Image Source: Michael Kumm
General Motors may be one of the best deals on the market today, and we’ll be adding it to the portfolio of the Best Ideas Newsletter. Let’s also talk Amazon, and why shares of the giant are “uninvestable” from our perspective.
By Brian Nelson, CFA
Just a couple things this morning.
First, we’re adding a 2% weighting of General Motors (GM) to the portfolio of the Best Ideas Newsletter. We continue to be enamored by the auto giant’s valuation opportunity, and we encourage members to read our take on the company’s investment considerations at the following, “Major Automakers: Fundamental Uncertainty But Potential Investment Opportunity…Soon (August 5, 2016).” Soon is today. Though we’re fully aware of the significant risks of adding a capital-intensive, cyclical automaker with meaningful financial and operating leverage so late into the economic recovery in light of global risks and impending contractionary monetary policy in the US, we’re looking at this idea from a long-term perspective. Shares are trading at $31.65 each at the time of this writing.
At what other point, for example, might we be able to add GM at ~5 times forward earnings while collecting a near-5% dividend yield along the way? We’re not kidding – that’s quite an attractive investment profile even if mid-cycle earnings are meaningfully below this year’s forecasted performance. In today’s “frothy” market, such an investment profile is one that is too good to pass up, at least in the context of the Best Ideas Newsletter portfolio. Believe it or not, investors are paying more than 20 times forward earnings for some of the most well-known consumer staples equities that are experiencing revenue and earnings pressure with dividend yields but half of that of GM’s, “A Kleenex? Consumer Staples Trading at Nosebleed Levels (August 3, 2016).” We think investors may be paying up for the past, a company’s consecutive dividend growth track record, while we know that it is only the future that matters.
Second, we don’t often talk about Amazon (AMZN), for better or worse, but the company is one that is quite popular among the investment community, so we thought we’d share our ongoing views of its business model. We also wanted to share a few samples of our valuation infrastructure that offer insight into the depth of our fair value estimate calculations, and the thought process for how we in part determine each company’s fair value range, which sets the boundaries by which we consider a stock to be undervalued, fairly valued, or overvalued. A robust discounted cash-flow valuation process, as in the following exercise, is only the first pillar of the Valuentum Buying Index, the stock selection methodology we employ as part of the Best Ideas Newsletter portfolio, . Please select the following to continue reading, “Amazon Is Uninvestable (August 25, 2016).”
Hope you enjoy the work!