Valuentum Exclusive Analysis for the Discerning Investor

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Jan 4, 2020

Valuentum Exclusive Success Rates Trump Even the Best Quant Hedge Funds
Image: President of Investment Research Brian Nelson, CFA. A new book, “The Man Who Solved the Market,” hit bookshelves last year, and thus far it has been a hit. The text goes into the story of quant hedge fund Renaissance Technologies and its hedge fund, the Medallion Fund, which has put up mammoth returns since inception.

Jan 2, 2020

Apple, Microsoft Dominated This Decade
Source: Marketwatch. Data by Andrea Riquier, through December 27, 2019*.The three best contributors to the S&P 500 return during 2019 have been included in the Best Ideas Newsletter portfolio for a long time, two of them, Apple and Facebook are top weighted (see image at the end of this article). Three of the biggest contributors to the S&P 500 return during this decade have been included in the Dividend Growth Newsletter portfolio for a long time (see image above). Sure -- these are household names, but it's important you understand that mispricings can occur anywhere, even with some of the most popular names. Investing is synonymous with identifying mispriced securities.

Dec 25, 2019

5 Things We Learned in 2019
Image: The Smoky Mountains of Tennessee. "The further a society drifts from the truth, the more it will hate those that speak it." -- George Orwell

Dec 20, 2019

Devon Energy Completes High-Grading Process, Free Cash Flows Remain Elusive
Image Shown: An overview of Devon Energy Corporation’s remaining asset base, which consists of upstream oil and gas operations spread across four major unconventional plays in the US. Image Source: Devon Energy Corporation – December 2019 IR Presentation. Times are tough in the oil & gas patch, especially for upstream producers of raw energy resources like Devon Energy Corp. Not only are global oil prices low, which drags down natural gas liquids pricing for products like propane and butane, but North American natural gas supplies are trading at rock-bottom prices as well. Devon Energy has attempted to cope by divesting less economical assets and shifting all of its focus towards its best well locations, a process known as high-grading. Due to the recent strength in WTI, shares of DVN have started to march towards the upper end of our fair value range estimate and currently yield 1.4% as of this writing. Devon Energy is placing a great focus on developing “liquids-rich” plays, which refers to developing well locations with high crude oil and natural gas liquids production mixes.

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 20, 2019

Economic Commentary: Marks, Dalio, and the Discount Rate
Image Source: Mike Cohen. We sat down with the Valuentum team to discuss their latest thoughts on recent economic developments. To kick off the conversation, let’s start with the team’s views on the latest memo from Oaktree’s Howard Marks: Mysterious. For those that don’t know Howard, he is the Director and Co-Chairman of Oaktree, which managed about $122 billion in AUM, as of September 2019. The memo goes into depth on the reasons for negative interest rates, the impact of negative interest rates, and opines on whether the US will ever see negative interest rates. Then, we’ll go from there!

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 14, 2019

Economic Commentary: Robots, Value Trap, and Politics on the Markets
Valuentum sat down for the latest installment of its periodic economic commentary, and the team tackled a wide array of topics, from robots on Wall Street, to President of Investment Research Brian Nelson’s new book Value Trap, to political influence on the markets and boyond. Let’s set the stage with a prompt from a recent Bloomberg article, “The Master of Robots…Coming for Wall Street...