Valuentum Exclusive Analysis for the Discerning Investor

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Oct 27, 2023

Getting Down to Brass Tacks on Amazon’s Cash-Based Sources of Intrinsic Value
Image: Amazon had a very strong and better-than-expected third-quarter report, and the firm is now on pace to generate positive free cash flow during 2023. As reported in Amazon’s third-quarter 2023 press release, the retail giant’s “free cash flow improved to an inflow of $21.4 billion for the trailing twelve months, compared with an outflow of $19.7 billion for the trailing twelve months ended September 30, 2022.” Cash and marketable securities were ~$64.2 billion at the end of its third quarter compared to ~$61.1 billion in long-term debt, meaning that Amazon has a modest net cash position, but nothing near the likes of other big cap tech and large cap growth peers. All eyes will continue to be on Amazon Web Services [AWS] and its growth trajectory, but when it comes to the cash-based sources of intrinsic value, Amazon is back on the right track.

Oct 26, 2023

Brief Take: Altria’s 10% Dividend Yield Is Too Hard to Pass Up
Altria Group’s forward estimated 10% dividend yield is too hard to pass up as it is comfortably covered by traditional free cash flow. The tobacco giant reported third-quarter 2023 results on October 26 that showcased how its asset-light business model continues to throw off tons of cash. Traditional free cash flow generation came in at ~$5.9 billion during the first nine months of 2023, while cash dividends paid came in at ~$5 billion, resulting in a very nice free cash flow cushion on a ~10%-yielding stock. Though revenue growth at Altria remains under pressure, gross profit continues to move in the right direction. Altria has raised its dividend 58 times during the past 54 years, and the firm continues to target mid-single-digit dividend growth annually. For income investors that aren’t worried about ESG-related criteria, Altria could make for a great diversifier in a high-yield dividend income portfolio. Our fair value estimate stands north of $60 per share (shares are trading under $40 at the time of this writing).

Oct 25, 2023

Alphabet and Meta Are Net-Cash-Rich, Free-Cash-Flow Generating, Secular-Growth Powerhouses
Image: Free cash flow growth at Alphabet has been phenomenal during the first nine months of 2023. Both Alphabet and Meta are net-cash-rich, free-cash-flow generating, secular-growth powerhouses. Though cloud revenue growth and the pace of expense expansion at Alphabet are concerns, and while Meta may experience some softness in advertising revenue during the current quarter, both entities’ quarterly performances during the calendar third quarter showcased why they have been market darlings during 2023. Note: We’ve corrected our updated report on Alphabet. We had previously uploaded an incorrect version, but this version (pdf) has now been corrected. There is no change to the updated fair value estimate of $133 per share.

Oct 25, 2023

Download the Updated 16-page Stock Report of Alphabet
Download the updated 16-page stock report of Alphabet in this article.

Oct 25, 2023

Visa’s High Margin Business Reveals Consumer Spending Remains Resilient
Image: Visa has been a strong performer thus far in 2023. On October 24, Best Ideas Newsletter portfolio holding Visa reported excellent fourth-quarter results for its fiscal 2023. Net revenues advanced 11% on a year-over-year basis, while non-GAAP net income and non-GAAP earnings per share leapt 18% and 21% year-over-year, respectively, in the period. For the fiscal year, Visa generated an impressive 64.4% operating margin. Payments volume increased 9% and cross-border volume advanced 16%, showcasing that the consumer remains very healthy thanks in part to low unemployment rates, despite concerns over higher mortgage costs, student loan repayments, and general economic uncertainty as savings accrued during the COVID-19 pandemic wane. We continue to be big fans of Visa as our top payments-related idea.

Oct 23, 2023

2 Stocks to Watch: Tesla and Chevron
Image: Tesla. Tesla’s third-quarter report could have been a lot better, and Elon Musk’s comments that they “have dug (their) own grave with the Cybertruck” weren’t reassuring. Nonetheless, the company continues to generate free cash flow, and its balance sheet remains pristine with a very nice net cash position. We won’t be adding shares of Tesla to any newsletter portfolio, but given the price drop in its equity during the past week, we think most of the bad news is already embedded in the stock. As for Chevron, the company was once a darling stock in the newsletter portfolios, but we’ve moved beyond this big winner in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio after the huge “gains” the past 12-18 months. Shares still yield an attractive 3.6%, however, and we'll have more to say about its tie-up with Hess as more details come to light.

Oct 23, 2023

Lockheed Martin Represents Key Aerospace & Defense Exposure
On October 17, Dividend Growth Newsletter portfolio holding Lockheed Martin reported decent third-quarter 2023 results with the firm growing revenue roughly 1.8% on a year-over-year basis, and the firm beating the consensus estimate for non-GAAP diluted earnings per share. We like Lockheed as our aerospace and defense exposure more than Boeing, given the latter’s long list of troubles and deteriorated financial health, punctuated in part by troubles during the height of the COVID-19 pandemic and loss of life related to its 737 MAX platform. We think Lockheed offers a much better risk/reward and a healthy dividend to boot. Lockheed Martin yields ~2.8% at the time of this writing.

Oct 23, 2023

Kinder Morgan Now Covers Cash Dividends with Traditional Free Cash Flow
On October 18, Kinder Morgan reported third-quarter results that came in lower than expectations, but we’ve taken note of the company’s improved free cash flow generation that now runs in excess of its cash dividends paid, a huge change from a decade ago, where capital spending and cash dividends paid far outweighed its operating cash flow capacity. The company’s dividend stands at $1.13 per share on an annualized basis, and Kinder Morgan now has an forward estimated dividend yield of ~6.7%, which is quite attractive. Shares are trading meaningfully below our estimate of their intrinsic value, too, and we’re warming up to the company’s financials. Its net debt position likely precludes it from being added to any simulated newsletter portfolio at this time, however. Our $21 per-share fair value estimate remains unchanged.

Oct 23, 2023

Philip Morris Raises Adjusted Diluted EPS Outlook
On October 19, Philip Morris reported excellent third-quarter 2023 results that showed currency-neutral revenue advancing 16.4%, and non-GAAP adjusted diluted earnings per share beating the consensus forecast, increasing more than 20% to $1.67 per share. The company continues to benefit from strong pricing across its combustible tobacco portfolio, its integration of its purchase of Swedish Match, and the popularity of its nicotine pouch ZYN, where shipment volume in the U.S. increased ~66% from the year-ago period.

Oct 22, 2023

There Will Be Volatility
Image: An ETF tracking Russell 1000 "growth" stocks has outperformed an ETF tracking Russell 2000 "value" stocks since the beginning of 2021. To us, the market remains hypersensitive to almost every economic data point that hits the wires, and we’re just not going to play that game. The macro headlines and never-ending news flow are what many quant and algorithmic traders are trading on, and to a very large extent, for investors with a long-term horizon, these macro data points just don’t factor into the equation. When valuing equities, we’re always after mid-cycle expectations, not peak or trough performance, so our valuations implicitly embed a "normal" recession. Warren Buffett didn’t become a billionaire buying and selling on macro data points, and volatility is simply to be expected given the proliferation of price-agnostic trading these days. Instead of panicking over higher interest rates, we think investors should view the Fed’s work thus far as future potential dry powder to stimulate both the economy and the markets. Whenever you feel like stocks are no good, have a read of Warren Buffett’s classic piece written during the Great Financial Crisis, “Buy American. I Am.” To us, we still like stocks for the long run. Happy investing!