Valuentum Exclusive Analysis for the Discerning Investor

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Dec 3, 2019

Cleveland-Cliffs Buying AK Steel Through All-Stock Transaction
Image Shown: A tale of two charts, with Cleveland-Cliffs Inc in blue and AK Steel Holding Corporation in orange, after the announcement was that that the former would acquire the latter in an all-stock deal.On December 3, Cleveland-Cliffs agreed to acquire AK Steel Holding Corporation through an all-stock deal, creating a vertically integrated producer of iron ore and steel products in the US. Cleveland-Cliffs operates three iron ore mines in Michigan and Minnesota, along with a hot briquetted iron production plant in Ohio that’s under-construction, and AK steel operates steel mills in North America along with related facilities in Western Europe.

Dec 2, 2019

McDonald’s Enters the Chicken Sandwich Wars
Image Shown: Shares of McDonald’s Corporation have pulled back over the past couple of months after an epic run during most of 2019, which we view as the market recognizing shares of MCD had gotten way ahead of themselves. McDonald’s is testing out a new crispy chicken sandwich offering in two US cities; Knoxville, Tennessee and Houston, Texas. This pilot project is expected to run through January 2020. While McDonald’s offers the ‘McChicken,’ its new chicken sandwich offering is far more substantial (the McChicken is to a chicken sandwich what the ‘McDouble’ is to a burger) and meant to compete with offerings from privately-held Chick-fil-A and Restaurant Brands' Popeyes Louisiana Kitchen. We still view shares of McDonald’s as overvalued as the top end of our fair value range estimate sits at $189 per share, and MCD trades at ~$195 per share as of this writing. Shares of McDonald’s yield 2.6% as of this writing, and while the company’s free cash flow profile is impressive, its large net debt load (~$31.7 billion as of the end of September 2019) weighs negatively on the strength of its dividend coverage.

Dec 2, 2019

Apache Comes Up Empty in Suriname, Shares Plummet
Image Source: Apache Corporation – November 2019 IR Presentation. On December 2, Apache Corp announced that its first exploration well off the coast of Suriname (a small nation in northern South America) was a dud. The Maka Central-1 well was drilled to a total depth of 6,200 meters (~20,300 feet) in Block 58 and drilling activities commenced in late-September. While the well was testing two Upper Cretaceous plays, neither play appeared to have commercial level of hydrocarbons (more information will be provided by management on this issue in the near future) so Apache opted to drill down to a total depth of 6,900 meters (~22,600 feet) to test a third Cretaceous play. This news sent shares of APA down by double-digits on December 2 as of this writing for reasons we’ll cover in this article. While shares of APA yield ~5.2% as of this writing, that payout isn’t sustainable in our view.

Nov 29, 2019

Portfolio Newsletter Holding Digital Realty Targets Secular Growth Trends to Support Dividend Growth Trajectory
Image Shown: Digital Realty Trust is one of our favorite ways to indirectly play several secular growth trends at once. The data center real estate investment trust (‘REIT’) pays out a nice dividend that’s supported by its investment grade credit ratings, a solid cash flow profile, and a promising growth trajectory.Digital Realty Trust has been a resilient performer in both the Dividend Growth Newsletter and High Yield Newsletter portfolios, and we continue to like the name. Due to the data center REIT’s impressive dividend growth profile, a product of the double-digit annual growth rate in its funds from operations (‘FFO’) since 2005, shares of DLR yield a nice ~3.6% as of this writing.

Nov 27, 2019

Holiday Scheduling
Image Source: Tim Sackton.  Hi everybody, It’s that time of year again, when family and friends come to visit, and everyone eats too much on Thanksgiving. I wanted to send this note to wish you a wonderful holiday and to let you know how much we appreciate your membership to our service. I'm so thankful for your interest, questions, and support, and I wanted to remind you of an important survey we'll be releasing soon. We're very excited about this important new initiative to help members, and we need your feedback. Our team will be out of the office until Monday, December 2, so you should expect the December editions of the Dividend Growth Newsletter and High Yield Dividend Newsletter at that time. As 2020 approaches, what a great time to consider our premier publications, too, namely the Exclusive and the High Yield Dividend Newsletter. Get next year started off right. Order them below: Exclusive publication here. High Yield Dividend Newsletter here. May you have a wonderful holiday week with family and friends, and thank you again! Kind regards, Brian Nelson, CFAPresident, Investment ResearchValuentum Securities, Inc.brian@valuentum.com

Nov 27, 2019

Order the Exclusive: Get Unbiased Research on IPOs and More!
Image Source: The October edition of the Exclusive publication. Valuentum offers unbiased commentary on IPOs in its Exclusive publication (e.g. Peloton, Cloudflare).In the Exclusive publication, Valuentum highlights three new ideas each month to consider, one for income, one for capital appreciation, and a "short" idea (all three outside our existing coverage universe). Fresh, underfollowed and new ideas -- outside our coverage universe -- every month! Nothing is held back. We provide insights where others cannot, and the IPO market is just one area (e.g. Peloton, Cloudflare).

Nov 25, 2019

Primer on the Banking Sector: Where Are We in the Cycle?
Image Source: GotCredit. We’ll talk about how banks make money, and the three most important costs of running a bank. The Great Financial Crisis revealed the tremendous risks of banking equities, and we’ll walk through these in depth. We’ll discuss how to conceptualize where we are in the banking cycle, and how that helps inform our valuation process for banks, which is different than traditional operating entities. The stress tests have helped many of the big banks from pursuing hazardous endeavors during the past decade, and we’ll go into how to think about the yield curve in the context of banks. Investors should expect ongoing digitization of banks and increased M&A as the competitive environment only intensifies. Three of our favorite banks are JPMorgan Chase, Bank of America, and US Bancorp, and we’ll be looking to consider adding any of these to the Best Ideas Newsletter portfolio or Dividend Growth Newsletter portfolio at the right price.

Nov 22, 2019

Dividend Growth Newsletter Portfolio Holding Microsoft Secures a Big Win
Image Shown: Shares of Microsoft Corporation continue to make new highs and we think MSFT may test the upper end of our fair value range given the company’s improving growth outlook. Shares of Dividend Growth Newsletter portfolio holding Microsoft continue to climb higher. We think shares could test the upper end of our fair value estimate range, which currently sits at $166 per share, comfortably above where Microsoft’s stock is trading at as of this writing (~$149 per share). Recent events have augmented the company’s free cash flow potential, with an eye towards the Joint Enterprise Defense Infrastructure (‘JEDI’) contract win. Shares of MSFT yield ~1.4% as of this writing.

Nov 22, 2019

PayPal Buys Honey and We Like the Fit
Image Source: PayPal Holdings Inc – Press release covering its acquisition of Honey. A holding in our Best Ideas Newsletter portfolio, PayPal Holdings announced on November 20 it was acquiring the shopping and rewards start-up Honey for ~$4 billion. Honey is a high-growth technology platform (delivered through a browser add-on and mobile application) that helps consumers find deals and save when they shop online. That includes finding price discounts, promotions and events, sending alerts, creating lists, and offering a rewards system known as Honey Gold to its ~17 million monthly active users. We think this deal is highly complementary to PayPal’s operations, and we continue to give shares of PYPL a fair value estimate of $125 per share.

Nov 22, 2019

Dividend Increases/Decreases for the Week Ending November 22
Let's take a look at companies that raised/lowered their dividend this week.