XOM

Geopolitical Risks Driving Crude Oil Prices Higher

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Image: Crude oil prices have staged a strong advance to start 2024. By Brian Nelson, CFA Geopolitical tensions continue to be elevated as concerns grow that the war in the Middle East could further escalate, and as the war in Ukraine continues to rage on. On April 1, Israel apparently staged an attack on an Iran embassy in Syria that killed several military officials, including three senior Iranian commanders. Iran has indicated that it would retaliate, and many are speculating that the possible attack may be on Israeli soil, which would further increase global tensions. Ukraine has also been actively targeting Russian energy infrastructure, cutting into Russia’s refining capacity.   Many are positioning in energy markets for a potential spike … Read more

You Already Own Whatever Your Investment Will Pay You in Dividends

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“Business owners across the world know that their business is not more or less valuable because they paid themselves a higher distribution this quarter.” – Brian Nelson, CFA Image Source: Images Money Stocks are generally valued on the present value of all their future free cash flows, which already include future dividend payments. A company’s dividend policy may impact an investor’s eagerness to pay a higher price for shares on the basis of a higher yield, but the dividend is a symptom of future free cash flows (and therefore intrinsic value), not a driver behind it. where A (t) is an Enterprise Free Cash Flow (1) at year t,                 B (0) is a Total Debt at time 0,                 … Read more

Merger Mania

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Image Source: Glenn Beltz By Brian Nelson, CFA Mergers and acquisition [M&A] activity continues as the market sets new highs. Elevated borrowing costs as a result of the Fed’s aggressive rate hiking cycle in 2022 are pushing many entities to pursue all-stock transactions. We’ve previously discussed our thoughts on the Cisco (CSCO)/Splunk (SPLK) tie-up in this article here, which was an all-cash deal, but several other rather large acquisitions have been announced that are worth bringing to members attention. On February 19, Capital One (COF) announced that it would acquire Discover Financial (DFS) in an all-stock $35.3 billion deal that would represent a 26.6% premium over Discover’s price as of February 16. The deal is expected to generate $2.7 billion … Read more

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

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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

Earnings Roundup: ABBV, CVX, NYCB, XOM

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By Brian Nelson, CFA AbbVie (ABBV) Facing Pressure on Humira Sales But Companywide Revenue Outlook Remains Robust On February 2, pharma giant AbbVie reported mixed fourth-quarter results with revenue coming in ahead of expectations, but non-GAAP earnings per share coming in slightly lower than the consensus forecast. In the quarter, worldwide net revenue fell 5.4% as the firm continues to work through biosimilar competition against its blockbuster Humira, where net revenues fell more than 40% in the quarter on an operational basis. Global sales of Skyrizi and Rinvoq, however, still powered ahead, advancing nearly 52% and 63% in the quarter on an operational basis, respectively. Its oncology portfolio faced pressure from declining sales of Imbruvica, while it experienced particular strength … Read more

3 Substantial Benefits of Dividend Growth Investing

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Dear members: There are three primary benefits of a well-executed dividend growth strategy, one that is carried out with prudence and care and one that pays careful attention to the intrinsic value of the stock and its critical cash-based components. Albert Einstein is reported to have called compound interest the “eighth wonder of the world,” but dividend growth investing has the potential to offer long-term investors so much more! Let’s explain. 1) Reinvested Dividends Compound Over Time Over the past decade, I have grown to appreciate the compounding dynamics of reinvested dividends on appreciating stocks even more than historical studies have revealed. The strategy of dividend growth investing not only benefits from the reinvestment of dividends into the purchase of … Read more

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

ICYMI — Video: Our Top Stocks for 2024

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Video: Valuentum’s President of Investment Research Brian Nelson walks through the success of Valuentum’s newsletter suite, the state of the economy and markets, and offers his favorite idea for each sector. Tune into this must-watch video. ———- It’s Here!  The Second Edition of Value Trap! Order today!   —– 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, RSP, SCHG, QQQ, and VOO. Some of the other 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 … Read more

Brief Note: Just How Good Has Our Stock Selection Been?

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By Brian Nelson, CFA I was taken aback by a recent report from UBS that outlined “the top contributors to the S&P 500 from about two years ago to today.” In a simulated securities portfolio, the Best Ideas Newsletter portfolio, of 18 ideas that also includes several ETFs, we’ve managed to hit the board 7 out of the 20, and 9 including Exxon Mobil (XOM) and Chevron (CVX), the latter two we removed in March following their big runs last year. Here were the top 20 contributors, with simulated Best Ideas Newsletter portfolio holdings highlighted in red (XOM and CVX are highlighted in green): Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), Eli Lilly (LLY), Broadcom (AVGO), Exxon Mobil, Berkshire Hathaway (BRK.B), … 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