Member Articles

Kinder Morgan Continues Down Unsustainable Path

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Kinder Morgan’s (KMI) second-quarter results, released July 15, left much to be desired. Internal measures of distributable cash flow are coming in lower than previous expectations and its total debt continues to advance to uncomfortable levels, approaching ~5.8 times annualized EBITDA, as disclosed in the second-quarter release. Though we maintain our view that Kinder Morgan has a fantastic business model with lucrative fee-based contracts and substantial cash-flow generating capacity, the risks associated with the company’s capital structure and future dividend obligations overwhelm such positives. We remain convincingly on the sidelines; our fair value estimate of $29 per share remains unchanged.  We continue to be impressed with Kinder Morgan’s excellent levels of transparency and disclosures, but the information included in the … Read more

Valuentum’s Nelson in Cleveland

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Brian Nelson, CFAPresident, Valuentum Securities Brian Nelson, president of Valuentum Securities, will walk through the ins and outs of cash-flow-based dividend analysis. He’ll cover how to use Valuentum.com to find what you’re looking for and showcase the firm’s discounted cash flow methodology that forms the backbone behind the ideas he generates. Nelson will also present the structural reasons why the Valuentum Buying Index works.  YOU WILL LEARNThe benefits of dividend growth investingHow to find the best dividend growth stocksHow to reduce the likelihood of getting into a value trap BIOBrian Nelson, CFA holds a B.A. in finance with a minor in mathematics and graduated magna cum laude from Benedictine University. He has an MBA from the University of Chicago. He … Read more

Warning! 5 Heavily-Followed Dividend-Paying Stocks to Avoid

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Zoetis (ZTS) The share price of Zoetis, the leader in the production and commercialization of animal health medicines and vaccines, is trading at a substantial premium to its standalone intrinsic value as a result of speculative optimism that a takeout of its shares might happen. Activist Bill Ackman’s near-10% stake in the 2013 spin-off of Pfizer (PFE) has investors believing a deal may be in the works, but there’s no real evidence of one. In fact, it appears investors are desperate to see something (anything?) happen: on June 25, for example, Zoetis leapt more than 10% immediately on unfounded rumors that Valeant Pharma (VRX) was putting together a bid. We don’t think a buyout of Zoetis is going to happen … Read more

Procter & Gamble Continues Transformation Plan

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Dividend Growth Newsletter portfolio holding Procter & Gamble (PG) announced July 9 it has signed a definitive agreement to merge 43 of its beauty brands with Coty (COTY) for $12.5 billion, in what is likely to be a Reverse Morris Trust transaction. The transaction will include Procter & Gamble’s ‘Salon Professional’, ‘Retail Hair Color’, and ‘Cosmetics and Fine Fragrance’ businesses, along with select hair styling brands. This is a major step forward in the firm’s portfolio transformation plan, in which it intends to whittle its portfolio to 65 brands in 10 business categories that encompass the company’s core competencies. As the company previously outlined, Procter & Gamble plans to divest, discontinue, or consolidate 100 of its brands and exit several … Read more

Microsoft Restructuring Phone Hardware Business, PC Environment Remains Challenging

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Dividend Growth Newsletter portfolio holding Microsoft (MSFT) announced the restructuring of its phone hardware business July 8. In addition to a restructuring charge in the range of $750-$850 million, the company will record an impairment charge of ~$7.6 billion related to assets from the acquisition of the Nokia (NOK) Devices and Services business, which closed just under a year ago. Microsoft also announced it will cut up to 7,800 jobs, primarily in the phone business. The non-tax-deductible impairment charge will be recorded in the fourth quarter of fiscal 2015, which ended June 30, and the job cuts are expected to take place over the next several months. These sweeping initiatives underscore Microsoft’s efforts to refine its focus to meet ever-changing … Read more

June Sales Keep Auto Industry on Track for Best Year in A Decade

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Key Takeaways The auto industry continues its strong comeback in 2015. Volume and profits are growing, and the industry is poised for a banner year. SUV and light truck demand are the primary drivers behind the sales growth, as the drop in gasoline prices slows purchases of smaller, more fuel-efficient cars. America’s best-selling line, the Ford F-Series, remains in limited supply, even as demand for the truck line remains high, but other producers, including GM, are looking to take advantage of the mismatch. Toyota remains the top-selling retail brand in the US, despite weak industry-wide car sales. June US auto sales, according to Autodata Corp, increased 3.9% over the year-ago period to a total of 1.48 million units, the most … Read more

Teva Pharmaceuticals Committed to Acquiring Mylan

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Image source: Teva July 5 investor presentation We have been adamant on our stance on Best Ideas Newsletter portfolio holding Teva Pharmaceuticals (TEVA) since the initiation of our thesis on the generics industry in June 2013, shortly before we initiated our position in the firm. Since then shares have advanced nearly 50%, and we’ve continued to let this winner run.   A large portion of Teva’s success has been tied to the incredible performance of Copaxone, the leading multiple sclerosis therapy worldwide. In the first quarter of 2015, the drug alone comprised 18.5% of revenue, while contributing an astounding ~55% of net income. These figures are down from the year-ago period–and the majority of its production life–due in part to … Read more

Here Comes the Correction

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The S&P 500 (SPY) has been stuck in neutral for most of 2015, and we’re not surprised. The forces against a further advance have been mounting for some time. Not only are valuations stretched on some of the strongest business models, but global economic growth remains sluggish, perhaps punctuated by falling gross domestic product in the US during the first quarter of the year. But that is not all that is ailing the global equity markets as of late. Nothing short of a 1929 US-equivalent stock-market crash in China (FXI) is currently ensuing, and the government is doing all that it can to prop up the markets to ensure stability. The Shanghai Shenzhen 300 Index has fallen an incredible 30% … Read more

eBay – PayPal Split

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Under previous but subsiding pressure from Carl Icahn and other shareholders, eBay (EBAY) announced last September that it would separate its payments business PayPal in July of this year. Now that July is here, we wanted to remind members of the split and explain what it means for the holdings in the Best Ideas Newsletter portfolio. On July 17, eBay shareholders will receive one share of PayPal under the ticker PYPL for each share of eBay owned. We will be launching coverage of PayPal shortly after it becomes an independent, publicly-traded company. The separation of eBay and PayPal will make eBay leaner and more efficient while greatly increasing the potential for expansion of PayPal within the booming mobile payments market. … Read more

Alibaba Shares Disappoint

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No need for boo-hooing BABA just yet. We’re aware of the poor performance of Alibaba’s shares, and we’re as disappointed as any. But we haven’t gone sour on the firm.  Chinese stocks (FXI) recently entered a bear market as the Shanghai Composite Index has dropped over 20% from its June 12 peak. The market is now in the midst of what most call a “self-correction,” as Chinese equity valuations have become out of touch with underlying fundamentals, though we maintain our view that both Alibaba and Baidu (BIDU) remain significantly undervalued. The People’s Bank of China, in an attempt to halt the recent slide in share prices, cut both its one-year lending and deposit rates by 0.25%. In addition, the … Read more