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What To Do Now?

publication date: Apr 22, 2020
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author/source: Brian Nelson, CFA
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Dear members:
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It's Brian here. It seems like I went to bed February 22 after writing the following note to you -- Is a Stock Market Crash Coming? -- Coronavirus and P/E Ratios -- and just woke up now. That's how crazy the markets have been. It's been two months of a whirlwind of a ride. For those just joining today, we recapped the events since our warning about the Great Crash of 2020 on February 22 in the following two videos -- The Question Is If the Economy Can Be Held Together Without Vast Equity Dilution (April 12) and Will Hasty Policy Facilitate the Next Leg Down, or Do We Have It Coming Anyway? (April 19).
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Before going on, I want to pause a moment to thank you. These are extraordinary times that have pushed our team to the limit. But it is only in times like these that we can show just how good our team is...for example, it's not every month that events like the Great Crash of 2020 happen, but when they do happen, we're proud to have worked hard to get you far ahead of them and guide you through them. There's just too much poor research out there that says you should buy anything at any price and not pay attention to your investments. That's just foolish. When it's your hard-earned dollars at stake, it's so important for you to stay on top of the markets.
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But as you know, we didn't just call the crash with two prescient put options ideas on two separate occasions either (Feb 24 and March 6) -- we nearly called the bottom, too. If you recall, we released two separate consider buying lists to help members sort through this calamity. We were very patient and measured in the timing of their releases, too. While others were pounding the table on the markets after the first buy-the-dip opportunity (as they have been for years), we didn't release our top 10 lists until mid-March. In fact, on March 21, just two days before the bottom, we released the "Top Ten Dividend Growth Stocks to Consider Amid COVID-19."
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What's more, just a few days prior on March 17, we released the "Top Ten Ideas for Consideration Amid COVID-19" that included a list of considerations for capital appreciation potential. We plan to calculate what sort of returns members might have generated had they purchased some ideas on that list in our next video update (hope you like the videos of late!), but one of our favorites included on the March 17 line-up, for example, was Chipotle (CMG). Since the opening price on March 18, Chipotle's shares have advanced nearly 80% on the heels of a nice quarterly report. 
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I really don't think we could have done better, but we're not going to stop trying to do so. I also wanted to remind you of something: We're not a large research firm. Even though we may make a few of the biggest research giants like Goldman Sachs look a bit silly at times, as in our call on Kinder Morgan (KMI) and the MLPs in 2015, you should know that we are a small team. We think this allows us to serve you better, but it also means that your interest is very important to us all the time, but especially during these challenging times. I think you know how much you mean to me, but again, I really cannot thank you enough. 
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With that said, the midstream MLP distribution cuts keep coming, with Western Midstream (WES), Enlink Midstream (ENLC), and DCP Midstream (DCP) slashing their payouts of late. Today, Dividend Growth Newsletter portfolio holding Kinder Morgan raised its payout 5%, lower than expectations, as the company put up a quarterly net loss and revealed declines in industry specific cash-flow metrics. We're not terribly excited about owning any energy equity at this time--as the front month oil futures contract has been swinging wildly of late and the long-run economics of the energy space remain more uncertain now than ever before--but we're going to leave KMI in the Dividend Growth Newsletter portfolio for now.
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That said, things are certainly starting to calm down a bit. Today, we witnessed Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio holding Intel (INTC) leap back over $60 per share, Best Ideas Newsletter portfolio holding Facebook (FB) surge nearly 7%, to north of $180, and top consideration PayPal (PYPL) continuing its route to its fair value estimate. PayPal offered members to our options service a very nice opportunity, our first winner for that service! If you may be interested in adding additional options commentary to your membership, please consider doing so here ($500/year). Visa (V) and Alphabet (GOOG) also appear to be getting back on track.
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I'm never one to count our chickens before they hatch, but the April capital appreciation idea of the Exclusive publication has surged the past few weeks, while the April short idea consideration of the Exclusive publication has plummeted. It looks like if the markets cooperate, we could get our last 25 short idea considerations correct. Can you believe that? In the Exclusive publication, we're running at a ~96% success rate (not a typo) with short idea considerations, and the success rate of capital appreciation ideas is no less impressive north of 84%. I want every one of you to sign up for the Exclusive here
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We have been watching the High Yield Dividend Newsletter portfolio holdings closely during this market swoon. As we write in Value Trap, share price declines can become fundamental for the high-yield group (most are capital-market dependent), and the need to raise capital to retain payouts might be required, but at dilutive prices. This keeps us up at night. Thus far, however, the High Yield Dividend Newsletter portfolio has held up nicely, and while the Fed seems to be recklessly positioning itself to buy junk-rated debt, we're still okay with the ProShares Short High Yield ETF (SJB) hedge as a consideration. If things really get ugly during this fragile market environment, high-yield equities could plummet, and the SJB could come in handy.
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Just a reminder that we don't send all of our work via email as we respect your inbox. I encourage you to read some of our latest research pieces. We cover AT&T's (T) latest quarter here, Lockheed Martin's (LMT) latest report here, Procter & Gamble latest quarter here, and a variety of others here. Write-ups on the earnings reports of the Big 6 U.S. banks can be found at the following links: Morgan Stanley here, Goldman Sachs here, Citigroup here, Bank of America here, JPMorgan here, and Wells Fargo here. Lots of rumors have been swirling about Macy's (M), and we covered our latest thoughts on the company's situation here
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What to do now? In our latest video, we covered extensively how we thought the S&P 500 was fairly valued in the range of 2,000-2,750 (it closed at 2,799 April 22), and given the dislocations in the crude oil markets, the spikes coming in unemployment rates, the vast declines to be expected in GDP, and concerns that the U.S. may get another wave of COVID-19 infections later this year, we're sticking with that range, even as we acknowledge that inflationary pressures and price-agnostic trading could send the markets irrationally in an upward direction, now that it is running on unlimited quantitative easing and Treasury stimulus. 
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Whatever may be the case, however, we believe now more than even it has become a stock picker's market, and we trust that our consider buy lists, released near the bottom of this swoon (as noted above), have served you immensely well. With all this being said, let us know how we can do better, and how we can continue earning your trust. We appreciate your membership very much, and may you and your loved ones stay safe during these challenging times. We're available for any questions.
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Kind regards,
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Brian Nelson, CFA
President, Investment Research
Valuentum Securities, Inc.
brian@valuentum.com

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