Valuentum Exclusive Analysis for the Discerning Investor

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Dec 16, 2019

ICYMI: Interview with Valuentum’s Callum Turcan
Callum Turcan helps head up Valuentum’s research product and is co-editor of the company’s newsletters. We sat down with Callum to get his thoughts on new developments in the market and economy. Let’s kick things off with his thoughts on Brexit.

Dec 12, 2019

Analyzing Chevron and Important Updates in the Global Energy Industry
Image Source: Chevron Corporation – November 2019 IR Presentation. In this note, let’s cover the current state of raw energy resource prices in North America and around the world. We’ll analyze Chevron’s 2020 capital investment and exploration budget, in particular, and the global energy industry at-large. Shares of CVX appear generously valued, as of this writing, given the numerous headwinds facing the energy industry going forward.

Dec 11, 2019

GameStop’s Problems Continue
Image Source: GameStop Corporation – Fourth Quarter Fiscal 2018 Earnings IR Presentation. On December 10, video game retailer GameStop Corp reported third quarter earnings for its fiscal 2019 (13-week period ended November 2, 2019) that were simply terrible. Shares of GME were down big after-hours on December 10. GAAP net sales were down 26% year-over-year last quarter, hitting $1.4 billion, while the company’s GAAP operating loss came in at ~$0.05 billion, an improvement versus an operating loss of $0.5 billion (due to a large goodwill impairment charge) in the same period last fiscal year. GameStop halted its common dividend program in the middle of 2019, which freed up substantial cash flow for share buybacks and deleveraging efforts. Investors looking to avoid disruptions to their dividend income streams should consider utilizing Valuentum’s Dividend Cushion ratio to avoid value traps (read more about the importance of our Dividend Cushion ratio here).

Dec 9, 2019

Intel’s Resilient Free Cash Flows and Improving Outlook
Image Shown: Shares of Intel Corporation have resumed their upward climb after stumbling during the middle of 2019. We continue to like the name in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios. Intel Corp is another one of our favorite companies and is included in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios. After coming under fire during the middle of 2019, INTC is back on a nice upward trajectory. The top end of our fair value range estimate sits at $61 per share of INTC, indicating there’s plenty of room for Intel to run higher. Shares of INTC yield 2.2% as of this writing, and we view the company’s dividend growth trajectory as stellar (we give Intel an EXCELLENT Dividend Growth rating which is supported by its GOOD Dividend Safety rating, a product of its 2.1x Dividend Cushion ratio).

Dec 5, 2019

Best Buy’s Rebound Continues
Image Shown: Best Buy Co Inc has staged an impressive rebound over the past few years. This rebound was aided by significant investments in its digital presence, recognizing the core markets Best Buy wanted to target, and ultimately comparable store sales growth. On November 26, Best Buy reported third quarter earnings for its fiscal 2020 (three month period ended November 2, 2019) that beat both top- and bottom-line consensus estimates. Even better, Best Buy raised its guidance for fiscal 2020, largely on the back of stronger than expected same-store sales growth. Best Buy’s update helped send shares of BBY over our fair value estimate of $76 per share, and if this outperformance is sustained, the retailer may march towards the upper end of our fair value range estimate (which currently sits at $95 per share). Shares of BBY yield 2.5% as of this writing, and we like the firm’s dividend growth prospects. However, we caution that Best Buy remains very exposed to the US-China trade war, and we don’t include shares of BBY in our newsletter portfolios in large part due to the downside risks exogenous forces impose.

Dec 4, 2019

Reflecting on Two of Our Favorite Best Ideas Newsletter Portfolio Holdings
As we get closer to finishing out 2019, let’s take a look at two of the big winners in our Best Ideas Newsletter portfolio this year: Facebook and Alphabet. What a comeback Facebook has made since the summer of 2018! On the basis of our fair value estimate, we expect the company to surpass new highs. Alphabet just hit an all-time high last month, too!

Dec 2, 2019

McDonald’s Enters the Chicken Sandwich Wars
Image Shown: Shares of McDonald’s Corporation have pulled back over the past couple of months after an epic run during most of 2019, which we view as the market recognizing shares of MCD had gotten way ahead of themselves. McDonald’s is testing out a new crispy chicken sandwich offering in two US cities; Knoxville, Tennessee and Houston, Texas. This pilot project is expected to run through January 2020. While McDonald’s offers the ‘McChicken,’ its new chicken sandwich offering is far more substantial (the McChicken is to a chicken sandwich what the ‘McDouble’ is to a burger) and meant to compete with offerings from privately-held Chick-fil-A and Restaurant Brands' Popeyes Louisiana Kitchen. We still view shares of McDonald’s as overvalued as the top end of our fair value range estimate sits at $189 per share, and MCD trades at ~$195 per share as of this writing. Shares of McDonald’s yield 2.6% as of this writing, and while the company’s free cash flow profile is impressive, its large net debt load (~$31.7 billion as of the end of September 2019) weighs negatively on the strength of its dividend coverage.

Dec 2, 2019

Apache Comes Up Empty in Suriname, Shares Plummet
Image Source: Apache Corporation – November 2019 IR Presentation. On December 2, Apache Corp announced that its first exploration well off the coast of Suriname (a small nation in northern South America) was a dud. The Maka Central-1 well was drilled to a total depth of 6,200 meters (~20,300 feet) in Block 58 and drilling activities commenced in late-September. While the well was testing two Upper Cretaceous plays, neither play appeared to have commercial level of hydrocarbons (more information will be provided by management on this issue in the near future) so Apache opted to drill down to a total depth of 6,900 meters (~22,600 feet) to test a third Cretaceous play. This news sent shares of APA down by double-digits on December 2 as of this writing for reasons we’ll cover in this article. While shares of APA yield ~5.2% as of this writing, that payout isn’t sustainable in our view.

Nov 29, 2019

Portfolio Newsletter Holding Digital Realty Targets Secular Growth Trends to Support Dividend Growth Trajectory
Image Shown: Digital Realty Trust is one of our favorite ways to indirectly play several secular growth trends at once. The data center real estate investment trust (‘REIT’) pays out a nice dividend that’s supported by its investment grade credit ratings, a solid cash flow profile, and a promising growth trajectory.Digital Realty Trust has been a resilient performer in both the Dividend Growth Newsletter and High Yield Newsletter portfolios, and we continue to like the name. Due to the data center REIT’s impressive dividend growth profile, a product of the double-digit annual growth rate in its funds from operations (‘FFO’) since 2005, shares of DLR yield a nice ~3.6% as of this writing.

Nov 25, 2019

Primer on the Banking Sector: Where Are We in the Cycle?
Image Source: GotCredit. We’ll talk about how banks make money, and the three most important costs of running a bank. The Great Financial Crisis revealed the tremendous risks of banking equities, and we’ll walk through these in depth. We’ll discuss how to conceptualize where we are in the banking cycle, and how that helps inform our valuation process for banks, which is different than traditional operating entities. The stress tests have helped many of the big banks from pursuing hazardous endeavors during the past decade, and we’ll go into how to think about the yield curve in the context of banks. Investors should expect ongoing digitization of banks and increased M&A as the competitive environment only intensifies. Three of our favorite banks are JPMorgan Chase, Bank of America, and US Bancorp, and we’ll be looking to consider adding any of these to the Best Ideas Newsletter portfolio or Dividend Growth Newsletter portfolio at the right price.