GIS

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

General Mills’ Top Priority Is to Restore Volume-Driven Organic Sales Growth

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Image: General Mills’ shares have been under pressure as of late. By Brian Nelson, CFA On June 25, General Mills (GIS) reported mixed fiscal fourth quarter results with revenue coming up short of forecasts, but non-GAAP earnings per share exceeding the consensus estimate. In the fourth quarter, net sales dropped 3% driven by lower pound volume and unfavorable net price realization and mix, while organic sales were also down 3%, in line with expectations. Adjusted gross margin was down 220 basis points. Adjusted operating profit of $622 million was down 22% in constant currency, while its adjusted operating profit margin fell 330 basis points year-over-year. Adjusted diluted earnings per share came in at $0.74, which was down 27% in constant … Read more

Dividend Increases/Decreases for the Week of June 27

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Below we provide a list of firms that raised their dividends during the week ending June 27. 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                          AZZ (AZZ): now $0.20 per share quarterly dividend, was $0.17. Bank of South Carolina (BKSC): now $0.21 per share quarterly dividend, was $0.19. Cadiz Inc. 8.875% DEP PFD A (CDZIP): now $0.56 per share quarterly dividend, was $0.55. Chorus Aviation (CHR:CA): now CAD 0.08 per share quarterly dividend, was CAD 0.07. Euroholdings Ltd. (EHLD): now $0.14 per share quarterly dividend. First Bancorp (FNLC): now … 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

Magnificent 7 Earnings Reports Not Bad Thus Far

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By Brian Nelson, CFA   Shortly after Trump’s Liberation Day, where the President unveiled lofty tariffs on numerous countries, we released our wait-and-see outlook for the equity markets, which thus far has proven to be the right move, with the markets largely recovering from the depths reached in April. The S&P 500 (SPY), for example, is down just 3.3% year-to-date, excluding dividends.   A lot has happened since Liberation Day, including easing of tariffs to a 10% baseline for most, if not all, countries, with the key exception of China, where tariffs remain extremely elevated and prohibitive. Many countries are now reportedly negotiating trade agreements with the White House, and we expect China to be added to that list soon, even if … Read more

Trump Tariffs Higher than Expected; What We’re Doing

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By Brian Nelson, CFA The Trump tariff increases came in larger than what we were expecting, and it remains to be seen how they will flow through the global economy, as we monitor potential retaliatory tariffs from other countries. As it relates to the equity markets, we’re taking a wait and see approach at the moment as we monitor new policy changes related to trade, immigration, fiscal (tax), and regulations. In short, we’re not overreacting to the sell off as we won’t have a great handle on the tariff impact to companies for a few quarters when they report results post-tariff increases. That said, we’re expecting continued market volatility, with meaningful risk to the downside, before trade uncertainty alleviates in … 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

General Mills’ Organic Performance Reveals Underlying Weakness

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Image Source: General Mills By Brian Nelson, CFA On June 26, General Mills (GIS) reported mixed fourth-quarter fiscal 2024 results that showed weakness on the top line, but a modest beat relative to the consensus forecast on the bottom line. Fourth-quarter net sales dropped 6% from the same period a year ago as organic growth was also down 6% “driven by the trade expense timing comparison, a reduction in retailer inventory, and a headwind in its International segment results.” Organic volume declined 6 percentage points in its North America Retail segment and 7 percentage points in its Pet segment, with both segments experiencing organic price/mix headwinds of one percentage point, too. Its North America Foodservice business did comparatively better, recording … Read more

General Mills Doing a Lot of Things Right, Shares Yield ~3.4%

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Image Source: General Mills By Brian Nelson, CFA On March 20, General Mills (GIS) reported better-than-expected third quarter results for its fiscal 2024. Though net sales fell 1% in the period, the company’s adjusted operating profit advanced 14% in constant currency. On a two-year compound growth basis, the firm’s organic net sales increased 7%, so while there was some pressure on revenue in the quarter, most of it can be attributed to difficult comparisons. Our fair value estimate for General Mills stands at $60, with the company trading at a modest premium to those levels at the time of this writing. General Mills continues to focus on its Accelerate strategy, which breaks down into four pillars: boldly building brands, relentlessly … 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