Valuentum Exclusive Analysis for the Discerning Investor

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Jun 26, 2020

Update on Dell Technologies and VMware
Image Source: VMware Inc – First Quarter Fiscal 2021 IR Earnings Presentation. Dell Technologies and VMware Inc are back in the news as the WSJ recently reported the former is considering spinning off its enormous equity stake in the latter. Back in September 2016, Dell completed its ~$67 billion cash-and-stock acquisition of EMC which gave Dell a controlling equity stake in VMware (and a mountain of net debt in the process). As of January 31, 2020, Dell owned approximately 80.9% of VMware’s outstanding equity. Dell can spin off its equity stake in VMware tax-free after a five-year waiting period, though Dell would need to wait until September 2021 before that could occur (given when the EMC deal closed).

Jun 21, 2020

Why We Like Apple and Microsoft in the Newsletter Portfolios
Image Shown: Shares of Apple Inc (blue line) and Microsoft Corporation (red line) are up significantly year-to-date as of the market close on June 19, and we see room for both shares of AAPL and MSFT to continue marching higher after recently revising our fair value estimates for both companies. On June 12, we added back shares of Apple and Microsoft Corp to both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. We added Apple and Microsoft back to the newsletter portfolios using the cash position generated by removing the Vanguard Real Estate ETF and the SPDR S&P Aerospace and Defense ETF from the Best Ideas Newsletter portfolio and Cracker Barrel and Bank of America Corp from the Dividend Growth Newsletter portfolio on June 11. The Best Ideas Newsletter portfolio (link here) and Dividend Growth Newsletter portfolio (link here), as of June 15, 2020, can be viewed on our website. There are a lot of reasons to like Apple and Microsoft, especially during these turbulent times. Both firms have massive net cash positions, better positioning the tech giants to ride out the storm created by the ongoing coronavirus (‘COVID-19’) pandemic. Both companies are free cash flow cows and their growth trajectories are underpinned by secular growth tailwinds (particularly on the cloud computing and digitally-provided services side of things), further bolstering their cash flow profiles.

Jun 17, 2020

Turbulent Fiscal Fourth Quarter Aside, Oracle Paints a Promising Outlook for Fiscal 2021
Image Source: Oracle Corporation – Oracle Database Update September 2019 Presentation. On June 16, Oracle Corp reported fourth quarter fiscal 2020 earnings (period ended May 31, 2020) that beat consensus bottom-line estimates and missed consensus top-line estimates, though there is some noise given the turbulence created by the ongoing coronavirus (‘COVID-19’) pandemic. Additionally, Oracle declared a $0.24 per share quarterly dividend that is slated to get paid out in July, which was flat on a sequential basis. Shares of ORCL yield ~1.8% as of this writing, and we continue to like the idea as a holding in the Dividend Growth Newsletter portfolio. While shares of ORCL sold off on June 17, management painted a more optimistic outlook for the firm’s fiscal 2021 performance than initial trading action suggests.

Jun 9, 2020

Our Thoughts on Warner Music Group Going Public
Image Shown: Shares of Warner Music Group Corp were trading comfortably above their initial public offering (‘IPO’) price of $25 per share at of the end of normal trading hours on June 8, after going public on June 3. Warner Music went public on June 3, though shares were sold by the company’s stockholders in the IPO and not the firm itself, meaning these proceeds are not expected to go to Warner Music Group. The company owns various record labels including Atlantic Records, Warner Records, Elektra Records and Parlophone Records along with its global music publishing business Warner Chappell Music. For some background, please note Warner Music Group counts Ed Sheeran, Bruno Mars, and Cardi B as some of its recording artists and on the music publishing business side of things songwriters including Twenty One Pilots, Lizzo and Katy Perry are part of the firm’s team. In 2011, Access Industries purchased Warner Music Group and took the company private after the firm was previously publicly traded from 2005 to 2011.

May 4, 2020

COVID-19 Idea Apple Raises Dividend, Continues With Massive Share Repurchases
Image Shown: Shares of Apple Inc have sharply rebounded since falling precipitously from the start of 2020 through March, keeping in mind we removed shares of AAPL from our newsletter portfolios back on January 13, 2020 (link here), when shares of Apple were trading well over $300 per share. We announced on March 17, 2020, that we like Apple as a way to ride out the ongoing coronavirus (‘COVID-19’) pandemic. Apple reported earnings for its second quarter of fiscal 2020 (period ended March 28, 2020) that beat both consensus top- and bottom-line estimates. The company also pushed through a 6% sequential increase in its quarterly payout, bringing it up to $0.82 per share or $3.28 per share on an annualized basis. At the new payout rate, shares of AAPL yield ~1.1% on a forward-looking basis as of this writing. We highlighted Apple as a COVID-19 idea back on March 17 (article here) considering its enormous net cash balance and strong cash flow profile provides the firm with the strength to emerge on the other side of the pandemic with its financials intact. Given its large net cash position, Apple increased its share buyback authority by $50.0 billion in conjunction with its latest earnings report.

May 1, 2020

Dividend Increases/Decreases for the Week Ending May 1
Let's take a look at companies that raised/lowered their dividend this week.

Mar 21, 2020

Top Ten Dividend Growth Stocks to Consider Amid COVID-19
Image Shown: A look at some of the top dividend growth stocks to consider, companies with strong Dividend Cushion ratios and nice payout growth trajectories, in light of ongoing turbulence in equity markets. The 'Multiplier' column multiplies a company's dividend yield by its Dividend Cushion ratio. The novel coronavirus (‘COVID-19’) pandemic continues to wreak havoc on global economies, credit and equity markets, and the livelihoods of many. We sincerely hope everyone stays safe during this pandemic. US equities have sold off aggressively during the past month, with the S&P 500 down ~25% year-to-date as of this writing, punishing the names of several top quality dividend growth opportunities that we will highlight in this note today.

Mar 17, 2020

Buybacks and Wealth Destruction
From Value Trap: "According to S&P Dow Jones Indices, S&P 500 stock buybacks alone totaled $519.4 billion in 2017, $536.4 billion in 2016, and $572.2 billion in 2015. In 2018, announced buybacks hit $1.1 trillion. Given all the global wealth that has been accumulated through the 21st century, it may seem hard to believe that another Great Depression is even possible. However, in the event of a structural shock to the marketplace where aggregate enterprise values for companies are fundamentally reset lower, the vast amount of cash spent on buybacks would only make matters worse. The money that had been spent on buybacks could have been distributed to shareholders in the form of a dividend or even held on the books as a sanctuary of value within the enterprise during hardship. Buybacks, unlike dividends, can result in wealth destruction in a market economy, much like they can with companies. This is an important downside scenario that is often overlooked." -- Value Trap, published 2018

Jan 4, 2020

Valuentum Exclusive Success Rates Trump Even the Best Quant Hedge Funds
Image: President of Investment Research Brian Nelson, CFA. A new book, “The Man Who Solved the Market,” hit bookshelves last year, and thus far it has been a hit. The text goes into the story of quant hedge fund Renaissance Technologies and its hedge fund, the Medallion Fund, which has put up mammoth returns since inception.

Dec 11, 2019

Apple Charging Higher
Image Shown: Shares of Apple Inc continue to climb higher and we like the name in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios. This is a long-term holding with substantial potential capital appreciation and dividend growth upside. We like Apple’s pristine balance sheet, top quality free cash flow profile, and decent growth outlook. The company retains an enormous amount of firepower for additional share buybacks and material dividend increases going forward. Depending on whether the US decides to impose additional tariffs on Chinese imports soon will be very material to Apple’s near-term performance, but the long-term trajectory remains the same. Beyond Apple Pay, the company has its new streaming offering (Apple TV+) which launched on November 1 to drive services-related revenue growth.