Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Jun 8, 2020

ICYMI -- Stay Optimistic. Stay Bullish. I Am.
Image: My great-grandfather (second from left) and his buddies in the 88th Division of the United States Army during World War I, at the time of the Spanish Flu pandemic of 1918-1919. He would serve under Major General William Weigel, become proficient in the 37mm gun, and take part in the largest offensive in U.S. military history, the Meuse-Argonne Campaign. As a corporal, he would survive the Great War and the Spanish flu pandemic, returning to the U.S. in May 1919 from the port of Saint-Nazaire, France on his way to Omaha, Nebraska. First of all, I wanted to reiterate how bullish I am on equities for the long haul. There are no risk-less investments when it comes to the stock market, of course, but this "win-win" scenario we seem to find ourselves in today appears to be one-of-a-kind in history. Here's what it boils down to. If the U.S. economy re-opens and everything turns out to be "fine," or at least better-than-expected, it's hard not to be bullish on stocks. We can then possibly look to pre-COVID-19 earnings numbers for 2021 and 2022 with some adjustments here and there, and that means the bull market is on (and new heights may be in sight). On the other hand, if the U.S. economy re-opens and economic numbers don't live up to expectations, which could happen, there will likely be even more stimulus--but investors might be bullish in this scenario, too. For starters, there's been more money created during the past few weeks or so than during the entire year following Lehman Brothers' failure (there's even talk of more money creation with another round of stimulus). We cannot forget that, while stock values are calculated on the basis of future free cash flow expectations, they are priced nominally (not inflation-adjusted), and stock investing is one way to combat the risk of inflation as strong companies price goods ever higher to outpace rising costs to reap in ever-higher earnings. Even if this excess money in the economy is not translated into inflation in physical goods and services, however, it may translate into inflating equity prices specifically, as has arguably (or perhaps undeniably) been the case during the period of 2010-2019. But there's more to this line of thinking...

Jun 5, 2020

Dow Jones Surges Past 27,000; Bull Market Continues!
"What a bull market off the lows we are having. I don't think we're finished, as I have pounded the table time and time and time again about how bullish I am. In the words of Frank Sinatra, "The Best Is Yet to Come," and I truly believe that. Yesterday, I explained to readers why we're seeing this huge rally, "Stay Optimistic. Stay Bullish. I Am." If you understand the duration and composition of equity value (page 74-83 in Value Trap), you can start focusing on what drives share prices and returns. How else could a market rally this much with 13% unemployment, right? How wonderful it would be if everyone understood the duration of stock value composition! What would happen to ambiguous, backward-looking factor investing? Finance could then start talking about things that make sense again." -- Brian Nelson, CFA

Jun 1, 2020

June Dividend Growth Newsletter & Intrinsic Value Investing
"But how, you will ask, does one decide what [stocks are] "attractive"? Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth,"...We view that as fuzzy thinking...Growth is always a component of value [and] the very term "value investing" is redundant." -- Warren Buffett, Berkshire Hathaway annual report, 1992

May 22, 2020

Facebook Augments Its Impressive Growth Trajectory
Image Shown: Shares of Facebook Inc have outperformed the S&P 500 index year-to-date, as of this writing on May 21, by a wide margin. Facebook is a top-weighted holding in the Best Ideas Newsletter portfolio and shares have surged upwards of late, sparked in part by its strong first-quarter 2020 performance, relatively speaking, given the ongoing coronavirus (‘COVID-19’) pandemic. As of this writing on May 21, shares of FB are up ~14% year-to-date while the S&P 500 is down ~8% during the same period (this is before taking dividend considerations into account; however, that doesn’t change this picture by much). We continue to like Facebook as a top-weighted holding in the Best Ideas Newsletter portfolio and please note that the top end of our fair value estimate range sits at $289 per share. Given the company’s strong fundamental and especially technical performance of late, there’s room for shares of FB to march significantly higher from current levels.

May 20, 2020

ALERT: Important Recap of Valuentum's Research and Market Events
Image: Breaking out to new highs, Facebook is a top weighting in the Best Ideas Newsletter portfolio (which includes our favorite capital appreciation ideas in a portfolio setting). The social media giant is surging on news of a new Shops feature, something we've been expecting and raving about with respect to its potential for years--as we maintain our view that, anti-trust considerations aside, Facebook is poised to become the "new Internet." The high end of our fair value estimate range for Facebook is nearly $290, and we would not be surprised if the company eventually reaches those levels. Note: PayPal, another big weighting in the Best Ideas Newsletter portfolio, has been a huge winner of late, too. The value of our research remains heavily tilted toward proficiency in enterprise valuation and technical/momentum indicators, portfolio construction, idea generation, individual stock selection, and assessing dividend health and resilience, among other things. ALERT: Important Recap of Valuentum's Research and Market Events: Unequivocally Bullish, S&P Target Range Was Withdrawn Last Month, Continued Focus on Individual Stock Selection with "Moaty" Operations, Huge Net Cash Positions, Strong Expected Future Free Cash Flows, Established Recurring Business Models, and Otherwise Attractive Economic Castles. Big Cap Tech and Large Cap "Growth" Remain Our Favorite Allocations.

May 11, 2020

Facebook Is Roaring Higher!
Image Shown: Shares of Facebook (blue line) have roared higher since reaching their March 2020 lows, far outpacing the rebound in the S&P 500 (orange line). We continue to like shares of FB as a top-weighted holding in our Best Ideas Newsletter portfolio. Top-weighted Best Ideas Newsletter portfolio holding Facebook posted first quarter 2020 earnings on April 29 that saw its GAAP revenues jump 18% year-over-year to $17.3 billion while its GAAP diluted EPS grew by 101% year-over-year, hitting $1.71. Please note that Facebook’s bottom-line comparison was made easier due to the firm recording a $3.0 billion legal settlement with the US Federal Trade Commission (‘FTC’) during the first quarter of 2019. While digital advertising spending levels are expected to get crushed in 2020 due to the ongoing coronavirus (‘COVID-19’) pandemic, Facebook communicated to investors that its long-term growth trajectory remained very promising during the firm’s latest quarterly conference call. In our view, digital advertising spending levels will quickly bounce back once economies around the world start to reopen in earnest, though we caution that efforts to reopen the economy and resume “normal” daily activities need to keep in mind the risk another wave of infections imposes.

May 8, 2020

ICYMI: Never Been More Bullish Even as Buffett Dumps Airlines
Image Source: IATA. Data Source: McKinsey & Company (IATA). Airlines haven’t been able to earn their estimated cost of capital for as long as we can remember. There have been hundreds of airline bankruptcies since deregulation in 1978. The news may be scary in coming months, and market volatility may elevate again, but we’ve never been more bullish on the longer run. The biggest advantage of an individual investor is something called time horizon arbitrage. As many professionals continue to fear a break below the March 23 lows, we’re focused on how this market absorbs the tremendous and unprecedented stimulus in the coming months and what that means for nominal equity prices in the longer run. It may not happen this month or this year, but we expect lift off as investors race to preserve purchasing power! Our favorite ideas for a portfolio setting remain in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, and High Yield Dividend Newsletter portfolio. Our favorite brand new ideas, released each month, are included in the Exclusive publication.

Apr 30, 2020

Staying Focused on the Long Term
Image Source: The final lesson to learn from financial crises. Value Trap: Theory of Universal Valuation. Excerpt: "...it's difficult to be optimistic during these challenging times, but sometimes it's okay to take a step back and relax. Things are going to be alright. Many of you have read my book Value Trap: Theory of Universal Valuation. In it, I talk a lot about the lessons from the Great Financial Crisis. Above any other, however, what I've found is that the most difficult lesson to accept is that moral hazard will (once again) be rewarded. The Fed and Treasury may really have no choice but to continue to bail out "everyone," flood the markets with never-ending liquidity injections (if needed), and otherwise continue to prop up these markets at any and all costs. Granted, it was much easier to call the top in February and to identify dollar-cost-averaging opportunities near the bottom of this swoon than it is to call a near-term direction today, but over the longer run, I don't think I've ever had more conviction that the markets will, once again, make new highs thanks to Fed and Treasury actions and the resulting equity-focused inflationary repercussions." -- Brian Nelson, CFA

Apr 30, 2020

Alphabet Surges Higher
Image Shown: Shares of Alphabet Inc surged higher on April 29 after reporting a stellar earnings report, and we continue to like Alphabet Class C shares as a top-weighted holding in our Best Ideas Newsletter portfolio. After the market close on April 28, Alphabet reported first-quarter earnings for 2020 that beat top-line consensus estimates and missed bottom-line consensus estimates, with sales supported by the strength of its digital advertising business and its growing Google Cloud business. Alphabet’s advertising revenue (comprised of revenue from its Google Search, YouTube, and Google Network Members' properties operations) was up 10% year-over-year to $33.8 billion while Google Cloud reported 52% revenue growth year-over-year, reaching $2.8 billion last quarter. All-in-all, Alphabet’s GAAP revenues climbed higher by 13% year-over-year in the first quarter, hitting $41.2 billion. Shares of Alphabet moved significantly higher on April 29 as the firm’s outlook was better than expected, aided by management communicating that Alphabet was prepared to utilize its fortress-like balance sheet to repurchase stock at a meaningful discount to their intrinsic value.

Apr 29, 2020

ALERT: Going to “Fully Invested” -- The Fed and Treasury Have Your Back
Image Source: BEA. Real GDP fell at an annual pace of 4.8% in the first quarter of 2020, according to the "advance" estimate released by the Bureau of Economic Analysis. We’re taking the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to “fully invested,” scaling up our existing positions to reflect that status. We plan to consider put options to hedge against downside risk, if or when the time comes. Moral hazard continues to run rampant, and the Fed and Treasury may have no choice but to continue artificially propping up this market, even buying stocks through certain vehicles, if necessary. Having warned members about the impending “Great Crash of 2020” and identifying savvy opportunities near the bottom, we are now withdrawing our S&P 500 target range as we move now to focus more on individual ideas through this turbulence. We expect to continue to identify opportunities for relative outperformance. 2019 was one of the best years in the Best Ideas Newsletter portfolio yet. In the Exclusive, we just registered our 25th consecutive monthly short idea in a row that has worked out. The markets may go much lower from here before we go higher again, but the Fed and Treasury won’t let this market go down in the longer run, in our view--even as we navigate a Depression-type economic environment in the near term. Stay the course.