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 21, 2020

PPG Industries’ Latest Earnings Report Indicates Softer Industrial Activity Ahead
Image Shown: Capitalizing on the various lucrative opportunities the aerospace industry offers PPG Industries Inc underpins its long-term free cash flow trajectory. Image Source: PPG Industries – December 2019 IR Presentation. On January 16, maker of painting, coating, and specialty materials PPG Industries posted fourth quarter earnings for 2019. The firm has performed well in the aerospace and marine industries, and we emphasize its growing exposure to the aerospace industry underpins the strength of its free cash flow trajectory. That said, let's walk through PPG Industries' quarterly performance to get a feel for how broader industrial activity is trending and why economic softness may be looming.

Jun 13, 2019

RYAM: Terrible Business, Potentially Cheap Stock
Image Source: First-Quarter 2019 Presentation Materials. Rayonier Advanced Materials has seen better days, but has the market overreacted? We don’t think there are many businesses that have poorer industry structure, but if the company can get things back on track, normalized free cash flow indicates substantial upside potential. Commodity prices and tariffs remain big wild cards to this story, and the Valuentum investor always waits for technicals and momentum indicators to turn decidedly positive first.

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.

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.

May 30, 2018

Study: Valuentum's Best Ideas Newsletter Portfolio
"Though we largely achieved the Best Ideas Newsletter portfolio’s goals in advancing the newsletter portfolio each publication year (ends December 15) and achieving relative outperformance and risk-adjusted superiority to the benchmark, we may have done even better had our equity allocation been full during the measurement period." -- Brian Nelson, CFA

Apr 18, 2018

ICYMI: Valuentum’s Improved Stock and ETF Web Pages
Valuentum has rolled out improved stock and ETF web pages on its website www.valuentum.com. Now, subscribers can access key proprietary information on the stock and ETF web pages in addition to the customary stock and ETF reports.