Brian Nelson

3 Mid Caps With Net Cash And Strong Free Cash Flow

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By Brian Nelson, CFA We continue to reiterate that the key components of a company’s valuation are the following: net cash on the balance sheet and future expected free cash flows. These two cash-based sources of intrinsic value generally account for almost all of the value of a firm. There are some exceptions, where contingent liabilities and a more complicated capital structure come into play, but when it comes to simplifying what drives share prices, that’s about it. It’s probably no wonder then that we love net-cash-rich, free-cash-flow, secular growth powerhouses, and it’s also probably no wonder why these companies have grown into some of the strongest-performing stocks on the market, dominating last decade. Most of big cap tech and … Read more

The Dividend Growth Newsletter Portfolio’s Outperformance

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The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%. Note: This article corrects the degree of outperformance of the simulated Dividend Growth Newsletter portfolio, as of the date of the calculation (~3.6% –> ~9.4%). By Brian Nelson, CFA Excluding dividends, we estimate that the simulated Dividend Growth Newsletter portfolio is down roughly 4.9% through the interim session October 30 from the beginning of 2022, beating the … Read more

Staying Far Away from Intel; McDonald’s a Better Play

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By Brian Nelson, CFA On October 26, Intel (INTC) reported third-quarter earnings that left a lot to be desired. Revenue fell 8% on a year-over-year basis, while the company’s earnings per share dropped 72%, to $0.07. Management tried to spin the quarter as coming in better-than-expected, but the reality is that Intel’s business transformation is testing even the most patient of investors. At the end of September, Intel held ~$25 billion in cash versus short-term debt and long-term debt of ~$2.3 billion and ~$46.6 billion, respectively. For the first nine months of 2023, Intel’s cash flow from operations dropped to ~$6.8 billion, and it spent ~$19.1 billion in additions to property, plant and equipment. Revenue and earnings pressure, a massive … Read more

3 Net-Cash-Rich, Free-Cash-Flow Generating, Secular Growth Powerhouses

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Image: Shares of Microsoft, Alphabet, and Meta Platforms have trounced the market return so far in 2023. By Brian Nelson, CFA We continue to reiterate that the key components of a company’s valuation are the following: net cash on the balance sheet and future expected free cash flows. These two cash-based sources of intrinsic value generally account for almost all of the value of a firm. There are some exceptions, where contingent liabilities and a more complicated capital structure come into play, but when it comes to simplifying what drives share prices, that’s about it. It’s probably no wonder then that we love net-cash-rich, free-cash-flow, secular growth powerhouses, and it’s also probably no wonder why these companies have grown into … Read more

Getting Down to Brass Tacks on Amazon’s Cash-Based Sources of Intrinsic Value

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Image: Amazon had a very strong and better-than-expected third-quarter report, and the firm is now on pace to generate positive free cash flow during 2023. By Brian Nelson, CFA Value traps can do some serious long-term damage to one’s portfolio. But what is a value trap? Well, in layman’s terms, it’s a stock that looks cheap at face value using valuation multiples–the most common of which being the price-to-earnings [P/E] ratio–but the stock may actually be fully valued, or worse expensive, after considering the process of enterprise valuation (also known as the discounted cash-flow [DCF] method) and after assessing the company’s cash-based sources of intrinsic value: net cash on the balance sheet and future expected enterprise free cash flows. We’ve … Read more

Chipotle’s Long-Term Growth Outlook Intact

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Image Source: Valuentum  By Brian Nelson, CFA On October 26, Chipotle Mexican Grill (CMG) reported better-than-expected third-quarter results with the top line increasing 11.3% on a year-over-year basis and non-GAAP earnings per share beating the consensus estimate. Comparable store sales advanced 5% in the period, while the company drove meaningful improvement in its operating margin, despite nagging inflationary pressures in beef and cheese prices. We’re huge fans of Chipotle’s long-term unit growth story, and we expect the rollout of Chipotlane drivethru’s to pave the way for an expanded menu, maybe in the breakfast daypart in the years ahead. Here’s what CEO Brian Niccol had to say about the ahead. Chipotle’s value proposition including customized, delicious culinary served quickly with great hospitality, is … Read more

Albemarle and ASML Holding Remain Key ESG-Focused Ideas

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By Brian Nelson, CFA The investment landscape is fast changing, and investors want to invest how they want to invest. Custom approaches to meeting client needs have never been in greater demand. After all, the saying “there’s an ETF for that” has become as common as the saying “don’t put all your eggs in one basket.” There may be no greater or better investment than becoming more exposed to the sustainable trend of Environmental, Social and Governance [‘ESG’] investing, where ESG research points to key risks of a company that could have tremendous implications on its intrinsic value or fair value estimate distribution. For example, how should investors think about Johnson & Johnson’s (JNJ) talc exposure liabilities? What about 3M’s … Read more

Alphabet and Meta Are Net-Cash-Rich, Free-Cash-Flow Generating, Secular-Growth Powerhouses

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Image: Free cash flow growth at Alphabet has been phenomenal during the first nine months of 2023. By Brian Nelson, CFA The market was laser-focused on the quarterly reports coming from Alphabet (GOOG) (GOOGL) and Meta Platforms (META) the past couple days. We believe the market’s reaction to Alphabet’s third-quarter report was overblown, as the equity traded down more than 9% during the session October 25. Meta Platforms has returned to being a net-cash-rich, free-cash-flow generating, secular-growth powerhouse, and its third-quarter 2023 results spoke clearly to this view. In this article, let’s review Alphabet’s and Meta’s cash-based sources of intrinsic value: net cash on the balance sheet and traditional free cash flow generation. Alphabet ended the third quarter of 2023 … Read more

We Will Be Removing CubeSmart and Adding Altria to the High Yield Dividend Newsletter Portfolio

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By Brian Nelson, CFA Stock prices and returns are in part a function of a company’s net cash on the balance sheet and changes in future expectations of free cash flow. Stock prices and returns are not driven by the dividend payment, and as such, a myopic focus on the dividend, by itself, could be costing investors considerably, at least with respect to the average market return–as measured by the market-cap weighted S&P 500 (SPY). The free dividends fallacy hypothesized that a myopic focus on chasing dividends could be costing investors anywhere between 2%-4% in returns per annum. During the past 10 years, for example, high-yielding Dividend Aristocrats have trailed the return of the market-cap weighted S&P 500 by about … Read more

Download the Updated 16-page Stock Report of Alphabet

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Please select the image below to download Alphabet’s (GOOG) (GOOGL) 16-page stock report. NOW READ: There Will Be Volatility ———- It’s Here!  The Second Edition of Value Trap! Order today!   —– Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, QQQ, and SCHG. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.   Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a … Read more