Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Apr 14, 2022

We're Still Bullish; GDP Continues To March Ever Higher!
Image: "Gross domestic product (GDP), the featured measure of U.S. output, is the market value of the goods and services produced by labor and property located in the United States." Image Source: BEA. We believe there will be continued strength in the equity markets during the back half of this year and into 2023. There are myriad headwinds to this bullish underlying thesis, but big-cap company fundamentals remain strong, and we think this will become evident during first-quarter 2022 earnings season, which is already upon us.

Mar 17, 2022

Berkshire Hathaway Is Firing on All Cylinders; Shares Surging
Image Shown: Shares of best idea Berkshire Hathaway Class B (ticker: BRK.B) have surged higher over the past year with room to run. Those of you that have been long-time members of Valuentum (thank you by the way!) know that we are huge fans of Warren Buffett. We include Berkshire Hathaway Inc (BRK.A) (BRK.B), specifically its Class B shares (ticker: BRK.B), as an idea in the Best Ideas Newsletter portfolio. Recently, Buffett (CEO and Chairman of Berkshire) released his latest annual letter to shareholders, which included plenty of important information regarding the conglomerate’s financial performance and investing practices at-large. One of the things that stuck out in Buffett’s latest annual letter to shareholders, a topic that he has brought up often in the past, is his belief in betting on America. In the letter, Buffett notes that “our country would have done splendidly in the years since 1965 without Berkshire. Absent our American home, however, Berkshire would never have come close to becoming what it is today.” For reference, Buffett took control of Berkshire back in 1965. We are also big believers that the number one place for investors to be invested is in U.S. equities. Specifically, large cap U.S. tech stocks with “moaty” business models, fortress-like balance sheets, incredible free cash flow generating abilities, and growth outlooks underpinned by secular tailwinds represent some of our favorite ideas alongside U.S. energy giants (a shorter term tactical play in the face of the ongoing inflationary environment) and high-quality U.S.-focused firms like Berkshire. We appreciate Buffett’s longstanding commitment to utilizing discounted free cash flow analysis to locate and invest in undervalued enterprises based in the U.S.

Feb 25, 2022

Update: Analyzing Valuentum’s Economic Castle Index: A Walk Forward Case Study
There are two things generally wrong with a pure economic moat assessment, or economic “moat factor.” First, it is much easier to assess outsize economic returns in the near-term than it is to assess outsize economic returns over the long haul. Quite simply, nobody can predict what will happen tomorrow, and they certainly don’t know what will happen 20 or 30 years from now. Second, a rational investor should generally prefer expected near-term outsize economic returns than expected long-term ones given the uncertainty of the latter--somewhat related to our first point, a bird in the hand (or large economic returns in the near term) is worth two in the bush (or large economic returns in the long run that may not materialize). The time value of money reinforces this notion. Near-term economic returns are generally worth more than long-term ones in real terms, even if they may be smaller nominally. This is where our Economic Castle rating comes in. The goal of the Economic Castle rating is to identify those companies that are likely to generate a lot (or not so much) shareholder value over the foreseeable future. Instead of pondering a guess as to how the landscape will look 20 or 30 years from now, something not even the Oracle of Omaha can do with any sort of certainty (e.g. IBM, KHC), the Economic Castle rating ranks companies based on near-term expected economic returns, or returns that are more likely to be realized as opposed to those that may be built on “castles in the air” over 20-30 time horizons. By evaluating companies on the basis of the spread between their forecasted future return on invested capital (‘ROIC’) excluding goodwill less their estimated weighted-average cost of capital (‘WACC’), we measure a company’s ability to generate an “economic profit” over the foreseeable future, which we define as the next five fiscal years. Companies that generate a forecasted spread of 50 percentage points or more are given a “Very Attractive” Economic Castle rating and firms that are forecasted to generate a spread of 150 percentage points or higher are considered “Highest-Rated”. Firms that carry an Unattractive Economic Castle rating are those that are forecasted to generate a forward ROIC (ex-goodwill) less estimated WACC spread that’s meaningfully below zero (firms near economic parity can receive a Neutral Economic Castle rating, assigned by the Valuentum team).

Feb 6, 2022

Weekly: Why We Missed Big on T and FB; Overpriced Staples, Our Call To Action; and More!
In this Valuentum Weekly, in video form, President of Investment Research Brian Nelson, CFA, explains why Valuentum missed big on T and FB, how volatility on names with huge market caps is spiking recklessly, and why the call to action in the book Value Trap remains as relevant as ever given current incentives.

Feb 4, 2022

Undervalued PINS, SNAP Rallying; FB Incredibly Mispriced, and Refreshed Consumer Discretionary Reports
Image: Valuentum's Periodic Screener, February 4. Two of the most undervalued stocks in our coverage Pinterest, Inc. and Snap Inc. are indicated to rally hard February 4 after issuing positive earnings reports, providing further evidence of the importance of the discounted cash flow process and the magnet that intrinsic value estimates are to stock prices.

Jan 27, 2022

Apple Blows Past Expectations in Fiscal First Quarter!
Image Source: Valuentum. On January 27, 2022, Apple put up one of the best quarters by any company in history and a record for the Cupertino-based iPhone-making giant. Revenue for the quarter ending December 25, 2021, of $123.9 billion advanced 11% on a year-over-year basis, while quarterly earnings per share came in at $2.10. The top line beat expectations by more than $5 billion, even with supply chain hurdles, and the bottom-line beat of $0.20 per share was more than 10%, a huge delta considering the size of the company. We’re viewing the report very positively, and we think the strong performance may ease some broader market concerns. Apple’s gross and operating margins looked healthy, and only performance in its iPad division came in a bit light, but this was almost entirely driven by supply chain issues. Apple generated a solid $19.5 billion in revenue from its ‘Services’ division during the period, up from $15.8 billion in the year-ago quarter, showcasing its ever-growing and “sticky” installed base. Warren Buffett is a big owner of Apple’s stock, and we continue to be in favor of buybacks at Apple, too, even at these price levels. Though Apple’s market capitalization is sizable, we value shares close to $190 each at the high end of our fair value estimate range. Apple remains one of our favorite ideas in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio.

Jan 22, 2022

Don’t Throw the Baby Out with the Bathwater
Image: Erica Nicol. Junk tech should continue to collapse, but the stylistic area of large cap growth and big cap tech should remain resilient. Moderately elevated levels of inflation coupled with interest rates hovering at all-time lows isn’t a terrible combination. In fact, it’s not bad at all. The markets are digesting the huge gains of the past few years so far in 2022, and the excesses in ARKK funds, crypto, SPACs, and meme stocks are being rid from the system. Our best ideas are “outperforming” the very benchmarks that are outperforming everyone else. The BIN portfolio is down 6.4% and the DGN portfolio is down 3.2% year to date. The SPY is down 7.8%, while the average investor may be doing much worse. Our timing to exit some very speculative ideas in the Exclusive publication has been impeccable. Beware of “best-fitted” backtest data regarding sequence of return risks. Research is to help you navigate the future, not the past. We remain bullish on stocks for the long haul and grow more and more excited as our simulated newsletter portfolios continue to hold up very well. Don’t throw the baby out with the bath water. Stick with the largest, strongest growth names. We still like large cap growth and big cap tech, though we are tactical overweight in the largest energy stocks (e.g. XOM, CVX, XLE). The latest short idea in the Exclusive publication has collapsed aggressively since highlight January 9, and we remain encouraged by the resilience of ideas in the High Yield Dividend Newsletter portfolio and ESG Newsletter portfolio. Our options idea generation remains ongoing.

Jan 21, 2022

Valuentum's Brian Nelson in CFA Institute's 'Enterprising Investor'
"The DCF model is not only relevant to today’s market, it remains an absolute necessity." -- Enterprising Investor

Jan 19, 2022

Microsoft Is Buying Activision On Way to Becoming Video Game Giant
Image Shown: Microsoft Corporation is buying Activision Blizzard Inc, the largest buyout for a US tech firm ever. Image Source: Microsoft Corporation – January 2022 IR Presentation covering its acquisition of Activision Blizzard Inc. On January 18, Microsoft Corp made history by making an all-cash offer to purchase Activision Blizzard Inc for $95 per share. The boards of both companies have already approved the deal. Inclusive of Activision’s net cash position, the deal is worth $68.7 billion which makes it the largest buyout ever for a US tech firm according to CNBC. This deal is expected to close in fiscal 2023 (Microsoft’s fiscal year ends in June). Once it closes, assuming the deal pasts antitrust muster, Microsoft views the acquisition as being accretive to its non-GAAP earnings per share. Our fair value estimate of Activision will be updated to reflect a modest discount to the buyout price to incorporate the small probability the deal won't be completed due to antitrust concerns.

Dec 26, 2021

VIDEO/TRANSCRIPT: 2021 Valuentum Exclusive Call: Inflation Is Good
Valuentum's President Brian Michael Nelson, CFA, explains why investors should not fear inflation, why government agencies such as the Fed and Treasury are prioritizing something other than price discovery, why the 10-year Treasury rate is a must-watch metric, and why Valuentum prefers the moaty constituents in large cap growth due to their net cash rich balance sheets, tremendous free cash flow generating potential, and secular growth tailwinds.