Member Articles

A Note on Valuation — Low P/E Stocks with High Dividend Yields

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“But carrying low valuation parameters is far from synonymous with “underpriced.” It’s easy to be seduced by the former, but a stock with a low p/e ratio, for example, is likely to be a bargain only if its current earnings and recent earnings growth are indicative of the future. Just pursuing low valuation metrics can lead you to so-called “value traps”: things that look cheap on the numbers but aren’t, because they have operating weaknesses or because the sales and earnings creating those valuations can’t be replicated in the future.” – Howard Marks, Something of Value (2021) By Brian Nelson, CFA I was reminded of Howard Marks’ 2021 memo, “Something of Value,” after a few readers expressed interest in low … Read more

Net-Cash-Rich, Free-Cash-Flow Generating Powerhouse Salesforce Has a Long Growth Runway

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Image Source: Salesforce By Brian Nelson, CFA On November 29, Salesforce (CRM) reported excellent fiscal third-quarter results and issued an outlook for its fiscal fourth quarter that came in better than expectations. The Dow Jones Industrial Average component’s results were welcome news as the bellwether revealed that spending on cloud-based CRM software remains robust. In the quarter ending October 31, revenue advanced 11% on a year-over-year basis, while non-GAAP diluted earnings per share came in at a solid $2.11. Its outlook was rosier than what the Street was expecting. For the fiscal fourth quarter, the company is targeting non-GAAP earnings per share in the range of $2.25-$2.26 per share, better than the consensus forecast of $2.18. The strong quarter only … Read more

Crown Castle Continues to Languish

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Image: Crown Castle’s shares have not fared well through 2023, and we’ll be looking to remove them from the High Yield Dividend Newsletter portfolio in coming months. By Brian Nelson, CFA Equity REITs have had a difficult 2023, and we continue to look to phase out of them in the newsletter portfolios over time, as we believe the group will continue to struggle, “REITs Will Likely Continue to Underperform.” We’ve generally viewed the tower operators as somewhat immune to the challenges that office and retail REITs are facing these days, but Crown Castle’s (CCI) performance thus far in 2023 hasn’t been great. The company benefits from attractive tower economics as it can scale customers across its shared infrastructure to drive … Read more

Nvidia’s Shares Could Run Higher Even More!

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Image: Nvidia has been a market darling, and the firm’s equity looks to have further upside potential on the basis of our valuation. By Brian Nelson, CFA On November 21, market darling Nvidia Corp. (NVDA) reported excellent fiscal third quarter results for the period ending October 29 that showcased the power behind the revolution in artificial intelligence. The company’s revenue hit a record, advancing more than three-fold on a year-over-year basis thanks to strength in its Data Center business. Its non-GAAP earnings were up six-fold from the year-ago period, and the firm continues to haul in tremendous free cash flow. We’ve raised our fair value estimate of Nvidia to $606 per share, and we think the company’s shares could continue … Read more

Can Things Really Stay This Good?

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Hi everyone:   It’s Brian. Can things really stay this good? It’s a question that I keep asking myself. For starters, the investment landscape has changed quite a bit over the past decade. Years ago, interest rates were near-zero, and an intense focus on dividends may have made a lot of sense. Interest rates are now much higher, and that means risk-free assets offer yields that are a multiple of that of the yield of the S&P 500. The markets in this regard are starting to make a lot of sense as Dividend Aristocrats have suffered a difficult year so far in 2023.   I think many of these names will likely remain depressed until risk-free rates fall below that … Read more

Dividend Increases/Decreases for the Week of November 24

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Below we provide a list of firms that raised their dividends during the week ending November 24. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week                          BMO Equal Weight REITs Index ETF (BMQWF): now CAD 0.09 per share monthly dividend. CLPS (CLPS): now $0.10 per share special dividend, was $0.05. CMUV Bancorp (CMUV): now $0.12 per share quarterly dividend, was $0.10. Fastenal (FAST): now $0.38 per share special dividend, was $0.35.      Flex LNG (FLNG): now $0.75 per share quarterly dividend, was $0.125. Hormel Foods (HRL): now $0.2825 per share quarterly … Read more

Dick’s Sporting Goods Still Looks Really Cheap

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Image Source: Dick’s Sporting Goods By Brian Nelson, CFA On November 21, Dick’s Sporting Goods (DKS) reported solid third-quarter results with sales up 2.8% on a year-over-year basis thanks to comparable store sales growth of 1.7% that lapped an impressive 6.5% increase in the same period a year ago. Non-GAAP earnings per share came in at $2.85 in the quarter, up from $2.60 in last year’s period. The company also raised its 2023 comparable store sales growth guidance range to 0.5%-2% from flat to 2% previously, and it raised its 2023 non-GAAP earnings per share outlook to $12.00-$12.60 from its previous range of $11.50-$12.30. We liked the news and continue to believe that shares of Dick’s Sporting Goods are mispriced. … Read more

REITs Will Likely Continue To Underperform

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By Brian Nelson, CFA Stock prices and returns are in part a function of the cash-based sources of intrinsic value: net cash on the balance sheet and future expectations of free cash flow. Though there are many ways to slice and dice a company with respect to equity analysis, to arrive at an intrinsic value estimate of a firm, it generally comes down to these two important cash-based dynamics. Due to the nature of their business models, most REITs have lofty net debt positions, and many are investing in real estate at a pace that is faster than that which they are generating operating cash flow. One good example of the trouble brewing on many a REIT’s cash flow statement … Read more

Concerns Over Walmart’s Outlook Overblown

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By Brian Nelson CFA On November 16, Walmart (WMT) reported third quarter results for fiscal 2024 that showed revenue growth of 5.2% and adjusted operating income expansion of 3%. Adjusted earnings per share nudged up 2% in the quarter on a year-over-year basis. Operating cash flow during the first nine months of the year came in at $19 billion (up $3.3 billion from the year ago period), while free cash flow came in at $4.3 billion (up $0.7 billion on a year-over-year basis). The big box retailer ended the period with a ~$43.2 billion net debt position and has bought back 8.7 million shares of stock on a year-to-date basis. Walmart raised its outlook for the remainder of fiscal 2024, … Read more

Cisco Puts Up Record Q1 FY 2024 Results, Outlook Hindered By Order Slowdown

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Image Source: Cisco By Brian Nelson, CFA On November 15, Cisco Systems (CSCO) reported strong first quarter results for its fiscal 2024, but the company surprisingly lowered its outlook for the remainder of its fiscal year on a slowdown in new orders. We’re not rushing to judgement of the company, but the revision was rather sizable, and we’ll be taking a close look at our valuation model following the report. We continue to be fans of Cisco’s intent to purchase Splunk, and there may have been some hiccups in the sales cycle as the firm works to close this strategic deal. For now, we’re giving the firm the benefit of the doubt that things will improve in the back half … Read more