Valuentum Exclusive Analysis for the Discerning Investor

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May 26, 2020

American Express Carries Meaningful Credit Risk
Image Source: American Express Company – First Quarter of 2020 Earnings IR Presentation. At Valuentum, we are very bullish on the growth trajectory of high-quality payment processing, payment solutions, and financial technology firms. That’s why we include PayPal and Visa as top-weighted holdings in our Best Ideas Newsletter portfolio. However, please note that what makes those firms appealing is the limited or lack of exposure to credit risk. Visa carries no credit risk and generates revenues through fees collected on transactions conducted with Visa-branded cards, and while PayPal possesses some credit risk, that risk is rather small relative to its overall business. Both firms enable investors to capitalize on the shift to a “cashless” society, a trend occurring both offline and online. Pivoting now to American Express, the focus of this piece, American Express carries a lot of credit risk. While, generally speaking, American Express tends to cater to relatively more affluent clientele than say, Discover Financial, that doesn’t mean American Express isn’t exposed in a very meaningful way to a sharp downturn in US and global economic activity. That downturn is a result of the ongoing coronavirus (‘COVID-19’) pandemic and the negative dynamic effects the virus has had on economic activity across the globe.

May 20, 2020

ALERT: Important Recap of Valuentum's Research and Market Events
Image: Breaking out to new highs, Facebook is a top weighting in the Best Ideas Newsletter portfolio (which includes our favorite capital appreciation ideas in a portfolio setting). The social media giant is surging on news of a new Shops feature, something we've been expecting and raving about with respect to its potential for years--as we maintain our view that, anti-trust considerations aside, Facebook is poised to become the "new Internet." The high end of our fair value estimate range for Facebook is nearly $290, and we would not be surprised if the company eventually reaches those levels. Note: PayPal, another big weighting in the Best Ideas Newsletter portfolio, has been a huge winner of late, too. The value of our research remains heavily tilted toward proficiency in enterprise valuation and technical/momentum indicators, portfolio construction, idea generation, individual stock selection, and assessing dividend health and resilience, among other things. ALERT: Important Recap of Valuentum's Research and Market Events: Unequivocally Bullish, S&P Target Range Was Withdrawn Last Month, Continued Focus on Individual Stock Selection with "Moaty" Operations, Huge Net Cash Positions, Strong Expected Future Free Cash Flows, Established Recurring Business Models, and Otherwise Attractive Economic Castles. Big Cap Tech and Large Cap "Growth" Remain Our Favorite Allocations.

Apr 29, 2020

ALERT: Going to “Fully Invested” -- The Fed and Treasury Have Your Back
Image Source: BEA. Real GDP fell at an annual pace of 4.8% in the first quarter of 2020, according to the "advance" estimate released by the Bureau of Economic Analysis. We’re taking the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to “fully invested,” scaling up our existing positions to reflect that status. We plan to consider put options to hedge against downside risk, if or when the time comes. Moral hazard continues to run rampant, and the Fed and Treasury may have no choice but to continue artificially propping up this market, even buying stocks through certain vehicles, if necessary. Having warned members about the impending “Great Crash of 2020” and identifying savvy opportunities near the bottom, we are now withdrawing our S&P 500 target range as we move now to focus more on individual ideas through this turbulence. We expect to continue to identify opportunities for relative outperformance. 2019 was one of the best years in the Best Ideas Newsletter portfolio yet. In the Exclusive, we just registered our 25th consecutive monthly short idea in a row that has worked out. The markets may go much lower from here before we go higher again, but the Fed and Treasury won’t let this market go down in the longer run, in our view--even as we navigate a Depression-type economic environment in the near term. Stay the course.

Apr 25, 2020

Emergency Update on COVID-19
President of Investment Research at Valuentum, Brian Nelson provides an emergency update on COVID-19. He talks about how policymakers have dropped the ball thus far, and why investors should not let their guards down, despite what has been a nice bounce from the March 23 bottom.

Apr 22, 2020

What To Do Now?
Let's get President of Investment Research Brian Nelson's thoughts...

Apr 20, 2020

Morgan Stanley Stands Out Among Peers in First Quarter
Image Source: Morgan Stanley 1Q2020 Earnings Supplement. Morgan Stanley posted difficult first-quarter 2020 results, released April 16, missing consensus estimates on both the top line and the bottom line. Return on average tangible common equity was 9.7% in the quarter, well above levels of just a few years back (and again better than large bank peers in the quarter), showing the progress that Morgan Stanley has made in improving its return profile.

Apr 20, 2020

Goldman Sachs Exposed to Too Much Risk
Image Source: Goldman Sachs 1Q2020 Earnings Presentation. Goldman Sachs posted a rough first quarter of 2020, results released April 15, just like its large bank peers. Regarding its on-balance sheet debt and equity investments, we remain very skeptical both about the marks on private equity and amortized cost debt, as well as the appropriateness of holding this size of assets on a leveraged bank balance sheet. In our view, it simply exposes the shareholders to too much risk, and we think these investments should be sold down to reduce risk.

Apr 20, 2020

Citigroup Holding Up Fairly Well
Image Source: Citigroup 1Q2020 Earnings Presentation. As with its large banking peers, Citigroup posted ugly performance in the first quarter of 2020, results released April 15. While there are probably more losses to come in terms of reserve build and future charge offs, especially in the company’s card business, Citigroup has held up reasonably well thus far in the early innings of this downcycle (and as compared to how poorly the bank fared during the Global Financial Crisis last time around).

Apr 19, 2020

ICYMI -- Video: Will Hasty Policy Facilitate the Next Leg Down, or Do We Have It Coming Anyway?
President of Investment Research and award-winning author of Value Trap: Theory of Universal Valuation Brian Nelson explains how US policymakers are stuck between a rock and a hard place, and how the market may be factoring in too high of a probability of a return to normalcy before 2021. This and more in the latest video report.

Apr 17, 2020

Bank of America Retains Earnings Power and Healthy Balance Sheet
Image Source: Bank of America 1Q2020 Earnings Presentation. Growing pressure from Fed officials on banks to cut dividends, and any extremely-adverse scenario, as outlined by JPMorgan in its latest annual note, coming to fruition may suggest that no banking dividend may be completely safe in this environment. That said, assuming the US economy is able to avoid a prolonged depression-type scenario, Bank of America has the earnings power and balance sheet to withstand most probable scenarios and come out the other side continuing to nip at JPMorgan’s heels for best in class US mega-bank. We are maintaining our recently reduced $28 fair value estimate of Bank of America.