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Microsoft Wins GitHub Over Alphabet

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Image Source: Microsoft deal presentation Microsoft has agreed to acquire GitHub for $7.5 billion. Competing bids may have driven the price tag higher, but Microsoft’s financial flexibility remains top-notch. By Kris Rosemann On June 4, simulated Dividend Growth Newsletter portfolio idea Microsoft (MSFT) agreed to acquire privately-held GitHub, one of the world’s leading software development platforms, for $7.5 billion in stock. We like that Microsoft isn’t taking on more debt related to this transaction, and in light of Microsoft’s buyback program, the deal is more cash-like than anything else. GitHub will continue to operate independently in providing an open platform for developers after the deal closes, which is expected by the end of 2018, similar to Microsoft’s course of action … Read more

Alphabet May Need to Clean Up Its Spending

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Alphabet, the company formerly known as Google, put up decent first-quarter 2018 results with respect to the top line, but the company is facing a rising cost and capital-spending profile. The first quarter could have been a lot better, in our opinion. By Brian Nelson, CFA   On April 23, Alphabet (GOOG, GOOGL) reported relatively disappointing first-quarter 2018 results. Revenue advanced 23% on a constant-currency, year-over-year basis, but operating income increased at a more modest 6.6% pace, as Alphabet’s operating margin dipped 5 percentage points. Google’s advertising revenue did well in the period, and the company even trimmed its “Other Bets” operating loss, but operating income of $8.37 billion wasn’t nearly as good as we would have liked. Traffic acquisition … Read more

Value Investors Starting to Salivate Over Facebook’s Fall

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Image Source: DonkeyHotey Facebook is becoming a value investor’s dream: a stock with fantastic free cash flow generation and balance sheet health dealing with transient headline noise. We’re waiting for shares to start to turn upward before we would consider adding to the hypothetical weighting in the simulated Best Ideas Newsletter portfolio. They look cheap! By Brian Nelson, CFA Facebook’s (FB) fall from grace has been a dream come true for many value investors looking for a company with a pristine balance sheet and tremendous free cash flow generation. By a pristine balance sheet, we mean a huge net cash position (~$41.7 billion) and no debt. By tremendous free cash flow generation, we mean that Facebook hauled in $5.4 billion … Read more

Market Overreacts to Facebook News

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Image Source: Christopher The headline news seems concerning, but we’re taking a long-term perspective with Facebook. We doubt the news will meaningfully impact the trajectory of growth of its long-term free cash flow, and we’re not reading too much into events that seem heavily-influenced by the overheated political environment. By Brian Nelson, CFA Investors are overreacting and selling shares of Facebook (FB) March 19 because they are worried about implications of a UK probe and a state investigation into the practices of Cambridge Analytica, a privately-held data mining and analysis company, and whether the way Cambridge Analytica acquired and applied data from users of Facebook was legal. The New York Times first broke the story when the paper published a … Read more

The “Luck” and “Randomness” of Index Funds

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Please select the image below to download the document. Image shown, page 1 of 14. Tickerized for Valuentum’s coverage universe.

What Goes Up… Well, You Know the Rest

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Groundhog Day proved to be painful for the markets. Though a few companies disappointed with respect to their earnings reports, the real reason for the sell-off is two-fold: the market is overpriced by most metrics and Treasury rates, used within valuation frameworks, are rising. By Brian Nelson, CFA Many were surprised by the market’s big fall during the trading session February 2, 2018. We’re not. We wrote up a recent piece that said even a 1%-2% decline may be nothing when it comes to truly evaluating historic bear markets, which can zap as much as 40% of wealth in just a couple years, “2018 Starts Out with a Bang!:” Though we continue to believe that readers should exercise caution due … Read more

Microsoft: A Dividend Growth Giant

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Image Source: Microsoft. 

Microsoft is no longer a tech dinosaur. Estimates suggest it is beating Amazon at its own game. We’re huge fans of Microsoft’s free cash flow generation and balance-sheet health and what that means for the dividend. There’s not a lot to dislike about Microsoft, and while the risks are many, few company’s have a stronger business model.

Video: Indexing/Quant Bubble, Pitfalls of Backward Multiple Analysis, and Thoughts on the CAPE Ratio

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President of Investment Research Brian Nelson talks about what causes a stock pricing bubble, notes how the “price setters” are disappearing in today’s market, explains the pitfalls of backward-looking multiple analysis, and shares his thoughts on the CAPE (cyclically-adjusted price-to-earnings) ratio. Running time: ~11 minutes Internet Content & Services: AABA, AKAM, ANGI, BIDU, FB, GOOG, GRUB, JD, LNKD, SOHU, TCEHY, TRIP, TWTR, TZOO, ULTI, WBMD, YELP Internet Content & Catalog Retail: AMZN, BABA, EBAY, EXPE, GRPN, IACI, LQDT, OSTK, PCLN, QVCA, STMP