Image shown: We notified members December 26 that we had moved the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to a “fully invested” position, from a 30% and 20% cash “weighting” at the high end of the range, respectively. It doesn’t look like the timing could have been much better.
Changes to Dividend Growth Newsletter portfolio
Removing Novartis (NVS) -3.5%-5.5%
Adding Health Care Select Sector SPDR Fund (XLV) +3.5%-5.5%
By Brian Nelson, CFA
The back half of 2018 was among the most exciting in Valuentum’s history. For one, we might have made one of our best “market-direction” calls since inception in practically calling the near-term bottom December 26. In hindsight, it’s clear the market had overreacted, but at the time, going to “fully invested” in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio was a big deal. It has paid off for members in spades.
The back half of 2018 also revealed one of the best calls completed in the Dividend Growth Newsletter portfolio. On November 18, 2018, we added Xilinx (XLNX) to the Dividend Growth Newsletter portfolio in the mid-$80s, and the stock soared to nearly $120 by Valentine’s Day. In the Best Ideas Newsletter portfolio, we added Chipotle (CMG) in April 2018, and the stock has been on fire ever since. Our market call and the latest additions to the Dividend Growth Newsletter portfolio and Best Ideas Newsletter portfolio have been fantastic across the board.
I’d like to give a tremendous amount of credit to our team at Valuentum, as well as our methodology. We have a deep bench, and we’re adding more and more contributors to make our product even better. But importantly, just because you don’t receive an email from us every day, it doesn’t mean we’re not making hundreds of calls on our website each day. The reports we make are analyst-driven, not externally populated data. To get a feel for a stock and dividend reports, please download this pdf, “.”
I think the back half of 2018 was one of the best periods in Valuentum’s history. Not only did we make some great calls, but we were able to write “our story” in Value Trap: Theory of Universal Valuation, and the response to the book continues to be amazing. You’re not going to get rich writing a book. For anyone to complete a manuscript, something must be screaming to get out of them. I hope that you felt my passion about investments in my words. I truly love this business, Valuentum, and helping investors, and I dedicate the book to our loyal subscribers, some of whom have been with us since our founding year in 2011. I do think you’ll learn a ton by reading the book. This book is written for you because without you, Valuentum would not exist.
In case you missed it, Best Ideas Newsletter portfolio idea Dollar General (DG) reported its fourth-quarter results March 14, and they weren’t too bad. The company put up its 29th consecutive year of same-store-sales (SSS) expansion, and while the market was a little disappointed in its gross-margin showing due to higher markdowns and other related pressures, its outlook for fiscal 2019 was pretty good, with the company targeting net sales growth in the range of 7% and operating income expansion in the range of 4%-6%. The company plans to add nearly 1,000 stores during fiscal 2019, too. We view Dollar General as a nice counter-cyclical, recession-resistant idea in the Best Ideas Newsletter portfolio (its SSS trends do better when economic conditions go sour).
The questions from members keep rolling in. Let me address a few in this note. There was a question about Intercontinental Exchange (ICE) and the threat of competition. For starters, our updated fair value estimate for the company is about in line with where shares are trading, so we’re not too excited one way or another about ICE. Shares have also registered a 3 on the Valuentum Buying Index since June 2018, a level that doesn’t really pique our interest. That said, we’re huge fans of the company’s free cash flow generating capacity and the recurring-revenue nature of its business model. We expect data to become an increasingly important part of its business, too, but we’re not jumping in to shares right now.
We’re also taking the opportunity to take some profits in a Dividend Growth Newsletter portfolio idea, Novartis (NVS). The company was added to the Dividend Growth Newsletter portfolio in July 2017 in the mid-$80s, and shares are modestly above that now, in the low-$90s. It has paid a nice dividend for the past couple years, too, so we’ve been pleased with its performance and the diversification benefits it has provided. Shares are trading above our fair value estimate, and we’ve never been too fond of the complexity with respect to foreign taxes. We’re going to replace it with the Health Care Select Sector SPDR Fund (XLV), which we already include in the Best Ideas Newsletter portfolio. Hope this answers your questions on our thoughts about Novartis.
The propaganda bandwagon is out in full force again this morning. News hit the wires that active fund managers have now trailed the S&P 500 for the ninth year in a row. As you’ll read in Value Trap, it’s important to cut through this noise. Active fund managers are less than 20% of the corporate equity market, and underperformance by them usually means outperformance elsewhere, probably in a part of the market that is not paying fund fees. I believe that the proliferation of quantitative investing is the cause of active fund underperformance, and I believe that you, the individual investor and stock-selecting financial advisor are the ones outperforming. Remember–underperformance only creates outperformance elsewhere. Don’t be fooled by the propaganda machine. Learn more about this in my book.
Facebook (FB), again, is being hit by a whirlwind of negative news, from executive departures to a server outage, but this just continues to be noise. Love or hate Facebook, stocks are driven by cash-based sources of intrinsic value–the company’s outlook for free cash flow generation and net-balance sheet health is what matters. These two items continue to be robust at the social-media giant, and if its most recent quarter spoke to its dominance, the company is still growing like a weed (30%+ on the top line). We value shares of Facebook north of $220 each. One quick note on Oracle (ORCL). The Dividend Growth Newsletter portfolio idea raised its dividend 26%+ yesterday, now yielding nearly 1.9% on a forward basis, despite selling off a bit on a weaker-than-expected outlook. We’re sticking with the company as the undervalued idea fits well in the context of the Dividend Growth Newsletter portfolio.
That about wraps things up for the morning note today. Don’t forget to either add the Exclusive publication here or the High Yield Dividend Newsletter here to your membership. Many members have added both. I sincerely appreciate your interest, and thank you so much for being here. Always my very best!
Don’t forget about the 40/40 Goal. Thank you!
Tickerized for holdings in the SPDR S&P 500 ETF (SPY).
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.