Valuentum Exclusive Analysis for the Discerning Investor

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Jan 12, 2021

ALERT: We’re Still Bullish! Some Portfolio Tweaks
Trust you’re doing great, and hope you are enjoying your membership to Valuentum! We’ve received a number of questions from members during the past several weeks, and we’d like to address them briefly in this note. We will write a follow-up note in the coming days that goes into our broader outlook for 2021 and beyond. However, we want to get these takeaways to you as soon as possible, as our inboxes have been overflowing. If you haven’t read our market/analysis recap for the year 2020, please do so.

Jan 5, 2021

The Electric Vehicle (EV) Market Is Hot and Getting Hotter
Image Shown: A look at Tesla Inc’s new Gigafactory factory (Model Y body shop) in Shanghai, China. Image Source: Tesla Inc – Third Quarter of 2020 IR Earnings Presentation. The electric vehicle (‘EV’) market is hot and getting hotter. Aided by a combination of supportive government policies such as subsides for EVs (purchase tax credits, manufacturing tax credits), plans to ban the sale of automobiles powered by internal combustion engines (‘ICE’) in the coming years, and shifting consumer preferences (households preferring to appear “green”), the long-term outlook for EV sales is quite bright. Tesla is the posterchild of the EV boom given its first-mover advantage, though competitive headwinds are rising. Legacy auto manufacturers are looking to bulk up their EV offerings while new market entrants such as Lordstown Motors and privately-held Rivian, are set to further disrupt the industry. Ford Motor invested in Rivian back in 2019 to bulk up its presence in the EV market. By the middle of 2021, Rivian aims to begin deliveries of its EV pickup truck in the US, the R1T. Lordstown Motors also aims to bring an EV pickup truck to market, named the Endurance, with deliveries set to begin in early-2021. However, as global EV sales appear set to grow immensely, there is room for a number of winners in this space. Back in July 2020, privately-held Deloitte estimated that global EV sales will grow from an estimated 2.5 million in 2020 to 11.2 million in 2025 and then to 31.1 million by 2030, good for annual compound growth of about 29% in the coming decade, according to the research firm. EV sales in China are expected to represent about half of global EV sales in 2030, according to Deloitte, followed by the European market representing just over one quarter of global EV sales in 2030.

Dec 17, 2020

Congress Seeks to Strike a Deal
Image Shown: The S&P 500 is trading near all-time highs as of December 16, but political risk could cause some choppiness in the near term. The potential for yet another government shutdown is upon us, but according to key leaders on both sides of the aisle, a deal appears to be within reach. Certain provisions may be left out in order to reach an accord sooner rather than later, however. In any case, we remain bullish long term, as the world continues to work to put the COVID-19 pandemic behind it. Funding for most US federal government agencies may run out by the end of this week (December 18) if both sides of the aisle in Congress do not reach an agreement over a potential omnibus bill. In light of the tremendous efforts by the Fed/Treasury to support both the economy and the financial markets since the initial outbreak of COVID-19 to date, we don’t think Congress will do harm by not stepping up to the plate during the biggest global health crisis in the past 100 years. Still, we wanted to keep this news in front of you, as a prolonged shutdown presents a “fat-tail (low probability) risk” to the equity markets, particularly with respect to sentiment and momentum and especially with respect to any legal delays related to President Donald Trump leaving office in the coming weeks. We’re not making any changes to the newsletter portfolios at this time, however.

Nov 10, 2020

Public Storage Continues to Shine
Image Shown: Shares of Public Storage have recovered from the depths of the COVID-19 pandemic and have been on an upward climb over the past few months. On November 4, Public Storage reported earnings for the third quarter of 2020. As expected, headwinds created by the coronavirus (‘COVID-19’) pandemic weighed on its financial performance during this period; however, that did not stop the self-storage real estate investment trust (‘REIT’) from being very free cash flow positive. The long-term outlook for the self-storage industry in metropolitan areas in the US and elsewhere remains quite promising given the desire for households to maximize living space within their housing unit at a given budget. We include shares of Public Storage in our High Yield Dividend Newsletter portfolio and shares of PSA yield 3.5% as of this writing.

Oct 28, 2020

We’re Still Huge Fans of Microsoft
Image Shown: A snapshot of Microsoft Corporation’s first quarter fiscal 2021 performance. We continue to be huge fans of the cash-rich tech giant. Image Source: Microsoft Corporation – First Quarter Fiscal 2021 IR PowerPoint Presentation. On October 27, Microsoft Corp reported first quarter fiscal 2021 earnings (period ended September 30, 2020) that blew past both consensus top- and bottom-line estimates. Its GAAP revenues were up 12% year-over-year, hitting $37.2 billion, while its GAAP diluted EPS jumped 32% higher on a year-over-year basis, hitting $1.82 last fiscal quarter. Leading the charge was Microsoft’s cloud-computing Azure segment, which reported 48% year-over-year sales growth, and its Dynamics 365 segment (includes offerings that meet enterprise resource planning and customer relationship management applications needs), which reported 38% year-over-year sales growth last fiscal quarter. Almost all of Microsoft’s various business segments reported impressive performance last fiscal quarter. Microsoft is firing on all cylinders and we continue to be huge fans of the name. We include shares of Microsoft as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios.

Oct 22, 2020

Overweighting Outperformers
Image: The performance of ideas in the Best Ideas Newsletter portfolio during the trading session October 21. Many of the higher-weighted ideas in the newsletter portfolio are propelling the portfolio to relative outperformance. The Best Ideas Newsletter portfolio comprises a portfolio constructed of Valuentum's best ideas. These are companies that have scored favorably on the Valuentum Buying Index (VBI) and have been included in the newsletter portfolio with consideration of sector diversification and market/economic risk. The Best Ideas Newsletter portfolio is found in the Best Ideas Newsletter, which is released on the 15th of each month. Source: Seeking Alpha.

Sep 15, 2020

Microsoft Boosts Its Dividend and Announces a New Strategic Partnership
Image Shown: Shares of Microsoft Corporation are up significantly year-to-date as of this writing, and we see room for further capital appreciation upside. Shares of Microsoft are included as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios. On September 15, Best Ideas Newsletter and Dividend Growth Newsletter portfolio holding Microsoft announced a ~10% sequential increase in its quarterly per share dividend, boosting its payout up to $0.56 per share or $2.24 per share on an annualized basis. As of this writing, shares of MSFT now yield ~1.1% on a forward-looking basis. Furthermore, Microsoft noted its 2020 Annual Shareholders Meeting would be held on December 2 and would be conducted through a virtual format.

Sep 9, 2020

Our Thoughts on the Widespread Launch of 5G Services
Image Shown: The evolution of wireless networks and telecommunications technology over the years. Image Source: Intel Corporation – November 2019 State of 5G Presentation. The rollout of 5G telecommunication networks is upon us and we want to draw our members' attention to some of the key companies with meaningful exposure to this space. Many are excited about what opportunities 5G technology could enable. To ride out the ongoing coronavirus (‘COVID-19’) pandemic we prefer large-cap tech companies with pristine balance sheets, quality cash flow profiles, and firms whose growth outlooks are underpinned by secular growth tailwinds. Between Broadcom and Qualcomm, we are keeping a closer eye on Qualcomm given its more manageable net debt load and the company’s aforementioned near-term catalysts.

Sep 9, 2020

This Stock Market Doesn't Scare Me
Image Source: EpicTop10.com. Markets are forward looking, and it's very likely we'll see a nice bounce back to north of $200 in S&P 500 earnings per share in 2022 or 2023 (pre-COVID-19 numbers were an achievable $196 per share for 2021), meaning that after the next few months, with political risk now behind us at that time, too, come January 2021, the markets, today, imply they are trading at 16-17x forward earnings, a very reasonable multiple given the Fed/Treasury "put" and the implicit "backing" via equity purchases coupled with the prospect for inflation. Frankly, I'm just not understanding the bears. Right now, the market is experiencing some profit taking, some hedging, some rotation, but not much more than this.

Sep 3, 2020

3 Lessons in Portfolio Management Over 10 Years
Image Source: http://www.epictop10.com/. "When I left as director in the equity and credit department at Morningstar in 2011, I thought I knew a whole heck of a lot about investing. I felt like I was one in the top 5-10 in the world as it relates to the category of practical knowledge of enterprise valuation (maybe include Koller at McKinsey, Mauboussin at Counterpoint, and Damadoran at Stern on this list). After all, I oversaw the valuation infrastructure of a department that used the process extensively, and the firm was among just a few that used enterprise valuation systematically. Then, at Valuentum, our small team would go on to build/update 20,000+ more enterprise valuation models. There can always be someone else out there, of course, but I don't think anybody has worked within the DCF model as much as I have across so many different companies. That said, through the past near-10 years managing Valuentum's simulated newsletter portfolios, I've also learned a number of things to become an even better portfolio manager." -- Brian Nelson, CFA