Valuentum Exclusive Analysis for the Discerning Investor

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Nov 2, 2023

AMD Continues to Enhance Artificial Intelligence Capabilities
On October 31, Advanced Micro Devices reported solid third-quarter results with revenue advancing 4% on a year-over-year basis and non-GAAP earnings per share coming in slightly better than expectations, with net income up more than four-fold, to $299 million. Management expressed excitement about demand for its Ryzen 7000 series PC processors and noted that its data center business is progressing well thanks to its 4th Gen EPYC CPU portfolio and Instinct MI300 accelerator shipments across various markets, including artificial intelligence [AI].

Nov 1, 2023

Caterpillar's Pricing Power Remains Phenomenal
Image: Price realization remains a key driver behind Caterpillar’s strong performance. On October 31, Caterpillar reported better-than-expected third-quarter results, with revenue advancing 12% and non-GAAP diluted earnings per share handily beating the consensus forecast. Caterpillar continues to benefit from significant pricing power, but the firm is also experiencing volume increases. The firm's adjusted operating profit margin expanded to 20.8% in the third quarter compared to 16.5% for the third quarter of 2022. Caterpillar ended the third quarter with $6.5 billion in cash and cash equivalents, short-term borrowings of ~$4.2 billion, and long-term debt of ~$1 billion and ~$7.6 billion in its ‘Machinery, Energy & Transportation’ and ‘Financial Products’ divisions, respectively. Its balance sheet, while not showcasing a net cash position, remains very healthy, in our view, especially in the context of its free cash flow generation. Through the first nine months of 2023, the maker of mining and construction equipment’s cash flow from operations soared to ~$8.9 billion, as it shelled out just ~$1.06 billion in capital expenditures, a number that excludes equipment leased to others (~$1.2 billion). Free cash flow generation at the firm remains excellent, and we like that it continues to focus on dividend growth. We continue to like the pricing power witnessed within Caterpillar’s operations of late, and we’re sticking with our above-market $262 fair value estimate for now.

Oct 31, 2023

Public Storage Raises Core FFO Guidance for 2023
Image Source: Public Storage. Among the REIT sub-sectors, we continue to favor the self-storage space mostly because its traditional free cash flow dynamics are much more attractive. Self-storage REITs are generally recession-resistant, too, offer high operating margins, and generally lower maintenance capital requirements. Public Storage is our favorite self-storage REIT and yields ~5% at the time of this writing. Shares of PSA have soured with the broader equity REIT sell-off this year and have declined nearly 13% year-to-date in 2023. Though we expect a challenging market environment for equity REITs, we view Public Storage as the best long-term play in self-storage.

Oct 31, 2023

3 Mid Caps With Net Cash And Strong Free Cash Flow
Image: Chewy's best-in-class customer service is paying off in strong free cash flow generation. We're huge fans of companies with net cash on their balance sheet and strong free cash flow generating potential. This view has led us to favor the areas of big cap tech and the stylistic area of large cap growth in the newsletter portfolios, but there are other companies emerging with similar economics on a smaller scale. Chewy, Inc. E.L.F Beauty and DocuSign are three that come to mind, and all three of these names boast a strong balance sheet and favorable free cash flow dynamics. Each of these companies is also benefiting from secular growth trends as they seek to gain market share against rivals. Though certainly not without valuation risk as the trajectory of free cash flow expectations will certainly cause volatility in their respective stocks, we think all three may be worthy of consideration for the aggressive, risk-seeking investor targeting long-term capital appreciation.

Oct 30, 2023

The Dividend Growth Newsletter Portfolio’s Outperformance
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%. Large cap growth names in the likes of Apple, Microsoft, Oracle, and Cisco form a solid foundation for continued dividend growth across the portfolio thanks in part to their fantastic Dividend Cushion ratios. Not only this, but we like the defensive characteristics of garbage hauler Republic Services and McDonald’s, and the tried-and-true dynamics of Home Depot, Honeywell and UnitedHealth, which can handle just about any economic environment that is thrown at them. Today, the 10-year Treasury rate stands at close to 5%, so while many dividend growth stocks don’t yield as much, we still like their cash-based sources of intrinsic value, as such dynamics offer substantial support to their equity prices, despite competing sources of income.

Oct 30, 2023

Staying Far Away from Intel; McDonald’s a Better Play
Image: Intel’s cash flow from operations is under pressure, as it continues to shell out capital expenditures, resulting in materially negative free cash flow generation. Intel's cash-based sources of intrinsic value are in a world of hurt, meaning that we won't be adding the company to any newsletter portfolio anytime soon. Instead, we prefer McDonald's, which is well-positioned for inflationary pressures as it continues to raise its payout.

Oct 30, 2023

3 Net-Cash-Rich, Free-Cash-Flow Generating, Secular Growth Powerhouses
Image: Shares of Microsoft, Alphabet, and Meta Platforms have trounced the market return so far in 2023. We think a holistic view to a company's fundamentals provides an upper hand when it comes to outperforming the market, but we also feel that the discounted cash-flow model is an indispensable tool to help investors collect all of their thoughts and quantitatively put them together within valuation to arrive at what a company is worth. After all, the stock market is an expectations game, where expectations of free cash flow form the baseline for value, and changes in them heavily influence the direction of share prices. We like stocks that have strong net cash positions on the books and have a high probability of achieving better-than-expected free-cash-flow generation in coming years. In this article, we'll talk about the cash-based sources of intrinsic value at three large cap growth names.

Oct 27, 2023

Getting Down to Brass Tacks on Amazon’s Cash-Based Sources of Intrinsic Value
Image: Amazon had a very strong and better-than-expected third-quarter report, and the firm is now on pace to generate positive free cash flow during 2023. As reported in Amazon’s third-quarter 2023 press release, the retail giant’s “free cash flow improved to an inflow of $21.4 billion for the trailing twelve months, compared with an outflow of $19.7 billion for the trailing twelve months ended September 30, 2022.” Cash and marketable securities were ~$64.2 billion at the end of its third quarter compared to ~$61.1 billion in long-term debt, meaning that Amazon has a modest net cash position, but nothing near the likes of other big cap tech and large cap growth peers. All eyes will continue to be on Amazon Web Services [AWS] and its growth trajectory, but when it comes to the cash-based sources of intrinsic value, Amazon is back on the right track.

Oct 27, 2023

Dividend Increases/Decreases for the Week of October 27
Let's take a look at firms raising/lowering their dividends this week.

Oct 26, 2023

Chipotle’s Long-Term Growth Outlook Intact
On October 26, Chipotle Mexican Grill reported better-than-expected third-quarter results with the top line increasing 11.3% on a year-over-year basis and non-GAAP earnings per share beating the consensus estimate. Comparable store sales advanced 5% in the period, while the company drove meaningful improvement in its operating margin, despite nagging inflationary pressures in beef and cheese prices. We’re huge fans of Chipotle’s long-term unit growth story, and we expect the rollout of Chipotlane drivethru’s to pave the way for an expanded menu, maybe in the breakfast daypart in the years ahead.