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
- The Dow Jones Industrial Average closed at 35,515.38. The DIA finished up 0.94% on the week.
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The S&P 500 closed at 4,468. The SPY closed up 0.78% on the week. We maintain our view that the S&P 500 is largely fairly valued, with Facebook (FB) and Alphabet (GOOG) (GOOGL) remaining two of our favorites.
- The NASDAQ closed at 14,882.90. The QQQ closed up 0.21% on the week. We continue to like the NASDAQ in part due to the net cash rich and free cash flow powerhouses that make up a large portion of its constituency.
- Cryptocurrencies and the alternative asset markets continue to be healthy. Bitcoin is trading north of $45,900, and many new to investing (wrongly) believe diversification means a basket of crypto assets. Regardless, this may usher in a new kind of investor ("speculator") base, supporting such markets as institutional assets continue to enter the fray as larger participants.
- Don't forget to dig those sports cards out of your basement. Though much lower than prices garnered earlier this year, a Gem Mint PSA 10-rated 1986 Michael Jordan Fleer last sold for over $300,000.
Top News
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Valuentum announces launch of new ESG newsletter. Learn more here. Read the press release here.
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Berkshire reported excellent second-quarter numbers. More on the report here.
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Best Ideas Newsletter portfolio holding Disney (DIS) crushed second-quarter expectations. View its stock landing page here >>
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Realty Income (O), “The Monthly Dividend Company,” has paid out a dividend over the past 610+ consecutive months and shares of O yield a nice ~4.0% as of this writing. We are big fans of its pending merger with VEREIT and its international expansion plans as these endeavors will significantly improve both Realty Income’s growth runway and the resilience of its business model going forward. We continue to like Realty Income as an idea in the Dividend Growth Newsletter portfolio and appreciate the REIT’s latest guidance boost. Read more here >>
- The Senate passed a $1 trillion infrastructure bill in a 69-30 vote. The bill that seeks to rebuild roads and bridges among other infrastructure improvements now goes to the House. Next up is a $3.5 trillion bill that focuses on child care, education as well as other initiatives.
- Gold spot prices closed at $1,779.45, still down year-to-date. Many continue to question whether the precious metal should still be viewed as an inflation hedge in light of its price declines (in the face of inflation talk) and given a world of proliferating alternative crypto assets (which have advanced in the face of inflation talk).
- President Biden is working with OPEC+ members in a bid to increase oil production to help lower gasoline prices. The International Energy Agency noted that the spread of the COVID-19 delta variant could pinch demand a bit, however. WTI crude (Sep) and Brent crude (Oct) closed at $68.44/bbl and $70.59/bbl, respectively.
- Andrew Cuomo resigns as New York’s governor. Once hailed for his work during the COVID-19 pandemic, his political life has come under increased scrutiny.
- Timber! Chicago lumber futures are trading at 1-year lows of ~$505 per thousand board feet after a huge rally early this year. They are down about 70% from all-time highs.
- A 7.2 magnitude earthquake in Haiti has already claimed the lives of more than 700 people.
Economy
- Though many continue to be concerned about the potential for runaway inflation in light of fiscal stimulus and easy monetary policy, inflation came in moderately lower than expected, with the core CPI rising 0.3% in July. The annual core inflation rate fell to 4.3% during the past 12 months. Inflation is looking more and more transitory, as the Fed has noted in the past.
- Fare pressure among airlines seems to be ticking back up, as has been the case in this historically ultra-competitive industry. The BLS reported that airline fares fell 0.1% in July. International flight demand from the US also wanted a bit in July from June. We don't like the airline business model.
- The US Labor Department noted this week that there were over 10 million job openings at the end of June 2021, a record, as the domestic economy continues to recover from the worst of the COVID-19 pandemic.
Valuation & Ratings
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No fair value estimate changes this week. Latest updates include refreshes of PRLB, GE, BABA and BIDU. Latest full industry refresh, Mining & Chemicals Industry >>
- The 10-year Treasury, a key benchmark rate used within discounted cash flow analysis, closed at 1.28%, a very benign level. Future expectations of asset prices tend to be inversely correlated to the 10-year Treasury. A lower 10-year Treasury means equity prices are discounted at a lower rate, which bodes well for valuations.
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In June 2020, we felt the "right" multiple to place on estimated normalized earnings was 18-20x, putting a fair value at the high end of the range in June 2020 (on below-the-current consensus annual earnings) of 3,920 for the SPY. Advancing this measure at a discount rate of 10% to get to today's estimated value in a consistent manner, we arrive at a current fair value estimate north of 4,312 of the SPY. Our market valuation call in June 2020 was practically spot on.
- We continue to expect explosive earnings growth in the S&P 500 economy in the coming years. During calendar 2020 during the worst economic period in decades as a result of COVID-19, earnings for S&P 500 companies was still greater than that of calendar year 2017--just a few years ago! This speaks to incredible forward earnings power. The bounce back of earnings in 2021 has been phenomenal and stands considerably higher than calendar 2019 numbers. According to FactSet, the 12-month forward P/E on the S&P 500 currently stands at 21.1x. This is higher than historical averages, but we believe stocks are fairly valued as earnings come to reflect a normalized environment backed by government support. We remain bullish.
Fed and Treasury
- Dallas Fed President Kaplan announced on Wednesday that he thinks the Fed should begin tapering its monthly purchases of US Treasuries and mortgage-back securities this upcoming October. Kaplan is not a voting member of the Federal Open Market Committee in 2021.
- Fed Chairman Jerome Powell, along with many other Fed officials, have yet to commit to a date to begin tapering quantitative easing measures as the trajectory of the US economy remains in flux due to the COVID-19 pandemic.
- Kansas City Fed President Esther George noted this past week that she is now more supportive of a potential tapering of the Fed's quantitative easing program in light of the recent spike in inflation. On the other hand, Richmond Fed President Thomas Barkin recently noted he was waiting for the US jobs market to recover further before he would want to see the Fed begin tightening monetary policy. Barkin noted that the domestic job market recovery process could take several more months. Esther George is an alternative voting member of the Federal Open Market Committee in 2021, and Thomas Barkin is a voting member of the Federal Open Market Committee in 2021.
ETF News
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ETFMG Treatments Testing and Advancements ETF (GERM) faced outsized selling pressure during the week as EU regulators uncovered more side effects that could possibly be linked to the COVID-19 vaccine. The ETF is still up considerably year-to-date though.
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Artificial intelligence continues to fail to live up to the hype. The AI Powered Equity ETF (AIEQ) is up ~17.5% versus an advance in the S&P 500 of ~19%. We prefer real intelligence. The Best Ideas Newsletter portfolio >> ; The Exclusive publication >>
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The three largest ETF outflows so far in 2021 according to ETF dot com. 1) iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD). 2) SPDR Gold Trust (GLD). 3) iShares MSCI USA Min Vol Factor ETF (USMV). Bye bye investment grade bonds. Bye bye gold. Bye bye factor based nonsense. Hello stocks for the long run >>
On Deck
- The August edition of the Best Ideas Newsletter will be released today, August 15.
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If you're interested in ESG investing, please be sure to add the service to your membership. You can download our ESG worksheet here (xls) to get a feel for the types of factors we assess with respect to ESG and how we weight them to arrive at the final score for each company. The inaugural edition of the Valuentum ESG Newsletter will be released September 15. Subscribe >>
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Realty Income, “The Monthly Dividend Company,” has paid out a dividend over the past 610+ consecutive months and shares of O yield a nice ~4.0% as of this writing. We are big fans of its pending merger with VEREIT and its international expansion plans as these endeavors will significantly improve both Realty Income’s growth runway and the resilience of its business model going forward. We continue to like Realty Income as an idea in the Dividend Growth Newsletter portfolio and appreciate the REIT’s latest guidance boost. On a final note, we are keeping an eye on its pending merger with VEREIT.
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Image Source: Realty Income Corporation – August 2021 IR Presentation |
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"What if I told you that almost everything you know about finance is wrong? The book Value Trap is the finance and valuation course you didn't get in school," President of Investment Research at Valuentum Brian Nelson says.
"The field needs to be almost entirely redefined in a forward-looking manner. Historical data is useless when it comes to asset pricing. It is future expectations that matter. In the age of Big Data, there may be no better book to guide investors than Value Trap."
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What some have said about Standard Deviations:
A very entertaining book about a very serious problem. We deceive ourselves all the time with statistics, and it is time we wised up.
— Robert J. Shiller, winner of the Nobel Prize in Economics and author of Irrational Exuberance
Statistical reasoning is the most used and abused form of rhetoric in the field of finance. Standard Deviations is an approachable and effective means to arm oneself against the onslaught statistical hyperbole in our modern age. Professor Smith has done us all a tremendous service.
— Bryan White, Managing Director, BlackRock, Inc.
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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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