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publication date: Jul 11, 2022
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author/source: Brian Nelson, CFA
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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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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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