Valuentum Exclusive Analysis for the Discerning Investor

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Oct 14, 2022

Banks Held Up in 3Q 2022 But Mortgage Market Dynamics and Consumer Health Are Big Economic Concerns
Image: Homebuyer mortgage payments on new homes have increased more than 50% since last year due to rising interest rates. We think this is a precursor to lower housing prices, which could have implications across the banking and financials sector. Image Source: Redfin. Third-quarter 2022 earnings reports from the money center banks weren’t bad, but we’re concerned about the impact of rising mortgage rates on originations coupled with weakness in asset values across the residential and commercial real estate markets. Consumer personal savings rates are already suffering as many seek to use revolving credit to deal with inflationary pressures. We like the Financials Select Sector SPDR (XLF) as the best way to play diversified exposure to the banking and financials industry, an ETF that we include in the Best Ideas Newsletter portfolio, but there's a lot to worry about, including global financial contagion risk from Europe.

Oct 10, 2022

Recent Fair Value Estimate Updates
Image Source: Valuentum. We’ve made a number of fair value estimate changes across our coverage universe as a result of what we expect to be substantial weakness in the global economy. Many of our fair value estimate adjustments have come in the consumer discretionary sector, but we have also made tweaks to the fair value estimates of companies in the simulated Best Ideas Newsletter portfolio. Though 2022 has been a tough year, we’ve been steady at the wheel, calling the nearly unprecedented fall in the 60/40 stock/bond portfolio this year, the mid-teens percentage weakness in the SPY following the summer rally, all the while driving “outperformance” through the latest simulated Best Ideas Newsletter portfolio update August 19. Another update will be forthcoming. This year has been tough, but it’s been a lot worse for asset allocators that missed out on the big bull market run in equities if they held a hefty allocation in bonds the past decade. Let’s keep our guards up as this market looks like it might get a lot worse before it gets better.

Jul 7, 2022

2022 Oil & Gas Market Update: “The Outlook for Crude Oil Prices Remains Quite Bullish”
In our view, the outlook for crude oil prices remains quite bullish which in turn should enable Chevron and Exxon Mobil, two of our favorite newsletter portfolio ideas, to churn out “gobs” of free cash flow over the coming quarters. Additionally, both Chevron and Exxon Mobil have substantial exposure to natural gas prices, in part through their enormous LNG export facilities in Australia, which should further support their cash flow generating abilities. We will caution here that a key downside risk the global energy complex faces is potential demand destruction as consumers adjust their lifestyles accordingly to reduce their energy and fuel bills. With that in mind, we have yet to see energy demand falter in a meaningful way, though we are keeping a close eye on the state of the global economy.

Dec 1, 2021

Large Cap Growth Dominates, MLPs Have Suffered
Image: Sign up to our new options commentary. $1,000/year. 4 ideas per month and more! Image: Win = The options contract was closed as a win. Closed = the options contract was closed at a loss. Expired = The options contract expired worthless. Pie chart above does not consider ideas still open. Data through October 26, 2021. Results are hypothetical. No trading is taking place. Past performance is not indicative of future performance.On behalf of our team at Valuentum, we hope you had a wonderful Thanksgiving holiday weekend, and we wish you the very best this holiday season. We're hoping for a nice Santa Claus rally! Godspeed, and thank you for your membership and attention these past many years!

Nov 28, 2021

Bitcoin, U.S. Large Cap Growth, and Technology Continue to Dominate Returns
Image source: Seeking Alpha, retrieved November 28. Bitcoin (GBTC), Technology (XLK), U.S. Large Cap Growth (SCHG), Russell 1000 Growth (IWF), Consumer Discretionary (XLY) have dominated returns the past 5 years. U.S. MLPs (AMLP), Crude Oil (USO), Energy (XLE), Chinese Stocks (FXI), and various bond ETFs (JNK), (AGG), (MUB) have trailed.

Oct 26, 2021

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.

Oct 8, 2021

Putting the Environmental in ESG
Image: This excerpt from the Valuentum Environmental, Social and Governance (ESG) Scoring System shows how environmental considerations are analyzed. Environmental considerations are just one piece of the ESG analysis, but they can reveal a lot about a company and its values. Companies that make a commitment to protecting the environment, especially those that are doing it better than their peers, are not only recognizing the social importance but also protecting themselves--and their investors--from negative financial impacts related to environment issues.

Sep 21, 2021

Booming Natural Gas Prices Great News for Chevron and ExxonMobil
Image Shown: Chevron Corporation – August 2021 IR Presentation. Natural gas prices in the US measured by the Henry Hub benchmark based in Erath, Louisiana, have surged higher over the past several months. This is partially due to the slowdown in domestic oil & gas development activity that occurred back in 2020 in the wake of the coronavirus (‘COVID-19’) pandemic and low crude oil prices. Though crude oil prices, measured by the domestic WTI and international Brent benchmarks, have since recovered, that has not resulted in domestic drilling activity returning to levels seen in 2019, though development activity has recovered somewhat. Henry Hub futures are trading north of $5 per million British thermal units (‘MMBtu’) through February 2022 as of this writing, dropping just below $5 per MMBtu for March 2022 deliveries.

Sep 17, 2021

Our Two Favorite Midstream MLPs: EPD and MMP
Image Source: Enterprise Products Partners L.P. – August 2021 IR Presentation. The global economy is steadily recovering from the worst of the coronavirus (‘COVID-19’) pandemic, though variants of the virus remain a concern. Enterprise Products and Magellan Midstream are well-positioned to capitalize on this recovery while continuing to make good on their “generous” payout obligations.

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.