Valuentum Exclusive Analysis for the Discerning Investor

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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 13, 2021

Markets Back on Track – Seeking Net-Cash-Rich, Free Cash Flow Generators with Pricing Power!
Image Shown: The pricing action of ideas in the Dividend Growth Newsletter portfolio May 13. Image Source: Seeking Alpha.  We remain intensely focused on the cash-based sources of intrinsic value—net cash on the balance sheet and future expected free cash flow—when it comes to identifying price-to-fair-value-estimate mis-pricings as well as in assessing long-term dividend health. We think it may be tempting to rotate into some names where fair value estimate revisions have occurred, but the margin of safety around many energy/commodity producers and banking entities may be too large even for conservative investors. We expect most energy/commodity producers to continue to endure boom-and-bust cycles, and banking entities to do the same, as the latter act more like utilities this day and age. Once implicitly nationalized during the Great Financial Crisis, and used as an extension of government programs such as the Paycheck Protection Program during the COVID-19 crisis, outsize economic profit spreads may remain limited for banks/financials given the punitive regulatory environment. Facebook, of course, remains our top idea for long-term capital appreciation potential. Newmont Mining remains our favorite dividend growth-oriented “inflation hedge” followed by garbage hauler Republic Services and its CPI-indexed contracts. AT&T remains our favorite high yield dividend idea, boasting a free-cash-flow covered ~6.5% dividend yield, and we prefer only diversified exposure to the energy and banking sectors through the Energy Select Sector SPDR (XLE) and Financials Select Sector SPDR (XLF). We’ll be looking to deploy the ~10%-20% cash “positions” in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio in the coming months. The High Yield Dividend Newsletter remains “fully invested,” and Exclusive idea generation remains robust. If you haven’t already, please be sure to have a look at the video in this article to see how we assess the cash flow statement and balance sheet to uncover stocks with strong net cash positions and solid future free cash flows that handily cover expected cash dividend payments. We apply this laser-focus on financial statement analysis across our idea-generation suite of publishing products.

May 11, 2021

Stock Markets Still Healthy, Big Cap Tech and Large Cap Growth Safe Havens
 Image Shown: Facebook’s shares are trading below the low end of our fair value estimate range at the time of this writing. The social media giant registers a 10 on the Valuentum Buying Index as it boasts a tremendous financial position with respect to net cash on the balance sheet and future expected free cash flows. Image Source: Valuentum. It’s easy to get spooked sometimes by the market’s volatility, but what we’ve witnessed the past few days is nothing compared to the volatility during the COVID-19 crisis and the Great Financial Crisis before it—and what we eventually expect the proliferation of price-agnostic trading to do to the markets in the years ahead. We continue to like the areas of big cap tech and large cap growth thanks to their strong competitive positions, solid net cash profiles, and robust and growing future expected free cash flow. Facebook remains our top idea for capital appreciation potential. Newmont Mining is our favorite “inflation hedge” within the metals and mining arena, and investors that would like greater exposure to energy and financials may look to more diversified ETFs to gain access to the broader themes of rising energy resource prices and net interest margins. AT&T is a top equity consideration for the high-yield dividend crowd. In the coming weeks and months, we’ll be looking to put some of the dry powder that we raised in January 2021 “to work” in some of the areas we outlined in this article. In the meantime, we’re going to continue to watch this orderly sell-off that’s being driven by valuation model adjustments (to factor in higher inflation expectations) and modest deleveraging from cryptocurrency volatility. All is well.

May 10, 2021

Inflation! How to Think About Value Duration
Image Shown: Longer-duration free cash flow stocks are more impacted by changes in inflationary expectations and interest rates (up or down) than stable and/or stable and growing free cash flow generators. This example shows the impact of falling interest rates (10%-->5%) on stable versus longer-duration hypothetical future free cash flow streams, all else equal (the opposite would directionally be applicable in a rising interest rate environment). There's nothing 'all else equal' in the real world though. In the event of rising inflationary expectations, we would still expect speculative technology stocks to take the biggest hit. On the other hand, we would expect strong and growing free cash flow powerhouses that can price ahead of inflation such as big cap tech to handle the environment well. Though banks, energy, and the metals and mining sectors may lead the market for some time, we still like large cap growth and big cap tech for the long run. What many may be overlooking is that, for those with pricing power, higher inflationary expectations translate into higher product and service prices, too. Big cap tech (and their pricing power) is well-positioned to handle such an environment. We’re not overreacting in any respect, and we’re not going to chase commodity prices or commodity producers higher. Commodity prices are simply too difficult to predict in almost all cases, and banking entities are far too susceptible to boom-and-bust shocks for us to get comfortable with their long-term investment profiles. All in, we’re sticking with companies with strong net cash positions and future expected free cash flows (and solid dividend health, where applicable). Some of the strongest companies that have these characteristics can be found in large cap growth and big cap tech. Facebook remains our top idea for long-term capital appreciation potential. In the meantime, we’re comfortable watching the market chase a rotation into more speculative areas.

Apr 29, 2021

Best Idea Facebook Posts Blowout Earnings Report
Image Shown: Facebook Inc’s digital advertising business is a behemoth and enabled the firm to put up banner first quarter 2021 performance. We continue to be enormous fans of Facebook and include shares of FB as a top-weighted idea in our Best Ideas Newsletter portfolio. Image Source: Facebook Inc – First Quarter of 2021 IR Earnings Presentation. We continue to view Facebook as one of the most attractive capital appreciation opportunities out there as shares of FB, as of this writing, are trading at a steep discount to their intrinsic value on the basis of enterprise cash flow analysis. Our fair value estimate for Facebook sits at $413 per share with room for upside as the top end of our fair value estimate range sits at $516 per share. Facebook is included as a top-weighted idea in the Best Ideas Newsletter portfolio and more recently, shares of FB have begun to converge towards our fair value estimate. Momentum continues to shift in the right direction after Facebook published its first quarter 2021 earnings report on April 28, which saw shares of FB jump higher after the report went public as the firm easily surpassed consensus top- and bottom-line estimates.

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."

Mar 19, 2021

In the News: Facebook Optimistic, Visa Resilient, Dollar General’s Outlook Not Bad and More
The equity markets, as measured by the S&P 500, are trading above/near the high end of our fair value estimate range, but we remain focused on the long run, and there are many individual ideas that present tremendous long-term capital appreciation potential. By far, Facebook is the most undervalued stock on the market, in our view, and recent news has painted its relationship with Apple in a more positive light. The Justice Department is investigating Visa for anti-competitive behavior, but we don’t think its dominant position and lucrative business model will be challenged. Successful vaccines for coronavirus (“COVID-19”) have breathed life into shares of airline equities, but we still don’t view them as long-term investments. Dollar General will see its yearly streak of consecutive same-store sales growth come to an end in fiscal 2021 (ends January 28, 2022), but we’re still positive on the name. Some of our best ideas continue to be in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. For investors seeking higher-yielding ideas, please consider the High Yield Dividend Newsletter publication.

Feb 14, 2021

Earnings Roundup: DIS, GM, PEP, TWTR, UA
Image Shown: A look at the 2022 GM HUMMER EV pickup truck that is due to launch by the end of this year. Image Source: General Motors Company – Fourth Quarter of 2020 IR Earnings Presentation. Earnings season is roaring along, and we cover the reports of five more companies across different sectors in this article (Disney, General Motors, Pepsi, Twitter, and Under Armour). The coronavirus (‘COVID-19’) pandemic continues to loom large, though we are encouraged by reports from Moderna that its existing COVID-19 vaccine approved for emergency use is at least somewhat effective at treating variants of the virus according to initial clinical trials (a lot more work needs to be done on the subject). Global health authorities are working to put an end to the public health crisis, though COVID-19 virus variants have created additional obstacles on that front. However, we still expect the COVID-19 pandemic will be brought under control sooner than many expect as global vaccine distribution efforts become more widespread and efficient. A common theme across earnings reports is that (most) of the companies in this article view their outlooks favorably, though serious short-term headwinds remain in some instances. Video streaming services continue to be in high demand, major automakers are stepping up their EV investments, demand for consumer staples products remains healthy, the digital advertising market is resilient, and retailers are leaning heavily on their omni-channel selling capabilities to ride out the storm caused by the COVID-19 pandemic.

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 28, 2021

Apple, Facebook, and Tesla Report Earnings
Image Shown: Facebook Inc continues to steadily grow its active user base, primarily by leveraging and expanding its international presence. Image Source: Facebook Inc – Fourth Quarter of 2020 Earnings IR Presentation.  We continue to witness unusual trading activity in the markets driven in large part by investors that are apparently communicating with each other over online forums such as Reddit. This trading activity is then being exacerbated by quantitative trend and momentum funds, generating levels of volatility in some names never before seen. On January 27, we sent out an alert to members noting that we shifted our newsletter portfolios to a 10%-20% cash weighting. Should numerous hedge funds start to fail due to short squeezes, that would put a tremendous amount of pressure on financial markets, at large, as investor confidence would start to erode. This, in turn, may beget more selling, creating an avalanche effect much like that of Long-Term Capital Management in the 1990s. Keeping this in mind, we continue to be big fans of top tier-tech giants, several of which have recently reported earnings that we will cover in this note. Companies with large (net) cash piles, resilient business models, promising long-term growth outlooks underpinned by secular tailwinds and strong cash flow profiles continue to be the best way to ride out the storm caused by the coronavirus (‘COVID-19’)--and more recently, very strange (if not downright manic) trading activity. Though the levels of volatility witnessed in dozens of companies may be unexpected by many, we had outlined the hazards of the volatility driven by price-agnostic trading (implicitly inclusive of Reddit and Robinhood trading) in the conclusion ("A Call to Action") of our book, Value Trap.