HES

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

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

Exxon Mobil’s Permian Assets Performing Well, Structural Cost Reductions on Track

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Image Source: Exxon Mobil By Brian Nelson, CFA Exxon Mobil (XOM) recently reported better than expected third quarter results, though performance faced some headwinds from lower industry refining margins and reduced natural gas prices. Total revenues and other income fell 0.8% in the quarter on a year-over-year basis, while earnings excluding identified items (non-GAAP) fell to $8.6 billion from $9.2 billion in the year-ago period. Diluted earnings per common share came in at $1.92 versus $2.25 in the same period a year ago. Management had the following to say about the quarter: We delivered one of our strongest third quarters in a decade. Our industry-leading results continue to demonstrate how our enterprise-wide transformation is improving the structural earnings power of … Read more

Dividend Increases/Decreases for the Week of September 6

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Below we provide a list of firms that raised their dividends during the week ending September 6. 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                          AGL Energy Limited (AGLXY): now $0.1421 per share semi-annual dividend, was $0.0987. 6Phillips Edison (PECO): now $0.1025 per share monthly dividend, was $0.0975. AEGON (AEG): now $0.178 per share semi-annual dividend, was $0.172. Brady (BRC): now $0.24 per share quarterly dividend, was $0.23. Clinuvel Pharmaceuticals (CLVLY): now $0.0299 per share annual dividend, was $0.0234. Fairfax Financial Holdings Limited RESET CV PFD I (FFH.PR.I:CA): now … 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

Merger Mania

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Image Source: Glenn Beltz By Brian Nelson, CFA Mergers and acquisition [M&A] activity continues as the market sets new highs. Elevated borrowing costs as a result of the Fed’s aggressive rate hiking cycle in 2022 are pushing many entities to pursue all-stock transactions. We’ve previously discussed our thoughts on the Cisco (CSCO)/Splunk (SPLK) tie-up in this article here, which was an all-cash deal, but several other rather large acquisitions have been announced that are worth bringing to members attention. On February 19, Capital One (COF) announced that it would acquire Discover Financial (DFS) in an all-stock $35.3 billion deal that would represent a 26.6% premium over Discover’s price as of February 16. The deal is expected to generate $2.7 billion … 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

Earnings Roundup: ABBV, CVX, NYCB, XOM

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By Brian Nelson, CFA AbbVie (ABBV) Facing Pressure on Humira Sales But Companywide Revenue Outlook Remains Robust On February 2, pharma giant AbbVie reported mixed fourth-quarter results with revenue coming in ahead of expectations, but non-GAAP earnings per share coming in slightly lower than the consensus forecast. In the quarter, worldwide net revenue fell 5.4% as the firm continues to work through biosimilar competition against its blockbuster Humira, where net revenues fell more than 40% in the quarter on an operational basis. Global sales of Skyrizi and Rinvoq, however, still powered ahead, advancing nearly 52% and 63% in the quarter on an operational basis, respectively. Its oncology portfolio faced pressure from declining sales of Imbruvica, while it experienced particular strength … 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

2 Stocks to Watch: Tesla and Chevron

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  Image Source: Tesla By Brian Nelson, CFA  With the 10-year Treasury rate reaching 5% in recent trading sessions, investors have been laser-focused on this benchmark rate that is commonly used as the foundation to estimate both the cost of debt and the cost of equity to discount future expected free cash flows within equity valuation models. We’re not going to prognosticate on the future direction of the 10-year Treasury rate, but we’re also not concerned about current rate levels either, given that our 10-year Treasury rate assumption within our discounted cash flow models is roughly ~4.3%, a level that we had maintained even when the 10-year Treasury rate was much lower years ago. Though it’s difficult to shift away … Read more