Brian Nelson

Best Ideas Portfolio Alert: Google Up Huge After-hours!

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“How poor are they that have not patience!” – William Shakespeare, Othello Dear Member: If you’ve been following firms that have recently scored a 10 on the Valuentum Buying Index, and by extension, monitoring the holdings of our Best Ideas portfolio, Google’s (GOOG) performance after-hours today is quite exciting. We like to use Google as an example of how we use our Valuentum Buying Index ratings in our portfolio management process. A read through our ‘FAQ on the topic’ hits on a number of important points we try to convey, but the Google example is perhaps the best one for a couple reasons. First, we received a number of membership cancelations to our service in October/November 2012 (last year) citing … Read more

Union Pacific Reports Best-Ever Quarterly Results; Thesis Remains Intact

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Union Pacific (UNP) reported its “best-ever quarterly results” when it posted third-quarter performance Thursday. The quarterly results, in our opinion, were truly fantastic. The company’s operating ratio came in at a record 64.8% (the firm’s best ever—1.8 points better than the year-ago period), as the railroad offset lower coal and grain volumes with strong pricing and productivity improvements. Operating revenue advanced 4% thanks mainly to core pricing gains, which translated into 10% and 13% increases in operating income and diluted earnings per share, respectively. The strength came in spite of lost revenue and increased costs from the flooding in Colorado (which hurt operating income by roughly $10 million). Year-to-date, Union Pacific has hauled in $2.25 billion in free cash flow, … Read more

Verizon’s Investment Grade Credit Rating May Be Challenged

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On Thursday, Verizon (VZ) reported better than expected top- and bottom-line performance in its third quarter, which showed impressive subscriber additions and healthy iPhone sales. We continue to evaluate Verizon for addition to the portfolio of our Dividend Growth Newsletter, though we note its pursuit of Verizon Wireless has complicated matters quite a bit (given the outsize debt load it will take on). We’d like to see how the financials shake-out post-transaction, as there are quite a few moving parts that will negatively impact the firm’s Valuentum Dividend Cushion score (and potentially challenge its investment-grade rating). Verizon added 1.1 million net retail wireless connections and 927,000 net retail postpaid connections in the period, leading to quarter-end marks of 101.2 million total … Read more

Kinder Morgan Energy Partners Increases Quarterly Distribution

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On Wednesday, Dividend Growth portfolio holding Kinder Morgan Energy Partners (KMP) increased its quarterly cash distribution per common unit to $1.35 ($5.40 annualized). The increase represents a 7% jump over the payout during last year’s quarter and a three penny bump from the second quarter of this year. We continue to be huge fans of the consistency of distribution increases at Kinder Morgan Energy Partners, where existing management has increased the distribution 49 times since early 1997. We expect to update our dividend report on the pipeline transportation master limited partnership shortly and continue to believe Kinder Morgan Energy Partners represents a core position in the portfolio of our Dividend Growth Newsletter. Though we note that the MLP is significantly … Read more

4 Quotes That Suggest This Economy May Not Be So Hot

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The stock market’s recent performance has been puzzling to say the least. Not only are valuations stretched, but it seems like with each passing trading session, the broader equity market manages to edge out new highs (regardless of underlying business fundamentals). Though we’re happy to see the market march ever higher, a number of firms on our radar have issued some cautionary comments that are worth noting. Over the intermediate- to- long-term, corporate fundamental outlooks will trump any near-term rise in sentiment caused by the re-scheduling of yet another debt ceiling debate (this one now scheduled for February 7). We’re paying close attention to corporate activity. IBM (IBM) “From a geographic perspective our challenge this quarter was in growth markets, … Read more

Rio Tinto Says Iron Ore Production Breaks Record; Iron Ore Prices Recover

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On Tuesday, mining giant Rio Tinto (click ticker for report: ) issued impressive third-quarter production results that revealed record production and shipments of Western Australia iron ore thanks to the opening of its Pilbara 290 port and rail expansion (ahead of schedule and significantly under budget). We think this good news has only been sweetened by the recent recovery in iron ore prices, following a near-term bottom in early June. It’s important to note, however, that iron ore prices remain in a defined downtrend, and while we view the recent pricing performance as positive, we’re not celebrating just yet. Image Source: http://www.indexmundi.com/commodities/?commodity=iron-ore&months=60 Still, fundamentals are starting to brighten up just a bit for the mining group. Economic performance in China … Read more

Get To Know Yahoo!’s Management; We Value Alibaba at $75 Billion

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The only question that comes to mind after looking at the below slide is: What turnaround? Image Source: Yahoo GAAP revenue down 5%. Revenue ex-TAC down 1%. Adjusted EBITDA down 19%. Income from operations down 39%. Non-GAAP operating income down 27%. Net earnings down 91%. EPS attributable to Yahoo down 89%. Non-GAAP EPS down 13%. Free cash flow down 73%. Cash and marketable securities down 66%. It’s flat-out puzzling that CEO Marissa Mayer included the following statement in the third-quarter press release: “I’m very pleased with our execution, especially as we’ve continued to invest in and strengthen our core business.” We understand the importance of staying positive, but her statement is quite a stretch considering actual financial performance at the core Yahoo business.  The only line item in … Read more

Surveying the Cola Companies’ Third-Quarter Results

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Coca-Cola (KO) On Tuesday, Coca-Cola (click ticker for report: ) announced decent third-quarter results that showed global volume expansion and share gains in North America for both the sparkling and still-beverage categories. Though reported revenue declined 3% in the period, revenue – adjusted for structural changes and currency – advanced 4% in the quarter. Likewise, comparable currency-neutral operating income jumped 8%, driving comparable earnings per share growth of 4%. Free cash flow generation of $6.1 billion year-to-date represents 17% of sales. Coca-Cola Americas grew volume 1% in both the quarter and year to date, with North America volume up 2% and Latin America volume even in the quarter. Coca-Cola International grew volume 3% in both the quarter and year to … Read more

Abbott’s Expansion Slowed By Supplier Recall; Raises Dividend

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On Wednesday, Abbott reported mixed third-quarter results as a supplier recall in August in its ‘International Nutrition’ business forced revenue to come up just a bit short of expectations. The firm’s top-line still advanced 4.3% on an operational basis led by strength in its ‘Diagnostic’ segment, where revenue jumped more than 10% on an operational basis (shown below). Image Source: Abbott Its ‘International Nutrition’ business revealed sales expansion of 3.4% on an operational basis – not a terrible showing, but a marked slowdown from the 7% growth rate recorded during the first nine months of the year (third quarter inclusive) and the 8.4% pace registered in the second quarter. Though we’re not too worried about this hiccup, we note the market disruption … Read more

Intel Delays Broadwell; Stay Focused on Tremendous Dividend Strength

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On Tuesday, Intel (click ticker for report: ) reported solid third-quarter results that were overshadowed by a minor one-quarter delay in the release of its next-generation Broadwell chip. We’re not reading too much into the modest setback and continue to be happy with the firm’s excellent cash-flow generation and significant financial flexibility. During the period, Intel generated $5.7 billion in cash from operations (42% of sales) and about $2.8 billion in free cash flow (nearly 21% of revenue). These are staggeringly positive numbers for a firm dealing with a PC market that is in secular decline. Intel is also sitting on $19 billion in total cash investments (cash, short-term investments and trading assets) relative to $13.2 billion in long-term debt, … Read more