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A ~0.1% Probability Since 1896

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Image Source: Wikipedia Commons   By Brian Nelson, CFA It was mid-June 2015, and our team released our case on why the midstream MLP space would collapse. To us, it just made sense. We’ve been practicing enterprise valuation for a long time, and to this day, we’ve updated over 20,000+ discounted cash flow models. I used to head up the methodology and valuation infrastructure of a department of over 100 analysts across several continents and all sectors when I used to work at Morningstar. Baptism by fire as they say. This was about 10 years ago now. Since our call in mid-June 2015 through March 2, 2020, on a price basis, the S&P 500 (SPY) has advanced 46%, while the Alerian MLP … Read more

Analyzing Three Names Within the Retail Industry

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By Callum Turcan In this note, we cover one quality retailer and two retailers that were facing a myriad of problems long before the novel coronavirus (‘COVID-19’) epidemic reared its head. Best Buy One of the few retailers out there that has actually been able to mitigate the threats posed by e-commerce giant Amazon Inc (AMZN) is Best Buy Co. Inc. (BBY), and as of this writing, shares of BBY yield a decent ~2.8% on a forward-looking basis. On February 27, Best Buy reported fourth quarter and full-year earnings for fiscal 2020 (period ended February 1, 2020) that beat consensus estimates on both the top- and bottom-lines. ‘Enterprise comparable sales’ growth in the fourth quarter (includes both domestic and international … Read more

Fed Cuts 50 Basis Points, Expect More Market Volatility Ahead

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Image Source: FOMC  The emergency 50-basis point Fed rate cut announced March 3 was largely expected by the marketplace in light of growing economic concerns due to COVID-19, but it does nothing to immunize against COVID-19 and little to stabilize the situation. We continue to monitor the situation closely, and we expect ongoing volatility in the coming days and months as the situation with COVID-19 remains fluid. Having moved to defensive positions in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio in January and having capitalized on the “crash protection” put, we are preparing for our next move. For now, we’re watching and waiting, and we encourage readers that have not yet picked up their copy of … Read more

COVID-19 Crisis Intensifies

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Image Source: CDC. Coronavirus Disease 2019 (COVID-19).  Our dearest members: — The world is being challenged today by what some including Bill Gates believe might be a “once-in-a-century pathogen.” We do not know the eventual outcome, whether the impact of this illness ends up being as profound as the Spanish Influenza of 1918-1919 (which inflicted a death toll in the tens of millions), but we maintain our view the markets have yet to come to grips with the impact of COVID-19 on economic activity and potential ramifications on the global economy and the banking system.  — What is currently a “biological” crisis may turn into an all-out global financial crisis, one that could end up worse than the 2008/2009 mortgage meltdown. Instead … Read more

Home Depot Reports Fourth Quarter Amid Rising Exogenous Headwinds

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Image Shown: Home Depot Inc has had plenty of success building off of and expanding its ‘Pro’ ecosystem as it relates to generating nice comparable sales growth. Image Source: Home Depot – 2019 Investor and Analyst Day IR Presentation By Callum Turcan On February 25, Home Depot Inc (HD) reported fourth quarter and full-year earnings for fiscal 2019 (period ended February 2, 2020) which matched top-line consensus estimates and beat bottom-line consensus estimates. What really caught the market’s attention was Home Depot’s strong comparable sales performance, which was up 5.2% overall and 5.3% in the US during the fourth quarter on a year-over-year basis (for the whole fiscal year, Home Depot’s overall and US comparable sales rose by 3.5% and … Read more

Has the Stock Market Crash Begun?

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Image: CDC. Transmission electron microscopic image of an isolate from the first U.S. case of COVID-19, formerly known as 2019-nCoV. The spherical viral particles, colorized blue, contain cross-section through the viral genome, seen as black dots. Dear members: This article is our fourth update on COVID-19. The previous three installments can be found here (Feb 22), here (Feb 7) and here (Jan 31). We trust you and yours are well during this global crisis. It’s hard to turn on the television these days without hearing about COVID-19, a novel coronavirus and respiratory illness that continues to spread from person to person around the world. COVID-19 is deadly, and particularly deadly among those 60 years of age and older and those … Read more

ALERT: Adding Market Crash ‘Protection,’ Removing MSFT, BKNG

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Image source: Centers for Disease Control and Prevention.  ALERT: Adding Market Crash ‘Protection,’ Removing MSFT, BKNG — Changes to newsletter portfolios — We’re adding out-of-the-money put options to both the Dividend Growth Newsletter portfolio and Best Ideas Newsletter portfolio. — We’re removing Microsoft from the Dividend Growth Newsletter portfolio. — We’re removing Booking Holdings from the Best Ideas Newsletter portfolio. — By Brian Nelson, CFA — We’re making some moves in the newsletter portfolios today.  — The Dow Jones Industrial Average (DIA) is currently indicated down 900+ points in pre-market trading during the session Monday, February 24. We laid out a thesis where the US markets could experience a “crash,” and we encourage you to read that take here, “Is a … Read more

Is a Stock Market Crash Coming? — Coronavirus Update and P/E Ratios

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Image Source: World Health Organization, Coronavirus disease 2019 (COVID-19), Situation Report — 32 We don’t think this is the environment to put new capital to work, and we remain highly cautious of what COVID-19 means for global economic growth not just in the first quarter of 2020 but for the rest of this year (maybe longer). Right now, the US markets are not really factoring in anything related to COVID-19, and perhaps may be adjusting to China’s stimulus in artificially propping up the markets as if the outbreak is somehow a “positive thing.” With the S&P 500 trading at 19.0 forward earnings estimates–estimates that are likely too high given the evidence we are seeing with respect to a slowdown due … Read more

Resetting Your Mental Model

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Image Source: affen ajlfe A version of this article was originally published on our website October 6, 2013. Having the right mental model and using the right information can be the reason why you win or lose in investing. “What is the definition of timeliness? Many believe it is getting information to investors as quickly as possible after an event, or updating something every single day or week for immaterial information. I believe in a different definition of timeliness. I believe timeliness is using all information available in a mosaic approach to accurately predict the event before it even happens. Take Kinder Morgan as the latest example. We were the only ones predicting what was going to happen before it did. To investors, … Read more

Our Reports on Stocks in the Specialty Retailers Industry

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Images Source: Mike Mozart (Home Depot, Lowes) Structure of the Specialty Retailers Industry The specialty retail segment is fragmented, highly competitive, and economically-sensitive. The group covers a broad array of businesses and is dominated by retailers with large brick-and-mortar store footprints. Though some constituents may be insulated from e-commerce competition, others risk obsolescence as product distribution moves to digital means, and online retailers offer lower prices for identical goods and services. We’re fairly neutral on the structure of the industry, though some constituents will inevitably face secular and permanent declines. For coverage of firms in the Specialty Retailers Industry, please click here.