SYY

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

Use Both the Dividend Cushion Ratio (Probability of a Dividend Cut) and the Qualitative Dividend Ratings in Your Assessment of the Payout

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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 Brian Nelson, CFA Dividend investing has probably never been as popular as the past couple years. Remember, however, the dividend is capital appreciation that otherwise would have been achieved had the dividend not been paid. If you had a stock that was $10, and it paid a $1 dividend, you don’t have a $10 stock and … Read more

There Will Be Volatility

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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

Report Updates: Amazon Registers the Lowest Rating on Our Scale

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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.    Albemarle (ALB) Amazon.com (AMZN) Applied Materials (AMAT) Cisco (CSCO) Halliburton (HAL) Lam Research (LRCX) Phillips 66 (PSX) Visa (V) CVS Health (CVS) Intuitive Surgical (ISRG) AbbVie (ABBV) Bristol-Myers Squibb (BMY) Gilead Sciences (GILD) Pfizer (PFE) Abbott (ABT) Oracle (ORCL) Archer-Daniels-Midland (ADM) Fresh Del Monte (FDP) Kraft Heinz (KHC) Lancaster Colony (LANC) McCormick (MKC) Molson Coors (TAP) Smucker (SJM) Sysco (SYY) ———- It’s Here!  The Second Edition of Value Trap! Order today!   —– Brian Nelson owns shares in SPY, SCHG, QQQ, … 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

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

How the Payment of a Dividend Impacts Intrinsic Value Estimation

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  “Dividends are a transfer of cash to the shareholders that the shareholders already owned.” By Brian Nelson, CFA Many investors use the strategy of dividend growth investing as a means to generate increasing income in their retirement portfolios to stay ahead of inflation, or as a means to grow an income stream in the decades before retirement. Though we think such a strategy has tremendous merit, we think it’s important for readers to understand the mechanics of how a cash dividend payment impacts the valuation (intrinsic worth) of a company. How the Payment of a Dividend Impacts Valuation (Intrinsic Worth) In this article, let’s walk through the valuation adjustments we perform when a company pays a dividend to hammer … Read more

Walmart Warns: “Prices Are Still High and There Is Considerable Pressure on the Consumer”

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  Image Source: Mike Mozart By Brian Nelson, CFA As we wrote in “The Fed ‘Can’t Stop, Won’t Stop” in early January, the trade-down trends that we’re seeing in big box retail and with groceries, more generally, are interesting. Inflation started to accelerate with food-at-home prices moving aggressively higher in early 2022, and consumers have been trading down to better value. It probably wasn’t until egg prices soared, however — driven in part by a shortage of egg laying chickens (not just inflationary pressures) – that tipped everyday consumers to budget more cautiously, and the largest big box retailer in Walmart (WMT) is seeing this impact first-hand. Here’s what’s happening on the ground, per Walmart’s CEO Doug McMillon on the … Read more

Our Reports on Stocks in the Recession Resistant Industry

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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

The Fed ‘Can’t Stop, Won’t Stop’ Until Labor Market Feels More Pain

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  Image: Prices for private label brands at Aldi are considerably lower than those of branded products. The consumer staples sector, however, remains fully-priced with a 21+ forward earnings multiple, and many constituents hold large net debt positions. We believe the sticking point for the Fed is not groceries or gasoline prices, but rather the labor markets, which remain very strong, despite layoffs. Image Source: Valuentum By Brian Nelson, CFA We’ve yet to see the worst of job cuts, in our view. The rapid shift in the global economy mid-2022 was profound, as many companies were still building in anticipation of increased demand during the first half of the year to the point where demand growth started to dry up, … Read more