Member Articles

Bellwethers Drive Dow Jones Past 23,450 – Cheers!

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Image: The stock market is partying like it’s 1999 or 1929, or 1987. You pick. Cheers! Creative Commons, Ruth Hartnup. The market is reacting positively to calendar third-quarter earnings reports during the trading session October 24, and the Dow Jones Industrial Average (DIA) has now surpassed 23,450+. The rally in US equities ensues. Stocks mentioned in this note: General Motors (GM), McDonald’s (MCD), and Caterpillar (CAT). By Brian Nelson, CFA General Motors Delivers!!! We couldn’t be more excited for holders of newsletter portfolio idea General Motors. The auto giant released a solid third-quarter report October 24 that has sent shares rallying to ~$46 each. If you remember, GM’s stock was languishing in the mid-$30s when we penned our September piece, … Read more

In August, We Cut” Position in Hasbro in Dividend Growth Newsletter Portfolio”

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We still have a small “position” in the emerging licensing giant in the Dividend Growth Newsletter portfolio, having removed 75% of the “stake” in August. By Brian Nelson, CFA On August 18, 2017, we released the following email notification alert on Hasbro (HAS) to members, “ALERT: Newsletter Notification and Website Changes:” Dividend Growth Newsletter portfolio — page 3 of the September edition here (pdf) We are removing 75% of our position in Hasbro from the Dividend Growth Newsletter portfolio, or 82 shares at $96.54. Hasbro’s cost basis in the newsletter portfolio is ~$32. The company’s performance has been absolutely phenomenal. Stock page: /search-by-symbol/?tag=has Download Dividend Growth Newsletter transaction log here (not updated for notifications in this email). In August, we thought it … Read more

Earnings Roundup: Unilever, Procter & Gamble, Kimberly-Clark

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We love the business models of consumer staples, but recent fundamental performance hasn’t been great, and valuations are a bit stretched. Unilever is blaming natural disasters in the US for its underlying sales growth shortfalls, Procter & Gamble has to deliver now that it defeated Nelson Peltz, and Kimberly-Clark’s meager top-line expansion may not support its valuation. A good business does not always make a good stock. By Brian Nelson, CFA Consumer staples stocks (VDC, FSTA, XLP) are fundamentally-sound entities that sell everyday items that consumers need regardless of the ups and downs of the economic cycle. That makes their business models quite resilient through thick and thin, but it also means that many are household companies that everybody knows … Read more

Restasis Patent Protection Weighing on Shares of Allergan

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We have witnessed numerous examples over the years of biotech/pharma companies selling-off over fears of the length of patent protection on an essential product. The concern is well-founded–if the company relies on the product for a significant portion of sales, it may be challenging to replace, especially if the clinical pipeline is relatively bereft of viable next-generation products. We believe the recent sell-off in the shares of Allergan may now be wholly factoring in the loss of patent protection of one of its core assets in Restasis, and the equity may not be getting enough credit for its highly diversified revenue stream. By Alexander J. Poulos and Kris Rosemann Overview Allergan (AGN) in its current configuration is an amalgamation of … Read more

GE Cuts Guidance, All Eyes Turn to November 13

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Image Source: darkon_turaas On October 20, General Electric slashed its guidance for earnings and cash flow from operating activities after reporting another weak quarter. Could the dividend be next on the chopping block? Management will update investors on company strategy and its 2018 framework Monday, November 13, an event to which we’ll be paying close attention. By Kris Rosemann Our decision to rid the newsletter portfolios of shares of General Electric (GE) in mid-May was driven by expectations for material pressure to build on the industrial giant’s free cash flow generation, “Newsletter Alert: Title Withheld – Members Only.” Such concerns have all but materialized as management has slashed its adjusted EPS and Industrial CFOA targets for full year 2017 following a … Read more

The Market Loves PayPal; Shares Now $70+

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Image Shown: PayPal’s stock has been a huge winner in the Best Ideas Newsletter portfolio.  Payments processor PayPal reported fantastic third-quarter results and raised its full-year guidance for the third time in as many quarters. Shares are surging. By Brian Nelson, CFA We thought PayPal’s (PYPL) second-quarter results were fantastic, but its third-quarter results, released October 19, were even better. For a little background, here’s what we said about PayPal in July: PayPal’s revenue advanced 20% in the second quarter, after excluding effects from currency exchange, and the company leveraged that growth into an impressive 27% jump in GAAP and non-GAAP earnings per share, the latter to $0.46, coming in ahead of expectations. PayPal added 6.5 million active customer accounts … Read more

Kinder Morgan’s Dividend Growth For Next Year Is Achievable; Here’s Why

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Image Source: Roy Luck After its infamous dividend cut, Kinder Morgan is getting things back on track. We applaud management for its ability to bounce back from a tumultuous energy-resource pricing environment. By Brian Nelson, CFA We have a lot of good things to say about Kinder Morgan (KMI). Here’s what we wrote following its second-quarter results in July: Kinder Morgan appears to be back on track, something that it set the stage for in early 2016 when Barron’s wrote about Valuentum’s take, “Is Kinder Morgan on the Road to Recovery (January 2016).” The pipeline operator continues to trade near our fair value estimate of $20, so it’s hard to make the case that there is a tremendous valuation opportunity … Read more

Reimbursement Uncertainty Weighs on DaVita

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DaVita has been left out in the cold with its share price losing ground in 2017 due to continued fears over reimbursement of care. By Alexander J. Poulos Overview DaVita (DVA) is an innovative healthcare provider with its primary focus on high-quality dialysis care. DaVita has embarked on a journey to consolidate the highly-fragmented dialysis care market through a series of acquisitions, which have transformed the enterprise into one of the largest providers in the United States. Industry consolidation is inevitable as US government insurance (Medicare) accounts for the bulk of reimbursement. We feel the industry operates as a quasi-oligopoly with few incentives for the individual players to compete on price. Reimbursement Woes We feel Davita remains under a cloud … Read more

IBM’s Third Quarter Offers Some Relief

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Image Shown: IBM rallies back after third-quarter results October 18. IBM has been shunned by investors since it bailed on its operating earnings per share target of $20 a few years ago. The market, however, was recently relieved that IBM reiterated its full-year 2017 expectations calling for operating earnings per share of at least $13.80. Many are hoping for a comeback. By Brian Nelson, CFA Here’s what we wrote about IBM (IBM) in July after its second-quarter results: IBM took its eye off the ball years ago with misaligned executive incentive plans focused on operating earnings per share targets, and it is still feeling the pain. Warren Buffett has recently soured on the company’s long-term promise, and we even use … Read more

Netflix’s Third Quarter Shows Free Cash Burn, More Debt

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The Netflix app is displayed alongside other streaming media services on the homepage of a Roku Streaming Stick. (Photo credit: Matthew Keys / Flickr Creative Commons) Netflix is burning through free cash and the company’s balance sheet is ballooning with debt. The junk-rated company continues to attract buyers in this frothy stock market, however. By Brian Nelson, CFA Netflix (NFLX) reported third-quarter results Monday, October 16, 2017. The shareholder letter can be found here. The digital streaming entertainment company burned through $465 million (-$465 million) in free cash flow during the third quarter of 2017. During the past four quarters, the company has burned through $2.14 billion (-$2.14 billion) in free cash flow, almost what it generated in revenue during the … Read more