Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Nov 19, 2020

Normalizing our Fair Value Estimates for the Money Center Banks
Image Source: Mike Cohen. During the past few weeks, positive news surrounding the Pfizer/BioNTech and Moderna vaccines means that, while times will still be tough for banks as bad loans pile up, losses and defaults perhaps won’t be as bad as we had originally predicted at the onset of the outbreak of COVID-19. The unemployment rate has steadily crept lower from the 14.7% rate it hit in April 2020 (it stands at 6.9% as of October), and businesses have been battling hard through the worst of times with help from the Paycheck Protection Program, among other stimulus efforts. There have still been many business failures, however. Several banks’ net interest margins have faced pressure, too, but 30-year rates have managed to ease a bit higher from the sub-1% mark on March 9, 2020, to 1.62% at the time of this writing (November 18). The widely-watched 10-year/3-month Treasury yield spread has also advanced to 79 basis points, representing a meaningful improvement from most of February and early March when the 10-year/3-month Treasury yield spread was negative. The probability of an adverse tail-event is also substantially reduced (if not, eliminated), given the laser-focus of the Fed/Treasury to do whatever it takes to get to the other side the COVID-19 crisis. With all of this in mind, we expect to raise our fair value estimates for the money center banks upon their next update, effective November 21. That said, we’re not changing our general views on the banking and financials sector. Banks are being used more and more these days as extensions of government fiscal intervention/policy via myriad stimulus programs (which makes them more like “utilities”), while regulatory oversight has put a limit on just how much capital they can return to shareholders. This adds a degree of unnecessary complexity for dividend growth and income investors. Returns on equity remain relatively unattractive for many banks when compared to some of the strongest Economic Castles on the market that put up ROICs north of 100%, for example, some even higher. Systemic risk remains present, too, with most lending books opaque and intertwined within a global financial system that remains far from healthy due to COVID-19.

Jun 1, 2020

June Dividend Growth Newsletter & Intrinsic Value Investing
"But how, you will ask, does one decide what [stocks are] "attractive"? Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth,"...We view that as fuzzy thinking...Growth is always a component of value [and] the very term "value investing" is redundant." -- Warren Buffett, Berkshire Hathaway annual report, 1992

May 19, 2020

Video: A Call for More Policy Action in a Post COVID-19 World
Image: There may no longer be any basis for believing in efficient markets. Investors were bidding up the price of the wrong company because of confusion over its ticker symbol. This is just one example of how markets are inefficient. Bailouts coupled with Fed and Treasury stimulus from COVID-19 will have profound implications on investment behavior, with expectations for indexing and quantitative strategies to continue to proliferate. New rules may be required to ensure that investors' interests are truly being put first. President of Valuentum Brian Nelson presents a call to action.

Jan 23, 2020

Resetting Your Mental Model
Image Source: affen ajlfe. Having the right mental model and using the right information can be the reason why you win or lose in investing.

Dec 6, 2019

Dividend Increases/Decreases for the Week Ending December 6
Let's take a look at companies that raised/lowered their dividend this week.

Sep 16, 2019

Economic Roundtable: Quant Quake, “Quac-cidental Correlation,” and Economic Moats
Image Source: Anders Sandberg. Last week, the markets may have revealed that internals aren’t all that healthy. Major equity markets experienced a “rotation” that reminded many investors of the “quant quake” from August 2007. As Valuentum’s Brian Nelson wrote in Value Trap, “just a few bad days in the market caused a rapid unwinding of many quant long-short strategies (back then). Goldman’s chief financial officer said at the time that the firm was witnessing ‘25-standard deviation moves, several days in a row.’” On the surface, markets last week seemed relatively calm, but as the episode in 2007 revealed the activity last week may just be the calm before the storm. Many are pointing to overcrowded trades in betting against certain factors, while others are saying that many were forced to deleverage. We’re not so sure, and we think it may be the opposite: after years of suffering from lagging “value” returns, we think several quant shops stepped in to take on leverage, betting on a return to “value.” Let's talk about last week's quant quake, spurious correlations (the “guac-cidental correlation, in fact), economic moats and much more.

Dec 14, 2018

Dividend Increases/Decreases for the Week Ending December 14
Let's take a look at companies that raised/lowered their dividend this week.

Nov 19, 2018

Dropping Coverage of the Securities Research Industry
Image Source: Andreas Poike. Valuentum is dropping coverage of the securities research industry to allocate resources elsewhere.

Sep 5, 2018

There Is Milk At The Store
"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." -- Winston Churchill

Aug 6, 2018

Valuentum’s Weighted Average Cost of Capital (WACC) Distribution
The weighted average cost of capital is one of the most subjective measures in corporate finance, but it is also one of the most important ones.