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Berkshire Hathaway Posts a Solid Second Quarter Earnings Report

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Image Shown: Berkshire Hathaway Inc Class B shares are on a nice upward climb of late. By Callum Turcan On August 7, the insurance and industrial conglomerate Berkshire Hathaway Inc (BRK.A) (BRK.B) reported second-quarter 2021 earnings. We are huge fans of the firm and its storied leader, Warren Buffett (CEO and Chairman). Berkshire Hathaway Class B shares (ticker: BRK.B) are a longtime idea in our Best Ideas Newsletter portfolio, and more recently, shares of BRK.B have regained their upward momentum. Cash Flow and Capital Allocation Update During the first half of 2021, Berkshire Hathaway generated $13.9 billion in free cash flow, up 23% year-over-year. Berkshire Hathaway spent $12.6 billion buying back its stock during the first half of this year, … Read more

Cavco Industries Posts a Great Earnings Report

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Image Shown: Manufactured and modular housing units, including those made by Cavco Industries Inc, meet a crucial need in the US housing market by offering affordable housing options at a time when home prices are skyrocketing. Image Source: Cavco Industries Inc – July 2021 IR Presentation By Callum Turcan We are following up on our recent note covering Cavco Industries Inc (CVCO) as the company just posted its latest earnings report. Cavco Industries designs and builds manufactured and modular housing units for customers in the US and Canada and provides associated financing and insurance products as well. We strongly encourage our members that have not already done so to check out our Cavco Industries Is an Intriguing Capital Appreciation Idea … Read more

Cavco Industries Is an Intriguing Capital Appreciation Idea

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Image Source: Cavco Industries Inc – July 2021 IR Presentation Executive Summary: Cavco Industries designs and builds manufactured homes, modular homes, and similar offerings in the US. Additionally, Cavco Industries provides insurance and financing services that cater to this market. The company’s free cash flow generating abilities are stellar, its growth runway is underpinned by strong housing prices in the US, and the firm has a fortress-like balance sheet even after taking a recently announced acquisition into account. Once the worst of the negative impacts of the COVID-19 pandemic fade away, Cavco Industries’ manufacturing operations will be able to run at more “normalized” levels, thus enabling its financial performance to benefit from rising economies of scale. Demand for Cavco Industries’ … Read more

Bank Earnings Solid During Second Quarter 2021

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Image Source: Bank of America Corporation – Second Quarter of 2021 IR Earnings Presentation In Alphabetical Order by Ticker: BAC, MS, JPM By Callum Turcan In this note, we cover three recent reports from the banking industry as earnings season gets underway. Ongoing coronavirus (‘COVID-19’) vaccine distribution efforts are enabling the domestic economy to reopen in earnest, and consumers are beginning to return to “pre-pandemic activities,” though the risk of variants remains. In our view, the outlook for the US economy is quite bright. The outlook for net interest margins (‘NIMs’) should improve alongside the domestic economy, though yields remain rather low as of this writing and lackluster NIMs weighed on the performance of the banking space at-large last quarter. … Read more

Top Ideas Doing Great

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Image Source: Aguayo Samuel By Brian Nelson, CFA Hi everyone: Hope you’re doing great. The S&P 500 (SPY) continues to roar higher. No longer is the market as easy of a call when we pounded the table near the bottom in April 2020, but we remain bullish on the backdrop. The economy remains very healthy, borrowing rates remain near all-time lows, and widespread interest in equities remains elevated given the paltry yields on alternatives such as investment-grade bonds. We continue to let our winners run, though we remain vigilant in protecting the downside. Quietly, the two top holdings in the Best Ideas Newsletter portfolio, Alphabet (GOOG) and Facebook (FB), have raced to outsized performance during 2021, advancing 43%+ and ~21% … Read more

Stock Markets Still Healthy, Big Cap Tech and Large Cap Growth Safe Havens

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Image Shown: The S&P 500 has been trading above our fair value estimate range (shaded blue area) for some time now. A modest sell-off should be expected. We continue to be bullish on equities for the long run and point to the areas of big cap tech and large cap growth as sources of fundamental and financial resiliency. By Brian Nelson, CFA The S&P 500 (SPY), chart shown above, is trading above our fair value estimate range. The recent sell-off should not be surprising, and it has been predominant in speculative free-cash-flow burning technology stocks, of which we tend to avoid. In January of this year, we “raised” 10%-20% cash in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter … Read more

Inflation! How to Think About Value Duration

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By Brian Nelson, CFA Investors continue to focus on the prospects of rising inflation expectations, which are impacting Treasury bond yields. The 10-year Treasury note, which is used as the foundation for discount rates within most valuation constructs, now stands at ~1.61%, up meaningfully from the ~0.5% lows set in early August 2020. The Fed/Treasury continue to be highly accommodative, and the growing market capitalization of cryptocurrencies is adding even more “new money” to the system. Investors continue to discount the longer-duration free cash flow profiles of the most speculative technology companies more aggressively. For example, the ARK Innovation ETF (ARKK), which is full of speculative tech names, has fallen to ~$105 per share from a 52-week high of $159.70 … Read more

The Real Reasons Why Buffett Wants You in Index Funds

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Image Shown: Since mid-June 2015, on a price-only basis, the S&P 500 (SPY) has nearly doubled, while shares of Kinder Morgan have nearly halved. In Morgan Housel’s The Psychology of Money, chapter 16 leads in with “Beware taking financial cues from people playing a different game than you are.” The people on CNBC are playing a different game than you, and so is Warren Buffett. Buffett’s principles of stock selection are golden, but you must understand that he is near the top of the Forbes’ Billionaires List. He absolutely should be taking his own advice and indexing! With the threat of long-term inflation and price-agnostic trading, the everyday investor, even with a few million in the bank, is not so … Read more

Banks Holding Up Well, Some Feel Pain from Archegos Capital Collapse

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Image Shown: Bank of America Corporation has an optimistic view towards the ongoing US economic recovery. Image Source: Bank of America Corporation – First Quarter of 2021 IR Earnings Presentation By Callum Turcan Earnings season is now underway! In this article, we cover the performance of two large US banks and the problems facing one major European bank in light of losses stemming from Archegos Capital Management blowing up. Large reserve releases last quarter–due to the US economy holding up better than expected–during the coronavirus (‘COVID-19’) pandemic played an outsized role in bolstering the financial performance of key US banks after these institutions recorded large reserve builds in 2020. Net interest margins (‘NIM’) continue to face headwinds from the low … Read more

Two Railroad Operators to Join Forces, Creating the First Fully Integrated Canada-US-Mexico Railroad Network

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Image Source: Canadian Pacific Railway Ltd, Kansas City Southern – March 2021 Acquisition Presentation By Callum Turcan On March 21, Canadian Pacific Railway Ltd (CP) announced it was acquiring Kansas City Southern (KSU) through a cash-and-stock deal worth ~$29.0 billion by enterprise value (factoring in assumed debt). The combination will create the first fully integrated Canada-US-Mexico railroad operator with ~$780 million in annualized synergies expected within three years of the deal closing. Once this two-part transaction is complete, the new entity will have a US Class 1 railroad network that spans ~20,000 miles with ~20,000 employees supporting its operations. The pro forma company will be renamed Canadian Pacific Kansas City (‘CPKC’). According to the acquisition press release: Calgary will be … Read more