Brian Nelson

ALERT: Replacing Disney with Republic Services in BIN Portfolio

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Image Source: Valuentum By Brian Nelson, CFA After The Walt Disney Company’s (DIS) poor performance in its fiscal fourth quarter (calendar third quarter) 2022 results, released November 9, we no longer think the company is a great fit as one of our best ideas. We have cut our discounted cash-flow-derived fair value estimate of Disney to $93 per share and are removing the company from the simulated Best Ideas Newsletter (BIN) portfolio. The cash “raised” from Disney in the Best Ideas Newsletter portfolio will be allocated to one of our favorite garbage haulers, Republic Services (RSG), which is already a key idea in the simulated Dividend Growth Newsletter portfolio. Disney’s revenue in its fiscal fourth quarter grew 9% as the … Read more

Berkshire Continues to Be a Staple in the Best Ideas Newsletter Portfolio

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Image Source: Fortune Live Media Warren Buffett has made some missteps over the years. For every Occidental Petroleum, there is a Kraft Heinz that hasn’t worked out. For every Apple, there is an IBM that has failed to live up to expectations. We hope our readers view our work in a holistic way, much like they view Buffett’s. By Brian Nelson, CFA On November 5, Berkshire Hathaway (BRK.A) (BRK.B), the conglomerate run by Warren Buffett and company, reported third-quarter results. Berkshire’s quarterly reports are always rather muddy, as GAAP presentation requires the company to report unrealized gains/losses on its stock investments as investment gains/losses in net earnings (losses). Such accounting doesn’t tell the whole story as most of Berkshire’s equity … Read more

We’ve Updated Our Fair Value Estimate of Boeing; Has Aerospace Bottomed?

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Image: Boeing is expecting to turn the corner with respect to positive free cash flow in 2022 and grow it to ~$10 billion annually by 2025/2026. We think this is achievable. Image Source: Boeing By Brian Nelson, CFA The breakout of COVID-19 wreaked havoc on the airline business and the commercial aircraft-making business alike. But has the commercial aerospace industry finally bottomed? We took a hard look at our valuation model of Boeing (BA), and we’ve tweaked our near-term profitability assumptions and made material changes to our estimates of working capital assumptions in the out-years. Though the result was a lower fair value estimate for the aerospace giant, we reiterate that after several quarters of negative free cash flow, Boeing … Read more

Shares of Lithium Producer Albemarle Are Soaring So Far In 2022

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  Image: Albemarle’s shares have rocketed higher the past few years and are soaring during 2022. By Brian Nelson, CFA On November 2, Albemarle Corp. (ALB) reported mixed third-quarter results that showed a modest miss on the top line versus consensus estimates, but a strong showing on the bottom line that beat what most analysts were looking for. Through the close of November 4, Albemarle’s shares have advanced more than 20% so far this year, and we think there may be more room to run based on the high end of our fair value estimate range ($300 per share). For those just getting familiar with key ideas in the simulated ESG Newsletter portfolio, here is some background on Albemarle’s operations … Read more

Life Storage Operates Within An Attractive Slice of the REIT Sector

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Image Source: Life Storage By Brian Nelson, CFA On November 2, Life Storage (LSI) reported solid third quarter results with its top line and adjusted funds from operations (“FFO”) exceeding the consensus estimates. Equity REITs have faced considerable weakness during 2022, and Life Storage has not been immune to the selling pressure. When it comes to REITs, however, we still like shares of this well-positioned self-storage operator, and investors are getting a rather nice dividend check to boot. Since 2010, Life Storage has generated a ~10% compound annual growth rate in adjusted FFO per share, an impressive feat. Life Storage buys, owns and manages self-storage properties that offer space for consumers and commercial users to store items from automobiles to … Read more

Realty Income: An Outperformer in 2022

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Image Source: Realty Income By Brian Nelson, CFA The equity REIT area continues to face considerable pressure during 2022, with the Vanguard Real Estate ETF (VNQ) down ~30% so far this year, but Realty Income (O), known prominently for its monthly dividends and dividend growth track record, has bucked the trend. With an estimated forward dividend yield of ~4.9%, Realty Income is down only ~14% so far this year, an enviable position relative to its peers. Realty Income reported third-quarter results for the period ending September 30, 2022, and they were pretty good. Adjusted funds from operations (AFFO) advanced 7.7%, while normalized FFO advanced 9%, during a period when the company declared its 100th consecutive quarterly dividend increase, a payout … Read more

ALERT: Replacing Qualcomm with McDonald’s in Dividend Growth Newsletter Portfolio

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Image: The semiconductor space is experiencing a number of headwinds, and while we still like Qualcomm’s long-term prospects, we’re replacing it with McDonald’s in the simulated Dividend Growth Newsletter portfolio. Image Source: Qualcomm By Brian Nelson, CFA The technology industry has been wrecked during 2022, and the semiconductor space has been no exception. The VanEck Semiconductor ETF (SMH) is down ~41% so far this year, as many of its top holdings, including wireless technology giant Qualcomm (QCOM) languish. As we walk through our views in this work, please note that Qualcomm’s fiscal third-quarter 2022 is calendar second quarter and its fiscal fourth-quarter 2022 is calendar third quarter. We recently highlighted our expectations for near-term weakness across the semiconductor space in … Read more

Lumen’s Dividend Cut Highlights Effectiveness of Valuentum’s Dividend Methodology and Uniqueness of Dividend Cushion Ratio

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Image Source: Valuentum By Brian Nelson, CFA  The Dividend Cushion ratio considers the company’s net cash on its balance sheet (total cash less long-term debt) and adds that to its forecasted future free cash flows (cash from operations less capital expenditures) over a five-year period and divides that sum by the company’s future expected cash dividend payments over the next five years. At its core, the Dividend Cushion ratio tells investors whether the company has enough cash to pay out its dividends in the future, while considering its debt load (capital structure). If a company has a Dividend Cushion ratio above 1, it can cover its dividend, but if it falls below 1, trouble may be on the horizon. The … Read more

ALERT: Replacing DLR with XLE in DGN and HYDN Portfolios; Public Storage Remains One of Our Favorite REITs

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“The REIT space has had a difficult time this year. Public Storage, which reported results November 1, remains one of our favorite REITs, but we are making a change to remove DLR in the simulated Dividend Growth Newsletter portfolio and High Yield Dividend Newsletter portfolio and replace its “weighting” with the Energy Select Sector SPDR (XLE). The changes will be reflected upon the release of each newsletter’s next edition. We continue to monitor the REIT space cautiously as interest rates rise, and as investors seek out alternatives for income, including I-Bonds yielding 6.89% and certificates of deposit approaching 4% yields.” — Brian Nelson, CFA By Brian Nelson, CFA This year has not been kind to real estate investment trusts (REITs), … Read more

Phillips 66: A Huge Winner in 2022

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Image Source: Phillips 66 By Brian Nelson, CFA The refining industry continues to mint profits these days, and Phillips 66 (PSX) has been no exception. We warmed up to the stock earlier this year, and we continue to like shares. The high end of our fair value estimate stands at $140 per share, and we would not be surprised to see the company reach those levels, given sentiment regarding energy equities these days. Phillips 66’s portfolio spans operations across ‘Midstream,’ ‘Chemicals,’ ‘Refining’ and ‘Marketing and Specialties,’ and the big driver in the company’s third-quarter report, released November 1, was its ‘Midstream’ division, which saw adjusted pre-tax income advance to $645 million from $292 million in the year-ago period. Though most … Read more