Exclusive Analysis for the Discerning Investor
Valuentum’s President Brian Nelson talks about the resiliency of the commercial aircraft making business and the massive backlogs that offer a nice tailwind to the supply chain. Source of Images: Boeing (BA), Randy Tinseth (20-year Current Market Outlook, July 2014). If you cannot see the video, please click here. Aerospace Suppliers: AIR, AIRI, AL, ATRO, COL, HEI, HXL, ISSC, PCP, SPR, TATT, TDY, TXT Airlines – Major: AAL, ALK, DAL, JBLU, LUV, SAVE, UAL
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
We’ve been heeding our own words of caution for the past several weeks now, as we’ve trimmed some of the cyclical exposure in both the Best Ideas portfolio and Dividend Growth portfolio. We also added protection to both portfolios several percentage points ago in the form of put option contracts on the S&P 500. These instruments aren’t for everybody, and the put options can still expire worthless if we don’t take profits. The above chart of the SPDR S&P 500 (SPY) shows the ongoing market correction, and we expect to continue to provide daily market commentary in the event that things get considerably worse. Our high-level prognostication is that the broader equity markets will be lower than they are … Read more
The airline industry is a good barometer of global economic activity as it not only gauges leisure travel but also business activity. We picked up three important red flags recently that may weigh on shares of the airline group (and by extension the hotel space). For those that don’t know us, we’re not at all fans of the investment prospects of the airline industry, but nonetheless, we pay very close attention to airlines for unique economic insights. Read about our recent call on cyclicals here, in case you missed it. 1. Ebola. According to CNN, the first case of Ebola has been diagnosed in the US. Just like the SARS and West Nile virus before it, the news will likely … Read more
Below we provide a list of firms that raised/lowered their dividends during the week ending July 25. 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 Alliance Bancorp (ALLB): now $0.06 per share quarterly dividend, was $0.05. Altera (ALTR): now $0.18 per share quarterly dividend, was $0.15. BancorpSouth (BXS): now $0.075 per share quarterly dividend, was $0.05. BankFinancial (BFIN): now $0.02 per share quarterly dividend, was $0.01. Bar Harbor Bankshares (BHB): now $0.23 per share quarterly dividend, was $0.223. BBCN Bancorp (BBCN): now $0.10 per share quarterly dividend, was $0.075. BorgWarner (BWA): … Read more
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
On Monday, top insurance idea AIG (AIG) announced that it would sell International Lease Finance Corporation (ILFC) to aircraft leasing firm AerCap Holdings (AER) for $5.4 billion, consisting of $3 billion in cash and the balance in newly-issued AerCap common shares. Though we think ILFC was one of the crown jewels of AIG’s business particularly considering the prospects for global air travel demand in coming years, the price is fair and opportunistic, especially since AerCap is risking its investment-grade status to facilitate the deal. We don’t think better terms could have been had by either party, given financial constraints, and shares of both entities are moving higher on the news. The combined AerCap-ILFC will be #2 on the world stage … Read more
The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down. — Warren Buffett, annual letter to Berkshire Hathaway shareholders, 2008. The airline industry has undergone meaningful changes since the beginning of the last decade. The painful restructuring of labor agreements and balance sheets by most of the legacy carriers via Chapter 11, the significant mega-mergers of Delta (DAL)/Northwest, UAL (UAL)/Continental, US Airways (LCC)/America West, … Read more
The airline industry is among the worst we’ve ever seen. Investors should steer clear of this terrible group.
As we touched on last week, Delta Airlines (click ticker for report: ) acquired a 49% stake in Virgin Atlantic Airways from Singapore Airlines for approximately $360 million. The deal seems to make sense for both parties, as it gives Virgin better access on US routes and Delta access to London’s Heathrow airport. The valuation, a haircut from what Singapore paid, doesn’t seem unreasonable, in our view. Given Delta’s semi-decent balance sheet, we doubt the deal will materially impact financial standing. One would think the market really likes the deal, given that shares of Delta are up more than 6%. However, we believe the airline market is rallying on reports that the rumored merger between AMR Corp (American Airlines) and US … Read more