Valuentum Exclusive Analysis for the Discerning Investor

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Dec 3, 2023

Latest Report Updates
Check out the latest report refreshes on the website.

Oct 22, 2023

There Will Be Volatility
Image: An ETF tracking Russell 1000 "growth" stocks has outperformed an ETF tracking Russell 2000 "value" stocks since the beginning of 2021. To us, the market remains hypersensitive to almost every economic data point that hits the wires, and we’re just not going to play that game. The macro headlines and never-ending news flow are what many quant and algorithmic traders are trading on, and to a very large extent, for investors with a long-term horizon, these macro data points just don’t factor into the equation. When valuing equities, we’re always after mid-cycle expectations, not peak or trough performance, so our valuations implicitly embed a "normal" recession. Warren Buffett didn’t become a billionaire buying and selling on macro data points, and volatility is simply to be expected given the proliferation of price-agnostic trading these days. Instead of panicking over higher interest rates, we think investors should view the Fed’s work thus far as future potential dry powder to stimulate both the economy and the markets. Whenever you feel like stocks are no good, have a read of Warren Buffett’s classic piece written during the Great Financial Crisis, “Buy American. I Am.” To us, we still like stocks for the long run. Happy investing!

Sep 20, 2023

ICYMI: Questions for Valuentum’s Brian Nelson
Valuentum's President Brian Nelson, CFA, answers your questions.

Sep 6, 2023

Latest Report Updates Reveal Tremendous Dividend Strength at Walmart
Our latest report updates showcased one very big observation, and that was the tremendous dividend strength of Walmart. The big box retailer’s Dividend Cushion ratio is rock-solid, and improved inventory management has worked wonders on operating cash flow this year, driving it to $18.2 billion during the six months ended July 31 from $9.24 billion in the same period a year ago, all the while organized retail theft remains a huge industry-wide problem. Though shares of Walmart are widely followed and are fairly valued on the basis of our discounted cash-flow process, we stand in awe of the company’s resurgence in free cash flow generation and believe that the firm offers a nice foundation to the markets. Walmart is on a short list of entities that we’d be looking to add to the Dividend Growth Newsletter portfolio at the right price, near the lower end of our updated fair value estimate range.

Aug 6, 2023

Berkshire’s Stake in Apple Has Been a Boon for Shareholders
Image: Apple has been a blessing for Berkshire Hathaway. Image Source: Berkshire Hathaway’s second-quarter 2023 10-Q. Berkshire Hathaway fits the bill of the types of companies we’re looking for in this market environment. The company holds a nice cash position on the books, to the tune of ~$147.4 billion, while notes payable and other borrowings stood at ~$125.3 billion--good for a solid net cash position. Operating cash flow advanced to ~$21.1 billion through the first six months of the year (up from ~$15.4 billion from the same period last year), while purchases of property, plant, and equipment came in at ~$8.4 billion (up from ~$6.8 billion), good enough for free cash flow generation of ~$12.7 billion year-to-date in 2023 (up from ~$8.5 billion). Berkshire’s strong net cash position and impressive free cash flow generating profile are big reasons why we continue to like shares in the Best Ideas Newsletter portfolio.

Aug 3, 2023

Not Expecting Much From Consumer Staples Stocks
Image: Kellogg is representative of many consumer staples stocks that have considerable net debt positions. Image Source: Kellogg’s second-quarter press release. Though consumer staples equities have shown tremendous resilience in the face of adversity and their dividend yields can make sense in certain portfolios, the group is overflowing with net debt positions, meager long-term growth prospects, and free cash flow generation that is largely absorbed by growing per-share dividend liabilities. On the other hand, big cap tech and large cap growth have tremendous net cash positions and substantial future expected free cash flow generation, paving the way for what could be considerable long-term return potential. As with the last decade, we expect cash-based sources of intrinsic value to prevail, and for that, we continue to point to big cap tech and large cap growth as areas for consideration.

Jul 15, 2023

Subscribe to the Valuentum ESG Newsletter!
There may be no greater or better investment than becoming more exposed to the sustainable trend of environmental, social and governance (ESG) investing, where ESG research points to key risks of a company that could have tremendous implications on its intrinsic value or fair value estimate distribution. Subscribe to the monthly Valuentum ESG Newsletter today!

Jul 14, 2023

Positive Pricing Elasticities Continue to Power Pepsi
Image: Effective net pricing continues to be strong at Pepsi. Image Source: PepsiCo. On July 13, PepsiCo, Inc. reported excellent second-quarter 2023 results. The firm’s pricing power continues to impress as the executive team manages modest losses in organic volume with huge effective net pricing increases. We’re sticking with the high end of our fair value estimate range for Pepsi of ~$220 per share as pricing power will likely continue for as long as pricing elasticities remain positive.

Jul 11, 2023

An Important Measure of Leverage for Dividend-Growth and Income-Oriented Shareholders, One That Is Dividend-Adjusted
As more and more investors rely on company dividends for income, dividends, in our view, have become more debt-like commitments in nature, especially from the perspective of dividend-growth or income-oriented shareholders. Years ago, we rolled out a measure of financial leverage that considers both the company’s debt and the present value of its future expected cash dividend obligations, which, in the eyes of die-hard dividend-growth or income-oriented shareholders, may be implicitly assumed to be debt-like commitments in substance. We think this leverage ratio can be used in conjunction with the Dividend Cushion ratio to gain additional insight into the dividend-paying financial health of an entity.

May 30, 2023

Paper: Value and Momentum Within Stocks, Too
Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks.