Valuentum Exclusive Analysis for the Discerning Investor

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Mar 23, 2023

The Dividend Cushion Ratio: Unadjusted Is Less Subjective, Adjusted Is More Subjective
Image Source: Mike Lawrence. Question: I'm a subscriber. I'm looking at your Dividend Report for Enterprise Product Partners. It says your Valuentum Adjusted Dividend Cushion ratio for EPD is 1.8 (a ratio that includes future expected proceeds from capital raising endeavors in the coming years), but several lines below it says the Unadjusted Dividend Cushion ratio, which is your regular normal ratio (a ratio that does not include future expected proceeds from capital raising endeavors in the coming years), is 0.22. Please explain the difference between the two ratios, and what is considered a good ratio for the Unadjusted Dividend Cushion ratio, what is an excellent score, what is neutral and what is poor? Also, how much relative importance should I give to each ratio? Also, further down in the section on Unadjusted Dividend Cushion, the chart of EPD has a large negative number in the blue bar, and your text says: "Generally speaking, the greater the 'blue bar' to the right is in the positive, the more durable a company's dividend, and the greater the 'blue bar' to the right is in the negative, the less durable a company's dividend." So that means that EPD's dividend isn't durable, yet your report earlier says that EPD's Dividend Safety rating is GOOD. Can you elaborate?

Mar 14, 2023

Berkshire Hathaway’s 2022 Shareholder Letter Addresses Buybacks
Image: Berkshire Hathaway has held up fairly well following the market rout in 2022. Image Source: TradingView. Buffett’s shareholder letters are always a refreshing read, a reminder of just how important it is to practice good business principles and to view stocks as pieces of businesses and not pieces of paper.

Mar 14, 2023

Brain Teaser - Reflexive versus Reflective
Image: Amy Leonard. Valuation multiples tend to trigger the reflexive side of our brain, and we process the multiples through anchoring. On the other hand, enterprise valuation, or the process required to answer the questions (in this article) correctly, shows that our reflexive process can be quite incorrect at times. In fact, cognitive biases such as anchoring can completely trip us up into missing out on truly undervalued companies that may have high P/E ratios while baiting us into value traps with low P/E ratios.

Mar 13, 2023

ICYMI: How Big Is Your "Too Hard" Bucket?
Image Source: Christian Schnettelker. In investing, it's okay to admit that there are some things that investors can't know. It's not a poor reflection of one's analytical ability or a possible shortcoming of one's experience, but rather quite the contrary: Understanding and accepting that some things are "unknowable" is a sign of the quality of one's judgment. Quite simply, certain critical components of the equity evaluation process are more "unknowable" than others. The intelligent investor recognizes the variance (fair value estimate ranges) and the magnitude of the "unknowable" between companies and generally tries to identify entities that have the least "unknowable" characteristics as possible or situations where the "unknowable" might actually be weighted in their favor (an asymmetric fair value distribution).

Feb 13, 2023

The Dividend Cushion Ratio Warned of Risk to V.F. Corp’s Dividend
Image: The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%.V.F. Corp cut its quarterly dividend by more than 40% on February 7, to a quarterly rate of $0.30 per share from $0.51 per share previously. The cut is yet further evidence of the importance of paying attention to the cash-based sources of intrinsic value--net cash on the balance sheet and future expected free cash flow--when it comes to evaluating dividend health. Please be sure to pay attention to the Dividend Cushion ratios of firms that you follow. Even if you are not a dividend growth or income investor, the Dividend Cushion ratio provides an assessment of the cash-based sources of intrinsic value relative to future potential outlays in the form of the dividend.

Feb 3, 2023

Trio of Earnings Reports from Apple, Alphabet, and Amazon Give Pause to Markets
Image Source: Valuentum. Apple’s, Alphabet’s and Amazon’s calendar fourth-quarter results, released February 2, weren’t great, but we’re keeping things in context. Apple had to deal with disruptions in China during the period, while Alphabet is contending with a slowdown in advertising. Both Apple and Alphabet continue to generate tremendous amounts of free cash flow, while boasting considerable net cash positions. Alphabet’s financial profile is second to none. Amazon, on the other hand, continues to burn through free cash flow while it holds a net-neutral balance sheet. We continue to be comfortable including Apple and Alphabet in the newsletter portfolios, but we won’t be considering Amazon anytime soon. Though we expect to make a few tweaks to our valuation models of each, our fair value estimates remain unchanged at this time.

Jan 11, 2023

Don't Let "Them" Spin the Narrative
Here’s the bottom line: The 60/40 stock/bond portfolio has failed both during the COVID-19 crisis as well as during 2022, when diversification was needed most. The strongest performers during 2022 were among the weakest performers in the years prior, and their 5-year returns still pale in comparison to those of big cap tech and large cap growth during the past five years. Small cap value, of which factor investing has been built on top of, continues to trail most other stylistic areas during the past five years. We’re staying the course. Though we expect continued tough sledding during the first quarter of 2023, we think the year will offer an incredible opportunity for investors to dollar cost average into what could be yet another strong decade of returns for stocks!

Jan 11, 2023

We’re Glad Microsoft Sees Promise in ChatGPT
Image Source: Mike Mozart. We’re going to be hearing a lot more about artificial intelligence chatbot technologies in the coming years, and our initial interaction with ChatGPT a month ago indicates to us that it will be a gamechanger for a lot of industries. Microsoft’s continued backing in OpenAI, the owner of ChatGPT, will likely accelerate the technology’s development, and we expect it to eventually augment Microsoft’s own search technology and ad-driven revenue opportunities. Alphabet may have a few AI tricks up its own sleeve in its ‘Other Bets’ segment, so we’re not ruling out a highly competitive environment in this area in the coming years. We like that we include both Microsoft and Alphabet in the simulated newsletter portfolios and that we’re not forced to make a decision on whether a new upstart is worthy of inclusion. Our fair value estimate for both Microsoft and Alphabet remain unchanged at this time.

Jan 6, 2023

These Things Sometimes Take Time
Image: The QQQ, which tracks the Nasdaq-100 Index, including Apple, Alphabet, and Microsoft has been a tremendous generator of wealth. Image Source: TradingView. For those that understand dollar cost averaging and the benefits of compounding, the next few years may be among the most important years for building and preserving long-term wealth. Even if markets retrace to the pre-COVID-19 highs, which we expect they will, it may just be setting up long-term investors for more attractive entry points with respect to dollar cost averaging to further compound returns. The next few years may be boring and somewhat stressful with lots of ups and downs, but we continue to like stocks for the long run!

Jan 3, 2023

Our Reports on Stocks in the Technology Giants Industry
Our reports on stocks in the Technology Giants industry can be found in this article. Reports include META, AAPL, GOOG, AMZN, MSFT, CSCO, V, MA, PYPL, INTC, ORCL, QCOM, ADI, IBM, ADBE, NVDA, CRM, AMD, AVGO, BABA, BKNG, BIDU, TSM, TXN, EBAY, ADP, MU, KFY, MAN, KLAC, LRCX, AMAT.