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Facebook: It’s All about The Vanity of the User

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Image Source: Sean MacEntee By Brian Nelson, CFA Our thesis on Facebook (FB) is one grounded on the firm foundation that the company holds one of the strongest competitive advantages of any business model, the network effect. What a network effect creates is quite simple to define, but extremely difficult to replicate. Said differently, as more users become engaged with Facebook, more businesses want to interact with Facebook, and as more businesses interact with Facebook, more users may want to engage within Facebook, and so on. It is a virtuous cycle of proliferating advertising revenue growth and optionality, much like we’ve witnessed with eBay’s (EBAY) auction business in the early days of the Internet and with the likes of MasterCard’s … Read more

Warming Up to IBM, Walmart Disappoints Again

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Most of us woke up to the news February 18 that Apple (AAPL) would be vigorously defending the privacy of its customers against a potential “overreaching” by the Federal Bureau of Investigation and/or others. The crux of the matter is whether Apple should unlock a phone that had been used by a shooter in the San Bernardino attacks early December, per the request of the FBI, as doing so may eventually jeopardize the personal safety and security of all Americans. Several tech CEOs have come out to support Apple, but any outcome on the matter will be difficult to predict. In a day and age where privacy is a major hot-button issue, CEO Tim Cook knows he needs to step … Read more

Falling Knives among Internet-Based Equities

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Image Source: Spencer E Holtaway By Kris Rosemann The firestorm among Internet equities didn’t stop with LinkedIn’s (LNKD) fourth-quarter catastrophe, “Three Blow Ups after the Close February 4.” Twitter (TWTR), Zynga (ZNGA), Zillow (Z, ZG), and Pandora (P) also remain challenged. We’ve never liked Twitter, and we don’t think we ever will, “Twitter’s Valuation Enigma (Feb 2015)”  The company’s investment opportunity-to-news ratio is practically nil, in our view, but that won’t stop investors from talking about it, and we do so, if only to explain why the firm is but a lotto ticket, not likely to pay off. Twitter recently turned free cash flow positive in 2015, but most of the cash flow boost came from non-cash stock-based compensation, a tangible … Read more

Giddy Up – It’s Earnings Season!

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By Brian Nelson, CFA During the trading session January 27, Apple (AAPL) failed to turn the tide of a disappointing fiscal 2016 first-quarter report (calendar fourth-quarter), “Apple Will Go Lower…And It Will Be ‘Forced’ Into Acquisitions,” and coupled with a Fed statement, where the Committee left interest rates unchanged, as expected, many market observers read between the lines and hit the sell button. On the basis of some of the concerns we’ve outlined, “Not Doom and Gloom – But Just Cautious,” we can completely understand the hesitancy by participants to stay fully exposed to this tumultuous equity market. In many ways, that the Fed has hit the brakes just a few weeks after the long-anticipated rate hike means the global … Read more

What’s Working in Today’s Market?

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By Brian Nelson, CFA As emerging markets around the world suffer from commodity-price-led economic weakness, capital continues to find a safe-haven in US government bonds (TLT, TBT), but for those equity-oriented funds that mandate a fully-invested status, not something we’re particularly advocates of, assets within US equities have favored “lower-beta” utilities (XLU) and consumer staples (XLP) sectors while cyclically-dependent and credit-levered sectors such as the financials (XLF) and materials (XLB) have suffered thus far in 2016. The industrials (XLI) and energy (XLE) sectors have also encountered higher-than-normal selling pressure in the first few weeks of the New Year, as investors evaluate the global economic landscape and what a prolonged period of low energy prices may mean for the lowest quality … Read more

Excited About Putting Cash to Work…Eventually

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Investors are fretting over a lot of things as of late. China (FXI) announced January 19 that fourth-quarter GDP fell to 6.8%, with many noting that the measure was a 25-year low. Even if you believe that number, which may be a stretch in light of collapsing local stock markets in Shanghai and Shenzhen, the outlook can’t be much better. Steel mills across the country are reeling, and while published housing numbers don’t look that bad, we have a difficult time believing the Chinese banks are in good shape. HSBC (HSBC), Standard Chartered, and Citigroup (C) remain most exposed to what we would describe to be the growing likelihood of a contagion from weakening commodity-dependent sectors in the country. Intel … Read more

The 20 Something’s Stock Portfolio

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A version of this article appeared on our website March 31, 2015. <Our best ideas at any time are included in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio.> The “20 Something’s Stock Portfolio” is the first in a series of articles where we get to the core of what many brand new investors want to do when they are first introduced to the stock market: find exciting companies that they are familiar with that will help compound their wealth over time. Other portfolios that we will share in this series include “The Ultra High Income Portfolio,” “The Economic Castle Portfolio,” “The Dividend Cushion Portfolio,” and “The Intelligent ETF Investor’s Portfolio,” among others. The series of portfolios will … Read more

Social Media Update

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Note: Valuentum covers over a thousand companies and offers insights and updates behind core holdings in the newsletter portfolios. We did a more in-depth analysis of the “investability” of social media players at the end of the second quarter, and not much has changed. Twitter (TWTR) found its long-term answer at CEO, but its valuation distribution, or range of probable fair value outcomes, is equivalent to a lotto ticket, one that’s not likely to pay off. Facebook (FB) continues to put up astounding numbers of active users, and LinkedIn (LNKD), while offering potential as a business-networking social media site remains unproven through the course of a more challenging job market, in our view. On fundamental basis, Facebook is our favorite … Read more

Alphabet (Google) and eBay Power Best Ideas Newsletter Portfolio!

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It’s no secret that the Internet and the companies that operate within the Internet space are always changing. There must be continuous innovation and re-discovery to keep up with the competition to amaze society with the next great development. Consumers have become accustomed to many of the Internet giants doing just that, pushing the envelope and enriching their lives with a better, faster, or more convenient way of content consumption. One of the many struggles that Internet-based entities have is not only how to create these new products, devices, or programs, but also how to monetize such breakthrough endeavors successfully. In a fast-changing environment, it is never easy to deliver sustainable, profitable and innovative growth. Let’s take a look at … Read more

Nelson: Time to Consider Buying Kinder Morgan?

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“Buy and hold investing has done more to turn perfectly decent people into the worst sort.” As others are poo-pooing Kinder Morgan’s (KMI) third-quarter report, we wanted to share a few observations. Our $29 per share fair value estimate for the corporate is unchanged, as we note the low end of our fair value range is $23 per share. We’re reiterating our “neutral” view on the company. First, we were beyond pleased to see Executive Chairman Richard Kinder come to terms with emphasizing the fact that Kinder Morgan is not totally immune to commodity price impacts. He said as much in the press release. Though top analysts on Wall Street are well-aware of this (or they should be), there are … Read more