing operations came in at $1.14 per share, a 6.5% jump compared to the measure in the year-ago period. For the nine months ended in October, net cash from operating activities came in at $13.3 billion and capital expenditures were $9.5 billion, resulting in free cash flow of $3.8 billion, or about 1.1% of Wal-Mart’s massive revenue base. … Read more

Cisco’s Outlook Comes up Short; Shares under Pressure

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On Wednesday, networking giant Cisco (CSCO) reported mixed fiscal first-quarter results (ending in October), and the company’s order performance in the period and fiscal second-quarter guidance came up short versus expectations. Revenue in the fiscal first-quarter dropped 2% year-over-year, but non-GAAP net income and earnings per share advanced 11.6% and 10.4%, respectively, from the prior-year period. Non-GAAP diluted earnings per share of $0.53 came in a few pennies better than expected. Net cash from operations advanced to $2.65 billion from $2.47 billion in the year-ago period, while capital expenditures expanded to $315 million from $265 million. Free cash flow was $2.3 billion, or 19.3% of sales (a strong figure). Cash and investments totaled $48.2 billion and short and long-term debt totaled … Read more

Macy’s Posts Solid 3Q; Enters 4Q with Strength

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On Wednesday, Macy’s (M) reported excellent third-quarter results. Comparable store sales leapt 3.5% in the quarter, while quarterly earnings jumped 31%, to $0.47 per share. Macy’s continues to execute in its key strategies—My Macy’s localization initiative (which launched across the nation in 2009), Omnichannel integration and Magic Selling (which requires a more rigorous training for new sales associates)—and noted that it saw improvement in the sales trend in every region of the country. Operating income advanced 10.8% from the same period a year ago, as the firm’s operating margin improved to 5.7% from 5.4%. Net cash from operating activities was $819 million and capital spending was $381 million, resulting in free cash flow of $438 million in the period, or … Read more

Why Airline Stocks Are Not Long-Term Investments

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The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down. — Warren Buffett, annual letter to Berkshire Hathaway shareholders, 2008. The airline industry has undergone meaningful changes since the beginning of the last decade. The painful restructuring of labor agreements and balance sheets by most of the legacy carriers via Chapter 11, the significant mega-mergers of Delta (DAL)/Northwest, UAL (UAL)/Continental, US Airways (LCC)/America West, … Read more

Surveying 3Q Performance at the Healthcare REITs

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HCP Will Remain on the Dividend Aristocrat List for Some Time to Come HCP (HCP)—4.9% annual yield—a fully-integrated REIT serving the healthcare industry, reported third-quarter results October 29. Funds from operations (FFO) advanced 9% to $0.73, while FFO as adjusted per share increased 14%, to $0.79. Funds available for distribution (FAD) jumped an impressive 22% in the period, to $0.67. The company achieved cash same-property-portfolio net operating income growth of 3.7% for the period, an acceleration from the nine-month pace of 2.8%. HCP raised its full-year guidance for FFO as adjusted to the range of $2.97-$3.03 per share, representing a growth rate of 8% based on the midpoint over 2012 FFO as adjusted per share. The REIT also raised its … Read more

AIG Still Trades at a Meaningful Discount to Book Value

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On October 31, AIG (AIG) reported third-quarter net income of $2.17 billion and diluted earnings per share of $1.46, compared to $1.9 billion and $1.13 per share in the same period a year ago. Pre-tax income in the firm’s insurance operations were solid during the quarter, with ‘AIG Property Casualty’ and ‘AIG Life and Retirement’ advancing 33% and 38%, respectively, from the same period a year ago. Third-quarter after-tax operating income attributable to AIG came in at $1.42 billion, or $0.96 per share, compared to $1.62 billion, or $0.99, in last year’s quarter. Net income exceeded after-tax operating income as a result of valuation allowance releases associated with deferred tax assets (a non-core boost). Image Source: AIG Though we would … Read more

Pandora’s October 2013 Audience Metrics Weren’t Bad

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Pandora (P), the leading internet radio service, announced its October 2013 audience metrics Tuesday. Listener hours advanced 18%, share of total US radio listening jumped 145 basis points, while active listeners increased 20% for the month on a year-over-year basis. On a sequential monthly basis, listening hours advanced 8%, share of total US radio listening increased 29 basis points, while listeners fell modestly. Though Apple (AAPL) may be impacting listener expansion to a degree with its iTunes Radio product, the market share performance at Pandora was solid, and expectations regarding the demise of Pandora due to Apple’s entrance may be a bit overblown at present. Still, Apple is a considerable long-term threat, with near unlimited financial resources. Valuentum’s Take In … Read more

Disney Posts Solid 4Q Results; Sets Date for Star Wars Episode VII

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On Thursday, Disney (DIS) released better-than-expected fourth-quarter results. Revenue for the period jumped 7%, while segment operating income advanced 6%. Disney’s quarterly performance was led by accelerated growth in the company’s ‘Consumer Products’ segment (up 14%), though revenue expansion in the firm’s ‘Media Networks’ segment slowed to 1% in the quarter versus a 5% pace for the fiscal year. Segment operating income in the company’s ‘Media Networks’ division was the only segment to experience a decline, though we note that profits at the rest of the firm’s business segments performed incredibly well. Adjusted for the recognition of previously-deferred ESPN affiliate fee revenues (a transitory factor), however, operating income would have advanced in the company’s ‘Media Networks’ segment as well. Disney’s net … Read more

Ladies and Gentlemen

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What you are witnessing with the Valuentum Dividend Cushion is not a normal occurrence in finance. I personally have never seen a metric with such a high level of efficacy in predicting dividend cuts. Last week, the Valuentum Dividend Cushion not only added CONSOL Energy (CNX), but it also added Weight Watchers (WTW) to the growing list of firms that it highlighted the significant risk of a dividend cut before it happened. Weight Watchers suspended its quarterly cash dividend to generate annual cash savings of about $39 million October 30. Both CONSOL Energy and Weight Watchers were highlighted in the October 1 edition of our Dividend Growth Newsletter (on page 12) as yields to avoid (download pdf here).   A Valuentum Dividend Cushion … Read more