Valuentum Exclusive Analysis for the Discerning Investor

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Feb 18, 2024

Digital Realty Trust Has Bucked Broader REIT Sector Weakness
Image: Digital Realty Trust has outperformed the broader REIT sector by quite the margin since the beginning of 2023. Real estate investors have had a difficult time the past year, with shares of the Vanguard Real Estate Index ETF falling roughly 6% versus a 22%+ return on the S&P 500, both measured on a price-only basis. Data center REIT Digital Realty, however, has bucked the trend of the broader real estate sector’s weakness advancing 20% over the same time period on a price only basis. Digital Realty’s fourth-quarter results and guidance for 2024, released February 15, weren’t great, but the company is much better positioned than other REITs, in our view. Shares yield ~3.6% at the time of this writing.

Dec 31, 2023

2023 Was a Fantastic Year! Are You Ready for 2024?
Image: The percentage of ideas highlighted in the Exclusive that have moved in the direction of our thesis (i.e. up for capital appreciation ideas and down for short idea considerations) through the current price or closed price, with consideration of cash and stock dividends. Success rates do not consider trading costs or tax implications. Data through December 8, 2023. Past results are not a guarantee of future performance.From fantastic success rates in the Exclusive publication and strong capital preservation tendencies in the simulated High Yield Dividend Newsletter portfolio to relative outperformance in both the Dividend Growth Newsletter portfolio and Best Ideas Newsletter portfolio the past two years, the Valuentum newsletter suite continues to deliver in a big way for what members are looking for. We thank you for another excellent year in 2023, and we hope that you have a happy, healthy, and prosperous 2024!

Dec 10, 2023

First Gene-Editing Therapy Coming to Market; Reiterating Our Positive Stance on Vertex Pharma
Credit: Darryl Leja, NHGRI. On December 8, 2023, the U.S. Food and Drug Administration announced that it had approved Vertex Pharma’s and CRISPR Therapeutics’ novel gene-editing therapy (“Casgevy” – exa-cel) for sickle cell disease [SCD] in patients that are 12 years of age or older. This is the first such approval of its kind in U.S. history and will likely open the door for more gene-editing therapies for other rare diseases in the future. Estimates indicate that roughly 16,000 people will be eligible for the treatment at an estimated cost of around $2.2 million each, according to Reuters. The one-time market size of roughly $35.2 billion is a needle-mover, but the pace and timing of adoption of the therapy among the eligible population is difficult to estimate at this time. Note also that the therapy is of one-time application, meaning the therapy is a functional cure and will not be a source of recurring revenue from each patient. Nevertheless, it is an exciting development for medical science.

Nov 28, 2023

Crown Castle Continues to Languish
Image: Crown Castle’s shares have not fared well through 2023, and we’ll be looking to remove them from the High Yield Dividend Newsletter portfolio in coming months. Crown Castle benefits from attractive tower economics as it can scale customers across its shared infrastructure to drive increased profitability, but the company's massive net cash position continues to weigh on our enthusiasm of the company. Shares of the firm may get a bounce as spot interest rates may continue to ease in the near term, but we’ll be looking to remove it from the simulated High Yield Dividend Newsletter portfolio in the coming months. We also plan to remove the Vanguard Real Estate ETF from that portfolio, too.

Nov 14, 2023

The Home Depot Delivers in Third-Quarter Fiscal 2023 Results
Image Source: Mike Mozart. On November 14, Home Depot reported third-quarter results for the period ending October 29, 2023, that were largely in-line with expectations. Though the housing market remains stagnant due to increased mortgage rates and limited supply, Home Depot continues to navigate the market well, in our view. The firm’s comparable store sales faced pressure in its fiscal third quarter, and while big-ticket, discretionary purchases may be experiencing some pressure, management noted that it continues to see strong activity with customers pursuing smaller projects. We like Home Depot as a derivative play on the housing market, and the high end of our fair value estimate stands at $344 per share.

Oct 30, 2023

The Dividend Growth Newsletter Portfolio’s Outperformance
Image: The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%. Large cap growth names in the likes of Apple, Microsoft, Oracle, and Cisco form a solid foundation for continued dividend growth across the portfolio thanks in part to their fantastic Dividend Cushion ratios. Not only this, but we like the defensive characteristics of garbage hauler Republic Services and McDonald’s, and the tried-and-true dynamics of Home Depot, Honeywell and UnitedHealth, which can handle just about any economic environment that is thrown at them. Today, the 10-year Treasury rate stands at close to 5%, so while many dividend growth stocks don’t yield as much, we still like their cash-based sources of intrinsic value, as such dynamics offer substantial support to their equity prices, despite competing sources of income.

Oct 26, 2023

Brief Take: Altria’s 10% Dividend Yield Is Too Hard to Pass Up
Altria Group’s forward estimated 10% dividend yield is too hard to pass up as it is comfortably covered by traditional free cash flow. The tobacco giant reported third-quarter 2023 results on October 26 that showcased how its asset-light business model continues to throw off tons of cash. Traditional free cash flow generation came in at ~$5.9 billion during the first nine months of 2023, while cash dividends paid came in at ~$5 billion, resulting in a very nice free cash flow cushion on a ~10%-yielding stock. Though revenue growth at Altria remains under pressure, gross profit continues to move in the right direction. Altria has raised its dividend 58 times during the past 54 years, and the firm continues to target mid-single-digit dividend growth annually. For income investors that aren’t worried about ESG-related criteria, Altria could make for a great diversifier in a high-yield dividend income portfolio. Our fair value estimate stands north of $60 per share (shares are trading under $40 at the time of this writing).

Oct 25, 2023

We Will Be Removing CubeSmart and Adding Altria to the High Yield Dividend Newsletter Portfolio
Image: Entities with large net cash positions and substantial free cash flow generation have outperformed not only the broader stock market, but also key high yield areas, including REITs, mortgage REITs and master limited partnerships during the past 10 years. We’re going to continue to lessen our exposure to the equity REIT space, removing CubeSmart from the High Yield Dividend Newsletter portfolio on November 1 and replacing it with Altria. We’re going to keep CUBE-rival Public Storage in the High Yield Dividend Newsletter portfolio for now, but the self-storage space has come under some pressure as consumers may be balking at storage prices as they reassess their spending habits amid higher inflation. Altria doesn’t have a great balance sheet, but the firm does comfortably cover cash dividends paid with free cash flow generation, and the firm does have sizable stakes in Anheuser-Busch-Inbev and Cronos that offer it considerable financial flexibility. Shares of Altria look cheap, too. The swap out of CubeSmart and swap in of Altria within the High Yield Dividend Newsletter portfolio will be effective upon the release of the November edition of the High Yield Dividend Newsletter on November 1.

Oct 3, 2023

We Like NextEra Energy’s ESG Focus But Capital Market Conditions Now Showing Cracks
Image Source: NextEra Energy. NextEra Energy operates a complex business structure, and the firm’s equity is facing pressure on news that its subsidiary NextEra Energy Partners is cutting its distribution per unit growth rate to the range of 5%-8% annually through 2026, which is materially below its prior expectations of growth in the 12%-15%. Since most partnerships are owned primarily for their distribution yields, the revision has sent units of NextEra Energy Partners tumbling, hurting its partner along the way. The news, while not tragic, wasn't very welcoming, and reading between the lines, it appears that we’re starting to see some cracks in the capital markets, as most partnerships are debt-heavy, relying on continuous, affordable access to the capital markets to fund and grow their operations (distributions), which isn’t guaranteed.

Oct 3, 2023

Big Cap Tech and Large Cap Growth Remain Safe Havens
Image: The stylistic area of large cap growth, which is heavily represented in the Best Ideas Newsletter portfolio, is doing fantastic so far in 2023. Brian here. I wanted to write this brief note to check in with you as the market continues to be a bit jittery following the highs it reached in late July. The Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio put up a great year of relative outperformance during 2022 versus the market-cap weighted S&P 500, and their exposure to the areas of big cap tech and large cap growth have helped them follow through during 2023. It’s easy to fall into the trap of relying just on valuation multiples and dividend yields, but we have to continue to emphasize that it is our view that enterprise valuation is the key determinant of equity prices and returns, and it should not be surprising that big cap tech and large cap growth, with their huge net cash positions and strong expected free cash flows, have dominated returns so far in 2023.