MORN

Apple Owns the “Sixth Source” of an Economic Moat

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Apple (AAPL) hit the ball out of the park again in its fiscal fourth-quarter results ended September 26. Apple skeptics are in some ways like Chicago Cubs fans, often saying “wait until next year,” but in both cases, we think Apple and the Cubbies are the real deal (Valuentum is based in the Chicagoland area). As the iPhone giant strings strong report after strong report together, at what point does the market finally give it full credit in the valuation context? Shares continue to trade at less than 9 times earnings, excluding net cash on the balance sheet, as we outlined in the following: “Quantifying Apple’s Tremendous Investment Case.” That is a phenomenal value in today’s still-overheated equity market. The … Read more

Video: Are Economic Moats Priced Into Stock Prices? — You Bet They Are

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President of Equity Research Brian Nelson debunks the myth that the economic moat is not included in stock prices. Length: ~8 minutes. Tickerized for firms in the Morningstar Wide Moat ETF (MOAT), as of October 14, 2015. Brian Nelson, CFA: This is Brian Nelson from Valuentum Securities. I wanted to talk about an important concept and answer an important question. Is Warren Buffet’s economic moat priced into stock prices? Before I answer that question, I think we need to define a couple things. Return on invested capital is a measure of a business’ performance. It’s calculated as earnings before interest divided by net new investment, which is a measure of return on new invested capital. So what is the return the … Read more

FAQ: The Wider the Moat, the Lower the Return, Right?

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Q: The wider the moat, the lower the return, right? A: Yes, that’s correct. Morningstar’s very own data from 2002 through 2012 shows that “no” moat stocks are the best performers. A former colleague of mine, Morningstar’s Warren Miller noted the following in his January 11, 2013 piece titled, “How Our Stock Star Ratings Have Performed:” Figure 3 further illustrates the idea that using moat ratings alone will not yield outsized returns. In fact, the wider the moat, the lower the return. There it is. Go ahead, look at Figure 3 (1). It shows that “no” moat stocks outperform “narrow” moat stocks, which outperform “wide” moat stocks. We don’t think Morningstar is doing anything wrong talking about moats, but we … Read more

Dividend Increases for the Week Ending December 5

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Below we provide a list of firms that raised their dividends during the week ending December 5. 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 Agree Realty (ADC): now $0.45 per share quarterly dividend, was $0.43. Alexandria REIT (ARE): now $0.74 per share quarterly dividend, was $0.72. Associated Estates Realty (AEC): now $0.21 per share quarterly dividend, was $0.20. Axis Capital Holdings Limited (AXS): now $0.29 per share quarterly dividend, was $0.27. C.H. Robinson Worldwide (CHRW): now $0.38 per share quarterly dividend, was $0.35. Cameco (CCJ): now C$0.10 per share quarterly … Read more

Booyah! Jim Cramer Under Attack!

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TheStreet’s director, major shareholder, and employee is under fire from an activist investor that has disclosed a near-9% stake. Per SEC Filing: J. Carlo CannellCannell Capital LLCP.O. Box 3459, 150 East Hansen Avenue, Jackson, WY 83001(307) 733-2284 Mr. James J. CramerDirectorTheStreet, Inc.14 Wall StreetNew York, NY 10005   Cannell Capital LLC – that twenty-two-year-old SEC-registered investment advisor which manages sundry accounts that collectively owned 8.95% percent of TheStreet,Inc. (“TST” or the “Company”) as of December 2, 2014 – hereby amends its filing position as regards TST from passive to active because certain matters of governance concern it. The structure of your relationship with TST leads these concerns. Allow me to review some facts. 1. The market capitalization of TST has … Read more

Is Predicting Stock Prices Easy? 100% of Economists Say “No Way!”

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By Brian Nelson, CFA “Don’t get frustrated if one or two of your ideas don’t work out. This is to be expected in a portfolio of stocks. You’re investing to achieve your goals. It is only human and natural to be wrong sometimes.” The University of Chicago’s Initiative on Global Markets frequently puts out a survey from a variety of different standpoints on relevant issues of the day. Though the write-up from the World Economic Forum goes into countering “the general perception that economists rarely agree on anything,” we were quite interested in one particular dynamic: 100% of economists think predicting stock prices is difficult, while 45% of the public thinks predicting stock prices is not difficult (presumably easy). The … 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

Analyst Job Preservation and the Conflicts of Interest That Prevail

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“I’d rather lose half of my clients than lose half of my clients’ money.” – Jean-Marie Eveillard (First Eagle Global) I think very few investment research firms other than Valuentum can say that they are truly free from conflicts of interest. As shown in the excerpt from FINRA attached at the end of this article, there are at least five sources of analyst conflict of interest: investing banking relationships, analyst compensation, brokerage commissions, buy-side pressures, and ownership interests. No matter how much you may want to believe that sell-side equity research, or research provided by companies such as Morgan Stanley or Goldman Sachs, is free from conflicts of interest, it simply is not. Valuentum prides itself on being one of … Read more

You Can’t Trust Anonymity; Einhorn Sues

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By Brian Nelson, CFA We’re writing this piece to make you aware of some troubling developments in this industry. The investment business, as we’ve highlighted many times in the past, is based on trust. During the past several years, there’s been an explosion of information overload on the worldwide web, and a lot of the financial and investment information is written by anonymous authors without analyst credentials and with unknown motives. We hold the belief that, if a writer cannot stand behind his work in his own name, then there’s something wrong. Not only are a lot of the articles on other financial websites written by biased and anonymous authors, but now at least one anonymous author has been dealing … Read more

Seadrill’s 10%+ Annual Dividend Yield Is a Long-term Fantasy

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As many investors know, firms can often become cheap for good reasons. That is, they are not trading cheaply because of Mr. Market’s irrational behavior, but instead are trading at depressed levels due to deteriorating underlying fundamental characteristics that actually justify its current share price, even if traditional valuation techniques (such as P/E multiple analysis) suggest the firm’s shares are inexpensive. On a similar note, firms that boast high dividend yields may do so because the market has little confidence in the sustainability of its dividend and believes a cut may be just around the corner. Though we fall short of saying that offshore deep-water drilling company Seadrill (SDRL) will slash its dividend tomorrow, our dividend-cut predictive indicator—the Valuentum Dividend … Read more