FDS

3 Undervalued Stocks to Consider Buying Now

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Dear readers:   With the markets retracing most of their recent drawdown, we’re taking a victory lap as we didn’t panic, nor should have you. We highlighted our wait-and-see approach amidst the worst of the pullback, and we expect the Magnificent 7 (large cap growth and big cap tech) to continue to propel the markets higher, as they have done.   We’ve been busy rolling valuation models as we finetune our assumptions for a great number of companies under coverage. While doing so, we came across three undervalued stocks that are also included in the simulated newsletter portfolios. We think they’re prime for highlight.   The three stocks are UnitedHealth Group (UNH), Nvidia (NVDA) and Alphabet (GOOG). We spend a lot of time on discounted cash-flow valuation, … Read more

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … Read more

JPMorgan Chase’s Return on Capital Shines in Second Quarter

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Image Source: Hakan Dahlstrom By Brian Nelson, CFA On July 12, JPMorgan Chase (JPM) reported second quarter results that beat expectations on the top line, but came up a bit short on the bottom line. Managed net revenue came in at $51.0 billion, up 20%, while the company’s provision for credit losses swelled to $3.05 billion. Net income was $18.15 billion in the quarter, resulting in earnings per share of $6.12. Net income excluding significant items of $13.1 billion was $4.40 per share. Return on common equity was 23% in the quarter, while return on common equity was 28%. CEO Jamie Dimon’s commentary on the quarter is found below: The Firm performed well in the second quarter, generating net income of … Read more

FactSet Research Reveals Softness on Top Line

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Image: FactSet’s shares have been choppy the past couple years. By Brian Nelson, CFA On June 21, FactSet Research (FDS) reported mixed third-quarter fiscal 2024 results that showed revenue increasing 4.3%, in-line with expectations, and adjusted diluted earnings per share of $4.37, up 15.3% from last year’s quarter and better than what the Street was looking for. The bottom line benefitted from higher revenues, margin expansion, as well as a reduced share count, offset in part by higher income taxes. Organic revenue grew 4.5% on a year-over-year basis, while organic Annual Subscription Value (ASV), which “represents the forward-looking revenues for the next 12 months from all subscription services,” increased 5% on a year-over-year basis, to $2.22 billion. The company’s adjusted … Read more

We Remain Bullish; Is This 1995 – The Beginning of a Huge Stock Market Run?

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Image: Large cap growth stocks have trounced the performance of the S&P 500, REITs, and bonds since the beginning of 2023. We expect continued outperformance in this area of the market. By Brian Nelson, CFA We’re now roughly four years past the depths of the COVID-19 meltdown, where equities collapsed in February and March of 2020. As the markets began to recover through 2020, our long-term conviction in equities only grew stronger. We think the biggest risk for long-term investors remains staying out of the market on the basis of what could be considered stretched valuation multiples. As we outlined heavily in the book Value Trap, valuation multiples hardly tell the complete story about a company and often omit key … Read more

3 Substantial Benefits of Dividend Growth Investing

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Dear members: There are three primary benefits of a well-executed dividend growth strategy, one that is carried out with prudence and care and one that pays careful attention to the intrinsic value of the stock and its critical cash-based components. Albert Einstein is reported to have called compound interest the “eighth wonder of the world,” but dividend growth investing has the potential to offer long-term investors so much more! Let’s explain. 1) Reinvested Dividends Compound Over Time Over the past decade, I have grown to appreciate the compounding dynamics of reinvested dividends on appreciating stocks even more than historical studies have revealed. The strategy of dividend growth investing not only benefits from the reinvestment of dividends into the purchase of … Read more

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

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

How the Payment of a Dividend Impacts Intrinsic Value Estimation

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  “Dividends are a transfer of cash to the shareholders that the shareholders already owned.” By Brian Nelson, CFA Many investors use the strategy of dividend growth investing as a means to generate increasing income in their retirement portfolios to stay ahead of inflation, or as a means to grow an income stream in the decades before retirement. Though we think such a strategy has tremendous merit, we think it’s important for readers to understand the mechanics of how a cash dividend payment impacts the valuation (intrinsic worth) of a company. How the Payment of a Dividend Impacts Valuation (Intrinsic Worth) In this article, let’s walk through the valuation adjustments we perform when a company pays a dividend to hammer … Read more