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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

Latest Report Updates

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Select the company’s link below to access their stock webpage where their 16-page stock report (pdf) can be downloaded. The stock webpage also houses the company’s dividend report (pdf), where applicable, as well as the latest company/industry commentary and news. For companies updated this week, their stock webpages will reflect the new data this weekend. American Tower (AMT) AutoZone (AZO) Best Buy (BBY) BHP Billiton (BHP) Bristol-Myers Squibb (BMY) ConocoPhillips (COP) Crocs (CROX) Cisco (CSCO) Cintas Corp (CTAS) CubeSmart (CUBE) Dollar Tree (DLTR) DocuSign (DOCU) Estee Lauder (EL) Ford (F) FedEx (FDX) Fiserv (FI) First Solar (FSLR) General Electric (GE) General Motors (GM) Global Payments (GPN) Leggett & Platt (LEG) Eli Lilly (LLY) Lululemon (LULU) McDonald’s (MCD) MercadoLibre (MELI) 3M … Read more

A Note on Valuation — Low P/E Stocks with High Dividend Yields

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“But carrying low valuation parameters is far from synonymous with “underpriced.” It’s easy to be seduced by the former, but a stock with a low p/e ratio, for example, is likely to be a bargain only if its current earnings and recent earnings growth are indicative of the future. Just pursuing low valuation metrics can lead you to so-called “value traps”: things that look cheap on the numbers but aren’t, because they have operating weaknesses or because the sales and earnings creating those valuations can’t be replicated in the future.” – Howard Marks, Something of Value (2021) By Brian Nelson, CFA I was reminded of Howard Marks’ 2021 memo, “Something of Value,” after a few readers expressed interest in low … 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

Our Latest Report Updates

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The data for these companies will be updated on their respective web pages this weekend. Download their updated 16-page reports (pdf) by selecting the link below. Chevron (CVX) ConocoPhillips (COP) Enbridge (ENB) General Mills (GIS) Keurig Dr Pepper (KDP) Kimberly-Clark (KMB) Kroger (KR) Mondelez Intl (MDLZ) Occidental Petroleum (OXY) Paramount Global (PARA)  Pioneer Natural Resources (PXD) T-Mobile (TMUS) ———- In our 16-page equity research reports, we offer a fair value estimate for each company based on a rigorous and transparent discounted cash flow process, assess the attractiveness of a stock based on a firm-specific margin of safety, and provide a relative valuation comparison in the context of the company’s industry and peers. Each report includes detailed pro forma financial statements, … Read more

Theft Becoming a Huge Problem for Retailers

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Image Source: Ben Schuman Theft has always been a problem for retailers, but it has never been as big of a problem as it has been in recent quarters. Emboldened by the lack of police response and employees sometimes getting fired for confronting shoplifters, retail organized crime is on the rise. We’re not talking theft in the millions, or billions, but likely in the tens of billions per year or more across the U.S. Some attribute the rise of organized retail crime to the pandemic, which paved the way for shoplifters to post their loot online in order to make a quick buck. Some retailers are especially feeling the pinch, and recent commentary reveals just how bad retail theft (shrink) … Read more

Not Expecting Much From Consumer Staples Stocks

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By Brian Nelson, CFA Within the discounted cash-flow [DCF] modeling process (also known as enterprise valuation, or the free cash flow to the firm model), there are two primary sources of cash-based intrinsic value: net cash on the balance sheet and future expected enterprise free cash flows. The sum of net cash on the balance sheet and the present value of future enterprise free cash flows divided by weighted average diluted shares outstanding results in a fair value estimate per share, which then can be divided by earnings to arrive at a value-derived price-to-earnings (P/E) ratio. Only when this value-derived P/E ratio is compared to the price-observed P/E ratio—the latter calculated as price divided by estimated earnings–can a company then be … Read more

Dividend Increases/Decreases for the Week of June 23

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Below we provide a list of firms that raised their dividends during the week ending June 23. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week                          Cadiz Inc. 8.875% DEP PFD A (CDZIP): now $0.56 per share quarterly dividend, was $0.55. Calvin B. Taylor Bankshares (TYCB): now $0.34 per share quarterly dividend, was $0.33. Darden Restaurants (DRI): now $1.31 per share quarterly dividend, was $1.21. Decisive Dividend Corporation (DE:CA): now CAD 0.04 per share monthly dividend, was CAD 0.035. Dream Impact Trust (MPCT.UN:CA): now CAD 0.0533 per share monthly dividend, … Read more

Fed Winning the Fight Against Inflation, Food-at-Home Prices Easing

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Image: CPI-U, not seasonally adjusted. The 12-month percent change in the pace of inflation for all items has fallen from north of 9% in June 2022 to 5% in March 2023. Image Source: BLS By Brian Nelson, CFA The Bureau of Labor Statistics (BLS) released the Consumer Price Index for All Urban Consumers (CPI-U) on April 12, and it showed that the Fed is winning its fight against inflation. The CPI-U rose just 0.1% in March on a seasonally adjusted basis, down 0.3 percentage points from the increase in February. During the past 12 months, the all-items index has advanced 5.0% before any seasonal adjustments, a level that is still higher than the Fed’s long-term target, but not one indicative of … Read more

General Mills Experiencing Tremendous Pricing Power, Positive Elasticities

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Image Source: Mike Mozart By Brian Nelson, CFA Cereal maker General Mills (GIS) continues to flex its pricing power. The company’s third-quarter results for its fiscal 2023, released March 23, showed a company that is raising prices almost at will and driving tremendous adjusted operating profit expansion, while organic pound volume remains essentially flat. The company continues to optimize its revenue model as it forgoes volume expansion in favor of pricing growth, and we would expect further price increases across its product line-up for some time. With adjusted operating profit surging, price elasticities remain in its favor, much to the detriment of the cash-strapped consumer, which can only expect more food-at-home inflation. Shares of General Mills yield ~2.5% at the … Read more