Valuentum makes two actively-managed portfolios available to members: a Best Ideas portfolio (housed in the monthly Best Ideas Newsletter) and a Dividend Growth portfolio (housed in the monthly Dividend Growth Newsletter). Each portfolio has a different goal and a different strategy.
The Best Ideas portfolio seeks to find firms that have good value and good momentum characteristics and typically holds each idea from a Valuentum Buying Index rating of a 9 or 10 (consider buying) to a rating of a 1 or 2 (consider selling). The goal of the Best Ideas portfolio is to generate a positive return each year and to exceed the performance of a broad market benchmark.
The Dividend Growth portfolio seeks to find underpriced dividend growth gems that generate phenomenal levels of cash flow and have pristine, fortress balance sheets, translating into excellent Valuentum Dividend Cushion scores. The goal of the Dividend Growth portfolio is to generate a mid-to-high single digit annual return over rolling three-to-five year periods. Both portfolios are significantly exceeding their respective goals.
About the Best Ideas Newsletter
As part of an upgraded membership to Valuentum, you will receive in your inbox on the 15th of each month the monthly Best Ideas Newsletter, which reveals our best picks and pans constructed in a portfolio. This portfolio of best ideas may contain long positions as well as put and call options, strategies easily executed in your own online trading account.
In the newsletter, we provide updated performance of the portfolio (including notifications regarding additions/removals), write commentary associated with the names in the portfolio and on stocks in the news, and notify you immediately via email if our thoughts or opinions have changed on any company or position. We send you transaction alert emails, so you don't miss a beat.
Consistent with our investment methodology, the Valuentum Buying Index, our best ideas may span investing disciplines, market capitalizations and asset classes in order to maximize the return while minimizing the risk of the portfolio.
Since inception, the performance of the Best Ideas portfolio has been nothing short of fantastic, and our subscribers and clients have followed along and tracked our every move. Very few newsletters apply a time-tested (yet innovative) process, embrace transparency, and put your interests first. We can proudly say that we are among the few.
Click here to become a member and receive the next edition of the monthly Best Ideas Newsletter in your inbox and gain access to all premium commentary on our site.
Below we outline a few very brief summaries of companies that we currently hold in the Best Ideas portfolio. Please note that these are just a few examples, and the Best Ideas Newsletter showcases many more timely and undervalued opportunities with each and every monthly edition. Join Today!
At Valuentum, we often use a discounted cash-flow model as a means to back into the current share price of firms in order to ascertain whether the market is unfairly pricing their stock relative to reasonable long-term growth and profitability assumptions. In Apple's case, we believe the market is merely pricing in inflation-like expansion beginning toward the middle of this decade. Although in the land of technology, competition adapts quickly and a few years from now can be viewed as the distant future, we think the iPad-maker represents a compelling risk-reward opportunity at current levels based on our analysis. Often, evaluating a firm via a discounted cash-flow model and re-engineering its stock price can provide a better understanding of a company's investment potential on a risk-reward basis than even the most clearly written prose.
Gilead Sciences (GILD)
This hepatitis C powerhouse has been under fire as of late due to encroaching competition from AbbVie and pricing pressure from pharmacy benefit managers (PBMs) such as Express Scripts. The threats are real and not to be taken lightly.
However, Gilead’s Harvoni hepatitis C therapy is not only more efficacious than AbbVie’s Viekira Pak on the basis of our interpretation of the test studies, but physicians generally may prefer the single-pill Harvoni over the four-to-six pill Viekira Pak given that the primary market for hepatitis C, the baby-boomer generation, may already be on a number of subscriptions for other ailments. Without a doubt, cure rates for both Gilead’s and AbbVie’s hep-C drugs are fantastic, but Gilead’s Harvoni has a tighter cure-rate range (94%-99%), indicating the potential for a more consistent outcome for patients versus the Viekira Pak, where the low end of cure rates are at 91% (nothing, of course, to scoff at).
Assuming a fair market multiple of 20 times this year’s earnings, to arrive at Gilead’s current share price, investors are factoring in a 50%-65% permanent reduction in run-rate profits and a structural change where pricing pressure from PBMs becomes increasingly more cutthroat over the next few years. These assumptions are too punitive, in our view, even if they might be tangible threats. At best, we think AbbVie will capture a quarter’s worth of Harvoni sales for all of 2015 (but the market is growing), and we think PBMs will eventually have to address physician pressure regarding more treatment options. At the moment, we believe the hep-C market is a rational oligopoly with Johnson & Johnson, AbbVie and Gilead all playing nicely “in the sandbox.” There is no price war.
Gilead is a risky company, but a good investment is one in which the market incorrectly prices a firm’s intrinsic worth. Under a base-case scenario, which is not too different than consensus forecasts, we think Gilead’s shares are worth north of $150 each. In this light, the firm’s current share price offers investors a nice margin of safety. Under a bear-case scenario, we don’t see much downside risk from present levels, and if shares of Gilead do get cheaper, one might expect a suitor to become very interested.
It’s hard to find anything wrong with Visa’s business model. The company offers a secure, payment network that is accepted virtually everywhere in the United States. The firm makes money every time a Visa user swipes his or her debit or credit card. The only competition Visa faces is cash and mobile payment solutions, which V.me will address and has yet to take a stranglehold.
Visa benefits from two fantastic competitive advantages: a network effect and costly initial investment. The network effect is incredibly strong for Visa. As of its last update, Visa had more than 2 billion cards outstanding accepted by retailers across the world. The number is roughly double the number of Mastercards and over 20 times the amount of American Express cards outstanding. This network effect took years, as well as billions of dollars to create—something that won’t easily be replicated.
Most importantly, the company generates incredible operating margins in the 60% range, leading to large levels of free cash flow generation. Visa continues to possess valuation upside and is one of the most shareholder-friendly companies in our coverage universe.
About the Dividend Growth Newsletter
At Valuentum, we seek to deliver to our members the best investment ideas. And the Dividend Growth Newsletter does just that for income investors. We provide the following in each edition of our monthly newsletter, released on the 1st of each month:
The Benefits of Dividend Growth Investing
History has revealed that the best performing stocks during the previous decades have been those that shelled out ever-increasing cash to shareholders in the form of dividends. In a recent study, S&P 500 stocks that initiated dividends or grew them over time registered roughly a 9.6% annualized return since 1972 (through 2010), while stocks that did not pay out dividends or cut them performed poorly over the same time period.
Such analysis is difficult to ignore, and we believe investors may be well-rewarded in future periods by finding the best dividend-growth stocks out there. As such, we've developed a rigorous dividend investment methodology that uncovers firms that not only have the safest dividends but also ones that are poised to grow them long into the future.
How did we do this? Well, first of all, we scoured our stock universe for firms that have cut their dividends in the past to uncover the major drivers behind the dividend cut. This is what we found out: The major reasons why firms cut their dividend had to do with preserving cash in the midst of a secular or cyclical downturn in demand for their products/services or when faced with excessive leverage (how much debt they held on their respective balance sheets).
The Importance of Forward-Looking Dividend Analysis
Armed with this knowledge, we developed the forward-looking Valuentum Dividend Cushion™, which is a ratio that gauges the safety of a dividend over time.
Most dividend analysis that we’ve seen out there is backward-looking – meaning it rests on what the firm has done in the past. Although analyzing historical trends is important, we think assessing what may happen in the future is even more important. The S&P 500 Dividend Aristocrat List, or a grouping of firms that have raised their dividends for the past 25 years, is a great example of why backward-looking analysis can be painful. One only has to look over the past few years to see the removal of well-known names from the Dividend Aristocrat List (including General Electric and Pfizer) to understand that backward-looking analysis is hardly worth your time. After all, you’re investing for the future, so the future is all you should care about.
We want to find the stocks that will increase their dividends for 25 years into the future, not use a rear-view mirror to build a portfolio of names that may already be past their prime dividend growth years. The Valuentum Dividend Cushion™ measures just how safe the dividend is in the future. It considers the firm’s net cash on its balance sheet and adds that to its forecasted future free cash flows and divides that sum by the firm’s future expected dividend payments. At its core, it tells investors whether the firm has enough cash to pay out its dividends in the future, while considering its debt load. If a firm has a Valuentum Dividend Cushion™ above 1, it can cover its dividend, but if it falls below 1, trouble may be on the horizon.
In our study, the Valuentum Dividend Cushion™ process caught every dividend cut made by a non-financial, operating firm that we have in our database, except for one (Marriott). But interestingly, the Valuentum Dividend Cushion™ indicated that Marriott should have never cut its dividend, and sure enough, two years after the firm did so, it raised it to levels that were higher than before the cut.
Here are the results of the study (a Valuentum Dividend Cushion™ below 1 indicates the dividend may be in trouble). The Valuentum Dividend Cushion™ score shown in the table below is the measure in the year before the firm cut its dividend, so it represents a predictive indicator. The measure continues to do well by members in real-time as well (beyond the constraints of any academic study).
Please view this article to learn more: Our Dividend Methodology is Rocking!
At the very least, using the Valuentum Dividend Cushion™ can help you avoid firms that are at risk of cutting their dividends in the future. And we are the only firm out there that does this type of in-depth analysis for you. We provide the Valuentum Dividend Cushion™ score in the dividend reports and monthly Dividend Growth Newsletter, and we also scale the safety of a firm’s dividend based on this measure in simple terms: Excellent, Good, Poor, Very Poor.
Here’s a glimpse of the Valuentum Dividend Cushion™ score (as of November 2011) for a sample set of firms in our coverage universe. Please note that the current score on these and hundreds more are available with a membership to our website:
Understanding Dividend Growth
It takes time to accumulate wealth through dividends, so dividend growth investing requires a long-term perspective. We assess the long-term future growth potential of a firm’s dividend, and we don’t take management’s word for it. Instead, we dive into the financial statements and make our own forecasts of the future to see if what management is saying is actually achievable. We use the Valuentum Dividend Cushion™ as a way to judge the capacity for management to raise its dividend – how much cushion it has – and we couple that assessment with the firm’s dividend track record, or management’s willingness to raise the dividend.
In many cases, we may have a different view of a firm’s dividend growth potential than what may be widely held in the investment community. That’s fine by us, as our dividend-growth investment horizon is often longer than others'. We want to make sure that the firm has the capacity and willingness to increase the dividend years into the future and will not be weighed down by an excessive debt load or cyclical or secular problems in fundamental demand for their products/services. We scale our dividend-growth assessment in an easily-interpreted fashion: Excellent, Good, Poor, Very Poor.
What Are the Dividend Ideas We Seek to Deliver to You in Our Newsletter?
First, we’re looking for stocks with annual dividend yields that are greater than the average of the S&P 500, or about 2% (but preferably north of 3%). This excludes many companies, but we think such a cutoff eliminates firms whose dividend streams aren’t yet large enough to generate sufficient income. Second, we’re looking for firms that register an 'EXCELLENT' or 'GOOD' rating on our scale for both safety and future potential dividend growth. And third, we’re looking for firms that have a relatively lower risk of capital loss, as measured by our estimate of the company’s fair value. We strongly prefer dividend growth gems that are underpriced.
About Our Name
But how, you will ask, does one decide what [stocks are] "attractive"? Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth,"...We view that as fuzzy thinking...Growth is always a component of value [and] the very term "value investing" is redundant.
-- Warren Buffett, Berkshire Hathaway annual report, 1993
At Valuentum, we take Buffett's thoughts one step further. We think the best opportunities arise from a complete understanding of all investing disciplines in order to identify the most attractive stocks at any given time. Valuentum therefore analyzes each stock across a wide spectrum of philosophies, from deep value to momentum investing. And a combination of the two approaches found on each side of the spectrum (value/momentum) in a name couldn't be more representative of what our analysts do here; hence, we're called Valuentum.
Valuentum has developed a user-friendly, discounted cash-flow model that you can use to value any operating company that you wish. Click here to buy this individual-investor-friendly model now! It could be the best investment you make.