Member Articles

Household Products Stocks Round Up

by

Clorox (CLX) Clorox may be executing the best in its peer group. In its fiscal fourth-quarter report, released August 3, reported sales advanced 4% as the company drove an 11% increase in diluted earnings per share in the period. The pace of top-line expansion would have been even better were it not for currency-related headwinds. A benign combination of “cost savings, price increases and lower commodity costs” worked wonders on the firm’s financials. During the quarter, Clorox recorded 3% volume growth, and the company continues to gain share across its brand portfolio. Clorox disinfecting wipes continue to fly off the shelves at a double-digit pace at retailers, and the firm pushed a nice price increase on Clorox bleach in February … Read more

The Game Is Nearing an End for MLPs…

by

The game is nearing an end for master limited partnerships (MLPs) in this energy cycle, in our view. We no longer feel comfortable, if we ever did, including any MLP in the Dividend Growth Newsletter portfolio. Linn Energy (LINE, LNCO), of the upstream variety, may have taken on far too much debt as an E&P entity, but its free-cash-flow management during the first half of 2015 has actually been decent…stronger than better-known upstream and midstream operators. Yet, despite Linn’s positive free-cash-flow execution, even after distribution payments, the entity’s bankers appear to be circling like sharks, ready to take a further bite out of its borrowing capacity (due to lower energy resource pricing). Fairly, the company simply can’t afford to take … Read more

Agricultural Equipment Industry Stuck in the Mud

by

The agricultural equipment industry is dependent on a global economy that remains mired in mediocrity. Durable goods orders fell in both April and May 2015–as well as 9 of the 10 months prior–and the solid 3.4% increase in June is misleading due to the extraordinary number of aircraft orders. Excluding transportation orders, the increase for the month of June was a slight 0.8%. Economic conditions in the US, if construed as positive, in the words of Caterpillar (CAT), the global economy “remains relatively stagnant,” with ongoing weakness in China and Brazil and uncertainty across the Eurozone given the crisis in Greece. Weak commodity prices are not suggestive of a near-term recovery for the overall economy either. Crude oil prices are … Read more

The Scary Reality of Indexing

by

The S&P 500 Index Fund, and derivative ETF products such as the widely-followed S&P 500 SPDR (SPY), are perhaps the most common equity-based indexing instruments on the market today. The pioneer of index mutual funds, the Vanguard Group, defines indexing as follows (1): Instead of hiring fund managers to actively select which stocks or bonds the fund will hold, an index fund buys all (or a representative sample) of the securities in a specific index, like the S&P 500 Index. The goal of an index fund is to track the performance of a specific market benchmark as closely as possible. That’s why you may hear it referred to as a “passively managed” fund. Vanguard’s founder Jack Bogle launched the first … Read more

LINN Energy and LinnCo to Suspend Dividend

by

The Dividend Cushion has foretold another cut! On July 30, along with second-quarter results, LINN Energy (LINE) announced it will recommend the suspension of payment of LINN Energy’s distribution and LinnCo’s dividend at the end of the third quarter of 2015 in order to save ~$450 million in cash from the annualized payouts. LINN Energy reported a net loss in both quarters thus far in 2015, and its yield was near 15%; simply unsustainable. We’ve been warning our readers about the risks associated with LINN Energy and LinnCo (LNCO) and their high-yielding payouts for over two years now, as we did again earlier this month. We rated the entity’s distribution safety as VERY POOR, based on its Dividend Cushion ratio … Read more

The Story of Chemical Giants: Sales Down, Margins Up

by

Chemical bellwethers’ second-quarter results reflect the impact of unfavorable commodity prices and demand, but cost cutting efforts and savvy execution are driving margins higher. Let’s go around the horn for incremental industry insights across the space. Dow Chemical is executing the best at the moment. DuPont (DD), Dow Chemical (DOW), and Eastman Chemical (EMN) all reported negative impacts from pricing on their top lines in the calendar second period. DuPont’s Performance Chemicals segment, which was spun-off into The Chemours Company (CC) on July 1, reported the largest negative impact for the company with pricing lowering sales by 6% in the period. Each of Dow Chemical’s operating segments experienced sales falling due to pricing, the largest of which came in its … Read more

Kinder Morgan’s Shares Still Not Cheap, Dividend Financially-Engineered

by

Kinder Morgan released its 10-Q for the second quarter of 2015 on July 24. The Corporation’s Dividend Continues to Be Financially-Engineered The second-quarter 10-Q revealed that, through the first six months of 2015, free cash flow of ~$630 million, which consists of $2.54 billion in cash flow from operations less $1.91 billion in total capital expenditures, came up significantly short against the company’s total cash dividend outlays of $2 billion during the same six-month period. Said differently, traditional non-GAAP free cash flow less cash dividends paid has been -$1.37 billion, negative $1.37 billion, during the first six months of the year. During the first half of 2015, the company issued $2.56 billion in new shares and floated net debt of … Read more

Annual US Defense Spending Still 85% Higher Than Year of September 11 Attacks

by

July 8 brought news that the Army plans to cut 40,000 troops over the next two years in a decision that will impact command posts across the globe. By the end of 2017, the Army plans to have 450,000 soldiers, down from levels of 570,000 at the peak of the Iraq/Afghanistan wars and the lowest number of active US Army soldiers since the beginning of World War II. The 450,000 mark is widely believed to be the level at which, if it falls below, the US may not be able to effectively meet defense strategies. Bare minimum, it would seem. But while personnel cuts are being implemented, geopolitical uncertainty has only increased. The Islamic State of Iraq and the Levant … Read more

Altria Outperforms; Smoking Marlboros Back on the Rise?

by

We’ve pounded the table time and time again on Altria (MO), even including it in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. The company has been one of our favorite corporate dividend payers, and its large equity stake in SABMiller (SBMRY) offers it financial flexibility like few others. We thought shares have been undervalued for some time, but in the mid-$50s each at present, we’re looking to trim our position. We may use the release of the August edition of the Dividend Growth Newsletter to do so. Altria has a ~4% dividend yield and boasts a 1.2 Dividend Cushion ratio. Fundamentally speaking, things could not be better for Altria. Second-quarter net revenue advanced nearly 6%, to … Read more

Railroads Reveal Economic Concerns in the US

by

Valuentum wrote a comprehensive outlook on the coal industry and railroads in this July 2013 piece here, and to a very large degree, the piece couldn’t have told the future better. Not only did we warn against the most heavily-leveraged coal producers, including James River, Arch Coal (ACI) and Walter Energy, but we threw cold water on the entire coal industry altogether. James River and Walter Energy subsequently filed for bankruptcy. We pointed to economic and political pressures making coal a less viable utility option in the US, as we stated that heightened competition in the US export market would make met coal a less attractive proposition. Since the publishing of the piece, coal operators have suffered immensely. The Market … Read more