Valuentum Exclusive Analysis for the Discerning Investor

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Feb 27, 2020

Has the Stock Market Crash Begun?
Image: CDC. Transmission electron microscopic image of an isolate from the first U.S. case of COVID-19, formerly known as 2019-nCoV. The spherical viral particles, colorized blue, contain cross-section through the viral genome, seen as black dots.According to the latest Situation Report from the CDC, dated February 25, there are now more new cases reported from countries outside of China than from China. Globally, there are currently 80,000+ confirmed cases in nearly 40 countries, with China, South Korea, Italy and Iran the major hotspots. Up until now, investors have been anxiously waiting for the other shoe to drop (i.e. community spread in the United States), with the CDC even saying, “It's not so much a question of if this will happen anymore, but rather more a question of exactly when this will happen and how many people in this country (United States) will have severe illness.” Well, that “when” is now. The CDC just confirmed February 26, 2020, a possible instance of community spread of COVID-19 in the US.

Feb 24, 2020

ALERT: Adding Market Crash 'Protection,' Removing MSFT, BKNG
Image source: Centers for Disease Control and Prevention.  We're adding out-of-the-money put options to both the Dividend Growth Newsletter portfolio and Best Ideas Newsletter portfolio. We're removing Microsoft from the Dividend Growth Newsletter portfolio, and we're removing Booking Holdings from the Best Ideas Newsletter portfolio. We reiterate that, had the Dow Jones Industrial Average already swooned a couple thousand points on news of the COVID-19 outbreak, we might have considered some undervalued stocks with strong momentum potential "buying opportunities." However, to this point in time, the markets have largely ignored COVID-19, with major US indices still sitting near all-time highs. We could be in for a wild ride in the coming weeks and months, and an outright market crash is not out of question. For those looking for short-idea considerations, please consider the Exclusive publication here. We remain fully-invested in the High Yield Dividend Newsletter portfolio given its yield and income focus.

Feb 22, 2020

Is a Stock Market Crash Coming? -- Coronavirus Update and P/E Ratios
Image Source: World Health Organization, Coronavirus disease 2019 (COVID-19), Situation Report -- 32. We don’t think this is the environment to put new capital to work, and we remain highly cautious of what COVID-19 means for global economic growth not just in the first quarter of 2020 but for the rest of this year (maybe longer). Right now, the US markets are not really factoring in anything related to COVID-19, and perhaps may be adjusting to China’s stimulus in artificially propping up the markets as if the outbreak is somehow a “positive thing.” With the S&P 500 trading at 19.0 forward earnings estimates--estimates that are likely too high given the evidence we are seeing with respect to a slowdown due to COVID-19--and corporate debt levels more elevated than ever before (note, a high net debt level should depress the P/E in enterprise valuation--US corporate debt has advanced 50% over the past decade, to $10 trillion), it is our contention that the current market reflects a “situation-equivalent” forward P/E (i.e. rightsizing for new net debt relative to the dot-com peak and adjusting for lower forward earnings expectations compared with current forecasts) perhaps greater than 24.4, which was recorded at the peak of the dot-com bubble. Though interest rates are lower than they were at the time of the dot-com crash, suggesting a modest reasonable bump to normalized forward P/E ratios of ~15 times to reflect “fair valuations,” we could seriously be in for fundamental-driven crash soon, as both the earnings multiple and earnings estimates contract aggressively. Hypothetically, a contraction to a 16x forward multiple on earnings estimates just 10% lower than currently forecast implies an S&P 500 of 2,566, or a swoon of about 20%-30% from current levels--and that would just get us down to 16x still-respectable forward numbers. How quantitative-driven price-agnostic trading may impact this scenario is not known either, and all of this could be setting up for a wild ride in the coming weeks and months. Fasten your seatbelts. We’ll have a few newsletter portfolio alerts coming Monday.

Feb 4, 2020

Our Reports on Stocks in the Dollar Store and Department Store Industries
The retail discount store industry provides consumable basic needs to customers primarily in the low- and middle-income brackets. More than one third of the industry’s customers live in households that earn less than $20,000 per year, making the group’s results counter-cyclical--as more households generate lower income due to poor economic conditions, store growth and same-store-sales opportunities increase. Still, competition is fierce among constituents and with many other retailers, including grocery stores. But given the niche low-price strategy of participants and their counter-cyclical nature, we like the group. The department store industry faces intense pressure from online retail and fierce competition from smaller retailers and discounters. Firms in the industry tend to have large real estate holdings and carry a diverse range of apparel, accessories, and household goods. With retail sales moving to the Internet, a company’s web presence is as important as its brick-and-mortar locations. The industry is undergoing a massive transformation and not all firms will survive. Brands and proper fashion assortment drive results in the short term, while execution remains key over the long haul.

Jan 23, 2020

Resetting Your Mental Model
Image Source: affen ajlfe. Having the right mental model and using the right information can be the reason why you win or lose in investing.

Jan 4, 2020

Valuentum Exclusive Success Rates Trump Even the Best Quant Hedge Funds
Image: President of Investment Research Brian Nelson, CFA. A new book, “The Man Who Solved the Market,” hit bookshelves last year, and thus far it has been a hit. The text goes into the story of quant hedge fund Renaissance Technologies and its hedge fund, the Medallion Fund, which has put up mammoth returns since inception.

Dec 19, 2019

2019: Another Market Beating Year for the Best Ideas Newsletter Portfolio!
We estimate thus far the Best Ideas Newsletter portfolio return has beat the S&P 500 by 2.8 percentage points during 2019 (34.4% versus 31.6% for the S&P 500, as measured by the SPY). Our move to overweight Apple, Facebook, and Visa worked out wonderfully for members during 2019. We continue to overweight big winners, and we credit this to our team's conviction in our very best ideas. We also made quite the savvy move in rolling over a solid gain in Chipotle (60%+) into even more shares of Apple stock during the year. We're putting some of the best ideas right in front of our membership in full transparency. Berkshire Hathaway's overweighting added some stability to the Best Ideas Newsletter portfolio, but it was a large drag on returns during the year. This is okay - we like the diversification benefits. 2019 was a very, very difficult year to beat the market, but by our estimates, the Best Ideas Newsletter did so, and by a fair margin, particularly for a large cap orientation. Note this kind of outperformance is unique as many money managers continue to trail their benchmarks during 2019. We credit the outperformance to our team's work ethic and the Valuentum methodology. We are disappointed with the current state of active management, and we are working to develop solutions for our membership. We expect to roll out an important survey in the coming months. We continue to encourage members to add the Exclusive to their membership, if they haven't considered this fantastic publication just yet. More on the Exclusive >> The Best Ideas Newsletter portfolio is part of a regular premium membership to Valuentum. More here >>

Dec 6, 2019

Dollar General Remains in Command
Image Source: Mike Mozart. Dollar General is a holding in the Best Ideas Newsletter portfolio. The company reported strong third-quarter results December 5 that showed better performance than rival Dollar Tree. Discount retail continues to feel the ill-effects of tariffs that are raising cost of goods sold, but Dollar General is taking the headwinds in stride.

Oct 12, 2019

ICYMI: Interview with Valuentum's President Brian M. Nelson, CFA
Catch up with Valuentum's President Brian M. Nelson, CFA in a recent interview with dividend growth investor Arne Magnus Lorentzen Ulland of the blog stockles.

Sep 13, 2019

Kroger Posts Solid Quarter, Issues Weak Guidance
Image Shown: Kroger Company – IR Presentation. Kroger’s same-store sales growth was a welcome sight as it relates to the current strength of the US consumer, but we are staying away from the retailer for a reason. Its large net debt load puts the company’s payout at risk during adverse economic conditions, and we think management should be battering down the hatches considering how late we are in the business cycle. Management ending Kroger’s incremental operating profit forecast is a troubling sign.