Valuentum Weekly: Yields on New Series I Savings Bonds Have Soared!

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The Valuentum Weekly is a brand-new weekly market commentary from Valuentum Securities, released each weekend in digital form. The Valuentum Weekly offers members a weekly synopsis of the markets and major events. It will be straight and to-the-point. Our goal is to deliver to you the latest information and insights. We welcome your feedback on how we can make the Valuentum Weekly as useful and as relevant for you as ever!
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Markets
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  • The Dow Jones, S&P 500 and NASDAQ futures are all indicated up Sunday night (March 13), but that may not mean much when trading kicks off tomorrow. The start to 2022 has been one of the worst stretches during the past decade, but broader market indexes still aren’t down much, even after factoring in several expected rate hikes by the Fed and economic sanctions on Russia due to the war in Ukraine. According to data from Seeking Alpha, the S&P 500 (SPY), Dow Jones Industrial Average (DIA), and Nasdaq (QQQ) are off ~12%, ~10%, and ~19% so far this year, respectively. However, this weakness compares to (and is inclusive of) incredible 5-year price-only returns on the SPY, DIA, and QQQ of ~77%, ~58%, ~146%, respectively, so it’s hard for stock investors to be disappointed in much of anything, even if all they were able to do was match the returns of the S&P 500 the past 5 years. Many, however, unfortunately, diluted those 5-year returns with hefty bond and international exposure and sometimes large AUM fees, so the weakness in 2022 is probably more painful for some than perhaps it should be. In any case, we remain bullish on stocks for the long run, with a heavy bent toward large cap growth and big cap tech with tactical overweight “positions” in big cap energy.
  • Crude oil prices continue to be extremely volatile. During the COVID-19 meltdown, the front month futures contract for crude oil fell significantly into negative territory (negative $40 per barrel). The war in Ukraine, however, has things going far the other way, adding a significant risk premium to the front month contract, which is now trading comfortably north of $100 per barrel, down from roughly $130 per barrel just last week. We’re maintaining our “overweight” stance on energy equities in the simulated Best Ideas Newsletter portfolio, simulated Dividend Growth Newsletter portfolio, and High Yield Dividend Newsletter portfolio. (more here).
  • You may have read that the nickel markets have been in flux. According to the Global Times, “In just two days on March 7 and 8, the LME nickel futures surged 174 percent. This was followed by the rare announcement that all nickel trading on the 8th would be cancelled and not resumed before Friday.” We continue to monitor the situation closely with the nickel futures contract still at materially elevated levels relative to just a few days ago.
  • Gold prices are on the up and up, while Bitcoin prices continue to languish of late. Gold futures hit a 19-month high above $2,000/ounce last week, and we continue to like our favorite gold miner Newmont Corp. (NEM). Year-to-date, the SPDR Gold Trust ETF has advanced nearly 10%, while ProShares Bitcoin Strategy ETF (BITO) has dropped 17%. Since it first hit the markets, BITO is down more than 39%. Bitcoin sits at just under $38,000 at the time of this writing, but 1) its poor action in the face of high inflation prints, 2) the cost of transacting in crypto, and 3) increased regulatory oversight and tax implications could mean that a trip below $30,000 could be in the cards. Of course, when it comes to crypto, any price target is but a judgment on crypto sentiment, which we believe has soured of late.
  • We’ve been tactical “overweight” the energy sector, which is the only major sector to have positive returns thus far in 2022, while we maintain our positive view on ideas across the simulated newsletter portfolios, which “overweight” the broad areas of large cap growth and big cap tech, more generally. Long-term investors may love this market, particularly with entities such as Meta Platforms (FB) trading at a low-teens multiple, inclusive of its expenses related to the metaverse. The latest indiscriminate selling is setting up huge potential long-term opportunities for investors with multi-year investment horizons, in our view.
  • Yields on Series I savings bonds have soared to very attractive levels of late. According to Treasury Direct, “The initial interest rate on new Series I savings bonds is 7.12 percent. [One] can buy I bonds at that rate through April 2022.” An I bond is a savings bond that “earns interest based on combining a fixed rate and an inflation rate…For bonds issued from November 2021 through April 2022, the combined rate is 7.12%.” Comparing Series EE and Series I Savings Bonds >>
  • Our team has a note on Oracle’s (ORCL) fiscal third-quarter results, released March 10, in the works. We plan to publish our updated take early next week.
  • Chinese equities remain largely “un-investable” given China’s close ties to Russia in the wake of the Ukraine crisis. The iShares China Large-Cap ETF (FXI) is down more than 20% so far this year. Recent threats by the SEC to de-list several Chinese equities on U.S. exchanges have investors spooked, too. We continue to steer clear of Chinese equities at the moment.
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Top News
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  • The blockbuster merger of WarnerMedia, currently a part of AT&T Inc (T), with Discovery Inc. (DISCA) is getting closer to completion. On March 11, Discovery shareholders voted on whether to proceed with the transaction. AT&T does not need to secure shareholder approval through a vote to close the transaction. AT&T intends to reduce its annualized dividend to $1.11 per share ($0.2775 per share on a quarterly basis) down from $2.08 per share currently ($0.52 per share on a quarterly basis) after the merger closes. This pending payout cut has stung investors, as has AT&T’s deal making over the past decade. If everything goes as planned, WarnerMedia and Discovery are set to close their merger during the second quarter of 2022. Let’s dig more into the details of this deal >>
  • Salesforce (CRM) offers software that assists its customers with marketing, customer service, sales, digital commerce, business development, collaboration, analytics, recruitment, and numerous other activities. These offerings aim to improve workplace productivity by streamlining certain functions and automating others. Salesforce provides a comprehensive suite of software solutions designed for businesses and government entities across its Customer 360 platform, while using analytics and AI to discover insights to further generate value for its customers. Over the two-plus decades Salesforce has been operating, the company has grown into a tech powerhouse by investing heavily in the business and continuously pursuing major acquisitions. Some of Salesforce’s bigger deals (by enterprise value) include acquiring Slack for $27.7 billion in a cash-and-stock deal that closed in July 2021, and buying Tableau for $15.7 billion through an all-stock deal that closed in August 2019. Let’s dig a bit deeper into this idea, “Salesforce Has Room to Run.”
  • Best Ideas Newsletter portfolio idea Korn/Ferry (KFY) reported quarterly earnings for the period ended January 31, 2022, on March 9 that beat both consensus top- and bottom-line estimates. Its fee revenue (represents the lion’s share of its total revenue), GAAP diluted EPS, and non-GAAP adjusted diluted EPS all hit record highs as Korn/Ferry’s ability to digitally deliver its offerings continues to improve. KFY’s stock page >>
  • GoodRx (GDRX) reported weak fourth-quarter 2021 results and issued top-line guidance for 2022 that has reset the market’s long-term growth expectations for the firm much lower. The company’s EBITDA margin outlook also speaks to continued competitive pressures at the company that may only intensify with Amazon a key player in the online pharmacy space. Though GDRX’s free cash flow profile and balance sheet remain healthy, the company’s little to no expected GAAP profits, slowing expected revenue growth, and mounting competition speak to an uphill battle ahead. GDRX’s recently announced $250 million stock buyback program will eat into its healthy balance sheet and may only provide a dead-cat bounce from today’s levels (in the mid-teens per share), “GoodRx’s Modest Q4 Miss, Slowing Revenue Growth Expectations Send Shares Tumbling.”
  • On March 9, Campbell Soup (CPB) reported quarterly earnings for the period ended January 30, 2022, that missed consensus top- and bottom-line estimates. The company is facing major inflationary headwinds, with an eye towards rising commodity and logistics expenses, that are expected to continue going forward and pricing increases are being utilized to blunt the worst of the impact. CPB’s stock page >>
  • Refining stocks, such as Valero Energy (VLO) and Phillips 66 (PSX), are up significantly year-to-date as demand for refined petroleum products has recovered robustly from the worst of the COVID-19 pandemic. The effects from surging crude oil prices due to the Ukraine-Russia crisis and the impact that will have on their crack spreads (refining margins) going forward remains to be seen, as surging fuel prices may lead to demand destruction for refined petroleum products. According to AAA, the national average for regular gas hit $4.32 per gallon last week, exceeding the all-time high of $4.11 set in mid-2008.
  • Wheat prices are on the rise as the Russia/Ukraine conflict rages on. The Teucrium Wheat Fund (WEAT) has advanced more than 40% so far this year. In case you missed it, our favorite fertilizer play is Nutrien Ltd. (NTR), which itself is up a whopping 33% so far in 2022. Read our latest on NTR >>
  • Several of our newsletter portfolios ideas upped their dividends of late. We’ll have a look at American Tower’s (AMT), Dick’s Sporting Goods’ (DKS) and Qualcomm’s (QCOM) latest payout increases and dividend growth payouts in an upcoming note soon.
  • On February 28, Chevron Corp (CVX) announced it would acquire Renewable Energy Group Inc through an all-cash transaction. The energy giant is paying $61.50 per share in cash for each share of the renewable fuel producer through a deal with a total enterprise value of $2.75 billion when including Renewable Energy Group’s $0.4 billion net cash position. During the second half of 2022, the transaction is expected to close. We continue to like outsized exposure to Chevron in the simulated newsletter portfolios, “Chevron Buys Renewable Energy Corp.“
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Economy
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  • The 10-year Treasury yield stands at ~2.04%. At the start of the year, we weren’t too concerned about the 10-year Treasury rate as it stood at roughly ~1.5%, but it has shot up quite a bit since then. Still, the benchmark Treasury rate remains near all-time lows, and is far away from the massive double-digit rates that came to define much of the early 1980s, when inflation was roaring.
  • Released March 9, the Mastercard SpendingPulse report was strong, indicating a very, very healthy month of consumer spending in February. Retail spending excluding autos advanced 8.7% on a year-over-year basis, and even e-commerce purchases advanced year-over-year, despite difficult comps from stay-at-home orders during the pandemic the past couple years. Many retailers could surprise to the upside when they report first quarter results. Here’s the report >>
  • Inflation: “The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in February on a seasonally adjusted basis after rising 0.6 percent in January, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.9 percent before seasonal adjustment. Increases in the indexes for gasoline, shelter, and food were the largest contributors to the seasonally adjusted all items increase. The gasoline index rose 6.6 percent in February and accounted for almost a third of the all items monthly increase; other energy component indexes were mixed. The food index rose 1.0 percent as the food at home index rose 1.4 percent; both were the largest monthly increases since April 2020. The index for all items less food and energy rose 0.5 percent in February following a 0.6-percent increase the prior month. The shelter index was by far the biggest factor in the increase, with a broad set of indexes also contributing, including those for recreation, household furnishings and operations, motor vehicle insurance, personal care, and airline fares. The all items index rose 7.9 percent for the 12 months ending February. The 12-month increase has been steadily rising and is now the largest since the period ending January 1982. The all items less food and energy index rose 6.4 percent, the largest 12-month change since the period ending August 1982. The energy index rose 25.6 percent over the last year, and the food index increased 7.9 percent, the largest 12-month increase since the period ending July 1981.” To read the Consumer Price Index for February >>
 
Valuations
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  • We recently updated our fair value estimates for the Utilities industry. You can download the refreshed 40-page report at the following link (pdf): https://valuentum.com/downloads/20180328_34/download
  • The periodic screener will be updated early next week as we incorporate a number of expected report refreshes in the upcoming week. The latest screener can be found here (login required): https://valuentum.com/downloads/20170816_1/download
  • Stocks are attractive in light of still low interest rates and pricing power at many of the strongest, largest companies. According to FactSet’s latest report dated March 11, 2022, “the forward 12-month P/E ratio for the S&P 500 is 18.5. This P/E ratio is below the 5-year average (18.6) but above the 10-year average (16.8).” We continue to like stocks for the long run.
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Fed and Treasury
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ETF News
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  • Procure ETF is bringing a new ETF to market that will help investors trade in stocks tied to spending on disaster recovery, whether it be hurricanes, wildfires, earthquakes and the like. The ETF is expected to be passively managed and track the moves of the Alerian Natural Disaster Recovery Index. Here is the prospectus >>
  • VanEck plans to launch a new ETF on the crypto mining space, adding to the fast growing number of selections in the category. The ETF (DAM) will allocate capital to companies involved in crypto and will follow the moves of the MVIS Global Digital Assets Mining Index. It will include names such as RIOT, HUT and MARA. We reiterate that investing in crypto is a speculative endeavor, and investors could be taking on tremendous volatility and the potential for significant capital losses.
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On Deck
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  • Up next is the Best Ideas Newsletter and ESG Newsletter, both to be released on March 15. We hope you continue to enjoy your membership to Valuentum!
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Thank you for reading!
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Kind regards,
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The Valuentum Team
valuentum.com/
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Tickerized for SPY, DIA, QQQ, ARKK, AGG, BND, LQD, USO, BNO, UNG, UNL, NILSY, XME, COPX, CPER, JJCTF, JJC, JJU, PALL, GLD, NEM, BITO, FB, ORCL, FXI, MCHI, KWEB, KALL, TBT, TLT, IEI, IEF, T, DISCA, CRM, KFY, GDRX, CPB, VLO, PSX, WEAT, NTR, AMT, QCOM, DKS, CVX, XLU, FDS, DAM, DIDI, BABA, BIDU, TCEHY, WB, BILI, JD, FUTU, YUMC, BGNE, BEKE, RSX, SBRCY, ERUS
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