Valuentum Exclusive Analysis for the Discerning Investor

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Feb 3, 2022

The Facebook (Meta Platforms) Thesis Just Got Even More Complicated
Image: Facebook’s free cash flow generation remains robust. Image Source: Meta Earnings Presentation Q4 2021. The company formerly known as Facebook, Meta Platforms is facing a long list of headwinds from moderating revenue growth, tightening margins, slowing free cash flow expansion due to rising capital spending, and tail risks of the regulatory and antitrust variety. We expect a downward revision to our fair value estimate of Meta upon the next update to factor in these dynamics, but we still believe shares are undervalued.

Feb 2, 2022

Alphabet and PayPal Report Fourth-Quarter 2021 Results
Video: Valuentum's President Brian Michael Nelson, CFA, walks through the fourth-quarter 2021 results of Alphabet and PayPal.

Feb 1, 2022

Exxon Breaks Out! Oil Prices Might Rip Higher Still!
Image: A pretty technical breakout at Exxon Mobil. Valuentum's Callum Turcan: "The tight supply-demand dynamics for oil & natural gas combined with rising geopolitical tensions (West-Russia over a potential Russian invasion of Ukraine, reports of potential terror attacks on Northern Iraqi/Kurdish oil infrastructure, West-Iran over Iran's nuclear program and nuclear deal talks reportedly breaking down, civil tensions in Kazakhstan, perennial problems facing Libya and Nigeria's security situation) indicate there is likely room for oil prices to rip higher still."

Feb 1, 2022

Structural Changes in the Airline and Aerospace Business
Image Source: Valuentum. The future profile for air travel demand will be negatively impacted in the long run (relative to pre-COVID-19 expectations) as increased leisure travel from the wealth effect may not completely offset reduced business travel growth impaired by digital solutions permanently disrupting the way companies conduct business. As with Warren Buffett, who recently wrote down the value of metal casting jet-engine supplier Precision Castparts (one of the best aerospace suppliers in the business), we believe intrinsic values of others in the aerospace supply chain have been permanently reduced as well. We’re staying away from airlines and aerospace with the exception of Honeywell, which offers diversified industrial exposure and a “call option” on a gradual aerospace recovery to a “new normal.” Honeywell is included in the Dividend Growth Newsletter portfolio and showed that it can thrive in a business environment where aerospace demand may not live up to pre-COVID-19 long-term expectations. Honeywell yields ~1.9% at the time of this writing.

Jan 30, 2022

Our Favorite Biotech Vertex Pharma Powers Ahead, Leaps 6%+
Image: Vertex Pharma continues to soar toward our fair value estimate. The biotech arena is difficult to navigate, which is why we tend to play it a bit more conservative than most. Vertex Pharma has an established, cash-flow generating portfolio of cystic fibrosis therapies, which has helped to establish a net cash rich balance sheet and a steady stream of robust free cash flow, unlike many biotechs that need external capital and are at risk of never reaching commercialization. We’re excited about Vertex’s clinical pipeline of potentially transformative genetic therapies, and we like its exposure to CRISPR gene-editing technology, which could be a huge business in the years ahead. Vertex Pharma remains our favorite biotech play and an idea in the simulated Best Ideas Newsletter portfolio.

Jan 27, 2022

Apple Blows Past Expectations in Fiscal First Quarter!
Image Source: Valuentum. On January 27, 2022, Apple put up one of the best quarters by any company in history and a record for the Cupertino-based iPhone-making giant. Revenue for the quarter ending December 25, 2021, of $123.9 billion advanced 11% on a year-over-year basis, while quarterly earnings per share came in at $2.10. The top line beat expectations by more than $5 billion, even with supply chain hurdles, and the bottom-line beat of $0.20 per share was more than 10%, a huge delta considering the size of the company. We’re viewing the report very positively, and we think the strong performance may ease some broader market concerns. Apple’s gross and operating margins looked healthy, and only performance in its iPad division came in a bit light, but this was almost entirely driven by supply chain issues. Apple generated a solid $19.5 billion in revenue from its ‘Services’ division during the period, up from $15.8 billion in the year-ago quarter, showcasing its ever-growing and “sticky” installed base. Warren Buffett is a big owner of Apple’s stock, and we continue to be in favor of buybacks at Apple, too, even at these price levels. Though Apple’s market capitalization is sizable, we value shares close to $190 each at the high end of our fair value estimate range. Apple remains one of our favorite ideas in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio.

Jan 26, 2022

Capital Spending a Key Headwind to Broader Markets in 2022
One of the biggest themes in 2022 is the amount of money companies will spend in capex (“capital expenditures”). A key reduction to net cash flow from operations to arrive at traditional free cash flow is capital expenditures, and we’re seeing some of the largest companies spend aggressively to the detriment of internal free cash flow generation. Though such spending may be necessary, in most cases, to enhance long-term revenue and earnings growth, the higher spending this year is a notable trend that we think may be posing a headwind to the broader equity markets so far in 2022.

Jan 26, 2022

Lockheed Martin On the Road to Recovery, Improved Free Cash Flow Visibility
Image: Heath Cajandig. Lockheed Martin is a great play on rising geopolitical uncertainty, and after a “big bath” of a third quarter, the company’s most recently reported fourth-quarter 2021 results, released January 25, offered investors much better greater clarity on free cash flow coverage of its dividend while revealing sequential improvement in its backlog. Though its deal with Aerojet Rocketdyne may not pass muster with the FTC, we’re okay with that. Lockheed Martin already has a sizable net debt position, and given the recent disappointment in the third quarter of last year, we’re not against management focusing more on righting the ship from an organic basis than trying to push through business combinations that could jeopardize the regained fundamental momentum. Lockheed Martin remains an idea in the Dividend Growth Newsletter portfolio, yielding ~3% at the moment. The stock could continue to catch favor as geopolitical tensions intensify.

Jan 25, 2022

Microsoft’s Fiscal Second Quarter Impressive
Image: Mike Mozart. We’re reiterating our bullish view on newsletter portfolio holding Microsoft Corp. following its fiscal second-quarter report released January 25. We’re huge fans of the company’s strong economic moat and while its net balance sheet cash will erode somewhat in light of its proposal to acquire Activision, the company’s cloud opportunity and suite of recurring-revenue services makes for one attractive free-cash-flow generating powerhouse. The market may have wanted more from Microsoft’s fiscal second-quarter report, ended December 31, 2021, but it was solid across the board, in our view. We’re sticking with our $342 per share fair value estimate at the time of this writing.

Jan 25, 2022

Johnson & Johnson’s Pending Split-Up, Talc Liabilities, New CEO Add Complexity to a Once-Clean Dividend Growth Story
Image Shown: J&J continues to face legal liabilities due to talcum powder lawsuits. Image Source: Mike Mozart. We prefer simple dividend growth stories. Unfortunately, J&J is no longer one of them. A split of Johnson & Johnson’s consumer products division from its medical device and pharma divisions in the next 18-24 months means that dividend growth investors will have added complexity as a new CEO takes the helm, all the while the board manages its growing talc liabilities during a global pandemic. Shares of J&J haven’t been as strong a performer as other stocks on the market the past five years, but we still like its firm foundation and nice combination of dividend yield and potential dividend growth for now. That may change in the coming months to years, however.