Valuentum Exclusive Analysis for the Discerning Investor

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Feb 27, 2020

Has the Stock Market Crash Begun?
Image: CDC. Transmission electron microscopic image of an isolate from the first U.S. case of COVID-19, formerly known as 2019-nCoV. The spherical viral particles, colorized blue, contain cross-section through the viral genome, seen as black dots.According to the latest Situation Report from the CDC, dated February 25, there are now more new cases reported from countries outside of China than from China. Globally, there are currently 80,000+ confirmed cases in nearly 40 countries, with China, South Korea, Italy and Iran the major hotspots. Up until now, investors have been anxiously waiting for the other shoe to drop (i.e. community spread in the United States), with the CDC even saying, “It's not so much a question of if this will happen anymore, but rather more a question of exactly when this will happen and how many people in this country (United States) will have severe illness.” Well, that “when” is now. The CDC just confirmed February 26, 2020, a possible instance of community spread of COVID-19 in the US.

Feb 24, 2020

ALERT: Adding Market Crash 'Protection,' Removing MSFT, BKNG
Image source: Centers for Disease Control and Prevention.  We're adding out-of-the-money put options to both the Dividend Growth Newsletter portfolio and Best Ideas Newsletter portfolio. We're removing Microsoft from the Dividend Growth Newsletter portfolio, and we're removing Booking Holdings from the Best Ideas Newsletter portfolio. We reiterate that, had the Dow Jones Industrial Average already swooned a couple thousand points on news of the COVID-19 outbreak, we might have considered some undervalued stocks with strong momentum potential "buying opportunities." However, to this point in time, the markets have largely ignored COVID-19, with major US indices still sitting near all-time highs. We could be in for a wild ride in the coming weeks and months, and an outright market crash is not out of question. For those looking for short-idea considerations, please consider the Exclusive publication here. We remain fully-invested in the High Yield Dividend Newsletter portfolio given its yield and income focus.

Feb 22, 2020

Is a Stock Market Crash Coming? -- Coronavirus Update and P/E Ratios
Image Source: World Health Organization, Coronavirus disease 2019 (COVID-19), Situation Report -- 32. We don’t think this is the environment to put new capital to work, and we remain highly cautious of what COVID-19 means for global economic growth not just in the first quarter of 2020 but for the rest of this year (maybe longer). Right now, the US markets are not really factoring in anything related to COVID-19, and perhaps may be adjusting to China’s stimulus in artificially propping up the markets as if the outbreak is somehow a “positive thing.” With the S&P 500 trading at 19.0 forward earnings estimates--estimates that are likely too high given the evidence we are seeing with respect to a slowdown due to COVID-19--and corporate debt levels more elevated than ever before (note, a high net debt level should depress the P/E in enterprise valuation--US corporate debt has advanced 50% over the past decade, to $10 trillion), it is our contention that the current market reflects a “situation-equivalent” forward P/E (i.e. rightsizing for new net debt relative to the dot-com peak and adjusting for lower forward earnings expectations compared with current forecasts) perhaps greater than 24.4, which was recorded at the peak of the dot-com bubble. Though interest rates are lower than they were at the time of the dot-com crash, suggesting a modest reasonable bump to normalized forward P/E ratios of ~15 times to reflect “fair valuations,” we could seriously be in for fundamental-driven crash soon, as both the earnings multiple and earnings estimates contract aggressively. Hypothetically, a contraction to a 16x forward multiple on earnings estimates just 10% lower than currently forecast implies an S&P 500 of 2,566, or a swoon of about 20%-30% from current levels--and that would just get us down to 16x still-respectable forward numbers. How quantitative-driven price-agnostic trading may impact this scenario is not known either, and all of this could be setting up for a wild ride in the coming weeks and months. Fasten your seatbelts. We’ll have a few newsletter portfolio alerts coming Monday.

Jan 23, 2020

Resetting Your Mental Model
Image Source: affen ajlfe. Having the right mental model and using the right information can be the reason why you win or lose in investing.

Jan 4, 2020

Valuentum Exclusive Success Rates Trump Even the Best Quant Hedge Funds
Image: President of Investment Research Brian Nelson, CFA. A new book, “The Man Who Solved the Market,” hit bookshelves last year, and thus far it has been a hit. The text goes into the story of quant hedge fund Renaissance Technologies and its hedge fund, the Medallion Fund, which has put up mammoth returns since inception.

Dec 20, 2019

General Mills’ Pet Segment Performs Well
Image Source: General Mills Inc – Second Quarter Fiscal 2020 Earnings IR Presentation. On December 18, General Mills reported second quarter results for its fiscal 2020 (period ended November 24, 2019), which saw shares of GIS rise by almost 2% during normal trading hours that day as investors were excited over its strong performance of its pet food sales. Please note General Mills completed its $8.0 billion all-cash acquisition of Blue Buffalo Pet Products Inc in April 2018, and investors have been eagerly awaiting the revenue growth stimulus that deal was projected to generate. Shares of GIS are trading near the very top of our fair value range estimate and yield 3.7% as of this writing.

Oct 12, 2019

ICYMI: Interview with Valuentum's President Brian M. Nelson, CFA
Catch up with Valuentum's President Brian M. Nelson, CFA in a recent interview with dividend growth investor Arne Magnus Lorentzen Ulland of the blog stockles.

Aug 28, 2019

Smucker Cuts Guidance with Weakness Widespread
Image Source: J.M. Smucker Company -- IR Presentation. Smucker’s revenue and earnings both missed estimates for the quarter ended July 31, while management lowered the company’s full year guidance for fiscal 2020. We've taken a close look at our valuation model, but we haven't made any material changes to the fair value estimate.

Aug 14, 2019

A Tale of Two Big Agricultural Industries: Protein Producers Win and Farm Equipment Manufacturers Lose After Recent USDA Report
Image Shown: The tale of two big agricultural companies in one chart, with shares of poultry producer Sanderson Farms Inc (SAFM) shooting up on Monday, August 12, as chicken feed prices fell after a recent USDA report (which sent corn prices sharply lower) while shares of agricultural equipment manufacturer AGCO Corporation (AGCO) tanked as the market priced in continued pressure on US farm incomes and the dynamic impact that has on demand for farm equipment. We are monitoring the agricultural industry but don’t have any agricultural-oriented equities in our Best Ideas Newsletter or Dividend Growth Newsletter portfolios for a reason. In the short- to medium-term, the space will continue to experience volatility as the next chapter of the US-China trade war unfolds.

Jul 27, 2019

We Just Can’t Justify Starbucks’ Lofty Valuation, Even After Its Great Quarter
Image Shown: The red dot signifies where shares of SBUX are trading at as of midday trading on July 26. Shares of Starbucks are trading well above the top end of our Fair Value Range. We just can’t see a way to justify its current lofty valuation other than, to quote Alan Greenspan, irrational exuberance. While Starbucks has a promising growth trajectory ahead of it, we see its valuation as stretched after updating our model. The top end of our fair value estimate range stands at $89/share, well below where SBUX is trading at as of this writing.