Valuentum Exclusive Analysis for the Discerning Investor

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Jul 30, 2020

PayPal Posts a Tremendous Quarterly Report, Reinstates Guidance
Image Shown: PayPal Holdings Inc put up tremendous performance during the first half of 2020 as consumers are increasingly shopping online. In the second quarter of 2020, PayPal continued to grow at a decent clip even in the face of the ongoing pandemic. Image Source: PayPal Holdings Inc – Second Quarter of 2020 IR Earnings Presentation. After the market close July 29, PayPal reported second quarter 2020 earnings that beat consensus top- and bottom-line estimates. Shares of PYPL moved sharply higher after the report was published, and we continue to like PayPal as a holding in the Best Ideas Newsletter portfolio. Our fair value estimate sits at $200 per share of PYPL, comfortably above where PayPal is trading at as of this writing. There is room for meaningful capital appreciation upside as the top end of our fair value estimate range sits at $240 per share of PayPal. Even in the face of the ongoing coronavirus (‘COVID-19’) pandemic PayPal continued to grow, and we appreciate the resilience of its business model. The firm’s cash flow profile is of high quality, supporting its ability to generate meaningful free cash flows in any economic environment. Additionally, having a pristine balance sheet provides PayPal with ample financial flexibility to ride out the storm.

Jul 27, 2020

Goldman Posts a Blowout Quarter
Image Shown: Goldman Sachs Results Breakdown by Segment. Image Source: Goldman Sachs 2Q2020 Earnings Presentation. While we still do not like the private ($17 billion) and public equity ($3 billion) positions on Goldman’s balance sheet, we acknowledge that the firm is working them lower through sales and that the bank is aiming to increase managed funds instead. This move is overdue and will help reduce the risk profile of the firm. Though the quarter showed the massive revenue potential of Goldman when markets are at fairly high levels and with extreme volatility, it is difficult to value these earnings streams, given the notoriously volatile nature of the key segments of investment banking and markets (trading).

Jul 22, 2020

Second Quarter Earnings Roundup
The figure above shows the performance of the simulated Best Ideas Newsletter portfolio from inception May 17, 2011, through December 15, 2017, relative to its declared benchmark, the S&P 500 (SPY), on an apples-to-apples basis, with dividends collected but not reinvested for both the newsletter portfolio and the SPY, as reported in the monthly newsletter. The simulated Best Ideas Newsletter portfolio outperformed the S&P 500, including reinvested dividends in the benchmark, since inception (May 17, 2011) and since the inaugural release of the newsletter (July 13, 2011) through the end of the measurement period (December 15, 2017). The results are hypothetical and do not represent returns that an investor actually earned. Past results are not indicative of future performance.

Jul 22, 2020

Banks & Money Centers Industry Report
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 digitalization 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. Banks and Money Centers: AXP, BAC, BK, BBT, C, DFS, FITB, GS, HBC, JPM, KEY, MS, NTRS, PNC, RF, STI, TCB, USB, WFC.

Jul 21, 2020

Morgan Stanley Puts up a Tremendous Quarter
Image Shown: Morgan Stanley’s 2Q2020 Results Broken Down by Segment. Image Source: Morgan Stanley’s 2Q2020 Earnings Supplement. Morgan Stanley truly shined during this quarter of extreme volatility. While credit provisioning was higher year over year, Morgan Stanley simply does not have many of the credit exposures that are leading to huge multi-billion-dollar credit provisions at some of its money-center banking peers. Though its wealth management business' net income (applicable to Morgan Stanley) was down 10% year over year, and Investment Management was up only 20%, it was the Institutional Securities stunning 95% advance in net income that made this quarter a (temporary) gem of notable brilliance.

Jul 20, 2020

Bank of America is Working Through a Difficult Time
Image Shown: Summary of Bank of America’s 2Q2020 results. Image Source: Bank of America 2Q2020 Earnings Presentation. When putting all the puzzle pieces together, we see Bank of America facing the headwinds of low rates and sizable credit provisioning with relative ease thanks to its substantial pre-tax, pre-provision earnings power. As long as the economy doesn’t get drastically worse from here, long term investors will benefit from normalized valuations on more normalized earnings in the not-too-distant future.

Jul 16, 2020

Citigroup Navigating the Banking Downturn Fairly Well
Image Shown: Summary of Citigroup’s 2Q2020 Results. Image Source: Citigroup 2Q2020 Earnings Presentation. On July 14, Citigroup posted a difficult second-quarter set of results, though the firm did manage to beat analyst consensus estimates on both the top and bottom lines. Outsize revenue gains in investment banking and FICC (fixed income, currencies, and commodities) markets (trading) helped on one hand, while sizable provisions for upcoming credit losses dented the bottom line on the other hand. As shown in the upcoming graphic down below, revenues advanced 5% compared to last year, while net income fell 73%.

Jul 15, 2020

JPMorgan Reports Second Quarter, Notes Peculiar Times
Image Shown: Overview of JPMorgan’s 2Q2020 earnings. Image Source: JPMorgan 2Q2020 Earnings Presentation. There was a fair amount of discussion on JPMorgan’s conference call about how the company (and the rest of the banking industry) are taking large provisions now for charge offs that they expect to come in the future. The future and the timing and magnitude of the eventual write-offs are quite murky indeed, which helps explain the volatility of banking shares in general, and especially for those institutions that might fall over in an “adverse scenario.” JPMorgan is not one of those banks that is at risk. It stands on high ground in the industry thanks to its scale, diversification (a huge benefit this quarter), high quality management, and outsize earnings power as compared to many of its peers.

Jul 15, 2020

Wells Fargo Has Become An “Epic Disappointment”
Image Shown: Wells Fargo net interest income is under pressure due to lower rates and a flat yield curve. Image Source: Wells Fargo 2Q2020 Earnings Supplement. Wells Fargo is so far out of line with its large US banking peers that it is truly competing with one arm tied behind its back. Or perhaps both arms. While some might try to be heroic and bet on a huge turnaround, we think it is more prudent to watch from the sidelines. What an epic disappointment this bank has become, so far a fall from grace as compared to when it used to be regarded as one of the best in class of the biggest US banks. What a shame!

Jun 21, 2020

Warren: Four Ways to Play the Market at This Juncture
Image Source: Daniel Lobo. In this piece, we examine where the economy and stock markets have been recently, where we are now, and where we are going next. We also highlight four key ways to play this volatile market. We think this is a helpful way to think about overall portfolio construction, especially so that one does not overly expose themselves to a particular set of risks that could come to fruition—like an extended downturn in the economy or a rapid discovery of a vaccine for Covid-19 on the other hand.