Valuentum Exclusive Analysis for the Discerning Investor

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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.

Mar 9, 2023

We Woke Up on the Wrong Side of the Bed
Image: Valuentum's President of Investment Research Brian Nelson, CFA. Let's cover five controversial topics today: 1) Large cap growth still dominating small cap value. 2) Who cares about whether fund managers beat their benchmarks. Pick the best group of stocks, right? 3) Dividends are capital appreciation that otherwise would have been achieved had the dividend not been paid. 4) Go figure -- bonds are down again so far in 2023. 5) REITs are underperformers and haven't been reliable dividend payers.

Mar 6, 2023

Markets Bounce Off Technical Support But Not Out of the Woods
Image: The market-cap weighted S&P 500 (SPY) bounced off technical support last week, both the 200-day moving average as well as the breakout of the downtrend line, but while this may push off any leg down in the near term, we won’t hesitate to “raise cash” on a few newsletter portfolio names if a breakthrough of support to the downside happens. Image Source: TradingView. The 200-day moving average remains a key technical level for the market-cap weighted S&P 500. The risks that the market may break through both the 200-day moving average and the breakout of the technical downtrend line remain elevated, but the past week showed a successful test of technical support levels, in our view, and that means to us markets may avoid any substantial leg down for the time being. We continue to be cautious on the equity markets in the near term, and we won’t hesitate to “raise cash” across the newsletter portfolios if the S&P 500 breaks through its 200-day moving average and the breakout of the technical downtrend line.

Mar 3, 2023

Update: J&J Reports Messy Q4, Free Cash Flow Remains Robust But Looming Kenvue Split Adds Uncertainty
Image: Johnson & Johnson’s free cash flow generation remains far in excess of its cash dividends paid. Image Source: J&J. Johnson & Johnson reported messy fourth-quarter 2022 results that showed a large difference between GAAP and non-GAAP reporting. The company’s free cash flow presentation wasn’t great either, and we can’t help but feel management is a bit distracted given that the firm is working to spin off its Consumer Health division (Kenvue) later during 2023. J&J will retain its two larger divisions, Pharma and MedTech, including its key drugs Stelara, Darzalek, Tremfya, Erleada, and Uptravi, as well as its MedTech operations that have exposure to a number of areas including electrophysiology, wound closure, procedures for knees and hips, as well as surgical vision and trauma. We continue to like J&J’s coverage of the dividend with free cash flow, but we doubt the company will stay in the newsletter portfolios for much longer in light of the messy presentation and impending Kenvue split, expected in November 2023. We like to keep things simple. Shares yield ~2.7%. [We have updated this work to reflect that we are considering removing JNJ from both the Dividend Growth Newsletter portfolio and the Best Ideas Newsletter portfolio.]

Feb 22, 2023

ICYMI: As Expected, Stock Pickers Trounce the Indexes When It Matters
Image: Charles Dickens. Image Source: Public Domain. “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.” -- Charles Dickens, A Tale of Two Cities. We are big believers in prudent and diversified stock selection more than we ever have before, and we have little confidence in applying correlations, as in traditional asset allocation, to try to achieve financial goals and manage risks. In this age of wisdom, we like to follow the data, and the data keeps pointing to prudent and diversified stock selection as one of the best risk-adjusted ways to achieve long-term financial goals. To each, their own, but we continue to like stocks for the long run, and 2022 was yet another example why!

Feb 22, 2023

Follow Up on Intel’s Dividend Cut: We Will Strive to Do a Better Job Communicating
As noted in our brief note on Intel this morning, “Intel Cuts Dividend, As Expected,” we have now refreshed the company’s reports on the website, with updated Dividend Safety and Dividend Growth Potential ratings, both as VERY POOR. After factoring in Intel’s updated outlook to our valuation model from its fourth-quarter release, our updated fair value estimate is now $25 per share (was $27 per share) and our updated Dividend Cushion ratio is -1.7 (negative 1.7), was 0.4. This includes the dividend cut.

Feb 22, 2023

Intel Cuts Dividend, As Expected
Image Source: Aaron Fulkerson. The Dividend Cushion ratio caught another dividend cut. This time it was Intel’s. With a Dividend Cushion ratio of 0.4, Intel announced February 22 that it has slashed its dividend by nearly two thirds, to $0.125 on a quarterly basis, down from its prior quarterly dividend of $0.365. The company’s estimated forward yield now stands at ~1.9%, and we can’t say that the dividend cut was unexpected given its massive net debt position and significantly weakened free cash flow generation--the two most important components behind an assessment of its cash-based intrinsic value and dividend health.

Feb 22, 2023

Walmart Warns: “Prices Are Still High and There Is Considerable Pressure on the Consumer”
Image Source: Mike Mozart. Walmart’s outlook may very well be conservative, but its commentary certainly doesn’t bode well for many discretionary retailers and the broader economy. With the labor markets still strong and the producer price index still coming in hot, the Federal Reserve is not yet done raising rates. We expect the markets to test their uptrends and 200-day moving averages in the coming days to weeks, and if we break through these support levels to the downside, we won’t hesitate to “raise some cash” across the newsletter portfolios. When Walmart warns about the health of the consumer, we pay attention.

Feb 17, 2023

Dividend Increases/Decreases for the Week of February 17
Let's take a look at firms raising/lowering their dividends this week.

Feb 12, 2023

Albemarle Outlines Strong Lithium Demand Outlook
Image Source: Albemarle. Albemarle released a very promising outlook in late January, one that implies a tremendous pace of top-line expansion, profitability growth, and free cash flow generation. We’re huge fans of the outlook and believe lithium demand will continue to be robust, even as new supply comes to market. The company has called its next five years a period of “transformational growth,” where expected net sales are targeted at 2.5x 2022 levels and adjusted EBITDA is targeted to more than double. Electric vehicle demand remains robust, and Albemarle has opportunities across the end markets of mobility, energy, connectivity, and health, too. We think Albemarle remains one of the best growth stories on the market today, and we like shares.