Valuentum Exclusive Analysis for the Discerning Investor

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Apr 19, 2023

1Q 2023 Earnings Coming in Better Than Feared Thus Far
Image: We view valuation as a range of probable fair value outcomes. Our updated fair value estimate for Booking Holding stands north of $3,000, while shares are trading at less than $2,700. First-quarter 2023 earnings season has been coming in better than feared, in our view, and bank earnings have not spooked the market as many may have thought they would. But again, any banking crisis takes far more than just a month or two to work through the system, and in the event another shoe drops – whether in Europe or in U.S. commercial real estate or U.S. housing – things could get ugly for the banking sector. We continue to prefer equities over bonds, and as was shown once again during SVB Financial meltdown, the Fed was there once again to bail out the “market” and prevent contagion at any cost. With roughly 10% of the S&P 500 reporting first-quarter 2023 earnings so far, many companies have been beating consensus estimates.

Apr 18, 2023

Brief Take: Chart of Best Ideas Newsletter Portfolio Idea Chipotle Looks Beautiful!
Image: Chipotle’s shares have surged to a 52-week high. We continue to like the company’s long-term market opportunity. Chipotle’s shares have surged past the high end of our fair value estimate range, but we expect to take another look at our valuation model to reflect greater confidence in an established restaurant concept that has plans to more than double its current store count in the longer run. Younger millennials and Generation Z (born 1997-2012) generally did not grow up when Yum Brands’ Taco Bell dominated Mexican cuisine, and many prefer Chipotle hands down. It’s probable, in our view, that Chipotle’s long-term target of 7,000 restaurants may also be conservative. Readers should expect us to increase our fair value estimate of Chipotle upon the next report update.

Apr 12, 2023

Fed Winning the Fight Against Inflation, Food-at-Home Prices Easing
Image: CPI-U, not seasonally adjusted. The 12-month percent change in the pace of inflation for all items has fallen from north of 9% in June 2022 to 5% in March 2023. Image Source: BLS. The Bureau of Labor Statistics (BLS) released the Consumer Price Index for All Urban Consumers (CPI-U) on April 12, and it showed that the Fed is winning its fight against inflation. The CPI-U rose just 0.1% in March on a seasonally adjusted basis, down 0.3 percentage points from the increase in February. During the past 12 months, the all-items index has advanced 5.0% before any seasonal adjustments, a level that is still higher than the Fed’s long-term target, but not one indicative of runaway inflation or a worsening of the strain on consumer budgets. Though the news is but one data point that will influence the Fed’s rate decision next meeting, we’re viewing the news positively.

Apr 11, 2023

Markets Don’t Look Bad
Image: The market-capitalization weighted S&P 500 continues to hold its January breakout, while support held in mid-March. The market-capitalization weighted S&P 500 is no longer in a downtrend, and while the regional banking crisis gave investors pause, we’d have to say the markets don’t look bad. From a technical standpoint, the SPY broke through its downtrend in January, while it held support in mid-March. If the S&P 500 can break through the early February near-term highs, technically, things are looking quite good for the beginnings of this nascent market leg-up. It’s been a long road to get to what looks like a “bottom,” but we might have witnessed it in October of last year.

Apr 10, 2023

Best Ideas Newsletter Portfolio Idea Republic Services Continues to Execute Well
Image: Republic Services has been executing nicely, growing its adjusted free cash flow at a 14% compound annual growth rate the past three years. Image Source: Republic Services. Shares of Republic are trading about in line with our fair value estimate ($130-$135) but have valuation upside on the basis of the high end of our fair value estimate range ($158 per share), in our view. The company boasts an investment-grade credit rating and has liquidity of ~$1.7 billion, while most of its debt doesn’t come due until after 2029. Republic Services’ equity is currently yielding ~1.5% at the moment, and we think it is a great fit for the newsletter portfolios. The garbage hauler continues to deliver in both good times and bad, and we have no reason to believe that it won’t continue to do so. Trash is cash when it comes to the waste-management business.

Apr 6, 2023

U.S. Economy Likely Weakened During Regional Bank Crisis; Artificial Intelligence the Next Great Platform
Image Source: Trong Khiem Nguyen. SVB Financial’s failure and the ongoing regional banking crisis has likely crimped lending activity and economic growth, a situation further exacerbating any impending effects on the broader economy from the Fed’s contractionary monetary policy, itself. With first-quarter 2023 earnings season around the corner and the potential for another shoe to drop in commercial real estate or the U.S. housing market, we’re still being patient in putting “newly-raised” capital in the newsletter portfolios to work. Our favorite areas, however, remain big cap tech and large cap growth, as we’re huge fans of their cash-based sources of intrinsic value--both net cash on the balance sheet and future expected free cash flow generation. Microsoft, an idea in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, is one of our favorite ways to play the rise of artificial intelligence.

Apr 5, 2023

Albemarle Is Looking to Buy Australian Lithium Start Up
Image: Albemarle’s shares have faced pressure as lithium prices are expected to moderate in the near term. We continue to like Albemarle’s long-term story, however. On March 27, it became public that lithium maker Albemarle is looking to bolster its future opportunities on the acquisition front, seeking to scoop up a smaller Austrailian lithium start-up Liontown Resources. Though Liontown rejected the offer, other lithium stocks, including Standard Lithium, Sigma Lithium, Piedmont Lithium, and Lithium Americas soared on the news. According to the firm’s website, Liontown’s project in Western Australia in Kathleen Valley is expected to be one of the world’s largest lithium mines, “supplying ~500,000 tonnes of 6% lithium oxide concentrate per year when it comes on stream in 2024.” Another of its prospects is also located in Western Australia (Buldania), which has a “mineral resource estimate of 15 million tonnes of 1.0% lithium oxide.” We continue to monitor developments on this front.

Apr 5, 2023

The Difference Between Speculation and Investment
In this edited video transcript, Brian Nelson, President of Investment Research at Valuentum, discusses the difference between speculation and investment.

Apr 1, 2023

General Mills Experiencing Tremendous Pricing Power, Positive Elasticities
Image Source: Mike Mozart. Cereal maker General Mills continues to flex its pricing power. The company’s third-quarter results for its fiscal 2023, released March 23, showed a company that is raising prices almost at will and driving tremendous adjusted operating profit expansion, while organic pound volume remains essentially flat. The company continues to optimize its revenue model as it forgoes volume expansion in favor of pricing growth, and we would expect further price increases across its product line-up for some time. With adjusted operating profit surging, price elasticities remain in its favor, much to the detriment of the cash-strapped consumer, which can only expect more food-at-home inflation. Shares of General Mills yield ~2.5% at the time of this writing.

Apr 1, 2023

Not Being Greedy as Shares of Exxon Mobil and Chevron Have Soared
Image: Shares of Exxon Mobil were added to the newsletter portfolios in mid-June 2021 and rocketed higher for some huge “gains” over the past year or so. We still expect upside potential at both Exxon Mobil and Chevron on the basis of our fair value estimate ranges, but we removed shares of both on March 13, 2023. We received a number of questions about why we removed Exxon Mobil Corp. and Chevron Corp. from the newsletter portfolios, despite our point estimate of their intrinsic values being higher than where their share prices are trading. As of the end of the first quarter of 2023, March 31, for example, shares of Exxon Mobil are trading at $109.66 per share with a fair value estimate of $133 per share, while shares of Chevron Mobil are trading at $163.16 per share with a fair value estimate of $198 per share. Exxon Mobil has a Dividend Cushion ratio of 2.8, while Chevron has a Dividend Cushion ratio of 2.4. Both Exxon Mobil and Chevron remain strong investment considerations, not only as it relates to valuation but also as it relates to the strength of their respective dividends. However, we don’t want to be too greedy with these “winners,” particularly as both commodity-producers have now entered "fair value" territory. Let's talk more about why we removed Exxon Mobil and Chevron from the newsletter portfolios in this article.