Brian Nelson

Microsoft Raises Its Dividend in a Big Way

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On Tuesday, Microsoft (click ticker for report: ), the largest weighting of our Dividend Growth portfolio, raised its quarterly cash dividend 22% to $0.28 per share, a $0.05 per share increase. The firm also announced a new share buyback program to the tune of $40 billion (replacing the previous $40 billion program set to expire at the end of this month). We are very pleased with the capital allocation decisions at the software giant and view any share repurchases below our intrinsic value estimate of the company ($46 per share at the time of this writing) as value-creating. We’re sticking with the firm as a core holding in our Dividend Growth portfolio and continue to believe Microsoft represents one of the biggest bargains on … Read more

Summers Bows Out

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Equity markets jumped higher Monday as Federal Reserve Chairman frontrunner Larry Summers ended his pursuit of the position. The news suggested Summers had been President Obama’s preferred successor to current Chairman Ben Bernanke, but several Democratic senators opposed the nomination, and Summers may be bowing out to avoid any chance of embarrassment. With Summers out of contention, Fed Vice-Chair Janet Yellen is the clear frontrunner. As we’ve mentioned before, Yellen is viewed as a consensus builder and receives credit for predicting the housing bubble. Powerful Democratic Massachusetts Senator Elizabeth Warren, who sits on the Senate Banking Committee, supports Yellen and indicated that she would be able to gather the necessary votes for her nomination. Regardless of the politics behind the decision, … Read more

Ulta’s Comparable Store Sales Growth Accelerates

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Fragrance and beauty product retailer Ulta (click ticker for report: ) posted second quarter results driven by strong comparable store sales gains. Revenue surged 25% year-over-year to $601 million, easily exceeding consensus estimates. Earnings-per-share was also strong, jumping 30% year-over-year to $0.70. Year-to-date, the firm has burned through about $14 million in free cash flow (CFO less capex) after it invested heavily in opening new stores. Image Source: Company Filings After same-store sales advanced “just” 6.7% year-over-year during the first quarter, growth reaccelerated at Ulta despite an increased number of locations (and risk of cannibalization). Same-store sales soared 8.4% year-over-year during the second quarter on top of a 9.7% sales gain during the same period last year. Management noted that … Read more

Valuentum’s September Edition of Its Best Ideas Newsletter!

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Reshaping the Investor Psyche, by Brian Nelson, CFA I remember Barack Obama’s “Yes, we can” mantra in his 2008 presidential election run. He made people feel good about themselves; he made people feel like they were more than just a statistic; he made people believe that change could happen. He made us believe we could make a difference. We find ourselves at a similar crossroads in investing history. During the past several decades as mutual funds proliferated and the thoughts of yester-year thinkers prevailed, the investment community adopted downright absurd notions that served the needs of financial institutions instead of investors. Buy-and-hold became an investing style. Timing the market became widely accepted as not viable. Technical and momentum analysis became … Read more

Kroger: The Model for Competing with Wal-Mart and Target?

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Thursday morning, grocery giant Kroger (click ticker for report: ) reported strong second quarter results, proving it is possible for a traditional retailer to do battle with Wal-Mart (click ticker for report: ) and Target (click ticker for report: ). Revenue increased 4.6% year-over-year to $22.7 billion, modestly exceeding consensus estimates. Earnings per share jumped 18% year-over-year to $0.60, a penny above consensus expectations. Free cash flow year-to-date was solid at $1.5 billion, equal to 2.9% of revenue. Source: Company Filings As one can see from the chart shown above, Kroger has dramatically outperformed Safeway (click ticker for report: ) during the past two years as competition from the likes of Wal-Mart, Target, and Meijer has intensified. Kroger’s same-store sales … Read more

Air Quality Standards Take Aim at Coal

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After competing with an abundance of lower-priced, cleaner natural gas, coal miners (KOL) may now have to deal with more demand headwinds as governments aim to reduce coal burning. The US Expectations are already for as much as 27 gigawatts’ worth of coal generation (about 8.5% of the US coal fleet) to retire by 2016. This percentage could rise to nearly 17% (one-sixth) by 2020, according to the Energy Information Administration. In addition to the expected retirements, the Environmental Protection Agency (EPA) plans to block all new coal-fired plants unless the construction of these plants coincides with expensive technology that captures greenhouse gas emissions. Image Source: Energy Information Administration Though the EPA forecasts that no traditional coal-fired power plants (1) … Read more

Lululemon’s Growth Slows in the Second Quarter

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Thursday morning, athletic apparel maker Lululemon (click ticker for report: ) posted strong second quarter results, though the pace of both revenue and earnings growth have slowed. Revenue jumped 22% year-over-year to $345 million, slightly above consensus estimates. Earnings-per-share wasn’t quite as strong, flat year-over-year at $0.39, but it still came in line with consensus expectations. Year-to-date, free cash flow stands at $26.9 million, equal to 4% of total revenue. Image Source: Company Filings, Valuentum The market is displeased with Lululemon’s slowing comp sales growth of 8%, which is the firm’s second consecutive quarter below a double-digit growth rate. Still, the 2-year stacked comp remains strong at 23%. Nearly any other company would be pleased with such a strong two-year … Read more

Pay TV Is Getting Friendly with Netflix

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Since it successfully transitioned from a DVD rental service to a content streaming powerhouse, Netflix (click ticker for report: ) is now viewed as a major threat to pay TV. The story goes that consumers will eventually “cut the cord” and abandon pay TV while relying exclusively on Netflix and online video service Hulu for content. Though there are many reasons why we think this trend is overblown, Liberty Global’s (LBTYA) Virgin Media has taken another step toward eliminating this competitive threat: Virgin subscribers will be able to access a Netflix app via TiVo set-top boxes. Liberty Global is controlled by none other than media mogul John Malone. Malone is best known for his bold M&A deals throughout the years … Read more

The Mortgage Refinancing Boom Could Be Ending

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Early Wednesday morning, the Mortgage Banker’s Association (MBA) announced that refinancing activity declined 20% from one week earlier. Adjusted for the Labor Day weekend, total mortgage applications dropped 13.5% from the previous week. Consistent with the dramatic upward movement in interest rates, refinancing activity is down 71% since it peaked during the week of May 3, 2013. Why Do We Monitoring Refinancing Activity? When homeowners refinance, a couple outcomes can occur that pump more dollars into the economy. First, with a refinanced mortgage, owners may choose to take equity out of the home, allowing for large purchases like vehicles or even home remodeling. CoreLogic recently reported that 2.5 million more residential properties have returned to positive equity in the second quarter … Read more

Margins Will Drive Apple’s iPhone 5S and 5C Outcome

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Apple (click ticker for report: ) announced the release of its iPhone 5S and its even longer-awaited “cheap” iPhone 5C Tuesday, both of which we believe will be a big hit with consumers. The firm is also reportedly close to announcing a deal with China’s largest mobile carrier, China Mobile, which will help Apple sell even more units. The 5C Image Source: Apple The iPhone 5C is one of the most anticipated products in Apple’s history, and not because people thought it would be the best product ever, but rather because it is believed to be Apple’s emerging-market solution. The phone will retail (unlocked) for $549, $100 below the price of the 5S. The phone contains an internal steel construction … Read more