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  • Buybacks-Driven Market: Engineered Too Far?
    Wed, Nov. 19 ADT, FDX, CF 3 Comments

    Summary

    • A research note out of Goldman Sachs makes the case for the S&P 500 to end the year about 5% higher than where it recently traded, and to hit 2150 in 2015.
    • A big part of the still-bullish outlook is a pickup in buybacks, especially heading into year-end.
    • It seems prudent to look for more substantial drivers than a cash-rich company (or one taking on more low-cost debt) that is financially engineering its way to decent earnings.
  • Beaten-Up International Dividend Stocks Yield 7%
    Wed, Nov. 19 AGG, JNK, VYM 5 Comments

    Summary

    • After getting smacked around during the recent reappearance of volatility, junk bonds are once again getting some love from investment pros.
    • Given the inherent stock-like risk of junk bonds, comparing its yield solely to the 10-year Treasury or, say, the iShares Core U.S. Total Bond ETF seems a bit beside the point.
    • Turning the comparison to yield-focused stock portfolios gets interesting.
  • Starbucks' Mobile Ordering: Growth And Margins
    Fri, Nov. 14 SBUX Comment!

    Summary

    • Starbucks' mobile ordering - a way to squeeze more sales out of each of its outlets, keep same store sales growth humming along, and fatten profit margins.
    • The company faces an aggressive schedule and there are plenty of logistical issues to work out.
    • But the potential payoff for Starbucks is huge.
  • Wary, Leuthold IDs Bounce-Back Stocks
    Fri, Nov. 14 SPY, VTWO, IEFA 2 Comments

    Summary

    • Back on October 3rd the Leuthold Group announced it had reduced its core portfolio equity exposure from 55% to 40% as its proprietary Major Trend Index (MTI) fell into negative territory.
    • The MTI is a mash up of 130 metrics segmented into five broad categories that cover the waterfront: from intrinsic value to economic factors. Pegged to 100, a reading between 95-105 is considered neutral.
    • In early October the reading fell to 90 triggering the reduction in equity exposure.
    • The Leuthold Group also generated an interesting list of bounce-back candidates for further research.
  • Screening For Aggressive Buyback Companies
    Mon, Nov. 3 IBM, HD, AZO Comment!

    Summary

    • Bloomberg reported in October that S&P 500 companies are expected to distribute $914 billion this year in combined buybacks and dividends, or roughly 95% of profits.
    • Getting short shrift, in the view of some economists and investors, are capital expenditures, and that raises questions about future growth prospects of major American companies and the economy overall.
    • Almost a decade ago, we had banking and other financial concerns - companies expected by regulators to maintain healthy capital bases - buying in costly shares, only to be bailed out by the government when a liquidity crisis hit.
  • Smart Dividend Sector For Recovery's Next Leg
    Wed, Oct. 15 MSFT, IBM, TDIV 2 Comments

    Summary

    • Strong (and stronger than expected) GDP and jobs growth suggest that the long awaited rise in the Federal Funds rate could come sooner in 2015 than later.
    • If as expected that sets the 10-year Treasury back on an upward trajectory, the likes of AT&T and Verizon could come under pressure.
    • But the same improving economic outlook that sets that in motion should give a nice push to technology stocks.
  • Has The Easy Money Already Been Made In Oracle?
    Fri, Oct. 10 ORCL 3 Comments

    Summary

    • Oracle's business model - part pacemaker manufacturer, part disposable razor company - is a fine tuned engine, operating at peak performance.
    • Elevated operational leverage in Oracle's most important segment continues to indicate the Sun acquisition was a good move for company shareholders.
    • The crux of an investment in Oracle boils down to how well the company transitions to middle age.
    • An Oracle acquisition of Salesforce.com could happen.
  • Bank Liquidity: Think About It Now, Not In Crisis
    Sun, Oct. 5 WFC, USB, JPM 6 Comments
  • Thanks, Securities Regulators: Western Union Case
    Sun, Oct. 5 WU 2 Comments

    Summary

    • I was both peeved and felt a renewed sense of appreciation for our securities regulatory scheme reading last week that the SEC was investigating Western Union for possible securities fraud.
    • Some Western Union former employees beefed to SEC officials, it was reported, that something untoward was occurring in the calculation of Western Union's digital revenues.
    • Even if there are no significant clarifications or restatements required, the company's silence is disturbing.
  • GE: 40% Upside Potential With Limited Downside Risk
    Thu, Sep. 11 GE 111 Comments

    Summary

    • GE is a simple business. An investment in GE is a bet on the continued flourishing of human civilization.
    • GE's recent acquisitions and divestments conform to what we term its PIT Strategy.
    • The PIT Strategy will lead to renewed revenue growth, and if it does not, we all have more to worry about than a poor investment in GE.
    • GE's corporate catch-phrase, "Imagination at Work" is apropos, but not in the way you probably think.
    • Our valuation suggests a 40% likely upside potential with a less likely 20% downside risk.
  • Without Its Tax Dodge, What's Walgreen Worth?
    Thu, Aug. 21 WAG 17 Comments

    Summary

    • Walgreen has both operating performance problems and financial constraints that could disappoint its holders going forward.
    • The company’s adjustments to financial guidance issued as part of the no-inversion announcement confirmed that the tax inversion enthusiasm was masking weakness in Walgreen’s business.
    • Further disappointment could force the board to re-evaluate management.
  • The July Surprise: Warning To Yield Chasers
    Wed, Aug. 13 AGG, DVY, SDY Comment!

    Summary

    • Skipping out on the low yield of quality bonds for bigger income payouts in dividend paying stock has been pretty close to a free lunch.
    • As the tealeaves begin to form that the economy is shifting to a higher gear, high yielding stocks will be vulnerable.
    • While an improving economy reduces the specter of a recession-kryptonite for junk issuers, there is still risk: as rates rise, these highly leveraged issuers face higher debt servicing costs.
  • Major Warning Sign On Staples Stock
    Wed, Aug. 13 SPLS 6 Comments

    Summary

    • When a company undertakes a radical redeployment of its capital away from its traditional business, its competitors, suppliers, customers and investors ought to take serious notice.
    • Such a move is underway at United Stationers (USTR), the biggest wholesaler of office products on this continent.
    • Holders of shares in Staples (SPLS), or those perhaps tempted by the retailer’s fat dividend yield and its relatively low valuation, as measured by forward PE ratio, should first mull over what’s going on at United Stationers.
  • Is Target's Data Breach Obscuring Bigger Problems?
    Mon, Aug. 11 TGT 13 Comments

    Summary

    • Target's rapid, pre-Crisis revenue growth has stalled due to both slower expansion and weaker same-store sales. This weakness has been exacerbated by the data breach.
    • Cash flows jumped in 2013 due to the sale of credit card receivables, but its botched Canadian expansion has been enormously costly.
    • The data breach was a self inflicted wound and Target's corporate culture may make it hard for it to recover from the scandal.
    • Our transparent, data-driven fair value estimate suggests that an investment in Target carries with it a material downside risk.
  • Who's Afraid Of Shiller's CAPE?
    Tue, Aug. 5 34 Comments

    Summary

    • The Cyclically-Adjusted Price-to-Earnings Ratio (CAPE) is bumping up against values that have previously preceded major market declines.
    • Price-to-earnings ratios—the CAPE included—are a shorthand way of expressing expectations for future earnings growth.
    • Future growth rates as implied by the present CAPE value signify the market believes the U.S. economy will perpetually grow at the same average rate it has in the post-War.
  • Why Index-Beating Funds Loaded Up On Banks
    Wed, Jul. 23 WFC, BAC, JPM 2 Comments

    Summary

    • More than five years into the recovery and all is clearly not forgiven between the major U.S. banks and investors.
    • While JPMorgan's near $17 billion in net income over the trailing 12 months greatly outdistances the $13.8 billion for Citigroup and Bank of America's $9.3 billion, it's Citigroup that has the strongest growth rate over the past 24 months.
    • Citigroup has managed to keep its return on energy steadily increasing over that stretch, while its return on assets (ROA) recently nudged higher than JP Morgan.
  • Asset Mismatch Still Hurting FedEx
    Wed, Jul. 23 FDX Comment!

    Summary

    • FedEx lays out a broad profit-improvement plan to lift annual income by $1.6 billion (run rate) by the end of 2016.
    • FedEx gets 72% of its revenue from the U.S. and domestic sales have grown the past three years while international receipts have been flat.
    • FedEx during fiscal 2014 bought back $4.9 billion in stock, which is expected to lift fiscal 2015 EPS by 45 cents.
  • Retail: Separating Doomed From Merely Stumbling
    Wed, Jul. 23 GME, SPLS, TJX 2 Comments

    Summary

    • We've been trying to provide insight on the issue concerning retail stocks in recent months, weighing whether the stocks look cheap or look like looming disasters.
    • We have weighed in on GameStop, Staples, TJX and Whole Foods, the last one by way of finding relative value in Kroger.
    • Each of these companies has a unique business strategy, executes on it differently (and with different levels of success) and faces different kinds and levels of competition.
  • CarMax: Opaque Market Or Used Car Shortage?
    Wed, Jul. 16 KMX 2 Comments

    Summary

    • CarMax shares have more than quadrupled over the last decade as the used car super store chain spread across much of the U.S. with its no-haggle sales policy and wide selection of vehicles.
    • During a period when Internet data and sales of many items has pressured margins, CarMax's margins have widened.
    • The company's growth and its operating leverage have given it a forward PE ratio of about 20.
  • Walgreen Tax Inversion: Masking A Weak Business?
    Wed, Jul. 16 WAG 6 Comments

    Summary

    • Walgreen shares are trading near an all-time high as investors focus on whether the company will engage in a tax inversion as part of its expected acquisition of the 55% of Alliance Boots not already owned by Walgreen.
    • The potential tax inversion is one of a number of moves some investors are hoping to see from Walgreen management.
    • In the meantime, it seems investors are looking past a lackluster operating performance at Walgreen.
  • Why Dividend Stocks Have Become Dangerous
    Wed, Jul. 16 SDY, DWM 13 Comments

    Summary

    • Even dividend stocks, no matter how solid, can be too expensive.
    • The second half of 2014 could be a period of disappointment for dividend yield chasers.
    • It's emerging markets that truly shine for the value-oriented income investor.
  • Market Rarity: Great Company At Very Good Price
    Wed, Jul. 9 ESRX 6 Comments

    Summary

    • Express Scripts has a rock-solid demographic tailwind -- aging Baby Boomers -- in addition to an expected pick-up in prescription demand as more Americans gain coverage through the roll out of the ACA.
    • The short-term problem is that Express Scripts' integration of its mega $29 billion acquisition of Medco in 2012 has been slower than anticipated.
    • For the patient investor, the current clouds sure look like opportunity.
  • Mid-Year Report Part 2: Not All Stocks Overpriced
    Wed, Jul. 9 ESRX, WFC, MA 1 Comment

    Summary

    • Stocks are looking pricier.
    • It’s worth asking very broadly: what’s still cheap?
    • Using the YCharts Stock Screener, we found a list of sub-15 forward P/E ratio stocks that includes a fair number of financial stocks, energy stocks, tech stocks and healthcare stocks.
  • The Future Is Cloudy For Buffett's Investment In IBM
    Wed, Jul. 9 IBM 68 Comments

    Summary

    • IBM has undergone transitions in the past and these transitions are usually traumatic. The present paradigm shift towards the Cloud promises the same sort of trauma for Big Blue.
    • Cloud-based computing will have an effect on the three main parts of IBM’s business: hardware, consulting, and software. We investigate the economic effects on each in this article.
    • IBM’s financial engineering has come under critical scrutiny. One graph has allowed this author to come to peace with IBM’s prodigious leverage.
  • After The Whole Foods Love Affair: Kroger Shines
    Tue, Jul. 8 WFM, KR 34 Comments

    Summary

    • Kroger and other traditional grocery chain operators have raised their games, adding higher-end perishable items and organic produce and amping up the service.
    • Kroger, based on forward P/E ratio, is a lot cheaper than Whole Foods and significantly cheaper than Wal-Mart.
    • Overall market share was up 50 basis points last year at Kroger. And in the 13 market areas in which Wal-Mart supercenters are one of Kroger’s top two competitors, Kroger gained share in 12 and lost slightly in one.
  • Mid-Year Report: Not All Stocks Overpriced
    Tue, Jul. 8 MBLY, LNKD, TWTR 4 Comments

    Summary

    • Halfway through 2014, stocks are looking pricier.
    • As investors who choose individual stocks mull the taking of profits, eating of losses and some judicious rebalancing, it’s worth asking very broadly: what’s still cheap?
    • Rather than search for super-low-priced shares at this point, we’re looking at the S&P 500 components and using the YCharts Stock Screener to sort out companies trading at a forward PE ratio of below 15.
  • Wide Moat Stocks Trading Below Fair Value
    Tue, Jul. 8 BEN, BK, EV Comment!

    Summary

    • Asset managers still offer a compelling valuation proposition even as assets have swelled in this bull run.
    • Morningstar says the overall market now trades at a 4% premium to fair value. And the 150 or so wide moat stocks now trade at a 3% premium.
    • The Market Vectors Wide Moat ETF is stocked to the brim with asset managers.
  • Market Beater-Contrarian Iben On Russian Stocks
    Tue, Jul. 8 RSX, RUSL, ERUS Comment!

    Summary

    • Even after a recent rally, the Market Vectors Russia ETF is well behind the iShares MSCI BRIC ETF.
    • The fact that Russia is a mess is a feature, not a bug for contrarians like Iben.
    • If you've got a contrarian's stomach and some patience, Russia certainly is at the other end of the spectrum from the U.S. market, where the S&P 500's Shiller PE is ominously above 25.
  • British Stocks: Sweet Spot For European Value
    Wed, Jul. 2 EWU, HSBC, BP 1 Comment

    Summary

    • The recent decision by ECB to reduce a key lending rate to below zero is an acknowledgement that the euro zone recovery is teetering.
    • The United Kingdom offers an interesting way to capitalize on the compelling valuations without the same level of economic consternation as exists on the continent.
    • The iShares MSCI United Kingdom ETF has in fact picked up steam in the second quarter.
  • Norfolk And CSX: Coal-Dependent Railroads' Future
    Tue, Jul. 1 NSC, CSX 10 Comments

    Summary

    • For Norfolk Southern and CSX the economy's growth hasn't fully been reflected in their results because their biggest customer is the coal industry, and it's shrinking rapidly.
    • Coal accounts for nearly 25% of revenue at Norfolk Southern and CSX.
    • Despite coal's troubles, Norfolk Southern and CSX have put up impressive results over the past decade.
  • Metric Measures Quality: And Then There's Price
    Mon, Jun. 30 AAPL, JNJ, UNP 3 Comments

    Summary

    • Quality has lagged the general market badly through this bull run, but that also leaves them as a better relative value when ballast can carry the day.
    • The Piotroski F Score is a composite score of nine different quality factors.
    • The highest Piotroski score is a 9. Right now, no stock in the YCharts database is rated higher than 6.
  • Wells Fargo: Boring Starts To Seem Exciting
    Mon, Jun. 30 WFC 2 Comments

    Summary

    • Wells Fargo has smoked the other big bank holding companies so far this year.
    • Its plain vanilla brand of banking continues outshine more complex and risky business models employed by JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley.
    • Wells Fargo has a strategy that reduces – certainly it can’t be eliminated – the chances of a big mishap.