Valuentum Exclusive Analysis for the Discerning Investor

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Jan 21, 2021

ICYMI: Valuentum's Brian Nelson on the Latest Howard Marks' Memo: "Something of Value"
Valuentum's President of Investment Research Brian Michael Nelson, CFA, explains why there are not really value and growth stocks, why most of the research in quantitative finance is spurious and needs to be redefined on a forward-looking basis, and why enterprise valuation (not the efficient markets hypothesis) should be the organizing principle of finance. Nelson explains his views about valuation, what it means to be a value investor, and investing in the context of Oaktree Capital Howard Marks' latest memo, "Something of Value," January 11, 2021.

Jan 13, 2021

Surveying the Clean Energy Landscape for Ideas
Image Source: American Electric Power Company Inc (AEP) – January 2021 IR Presentation.  There’s a lot of interest in clean energy these days! Though our favorite ideas within a portfolio context are always the ideas within the Best Ideas Newsletter portfolio, the Dividend Growth Newsletter portfolio, the High Yield Dividend Newsletter portfolio, and the Exclusive publication, we also highlight interesting ideas via our articles that we publish on our website. In this article, let’s dig deep into the clean energy space. We’ll talk more about 1) Ameresco (AMRC), one of the green energy ideas we highlighted in the past that has performed incredibly well, 2) NextEra (NEE), a large utility “family” to keep an eye on (a utility firm and a merchant power spinoff), 3) First Solar (FSLR), a US-based manufacturer of solar panels, and 4) various alternative fuel and power storage companies, including Clean Energy Fuels Corp (CLNE) and Gevo Inc (GEVO). The recently-passed omnibus spending package in the US included significant funds to support various alternative and renewable energy activities. For example, the production tax credit for wind farms was extended for one year while the investment tax credit for solar plants was extended by two years. This is a major benefit for both manufacturers of solar modules and wind turbines along with the utility firms (XLU) that would own/operate such assets. Looking ahead, we expect that the US federal government will be very accommodative toward the green energy space as President-elect Biden and the incoming US Congress (which will be controlled by the Democratic Party) will likely step up federal investments in the space (such as subsidies, low or no interest loans, favorable procurement contracts, and other considerations). The share prices of various solar companies are on the rise as witnessed through the performance of funds such as Invesco Solar ETF (TAN) surging higher of late, while the impressive price performance of iShares Global Clean Energy ETF (ICLN) showcases the widespread nature of investor excitement toward almost all green energy oriented firms. Other securities in this realm include ALPS Clean Energy ETF (ACES) and SPDR S&P Kensho Clean Power ETF (CNRG).

Jan 7, 2021

Chicken Sandwich Wars Heating Up In the US
Image Shown: Rivals in the quick-service restaurant space are aggressively competing for share in the fast-growing premium chicken sandwich category following Popeyes' considerable success. Source: Images/logos property of the respective companies. Nothing has been the same in the fast-food industry since Popeyes launched its first nationwide chicken sandwich August 12, 2019. The release of the delicious chicken sandwich from the company named after Gene Hackman's character Popeye Doyle in the 1971 film The French Connection may even have changed the fast-food industry as we know it. Popeyes' "tender all-white meat chicken breast fillet, marinated in (its) authentic blend of Louisiana seasonings, then hand battered and breaded in (its) all new buttermilk coating...served with crisp barrel cured pickles and Classic or Spicy Mayonnaise, served on a warm and toasted buttery brioche bun" has been driving the taste buds of customers wild. Just writing this has made us hungry for one, and rivals haven't been sitting quietly in light of the success of Popeyes' new creation. Who can forget the infamous Popeyes and Chick-fil-A feud on Twitter that caught customers' attention, and even Wendy's couldn't resist jumping into the ring. There's clearly a lot at stake.

Dec 28, 2020

Qualcomm’s Growth Trajectory Is Impressive and Supported by Numerous Secular Trends
Image Source: Qualcomm Inc – 2019 Analyst Day Presentation. Qualcomm offers dividend growth investors a way to play the rollout of 5G technologies and other nascent technologies worldwide, along with technologies that do not exist yet but could be made viable by the ongoing rollout of 5G wireless networks. We like Qualcomm’s business model, and we view the company as well-positioned to capitalize on numerous secular growth tailwinds. Beyond the recent launch of several 5G-capable smartphones by various companies, its automotive business offers Qualcomm ample upside potential. Additionally, we are intrigued by the opportunities created by the IoT trend and the firm’s AI-related investments. Concerns over competitive threats to Qualcomm’s modem business are not to be viewed lightly, though the company has many technical competitive advantages (know-how) derived from years of development and remains a leader in its field. As long as Qualcomm continues to innovate, made possible through its meaningful R&D investments, its product offerings and expansive IP portfolio should continue to remain in high demand. The company’s dividend growth trajectory is supported by its stellar cash flow profile and relatively strong balance sheet. Shares of QCOM yield ~1.8% as of this writing.

Dec 25, 2020

Dividend Increases/Decreases for the Week December 25
Let's take a look at companies that raised/lowered their dividend this week.

Dec 17, 2020

UnitedHealth Group’s Dividend Growth Potential is Impressive
Image Shown: UnitedHealth Group Inc has a tremendous dividend growth runway, one that is supported by its high-quality cash flow profile, pristine balance sheet, and improving near-term outlook. Shares of UNH have staged an impressive recovery over the past several months since crashing in March 2020 due to headwinds arising from the ongoing COVID-19 pandemic. We added UnitedHealth Group to our Dividend Growth Newsletter portfolio on November 27, 2020. On November 27, we added UnitedHealth Group to the Dividend Growth Newsletter portfolio. The company has an “EXCELLENT” Dividend Growth rating as the firm is well-positioned to push through meaningful dividend increases in the coming years. Additionally, UnitedHealth Group earns an “EXCELLENT” Dividend Safety rating as its Dividend Cushion ratio sits at 3.1, and please keep in mind these metrics factor in our expectations that the company will meaningfully grow its payout going forward. As of this writing, shares of UNH yield ~1.5%. We like UnitedHealth Group’s stellar cash flow profile, pristine balance sheet, improving near-term outlook and resilient business model. During the ongoing coronavirus (‘COVID-19’) pandemic, the company’s financial performance has remained rock-solid, too.

Dec 15, 2020

Honeywell Is a Tremendously Resilient Enterprise and a Rock-Solid Dividend Payer
Image Shown: Honeywell International Inc expects its financial performance will post a significant rebound in 2021. Please note this guidance assumed a safe and viable COVID-19 vaccine would get distributed by early-2021, though distribution activities started before then in December 2020, which supports Honeywell’s near-term outlook. Image Source: Honeywell International Inc – Third Quarter of 2020 IR Earnings Presentation. We added one of our favorite industrial stocks Honeywell to the Dividend Growth Newsletter portfolio on November 27 as the firm’s operational and financial performance has proven to be incredibly resilient in the face of the ongoing coronavirus (‘COVID-19’) pandemic. As global health authorities begin to put an end to the pandemic, aided by recent COVID-19 vaccine developments, Honeywell is well-positioned to capitalize on a global economic recovery. Shares of HON yield ~1.8% as of this writing and its Dividend Cushion ratio sits at 2.3, earning the firm a “GOOD” Dividend Safety rating. Please note that the forward-looking Dividend Cushion ratio and Dividend Safety rating incorporates our forecast that Honeywell will push through meaningful dividend increases in the coming years, too, so Honeywell's foundation of dividend health is quite strong even considering future growth in the payout.

Dec 15, 2020

Oracle Posts Solid Earnings and Provides Favorable Near-Term Guidance
Image Source: Oracle Corporation – September 2019 IR Presentation. On December 10, Oracle Corp reported second-quarter earnings for fiscal 2021 (period ended November 30, 2020) that beat both consensus top- and bottom-line estimates. In the fiscal second quarter, Oracle’s GAAP revenues advanced 2% year-over-year on the back of its ‘Cloud services and license support’ segment posting 4% sales growth. The company’s GAAP operating income rose 13% year-over-year last fiscal quarter, as operating expenses shifted lower 3% thanks to the efforts of Oracle’s management team to make cost containment efforts a priority. The firm’s diluted GAAP EPS came in at $0.80 during the second quarter of fiscal 2021, up 16% year-over-year thanks in part to its weighted-average outstanding diluted share count falling almost 9% during this period. We are maintaining our $67 per share fair value estimate for Oracle and continue to include shares of ORCL in the Dividend Growth Newsletter portfolio. Shares of ORCL yield ~1.6% as of this writing with room for ample payout growth going forward, in our view.

Dec 10, 2020

FTC Attacks Facebook, Win-Win Scenario for Investors
Image Shown: Facebook Inc has a large digital advertising business with global reach, but it does not have a monopoly on digital advertising or social media by any means. Image Source: Facebook Inc – Third Quarter of 2020 IR Earnings Presentation. Facebook is being sued by the FTC for allegedly engaging in monopolistic activities via its acquisition program. It's important to note that the government is not seizing Facebook's assets and that Facebook investors own the future free cash flow stream of the entire entity under any and every scenario--whether Facebook is retained in current form or whether it is broken into different parts through a potential IPO/spin-off of its Instagram and WhatsApp properties. Under a status quo scenario, we believe Facebook's shares are worth $413 each, an estimate that is backed by the company's vast net cash position and future expected free cash flow stream. In such a scenario, the company would remain one of our favorite ideas, retain its material competitive advantages (i.e. the network effect) and continue to build upon its very healthy financial profile. Further, in light of the FTC news, we believe the market will look to price Facebook more and more on a sum-of-the-parts basis, which could help to accelerate price-to-estimated fair value convergence relative to our intrinsic value estimate. In a highly improbable break-up scenario, Facebook investors could receive more than our status-quo intrinsic value estimate. The IPO market is very, very healthy at the moment, with investor interest in new issues at historic highs and many recent IPOs soaring on their first day of trading. If Facebook is forced to IPO Instagram or WhatsApp, the very, very healthy IPO market could generate proceeds for Facebook investors far in excess of what the implied value of Instagram and WhatsApp contribute to our current $413 per share fair value estimate of the combined company. Further, the cash proceeds of an IPO of Instagram or WhatsApp would stuff the coffers of Facebook's balance sheet with even more excess cash that could be used for material share buybacks or a vast one-time cash dividend--or for other value-generating opportunities. In an IPO or spin-off of Facebook's Instagram or WhatsApp properties, please note that investors are merely capturing the present value of these properties' future free cash flows sooner (not losing them)--and the market may price them at a substantial premium above our implied valuation within Facebook. The FTC news, which was largely expected, will generate headline risk for Facebook's shares, and it will undoubtedly be a source of continued share-price volatility and confusion for investors. In many respects, however, the FTC's attack on Facebook may turn out to be a win-win for Facebook investors. At the very least, if investors start to look at Facebook more and more on a sum-of-the-parts basis (pricing Facebook, Instagram and WhatsApp separately with consideration of current market conditions/relative prices, which are undoubtedly healthy for new issues), it may only accelerate status-quo-scenario price-to-fair value convergence. Facebook remains a top-weighted holding in the Best Ideas Newsletter portfolio, and we will continue to follow developments related to the FTC news.

Dec 10, 2020

Alphabet Continues to Move Higher, Supported By Its Promising Long-Term Growth Runway
Image Shown: Alphabet Inc Class C shares have surged higher year-to-date as of this writing. We see room for additional capital appreciation upside. Alphabet is one of our favorite companies, and we include Alphabet Class C shares as a top weighting in the Best Ideas Newsletter portfolio. Shares of GOOG have staged an impressive recovery since March 2020, when the coronavirus (‘COVID-19’) pandemic sent equity markets spiraling lower, and we still see room for significant capital appreciation upside. Our favorite companies are firms with pristine balance sheets (Alphabet had ~$118.7 billion in net cash, inclusive of short-term debt and not including long-term ‘non-marketable investments,’ at the end of September 2020), high-quality cash flow profiles (Alphabet generated over $25.6 billion in free cash flow during the first nine months of 2020), and impressive long-term growth runways (ideally) supported by secular growth tailwinds (allowing for multiple “winners” in the space). We continue to be big fans of Alphabet as the firm checks all three boxes!