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Thinking Slow: 3 Research Blind Spots That Changed the Investment World

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Dear members: — Daniel Kahneman in his text Thinking, Fast and Slow (1) divided the human psyche into two systems. The first system is instinctive and emotional, often set on autopilot, while the second system is slower and more logical, requiring a calculating conscious. Many of the maxims the investment world takes for granted today suffer from conclusions that are made rapidly, almost without thinking, driven by our first system, creating what I call research blind spots. — In World War II, Allied bombing raids were suffering from very high casualty rates. It was estimated that for those pilots that were flying at the beginning of the war, only about 10% survived, a terrible loss rate. Bombing was crucial to the Allied … Read more

3 Undervalued Stocks to Consider Buying Now

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Dear readers:   With the markets retracing most of their recent drawdown, we’re taking a victory lap as we didn’t panic, nor should have you. We highlighted our wait-and-see approach amidst the worst of the pullback, and we expect the Magnificent 7 (large cap growth and big cap tech) to continue to propel the markets higher, as they have done.   We’ve been busy rolling valuation models as we finetune our assumptions for a great number of companies under coverage. While doing so, we came across three undervalued stocks that are also included in the simulated newsletter portfolios. We think they’re prime for highlight.   The three stocks are UnitedHealth Group (UNH), Nvidia (NVDA) and Alphabet (GOOG). We spend a lot of time on discounted cash-flow valuation, … Read more

Cisco Raises Fiscal 2025 Outlook Again

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Image: Cisco put up excellent fiscal third quarter results. By Brian Nelson, CFA On May 14, Cisco Systems (CSCO) reported better than expected third quarter fiscal 2025 results, with both revenue and non-GAAP earnings per share coming in higher than the consensus forecast. Revenue increased 11% year-over-year, while non-GAAP earnings per share increased 9% year-over-year, to $0.96 per share, above the high end of its guidance range ($0.90-$0.92). Product orders expanded 20% from the same period a year ago (9% excluding Splunk), while AI infrastructure orders taken from webscale customers exceeded $600 million. Management had the following to say about the quarter: Cisco once again had strong quarterly results with clear demand for our technologies. The momentum we are seeing … Read more

Cisco Ups Fiscal 2025 Guidance Again

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Image Source: Cisco By Brian Nelson, CFA On February 12, Cisco Systems (CSCO) reported strong fiscal second quarter results with a beat on both the top and bottom lines. Revenue of $14.0 billion advanced 9% on a year-over-year basis, above the high end of the company’s guidance range. Non-GAAP earnings per share increased 8% year-over-year, to $0.94 per share, also coming in above the company’s guidance range. Product orders were up 29% from the same period last year, while they advanced 11%, excluding Splunk. AI Infrastructure orders were more than $350 million, bringing the total for the first half of its fiscal year to roughly $700 million. Management was upbeat in the press release: Cisco’s strong quarterly results were driven … Read more

Cisco Raises Fiscal 2025 Guidance

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Image: Cisco’s shares have been choppy the past couple years. By Brian Nelson, CFA Cisco Systems (CSCO) reported better than expected fiscal first quarter 2025 results on November 13. Revenue of $13.8 billion came in at the high end of its guidance range, down 6% but above consensus by $70 million, while non-GAAP earnings per share of $0.91 came in above its guidance range, beating the consensus forecast by $0.04. Product orders were up 20% year-over-year and up 9% excluding the recent acquisition of Splunk. Subscription revenue now accounts for 57% of its total revenue. Management had the following to say about the quarter: Cisco is off to a strong start to fiscal 2025. Our customers are investing in critical … Read more

Cisco Still Looks Cheap, Shares Yield ~3.2%

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Image Source: Cisco By Brian Nelson, CFA On May 15, Cisco Systems (CSCO) reported better than feared third quarter results for its fiscal 2024. Revenue faced pressure, falling 13% on a year-over-year basis, as management noted that customers continue to implement “products on-hand.” Non-GAAP earnings per share of $0.88 beat consensus. Management spoke of a dynamic market environment, while mentioning some stabilization of demand: We delivered a solid Q3 performance in what remains a dynamic environment. Our unique ability to bring together networking, security, observability, and data enables Cisco to offer our customers unrivaled digital resilience for the AI era. Revenue, gross margin and non-GAAP EPS in Q3 were at the high end or above our guidance range, both including … Read more

We Remain Bullish; Is This 1995 – The Beginning of a Huge Stock Market Run?

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Image: Large cap growth stocks have trounced the performance of the S&P 500, REITs, and bonds since the beginning of 2023. We expect continued outperformance in this area of the market. By Brian Nelson, CFA We’re now roughly four years past the depths of the COVID-19 meltdown, where equities collapsed in February and March of 2020. As the markets began to recover through 2020, our long-term conviction in equities only grew stronger. We think the biggest risk for long-term investors remains staying out of the market on the basis of what could be considered stretched valuation multiples. As we outlined heavily in the book Value Trap, valuation multiples hardly tell the complete story about a company and often omit key … Read more

Cisco Looks Cheap at 13x Forward Non-GAAP Earnings But Fundamentals Are Deteriorating

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Image: Cisco has ratcheted down expectations during the past couple quarters, and its shares have been choppy for the better part of a year now. By Brian Nelson, CFA On February 14, Cisco Systems, Inc. (CSCO) reported mixed second-quarter fiscal 2024 results that showed beats on both the top and bottom lines compared to previously lowered expectations, but overall lower revenue growth and weaker cash flow trends. The company is experiencing slow demand for networking equipment as it continues to work toward completion of its deal for cybersecurity firm Splunk. Though we didn’t like Cisco’s revised outlook for fiscal 2024, the firm is trading at just ~13x forward non-GAAP earnings per share. Cisco increased its dividend payout modestly and currently … Read more

Palantir’s Fourth-Quarter Results Showcase Strong Trends in Artificial Intelligence

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Image: Palantir’s revenue continues to march higher, and the company’s performance continues to showcase the growing strength in artificial intelligence. Source: Palantir By Brian Nelson, CFA Palantir Technologies (PLTR) has three core software platforms called Gotham, Foundry, and Apollo that “provide the critical infrastructure needed to integrate (its) customers’ data and operations and run their software in virtually any environment (Form 10-K).” On February 5, the firm reported solid fourth-quarter results that showed revenue growing 20% on a year-over-year basis and GAAP net income coming in at $93 million, representing the fifth consecutive quarter that the firm has driven positive GAAP profits. We liked Palantir’s quarterly results, but we wanted to bring to members’ attention the commentary surrounding artificial intelligence [AI]: … Read more

12 Reasons to Stay Aggressive in 2024

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By Brian Nelson, CFA 1. The Fed has signaled that rate cuts could start with inflation at a 2 handle (2 point something) and not at exactly 2.0%. That means that the Fed may become anticipatory to prevent overshooting to the downside with inflation. We see this as positive for long-duration equities, particularly those whose free cash flow generation is robust in the out-years, inclusive of big cap tech and the stylistic area of large cap growth. 2. Unemployment is at structural lows of 3.7%. Employers are working hard to keep talent on board, and with each paycheck, employees are pumping more and more money into the stock market via retirement accounts. This tailwind remains a stiff one and will … Read more