Valuentum Exclusive Analysis for the Discerning Investor

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Dec 12, 2019

Analyzing Chevron and Important Updates in the Global Energy Industry
Image Source: Chevron Corporation – November 2019 IR Presentation. In this note, let’s cover the current state of raw energy resource prices in North America and around the world. We’ll analyze Chevron’s 2020 capital investment and exploration budget, in particular, and the global energy industry at-large. Shares of CVX appear generously valued, as of this writing, given the numerous headwinds facing the energy industry going forward.

Dec 2, 2019

Apache Comes Up Empty in Suriname, Shares Plummet
Image Source: Apache Corporation – November 2019 IR Presentation. On December 2, Apache Corp announced that its first exploration well off the coast of Suriname (a small nation in northern South America) was a dud. The Maka Central-1 well was drilled to a total depth of 6,200 meters (~20,300 feet) in Block 58 and drilling activities commenced in late-September. While the well was testing two Upper Cretaceous plays, neither play appeared to have commercial level of hydrocarbons (more information will be provided by management on this issue in the near future) so Apache opted to drill down to a total depth of 6,900 meters (~22,600 feet) to test a third Cretaceous play. This news sent shares of APA down by double-digits on December 2 as of this writing for reasons we’ll cover in this article. While shares of APA yield ~5.2% as of this writing, that payout isn’t sustainable in our view.

Nov 18, 2019

Big Energy Earnings Roundup
Image Source: Exxon Mobil Corporation – Third Quarter 2019 Earnings Presentation. As long as raw energy resource prices remain lackluster, the upstream divisions of the major energy giants will continue to generate far less cash flows than they did during the boom period (2010-2014). For Chevron, Shell, Total, and Exxon Mobil, their downstream operations offer a degree of stability but their large net debt positions and hefty capital expenditure budgets will continue to pressure their financials for some time. While Conoco doesn’t possess downstream operations anymore after the split with Phillips 66 in 2012, management’s focus on net debt reduction and free cash flows post-2014 puts COP in a better position than most of these bigger integrated peers (particularly CVX, RDS and XOM). That being said, we don’t include Conoco in any of our newsletter portfolios in part due to its lack of a “natural hedge” (downstream operations) and its direct exposure to raw energy resource prices. BP plc continues to represent one of our favorite plays in the energy space and shares of BP are included in our simulated High Yield Dividend Newsletter portfolio. We like BP’s cash flow profile, its stellar operational execution of late (upstream projects are consistently getting turned online under-budget and ahead of schedule), and its impressive downstream asset base. Members interested in reading more about why we like BP should check out this piece here, and if you may wish to add the High Yield Dividend Newsletter to your membership, please click here. Shares of BP yield 6.3% as of this writing and our fair value estimate of $45 per share of BP is comfortably above where shares are currently trading at.

Nov 11, 2019

High Yield Dividend Newsletter Portfolio Holding BP Sees Cash Flow Profile Improvements Ahead
Image Source: BP plc – Third quarter 2019 earnings infographic. If you may wish to add the High Yield Dividend Newsletter to your membership, please click here.We continue to like BP as a holding in the High Yield Dividend Newsletter portfolio. Rising upstream production levels, a quality downstream footprint, and reduced Gulf of Mexico oil spill-related payments will go a long way in enhancing BP’s cash flow position. Raw energy resource prices remained subdued around the globe, but that isn’t stopping BP from fully covering its organic capital expenditures and dividend payments with underlying cash flows. We would like to see BP’s gearing ratios move lower, which is the stated goal.

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.

Oct 10, 2019

Covering Best Ideas Newsletter Holding Berkshire Hathaway
Image Source: Berkshire Hathaway Inc – 2018 Annual Report. As a top holding in our Best Ideas Newsletter portfolio, Berkshire Hathaway Class B shares have room to run in our view. Our fair value estimate for BRK.B stands at $229 per share, significantly higher than where shares are trading at as of this writing (~$204 per share). Please note Berkshire Hathaway does not pay out a common dividend at this time.

Oct 8, 2019

ConocoPhillips Pushes Through a Big Dividend Increase, “Emerging” Play Is a Dud
Image Shown: Shares of ConocoPhillips traded modestly higher on October 7 after announcing a significant dividend increase and plans for additional share buybacks in 2020. However, please note ConocoPhillips is still trading far below where it was at the start of 2019 as an abundance of supplies combined with deteriorating macroeconomic conditions to weigh negatively on expected future raw energy resource pricing. Our fair value estimate for ConocoPhillips stands at $67 per share, well above where COP is trading as of this writing. However, ConocoPhillips’ Valuentum Buying Index stands at 3 given its weak technical performance and other factors (the upstream industry is a tough one to operate in).

Sep 23, 2019

Empirical Support for Porter’s “Gospel,” Plus Comments on the “Head Fake” Rotation
“Let’s be very clear: There is strong empirical quantitative evidence that the price-to-fair value equation (“factor”) is predictive of returns, which is what matters for value investors, and in Morningstar’s case, the moat assessment is just part of that overarching conclusion (fair value estimate). Researchers continue to attack the moat “factor” on grounds that don’t make any sense, in my view, and are cherry-picking parameters to assess value investing.” – Brian Nelson, CFA

Sep 16, 2019

Saudi Arabia Attacked, Oil Prices Shoot Higher
Disaster struck this weekend when several drones took out the Abqaiq oil processing facility and the massive onshore Khurais oil field in Saudi Arabia on Saturday, with WTI and Brent both surging on the news once trading resumed at the start of the week. We will be monitoring this situation very closely going forward. The pace at which Saudi Arabia can bring capacity back online will have an outsize impact on global oil markets going forward, as the world no longer has any spare capacity to turn to during times like these (when supply is severely curtailed). Geopolitical tensions are clearly growing and that could spill over into a war directly between Saudi Arabia and Iran, but for now there’s no signs of troops mobilizing for such an endeavor.

Aug 28, 2019

BP Says Goodbye to Alaska After 60 Years
Image Source: BP IR Presentation. We are supportive of BP’s decision to divest its Alaskan operations as the company has been successfully bringing upstream projects online on-time and on-budget all over the globe over the past few years, driving its net oil & gas production levels higher (upstream output was up 4% year-over-year in the second quarter of 2019). BP’s operational execution of late has been nothing less than stellar and the energy giant is included in our simulated High Yield Dividend Newsletter portfolio. Shares of BP yield 6.7% as of this writing.