Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Nov 25, 2019

Primer on the Banking Sector: Where Are We in the Cycle?
Image Source: GotCredit. We’ll talk about how banks make money, and the three most important costs of running a bank. The Great Financial Crisis revealed the tremendous risks of banking equities, and we’ll walk through these in depth. We’ll discuss how to conceptualize where we are in the banking cycle, and how that helps inform our valuation process for banks, which is different than traditional operating entities. The stress tests have helped many of the big banks from pursuing hazardous endeavors during the past decade, and we’ll go into how to think about the yield curve in the context of banks. Investors should expect ongoing digitization of banks and increased M&A as the competitive environment only intensifies. Three of our favorite banks are JPMorgan Chase, Bank of America, and US Bancorp, and we’ll be looking to consider adding any of these to the Best Ideas Newsletter portfolio or Dividend Growth Newsletter portfolio at the right price.

Nov 20, 2019

Shares of Home Depot Appear Overvalued
On November 19, Home Depot reported third-quarter earnings for fiscal 2019 (period November 3, 2019), and same-store sales growth fell way short of expectations which sent shares of HD sharply lower on the day. Company-wide same-store sales rose by 3.6% year-over-year, supported by 3.8% year-over-year growth in the US last quarter. We think Home Depot's shares are way ahead of themselves given rising exogenous headwinds and the looming threat of additional tariffs should ongoing US-China trade talks break down. The company has a great cash flow profile, but its valuation is stretched as the growth rates required to justify its current valuation aren’t realistic, in our view.

Nov 19, 2019

Improving Our Coverage
Valuentum continues to scour the stock market for new ideas. We’ll be following the set of companies in this list via commentary on our website and a data sheet updated periodically.

Nov 18, 2019

Big Energy Earnings Roundup
Image Source: Exxon Mobil Corporation – Third Quarter 2019 Earnings Presentation. As long as raw energy resource prices remain lackluster, the upstream divisions of the major energy giants will continue to generate far less cash flows than they did during the boom period (2010-2014). For Chevron, Shell, Total, and Exxon Mobil, their downstream operations offer a degree of stability but their large net debt positions and hefty capital expenditure budgets will continue to pressure their financials for some time. While Conoco doesn’t possess downstream operations anymore after the split with Phillips 66 in 2012, management’s focus on net debt reduction and free cash flows post-2014 puts COP in a better position than most of these bigger integrated peers (particularly CVX, RDS and XOM). That being said, we don’t include Conoco in any of our newsletter portfolios in part due to its lack of a “natural hedge” (downstream operations) and its direct exposure to raw energy resource prices. BP plc continues to represent one of our favorite plays in the energy space and shares of BP are included in our simulated High Yield Dividend Newsletter portfolio. We like BP’s cash flow profile, its stellar operational execution of late (upstream projects are consistently getting turned online under-budget and ahead of schedule), and its impressive downstream asset base. Members interested in reading more about why we like BP should check out this piece here, and if you may wish to add the High Yield Dividend Newsletter to your membership, please click here. Shares of BP yield 6.3% as of this writing and our fair value estimate of $45 per share of BP is comfortably above where shares are currently trading at.

Nov 16, 2019

Walmart Earnings Report Indicates US Consumer Still Strong
Image Shown: Shares of Walmart Inc have performed quite well so far in 2019. That’s arguably due to the ongoing strength of the US consumer and the significant investments Walmart has made into expanding its domestic grocery e-commerce offerings.  There’s a lot of talk of recession right now, but as Walmart’s latest quarterly results show, the US consumer remains resilient. A combination of historically low unemployment rates and modest wage growth in the US has created a bulwark against exogenous shocks, with an eye towards the economic slowdown currently going on in the Eurozone and East Asia. We’ll see how long this paradigm can last. We aren’t interested in adding Walmart to any of our newsletter portfolios at this time, as shares of WMT already trade near the top end of our fair value estimate range (which sits at $119 per share). Shares of WMT yield 1.8% as of this writing. We continue to like the current holdings in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios.

Nov 13, 2019

Intel Still One of Our Favorite Ideas
Image Source: Intel Corporation – August 2019 IR Presentation. We continue to like Intel in both our newsletter portfolios and see the company’s investments in the IoT space (and elsewhere) supporting decent free cash flow growth over the coming years. As Intel continues to monetize portions of its non-strategic equity and debt investments, expect a lot of those proceeds to go towards buying back its stock. That should help see shares of INTC continue converging towards the upper end of our fair value estimate range.

Nov 13, 2019

Keurig Dr Pepper Is Moving in the Right Direction
Image Source: Keurig Dr Pepper – September 2019 IR Presentation. Unlike some of its peers, Keurig Dr Pepper is not trading at a hefty premium to its intrinsic value. Our fair value estimate for shares of KDP stands at $25, with the top end of our fair value estimate range sitting at $30 per share. As of this writing, KDP trades near ~$29 per share, which is within reason in our view. Investors are pricing in Keurig Dr Pepper’s nice underlying sales growth forecast, merger-related synergies, and serious deleveraging efforts which is why KDP trades at the upper end of its fair value estimate range, in our view. We aren’t adding KDP to either of our newsletter portfolios at this time, but should deleveraging activities continue in earnest, that may change our view of the company.

Nov 12, 2019

Asset Light, Free-Cash-Flow Generating Powerhouse Bookings Holding (Priceline) Remains One of Our Favorite Ideas
Image shown: Booking Holdings' equity has been a strong performer the past few years.Booking Holdings fills an important void in our Best Ideas Newsletter portfolio as it provides exposure to the broader global economy, while albeit cyclical, continues to hold up despite myriad threats. Bookings Holdings’ asset-light business model translates to tremendous free cash flow generation, and its balance sheet is net-cash rich, two considerations that provide a very strong foundation for our estimate of its intrinsic value, which stands at ~$2,150 (shares are trading at ~$1,900 at the time of this writing). The company does not pay a dividend.

Nov 11, 2019

High Yield Dividend Newsletter Portfolio Holding BP Sees Cash Flow Profile Improvements Ahead
Image Source: BP plc – Third quarter 2019 earnings infographic. If you may wish to add the High Yield Dividend Newsletter to your membership, please click here.We continue to like BP as a holding in the High Yield Dividend Newsletter portfolio. Rising upstream production levels, a quality downstream footprint, and reduced Gulf of Mexico oil spill-related payments will go a long way in enhancing BP’s cash flow position. Raw energy resource prices remained subdued around the globe, but that isn’t stopping BP from fully covering its organic capital expenditures and dividend payments with underlying cash flows. We would like to see BP’s gearing ratios move lower, which is the stated goal.

Nov 7, 2019

Nucor Is One of the Best in a Bad Business
Image Source: Nucor Corporation - June 2019 IR Presentation. We aren’t adding Nucor to any newsletter portfolio at this time given the ongoing synchronized slowdown in global economic growth, especially on the industrial side of things, as shares of NUE already trade near our fair value estimate (and risks appeared skewed to the downside). Nucor is one of the best in the business, but business can be just downright terrible during a recession or a slow growth economy given existing overseas competition and declining North American demand in the event auto sales, construction activity, and other economic activities slow down. Geopolitical and trade events will continue to loom large over the steel industry going forward.