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Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Nelson: The 16 Most Important Steps To Understand The Stock Market

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A previous version of this article appeared on our website July 21, 2013. Refreshed and updated throughout, as of July 2018. By Brian Nelson, CFA After earning my MBA at the University of Chicago Booth School of Business and training stock and credit analysts from large organizations over the past decade or so, I have heard just about every question (though I admit I am still surprised by many things and remain a very humble student of the markets). I’ve also spent years perfecting the discounted cash flow process for large research organizations such as Morningstar and studied under one of the most famed aggressive growth investors of all time, Richard Driehaus. My knowledge runs the gamut from value through … Read more

There Is Milk At The Store

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This article first appeared in the September edition of the High Yield Dividend Newsletter. For more information about this publication, please see here. “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” — Winston Churchill By Brian Nelson, CFA Very few of us could have imagined that we’d witness the bull market that began on that fateful day in March 2009 that might very well mark a generational low. In 2009, major investment banks around the globe were struggling to survive, and the fallout in the mortgage markets left the banks holding paper that nobody wanted to own, let alone buy. The global financial system … Read more

2,350-2,750 on the S&P? Could the Coronavirus Catalyze a Financial Crisis?

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Image: We think a rather modest sell-off in the market to the target range of 2,350-2,750 on the S&P 500 is rather reasonable in the wake of one of the biggest economic shocks since the Global Financial Crisis. The chart above shows how far markets have advanced since 2011, and an adjustment lower to the target range of 2,350-2,750 is rather modest in such a context and would only bring markets to late 2018 levels (note red box as the target range). The range reflects ~16x S&P 500 12-month forward earnings estimates, as of February 14, adjusted down 10% due to COVID-19. When companies like Visa talk about a couple percentage points taken off of growth rates, one knows that … Read more

US Congress Is Getting Ready to Pass a Massive ~$2.2 Trillion Fiscal Stimulus Bill

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Image Shown: US equities have started to recover some of their lost ground as the likelihood that the US Congress will pass a massive ~$2.2 trillion fiscal stimulus and emergency spending package, dubbed the CARES Act, has increased significantly over the past week as seen through the bounce in the SPDR S&P 500 ETF Trust (SPY). President Trump has clearly indicated that he intends to sign such a bill into law as soon as possible, with the US House of Representatives expected to take up the legislation this upcoming Friday morning on March 27. By Callum Turcan On March 25, the US Senate worked late into the night to secure a bipartisan compromise on a massive ~$2.2 trillion fiscal stimulus … Read more

Reflecting on Recent Report Updates: Favorites in an Overheated Market and Other Themes

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It’s been some time since we’ve updated members on our recent fair value estimate updates. Let’s take a look at the opportunities that exist in some of our favorite portfolio holdings, as well as some key themes driving recent fair value estimate changes across our coverage universe. By Kris Rosemann and Brian Nelson, CFA The frothiness of the market has shown little regard for historical valuation norms, and the number of stocks moving to a 1 or 2 on the Valuentum Buying Index is growing as valuations become stretched across our coverage universe. For the first time in Valuentum’s history, there is now not one stock that registers a 9 or 10 (a top rating) on the Valuentum Buying Index. … Read more

Cisco Systems Expects Revenue Growth Will Resume This Fiscal Quarter

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Image Source: Cisco Systems Inc – Second Quarter of Fiscal 2021 IR Earnings Presentation By Callum Turcan On February 9, Cisco Systems Inc (CSCO) reported second quarter earnings for fiscal 2021 (period ended January 23, 2021) that beat consensus top- and bottom-line estimates. Additionally, Cisco Systems raised its quarterly dividend by about 3% on a sequential basis in conjunction with its earnings report. We include Cisco Systems in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios and continue to like exposure to the name. As of this writing, shares of CSCO yield ~3.1% on a forward-looking basis, and our fair value estimate stands at $51 per share of Cisco Systems. Earnings Overview Cisco Systems’ GAAP revenues were broadly … Read more

Volatility Spikes, Oh Cisco, the Mighty US Dollar, and More

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Image Source: CBOE Let’s talk about recent market events May 17. There’s a lot going on. By Brian Nelson, CFA It looks like volatility is back in a big way, with “all 29 volatility indexes at the CBOE ris(ing) today,” one more-than-doubling, the CBOE Short-Term Volatility Index (VXST). The ridiculously-named “fear gauge” or “fear index” or the CBOE Volatility Index, the VIX (VIX) leapt nearly 50%. On May 17, we effectively bought volatility intraday by adding put options to the newsletter portfolios, both on the S&P 500 SPDR (SPY) and Netflix, a company whose valuation we think remains ridiculous. We may continue to add put options on entities whose equity prices we believe have become too stretched, positions that may … Read more

What Really Is the “S” in ESG Investing

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By Valuentum Analysts Back in October, we explored “Putting the Environmental in ESG” investing. In this article, let’s dig deep into the second consideration of ESG (Environmental, Social, and Governance) investing — “Social.” While there has been greater attention paid to the social impact of companies in recent years–from the industries they operate in to the ways they impact their communities–this concept is definitely not a new trend. Investors have always cared about the impact of the companies they invest in. In the past, this idea has been encapsulated in the phrase Socially Responsible Investing (SRI), which is essentially the practice of seeking out companies that have a positive social impact on society. Some even put the earliest origins of … Read more

ICYMI — Video: Will Hasty Policy Facilitate the Next Leg Down, or Do We Have It Coming Anyway?

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President of Investment Research and award-winning author of Value Trap: Theory of Universal Valuation Brian Nelson explains how US policymakers are stuck between a rock and a hard place, and how the market may be factoring in too high of a probability of a return to normalcy before 2021. This and more in the latest video report. Summary Make sure you review Value Trap on Amazon. Do so here. We think those that bought equities near the bottom of this swoon may be looking to take profits at present levels. The market is currently reflecting an 80%-85% probability of a return to normalcy before 2021, which we believe is too high at this time. Our main concern is that government … Read more