BBY

12 Reasons to Stay Aggressive in 2024

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By Brian Nelson, CFA 1. The Fed has signaled that rate cuts could start with inflation at a 2 handle (2 point something) and not at exactly 2.0%. That means that the Fed may become anticipatory to prevent overshooting to the downside with inflation. We see this as positive for long-duration equities, particularly those whose free cash flow generation is robust in the out-years, inclusive of big cap tech and the stylistic area of large cap growth. 2. Unemployment is at structural lows of 3.7%. Employers are working hard to keep talent on board, and with each paycheck, employees are pumping more and more money into the stock market via retirement accounts. This tailwind remains a stiff one and will … Read more

A Note on Valuation — Low P/E Stocks with High Dividend Yields

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“But carrying low valuation parameters is far from synonymous with “underpriced.” It’s easy to be seduced by the former, but a stock with a low p/e ratio, for example, is likely to be a bargain only if its current earnings and recent earnings growth are indicative of the future. Just pursuing low valuation metrics can lead you to so-called “value traps”: things that look cheap on the numbers but aren’t, because they have operating weaknesses or because the sales and earnings creating those valuations can’t be replicated in the future.” – Howard Marks, Something of Value (2021) By Brian Nelson, CFA I was reminded of Howard Marks’ 2021 memo, “Something of Value,” after a few readers expressed interest in low … Read more

Concerns Over Walmart’s Outlook Overblown

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By Brian Nelson CFA On November 16, Walmart (WMT) reported third quarter results for fiscal 2024 that showed revenue growth of 5.2% and adjusted operating income expansion of 3%. Adjusted earnings per share nudged up 2% in the quarter on a year-over-year basis. Operating cash flow during the first nine months of the year came in at $19 billion (up $3.3 billion from the year ago period), while free cash flow came in at $4.3 billion (up $0.7 billion on a year-over-year basis). The big box retailer ended the period with a ~$43.2 billion net debt position and has bought back 8.7 million shares of stock on a year-to-date basis. Walmart raised its outlook for the remainder of fiscal 2024, … Read more

There Will Be Volatility

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By Brian Nelson, CFA Last year, 2022, was a big test for equity investors, and the downside volatility that we witnessed during the year wasn’t comfortable, to say the least. Following the COVID-19 crash and rebound during 2020, and then the market surge in 2021, it wouldn’t be a stretch to say many investors’ heads are probably still spinning from all the volatility witnessed to start this decade. That said, part of what we’ve been warning about the past few years with respect to the equity market, especially in Value Trap, is that the proliferation of price-agnostic trading (e.g. quant, machine/algorithmic trading, etc.) will only lead to more and more market volatility, so while we were somewhat surprised by last … Read more

ICYMI: Questions for Valuentum’s Brian Nelson

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Valuentum’s President Brian Nelson, CFA, answers your questions. Q: What Is Valuentum? A: In short, it is a strategy that combines the concepts of value and momentum within individual stocks. We measure value through the cash-based sources of intrinsic value – net cash on the balance sheet and future expected free cash flow. We measure momentum rather simply, generally via relative strength or other technical and momentum indicators. We like stocks with strong net cash positions on the balance sheet, ones that are generating tremendous free cash flow, and have strong secular growth prospects such that the prospect for expectations of free cash flow can continue to be ratcheted higher. Today, most Valuentum stocks are included in the stylistic area … Read more

Theft Becoming a Huge Problem for Retailers

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Image Source: Ben Schuman Theft has always been a problem for retailers, but it has never been as big of a problem as it has been in recent quarters. Emboldened by the lack of police response and employees sometimes getting fired for confronting shoplifters, retail organized crime is on the rise. We’re not talking theft in the millions, or billions, but likely in the tens of billions per year or more across the U.S. Some attribute the rise of organized retail crime to the pandemic, which paved the way for shoplifters to post their loot online in order to make a quick buck. Some retailers are especially feeling the pinch, and recent commentary reveals just how bad retail theft (shrink) … Read more

Stock Report Updates

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In our 16-page equity research reports, we offer a fair value estimate for each company based on a rigorous and transparent discounted cash flow process, assess the attractiveness of a stock based on a firm-specific margin of safety, and provide a relative valuation comparison in the context of the company’s industry and peers. Each report includes detailed pro forma financial statements, explicit fundamental forecasts, and scenario analysis. A cross section of the ValueCreation and ValueRisk ratings provides a financial assessment of a company’s business quality (competitive position), while the ValueTrend and Economic Castle ratings offer insight into the trajectory of a firm’s economic profit creation (ROIC versus WACC). Included in each 16-page report is a company’s rating on the Valuentum Buying Index (VBI), a methodology that combines rigorous financial and valuation analysis with … Read more

Not Worried About Global PC Demand Weakness

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Image Source: IDC By Brian Nelson, CFA On April 9, International Data Corporation (IDC) issued preliminary findings for the first quarter of 2023 for global personal computer (PC) shipments in its Worldwide Quarterly Personal Computing Device Tracker. The results were a bit surprising, with the firm noting that “weak demand, excess inventory, and a worsening macroeconomic climate were all contributing factors for the precipitous drop in shipments of traditional PCs during the first quarter of 2023.” According to the IDC report, global PC shipments fell 29% to 56.9 million compared to the first quarter of 2022. Apple (AAPL) experienced the biggest year-over-year percentage decline, where shipments fell more than 40%. Dell Technologies (DELL), Lenovo (LNVGY) (LNVGF) and ASUS experienced declines … Read more

Walmart Warns: “Prices Are Still High and There Is Considerable Pressure on the Consumer”

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  Image Source: Mike Mozart By Brian Nelson, CFA As we wrote in “The Fed ‘Can’t Stop, Won’t Stop” in early January, the trade-down trends that we’re seeing in big box retail and with groceries, more generally, are interesting. Inflation started to accelerate with food-at-home prices moving aggressively higher in early 2022, and consumers have been trading down to better value. It probably wasn’t until egg prices soared, however — driven in part by a shortage of egg laying chickens (not just inflationary pressures) – that tipped everyday consumers to budget more cautiously, and the largest big box retailer in Walmart (WMT) is seeing this impact first-hand. Here’s what’s happening on the ground, per Walmart’s CEO Doug McMillon on the … Read more

Our Reports on Stocks in the Discretionary Spending Industry

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Dividend Yield: Estimated on a forward-looking annualized basis. VBI: The Valuentum Buying Index, a timeliness indicator that overlays a price-to-fair-value estimate consideration. Fair Value Estimate: Derived by Valuentum’s enterprise valuation process. Dividend Cushion ratio: A ratio assessing the health of the dividend (the higher, the better). Data as of the date of this article. Individual company reports may have been updated subsequent to the publishing of this article, so please download a company’s stock and dividend report for its latest information and data. Note: The data in the tables of each of the below companies’ respective stock pages is updated the weekend after the publishing of this update. Please click on a company name below to view the corresponding equity … Read more