Valuentum Exclusive Analysis for the Discerning Investor

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Jan 1, 2025

The Price-to-Earnings Ratio Demystified
Let's examine the price-to-earnings (P/E) ratio. The key takeaways are: 1) without using a discounted cash-flow model, the P/E ratio that should be applied to a company's future expected earnings stream can never be appropriately calculated, and by extension, 2) when investors assign an arbitrary price-to-earnings multiple to a company’s earnings (based on historical trends or industry peers or the market multiple), they are essentially making estimates for all of the drivers behind a discounted cash-flow model in one fell swoop (and sometimes hastily). As earnings for next year are often within sight and can be estimated with some confidence (though this certainly varies among firms), calculating the price-to-earnings ratio via a discounted cash-flow process, in our opinion, is of far greater importance than worrying about whether a firm will beat or miss earnings in its next fiscal year. Because the P/E ratio is a discounted cash-flow model that considers the long-term qualitative dynamics of a particular entity, cash-flow analysis remains the first and most important pillar of our Valuentum Buying Index. And finally, investors cannot ignore valuation analysis or the future. Valuation is an important driver behind stock prices, and it is based on future expectations that can only be estimated. This is just a fact of the markets.

Jan 1, 2025

Costco’s Business Humming Along Nicely, But Stock Is Not Cheap
Image Source: Costco. During the fiscal first quarter, Costco's membership income grew 7.8% year-over-year, while paid memberships grew 7.6% year-over-year, to 77.4 million. Total cardholders increased 7.2% year-over-year, to 138.8 million. Its worldwide renewal rate remained healthy at 90.4%. Net income for the quarter came in at $3.82, after excluding a $0.22 per share tax benefit related to stock-based compensation, beating the consensus forecast by a few pennies per share. Excluding discrete tax-related benefits occurring in both the most recently reported quarter and the same period last year, net income and diluted earnings per share advanced 9.9% and 9.8%, respectively. Costco’s fiscal first quarter was solid, but with the company trading at 50x forward earnings, we’re looking elsewhere.

Dec 29, 2024

How Does 37% Sound?
Image: The Schwab U.S. Large Cap Growth ETF (SCHG) is up more than 37% so far in 2024. So what’s the playbook for 2025? You can probably guess that I think large cap growth and big cap tech will continue to lead the markets to new heights. 2024 was a boring year, if a 37% return can be considered boring for large cap growth. Frankly, with the market focusing on macro data and the Fed during 2024, there wasn’t much material to write about. We all already know the story: Inflation is under control, the job market remains healthy, the Fed is cutting, and artificial intelligence will be the name of the game this decade.

Dec 27, 2024

Nike’s Revenue Under Considerable Pressure; Turnaround Will Take Time
Image: Nike’s shares have been under considerable pressure as sales results disappoint. Nike’s outlook for the near term doesn’t provide us with much confidence. As we have noted before, Nike has a storied brand that is unmatched by rivals, but it may take more than a new CEO to turn things around. Competition remains fierce and the promotional environment intense, while consumer discretionary spending remains a big wild card. We like Nike, but we continue to stay on the sidelines until we start to see some improvement on the top line, not just better than feared results.

Dec 27, 2024

Alert: Changes to the Newsletter Portfolios
Image Source: Mike Cohen cc by 2.0. We are making some changes to the newsletter portfolios. We continue to believe that large cap growth and big cap tech is the place to be, and we’ll be further tilting the portfolios in that direction.

Dec 27, 2024

Dividend Increases/Decreases for the Week of December 27
Let's take a look at firms raising/lowering their dividends this week.

Dec 20, 2024

Dividend Increases/Decreases for the Week of December 20
Let's take a look at firms raising/lowering their dividends this week.

Dec 19, 2024

Shares of UnitedHealth Group and Vertex Pharma Sour
Image Source: Rodrigo Senna cc by 2.0. As of right now, we continue to monitor the situation with UnitedHealth, but the risks have substantially increased. We have no plans to remove it from the Best Ideas Newsletter portfolio at this time as we await news flow to settle down. As for Vertex, we continue to like its established position in cystic fibrosis and its opportunity in gene-editing therapies as well as a new class of medicine for acute pain that’s without the limitations of opioids. Though the news regarding suzetrigine wasn’t what the market was hoping for, the company’s pipeline is progressing nicely.

Dec 13, 2024

Dividend Increases/Decreases for the Week of December 13
Let's take a look at firms raising/lowering their dividends this week.

Dec 12, 2024

Adobe Issues Cautious Fiscal 2025 Guidance
Image Source: Adobe. Looking to fiscal 2025, Adobe expects total revenue in the range of $23.30-$23.55 billion, below the $23.8 billion consensus estimate. Digital Media segment revenue is targeted at $17.25-$17.4 billion, with ending ARR growth of 11% year-over-year, while Digital Experience segment revenue is expected to be between $5.8-$5.9 billion. Non-GAAP earnings per share is expected in the range of $20.20-$20.50 for the year, the midpoint below the consensus estimate of $20.52. Adobe ended the quarter with $7.9 billion in cash and short-term investments, while debt totaled $5.6 billion, good for a nice net cash position. We like Adobe, but its cautious outlook for 2025 keeps us on the sidelines.