Member LoginDividend CushionValue Trap
|
ALERT: Important Recap of Valuentum's Research and Market Events
publication date: May 20, 2020
|
author/source: Brian Nelson, CFA
ALERT: Important Recap of Valuentum's Research and Market Events: Unequivocally Bullish, S&P Target Range Was Withdrawn Last Month, Continued Focus on Individual Stock Selection with "Moaty" Operations, Huge Net Cash Positions, Strong Expected Future Free Cash Flows, Established Recurring Business Models, and Otherwise Attractive Economic Castles. Big Cap Tech and Large Cap "Growth" Remain Our Favorite Allocations.
---
 Image: Breaking out to new highs, Facebook (FB) is a top weighting in the Best Ideas Newsletter portfolio (which includes our favorite capital appreciation ideas in a portfolio setting). The social media giant is surging on news of a new Shops feature, something we've been expecting and raving about with respect to its potential for years--as we maintain our view that, anti-trust considerations aside, Facebook is poised to become the "new Internet." The high end of our fair value estimate range for Facebook is nearly $290, and we would not be surprised if the company eventually reaches those levels. Note: PayPal (PYPL), another big weighting in the Best Ideas Newsletter portfolio, has been a huge winner of late, too. The latest Best Ideas Newsletter and its simulated newsletter portfolio can be accessed here (pdf). The value of our research remains heavily tilted toward proficiency in enterprise valuation and technical/momentum indicators, portfolio construction, idea generation, individual stock selection, and assessing dividend health and resilience, among other things.
---
By Brian Nelson, CFA
---
Hi everyone! Trust all of you are doing great, and thank you again for your continued interest and membership. As you're probably aware, our team has been working day and night these days, so if we have not returned an answer to your question or email, please do re-submit it to info@valuentum.com, and we'll do our best to get the answer to you as soon as possible. We apologize for any delays as engagement has been incredible. Thank you again for the interest.
---
Okay -- so where are we now? Today, we remain unequivocally bullish, and this has been the case since April 29, when we withdrew our prior S&P 500 target range. We had previously widened our range on April 25, but we then withdrew the range shortly thereafter in part because our research focus remains on generating outperforming ideas in any market environment, but also because of a new bullish view that remains focused on the long haul, as we progress past the COVID-19 pandemic.
---
In our note, "ALERT: Going to "Fully Invested" -- The Fed and Treasury Have Your Back," published April 29, we released our updated take as to how moral hazard, as in indexing and modern portfolio theory, would drive this market ever-higher and instead of being punished, moral hazard would actually be rewarded, much like it was during the Great Financial Crisis. We then reiterated our bullish take, April 30, "Staying Focused on the Long Term," and then reiterated it again in early May, "Never Been More Bullish Even as Buffett Dumps Airlines."
---
Most recently, we outlined why we think long-term investors are facing a one-of-a-kind "win-win" scenario, albeit not a risk-less one, for the markets May 15, "Stay Optimistic. Stay Bullish. I Am." What it comes down to is that there are so many structural asymmetries at play that the equity markets, in some ways, may have no choice but to go higher. From unprecedented money printing to runaway government spending to the government's support of moral hazard investing, we don't think the Fed and Treasury, with all of its tools, will allow this market to go lower in the long run.
---
Okay -- let's go back a bit now. On February 22, we called the "Great Crash of 2020," and we outlined a few put options ideas for members on February 24 and March 6. We were able to partially hedge the newsletter portfolios from the biggest part of the declines, but we also highlighted for new members on a number of occasions dollar-cost-averaging opportunities through most of mid-March into the March 23 bottom. We continue to be intentionally vague with highlighting the pricing behind any put options (as well as our other ideas) for a number of reasons:
---
There are many moving parts in tracking ideas, but generally speaking, there will always be differences in when we present any idea and when that idea is considered by members. There are also lag times between when we send an email and when it is released by our email provider, too, sometimes even pre-market versus market opening (and market versus post-market), which further complicates matters. As such, though we may update hypothetical performance periodically, we've de-emphasized this feature due to these inherent limitations faced by publishing houses such as ours. Our focus remains on the quality of the idea generation we produce, not on the presentation of hypothetical performance, which may not match what members are doing.
---
Just like a few readers were surprised by our crash alerts and put option ideas in late February, most members were also surprised by our decision to consider dollar-cost-averaging near the depths of the crisis, too. For context, please read the comment section on our March 23 article here. As an investor, it's very important to be able to hold different opinions between the near term and the long term, and between valuations, the economy, and the future direction of equity prices.
---
For example, we talked a lot about how we were expecting Depression-type numbers (which have subsequently occurred), but also why we had been saying the following on March 23: "We believe that savvy investors have been nibbling at this market during the past couple weeks and may have achieved up to 50%-75% of their equity allocation in a well-diversified portfolio via dollar-cost averaging strategies, with expectations of further market declines." It so important to understand that the stock market is neither the economy nor the coronavirus and/or virus data.
---
Also, in mid-to-late March, while noting dollar-cost-averaging opportunities, we released capital appreciation and dividend growth ideas to consider amid COVID-19 that have significantly outperformed (see here), including Chipotle (CMG), which has now surpassed $1,000+ per share. Through mid-day May 14, these COVID-19 ideas exceeded the benchmark return by ~15 percentage points for capital appreciation ideas and ~13 percentage for dividend growth ideas. This is huge relative outperformance from their highlight price.
---
It seems like we've been moving a mile a minute as the markets experienced unprecedented volatility, which is why I thought this update important. We called the crash, called the bottom, called outperforming ideas from the bottom, have experienced tremendous performance from newsletter portfolio ideas such as Facebook, PayPal, etc, put up success rates in the Exclusive publication that are simply unimaginable, held the line with respect to the High Yield Dividend Newsletter portfolio, and have been scouring the market for ideas for our new options commentary.
---
Each call that we have made during this crisis has not been easy and met with great skepticism. This is okay -- I want you to retain a healthy degree of skepticism. But please don't take it to the extreme. It's quite possible that once we receive the all-clear on the coronavirus and/or the economy, it's very possible the stock market will have already made a new all-time high, and long-term opportunities would have been missed. The stock market is a forward-looking discounting mechanism, something we have emphasized time and time again in Value Trap.
---
Where are our favorite ideas? Our favorite ideas remain in the simulated newsletter portfolios and the Exclusive publication (as well as the two sets of the COVID-19 ideas), and we point members to our favorite allocations in big cap tech and large cap "growth," the latter because we believe most of the companies residing in that arbitrary bucket have good value and good momentum characteristics, or are quintessential Valuentum stocks. I'm sure I missed so many things with this update (and you will all let me know about it), but please let us know how we can help. Our email inboxes have been overflowing.
---
As we wrap up this note, I wanted to point you to some of our latest work. We talk about some trends in retail here, our latest thoughts on regulatory policy here, our excitement about COVID-19 vaccine candidates here, an earnings roundup from last week here, our updated take on Cisco (CSCO) here, some concerns about Under Armour (UA) here, our thoughts on strong performer Digital Realty Trust (DLR) here, our take on Realty Income (O) here, as well our thoughts on the European banks here. Please make sure you read our latest piece, "Stay Optimistic. Stay Bullish. I Am." Though nothing in the stock market is risk-less, I don't think I've ever been this bullish for the long run.
---
Thank you for your attention, and God bless!
---
Kind regards,
---
Brian Nelson, CFA
President, Investment Research
Valuentum Securities, Inc.
brian@valuentum.com
--- 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 member? Subscribe today. The first 14 days are free. Brian Nelson owns shares in SPY 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. |
4 Comments Posted Leave a comment