Valuentum Exclusive Analysis for the Discerning Investor

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Jun 5, 2020

Dow Jones Surges Past 27,000; Bull Market Continues!
"What a bull market off the lows we are having. I don't think we're finished, as I have pounded the table time and time and time again about how bullish I am. In the words of Frank Sinatra, "The Best Is Yet to Come," and I truly believe that. Yesterday, I explained to readers why we're seeing this huge rally, "Stay Optimistic. Stay Bullish. I Am." If you understand the duration and composition of equity value (page 74-83 in Value Trap), you can start focusing on what drives share prices and returns. How else could a market rally this much with 13% unemployment, right? How wonderful it would be if everyone understood the duration of stock value composition! What would happen to ambiguous, backward-looking factor investing? Finance could then start talking about things that make sense again." -- Brian Nelson, CFA

Jun 4, 2020

BHP Benefiting from an Industrial Rebound in China
Image Source: BHP Group – Fiscal 2019 Annual Report. In recent months, iron ore futures prices have surged higher due to an ongoing recovery in China’s industrial sector and supply concerns in Brazil, which has culminated into the Dalian Commodity Exchange’s September 2020 iron ore deliveries hitting a record high since the futures contract was first launched in 2013. Pivoting to copper, three-month copper futures prices based on trading activity on the London Metals Exchange have also perked up on the back of an apparent recovery in Chinese economic activity. Rising metals prices bodes well for major and minor miners around the globe, including BHP Group.

Jun 3, 2020

Encouraging Trends at Cracker Barrel, Consumers Coming Out to Spend
Image Source: Cracker Barrel. Cracker Barrel has one of the best dining experiences around, and we expect it to make a strong recovery thanks in part to a differentiated brand, loyal guests, and menu pricing power. Despite the dividend cut, we didn’t remove the company from the Dividend Growth Newsletter portfolio as we were expecting a huge bounce in the share price, which has happened. While it may take some time for Cracker Barrel to reinstate its dividend, we think it will happen sooner than later, and we are leaving the company in the Dividend Growth Newsletter portfolio for the foreseeable future as its share price continues on the path to pre-COVID-19 levels. The high end of our fair value estimate range stands at $119, but there may be meaningful upside in the event consumer willingness to revisit full-service restaurants (coupled with a return to economic “normalcy”) go better than expected.

Jun 3, 2020

Our Thoughts on SelectQuote Going Public
Image Source: SelectQuote Inc – S-1 filing. On May 22, the digitally-oriented insurance comparison company SelectQuote went public, and shares of SLQT have performed quite well since then as of this writing, jumping meaningfully from the reference price of $20 per share. The company intends to use some of the proceeds for debt reduction, as it is obligated to allocate at least a quarter of the net proceeds (up to $150 million) of the IPO towards paying down its term loan due November 2024. What SelectQuote offers is an online way for consumers to compare prices and policies for various insurance plans including life, auto, home, and senior healthcare insurance products. SelectQuote does not underwrite the insurance policies but sells these products on behalf of its various partners and takes a commission for each sale. Thus, SelectQuote does not have any underwriting risk. SelectQuote has licensed insurance agents in all 50 states, and at the end of 2019, the firm had 1,850 “full-time equivalent employees” including 636 core agents and 392 flex agents.

Jun 1, 2020

June Dividend Growth Newsletter & Intrinsic Value Investing
"But how, you will ask, does one decide what [stocks are] "attractive"? Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth,"...We view that as fuzzy thinking...Growth is always a component of value [and] the very term "value investing" is redundant." -- Warren Buffett, Berkshire Hathaway annual report, 1992

May 29, 2020

Dollar General Posts a Tremendous Fiscal First Quarter Earnings Report
Image Source: Dollar General Corporation – Fiscal 2019 Annual Report and Fiscal 2020 Proxy Statement. Dollar General is one of our favorite retail plays given its focus on smaller cities and towns (with populations of 20,000 or less) in the US as that gives it an immense edge over e-commerce giants such as Amazon due to the logistical hurdles involved with expanding into these regions. Shares of DG have run up above the top end of the fair value range as of this writing; however, given its strong technical and fundamental performance of late, we're keeping Dollar General as an idea in the Best Ideas Newsletter portfolio as we like to let our winners run. It isn’t until a company’s technicals turn against it that we consider removing shares from our newsletter portfolios. Shares of DG yield ~0.8% as of this writing, which offers incremental income upside to Dollar General’s capital appreciation upside. In March 2020, Dollar General opened its first store in Wyoming which represented the 45th state the company had a retail presence in. In April 2020, Dollar General opened its first store in Washington state, growing its retail presence to 46 US states. Beyond same-store sales growth, Dollar General sees room for upside by expanding its physical store count.

May 29, 2020

Dividend Increases/Decreases for the Week Ending May 29
Let's take a look at companies that raised/lowered their dividend this week.

May 28, 2020

CubeSmart’s Financial Flexibility Will Come In Handy
Image Source: CubeSmart – March 2020 Investor Presentation. On May 7, High Yield Dividend Newsletter portfolio holding CubeSmart--5.0% yield--reported first-quarter 2020 earnings. The company pulled its full-year guidance for 2020 given the uncertainties caused by the ongoing coronavirus (‘COVID-19’) pandemic. We appreciate that the self-storage real estate investment trust (‘REIT’) remained comfortably free cash flow positive last quarter, which is one of the reasons why we like CubeSmart as a high yielding play in the REIT world.

May 27, 2020

Earnings Roundup: Week Ended May 24, 2020
Image Shown: In this article we cover a variety of companies that reported earnings in May 2020. As we get deeper into 2020, more companies have reported earnings that covered how they performed during the early days of the ongoing coronavirus (‘COVID-19’) pandemic on both a financial and operational basis. In alphabetical order by ticker: DE, LOW, NVDA, TGT.

May 26, 2020

American Express Carries Meaningful Credit Risk
Image Source: American Express Company – First Quarter of 2020 Earnings IR Presentation. At Valuentum, we are very bullish on the growth trajectory of high-quality payment processing, payment solutions, and financial technology firms. That’s why we include PayPal and Visa as top-weighted holdings in our Best Ideas Newsletter portfolio. However, please note that what makes those firms appealing is the limited or lack of exposure to credit risk. Visa carries no credit risk and generates revenues through fees collected on transactions conducted with Visa-branded cards, and while PayPal possesses some credit risk, that risk is rather small relative to its overall business. Both firms enable investors to capitalize on the shift to a “cashless” society, a trend occurring both offline and online. Pivoting now to American Express, the focus of this piece, American Express carries a lot of credit risk. While, generally speaking, American Express tends to cater to relatively more affluent clientele than say, Discover Financial, that doesn’t mean American Express isn’t exposed in a very meaningful way to a sharp downturn in US and global economic activity. That downturn is a result of the ongoing coronavirus (‘COVID-19’) pandemic and the negative dynamic effects the virus has had on economic activity across the globe.