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Magnificent 7 Earnings Reports Not Bad Thus Far

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By Brian Nelson, CFA   Shortly after Trump’s Liberation Day, where the President unveiled lofty tariffs on numerous countries, we released our wait-and-see outlook for the equity markets, which thus far has proven to be the right move, with the markets largely recovering from the depths reached in April. The S&P 500 (SPY), for example, is down just 3.3% year-to-date, excluding dividends.   A lot has happened since Liberation Day, including easing of tariffs to a 10% baseline for most, if not all, countries, with the key exception of China, where tariffs remain extremely elevated and prohibitive. Many countries are now reportedly negotiating trade agreements with the White House, and we expect China to be added to that list soon, even if … Read more

What Causes Fair Value Estimates to Change?

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Image: A screenshot of the discounted cash-flow model learning tool for individual investors. By Brian Nelson, CFA If you’ve been a member of Valuentum for a while, you’ll notice that when we update a stock report, our estimate of a company’s fair value and the firm’s Valuentum Buying Index ratings can change. This is completely normal and should be expected (over time, companies generate cash and stock prices change). But sometimes the changes can be confusing, particularly if they are material (i.e. 10%, 20%, or more). In this article, let’s talk about why changes are standard operating procedure for investment research publishers. First, some background. Our estimate of a company’s fair value is driven by myriad factors. To derive a … Read more

Trump Tariffs Higher than Expected; What We’re Doing

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By Brian Nelson, CFA The Trump tariff increases came in larger than what we were expecting, and it remains to be seen how they will flow through the global economy, as we monitor potential retaliatory tariffs from other countries. As it relates to the equity markets, we’re taking a wait and see approach at the moment as we monitor new policy changes related to trade, immigration, fiscal (tax), and regulations. In short, we’re not overreacting to the sell off as we won’t have a great handle on the tariff impact to companies for a few quarters when they report results post-tariff increases. That said, we’re expecting continued market volatility, with meaningful risk to the downside, before trade uncertainty alleviates in … Read more

Brain Teaser – Reflexive versus Reflective

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Dear members: — Jason Zweig of the Wall Street Journal, wrote in his pioneering text, Your Money and Your Brain, a few fun examples of how sometimes the psychological process of anchoring and adjustment can trip us up. — In one notable example, Zweig wrote about how two psychologists Amos Tversky and Daniel Kahneman had asked volunteers to spin a wheel of fortune numbered from 0 to 100. The contestants didn’t know that the wheel was rigged to produce either a 10 or a 65 for the experiment. — After spinning the wheel, the contestants were then asked whether the percentage of total United Nations membership made up of countries in Africa was higher or lower than the number that came up. … Read more

3 Mid Caps With Net Cash And Strong Free Cash Flow

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By Brian Nelson, CFA We continue to reiterate that the key components of a company’s valuation are the following: net cash on the balance sheet and future expected free cash flows. These two cash-based sources of intrinsic value generally account for almost all of the value of a firm. There are some exceptions, where contingent liabilities and a more complicated capital structure come into play, but when it comes to simplifying what drives share prices, that’s about it. It’s probably no wonder then that we love net-cash-rich, free-cash-flow, secular growth powerhouses, and it’s also probably no wonder why these companies have grown into some of the strongest-performing stocks on the market, dominating last decade. Most of big cap tech and … 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

Adobe Acrobat Pro Prices Up 33%; Price Tag of Figma Deal Remains Overhang on Shares

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Image: Adobe’s long-term market opportunity is huge. Image Source: Adobe By Brian Nelson, CFA All things considered, fiscal 2022 was a solid year for Adobe (ADBE), as reported in its latest quarterly earnings report December 15. The company generated record revenue, operating income, and operating cash flow, and we loved that management is talking in terms of the “next decade of growth,” not next quarter or even next year. We like executive suites that are positioning their companies for the long run, and we think Chairman and CEO Shantanu Narayen has done a great job leading the charge. Adobe is among the most well-known software companies due in part to its Adobe Acrobat software. Almost anyone that has applied for a job has … Read more

Serious Question: What Are You Looking At?

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Image: Stocks with the largest 52-week losses, according to YahooFinance. By Brian Nelson, CFA Thank goodness that you’re subscribed to a service that didn’t include any of the above as top ideas in their simulated newsletter portfolios. Many were chasing returns in 2021 and are now left holding the bag this year, but we stuck to our methodology and processes, and we didn’t expose members to tremendous risks. That’s what it’s all about.  With that said, let’s talk about how we successfully navigated a number of these terrible ideas in the Exclusive publication, a monthly resource that includes an income idea, a capital appreciation idea, and a short idea consideration, released to members each month on the 8th. Exclusive Long Ideas … Read more

We’ve Suspended Coverage of Stocks in the Disruptive Innovation Industry

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Order the Exclusive publication here to gain access to idea generation that covers some of the most innovative stocks. As a member to the Exclusive publication, you’ll receive one income idea, one capital appreciation idea, and one short idea consideration each month! Order today >> — We’ve suspended coverage of stocks in the ‘Disruptive Innovation’ industry. The ‘Disruptive Innovation’ industry is unique in almost every way. The companies included don’t necessarily share a similar traditional industry or sector make-up, but they do share one big thing in common: They continue to disrupt the traditional way of doing things. Carvana is changing how consumers buy used cars, Roku is leading the streaming charge against linear TV, Teradyne’s industrial robotics technology is … Read more

Dividend Growth Idea Oracle Showing Serious Growth Momentum

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Image Source: Oracle Corporation – September 2019 IR Presentation By Callum Turcan On June 13, Oracle Corporation (ORCL) reported fourth quarter earnings for fiscal 2022 (period ended May 31, 2022) that beat both consensus top- and bottom-line estimates. The tech giant also provided favorable constant currency revenue growth guidance for its cloud businesses for fiscal 2023. Shares of ORCL initially surged higher in the wake of its latest earnings report before drifting modestly lower along the decline in broader equity markets. We include Oracle as an idea in the Dividend Growth Newsletter portfolio and shares of ORCL yield ~1.9% as of this writing. Quarterly Update In the fiscal fourth quarter, Oracle’s GAAP revenues grew by 5% year-over-year and were up … Read more