Valuentum Exclusive Analysis for the Discerning Investor

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Jan 21, 2020

Two Dividend Growth Newsletter Portfolio Holdings Get Ready to Report Earnings Later This Month
Two holdings in the Dividend Growth Newsletter portfolio, Johnson & Johnson and Microsoft Corporation, are getting ready to report earnings later this month.

Jan 21, 2020

Goldman Hit By Charge Related to 1MDB
Image Source: Goldman Sachs Earnings Presentation. Aside from dominating the global revenue pools for investment banking and trading, Goldman is doing other things right. The firm has rapidly gathered deposits in the US and UK over the past year, bringing in a lower cost of funds to help facilitate its balance sheet. Goldman has also built up Marcus, Apple Card, and the bank is in the process of growing its asset management business to better serve institutional clients.

Jan 17, 2020

Why We Like Republic Services Over Casella
Image Source: Republic Services Inc – 2018 Annual Report. Let's talk about the story of two garbage haulers, one that is extremely pricey and one that we just added to the Dividend Growth Newsletter portfolio. Casella has experienced an impressive growth spurt during the past few years, and we model in substantial growth in the coming years, but now the rally in CWST has gotten ahead of itself. Given the unsystematic risks Casella faces and the enormous amount of growth priced into its stock, shares of CWST could fall materially should the company stumble. We prefer the stability and strength of Republic Services in terms of its large geographical footprint, managed debt maturity schedule, investment-grade credit ratings, and free cash flow growth outlook. Republic Services also pays out a nice dividend with room for substantial payout growth, while Casella is using its free cash flows to fund its growth ambitions. We like Republic Services as a top quality defensive addition to our Dividend Growth Newsletter portfolio. The non-hazardous solid waste disposal industry is quite lucrative and one that offers a lot of upside, keeping in mind the current economic expansion is long in the tooth. Having some exposure to more defensive industries is a prudent move, in our view.

Jan 17, 2020

Bank of America Gaining Share
Image Source: Bank of America Earnings Presentation. We are increasing our fair value estimate of Bank of America to $40 per share, as we view the market share gains at the bank and steady loan and deposit growth to be more sustainable than we had previously envisioned. We like the bank’s solid franchise, the management team, and we like the shares here as it tries to catch up with larger peer JPMorgan.

Jan 17, 2020

Citigroup Succeeding at Cross-Selling
Image Source: Citigroup Earnings Presentation. Citigroup is finally out-earning our estimate of its cost of capital with a return on tangible common equity (ROTCE) of 12.4% in the quarter, and the shares have rallied substantially more recently as a result. Management lowered expectations for the degree of return on tangible equity improvement going into 2020, but continued improvements would be welcome, nonetheless.

Jan 16, 2020

Alcoa’s Turnaround Still a Work in Progress
Image Shown: It has been rough for Alcoa Corporation over the past couple of years as the company faces a slowing global industrial economy while trying to optimize its asset base and overall operations in a bid to save on costs. After the market close on January 15, alumina, aluminum, and bauxite product leader Alcoa Corp reported earnings covering the fourth quarter of 2019. The company’s top- and bottom-line results missed consensus expectations. Alcoa is trading at the lower bound of our fair value estimate range and shares appear fairly valued. With global industrial activity slowing down considerably, we aren’t optimistic on Alcoa’s outlook. Material asset base and operational changes will help, but there’s only so much that can be done given the firm’s looming liabilities. Even with the US-China semi-trade truce now in effect, Alcoa still has plenty of work to do to turn this ship in the right direction. We continue to stay away from Alcoa, but appreciate management attempting to bring down the firm’s net debt/liability burden via divestments and free cash flow.

Jan 16, 2020

Wells Fargo Remains an Inefficient Bank Despite Regulatory Overhang
Image Source: Wells Fargo Earnings Supplement. Wells has been forced to do a lot of hiring related to remediating its problems with regulators, but the problem is simply larger than that. This is an inefficient bank, which is very odd considering the massive scale that it benefits from.

Jan 15, 2020

Visa Enhances Its Long-Term Outlook
On January 13, top weighted Best Ideas Newsletter portfolio holding Visa announced it was buying financial tech company Plaid for $5.3 billion. Plaid primarily offers a network that allows consumers to connect financial accounts to apps securely and safely, meaning that when a consumer downloads a mobile financial-oriented app to their phone (for example), Plaid is the company that ensures a smooth connection between app and the relevant financial institution when it comes to transferring information and ultimately money. What’s important about this acquisition is that Visa, once again, is showcasing its ability to spot and capitalize on high quality opportunities within the financial services space.

Jan 15, 2020

JPMorgan's Quarter Shows Higher Sustainable Growth Potential
Image Source: JPMorgan Earnings Presentation. We are raising our fair value estimate of JPMorgan to $160 per share to reflect higher sustainable growth than we’d previously been expecting.

Jan 14, 2020

Disney Joins the Best Ideas Newsletter Portfolio
Image Shown: Shares of The Walt Disney Company have performed well over the past year, and we see room for additional upside. Media and entertainment giant The Walt Disney Company was just added to our Best Ideas Newsletter portfolio. Though the firm does not register the typically high Valuentum Buying Index rating that we would prefer with new additions (sometimes we have to relax criteria to achieve newsletter portfolio goals), we like Disney’s business model and its future free cash flows are underpinned by: a top quality intellectual property (‘IP’) portfolio that’s practically impossible to replace, the immense profitability of its theme parks (which benefit from its strong and ever-growing IP portfolio i.e. adding Star Wars-themed rides), its strength in streaming (Disney owns ~67% of Hulu and Disney+ has reportedly been a big hit initially), its position in live sports (one of the few reasons why households keep cable, or choose higher priced streaming packages) is top notch (ESPN, which Disney owns ~80% of, now has ESPN+ to offer incremental upside), and the company should be able to wring out synergies after buying 21st Century Fox (the deal closed in March 2019) through a ~$71 billion cash-and-stock deal.