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Brian Nelson, CFA
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It's a difficult time for everybody these days.
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My heart goes out to all of our members that are suffering in one way or another because of this terrible pandemic that has been thrust upon humanity. It's fair to say that it's taken a toll on everybody--emotionally, physically, and financially.
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With the recent passing of my brother, Chicago's new lockdown orders will make it especially difficult for me not to see family during the upcoming Thanksgiving holiday. I--and I'm sure you, too--can only hope that the PFE/BNTX vaccine will be available sooner than later.
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I wanted to say something a bit personal, too. All of your kind words regarding the loss of my brother were extremely touching and heartfelt, and it showed me just how much love there is in this world. I'll never forget them. Thank you -- your words meant more to me than you know.
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With that said, I wanted to update our membership on the stats of ideas that we have highlighted in the Exclusive publication thus far for the past 52 months. For those that aren't aware of this publication, it is an add-on publication to the regular membership where we highlight three ideas in full thesis form each month -- an income idea, a capital appreciation idea, and a short idea consideration.
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For capital appreciation ideas, the success rates* have been 86.5% -- meaning that 86.5% of capital appreciation ideas that we've highlighted have advanced from their highlight price to their close or current price (including dividends). The winners are shaded green in the image. It's a pretty striking sight to see.
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For short idea considerations, the success rates have been 92.3% -- meaning that 92.3% of short idea considerations that we've highlighted have fallen from their highlight price to their close or current price (including dividends). The winners are also shaded in green. This is even more remarkable than the capital appreciation success rates.
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I think the Exclusive publication may be one of the best publications out there. Period. I've never witnessed success rates of this magnitude in my entire career, and we've done it in full transparency for Exclusive members. If you're looking for a publication that has put up a high degree of success rates, the Exclusive may be what you are looking for.
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For income investors, the Exclusive has also put up a fine track record of highlighting ideas that have raised their payouts, and many of the ideas that we have highlighted in the past have current forward expected dividend yields in the mid-single-digits and some even higher. The Exclusive publication covers the bases. If you'd like to add this publication to your membership, please consider doing so here.
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Thank you for your support and interest. The publication is awesome.
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Read the full article here.
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By Callum Turcan
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On November 12, Cisco Systems Inc (CSCO) reported first quarter earnings for fiscal 2021 (period ended October 24, 2020) after the market close that beat both consensus top- and bottom-line estimates. Though its GAAP revenues and GAAP net income fell by 9% and 26% year-over-year, respectively, the market was assuming the worst given the headwinds Cisco is facing due to the coronavirus (‘COVID-19’) pandemic.
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More importantly, Cisco’s fiscal second quarter guidance was decent, all things considered. We include shares of Cisco in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios. As of this writing, shares of CSCO yield a nice ~3.7%, and our fair value estimate for Cisco still stands at $51 per share.
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Cisco offers a variety of products and services that support networking, security collaboration, applications, and cloud-computing needs. Increasingly, software and services are becoming a bigger part of Cisco’s business. In the first quarter fiscal 2021, ‘subscription’ revenues represented about 78% of its ‘software’ revenues. Recurring revenue streams provide for stronger cash flow profiles given the greater visibility of those sales on a forward-looking basis.
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Guidance Update
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Cisco updated its expectations for the current fiscal quarter. It appears the company’s near-term revenue trajectory is improving, especially when compared to the high-single digit decline in its GAAP revenues on a year-over-year basis Cisco reported in the third and fourth quarters of fiscal 2020 (fiscal year ended in July 25, 2020) and in the first quarter of fiscal 2021. Shares of CSCO rocketed higher after posting its latest earnings report, which in our view was largely due to its improving near-term outlook and ability to continue generating sizable free cash flows in any operating environment.
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Financial Update
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During the first quarter of fiscal 2021, Cisco generated $3.9 billion in free cash flow which fully covered $1.5 billion in dividend payments and $0.8 billion in share repurchases made over this period. We support Cisco’s share repurchasing strategy as shares of CSCO have been trading well below their fair value estimate over the past several months and continue to do so as of this writing. Cisco exited the fiscal first quarter with $10.8 billion in cash and cash equivalents on hand along with $19.2 billion in short-term investments. Stacked up against $5.0 billion in short-term debt and $9.6 billion in long-term debt, Cisco had a net cash position of ~$15.4 billion at the end of its previous fiscal quarter.
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Cisco’s stellar cash flow profile and net cash position highlight why we are big fans of the firm. After its latest earnings report, the tech giant might finally be starting to win some attention from investors as Cisco continued to showcase why the firm’s business model is incredibly resilient.
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Growth Drivers
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One of the bright spots at Cisco last fiscal quarter was its ‘Security’ business, as the firm noted that its ’product revenue’ from these offerings was up 6% year-over-year in its earnings press release. Cisco’s management mentioned that “Webex, (its) security solutions and business resiliency offers, also saw strong growth as our customers are trusting us with their most critical projects” during the firm’s latest earnings call. We appreciate Cisco’s exposure to the (secure) videoconferencing and cybersecurity space, as these operations represent some of its best long-term growth drivers.
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Concluding Thoughts
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We continue to be big fans of Cisco’s stellar cash flow profile and pristine balance sheet. The company’s forward-looking dividend coverage is strong as Cisco carries a Dividend Cushion ratio of 2.6 (this ratio factors in our expectations that Cisco will push through meaningful per share dividend increases over the coming fiscal years) that interested members can read more about here. On a final note, we want to congratulate R. Scott Herren, who is set to become CFO of Cisco starting December 18 as Cisco’s current CFO Kelly Kramer is retiring after working nine years at Cisco. We wish both parties the best in their future endeavors.
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* Success rate: The percentage of ideas highlighted in the Exclusive that have moved in the direction of our thesis (i.e. up for capital appreciation ideas and down for short idea considerations) through the current price or closed price, with consideration of cash and stock dividends. Success rates do not consider trading costs or tax implications. Trading is simulated. Past results are not a guarantee of future performance.
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Callum Turcan does not own shares in any of the securities mentioned above. Brian Nelson owns shares in SPY, SCHG, DIA, VOT, and QQQ. 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.
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Key Features of the Valuentum Exclusive:
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- Released monthly when the market is closed -- everyone is on an equal playing field. You'll have time to consider.
- Ideas are delivered to your inbox. They will never be published anywhere else. It's as exclusive as it gets.
- Time horizons published for highlighted ideas. Follow ups of previous ideas in subsequent editions. Performance tracked and theses updated.
- Only "investable" ideas -- meaning no thinly-traded issues. Includes small caps and non-US/ADRs -- under-followed and overlooked investment opportunities!
- Only stocks outside Valuentum's existing coverage universe viewed outside the newsletter portfolio context. Product helps members sort through the thousands of other stocks not in Valuentum's existing coverage universe!
- Purely incremental. No change to the high quality of service and analysis you've grown accustomed to. Independence and integrity remain our core. Investors first.
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Order the Exclusive >>
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* The High Yield Dividend Newsletter, Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio are not real money portfolios. Results are hypothetical and do not represent actual trading. The Valuentum Exclusive publication does not reflect real performance. Any performance is hypothetical and does not represent actual trading.
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Valuentum (val∙u∙n∙tum) [val-yoo-en-tuh-m] Securities Inc. is an independent investment research publisher, offering premium equity reports, dividend reports, and ETF reports, as well as commentary across all sectors/companies, a Best Ideas Newsletter (spanning market caps, asset classes), a Dividend Growth Newsletter, modeling tools/products, and more. Independence and integrity remain our core, and we strive to be a champion of the investor. Valuentum is based in the Chicagoland area.
Valuentum is not a money manager, broker, or financial advisor. Valuentum is a publisher of financial information.
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About Our Name
But how, you will ask, does one decide what [stocks are] "attractive"? Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth,"...We view that as fuzzy thinking...Growth is always a component of value [and] the very term "value investing" is redundant.
-- Warren Buffett, annual report, 1992
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At Valuentum, we take Buffett's thoughts one step further. We think the best opportunities arise from an understanding of a variety of investing disciplines in order to identify the most attractive stocks at any given time. Valuentum therefore analyzes each stock across a wide spectrum of philosophies, from deep value through momentum investing. And a combination of the two approaches found on each side of the spectrum (value/momentum) in a name couldn't be more representative of what our analysts do here; hence, we're called Valuentum.
