Valuentum Exclusive Analysis for the Discerning Investor

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Jul 4, 2022

Nelson: I Have Been Wrong About the Prospect of Near-Term Inflationary-Driven Earnings Tailwinds
"Though I have been clearly wrong on my near-term thesis for inflation-driven earnings expansion, we still did great sorting through investment idea considerations. Through late June, for example, the simulated Best Ideas Newsletter portfolio has generated 4-5 percentage points of alpha relative to the S&P 500, as measured by the SPY. The simulated Dividend Growth Newsletter portfolio is down only modestly this year, also performing better than traditional benchmarks. The simulated High Yield Dividend Newsletter is generating “alpha” against comparable benchmarks, and the Exclusive publication continues to deliver, with both capital appreciation ideas and short idea considerations generating fantastic success rates. ESG and options-idea generation have also been great. With all this being said, in the long run, I believe nominal earnings will expand rapidly from 2021 levels, which is why I remain bullish on stocks. I believe markets tend to overestimate earnings in the near term and underestimate them in the long run. The intelligent investor knows, too, that the most money is made during recessions and bear markets, where steady reinvestment and dollar cost averaging help to better position portfolios for higher returns over the longer run. The newsletter portfolios are well-positioned for continued “outperformance,” in our view, and while we may make a few tweaks to them, we’re not making any material changes at this time."

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.

May 11, 2022

Domino’s Longer Term Growth Runway Intact, Chipotle's Free Cash Flow Remains Robust
Image Source: Domino’s Pizza Inc – 2022 ICR Conference Presentation. Domino’s Pizza is contending with serious inflationary pressures and headwinds from changing consumer spending habits as the worst of the coronavirus (‘COVID-19’) pandemic fades. We continue to view the firm’s longer term outlook quite favorably and appreciate its franchise-heavy business model (~98% of its stores are franchised), which enables Domino’s to generate substantial free cash flows in almost any operating environment. Our fair value estimate for Domino’s sits at $517 per share, and we include shares of DPZ as an idea in the Best Ideas Newsletter portfolio. Shares of DPZ yield ~1.3% as of this writing, offering incremental income generation upside potential to its favorable capital appreciation risk-reward scenario, in our view. Another one of our favorite restaurants, Chipotle Mexican Grill posted 9.0% year-over-year comparable restaurant sales growth in the first quarter of 2022. During Chipotle’s latest earnings call, management noted that in-store sales surged 33% due to the economy opening back up and consumers resuming “normal” dining activities. The firm’s digital sales held up relatively well and represented 42% of Chipotle’s total sales last quarter. During the period, Chipotle reported 16% year-over-year GAAP revenue growth and 18% year-over-year GAAP operating income growth as the firm effectively took advantage of its pricing power to get ahead of inflationary pressures. As with Domino's, we continue to like Chipotle as an idea in the Best Ideas Newsletter portfolio.

Feb 10, 2022

Chipotle Sees Bigger Unit Growth Opportunity in North America, Continued Pricing Power
Image: Chipotle’s shares look like they are poised to breakout of a downtrend on news that its long-term unit restaurant opportunity is bigger than expected and that its pricing power remains intact. Chipotle's fast-casual focus and premium food offerings coupled with its Chipotlane rollouts and its breakfast “call option” are a few things that give the company a runway for continued strength that may be unprecedented by an established brand, particularly as it sees an even greater opportunity for unit development in North America than it did before. Because it serves a higher-end fast-casual customer, we think product pricing ahead of inflation won’t be an issue (helping to augment margins), and we’re reiterating our fair value estimate of ~$1,640 per share, above where shares are currently trading at the time of this writing (~$1,580 per share). A more optimistic take on Chipotle could see shares reach the higher end of our fair value estimate range of ~$1,970 per share.

Jan 22, 2022

Don’t Throw the Baby Out with the Bathwater
Image: Erica Nicol. Junk tech should continue to collapse, but the stylistic area of large cap growth and big cap tech should remain resilient. Moderately elevated levels of inflation coupled with interest rates hovering at all-time lows isn’t a terrible combination. In fact, it’s not bad at all. The markets are digesting the huge gains of the past few years so far in 2022, and the excesses in ARKK funds, crypto, SPACs, and meme stocks are being rid from the system. Our best ideas are “outperforming” the very benchmarks that are outperforming everyone else. The BIN portfolio is down 6.4% and the DGN portfolio is down 3.2% year to date. The SPY is down 7.8%, while the average investor may be doing much worse. Our timing to exit some very speculative ideas in the Exclusive publication has been impeccable. Beware of “best-fitted” backtest data regarding sequence of return risks. Research is to help you navigate the future, not the past. We remain bullish on stocks for the long haul and grow more and more excited as our simulated newsletter portfolios continue to hold up very well. Don’t throw the baby out with the bath water. Stick with the largest, strongest growth names. We still like large cap growth and big cap tech, though we are tactical overweight in the largest energy stocks (e.g. XOM, CVX, XLE). The latest short idea in the Exclusive publication has collapsed aggressively since highlight January 9, and we remain encouraged by the resilience of ideas in the High Yield Dividend Newsletter portfolio and ESG Newsletter portfolio. Our options idea generation remains ongoing.

Dec 26, 2021

VIDEO/TRANSCRIPT: 2021 Valuentum Exclusive Call: Inflation Is Good
Valuentum's President Brian Michael Nelson, CFA, explains why investors should not fear inflation, why government agencies such as the Fed and Treasury are prioritizing something other than price discovery, why the 10-year Treasury rate is a must-watch metric, and why Valuentum prefers the moaty constituents in large cap growth due to their net cash rich balance sheets, tremendous free cash flow generating potential, and secular growth tailwinds.

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 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

Oct 24, 2021

Best Idea Chipotle Mexican Grill’s Growth Runway is Enormous
Image Shown: Chipotle Mexican Grill Inc’s restaurant level unit economics continued to improve in the third quarter of 2021, supporting the company’s growth trajectory. Image Source: Chipotle Mexican Grill Inc – Third Quarter of 2021 Non-GAAP Reconciliation Presentation. On October 21, Chipotle Mexican Grill reported third-quarter 2021 earnings that beat both consensus top- and bottom-line estimates. Comparable restaurant sales grew 15% year-over-year last quarter as Chipotle’s e-commerce business held up well, with digital sales up 9% year-over-year (representing 43% of its total sales during this period), while customers resumed in-store dining activities in earnest. We liked what we saw in Chipotle’s latest earnings report. Shares of CMG are included as an idea in the Best Ideas Newsletter portfolio.