Valuentum Exclusive Analysis for the Discerning Investor

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Apr 19, 2023

1Q 2023 Earnings Coming in Better Than Feared Thus Far
Image: We view valuation as a range of probable fair value outcomes. Our updated fair value estimate for Booking Holding stands north of $3,000, while shares are trading at less than $2,700. First-quarter 2023 earnings season has been coming in better than feared, in our view, and bank earnings have not spooked the market as many may have thought they would. But again, any banking crisis takes far more than just a month or two to work through the system, and in the event another shoe drops – whether in Europe or in U.S. commercial real estate or U.S. housing – things could get ugly for the banking sector. We continue to prefer equities over bonds, and as was shown once again during SVB Financial meltdown, the Fed was there once again to bail out the “market” and prevent contagion at any cost. With roughly 10% of the S&P 500 reporting first-quarter 2023 earnings so far, many companies have been beating consensus estimates.

Oct 10, 2022

Stay Away from Mortgage REITs!
Image Source: Mortgage REITs have underperformed the broader stock market for years, and we don't think individual investors and financial advisors should be dabbling in the mortgage markets via these instruments. As we have said time and time again, stay away from mortgage REITs!

Aug 14, 2020

Our Thoughts on Chevron Buying Noble Energy
Image Shown: An overview of Chevron Corporation’s all-stock acquisition of Noble Energy Inc that was announced in July 2020. Image Source: Chevron Corporation – July 2020 Noble Energy Acquisition Presentation. On July 20, Chevron Corp announced it was acquiring Noble Energy through a $5.0 billion all-stock transaction, or $13.0 billion when factoring in net debt and the book value of non-controlling interests. Shareholders of Noble Energy will receive approximately 0.12 share of Chevron for each share of Noble Energy. At the time the deal was announced, shareholders of NBL were receiving a ~12% premium based on the ten-day average closing stock prices. Chevron intends to issue ~58 million shares to cover the deal, keeping in mind the firm had approximately 1.85 billion shares outstanding on a weighted-average diluted basis as of the second quarter of 2020. The deal is expected to close during the fourth quarter of this year and is forecasted to generate $0.3 billion in annualized run-rate cost synergies one year after closing.

Jul 22, 2020

Second Quarter Earnings Roundup
The figure above shows the performance of the simulated Best Ideas Newsletter portfolio from inception May 17, 2011, through December 15, 2017, relative to its declared benchmark, the S&P 500 (SPY), on an apples-to-apples basis, with dividends collected but not reinvested for both the newsletter portfolio and the SPY, as reported in the monthly newsletter. The simulated Best Ideas Newsletter portfolio outperformed the S&P 500, including reinvested dividends in the benchmark, since inception (May 17, 2011) and since the inaugural release of the newsletter (July 13, 2011) through the end of the measurement period (December 15, 2017). The results are hypothetical and do not represent returns that an investor actually earned. Past results are not indicative of future performance.

Jun 16, 2020

Exxon Mobil Puts on a Brave Face
Image Source: Exxon Mobil Corporation – November 2019 Guyana IR Presentation. Near-term oil prices and most importantly, the oil price futures curve, have improved materially since just a couple of months ago when it looked like the sky was falling. For the first time ever, WTI turned negative in April 2020 for physical deliveries due May 2020 of light sweet oil to Cushing, Oklahoma, as storage options were limited (and arguably, many speculators had jumped into the market not fully aware of the risks they were taking on). Exxon Mobil Corp has seen its share price recover considerably since the drop, though we caution that management’s commitment to the dividend will prove a hard task if things do not improve materially in the short-term. As of this writing, near-term futures for WTI and its international counterpart Brent are trading near $40 per barrel. In the face of COVID-19, low raw energy resource prices (Exxon Mobil’s upstream operations form its largest single business segment), and subdued demand for refined petroleum and petrochemical products (from gasoline to plastics) have significantly weakened Exxon Mobil’s cash flow profile. The ongoing coronavirus (‘COVID-19’) pandemic has shaken energy markets to their core in ways we have not seen ever before. Shares of XOM yield ~7.4% as of this writing. We give Exxon Mobil a Dividend Cushion ratio at 0.2, though its Dividend Safety rating is “GOOD” given the company’s ability to tap capital markets, especially debt markets as the oil giant carries high quality “A-rated” investment grade credit ratings. There is a limit to how much debt Exxon Mobil can take on to cover its dividend obligations, however, which we will cover in greater detail in this article.

Apr 13, 2020

Historic Oil Deal Reached
Image Source: Chevron Corporation - March 2020 Security Analyst Meeting Presentation. Over the Easter holiday weekend, members from the Organization of Petroleum Exporting Countries (‘OPEC’), non-OPEC members that are part of the OPEC+ group (countries that in the recent past have joined forces with OPEC to curtail global oil supplies in a formal manner), and non-OPEC members outside of the OPEC+ group such as Brazil, Canada, and the United States came to an agreement to cut their collective oil output by north of 10 million barrels per day. Global oil and other raw energy resource prices have been simply demolished year-to-date due to a combination of demand destruction from the ongoing coronavirus (‘COVID-19’) pandemic and the emergence of a price war between Saudi Arabia and Russia. Please note that oil demand destruction due to the “cocooning” of households (and the related drop off in refined petroleum product demand from automobiles, airplanes, etc.) may be as high as 35 million barrels per day according to some analysts, an enormous figure that’s resulting in major stockpile buildups all over the world. Other analysts don’t necessarily see the level of demand destruction as that high (projections are being updated constantly); however, they are still calling for a drop off in demand that’s in the ten(s) of millions of oil barrels per day range (at least in the short-term, depending on how long the pandemic lasts). Even if this agreement is effectively implemented, that won’t result in oil prices (and other raw energy resource prices) returning to pre-COVID-19 levels in the short/medium-term, in our view, but will make emerging from this pandemic an easier task given that global oil storage capacity is nearing its limit. As of this writing on April 13, oil prices are trading up modestly but are still down by well over 50% year-to-date.

Apr 7, 2020

24 in a Row! Order the Exclusive Today!
Image Source: An excerpt from the March 2020 edition of the Exclusive publication. Valuentum offers commentary across the capital stack in the Exclusive publication. In the Exclusive publication, Valuentum highlights three new ideas each month to consider, one for income, one for capital appreciation, and a "short" idea (all three outside our existing coverage universe). Through March 2020, the success rate for capital appreciation ideas is 84%+ and an incredible 95%+ for short-idea considerations. As of this writing, the Exclusive is currently on a short-idea win streak of 24 in a row! Make sure the Exclusive is part of your Valuentum membership.

Mar 23, 2020

Fed and Treasury Efforts Might Not Be Enough to Avoid Another Great Depression
Image: The Energy Select Sector SPDR and Financial Select Sector SPDR, two securities removed from both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio in August 2019 have been ravaged during this market selloff. We maintain our view that the energy and banking sectors are worth avoiding during this market meltdown. The U.S. is stuck between a rock and a hard place, and we might get the next Great Depression regardless of what the Fed or Treasury does. The timeline for when these markets attempt to bounce back meaningfully from this disruption may not be based on whether COVID-19 cases roll over, but rather when consumers start coming out to spend in droves again, and that may not happen until we have a vaccine broadly available. We're maintaining our fair value range on the S&P 500 of 2,350-2,750, with expectations of panic/forced selling down to 2,000 on the broad market index (it closed at 2,304.92 on Friday, March 20). We believe that savvy investors have been nibbling at this market during the past couple weeks and may have achieved up to 50%-75% of their equity allocation in a well-diversified portfolio via dollar-cost averaging strategies, with expectations of further market declines. Our best ideas remain in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio and Exclusive publication. Expect more gut-wrenching volatility.

Mar 20, 2020

Stress in the Oil & Gas Industry Grows as Major Energy Exporters Hunker Down
Image Shown: WTI is down almost 61% over the past year as raw energy resources prices were decimated by the news that OPEC and non-OPEC members couldn’t reach another production curtailment deal in early-March 2020. Upstream capital expenditures are coming down aggressively in the US shale patch and elsewhere, and just as importantly, even the bigger firms are throwing in the towel and scaling back their ambitions. Exxon Mobil has recently pledged to make material cuts to its capital expenditure budget, while Chevron is considering such a move, as are others. It will take a lot more than that to stabilize raw energy resources pricing given the demand destruction caused by the ongoing COVID-19 pandemic, with many households in major demand regions (namely the US and Europe) now “cocooning” in their homes to wait out the crisis. That’s on top of an expected surge in oil supplies from OPEC and non-OPEC nations, with an eye towards Saudi Arabia, the UAE, and Russia. We caution our members to not catch a falling knife here.

Mar 6, 2020

Dividend Increases/Decreases for the Week Ending March 6
Let's take a look at companies that raised/lowered their dividend this week.