Valuentum Exclusive Analysis for the Discerning Investor

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Dec 3, 2021

Valuentum Weekly: Nothing Surprising, Well-Positioned!
Image source: Cathie Wood's flagship ETF, the ARK Innovation ETF (ARKK) has fallen more than 40% from its 52-week high. This is nothing short of a complete and utter bloodbath for such an actively-managed fund, in our view. We note this for context. We're not just talking about one or two or five stocks that are down 40% from 52-week highs, but the *entire fund.* Investors have to keep things in perspective. It's perfectly reasonable within the context of a portfolio to have a few stocks off 10%, 20%, or maybe even 50% from all-time highs. However, if your entire portfolio is down 40%+ from 52-week highs, you're doing something wrong.We're finally getting a shake out of the substantial excesses in the market. Entities such as DocuSign are down more than 40% during the trading session December 3, 2021. All-star funds such as the ARK Innovation ETF with well-known fund managers are down over 40% from all-time highs. It's a bloodbath out there if you're not positioned correctly. I can only imagine the sheer panic that's going on right now. It's laughable, but we sometimes get flak if we have one or two or five companies in a couple portfolios of 20-40 stocks that trail the index. My goodness, what must these investors then be saying to fund managers who are down 40%+ from 52-week highs, and whose funds are down 20%-30% on the year when the S&P 500 is up over 20%. It's clear that Valuentum customers demand a lot more from us than even the best, highest-profile managers out there, and we appreciate that. Thank you. A lot of the traditional IBD and Motley Fool stocks look to be stumbling as well. But we're sitting pretty at Valuentum, and here's why.

Nov 22, 2021

ICYMI: The PayPal Wave Recedes, We Still Like Shares
Image Source: PayPal. We knew something wasn’t quite lining up at digital-payments provider PayPal when the rumor mill started to turn with reports it was interested in scooping up Pinterest for a pretty penny. PayPal has since put to rest rumors about buying Pinterest, but it left investors with a sour outlook when it issued third-quarter results November 8. Though the market wasn’t happy with the forecast for the fourth quarter of 2021 and into 2022, the company continues to grow revenue at a robust pace, and we expect several key initiatives to drive sustainable top-line expansion for many years to come. Our fair value estimate stands north of $270 per share.

Nov 17, 2021

Asset Allocators Fail, Advisors Should Pick Stocks, Save Investors $34 Billion Annually
Image: Most asset allocators can’t even keep pace with the underperforming 60/40 stock/bond portfolio. Highlight added by author. Image Source: Wealth Management. Let’s get this industry back on track. This isn’t about going all-in on cryptoassets or being reckless with one’s capital the past 10 years, but merely picking stocks as a risk/wealth management strategy that approximated the S&P 500 for the past 10 years, and how that has crushed not only the best that quant has had to offer in small cap value but also indexing and asset allocation. One hundred and seventy percentage points of difference relative to the 60/40 stock/bond portfolio, which itself beat many of the “best” asset allocators out there!!! This isn’t about taking on more risk, but rather that active stock selection should be viewed in the same vein as asset allocation. Why do we continue to publish the obviously-biased research in favor of indexing and asset allocation when stock selection could have delivered so much more for investors while saving them billions in annual fees from ETFs, etc. Today, the SEC has a lot on its plate regarding SPACs, cryptocurrency, new issues, ETF approvals and beyond, but in our view, the SEC shouldn’t necessarily be prioritizing 2 and 20 fees more than the index-fund fee chain, and it shouldn’t necessarily be trying to eliminate payment for order flow (PFOF) any more than it should seek to eliminate low-cost index funds. Let us not kid ourselves: It's clear why index funds and passive is winning -- the fees are tremendous! All things considered, if investors want to believe risk is volatility and suffer with indexing and asset allocators, that is their prerogative, but what worked in the past (deviations from equity selection as in the 60/40 stock/bond portfolio) bolstered by high interest rates in the 1980s is far from relevant today (and making up alternative assets isn't going to help). We don’t need more indexing and asset allocation books these days. We need more common sense. Stop selling index funds and start trying to help investors.

Nov 15, 2021

Hut 8 Mining Is an Interesting Play on Cryptocurrencies
Image Source: Hut 8 Mining Corporation – November 2021 IR Presentation. Executive Summary: We are intrigued by Hut 8 Mining’s business model. By growing its bitcoin balance over time and covering its operating expenses by lending out its bitcoin hoard, generating so-called fiat yield, Hut 8 Mining is effectively a bet that a combination of growth in the price of bitcoin and growth in its bitcoin hoard will provide a major boost to its net asset value (‘NAV’) over time. Should the price of bitcoin tank, however, that would weigh negatively on its business, though things would likely not be as bad as it first appears given that Hut 8 Mining is set up to make money in almost every bitcoin pricing environment. As long as there is investor demand out there to borrow its bitcoins, and that broad interest in cryptocurrencies holds up well going forward, Hut 8 Mining should be able to continue growing its revenue as it grows the amount of bitcoin it can lend out on average per quarter. Obviously, of course, the firm would do better if the price of bitcoin stays the same (currently at roughly USD$64,700 for one bitcoin as of this writing) or increases. From our perspective, Hut 8 Mining is better positioned to capitalize on the cryptocurrency craze, in our view, than many of the other firms out there that are mining and continuously selling off their bitcoin holdings or actively buying bitcoin on the open market seeking to flip those alternative digital assets for a profit down the road (the “greater fool theory” in action). We are keeping an eye on Hut 8 Mining, though in this particular case, we must caution that the intrinsic value of alternative digital currencies like bitcoin is zero. The value is entirely in the eyes of the beholder.

Nov 12, 2021

Hard Work and the Trust That Binds
Image: Terry Johnson. It’s easy to forget how much we’ve been through the past two years. Often, we forget how helpful the warning that markets were going to crash was the weekend before they did on February 22, 2020, “Is a Stock Market Crash Coming? – Coronavirus Update and P/E Ratios,” how we thought dollar-cost-averaging made sense at the bottom in March 2020, and how we went “all-in” in April 29, 2020, “ALERT: Going to “Fully Invested” – The Fed and Treasury Have Your Back,” when we saw the writing was on the wall for this blow off top. If nothing else, these three moves alone during the past couple years have paid for a lifetime of subscriptions.

Nov 3, 2021

Large Cap Growth Has More Room To Run
“The stylistic area of large cap growth has been one of our favorite areas because of the strong net cash rich, free cash flow generating, secular growth powerhouses that make up much of the space. The image is a rundown of the key Valuentum statistics for the top 15 holdings of the Schwab U.S. Large Cap Growth ETF (SCHG). We believe where large cap growth goes, so does the broader market, considering the hefty weightings of some of these stocks in other broad-based indices. Based on the high end of our fair value estimate range for this group of bellwethers, the broader U.S. markets still have room to run, to the tune of 7%+, despite the many highs already reached during 2021. Though traditional valuation multiples may seem stretched by most measures, many market bellwethers have huge net cash positions and tremendous free cash flow growth potential. We expect the equity markets to continue to be led by large cap growth.” – Brian Nelson, CFA

Nov 1, 2021

FinTech Stocks Still Attractive, Market Overreacting to Visa’s Cross-Border Travel Outlook
Image: Visa continues to rake in the free cash flow. Though its outlook is clouded somewhat by recovering cross-border travel transaction volumes, we still like its asset-light, free-cash-flow rich business model. Cryptocurrency trading is all the rage these days, but when it comes down to it, the average consumer isn’t using crypto to pay for everyday goods and services. We believe fintech is a great way to play the firm foundations of asset-light, free-cash-flow generating entities that are exposed to crypto adoption but not pure plays to crypto’s success, which is far from guaranteed. Cloudy outlooks from Visa and Mastercard regarding cross-border travel activity have many fintech investors somewhat cautious heading into 2022, but we couldn’t be bigger fans of the group. Visa and PayPal remain two of our favorite fintech ideas.

Oct 29, 2021

Dividend Increases/Decreases for the Week October 29
Let's take a look at companies that raised/lowered their dividend this week.

Oct 26, 2021

I Don’t Know How Lucky I Am, Do You?
Image: The category of large cap growth (SCHG) has outperformed a 60/40 stock/bond rebalanced portfolio (VBIAX) by ~310 percentage points the past 10 years. Image Source: Morningstar."Sometimes, I get beat up over a stock idea not outperforming or the simulated newsletter portfolios hitting a rough patch, and it’s hard to stomach. Sometimes, I sit in frustration because I know how others are “playing the game,” and how lucky I am to be a stock picker. Quite simply, if you’ve been picking stocks the past 10 years and didn’t fall into the quant value trap of small cap value, it’s very likely you’ve hit the ball out of the park relative to what you might have ended up with had you gone with a sophisticated asset allocation model with management fees. I hope you can see how lucky you are, too. Thank you so much for being here. Stocks for the long haul!" -- Valuentum's President, Brian Nelson, CFA

Oct 1, 2021

Best Idea Visa on the Rebound, Generating Gobs of Free Cash Flow
Image Shown: Visa Inc is a stellar free cash flow generator and is included as an idea in our Best Ideas Newsletter portfolio. Image Source: Visa Inc – Third Quarter of Fiscal 2021 IR Earnings Presentation. We are huge fans of the payment processing and payment solutions space. This industry is supported by secular growth tailwinds due to the global shift away from cash-to-card and card-not-present (e.g. online purchases) purchase options, and the ongoing proliferation of e-commerce. Furthermore, companies in this space benefit immensely from the network effect, which creates an economic moat for their business. These companies are incredibly lucrative with relatively high operating margins and impressive free cash flow generating abilities, aided by their relatively modest capital expenditure requirements to maintain a certain level of revenues. We include payment networks giant Visa as a “top-weighted” idea in the Best Ideas Newsletter portfolio and view its capital appreciation upside quite favorably, with the top end of our fair value estimate range sitting at $304 per share of Visa.