Valuentum Exclusive Analysis for the Discerning Investor

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Apr 23, 2021

P&G and Kimberly-Clark Tell Two Different Stories
Image Shown: Since the beginning of 2019, on a price-only basis, Procter & Gamble (orange) has handily outpaced the Vanguard Consumer Staples ETF while Kimberly-Clark (turquoise) has stumbled. Procter & Gamble’s shares have been on an incredible run the past couple years, with the company driving strong organic revenue and earnings per share growth. Kimberly-Clark, on the other hand, has been executing poorly in a market environment where one might think it should be excelling. Both of these stocks are dividend growth giants, with P&G boasting a 65-year dividend growth track record and Kimberly-Clark stringing together 49 consecutive annual dividend increases. Both also have strong Dividend Cushion ratios of 1.8 at this time, suggesting resilient dividend coverage on a go-forward basis. That said, investors will have to pay up for P&G’s dividend strength and operational tailwinds, as shares are a bit pricey based on our fair value estimate range, and even Kimberly-Clark’s valuation is only slightly more reasonable after its sharp drop following the 2021 earnings guidance cut. We expect to make a few tweaks to our valuation models following their respective calendar first-quarter 2021 reports, but if we had to pick between these two dividend growth behemoths, P&G looks like the better relative play. Shares of P&G yield ~2.6%, while shares of Kimberly-Clark yield 3.3%.

Apr 16, 2021

Dividend Increases/Decreases for the Week April 16
Let's take a look at companies that raised/lowered their dividend this week.

Apr 13, 2021

SPACs Are Good for Markets, Not SPAC-tacular for Investors
Image: Performance of the Defiance NextGen SPAC IPO ETF (SPAK), where “a 60% weighting is applied to IPO companies derived from SPACs and 40% is allocated to common stock of newly listed Special Purpose Acquisition Companies (“SPACs”), ex-warrants” has been roughly flat since inception in October 2020. According to some estimates, there were 248 Special Purpose Acquisition Companies (SPAC) that went public in 2020, raising more than $80 billion (up sixfold from a record high set in 2019). SPACs reached heightened levels of excitement in early February, but the performance of the Defiance NextGen SPAC IPO ETF (SPAK) has been roughly flat since it began trading October 2020. Most of what investors have to go on when considering a SPAC is a thorough assessment of the management team, as SPACs go public as a shell (“blank check”) company with no underlying operating business. Some forward-leaning, “out of the box” management teams may be worth rolling the dice on, but for the most part, the great many of the SPACs out there probably aren’t worth your time. Though we like the idea of more investor choice once SPACs take operations public (and new companies are listed), we’re not getting lured into the SPAC IPO boom. It’s not our style. Even diversified exposure to the SPAK ETF doesn’t sound great. We’ll be patient and evaluate the companies SPACs bring public through traditional equity analysis to see if opportunities present themselves. Prudence and care, first, always.

Apr 8, 2021

The Best Years Are Ahead
The wind is at our backs. The Federal Reserve, Treasury, and regulatory bodies of the U.S. may have no choice but to keep U.S. markets moving higher. The likelihood of the S&P 500 reaching 2,000 ever again seems remote, and I would not be surprised to see 5,000 on the S&P 500 before we see 2,500-3,000, if the latter may be in the cards. The S&P 500 is trading at ~4,100 at the time of this writing. The high end of our fair value range on the S&P 500 remains just shy of 4,000, but I foresee a massive shift in long-term capital out of traditional bonds into equities this decade (and markets to remain overpriced for some time). Bond yields are paltry and will likely stay that way for some time, requiring advisors to rethink their asset mixes. The stock market looks to be the place to be long term, as it has always been. With all the tools at the disposal of government officials, economic collapse (as in the Great Depression) may no longer be even a minor probability in the decades to come--unlike in the past with the capitalistic mindset that governed the Federal Reserve before the “Lehman collapse."

Feb 8, 2021

Stock Market Outlook for 2021
2020 was one from the history books and a year that will live on in infamy. That said, we are excited for the future as global health authorities are steadily putting an end to the public health crisis created by COVID-19, aided by the quick discovery of safe and viable vaccines. Tech, fintech, and payment processing firms were all big winners in 2020, and we expect that to continue being the case in 2021. Digital advertising, cloud-computing, and e-commerce activities are set to continue dominating their respective fields. Cybersecurity demand is moving higher and the constant threats posed by both governments (usually nations that are hostile to Western interests) and non-state actors highlights how crucial these services are. Retailers with omni-channel selling capabilities are well-positioned to ride the global economic recovery upwards. Green energy firms will continue to grow at a brisk pace in 2021, though the oil & gas industry appears ready for a comeback. The adoption of 5G wireless technologies and smartphones will create immense growth opportunities for smartphone makers, semiconductor players and telecommunications giants. Video streaming services have become ubiquitous over the past decade with room to continue growing as households “cut the cord” and instead opt for several video streaming packages. We’re not too big of fans of old industrial names given their capital-intensive nature relative to capital-light technology or fintech, but there are select names that have appeal. Cryptocurrencies have taken the market by storm as we turn the calendar into 2021, but the traditional banking system remains healthy enough to withstand another shock should it be on the horizon. Our fair value estimate of the S&P 500 remains $3,530-$3,920, but we may still be on a roller coaster ride for the year. Here’s to a great 2021!

Jan 29, 2021

Repub from March 5, 2018: The Tragedy of Quantitative Finance
-- Okay – it’s not 2038, but just imagine if this could happen…

Jan 27, 2021

ALERT: Raising Cash in the Newsletter Portfolios
Our research has been absolutely fantastic for a long time, but 2020 may have been our best year yet. With the S&P 500 trading within our fair value estimate range of 3,530-3,920 (and the markets rolling over while showing signs of abnormal behavior), we're raising the cash position in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to 10%-20%. For more conservative investors, the high end of this range may even be larger, especially considering the vast "gains" from the March 2020 bottom and the increased systemic risks arising from price-agnostic trading (read Value Trap). The individual holdings will be reduced in proportion to arrive at the new targeted cash weighting in the respective simulated newsletter portfolios. The High Yield Dividend Newsletter and Dividend Growth Newsletter are scheduled for release February 1. We'll have more to say soon.

Jan 27, 2021

Fourth Quarter Earnings Reports Coming In: INTC, GGG, KMB, STLD
Image Source: Kimberly Clark Corporation – Second Quarter of Fiscal 2021 Earnings IR Presentation. Fourth quarter 2020 earnings season is upon us. In this note, we walk through the reports of four companies issuing results: Intel, Graco, Kimberly Clark, and Steel Dynamics. Intel is making the right call by seeking to outsource some of its production needs given its inability to produce certain current- and next-generation chips. For companies operating in the industrial sector, it appears that after a challenging first half of 2020, things are now recovering in earnest. The industrial economy appears to have entered 2021 with momentum, keeping short-term headwinds in mind. Consumer staples entities experienced strong demand growth in 2020, though it appears that many companies operating in the space now expect their organic sales growth to moderate in 2021 as the uplift from “pantry stockpiling” fades.

Jan 26, 2021

Procter & Gamble Remains a Great Free Cash Flow Generator
Image Shown: Shares of Procter & Gamble Co have started to shift back down towards the top end of our fair value estimate which sits at $120 per share of PG. In our view, investors have begun to factor in expectations that the firm’s growth rate of late will be incredibly hard to sustain over the coming years. Procter & Gamble is a solid company with great free cash flow generating abilities, but the run up in its share price during the second half of the 2020 calendar year was a tad overdone, in our view. On January 20, Procter & Gamble reported solid earnings for the second quarter of fiscal 2021 (period ended December 31, 2020) as its GAAP revenues grew by 8% year-over-year while its GAAP operating income climbed higher by 20%, aided by economies of scale and GAAP gross margin expansion. The company reported strong organic sales growth across all of its core product categories, with its ‘Fabric & Home Care’ and ‘Health Care’ products leading the way. Pricing strength combined with organic volume growth and a favorable product mix played a big role in boosting Procter & Gamble’s margins. It appears consumers are willing to pay up for its products, which tend to be the more expensive items in supermarkets, grocery stores, convenience stores, and similar venues. Looking ahead, Procter & Gamble increased its guidance for fiscal 2021. P&G forecasts it will post annual sales growth (on both a net and organic basis) of 5%-6% and annual diluted EPS growth of 8%-10% this fiscal year, underpinned by its strong performance during the first half of fiscal 2021.

Dec 25, 2020

All I Want for Christmas Are Dividend Aristocrats
Image Source: 5 Furlongs. It may not be as catchy as Mariah Carey's Christmas hit, "All I Want For Christmas Is You," but if you ask a dividend growth investor what they might want for Christmas as it relates to an investment, they might start singing about a long list of Dividend Aristocrats--a list of companies that have increased their dividends in each of the past 20-25+ years. Therefore, we wanted to do something special this Christmas for members. We've aggregated a list of every non-financial Dividend Aristocrat in our 16-page stock report coverage universe and made a list conveniently available, including some key data and links directly to their 16-page stock reports (pdf). To access the 16-page stock report of any company on this list, just click on its name, and you'll be prompted to download that particular company's 16-page stock report pdf file. Remember, we provide separate Dividend Reports for stocks, too. For example, the 16-page stock report pdf file that is linked to a company's name in this article is only a portion of the research, commentary, ratings and data on that particular company. Let's take Emerson Electric as an example. Not only does it have a 16-page Stock Report and additional Valuentum commentary via articles and notes, but it also has a Dividend Report. Both pdf reports can be downloaded on its stock web page (the pdf icons are to the right of the stock chart). We hope you enjoy the vast amount of research connected to the download links on this list. Each company's fair value estimate, Dividend Cushion ratio, Economic Castle rating and much more is backed by our three-stage discounted cash flow process with fully populated financial statements, available by request from Gold and Platinum members. Please download away! What's your favorite Dividend Aristocrat? Comments welcome.