Member Articles

Valuentum Commended for “Impeccable” Research and Analysis

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A humble student of the markets, Valuentum’s President Brian Nelson was commended for Valuentum’s work on Kinder Morgan in a Barron’s online article last Thursday. The article that says Nelson’s call on the midstream giant was “impeccable” can be accessed at the following link: “Is Kinder Morgan on Road to Recovery:” http://www.barrons.com/articles/is-kinder-morgan-on-road-to-recovery-1453421112 Jim Cramer noted that, “It (Kinder Morgan) was the greatest short in history.” The Mad Money host’s statement means quite a bit in the context of all the market cycles he has witnessed. Who can forget his pounding the table in the rant, “They know nothing…” in the midst of the financial crisis? Was Valuentum’s call on Kinder Morgan even better than the calls in the movie, “The … Read more

Moody’s Puts Oil & Gas and Mining Sectors on Review

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By Kris Rosemann On January 22, Moody’s placed 120 oil and gas companies (XLE) from across the globe on review for a credit rating downgrade. The list ranges from massive global producers such as Royal Dutch Shell (RDS.A, RDS.B) and Total (TOT) to nearly 70 US exploration and production and services (“E&P”) companies. It also includes 55 mining companies (XLB) that have been punished by the recent rout in commodity prices. Alcoa (AA), Rio Tinto (RIO) and Vale (VALE) are a few notables that made the list for a potential downgrade. The news is not completely unexpected, however, and may likely be a response to several executive teams pointing to legacy (outdated) counterparty/customer ratings as reasons to not be concerned … Read more

Starbucks: One of the Lowest-Rated Equities on the Valuentum Buying Index

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Boy do people love coffee! Perhaps even more than they like the controversy surrounding Starbucks’ (SBUX) plain red holiday cups… Whatever your fancy, one thing is clear: shares of Starbucks are not cheap. Our latest fair value estimate pegs intrinsic value of the coffee giant in the high-$40s, and we think this darling may be shaping up for a larger-than-normal “correction” in the event materially adverse weakness strikes the market. Shares hit as high as $63+ at the end of October, and the company’s fiscal first-quarter results, released January 21, may spark the “kind of” profit-taking that drives eventual price-to-fair value convergence in the coming months. To be completely fair, Starbucks’ holiday performance wasn’t bad. It achieved 9% comparable store … Read more

Valuentum: Time to Load Up on Kinder Morgan?

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On January 20, Kinder Morgan (KMI) reported fourth-quarter results, and absent 1) a large goodwill impairment charge related to its core midstream natural gas assets, 2) a reduction to its estimate for backlog of future potential business, and 3) warning that further goodwill impairments are around the corner if energy resource pricing remains depressed, quarterly performance wasn’t all that bad (or at least not as bad as some had been expecting). Kinder Morgan had previously announced a 75% dividend cut and a very costly preferred equity issuance just a few weeks ago as it continues to work to get its financial house in order. Our $20 per share fair value estimate is unchanged at this time. We’re starting to like what we’re … Read more

Value (Soon) to Be Had in Retail?

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By Kris Rosemann Department stores have had a rough go of it lately. Consumers have turned their attention to niche stores that sell branded products at material discounts, and online shopping continues to be a draw. The holiday season did not provide as strong of a boost as some retailers have been used to due in part to the unseasonably warm weather across the northern US. Macy’s (M), for example, expects that 80% of the year-over-year decline in its comparable sales numbers in the November/December period can be attributed to weakened demand for cold-weather goods. Investors have taken note of the changes in consumer preference, leaving major department stores to contemplate material changes to their businesses, and the tough sledding … Read more

Breaking: Markets in Free Fall

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By Brian Nelson, CFA I was up late last night watching the 10-year Treasury fall below 2%, crude oil drop below $28 (and now below $27) per barrel, and the Dow futures collapse more than 500 points. Asset correlations are going to 1 — so much for modern portfolio theory, right? The benefits of diversification are sometimes absent at the very time you need them the most. If market observers didn’t learn this during the Great Depression, certainly they must have learned it during the Financial Crisis of 2008-2009. That’s why we like cash so much at times. We have a 35%+ cash weighting in both newsletter portfolios. The Dow Jones Industrial Average (DIA) is now down ~400 points (-2.5%), … Read more

Valuentum: Energy MLPs Continue Swoon

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Energy master limited partnerships (AMLP, AMZ) continue to be in a world of hurt as investors reevaluate the sustainability of distribution streams and reassess the fundamentals on a pure traditional free cash flow basis. Many, however, continue to point to uncertainty related to the completion of the deal between Energy Transfer Equity (ETE) and Williams Partners (WMB) as reason for the sharp drops, but if you recall, both stocks collapsed on the announcement of the deal in October, both stocks collapsed when speculation grew a deal would not be completed earlier this month, and both stocks collapsed when the deal was reiterated last week. Instead, we think the market is focused on tangible long-term fundamentals, free cash flow generation, leverage … Read more

Excited About Putting Cash to Work…Eventually

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Investors are fretting over a lot of things as of late. China (FXI) announced January 19 that fourth-quarter GDP fell to 6.8%, with many noting that the measure was a 25-year low. Even if you believe that number, which may be a stretch in light of collapsing local stock markets in Shanghai and Shenzhen, the outlook can’t be much better. Steel mills across the country are reeling, and while published housing numbers don’t look that bad, we have a difficult time believing the Chinese banks are in good shape. HSBC (HSBC), Standard Chartered, and Citigroup (C) remain most exposed to what we would describe to be the growing likelihood of a contagion from weakening commodity-dependent sectors in the country. Intel … Read more

ETP’s Distribution Financially Engineered? Debt Junk-Rated?

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The term “financially-engineered distribution” has increased in prominence as of late, as investors face an unprecedented swoon in the prices of master limited partnerships (AMLP). But what is a financially-engineered distribution and how does it differ from an organically-derived dividend, paid by Microsoft (MSFT) or Apple (AAPL), for example? We’ll cover this, and we’ll also talk about why we think Energy Transfer Partners’ debt is “junk.” We have to look at the SEC filings to help explain. Let’s first start with our definition of a financially-engineered payout. Based on generally accepted accounting principles (GAAP), the cash flow statement breaks down into three distinct components: cash flow from operations, cash flow from investing and cash flow from financing activities. Bear with … Read more