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 have been moving in a "sideways" direction the past few weeks. We recently added "protection" to the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, but last week's upward advance has been a bit more encouraging. We don't read too much into technical moving averages, but the S&P 500 (SPY) broke through the 50-day moving average (orange line below) to the upside last week. Though this does not mean that new highs in the markets are immediately in the cards, it does mean that what was once resistance (the 50-day moving average) is now support, and that's great news for stock investors, in our view. We continue to like equities for the long haul!
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Image: The S&P 500 is now back above its 50-day moving average (orange line above). Though this does not mean that new highs are in the cards immediately, it does mean that what was once resistance in the 50-day moving average is now support. We remain bullish on equities in the long run! |
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The cryptocurrency market continues to make inroads with respect to all-out integration with the financial system, now with the potential for a Bitcoin futures ETF to be approved by the Securities and Exchange Commission (SEC) this coming week. With this crypto news and entities such as AMC Entertainment (AMC) and GameStop (GME) holding tremendous market inefficiencies (as $20 billion and $14 billion companies, respectively), the investing game has clearly changed--and readers need to be on their toes. The inmates may very well be running the asylum, and if a Bitcoin futures ETF eventually leads to a Bitcoin ETF that holds crypto, itself, the financial system may not just be off the tracks; there might not be any tracks anymore. Please stay focused on your investments, now more than ever. We think the SEC may have had little choice but to accept the Bitcoin futures ETF to keep the equity markets moving higher. We sympathize and await next week for confirmation of the new trading security.
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The alternative asset market continues to gain traction across verticals. Coinbase (COIN) recently announced that it will create a “peer-to-peer marketplace that will make minting, purchasing, showcasing, and discovering NFTs (non-fungible tokens) easier than ever." Coinbase wants to do for NFTs what it did for Bitcoin. Other companies such as ATIF Holdings (ATIF) are also working on creating an NFT platform with expectations to launch later this year. NFT adoption is gaining momentum, and investors should not dismiss this trend, any more than cryptocurrency adoption. Modern portfolio theory means any asset could be fair game, whether it generates future free cash flows or not.
Top News
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On October 12, Fastenal (FAST) reported third-quarter 2021 earnings that beat top-line consensus estimates and matched bottom-line consensus estimates. The company’s latest earnings report reinforces our thesis that the US economy is continuing to recover from the worst of the coronavirus (‘COVID-19’) pandemic. We view Fastenal as a bellwether to broader trends in the industrials sector. With that said, let's dig into its latest report >>
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Despite a positive read on pre-orders for its new iPhone 13, Apple (AAPL) noted that the semiconductor chip shortages will hurt production in the near term. We’re not at all worried as any disruption will only build pent-up demand. We continue to like Apple as an idea in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. Apple's stock page >>
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JPMorgan Chase & Co (JPM) reported third quarter 2021 earnings on October 13 that saw its revenue broadly match consensus expectations while its bottom-line flew past consensus expectations, aided by a net reserve release of $2.1 billion as loan losses have not been as bad as initially feared (JPMorgan reported a $1.5 billion credit cost net benefit in the third quarter of 2021 when also factoring in net charge-offs). Average loans were up 5% and average deposits were up 19% company-wide last quarter on a year-over-year basis, and its 'Asset & Wealth Management' division reported that its assets under management ('AUM') grew by 17% year-over-year to reach $3.0 trillion last quarter. Goldman Sachs (GS) and Morgan Stanley (MS) also reported strong quarterly numbers last week.
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Gene-editing technologies that we are watching very closely continue to have their ups and downs when it comes to news flow. CRISPR Therapeutics (CRSP) reported positive results for its Phase 1 CARBON Trail of CTX110, but the market didn’t like the news too much. We prefer Vertex Pharma (VRTX) as the best idea to consider with respect to emerging gene-editing technologies. The company has a commercialized portfolio of cystic fibrosis therapies and agreements with CRISPR Therapeutics. A strong free cash flow and balance sheet profile at Vertex Pharma differentiates itself from other pure-play CRISPR stocks. Visit Vertex's stock page >>
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Dividend Growth Newsletter idea Qualcomm (QCOM) noted that it would step up its buybacks, authorizing another $10 billion in stock repurchases. We think the executive suite is making a savvy move by buying back more stock, as we think its shares remain cheap. We don’t think the repurchases will have a material impact on QCOM’s dividend health with the firm boasting an impressive Dividend Cushion ratio of 3.4. Be sure to learn more about the Dividend Cushion ratio here >>
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International Paper Co (IP) announced it was reducing its quarterly dividend by ~10% sequentially on October 12, though please note this move was largely expected due to the firm spinning off its printing papers business (to shareholders of IP), Sylvamo Corporation (SLVM), through a move that was completed at the start of October 2021. Furthermore, in conjunction with the announcement that International Paper was rightsizing its payout, the firm initiated a $2.0 billion share buyback program in addition to the remaining $1.3 billion in stock repurchase authority the company had at the end of the third quarter.
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The France-based luxury goods company LVMH Moët Hennessy Louis Vuitton provided an update on its sales performance during the first three quarters of 2021 on October 12. LVMH’s revenues grew by 46% year-over-year, reaching EUR44.2 billion (a record for the company), and organic sales were up 40% year-over-year during the first nine months of 2021. The company’s ‘Fashion & Leather Goods’ segment, responsible for a little under half of its total sales, saw its revenue surge higher during this period led by fashion powerhouses Louis Vuitton and Christian Dior Couture. Strength in the US and Asian luxury goods markets bolstered LVMH’s financial performance this year. To read the article >>
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Chicago-based hot dog chain Portillo’s is planning to go public, with estimates that the company will be valued at over $1.4 billion. We’re interested in this IPO, but the company does have a tremendous amount of contractual obligations from debt to operating leases. We'll be watching developments closely. Read more from the Sun Times >>
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In case you missed it, 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.
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Dividend Growth Newsletter portfolio holding UnitedHealth Group (UNH) put up an excellent third-quarter 2021 report last week and raised its financial guidance for 2021. We'll have more to say about the company tomorrow, October 18, in our earnings write-up. We continue to like shares.
Economy
- Inflation continues to be benign based on U.S. government-released metrics. The core Consumer Price Index (CPI) for September advanced just 0.2% for the month after just a 0.1% increase in August. According to the report, “indexes for airline fares, apparel, and used cars and trucks declined” in the month. Indexes for shelter, new vehicles, household furnishings and motor vehicle insurance advanced. Though these levels of inflation are mild, anecdotally we are seeing signs of companies raising prices to offset myriad cost pressures. We’re also seeing quick-service food pricing inflation as labor shortages push up input costs. Still, we think the reading isn’t too much to get worried about at the moment. The core PPI for the month of September, released October 14, also came in lower than expectations.
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Delta Air Lines (DAL) warned that higher fuel costs may hurt its fourth-quarter profit. Though air travel demand continues to recover from the COVID-19 meltdown, airlines notoriously have a high degree of operating leverage where small changes in the price of the average ticket or fuel costs have an outsized impact on economic returns and accounting profits. The airlines are on much stronger footing than they were during the worst of the pandemic, but their business models are vulnerable to exogenous shocks, and their stocks should be viewed more like trading vehicles than anything else.
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"Here's how much your Social Security check will increase in 2022" -- CNBC >>
Valuations
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We've had a lot of report refreshes recently. Reports on companies in the Industrial Leaders Industry were among the most recent industry refreshes.
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We released the quarterly publications this weekend. To learn more about the Gold level publications >>
- We continue to like the large cap growth as the stylistic area where some of the strongest and most underpriced companies can be found.
Fed and Treasury
- Vice Chair Richard H. Clarida met virtually at the 2021 Institute of International Finance. Here is an excerpt of his take on the current economic situation and outlook: “Indicators of economic activity and employment reveal that the economy continues to strengthen...conditions in the labor market have continued to improve...factors related to the pandemic, such as caregiving obligations and ongoing fears of the virus, continue to weigh on employment and participation...core PCE (personal consumption expenditures) price inflation is running at a 2.9 percent annual pace that is well above what I would consider to be a moderate overshoot of our 2 percent longer-run goal for inflation...But I continue to believe that the underlying rate inflation in the U.S. economy is hovering close to our 2 percent longer-run objective and, thus, that the unwelcome surge in inflation this year, once these relative price adjustments are complete and bottlenecks have unclogged, will in the end prove to be largely transitory."
- St. Louis Fed President James Bullard expects the Fed to start hiking rates in 2022 and that taper may begin in the coming month. We think the Fed will continue to support markets in whatever path they choose for rate hikes and tapering and believe accommodative policies will continue for years, much like they did following the Great Financial Crisis in 2007-2009.
ETF News
- We're waiting to see if the Securities and Exchange Commission (SEC) will allow the launch of a new ProShares Bitcoin futures ETF this week. There are many pitfalls to owning ETFs that invest in futures, and we remain cautious on the entire cryptocurrrency space because 1) crypto doesn't generate future free cash flows 2) many holding crypto are hugely leveraged and 3) the growing number of different kinds of cryptocurrencies weaken the scarcity argument considerably. Though cryptocurrencies could have myriad uses in the future, this doesn't mean that a ~$60,000 price tag for Bitcoin makes sense. We're cautious.
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Energy Select Sector SPDR Fund ETF (XLE), an idea included in our Best Ideas Newsletter portfolio, is up ~51% year-to-date (before taking dividend considerations into account) as of the close of regular trading hours on Friday, October 15. Surging raw energy resources pricing (with an eye towards crude oil and natural gas) along with the ongoing recovery in refined petroleum product demand (including for fuels such as gasoline and diesel) seen in recent months has gone a long way in boosting the stock prices of major energy firms including those included in the XLE ETF.
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Financial Select Sector SPDR Fund ETF (XLF), an idea included in our Best Ideas Newsletter portfolio, is up ~34% year-to-date (before taking dividend considerations into account) as of the close of regular trading hours on Friday, October 15. The improving outlook for net interest margins ('NIMs'), sizable loan-loss reserve releases seen in recent quarters, and robust demand for investment banking and wealth management services has supported the stock prices of the major banking giants included in the XLF ETF.
On Deck
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Johnson & Johnson (JNJ) will be reporting third-quarter 2021 results early this coming Tuesday. The company is one of the largest "weightings" in the Dividend Growth Newsletter portfolio (it is also included in the Best Ideas Newsletter portfolio), and we'll be watching its fundamental and technical performance closely.
- We're excited to release the next two option ideas for the month of October in the coming weeks. Please be sure to add additional options commentary to your membership, if you are interested. Contact us.
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We'll also be hosting an educational webinar series in the coming weeks. We'll have dates and times available soon. Let us know if you may be interested. Learn more here >>
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We disclose the holdings of the portfolio of the Best Ideas Newsletter in this article. This portfolio can always be found in each edition of the monthly Best Ideas Newsletter.
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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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