Valuentum Exclusive Analysis for the Discerning Investor

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May 11, 2023

We Prefer Visa
Image: Visa’s operating cash flow of $8 billion, and free cash flow of ~$7.5 billion through the first half of its fiscal 2023 is remarkable. Image Source: Visa. Visa's second-quarter fiscal 2023 results released April 25 were enough to support our continued positive take on the moaty entity, as it beat the consensus estimate on both the top and bottom line. During its quarter ending March 31, 2023, net revenues advanced 11%, while GAAP earnings per share leapt 20%, to $2.03 per share. Payments volume advanced 10% in the quarter on a year-over-year basis, while total cross-border volume increased 24%. Processed transactions advanced 12% in the quarter from the same period a year ago.

May 8, 2023

Long Live Apple and Large Cap Growth!
Image: Since the release of the book Value Trap in December 2018, an ETF that tracks large cap growth (SCHG) has outperformed not only the S&P 500 (SPY), but also the areas of dividend growth (SDY) and small cap value (IWN) by sizable margins. In a world where monetary policy is tightening and regional banks are failing, we maintain our long-held view that big cap tech and large cap growth are the places to be. Since the release of the book Value Trap in December 2018, an ETF that tracks the area of large cap growth (SCHG) has not only outperformed the S&P 500 (SPY), but also the areas of dividend growth (SDY) and small cap value (IWN) by sizable margins. We love the net cash rich balance sheets and strong expected future free cash flow generators within the area of large cap growth, and Apple remains one of our very favorites that fits the mold. Apple is included in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio.

Apr 6, 2023

Legacy of Benjamin Graham
Legacy of Benjamin Graham: The Original Adjunct Professor. This film, brought to you by the Heilbrunn Center for Graham and Dodd Investing, Columbia Business School, premiered on February 1, 2013 at the 16th Annual Columbia Student Investment Management Association conference. Produced by: Louisa Serene Schneider. Shot & Edited by: Christina Choe.

Mar 22, 2023

Quick Take: Fed Raises 25 Basis Points; This Banking Crisis Is Far from Over
Image: FOMC Chairman Powell answers a reporter's question at the March 20, 2019 press conference. On March 22, 2023, the Federal Reserve raised its benchmark rate 25 basis points, to the range of 4.75%-5%, a move that we think reflects a government agency that is now more or less a deer caught in headlights--given the nascent regional banking crisis in the United States. The bottom line is that the U.S. banking system does not have enough cash on hand to redeem all deposits (it never has), and with respect to U.S. banks, deposit insurance is only up to $250,000 per depositor, per FDIC-insured bank, per ownership category. The U.S. public has grown concerned, and that may spell continued panic (and deposit flight). The bank business model is inherently flawed, in our view, necessitating outsized risk and enormous amounts of leverage. From where we stand, the U.S. banking system will likely continue to be tested until it is resolved that any deposits held at any financial institution in the U.S. are completely safe by explicit government guarantee. Without this explicit guarantee, it may mean continued deposit flight from the regional banks to the large money center banks -- the Too-Big-to-Fail ("TBTF") banks -- or it could mean potentially higher deposit insurance levels that go far beyond the current $250,000 threshold, which itself was raised from $100,000 during the Great Financial Crisis in 2008 (and made permanent in 2010). One might hope that the markets can perhaps avert another all-out banking crisis if deposit insurance thresholds are raised once again, but this explicit move remains to be seen.

Mar 14, 2023

Berkshire Hathaway’s 2022 Shareholder Letter Addresses Buybacks
Image: Berkshire Hathaway has held up fairly well following the market rout in 2022. Image Source: TradingView. Buffett’s shareholder letters are always a refreshing read, a reminder of just how important it is to practice good business principles and to view stocks as pieces of businesses and not pieces of paper.

Mar 13, 2023

ALERT: We’re ‘Raising Cash’ in the Newsletter Portfolios
Image: American Union Bank, New York City. April 26, 1932. Public Domain. Almost a decade ago now, we wrote the following: “We firmly believe that an investment in a bank must come with the acknowledgement of the distinct possibility that another financial crisis may occur at an unknown time in the future. Why? Banks do not keep a 100% reserve against deposits. Our good friend George Bailey knew this very well when he tried to discourage Bedford Falls residents from making a “run” on the famous and beloved Building and Loan.” – Brian Nelson, CFA, September 4, 2013

Mar 10, 2023

Dividend Increases/Decreases for the Week of March 10
Let's take a look at firms raising/lowering their dividends this week.

Mar 9, 2023

SVB Financial, Silvergate Capital, Credit Suisse Reveal Cracks in Global Financial System
Image: SVB Financial looks to be collateral damage of the Fed’s rate-hiking cycle, and we can’t rule out that other regional banks could have also managed interest-rate risk wrong. Shares of SVB Financial have collapsed, and other banks could be facing similar issues that have yet to come to light. Image Source: TradingView. SVB Financial announced March 8 what looks to be an emergency equity offering to the tune of $2.25 billion in common stock and convertible preferred shares. The company also announced that it had sold almost all of its available-for-sale (AFS) $21 billion securities portfolio, which resulted in an after-tax loss of ~$1.8 billion during the current quarter. This looks to be an effort to shore up liquidity while it can, and we would not be surprised to see some bad bets at the bank come to light. SVB Financial’s client cash burn has accelerated, and the executive team noted that the “challenging market and rate environment has pressured Q1 performance, with implications to (its) 2023 outlook.” It’s difficult to know just how bad things are at SVB Financial, but the bank seems to have mismanaged interest rate risks and its asset sensitivity. SVB is reconstructing its AFS portfolio with short-duration fixed rate U.S. Treasuries. Though this may be the right move, the stark scenario for the bank is that if market participants lack confidence in the institution, there is more downside to come.

Jan 30, 2023

Visa’s Q1 Fiscal 2023 Solid, Puts Up 64%+ Operating Margin
Image: Visa is a free cash flow generating powerhouse and is insulated from rising delinquency and charge offs, unlike others in the credit card space. Image Source: Visa. Visa is a capital-light entity, meaning that its capital expenditures are quite small relative to its revenue and cash flow from operations. We love these types of companies as they are able to generate a significant amount of free cash flow, which for Visa, came in at $3.92 billion during the quarter, about 49% of total revenue. Visa’s business model is so cash-rich that for every $1 generated in revenue, roughly half of that turns into free cash flow. Very few companies have the operating margin and free cash flow profile as that of Visa, and we remain huge fans of this Best Ideas Newsletter portfolio holding. Shares yield 0.8%.

Jan 27, 2023

Dividend Increases/Decreases for the Week of January 27
Let's take a look at firms raising/lowering their dividends this week.