Valuentum Exclusive Analysis for the Discerning Investor

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Aug 9, 2024

Paper: Value and Momentum Within Stocks, Too
Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks.

Jun 10, 2024

Update: Frequently Asked Questions About Valuentum Securities, Inc.
Valuentum (val∙u∙n∙tum) [val-yoo-en-tuh-m] Securities Inc. is an independent investment research publisher, offering premium equity reports and dividend reports, as well as commentary across all sectors/companies, a Best Ideas Newsletter (spanning market caps, asset classes), a Dividend Growth Newsletter, modeling tools/products, and more. Independence and integrity remain our core, and we strive to be a champion of the investor. Valuentum is based in the Chicagoland area. Valuentum is not a money manager, broker, or financial advisor. Valuentum is a publisher of financial information. We address a number of questions from both subscribers and visitors to our site.

Feb 19, 2024

The Price-to-Earnings Ratio Demystified
Let's examine the price-to-earnings (P/E) ratio. The key takeaways are: 1) without using a discounted cash-flow model, the P/E ratio that should be applied to a company's future expected earnings stream can never be appropriately calculated, and by extension, 2) when investors assign an arbitrary price-to-earnings multiple to a company’s earnings (based on historical trends or industry peers or the market multiple), they are essentially making estimates for all of the drivers behind a discounted cash-flow model in one fell swoop (and sometimes hastily). As earnings for next year are often within sight and can be estimated with some confidence (though this certainly varies among firms), calculating the price-to-earnings ratio via a discounted cash-flow process, in our opinion, is of far greater importance than worrying about whether a firm will beat or miss earnings in its next fiscal year. Because the P/E ratio is a discounted cash-flow model that considers the long-term qualitative dynamics of a particular entity, cash-flow analysis remains the first and most important pillar of our Valuentum Buying Index. And finally, investors cannot ignore valuation analysis or the future. Valuation is an important driver behind stock prices, and it is based on future expectations that can only be estimated. This is just a fact of the markets.

Jan 8, 2024

Thinking Slow: 3 Research Blind Spots That Changed the Investment World
Image Source: EpicTop10.com. We have to be on high alert about how our minds work. PBS recently delivered a four-part series examining how easily our minds are being hacked, and why it is so important to "think slow." When it comes to the active versus passive debate, does the analysis suffer from parameter risk? With respect to empirical, evidence-based analysis, does the analysis have the entire construct wrong? When it comes to short-cut multiples, are we falling into the behavioral trap of thinking on autopilot?

Dec 29, 2023

Latest Report Updates
Check out the latest report updates on the website.

Dec 1, 2023

A Note on Valuation -- Low P/E Stocks with High Dividend Yields
Image: Stocks with low valuation multiples have trailed the broader S&P 500 (orange) considerably since the depths of the Great Financial Crisis. Today, with all the readily available information and data out there, it is far more likely the case that a company with a low P/E ratio actually deserves it, and a firm with an outsized dividend yield just holds a lot of net debt on their books. Investing in low P/E stocks or stocks with low valuation multiples without considering their intrinsic values (i.e. fair value estimates) may result in owning a basket of value traps. Investors may be attracted to these types of stocks for their low P/E ratios and hefty dividend yields, but just having a low P/E ratio and a high dividend yield doesn’t a good stock make. If investing were this easy, so-called “value stocks” wouldn’t have underperformed the market significantly for more than a decade and a half now.

Nov 9, 2023

Disney’s Free Cash Flow Is Expected to Surge But A Strong Recovery Is Already Priced In
Image Source: Valuentum. On November 8, Disney reported improved fourth-quarter results for its fiscal 2023. Revenue advanced 5% on a year-over-year basis in the quarter, and the firm drove non-GAAP diluted earnings per share to $0.82 from $0.30 in the prior year period. The company’s Disney+ streaming service added 7 million core customers in the quarter, and its commentary that its streaming business would reach profitability in the fourth quarter of next fiscal year was welcome. Cost savings will be key, and the executive team expects free cash flow to grow significantly in fiscal 2024 versus the most recently reported year. All of this was great news, but a massive recovery in free cash flow is already factored into its price. Our $81 fair value estimate remains unchanged.

Oct 2, 2023

Latest Report Refreshes
Check out the latest report refreshes on the website.

May 14, 2023

Disney’s 5-Year Returns Have Been Pitiful
Image: Since the beginning of 2018, Disney’s shares have fallen, while the S&P 500 has surged. Though we liked the company more recently, we no longer include shares in the Best Ideas Newsletter portfolio. Disney has its hands full with its feud with Florida Governor DeSantis, a weakening linear television market, and intense rivalries in the streaming market. All of this won’t be solved overnight and might even worsen. From where we stand, investors simply don’t need the complexity of the Disney story at this time, and the company’s 5-year returns tell the story of a troubled company. With shares of Disney largely fairly valued, we won’t be adding the company back to the Best Ideas Newsletter portfolio anytime soon.

May 4, 2023

Paramount Global Cuts Payout, Dividend Cushion Ratio Caught Another!
Image Source: Paramount Global. The Dividend Cushion ratio is not a perfect predictor of dividend health and the risks of a dividend cut, but it’s a pretty darn good one. On May 4, Paramount Global missed expectations for its first-quarter 2023 results on both the top and bottom line and cut its quarterly dividend to $0.05 per quarter (was $0.24). The company’s Dividend Cushion ratio, which considers its balance sheet as well as future expectations of free cash flow relative to future expected cash dividends paid, was -2.5 (negative 2.5). Any ratio below 1 indicates growing risk to the health of the dividend, while any materially negative (below 0) ratio indicates severe risk of a dividend cut in the longer run.