Valuentum Exclusive Analysis for the Discerning Investor

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May 10, 2021

Inflation! How to Think About Value Duration
Image Shown: Longer-duration free cash flow stocks are more impacted by changes in inflationary expectations and interest rates (up or down) than stable and/or stable and growing free cash flow generators. This example shows the impact of falling interest rates (10%-->5%) on stable versus longer-duration hypothetical future free cash flow streams, all else equal (the opposite would directionally be applicable in a rising interest rate environment). There's nothing 'all else equal' in the real world though. In the event of rising inflationary expectations, we would still expect speculative technology stocks to take the biggest hit. On the other hand, we would expect strong and growing free cash flow powerhouses that can price ahead of inflation such as big cap tech to handle the environment well. Though banks, energy, and the metals and mining sectors may lead the market for some time, we still like large cap growth and big cap tech for the long run. What many may be overlooking is that, for those with pricing power, higher inflationary expectations translate into higher product and service prices, too. Big cap tech (and their pricing power) is well-positioned to handle such an environment. We’re not overreacting in any respect, and we’re not going to chase commodity prices or commodity producers higher. Commodity prices are simply too difficult to predict in almost all cases, and banking entities are far too susceptible to boom-and-bust shocks for us to get comfortable with their long-term investment profiles. All in, we’re sticking with companies with strong net cash positions and future expected free cash flows (and solid dividend health, where applicable). Some of the strongest companies that have these characteristics can be found in large cap growth and big cap tech. Facebook remains our top idea for long-term capital appreciation potential. In the meantime, we’re comfortable watching the market chase a rotation into more speculative areas.

Apr 29, 2021

Visa’s Business Is on the Rebound
Image Shown: Visa Inc remains a tremendous free cash flow generator, aided by its asset-light business model. We continue to be big fans of Visa and include the company as a top-weighted idea in our Best Ideas Newsletter portfolio. Image Source: Visa Inc – Second Quarter of Fiscal 2021 IR Earnings Presentation. On April 27, Visa reported second quarter fiscal 2021 earnings (period ended March 31, 2021) that beat both consensus top- and bottom-line estimates. Visa’s GAAP revenues and GAAP operating income were down 2% and 9% year-over-year, respectively, last fiscal quarter as its cross-border business remains subdued. On the flip side, Visa’s total payment volumes and processed transaction were up 8% and 11% year-over-year, respectively, in constant currency terms. Coronavirus (‘COVID-19’) vaccine distribution efforts should help global health authorities eventually bring the pandemic to an end, though the return of international travel and related activities to pre-pandemic levels is likely a way off. During its latest earnings report, Visa’s business showcased serious signs that a recovery was already well underway, and we continue to be huge fans of the name. We include Visa as a top-weighted idea in the simulated Best Ideas Newsletter portfolio.

Jan 12, 2021

New Issue Airbnb's Shares Pricing In Strong Recovery and Then Some
Image Shown: Airbnb is losing money hand over fist while as it grows into its substantial market opportunity. Source: S-1.  Rental platform Airbnb has been a part of the latest series of IPOs that have soared out of the gates recently. Shares went public at $68 per share December 10, and now the equity is trading at more than $148 per share at the time of this writing. For those that don't know the story of Airbnb (AirBed & Breakfast), the concept started in 2007 when, after discovering that every hotel was sold out during an international design conference in San Francisco, the founders started renting airbeds in their apartment to conference attendees. Thirteen years have now passed, and Airbnb has over 4 million hosts that offer places to stay from private rooms, cabins, and farms to the most luxurious accommodations (even castles and private islands). Its hosts that range from schoolteachers to artists and beyond across ~100,000 cities have been wildly successful, raking in over $110 billion in income since Airbnb's inception while serving over 825 million guests. Much like Uber and Lyft have done with ridesharing and people in other's cars, Airbnb, to a very large extent, with all of its success to date, has provided a solution to make strangers feel comfortable staying in each other's homes.