EXPE

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

Delta Air Lines Restores Financial Guidance

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Image Source: TradingVIew By Brian Nelson, CFA On July 10, Delta Air Lines (DAL) reported results for its June quarter that beat consensus expectations on the top and bottom lines. On a non-GAAP basis, operating revenue came in at a record $15.5 billion, up 1% year over year, with operating income of $2 billion on an operating margin of 13.2%. Pre-tax income came in at $1.8 billion with a pre-tax margin of 11.6%. Delta reported earnings per share of $2.10 and operating cash flow of $1.8 billion in the quarter. Management had the following to say about the results: In the June quarter, Delta delivered record revenue on a 13 percent operating margin, generating $1.8 billion in pre-tax profit and … 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

Delta Delivers Most Profitable December Quarter in Its History

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Image Source: Colin Brown By Brian Nelson, CFA On January 10, Delta Air Lines (DAL) posted fourth quarter 2024 results that beat on both the top and bottom lines. Adjusted operating revenue increased 5.7% in the fourth quarter, and the firm leveraged the top line growth into 30.4% expansion in adjusted operating income. Its adjusted operating margin in the quarter hit 12% compared with 9.7% in the same period a year ago. Adjusted pre-tax income was 47% higher on a year over year basis, while its adjusted pre-tax margin reached 10.8% versus 7.8% in last year’s quarter. Adjusted net income increased 45.6%, while adjusted diluted earnings per share expanded to $1.85 in the quarter versus $1.74 consensus and $1.28 in last … Read more

Brain Teaser – Reflexive versus Reflective

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Dear members: — Jason Zweig of the Wall Street Journal, wrote in his pioneering text, Your Money and Your Brain, a few fun examples of how sometimes the psychological process of anchoring and adjustment can trip us up. — In one notable example, Zweig wrote about how two psychologists Amos Tversky and Daniel Kahneman had asked volunteers to spin a wheel of fortune numbered from 0 to 100. The contestants didn’t know that the wheel was rigged to produce either a 10 or a 65 for the experiment. — After spinning the wheel, the contestants were then asked whether the percentage of total United Nations membership made up of countries in Africa was higher or lower than the number that came up. … Read more

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … 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

Booking Holdings’ Fourth Quarter Results Impacted By War in Middle East But Free Cash Flow Margins Remain Robust

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By Brian Nelson, CFA  On February 22, Booking Holdings (BKNG) reported better-than-expected fourth quarter results that beat expectations on both the top and bottom lines, but the company noted that its business had been impacted by the conflict in the Middle East. Regardless, Booking Holdings remains one of our favorite ideas on the market today due to its fantastic free cash flow generation and secular growth prospects. Following in the footsteps of Meta Platforms this quarter, Booking Holdings also initiated its first-ever dividend, a quarterly cash dividend of $8.75 per share, and we like what this implies with respect to capital discipline. Our fair value estimate stands north of $4,100 per share, well above where shares are currently trading at … 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

Booking Holdings Is a Net-Cash-Rich, Free-Cash-Flow Generating Powerhouse!

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Image: Booking Holdings remains an asset-light, free-cash-flow generating powerhouse. By Brian Nelson, CFA On November 2, Best Ideas Newsletter portfolio holding Booking Holdings (BKNG) reported excellent third-quarter results with revenue advancing 21.3% and non-GAAP earnings per share coming in ahead of the consensus forecast. People around the world continue to book travel and accommodations as pent-up demand from the COVID-19 pandemic continues to showcase itself in Booking Holdings’ results. Gross travel bookings advanced 24% (21% on a constant-currency basis) in the quarter on a year-over-year basis, and the firm converted this strong demand into a 51% increase in net income. We like the asset-light, free-cash-flow generating nature of Booking Holdings, and we continue to believe it belongs in the Best … Read more