Valuentum Exclusive Analysis for the Discerning Investor

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May 25, 2022

Newsletter Portfolio Idea Chevron Focused on Returning Cash to Shareholders
Image Shown: Newsletter portfolio idea Chevron Corporation is very shareholder friendly. We view its capital allocation priorities quite favorably. Image Source: Chevron Corporation – May 2022 IR Presentation. Our newsletter portfolios remain overweight energy names as these companies are well-positioned to ride out inflationary pressures and geopolitical turbulence while generating substantial free cash flows and returning “gobs” of cash to shareholders. We include Chevron Corp in the Best Ideas Newsletter, Dividend Growth Newsletter, and High Yield Dividend Newsletter portfolios as the firm has placed a great emphasis on keeping its capital expenditures contained, improving its cost structure, and cutting down on its debt load while returning “gobs” of cash to shareholders.

May 19, 2022

Cisco Systems Reduces Guidance After Noisy Quarter, Remains Free Cash Flow Giant Backed By Pristine Balance Sheet
Image Source: Cisco Systems Inc – Third Quarter of Fiscal 2022 IR Earnings Presentation. On May 18, Cisco Systems reported third quarter earnings for fiscal 2022 (period ended April 30, 2022) that missed consensus top-line estimates but beat consensus bottom-line estimates (specifically for its non-GAAP performance). One of the biggest updates from this earnings report was that Cisco Systems reduced its full year guidance for fiscal 2022. The news initially sent shares of CSCO sharply lower, though Cisco Systems remains a free cash flow cow with a pristine balance sheet. It was an incredibly noisy earnings report for the firm for reasons we will cover in this article. We include Cisco Systems as an idea in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios and continue to like the name.

May 12, 2022

Dividend Growth Idea Qualcomm Beats Estimates; Near Term Guidance Incredibly Bright
Image Shown: Dividend growth idea Qualcomm Inc has a stellar cash flow profile. Image Source: Qualcomm Inc – 10-Q SEC filing covering the Second Quarter of Fiscal 2022. Qualcomm recently reported second quarter earnings for fiscal 2022 (period ended March 27, 2022) that beat both consensus top- and bottom-line estimates. The company is a leader in the technologies relating to 5G wireless, Internet of Things (‘IoT’) trend, semi-autonomous and autonomous driving, and handset operations. We include Qualcomm as an idea in the Dividend Growth Newsletter portfolio as we view its dividend strength and payout growth outlook quite favorably. Shares of QCOM yield ~2.3% as of this writing. The firm’s latest earnings update and near term guidance reinforces our bullish view towards the name.

May 11, 2022

Domino’s Longer Term Growth Runway Intact, Chipotle's Free Cash Flow Remains Robust
Image Source: Domino’s Pizza Inc – 2022 ICR Conference Presentation. Domino’s Pizza is contending with serious inflationary pressures and headwinds from changing consumer spending habits as the worst of the coronavirus (‘COVID-19’) pandemic fades. We continue to view the firm’s longer term outlook quite favorably and appreciate its franchise-heavy business model (~98% of its stores are franchised), which enables Domino’s to generate substantial free cash flows in almost any operating environment. Our fair value estimate for Domino’s sits at $517 per share, and we include shares of DPZ as an idea in the Best Ideas Newsletter portfolio. Shares of DPZ yield ~1.3% as of this writing, offering incremental income generation upside potential to its favorable capital appreciation risk-reward scenario, in our view. Another one of our favorite restaurants, Chipotle Mexican Grill posted 9.0% year-over-year comparable restaurant sales growth in the first quarter of 2022. During Chipotle’s latest earnings call, management noted that in-store sales surged 33% due to the economy opening back up and consumers resuming “normal” dining activities. The firm’s digital sales held up relatively well and represented 42% of Chipotle’s total sales last quarter. During the period, Chipotle reported 16% year-over-year GAAP revenue growth and 18% year-over-year GAAP operating income growth as the firm effectively took advantage of its pricing power to get ahead of inflationary pressures. As with Domino's, we continue to like Chipotle as an idea in the Best Ideas Newsletter portfolio.

May 9, 2022

Interview with SDM Investments' Kevin Truitt -- ESG in a Few Words: "Good Ethics, Honesty, Respect, and Dignity"
Image: SDM Investments' Kevin Truitt (left) and Valuentum's Brian Nelson (right) pause for a picture at the Chicago Chapter of the American Association of Individual Investors (December 2016).We talked with SDM Investments' Kevin Truitt recently, and we’d like to share our conversation with you! Learn about the critical nature of value investing and thinking about stocks as businesses, how investors should approach macro indicators, the importance of using a margin of safety, how to think about ESG investing, and why cash-based investing helps to safeguard against downside risk. Kevin also shares five of his favorite ideas!

Apr 29, 2022

Apple Reports Record Services Revenue in Calendar First Quarter 2022, We Still Love Shares!
Image Shown: Apple Inc put up another strong earnings report for the quarter ended March 2022. We continue to like Apple as an idea in our newsletter portfolios. On April 28, Apple reported earnings for its second quarter of fiscal 2022 (period ended March 26, 2022) that beat both consensus top- and bottom-line estimates by a wide margin. Apple also increased its dividend by 5% on a sequential basis and authorized an additional $90.0 billion in share repurchases in conjunction with its latest earnings update. We are big fans of Apple and include shares of AAPL as an idea in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios. Shares of AAPL yield ~0.5% as of this writing and we see room for Apple to push through substantial payout increases going forward. Additionally, the top end of our fair value estimate range sits at $204 per share of AAPL, well above where Apple’s stock price is trading at as of this writing indicating it has ample capital appreciation upside potential as well.

Apr 20, 2022

Shares of Newsletter Portfolio Idea Johnson & Johnson Off to the Races!
Image Shown: Shares of Johnson & Johnson, an idea in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios, are shifting higher. On April 19, Johnson & Johnson reported first-quarter earnings for 2022 that missed consensus top-line estimates but beat consensus bottom-line estimates. The company lowered its guidance for 2022, but shares of JNJ rallied during regular trading hours that day as its underlying performance remains strong. J&J suspended guidance for its coronavirus ('COVID-19') vaccine sales, though we want to stress that these sales were not needle-moving as it concerns our estimate of the company’s fair value. The firm was selling the vaccines on a not-for-profit basis and didn’t intend to change that until the end of this year or until 2023 (or potentially never). J&J also pushed through a 7% sequential increase in its dividend on April 19, with 2022 marking its 60th consecutive year of payout increases, earning the firm the coveted Dividend Aristocrat status. We include shares of JNJ in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios. Shares of JNJ yield ~2.5% as of this writing. Johnson & Johnson’s business model is in the process of getting fundamentally altered due to the planned separation of its consumer health business from its pharmaceutical and medical devices operations, which is expected to occur within less than two years. As we have noted in the past, J&J is also steadily working on putting its various legal issues behind it, though its planned business separation along with its legal issues fundamentally altered its proposition as a straightforward dividend growth opportunity. We continue to like J&J in our newsletter portfolios, though we are keeping a close eye on how its business separation strategy will ultimately pan out. Let's dig into the details in this article.

Apr 14, 2022

Weekly: We're Bullish on This Self-Inflicted Market Sell-Off; Plus Meta (Facebook), PayPal, Consumer Staples, and HPQ
We have a lot to cover in this week's Valuentum Weekly, but one thing is clear: We remain bullish on stocks for the long run.

Apr 12, 2022

Best Idea Dollar General Roaring Higher
Image Shown: We like the niche Dollar General Corporation has carved out for itself in the competitive discount retail industry. Image Source: Dollar General Corporation – Fiscal 2021 Annual Report. Though the discount store retail industry is incredibly competitive, we like the niche that Dollar General Corp has carved out for itself by targeting towns and cities in the U.S. with populations of 20,000 or less. These are regions where e-commerce economics are not attractive due to hefty fulfillment costs, and often are underserved in terms of shopping options. Dollar General operates over 18,100 stores across 46 U.S. states and is included as an idea in the Best Ideas Newsletter portfolio. We continue to be big fans of Dollar General. Our fair value estimate stands at $234 per share of DG with room for upside as the top end of our fair value estimate range sits at $281 per share.

Apr 10, 2022

Cash-Based Sources of Intrinsic Value for Meta Platforms and PayPal Remain Strong
Image Shown: Shares of Meta Platforms Inc (blue line) and PayPal Holdings Inc (orange line) have staged a nice comeback during the past month, as of the start of April 2022. Rising interest rates and the impact that has had on the market's discount rate implicitly used within the enterprise cash flow pricing process has pressured the value of equities with long free-cash-flow growth tails--stocks that are expected to grow at a meaningful premium over global economic growth over the coming decades. The rapid increase in the 10-year Treasury rate, no doubt, has had a profound impact on the equity values of long-duration cash-flow companies such as those held in the ultra-speculative ARK Innovation ETF, for example. However, established big cap tech firms and many fintech entities shouldn't necessarily be as impacted by rising interest rates as those of many currently money-losing speculative innovation names that won't generate meaningful levels of free cash flow for 5 to 10 years, maybe longer. For example, shares of companies such as Apple Inc. or Microsoft Corp. should only have but a muted impact from rising rates; these companies have huge net cash positions and are already generating strong free cash flow. It can even be argued that higher inflation/rates will afford Apple and Microsoft pricing power to raise product and software prices. While we might expect the ARK Innovation ETF to be down nearly 40% year-to-date and more than half during the past 52 weeks, we don't think it makes a lot of sense for some of the strongest, large cap growth names to be off ~12%, on average, year-to-date. We think the market, in many instances and especially within the area of technology, is throwing the baby out with the bathwater. Shares of Meta Platforms Inc, formerly Facebook, and PayPal Holdings Inc are two such names that the market has been beating down too much, in our view. Though some weakness in Meta Platform's and PayPal's shares can be expected in the current market environment, year-to-date declines of 30%+ and 40%+, respectively, are a bit much. That said, during the past few months, we have reduced our fair value estimates for both Meta Platforms and PayPal for good reasons. For starters, Meta Platforms is investing heavily in the metaverse, a digital universe, and is scaling up its data center capacity to support its efforts on this front (which is driving its capital expenditure and operating cost expectations up sharply in the medium-term). Meta Platforms is not expected to make a meaningful amount or any money on these investments for some time. PayPal is facing headwinds from hefty customer acquisition costs to grow its active user base amid rising competitive threats. We also think that we may have been too aggressive within our valuation model when we built in too much earnings leverage during the next five years at PayPal. Said another way, the fintech company’s mid-cycle operating margin is not what we once though it was--as PayPal will find it difficult to meaningfully expand its margins in the current environment. However, putting it all together, these pressures and others have all been reflected in our current fair value estimates (and fair value estimate ranges) for Meta Platforms, which sits at $367 per share, and PayPal, which sits at $152 per share. Both companies are included as ideas in the Best Ideas Newsletter portfolio, and we are beginning to see signs of a rebound underway. For long-term investors, we think Meta Platforms is a no-brainer at current prices, though we may be a bit more cautious on PayPal, which is now more of a "show-me" story, given recent hiccups. All this having been said, let's dig in to why we still like Meta Platforms and PayPal.