Valuentum Exclusive Analysis for the Discerning Investor

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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."

Dividend Increases/Decreases for the Week April 2
Let's take a look at companies that raised/lowered their dividend this week.

Why You Need to Hire an Active Stock Manager and Ditch Modern Portfolio Theory
Image: Why You Need to Hire an Active Stock Manager and Ditch Modern Portfolio Theory. An Approximate Hypothetical representation of an active manager that charges a 2% active management fee that mirrors the S&P 500 benchmark versus an advisor that charges a 1% advisor fee that applies a 60/40 stock/bond rebalancing from 1990-2021. Approximate Hypothetical returns are based on the following extrapolation: “Since inception in November 9, 1992, returns after taxes on distributions and sales of fund shares for the [Vanguard Balanced Index Fund Investor Shares] VBINX came in at 6.5% through June 30, 2020, while the same measure since inception in January 22, 1993, for the S&P 500, as measured by the S&P 500 ETF Trust (SPY), came in at 8.12% through June 30, 2020.” The ‘Approximate Hypothetical 60/40 stock/bond portfolio w/ 1% advisor fee (smoothed)’ represents a hypothetical 100,000 compounded at an annual rate of 5.5% [6.5 less 1] over the period 1990-2021. The ‘Approximate Hypothetical S&P 500 (SPY) w/ 2% active management fee (smoothed)’ represents a hypothetical 100,000 compounded at an annual rate of 6.12% [8.12 less 2] over the period 1990-2021. Approximate Hypothetical results are for illustrative purposes only and are based on the data available. Let's get caught up on recent developments at Korn Ferry, Dick's Sporting Goods, Chewy, GameStop, Williams Sonoma, McCormick & Company, and CRISPR Therapeutics.

Nothing May Derail the U.S. Economy In the Long Run
Image Source: Federal Reserve Bank of St. Louis. U.S. gross domestic product is back on the upswing, and we fully expect the U.S. economy to recover, and then continue its expansion in coming years. U.S. GDP, January 1947 through October 2020. Warren Buffett may have said it best in Berkshire Hathaway’s 2020 Annual Report: “Never bet against America.”

General Mills Prepares for Cost Inflation, Pet Business Growing Rapidly
Image Source: General Mills Inc – Third Quarter of Fiscal 2021 IR Earnings Presentation. On March 24, General Mills posted third quarter earnings for fiscal 2021 (period ended February 28, 2021) that beat consensus top- and bottom-line estimates on a GAAP basis, though its adjusted non-GAAP bottom-line performance missed consensus estimates. General Mills has seen demand surge higher for its products in the wake of the coronavirus (‘COVID-19’) pandemic as households stockpiled goods and started eating at home more often. The company posted a solid fiscal third quarter earnings report, though its outlook is facing headwinds as General Mills is contending with cost inflation concerns. Shares of GIS yield ~3.4% and are trading just above our fair value estimate as of this writing, after selling off in the wake of its latest earnings report.

Dividend Increases/Decreases for the Week March 26
Let's take a look at companies that raised/lowered their dividend this week.

Why You MUST Stay Active in Investing
Image: Active domestic equity mutual funds and ETFs represent just 15% of the stock market, hardly enough data to make any conclusions about the merits of individual stock selection. Source: ICI. I don’t care what kind of indexing propaganda you show me. I’m never playing Russian roulette with my money. I want to know the cash-based intrinsic values of the companies in my portfolio, and that's something worth paying for, regardless of the performance of active versus passive. I care more about what could have happened as a measure of risk than any measure of actual standard deviation. That’s why active management is so valuable. It should help you sleep at night.

Valuentum Wins Bronze at 2021 Axiom Business Book Awards
Value Trap's thought-provoking cry for financial stability wins it a bronze medal at the 14th Annual Axiom Awards. Previous Axiom Business Book Award medalists include Nobel laureate Robert Shiller, former U.S. Secretary of State Condoleezza Rice, and world-renowned historian and Pulitzer Prize winner Doris Kearns Goodwin.

Two Railroad Operators to Join Forces, Creating the First Fully Integrated Canada-US-Mexico Railroad Network
Image Source: Canadian Pacific Railway Ltd, Kansas City Southern – March 2021 Acquisition Presentation. On March 21, Canadian Pacific Railway Ltd announced it was acquiring Kansas City Southern through a cash-and-stock deal worth ~$29.0 billion by enterprise value (factoring in assumed debt). The combination will create the first fully integrated Canada-US-Mexico railroad operator with ~$780 million in annualized synergies expected within three years of the deal closing. Once this two-part transaction is complete, the new entity will have a US Class 1 railroad network that spans ~20,000 miles with ~20,000 employees supporting its operations. The pro forma company will be renamed Canadian Pacific Kansas City (‘CPKC’).

ViacomCBS Makes Big Bet on Streaming
Image Source: ViacomCBS Inc – Fourth Quarter of 2020 IR Earnings Presentation. After Viacom and CBS were reunited in December 2019, the new entity ViacomCBS Inc has finally started to gain some traction on the video streaming front. The service CBS All Access, which has since been rebranded as Paramount+, was largely a dud and did not gain the level of attention that Walt Disney Company’s Disney+ service, AT&T Inc’s HBO Max service, or Netflix's namesake service were able to generate. For background, ViacomCBS’s operations include various TV network and cable TV assets, TV and movie studios, various streaming services, and a book publisher. That includes various CBS networks (CBS, CBS Sports, CBS News), CBS studios, MTV, Comedy Central, Paramount, Nickelodeon, Pluto TV (another video streaming service that is free and ad-supported), BET, CMT, POP TV, half of CW (AT&T owns the remaining 50%), COLORS (focused on India), telefe (focused on Spanish-speaking content), SHOWTIME, and the book publisher Simon & Schuster. However, with ViacomCBS launching Paramount+ this month in the US and various Latin American markets, the service now has a larger slate of content than CBS All Access and is supported by ViacomCBS’ vast library (and most importantly, ViacomCBS has plans to produce dozens of original series for Paramount+ going forward). Paramount+ is leaning on properties such as Star Trek and SpongeBob SquarePants along with reboots of shows like iCarly to create engaging original content. Content is king. The combination of Viacom and CBS helped address that issue and provided the new entity with the scale required to be competitive in this business.