Valuentum Exclusive Analysis for the Discerning Investor

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Jul 27, 2022

Walmart’s Business Update Likely Means U.S. Is In Recession, But Near-Term Weakness Is Already Baked Into Stock Market
Image Shown: Shares of Walmart Inc dropped sharply during afterhours trading on July 25 as the retailer sharply cut its adjusted operating income and EPS guidance for the current fiscal year as inflationary pressures are taking a sizable toll on its bottom-line. On July 25, Walmart Inc issued a business update that saw the retailer sharply cut its adjusted operating income and EPS guidance for fiscal 2023 (period ended January 2023), while boosting its consolidated net sales guidance. The company also adjusted its guidance for the fiscal second quarter. Shares of WMT plummeted during afterhours trading on July 25 as investors began to price in concerns over the retailer’s deteriorating margins. We anticipated ongoing weakness in Walmart’s business. On July 4, we released an audio report, “Nelson: I Have Been Wrong About the Prospect of Near-Term Inflationary-Driven Earnings Tailwinds,” highlighting our growing concerns about consumer-tied entities in the consumer staples and consumer discretionary spaces. We continue to expect troubles at the big box retailers and across the apparel space, more generally. Here’s what Nelson had to say in early July that remains applicable today: "I simply was not expecting the magnitude of such operating-income drops across consumer-tied companies, and while I think long-term inflation will eventually help drive higher nominal earnings in the longer run when conditions reach “normalization” again, the lag will be much longer than I originally thought. The numbers out of Walmart, Target, and Nike, for example, speak not only to tremendous earnings weakness, but also to the prospect of economic recession in the U.S." A recession in the U.S. is no reason for panic, however. For starters, we believe most of the fundamental weakness across retail is baked into the stock market, but more generally, investors should not worry about recessionary trends. But why? Well, implicitly embedded within a fair value estimate of a company are expectations of a “normal” economic cycle, complete with peak and trough, with the fair value estimate driven largely by mid-cycle expectations that feed into later stages of the model. The prospects for an unexpected recession in economic activity in the near term shouldn’t cause much of a change in the fair value estimate of a company either, given not only that a recession is already implicitly embedded in the fair value estimate, as noted, but also that near-term expectations don’t account for nearly as large of a contribution to the fair value estimate as long-term normalized expectations within the valuation construct. Most of a company’s intrinsic value is driven by its performance beyond year 5 in our model, or on a mid-cycle, going-concern basis. A company’s fair value estimate range (margin of safety) also captures various scenarios regarding economic activity, including a bull and bear case. With that said, recessionary tendencies may cause pricing impacts in the market in the event that consumers/investors use the stock market as a source of income by selling stocks, causing pressure on share prices, but the discounted cash flow (DCF) model already bakes in economic cyclicality and inevitable recessions, if not directly, then implicitly by targeting long-term mid-cycle expectations and via the application of the fair value estimate range. That’s why it’s great to be a long-term investor, scooping shares up when others are forced to sell in the near term, while holding them over long periods, letting compounding work its magic.

Jul 19, 2022

Dick’s Sporting Goods Facing Revenue “Normalization,” Long-Term Story In Tact
Image Source: Dick’s Sporting Goods Inc – First Quarter of Fiscal 2022 Infographic. Inflationary pressures, labor shortages, and supply chain hurdles are all weighing negatively on Dick’s Sporting Goods’ near term outlook. The retailer’s net cash position and strong cash flow generating abilities should help see it through this period of revenue “normalization,” and its longer term growth runway remains robust (underpinned by new store concepts, the potential for meaningful unit store count growth, ongoing customer loyalty and digital initiatives, and various in-store product layout optimization efforts). We continue to like Dick’s Sporting Goods as an idea in the Dividend Growth Newsletter portfolio. Shares of DKS yield ~2.2% as of this writing, and we see ample room for the retailer to push through substantial dividend increases over the long haul.

Jun 28, 2022

Nike’s Gross Margin Falls, Inventory Leaps in Fourth Quarter Fiscal 2022
Image Source: Valuentum. Nike CEO John Donahoe may have said it best in its fourth-quarter fiscal 2022 press release: “Nike’s results this fiscal year are a testament to the unmatched strength of our brands and our deep connection with consumers. Our competitive advantages, including our pipeline of innovative product and expanding digital leadership, prove that our strategy is working as we create value through our relentless drive to serve the future of sport.” What more can we say about this great company. We like its financials quite a bit, fourth-quarter fiscal 2022 earnings came in better than expected, the company is navigating supply chain issues, inflationary pressures, and weakness in Greater China quite well, and it just launched a new massive buyback program to take advantage of its underpriced stock. Nike boasts an impressive Dividend Cushion ratio of 3.8, and we’re reiterating our $139 per share fair value estimate on shares. Shares yield ~1.1% at the time of this writing.

Jun 26, 2022

Valuentum's Dividend Growth Strategy 'Outperforming'
Image: The Valuentum Dividend Growth strategy has delivered thus far in 2022. With the S&P 500, as measured by the SPY, down 18.1% (negative 18.1%) thus far in 2022 and the S&P Dividend ETF (SDY) down 6.7% (negative 6.7%), the Valuentum dividend growth strategy, as measured by the hypothetical performance of the Dividend Growth Newsletter portfolio (as shown above), is down an estimated 4.6% (negative 4.6%) so far in 2022, all on a price-only basis. Though two percentage points better than the S&P High Yield Dividend Dividend Aristocrats Index doesn't seem like much, the large cap tilt of the simulated Dividend Growth Newsletter portfolio makes such "outperformance" significant and material. The benefits of a dividend growth strategy, in general, have also been on display so far in 2022, with the simulated Dividend Growth Newsletter portfolio "outperforming" the SPY by an estimated ~13.5 percentage points, on a price-only basis. With the half year mark of 2022 nearing, we wanted to continue to provide updates on the "performance" tracking across a variety of our publications. In case you missed them, please find the year-to-date evaluations of the simulated Best Ideas Newsletter portfolio, the Exclusive capital appreciation and short idea considerations, the simulated High Yield Dividend Newsletter portfolio, as well as our additional options commentary for your convenience. The links are provided as follows. In this article, we'll talk about the "performance" of the simulated Dividend Growth Newsletter portfolio relative to traditional benchmarks and in the context of modern portfolio theory, though we stress that our dividend growth focus is on long-term income expansion not short-term relative price performance, per se.

Jun 9, 2022

Best Idea Dollar General Beats Consensus Estimates and Raises Guidance in the Face of Substantial Headwinds
Image Shown: Dollar General Corporation’s GAAP net sales rose in the first quarter of fiscal 2022 on a year-over-year basis due to growth in its net store count. Image Source: Dollar General Corporation – May 2022 8-K SEC Filing. As a discount retailer, Dollar General is contending with myriad headwinds though its underlying business is holding up quite well. We continue to view its capital appreciation upside potential quite favorably, and its dividend program offers incremental upside potential. Shares of DG yield ~1.0% as of this writing.

Apr 6, 2022

Lululemon Firing on All Cylinders; Shares Recovering
Image Shown: Shares of Lululemon Athletica Inc are recovering in the wake of the company’s recent earnings report. On March 29, Lululemon Athletica Inc reported fourth quarter earnings for fiscal 2021 (period ended January 30, 2022) that matched consensus top-line estimates and beat consensus bottom-line estimates. Lululemon also announced it had initiated a new $1.0 billion stock buyback program after completing its previous program in the first quarter of fiscal 2022. The company issued favorable guidance for fiscal 2022 during its latest earnings update, which helped drive shares of LULU sharply higher during normal trading hours on March 30. Shares of LULU are up more than 20% during the past 52 weeks through the time of this writing, more than doubling the return of the S&P 500 during that time. We value shares north of $400 each at the time of this writing, revealing significant potential upside should price-to-fair value estimate convergence materialize.

Apr 4, 2022

3 Dividend Growth Ideas That Just Raised Their Payouts
Image Source: American Tower. Let’s cover the benefits of dividend growth investing and three dividend growth ideas that just raised their payouts.

Mar 29, 2022

Nike Holding Its Own Against Major Exogenous Shocks
Image Shown: Shares of Nike Inc are on an upward climb again after dropping significantly from November 2021 to March 2022. Nike is holding its own in the face of major exogenous headwinds. The firm’s pivot towards D2C and digital sales are having a powerful impact on its business and underlying financial performance. We appreciate that Nike is a stellar generator of shareholder value, though we caution that inflationary headwinds and supply chain hurdles loom large over its near term outlook, as does the Ukraine-Russia crisis due to rising fuel expenses and the risk that portions of the global economy (particularly developing and emerging markets) may enter a recession. We continue to be bullish on U.S. equities and the domestic economy.

Mar 18, 2022

Dividend Increases/Decreases for the Week March 18
Let's take a look at companies that raised/lowered their dividend this week.

Mar 14, 2022

Valuentum Weekly: Yields on New Series I Savings Bonds Have Soared!
The Dow Jones, S&P 500 and NASDAQ futures are all indicated up Sunday night (March 13), but that may not mean much when trading kicks off tomorrow. The start to 2022 has been one of the worst stretches during the past decade, but broader market indexes still aren't down much, even after factoring in several expected rate hikes by the Fed and economic sanctions on Russia due to the war in Ukraine. According to data from Seeking Alpha, the S&P 500 (SPY), Dow Jones Industrial Average (DIA), and Nasdaq (QQQ) are off ~12%, ~10%, and ~19% so far this year, respectively. However, this weakness compares to (and is inclusive of) incredible 5-year price-only returns on the SPY, DIA, and QQQ of ~77%, ~58%, ~146%, respectively, so it's hard for stock investors to be disappointed in much of anything, even if all they were able to do was match the returns of the S&P 500 the past 5 years. Many, however, unfortunately, diluted those 5-year returns with hefty bond and international exposure and sometimes large AUM fees, so the weakness in 2022 is probably more painful for some than perhaps it should be. In any case, we remain bullish on stocks for the long run, with a heavy bent toward large cap growth and big cap tech with tactical overweight "positions" in big cap energy.