Member Articles

The Bounce in Energy and Potash’s “Surprising” Dividend Cut

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Nothing like Valuentum’s optimistic article last week, January 21, in Barron’s to get the energy markets popping, “Is Kinder Morgan on Road to Recovery,” would you say? Of course, we say that in jest. The equity markets January 28 were defined by optimism that two of the globe’s major energy resource producers, the cartel OPEC and Russia (RSX), would finally come together to alleviate the pain that has been exerted on the price of the black liquid the past 12-24 months with a “meeting.” What we found to be peculiar, however, is that instead of OPEC letting what turned into a “rumor” run, helping to further drive crude oil prices higher, OPEC delegates quickly denied the talk of a potential … Read more

Giddy Up – It’s Earnings Season!

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By Brian Nelson, CFA During the trading session January 27, Apple (AAPL) failed to turn the tide of a disappointing fiscal 2016 first-quarter report (calendar fourth-quarter), “Apple Will Go Lower…And It Will Be ‘Forced’ Into Acquisitions,” and coupled with a Fed statement, where the Committee left interest rates unchanged, as expected, many market observers read between the lines and hit the sell button. On the basis of some of the concerns we’ve outlined, “Not Doom and Gloom – But Just Cautious,” we can completely understand the hesitancy by participants to stay fully exposed to this tumultuous equity market. In many ways, that the Fed has hit the brakes just a few weeks after the long-anticipated rate hike means the global … Read more

Procter & Gamble Puts on Impressive Display of Pricing Strength

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By Kris Rosemann Multinational corporations have seen reported revenue punished in recent quarters as a result of the strong US dollar relative to other currencies around the world. In keeping with this theme, Procter & Gamble (PG) reported net sales falling 9% in its fiscal second quarter of 2016 on a year-over-year basis to $16.9 billion. However, after backing out all the noise, the company’s constant-currency core earnings per share leapt more than 20% on a year-over-year basis in the period. Reported free cash flow trends were fantastic through the first half of the fiscal year, too, and while we think the company’s valuation remains stretched, we’re not rushing to remove it from the Dividend Growth Newsletter portfolio anytime soon. … Read more

Trouble Ahead for Sempra Energy?

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By Kris Rosemann On October 23, 2015, Southern California Gas Company, an indirect subsidiary of Sempra Energy (SRE), discovered a leak at one of its injection and withdrawal wells at its Aliso Canyon natural gas storage facility, which is located in the northern part of the San Fernando Valley in Los Angeles County about 20 miles from downtown Los Angeles. The facility is the largest underground storage facility on the West Coast. The well is more than one mile away and 1,200 feet above the nearest residences, and is one of more than 100 injection and withdrawal wells at the storage facility. Despite spewing copious amounts of dangerous gases–including methane–into the atmosphere, the company has stated that the leak has … Read more

Apple Will Go Lower… And It Will Be “Forced” Into Acquisitions

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By Brian Nelson, CFA We have a few regrets for not “lightening up” more on the position in Apple (AAPL) in the newsletter portfolios during the past few weeks, “Looking to Trim Apple…” and while our lack of action may cost the newsletter portfolios a few basis points in the near term, we’re not too concerned. For one, in this “type” of market, we want to stick with quality, and Apple fits that bill quite well, particularly with the cushion that its balance sheet provides. The iPhone giant’s equity price may go lower as some sell the “headlines” around its fiscal 2016 performance, but the company’s financial health puts it in a class by itself, in our view. The Journal … Read more

Johnson & Johnson Reports Strong Underlying Performance

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By Kris Rosemann As US-based multinational corporations continue to battle currency headwinds related to the strong US dollar, Johnson & Johnson (JNJ) reported solid underlying results in its most recent quarter and full-year report, released January 26.  Johnson & Johnson reported full-year sales in 2015 of $70.1 billion, which represents a 5.7% decrease on a reported basis from 2014 due to a negative currency headwind of 7.5 percentage points. On an operational basis, sales grew 1.8%, domestic sales advanced 2.6%, international sales grew 1.1% on an operational basis, and sales excluding acquisitions, divestitures, and hepatitis C sales on an operational basis increased 6.5% on a year-over year basis. The underlying growth witnessed in 2015 at Johnson & Johnson was driven … Read more

Not Doom and Gloom – But Just Cautious…

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You wouldn’t know it on the basis of the strong US market action January 26, but it wasn’t all quiet in overnight trading. Local markets in China (FXI) took another hit, with Shanghai and Shenzhen exchanges experiencing declines to the magnitude of 6%-7%+ on the session. Though some optimistically dismiss the local China markets as irrelevant, the implications on weakened Chinese banks, other Asian nations via trade, and interconnected financial institutions from Standard Charted to HSBC (HSBC) and even Citigroup (C) are material, in our view, and we’re paying close attention. Some may even say that China stocks represent less than 15% of household financial assets in the country — certainly not enough to cause a global calamity… Or is … Read more

What’s Working in Today’s Market?

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By Brian Nelson, CFA As emerging markets around the world suffer from commodity-price-led economic weakness, capital continues to find a safe-haven in US government bonds (TLT, TBT), but for those equity-oriented funds that mandate a fully-invested status, not something we’re particularly advocates of, assets within US equities have favored “lower-beta” utilities (XLU) and consumer staples (XLP) sectors while cyclically-dependent and credit-levered sectors such as the financials (XLF) and materials (XLB) have suffered thus far in 2016. The industrials (XLI) and energy (XLE) sectors have also encountered higher-than-normal selling pressure in the first few weeks of the New Year, as investors evaluate the global economic landscape and what a prolonged period of low energy prices may mean for the lowest quality … Read more

Johnson Controls and Tyco Announce First Major Merger of 2016

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By Kris Rosemann Despite expectations that M&A activity would remain subdued due to the high level of volatility in the markets, Johnson Controls (JCI) and Tyco (TYC) have announced the first major merger in 2016, creating a leader in building products and technology. Under the terms of the deal, Johnson Controls shareholders will own ~56% of the combined company and receive an aggregate cash consideration of $3.9 billion while current Tyco shareholders will own the remaining 44% of the company. The current terms of the deal represent an 11% premium to Tyco’s January 22 closing price for Tyco shareholders. Immediately prior to the merger, Tyco will undergo a reverse stock split that will result in Tyco shareholders receiving a fixed … Read more

General Electric’s Results Remain “Messy”

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There’s something to be said about a company that can handle just about anything thrown at it. Since the founding of the Dow Jones Industrial Average (DIA) just before the turn of the 20th century, the composition of the 30 stock index has changed more than 50 times. There’s one company, however, that has retained its relevance in the broad market benchmark the longest. That company is General Electric (GE), which has been a staple of the DJIA since 1907, well over a century now. For long-term investors, there’s no better example of a company that has handled just about every market cycle than the industrial giant. In recent years, General Electric has been working to shake off the stigma … Read more