Member Articles

The Case for the Valuentum Style of Investing

by

Originally published May 28, 2012. Abstract The benefits of value and momentum strategies on an individual basis have been well-documented in financial literature. Academic research has also concluded that a simply-constructed portfolio consisting 50% of a long-short value-oriented portfolio and 50% of a long-short momentum-oriented portfolio produces a higher Sharpe ratio and lower volatility than either value or momentum alone. We study the reasons behind this phenomenon and strive to answer the question: what are the types of stocks that drive such outperformance? Though the benefits of using a combined value and momentum approach in a portfolio management setting have been widely-accepted, we believe we are the first to identify the abnormal-return benefits of investing in a cohort of individual stocks … Read more

Cisco Raises Fiscal 2023 Guidance But Orders Face Difficult Comps

by

Image: Cisco’s annualized recurring revenue (ARR) continues to advance nicely. Image Source: Cisco By Brian Nelson, CFA On November 16, Cisco Systems, Inc. (CSCO) reported better than expected first-quarter fiscal 2023 results (for the period ending October 29, 2022) that beat expectations on both the top and bottom lines. The networking giant raised its revenue and adjusted earnings forecast for the fiscal year, indicating strong momentum behind its business amid a very uncertain economic backdrop for both consumers and businesses alike. We’re sticking with our fair value estimate of $50 per share for Cisco at this time. The headlines for Cisco’s first-quarter fiscal 2023 results were fantastic. For starters, the company delivered the largest quarterly revenue in its history, while … Read more

Home Depot Says Customers Remain “Resilient and Engaged”

by

  Image: Home Depot’s third-quarter performance wasn’t bad. Inventories expanded, but management reiterated that its core customer remains resilient and engaged. Image Source: Home Depot By Brian Nelson, CFA On November 15, home improvement retailer The Home Depot (HD) reported strong third-quarter results that beat expectations on both the top and bottom line. Revenue advanced 5.6% in the period thanks to comparable sales growth of 4.3% and 4.5% comp expansion in the U.S. Net earnings came in at $4.24 per diluted share, showcasing 8.2% growth over the $3.92 per-share mark from last year. The firm noted that its core customer is still healthy, indicating that it has yet to feel a meaningful impact from what could be a painful decline … Read more

Walmart Is Back on Track; Markets Looking Healthier

by

Image: Walmart’s operating income performance, while still under pressure, improved considerably during the third quarter. Image Source: Walmart By Brian Nelson, CFA Walmart Inc. (WMT) was the canary in the coal mine earlier this year when the company reported its first-quarter 2022 results in May that showed spending on food staples and energy (gas) was cutting into discretionary general merchandise (hardline) spending. However, market sentiment seems to be improving these days, and the firm’s third-quarter results released November 15 showed the huge big box retailer is getting back on track. Though we’re not going to be adding Walmart to any newsletter portfolio, we like what we saw in the quarterly report. During the third quarter, Walmart’s total sales growth advanced … Read more

ASML Launches Big Buyback; Lithography Systems Well Positioned for Demand Growth

by

Image: ASML has been one of the most successful semiconductor companies thanks in part to the firm’s advanced lithography systems that continue to meet customer demands for size and cost efficiencies. Image Source: ASML By Brian Nelson, CFA ASML Holding N.V. (ASML) is one of the most prolific innovators in the semiconductor industry. The firm provides chipmakers with hardware, software and services to make patterns on silicon with lithography, a vital system in the chip-manufacturing process that increases chip value while lowering costs. The resolution of ASML’s lithography systems contributes to the ever-shrinking nature of transistors and microchips needed for ongoing industry innovation. Smaller and smaller chips save on energy, cost and time, and the wavelength of the light used … Read more

Market Whipsaw: Crypto Collapse and a Lower-than-Expected Inflation Print

by

Image: Uncertainty in the cryptocurrency markets has surged with concerns over the liquidity of a key exchange. Investors are weighing the spillover effects of crypto with the view that the pace of inflation may have peaked. — By Brian Nelson, CFA — The U.S. equity market continues to be highly volatile as it whipsaws between concerns over the health and sustainability of cryptocurrency and optimism over lower-than-feared inflation readings. We maintain our bearish/defensive stance on equities, but at the same time, we continue to be “fully-invested” across the simulated newsletter portfolios in part because we don’t want to miss out on days like today, November 10, when the markets are soaring ~2.5%-5.5% depending on which index you are monitoring. We’re also … Read more

Oracle’s Long-Term Outlook Remains Bright

by

Image: Oracle has some lofty targets for fiscal 2026, and we were encouraged by recent commentary from the firm. Image Source: Oracle By Brian Nelson, CFA Oracle Corp (ORCL) has been a strong relative performer during 2022, with shares sliding ~12% versus a market return that has been much worse during the year. Oracle recently offered an encouraging mid-cycle fiscal 2026 outlook, calling for $65 billion in total organic revenue, a 45% operating margin (including its recent acquisition of Cerner), and greater than 10% annual earnings per share growth in the coming years. At this writing, consensus expectations are for Oracle to achieve ~$49.2 billion in revenue for fiscal 2023, so this is no doubt good news, implying a strong … Read more

Taiwan Semiconductor’s Operations Remain Solid But Uncertainty Has Punished the Stock

by

Image: Taiwan Semiconductor’s shares have faced considerable pressure during 2022, despite strong operational performance. By Brian Nelson, CFA Taiwan Semiconductor Manufacturing Company’s (TSM) shares have been cut in half this year as weakness across the tech space, uncertainty regarding new export restrictions, geopolitical tensions concerning China-Taiwan relations given Russia’s invasion of Ukraine, and general market malaise, particularly across the chip sector, have weighed on the company. Our fair value estimate stands at $66, about in-line with where they are trading at the time of this writing. One really wouldn’t think TSM’s shares would be down so much during 2022 given the company’s recent fundamental performance, however. When it reported third-quarter results October 13, revenue advanced 35.9%, while third-quarter earnings per … Read more

ALERT: Replacing Disney with Republic Services in BIN Portfolio

by

Image Source: Valuentum By Brian Nelson, CFA After The Walt Disney Company’s (DIS) poor performance in its fiscal fourth quarter (calendar third quarter) 2022 results, released November 9, we no longer think the company is a great fit as one of our best ideas. We have cut our discounted cash-flow-derived fair value estimate of Disney to $93 per share and are removing the company from the simulated Best Ideas Newsletter (BIN) portfolio. The cash “raised” from Disney in the Best Ideas Newsletter portfolio will be allocated to one of our favorite garbage haulers, Republic Services (RSG), which is already a key idea in the simulated Dividend Growth Newsletter portfolio. Disney’s revenue in its fiscal fourth quarter grew 9% as the … Read more

Berkshire Continues to Be a Staple in the Best Ideas Newsletter Portfolio

by

Image Source: Fortune Live Media Warren Buffett has made some missteps over the years. For every Occidental Petroleum, there is a Kraft Heinz that hasn’t worked out. For every Apple, there is an IBM that has failed to live up to expectations. We hope our readers view our work in a holistic way, much like they view Buffett’s. By Brian Nelson, CFA On November 5, Berkshire Hathaway (BRK.A) (BRK.B), the conglomerate run by Warren Buffett and company, reported third-quarter results. Berkshire’s quarterly reports are always rather muddy, as GAAP presentation requires the company to report unrealized gains/losses on its stock investments as investment gains/losses in net earnings (losses). Such accounting doesn’t tell the whole story as most of Berkshire’s equity … Read more