Member Articles

Your Payment Skipped: PayPal Has Become Mainstream

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The Valuentum Best Ideas Newsletter portfolio inherited a position in PayPal (PYPL) following the online payment processor’s split from eBay (EBAY) earlier this year. PayPal’s third-quarter results, the first quarter after the separation, were good. In fact, they were great. Revenue grew 19% on a non-GAAP currency-neutral basis, and 200 basis points of non-GAAP operating margin improvement helped to drive a 31% increase in non-GAAP earnings per diluted share growth. Expectations for the top-line were a bit rough for the entity to meet, but the bottom-line exceeded consensus. The company noted that during the quarter, it “gained market share, expanded its customer base, and deepened engagement with merchants.” As a merchant, we were hit with higher fees this year, so … Read more

We’ll Be Looking to Add to B-Dubs Sometime after the Drop

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We are disappointed in the market’s reaction to Buffalo Wild Wings’ (BWLD) third-quarter results, released after the close October 28, if only because we have a very, very small “starter” position in the Best Ideas Newsletter portfolio. We typically ease into newsletter positions over time, unless we’re making a high-conviction call, and while we know we may have disappointed some that took full positions on the news of the addition of B-Dubs, we were “hoping” for an opportunity like this, to accumulate more shares of the company at a lower price. It looks like that lower price will happen, but consistent with the Valuentum Buying Index methodology, we’ll now be waiting for the stock to turn upward and for momentum … Read more

Around the Horn in Biotech/Pharma: 3Q Earnings Review

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The biotech (IBB) and pharma (XLV) industries have been two of the strongest-performing segments of the market since the March 2009 panic bottom during the Financial Crisis, but the broader healthcare arena has been under siege as of late. New discoveries underscored by the development of a cure for hepatitis C with Gilead’s (GILD) Solvadi/Harvoni and a huge step forward in cystic fibrosis treatment with Vertex’s (VRTX) Orkambi have helped fuel the exuberance, but established pharma entities have also caught a bid as they successfully worked through the “patent cliff,” capturing the wave of dividend growth investors and acquiring budding new pipelines from smaller rivals along the way. The past few months haven’t been kind to biotech investors, however. What … Read more

Apple Owns the “Sixth Source” of an Economic Moat

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Apple (AAPL) hit the ball out of the park again in its fiscal fourth-quarter results ended September 26. Apple skeptics are in some ways like Chicago Cubs fans, often saying “wait until next year,” but in both cases, we think Apple and the Cubbies are the real deal (Valuentum is based in the Chicagoland area). As the iPhone giant strings strong report after strong report together, at what point does the market finally give it full credit in the valuation context? Shares continue to trade at less than 9 times earnings, excluding net cash on the balance sheet, as we outlined in the following: “Quantifying Apple’s Tremendous Investment Case.” That is a phenomenal value in today’s still-overheated equity market. The … Read more

A 10%+ Cost of Capital for Midstream Equities Is Reality

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Kinder Morgan (KMI) disclosed how it would raise much-needed financing October 26, and our worst fears were realized: The marginal cost of raising capital in the midstream space has soared. As recently as earlier this year, Kinder Morgan’s executive team had been guiding analysts to a 3.3% cost of capital (“hurdle rate”), a level we had outlined was absolutely ludicrous (see page 28 here). The 3.3% mark broke down into a 4.1% yield on equity and a 2.4% cost of debt, evenly split. Those days are now over.   Kinder Morgan recently announced that it would float $1.6 billion in mandatory convertible preferred stock, effectively “delayed” issuance of equity capital, which would carry a stated interest rate of 9.75%. Management … Read more

Are You Still Trying to Catch Lightning with American Capital Agency?

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Investors familiar with the mortgage REIT space that have spent any time on our website know of our groundbreaking call on the industry. Please have a look here. American Capital Agency (AGNC), one of the most prominent operators in the mortgage REIT space, reported yet another disappointing quarter. It continues to be painful to write how much we don’t like the uncertainties regarding the broader mortgage REIT environment. Some of the more bullish research shops appear to finally be throwing in the towel. Though the yields on some of the mortgage REIT equities appear attractive, the risks of further dividend cuts continue to grow. Shares of American Capital currently yield ~13%, for example. In the third quarter, American Capital Agency … Read more

Explaining the New Page 2 of the Dividend Report

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Note: Please expect the roll out of the new dividend report on valuentum.com/ to occur gradually, in conjuction with the standard industry update cycle. Summary Visa is one of the best companies in one of the best industries. Not only is the firm “everywhere you want to be,” but its high-margin business model throws off a lot of cash. Perhaps what we like best about Visa, however, is its dividend growth potential. Let’s walk through why and uncover the drivers behind its strong Dividend Cushion ratio. It’s hard to find anything wrong with Visa’s (V) business model. The company offers a secure, payment network that is accepted virtually everywhere in the United States. The firm makes money every time a Visa … Read more

The Dividend Cushion Ratio Measures the Magnitude of Potential Dividend Increases

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On October 26, Hi-Crush (HCLP) and Legacy Reserves (LGCY) became the latest two companies that the Dividend Cushion ratio warned about regarding a distribution cut, both serial “cutters.” Just a reminder, a raw, unadjusted Dividend Cushion ratio below 1 indicates significantly higher risk of the sustainability of the payout. The Dividend Cushion ratio, however, does so much more than warn investors of the risk of potential dividend cuts. Perhaps it is our own fault, as we have noted on several occasions the efficacy of the Dividend Cushion ratio in warning investors of a dividend cut in advance, that readers are focused on the metric primarily as a warning system instead of a generator of ideas that have fantastic dividend growth … Read more

Coach Back on Track?

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Coach (COH) has been somewhat of a black mark on the “hit rate,” or percentage of ideas outperforming the broad market return, in the Dividend Growth Newsletter portfolio, and while we continue to encourage readers to evaluate the weightings we ascribe to positions in the newsletter portfolios for insight on our level of conviction, that Coach resides in there at all means it had been one of our top ideas, added September 19, 2014 at $37.55. Coach currently yields ~4.5%. When we first added Coach to the Dividend Growth Newsletter portfolio, we were aware of the fashion risks and the troubling signs in its North American women’s handbag business. What we liked most about the company, however, was its fantastic … Read more

BABA Bounces Big! GMV Growth Solid, Monetization Rate Better

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Best Ideas Newsletter portfolio holding, Chinese e-commerce giant Alibaba (BABA), reported solid fiscal second-quarter results for the period ending September 30. The report was welcome news after effectively a bear raid on the company’s shares from a widely-read publisher, the note of which effectively marking the company’s trading bottom. We continue to believe shares of Alibaba are a bargain even after the spike. Please be sure to access the company’s 16-page report for its cash-flow derived fair value estimate and fair value estimate range. Management added upbeat commentary in the press release, noting “strong growth across the board and particular outperformance in mobile.” Gross merchandize volume (GMV) in the company’s China retail marketplaces grew to $112 billion in the period, … Read more