Valuentum Exclusive Analysis for the Discerning Investor

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Schlumberger Recovering, Outlook Bright
Image Shown: Shares of Schlumberger NV are on the upswing, though the company’s stock price remains far below levels seen before the COVID-19 pandemic. On October 22, the oilfield services giant Schlumberger NV reported third-quarter 2021 earnings that missed consensus top-line estimates and matched consensus bottom-line estimates. The company’s business continues to recover as oil & gas investment activity is picking up steam around the globe after getting decimated last year in the face of the coronavirus (‘COVID-19’) pandemic. Looking ahead, Schlumberger expects significant improvement in its mid-cycle financial performance from current levels, aided by major cost structure improvements embarked on last year.

Intel’s Huge Expected Capital Spending Gives Dividend Growth Investors Pause
Image: Intel has advanced nicely during the past several years, but more recently, its choppy stock behavior is reflective of the market having trouble figuring out the future direction of this tech behemoth, particularly in light of encroaching competition and huge expected capital spending growth. Shares offer investors a healthy 2.8% dividend yield, however, which gives the stock a sturdy foundation for the time being. In October 2020, we decided to remove Intel from the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio as competition was heating up and the firm’s balance sheet started to lose its luster. Weakening free cash flow due to a huge expected capital-spending build now makes Intel incrementally less attractive of an idea, though we note shares continue to trade within our fair value estimate range ($45-$67), which may be revised slightly lower on the next update. A dividend yield of ~2.8% is supported by future free cash flow in the near term, but there may be more clouds on the horizon (and investors should expect a lower Dividend Cushion ratio upon the next update, too). We’re comfortable being on the sidelines as there are so many other investment considerations that fit the financial bill better, in our view--namely those capital-appreciation and dividend-growth considerations with strong net cash positions and strong future expected free cash flow growth.

Johnson & Johnson Boosts Guidance Again, Posts Great Earnings Update
Image Shown: Johnson & Johnson reported strong performance across its three core business operating segments in the third quarter of fiscal 2021. Image Source: Johnson & Johnson – Third Quarter of Fiscal 2021 IR Earnings Presentation. On October 19, Johnson & Johnson reported third quarter earnings for fiscal 2021 (period ended around the end of September 2021) that missed consensus top-line estimates but beat consensus bottom-line estimates. The healthcare giant also raised its full-year guidance (again) for fiscal 2021 as its ‘Pharmaceutical’ segment is growing at a robust pace, its ‘Medical Device’ segment is steadily recovering from the worst of the coronavirus (‘COVID-19’) pandemic, and its ‘Consumer Health’ segment is holding up well. We continue to like Johnson & Johnson as an idea in both the Best Ideas Newsletter portfolio and the Dividend Growth Newsletter portfolio.

Quants and High-Frequency Trading the Real Cause of the GameStop Frenzy?
Image: The cause of the GameStop trading frenzy remains largely unclassified as it appears to us that quant and high-frequency trading played a much bigger role in the market disruption than what is being reported. We think the SEC staff put out a fantastic “GameStop Report” with some excellent information. However, the report did not get to the crux of the matter, failing to disclose what actually caused the extreme market volatility in meme stocks, while glossing over the substantial increase in institutional accounts, likely belonging to quant/trend/momentum funds, that contributed to the trading frenzy this year. We think investors and market participants deserve to know more about what caused this threat to market integrity and structure as the continued proliferation of which may only grow larger and larger in the coming decades. If it was quant trading, then we encourage the SEC to take steps to ensure that such trading is curbed effectively as it is clear that such price-agnostic activity is not contributing to market efficiency.

LVMH Posts Record Sales Performance
Image Source: LVMH Moët Hennessy Louis Vuitton - October 2021 IR Presentation. The France-based luxury goods company LVMH Moët Hennessy Louis Vuitton provided an update on its sales performance during the first three quarters of 2021 on October 12. LVMH’s revenues grew by 46% year-over-year, reaching EUR44.2 billion (a record for the company), and organic sales were up 40% year-over-year during the first nine months of 2021. The company’s ‘Fashion & Leather Goods’ segment, responsible for a little under half of its total sales, saw its revenue surge higher during this period led by fashion powerhouses Louis Vuitton and Christian Dior Couture. Strength in the US and Asian luxury goods markets bolstered LVMH’s financial performance this year. Let's take a deeper look to get a read on how the luxury space has been performing after the worst of the pandemic.

PepsiCo Flexes Its Pricing Power
Image Shown: PepsiCo Inc is adeptly navigating various inflationary, labor, and logistical hurdles. Investors have started to warm back up to the name and its impressive pricing power over the past several months. On October 5, beverage and snack giant PepsiCo reported third-quarter earnings for fiscal 2021 (period ended September 4, 2021) that beat both consensus top- and bottom-line estimates. PepsiCo also raised its full-year guidance for fiscal 2021 in conjunction with the report.

IBM Provides Investors with a Major Update
Image Source: International Business Machines Corporation – October 2021 IR Presentation. While still a major enterprise, International Business Machines Corp is no longer the tech juggernaut it used to be and hasn’t been a leading tech company for over a decade. The company recognizes this and back in October 2020, IBM announced that it planned to “separate its Managed Infrastructure Services unit of its Global Technology Services division into a new public company” that will be called Kyndryl. By the end of 2021, this tax-free spinoff is expected to be complete (shares of Kyndryl will be spun off to IBM shareholders). In October 2021, IBM provided a major update to its shareholders covering its medium-term financial outlook, key operational updates, and what to expect going forward as it concerns its dividend policy, areas that we are going to cover in this article.

Domino’s Pizza Is a Stellar FCF Generator with an Enormous Growth Runway
Image Source: Domino’s Pizza Inc – Second Quarter of Fiscal 2021 IR Earnings Presentation. One of our favorite capital appreciation ideas is Domino’s Pizza, and we include shares of DPZ as an idea in the Best Ideas Newsletter portfolio. The company’s unit economics are incredibly attractive for current and potential franchisees, which encourages current franchises to expand their existing operations and potential franchisees to join the team. At the top end of our fair value estimate range, Domino’s Pizza has a fair value of $541 per share, well above where shares of DPZ are trading at as of this writing.

Innovative Fuel Cell Company Ceres Power Has a Stellar Growth Outlook
Image Shown: Ceres Power Holdings plc is a pioneer in the fuel cell industry. If Ceres Power and its strategic partners are successful, Ceres Power could offer investors ample capital appreciation upside though we caution that this is a highly speculative name. Image Source: Ceres Power Holdings Plc – First Half of 2021 Interim Report IR Presentation. Ceres Power is a pioneer in an attractive industry and continues to secure crucial strategic collaboration agreements with major industrial players worldwide. The company’s capital appreciation upside potential could be quite substantial, especially as products built on its SteelCell technology progress from the pilot phase to the commercial phase, providing its core licensing and royalties business a major uplift. Its SOEC offerings could be another source of tremendous long-term upside, though again, these are still early days. Investors should be aware of this innovative company.

Markets Look Vulnerable, Adding "Protection"
The S&P 500 (SPY) and corresponding 50-day (green), 100-day (purple), and 200-day moving averages (red). We expect the SPY may have to "correct" to the 200-day moving average, or about $412-$413 per share before it finds its footing. Self-inflicted wounds the past several weeks have altered the market's sentiment for the worse, and we don't think the selling is done yet.