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Latest Valuentum Commentary

Dec 31, 2020
2020 Won’t Soon Be Forgotten
2020 won’t soon be forgotten. The tumultuous year brought with it the greatest shock to the U.S. economy in modern history, ushering in the largest-ever decline in U.S. real annualized gross domestic product of 31.4% in the second quarter of the year (surpassing the prior record of a 28.6% collapse in the second quarter of 1921). Strict lockdowns to help contain the outbreak of COVID-19 created the biggest global health emergency in a century, driving a self-inflicted economic collapse worse than the Great Recession, the Great Depression, and any other recession before it (the Depression of 1873-1879, the Panic of 1893, etc.). Millions were put out of work. During the month of April alone, the economy lost a record 20.8 million jobs, with some estimating that the “real” unemployment rate during the depths of the COVID-19 crisis reached nearly 23%. The official 14.7% unemployment rate in April would obliterate prior post-World War II era records, and while it fell short of the peak Great Depression unemployment rate estimated at 24.9%, the pain of many families and households was no less severe as they battled both a financial and health crisis that materialized in a matter of weeks, with little lead time to prepare for what was to come. Pantry stuffing and panic buying of consumer goods became a sign of the times, and a great debate about the efficacy of wearing masks raged across mediums.
Dec 21, 2020
Our Reports on Stocks in the Technology Giants Industry
Our reports on stocks in the Technology Giants industry can be found in this article. Reports include FB, AAPL, GOOG, AMZN, MSFT, CSCO, V, MA, PYPL, INTC, ORCL, QCOM, TWTR, IBM, ADBE, NVDA, CRM, AMD, AVGO, BABA, BKNG, BIDU, TSM, FFIV, TXN, EBAY, ADP, PAYX, MU, KFY, MAN, KLAC, LRCX, AMAT, ADI.
Nov 25, 2020
Thinking Slow: 3 Research Blind Spots That Changed the Investment World
Image Source: We have to be on high alert about how our minds work. PBS is premiering a four-part series examining about how easily our minds are being hacked, and why it is so important to "think slow." Tune in (5). When it comes to the active versus passive debate, does the analysis suffer from parameter risk? With respect to empirical, evidence-based analysis, does the analysis have the entire construct wrong? When it comes to short-cut multiples, are we falling into the behavioral trap of thinking on autopilot?
Nov 24, 2020
Brain Teaser - Reflexive versus Reflective
Image: Amy Leonard. Valuation multiples tend to trigger the reflexive side of our brain, and we process the multiples through anchoring, in most cases. On the other hand, enterprise valuation, or the process required to answer the second set of questions in this article correctly, shows that our reflexive process can be quite incorrect at times. In fact, cognitive biases such as anchoring can completely trip us up into missing out on truly undervalued companies while baiting us into value traps.
Nov 20, 2020
Nvidia Is a Great Company but Its Shares Appear to be Generously Valued
Image Source: Nvidia Corporation – October 2020 IR Presentation. On November 18, Nvidia Corp reported third quarter earnings for fiscal 2021 (period ended October 25, 2020) that beat both consensus top- and bottom-line estimates. The company’s GAAP revenues jumped higher by 57% year-over-year last fiscal quarter, aided by growth at its ‘Data Center’ (sales were up 190% year-over-year) and ‘Gaming’ (sales were up 37% year-over-year) business operating segments, which combined represented ~88% of its revenues last fiscal quarter. Nvidia’s ‘Professional Visualization’ and ‘Automotive’ business operating segments both posted year-over-year declines in sales. The ongoing coronavirus (‘COVID-19’) pandemic has accelerated recent trends in the digital world, such as the pivot towards offsite cloud-computing solutions to meet IT needs. In turn, this dynamic has sharply increased demand for data centers that make the transition towards cloud-computing possible, which has proven to be a boon for Nvidia. The work-from-home (‘WFH’) trend has driven up demand for PCs and laptops over the past few quarters. Additionally, rising demand for video games entertainment options is likely supporting demand for higher end PCs and laptops as well. Nvidia has so far been able to rise to the occasion and meet surging demand for data centers, laptops, and PCs during these turbulent times.
Nov 19, 2020
Videogaming Business Becoming More and More Attractive
Image Shown: The video game industry has been placing a much greater emphasis on growing their mobile gaming operations in recent years. Part of that strategy has involved leveraging existing IP and well-known gaming titles to appeal to a wide range of users. Image Source: Electronic Arts Inc – Second Quarter of Fiscal 2021 IR Earnings Presentation. As households have largely been “cocooning” indoors to ride out the ongoing coronavirus (‘COVID-19’) pandemic, demand for digitally provided entertainment options has grown considerably. NPD Group, an industry-tracking firm, estimates that US video game sales (software and hardware combined) will reach $13.4 billion in total in across November and December of this year. That would be up 24% from year-ago levels, and note this is only looking at the US market, which is estimated to have 244 million consumers of video game content according to NPD Group. Many of those consumers are considered casual video game players, playing mobile games on their smartphones and tablets, though NPD Group noted the number of more dedicated gamers (measured by hours played per week) is on the rise in both nominal and absolute terms. Mobile gaming options generally rely on in-game transactions, called microtransactions, to generate revenue. Usually those offerings include aesthetic upgrades or the ability to progress through the video game at a faster pace. For more conventional video game offerings--those normally played on PCs or consoles--video game companies have increasingly been successful in selling add-on content via high-margin digital packages (and in some instances, microtransactions have also been successfully implemented). Longer term, the rise of e-sports offers another revenue generating opportunity for companies in the video game and digital advertising world. Though a nascent part of the video game industry, initial levels of interest have been impressive. Beyond rising demand for video streaming services, demand for video games, a (usually) cost-effective entertainment option, has also held up incredibly well during the pandemic with several big video game publishers reporting strong financial results of late, too. Furthermore, Microsoft Corporation and Sony Corporation recently launched their next-generation consoles, the Xbox Series X and PlayStation 5, respectively. In theory, the console refresh cycle combined with growing demand for indoors entertainment options should provide the video game industry with several major growth catalysts in the coming quarters. One of the key positive attributes of the the video game publishing industry, generally speaking, is that these companies have strong balance sheets and stellar cash flow profiles (meaning a relatively modest amount of capital expenditures are required to maintain a certain level of revenues, and thus putting the firm in a position to better generate free cash flows). However, the performance of these companies can swing wildly depending on how well their blockbuster properties perform. The hit-or-miss nature of their operations has been a big reason why we haven’t added any videogame stock to the newsletter portfolios in the past, but their business models have become more and more attractive as the years have gone on. In this note, let’s get into the details of Activision Blizzard Inc, Electronic Arts Inc, and Take-Two Interactive Software Inc, while we discuss broader industry trends.
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 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 21, 2020
Our Thoughts on Intel’s Big Divestiture Ahead of Its Earnings Report
Image Source: Intel Corporation – Second Quarter of Fiscal 2020 IR Earnings Presentation. On October 20, Intel Corp and South Korean-based SK Hynix announced a major transaction that will reshape the global NAND flash memory market. For reference, NAND flash memory is used in smartphones, personal computers, and other digital devices. Intel will receive $9.0 billion in cash that will be paid out in two phases, assuming everything goes as planned. In return, SK Hynix is receiving “Intel NAND memory and storage business, which includes the NAND SSD business, the NAND component and wafer business, and the Dalian NAND memory manufacturing facility in China” though Intel will retain its Intel Optane business, which caters to both the data center and personal computer markets.
Oct 14, 2020
Our Thoughts on Apple Launching Its First-Ever 5G-Capable iPhone
Image Shown: Shares of Apple Inc have surged higher year-to-date. On October 13, Apple announced its first-ever lineup of 5G-capable iPhones along with a new smart home speaker offering HomePod Mini. While the 5G-capable iPhone announcement was largely expected, we appreciate the good news all the same. We include shares of Apple as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios and are big fans of the name. The HomePod Mini offering represents Apple’s way of staying competitive with similar offerings from Amazonand Alphabet.

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