KHC

Walmart’s Free Cash Flow Remains Robust, Buys Vizio to Boost Advertising Business

by

Image: Walmart’s free cash flow generation during fiscal 2024 was superb and comfortably covers its cash dividends paid. By Brian Nelson, CFA On February 20, Walmart (WMT) reported excellent fourth quarter fiscal 2024 results, raised its dividend, and announced that it would acquire Vizio (VZIO) in a $2.3 billion all-cash deal. Walmart continues to be well-positioned in the current retailing environment after the step-change in prices over the past 12-18 months due to heightened levels of inflation, as consumers trade down to lower-priced value items. Shares of Walmart advanced followed the release of its report, and while they are trading above our fair value estimate at the time of this writing, we see upside to the high end of our … Read more

12 Reasons to Stay Aggressive in 2024

by

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

A Note on Valuation — Low P/E Stocks with High Dividend Yields

by

“But carrying low valuation parameters is far from synonymous with “underpriced.” It’s easy to be seduced by the former, but a stock with a low p/e ratio, for example, is likely to be a bargain only if its current earnings and recent earnings growth are indicative of the future. Just pursuing low valuation metrics can lead you to so-called “value traps”: things that look cheap on the numbers but aren’t, because they have operating weaknesses or because the sales and earnings creating those valuations can’t be replicated in the future.” – Howard Marks, Something of Value (2021) By Brian Nelson, CFA I was reminded of Howard Marks’ 2021 memo, “Something of Value,” after a few readers expressed interest in low … Read more

Use Both the Dividend Cushion Ratio (Probability of a Dividend Cut) and the Qualitative Dividend Ratings in Your Assessment of the Payout

by

The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%. By Brian Nelson, CFA Dividend investing has probably never been as popular as the past couple years. Remember, however, the dividend is capital appreciation that otherwise would have been achieved had the dividend not been paid. If you had a stock that was $10, and it paid a $1 dividend, you don’t have a $10 stock and … Read more

Report Updates: Amazon Registers the Lowest Rating on Our Scale

by

Select the company’s link below to access their stock webpage where their 16-page stock report (pdf) can be downloaded. The stock webpage also houses the company’s dividend report (pdf), where applicable, as well as the latest company/industry commentary and news.    Albemarle (ALB) Amazon.com (AMZN) Applied Materials (AMAT) Cisco (CSCO) Halliburton (HAL) Lam Research (LRCX) Phillips 66 (PSX) Visa (V) CVS Health (CVS) Intuitive Surgical (ISRG) AbbVie (ABBV) Bristol-Myers Squibb (BMY) Gilead Sciences (GILD) Pfizer (PFE) Abbott (ABT) Oracle (ORCL) Archer-Daniels-Midland (ADM) Fresh Del Monte (FDP) Kraft Heinz (KHC) Lancaster Colony (LANC) McCormick (MKC) Molson Coors (TAP) Smucker (SJM) Sysco (SYY) ———- It’s Here!  The Second Edition of Value Trap! Order today!   —– Brian Nelson owns shares in SPY, SCHG, QQQ, … Read more

ICYMI: Questions for Valuentum’s Brian Nelson

by

Valuentum’s President Brian Nelson, CFA, answers your questions. Q: What Is Valuentum? A: In short, it is a strategy that combines the concepts of value and momentum within individual stocks. We measure value through the cash-based sources of intrinsic value – net cash on the balance sheet and future expected free cash flow. We measure momentum rather simply, generally via relative strength or other technical and momentum indicators. We like stocks with strong net cash positions on the balance sheet, ones that are generating tremendous free cash flow, and have strong secular growth prospects such that the prospect for expectations of free cash flow can continue to be ratcheted higher. Today, most Valuentum stocks are included in the stylistic area … Read more

The Role of Luck in Investing and How To Think About It

by

Dear members: — For every Amazon (AMZN) that made it, there are hundreds, maybe thousands, from the dot-com era that didn’t. Very few remember Pets.com or etoys.com, both of which went belly up during the dot-com meltdown. For every Tesla (TSLA), there is a DeLorean Motor Co. We might have completely forgotten about DeLorean were it not for the blockbuster movie, Back To The Future, that immortalized its futuristic sports car. — For every streaming enterprise like Netflix (NFLX), there is a Napster that failed. Most of us probably don’t even remember the original Napster, which encountered legal troubles before closing shop shortly after the dot-com bust. For every Alphabet (GOOG, GOOGL), there’s an AltaVista or Netscape. For every Apple (AAPL), there … Read more

Not Expecting Much From Consumer Staples Stocks

by

By Brian Nelson, CFA Within the discounted cash-flow [DCF] modeling process (also known as enterprise valuation, or the free cash flow to the firm model), there are two primary sources of cash-based intrinsic value: net cash on the balance sheet and future expected enterprise free cash flows. The sum of net cash on the balance sheet and the present value of future enterprise free cash flows divided by weighted average diluted shares outstanding results in a fair value estimate per share, which then can be divided by earnings to arrive at a value-derived price-to-earnings (P/E) ratio. Only when this value-derived P/E ratio is compared to the price-observed P/E ratio—the latter calculated as price divided by estimated earnings–can a company then be … Read more

Positive Pricing Elasticities Continue to Power Pepsi

by

Image: Effective net pricing continues to be strong at Pepsi. Image Source: Pepsi By Brian Nelson, CFA  On July 13, PepsiCo, Inc. (PEP) reported excellent second-quarter 2023 results. The firm’s pricing power continues to impress as the executive team manages modest losses in organic volume with huge effective net pricing increases. For the 12 weeks ended June 17, 2023, organic volume dropped 2.5% while effective net pricing increased a whopping 15% (effective net pricing increased 14% in PepsiCo Beverages North America). Operating income surged more than 75% in the quarter. For the 24 weeks ended June 17, 2023, free cash flow of $506 million was 32% higher than the $383 million mark in the same period a year ago. Pepsi … Read more

How Much More Will Consumers Pay for McCormick Spices?

by

Image: Pricing growth remains the story at McCormick, but for how long? Image Source: McCormick By Brian Nelson, CFA Those that know McCormick & Company (MKC) are aware of its dominance in spices and seasonings, but just how much more can the consumer pay for its products? So far so good it seems, but we have doubts consumers are going to keep paying up and up ad infinitum for its flavors. Something’s got to give eventually, and that could result in a big quarterly miss, in our view. When McCormick reported second-quarter fiscal 2023 results on June 29 for the period ending May 31, 2023, all its sales growth came from pricing actions, with McCormick experiencing a 0.9% decline in … Read more