Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

ICYMI: How Big Is Your "Too Hard" Bucket?
Image Source: Christian Schnettelker. In investing, it's okay to admit that there are some things that investors can't know. It's not a poor reflection of one's analytical ability or a possible shortcoming of one's experience, but rather quite the contrary: Understanding and accepting that some things are "unknowable" is a sign of the quality of one's judgment. Quite simply, certain critical components of the equity evaluation process are more "unknowable" than others. The intelligent investor recognizes the variance (fair value estimate ranges) and the magnitude of the "unknowable" between companies and generally tries to identify entities that have the least "unknowable" characteristics as possible or situations where the "unknowable" might actually be weighted in their favor (an asymmetric fair value distribution).

SVB Financial, Silvergate Capital, Credit Suisse Reveal Cracks in Global Financial System
Image: SVB Financial looks to be collateral damage of the Fed’s rate-hiking cycle, and we can’t rule out that other regional banks could have also managed interest-rate risk wrong. Shares of SVB Financial have collapsed, and other banks could be facing similar issues that have yet to come to light. Image Source: TradingView. SVB Financial announced March 8 what looks to be an emergency equity offering to the tune of $2.25 billion in common stock and convertible preferred shares. The company also announced that it had sold almost all of its available-for-sale (AFS) $21 billion securities portfolio, which resulted in an after-tax loss of ~$1.8 billion during the current quarter. This looks to be an effort to shore up liquidity while it can, and we would not be surprised to see some bad bets at the bank come to light. SVB Financial’s client cash burn has accelerated, and the executive team noted that the “challenging market and rate environment has pressured Q1 performance, with implications to (its) 2023 outlook.” It’s difficult to know just how bad things are at SVB Financial, but the bank seems to have mismanaged interest rate risks and its asset sensitivity. SVB is reconstructing its AFS portfolio with short-duration fixed rate U.S. Treasuries. Though this may be the right move, the stark scenario for the bank is that if market participants lack confidence in the institution, there is more downside to come.

Markets Bounce Off Technical Support But Not Out of the Woods
Image: The market-cap weighted S&P 500 (SPY) bounced off technical support last week, both the 200-day moving average as well as the breakout of the downtrend line, but while this may push off any leg down in the near term, we won’t hesitate to “raise cash” on a few newsletter portfolio names if a breakthrough of support to the downside happens. Image Source: TradingView. The 200-day moving average remains a key technical level for the market-cap weighted S&P 500. The risks that the market may break through both the 200-day moving average and the breakout of the technical downtrend line remain elevated, but the past week showed a successful test of technical support levels, in our view, and that means to us markets may avoid any substantial leg down for the time being. We continue to be cautious on the equity markets in the near term, and we won’t hesitate to “raise cash” across the newsletter portfolios if the S&P 500 breaks through its 200-day moving average and the breakout of the technical downtrend line.

Our Reports on Stocks in the Oil and Gas Complex Industry
Our reports on stocks in the Oil and Gas Complex industry can be found in this article. Reports include BKR, HAL, SLB, BP, CVX, COP, XOM, SHEL, TTE, CTRA, EOG, OXY, PXD, ENB, ET, EPD, MMP, KMI, PSX.

This Remains a Technically-Driven Stock Market
Image: We expect the S&P 500 (SPY) to test support at both its technical uptrend and the 200-day moving average. In the event the SPY breaks through technical support, we’d be looking to “raise cash” across the newsletter portfolios. S&P 500 companies will end 2022 with roughly a 4%-5% decline in fourth-quarter 2022 earnings, but earnings season has come in better-than-feared. We expect the Fed to continue to raise rates given recent producer price inflation readings and a continued strong labor market. The 10-year Treasury continues to pose headwinds to asset values, and while many are talking of “disinflation,” we expect the market to remain technically driven and begin to test support at the 200-day moving average across major indices. We believe 2023 will be a choppy year, as we look ahead to better times in 2024.

ICYMI: As Expected, Stock Pickers Trounce the Indexes When It Matters
Image: Charles Dickens. Image Source: Public Domain. “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.” -- Charles Dickens, A Tale of Two Cities. We are big believers in prudent and diversified stock selection more than we ever have before, and we have little confidence in applying correlations, as in traditional asset allocation, to try to achieve financial goals and manage risks. In this age of wisdom, we like to follow the data, and the data keeps pointing to prudent and diversified stock selection as one of the best risk-adjusted ways to achieve long-term financial goals. To each, their own, but we continue to like stocks for the long run, and 2022 was yet another example why!

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.

Home Depot’s Comps, Operating Income Fall in Q4; Hikes Dividend 10%
Image Source: Mike Mozart. On February 21, home improvement retailer Home Depot reported weak fourth quarter 2022 results that showed comparable store sales for the period falling 0.3% and operating income dropping 1.5% from the same period a year ago. Diluted earnings per share advanced 2.8% from last year’s quarter. The company is dealing with a weakened consumer spending environment and difficult comparisons from pandemic-driven demand of a year ago. Home Depot raised its dividend payout to 10%, to $2.09 per share, or $8.36 per share on an annualized basis. That translates into a forward estimated dividend yield of ~2.6%.

Our Reports on Stocks in the Recession Resistant Industry
Image Source: Mike Mozart. Our reports on stocks in the Food Retailing industry can be found in this article. Reports include BUD, CL, CLX, CPB, COST, FDP, GIS, HRL, K, KDP, KHC, KMB, KO, KR, MDLZ, MKC, MO, PEP, PG, PM, SJM, TAP, TGT, TSN, WMT, CHD, SYY, ADM, LANC, CASY.

Online Sports Betting Surges But DraftKings’ Cash Burn Continues to Intensify; We Prefer More Conservative Gaming Plays Such as Churchill Downs
Image: Online sports betting platform DraftKings continues to burn through hundreds of millions of dollars each year. Data: SEC Filings, Seeking Alpha. Over the past 52 weeks, Churchill Downs’ stock has advanced ~10%, while DraftKings’ stock is down ~7% and Penn Entertainment’s shares have fallen over 34%. Online sports betting will only grow as more and more states pass laws in favor of its adoption and more and more consumers take up gambling as a hobby, but the best risk-adjusted opportunities may still rest with the more traditional gaming operators that aren’t burning through hundreds of millions in free cash flow every year to chase growth. We don’t like the moral underpinnings of the gambling industry at all, but we cannot deny the long-term growth potential of the industry. Churchill Downs may not be levered to online sports gaming anymore, but the company remains free cash flow rich with a tremendously lucrative asset base, and for that, it’s one of our favorite picks in the group.