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.

Feb 7, 2020

Update on Wuhan 2019 Novel Coronavirus Outbreak: 31,000+ Infections, 630+ Deaths
Image Source: 2019-nCoV, Centers for Disease Control and Prevention. The number of infections and deaths related to the Wuhan 2019 Novel Coronavirus has surged since our last update, but we maintain our view that investors should keep a level head. We continue to wait to add protection to the newsletter portfolios as the market absorbs a massive liquidity injection from the PBOC.

Jan 31, 2020

Coronavirus May Trigger Long-Anticipated Global Recession
Image: Wuhan New Coronavirus. This was the catalyst that nobody was expecting, a novel coronavirus that nobody had in their economic models. We think global economic activity is slowing as we speak, and the spread of the virus may only accelerate in mainland China and elsewhere. Investors should keep a level head and perhaps think about adding protection to their portfolios before it becomes too expensive.

Jan 29, 2020

Starbucks Reports Earnings, Coronavirus to Hurt China Sales
Image Shown: How Starbucks Corporation views its competitive strengths. Image Source: Starbucks – December 2019 IR Presentation. Starbucks is trading at the upper end of our fair value range estimate, and given the headwinds facing the company in China (in terms of the competitive pressures from Luckin and the ongoing coronavirus overbreak) we see shares as fully valued as of this writing with room for meaningful downside. Its large net debt load is another concern. Shares of SBUX are priced for perfection, but exogenous headwinds could end up derailing its near-term growth trajectory.

Jan 22, 2020

Economic Commentary: Bank Earnings, US-China Phase One No Big Deal and More
Bloomberg recently reported that U.S. banks’ record-breaking earnings have likely peaked for this cycle. We’ll get the team’s thoughts on this, and we’ll also cover views on the corporate credit cycle, China GDP, and the US election cycle. We don’t think the US-China Phase One deal amounts to much, other than removing the uncertainty that it, itself, created.

Dec 27, 2019

Nike Is Generously Valued
Image Shown: Shares of Nike Inc have been on an upward tear in 2019; however, we think the market has now gotten ahead of itself. While Nike runs a great business, the firm is unlikely to realize the kind of growth rates required to justify its lofty valuation as of this writing. Should the company underperform for even one quarter, that could lead to a sharp correction in the share price of NKE. Nike is performing well in multiple categories, and the news that the US and China reached a “Phase One” partial trade truce further improves the company’s outlook. That said, Nike’s current market price is based on growth assumptions that are very unlikely to be realized, in our view. Should the company stumble for even one quarter, that could see a sharp correction in the share price of NKE.

Dec 16, 2019

ICYMI: Interview with Valuentum’s Callum Turcan
Callum Turcan helps head up Valuentum’s research product and is co-editor of the company’s newsletters. We sat down with Callum to get his thoughts on new developments in the market and economy. Let’s kick things off with his thoughts on Brexit.

Nov 20, 2019

Economic Commentary: Marks, Dalio, and the Discount Rate
Image Source: Mike Cohen. We sat down with the Valuentum team to discuss their latest thoughts on recent economic developments. To kick off the conversation, let’s start with the team’s views on the latest memo from Oaktree’s Howard Marks: Mysterious. For those that don’t know Howard, he is the Director and Co-Chairman of Oaktree, which managed about $122 billion in AUM, as of September 2019. The memo goes into depth on the reasons for negative interest rates, the impact of negative interest rates, and opines on whether the US will ever see negative interest rates. Then, we’ll go from there!

Oct 14, 2019

Economic Commentary: Robots, Value Trap, and Politics on the Markets
Valuentum sat down for the latest installment of its periodic economic commentary, and the team tackled a wide array of topics, from robots on Wall Street, to President of Investment Research Brian Nelson’s new book Value Trap, to political influence on the markets and boyond. Let’s set the stage with a prompt from a recent Bloomberg article, “The Master of Robots…Coming for Wall Street...

Oct 4, 2019

Economic Commentary: Apple $225+, Brokers Tumble, Auto Sales Look Tired
Image: Shares of TD Ameritrade Holdings have been punished as online trading commissions go to zero. "Though all signs point to increased volatility, we maintain our view that we’re well-positioned in the newsletter portfolios, and the ideas highlighted in the Exclusive publication consider the backdrop economic conditions we closely monitor." -- Brian Nelson, CFA