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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

Nelson on Bogle, Part I

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“The kind of commentary that makes broad generalizations about expectations of future returns is exactly why people are so eager to get into passive investment strategies. Since the 1920s, it seems as though the individual investor has assumed the stock market was rigged or impossible for average Joes to figure out, but instead of the “I’ll get it next time” mentality that was present leading to the crash of ’29, individual investors have “evolved” to the point that now the idea is if you can’t beat the market, just buy the whole thing. Leaders like Bogle continue to take tremendous shortcuts in explaining forecasts, leaving the average investor like a student trying to copy math homework off a peer that … 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

The Best Years Are Ahead

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By Brian Nelson, CFA — The wind is at our backs. — The Federal Reserve, Treasury, and regulatory bodies of the U.S. may have no choice but to keep U.S. markets moving higher. The likelihood of the S&P 500 reaching 2,000 ever again seems remote, and I would not be surprised to see 5,000 on the S&P 500 before we see 2,500-3,000, if the latter may be in the cards. The S&P 500 is trading at ~4,100 at the time of this writing. — The high end of our fair value range on the S&P 500 remains just shy of 4,000, but I foresee a massive shift in long-term capital out of traditional bonds into equities this decade (and markets … Read more

The Best Ideas for 2014 and Beyond: Part I

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The Valuentum Buying Index, our stock selection methodology, identifies firms that are 1) undervalued on a discounted cash-flow basis (e.g. three-stage fully-populated valuation model with complete financial statements), 2) undervalued on a relative value basis versus peers and the firm’s closest competitors, where applicable, and 3) just starting to show interest by investors as measured by technical/momentum indicators, providing the mechanism to drive a firm’s price to its fair value. Without the latter component, investors have a heightened risk of holding an underpriced stock for an extended period of time, one that may turn out to have little prospects for eventual price-to-fair-value convergence. Once a firm is added to the Best Ideas portfolio or Dividend Growth portfolio, generally with a Valuentum … Read more

Structural Changes in the Airline and Aerospace Business

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Image Source: Valuentum A version of this article appeared on our website April 28, 2021. By Brian Nelson, CFA The coronavirus pandemic (“COVID-19”) has fundamentally changed how companies do business. Zoom Video (ZM) has made in-person meetings largely redundant while innovative digital-agreement firms such as DocuSign (DOCU) have only contributed to the “anywhere economy.” Though there may be pent-up demand for in-person meetings and handshake agreements as the number of vaccinations for COVID-19 increase across the globe, many businesses may grow to permanently embrace the “anywhere economy” for its efficiencies and cost savings. This will impact the long-term trajectory of business air travel demand, in our opinion, with implications on the normalized intrinsic values of airlines (JETS), jet makers, and … Read more

Efficacy of the Dividend Cushion Ratio

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A version of this article was originally published September 2019. The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%. By Valuentum Analysts  Key Takeaways: The Dividend Cushion ratio is a helpful tool to use to cushion your dividend growth or income portfolio against potential dividend cuts. The ratio also helps to assess the growth potential of a company’s dividend, above and beyond current expectations of payout … Read more

Boeing Declares Victory But Farnborough Disappoints

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Image Source: Boeing By Brian Nelson, CFA Nearly a decade ago, Boeing (BA) and Airbus (EADSY) made some big bets on the future. On one hand, Boeing envisioned a world of increasing point-to-point travel requiring wide-body aircraft with ultra-fuel efficient economics, laying the groundwork for the blueprint of the 787 Dreamliner, a mostly-composite aircraft. Airbus, on the other hand, had a different view of the future. The European plane maker believed that air travel would be dominated by the hub-and-spoke system where massive planes would be needed to transport passengers between global hubs. It decided to build the massive A380 superjumbo. If Boeing had not already declared victory, it can probably do so now. In mid-July, Airbus announced that it … Read more

How to Think About Corporate Tax Reform

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Lowe’s Misses, Nordstrom Buckles, Target and Best Buy Shine

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Lowe’s Misses, Nordstrom Buckles, Target and Best Buy Shine — Need short idea considerations in this tumultuous market? Consider the Exclusive publication here. We release a new short idea consideration each month, in addition to an income and capital-appreciation idea.  — East Coast friends: Brian will be available for a book signing at Headline Books booth 957 at the American Library Association Conference at the Walter E. Washington Convention Center in Washington DC June 22 (more details to follow). Value Trap has been named a Next-Generation Indie Award Winner!  — By Brian Nelson, CFA — When asked about whether Valuentum is all about stock timing, I sometimes cringe. Roughly 90% of our work goes into figuring out what may be the best … Read more