CLF

$45 Oil Prices!?!? There Is Never a Sense of Urgency When One Is Prepared

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Image Source: Macrotrends The bull market in energy (XLE) has lasted for the better part of a decade. Ever since the turn of the new century, energy perma-bulls have made the case that “black gold” (USO) should continue its ever-upward price advance thanks to ongoing demand from emerging and developing economies coupled with reduced inventories and areas of supply. We’re seeing this thesis challenged right at this moment. In deciding not to cut crude oil output in the face of oversupply and falling prices, the Organization of the Petroleum Exporting Countries (OPEC), for the lack of a better phrase, is now essentially engaged in a price war with producers in the US that are using breakthrough technology to produce oil … Read more

Europe and China

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Europe and China are on high alert. European Central Bank President Mario Draghi made it known that the ECB will do everything in its power to “expand its asset purchase programs if inflation fails to show signs of quickly returning to the ECB’s target.” Just a few weeks ago, Draghi had sent shudders through the global equity markets with his view that “without reform, there can be no recovery.” It appears that significant and aggressive monetary action may be the only option for a European continent that could once again be headed into recession and/or deflation. This announcement won’t be the last that we hear regarding moves to aid the European economy. Iron ore prices have been in free fall … Read more

A Sneak Peek at Valuentum’s Slides for the AAII Presentation in Chicago This Saturday!

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Let’s take a sneak peek at President Brian Nelson’s slides for this weekend’s presentation in Chicago! Firms mentioned: MSFT, GOOG, AIR, BRCM, CSCO, SPY, AAPL, QCOM, MA, DPZ, SVU, RNDY, DDE, STRA, EXC, CLF, PBI, CTL, JCP and others. <select image to download the slide deck>

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Iron Ore Prices Plunge

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Worries about the pace of China’s economic expansion are hurting prices for iron ore. According to data from the Steel Index Ltd, benchmark iron ore dropped more than 8% to $104.70 a dry ton March 10, falling the most since August 2009. Over the weekend, news revealed that Chinese exports dropped a surprisingly 18.1% in February, relative to expectations calling for a 7.5% increase. According to customs data released March 8, China’s imports of iron ore were 61.24 million metric tons in February, significantly below the 86.83 million tons registered in January. The news, while not shocking, wasn’t very pleasant. Still, we’re taking the recently-released February numbers with a grain of salt. Scares regarding the pace of China’s economic growth … Read more

BHP Billiton, Rio Tinto Expanding Cash Flow, Paying Down Debt

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On Tuesday, mining giant BHP Billiton (BHP) reported solid financial results for the December 2013 half year, with underlying EBIT advancing by 15%, to $12.4 billion, and underlying attributable profit jumping by 31%, to $7.8 billion. The company noted that substantial improvements in productivity and volume from lower-risk projects drove a material improvement in its underlying EBIT margin and underlying return on capital for the period. BHP Billiton’s net operating cash flow increased 65% and investing cash outflows dropped 25%, resulting in a $7.8 billion increase in free cash flow from the comparable six-month period last year. We like that both measures are moving in the correct direction to drive free cash flow expansion. The firm is wisely using its … Read more

Miners Continue to Be Cautious

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Though profit margins on iron ore operations are hefty, swings in commodity prices translate into large swings in equity prices as mid-cycle valuations are tweaked. Management teams within the mining space are well-aware of the boom-and-bust cycles of their business, and recent tactical moves indicate that constituents continue to be very cautious. We commented on Rio Tinto’s (RIO) and Vale’s (VALE) decision to cut spending, and recent news suggests that BHP (BHP) will also look to keep annual spending below $15 billion, a large cut from the $21.7 billion the firm spent in the previous fiscal year. The billions of dollars in reduced mining equipment spending doesn’t bode well for firms specializing in earth-moving equipment such as Caterpillar (CAT) and … Read more

Mining Capital Spending Still Expected to Fall

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On Monday, Brazilian miner Vale (VALE) rolled out its capital spending budget for 2014. The board approved a $14.8 billion capital spending plan, with the lion’s share allocated to project execution. The expected level will be the lowest since 2010, near the depths of spending levels in the Great Recession:  After peaking in 2011 at $18.0 billion, capital and R&D expenditures in 2014 will show a decline for the third year in a row. This reflects the greater focus on capital efficiency, which entails among other things pursuing shareholder value maximization through a smaller portfolio comprised of projects with a high risk-adjusted expected rate of return. This is evidenced by the fact that more than 80% of the 2014 budget … Read more

Ladies and Gentlemen

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What you are witnessing with the Valuentum Dividend Cushion is not a normal occurrence in finance. I personally have never seen a metric with such a high level of efficacy in predicting dividend cuts. Last week, the Valuentum Dividend Cushion not only added CONSOL Energy (CNX), but it also added Weight Watchers (WTW) to the growing list of firms that it highlighted the significant risk of a dividend cut before it happened. Weight Watchers suspended its quarterly cash dividend to generate annual cash savings of about $39 million October 30. Both CONSOL Energy and Weight Watchers were highlighted in the October 1 edition of our Dividend Growth Newsletter (on page 12) as yields to avoid (download pdf here).   A Valuentum Dividend Cushion … Read more

The Valuentum Dividend Cushion Predicts CONSOL’s Dividend Cut

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Coal and natural gas firm CONSOL (CNX) became the latest company whose dividend cut Monday had been successfully predicted by the Valuentum Dividend Cushion. With a Valuentum Dividend Cushion score of -3.5 before the board’s decision to conserve cash and slash the payout, it appeared to us that the move was inevitable (a measure below 1 is suspicious, while a measure that is negative is highly concerning). Out of our 1,000+ company coverage universe, CONSOL’s dividend was assessed by us to be among the 10 weakest. We make available the most-visited ‘Dividend Yields to Avoid’ article on the left column of our home page under ‘Stock Screens,’ and we update the list of firms that receive the dubious honor periodically. … Read more