Valuentum Exclusive Analysis for the Discerning Investor

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Mar 4, 2020

A ~0.1% Probability Since 1896
Image Source: Wikipedia Commons. "The market crash in the past two weeks has been truly historic: its probability of occurrence is ~0.1% since 1896; the velocity of the plunge and of the VIX surge is the fastest on record; and the 10-year [Treasury yield] is at all-time low. (Hao Hong, BOCOM International, a subsidiary of Bank of Communications, March 1)" -- Howard Marks' memo, Nobody Knows II

Mar 4, 2020

Analyzing Three Names Within the Retail Industry
In this note, we cover one quality retailer and two retailers that were facing a myriad of problems long before the novel coronavirus (‘COVID-19’) epidemic reared its head: Best Buy, Kohl's and Macy's.

Mar 3, 2020

Covering Oil Markets Ahead of the Upcoming OPEC/OPEC+ Meetings
Image Source: Exxon Mobil Corporation – 2019 IR Presentation. On March 5, the Organization of Petroleum Exporting Countries (‘OPEC’) is holding an “extraordinary” meeting in Vienna, Austria, which will be followed up by a ministerial meeting between OPEC and non-OPEC members the next day. The group had already agreed to cut oil supplies by an additional 0.5 million barrels of per day (‘bpd’) back in December 2019 through an agreement that would last through March 2020 (that was on top of an existing deal to keep 1.2 million bpd off of the market which runs through the end of March 2020 as well). As part of that deal, Saudi Arabia offered to “voluntarily” reduce supplies by an additional 0.4 million bpd; however, that hasn’t been enough to prop up oil prices (even though ~1.7-2.1 million bpd of oil supplies are effectively removing removed from the market at 100% compliance). As of this writing, the internationally-oriented May 2020 Brent contracts are trading near $52 per barrel, down from the high $60s level seen at the end of 2019. The US-oriented WTI contracts haven’t fared any better, and April 2020 deliveries are trading near $47 per barrel as of this writing.

Mar 3, 2020

Fed Cuts 50 Basis Points, Expect More Market Volatility Ahead
Image Source: FOMC. The emergency 50-basis point Fed rate cut announced March 3 was largely expected by the marketplace in light of growing economic concerns due to COVID-19, but it does nothing to immunize against COVID-19 and little to stabilize the situation. We continue to monitor the situation closely, and we expect ongoing volatility in the coming days and months as the situation with COVID-19 remains fluid. Having moved to defensive positions in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio in January and having capitalized on the “crash protection” put, we are preparing for our next move. For now, we’re watching and waiting, and we encourage readers that have not yet picked up their copy of Value Trap to do so.

Mar 2, 2020

Analyzing Parsons: A Defense, Intelligence, and Critical Infrastructure Solutions Company
Image Source: Parsons Corporation – February 2020 IR Presentation. Parsons Corp is a provider of technical design, engineering, and software solutions to markets within the realm of defense, intelligence, threat detection and mitigation, cybersecurity, critical and transportation infrastructure, mobility solutions, connected communities, and more. The company went public in May 2019 and has since used those IPO proceeds to fund its growth story, including the acquisition of OGSystems during the first half of 2019 (which focuses on “geospatial intelligence, big data analytics, and threat mitigation”) and QSR in the second half of 2019 (which “specializes in radio frequency spectrum survey, record and playback; signals intelligence; and electronic warfare missions”). Parsons has a compelling product line-up that is aligned with strong and growing end markets. The company generates material free cash flow, and its balance sheet remains strong, with 0.4x net leverage and a strong liquidity position. Its valuation isn't too stretched, and the firm has a deep bench in the executive suite. We like Parsons and will have more to say when the firm reports its fourth quarter earnings for fiscal 2019 before the market opens on March 10.

Mar 2, 2020

Self-Storage Industry Faces a Rocky 2020, But Long-Term Outlook Remains Bright
Image Source: CubeSmart – November 2019 IR Presentation. With housing costs rising aggressively in “Tier 1” and “Tier 2” cities across the East and West coasts in the US, that has created an immense need from households for additional storage space but at a much lower cost than simply buying a larger home, apartment, or condo. This has created a major secular growth trend that we’ve highlighted repeatedly in our High Yield Dividend Newsletter (‘HYDN’) by including shares of CubeSmart and Public Storage in our HYDN portfolio, both of which are self-storage focused real estate investment trusts (‘REITs’). Click here for more information on our HYDN. Both self-storage REITs have steadily grown their already sizable payouts over the past several years and we expect that to continue to be the case going forward, with shares of CUBE and PSA yielding ~4.2% and ~3.6%, respectively, as of this writing.

Mar 1, 2020

COVID-19 Crisis Intensifies
Image Source: CDC. Coronavirus Disease 2019 (COVID-19). The world is being challenged today by what some including Bill Gates believe might be a "once-in-a-century pathogen." We do not know the eventual outcome, whether the impact of this illness ends up being as profound as the Spanish Influenza of 1918-1919 (which inflicted a death toll in the tens of millions), but we maintain our view the markets have yet to come to grips with the impact of COVID-19 on economic activity and potential ramifications on the global economy and the banking system. What is currently a "biological" crisis may turn into an all-out global financial crisis, one that could end up worse than the 2008/2009 mortgage meltdown. Instead of toxic mortgages putting a halt to lending activity across the globe as they did over a decade ago, today's crisis stems from an illness that very few of the top health officials in the world know much about--not only in the duration of COVID-19's incubation period, but also in how easily it seems to be spreading, and how deadly it may eventually become, particularly if health systems around the world become overwhelmed.

Mar 1, 2020

Our Reports on Stocks in the Software (Graphics) Industry
The software (graphics) industry is composed of a variety of firms from online gaming entities to technology-based-language learning companies. Industry constituents compete for the leisure time, attention and discretionary spending of consumers. The social gaming space, in particular, is evolving rapidly, and new entrants will inevitably drive down outsize returns over time. Performance of many participants is “hit” driven. If companies don’t deliver “hit” products to the market, operating results will suffer. Rapid technological change makes obsolescence a possibility. We don’t like the group’s structure.

Feb 28, 2020

Dow Down 3000+ Points This Week -- Interested in Options? This Might Be for You
Image: We "added" out of the money put options on the S&P 500 ETF (SPY) Monday morning, February 24. The markets have crashed since. Beginning April 2020, we'll be starting to release via email options-related ideas (two per month) and commentary, as well as educational information, to those that subscribe. Depending on market opportunities, ongoing ideas could include commentary associated with writing covered calls for income, identifying mispriced securities over distinct time horizons and identifying mispriced volatility, as well as other considerations. If you would like to add more options-related ideas and commentary, please add this as part of your membership here ($500/year). You will receive a registration and confirmation email this evening after we receive payment. Given the vast success of the Exclusive publication, we will be limiting these ideas and commentary to 500 members. No refunds. Cancel anytime. As an important note, please stay safe out there as COVID-19 continues to spread around the world. Your support across our service and products is greatly appreciated. Thank you for your interest. Please let us know if you have any questions.

Feb 28, 2020

Home Depot Reports Fourth Quarter Amid Rising Exogenous Headwinds
Image Shown: Home Depot Inc has had plenty of success building off of and expanding its ‘Pro’ ecosystem as it relates to generating nice comparable sales growth. Image Source: Home Depot – 2019 Investor and Analyst Day IR Presentation. On February 25, Home Depot Inc reported fourth quarter and full-year earnings for fiscal 2019 (period ended February 2, 2020) which matched top-line consensus estimates and beat bottom-line consensus estimates. What really caught the market’s attention was Home Depot’s strong comparable sales performance, which was up 5.2% overall and 5.3% in the US during the fourth quarter on a year-over-year basis (for the whole fiscal year, Home Depot’s overall and US comparable sales rose by 3.5% and 3.8%, respectively, keeping in mind the firm has locations in the US, Canada, Mexico, Puerto Rico, Guam, and the US Virgin Islands). This strength is at least partially why management pushed through a 10% sequential increase in Home Depot’s quarterly dividend, bringing it up to $1.50 per share or $6.00 on an annual basis. Shares of HD yield ~2.6% on a forward-looking basis as of this writing.