Valuentum Exclusive Analysis for the Discerning Investor

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Aug 19, 2020

Update: COVID-19 Vaccine Race
Image Source: Johnson & Johnson – Second Quarter of Fiscal 2020 IR Earnings Presentation. The ongoing coronavirus (‘COVID-19’) pandemic has devasted the global economy (though things are starting to improve) and has fundamentally altered daily human life. According to a draft report from the World Health Organization (‘WHO’), there were 29 COVID-19 vaccine candidates undergoing clinical trials as of August 13 along with 138 other candidates undergoing preclinical evaluation. It is a race against the clock. Unfortunately, as of this writing on August 18, there have been ~170,000 COVID-19-related deaths in the US alone according to data from the US Centers for Disease Control and Prevention (‘CDC’). We are optimistic that one of the many “shots on goal” will end up proving successful. The US launched Operation Warp Speed to accelerate the development of a COVID-19 vaccine, which involves providing funding to companies with promising vaccine candidates. Furthermore, please note that major economies around the world have adjusted their rules and procedures to allow for multiple phases of clinical trials to be conducted concurrently. Before getting into some of the most promising COVID-19 vaccine candidates, we hope everyone, their loved ones, and their family members are staying safe out there as we ride out the pandemic.

Aug 17, 2020

August Best Ideas Newsletter!
Image: The Best Ideas Newsletter portfolio. We migrated to weighting ranges at the beginning of 2018. The image above is as of the close April 15. Portfolio concentration among strong-performing equities has been the key to outperformance. Since the last update, we've witnessed some big moves from our top-weighted entities: Berkshire Hathaway (+10.7%), Facebook (+8.7%), and PayPal (+11.2%). These three entities comprise roughly 34% of the Best Ideas Newsletter portfolio at the high end of the weighting ranges, more than offsetting the weaker performance from lower-weighted Cisco and Intel during the month. We continue to focus on over-weighting our "best of the best" ideas within a portfolio setting, and we're hoping to get both Apple and Microsoft back near the top when the opportunity presents itself. Apple has advanced +17.6% since the last month's edition.

Aug 14, 2020

Our Thoughts on Chevron Buying Noble Energy
Image Shown: An overview of Chevron Corporation’s all-stock acquisition of Noble Energy Inc that was announced in July 2020. Image Source: Chevron Corporation – July 2020 Noble Energy Acquisition Presentation. On July 20, Chevron Corp announced it was acquiring Noble Energy through a $5.0 billion all-stock transaction, or $13.0 billion when factoring in net debt and the book value of non-controlling interests. Shareholders of Noble Energy will receive approximately 0.12 share of Chevron for each share of Noble Energy. At the time the deal was announced, shareholders of NBL were receiving a ~12% premium based on the ten-day average closing stock prices. Chevron intends to issue ~58 million shares to cover the deal, keeping in mind the firm had approximately 1.85 billion shares outstanding on a weighted-average diluted basis as of the second quarter of 2020. The deal is expected to close during the fourth quarter of this year and is forecasted to generate $0.3 billion in annualized run-rate cost synergies one year after closing.

Aug 13, 2020

Cisco Responds to Near-Term Headwinds with Large Cost Cuts
Image Shown: Cisco Systems Inc’s financial performance held up well, relatively speaking, during the initial stages of the pandemic. Image Source: Cisco Systems Inc – Fourth Quarter of Fiscal 2020 IR Earnings Presentation. On August 12, Cisco Systems reported fourth quarter fiscal 2020 earnings (period ended July 25, 2020) that beat consensus estimates on both the top- and bottom-lines. However, Cisco’s outlook for the current fiscal quarter was weaker than expected which weighed on shares of CSCO during normal trading hours on August 13. Cisco’s near-term performance is facing headwinds due to the ongoing coronavirus (‘COVID-19’) pandemic as many of its customers are delaying projects until after the storm has passed. With that in mind, Cisco remained a free cash flow cow last fiscal year and that is likely to continue going forward, which supports its ability to continue paying meaningful dividends. Cisco’s strong cash flow profile is further supported by its pristine balance sheet, and we continue to like the firm as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios. Shares of CSCO yield ~3.4% as of this writing. Please note that Cisco recently announced its CFO for the past five years, Kelly Kramer, plans to leave the company once her replacement has been found.

Aug 4, 2020

Apple Surges Higher Ahead of Stock Split
Image Shown: Shares of Apple Inc have staged an impressive rally since bouncing off their March 2020 lows, with AAPL up ~46% year-to-date as of this writing on August 3. We added shares of Apple back to the Best Ideas Newsletter and Dividend Growth Newsletter portfolios on June 12, 2020. Later on this August, Apple intends on completing a four-for-one stock split. We added Apple back to both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios on June 12, 2020 (link here). Companies that are supported by secular growth tailwinds and pristine balance sheets, such as Apple, are well-positioned to deal with the ongoing coronavirus (‘COVID-19’) pandemic. Shares of AAPL have surged significantly higher since mid-June and are now trading well above the top end of our fair value range as of this writing, but we want to stress here that we like to let our winners run. It is not until after a firm’s technicals turn against it that we would consider removing shares of that firm from our newsletter portfolios. Given its stellar third quarter fiscal 2020 earnings report (period ended June 27, 2020) published on July 27, shares of Apple may have room to run further still.

Jul 31, 2020

Our Judgment for the Long Haul
As you're probably aware by now, Apple, Alphabet, and Facebook--key positions in the newsletter portfolios--put up monster second-quarter results July 30, respectively. We'll be addressing the quarterly reports more in depth on our website in the coming days, but Apple is now a ~$410 per share stock, trading up 6%+ on the session, and now Facebook is trading over $250, up 7%+ on the session. Now at all-time highs, Facebook has been one of the top weightings in the Best Ideas Newsletter portfolio for some time. Its poor performance during 2018 is now history! Alphabet, while facing some weakness today, hit all-time highs earlier this month.

Jul 27, 2020

HCA’s Latest Results Indicate Healthcare Providers Are Holding Up Better Than Expected
Image Source: HCA Healthcare Inc – Second Quarter of 2020 Earnings Press Release. The ongoing coronavirus (‘COVID-19’) pandemic has had a devastating impact on the financial performance of healthcare providers (operators of hospitals and other medical facilities) due to the decline in the number of elective surgeries performed. Please note elective surgeries tend to be more lucrative for healthcare providers than the other services they provide, generally speaking. Elective surgeries in many US states were indefinitely postponed when the pandemic first hit. In late March, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (‘CARES Act’) which included $100 billion in emergency funding for hospitals and healthcare providers to mitigate the financial blow from the pandemic and enable the US healthcare system to continue functioning as best it can under the weight of the pandemic.

Jul 22, 2020

Second Quarter Earnings Roundup
The figure above shows the performance of the simulated Best Ideas Newsletter portfolio from inception May 17, 2011, through December 15, 2017, relative to its declared benchmark, the S&P 500 (SPY), on an apples-to-apples basis, with dividends collected but not reinvested for both the newsletter portfolio and the SPY, as reported in the monthly newsletter. The simulated Best Ideas Newsletter portfolio outperformed the S&P 500, including reinvested dividends in the benchmark, since inception (May 17, 2011) and since the inaugural release of the newsletter (July 13, 2011) through the end of the measurement period (December 15, 2017). The results are hypothetical and do not represent returns that an investor actually earned. Past results are not indicative of future performance.

Jul 8, 2020

Realty Income Updates Investors
Image Source: Realty Income Corporation – July 2020 Institutional Investor Presentation. The real estate investment trust Realty Income recently provided investors with some key financial and operational updates. Realty Income primarily invests in single-tenant commercial properties in the US, Puerto Rico, and the UK, and we include shares of O as a holding with a modest weighting in the Dividend Growth Newsletter portfolio. Most of Realty Income’s tenants have continued to pay rent during the ongoing coronavirus (‘COVID-19’) pandemic, though tenants in select categories have been unwilling or unable to pay during these challenging times. In particular, Realty Income’s movie theater tenants did not pay rent in June or the second quarter of 2020, according to the REIT. Realty Income’s ongoing access to debt markets combined with its ample borrowing capacity under its revolving credit facility has enabled the company to keep making good on its monthly dividends during the pandemic. Shares of O yield ~4.7% on a forward-looking basis as of this writing (at an annualized payout just south of $2.80 per share) after the firm pushed through its 107th monthly dividend increase in June 2020.

Jul 2, 2020

Macy’s Builds Liquidity and Cuts Costs to Stay Afloat
Image Shown: Our fair value estimate range for shares of Macy’s Inc is quite wide at $1-$9 per share, relatively speaking, as the retailer’s outlook remains troubled due to its large net debt load and the ongoing pandemic. In the event Macy’s can reopen its physical stores in the near-term while maintaining recent gains seen at its digital operations, its revenues might rebound convincingly. Should Macy’s be forced to close its physical stores again for a prolonged period of time to contain the ongoing pandemic, that would likely drain its recently enhanced liquidity position and put a tremendous amount of stress of its financials going forward. Thus Macy’s has a relatively wide range of fair value outcomes, and represents the type of firm we generally prefer to stay away from. On July 1, Macy’s reported first quarter fiscal 2020 earnings (period ended May 2, 2020) that missed consensus top-line estimates but beat consensus bottom-line estimates. The retailer’s GAAP net sales plummeted by 45% year-over-year last fiscal quarter due to various US state and local government mandates that forced non-essential businesses to close. Quarantine efforts to contain the coronavirus (‘COVID-19’) pandemic in the US, rising unemployment rates, and a large net debt load represent three big hurdles Macy’s will need to find a way to deal with. Please note that most of the retailer’s physical stores are in the US and that Macy’s suspended its common dividend payouts earlier this calendar year. A large impairment charge combined with sharply lower revenues saw Macy’s post a large GAAP net loss of $3.6 billion in the fiscal first quarter.