We continue to love Facebook’s valuation opportunity, and the company has registered a 10 on the Valuentum Buying Index. General Electric’s stock price continues to swoon, and we couldn’t have called it better. We used the mosaic theory to anticipate private-equity interest in GameStop. Not a bad trio of calls, no?
By Brian Nelson, CFA
You will not get as much out of our website unless you read and understand “The 16 Steps” and “Analysis of the Best Ideas Newsletter” first. If you haven’t read about the Dividend Cushion ratio, and you are an income investor, you have to do that, too. We talk about the efficacy of this ratio here. You need a solid foundation on which to build. Otherwise, you’re just going to get whipsawed by news and influenced by the latest guru’s opinion on the boob tube.
There are a few pieces of news I wanted you to be aware of. Facebook (FB) has been a huge winner in the simulated Best Ideas Newsletter portfolio, and it has registered a 10 on the Valuentum Buying Index since late April. News today is that Facebook is pursuing ancillary fee-based business opportunities (consistent with our thesis) that will only further add to its revenue and free cash flow generating prowess, in our view. We continue to value shares ~$250 each.
Yeah – General Electric (GE). What can we say? We removed it from both the simulated Best Ideas Newsletter portfolio and simulated Dividend Growth Newsletter portfolio in May 2017 (last year) a long time ago, when shares were north of $28. Now they’re exchanging hands for less than $13. Not only is Facebook rocking as a long idea but look at how poorly GE’s stock has performed following the decision to throw it out of the portfolios, much like it was thrown out of the Dow (DIA) recently. We’re not looking back.
We’re not sure if many of you noticed, but our call that GameStop (GME) is likely of interest by private equity, which we highlighted on page 6 of the June 2018 Best Ideas Newsletter (pdf), has come to fruition. We tied our knowledge of what private equity looks for, Gamestop’s free cash flow generation capacity, net-neutral balance-sheet at year-end, and activist pressure into the view that private equity would be launching bids. The news hit the wires Monday, June 18, that it was holding talks with private equity. We have a long-term focus, of course, but it is good to see examples like this to continue building trust.
Don’t forget to read our latest thoughts on Starbucks (SBUX) here and on “trade wars” here. Ever wonder why fair value estimates change? See here.
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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.