Valuentum Exclusive Analysis for the Discerning Investor

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Jul 7, 2021

ExxonMobil’s Immense Upside in Guyana
Image Source: ExxonMobil Corporation – 2021 Investor Day Presentation. ExxonMobil generated $6.9 billion in free cash flow during the first quarter of 2021, up from just $0.3 billion in the same period the prior year when the coronavirus (‘COVID-19’) pandemic began to slow the global economy to a crawl. Please note that working capital movements and the timing of capital expenditures often have an outsized influence on an energy firm’s quarterly financials, though the trajectory is crystal clear, ExxonMobil is well on its way to recovering from the COVID-19 pandemic. ExxonMobil spent $3.8 billion covering its total dividend obligations in the first quarter of 2021 and spent a negligible amount buying back its stock during this period. Both of these activities were fully covered by its free cash flows with room to spare, highlighting the company’s potential dividend growth upside going forward.

Jun 1, 2021

ICYMI -- Video: Exclusive 2020 -- Furthering the Financial Discipline
In this 40+ minute video jam-packed with must-watch content, Valuentum's President Brian Nelson talks about the Theory of Universal Valuation and how his work is furthering the financial discipline. Learn the pitfalls of factor investing and modern portfolio theory and how the efficient markets hypothesis holds little substance in the wake of COVID-19. He'll talk about what companies Valuentum likes and why, and which areas he's avoiding. This and more in Valuentum's 2020 Exclusive conference call.

May 3, 2021

The Real Reasons Why Buffett Wants You in Index Funds
Image Shown: Since mid-June 2015, on a price-only basis, the S&P 500 (SPY) has nearly doubled, while shares of Kinder Morgan have nearly halved. In Morgan Housel’s book The Psychology of Money, chapter 16 leads in with “Beware taking financial cues from people playing a different game than you are.” The people on CNBC are playing a different game than you, and so is Warren Buffett. Buffett’s principles on stock selection are golden, but you must understand that he is near the top of the Forbes’ Billionaires List. He absolutely should be taking his own advice and indexing! With the threat of long-term inflation and price-agnostic trading, the average American, even with a few million in the bank, is not so lucky. Keep your game sharp.

Apr 23, 2021

Dividend Increases/Decreases for the Week April 23
Let's take a look at companies that raised/lowered their dividend this week.

Apr 8, 2021

The Best Years Are Ahead
The wind is at our backs. The Federal Reserve, Treasury, and regulatory bodies of the U.S. may have no choice but to keep U.S. markets moving higher. The likelihood of the S&P 500 reaching 2,000 ever again seems remote, and I would not be surprised to see 5,000 on the S&P 500 before we see 2,500-3,000, if the latter may be in the cards. The S&P 500 is trading at ~4,100 at the time of this writing. The high end of our fair value range on the S&P 500 remains just shy of 4,000, but I foresee a massive shift in long-term capital out of traditional bonds into equities this decade (and markets to remain overpriced for some time). Bond yields are paltry and will likely stay that way for some time, requiring advisors to rethink their asset mixes. The stock market looks to be the place to be long term, as it has always been. With all the tools at the disposal of government officials, economic collapse (as in the Great Depression) may no longer be even a minor probability in the decades to come--unlike in the past with the capitalistic mindset that governed the Federal Reserve before the “Lehman collapse."

Feb 10, 2021

Energy Earnings Roundup: CVX and XOM
Image Source: Exxon Mobil Corporation – 2020 IR Presentation. Several integrated oil and gas companies reported earnings for the final quarter of 2020, and as expected, these were brutal reports. The coronavirus (‘COVID-19’) pandemic weighed negatively on global demand for raw energy resources (crude oil, natural gas, natural gas liquids), refined petroleum products (gasoline, diesel, kerosene), and certain petrochemicals last year, which created massive headwinds for the oil and gas industry across the board. Subdued raw energy resource pricing and lackluster refined petroleum product demand were the two big obstacles for the industry as those dynamics severely weakened the economics of upstream (involved in the extraction of raw energy resources from the ground) and downstream (refineries and petrochemical plants) operations. However, things are starting to look up as raw energy resources pricing is now recovering.

Feb 8, 2021

Stock Market Outlook for 2021
2020 was one from the history books and a year that will live on in infamy. That said, we are excited for the future as global health authorities are steadily putting an end to the public health crisis created by COVID-19, aided by the quick discovery of safe and viable vaccines. Tech, fintech, and payment processing firms were all big winners in 2020, and we expect that to continue being the case in 2021. Digital advertising, cloud-computing, and e-commerce activities are set to continue dominating their respective fields. Cybersecurity demand is moving higher and the constant threats posed by both governments (usually nations that are hostile to Western interests) and non-state actors highlights how crucial these services are. Retailers with omni-channel selling capabilities are well-positioned to ride the global economic recovery upwards. Green energy firms will continue to grow at a brisk pace in 2021, though the oil & gas industry appears ready for a comeback. The adoption of 5G wireless technologies and smartphones will create immense growth opportunities for smartphone makers, semiconductor players and telecommunications giants. Video streaming services have become ubiquitous over the past decade with room to continue growing as households “cut the cord” and instead opt for several video streaming packages. We’re not too big of fans of old industrial names given their capital-intensive nature relative to capital-light technology or fintech, but there are select names that have appeal. Cryptocurrencies have taken the market by storm as we turn the calendar into 2021, but the traditional banking system remains healthy enough to withstand another shock should it be on the horizon. Our fair value estimate of the S&P 500 remains $3,530-$3,920, but we may still be on a roller coaster ride for the year. Here’s to a great 2021!

Jan 27, 2021

ALERT: Raising Cash in the Newsletter Portfolios
Our research has been absolutely fantastic for a long time, but 2020 may have been our best year yet. With the S&P 500 trading within our fair value estimate range of 3,530-3,920 (and the markets rolling over while showing signs of abnormal behavior), we're raising the cash position in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to 10%-20%. For more conservative investors, the high end of this range may even be larger, especially considering the vast "gains" from the March 2020 bottom and the increased systemic risks arising from price-agnostic trading (read Value Trap). The individual holdings will be reduced in proportion to arrive at the new targeted cash weighting in the respective simulated newsletter portfolios. The High Yield Dividend Newsletter and Dividend Growth Newsletter are scheduled for release February 1. We'll have more to say soon.

Jan 11, 2021

Energy Sector In Shambles, Looks to Recover But Headwinds Persist
Image Source: ConocoPhillips – November 2019 Analyst and Investor Meeting IR Presentation. Though raw energy resource pricing is on the rebound, the outlook for the oil and gas industry remains stressed. Global demand for oil and related refined petroleum products remains subdued due to headwinds generated by the ongoing coronavirus (‘COVID-19’) pandemic. The OPEC+ oil cartel has responded by pledging to keep a significant amount of oil output off the market for an extended time. However, raw energy resource prices need to go much higher and be sustained at elevated levels before the space could become attractive from a longer-term perspective. In our view, the US upstream industry (specifically those in the shale patch) need WTI to move and stay north of $60 per barrel to be in a position to generate meaningful free cash flow while also investing enough to maintain their production bases. We think the dividends at the oil majors may be at risk, even Exxon’s, and we include two high-risk midstream stocks in the High Yield Dividend Newsletter portfolio to capture a relatively benign risk-reward scenario when it comes to their respective yields. We maintain a cautious view on the MLP business model, more generally, however. For now, we are keeping a close eye on the energy sector considering things are slowly moving in the right direction. However, given the collapse in raw energy resources pricing witnessed during the first half of 2020, the industry still has a long way to go before it is out of the woods, so to speak.

Nov 2, 2020

ICYMI -- Dividend Growth Strategies Struggle
Image: A large cap growth ETF (orange) has significantly outperformed an ETF tied to a dividend growth strategy, the SPDR S&P Dividend ETF (SDY), which mirrors the total return performance of the S&P High Yield Dividend Aristocrats Index. To no surprise to many members, several dividend growth strategies have faced tremendous pressure during 2020. The Journal recently wrote a piece on the topic, but from our perspective, the problem with many dividend growth strategies is that they tend to be balance-sheet agnostic and pay little attention to traditional free cash flow expectations, focusing only on the yield itself, sometimes dismissing future fundamentals in favor of historical growth trends and the inferior EPS-based dividend payout ratio. In many dividend-targeted ETFs, for example, it may not matter to the index creator whether a firm has $10 billion in net debt or $10 billion in net cash; as long as management has a track record of raising the dividend in the past, it is included. To us, however, there is a world of difference between a company that has a huge net cash position and a huge net debt position. The more excess cash on the balance sheet a dividend payer has, for example, the more secure its payout. In some cases, entities held in high-yielding ETFs don't even cover their dividends or distributions with traditional free cash flow generation, despite having ominous net debt loads. A look at the high-yielding ALPS Alerian MLP ETF, for example, shows a number of entities that are buried under a mountain of debt and are generating meager free cash flow relative to expected distributions. The lofty yield on that ETF should therefore be viewed with a very cautious eye. If the yield weren't at risk for a big cut, the market would bid up the stock, and down the yield would go. In no way should you believe that you can sleep well at night holding stocks yielding north of 10% when the current 10-year Treasury is well below 1%. The market is just not that inefficient. A dividend growth strategy can never be a passive one either. Only through constant attention to the balance sheet (net cash) and future free cash flow expectations can investors truly sleep well at night. At Valuentum, we do the balance sheet and cash flow work and summarize it succinctly in a key ratio called the Dividend Cushion ratio.