Valuentum Exclusive Analysis for the Discerning Investor

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Aug 27, 2022

Video: We Expect A Huge Market Flush! Looking to "Raise" Incremental Cash
Video: Valuentum's Brian Nelson, CFA, breaks down the current market environment, highlighting reasons for the poor market sentiment driven by "tapped out" consumers and investors alike. He expects a big market "flush," and a challenging next couple years but remains a big fan of stocks for the long haul. Valuentum continues to seek to "raise" incremental cash in the simulated newsletter portfolios as it prepares to weather the storm. Video length: ~10 minutes.

Aug 24, 2022

ICYMI (Aug 19) -- ALERT -- PYPL, META, GOOG, V -- Making Some Big Changes in the Simulated Best Ideas Newsletter Portfolio!
Image Shown: We are very happy with the overall "performance" of the simulated Best Ideas Newsletter portfolio, which is carving out 2.6 percentage points of relative outperformance so far in 2022 on a price-only basis, as shown in the table above. However, we're making some big changes to the simulated newsletter portfolio today on some of our favorite names. Our best ideas continue to be in the simulated Best Ideas Newsletter portfolio, the simulated Dividend Growth Newsletter portfolio, the simulated High Yield Dividend Newsletter portfolio, the simulated ESG Newsletter portfolio, and the Exclusive publication, as well as with our additional options commentary. We're making some big moves in the simulated Best Ideas Newsletter portfolio today! At the moment, the simulated Best Ideas Newsletter portfolio is carving out about 2.6 percentage points of relative outperformance so far in 2022, on a price-only basis relative to the the SPDR S&P 500 Trust ETF. Overall, after some huge years, the simulated Best Ideas Newsletter portfolio is down a modest ~8.6% in 2022, by our estimates. Pretty good, all things considered. That said, the SPDR S&P 500 Trust ETF has bounced right off its 200-day moving average (technical resistance), and we're not going to sit by while the risks to the market this year increase. We remain bullish on stocks for the long haul, of course, but we think incremental alpha may be generated by removing/trimming/adding to some of our winners in the simulated Best Ideas Newsletter portfolio at this time. We're changing our mind on a couple things, too, as any good investor does. [This note was emailed to members August 19.]

Aug 19, 2022

Nelson: The 16 Most Important Steps To Understand The Stock Market
Image Source: Tim Green. We outline the '16 Most Important Steps to Understand the Stock Market.' We think it's important to take a read of these key stock market tenets when things are going great -- and perhaps even more important when things aren't going your way. This continues to be a working document.

Jul 11, 2022

Valuentum's Unmatched Product Suite
We continue to be huge believers in the concept of enterprise valuation, which emphasizes the key cash-based sources of intrinsic value--net cash on the balance sheet and strong and growing future expected free cash flows. Meta Platforms, Inc. and Alphabet Inc. remain two of the most underpriced ideas on the market today, and we remain huge fans of their tremendous long-term investment prospects.

Jul 4, 2022

Nelson: I Have Been Wrong About the Prospect of Near-Term Inflationary-Driven Earnings Tailwinds
"Though I have been clearly wrong on my near-term thesis for inflation-driven earnings expansion, we still did great sorting through investment idea considerations. Through late June, for example, the simulated Best Ideas Newsletter portfolio has generated 4-5 percentage points of alpha relative to the S&P 500, as measured by the SPY. The simulated Dividend Growth Newsletter portfolio is down only modestly this year, also performing better than traditional benchmarks. The simulated High Yield Dividend Newsletter is generating “alpha” against comparable benchmarks, and the Exclusive publication continues to deliver, with both capital appreciation ideas and short idea considerations generating fantastic success rates. ESG and options-idea generation have also been great. With all this being said, in the long run, I believe nominal earnings will expand rapidly from 2021 levels, which is why I remain bullish on stocks. I believe markets tend to overestimate earnings in the near term and underestimate them in the long run. The intelligent investor knows, too, that the most money is made during recessions and bear markets, where steady reinvestment and dollar cost averaging help to better position portfolios for higher returns over the longer run. The newsletter portfolios are well-positioned for continued “outperformance,” in our view, and while we may make a few tweaks to them, we’re not making any material changes at this time."

Jun 30, 2022

Big Changes in the Auto Industry as Chip Shortages, Supply Chain Issues, and Rising Input Costs Complicate Matters; Tesla and Ferrari Our Two Favorite Names
Image: Ferrari’s fundamental momentum has been strong of late. Image Source: Ferrari N.V. 2022 Globe Newswire. The auto industry perhaps has changed more than any other industry the past five years. First, it was Ford that said it wouldn’t make passenger cars anymore, except for its iconic Mustang. Then, the European Union said that it would eventually end the internal combustion engine (ICE) by 2035. Then, Tesla reached over $1,200 per share and over a $1 trillion market capitalization. Can you imagine a world where Ford is not making sedans, the once modern-marvel of the internal combustion engine is dying, and where one car maker is worth as much as the next nine car makers combined? Certainly, a lot has changed in the auto industry during the past decade, and we haven’t dabbled much in the auto sector as it relates to idea generation due in part to the industry’s fast-changing backdrop. That doesn’t mean that we’re not fans of the auto space and its promising long-term opportunities, particularly with electric vehicles (EVs). It just means that we think there are better stories elsewhere, as in ideas in the simulated newsletter portfolios. However, if we had to pick two of our favorite auto names to consider, they would be Tesla and Ferrari, even as we note General Motors and Ford both trade at mid-single-digit earnings multiples. That said, investors don’t necessarily have to take on the risks of automakers, especially as the group deals with chip shortages, supply chain issues, and margin pressures from higher input costs. The cyclicality of many of the operators and the reality that operating leverage cuts both ways (and is quite painful during difficult economic times) are risks that perhaps won’t ever go away. That said, exposure to the auto space via Tesla or Ferrari could work nicely in a broadly diversified equity portfolio should risk-seeking investors be so inclined. These two names remain on our radar.

Jun 18, 2022

The Stock Market Is Nearing Technical Support Levels
Image: This year has been a difficult one for equity investors, but the selling pressure that has been common in the markets may start to slow as broader indices such as the S&P 500 begin to approach technical support levels. On the S&P 500, we think there is substantial technical support in the 3,200-3,500 range, which to us suggests that further near-term downside may be limited. The S&P 500 closed at 3,674.84 on Friday, June 17, and we think fair value is much higher. What might be a fair value for the S&P 500 today? Well, throwing the 10-year S&P 500 average multiple of 16.9x on 2023 expected earnings numbers of 251.76 gets to a 4,255 mark on the S&P 500, which is above the last closing level of 3,674.84 for the index. Benchmark Treasury rates remain low relative to history, and balance sheets of many S&P 500 companies are overflowing with net cash, supporting such a multiple, too. All told, investors might expect the stock market to hit technical support levels on the S&P 500 of 3,200-3,500 in the near term, but from where we stand, stocks remain an attractive proposition at the moment and a very attractive consideration over the long haul.

Jun 9, 2022

Best Idea Dollar General Beats Consensus Estimates and Raises Guidance in the Face of Substantial Headwinds
Image Shown: Dollar General Corporation’s GAAP net sales rose in the first quarter of fiscal 2022 on a year-over-year basis due to growth in its net store count. Image Source: Dollar General Corporation – May 2022 8-K SEC Filing. As a discount retailer, Dollar General is contending with myriad headwinds though its underlying business is holding up quite well. We continue to view its capital appreciation upside potential quite favorably, and its dividend program offers incremental upside potential. Shares of DG yield ~1.0% as of this writing.

Apr 10, 2022

Cash-Based Sources of Intrinsic Value for Meta Platforms and PayPal Remain Strong
Image Shown: Shares of Meta Platforms Inc (blue line) and PayPal Holdings Inc (orange line) have staged a nice comeback during the past month, as of the start of April 2022. Rising interest rates and the impact that has had on the market's discount rate implicitly used within the enterprise cash flow pricing process has pressured the value of equities with long free-cash-flow growth tails--stocks that are expected to grow at a meaningful premium over global economic growth over the coming decades. The rapid increase in the 10-year Treasury rate, no doubt, has had a profound impact on the equity values of long-duration cash-flow companies such as those held in the ultra-speculative ARK Innovation ETF, for example. However, established big cap tech firms and many fintech entities shouldn't necessarily be as impacted by rising interest rates as those of many currently money-losing speculative innovation names that won't generate meaningful levels of free cash flow for 5 to 10 years, maybe longer. For example, shares of companies such as Apple Inc. or Microsoft Corp. should only have but a muted impact from rising rates; these companies have huge net cash positions and are already generating strong free cash flow. It can even be argued that higher inflation/rates will afford Apple and Microsoft pricing power to raise product and software prices. While we might expect the ARK Innovation ETF to be down nearly 40% year-to-date and more than half during the past 52 weeks, we don't think it makes a lot of sense for some of the strongest, large cap growth names to be off ~12%, on average, year-to-date. We think the market, in many instances and especially within the area of technology, is throwing the baby out with the bathwater. Shares of Meta Platforms Inc, formerly Facebook, and PayPal Holdings Inc are two such names that the market has been beating down too much, in our view. Though some weakness in Meta Platform's and PayPal's shares can be expected in the current market environment, year-to-date declines of 30%+ and 40%+, respectively, are a bit much. That said, during the past few months, we have reduced our fair value estimates for both Meta Platforms and PayPal for good reasons. For starters, Meta Platforms is investing heavily in the metaverse, a digital universe, and is scaling up its data center capacity to support its efforts on this front (which is driving its capital expenditure and operating cost expectations up sharply in the medium-term). Meta Platforms is not expected to make a meaningful amount or any money on these investments for some time. PayPal is facing headwinds from hefty customer acquisition costs to grow its active user base amid rising competitive threats. We also think that we may have been too aggressive within our valuation model when we built in too much earnings leverage during the next five years at PayPal. Said another way, the fintech company’s mid-cycle operating margin is not what we once though it was--as PayPal will find it difficult to meaningfully expand its margins in the current environment. However, putting it all together, these pressures and others have all been reflected in our current fair value estimates (and fair value estimate ranges) for Meta Platforms, which sits at $367 per share, and PayPal, which sits at $152 per share. Both companies are included as ideas in the Best Ideas Newsletter portfolio, and we are beginning to see signs of a rebound underway. For long-term investors, we think Meta Platforms is a no-brainer at current prices, though we may be a bit more cautious on PayPal, which is now more of a "show-me" story, given recent hiccups. All this having been said, let's dig in to why we still like Meta Platforms and PayPal.

Mar 1, 2022

Shares of Our Favorite Miner South32 Skyrocketed During Past Year
Image Shown: South32, an idea in our ESG Newsletter portfolio and one of our favorite miners, put up tremendous financial performance during the first half of fiscal 2022 as it capitalized on surging realized prices for its commodities sales. Image Source: South32 – First Half of Fiscal 2022 IR Earnings Presentation. Shares of the American depository receipts (‘ADRs’) of one of our favorite miners, South32, have put up tremendous performance during the past year. According to data provided by Yahoo! Finance, shares of SOUHY are up over 50% during the past year on a price only basis while the S&P 500 is up ~9% on a price only basis during this period as of late February 2022. South32 is focused on building up a portfolio around high-quality nickel, aluminum, alumina, manganese, and zinc assets (these are metals and minerals that are essential for building things such as lithium-ion batteries and electric vehicles) while retaining a meaningful presence in the metallurgical coal space. Let's follow up on this excellent idea.