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Recent Articles
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Valuentum’s Theses on Best Ideas Chevron and Exxon Mobil Playing Out
Jan 11, 2022
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Image Shown: Shares of Chevron Corporation (the green/red bars) and Exxon Mobil Corporation (the blue/yellow bars) have been on a nice upward climb over the past six months with room to run higher as investors are rotating into energy firms in a big way.
Raw energy resources pricing has surged higher during the past year with room to run. The global energy complex is on the rebound as demand for crude oil and refined petroleum products is steadily recovering from the worst of the coronavirus (‘COVID-19’) pandemic. As demand for electricity and heating needs held up well during the pandemic, liquified natural gas prices (‘LNG’) put up a strong year in 2021 and remain elevated. The OPEC+ cartel is committed to slowly phasing out its crude oil supply curtailment agreement first enacted in 2020, effectively limiting growth in global oil supplies at a time when demand is rebounding at a brisk pace. We view the near-term outlook for the global energy complex quite favorably and have been pounding the table on this issue for some time. Back on June 27, 2021, we added Chevron Corp and Exxon Mobil Corp as ideas to both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios and highlighted these portfolio changes. Shares of CVX and XOM yield a juicy ~4.3% and ~5.1% as of this writing, respectively. Recently, shares of both CVX and XOM have started shifting higher, and in our view, this is just the beginning of a strong cyclical recovery. We also recently added Chevron and Exxon Mobil as ideas to the High Yield Dividend Newsletter portfolio, and highlighted two of our favorite midstream master limited partnerships (‘MLPs’) in that publication as well. Our fair value estimate for Chevron sits at $140 per share and the high end of our fair value estimate range sits at $175 per share, while CVX is trading at ~$127 as of this writing. Our fair value estimate for Exxon Mobil sits at $92 per share and the high end of our fair value estimate range sits at $122 per share, while XOM is trading at ~$71 per share as of this writing. As investors continue to rotate into energy firms, we expect that the stock prices of Chevron and Exxon Mobil will continue converging towards our estimate of their respective intrinsic values.
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Raising Our Fair Value Estimate on Berkshire Hathaway, Our Thoughts on the Insurance Industry
Jan 11, 2022
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Image Source: AIG.
Shares of the SPDR S&P Insurance ETF (KIE) have trailed the performance of the S&P 500 (SPY) during the past 15 years. Our favorite insurer remains Berkshire Hathaway (BRK.B), and we recently raised our fair value estimate of its B shares to $320, as of the latest update (effective January 12, 2022). The high end of our fair value estimate range for Berkshire Hathaway is $384 per share. Berkshire Hathaway is included in the simulated Best Ideas Newsletter portfolio as of this writing. American International Group (AIG) serves as an important cautionary tale of what could happen to an insurer that doesn't manage its risks effectively, and we wouldn't expect to add any pure-play insurer to the simulated Best Ideas Newsletter portfolio.
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Public Storage Is Simply A Monster REIT Idea!
Jan 10, 2022
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Image Shown: We examine the traditional operating metrics of the REITs with a focus on traditional free cash flow, dividends paid, and traditional balance sheet analysis where we assess net debt positions. Most REITs fail to cover their dividends with traditional free cash flow and boast huge net debt positions. Public Storage remains one of our very favorite REITs, however. Its free cash flow coverage of the payout and manageable financial leverage are exactly what we’re looking for.
There are a number of industry-specific metrics that REITs use including funds from operations (FFO) and adjusted funds from operations (AFFO), but we think more traditional analysis helps to offer incremental insights while adding considerable informational value when used in conjunction with industry-specific REIT analysis. The REIT with the best combination of dividend yield, free cash flow generation in excess of cash dividends paid, and leverage (as measured by net debt divided by annualized traditional free cash flow) is Public Storage. The company’s self-storage peers are runners up with respect to our favorites, followed by the tower stocks American Tower and SBA Communications, and then timber REIT Weyerhaeuser.
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High Yielding Philips 66 Has a Solid Plan in Place to Reward Its Shareholders
Jan 9, 2022
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Image Shown: An overview of Phillip 66’s expansive asset base. Image Source: Phillips 66 – November 2021 IR Presentation.
Demand for diesel and gasoline has largely recovered from the worst of the coronavirus (‘COVID-19’) pandemic, though kerosene demand (jet fuel) has a way to go given depressed levels of international travel. The refining giant Phillips 66 took advantage of the rebound seen over the past year to pare down its debt levels on a consolidated basis. At the end of December 2020, Phillips 66 had $13.4 billion in net debt (inclusive of short-term debt) on a consolidated basis, which fell down to $12.0 billion in net debt (inclusive of short-term debt) at the end of September 2021. Going forward, Phillips 66 now wants to focus on returning cash to shareholders as communicated during a January 2022 investor conference. Shares of PSX yield a nice ~4.6% as of this writing.
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