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Apple Inc. Goes Head-to-Head With Intel With the A9X-Powered iPad Pro

During Apple ‘s product launch event, the company announced that its next generation iPad known as the iPad Pro would feature an incredibly beefy A9X processor. This chip, according

For The Love Of The Game: How To Keep Learning In The Market

Summary This is a philosophical piece intended to help young aspiring analysts. I will share my mistakes and lessons learned on the buy side. I will briefly discuss Cheniere Energy. This is a philosophical piece with two goals in mind: To inspire young aspiring analysts, and to share the multitude of career mistakes that I made. With the benefit of hindsight and reflection, I know others can benefit from my self-inflicted missteps. Given the significant amount of time I spend engaged on the Seeking Alpha website, I am noticing more and more talented authors. For some of the folks more junior in their careers ascents or for aspiring analysts trying to make it into the research arena, I think my experience and unique observations may benefit them. So, in the spirit of trying to help others, I sincerely hope to pass the baton and impart some insights that may benefit them as they progress in their careers. The Power of Mentors For context, I will provide my brief background and relevant professional investment research experience. During my undergraduate days, I attended the Isenberg School of Management at the University of Massachusetts at Amherst. I was passionate about investing since middle school, as my dad sparked my intellectual curiosity. While at UMass, I gained access to an alumni list and then emailed as many people in the industry as possible. After getting a response, I would then call them, usually early in the morning, before their hectic day’s beginning. So here I was talking quietly in the dorm room hallways (trying not to wake up my floor at 7 am). As I had virtual no industry contacts, this was the best strategy. However, long on confidence, I was convinced that I was the next up-and-coming star analyst and I only needed to be discovered. From that point, I would land a junior analyst role. Not only I was incredibly naïve, but I had an exalted sense of self, which was unwarranted and unhelpful. However, nice alumni looked past this misplaced arrogance and focused on my passion. Through these calls, I was able to connect with many smart and talented UMass alumni who were actual market participants on the buy side. One individual was, and still is, a portfolio manager at prestigious Wellington Management. He is piercingly bright, very generous with his time, and passionate about helping UMass alumni learn about investing. Although I haven’t been in as close contact with him lately, he was extremely influential in my progress and evolution as an investor. I have one other mentor, whom I originally connected with on LinkedIn in 2004. This was a period between jobs, and I was still questing for that elusive foothold on the buy side. This individual is currently an equity portfolio manager at Alpine Funds. Yes, he has the shiny credentials of a top MBA and CFA, but more importantly, he is a great investor and extremely hardworking. He and I have been friends through email since 2004, and we constantly trade investment ideas via email. Over the course of thousands of email exchanges, my writing and thought process continued to improve. Specific investment lessons from these two mentors For context, my mentor at Wellington is a portfolio manager at Wellington, and manages international equity growth funds with approximately $4 billion in assets under management (AUM). Over the course of our friendship and multiple email exchanges, he explained (using the Socratic method) how growth stocks work. He said that the only thing that matters is consensus earnings estimates. In order to take a position in any equity, you need to qualitatively and quantitatively understand how the market arrived at current consensus estimates. If, and only if, you deeply study the company and build your high-level models that capture the major drivers of revenue and earnings can you have an opinion. Never, never, never have a strong opinion on a stock unless you have really done the work. The fastest way to get dinged during an interview on the buy side is to come across long on opinion and short on analysis. It is always better to say “Here is what I have read, and here is how I think about it, but perhaps I am missing certain angles.” It is much better to informed and humble than arrogant and overly confident, especially when speaking with actual market participants. He then taught me that many people fall into the trap that a stock is overvalued because it has a high P/E ratio compared to the market or its sector. With the supercomputers of today, crunching ratios is a waste of time, as it is fully reflected in the stock price, given that the market is very efficient at incorporating actual events. Again, you have to understand consensus estimates better than the Street. If your model and work are materially different from the consensus, only then should you make a bet. For a concrete example, over the course of a few emails, he walked me first-hand through why in mid-2003 Research in Motion, now BlackBerry (NASDAQ: BBRY ), was his largest holding. I think BBRY’s stock ultimately ended up increasing by 5,000% from 2003 to 2007. If any reader cares to do some searching on Google, they will find that the vast majority of then-leading experts thought BBRY was going to zero. They saw that they were losing money and also saw the company’s cash burn, and erroneously assumed that BlackBerry had nothing noteworthy in its pipeline. Now, my mentor will freely admit that he happened to have met with management (that is a major advantage of being a professional money manger – access to management teams to kick tires). During his visit to BBRY’s corporate HQ, he was able to work out first-hand how technologically advanced the company’s products were, and envisioned their appeal to chief technology officers in the Fortune 500. He also understood the huge addressable market, the potential margins on the handsets, the security features of its product, and that BBRY was really a great software company. Had I known then what I know now, I would be retired at age 35 if I had put on a concentrated long bet on BBRY and simply held it for four years. Clearly, I wasn’t wise enough to understand that I was handed a lottery ticket with winning numbers on it. (click to enlarge) My mentor from Alpine Funds has also taught me a great deal. Once a new investor gets up to speed on the core blocking and tackling, like being able to read financial statements and the basics of accounting, the best way to make money is to develop a great imagination. Stock prices will rise or fall past on their future cash flow and revenue growth relative to consensus estimates. For another vivid example, in 2004, this mentor of mine walked me through his largest holding in his personal account, Silver Wheaton (NYSE: SLW ). If I recall, SLW was then a $4 stock. He explain to me that he was very bullish on silver, and that this was the best vehicle to participate in silver’s ascent. He explained how silver was a by-product, and mining is extremely CAPEX-intensive, so producers who are targeting gold or copper are willing to sell their silver by-product production (or silver streams) for an upfront payment and then for a low price of $4 per ounce. The producers would then use the upfront payment to fund their CAPEX. Silver Wheaton eventually traded as high as $50 in May 2011, though it was a bumpy ride, with the stock dropping down to $2.50 during the 2009 equity crash. My mentor also emphasized the importance of being willing to take a contrarian stance if you have enough conviction in your idea. When he was traveling the hedge fund circuit, as he had two stints as a hedge fund analyst, he learned the importance of managing your downside risk, but also that betting big when the risk/reward was greatly in your favor. Although he was capable enough, he determined that the hedge fund world didn’t suit his personality and investment process. This is my long-winded way of stating that mentors are invaluable. They will encourage you, push you, and if you put in the effort, they will help you become a better investor. I am still in constant contact with my friend at Alpine Funds. I distinctly remember when he once told me, “My wish for you is that you greatly surpass my as an analyst.” That illustrated to me that he was invested in my success, and he was humble enough and had had the benefit of mentors while he was in his formative stages. Don’t get into fights with your boss My next piece of advice is that if you do make it to the buy side, know your role and keep your ego in check. Although the barriers to entry are very steep, just because you made the team doesn’t mean you can’t get cut. Despite an insatiable curiosity and undeniable passion for investing, my ego and poor semantics while expressing my investment ideas wrote proverbial checks that I couldn’t cash. The collective bill came due when I couldn’t meet the proverbial margin call. My five years of solid performance and exemplary annual reviews were marred by aggressive and arrogant interactions with senior analysts. No one want to be told they are wrong and that their thesis is wrong, especially from a 29-year old. You can’t tell your boss that you think you are a better investor than him. This is a career-limiting move, trust me. So the takeaway is that if you can surmount the incredibly high barriers to entry, take it slow, listen, observe and ask questions. Investing isn’t like the NFL, it isn’t a pure meritocracy. You have to work hard, learn, be likeable and keep your head down. If folks sense that you are not a team player (however misplaced this label may be), your career at that shop is effectively over. Know yourself Beside the fact that I didn’t have the right temperament for Liberty Mutual, you have to know yourself. Reflecting upon my five years at Liberty, I probably knew it wasn’t the right cultural fit in year three. However, don’t do the impulsive Jerry Maguire letter and then quit, as this is terrible career mistake that has to be explained away in future interviews. There are exceptions, but the buy side generally requires a CFA, Ivy League education (at least on the equity side), lots of networking, and even more luck to find your foothold. Although I made it into the industry, I only advanced to the bottom rungs of the ladder. There is an alternative pathway. There are excellent open source sites like Seeking Alpha, and different ways to make a living. However, this is the path less traveled, and it will invariably take years of building your brand, developing a portfolio of great research as evidence, and getting the marketing aspect right. There are members of the Seeking Alpha community who have successfully done this, so they would be a much better resources. I only write articles in my free time as a hobby. The Power of Redemption Moving along, let me power down my philosophical side of my brain, and let’s talk about one of my recent investment ideas written here on Seeking Alpha that seems to be playing out. I want to specifically highlight two investment pieces that I wrote recently on Cheniere Energy (NYSEMKT: LNG ). The point of bringing this up is that through the comments section of my first article, the Seeking Alpha community inspired me to improve upon my first article that some labeled incomplete. I viewed this as constructive criticism and an opportunity to dig deeper and write a follow-up article. Incidentally, my original thesis seems to be playing out, as Mr. Chanos disclosed a new short position in shares of Cheniere. However, I am not spiking the football on the one-yard line, as the stock has now become a battleground stock between the bulls, including investing greats like Seth Klarman and Carl Icahn, and the bears, like Jim Chanos. I have done a lot of research on the company and have shared my bearish view on the site. Again, I’m not writing to gloat, but simply suggesting that if we are passionate about our craft, we can make good investment calls. Of course, the buy side has its advantages of access to management team and access to many research publications. However, with the power of Google and some intellectual curiosity, you want produce compelling work. I can’t tell you the last time I read a sell side report. As a general rule, I completely ignore sell side research, as I like to do my own research. Moreover, when an idea finally works and it gets recognized by the market, it brings a great feeling of satisfaction and even redemption for hobbyists like me. To sum up Mr. Chanos’s bearish arguments: There will be massive global overcapacity in the LNG space. LNG is priced based on Brent prices, and Brent has collapsed from $110 to $50, so incremental new long-term supply agreements will be less lucrative. The industry is plagued by massive cost overruns (look at Chevron’s greenfield projects). Cheniere’s contracts aren’t sacrosanct. The company is way too promotional and has yet to sell any LNG. Its capital structure and executive compensation polices leave much to be desired. Concluding Thoughts Investing is more of an art than a science once you understand the fundamentals. For aspiring analysts: Find great mentors, don’t get in fights with your boss and know yourself. Investing is an extremely humbling pursuit; therefore, savor your victories, because they can be fleeting. Good luck, and thanks for reading. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

NextEra Energy Partners: Strong Yieldco With Considerable Upside

Summary Solid base of long-term, stable cash flow-producing electricity generation assets. Strong partnership sponsor willing to step up with equity contributions when required to grow the dividend. Currently priced at an attractive level due to the market’s over-reaction to acquisition and financing of natural gas pipeline assets. NextEra Energy Partners (NYSE: NEP ) is a limited partnership formed and sponsored by NextEra Energy (NYSE: NEE ), with the sponsor maintaining approximately three quarters interest in the underlying operating company. NextEra Energy Partners focuses on the acquisition of energy projects, primarily in the renewable space, with long-term stable cash flows. These stable cash flows are then levered in order to generate a high rate of return in a sustainable long-term dividend. The company’s primary focus is a collection of renewable energy assets currently under long-term power purchase arrangements in eight states and one Canadian province. These assets currently have capacity to generate 1,923.2 megawatts of energy, approximately 84 percent from wind generation. This will be further expanded by 149 megawatts of wind generation from the Jericho assets being purchased from its sponsor, which will be discussed later along with the partnership’s recent developments. Also in terms of recent developments for further discussion, the company has recently acquired substantial natural gas transmission pipeline assets. In terms of forward guidance, NextEra Energy Partners has indicated that it expects to generate $400-440 million in adjusted EBITDA for 2015, increasing to $580-620 million of adjusted EBITDA in 2016, primarily on the back of the NET Midstream acquisition, which we’ll cover along with some other recent developments. This should leave the company with approximately $170-190 million in cash available for distribution in 2016. The partnership has currently set its target distribution to $1.23 per share annualized at the end of year, reflecting an increase to approximately $0.3075 per share quarterly or a dividend yield, based on the September 10 closing price, of 4.7 percent. From a long-term perspective, the company expects to continue to grow this dividend at an average annual growth rate of 12-15 percent. As a note to investors, the partnership expects its distributions to be treated as though they are dividends received from a corporation for U.S. federal income tax purposes. This income will be reported on a 1099-DIV form. While we’re not in the position to offer expert tax advice, and readers should consult their tax advisors, we believe this is certainly an easier-to-understand tax structure than many partnerships out there, albeit perhaps trading off some of the benefits. Recent Developments In NextEra Energy Partners’ second-quarter release, the partnership announced that they had entered an agreement to acquire NET Midstream, an owner and operator of natural gas pipelines located in Texas. This operation maintains 3.0 billion cubic feet per day in ship or pay contracts, with an average life of 16 years, and, according to NextEra Energy Partners, an average investment-grade counterparty credit. Current growth and expansion projects are expected to grow this contract volume by an additional 1 billion cubic feet per day upon completion. The pipelines, in particular, look to be a relatively high-quality asset, with a current capacity of 4 billion cubic feet per day, which could later be expanded to 5 billion cubic feet per day. The primary shipment of gas on these pipelines is from the Eagle Ford shale gas region into Mexico. Additional volumes served include volumes from the ENSTOR Katy Hub to residential consumers and industrial users in the Houston area, and additional volumes supplied to the city of Corpus Christi, Texas. The acquisition of NET Midstream is expected to provide $145-155 million in 2016 adjusted EBITDA, and by 2018, following the completion of the expansion projects, up to $190-210 million in EBITDA. On a whole, this isn’t really an exciting acquistion from a purely cash flow accretion standpoint, but it does offer some diversification to the partnership’s energy infrastructure business at little dilutive cost. Overall, we’re pretty neutral to the acquisition, but the impact the financing has had on the stock price has driven our current short-term excitement about the stock. One further smaller acquisition announced by the company is the Jericho wind assets being purchased from the partnership sponsor NextEra Energy. The Jericho wind project is a 149 megawatt installation in Ontario, Canada. This transaction is expected to close in the fourth quarter due to Canadian tax rules. Both of these acquisitions have created substantial financing needs for the company. In order to raise the money required to complete these acquisitions, NextEra Energy Partners has put in place the following as announced in the August 31 conference call: Raising $600 million of non-amortizing 2-5 year NextEra Energy Partner debt. Issuing $200 million of NextEra Energy Partnership units to the public. NextEra Energy slowing its rate of ownership dilution by investing $700 million in NextEra Energy Partners on the same terms as the public unit issuance. In beginning the execution of this financing plan, on September 10, NextEra Energy Partners confirmed the issuance of 8,000,000 common units at a price of $26 per unit to the public in an underwritten deal. On the same terms, NextEra Energy has agreed to purchase $702 million in common units at the same price via a private placement. This would complete the equity issuance portion of the capitalization plan, setting up the company to complete the transactions. Raising $900 million in equity for the partnership on September 10 certainly puts the firm in a relatively healthy position in terms of financing these new acquisitions. In fact, management suggested in the August 31 conference call that they are affirming their 2015 through 2018 guidance based on this financing plan, with the difficult piece now squared away in the equity financing. Positives Opportunity to get in at an attractive price: Although the current financing was telegraphed by the company in late August, the market responded negatively to the deal yet again, with the partnership falling 7.65 percent in Thursday’s trading following the announcement. The company is down 40 percent over the last three months from its highs in early June, and is now priced extremely attractively, with a high but easily sustainable, and even growing, dividend. We believe that the recent price moves have been partially macro-driven and do not reflect a material change in the future prospects of the firm. Also, it’s worth keeping in mind that the partnership’s sponsor had no concerns about stepping up in a big way to buy additional units at this price. This should be comforting that those closest to the operational realities of this firm are putting their dollars on the line. While not exactly comparable to insider buying from executives or directors, this is, in our books, a vote of confidence in the assets being purchased and the ongoing dividend sustainability of the firm. Multiple Jurisdiction Exposure: One of the risks facing independent power producers is regulatory and political change in specific jurisdictions. While, on balance, the push towards greener or renewable energy sources has been strong in most North American and European jurisdictions, the costs of these green energy programs are beginning to mount. By having assets in eight different states and an additional 516 megawatts of capacity (following the Jericho acquisition) in Canada, the partnership has effectively hedged exposure to political change in any one jurisdiction. Long-term Stable Cash Flows: According to the partnership’s 2015 European investor presentation , the firm is sitting on an average capacity-weighted remaining contract life of 20 years. Given that the majority of counterparties are investment-grade rated or better, these long-term, stable cash flow projects provide the underlying support to the partnership’s dividend. Strong Sponsor in NextEra Energy: The partnership’s sponsor in NextEra Energy is certainly one with many advantages. Through maintaining a majority ownership stake in the partnership, NextEra Energy is certainly engaged in the success of the venture. Further, the company’s expertise is directly applied to the operations and management of the partnership through its controlling interest in the general partner. The other advantage of the partnership’s relationship with the parent is the potential future stream of cash flow-generating assets that it could acquire from a trusted developer. NextEra Energy has 1,766 megawatts of contracted wind development coming onstream over the next few years, and another 1,417 of contracted solar development. These offer potential assets for the partnership to purchase for the purposes of expanding its cash flow available for distribution at potentially attractive rates. NextEra Energy also announced a new dividend policy in its second-quarter presentation, reflecting a more aggressive stance. Without management’s confidence in the underlying performance of NextEra Energy Partners, this new dividend strategy by the parent would be risky and ill-advised. We believe that this shows confidence in the ability of NextEra Energy Partners to distribute the required cash to sustain its sponsor’s own dividend policy. Risks Access to Capital Markets: Continued access to capital markets at attractive rates is more or less required to sustain growth in any “yieldco” type of company. With the firm paying out much of its free cash flow to investors, any incremental acquisitions are generally financed with a mix of equity and debt. In the event that capital markets are unwilling to provide additional financing due to macro conditions or particular developments within the firm, the growth trajectory can be severely impacted. In the case of NextEra Energy Partners, its sponsor does seem willing to put up additional capital when required, as illustrated by its over $700 million commitment to additional equity for the NET Midstream acquisition. Pipeline acquisition could fail to achieve EBITDA projections: With the current commodity price collapse, natural gas shipments on these assets could potential fall, or the company could fail to obtain contracts to fill the addition 2 billion cubic feet per day of capacity coming onstream with the NET Midstream assets. Failure to reach its EBITDA projections on this acquisition could make this deal look extremely dilutive in the future. However, we believe even with this factored in, there isn’t considerable further downside to the share price, as the market seems to have already taken a very skeptical view of this transaction. In context, the pipeline assets will comprise approximately a quarter of the firm’s 2016 EBITDA. Valuation We approach the valuation of NextEra Energy from a few angles, but we’re primarily focused on that cash flow available to equityholders. We’re comfortable with the mid-range of the company’s projection following the closing of its equity financing, with $180 million in cash available for distribution in 2016. The expected growth rate, potentially fueled by a pipeline of currently in development project acquisitions from the sponsor, of 12-15 percent per year put forward by management also seems reasonable. At the current share price of $26.18 (as at September 10), and assuming a 12 percent growth rate in cash flow available to equity interests, this would suggest an equity cost of 24 percent, which is far in excess of what would be reasonable for a company with this kind of stable, long-term cash flow. This is determined on a basic FCFE calculation using the cash available for distributions and adjusted on a per share basis, based on the share count, giving consideration to the September 10th announcement. By comparison, Brookfield Renewable Energy Partners LP (NYSE: BEP ) is currently priced at a roughly 16 percent equity cost on a lower 9 percent growth target (per the company’s materials ), and targets a 15 percent return on equity on its investments. If NextEra Energy Partners was priced at an 18 percent return on equity (to give effect to a smaller, less diversified portfolio), with a 12 percent growth rate, we’d be looking at a share price of approximately $50 per share. This would be our one-year target on this stock, and we believe this is a still a conservative valuation providing a great return to equity investors. This isn’t entirely unfounded in past performance either, as the company traded at these levels earlier in the year on the same basic cash flow fundamentals. This further reflects our thesis that the current market price is not driven by cash flow realities, but by market sentiment and overreaction to this recent acquisition and financing. And all of our valuation is priced without any substantial upside to the NET Midstream acquisition, which the company indicates could be another $45-55 million in incremental EBITDA beyond the initial 12-15 percent growth target included in our valuation. Summary Overall, we believe that NextEra Energy Partners currently offers a very compelling valuation for a portfolio of long-term cash flow-generating energy infrastructure assets. The current market reaction to the financing arrangement for its NET Midstream and Jericho acquisitions seems to be considerably overdone, and the stock is current available at a substantial discount to other players in the space. With a solid and competent sponsor in NextEra Energy, this “yieldco” would fit nicely in a portfolio of dividend-paying stocks, providing a solid, growing dividend into the future. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.