Valuentum Exclusive Analysis for the Discerning Investor

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Mar 30, 2020

Bullets: Recapping the Crash, Where Are We Now?
Image: The S&P 500 has only retraced a small part of its decline since the top in February 2020. We established an S&P 500 target of ~2,550 in late February and more formally established a target range of 2,350-2,750 in the March edition of the Dividend Growth Newsletter, prior to the crash. As predicted, the S&P 500 crashed to the mid-point of our S&P 500 target range of 2,350-2,750, now trading at ~2,590 at this moment. We continue to emphasize that panic selling during this crisis may continue to 2,000 on the S&P, while we emphasize that the range of fair value outcomes for equities has increased, both to the upside and to the downside. Let's recap the crash in bullet-point fashion, and explain what investors can expect next.

Mar 28, 2020

Attack COVID-19 With Forward-Looking, Expected Data
President of Investment Research at Valuentum Brian Nelson shares his financial wisdom in detailing how the world must attack COVID-19 with forward-looking expected data (not backward-looking, empirical data) as the global economy faces what could become the worst business environment since the Great Depression, irrespective of government fiscal stimulus.

Mar 26, 2020

US Congress Is Getting Ready to Pass a Massive ~$2.2 Trillion Fiscal Stimulus Bill
Image Shown: US equities have started to recover some of their lost ground as the likelihood that the US Congress will pass a massive ~$2.2 trillion fiscal stimulus and emergency spending package, dubbed the CARES Act, has increased significantly over the past week as seen through the bounce in the SPDR S&P 500 ETF Trust. President Trump has clearly indicated that he intends to sign such a bill into law as soon as possible, with the US House of Representatives expected to take up the legislation this upcoming Friday morning on March 27. On March 25, the US Senate worked late into the night to secure a bipartisan compromise on a massive ~$2.2 trillion fiscal stimulus and emergency spending bill to offset the negative impact of the ongoing novel coronavirus (‘COVID-19’) pandemic. The bill passed 96-0 after several senators forced a vote on an amendment on that bill that would have changed the nature of the “beefed up” unemployment benefits (that amendment failed 48-48, and would have needed 60 votes to pass). As of this writing, there are over 65,000 confirmed cases of COVID-19 in the US according to Johns Hopkins University, and we sincerely hope everyone, their families, and their loved ones stay safe during this pandemic. A vote in the US House of Representatives is expected this upcoming Friday morning on March 27. The House is expected to convene at 9AM EST and the goal of each party’s leadership is to secure passage of the bill via a voice vote (please note that this differs from unanimous consent, which requires every member of the House to agree to such a legislative process in order to pass a bill without having the majority of lawmakers return to Washington DC, but this is easier/faster to achieve than a recorded roll call vote that would force every member of the House to return). Assuming the House swiftly passes the bill that was approved in the Senate, President Trump has clearly communicated he would sign the bill into law right away. Please note this bill is formally known as the Coronavirus Aid, Relief, and Economic Security (‘CARES’) Act.

Mar 23, 2020

US Fiscal Stimulus Update
Image Source: frankieleon. The US Congress is debating and working on a massive multi-trillion dollar fiscal stimulus package to mitigate the negative impact the ongoing novel coronavirus (‘COVID-19’) pandemic is having on the domestic economy and to provide for additional healthcare funds to cash-strapped entities to combat the virus.

Mar 23, 2020

Fed and Treasury Efforts Might Not Be Enough to Avoid Another Great Depression
Image: The Energy Select Sector SPDR and Financial Select Sector SPDR, two securities removed from both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio in August 2019 have been ravaged during this market selloff. We maintain our view that the energy and banking sectors are worth avoiding during this market meltdown. The U.S. is stuck between a rock and a hard place, and we might get the next Great Depression regardless of what the Fed or Treasury does. The timeline for when these markets attempt to bounce back meaningfully from this disruption may not be based on whether COVID-19 cases roll over, but rather when consumers start coming out to spend in droves again, and that may not happen until we have a vaccine broadly available. We're maintaining our fair value range on the S&P 500 of 2,350-2,750, with expectations of panic/forced selling down to 2,000 on the broad market index (it closed at 2,304.92 on Friday, March 20). We believe that savvy investors have been nibbling at this market during the past couple weeks and may have achieved up to 50%-75% of their equity allocation in a well-diversified portfolio via dollar-cost averaging strategies, with expectations of further market declines. Our best ideas remain in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio and Exclusive publication. Expect more gut-wrenching volatility.

Mar 19, 2020

Extreme Volatility and Crisis Economics
Image: The Dow Jones has now registered 8 consecutive trading days with a 4% move in either direction, from March 9 through March 18. This is the most volatile time in history, a streak that is longer than the 5 consecutive days registered in November 1929 (Great Depression), 4 consecutive days in 1987 (Crash of 1987), and 4 consecutive days in 2008 (Great Financial Crisis). The worst of the declines may still be ahead of us. The S&P 500 still is trading within our fair value estimate range of 2,350-2,750, and we wouldn’t be surprised to see panic/forced selling all the way down to 2,000 on the S&P. Expect more volatility, and please stay safe out there as the world declares all out war on COVID-19. Our best ideas remain in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio, and Exclusive publication.

Mar 18, 2020

US Considering $1 Trillion (Or More) Fiscal Stimulus Program
Image Source: Frank Boston. A lot has changed in a short period of time since we published our first note covering the potential for a major US fiscal stimulus program back on March 10. Due to the sheer amount of pummeling the stock and credit markets have taken over the past few weeks, along with consumer, business, and investor confidence at-large (we’ll get a better read on that over time), it seems that both Democrats and Republicans are now more open to a major fiscal stimulus program than before. The ‘Survey of Consumers’ conducted by the University of Michigan notes the ‘Index of Consumer Sentiment’ fell from 101.0 in February 2020 down to 95.9 in March 2020, and there’s room for that index to fall a lot further. Please note the next data release date is March 27. In all likelihood, this is all due to the negative impacts posed by the ongoing novel coronavirus (‘COVID-19’) pandemic to both the health of individuals (particularly the older demographics and those with preexisting conditions) and the health of the overall economy (due to the “cocooning” of households and consumers). We sincerely hope everyone, their loved ones, and their families stay safe out there as we get through this pandemic as a nation and as a global community.

Mar 17, 2020

Dollar General Holding Up Relatively Well in the Face of COVID-19
Image Shown: Shares of Dollar General Corporation, a holding in our Best Ideas Newsletter portfolio, have aggressively outperformed the S&P 500 Index over the past year as of the end of the normal trading session on March 12.  Retail firms, particularly companies that sell consumer staples products, have held up relatively well during the ongoing rout in global equities (including in the US). The novel coronavirus (‘COVID-19’) pandemic is the "black swan" event that could potentially tip the global economy towards recession, in our view, but please note this pandemic was the straw that broke the camel’s back, not the single source of this potential downside (rising non-financial corporate debt levels, slowing industrial activity, large national budget deficits and enormous public debt loads worldwide, rising geopolitical tensions and the impact trade wars have on global supply chains, and the lack of “dry powder” at major central banks are several reasons why the global economy has asymmetrical downside risk when it comes to growth). Best Ideas Newsletter portfolio holding Dollar General Corp is a prime example of a retail firm holding its own against major exogenous headwinds. As of the end of the normal trading session on March 12, shares of DG are up 18.7% while the S&P 500 index is down 11.1%. Dollar General reported earnings for the fourth quarter and full-year fiscal 2019 (period ended January 31, 2020) that beat on both the top- and bottom-line, and its same-store sales performance also beat expectations. Let's dig into the specifics in this note.

Mar 17, 2020

Buybacks and Wealth Destruction
From Value Trap: "According to S&P Dow Jones Indices, S&P 500 stock buybacks alone totaled $519.4 billion in 2017, $536.4 billion in 2016, and $572.2 billion in 2015. In 2018, announced buybacks hit $1.1 trillion. Given all the global wealth that has been accumulated through the 21st century, it may seem hard to believe that another Great Depression is even possible. However, in the event of a structural shock to the marketplace where aggregate enterprise values for companies are fundamentally reset lower, the vast amount of cash spent on buybacks would only make matters worse. The money that had been spent on buybacks could have been distributed to shareholders in the form of a dividend or even held on the books as a sanctuary of value within the enterprise during hardship. Buybacks, unlike dividends, can result in wealth destruction in a market economy, much like they can with companies. This is an important downside scenario that is often overlooked." -- Value Trap, published 2018

Mar 11, 2020

Seeds of Financial Crisis May Have Been Sown, Volatility Soars
Image Shown: The broader market indices continue to reveal tremendous levels of volatility. The Dow Jones Industrial Average dropped 5.86%, or 1,465 points, to 23,553 during the trading session March 11. From Value Trap: It seems like the markets experience a new financial crisis every decade or so. During the past few decades alone, there have been three significant banking crises: the savings and loan crisis of the late 1980s/early 1990s; the fall of Long-Term Capital Management and the Russian/Asian financial crisis of the late 1990s; and the Great Recession of the last decade that not only toppled Lehman Brothers, Bear Stearns, Washington Mutual, and Wachovia but also caused the seizure of Indy Mac, Fannie Mae and Freddie Mac...It's likely we will have another financial crisis at some point in the future, the magnitude and duration of which are the only questions. My primary reason for this view is not to be a doomsayer, but rests on the human emotions of greed and fear... -- Value Trap, published 2018