Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Mar 18, 2020

US Considering $1 Trillion (Or More) Fiscal Stimulus Program
Image Source: Frank Boston. A lot has changed in a short period of time since we published our first note covering the potential for a major US fiscal stimulus program back on March 10. Due to the sheer amount of pummeling the stock and credit markets have taken over the past few weeks, along with consumer, business, and investor confidence at-large (we’ll get a better read on that over time), it seems that both Democrats and Republicans are now more open to a major fiscal stimulus program than before. The ‘Survey of Consumers’ conducted by the University of Michigan notes the ‘Index of Consumer Sentiment’ fell from 101.0 in February 2020 down to 95.9 in March 2020, and there’s room for that index to fall a lot further. Please note the next data release date is March 27. In all likelihood, this is all due to the negative impacts posed by the ongoing novel coronavirus (‘COVID-19’) pandemic to both the health of individuals (particularly the older demographics and those with preexisting conditions) and the health of the overall economy (due to the “cocooning” of households and consumers). We sincerely hope everyone, their loved ones, and their families stay safe out there as we get through this pandemic as a nation and as a global community.

Mar 17, 2020

Top Ten Ideas for Consideration Amid COVID-19
Members only content. The novel coronavirus (‘COVID-19’) pandemic continues to sweep the world, and governments are shutting down business activity, driving most of the global economy to a screeching halt. In such an environment, we don’t think investors should go bottom-fishing on some of the worst businesses that have been beaten up the most during this crisis, but rather, we think this crisis is giving investors the opportunity to consider positions in some of the strongest companies out there. In this members-only article, we cover ten high quality, “moaty” names with strong balance sheets, capital-light operations, great shareholder value creation (attractive “castles’), and ones that have business models that we think can better withstand the novel coronavirus (‘COVID-19’) pandemic. What’s more, most of these companies are 20%-30% off their most recent pricing highs! Dig in.

Mar 17, 2020

Oracle’s Strategic Shift is Starting to Bear Fruit
Image Source: Oracle Corporation – Third Quarter Fiscal 2020 Earnings Press Release. On March 12, Dividend Growth Newsletter portfolio holding Oracle Corp reported earnings for the third quarter of fiscal 2020 (period ended February 29, 2020) which handily beat consensus expectations on the both the top- and bottom-lines. Growing subscription revenues at its cloud-based businesses were key to generating this outperformance, and most importantly in our view, Oracle showcased that its outlook is improving as it shifts away from old and stale IT infrastructure offerings (i.e. enterprise data application management) and towards the IT infrastructure of the 21st Century (cloud-based services i.e. software-as-a-service and infrastructure-as-a-service). Shares of ORCL yield ~2.1% as of this writing and our fair value estimate stands at $55 per share.

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

Mar 13, 2020

Dow Fell 9.99%, Worst Point Drop in History, More Nibbling?
Every stock in the S&P 500 fell during the trading session March 12, except one. The Dow Jones Industrial Average experienced the biggest point drop in history, Europe was crushed, gold and crypto-currencies sold off, Treasuries and munis were weak, as correlations among almost all asset classes approached one, as they often do during economic crises. Thursday, the S&P 500 closed at 2,480, near the low end of our 2,350-2,750 target range, and given the massive historical decline March 12 (the biggest point drop in history), equities are now starting to reflect a more neutral risk-reward balance at current levels, though we note downside risks remain. It may be time to consider doing some more nibbling on some of your favorite ideas. Where should you look? Our favorite ideas are always included in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio and Exclusive publication. In particular, we think ideas that have strong net cash positions, strong economic returns ("castles"), solid moats around their operations (competitive advantages), and strong free cash flow generation are the places to look during crises.

Mar 11, 2020

Seeds of Financial Crisis May Have Been Sown, Volatility Soars
Image Shown: The broader market indices continue to reveal tremendous levels of volatility. The Dow Jones Industrial Average dropped 5.86%, or 1,465 points, to 23,553 during the trading session March 11. From Value Trap: It seems like the markets experience a new financial crisis every decade or so. During the past few decades alone, there have been three significant banking crises: the savings and loan crisis of the late 1980s/early 1990s; the fall of Long-Term Capital Management and the Russian/Asian financial crisis of the late 1990s; and the Great Recession of the last decade that not only toppled Lehman Brothers, Bear Stearns, Washington Mutual, and Wachovia but also caused the seizure of Indy Mac, Fannie Mae and Freddie Mac...It's likely we will have another financial crisis at some point in the future, the magnitude and duration of which are the only questions. My primary reason for this view is not to be a doomsayer, but rests on the human emotions of greed and fear... -- Value Trap, published 2018

Mar 10, 2020

S&P 500 Hits Target Range, Nibbling at Ideas?
As we have outlined extensively in Value Trap: Theory of Universal Valuation, the combination of indexing and quantitative algorithmic trading is creating a situation of tremendous volatility. When indexers sell, they're not selling overpriced equities, they're selling everything in the index, indiscriminately. This has profound implications on the levels of broad market volatility, as we've been witnessing, exacerbated by the quants that pay little attention to fundamental analysis.

Mar 10, 2020

Fiscal Stimulus Coming to the US?
US equity markets started up strongly initially on Tuesday, March 10, likely due to reports coming out that the Trump Administration was considering recommending payroll tax cuts, paid leave, and special loans to small businesses to offset the negative impacts of the novel coronavirus (‘COVID-19’) epidemic. There are over 560 reported cases of COVID-19 in the US as of this writing, and unfortunately, that includes roughly two dozen fatalities. This remains a serious epidemic.

Mar 9, 2020

S&P 500 Circuit Breakers Tripped, Dow Jones Opens Down 2,000+ Points
Image: The market remains under selling pressure, but the massive sell off the past couple weeks has only amounted to but a blip since the beginning of 2010. There could be more pain ahead. After a pre-market session March 9 that locked futures at “limit down” (futures are limited from dropping more than 5%), most investors were laser-focused on the moves of the S&P 500 ETF (SPY), which pre-market had been hovering around the $276 per-share range, off about 7%. Shortly after market open, circuit breakers were then tripped with the S&P 500 falling 7%, stopping trading for 15 minutes. The Dow Jones Industrial Average fell more than 2,000 points. We are maintaining our S&P 500 target range of 2,350-$2,750, or $235-$275 on the SPY at this time.

Mar 9, 2020

Oil Prices Collapse, Reiterating 2,350-2,750 S&P 500 Target Range; Credit Crunch Looming?
From Value Trap: “The banking sector was not the only sector that faced considerable selling pressure during the Financial Crisis of the late 2000s, of course. Other companies that required funding to maintain their business operations faced severe liquidity risk, or a situation where refinancing, or rolling over debt, might be difficult to do on fair terms, making such financing prohibitive in some cases. Those that faced outsize debt maturities during the most severe months of the credit crunch faced a real threat of Chapter 11 restructuring had the lending environment completely seized. In thinking about share prices as a range of probable fair value outcomes, equity prices tend to face pressure as downside probabilities such as a liquidity event are baked into the market price and at a higher probability. Because debtholders are higher up on the capital structure than equity holders, shareholders can sometimes get nothing in the event of a bankruptcy filing. Entities that are extremely capital-market dependent, or those that require ongoing access to new capital to fund operations, often face the greatest risk of the worst equity price declines during deteriorating credit market conditions.” Value Trap: Theory of Universal Valuation, published 2018