Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Sep 19, 2019

DGN Holding Microsoft Continues to Deliver
Image Source: Microsoft - IR Presentation. We continue to like Microsoft in our Dividend Growth Newsletter portfolio and think the firm is well positioned to ride out any storm that may arise due to the synchronized slowdown in global economic growth. As a true free cash flow king sitting on a pile of (net) cash, there’s a lot to like about Microsoft’s income growth story.

Sep 19, 2019

FedEx Bemoans Trade Wars and Issues Weak Guidance, Shares Get Crushed
Image Source: FedEx Corp -- IR Presentation. Global logistics and shipping giant FedEx Corp reported first-quarter earnings for its fiscal 2020 (ended August 31) on September 17 that underwhelmed, sending shares sharply lower (down almost 13%) on September 18. As a capital intensive business operating in a cyclical industry, FedEx is stuck in a bind. Either pursue its drive for greater efficiency, greater scale, and (in theory) greater profits in the future while acknowledging that significant headwinds in the short- to medium-term will pressure free cash flows at a time of significant capital investment, or attempt to scale back which hollows out the core of management’s capital allocation strategy. Please note FedEx’s future aircraft purchase commitments make cutting capital expenditures by a meaningful amount a significantly harder task, reducing its financial flexibility. Management has opted to push forward into the fray. We are remaining firmly away from FedEx at this time.

Sep 17, 2019

DGN Holding Cracker Barrel Posts a Solid Quarter, Issues Promising Fiscal 2020 Guidance
Image Source: Cracker Barrel - IR Presentation.  Dividend Growth Newsletter portfolio holding Cracker Barrel Old Country Store reported fourth quarter earnings for its fiscal 2019 (ended August 2) on September 17 that were positively received by the market. We like Cracker Barrel’s dividend growth trajectory as its payout expands alongside its free cash flows.

Sep 16, 2019

Economic Roundtable: Quant Quake, “Quac-cidental Correlation,” and Economic Moats
Image Source: Anders Sandberg. Last week, the markets may have revealed that internals aren’t all that healthy. Major equity markets experienced a “rotation” that reminded many investors of the “quant quake” from August 2007. As Valuentum’s Brian Nelson wrote in Value Trap, “just a few bad days in the market caused a rapid unwinding of many quant long-short strategies (back then). Goldman’s chief financial officer said at the time that the firm was witnessing ‘25-standard deviation moves, several days in a row.’” On the surface, markets last week seemed relatively calm, but as the episode in 2007 revealed the activity last week may just be the calm before the storm. Many are pointing to overcrowded trades in betting against certain factors, while others are saying that many were forced to deleverage. We’re not so sure, and we think it may be the opposite: after years of suffering from lagging “value” returns, we think several quant shops stepped in to take on leverage, betting on a return to “value.” Let's talk about last week's quant quake, spurious correlations (the “guac-cidental correlation, in fact), economic moats and much more.

Sep 16, 2019

Our Reports on Stocks in the Auto Making Industry
Image Source: HRYMX. The auto manufacturers industry is characterized by high fixed costs, substantial operating leverage, and intense competition. Vehicle sales are impacted by general economic conditions, which are largely out of the control of participants, and by the cost of credit and fuel. Excess capacity, price discounting and other marketing initiatives can pressure the top line, while rising raw material and labor costs can squeeze the bottom line. Changing consumer preferences in type, model and fuel-efficiency can cause abrupt shifts in market share. The structural characteristics of the group are very poor.

Sep 15, 2019

Oracle’s Cloud Business Solid; CEO Hurd Taking Some Time Off
Oracle's strong Dividend Cushion ratio reflects considerable free cash flow generation in excess of cash dividends paid. Fiscal first quarter free cash flow of $5.6 billion covered cash dividends paid of $795 million more than 7 times.

Sep 15, 2019

Semiconductors Broadcom and Cree Push Forward in an Uncertain Environment
Image Source: Broadcom Inc -- IR Presentation. While the free cash flow outlooks for AVGO and CREE are relatively strong, weakening business confidence and investment around the world and mounting geopolitical tensions between the US and China (short-term tariff reprieves aside) create monstrous headwinds that the semiconductor industry can only do so much to mitigate. We don’t include many semiconductors in our portfolios given how notoriously difficult the space is to play. As things stand today, Intel is included in both our Dividend Growth Newsletter and Best Ideas Newsletter portfolios, and we continue to like INTC as our way to gain exposure to secular growth trends within the semiconductor space.

Sep 13, 2019

Kroger Posts Solid Quarter, Issues Weak Guidance
Image Shown: Kroger Company – IR Presentation. Kroger’s same-store sales growth was a welcome sight as it relates to the current strength of the US consumer, but we are staying away from the retailer for a reason. Its large net debt load puts the company’s payout at risk during adverse economic conditions, and we think management should be battering down the hatches considering how late we are in the business cycle. Management ending Kroger’s incremental operating profit forecast is a troubling sign.

Sep 12, 2019

Merck Shows Impressive Margin Expansion
Image Source: Merck & Co Inc -- IR Presentation. Merck is improving its financials and we like that, but we still aren’t interested in shares after the run up during the past year and a half. The pharmaceutical giant’s net debt load is manageable given its strong free cash flows, but dividend growth will require share buybacks to be pared back first in order to make room for payout growth. It will take some time until we get an idea of how well Merck’s recent acquisitions pan out.

Sep 11, 2019

Economic Roundtable: “Value” Versus “Growth” Rotation
“This kind of trading activity could be setting the stage for a big quant fund blow up, if the kind of leverage it takes to move the markets to this magnitude was applied. All it may take is for the B/M “value” factor to continue to suffer in the coming 12-18 months--it’s possible we could see a few quant firms go belly up. My guess is that market participants are paying very close attention to this activity, and if they “smell blood,” things could get ugly.” – Brian Nelson, CFA