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What Causes Fair Value Estimates to Change?

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Image: A screenshot of the discounted cash-flow model learning tool for individual investors. By Brian Nelson, CFA If you’ve been a member of Valuentum for a while, you’ll notice that when we update a stock report, our estimate of a company’s fair value and the firm’s Valuentum Buying Index ratings can change. This is completely normal and should be expected (over time, companies generate cash and stock prices change). But sometimes the changes can be confusing, particularly if they are material (i.e. 10%, 20%, or more). In this article, let’s talk about why changes are standard operating procedure for investment research publishers. First, some background. Our estimate of a company’s fair value is driven by myriad factors. To derive a … Read more

Tesla’s Margins, Free Cash Flow Swell in Third Quarter

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Image: Tesla has returned to a free cash flow rich entity. By Brian Nelson, CFA Tesla (TSLA) reported solid third quarter earnings on October 23. Total revenues increased 8%, while gross profit increased 20% in the quarter, as gross margins expanded nearly 200 basis points. Income from operations was up 54% thanks to more than a 320 basis-point improvement in its operating margin. Adjusted EBITDA advanced 24% in the quarter on a year-over-year basis thanks to a 240 basis-point improvement in its EBITDA margin. Non-GAAP net income increased 8% year-over-year, while non-GAAP diluted earnings per share increased 9% year-over-year. Tesla’s total production was 469,796 in the quarter, up 9%, while total deliveries increased 6%, both on a year-over-year basis. Management … Read more

Tesla’s Deliveries Bounce Back in Second Quarter

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Source: Tesla By Brian Nelson, CFA On July 2, Tesla (TSLA) released its production and delivery numbers for the second quarter of 2024. Production of Model 3/Y and other models totaled 410,831, while total deliveries came in at 443,956 units, consisting of 422,405 Model 3/Y and the balance coming from other models. The results were better than expected and helped to propel shares of the electric-vehicle maker higher. Tesla’s equity has shot up past the high end of our fair value estimate range, and while we liked the better-than-feared news regarding its deliveries, we continue to be on the sidelines with respect to Tesla’s shares. The next big catalysts for Tesla’s shares are its earnings release on July 23 and … Read more

Albemarle and ASML Holding Remain Key ESG-Focused Ideas

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By Brian Nelson, CFA The investment landscape is fast changing, and investors want to invest how they want to invest. Custom approaches to meeting client needs have never been in greater demand. After all, the saying “there’s an ETF for that” has become as common as the saying “don’t put all your eggs in one basket.” There may be no greater or better investment than becoming more exposed to the sustainable trend of Environmental, Social and Governance [‘ESG’] investing, where ESG research points to key risks of a company that could have tremendous implications on its intrinsic value or fair value estimate distribution. For example, how should investors think about Johnson & Johnson’s (JNJ) talc exposure liabilities? What about 3M’s … Read more

2 Stocks to Watch: Tesla and Chevron

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  Image Source: Tesla By Brian Nelson, CFA  With the 10-year Treasury rate reaching 5% in recent trading sessions, investors have been laser-focused on this benchmark rate that is commonly used as the foundation to estimate both the cost of debt and the cost of equity to discount future expected free cash flows within equity valuation models. We’re not going to prognosticate on the future direction of the 10-year Treasury rate, but we’re also not concerned about current rate levels either, given that our 10-year Treasury rate assumption within our discounted cash flow models is roughly ~4.3%, a level that we had maintained even when the 10-year Treasury rate was much lower years ago. Though it’s difficult to shift away … Read more

Albemarle Is One of the Best Growth Stories on the Market Today

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Image: Albemarle is a low-cost producer of lithium derivatives, an end market that is expected to experience tremendous demand in the coming years. By Brian Nelson, CFA On August 2, Albemarle Corp. (ALB) reported excellent second-quarter 2023 results that showed net sales advancing 60% and adjusted diluted earnings per share more than doubling in the quarter. For the full-year 2023, net sales are now expected to be between $10.4-$11.5 billion (was $9.8-$11.5 billion) thanks in part to continued strength in electric vehicle (EV) demand. Our fair value estimate for Albemarle stands at $257 per share, well above where shares are currently trading. We think the market is underestimating not only its growth potential but also mid-cycle levels of profitability. Albemarle … Read more

Tesla Is A Net-Cash-Rich, Free-Cash-Flow Generating, Secular-Growth Powerhouse

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Image: Tesla is generating billions and billions of dollars in free cash flow. By Brian Nelson, CFA The cash-based sources of intrinsic value (and the trajectory of growth in them) are the most important considerations when it comes to assessing the attractiveness of an equity. Two of the most important cash-based sources of intrinsic value are net cash on the balance sheet and future expected free cash flows, and in these two areas, Tesla (TSLA) excels. Though we won’t be adding Tesla to any of the newsletter portfolios anytime soon, we like it within a diversified basket of large-cap growth equities, of which the Best Ideas Newsletter in some ways approximates. When Tesla reported its second-quarter 2023 results July 19, … Read more

Tesla Registers Record Total Deliveries in Second Quarter 2023

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Source: Tesla By Brian Nelson, CFA At the start of 2023, Tesla’s (TSLA) price-to-fair value ratio stood at just 0.39, revealing a stock that was severely undervalued and one of the most undervalued stocks in our coverage universe. Shares of Tesla have rocketed higher more than 150% so far in 2023, and while we highlighted it as one of our favorite stocks to start this year, it never made it into the newsletter portfolios. We’re not too worried about that though given how well the newsletter portfolios were positioned with respect to exposure to large cap growth, which, itself, is up more than 35% so far in 2023. On July 2, Tesla noted that it delivered a total of 466,140 … Read more

Call Me Unconcerned

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Image: Large cap growth has dominated returns the past five years. The Best Ideas Newsletter portfolio continues to have significant exposure to this area. By Brian Nelson, CFA When it comes to the financial markets, the debt ceiling debate is nothing to worry about. Countries (sovereigns) cannot generally default on debt that is denominated in their own currency. The concern that there will be any sort of calamity if the U.S. government doesn’t raise the debt ceiling is far overblown, in our view. The political will of the U.S. to pay its debt will only resolve itself in time, and any risk premium built into Treasuries as a result of the debt ceiling showdown will be fleeting. Of course, nobody … Read more

Nice! — NASDAQ-100 Follows Through on Breakout

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Image: NASDAQ-100 breaks through August 2022 resistance. NOW READ: There Are No Free ‘Income’ Lunches ———- It’s Here!  The Second Edition of Value Trap! Order today!   —– Tickerized for holdings in the QQQ. Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.         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 … Read more