Exclusive Analysis for the Discerning Investor
Traditional free cash flow generation has been strong for the oil majors through the first nine months of the year, but their balance sheets remain bloated with net debt. A few haven’t covered their cash dividends with free cash flow generation through the first nine months of 2017. Oil & Gas – Major: BP, COP, CVX, PTR, RDS, TOT, XOM
Image Shown: The performance of the VanEck Vectors Oil Refiners ETF (CRAK) since its launch in August 2015. We’ve witnessed our fair share of fits and starts from energy resource pricing during the past few years, but could the global crude markets finally be rebalancing? Let’s talk about our thoughts on whether the outlook for energy resource pricing is improving in a sustainable way. By Kris Rosemann and Brian Nelson, CFA It may have taken longer than we initially anticipated, but crude oil prices (USO) appear to be on the verge of making a sustained recovery, though we always caution that sentiment can change on a dime, especially in the speculation-heavy commodity price markets. If you recall, we thought the … Read more
Valuentum’s President Brian Nelson pauses for a picture before speaking at the CFA Society of Houston in March 2017. By Valuentum Editorial Staff Let’s cover Valuentum’s 3 major breakthroughs in the field of finance. The first one is big and may challenge you to rethink everything you think you know about investing. 1. On a logical framework, Valuentum has debunked John C. Bogle’s landmark syllogism that has paved the way for the concept of index investing. Index investing has been built on a logical shortcoming, whether supported by evidence or not. We think it is important that the investment community know of this. Read (pdf): The “Luck” and “Randomness” of Index Funds (2018), Brian Nelson, CFA See video documentation: /FALLACY_of_Index_Funds To … Read more
The Valuentum analyst team digs into recent developments in the oil and gas space and highlights one of the most leveraged ways to play rising crude oil prices. ~12 mins. If you cannot view the podcast below, please select the link here or view the transcript that follows. Tickerized for Valuentum’s oil and gas coverage universe. Chris Araos: Hello, this is Christopher Araos at Valuentum Securities, and today with us is Brian Nelson and Kris Rosemann. Today, we are going to talk about the outlook on oil and gas. Brian Nelson, CFA: Thanks Mr. Araos. I think to kind of set the stage for this conversation, we probably need to bridge the gap between what was truly the depths of … Read more
The Best Ideas Newsletter portfolio has generated significant outperformance in part from avoiding many of the landmines across the energy sector during the past many months. We’ve done equally well in our calls in the Dividend Growth Newsletter portfolio, and we’re very proud of raising the issue of the importance of looking at non-GAAP free cash flow across pipeline entities. We believe that such a measure is the best one to assess the timing of free cash flows as they are generated, an important consideration for investors of all types, and not properly addressed in measures of distributable cash flow or a company’s dividend or distribution. Why are we now inching ever so slightly back into energy? 1. The market … Read more
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
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
Phillips 66’s third-quarter results, issued last Wednesday, revealed significantly weaker worldwide refining margins, as expected. The company’s third quarter earnings fell to $535 million, down from adjusted earnings of $1.9 billion in the third-quarter of 2012. Results in the company’s ‘Refining’ segment remain highly volatile. Phillips 66’s ‘Midstream’ segment generated earnings of $148 million compared with adjusted earnings of $88 million in last year’s period. Third-quarter earnings in Phillips 66’s ‘Chemicals’ segment came in at $262 million, down modestly from adjusted earnings of $275 million in the year-ago period. The company’s quarterly earnings for its ‘Marketing and Specialties’ segment totaled $240 million, up from $98 million in the same quarter last year. Corporate and other expenses were roughly flat during the … Read more
Dividend Growth Newsletter portfolio holding Phillips 66 (click ticker for report: ) announced on Tuesday that it would raise its quarterly dividend 25% to $0.39 per share. This equates to an annual dividend of $1.56 per share, and an annual yield of 2.6% at current levels. We applaud the move, though we aren’t surprised, as we have long believed that the firm has excellent dividend safety and growth potential. In our view, the longer-term fundamental story for Phillips 66 and the broader industry continues to look positive as refining capacity remains constrained and more advantaged crude flows through North American pipelines. At this time, Philips 66 remains our favorite idea in the refinery space and a holding in the portfolio … Read more
Dividend Growth Newsletter portfolio holding Phillips 66 (click ticker for report: ) announced slightly weaker than anticipated second quarter earnings Wednesday morning, which isn’t too surprising after the insight we received from peer Valero (click ticker for report: ). Revenue declined 8% year-over-year to $43.9 billion, which was actually above estimates but not materially important for Phillips 66. Earnings per share declined 33% to $1.50 per share, falling well short of consensus expectations. Free cash flow remained relatively strong at $597 million during the quarter, and year-to-date, it stands at $2.4 billion. Image Source: PSX 2Q 2013 Investor Presentation Where did Phillips 66 earnings weakness come from? Without question, it was the firm’s refining margin. Advantaged crude remained flat as … Read more