JOY

This Just Feels Different…Mr. Brown

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We think the correction is coming. Here are 7 reasons why we plan to reduce exposure to cyclicals and add some protection to the portfolios. By Brian Nelson, CFA I hope you don’t mind my using baseball analogies. Baseball and investing are perhaps the only two endeavors where if you get more than half right, you’re at the top of the list. In any case, you don’t have to be a big baseball fan to appreciate the similarities. I used an example with Ted Williams in this piece about fat pitch investing, but there’s another analogy that is worth sharing. I’ve been to the Louisville Slugger Museum and Factory Tour a few times in the past couple years. My little … Read more

Valuentum Economic Castleâ„¢ Rating Update

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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

Dividend Increases for the Week Ending May 23

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Below we provide a list of firms that raised their dividends during the week ending May 23. 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 American States Water (AWR): now $0.213 per share quarterly dividend, was $0.203. Bristow Group (BRS): now $0.32 per share quarterly dividend, was $0.25. Bunge Limited (BG): now $0.34 per share quarterly dividend, was $0.30. CryoLife (CRY): now $0.03 per share quarterly dividend, was $0.0275. Daktronics (DAKT): now $0.10 per share quarterly dividend, was $0.09. Donaldson Co (DCI): now $0.165 per share quarterly dividend, was $0.14. Extra … Read more

Miners Continue to Be Cautious

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Though profit margins on iron ore operations are hefty, swings in commodity prices translate into large swings in equity prices as mid-cycle valuations are tweaked. Management teams within the mining space are well-aware of the boom-and-bust cycles of their business, and recent tactical moves indicate that constituents continue to be very cautious. We commented on Rio Tinto’s (RIO) and Vale’s (VALE) decision to cut spending, and recent news suggests that BHP (BHP) will also look to keep annual spending below $15 billion, a large cut from the $21.7 billion the firm spent in the previous fiscal year. The billions of dollars in reduced mining equipment spending doesn’t bode well for firms specializing in earth-moving equipment such as Caterpillar (CAT) and … Read more

Deere Doing Much Better Than Caterpillar

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After Caterpillar’s (CAT) dismal third-quarter performance, it was quite refreshing to read about Deere’s (DE) record earnings performance in its fiscal fourth quarter results, released Wednesday. Though Deere’s worldwide net sales fell 3% in the quarter, the firm’s net income of $806.8 million, or $2.11 per share, set a record for the period (up 17% and 21%, respectively). Lower shipment volumes were more than offset by a much favorable pricing environment, which worked wonders on the company’s bottom line, particularly in its ‘Agricultural & Turf’ segment (where operating profit jumped 7%). Deere’s ‘Financial Services’ operations also experienced a nice 26% jump in operating profit during the quarter thanks to improving credit performance and crop-insurance margins. We continue to like the … Read more

Joy Global: Business Is Bad and Getting Worse; Share Buybacks Are Value Destructive

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The Power of a Valuentum Buying Index (VBI) Score of 1–the worst possible measure Mining equipment maker Joy Global (click ticker for report: ) posted lackluster results Wednesday for its fiscal year 2013 third quarter. Competitor Caterpillar (click ticker for report: ) posted similarly weak results as it deals with many of the same weakening global trends that are impacting Joy Global. During the period, Joy Global’s revenue declined 7% year-over-year to $1.3 billion, though that was better performance than consensus estimates predicted. Excluding items, earnings per share fell 9.1% year-over-year to $1.70, which was also slightly above consensus estimates. Free cash flow was actually better than the prior-year quarter at $320 million, equal to 24% of total revenue. Image … Read more

Caterpillar’s Second Quarter Performance Falls Short

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Industrial bellwether Caterpillar (click ticker for report: ) reported relatively disappointing second-quarter results Wednesday, as both its top and bottom lines fell below consensus estimates. Revenue dropped 16% to $14.6 billion, as sales declined in all geographic regions, with the steepest reduction in Asia/Pacific (though we note sales in China increased). Profit per share plunged over 40% to $1.45 due to lower volumes, an unfavorable mix of products, and sales deleveraging (reduced cost absorption). Management acknowledged the difficult market environment by reducing inventories $1.2 billion in the quarter, trumping that of its dealer supply chain, which cut channel inventories by $1 billion (more than expected). It appears that neither Cat nor its dealer network, which plans to reduce inventories even … Read more

Caterpillar’s 2013 Doesn’t Look Great

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Global equipment manufacturer Caterpillar (click ticker for report: ) posted weak first-quarter results on the back of a decline in global mining capital expenditures. Revenue dropped 17% year-over-year to $13.2 billion, which was slightly below consensus expectations. Earnings tumbled 45% year-over-year to $1.31 per share, which was also worse than consensus estimates. The decline during the first quarter wasn’t much of a surprise as the outlook for mining capital expenditures fell precipitously as commodity prices tumbled. In fact, Cat’s revised outlook implies a 50% year-over-year decline in sales of the firm’s traditional mining equipment and a 15% decline in sales of the equipment sold by recently-acquired Bucyrus. Sales fell 23% in the resource segment for the quarter, and with most of the global mining … Read more

GE Pays Up For Fracking Exposure

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Earlier this morning, The Wall Street Journal reported that GE (click ticker for report: ) will acquire oil pump manufacturer Lufkin Industries (click ticker for report: ) for a whopping $3.3 billion, or $88.50 per share in cash. Paramount to any acquisition is the price paid, and we think GE paid a hefty sum to gain exposure to the US hydraulic fracturing market, paying a 20% premium to the high-end of our fair value range and a price 38% higher than Lufkin’s closing price on Friday. We understand the attractiveness of the energy business, as well as the potential synergies from incorporating the business into GE’s existing portfolio, but paying over 25x 2013 earnings for a firm that hasn’t generated … Read more