Valuentum Exclusive Analysis for the Discerning Investor

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Jun 18, 2020

Recent Events Concerning Johnson & Johnson
Image Source: Johnson & Johnson – First Quarter of 2020 IR Earnings Presentation. We include Johnson & Johnson as a top-weighted holding in the Dividend Growth Newsletter portfolio and as a medium-weighted holding in the Best Ideas Newsletter portfolio. The firm’s Dividend Cushion ratio sits at a solid 2.1 and please note that this forward-looking dividend coverage ratio factors in our expectations that Johnson & Johnson will grow its per share dividend by mid-single-digits annually over the coming years. Johnson & Johnson earns a “GOOD” Dividend Safety rating and an “EXCELLENT” Dividend Growth rating, with shares of JNJ yielding ~2.8% as of this writing. In our view, Johnson & Johnson’s strong balance sheet and high quality cash flow profile provide it with the financial strength to ride out the storm created by the ongoing coronavirus (‘COVID-19’) pandemic with its current dividend policy and financials intact.

May 18, 2020

Excited By COVID-19 Vaccine Candidates
Image Shown: The race is on to find a cure, or better yet a vaccine, for COVID-19. Image Source: Pfizer Inc – First Quarter 2020 Earnings IR Presentation. The race for a COVID-19 cure and vaccine is rapidly evolving with a lot of exciting press releases being put forth. Gilead has taken the lead with a viable treatment, Sorrento is working toward a cure, and it seems most all of big pharma and biotech is racing to find a vaccine, from Johnson & Johnson to Sanofi/GSK and beyond. Though the evaluation of the full data set from a Phase 2 clinical trial means a lot more than the evaluation of a limited set of data from a Phase 1 clinical trial, we think COVID-19 is on the run as modern medicine pushes forward. We’re reiterating our bullish take on the markets today, as we believe that the Fed will do anything and everything to keep this market moving higher, meaning stocks may remain divorced both from economic data and even virus data for some time as they continue to climb. We continue to point to ideas in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio and Exclusive publication. Our top 10 capital appreciation ideas and dividend growth ideas amid COVID-19, respectively, can be found at the following link, “Valuentum's COVID-19 Ideas Have Outperformed Significantly.” As we walk through a ‘who’s who’ as it relates to COVID-19 vaccine candidates, we maintain our view that investors may be facing a “win-win” situation as we outlined in our piece, “Stay Optimistic. Stay Bullish. I Am.” We remain unequivocally bullish on stocks for the long run.

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 16, 2020

Johnson & Johnson Beats Estimates, Adjusts Guidance in Light of COVID-19
Image Source: Johnson & Johnson – First Quarter 2020 Earnings IR Presentation. On April 14, Best Ideas Newsletter and Dividend Growth Newsletter portfolio holding Johnson & Johnson increased its quarterly dividend by over 6% sequentially to $1.01 per share which represents the firm’s 58th consecutive annual increase. We view this payout boost in the face of the ongoing coronavirus (‘COVID-19’) pandemic as a sign of management’s confidence in Johnson & Johnson’s future free cash flows, which we appreciate. Shares of JNJ now yield ~2.8% as of this writing at the new annualized payout rate.

Mar 22, 2020

Coronavirus disease (COVID-19) -- Sky News
"The crisis gripping the town at the centre of the global COVID-19 crisis in Italy has been witnessed by Sky News' Chief Correspondent Stuart Ramsay." -- Sky News

Mar 9, 2020

Oil Prices Collapse, Reiterating 2,350-2,750 S&P 500 Target Range; Credit Crunch Looming?
From Value Trap: “The banking sector was not the only sector that faced considerable selling pressure during the Financial Crisis of the late 2000s, of course. Other companies that required funding to maintain their business operations faced severe liquidity risk, or a situation where refinancing, or rolling over debt, might be difficult to do on fair terms, making such financing prohibitive in some cases. Those that faced outsize debt maturities during the most severe months of the credit crunch faced a real threat of Chapter 11 restructuring had the lending environment completely seized. In thinking about share prices as a range of probable fair value outcomes, equity prices tend to face pressure as downside probabilities such as a liquidity event are baked into the market price and at a higher probability. Because debtholders are higher up on the capital structure than equity holders, shareholders can sometimes get nothing in the event of a bankruptcy filing. Entities that are extremely capital-market dependent, or those that require ongoing access to new capital to fund operations, often face the greatest risk of the worst equity price declines during deteriorating credit market conditions.” Value Trap: Theory of Universal Valuation, published 2018

Mar 5, 2020

2,350-2,750 on the S&P? Could the Coronavirus Catalyze a Financial Crisis?
Image: We think a rather modest sell-off in the market to the target range of 2,350-2,750 on the S&P 500 is rather reasonable in the wake of one of the biggest economic shocks since the Global Financial Crisis. The chart above shows how far markets have advanced since 2011, and an adjustment lower to the target range of 2,350-2,750 is rather modest in such a context and would only bring markets to late 2018 levels (note red box as the target range). The range reflects ~16x S&P 500 12-month forward earnings estimates, as of February 14, adjusted down 10% due to COVID-19. When companies like Visa talk about a couple percentage points taken off of growth rates, one knows that the decrease in spending is very real, and we’ve yet to see the brunt of the impact yet. We have written extensively about our valuation expectations and target on the S&P 500 in the past, so please don’t mistake this reference as the extent of our thinking. We do not think a sell-off on the S&P 500 to the range is 2350-2750 is too far-fetched, as it really only gets the broader markets back to late 2018 levels (a mere year ago or so), and reflects a reasonable 16x forward expected earnings, as of February 14, hair cut by 10% as a result of the impact of COVID-19. The Fed put may not matter much anymore in the wake of this “biological” crisis, and increased fiscal spending may not be enough to offset what could be sustained weakness across the global economy.

Mar 4, 2020

A ~0.1% Probability Since 1896
Image Source: Wikipedia Commons. "The market crash in the past two weeks has been truly historic: its probability of occurrence is ~0.1% since 1896; the velocity of the plunge and of the VIX surge is the fastest on record; and the 10-year [Treasury yield] is at all-time low. (Hao Hong, BOCOM International, a subsidiary of Bank of Communications, March 1)" -- Howard Marks' memo, Nobody Knows II

Mar 3, 2020

Fed Cuts 50 Basis Points, Expect More Market Volatility Ahead
Image Source: FOMC. The emergency 50-basis point Fed rate cut announced March 3 was largely expected by the marketplace in light of growing economic concerns due to COVID-19, but it does nothing to immunize against COVID-19 and little to stabilize the situation. We continue to monitor the situation closely, and we expect ongoing volatility in the coming days and months as the situation with COVID-19 remains fluid. Having moved to defensive positions in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio in January and having capitalized on the “crash protection” put, we are preparing for our next move. For now, we’re watching and waiting, and we encourage readers that have not yet picked up their copy of Value Trap to do so.

Mar 1, 2020

COVID-19 Crisis Intensifies
Image Source: CDC. Coronavirus Disease 2019 (COVID-19). The world is being challenged today by what some including Bill Gates believe might be a "once-in-a-century pathogen." We do not know the eventual outcome, whether the impact of this illness ends up being as profound as the Spanish Influenza of 1918-1919 (which inflicted a death toll in the tens of millions), but we maintain our view the markets have yet to come to grips with the impact of COVID-19 on economic activity and potential ramifications on the global economy and the banking system. What is currently a "biological" crisis may turn into an all-out global financial crisis, one that could end up worse than the 2008/2009 mortgage meltdown. Instead of toxic mortgages putting a halt to lending activity across the globe as they did over a decade ago, today's crisis stems from an illness that very few of the top health officials in the world know much about--not only in the duration of COVID-19's incubation period, but also in how easily it seems to be spreading, and how deadly it may eventually become, particularly if health systems around the world become overwhelmed.