Valuentum Exclusive Analysis for the Discerning Investor

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Jul 28, 2020

AT&T Remains Free Cash Flow King, Though Deleveraging Efforts Are Getting Tougher
Image Shown: AT&T Inc continued to be a free cash flow cow last quarter, though the ongoing pandemic created headwinds for its various businesses. Image Source: AT&T Inc – Second Quarter of 2020 IR Earnings Presentation. The ongoing coronavirus (‘COVID-19’) pandemic has created some very serious headwinds for AT&T, but that did not stop the telecommunications and entertainment giant from being incredibly free cash flow positive last quarter. On July 23, AT&T reported its second quarter 2020 earnings report and we remain confident in the firm’s ability to keep making good on its dividend obligations going forward. Shares of T yield ~7.1% as of this writing, and we include shares of AT&T in our High Yield Dividend Newsletter portfolio.

Jul 22, 2020

Second Quarter Earnings Roundup
The figure above shows the performance of the simulated Best Ideas Newsletter portfolio from inception May 17, 2011, through December 15, 2017, relative to its declared benchmark, the S&P 500 (SPY), on an apples-to-apples basis, with dividends collected but not reinvested for both the newsletter portfolio and the SPY, as reported in the monthly newsletter. The simulated Best Ideas Newsletter portfolio outperformed the S&P 500, including reinvested dividends in the benchmark, since inception (May 17, 2011) and since the inaugural release of the newsletter (July 13, 2011) through the end of the measurement period (December 15, 2017). The results are hypothetical and do not represent returns that an investor actually earned. Past results are not indicative of future performance.

Jun 21, 2020

Why We Like Apple and Microsoft in the Newsletter Portfolios
Image Shown: Shares of Apple Inc (blue line) and Microsoft Corporation (red line) are up significantly year-to-date as of the market close on June 19, and we see room for both shares of AAPL and MSFT to continue marching higher after recently revising our fair value estimates for both companies. On June 12, we added back shares of Apple and Microsoft Corp to both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. We added Apple and Microsoft back to the newsletter portfolios using the cash position generated by removing the Vanguard Real Estate ETF and the SPDR S&P Aerospace and Defense ETF from the Best Ideas Newsletter portfolio and Cracker Barrel and Bank of America Corp from the Dividend Growth Newsletter portfolio on June 11. The Best Ideas Newsletter portfolio (link here) and Dividend Growth Newsletter portfolio (link here), as of June 15, 2020, can be viewed on our website. There are a lot of reasons to like Apple and Microsoft, especially during these turbulent times. Both firms have massive net cash positions, better positioning the tech giants to ride out the storm created by the ongoing coronavirus (‘COVID-19’) pandemic. Both companies are free cash flow cows and their growth trajectories are underpinned by secular growth tailwinds (particularly on the cloud computing and digitally-provided services side of things), further bolstering their cash flow profiles.

Jun 17, 2020

Turbulent Fiscal Fourth Quarter Aside, Oracle Paints a Promising Outlook for Fiscal 2021
Image Source: Oracle Corporation – Oracle Database Update September 2019 Presentation. On June 16, Oracle Corp reported fourth quarter fiscal 2020 earnings (period ended May 31, 2020) that beat consensus bottom-line estimates and missed consensus top-line estimates, though there is some noise given the turbulence created by the ongoing coronavirus (‘COVID-19’) pandemic. Additionally, Oracle declared a $0.24 per share quarterly dividend that is slated to get paid out in July, which was flat on a sequential basis. Shares of ORCL yield ~1.8% as of this writing, and we continue to like the idea as a holding in the Dividend Growth Newsletter portfolio. While shares of ORCL sold off on June 17, management painted a more optimistic outlook for the firm’s fiscal 2021 performance than initial trading action suggests.

Jun 15, 2020

Reviewing Oracle’s Cloud Ambitions Ahead of Its Upcoming Earnings Report
Image Shown: Oracle Corp is seeking to take market share in the clouding computing space from Microsoft Corp and Amazon. Image Source: Oracle Corporation – September 2019 Financial Analyst Meeting. Oracle Corp is included as a holding in our Dividend Growth Newsletter portfolio. We like the firm’s high quality cash flow profile as that lends support to its Dividend Safety rating, which sits at “GOOD,” and should its Dividend Cushion ratio of 2.7 tick up slightly, Oracle would be in a position to earn an “EXCELLENT” Dividend Safety rating. Shares of ORCL yield ~1.8% as of this writing, and Oracle’s Dividend Growth rating sits at “EXCELLENT” given its promising payout growth trajectory. Please note our Dividend Cushion ratio and Dividend Safety rating are forward-looking, and we model in strong double-digit per share payout growth through the mid-2020s, though the ongoing coronavirus (‘COVID-19’) pandemic may result in management being more cautious in the near-term.

Jun 9, 2020

Our Thoughts on Warner Music Group Going Public
Image Shown: Shares of Warner Music Group Corp were trading comfortably above their initial public offering (‘IPO’) price of $25 per share at of the end of normal trading hours on June 8, after going public on June 3. Warner Music went public on June 3, though shares were sold by the company’s stockholders in the IPO and not the firm itself, meaning these proceeds are not expected to go to Warner Music Group. The company owns various record labels including Atlantic Records, Warner Records, Elektra Records and Parlophone Records along with its global music publishing business Warner Chappell Music. For some background, please note Warner Music Group counts Ed Sheeran, Bruno Mars, and Cardi B as some of its recording artists and on the music publishing business side of things songwriters including Twenty One Pilots, Lizzo and Katy Perry are part of the firm’s team. In 2011, Access Industries purchased Warner Music Group and took the company private after the firm was previously publicly traded from 2005 to 2011.

Jun 1, 2020

June Dividend Growth Newsletter & Intrinsic Value Investing
"But how, you will ask, does one decide what [stocks are] "attractive"? Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth,"...We view that as fuzzy thinking...Growth is always a component of value [and] the very term "value investing" is redundant." -- Warren Buffett, Berkshire Hathaway annual report, 1992

May 22, 2020

Facebook Augments Its Impressive Growth Trajectory
Image Shown: Shares of Facebook Inc have outperformed the S&P 500 index year-to-date, as of this writing on May 21, by a wide margin. Facebook is a top-weighted holding in the Best Ideas Newsletter portfolio and shares have surged upwards of late, sparked in part by its strong first-quarter 2020 performance, relatively speaking, given the ongoing coronavirus (‘COVID-19’) pandemic. As of this writing on May 21, shares of FB are up ~14% year-to-date while the S&P 500 is down ~8% during the same period (this is before taking dividend considerations into account; however, that doesn’t change this picture by much). We continue to like Facebook as a top-weighted holding in the Best Ideas Newsletter portfolio and please note that the top end of our fair value estimate range sits at $289 per share. Given the company’s strong fundamental and especially technical performance of late, there’s room for shares of FB to march significantly higher from current levels.

May 11, 2020

Facebook Is Roaring Higher!
Image Shown: Shares of Facebook (blue line) have roared higher since reaching their March 2020 lows, far outpacing the rebound in the S&P 500 (orange line). We continue to like shares of FB as a top-weighted holding in our Best Ideas Newsletter portfolio. Top-weighted Best Ideas Newsletter portfolio holding Facebook posted first quarter 2020 earnings on April 29 that saw its GAAP revenues jump 18% year-over-year to $17.3 billion while its GAAP diluted EPS grew by 101% year-over-year, hitting $1.71. Please note that Facebook’s bottom-line comparison was made easier due to the firm recording a $3.0 billion legal settlement with the US Federal Trade Commission (‘FTC’) during the first quarter of 2019. While digital advertising spending levels are expected to get crushed in 2020 due to the ongoing coronavirus (‘COVID-19’) pandemic, Facebook communicated to investors that its long-term growth trajectory remained very promising during the firm’s latest quarterly conference call. In our view, digital advertising spending levels will quickly bounce back once economies around the world start to reopen in earnest, though we caution that efforts to reopen the economy and resume “normal” daily activities need to keep in mind the risk another wave of infections imposes.

Apr 30, 2020

Staying Focused on the Long Term
Image Source: The final lesson to learn from financial crises. Value Trap: Theory of Universal Valuation. Excerpt: "...it's difficult to be optimistic during these challenging times, but sometimes it's okay to take a step back and relax. Things are going to be alright. Many of you have read my book Value Trap: Theory of Universal Valuation. In it, I talk a lot about the lessons from the Great Financial Crisis. Above any other, however, what I've found is that the most difficult lesson to accept is that moral hazard will (once again) be rewarded. The Fed and Treasury may really have no choice but to continue to bail out "everyone," flood the markets with never-ending liquidity injections (if needed), and otherwise continue to prop up these markets at any and all costs. Granted, it was much easier to call the top in February and to identify dollar-cost-averaging opportunities near the bottom of this swoon than it is to call a near-term direction today, but over the longer run, I don't think I've ever had more conviction that the markets will, once again, make new highs thanks to Fed and Treasury actions and the resulting equity-focused inflationary repercussions." -- Brian Nelson, CFA