Valuentum Exclusive Analysis for the Discerning Investor

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Jun 16, 2020

Reiterating Our Bullish Long-Term View on Stocks
Image: The NASDAQ 100 Index remains resilient, bouncing off support, after breaking out to new highs recently. Some of our best ideas are included in the NASDAQ 100, and our favorite concentrations include exposure to big cap tech and large cap growth. We continue to be bullish on equities for the long run. In addition to unlimited quantitative easing and "whatever it takes, squared" Fed policy, today, June 16, the Trump administration announced that it is weighing a $1 trillion stimulus bill to help support the economy. While uncertainties remain regarding specifics of the bill (it might include state assistance, extension of unemployment benefits, etc.), the move is consistent with the outsize spending we expect to further bolster the bull case, "ICYMI -- Stay Optimistic. Stay Bullish. I Am." We continue to emphasize that, in light of unlimited QE and runaway fiscal stimulus, the longer-duration components of intrinsic values are expanding considerably, and as a result, fair values, themselves, are actually rising during this recession and pandemic [a good estimate of the value of the S&P 500 today may be between 3,530-3,920, as outlined in the following: "Scribbles and More Newsletter Portfolio Changes.]."

Jun 16, 2020

Exxon Mobil Puts on a Brave Face
Image Source: Exxon Mobil Corporation – November 2019 Guyana IR Presentation. Near-term oil prices and most importantly, the oil price futures curve, have improved materially since just a couple of months ago when it looked like the sky was falling. For the first time ever, WTI turned negative in April 2020 for physical deliveries due May 2020 of light sweet oil to Cushing, Oklahoma, as storage options were limited (and arguably, many speculators had jumped into the market not fully aware of the risks they were taking on). Exxon Mobil Corp has seen its share price recover considerably since the drop, though we caution that management’s commitment to the dividend will prove a hard task if things do not improve materially in the short-term. As of this writing, near-term futures for WTI and its international counterpart Brent are trading near $40 per barrel. In the face of COVID-19, low raw energy resource prices (Exxon Mobil’s upstream operations form its largest single business segment), and subdued demand for refined petroleum and petrochemical products (from gasoline to plastics) have significantly weakened Exxon Mobil’s cash flow profile. The ongoing coronavirus (‘COVID-19’) pandemic has shaken energy markets to their core in ways we have not seen ever before. Shares of XOM yield ~7.4% as of this writing. We give Exxon Mobil a Dividend Cushion ratio at 0.2, though its Dividend Safety rating is “GOOD” given the company’s ability to tap capital markets, especially debt markets as the oil giant carries high quality “A-rated” investment grade credit ratings. There is a limit to how much debt Exxon Mobil can take on to cover its dividend obligations, however, which we will cover in greater detail in this article.

Jun 16, 2020

Lululemon Supported by Strong Digital Sales
Image Source: Lululemon Athletica Inc – Third Quarter Fiscal 2019 Earnings Infographic. On June 11, Lululemon Athletica reported first quarter fiscal 2020 earnings (period ended May 3, 2020) that missed consensus top- and bottom-line estimates. The company’s strong digital sales were offset by the negative impact of containment efforts to stop the spread of coronavirus (‘COVID-19’), namely store closures (both company-owned and third-party retail locations). Shares of LULU are still up comfortably year-to-date as of this writing, in large part due to its pristine balance sheet and past investments in its digital infrastructure and digital sales channels. We covered these two aspects of its business model and why that would be a source of strength during these challenging times back in March 2020 (link here).

Jun 15, 2020

Good News for Intel
Image Source: Intel Corporation – January 2020 Presentation. In this article, we cover recent events in the semiconductor industry and how a bill that was just introduced in the US Congress could positively impact Intel Corp. We include shares of INTC as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios and continue to like the company for numerous reasons that we will cover in this piece. Shares of INTC yield ~2.2% as of this writing.

Jun 15, 2020

ICYMI: Survey Coming Later Today, More Market Volatility Expected
Image: The market's levels of volatility so far in 2020 have been among the greatest in history. Expectations for increased volatility in the marketplace as a result of the proliferation of price-agnostic trading (indexing and quantitative trading) is a key theme of Valuentum's text, Value Trap: Theory of Universal Valuation. We continue to emphasize the importance of due diligence, enterprise valuation, behavioral thinking, the information contained in prices, and stock selection across equity portfolios. Page 256. This week is setting up to be yet another volatile week of trading, but nothing too surprising. We've talked extensively about outsize levels of volatility in the book Value Trap, and many of our predictions regarding the magnitude of volatility have come to fruition, as described in this note here. But as we've also noted in Value Trap, we don't think increased volatility is a transient development. The Fed and Treasury have only further emboldened price-agnostic trading (indexing/quant) with recent bailout actions, and volatility and momentum funds, which exacerbate the swings, will only grow as a percentage of trading volumes. The magnitude of market volatility during the COVID-19 crisis has certainly been immense. During March for example, the Dow Jones Industrial Average had 8 consecutive days with a 4% move in either direction (this is the first time in history this happened--not even during the tumultuous times of the Crash of 1929 or Black Monday of 1987 or the Great Financial Crisis did this happen). Intra-day volatility has also been considerable, and it has become commonplace for equity futures to swing wildly before market open. Now, more than ever, investors need a steady hand at the wheel.

Jun 15, 2020

Reviewing Oracle’s Cloud Ambitions Ahead of Its Upcoming Earnings Report
Image Shown: Oracle Corp is seeking to take market share in the clouding computing space from Microsoft Corp and Amazon. Image Source: Oracle Corporation – September 2019 Financial Analyst Meeting. Oracle Corp is included as a holding in our Dividend Growth Newsletter portfolio. We like the firm’s high quality cash flow profile as that lends support to its Dividend Safety rating, which sits at “GOOD,” and should its Dividend Cushion ratio of 2.7 tick up slightly, Oracle would be in a position to earn an “EXCELLENT” Dividend Safety rating. Shares of ORCL yield ~1.8% as of this writing, and Oracle’s Dividend Growth rating sits at “EXCELLENT” given its promising payout growth trajectory. Please note our Dividend Cushion ratio and Dividend Safety rating are forward-looking, and we model in strong double-digit per share payout growth through the mid-2020s, though the ongoing coronavirus (‘COVID-19’) pandemic may result in management being more cautious in the near-term.

Jun 15, 2020

Disney’s Outlook is Improving
Image Source: Marc Levin and Valuentum added a solid line black border to the image. Shares of Walt Disney are trading near our fair value estimate of $111 per share as of this writing after recovering sharply from their March 2020 lows. Disney’s stock price came under intense pressure from the ongoing coronavirus (‘COVID-19’) pandemic, though the firm’s outlook has improved materially as various economies around the world have started opening back up. We include shares of DIS as a holding in our Best Ideas Newsletter at a modest weighting.

Jun 12, 2020

*ALERT* Scribbles and More Newsletter Portfolio Changes
Image: Why are stock prices increasing while the near-term economy and near-term earnings outlook isn't as bright as before...How unlimited quantitative easing, runaway government spending, increased inflation expectations impact equity values...Why this year's earnings expectations or next year's earnings expectations don't matter much...Why Valuentum thinks equity values are rising today, even as the near-term outlook remains unclear. Scribbles on page 76 of Value Trap. "I know it sounds crazy to say so during a global pandemic and during a recession, but the right multiple and the right earnings to use to value this market is an 18-20x multiple on $196 earnings, putting a fair value range on the S&P 500 today of 3,530-3,920. The S&P 500 is trading at about 3,000 today." -- Brian Nelson, CFA

Jun 12, 2020

Fastenal Shares Shifting Higher
Image Source: Fastenal Company  – First Quarter 2020 Earnings IR Presentation. Fastenal is an interesting company and we like the firm’s business model and high quality cash flow profile. The firm’s acquisition of the Apex assets should put Fastenal in a better position to meet the needs of its industrial and construction customer base. Though its near-term operational and financial performance will likely be volatile due to the ongoing pandemic, recent operational improvements and its growing safety supplies business lends some support, as does its strong financials. Fastenal appears well-positioned to ride out the storm with its financials, operations, and dividend intact.

Jun 11, 2020

*ALERT* Newsletter Portfolio Changes
Image: The markets are selling off rather aggressively today, June 11, but it is important to keep things in context. Above, the NASDAQ 100 Index just hit all-time highs recently, and some profit taking is to be expected. Though it will make for scary headlines, the move today isn't out of the ordinary after such a strong run higher. We're making a couple tweaks to the simulated newsletter portfolios today. It has been one of the strongest bull markets we've ever seen off the March 23 bottom, and while we continue to be optimistic about some of our favorite ideas, we are now re-positioning the newsletter portfolios after taking advantage of the surge.