Getting Down to Brass Tacks on Amazon’s Cash-Based Sources of Intrinsic Value
October 27, 2023
Image: Amazon had a very strong and better-than-expected third-quarter report, and the firm is now on pace to generate positive free cash flow during 2023. By Brian Nelson, CFA Value traps can do some serious long-term damage to one’s portfolio. But what is a value trap? Well, in layman’s terms, it’s a stock that looks cheap at face value using valuation multiples–the most common of which being the price-to-earnings [P/E] ratio–but the stock may actually be fully valued, or worse expensive, after considering the process of enterprise valuation (also known as the discounted cash-flow [DCF] method) and after assessing the company’s cash-based sources of intrinsic value: net cash on the balance sheet and future expected enterprise free cash flows. We’ve
Chipotle’s Long-Term Growth Outlook Intact
October 26, 2023
Image Source: Valuentum By Brian Nelson, CFA On October 26, Chipotle Mexican Grill (CMG) reported better-than-expected third-quarter results with the top line increasing 11.3% on a year-over-year basis and non-GAAP earnings per share beating the consensus estimate. Comparable store sales advanced 5% in the period, while the company drove meaningful improvement in its operating margin, despite nagging inflationary pressures in beef and cheese prices. We’re huge fans of Chipotle’s long-term unit growth story, and we expect the rollout of Chipotlane drivethru’s to pave the way for an expanded menu, maybe in the breakfast daypart in the years ahead. Here’s what CEO Brian Niccol had to say about the ahead. Chipotle’s value proposition including customized, delicious culinary served quickly with great hospitality, is
Albemarle and ASML Holding Remain Key ESG-Focused Ideas
October 26, 2023
By Brian Nelson, CFA The investment landscape is fast changing, and investors want to invest how they want to invest. Custom approaches to meeting client needs have never been in greater demand. After all, the saying “there’s an ETF for that” has become as common as the saying “don’t put all your eggs in one basket.” There may be no greater or better investment than becoming more exposed to the sustainable trend of Environmental, Social and Governance [‘ESG’] investing, where ESG research points to key risks of a company that could have tremendous implications on its intrinsic value or fair value estimate distribution. For example, how should investors think about Johnson & Johnson’s (JNJ) talc exposure liabilities? What about 3M’s
We Will Be Removing CubeSmart and Adding Altria to the High Yield Dividend Newsletter Portfolio
October 25, 2023
By Brian Nelson, CFA Stock prices and returns are in part a function of a company’s net cash on the balance sheet and changes in future expectations of free cash flow. Stock prices and returns are not driven by the dividend payment, and as such, a myopic focus on the dividend, by itself, could be costing investors considerably, at least with respect to the average market return–as measured by the market-cap weighted S&P 500 (SPY). The free dividends fallacy hypothesized that a myopic focus on chasing dividends could be costing investors anywhere between 2%-4% in returns per annum. During the past 10 years, for example, high-yielding Dividend Aristocrats have trailed the return of the market-cap weighted S&P 500 by about
Download the Updated 16-page Stock Report of Alphabet
October 25, 2023
Please select the image below to download Alphabet’s (GOOG) (GOOGL) 16-page stock report. NOW READ: There Will Be Volatility ———- It’s Here! The Second Edition of Value Trap! Order today! —– Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, QQQ, and SCHG. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies. Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a
Brief Take: Microsoft Blows Past Expectations in Q1 Fiscal 2024
October 24, 2023
Image Source: Mike Mozart By Brian Nelson, CFA Microsoft (MSFT) hasn’t been a tech dinosaur for many years now, and its first-quarter fiscal 2024 (calendar third quarter 2023) results continued to show just how well the tech giant has adapted to the new economy–from the cloud to gaming to personal computing and, of course, to getting a lead in artificial intelligence [AI] with its investment in OpenAI (ChatGPT). During its fiscal first quarter, Microsoft’s revenue advanced 12% in constant currency, while operating income leapt 24% holding foreign exchange constant—breakneck levels of expansion. Azure and other cloud services sales advanced 28% on a year-over-year basis holding currency constant. The high end of our fair value estimate for shares stands at $368, and
2 Stocks to Watch: Tesla and Chevron
October 23, 2023
Image Source: Tesla By Brian Nelson, CFA With the 10-year Treasury rate reaching 5% in recent trading sessions, investors have been laser-focused on this benchmark rate that is commonly used as the foundation to estimate both the cost of debt and the cost of equity to discount future expected free cash flows within equity valuation models. We’re not going to prognosticate on the future direction of the 10-year Treasury rate, but we’re also not concerned about current rate levels either, given that our 10-year Treasury rate assumption within our discounted cash flow models is roughly ~4.3%, a level that we had maintained even when the 10-year Treasury rate was much lower years ago. Though it’s difficult to shift away
Lockheed Martin Represents Key Aerospace & Defense Exposure
October 23, 2023
By Brian Nelson, CFA On October 17, Dividend Growth Newsletter portfolio holding Lockheed Martin (LMT) reported decent third-quarter 2023 results with the firm growing revenue roughly 1.8% on a year-over-year basis, and the firm beating the consensus estimate for non-GAAP diluted earnings per share. We like Lockheed as our aerospace and defense exposure more than Boeing (BA), given the latter’s long list of troubles and deteriorated financial health, punctuated in part by troubles during the height of the COVID-19 pandemic and loss of life related to its 737 MAX platform. We think Lockheed offers a much better risk/reward and a healthy dividend to boot. Lockheed Martin yields ~2.8% at the time of this writing. When Lockheed reported third-quarter results, the
