Valuentum Exclusive Analysis for the Discerning Investor

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Feb 27, 2020

Has the Stock Market Crash Begun?
Image: CDC. Transmission electron microscopic image of an isolate from the first U.S. case of COVID-19, formerly known as 2019-nCoV. The spherical viral particles, colorized blue, contain cross-section through the viral genome, seen as black dots.According to the latest Situation Report from the CDC, dated February 25, there are now more new cases reported from countries outside of China than from China. Globally, there are currently 80,000+ confirmed cases in nearly 40 countries, with China, South Korea, Italy and Iran the major hotspots. Up until now, investors have been anxiously waiting for the other shoe to drop (i.e. community spread in the United States), with the CDC even saying, “It's not so much a question of if this will happen anymore, but rather more a question of exactly when this will happen and how many people in this country (United States) will have severe illness.” Well, that “when” is now. The CDC just confirmed February 26, 2020, a possible instance of community spread of COVID-19 in the US.

Feb 24, 2020

ALERT: Adding Market Crash 'Protection,' Removing MSFT, BKNG
Image source: Centers for Disease Control and Prevention.  We're adding out-of-the-money put options to both the Dividend Growth Newsletter portfolio and Best Ideas Newsletter portfolio. We're removing Microsoft from the Dividend Growth Newsletter portfolio, and we're removing Booking Holdings from the Best Ideas Newsletter portfolio. We reiterate that, had the Dow Jones Industrial Average already swooned a couple thousand points on news of the COVID-19 outbreak, we might have considered some undervalued stocks with strong momentum potential "buying opportunities." However, to this point in time, the markets have largely ignored COVID-19, with major US indices still sitting near all-time highs. We could be in for a wild ride in the coming weeks and months, and an outright market crash is not out of question. For those looking for short-idea considerations, please consider the Exclusive publication here. We remain fully-invested in the High Yield Dividend Newsletter portfolio given its yield and income focus.

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.

Jan 23, 2020

Resetting Your Mental Model
Image Source: affen ajlfe. Having the right mental model and using the right information can be the reason why you win or lose in investing.

Jan 4, 2020

Valuentum Exclusive Success Rates Trump Even the Best Quant Hedge Funds
Image: President of Investment Research Brian Nelson, CFA. A new book, “The Man Who Solved the Market,” hit bookshelves last year, and thus far it has been a hit. The text goes into the story of quant hedge fund Renaissance Technologies and its hedge fund, the Medallion Fund, which has put up mammoth returns since inception.

Dec 18, 2019

FedEx’s Earnings Miss
Image Source: FedEx Corporation – 2019 Annual Stockholders Meeting September 2019 IR Presentation. In the days leading up to FedEx Corp latest earnings report where the firm missed by a mile, news broke that Amazon is now blocking third-party sellers that use its marketplace platform from using the FedEx Ground delivery service (which handles North American volumes) to ship to Prime customers. This comes on the heels of FedEx and Amazon ending two significant shipping contracts earlier this year, including the arrangement where FedEx Ground would handle some of Amazon’s packages, a deal that expired at the end of August. Please note that FedEx Ground is a small-package delivery service that caters to America and Canada, and that other FedEx options for certain packages bought through or sold by Amazon are still available. We are still staying away from FedEx as its ability to generate free cash flows remains pressured by its need to invest heavily in the business to keep up with the likes of Amazon and others. FedEx’s dividend payout could be at risk should exogenous shocks (i.e. a breakdown in the partial US-China trade war truce) continue weakening its financial performance.

Dec 6, 2019

Dividend Increases/Decreases for the Week Ending December 6
Let's take a look at companies that raised/lowered their dividend this week.

Oct 12, 2019

ICYMI: Interview with Valuentum's President Brian M. Nelson, CFA
Catch up with Valuentum's President Brian M. Nelson, CFA in a recent interview with dividend growth investor Arne Magnus Lorentzen Ulland of the blog stockles.

Sep 19, 2019

FedEx Bemoans Trade Wars and Issues Weak Guidance, Shares Get Crushed
Image Source: FedEx Corp -- IR Presentation. Global logistics and shipping giant FedEx Corp reported first-quarter earnings for its fiscal 2020 (ended August 31) on September 17 that underwhelmed, sending shares sharply lower (down almost 13%) on September 18. As a capital intensive business operating in a cyclical industry, FedEx is stuck in a bind. Either pursue its drive for greater efficiency, greater scale, and (in theory) greater profits in the future while acknowledging that significant headwinds in the short- to medium-term will pressure free cash flows at a time of significant capital investment, or attempt to scale back which hollows out the core of management’s capital allocation strategy. Please note FedEx’s future aircraft purchase commitments make cutting capital expenditures by a meaningful amount a significantly harder task, reducing its financial flexibility. Management has opted to push forward into the fray. We are remaining firmly away from FedEx at this time.

Sep 4, 2019

A Tale of Two Package Delivery Companies
Shares of both FedEx Corporation (indicated by the orange line above) and United Parcel Service Inc (indicated by the blue line above) have come under a tremendous amount of pressure over the past year as the industry navigates the fallout from the US-China trade war. Both companies are investing heavily to improve their offerings to stay ahead of the game as large tech companies increasingly encroach on the shipping industry’s traditional turf. The S&P 500 index is indicted by the purple line above.