SRCL

First Harvey, Now Irma

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Image Source: NASA Goddard Space Flight Center. NASA Sees Irma Strengthen to a Category 5 Hurricane. This visible light image of Hurricane Irma was captured by NOAA’s GOES East satellite as it strengthened to a Category 5 hurricane in the Central Atlantic Ocean on Sept. 5 at 7:45 a.m. EDT (1145 UTC). NASA and NOAA satellites have been providing valuable satellite imagery to forecasters at the National Hurricane Center, and revealed that Hurricane Irma has strengthened to a Category 5 hurricane on Sept. 5 around 8 a.m. EDT (1200 UTC). Credits: NASA/NOAA GOES Project. Hurricane season 2017 has not been kind to insurers.  By Brian Nelson, CFA What a disaster-of-a-hurricane-season 2017 is shaping up to be. Our hearts and thoughts go out to … Read more

Business Models of Garbage Haulers “Hitting on All Cylinders”

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Image Source: Waste Connections In a sign of the health of the US economy, garbage haulers are experiencing rates of top-line growth not witnessed in years, but their earnings multiples reflect share prices that may be disconnected from normalized fundamentals. No matter how much we love their business models, we’ve already “cashed in” our chips. By Brian Nelson, CFA Industry economics in the municipal solid waste industry are generally easy to understand. Industry pricing power essentially emanates from disposal operations. Waste generated, for example, must end up somewhere, and therefore whichever entity has the disposal operations has the power to set the bar with respect to pricing, directly or indirectly, from transfer facilities all the way through collections within certain … 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

Trash As A Source of Cash and 2 New Additions to the Best Ideas Newsletter Portfolio

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Image Source: thetaxhaven We’re making a number of adjustments to the Best Ideas Newsletter portfolio.  By Kris Rosemann and Brian Nelson, CFA It’s time to take out the trash… that is, trash hauler Republic Services (RSG) from the Best Ideas Newsletter portfolio (it’s not “trash” – it’s actually a fantastic company and has been a great stock, but boy is it pricey now). We’re also adding ~1.5% positions in two new ideas, Dollar General (DG) and Verint Systems (VRNT), in the Best Ideas Newsletter portfolio as both have attractive valuations, in our view. Dollar General’s 27 consecutive years of same-store-sales growth are impressive, and Verint is now at the low end of its short-term uptrend, offering an interesting entry point … Read more

Fair Value Estimate Changes: Facebook, Twitter, Caterpillar and More…

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  By Kris Rosemann and Brian Nelson, CFA Let’s begin this edition of Recent Material Fair Value Estimate Changes’ with a discussion of some of the highest-profile names that made the list. If you require background reading on why we make changes to our valuation models, please see: What causes fair value estimates to change? Best Ideas Newsletter portfolio holding Facebook (FB) continues to separate itself from other social media companies, and we continue to be impressed by its free cash flow generating prowess and net cash-rich balance sheet. Our most recent fair value estimate increase comes largely as a result of greater optimism regarding the sustainability of the company’s pace of revenue growth, reflected by a hike in our mid-cycle … Read more

Not Throwing Away This Garbage Hauler

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It may not be a glamourous business but it is a good one. Pricing emanates from disposal operations – that’s what industry experts say. Waste has to go somewhere, and therefore whoever has the disposal operations sets the bar with respect to pricing from transfer facilities all the way through collections. After all, garbage pick-up operators won’t be in business for long if they pay more to dispose of waste than they charge to pick it up. Industry economics in the waste industry are relatively easy to understand. As for the players, Waste Management (WM) and Republic Services (RSG) have the largest disposal operations in the US. At the end of 2014, Waste Management owned or operated 252 landfill sites, the largest … 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

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

2,350-2,750 on the S&P? Could the Coronavirus Catalyze a Financial Crisis?

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Image: We think a rather modest sell-off in the market to the target range of 2,350-2,750 on the S&P 500 is rather reasonable in the wake of one of the biggest economic shocks since the Global Financial Crisis. The chart above shows how far markets have advanced since 2011, and an adjustment lower to the target range of 2,350-2,750 is rather modest in such a context and would only bring markets to late 2018 levels (note red box as the target range). The range reflects ~16x S&P 500 12-month forward earnings estimates, as of February 14, adjusted down 10% due to COVID-19. When companies like Visa talk about a couple percentage points taken off of growth rates, one knows that … Read more