PEP

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

PepsiCo’s Earnings Stagnate While Organic Revenue Expands

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Image Source: TradingVIew By Brian Nelson, CFA On October 9, PepsiCo (PEP) reported third quarter results that came in better than expected on the top and bottom lines. Net revenue increased 2.6% thanks to a 1.3% increase in organic revenue performance. Earnings per share, however, fell 11%, to $1.90, while core earnings per share of $2.29. Core constant currency earnings per share dropped 2% in the quarter. PepsiCo Goods North America experienced a decline of 3% on an organic basis, while PepsiCo Beverages North America increased 2% organically. Organic revenue in its International Beverages Franchise fell 1%, while organic revenue increased nicely in the EMEA (+5.5%) and Latin America Foods (+4%) divisions. Organic revenue increased 1% in its Asia Pacific … 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

Alert: Changes to the Newsletter Portfolios

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Image Source: Mike Cohen cc by 2.0. Summary Best Ideas Newsletter portfolio Pepsi (PEP): 4%-6% à 0% McDonald’s (MCD): 4%-6% à 0% Amazon (AMZN): 0% à 4%-6% Nvidia (NVDA): 0% à 4%-6% Dividend Growth Newsletter portfolio Honeywell (HON): 3%-4% à 0% McDonald’s (MCD): 3%-4% à 0% Meta Platforms (META): 0% à 3%-4% Booking Holdings (BKNG): 0% à 3%-4% By Brian Nelson, CFA 2024 proved to be a great year for stock investors. The Dow Jones Industrial Average ETF Trust (DIA) has advanced nearly 15% year-to-date on a price-only basis, while the SPDR S&P 500 ETF Trust (SPY) is up a whopping 25%+ on a price-only basis. The Invesco QQQ Trust (QQQ) is up even more at a 27% advance in … Read more

PepsiCo Experiencing Subdued Growth, Business Disruptions Due to Geopolitical Tensions

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Image: PepsiCo has traded sideways for most of the past couple years. By Brian Nelson, CFA On October 8, PepsiCo (PEP) reported mixed third-quarter results with revenue coming up a bit short of consensus and non-GAAP earnings per share beating the Street’s forecast. The headline numbers weren’t great with net revenue falling 0.6% and earnings per share falling 5%. Organic revenue growth was 1.3% in the third quarter (consensus was for 3% growth), with core earnings per share coming in at $2.31, with core constant currency operating profit up 6% and core constant currency earnings per share up 5%. On an organic revenue basis, Frito-Lay North America experienced a 1% decline, while Quaker Foods North America fell 13%. PepsiCo Beverages … 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

Brain Teaser – Reflexive versus Reflective

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Dear members: — Jason Zweig of the Wall Street Journal, wrote in his pioneering text, Your Money and Your Brain, a few fun examples of how sometimes the psychological process of anchoring and adjustment can trip us up. — In one notable example, Zweig wrote about how two psychologists Amos Tversky and Daniel Kahneman had asked volunteers to spin a wheel of fortune numbered from 0 to 100. The contestants didn’t know that the wheel was rigged to produce either a 10 or a 65 for the experiment. — After spinning the wheel, the contestants were then asked whether the percentage of total United Nations membership made up of countries in Africa was higher or lower than the number that came up. … 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