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Trump’s Tariffs Ignite Concerns about Protectionism, Rising Input Costs

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Image Source: Michael Vadon President Trump is making true on his promises to protect the domestic steel and aluminum industries. Input costs may move higher for many global industrials, and the long-term implications of protectionist policy will be tested. We’re not expecting retaliation, but we can’t rule it out either. Rising rates remain our primary concern. Kris Rosemann and Brian Nelson, CFA If rising interest rates aren’t enough to give the market heartburn, President Trump announced March 1 that he will impose tariffs on the importation of steel and aluminum to the tune of 25% and 10%, respectively, citing national security concerns. Steel and aluminum stocks rallied hard on the news, but it left many of its industrial brethren under … Read more

Video: Quants! You’re NOT Measuring VALUE and Nelson’s Theory of Universal Value

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President of Investment Research Brian Nelson defines the concept of universal value and shows how quantitative statistical methods are inextricably linked to those of fundamental, financial, business-model related analysis. Value does not exist in respective process vacuums! Value is universal. Find out why. Running time: ~10 minutes.  Tickerized for Valuentum’s stock and ETF coverage universe. Transcript Hi this is Brian Nelson from Valuentum Securities, and this is the tenth edition of a series that I call “Off the Cuff,” where I get in front of the camera and I talk for ten minutes. This is what we have to talk about today. We have to talk about this concept: The Theory of Universal Value. Value does not exist in vacuums … Read more

How Strong Is Caterpillar’s 2.5% Dividend Yield?

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Image Shown: A 10+ year share-price chart of Caterpillar. The stock has recently set new all-time highs. Caterpillar’s stock has reached new all-time highs! How excited should income investors be? By Brian Nelson, CFA Caterpillar (CAT) is one of our favorite companies from a fundamental perspective, if we look past the cyclicality of its operations and exposure to potential weak credits at its captive finance arm. No matter how you slice it or dice it though, the company’s dealer network is a significant competitive advantage, and the executive team’s ability to manage costs through the course of the economic cycle continues to be impressive. That its shares have now surged past $120+ to all-time highs, levels that it had only … Read more

Valuentum’s 3 Breakthroughs in the Field of Finance and More

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Valuentum’s President Brian Nelson pauses for a picture before speaking at the CFA Society of Houston in March 2017. By Valuentum Editorial Staff Let’s cover Valuentum’s 3 major breakthroughs in the field of finance. The first one is big and may challenge you to rethink everything you think you know about investing. 1. On a logical framework, Valuentum has debunked John C. Bogle’s landmark syllogism that has paved the way for the concept of index investing. Index investing has been built on a logical shortcoming, whether supported by evidence or not. We think it is important that the investment community know of this. Read (pdf): The “Luck” and “Randomness” of Index Funds (2018), Brian Nelson, CFA See video documentation: /FALLACY_of_Index_Funds To … Read more

Caterpillar Prepares for Continued Pressure; Slashing Our Fair Value

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Caterpillar’s (CAT) shares have taken a substantial hit following the firm’s restructuring and cost reduction announcement September 24. The slowing economy in China, the largest market for construction machinery in the world, has infected the export-dependent countries of Brazil, Canada, and Australia, resulting in severe weakness in mining activity and construction sales, almost everywhere on the globe. OPEC’s dedication to putting US producers out of business has wreaked havoc on the price of oil and orders for oil-related applications. Cat Financial’s exposure to increasingly weaker credits in the mining and energy arenas, however, has us most concerned. We’ve materially lowered our fair value estimate as a result.  Caterpillar’s cost reduction plans will begin in late 2015 and are indicative of … 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

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

Nelson: The 16 Most Important Steps To Understand The Stock Market

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A previous version of this article appeared on our website July 21, 2013. Refreshed and updated throughout, as of July 2018. By Brian Nelson, CFA After earning my MBA at the University of Chicago Booth School of Business and training stock and credit analysts from large organizations over the past decade or so, I have heard just about every question (though I admit I am still surprised by many things and remain a very humble student of the markets). I’ve also spent years perfecting the discounted cash flow process for large research organizations such as Morningstar and studied under one of the most famed aggressive growth investors of all time, Richard Driehaus. My knowledge runs the gamut from value through … Read more