Valuentum Exclusive Analysis for the Discerning Investor

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Mar 19, 2021

In the News: Facebook Optimistic, Visa Resilient, Dollar General’s Outlook Not Bad and More
The equity markets, as measured by the S&P 500, are trading above/near the high end of our fair value estimate range, but we remain focused on the long run, and there are many individual ideas that present tremendous long-term capital appreciation potential. By far, Facebook is the most undervalued stock on the market, in our view, and recent news has painted its relationship with Apple in a more positive light. The Justice Department is investigating Visa for anti-competitive behavior, but we don’t think its dominant position and lucrative business model will be challenged. Successful vaccines for coronavirus (“COVID-19”) have breathed life into shares of airline equities, but we still don’t view them as long-term investments. Dollar General will see its yearly streak of consecutive same-store sales growth come to an end in fiscal 2021 (ends January 28, 2022), but we’re still positive on the name. Some of our best ideas continue to be in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. For investors seeking higher-yielding ideas, please consider the High Yield Dividend Newsletter publication.

Feb 8, 2021

Stock Market Outlook for 2021
2020 was one from the history books and a year that will live on in infamy. That said, we are excited for the future as global health authorities are steadily putting an end to the public health crisis created by COVID-19, aided by the quick discovery of safe and viable vaccines. Tech, fintech, and payment processing firms were all big winners in 2020, and we expect that to continue being the case in 2021. Digital advertising, cloud-computing, and e-commerce activities are set to continue dominating their respective fields. Cybersecurity demand is moving higher and the constant threats posed by both governments (usually nations that are hostile to Western interests) and non-state actors highlights how crucial these services are. Retailers with omni-channel selling capabilities are well-positioned to ride the global economic recovery upwards. Green energy firms will continue to grow at a brisk pace in 2021, though the oil & gas industry appears ready for a comeback. The adoption of 5G wireless technologies and smartphones will create immense growth opportunities for smartphone makers, semiconductor players and telecommunications giants. Video streaming services have become ubiquitous over the past decade with room to continue growing as households “cut the cord” and instead opt for several video streaming packages. We’re not too big of fans of old industrial names given their capital-intensive nature relative to capital-light technology or fintech, but there are select names that have appeal. Cryptocurrencies have taken the market by storm as we turn the calendar into 2021, but the traditional banking system remains healthy enough to withstand another shock should it be on the horizon. Our fair value estimate of the S&P 500 remains $3,530-$3,920, but we may still be on a roller coaster ride for the year. Here’s to a great 2021!

Jan 29, 2021

Repub from March 5, 2018: The Tragedy of Quantitative Finance
-- Okay – it’s not 2038, but just imagine if this could happen…

Jan 28, 2021

Apple, Facebook, and Tesla Report Earnings
Image Shown: Facebook Inc continues to steadily grow its active user base, primarily by leveraging and expanding its international presence. Image Source: Facebook Inc – Fourth Quarter of 2020 Earnings IR Presentation.  We continue to witness unusual trading activity in the markets driven in large part by investors that are apparently communicating with each other over online forums such as Reddit. This trading activity is then being exacerbated by quantitative trend and momentum funds, generating levels of volatility in some names never before seen. On January 27, we sent out an alert to members noting that we shifted our newsletter portfolios to a 10%-20% cash weighting. Should numerous hedge funds start to fail due to short squeezes, that would put a tremendous amount of pressure on financial markets, at large, as investor confidence would start to erode. This, in turn, may beget more selling, creating an avalanche effect much like that of Long-Term Capital Management in the 1990s. Keeping this in mind, we continue to be big fans of top tier-tech giants, several of which have recently reported earnings that we will cover in this note. Companies with large (net) cash piles, resilient business models, promising long-term growth outlooks underpinned by secular tailwinds and strong cash flow profiles continue to be the best way to ride out the storm caused by the coronavirus (‘COVID-19’)--and more recently, very strange (if not downright manic) trading activity. Though the levels of volatility witnessed in dozens of companies may be unexpected by many, we had outlined the hazards of the volatility driven by price-agnostic trading (implicitly inclusive of Reddit and Robinhood trading) in the conclusion ("A Call to Action") of our book, Value Trap.

Jan 27, 2021

ALERT: Raising Cash in the Newsletter Portfolios
Our research has been absolutely fantastic for a long time, but 2020 may have been our best year yet. With the S&P 500 trading within our fair value estimate range of 3,530-3,920 (and the markets rolling over while showing signs of abnormal behavior), we're raising the cash position in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to 10%-20%. For more conservative investors, the high end of this range may even be larger, especially considering the vast "gains" from the March 2020 bottom and the increased systemic risks arising from price-agnostic trading (read Value Trap). The individual holdings will be reduced in proportion to arrive at the new targeted cash weighting in the respective simulated newsletter portfolios. The High Yield Dividend Newsletter and Dividend Growth Newsletter are scheduled for release February 1. We'll have more to say soon.

Nov 5, 2020

Another Great Day for Best Ideas Newsletter Portfolio Holdings!
Image: The holdings in the Best Ideas Newsletter during the trading session November 5. We continue to pound the table on our best ideas. We don't traditionally update members on daily performance of the Best Ideas Newsletter portfolio, but we want to continue to emphasize our best ideas (what they are and where to find them). We have written extensively in the past that we put the Valuentum Buying Index and the Dividend Cushion ratio into practice as we manage the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, respectively. For example, it may not make much sense to be searching for other ideas without at least considering our best ideas first. As the architect behind our process, we believe we have the unique insights to put our methodologies into practice the best. That's why we always say our best ideas are included in the newsletter portfolios.

Nov 4, 2020

Best Ideas Newsletter Portfolio Holdings Are Surging!
Image: The holdings in the Best Ideas Newsletter during the trading session November 4. We continue to pound the table on our best ideas. If you were like me, you stayed up as long as you could last night watching the U.S. election coverage before it became too difficult to keep your eyes open. When I went to sleep, it seemed as though Donald Trump would be re-elected. The only state that appeared to flip to the Democrats from the 2016 election was Arizona, meaning Trump would still retain greater than the 270 electoral votes required to gain re-election. Well, that was last night, and this is today. As more and more votes came in last night and into the morning, it became evident that the races in Wisconsin and Michigan were much tighter than the news coverage last night led to believe. In fact, with just a small percentage of the votes left outstanding to count in those states, Joe Biden appears to be running ahead of Donald Trump in those states, if only ever so slightly (~20,000-30,000 votes). Donald Trump’s huge gap in Pennsylvania--about 8.7 percentage points at the time of this writing--may also narrow when it is all said and done. The bottom line is that this election is just too early to call!

Oct 30, 2020

Our $140 Fair Value Estimate of Apple Remains Unchanged
Image Shown: Apple Inc maintained its enormous net cash position at the end of fiscal 2020. In the graphic up above, Apple’s cash-like items are underlined in red and its debt-like items are underlined in blue. Image Source: Apple Inc – 8-K SEC filing covering the fourth quarter of fiscal 2020 with additions from the author. On October 29, Apple reported fourth quarter and full-year earnings for fiscal 2020 (period ended September 26, 2020). Its fiscal 2020 GAAP revenues and GAAP operating income were up 6% and 4% year-over-year, respectively. Growth was driven by its Mac, iPad, ‘Wearables, Home and Accessories,’ and ‘Services’ offerings while its iPhone revenues dropped somewhat. Longer term, we are optimistic that Apple’s high-margin Services businesses will eventually become a significantly larger part of its overall financial performance (its Services segment represented ~20% of Apple’s sales and ~34% of its gross profit in fiscal 2020). We continue to be huge fans of Apple and include shares of AAPL as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios.

Oct 22, 2020

News Brief: Stay at Home Stocks, REITs, Housing, Oracle, and AT&T
Image: Number of COVID-19 cases reported weekly by WHO Region, and global deaths, 30 December 2019 through 18 October 2020. Source: WHO. The COVID-19 pandemic continues to rage on, though the healthcare community has become more adept at reducing the incidence of death given the many treatments now available to battle the disease. We continue to stay the course with the newsletter portfolios. Many of our favorites include Apple, Microsoft, Facebook, Alphabet, and PayPal, among other moaty, net-cash-rich, free-cash-flow generating powerhouses tied to secular growth trends. Our focus remains on the long haul. The business models of many stay-at-home stocks are solid as they continue to reap the rewards of the accelerated trends of home office use and e-commerce proliferation. Housing-related names are also benefiting as consumers adjust their lifestyles to accommodate a post-COVID-19 world. Many pockets of the economy still remain ill, and the slow fading of the attractiveness of commercial / office / apartment space may rear its ugly head as this new decade continues. As was the case with the department stores, they may hang around for years (decades) with myriad fits and starts, but it will be an uphill battle for REITs operating in these areas. We see little reason to bottom fish in airlines, cruise lines, or fickle mall-based retail, for example, but there may be select opportunities in the restaurant arena with Chipotle and Domino’s. The financials and energy sectors are two areas we continue to avoid, more generally, and they have continued to underperform.

Oct 22, 2020

Overweighting Outperformers
Image: The performance of ideas in the Best Ideas Newsletter portfolio during the trading session October 21. Many of the higher-weighted ideas in the newsletter portfolio are propelling the portfolio to relative outperformance. The Best Ideas Newsletter portfolio comprises a portfolio constructed of Valuentum's best ideas. These are companies that have scored favorably on the Valuentum Buying Index (VBI) and have been included in the newsletter portfolio with consideration of sector diversification and market/economic risk. The Best Ideas Newsletter portfolio is found in the Best Ideas Newsletter, which is released on the 15th of each month. Source: Seeking Alpha.