I don't expect a market crash like the Great Financial Crisis or the COVID-19 meltdown or anything of the sort. I do expect tremendous volatility, however, but this is something I've been talking about for years. According to data from Seeking Alpha, on a price-only basis, the S&P 500 is down 6% over the past 52 weeks and is up more than 60% during the past 5 years. I believe we're just transitioning from a period of great times for investors to really, really good times for investors.

But there is something that does worry me a bit. The inverse correlation of stocks and bonds that many asset allocators rely on to "smooth" returns is often absent at the precise time that it has been needed. Many are aware that stocks have faced pressure during 2022, but as Jason Zweig, journalist at the Wall Street Journal recently wrote in an article, "It's the Worst Bond Market Since 1842 (1):" "The broad bond market has performed worse so far in 2022...than in any complete year since 1792 except one. That was all the way back in 1842... (sourcing data from McQuarrie at Santa Clara University)." As I have reiterated time and time again, my friends, please be careful relying on past correlations to achieve financial goals, particularly when combining various asset classes. Correlations can, do and should change over time!

As the old saying goes, the past is not prologue.

The media headlines indicate that many investors out there may be panicking for one reason or another, but again, I'm just not concerned. The U.S. 10-year Treasury rate, a key input within the discounted cash-flow valuation process, stands at just 2.8% at the time of this writing, near all-time lows (not over 15% as it did in the early 1980s, when things weren't all that great). Today, the free cash flow generating capacity and balance sheet health of some of the largest and strongest companies in the simulated newsletter portfolios are phenomenal. Many of these companies have tens and tens of billions in net cash on the books and are generating huge amounts of free cash flow. These are tangible sources of cash-based intrinsic value, not stories built on castles in the air.

Yet, there seems to be little observed optimism about corporate America's resilience or the enduring strength and massive wealth-generating capacity of the U.S. stock market over its storied history. Based on some measures, there may even be more investor fear today than there was during the 1997-1998 Asian Financial Crisis, during the 2001-2002 the dot-com crash, during the 2007-2008 Great Financial Crisis or even during the worst of COVID-19 when we knew very little about the virus. Bullish sentiment readings from recent surveys of the American Association of Individual Investors (AAII), for example, showed the "lowest optimism in nearly 30 years (2)."

Some of you may have already watched my latest video on YouTube from May 9 (3), but in it, I emphasized that during the past 15 years, the markets have endured one of the worst financial crises in history-- where the world thought the global financial system was going to collapse during the Great Financial Crisis--as well as a once-in-a-century health crisis with the outbreak of COVID-19--perhaps the most uncertain time in all of market history--and still the U.S. stock market has come roaring back time and time again to make new highs.

"A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price..."

"...You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy. Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts." -- The New York Times (4)

Stock market volatility in the coming years to decades may be tremendous and the very real risks to market structure as a result of price-agnostic trading remain, but I continue to be bullish on U.S. equities in the long run. Please find below links to some of our latest work, as well as some items that members may have missed ("ICYMI"), as well as links to the simulated newsletter portfolios at the bottom. We've also recently refreshed the fair value estimates and reports of the Oil and Gas Complex, and those reports can be accessed here.

Shares of Exxon Mobil Corp have boomed higher over the past year, and we see room for additional capital appreciation upside potential. Our fair value estimate for Exxon Mobil sits at ~$90 per share, though in the current raw energy resources pricing environment, the top end of our fair value estimate range may prove to be a more pertinent gauge of Exxon Mobil’s intrinsic value. [You can now find the updated reports for stocks in the energy sector and Exxon Mobil's updated fair value estimate here.] We are huge fans of the energy major and include Exxon Mobil in the Best Ideas Newsletter, Dividend Growth Newsletter, and High Yield Dividend Newsletter portfolios. Shares of XOM yield a nice ~3.9% as of this writing, and its dividend growth outlook is quite bright in the current environment.

On April 29, Honeywell International reported first quarter 2022 earnings that beat both consensus top- and bottom-line estimates as its business continues to rebound from the worst of the coronavirus (‘COVID-19’) pandemic. Due to its strong performance, management raised the company’s full-year sales and earnings guidance for 2022 in conjunction with its latest earnings update. We continue to like Honeywell as an idea in the Dividend Growth Newsletter portfolio to gain exposure to the recovering aerospace industry and exposure to the nascent quantum computing industry. Shares of HON yield ~2.1% as of this writing.

Our newsletter portfolios remain overweight energy names as these companies are well-positioned to ride out inflationary pressures and geopolitical turbulence while generating substantial free cash flows and returning “gobs” of cash to shareholders. We include Chevron Corp in the Best Ideas Newsletter, Dividend Growth Newsletter, and High Yield Dividend Newsletter portfolios as the firm has placed a great emphasis on keeping its capital expenditures contained, improving its cost structure, and cutting down on its debt load while returning “gobs” of cash to shareholders.

Qualcomm recently reported second quarter earnings for fiscal 2022 (period ended March 27, 2022) that beat both consensus top- and bottom-line estimates. The company is a leader in the technologies relating to 5G wireless, Internet of Things (‘IoT’) trend, semi-autonomous and autonomous driving, and handset operations. We include Qualcomm as an idea in the Dividend Growth Newsletter portfolio as we view its dividend strength and payout growth outlook quite favorably. Shares of QCOM yield ~2.3% as of this writing. The firm’s latest earnings update and near term guidance reinforces our bullish view towards the name.

The payment processing and payment solutions space is attractive. Companies operating in this industry have asset-light business models with relatively modest capital expenditure requirements to maintain a given level of revenues, making free cash flows easier to come by. Additionally, the industry’s growth outlook is incredibly bright and supported by secular tailwinds as the world continues to shift away from cash and towards other payment options (card, mobile apps, QR codes, online payment platforms). Our two favorite companies in this space are PayPal Holdings and Visa, and we include both as ideas in the Best Ideas Newsletter portfolio. Online spending levels remain robust even as the worst of the coronavirus (‘COVID-19’) pandemic fades and households resume outdoor activities, while global travel activities are resuming in earnest as the economy opens back up. PayPal and Visa both recently updated investors on their financial standing and outlook, and overall, we liked what we saw.

"...the DCF model is not only relevant to today’s market but remains an absolute necessity. As the 10-year Treasury yield increases and stocks come under pressure, we need to keep the DCF model in mind. After all, those yields form the basis of the weighted-average cost-of-capital assumption. In this shifting landscape, a return to investing’s first principles is inescapable, and the DCF model is an essential tool for navigating what lies ahead." -- Brian M. Nelson, CFA -- President, Valuentum Securities

On May 5, Republic Services reported first quarter 2022 earnings that beat both consensus top- and bottom-line estimates. The waste management firm is benefiting from its immense pricing power and volume growth. We continue to like Republic Services as an idea in both the Dividend Growth Newsletter and ESG Newsletter portfolios. Shares of RSG yield ~1.4% as of this writing.

On May 17, Home Depot reported first quarter earnings for fiscal 2022 (period ended May 1, 2022) that beat both consensus top- and bottom-line estimates. Demand from professionals remains robust, offsetting waning demand from do-it-yourself (‘DIY’) customers. In the wake of its strong fiscal first quarter performance, Home Depot boosted its fiscal 2022 guidance in conjunction with its latest earnings report. We are big fans of Home Depot’s income growth potential and include shares of HD as an idea in the Dividend Growth Newsletter portfolio. Shares of HD yield ~2.6% as of this writing.

On May 18, Cisco Systems reported third quarter earnings for fiscal 2022 (period ended April 30, 2022) that missed consensus top-line estimates but beat consensus bottom-line estimates (specifically for its non-GAAP performance). One of the biggest updates from this earnings report was that Cisco Systems reduced its full year guidance for fiscal 2022. The news initially sent shares of CSCO sharply lower, though Cisco Systems remains a free cash flow cow with a pristine balance sheet. It was an incredibly noisy earnings report for the firm for reasons we will cover in this article. We include Cisco Systems as an idea in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios and continue to like the name.

Domino’s Pizza is contending with serious inflationary pressures and headwinds from changing consumer spending habits as the worst of the coronavirus (‘COVID-19’) pandemic fades. We continue to view the firm’s longer term outlook quite favorably and appreciate its franchise-heavy business model (~98% of its stores are franchised), which enables Domino’s to generate substantial free cash flows in almost any operating environment. Our fair value estimate for Domino’s sits at $517 per share, and we include shares of DPZ as an idea in the Best Ideas Newsletter portfolio. Shares of DPZ yield ~1.3% as of this writing, offering incremental income generation upside potential to its favorable capital appreciation risk-reward scenario, in our view. Another one of our favorite restaurants, Chipotle Mexican Grill posted 9.0% year-over-year comparable restaurant sales growth in the first quarter of 2022. During Chipotle’s latest earnings call, management noted that in-store sales surged 33% due to the economy opening back up and consumers resuming “normal” dining activities. The firm’s digital sales held up relatively well and represented 42% of Chipotle’s total sales last quarter. During the period, Chipotle reported 16% year-over-year GAAP revenue growth and 18% year-over-year GAAP operating income growth as the firm effectively took advantage of its pricing power to get ahead of inflationary pressures. As with Domino's, we continue to like Chipotle as an idea in the Best Ideas Newsletter portfolio.

Video: The presentation to the Los Angeles chapter of the American Association of Individual Investors (AAII) of Valuentum's President of Investment Research Brian M. Nelson's new book, Value Trap (now in its second edition), covers the pitfalls of valuation multiple analysis, traditional quantitative analysis (e.g., value factor, size factor) and the great contradiction between factor investing and the efficient markets hypothesis.

This email, its contents, and the reports or articles (links) or comments referenced or attached in this email are for information purposes only and should not be considered a solicitation to buy or sell any security. Valuentum is not responsible for any errors or omissions or for results obtained from the use of the reports, articles, Best Ideas Newsletter, Dividend Growth Newsletter, Valuentum Exclusive publication, or any other communication and accepts no liability for how readers may choose to utilize the content. Assumptions, opinions, and estimates are based on our judgment as of the date of the reports or articles and are subject to change without notice. For more information about Valuentum and the products and services it offers, please contact us at [email protected]. The Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio are not real money portfolios. Any performance, including that in the Valuentum Exclusive publication, is hypothetical and does not represent actual trading. Past simulated performance, back-tested or walk-forward or other, is not a guarantee of future results. Valuentum is not a money manager, is not a registered investment advisor, and does not offer brokerage or investment banking services. Valuentum is an investment research publishing company. No warranty or guarantee may be created or extended by sales or promotional materials, whether by email or in any other format. Further, this e-mail and attachments relating thereto, is intended for the abovementioned recipient. If you have received this e-mail in error, kindly notify the sender and delete it immediately as it contains information relating to the official business of Valuentum Securities Inc, which is confidential, legally privileged and proprietary to Valuentum Securities Inc.