Brian Nelson

Facebook: The New Internet?

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First of all, we’d like to thank you for your ongoing support and wonderful emails about the performance of the dynamic duo today: Google (GOOG) and Baidu (BIDU), two holdings in the portfolio of our Best Ideas Newsletter. We very much appreciate your kind words. Though we (and hopefully all of our members) have profited greatly from these two behemoths in the ‘Internet Content & Services Group,’ we could have done a better job alerting you to Facebook’s recent meteoric rise. Today, we’ve raised our fair value estimate of Facebook (FB) to $76 per share (the high end of the fair value range is now $93 per share) as a result of more optimistic assumptions related to the firm’s opportunity in mobile and … Read more

Philip Morris’ Operating Income Growth Stalls in 3Q; Learn About Altria’s Hidden $21.6 Billion Potential Cash Load

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On Thursday, Philip Morris International (PM) reported third-quarter results that showed the continuation of a very challenging cigarette volume environment. Reported net revenues held the line thanks to significant pricing strength, but adjusted ‘operating companies income’ (OCI) still fell 1.9% (shown below). We’re growing skeptical of the firm’s ability to control costs, as there should have been better performance on the operating line given that pricing completely replaced volume losses in the period (price falls straight to the bottom line). Profit margin improvement was surprisingly absent, with the company’s adjusted OCI margin falling 0.9 percentage points from the year-ago period. Image Source: Philip Morris Adjusted diluted earnings per share of $1.44 was 4.3% higher than the same period a year ago, … Read more

PPG Posts Record Third Quarter Results; Our Favorite Idea in the Chemicals Industry

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Our favorite fundamental chemical idea PPG Industries (PPG) reported record third-quarter results Thursday. Net sales jumped 17% versus the prior year (about 4% organic expansion), and the firm posted record adjusted earnings per diluted share from continuing operations of $2.44, up an impressive 30%+ from the year-ago period (shown right). We liked the operating leverage inherent in performance as well as the firm’s ability to hit the ground running with impactful transactions. The company noted that aerospace and automotive OEM coatings, both up about 10%, were the key drivers behind PPG’s top-line expansion, though other business lines did contribute as well, including the company’s architectural coatings operations. Volume trends improved in all regions of the world, and the firm’s cost-reduction … Read more

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