Valuentum Exclusive Analysis for the Discerning Investor

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Oct 15, 2020

Johnson & Johnson Once Again Raises Guidance
Image Shown: An overview of Johnson & Johnson’s financial performance during the third quarter of fiscal 2020. Image Source: Johnson & Johnson – Third Quarter of Fiscal 2020 IR Earnings Presentation. On October 13, Johnson & Johnson reported third quarter fiscal 2020 earnings (period ended September 27, 2020) that beat consensus non-GAAP EPS estimates and consensus GAAP revenue estimates, though its GAAP EPS fell short of consensus estimates likely due to turbulence created by the ongoing coronavirus (‘COVID-19’) pandemic. Johnson & Johnson’s GAAP revenues were up 2% year-over-year last fiscal quarter while its GAAP gross margin stayed broadly flat at 66.9%. A sharp reduction in other expenses resulted in Johnson & Johnson’s GAAP net income more than doubling year-over-year in the fiscal third quarter. The company once again raised its full-year guidance for fiscal 2020 (boosting both its top- and bottom-line forecasts) during its latest earnings report, just as it did back during its fiscal second quarter earnings report. Stronger than expected performance at Johnson & Johnson’s ‘Medical Devices’ business operating segment was largely responsible for the guidance increase according to management commentary during the firm’s latest earnings call. We continue to include shares of Johnson & Johnson in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios.

Oct 14, 2020

Our Thoughts on Apple Launching Its First-Ever 5G-Capable iPhone
Image Shown: Shares of Apple Inc have surged higher year-to-date. On October 13, Apple announced its first-ever lineup of 5G-capable iPhones along with a new smart home speaker offering HomePod Mini. While the 5G-capable iPhone announcement was largely expected, we appreciate the good news all the same. We include shares of Apple as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios and are big fans of the name. The HomePod Mini offering represents Apple’s way of staying competitive with similar offerings from Amazonand Alphabet.

Oct 13, 2020

JPMorgan, Citigroup Third Quarters Not Terrible, But Still No Reason to Own Financials
Image: Banks and financials were among the most aggressively beaten down groups during the COVID-19 crash, and the sector failed to participate meaningfully in the bounce back. The leveraged and arbitrary nature of banking business models makes them much less attractive than entities with strong net cash positions on the balance sheet and solid expected future free cash flows. Source: Kastner, David, Charles Schwab. “Schwab Sector Views: Changes Are Coming.” 18 June 2020. https://www.schwab.com/resource-center/insights/content/sector-views. Better-than-feared third-quarter reports are not going to change our minds on the banking and financials sector. The group has been among the worst performing sectors amid the COVID-19 market crash and failed to bounce back meaningfully since the March bottom. Banks are being used as extensions of government fiscal intervention via myriad stimulus programs, while oversight puts a limit on just how much capital they can return to shareholders. Returns on equity remain subpar for many, and systemic risk remains present with most books opaque and intertwined within the global financial system. Cash flows for the group are largely arbitrary, and most remain leveraged by the very nature of their business models. We see no reason to own most banks and financials and point to fintech via PayPal and credit card processor Visa as our favorite ideas for indirect exposure to the global financial system.

Oct 13, 2020

Great Day in the Markets!
Image: The Invesco QQQ Trust, an exchange-traded fund based on the NASDAQ 100 index, had a great day during the trading session October 12, as it leads all major indexes on the year. The trading session October 12 was a sight to see. The Dow Jones Industrial Average advanced 0.88%, the S&P 500 jumped 1.64%, while the NASDAQ powered ahead an incredible 2.56%. As many of our members know, the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio are very heavily weighted in large cap growth, big cap tech, and the NASDAQ.

Oct 12, 2020

Dollar General’s Promising Growth Outlook
Image Source: Dollar General Corporation – Fiscal 2019 Annual Report. We are big fans of Dollar General Corp and continue to like shares of DG as a holding in our Best Ideas Newsletter portfolio. After updating our discounted cash flow model, we increased the fair value estimate and the top end of our fair value estimate range for Dollar General. Under our “bull” case scenario, Dollar General now has a fair value estimate of $223 per share. Even if Dollar General surpasses the top end of our fair value estimate range, we prefer to let our winners run until their technicals turn against them. The latest 16-Page Stock Report covering Dollar General can be accessed here.

Oct 9, 2020

The Resilience of the US Digital Advertising Market and Alphabet
Image Shown: Shares of Alphabet Inc Class C shares, a top-weighted holding in our Best Ideas Newsletter portfolio, have performed very well over the past year. Going forward, we see room for significant capital appreciation upside as the digital advertising market has proven to be very resilient of late. To ride out the ongoing coronavirus (‘COVID-19’) pandemic, we continue to prefer large-cap tech companies with pristine balance sheets, strong cash flow profiles, and promising long-term growth outlooks. Ideally, we are searching for companies with outlooks that are supported by secular growth tailwinds, allowing for several winners in their respective end markets. Digital advertising is a prime example of a resilient high-quality market that is supported by secular growth tailwinds. Alphabet perfectly bits the bill given its ~$117.1 billion net cash position at the end of June 2020 (not including ~$13.0 billion in non-current non-marketable securities, and with no short-term debt on the books), and considering it generated over $14.0 billion in free cash flow during the first half of 2020 alone. We include Alphabet Class C shares as a top-weighted holding in our Best Ideas Newsletter portfolio, and the top end of our fair value estimate range sits at $1,795 per share of GOOG.

Oct 8, 2020

Nelson: I'm Not Worried About This Market
Image Source: The White House. President Donald J. Trump listens as U.S. Surgeon General Jerome Adams delivers remarks and urges citizens to wear masks in public at a coronavirus (COVID-19) update briefing. All things considered, not much has changed since our last update. I think the newsletter portfolios--Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio--are well-positioned for this market environment, our new options idea generation has been great, the Exclusive ideas have had tremendous success rates (we just closed another two winners recently), and we continue to add tremendous value in providing our work in full transparency for readers. Thanks for tuning in.

Oct 7, 2020

Apple’s Growing Financial Tech Business
Image Shown: Shares of Apple Inc, a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios, have surged higher year-to-date. We see room for additional capital appreciation upside. We continue to be huge fans of Apple, and shares of the tech giant are included as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios. Our fair value estimate for Apple sits at $140 per share, comfortably above where shares of AAPL are trading at as of this writing indicating there is room for meaningful capital appreciation upside. Additionally, shares of AAPL yield a modest ~0.7% as of this writing, and we view its forward-looking dividend growth trajectory quite favorably, though please note Apple also allocates a significant amount of capital every fiscal year towards share repurchases.

Oct 6, 2020

Third-Level Thinking and "Keynesian Convergence"
Image: The analytical process of the Valuentum Buying Index rating system. At Valuentum, we seek to identify strong, competitively-advantaged companies that are underpriced [with solid cash-based sources of intrinsic value (net cash, strong expected free cash flows)] whose share prices are either 1) also advancing, 2) have strong relative pricing strength, or 3) have just started to begin to advance toward an intrinsic value estimate (with a nice growing dividend to boot, where applicable). Third-level thinking is our foundation at Valuentum, and it continues to serve investors well.

Oct 2, 2020

Our Thoughts on the Oil & Gas Industry
Image Shown: Crude oil prices, measured by the WTI benchmark, plummeted during the initial phases of the COVID-19 pandemic and have yet to fully recover. Declines in global crude oil prices have depressed prices for natural gas, natural gas liquids, and liquified natural gas as well. We expect that it will take some time for the oil and gas industry to truly recover, and hefty net debt loads combined with onerous dividend obligations are making that a very tough task. Juicy dividend yields are a sign of the headwinds facing the oil and gas industry and are not a sign of strong underlying strength in those firms that are paying out generous dividends. Most of the juicy dividend yields within the energy space are a sign of the stress facing those companies and the industry at-large, and we caution that the chance other oil majors follow Shell and BP in cutting their payout remains very likely. For instance, Exxon Mobil’s payout is simply not well-covered in the current raw energy resources pricing environment and the firm is taking on a lot of debt to cover those obligations. Chevron Corporation’s payout is also on shaky ground as it generated negative free cash flows during the first half of 2020 while carrying a large net debt load at the end of June, though like Exxon Mobil, Chevron’s management team has stuck with its current dividend policy so far. Like Shell, Chevron also grew its natural gas and LNG business meaningfully over the past few years, but that strategy did not pan out as intended.