Valuentum Exclusive Analysis for the Discerning Investor

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Oct 28, 2021

Alphabet Launches Higher
Image: Our fair value estimate of Alphabet has continued to lead the stock higher, and shares continued to deliver following the company’s third-quarter report, released October 28. Alphabet registered a 10 on the Valuentum Buying Index in January 2019 at just below $1,100 per share. Shares have launched to nearly $3,000 since then, and we continue to expect strong performance given the company’s tremendous free cash flow generation, huge net cash position, secular growth prospects in search advertising, and above-market fair value estimate that stands at ~$3,500. We like shares of this top-weighted position in the Best Ideas Newsletter portfolio.

Oct 27, 2021

Lockheed Martin Shocks the Market
Image: After years of backlog growth at Lockheed Martin, the third quarter of 2021 revealed a sharp year-over-year decline to the tune of ~8.3%. The company’s outlook also left a lot to be desired. Lockheed Martin reported a terrible third-quarter 2021 report and offered a gloomy outlook, but there are still reasons to be optimistic. The company retains strong coverage of the dividend with traditional free cash flow and has a burgeoning backlog of $134.8 billion (2.04x expected 2022 revenue). Its acquisition of Aerojet Rocketdyne may breathe new life into an executive team that may need to sharpen its focus on delivering for investors, and it's hard to argue with the strength of its competitive position. We’ll be lowering our fair value estimate upon the next update, but investors are getting paid a ~3.4% dividend yield to wait for management to right the ship. The company retains its position in the simulated Dividend Growth Newsletter portfolio.

Oct 27, 2021

Digital Realty Boosts Guidance and Further Extends Growth Runway
Image Source: Digital Realty Trust Inc – Third Quarter of 2021 IR Earnings Presentation. On October 26, Digital Realty Trust posted third quarter 2021 earnings that beat both consensus top- and bottom-line estimates. The data center real estate investment trust (‘REIT’) saw its GAAP operating revenues come in at $1.1 billion (up 11% year-over-year) and its non-GAAP core funds from operations (‘FFO’) per share come in at $1.65 per share (up 7% year-over-year) last quarter. Digital Realty also increased its guidance in conjunction with its latest earnings report, which we appreciate, as that signals the REIT is growing confident that it will exit 2021 on a high note. When taking into consideration Digital Realty’s ability to tap capital markets at attractive rates (something we cover in this article), we give the REIT a “GOOD” Dividend Safety rating as its adjusted Dividend Cushion ratio is near parity at 0.7, which factors in expected dividend growth over the coming years. Additionally, we give Digital Realty a “GOOD” Dividend Safety rating, underpinned by its bright cash flow growth outlook. The top end of our fair value estimate range sits at $186 per share of DLR, well above where Digital Realty is trading at as of this writing.

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 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 26, 2021

Facebook’s Third-Quarter 2021 Results Better Than Feared
Image: Facebook continues to put up impressive levels of free cash flow generation. We remain huge fans of the stock. Image Source: Facebook. Facebook showed what it means to have a wide economic moat when it reported its third-quarter 2021 results. Robust revenue growth in the face of disruptive Apple iOS 14 privacy changes, impressive operating-income expansion in the face of considerable expense growth to build out the ‘metaverse,’ and cultural resilience in the face on a slew of media attacks on its business practices reveal that Facebook may be near-invincible. We’re huge fans of Facebook’s free cash flow generation capacity and its attractive net-cash-rich balance sheet, and we expect more good things to come from this top-weighted idea in the Best Ideas Newsletter portfolio. A huge new buyback authorization that we thought was in the cards in the wake of share-price weakness has arrived, and we love that Facebook is scooping up its undervalued stock. We’re maintaining our 10 rating on the VBI and $515 fair value estimate for shares.

Oct 25, 2021

Supply Chain Issues Won’t Disrupt Honeywell’s Free Cash Flow Trajectory
Image: Honeywell’s third-quarter 2021 results were mighty impressive. We continue to like what we see at this industrial dividend growth giant. Image Source: Honeywell. We loved Honeywell’s third-quarter results, and while we didn’t like the sales guidance adjustment, cash flow trends remain solid, supporting its robust Dividend Cushion ratio of 2.6 and fair value estimate of $243 per share. The company has increased its dividend a dozen times in the past 11 years, and we expect continued dividend growth for many more years to come.

Oct 25, 2021

Intel’s Huge Expected Capital Spending Gives Dividend Growth Investors Pause
Image: Intel has advanced nicely during the past several years, but more recently, its choppy stock behavior is reflective of the market having trouble figuring out the future direction of this tech behemoth, particularly in light of encroaching competition and huge expected capital spending growth. Shares offer investors a healthy 2.8% dividend yield, however, which gives the stock a sturdy foundation for the time being. In October 2020, we decided to remove Intel from the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio as competition was heating up and the firm’s balance sheet started to lose its luster. Weakening free cash flow due to a huge expected capital-spending build now makes Intel incrementally less attractive of an idea, though we note shares continue to trade within our fair value estimate range ($45-$67), which may be revised slightly lower on the next update. A dividend yield of ~2.8% is supported by future free cash flow in the near term, but there may be more clouds on the horizon (and investors should expect a lower Dividend Cushion ratio upon the next update, too). We’re comfortable being on the sidelines as there are so many other investment considerations that fit the financial bill better, in our view--namely those capital-appreciation and dividend-growth considerations with strong net cash positions and strong future expected free cash flow growth.

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.

Oct 24, 2021

Philip Morris International Boosts Dividend, Cost Structure Improving
Image Shown: An overview of Philip Morris International Inc’s guidance for 2021. Image Source: Philip Morris International Inc – Third Quarter of 2021 IR Earnings Presentation. On October 19, Philip Morris International reported third quarter 2021 earnings that beat both consensus top- and bottom-line estimates. The firm narrowed its reported diluted EPS estimate for 2021 in conjunction with the report, which saw the midpoint of its guidance move marginally lower,. However, Philip Morris International’s non-GAAP currency-neutral adjusted diluted EPS forecast for 2021 now calls for 13%-14% growth over 2020 levels, which is an improvement from its previous guidance calling for 12%-14% growth.