FB

Best Ideas Newsletter Portfolio Not Bad Thus Far in 2018

by

Part of what we take pride in at Valuentum is telling things how they are. If things are going great, we let you know. If things aren’t going as good as they could be, we don’t hold back. In the year of crypto and cannabis, 2018 hasn’t been the best year for the simulated Best Ideas Newsletter portfolio, but it hasn’t been bad either.  By Brian Nelson, CFA We wrote up an extensive piece on the background of the simulated Best Ideas Newsletter portfolio earlier this year, and we encourage everyone to have a read of that here (pdf). We made some changes to the goals of the newsletter portfolio prior to the beginning of this year. For starters, we … Read more

In the News: Tesla’s Musk Charged with Securities Fraud; Facebook’s Security Issue

by

We continue to stay as far away from Tesla as possible. The company’s stock could still crater even more. It does not have a firm foundation at all. Facebook, despite being under continuous and tremendous scrutiny, is operating on a firm foundation, however. We continue to like shares of the social media giant, despite a recently-disclosed security problem. The more Facebook beefs up security and augments its platform, the bigger its competitive advantages become, as the entry costs for new entrants become even more insurmountable. By Brian Nelson, CFA On Thursday, market observers were glued to CNBC as the television network broke the story: The SEC has charged Tesla’s (TSLA) Elon Musk with securities fraud. You can read the press … Read more

In the News: Musk, Facebook, and GameStop

by

We’re not sure that Tesla has things figured out. Social media entities, including one of our favorites Facebook, have fallen on hard times given negative sentiment. GameStop could sell itself for a significantly higher price than what the market is currently willing to exchange shares. By Brian Nelson, CFA Let’s get one thing straight: we have a tremendous amount of respect for Elon Musk. He is a tremendously successful person and entrepreneur, but some of the things he has done during the past few months have been puzzling. We think we might be able to understand some of the pressures involved in running a business and trying to satisfy a growing list of customers (and skeptics), but what makes Elon … Read more

The Berkshire Breakout

by

Image shown: Berkshire Hathaway’s shares have broken out following the release of its second-quarter 2018 results. We continue to believe Berkshire Hathaway belongs in the simulated Best Ideas Newsletter portfolio. Warren Buffett and Charlie Munger have more flexibility to pursue share buybacks, and we’d be flat-out surprised if Berkshire were to buy Southwest outright. Berkshire’s cash balance continues to grow, and we think a stake in Facebook might be the best opportunity for a part of the equity security allocation. By Brian Nelson, CFA Berkshire Hathaway (BRK.A, BRK.B) reported solid second-quarter results August 4 that sent the stock roaring higher, and B-shares of the equity are now but a stone’s throw away from all-time highs of ~$218, trading at ~$206 … Read more

Valuentum’s Weighted Average Cost of Capital (WACC) Distribution

by

The weighted average cost of capital is one of the most subjective measures in corporate finance, but it is also one of the most important ones. “The most important item over time in valuation is obviously interest rates…If interest rates are destined to be at low levels…It makes any stream of earnings from investments worth more money. The bogey is always what government bonds yield….Any investment is worth all the cash you’re going to get out between now and judgment day discounted back. The discounting back is affected by whether you choose interests rates like those of Japan or interest rates like those we had in 1982…When we had 15 percent short-term rates in 1982, it was silly to pay … Read more

Facebook: $236 Fair Value Estimate, Now Rated 6 on the Valuentum Buying Index

by

Image Source: Facebook’s second-quarter slide presentation We were blindsided by Facebook’s outlook, and so was the market. Nobody feels worse about the Facebook idea than we do. Not only was Facebook a top weighting on the Valuentum Buying Index, but it also grew to a rather large position in the simulated Best Ideas Newsletter portfolio. We added Facebook to the simulated Best Ideas Newsletter portfolio at $112.10 in January 2016, and a good portion of its outsize returns have been eroded since its peak at ~$220. We still like shares, but for the company to return to top-rated status, the market would have to get behind it in the form of an advancing stock price. By Brian Nelson, CFA We … Read more

What Are the Qualities of Highly-Rated Stocks on the Valuentum Buying Index?

by

If you were a CEO, what are the 7 most important metrics to focus on to get a rating of 10 on the Valuentum Buying Index? This is a great question because it hits at the absolute heart of the most important concept of investing. Investing may be about buying a great company with a solid and growing dividend, but it most certainly is about buying a great company at a discount to intrinsic value. The difference between what someone can pay for something and what something is worth is the most important concept of investing: price versus value. The price-versus-value component is an integral part of the Valuentum Buying Index. In fact, it is the first component. After all, … Read more

Twitter Working Backwards?

by

Image Source: Xiaobin Liu The social media platform known for its tweets faced selling pressure after reports surfaced that it had removed 70 million fake accounts from its website. Social media is still a relatively young technology, and our top idea in the space remains the cash-rich Facebook. By Kris Rosemann Shares of Twitter (TWTR) fell more than 5% during the trading session July 9, less severe than the drop had been at its session worst, following a report from The Washington Post outlining the company’s suspension of 70 million fake or spam accounts in the months of May and June. Twitter had 336 million monthly active users as of the end of the first quarter of 2018, but company officials … Read more

In The News: Facebook, China and the Semiconductor Complex

by

Facebook gets a new Street high price target, while news ebbs and flows regarding US-China tech relations. By Brian Nelson, CFA There’s a new Street high price target on one of our favorite ideas, Facebook (FB), and it’s $275 per share. Facebook has been the most recent 10 on the Valuentum Buying Index, and despite ongoing “noise” with respect to the Cambridge Analytica scandal, we value shares at $250 each. We’re also reiterating our view that our discounted-cash-flow-based valuation only considers ongoing trends on an advertising-only business model, not incremental upside from processing payments on its platform or innovation at Instagram, which recently put together a new product called IGTV, a You-Tube-like offering. We think the Facebook “story” is still … Read more

In the News: Facebook, General Electric, GameStop

by

We continue to love Facebook’s valuation opportunity, and the company has registered a 10 on the Valuentum Buying Index. General Electric’s stock price continues to swoon, and we couldn’t have called it better. We used the mosaic theory to anticipate private-equity interest in GameStop. Not a bad trio of calls, no? By Brian Nelson, CFA You will not get as much out of our website unless you read and understand “The 16 Steps” and “Analysis of the Best Ideas Newsletter” first. If you haven’t read about the Dividend Cushion ratio, and you are an income investor, you have to do that, too. We talk about the efficacy of this ratio here. You need a solid foundation on which to build. … Read more