MTD

Thinking Slow: 3 Research Blind Spots That Changed the Investment World

by

Dear members: — Daniel Kahneman in his text Thinking, Fast and Slow (1) divided the human psyche into two systems. The first system is instinctive and emotional, often set on autopilot, while the second system is slower and more logical, requiring a calculating conscious. Many of the maxims the investment world takes for granted today suffer from conclusions that are made rapidly, almost without thinking, driven by our first system, creating what I call research blind spots. — In World War II, Allied bombing raids were suffering from very high casualty rates. It was estimated that for those pilots that were flying at the beginning of the war, only about 10% survived, a terrible loss rate. Bombing was crucial to the Allied … Read more

3 Undervalued Stocks to Consider Buying Now

by

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

by

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

Pfizer 6% Dividend Yield Speaks of Considerable Risk, Free Cash Flow Coming Up Short

by

Image: Pfizer’s shares have been under considerable pressure the past few years. By Brian Nelson, CFA  Pfizer’s (PFE) revenue has faced pressure of late from expected declines in COVID-related sales from Comirnaty and Paxlovid, as the pharma giant navigates a post-COVID-19 world. However, excluding weakness from COVID-19 related revenue, the company’s underlying revenue grew 7% during 2023. Pfizer is working to build a strong oncology portfolio as it strives to realize billions in annualized cost savings to get to the other side of its troubles.   Image: Pfizer’s 2024 financial guidance. For the full-year 2024, Pfizer is targeting revenue in the range of $58.5-$61.5 billion (was $58.5 billion in 2023) and adjusted diluted earnings per share in the range of … Read more

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

by

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

Eli Lilly’s Shares Have More Than Doubled During the Past 52 Weeks

by

Image: Eli Lilly’s shares have been on a tear these past few years. By Brian Nelson, CFA On February 6, Eli Lilly (LLY) reported excellent fourth-quarter results that showed revenue and non-GAAP earnings per share coming in better than expectations. The company’s fourth-quarter results were bolstered by sales of diabetes and weight-loss drug Mounjaro, which saw sales in the quarter leap to ~$2.2 billion from ~$279 million in the year ago period. We continue to be in awe of the sales momentum behind GLP-1 receptor agonists, and the opportunity continues to be robust, despite already rapid sales acceleration. Though Eli Lilly trades at a premium to the high end of our fair value estimate range, we may be low in … Read more

12 Reasons to Stay Aggressive in 2024

by

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

by

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

by

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 Reports on the Health Care Bellwethers Industry

by

Dividend Yield: Estimated on a forward-looking annualized basis. VBI: The Valuentum Buying Index, a timeliness indicator that overlays a price-to-fair-value estimate consideration. Fair Value Estimate: Derived by Valuentum’s enterprise valuation process. Dividend Cushion ratio: A ratio assessing the health of the dividend (the higher, the better). Data as of the date of this article. Individual company reports may have been updated subsequent to the publishing of this article, so please download a company’s stock and dividend report for its latest information and data. Note: The data in the tables of each of the below companies’ respective stock pages is updated the weekend after the publishing of this update. Please click on a company name below to view the corresponding equity … Read more