Coca-Cola, Visa, and More from Valuentum

Hi everyone,

Hope you’re doing great. 

Just yesterday, we closed out six more ideas in the Exclusive, four capital appreciation ideas and two short-idea considerations, for solid “gains.” The success rates in the Exclusive publication continue to be fantastic. I encourage members to upgrade, to give the Exclusive a chance, to see if the ideas may be of interest. Subscribe to the Exclusive publication here.

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We have a lot of dividend and income members, but please bear with me for a moment while I talk Facebook (FB). If you recall, Facebook issued a terrible outlook in mid-2018 that sent the stock tumbling. Many of our members cancelled their membership during 2018 on this decline. But we stuck with our conviction in the name.

But why? How could we possibly stick with a company like Facebook all the way down and ditch entities like Kinder Morgan (KMI) and General Electric (GE), seemingly iron-clad companies, right at their tops. The answer, my dear members, is a focus on the financial statements and forward-looking analysis. 

There are going to be a lot of people out there that are going to tell you that you cannot separate winning stocks from losing stocks and that the market is random. What I’m saying is that you can do it, but it takes a strong understanding of free cash flow and balance-sheet health coupled with competitive advantage analysis and growth prospects. Many of our favorite ideas fit this theme. 

Stocks like Facebook and Visa are hiding in plain sight, putting up huge gains, and we’ve had them top-weighted for some time. If you look at what’s popular though, you might see click bait titles such as, “Buy This Stock Now for a 20% Safe Yield,” or “Sleep Well at Night with This Fully-Covered 15% Dividend Payer.” Look — there’s nothing safe in the stock market, and if something has such a high yield, it usually means a high risk of a cut. I can’t believe this stuff is out there, and people are actually paying for it.

The market is not perfectly efficient, but it is not that inefficient where it is not going to risk-adjust the price of a “20% safe yielding stock,” if it is truly “safe,” in an environment where the 10-year US Treasury, a riskless asset, is trading with a low-single-digit yield. Use common sense. Stay away from the click bait. Focus on free cash flow, net cash on the balance sheet, future top-line growth expectations, competitive advantage theory and business-model risk. 

Remember — the specialist adjusts the price of the stock down by the dividend on the ex-dividend date. With dividends, you are getting paid something you already own. That’s why intrinsic value methods are so important to combine with dividend growth investing. You want to have the best of both worlds. Just focusing on the dividend is a lot like getting paid with your own money. What matters is whether the company can replace that cash disbursement to you by generating economic value.