Stock Valuations are Too High. I Would Exercise Caution.

For the last several months I have become increasingly concerned that stock valuations are too high for many publicly listed companies on North American stock exchanges. In fact, the last time I made equity investments of any significance, valuations were much, much more favorable.

I admit it has been increasingly frustrating to watch stock prices repeatedly set new highs while I sit on the sidelines. Whenever I find myself thinking “This time it is different”, however, I remind myself of Warren Buffett’s following pearl of wisdom:

“The stock market is a no-called-strike game. You don’t have to swing at everything. You can wait for your pitch.” Continue reading “Stock Valuations are Too High. I Would Exercise Caution.”

Canadian National Railway Stock Analysis – Riding the Rails

Summary

  • This Canadian National Railway stock analysis is based on Q4 and FY2016 results and outlook for 2017 reported January 24, 2017.
  • Revenue dropped but net income, operating income, and diluted EPS increased.
  • Record Free Cash Flow (FCF) of $2.520B was reported which permitted the repurchase C$2B of shares vs. C$1.75B in 2015.
  • The annual dividend has been increased 10% to C$1.65. The C$0.4125/share dividend will be paid on March 31, 2017.
  • Management has forecast mid-single-digit EPS growth in 2017 from the adjusted diluted EPS of C$4.59 recorded in 2016.

Continue reading “Canadian National Railway Stock Analysis – Riding the Rails”

3M Stock Analysis – This Behemoth Belongs in Everyone’s Portfolio

Summary

  • This 3M stock analysis is based on Q4 and FY 2016 results and outlook for fiscal 2017 released January 24, 2017.
  • 3M reported strong result in FY2016 thus enabling it to return $6.431B to shareholders via share repurchases or dividends.
  • 3M has been taking advantage of favorable interest rates and has increased LTD from $4.3B in FY2013 to over $11B as at end of Q3 2016.
  • 2017 projections include EPS range of $8.45 to $8.80 (a 4% – 8% increase) and FCF conversion range of 95% to 105%.
  • I would be prepared to acquire additional 3M shares below $164.

Continue reading “3M Stock Analysis – This Behemoth Belongs in Everyone’s Portfolio”

McDonald’s Stock Analysis – I Need Those Dividends to Service My McDonald’s Coffee Consumption

Summary

  • This McDonald’s stock analysis is based on Q4 and FY 2016 results and outlook for fiscal 2017 released January 23, 2017.
  • McDonald’s FY2016 results reflect a drop in revenue but a corresponding larger drop in expenses.
  • It has been repurchasing its share at a torrid pace using LTD under attractive terms.
  • I am prepared to acquire additional shares under $117.

Continue reading “McDonald’s Stock Analysis – I Need Those Dividends to Service My McDonald’s Coffee Consumption”

Union Pacific Stock Analysis – I Continue to Patiently Wait for a Pullback

Summary

  • This Union Pacific stock analysis is based on Q4 and FY 2016 results and the outlook for fiscal 2017 released January 19, 2017.
  • Union Pacific, North America’s largest railroad, reported a substantial full-year decline in volumes vs. FY2015 but declines moderated in Q4 FY2016.
  • Union Pacific’s operating ratio increased to 63.5 percent but UNP is committed to its G55 + 0 initiatives which it initiated in FY2015.
  • Dividend and share repurchases amounted to roughly $5B or 118% of net income in FY2016.
  • Since 2007, Union Pacific has repurchased just over 29% of outstanding shares.
  • I view Union Pacific as being a bit too expensive at the moment and will patiently wait for it to retrace to the low $90s.

Introduction

We currently own shares in only one railroad, the TSX listed shares of Canadian National Railway (NYSE: CNI) in the FFJ Portfolio and no other shares within the Transportation sector. I would like to beef up our exposure to this sector and after a quick review of certain financial metrics for various North American Rail Freight Transport companies, decided to analyze Union Pacific Railroad (NYSE: UNP).

I have been monitoring UNP with the hope of a pullback to a more reasonable valuation level so I can add it to our investment portfolio. Today’s earnings release and the subsequent jump in price has not helped my cause. I am cautiously optimistic, however, of a correction in UNP’s valuation at some stage in 2017. Continue reading “Union Pacific Stock Analysis – I Continue to Patiently Wait for a Pullback”