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Valuentum Exclusive Success Rates Trump Even the Best Quant Hedge Funds

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Image: President of Investment Research Brian Nelson, CFA By Brian Nelson, CFA A new book, “The Man Who Solved the Market,” hit bookshelves last year, and thus far it has been a hit. The text goes into the story of quant hedge fund Renaissance Technologies and its hedge fund, the Medallion Fund, which has put up mammoth returns since inception. Though the book focuses more on the life and times of founder Jim Simons and dedicated only a page or two to the fall of Long-Term Capital Management (LTCM), another quant fund that went belly-up during the late 1990s, it was nonetheless a thoroughly interesting and enjoyable read. But why I am bringing up one of the most successful quant … Read more

Morgan Stanley Could See Lower Capital Requirements

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“…the Wealth Management and Investment Management segments…are the crown jewels at Morgan Stanley with returns on tangible equity of 37% and 36%, respectively, in the quarter. Flows are positive and market levels have been friendly, though that can change on a dime.” — Matthew Warren By Matthew Warren On October 17, Morgan Stanley (MS) reported third-quarter results. The bank posted revenue of $10.03 billion, which was up 1.62% versus last year and $405.3 million ahead of consensus. Earnings came in at $1.27 per share, up 9% from last year, and were 15 cents ahead of consensus. The bank’s efficiency ratio worsened to 73% from 71% last year, and it posted a return on equity (ROE) of 11.2% and return on … Read more

ICYMI: Interview with Valuentum’s President Brian M. Nelson, CFA

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Catch up with Valuentum’s President Brian M. Nelson, CFA in a recent interview with dividend growth investor Arne Magnus Lorentzen Ulland of the blog stockles. By Brian Nelson, CFA Recently, I was interviewed by Arne Magnus Lorentzen Ulland of the blog stockles. Arne is a dividend growth investor like many of you, and I sincerely hope you enjoy the interview he put together. I’m very grateful for his interest. His questions were fantastic. We discuss why and how I incorporate independence and integrity into the service at Valuentum. We go into detail regarding why Valuentum views stocks the way it does, and how Valuentum combines enterprise valuation and the information contained in prices in its stock-selection process. I discuss the pitfalls … Read more

Join the Conversation on the Market Plunge

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The Valuentum team shares its thoughts on the recent surge in volatility and collapse in interest rates amid a trade and currency war between two of the largest economies in the world, the US and China. No changes to the newsletter portfolios at this time. During the past few days, the US (SPY, DIA) and China (FXI, MCHI) have escalated a trade war, turning it into a currency war, the latter allowing its yuan to drop to lower levels against the U.S. dollar. The US has now labeled China a “currency manipulator,” and China has responded by suspending U.S. agricultural purchases. China is one of the largest buyers of U.S. agricultural goods. The Valuentum team builds on its previous conversation … Read more

Lowering Our Fair Value Estimate of Morgan Stanley

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We are lowering our fair value estimate of Morgan Stanley to $45 from $50 to update our view of what mid-cycle results might look like. By Matthew Warren Morgan Stanley (MS) posted second-quarter 2019 results July 18 with net revenue down 3% from last year to $10.2 billion and diluted earnings per share down 5% to $1.23, better than the Wall Street consensus of $1.16 per share. The Institutional Securities segment, with net income applicable to Morgan Stanley down 23% versus last year, was the major drag on overall results, while the much smaller Investment Management unit provided some ballast with net income applicable to Morgan Stanley up 23%. Weakness in Institutional Securities was very broad-based compared to last year … Read more

In the News: Second-Quarter Earnings Season Marches On

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We like what we saw out of a few industrial names, including Honeywell, Danaher and Dover. We thought Taiwan Semi’s report was okay, and Philip Morris continues to navigate declining cigarette volumes. We include our thoughts on some of the mid-size banks. By Brian Nelson, CFA For those just catching up, please have a read of our introductory second-quarter earnings season piece here. We saw some nice reports from J&J (JNJ) and Abbott (ABT), and while we had some concerns about the core industrial economy in light of Fastenal’s (FAST) and CSX’s (CSX) reports, news from Honeywell (HON), Danaher (DHR), and Dover (DOV) suggest that industrial activity is more likely mixed than outright deteriorating. Honeywell’s second-quarter results, released July 18, … Read more

Excerpt: Big Six Banks as a Yield Play?

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An article excerpt from our monthly High Yield Dividend Newsletter. Order the High Yield Dividend Newsletter here. To continue reading… become a member of the High Yield Dividend Newsletter today! —– Banks – Regional and Asset Management: AB, AINV, AMP, ARCC, BCH, BEN, BGCP, BKU, BLK, BMO, BNS, CM, FSIC, ISBC, KKR, LAZ, LM, MAIN, MTB, NABZY, NYB, OCN, PBCT, PFG, PSEC, RY, SBNY, SBSI, STT, TD, VLY, WBK  Banks & Money Centers: AXP, BAC, BBT, BK, C, DFS, FITB, GS, HBC, JPM, KEY, MS, NTRS, PNC, RF, STI, TCF, USB, WFC Related: XLF, KBE, KRE —– Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. … Read more

Markets Swooning, Expect Extreme Volatility, Finger on Put-Option Trigger

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Image shown: We notified members December 26 that we had  moved  the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to a “fully invested” position, from a 30% and 20% cash “weighting” at the high end of the range, respectively.  — No change to simulated newsletter portfolios…at this time.  — Hi everyone, — Hope you’re navigating these tumultuous markets well.   — If you recall, during the holiday season last year, we had moved the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to “fully invested.” See image above (point of the arrow). Because many members were traveling and out of the office, not all were able to read the notification until a week or two after. They were … Read more

Morgan Stanley’s Lumpy Performance Calls Into Question Durability of Earnings Stream

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Image Source: reynermedia If Morgan Stanley’s activities can collapse that quickly, as they did during the fourth-quarter of 2018 when the market swooned, it really calls into question the durability of the earnings stream for all of the global players. By Matthew Warren Morgan Stanley (MS) reported first-quarter 2019 results April 17 with net revenues down 7%, earnings down 9%, and diluted earnings per share down 4%. Return on equity was 13.1% versus 14.9% last year. The firm’s efficiency ratio was 71% versus 69% in last year’s first quarter. The bank is well-capitalized with a common equity Tier 1 ratio of 16.5%, which is necessary considering the riskier nature of Morgan Stanley’s balance sheet compared to a universal bank like … Read more

Taking a Fresh Look at Goldman Sachs

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After taking a fresh look at our valuation assumptions in the context that Goldman hasn’t really proven that it can earn above the cost of capital through the economic cycle, we have lowered our fair value estimate to $200 per share. By Matthew Warren Goldman Sachs (GS) reported first-quarter 2019 results April 15 with revenue down 13%, to $8.8 billion, and diluted earnings per share down 18%, to $5.71. Return on equity was a middling 11.1% and return on tangible common equity was 11.7%. The bank’s standardized common equity Tier 1 ratio is 13.7%, well above large bank peers. This makes sense as Goldman holds substantial investment positions such as private equity holdings on its balance sheet, which have the … Read more