Brian Nelson

An IPO That Doesn’t Look Delicious: Potbelly

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After the extremely positive post-IPO fortune of fast food concept Noodles & Co (NDLS), the surging IPO of Potbelly (PBPB) caught our attention. Let’s take a look at the prospects of this Chicago-based sandwich chain. Background Potbelly is a Chicago-based sandwich chain famous for its toasted sub sandwiches, fresh milkshakes, and in-store musical entertainment. The concept began in Chicago’s Lincoln Park neighborhood as a toasted sub shop with eclectic decorations from the original owner’s antique shop. Current chairman and largest individual shareholder Bryant Keil purchased the original restaurant in 1996 and has since worked to turn it into a chain with 286 restaurants throughout the United States—280 owned by the company, and 6 owned by franchisees. The firm also has … Read more

Alcoa’s Third Quarter Results Reflect Focus on Cash Management

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Leading aluminum and alumina producer Alcoa (click ticker for report: ) posted decent third-quarter results Tuesday afternoon. Revenue declined 1% year-over-year to $5.7 billion, modestly above consensus estimates. Earnings per share, adjusted for special items, surged to $0.11 from just $0.03 during the same period a year ago. Free cash flow during the quarter was negative $36 million, a $3 million improvement year-over-year. Focus on Cash Management Image Source: AA In our view, an owner’s earnings aren’t found on the income statement, but rather on the statement of cash flows. Alcoa agrees, and as such, the firm has focused extensively on improving its cash operations, targeting breakeven performance in seasonally-weak quarters. Thus far, Alcoa has achieved better-than-anticipated productivity gains while … Read more

Banks Pass Self-Administered Stress Tests

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The cohort of “too big to fail” banks such as JP Morgan (click ticker for report: ), Bank of America (click ticker for report: ), Goldman Sachs (click ticker for report: ), Wells Fargo (click ticker for report: ) and Citi (click ticker for report: ) recently released self-administered “stress tests” to see if they could withstand turbulent economic conditions. According to the banks, they are all in great shape and can meet minimum capital requirements in the event of adverse economic conditions. These tests, self-administered, are secondary to the annual March stress test performed by the Federal Reserve. However, these tests have the similar assumptions to mimic how well the banks would hold up if economic conditions returned to … Read more

HCP’s Strange Management Shakeup: Our Take

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Late last week, HCP (click ticker for report: ) terminated CEO, Chairman, and President Jay Flaherty III after 10 years of leadership. Flaherty led the firm admirably throughout the Great Recession, never reducing the dividend and achieving share appreciation of 112% versus 80% for the S&P 500 over the same time frame.  Flaherty also raised the quarterly dividend from $0.415 per share to $0.515 (a 27% increase) during this tenure (dividend history). In short, HCP performed quite well through Flaherty’s reign.   Image Source: Glassdoor Non-Executive Chairman Mike McKee noted that the firing had nothing to do with underlying financial performance or operational issues. Without much board transparency, it’s difficult to ascertain exactly what happened; however, employer review website Glassdoor … Read more

Jana Bets Big on Outerwall

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Great investors are often a wonderful source of investment ideas and opportunities—imagine capitalizing on a great Buffett idea like Coca-Cola (click ticker for report: ) in the late 1980’s. However, blindly following an elite investor can have disastrous consequences—think following Bill Ackman into J.C. Penney (click ticker for report: ). Valuentum helps you sort out the good ideas from the bad. Still, when an investor with a superb track record takes a sizable stake in a troubled company, we tend to pay attention. Barry Rosenstein’s Jana Partners has trounced the S&P 500 since its inception, achieving annual compounded returns of 12.7% versus 1.7% for the S&P 500 over the same time frame. Jana is known as an activist shareholder that … Read more

Pandora: Don’t Be Misled by September Metrics

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Shares of Pandora (click ticker for report: ) have been on a wild ride lately as a result of the combination of strong listening metrics and the announcement of a new competitor in the form of Apple’s iTunes Radio (click ticker for report: ). We continue to steer clear of shares. Here’s why.   Share Offering   Though shareholders rarely ever want to see companies issue equity as Pandora did when it sold 18.2 million shares of its overvalued stock at $25 per share September 24, when a firm sells overpriced shares, the process actually creates value for existing shareholders. Think of it this way. If you can get more money for something than it is actually worth, you’re creating … Read more

Ads Are (Finally) Coming to Instagram

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Facebook-owned (click ticker for report: ) picture and video sharing social network Instagram announced Thursday that it will begin displaying ad content. Although several brands are already active on the network, this will be the first time that companies will pay to reach Instagram’s 150 million users. Since Facebook paid $1 billion for the company back in April 2012, we think advertising was an inevitable development. Some users will be upset about Instagram introducing ads (the image below is taken from the announcement page), but users also predicted the demise of Facebook and Twitter advertising. Source: Instagram Yet, the popularity of Facebook and Twitter has remained resilient. As long as Instagram delivers relevant content in a reasonable amount, we doubt … Read more

Monsanto Reports Fourth Quarter Results and Moves into Data

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Agricultural biotechnology giant Monsanto (click ticker for report: ) posted slightly disappointing fourth quarter results Wednesday morning. For the full year, revenue increased 8.7% year-over-year to $14.8 billion, while quarterly revenue rose 4.9% year-over-year to $2.2 billion–a touch short of consensus estimates. Earnings per share for the full year advanced 21% year-over-year to $4.60, with the firm’s quarterly loss increasing by five cents to $0.47 per share–worse than consensus expectations. Free cash flow during fiscal year 2013 was $2 billion, equal to 13.2% of total revenue. The fourth quarter isn’t much of a revenue driver or profit driver for Monsanto, so we find it more prudent to take a closer look at full-year results. Image Source: Monsanto The firm’s ‘Corn … Read more

President Obama Tells Wall Street to Worry

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“I think this time is different. I think they (Wall Street) should be concerned.” — Barack Obama Wednesday afternoon, President Barack Obama sat down with CNBC’s John Harwood to discuss the government shutdown, the next debt ceiling debate, and other pertinent topics. Obama’s warnings are very real, and we’re taking notice. Government Shutdown The government shutdown remains top of mind since it occurred earlier this week, and it continues on with no clear end in sight. President Obama made a fiery speech Thursday morning blaming House Speaker John Boehner for not allowing a vote on the issue in the House of Representatives. Regardless, the primary issue remains that certain members of the Republican Party would like to repeal the Affordable … Read more

Plenty of Growth Ahead for Chinese Internet Companies

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The Chinese Internet space has been a fantastic growth story through the course of 2013. Shares of Best Ideas Newsletter portfolio holding Baidu (click ticker for report: ), Qihoo (QIHU), Sohu.com (click ticker for report: ), and Tencent (click ticker for report: ) are all up at least 50% year-to-date. What do all of these companies have in common? They all have exposure to China’s rapidly-growing Internet usage as well as the country’s Internet search market. Search growth in China is phenomenal. Image Source: China Internet Watch In the second quarter of 2013, the value of the Chinese search market surged approximately 35% year-over-year (shown above), lapping a very robust growth rate well above 50% during the same period of 2012. Chinese search … Read more