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Fundamental data is updated weekly, as of the prior weekend. Please download the Full Report and Dividend Report for any changes.
Oct 29, 2020
News Brief: We Like Large Cap Growth, Big Cap Tech, and the NASDAQ
Image: Since 2010, a large cap growth ETF has outperformed the S&P 500 by nearly 150 percentage points (15,000 basis points). Since 2010, a large cap growth ETF has outperformed a small cap value ETF by over 275 percentage points, or 27,500 basis points (image not shown). We expect continued outperformance from companies within the large cap growth bucket. The markets have been see-sawing the past couple weeks as the global economy continues to recover and much of the world awaits the outcome of the 2020 US Presidential election. We think the equity markets have largely factored in the forecasted epidemiology curve with respect to COVID-19, including infection spikes across the world, so recent market volatility has largely been driven more by political/election risk than anything else. To nobody’s surprise, we expect continued volatility heading into and during election week, but we’re also maintaining our above market fair value estimate on the S&P 500 of 3,530-3,920 (the S&P 500 stands at about 3,300 at the moment). Once election week passes, we expect one of the best Santa Claus rallies in years as consumer sentiment improves. As a result of COVID-19, e-commerce proliferation will be more evident during the holiday season this year than ever before. Our newsletter portfolios remain well-positioned, and we continue to like the areas of large cap growth, big cap tech, and the NASDAQ. Our favorite names are those with strong net cash positions and solid expected future free cash flows with competitively advantaged business models that are tied to secular growth tailwinds in industries where many players can win. We’ve continued to point to Facebook, Alphabet, and PayPal as a few of our favorite longs in this environment.
Oct 29, 2020
Disney Is One Of Our Favorite Streaming Companies
Image Shown: Shares of The Walt Disney Company continue to recover from the pandemic-induced crash in March 2020. One of our favorite companies with significant exposure to the video streaming arena is the entertainment behemoth The Walt Disney Company. The company’s various streaming services include ESPN+, Disney+, Hulu, among others. On October 12, Disney announced a major restructuring which effectively reorganized several of its business operating segments around supporting its video streaming ambitions, with an eye towards ensuring sizable investments in original content would be put towards good use.
Oct 28, 2020
ALERT: Removing Intel (INTC) from the Newsletter Portfolios
Image: Intel's share price performance since the inaugural edition of the Dividend Growth Newsletter portfolio. We're removing shares of Intel from both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. We are removing Intel from both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. Intel has been a part of both newsletter portfolios for a long time. The stock was included in the September 2011 edition of the Best Ideas Newsletter with a ~2% weighting in the portfolio at $19.89 per share, and it was included in the inaugural edition of the Dividend Growth Newsletter (January 2012) with a large 7% weighting at $24.25 per share.
Oct 28, 2020
We’re Still Huge Fans of Microsoft
Image Shown: A snapshot of Microsoft Corporation’s first quarter fiscal 2021 performance. We continue to be huge fans of the cash-rich tech giant. Image Source: Microsoft Corporation – First Quarter Fiscal 2021 IR PowerPoint Presentation. On October 27, Microsoft Corp reported first quarter fiscal 2021 earnings (period ended September 30, 2020) that blew past both consensus top- and bottom-line estimates. Its GAAP revenues were up 12% year-over-year, hitting $37.2 billion, while its GAAP diluted EPS jumped 32% higher on a year-over-year basis, hitting $1.82 last fiscal quarter. Leading the charge was Microsoft’s cloud-computing Azure segment, which reported 48% year-over-year sales growth, and its Dynamics 365 segment (includes offerings that meet enterprise resource planning and customer relationship management applications needs), which reported 38% year-over-year sales growth last fiscal quarter. Almost all of Microsoft’s various business segments reported impressive performance last fiscal quarter. Microsoft is firing on all cylinders and we continue to be huge fans of the name. We include shares of Microsoft as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios.
Oct 27, 2020
Crown Castle Continues to Shine
Image Shown: Crown Castle International Corp.’s growth trajectory continued in the third quarter of 2020. Image Source: Crown Castle International Corp. – Third Quarter of 2020 IR Earnings Presentation. Crown Castle International Corp--3.3% yield (as of this writing)--is a real estate investment trust (‘REIT’) that owns 40,000+ cell towers, ~70,000 small cell nodes (on air or under contract) and ~80,000 route miles of fiber that support numerous networking operations all across the US. We include shares of Crown Castle as a holding in our High Yield Dividend Newsletter given its ability to generate sizable free cash flows even after investing heavily in expanding its asset base. From 2017 to 2019, Crown Castle generated ~$0.75 billion in annual free cash flows, though the firm had to tap capital markets to cover its annual common dividend obligations which averaged ~$1.75 billion during this period (its annual preferred dividend obligations averaged just under $0.1 billion during this period). While the REIT is capital market dependent, given the importance of its asset base which is primarily made up of essential infrastructure that supports telecommunications services in the US (including 5G services) and its ability to generate consistent free cash flows (rare in the REIT industry), we see Crown Castle maintaining access to both debt and equity markets at attractive rates going forward. When the REIT reported third quarter 2020 earnings on October 21, management had enough confidence in Crown Castle’s outlook to boost the firm’s quarterly dividend by 11% on a sequential basis. Though management has had to adjust Crown Castle’s 2020 guidance several times (including to the downside), largely due to headwinds created by the ongoing coronavirus (‘COVID-19’) pandemic, the REIT still expects to generate meaningful revenue and adjusted funds from operations (‘AFFO’) growth this year.
Oct 27, 2020
Energy Transfer’s Dividend Cut Not Enough, Needs to Slash It More
We expect another distribution cut from Energy Transfer in the not-too-distant future. Its traditional free cash flow generation is still too meager to cover its now-reduced distribution level, and the energy markets are simply not cooperating. The energy sector has been among the worst-performing equity sectors for some time now, and investor appetite for new equity and debt issuance is waning as return expectations are ratcheted down in a troubled energy resource environment. We expect more pain to come for Energy Transfer’s stock. Our fair value estimate stands at $4 per share.
Oct 23, 2020
Our Thoughts on Intel’s Latest Earnings Report
Image Shown: An overview of Intel Corporation’s performance during the first nine months of fiscal 2020. Image Source: Intel Corporation – Third Quarter of Fiscal 2020 IR Earnings Presentation. On October 22, Intel Corp reported third quarter fiscal 2020 earnings (period ended September 26, 2020) that largely matched consensus expectations. Intel boosted its full-year outlook for fiscal 2020 on a net basis (which included an increase in its expected free cash flows this fiscal year) during its latest earnings update, though management reduced its forecast for Intel’s expected operating margins versus previous expectations. We continue to like Intel’s ability to generate sizable free cash flows, though we are concerned with its rising net debt load of late.
Oct 23, 2020
Our Thoughts on Philip Morris International’s Latest Earnings Report
Image Shown: Philip Morris International Inc has been able to maintain its global market share in the tobacco industry while pushing through price increases as indicated by its relatively strong ‘Combustible Tobacco Pricing’ performance seen through the first nine months of 2020. Image Source: Philip Morris International Inc – Third Quarter of 2020 IR Earnings Presentation. Tobacco giant Philip Morris reported third quarter 2020 earnings on October 20 which saw the company beat both consensus top- and bottom-line estimates. Philip Morris International also raised its full-year guidance for 2020 in part due to industry volumes holding up better than expected in Indonesia, which raised the minimum selling price for cigarettes while also increasing cigarette taxes at the start of 2020. For the full-year, the company now expects to generate $5.03 - $5.08 in GAAP diluted EPS (up from $4.84 - $4.99 previously) and $5.37 - $5.42 in non-GAAP adjusted diluted EPS (up from $5.23 - $5.38 previously). Philip Morris International continued to maintain its ~28-29% market share (excluding China and the US) of the global tobacco industry in the third quarter. Additionally, the firm has been able to also push through price increases versus year-ago levels. We continue to like shares of Philip Morris International as a holding in our High Yield Dividend Newsletter portfolio. Shares of PM yield ~6.4% as of this writing on a forward-looking basis after the firm raised its quarterly dividend by roughly 3% in September.
Oct 22, 2020
News Brief: Stay at Home Stocks, REITs, Housing, Oracle, and AT&T
Image: Number of COVID-19 cases reported weekly by WHO Region, and global deaths, 30 December 2019 through 18 October 2020. Source: WHO. The COVID-19 pandemic continues to rage on, though the healthcare community has become more adept at reducing the incidence of death given the many treatments now available to battle the disease. We continue to stay the course with the newsletter portfolios. Many of our favorites include Apple, Microsoft, Facebook, Alphabet, and PayPal, among other moaty, net-cash-rich, free-cash-flow generating powerhouses tied to secular growth trends. Our focus remains on the long haul. The business models of many stay-at-home stocks are solid as they continue to reap the rewards of the accelerated trends of home office use and e-commerce proliferation. Housing-related names are also benefiting as consumers adjust their lifestyles to accommodate a post-COVID-19 world. Many pockets of the economy still remain ill, and the slow fading of the attractiveness of commercial / office / apartment space may rear its ugly head as this new decade continues. As was the case with the department stores, they may hang around for years (decades) with myriad fits and starts, but it will be an uphill battle for REITs operating in these areas. We see little reason to bottom fish in airlines, cruise lines, or fickle mall-based retail, for example, but there may be select opportunities in the restaurant arena with Chipotle and Domino’s. The financials and energy sectors are two areas we continue to avoid, more generally, and they have continued to underperform.
Oct 22, 2020
Our Thoughts on Netflix’s Latest Earnings
Image Shown: An overview of Netflix Inc’s historical financial and operational performance and a snapshot of its outlook for the fourth quarter of 2020. Image Source: Netflix Inc – Letter to shareholders covering the third quarter of 2020. On October 20, the video streaming giant Netflix reported third-quarter 2020 earnings after the market close that underwhelmed lofty investor expectations and saw shares of NFLX move lower the next day. We recently updated our cash flow models for the Discretionary Spending industry, and our current fair value estimate for NFLX sits at $488 per share, near where Netflix is trading as of this writing. The recent selloff in Netflix’s stock price is largely about investors scaling back their expectations for Netflix’s net paid subscriber growth figures, in our view, and is not a sign of underlying weakness in the company’s business model.



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