Valuentum Exclusive Analysis for the Discerning Investor

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Feb 24, 2020

ALERT: Adding Market Crash 'Protection,' Removing MSFT, BKNG
Image source: Centers for Disease Control and Prevention.  We're adding out-of-the-money put options to both the Dividend Growth Newsletter portfolio and Best Ideas Newsletter portfolio. We're removing Microsoft from the Dividend Growth Newsletter portfolio, and we're removing Booking Holdings from the Best Ideas Newsletter portfolio. We reiterate that, had the Dow Jones Industrial Average already swooned a couple thousand points on news of the COVID-19 outbreak, we might have considered some undervalued stocks with strong momentum potential "buying opportunities." However, to this point in time, the markets have largely ignored COVID-19, with major US indices still sitting near all-time highs. We could be in for a wild ride in the coming weeks and months, and an outright market crash is not out of question. For those looking for short-idea considerations, please consider the Exclusive publication here. We remain fully-invested in the High Yield Dividend Newsletter portfolio given its yield and income focus.

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.

Feb 10, 2020

Disney Reports Earnings and Provides an Update on the Novel Coronavirus Epidemic
Image Shown: Walt Disney Company recently reported earnings and provided an update as to what investors should expect going forward given the ongoing novel coronavirus epidemic in China. On February 4, Walt Disney reported earnings for the first quarter of its fiscal 2020 (period ended December 28, 2019). While Disney beat both consensus top- and bottom-line estimates, shares sold off modestly the next trading day over fears concerning the ongoing novel coronavirus epidemic (abbreviated as ‘2019-nCoV’) in China, and how that would impact its financial performance going forward. On January 13, 2020, we added shares of DIS to our Best Ideas Newsletter portfolio with a modest weighting given that shares were trading close to our fair value estimate at the time. However, we view Disney’s free cash flow growth outlook as very promising, which could see shares of DIS approach the high end of our fair value estimate range which sits at $168 per share. Additionally, we like its dividend coverage as its Dividend Cushion ratio sits at 3.1x, which supports a nice dividend growth trajectory as well. Shares of DIS yield ~1.2% as of this writing.

Jan 28, 2020

Johnson & Johnson Closes Out Fiscal 2019 With a Strong Fourth Quarter Report and Promising Fiscal 2020 Guidance
Image Shown: A look at some of Johnson & Johnson’s best selling products. Image Source: Johnson & Johnson – Fourth Quarter Fiscal 2019 IR Presentation. Best Ideas Newsletter and Dividend Growth Newsletter portfolio holding Johnson & Johnson reported fourth quarter and full-year earnings for fiscal 2019 on January 22. We liked what we saw as the company proved its fiscal 2019 wasn’t as bad as first feared, and furthermore, that Johnson & Johnson’s outlook remains bright as indicated by management’s guidance for fiscal 2020.

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 15, 2020

Our Reports on Stocks in the Pharmaceuticals (Biotech/Generic) Industry
Image Source: Open Grid. We've optimized our healthcare coverage.

Jan 4, 2020

Valuentum Exclusive Success Rates Trump Even the Best Quant Hedge Funds
Image: President of Investment Research Brian Nelson, CFA. A new book, “The Man Who Solved the Market,” hit bookshelves last year, and thus far it has been a hit. The text goes into the story of quant hedge fund Renaissance Technologies and its hedge fund, the Medallion Fund, which has put up mammoth returns since inception.

Dec 27, 2019

Johnson & Johnson Rebounds
Image Shown: Shares of Johnson & Johnson are on the rebound as various analysts are coming around to the name. We continue to like Johnson & Johnson in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios and view recent technical strength in shares of JNJ as a sign that the market is finally taking into consideration the company’s numerous guidance boosts and more importantly, the strength of its expected future free cash flows. Going forward, powerful tailwinds supporting rising healthcare expenditures in the US and abroad will continue to support Johnson & Johnson. To read more about those favorable tailwinds, check out this article here.

Dec 9, 2019

Health Care Sector Remains Hot
Image Shown: The Health Care Select Sector SPDR ETF, a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios, has been on an upward tear over the past several years. Strong macro tailwinds combined with the ability for industries within the health care sector to generate meaningful shareholder value have been key to supporting strong capital appreciation of equities operating in the area of late. The Health Care Select Sector SPDR ETF is a top holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios. We like the exposure and diversification to health care equities that XLV provides. XLV yields ~1.5% as of this writing. State Street Corp acts as advisor to the fund through State Street Global Advisors, and annual fund operating expenses come out to just 13 basis points (we like the XLV ETF’s low gross expense ratio).

Oct 23, 2019

Biotech and Pharma Roundup
Image Source: e-Magine Art. Some big news in the world of biotech and pharmaceuticals has come out this week, starting Monday October 21, that we want to get out in front of our members. In alphabetical order by ticker symbol: BIIB, BMY, MRK, NVS.