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publication date: Jul 11, 2022
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author/source: Brian Nelson, CFA
Hi everyone!
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We continue to be huge believers in the concept of enterprise valuation, which emphasizes the key cash-based sources of intrinsic value--net cash on the balance sheet and strong and growing future expected free cash flows. Meta Platforms, Inc. (META) and Alphabet Inc. (GOOG) remain two of the most underpriced ideas on the market today, and we remain huge fans of their tremendous long-term investment prospects.
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There are a couple things worth reminding readers, however. A good relevant rule of thumb I learned early in my career working for my first portfolio manager is that a stock's return in the near term is driven roughly 40% by the market, 30% by the industry it operates in, and 30% by firm-specific fundamentals. Over the long run, changes in future expectations within the context of enterprise valuation help to drive eventual price-to-fair value convergence, in our view, but this rule of thumb is helpful to frame near-term thinking.
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In light of the market's swoon thus far, it should therefore not be surprising that many of our ideas are down so far this year. This should be expected. When the broader market is down over short periods of time, many of our ideas will be down, too. But that said, here's the second relevant thing I remember from yet another one of my prior bosses, a different boss and this rule of thumb during the depths of the Great Financial Crisis: "Things are going to be okay." He was right. In my view, the stock market has endured so much over its storied history that losing one's head over a rough year like 2022 is a terrible, silly and arguably irresponsible thing.
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As the years have passed, let me now be the one to say: Things are going to be okay. Stick to enterprise valuation and cash-based sources of intrinsic value: net cash on the balance sheet and strong and growing future expected free cash flow. Find ideas with strong competitive advantages that are tied to tangible, secular growth opportunities, not pie-in-the-sky, castle-in-the-air "stories." From my perspective, 2022 has probably been our best year since inception. We're working hard, and our strategies are doing fantastic* so far this year!
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  • High Yield Dividend: Through June 22, the simulated High Yield Dividend Newsletter (-7.26%), on a price-only year-to-date basis, is doing better than the ProShares High Yield ETF (-8.9%), the SPDR S&P 500 Dividend ETF (-9.61%), the Vanguard Real Estate ETF (-21.8%), the SPDR Portfolio S&P 500 High Dividend ETF (-7.34%), and most every major market index, including the S&P 500, the Dow Jones Industrial Average and the NASDAQ 100 -- all data retrieved from Seeking Alpha. The simulated newsletter portfolio offers a nice estimated forward dividend yield of ~5%, too.
  • Dividend Growth: The Valuentum Dividend Growth strategy has delivered. With the S&P 500, as measured by the SPY, down 18.1% (negative 18.1%) through June 26 and the S&P Dividend ETF down 6.7% (negative 6.7%), the Valuentum dividend growth strategy, as measured by the hypothetical performance of the Dividend Growth Newsletter portfolio, is down an estimated 4.6% (negative 4.6%) through June 26, all on a price-only basis. Though two percentage points better than the S&P High Yield Dividend Dividend Aristocrats Index doesn't seem like much, the large cap tilt of the simulated Dividend Growth Newsletter portfolio makes such "outperformance" significant and material. The benefits of a dividend growth strategy, in general, have also been on display, with the simulated Dividend Growth Newsletter portfolio "outperforming" the SPY by an estimated ~13.5 percentage points through June 26, on a price-only basis.
  • Exclusive: Through June 23, the success rate for Exclusive short ideas since inception is now 93%+ (67 out of 72), with some hefty "winners," too. The success rate for Exclusive capital appreciation ideas stands at ~82% (59 out of 72), but we note that the past few ideas have yet to have a sufficient time for our thesis on them to work out. We're being patient with these. The Exclusive publication is a valuable resource that can be used for monthly idea generation across the income, capital appreciation, and short idea consideration categories. Where the simulated newsletter portfolios may not make a lot of changes each month, the Exclusive publication offers the steady drumbeat of monthly ideas for the investor.
  • Best Ideas: Through June 22, we calculate the percentage contribution of each weighted position in the simulated Best Ideas Newsletter portfolio to arrive at a hypothetical "return" of the simulated Best Ideas Newsletter portfolio of -16.7% (negative 16.7%) so far in 2022, on a price-only basis. Such hypothetical performance compares to the S&P 500 return, on a price-only basis, of -21.3% (negative 21.3%) over the same time period. That's roughly ~5 percentage points of relative "outperformance" through June 22. These hypothetical "returns" come off of fantastic "performance" in 2021 and the years prior, so we are quite happy with the relative showing so far in 2022, even as we note we could have done even better.
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Everyone uses our research differently, and we're working hard to please all of you! Make sure you're getting what you need from Valuentum -- if you want new ideas each month, check out the Exclusive. If you love a particular strategy, the High Yield Dividend Newsletter or ESG Newsletter may be for you. If you love options, inquire about our additional options commentary -- and above all, if you're a lifetime learner, don't forget to register for Valuentum's upcoming webinar series here. The webinar is a great opportunity to learn more about financial statement analysis and the discounted cash-flow process, as well as the Valuentum methodology, in general.
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Thank you!
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Kind regards,
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Brian Nelson, CFA
President, Investment Research
brian@valuentum.com
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* Data and returns are hypothetical and provided only for informational and educational purposes. No investor may have achieved such hypothetical "performance" because the simulated newsletter portfolios are not investable products. Valuentum is a financial publisher.
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**Success rate: The percentage of ideas highlighted in the Exclusive that have moved in the direction of our thesis (i.e. up for capital appreciation ideas and down for short idea considerations) through the current price or closed price, with consideration of cash and stock dividends. Success rates do not consider trading costs or tax implications.
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Tickerized for holdings in the SPY.

Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson's household owns shares in HON, DIS, HAS, NKE. 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 reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.  


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The High Yield Dividend Newsletter, Best Ideas Newsletter, Dividend Growth Newsletter, Valuentum Exclusive publication, and any reports and content found on this website are for information purposes only and should not be considered a solicitation to buy or sell any security. Valuentum is not responsible for any errors or omissions or for results obtained from the use of its newsletters, reports, commentary, or publications and accepts no liability for how readers may choose to utilize the content. Valuentum is not a money manager, is not a registered investment advisor, and does not offer brokerage or investment banking services. The sources of the data used on this website and reports are believed by Valuentum to be reliable, but the data’s accuracy, completeness or interpretation cannot be guaranteed. Valuentum, its employees, and independent contractors may have long, short or derivative positions in the securities mentioned on this website. The High Yield Dividend Newsletter portfolio, Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio are not real money portfolios. Performance, including that in the Valuentum Exclusive publication and additional options commentary feature, is hypothetical and does not represent actual trading. Actual results may differ from simulated information, results, or performance being presented. For more information about Valuentum and the products and services it offers, please contact us at info@valuentum.com.