Valuentum Exclusive Analysis for the Discerning Investor

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Oct 22, 2023

There Will Be Volatility
Image: An ETF tracking Russell 1000 "growth" stocks has outperformed an ETF tracking Russell 2000 "value" stocks since the beginning of 2021. To us, the market remains hypersensitive to almost every economic data point that hits the wires, and we’re just not going to play that game. The macro headlines and never-ending news flow are what many quant and algorithmic traders are trading on, and to a very large extent, for investors with a long-term horizon, these macro data points just don’t factor into the equation. When valuing equities, we’re always after mid-cycle expectations, not peak or trough performance, so our valuations implicitly embed a "normal" recession. Warren Buffett didn’t become a billionaire buying and selling on macro data points, and volatility is simply to be expected given the proliferation of price-agnostic trading these days. Instead of panicking over higher interest rates, we think investors should view the Fed’s work thus far as future potential dry powder to stimulate both the economy and the markets. Whenever you feel like stocks are no good, have a read of Warren Buffett’s classic piece written during the Great Financial Crisis, “Buy American. I Am.” To us, we still like stocks for the long run. Happy investing!

Jul 12, 2023

Domino’s Pizza Breaks Through Downtrend on Uber Eats and Postmates Deal
Image Source: Domino’s Pizza is up nearly 14% on a year-to-date basis during 2023, but the company’s shares haven’t done much over the past 52 weeks. On July 12, Domino’s Pizza announced that it had inked a new deal with Uber that would allow customers in the U.S. to order Domino’s food through the Uber Eats and Postmates apps with delivery provided by drivers of Domino’s and its franchisees. Domino’s Pizza continues to be a standout leader in digital initiatives across the restaurant arena, and the firm noted that the new agreement will open up Domino’s and its franchisees “to a new segment of customers and what (it) believes will be a meaningful amount of incremental delivery orders.” The high end of our fair value estimate of Domino’s stands at $450 per share.

Apr 18, 2023

Brief Take: Chart of Best Ideas Newsletter Portfolio Idea Chipotle Looks Beautiful!
Image: Chipotle’s shares have surged to a 52-week high. We continue to like the company’s long-term market opportunity. Chipotle’s shares have surged past the high end of our fair value estimate range, but we expect to take another look at our valuation model to reflect greater confidence in an established restaurant concept that has plans to more than double its current store count in the longer run. Younger millennials and Generation Z (born 1997-2012) generally did not grow up when Yum Brands’ Taco Bell dominated Mexican cuisine, and many prefer Chipotle hands down. It’s probable, in our view, that Chipotle’s long-term target of 7,000 restaurants may also be conservative. Readers should expect us to increase our fair value estimate of Chipotle upon the next report update.

Feb 22, 2023

Walmart Warns: “Prices Are Still High and There Is Considerable Pressure on the Consumer”
Image Source: Mike Mozart. Walmart’s outlook may very well be conservative, but its commentary certainly doesn’t bode well for many discretionary retailers and the broader economy. With the labor markets still strong and the producer price index still coming in hot, the Federal Reserve is not yet done raising rates. We expect the markets to test their uptrends and 200-day moving averages in the coming days to weeks, and if we break through these support levels to the downside, we won’t hesitate to “raise some cash” across the newsletter portfolios. When Walmart warns about the health of the consumer, we pay attention.

Feb 9, 2023

Chipotle’s Fourth Quarter 2022 Results Not Bad, Has Incredible Long-Term Unit Restaurant Potential
Image Source: Valuentum. Long term, Chipotle has plans to expand to 7,000 restaurants, up from nearly 3,200 restaurants at the end of 2022. The company still holds the wild card of expanding into the breakfast daypart, which we believe is a huge source of upside potential for the burrito maker, especially as it adds more drive-throughs across its restaurant portfolio. We continue to like shares.

Jan 5, 2023

The Fed ‘Can’t Stop, Won’t Stop’ Until Labor Market Feels More Pain
Image: Prices for private label brands at Aldi are considerably lower than those of branded products. The consumer staples sector, however, remains fully-priced with a 21+ forward earnings multiple, and many constituents hold large net debt positions. We believe the sticking point for the Fed is not groceries or gasoline prices, but rather the labor markets, which remain very strong, despite layoffs. Image Source: Valuentum. We maintain our view that markets will remain challenged for at least the first quarter of 2023, and we expect the S&P 500 to bottom around 3,400 based purely on a technical evaluation of the ongoing downtrend. The labor market remains too strong for the Fed to stop rate hikes, as the primary concern for the Fed is not what inflation will do this year, but rather whether it will spike again in 2024. To truly stomp out inflation, the Fed needs to witness further weakening in the labor markets, as consumers have found ways to trade down to offset grocery inflation and as gas prices at the pump ease. We’re never happy to hear of layoffs, but an unemployment rate of 4.5%-5% may be the range required for the Fed to stop hiking, in our view. The last thing the Fed wants is to stop hiking too early, only for inflation to come roaring back in the quarters that follow the pause. The Fed is not thinking about year-over-year inflation numbers for 2023, in our view, but rather policies that will ensure that inflation rates of the past 12-18 months do not return in 2024-2025. They are playing the long-term game.

Oct 27, 2022

McDonald’s, Chipotle’s Third-Quarter Results Were Solid, Strong Comp Performance
Image Source: Valuentum. We’re huge fans of McDonald’s positioning in the current inflationary environment, and we love Chipotle’s long-term unit growth potential. Global comparable store sales at McDonald’s were up 9.5% during the third quarter, while Chipotle expects to add 255-285 new restaurants in 2023, a pace we think is achievable given the momentum behind the brand and the adoption of Chipotlane’s that were kickstarted by COVID-19 protocols. The high end of our fair value estimate range for McDonald’s is $300 per share, while that mark stands at $1,765 per share for Chipotle. We like both firms as ideas in the simulated Best Ideas Newsletter portfolio.

Oct 12, 2022

Serious Question: What Are You Looking At?
Image: Stocks with the largest 52-week losses, according to YahooFinance. We've handled the worst performers of 2022 quite handily, and the simulated newsletter portfolios are showcasing the importance of our methodology and processes. We expect things to get worse in the economy before they get better, but we maintain our view that there may be nothing better out there than a subscription to Valuentum to navigate these tumultuous times.

Mar 7, 2022

GoodRx’s Modest Q4 Miss, Slowing Revenue Growth Expectations Send Shares Tumbling
Image: Many speculative areas have faced tremendous pressure in recent months from new issues to entities tied to the trend of disruptive innovation. Image Source: TradingView. GoodRx reported weak fourth-quarter 2021 results and issued top-line guidance for 2022 that has reset the market’s long-term growth expectations for the firm much lower. The company’s EBITDA margin outlook also speaks to continued competitive pressures at the company that may only intensify with Amazon a key player in the online pharmacy space. Though GDRX’s free cash flow profile and balance sheet remain healthy, the company’s little to no expected GAAP profits, slowing expected revenue growth, and mounting competition speak to an uphill battle ahead. GDRX’s recently announced $250 million stock buyback program will eat into its healthy balance sheet and may only provide a dead-cat bounce from today’s levels (in the mid-teens per share).

Feb 10, 2022

Chipotle Sees Bigger Unit Growth Opportunity in North America, Continued Pricing Power
Image: Chipotle’s shares look like they are poised to breakout of a downtrend on news that its long-term unit restaurant opportunity is bigger than expected and that its pricing power remains intact. Chipotle's fast-casual focus and premium food offerings coupled with its Chipotlane rollouts and its breakfast “call option” are a few things that give the company a runway for continued strength that may be unprecedented by an established brand, particularly as it sees an even greater opportunity for unit development in North America than it did before. Because it serves a higher-end fast-casual customer, we think product pricing ahead of inflation won’t be an issue (helping to augment margins), and we’re reiterating our fair value estimate of ~$1,640 per share, above where shares are currently trading at the time of this writing (~$1,580 per share). A more optimistic take on Chipotle could see shares reach the higher end of our fair value estimate range of ~$1,970 per share.