Member Articles

Our Reports on Stocks in the Industrial Electrical Equipment Industry

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Image Source: Eaton Structure of the Industrial Electrical Equipment Industry Demand for products in the industrial electrical equipment space is highly cyclical, and industry constituents are exposed to volatile raw-material costs, which at times can be difficult to pass along to customers. Product development and quality initiatives are sources of competitive strengths, but rivals often compete aggressively on price to gain share. The industrial electrical equipment market should grow at a GDP-like pace in the developed world and a multiple of that trajectory in emerging markets. We’re neutral on the space. We’ve optimized our industrials coverage. To view the reports, please click here.

Our Reports on Stocks in the Chemicals – Mid/Small Industry

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Image Source: Rusty Clark Structure of the Chemicals Industry The chemicals (mid/small) industry includes firms that make thousands of different chemical substances, ranging from basic raw materials to advanced specialty chemicals. Making chemicals is a cyclical and energy-intensive business, with volatile oil/gas prices influencing feedstock, operation, and transportation costs. Specialty providers can carve out niches, but commodity chemicals producers are largely undifferentiated, making it impossible to gain a sustainable competitive edge. The industry is very capital intensive, and large swings in prices and volume should be expected. We don’t like the industry structure. We’ve dropped coverage of stocks in this industry. We cover the Chemicals – Broad industry. Click here.

Dividend Growth Newsletter Portfolio Holding Microsoft Secures a Big Win

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Image Shown: Shares of Microsoft Corporation continue to make new highs and we think MSFT may test the upper end of our fair value range given the company’s improving growth outlook. By Callum Turcan Shares of Dividend Growth Newsletter portfolio holding Microsoft Corporation (MSFT) continue to climb higher. We think shares could test the upper end of our fair value estimate range, which currently sits at $166 per share, comfortably above where Microsoft’s stock is trading at as of this writing (~$149 per share). Recent events have augmented the company’s free cash flow potential, with an eye towards the Joint Enterprise Defense Infrastructure (‘JEDI’) contract win. Shares of MSFT yield ~1.4% as of this writing. Microsoft Wins The US Department … Read more

Our Reports on Stocks in the Household Durables Industry

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Structure of the Household Durables Industry The household durables industry is heavily tied to the health of consumer disposable income, new home sales, and housing renovation (replacement demand). The group faces stiff international competition, where labor costs may be cheaper, and pressure from discount retailers that continue to improve the quality of their product offerings. The premium mattress segment continues to enjoy a nice demographic tailwind, as it caters to a growing number of aging, more health-conscious customers willing to pay up for a good night’s rest. Still, all constituents deal with volatile input costs. We’re neutral on the group. We’ve optimized our discretionary spending coverage. Reports can be found here.

PayPal Buys Honey and We Like the Fit

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Image Source: PayPal Holdings Inc – Press release covering its acquisition of Honey By Callum Turcan A holding in our Best Ideas Newsletter portfolio, PayPal Holdings Inc (PYPL) announced on November 20 it was acquiring the shopping and rewards start-up Honey for ~$4 billion. Honey is a high-growth technology platform (delivered through a browser add-on and mobile application) that helps consumers find deals and save when they shop online. That includes finding price discounts, promotions and events, sending alerts, creating lists, and offering a rewards system known as Honey Gold to its ~17 million monthly active users. We think this deal is highly complementary to PayPal’s operations, and we continue to give shares of PYPL a fair value estimate of … Read more

More Big Pharma Earnings to Digest

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Image Source: Zoetis Inc – 2019 Annual Shareholders Meeting Presentation Calendar third-quarter 2019 earnings was a busy time for biotech and pharma companies. We covered a number of biotech and pharma earnings in this piece here, but let’s dig into a few others. In alphabetical order by ticker: GSK, PFE, ZTS. By Callum Turcan In alphabetical order by ticker: GSK, PFE, ZTS GlaxoSmithKline plc (GSK)–4.6% yield–reported third quarter results for 2019 on October 30. Its pro forma adjusted sales rose by 6% year-over-year, and please note the British pharmaceutical and consumer health giant has been very busy over the past couple of years. Before we get into that, note GlaxoSmithKline reported strong performance across the board at its three main … Read more

Our Reports on Stocks in the Pharmaceuticals – Big Industry

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Image Source: A 4 Structure of the Pharmaceuticals – Big Industry The big pharma industry is primarily composed of makers of branded drugs. Intellectual property protection is vital to the successful commercialization of medicines and offers makers of branded drugs a unique competitive advantage via patents, which can extend for decades. When branded drugs lose market exclusivity, however, makers of generic pharmaceuticals can generate intense price competition, causing drastic revenue losses on unprotected therapies. Long-term success for branded pharma companies depends on a strong and diverse drug pipeline, which can be augmented by M&A activity. We generally like the group and expect continued industry consolidation. We’ve optimized our health care coverage, the reports of which can be found here.

Economic Commentary: Marks, Dalio, and the Discount Rate

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Image Source: Mike Cohen We sat down with the Valuentum team to discuss their latest thoughts on recent economic developments. To kick off the conversation, let’s start with the team’s views on the latest memo from Oaktree’s Howard Marks: Mysterious. For those that don’t know Howard, he is the Director and Co-Chairman of Oaktree, which managed about $122 billion in AUM, as of September 2019. The memo goes into depth on the reasons for negative interest rates, the impact of negative interest rates, and opines on whether the US will ever see negative interest rates. Then, we’ll go from there! Brian Nelson: The concept of negative interest rates is not merely academic, but they have far-reaching implications across the global … Read more

Shares of Home Depot Appear Overvalued

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Image Shown: Shares of Home Depot Inc sold off aggressively on November 19 after management reduced the company’s full-year same-store sales and revenue growth guidance for fiscal 2019 during the firm’s third quarter earnings report. By Callum Turcan On November 19, Home Depot (HD) reported third-quarter earnings for fiscal 2019 (period November 3, 2019), and same-store sales growth fell way short of expectations, which sent shares of HD sharply lower on the day. Company-wide same-store sales rose by 3.6% year-over-year, supported by 3.8% year-over-year growth in the US last quarter. While decent, the market was pricing shares of HD to outperform which we’ll cover in a moment. Please note Home Depot’s fiscal 2018 was a 53-week period, while its fiscal … Read more

Berkshire Hathaway Invests in RH, a Quality Company in Our View

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Image Shown: RH now counts Berkshire Hathaway Inc as a shareholder, which saw shares of RH initially spike up on the news. By Callum Turcan In a recent regulatory filing, Berkshire Hathaway Inc (BRK.A) (BRK.B) announced it had acquired a ~$0.2 billion stake in upscale home-furnishings company RH (RH), formerly known as Restoration Hardware Holdings, by initiating a position in the company’s equity. Please note RH does not pay out a common dividend at this time, indicating Berkshire Hathaway is seeking capital appreciation with this investment. Additionally, RH’s fiscal 2018 ended on February 2, 2019. Business Overview As of February 2, 2019, RH operated 86 galleries and showrooms across the US, Canada, and the UK. That includes galleries highlighting offerings … Read more