MDT

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

Dividend Increases/Decreases for the Week of 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                          Alerus Financial (ALRS): now $0.21 per share quarterly dividend, was $0.20. Bay Commercial Bank (BCML): now $0.20 per share quarterly dividend, was $0.15. Cross Timbers Royalty Trust (CRT): now $0.0808 per share monthly dividend, was $0.0321. dLocal (DLO): now $0.0521 per share quarterly dividend. Equitable Holdings (EQH): now $0.27 per share quarterly dividend, was $0.24. Flowers Foods (FLO): now $0.2475 per share quarterly dividend, … 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

Magnificent 7 Earnings Reports Not Bad Thus Far

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By Brian Nelson, CFA   Shortly after Trump’s Liberation Day, where the President unveiled lofty tariffs on numerous countries, we released our wait-and-see outlook for the equity markets, which thus far has proven to be the right move, with the markets largely recovering from the depths reached in April. The S&P 500 (SPY), for example, is down just 3.3% year-to-date, excluding dividends.   A lot has happened since Liberation Day, including easing of tariffs to a 10% baseline for most, if not all, countries, with the key exception of China, where tariffs remain extremely elevated and prohibitive. Many countries are now reportedly negotiating trade agreements with the White House, and we expect China to be added to that list soon, even if … Read more

Trump Tariffs Higher than Expected; What We’re Doing

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By Brian Nelson, CFA The Trump tariff increases came in larger than what we were expecting, and it remains to be seen how they will flow through the global economy, as we monitor potential retaliatory tariffs from other countries. As it relates to the equity markets, we’re taking a wait and see approach at the moment as we monitor new policy changes related to trade, immigration, fiscal (tax), and regulations. In short, we’re not overreacting to the sell off as we won’t have a great handle on the tariff impact to companies for a few quarters when they report results post-tariff increases. That said, we’re expecting continued market volatility, with meaningful risk to the downside, before trade uncertainty alleviates in … Read more

An Important Measure of Leverage for Dividend-Growth and Income-Oriented Shareholders, One That Is Dividend-Adjusted

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As more and more investors rely on company dividends for income, dividends, in our view, have become more debt-like commitments in nature, especially from the perspective of dividend-growth or income-oriented shareholders. Years ago, we rolled out a measure of financial leverage that considers both the company’s debt and the present value of its future expected cash dividend obligations, which, in the eyes of die-hard dividend-growth or income-oriented shareholders, may be implicitly assumed to be debt-like commitments in substance. We think this leverage ratio can be used in conjunction with the Dividend Cushion ratio to gain additional insight into the dividend-paying financial health of an entity. Note: There is often great confusion with respect to published measures of financial leverage, and … Read more

Medtronic Raises Fiscal 2025 Guidance

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By Brian Nelson, CFA Medical device giant Medtronic (MDT) recently reported fiscal first quarter fiscal 2025 results that came in better than expectations. Adjusted revenue was $8 billion in the quarter led by 5.3% organic growth. Adjusted diluted earnings per share was $1.23, up 2.5% and 7.5% in constant currency. In the quarter, its Cardiovascular segment experienced 6.9% organic growth, its Neuroscience segment experienced 5.3% organic growth, its Diabetes segment experienced 12.6% organic growth, while its Medical Surgical segment experienced 1% organic growth. Year-to-date, operating cash flow was $1 billion, while free cash flow was $0.5 billion. ESG Matters Image Source: Medtronic Medtronic has a number of long-term sustainability objectives that are worth mentioning. It expects to reduce greenhouse gas … 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

Pfizer 6% Dividend Yield Speaks of Considerable Risk, Free Cash Flow Coming Up Short

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Image: Pfizer’s shares have been under considerable pressure the past few years. By Brian Nelson, CFA  Pfizer’s (PFE) revenue has faced pressure of late from expected declines in COVID-related sales from Comirnaty and Paxlovid, as the pharma giant navigates a post-COVID-19 world. However, excluding weakness from COVID-19 related revenue, the company’s underlying revenue grew 7% during 2023. Pfizer is working to build a strong oncology portfolio as it strives to realize billions in annualized cost savings to get to the other side of its troubles.   Image: Pfizer’s 2024 financial guidance. For the full-year 2024, Pfizer is targeting revenue in the range of $58.5-$61.5 billion (was $58.5 billion in 2023) and adjusted diluted earnings per share in the range of … Read more

You Already Own Whatever Your Investment Will Pay You in Dividends

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“Business owners across the world know that their business is not more or less valuable because they paid themselves a higher distribution this quarter.” – Brian Nelson, CFA Image Source: Images Money Stocks are generally valued on the present value of all their future free cash flows, which already include future dividend payments. A company’s dividend policy may impact an investor’s eagerness to pay a higher price for shares on the basis of a higher yield, but the dividend is a symptom of future free cash flows (and therefore intrinsic value), not a driver behind it. where A (t) is an Enterprise Free Cash Flow (1) at year t,                 B (0) is a Total Debt at time 0,                 … Read more