Valuentum Exclusive Analysis for the Discerning Investor

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Feb 22, 2020

Is a Stock Market Crash Coming? -- Coronavirus Update and P/E Ratios
Image Source: World Health Organization, Coronavirus disease 2019 (COVID-19), Situation Report -- 32. We don’t think this is the environment to put new capital to work, and we remain highly cautious of what COVID-19 means for global economic growth not just in the first quarter of 2020 but for the rest of this year (maybe longer). Right now, the US markets are not really factoring in anything related to COVID-19, and perhaps may be adjusting to China’s stimulus in artificially propping up the markets as if the outbreak is somehow a “positive thing.” With the S&P 500 trading at 19.0 forward earnings estimates--estimates that are likely too high given the evidence we are seeing with respect to a slowdown due to COVID-19--and corporate debt levels more elevated than ever before (note, a high net debt level should depress the P/E in enterprise valuation--US corporate debt has advanced 50% over the past decade, to $10 trillion), it is our contention that the current market reflects a “situation-equivalent” forward P/E (i.e. rightsizing for new net debt relative to the dot-com peak and adjusting for lower forward earnings expectations compared with current forecasts) perhaps greater than 24.4, which was recorded at the peak of the dot-com bubble. Though interest rates are lower than they were at the time of the dot-com crash, suggesting a modest reasonable bump to normalized forward P/E ratios of ~15 times to reflect “fair valuations,” we could seriously be in for fundamental-driven crash soon, as both the earnings multiple and earnings estimates contract aggressively. Hypothetically, a contraction to a 16x forward multiple on earnings estimates just 10% lower than currently forecast implies an S&P 500 of 2,566, or a swoon of about 20%-30% from current levels--and that would just get us down to 16x still-respectable forward numbers. How quantitative-driven price-agnostic trading may impact this scenario is not known either, and all of this could be setting up for a wild ride in the coming weeks and months. Fasten your seatbelts. We’ll have a few newsletter portfolio alerts coming Monday.

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.

Jan 17, 2020

Our Reports on Stocks in the Agricultural Equipment Industry
We've optimized our industrials coverage.

Oct 30, 2019

Caterpillar Misses Estimates and Revises Guidance Downwards
Image Source: Caterpillar Inc – Third quarter 2019 IR presentation. Should the global economy show signs of stabilizing, particularly as it relates to industrial activity, Caterpillar would appear relatively cheap at ~$141 per share as of the end of the October 29 trading session. Recent signs have not been promising. Exports out of South Korea, a barometer for the global economy, continue to plummet while macroeconomic readings in the EU and North America are showing signs of a major slowdown materializing as we speak (particularly in the Eurozone, but that appears to be spreading to the US economy as well). China’s economy continues to feel the heat from the US-China trade war. The low end of our fair value estimate range stands at $125 per share of CAT, meaning that under more pessimistic assumptions, Caterpillar appears fairly valued as of this writing.

Aug 23, 2019

Trump "Tweet Storm" Reveals Increased Frustration with Fed, China
Markets are starting to look toppy.

Aug 14, 2019

A Tale of Two Big Agricultural Industries: Protein Producers Win and Farm Equipment Manufacturers Lose After Recent USDA Report
Image Shown: The tale of two big agricultural companies in one chart, with shares of poultry producer Sanderson Farms Inc (SAFM) shooting up on Monday, August 12, as chicken feed prices fell after a recent USDA report (which sent corn prices sharply lower) while shares of agricultural equipment manufacturer AGCO Corporation (AGCO) tanked as the market priced in continued pressure on US farm incomes and the dynamic impact that has on demand for farm equipment. We are monitoring the agricultural industry but don’t have any agricultural-oriented equities in our Best Ideas Newsletter or Dividend Growth Newsletter portfolios for a reason. In the short- to medium-term, the space will continue to experience volatility as the next chapter of the US-China trade war unfolds.

Apr 26, 2019

Dividend Increases/Decreases for the Week Ending April 26
Let's take a look at companies that raised/lowered their dividend this week.

Jan 29, 2019

Caterpillar Crushed by Expectations for No Growth in China
Image Source: Mining.com.  Heavy equipment giant Caterpillar saw its share price drop significantly following its fourth quarter report January 28 as it reported disappointing bottom-line results for the quarter and announced expectations for softness in China.

Dec 31, 2018

Valuentum Stock Screeners
Brian Nelson provides members with an update on Valuentum's stock screeners and the significant number of forward-looking data we provide. This article was sent to members via email December 29.

Dec 20, 2018

Market Mayhem -- Alerts for Members
Dear members -- we released a number of emails today. Please read and let us know if you have any questions. We're here for you.