Valuentum Exclusive Analysis for the Discerning Investor

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Mar 17, 2020

Oracle’s Strategic Shift is Starting to Bear Fruit
Image Source: Oracle Corporation – Third Quarter Fiscal 2020 Earnings Press Release. On March 12, Dividend Growth Newsletter portfolio holding Oracle Corp reported earnings for the third quarter of fiscal 2020 (period ended February 29, 2020) which handily beat consensus expectations on the both the top- and bottom-lines. Growing subscription revenues at its cloud-based businesses were key to generating this outperformance, and most importantly in our view, Oracle showcased that its outlook is improving as it shifts away from old and stale IT infrastructure offerings (i.e. enterprise data application management) and towards the IT infrastructure of the 21st Century (cloud-based services i.e. software-as-a-service and infrastructure-as-a-service). Shares of ORCL yield ~2.1% as of this writing and our fair value estimate stands at $55 per share.

Mar 17, 2020

Dollar General Holding Up Relatively Well in the Face of COVID-19
Image Shown: Shares of Dollar General Corporation, a holding in our Best Ideas Newsletter portfolio, have aggressively outperformed the S&P 500 Index over the past year as of the end of the normal trading session on March 12.  Retail firms, particularly companies that sell consumer staples products, have held up relatively well during the ongoing rout in global equities (including in the US). The novel coronavirus (‘COVID-19’) pandemic is the "black swan" event that could potentially tip the global economy towards recession, in our view, but please note this pandemic was the straw that broke the camel’s back, not the single source of this potential downside (rising non-financial corporate debt levels, slowing industrial activity, large national budget deficits and enormous public debt loads worldwide, rising geopolitical tensions and the impact trade wars have on global supply chains, and the lack of “dry powder” at major central banks are several reasons why the global economy has asymmetrical downside risk when it comes to growth). Best Ideas Newsletter portfolio holding Dollar General Corp is a prime example of a retail firm holding its own against major exogenous headwinds. As of the end of the normal trading session on March 12, shares of DG are up 18.7% while the S&P 500 index is down 11.1%. Dollar General reported earnings for the fourth quarter and full-year fiscal 2019 (period ended January 31, 2020) that beat on both the top- and bottom-line, and its same-store sales performance also beat expectations. Let's dig into the specifics in this note.

Mar 17, 2020

Buybacks and Wealth Destruction
From Value Trap: "According to S&P Dow Jones Indices, S&P 500 stock buybacks alone totaled $519.4 billion in 2017, $536.4 billion in 2016, and $572.2 billion in 2015. In 2018, announced buybacks hit $1.1 trillion. Given all the global wealth that has been accumulated through the 21st century, it may seem hard to believe that another Great Depression is even possible. However, in the event of a structural shock to the marketplace where aggregate enterprise values for companies are fundamentally reset lower, the vast amount of cash spent on buybacks would only make matters worse. The money that had been spent on buybacks could have been distributed to shareholders in the form of a dividend or even held on the books as a sanctuary of value within the enterprise during hardship. Buybacks, unlike dividends, can result in wealth destruction in a market economy, much like they can with companies. This is an important downside scenario that is often overlooked." -- Value Trap, published 2018

Mar 15, 2020

Fed Cuts 100 Basis Points, Launches More QE
“Now, stocks and other assets are being sold, some indiscriminately. It is truly becoming a stock pickers market as opposed to a quant-led and index-led market. It takes a different kind of bravery to buy on massive down days and one must have conviction in their research that the company will not go away if massive downside scenarios do in fact emerge.” – Matthew Warren. In this piece, we cover our assessment of what the global markets might be facing in a bull-case, base-case, and bear-case scenario. Our base case is a substantial recession in the US and a financial crisis of some unknown magnitude.

Mar 15, 2020

Panic Buying of Consumer Goods and Its Impact on Discounted Cash Flow Valuation
Image: Sam’s Club (Crystal Lake, IL), March 14. Water and toilet paper continue to be completely sold out at most big box retailers as COVID-19 panic buying of consumer goods continues to spread. Fear-induced purchases in the US have also helped drive up investor sentiment toward consumer staples names with a large domestic presence. We caution, however, that near-term earnings bumps emanating from “stockpiling” have little impact on a company’s intrinsic value, which is derived more from normalized conditions, and in most cases, the panic buying of consumer goods is merely pulling demand forward. “You know what’s disappearing from the supermarket shelves? Toilet paper…There’s an acute shortage of toilet paper in the United States.” – Johnny Carson, in 1973, causing a month-long shortage of toilet paper in the US at the time. The spread of COVID-19 is creating a similar panic as consumers stock up on just about everything from toilet paper to canned goods to hand sanitizer.

Mar 13, 2020

Dow Fell 9.99%, Worst Point Drop in History, More Nibbling?
Every stock in the S&P 500 fell during the trading session March 12, except one. The Dow Jones Industrial Average experienced the biggest point drop in history, Europe was crushed, gold and crypto-currencies sold off, Treasuries and munis were weak, as correlations among almost all asset classes approached one, as they often do during economic crises. Thursday, the S&P 500 closed at 2,480, near the low end of our 2,350-2,750 target range, and given the massive historical decline March 12 (the biggest point drop in history), equities are now starting to reflect a more neutral risk-reward balance at current levels, though we note downside risks remain. It may be time to consider doing some more nibbling on some of your favorite ideas. Where should you look? Our favorite ideas are always included in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio and Exclusive publication. In particular, we think ideas that have strong net cash positions, strong economic returns ("castles"), solid moats around their operations (competitive advantages), and strong free cash flow generation are the places to look during crises.

Mar 13, 2020

Dividend Increases/Decreases for the Week Ending March 13
Let's take a look at companies that raised/lowered their dividend this week.

Mar 12, 2020

Caterpillar Reports Cratering Demand for its Products Amid COVID-19
Image Shown: Caterpillar Inc is hoping that efficiency improvements at its construction equipment business will help revive retail sales growth at the segment. That’s no easy task given the exogenous headwinds facing the company. Image Source: Caterpillar Inc – CONEXPO March 2020 IR Presentation. The ongoing novel coronavirus (‘COVID-19’) pandemic is beginning to wreak havoc on the global economy. Major agriculture, construction, energy, resource extraction and transportation equipment supplier Caterpillar Inc filed an 8-K report with the SEC on March 12 that highlighted just how rough the start of 2020 has been for the industrial space at-large. Even before the COVID-19 pandemic started spreading, Caterpillar’s retail sales had been coming under fire from slowing global economic growth, but now that decline has started to really pick up pace.

Mar 12, 2020

COVID-19 Impacting PayPal and Visa
In this note, we cover how the ongoing COVID-19 pandemic is impacting two of the holdings within our Best Ideas Newsletter portfolio: PYPL and V.

Mar 12, 2020

Closing 'Crash Protection' Again, Circuit Breakers Tripped Again, Too
Image Source: YahooFinance. On March 11, the Trump administration announced a ban on travel from Europe to the U.S. for 30 days, but containment efforts in this regard may be too little too late. COVID-19 is already in the United States and spreading aggressively. Containment efforts on travel bans into the United States were the right move weeks ago, but perhaps politically difficult to achieve. Director of the National Institute of Allergy and Infectious Diseases Dr. Anthony Fauci noted the following regarding the possible number of eventual deaths from COVID-19 in the United States: "if we are complacent and don't do really aggressive containment and mitigation, the number could go way up and be involved in the many, many millions." The World Health Organization expects a global death rate from COVID-19 of about 3.4%. The markets were disappointed in the expected fiscal stimulus response, announced March 11, that focused on proposals regarding deferred tax payments and payroll tax relief, items that will not move the needle in addressing what ails the United States, a novel virus that is highly contagious and far more deadly than the seasonal flu.