Exclusive Analysis for the Discerning Investor
Traditional free cash flow generation has been strong for the oil majors through the first nine months of the year, but their balance sheets remain bloated with net debt. A few haven’t covered their cash dividends with free cash flow generation through the first nine months of 2017. Oil & Gas – Major: BP, COP, CVX, PTR, RDS, TOT, XOM
Image Shown: The performance of the VanEck Vectors Oil Refiners ETF (CRAK) since its launch in August 2015. We’ve witnessed our fair share of fits and starts from energy resource pricing during the past few years, but could the global crude markets finally be rebalancing? Let’s talk about our thoughts on whether the outlook for energy resource pricing is improving in a sustainable way. By Kris Rosemann and Brian Nelson, CFA It may have taken longer than we initially anticipated, but crude oil prices (USO) appear to be on the verge of making a sustained recovery, though we always caution that sentiment can change on a dime, especially in the speculation-heavy commodity price markets. If you recall, we thought the … Read more
–> Handout 1: Pitfalls of Distribution Yield Analysis (pdf) –> Handout 2: Linking P/DCF to Enterprise Free Cash Flow Valuation (pdf) Let’s talk about a controversial metric that is used in master limited partnership (MLP) reporting. Just how useful is it, and should it be allowed? By Brian Nelson, CFA It’s been a few years since the fallout in the prices of most master limited partnerships (AMLP), but to me, it still feels like yesterday. We continue to have many concerns about the longevity of the business models of MLPs, and we maintain our view that the operating structure will be challenged over the long haul. New equity and debt funding (issuance) continues to, in part, fuel the distributions of most MLPs, … Read more
Valuentum’s President Brian Nelson pauses for a picture before speaking at the CFA Society of Houston in March 2017. By Valuentum Editorial Staff Let’s cover Valuentum’s 3 major breakthroughs in the field of finance. The first one is big and may challenge you to rethink everything you think you know about investing. 1. On a logical framework, Valuentum has debunked John C. Bogle’s landmark syllogism that has paved the way for the concept of index investing. Index investing has been built on a logical shortcoming, whether supported by evidence or not. We think it is important that the investment community know of this. Read (pdf): The “Luck” and “Randomness” of Index Funds (2018), Brian Nelson, CFA See video documentation: /FALLACY_of_Index_Funds To … Read more
The Valuentum analyst team digs into recent developments in the oil and gas space and highlights one of the most leveraged ways to play rising crude oil prices. ~12 mins. If you cannot view the podcast below, please select the link here or view the transcript that follows. Tickerized for Valuentum’s oil and gas coverage universe. Chris Araos: Hello, this is Christopher Araos at Valuentum Securities, and today with us is Brian Nelson and Kris Rosemann. Today, we are going to talk about the outlook on oil and gas. Brian Nelson, CFA: Thanks Mr. Araos. I think to kind of set the stage for this conversation, we probably need to bridge the gap between what was truly the depths of … Read more
Key Takeaways Netflix unit subscriber growth is not accelerating, having flattened through the first nine months of 2016 (12 million net additions). The current market capitalization of Netflix implies the company must grow consolidated operating earnings by 8-fold to be considered fairly valued. The content cost thesis is a well-traveled one, but the market is missing the vast overhead expenses (marketing, G&A) related to Netflix’s business, which punish earnings and are excluded from segment profit calculations often used in buy side valuations. Netflix’s sources of upside: pricing leverage, contribution margin improvement, a potential buyout, and new ancillary business lines: advertising, licensing, consumer products, etc. We continue to believe shares of Netflix are vastly overpriced, with a beta-driven sell-off the catalyst … Read more
By Kris Rosemann On September 28, the Organization of the Petroleum Exporting Countries (OPEC) reached an agreement to cut crude oil production levels for the first time since 2008. The cartel reportedly agreed to limit production of member nations to a range of 32.5-33 million barrels per day (bpd) while leaders met at the International Energy Forum in Algiers, Algeria. As would be expected following such news, the price of crude oil has bounced, bringing market sentiment surrounding energy-related stocks higher along with it. The proposed production could be a reduction of up to 750,000 bpd from OPEC production levels in the month of August, but how the group of nations will reach such a production cut has yet to … Read more
First Baptist Church in Columbia, S.C., where the first secession convention in the United States opened on Dec. 17, 1860. Source: Library of Congress, Washington, DC. Photo. Encyclopædia Britannica Online. Web. 24 Jun. 2016. Global markets are plunging, and the implosion may still be in the early innings. Market valuations remain stretched among stagnant global economic growth, and “Brexit” may be the catalyst for a correction. In the paraphrased words of the well-known The Day of the Jackal author, Frederick Forsyth: the peasants have spoken. On June 23, the UK (EWU) held a referendum, in which anyone of voting age could take part, to decide whether the country should leave the European Union. The turnout was incredible at nearly 72%, and … Read more
We’ve been cautious on the oil and gas markets (XLE, AMLP) for some time, and that includes our October move closer to market neutral on the sector, but we’re still underweight the group. We’ve been saying that crude oil prices are more likely to hit the $20 per barrel level than move significantly higher, and we maintain our view that they may never again return to the $100 per barrel, a level many have grown accustomed to. After all, why should they? Unfortunately, the fallout continues to punish traditional “buy and hold” investors who have been trained to ignore most “news” and may still be holding on the belief of the fallacy of mean reversion, something that we believe cannot … Read more
The Best Ideas Newsletter portfolio has generated significant outperformance in part from avoiding many of the landmines across the energy sector during the past many months. We’ve done equally well in our calls in the Dividend Growth Newsletter portfolio, and we’re very proud of raising the issue of the importance of looking at non-GAAP free cash flow across pipeline entities. We believe that such a measure is the best one to assess the timing of free cash flows as they are generated, an important consideration for investors of all types, and not properly addressed in measures of distributable cash flow or a company’s dividend or distribution. Why are we now inching ever so slightly back into energy? 1. The market … Read more