Valuentum Exclusive Analysis for the Discerning Investor

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Jun 11, 2020

*ALERT* Newsletter Portfolio Changes
Image: The markets are selling off rather aggressively today, June 11, but it is important to keep things in context. Above, the NASDAQ 100 Index just hit all-time highs recently, and some profit taking is to be expected. Though it will make for scary headlines, the move today isn't out of the ordinary after such a strong run higher. We're making a couple tweaks to the simulated newsletter portfolios today. It has been one of the strongest bull markets we've ever seen off the March 23 bottom, and while we continue to be optimistic about some of our favorite ideas, we are now re-positioning the newsletter portfolios after taking advantage of the surge.

Jun 8, 2020

ICYMI -- Stay Optimistic. Stay Bullish. I Am.
Image: My great-grandfather (second from left) and his buddies in the 88th Division of the United States Army during World War I, at the time of the Spanish Flu pandemic of 1918-1919. He would serve under Major General William Weigel, become proficient in the 37mm gun, and take part in the largest offensive in U.S. military history, the Meuse-Argonne Campaign. As a corporal, he would survive the Great War and the Spanish flu pandemic, returning to the U.S. in May 1919 from the port of Saint-Nazaire, France on his way to Omaha, Nebraska. First of all, I wanted to reiterate how bullish I am on equities for the long haul. There are no risk-less investments when it comes to the stock market, of course, but this "win-win" scenario we seem to find ourselves in today appears to be one-of-a-kind in history. Here's what it boils down to. If the U.S. economy re-opens and everything turns out to be "fine," or at least better-than-expected, it's hard not to be bullish on stocks. We can then possibly look to pre-COVID-19 earnings numbers for 2021 and 2022 with some adjustments here and there, and that means the bull market is on (and new heights may be in sight). On the other hand, if the U.S. economy re-opens and economic numbers don't live up to expectations, which could happen, there will likely be even more stimulus--but investors might be bullish in this scenario, too. For starters, there's been more money created during the past few weeks or so than during the entire year following Lehman Brothers' failure (there's even talk of more money creation with another round of stimulus). We cannot forget that, while stock values are calculated on the basis of future free cash flow expectations, they are priced nominally (not inflation-adjusted), and stock investing is one way to combat the risk of inflation as strong companies price goods ever higher to outpace rising costs to reap in ever-higher earnings. Even if this excess money in the economy is not translated into inflation in physical goods and services, however, it may translate into inflating equity prices specifically, as has arguably (or perhaps undeniably) been the case during the period of 2010-2019. But there's more to this line of thinking...

Jun 5, 2020

Dow Jones Surges Past 27,000; Bull Market Continues!
"What a bull market off the lows we are having. I don't think we're finished, as I have pounded the table time and time and time again about how bullish I am. In the words of Frank Sinatra, "The Best Is Yet to Come," and I truly believe that. Yesterday, I explained to readers why we're seeing this huge rally, "Stay Optimistic. Stay Bullish. I Am." If you understand the duration and composition of equity value (page 74-83 in Value Trap), you can start focusing on what drives share prices and returns. How else could a market rally this much with 13% unemployment, right? How wonderful it would be if everyone understood the duration of stock value composition! What would happen to ambiguous, backward-looking factor investing? Finance could then start talking about things that make sense again." -- Brian Nelson, CFA

May 28, 2020

CubeSmart’s Financial Flexibility Will Come In Handy
Image Source: CubeSmart – March 2020 Investor Presentation. On May 7, High Yield Dividend Newsletter portfolio holding CubeSmart--5.0% yield--reported first-quarter 2020 earnings. The company pulled its full-year guidance for 2020 given the uncertainties caused by the ongoing coronavirus (‘COVID-19’) pandemic. We appreciate that the self-storage real estate investment trust (‘REIT’) remained comfortably free cash flow positive last quarter, which is one of the reasons why we like CubeSmart as a high yielding play in the REIT world.

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.

May 14, 2020

Digital Realty Trust is Holding Up Quite Well
Image Shown: Shares of Digital Realty Trust Inc, a holding in both our Dividend Growth Newsletter and High Yield Dividend Newsletter portfolios, have outperformed the S&P 500 by a wide margin over the past year and that’s before taking dividend considerations into account. On May 7, the data center real estate investment trust (‘REIT’) Digital Realty Trust reported first-quarter 2020 earnings. Though the firm’s near-term guidance disappointed investors, management communicated that the medium- and long-term trajectory of Digital Realty’s financial and operational performance remained strong. Furthermore, its liquidity position and its dividend coverage continued to be rock-solid, particularly after factoring in the data center REIT’s ongoing access to equity markets and lack of near-term debt maturities. Data centers are generally considered “essential” activities around the world given we live in the digital age and these assets have continued to operate during the pandemic. Shares of DLR yield ~3.4% on a forward-looking basis as of this writing.

May 13, 2020

Realty Income Signals Turbulence Ahead, Shores Up Liquidity Position
Image Source: Realty Income Corporation – First Quarter of 2020 Earnings IR Presentation. On May 4, the real estate investment trust (‘REIT’) Realty Income Corp posted first-quarter 2020 earnings that saw its adjusted funds from operations (‘AFFO’) per share jump by over 7% year-over-year, hitting $0.78 last quarter. Realty Income pays out a monthly dividend, and shares of O yield ~5.1% as of this writing. We like the REIT’s business model, which invests in single-tenant commercial properties, and view Realty Income as well-positioned to ride out the ongoing coronavirus (‘COVID-19’) pandemic. However, we caution that its near-term financial performance will come under fire from some of its tenants no longer being able to (or willing to) pay rent due in part to the economic downturn. As roughly half of its tenants carry investment-grade credit ratings, Realty Income is in a better position than some of its peers. Most of Realty Income’s tenants have continued to pay rent during the pandemic, at least during the early stages of the crisis, and the REIT is working with its troubled tenants to find a solution that suites the interests of both parties.

May 6, 2020

Public Storage Currently Has the Financial Strength to Support Its Payout
Image Source: Public Storage – 2019 Annual Report. High Yield Dividend Newsletter portfolio holding Public Storage reported its first quarter results for 2020 on May 1. The self-storage real estate investment trust’s (‘REIT’) core funds from operations (‘FFO’) per share grew by 2% year-over-year last quarter, hitting $2.58 per share, while its occupancy rate (as measured by its rentable square feet) grew by ~60 basis points year-over-year, reaching 93.1%. Public Storage was also able to push through marginal same-store rent increases, though rising operating costs (particularly property taxes, payroll expenses, and marketing expenses) chipped away at its margins last quarter. As of this writing, shares of PSA yield ~4.4%.

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.