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Inflation! How to Think About Value Duration

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By Brian Nelson, CFA Investors continue to focus on the prospects of rising inflation expectations, which are impacting Treasury bond yields. The 10-year Treasury note, which is used as the foundation for discount rates within most valuation constructs, now stands at ~1.61%, up meaningfully from the ~0.5% lows set in early August 2020. The Fed/Treasury continue to be highly accommodative, and the growing market capitalization of cryptocurrencies is adding even more “new money” to the system. Investors continue to discount the longer-duration free cash flow profiles of the most speculative technology companies more aggressively. For example, the ARK Innovation ETF (ARKK), which is full of speculative tech names, has fallen to ~$105 per share from a 52-week high of $159.70 … Read more

Berkshire Hathaway Charging Higher

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Image Shown: Shares of Berkshire Hathaway Inc Class B stock are on a nice upward climb year-to-date, and we include BRK.B as an idea in the Best Ideas Newsletter portfolio. By Callum Turcan On Saturday, May 1, Berkshire Hathaway Inc (BRK.A) (BRK.B) reported first quarter 2021 earnings that impressed, in our view. We include Berkshire Hathaway Class B shares as an idea in the Best Ideas Newsletter portfolio and continue to be big fans of the firm and its management team, led by CEO and Chairman Warren Buffett and Vice Chairman Charlie Munger. Some big news came out recently as it concerns the eventual management transition at Berkshire Hathaway. Reportedly, Greg Abel, who runs Berkshire Hathaway’s non-insurance operations, would take … Read more

Video: Apple’s Cash Based Sources of Intrinsic Value and Dividend Health

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Image Shown: Inside an Apple store. Source: Valuentum By Brian Nelson, CFA The core of stock valuation centers on two cash-based drivers: the net cash a company has on its balance sheet and the enterprise free cash flows that it will generate in the future, discounted back to today at a reasonable discount rate. After subtracting the value of other components of the capital structure such as preferred stock or debt from the sum of net cash and the present value of future enterprise free cash flows and dividing by total diluted shares outstanding, the result is called a fair value estimate. The fair value estimate is then compared to the stock price to determine if shares are undervalued or … Read more

In the News: Facebook Optimistic, Visa Resilient, Dollar General’s Outlook Not Bad and More

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By Brian Nelson, CFA As the world continues to heal from the coronavirus (“COVID-19”) pandemic, the pace of news has not slowed. The S&P 500 (SPY) is now trading above/near the high end of our fair value estimate range, so we expect some profit taking to ensue in the coming months. The Reddit and meme-stock short-squeezes (with GameStop (GME) as their poster child) have only raised awareness of the hazards and systemic risks of price-agnostic trading and its potential impact on market health. Democrats have called on the Securities and Exchange Commission (SEC) to regulate the “gamification” of investing apps, and we hope that such regulation and oversight eventually advances to other questionable areas, including variants of quant and index … Read more

Apple, Facebook, and Tesla Report Earnings

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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 By Callum Turcan In alphabetical order by ticker: AAPL, FB, TSLA 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 (link here), we sent out an alert to members noting that we shifted our newsletter portfolios to a 10%-20% cash weighting. Should … Read more

ALERT: Raising Cash in the Newsletter Portfolios

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January 27, 2021 ALERT: Raising Cash in the Newsletter Portfolios We are raising the cash position in the simulated Best Ideas Newsletter portfolio and simulated Dividend Growth Newsletter portfolio to 10%-20%. — By Brian Nelson, CFA — Our research has been absolutely fantastic for a long time, but 2020 may have been our best year yet. You can read the 2020 recap here. With the S&P 500 trading within our fair value estimate range of 3,530-3,920 (and the markets rolling over while showing signs of abnormal behavior), we’re raising the cash position in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to 10%-20%. — For more conservative investors, the high end of this range may even be larger, especially … Read more

Another Great Day for Best Ideas Newsletter Portfolio Holdings!

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Image: The holdings in the Best Ideas Newsletter during the trading session November 5. We continue to pound the table on our best ideas. By Brian Nelson, CFA The votes keep coming in for the Presidential Election of 2020, and it is a very high probability that Democratic nominee Joe Biden will become the next President of the United States. We don’t expect incumbent Donald Trump to go down without a fight however, and while we anticipate a bunch of news headlines in the coming weeks about recounts in battleground states, accusations of voter fraud, and the like, we also expect a peaceful transition of power once the dust settles. With many news outlets projecting Joe Biden will win the key … Read more

Best Ideas Newsletter Portfolio Holdings Are Surging!

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Image: The holdings in the Best Ideas Newsletter during the trading session November 4. We continue to pound the table on our best ideas. By Brian Nelson, CFA If you were like me, you stayed up as long as you could last night watching the U.S. election coverage before it became too difficult to keep your eyes open. When I went to sleep, it seemed as though Donald Trump would be re-elected. The only state that appeared to flip to the Democrats from the 2016 election was Arizona, meaning Trump would still retain greater than the 270 electoral votes required to gain re-election. Well, that was last night, and this is today. As more and more votes came in last … Read more

Our $140 Fair Value Estimate of Apple Remains Unchanged

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Image Shown: Apple Inc maintained its enormous net cash position at the end of fiscal 2020. In the graphic up above, Apple’s cash-like items are underlined in red and its debt-like items are underlined in blue. Image Source: Apple Inc – 8-K SEC filing covering the fourth quarter of fiscal 2020 with additions from the author. By Callum Turcan On October 29, Apple Inc (AAPL) reported fourth quarter and full-year earnings for fiscal 2020 (period ended September 26, 2020). Its fiscal 2020 GAAP revenues and GAAP operating income were up 6% and 4% year-over-year, respectively. Growth was driven by its Mac, iPad, ‘Wearables, Home and Accessories,’ and ‘Services’ offerings while its iPhone revenues dropped somewhat. Longer term, we are optimistic … Read more