The Valuentum Weekly is a brand-new weekly market commentary from Valuentum Securities, released each weekend in digital form. The Valuentum Weekly offers members a weekly synopsis of the markets and major events. It will be straight and to-the-point. Our goal is to deliver to you the latest information and insights. We welcome your feedback on how we can make the Valuentum Weekly as useful and as relevant for you as ever!
Markets
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The equity markets continue to struggle to find direction as concerns over supply chain issues, cost/input pressures, and rising benchmark rates generate increased volatility. Though we expect major indexes to "correct" to their 200-day moving averages, respectively, we can't help but emphasize that the broader U.S. economy is roaring. U.S. GDP has more than recovered since the depths of the COVID-19 crisis, and we expect U.S. equities to remain resilient. We continue to like stocks for the long haul, and stocks in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, in particular!
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Image: U.S. Gross Domestic Product (GDP). Source: FRED
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- The cryptocurrency market remains on the top of speculators' minds, with Bitcoin now approaching ~$55,000. The Securities and Exchange Commission (SEC) noted that it won’t seek to ban cryptocurrencies, but instead will seek to regulate the crypto market, according to the SEC’s Chair Gary Gensler. The news has provided a shot in the arm for crypto assets as the U.S. will take a different course of action than China in approaching cryptocurrency adoption, which we believe is here to stay.
- The alternative asset market remains healthy as well. It was reported by Reuters that sales of non-fungible tokens (NFTs) increased to nearly $11 billion during the third quarter, up more than eight times from the second quarter. These blockchain-backed digital tokens continue to capture share across a number of verticals.
Top News
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Facebook’s (FB) shares continue to face selling pressure as concerns from a whistleblower have created a whirlwind of negativity around the stock. A systemwide outage across its platforms last week due to a configuration change also plagued sentiment, but we still believe the company may offer one of the best ideas on the market. Facebook has the most powerful network effect across our coverage, and any increased regulation will only widen its moat, making the sustainability of its business and long-duration cash flows even more valuable within the DCF construct. Though the pullback in shares has been somewhat disappointing, they are still outpacing the market this year, and we think its long term is as bright as its always been. Read CEO Mark Zuckerberg’s note on the latest events >>
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Buffett pal Charlie Munger continues to add to his stake in Alibaba (BABA), but he may be falling into the quintessential value trap, a stock that looks cheap, but continues to decline. Valuentum’s work focuses on combining enterprise valuation and technical and momentum indicators in order to identify stocks that are most likely to converge to their intrinsic value estimates. With the case of Alibaba, shares look mighty cheap, but the stock is only starting to exhibit the kind of momentum we prefer in Valuentum ideas. We're remaining patient.
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Banks and financials continue to catch a bid as the 10-year Treasury yield has forged ahead. Though we’re not rushing to add any banks or financials to the newsletter portfolios, a 10-year Treasury rate in the 1%-2% range is not ominous by any stretch. It means borrowing rates are still at all-time lows and the threat of deflation is not even a meaningful probability (we'd be more concerned about deflation than inflation). We like low rates and manageable inflation, as it also implies both pricing power and nominal earnings growth, if not real earnings expansion. That said, former U.S. Treasury Secretary Steven Mnuchin believes that 3.5% 10-year Treasuries could be in the cards in the event of ongoing inflation and rising national debt. We're not so sure, however. The 10-year Treasury stands at ~1.612% at last check.
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Members should have a look at our updated reports in the Industrial Leaders Industry. The group covers some of the strongest dividend growth companies in our coverage, as well as some of the strongest business models. Here is a list of the refreshed reports that you should dig into: MMM, DHR, GE, HON, BA, GD, LMT, NOC, RTX, WM, RSG, CAT, CNHI, DE, CNI, CSX, UNP, FDX, UPS, FAST, APH, GLW, TEL, ETN, DOV, ITW, SWK, EMR, ROP, PNR, PH, AOS, EXPD, GWW.
Economy
- Though September nonfarm payrolls missed expectations, the ADP National Employment Report revealed marked improvement in job growth for the month of September, with private sector employment increasing by 568,000 jobs sequentially. Here’s what the chief economist at ADP had to say about employment trends: “Leisure and hospitality remains one of the biggest beneficiaries to the recovery, yet hiring is still heavily impacted by the trajectory of the pandemic, especially for small firms. Current bottlenecks in hiring should fade as the health conditions tied to the COVID-19 variant continue to improve, setting the stage for solid job gains in the coming months.”
- Natural gas futures hit their highest levels in more than a decade as shortages in Europe continue to drive prices higher. The world is awash in natural gas reserves with hundreds of years’ worth still in the ground, but bottlenecks in Alaska and stemming from Hurricane Ida coupled with lower exports from Russia have created a short-term supply-demand imbalance. Homeowners may be in for a shock with respect to their heating bills this winter.
- Crude oil prices continued to climb over the past week as the OPEC+ oil cartel stuck with their plan to slowly phase out supply curtailments first enacted in 2020 to combat demand destruction brought about by the COVID-19 pandemic, even as demand for refined petroleum products has sharply recovered in recent months. The US Department of Energy ('DOE') announced it had no plans to release stockpiles stored within the Strategic Petroleum Reserve to dampen recent price increases.
- Thermal coal prices have surged higher in recent months with no signs of abating as economies in China, India, and other major coal consumers roared back to life, while economies in East Asia (such as Japan) and Western Europe are considering turning to thermal coal to meet electricity demand this winter in the face of surging LNG prices and low natural gas stockpiles. Fitch Ratings' director in natural resources, Yulia Buchneva, noted to CNBC in August 2021 that thermal coal is still used to meet over a third of global electricity generation needs.
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Prices for beverages look to be on the rise. Pepsi (PEP) will raise its prices on drink and snack products in the next few months, while other consumer goods companies have been hiking prices this year. The culprit remains rising input costs, and many consumer goods companies may feel the pinch if consumers balk at the price jump or trade down to less expensive private label offerings. Read more about Pepsi's pricing power >>
Valuations
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We have a lot of updates this week. Reports on companies in the Industrial Leaders Industry have been updated: Also, the stock reports for ISRG and QCOM have been refreshed.
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Many remain concerned about supply-chain issues that could impact third-quarter 2021 results for a great many companies. We think the market has been factoring this concern in the past few weeks, and we reiterate that near-term earnings are a small component of a company's entire valuation composition. Read more about this dynamic in Value Trap >>
- We continue to expect material earnings growth in S&P 500 companies, and while forward price-to-earnings ratios for the index as a whole are above historical norms, comparisons continue to be muddied by changed corporate tax policy, strong net-cash-rich balance sheets, and solid future expectations of free cash flow.
- We remain bullish on stocks for the long run!
Fed and Treasury
- A trillion dollar coin minted by the Treasury has been floated as an idea to solve the debt crisis, but Treasury Secretary Janet Yellen isn’t on board with the idea. The Treasury Secretary continues to warn Congress about the severe impact that a U.S. debt default may bring.
- Senator Warren continues to question the merits of Federal Research Chair Jerome Powell, stating that he is allowing too much risk within the financial system. Already publicly opposing his re-nomination, Warren has called for an investigation of the Federal Reserve in light of recent trading activity by Fed Presidents.
ETF News
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DoubleLine Capital is looking to make a splash in the ETF market. The company will roll out the DoubleLine Opportunistic Bond ETF and the DoubleLine Shiller Cape US Equities ETF. Here’s the SEC filing >>
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The SEC continues to get closer to approving an ETF that holds Bitcoin, giving the thumbs up on the Volt Crypto Industry Revolution and Tech ETC (BTCR). The BTCR will not invest directly in Bitcoin, but it will invest in firms that derive revenues from the crypto asset. We're not interested.
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There's a new ESG-focused ETF on the horizon, the VanEck Morningstar ESG Moat ETF (MOTE). We'll be taking a close look. For those interested in ESG investing, please be sure to register for our ESG newsletter >>
On Deck
- Next up: The October editions of the Best Ideas Newsletter, ESG Newsletter, and quarterly Gold level publications will be released October 15.
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Our reports on stocks in the Industrial Leaders industry can be found in this article. Reports include: MMM, DHR, GE, HON, BA, GD, LMT, NOC, RTX, WM, RSG, CAT, CNHI, DE, CNI, CSX, UNP, FDX, UPS, FAST, APH, GLW, TEL, ETN, DOV, ITW, SWK, EMR, ROP, PNR, PH, AOS, EXPD, GWW.
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Contact Us
Valuentum Securities, Inc.
www.valuentum.com
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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.
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