Member Articles

Part I: Nelson’s Notes on Berkshire Hathaway’s 2014 Newsletter

by

Hi all, It has taken me a few weeks to get a chance to read the annual newsletter of Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B), and this year’s installment was not a disappointment. For me personally, there’s not a lot of incremental insights that are gleaned, but I like reviewing the newsletter because the annual installment is invaluable for new investors, especially those looking to learn about the markets and how to think about them. What I’ll do below and in future parts is pull out a sentence or paragraph from the annual report and add to it or comment on it in order to provide further perspective. It should make for some great conversation. I’m not sure how many … Read more

15 Stocks That Have Boatloads of Net Cash Relative to Their Market Cap

by

They say that value is in the eye of the beholder. This is certainly true, but when it comes to stock valuation, value rests on the balance sheet and cash flow statement. The build-up of net cash on the balance sheet that results from the net performance of cash flow from operations less both capital expenditures and dividend payments is the primary reason how the intrinsic value of a firm increases over time. Think of a company’s balance sheet like your personal savings account. The more money you put into your personal savings relative to your liabilities and what you spend on personal dividends like vacation, for example, the wealthier you are.  Similarly, the more cash a company saves on … Read more

Hooray! Biogen’s Breakthrough Alzheimer’s Drug?

by

We’re disappointed that we missed highlighting Biogen (BIIB) to our membership many moons ago. Biogen’s stock has more than quadrupled since we launched coverage of the company in late 2011, and frankly, its stock has done nothing but rocket higher. To be fair, Biogen is a top-10 holding in the Health Care Select Sector SPDR (XLV), a position in the Best Ideas portfolio, so we do have some exposure to the blossoming biotech, but we could have done a better job pounding the table. The once- 9-rated on the Valuentum Buying Index, Health Care Select Sector SPDR has approximately doubled since it was added to the Best Ideas portfolio, but we know that may not be good enough. The news … Read more

GE Continues Move to Industrial Focus

by

General Electric (GE) continues to make moves to reduce its dependence on GE Capital, the company’s financial segment. The firm signed an agreement March 15 with global investment firms Värde Partners and KKR, along with Deutsche Bank (DB) to sell GE Capital’s Australia and New Zealand Consumer Lending Business at a value of A$8.2 billion. The division of GE provides personal loans, credit cards, and retail finance services and has a solid customer base in both personal and retail finance in Australia and New Zealand. Though we have no issues with GE Capital’s financial position (the company’s Tier I capital ratio stood at a healthy 12.7% at the end of 2014), management will continue to scale back the division to … Read more

Transaction Alert: Saying Goodbye to Chevron…For Now

by

The bottom continues to fall out of crude oil prices. The price of West Texas crude oil hit six-year lows during the trading session Monday dipping just below $43 per barrel. The world is drowning in a crude oil, and OPEC continues to produce to drive marginal US operators to the brink. The dollar is strengthening, which is exacerbating the decline in the price of this dollar-denominated commodity. The news is not “new.” We’ve been commenting on the fall of crude oil for months, and the lack of energy positions in the newsletter portfolios coupled with the bearish calls on the offshore drillers speak to how far ahead of the market we positioned readers. Remember Seadrill (SDRL)? It’s trading at … Read more

Visa’s Outlook for 2015 Is Solid

by

This article first appeared in the February edition of the Best Ideas Newsletter, February 15. Visa (V), a holding in the Best Ideas portfolio, is one of our favorite companies. The credit card giant benefits from a fantastic network effect, a dynamic that occurs as a result of more users swiping its cards driving more merchants to adopt the company’s network, which drives more users and so on. Visa’s operating margin is among the best in our coverage universe, and the company’s recently-reported fiscal first-quarter results showcase such strength. In the report, Visa reported currency-neutral operating revenue growth of 9%, which it levered into an 11% increase in net income and a 15% jump in earnings per share, to $2.53 … Read more

Republic Services Looks to Strong 2015

by

Best Ideas portfolio holding Republic Services (RSG) is a dominant player in the US non-hazardous solid-waste services industry. For those that may not be as familiar with the trash taker, the company is a powerful force within the industry thanks to its significant landfill ownership, the value of which continues to increase over time due to a variety of structural factors from citizen’s group opposition (Not-In-My-Back-Yard) to increasing regulatory and environmental hurdles. Waste Management (WM) and Waste Connections (WCN) round out the solid-waste industry’s oligopolistic, landfill ownership structure. During the fourth quarter, results released February 12, Republic Services generated annual revenue of $2.23 billion, up 3.9%, and exceeded consensus expectations by a couple pennies per share on an adjusted basis. … Read more

Intel Looks to Mobile to Overcome PC Weakness

by

Intel (INTC) reduced its revenue guidance March 12, dropping expectations for the first quarter to $12.8 billion from $13.7 billion. The world’s largest semiconductor chip maker pointed to weaker-than-expected PC demand, as well as lower inventory levels in the PC supply chain. As far as Intel is concerned, management cited a lack of Windows XP refreshes from small and medium businesses, along with worsening macroeconomic conditions and currency headwinds as main factors in the decline.  Despite the reduction in revenue guidance, the mid-point gross margin expectations remain at ~60% for the period due to higher average selling prices offsetting any profit deleveraging caused by the lower expected volume of PC sales. The firm’s R&D and MG&A spending and depreciation expectations … Read more

When “Bad” News Is “Good” News…Take A Euro Trip?

by

Pack the bags, kiss the grandkids, it’s time to do some traveling!!! Maybe to Europe? From a global perspective, for those whose wealth and income is generated in US dollars, you can arguably buy more with one US dollar today than at any other time in the past 12 years, according to a popular index that measures the value of the dollar versus a basket of other currencies. Expectations are being ratcheted up for impending interest rate hikes by the Fed, and this means that assets are flying into US greenbacks from all over the world. The dollar is strengthening against the euro, the pound, the loonie, the aussie, the rand, and the list goes on and on. This decade … Read more