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 34,584.88, with the DIA falling 0.31% on the week. Investor concerns about tax increases and real-estate health in China continue to linger.
- The S&P 500 closed at 4,432.99 Friday, with the SPY dropping 0.91% during the five-day stretch. Many will be watching the 50-day moving average, a technical level that traders often view as support or resistance.
- The NASDAQ closed at 15,043.97 with the QQQ falling 0.73%, holding up better than the SPY, but trailing the blue chip index.
- The cryptocurrency market remains resilient. CEO of Ark Invest Cathie Wood reiterated her $500,000 target price on Bitcoin, which is trading hands just shy of $47,000. We won’t speculate on the future direction of prices for "greater fool" assets, but the appetite for cryptocurrencies and NFTs remains robust, almost across the board. SEC Chair Gary Gensler reiterated the notion that the "asset class is rife with fraud, scams, and abuse in certain applications.” Investors should remain careful when dabbling in any digital coins/assets.
Top News
- House Democrats have proposed raising the US corporate income tax rate to 26.5% from 21% and the top capital gains tax rate to 28.8% from 23.8%, though nothing is for certain at this point as negotiations are in flux. Additionally, House Democrats are considering adding a 300-basis point income surtax on incomes above $5 million and increasing the minimum tax on corporate overseas profits to 16.5% from 10.5%.
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A huge win for the Dividend Growth Newsletter portfolio, Microsoft (MSFT) raised its dividend ~11% while launching a new buyback program. More >>
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The SEC continues its efforts to protect investors from potential accounting scandals in China, noting that it will halt the trading of ~270 U.S.-listed Chinese stocks in U.S. markets by 2024 if audit oversight does not improve. We continue to steer clear of many U.S.-listed Chinese entities as geopolitical risk and fundamental uncertainty continue to increase. Though we like the long-term prospects for Baidu (BIDU), Alibaba (BABA), Tencent (TCEHY), and JD.com (JD), investors may have a difficult time benefiting from the fundamental strength of such entities given the uncertain backdrop.
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Oracle (ORCL) reported first-quarter earnings for fiscal 2022 this past Monday which saw the firm's GAAP revenues and GAAP operating income both shift higher year-over-year during the period due to sustained growth at its cloud computing operations. The firm's Infrastructure-as-a-Service ('IaaS') and Platform-as-a-Service ('Paas') offerings represented about one-quarter of Oracle's quarterly revenues last fiscal quarter, while its sales at its Fusion ERP and NetSuite ERP offerings continued to grow at a brisk pace. During Oracle's latest earnings call, management noted that Oracle had generated $12.6 billion in free cash flow on a trailing twelve-month basis as of the first quarter of fiscal 2022. We profiled Oracle in our inaugural ESG Newsletter. Sign up here.
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There's often a great deal of skepticism every time Apple (AAPL) launches a new version of its iPhone. The company unveiled the iPhone 13 last week, and while many aren't as impressed as the improvement from prior versions, pre-orders in China may be running ahead of expectations. Apple's stock page >>
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Boeing (BA) remains optimistic about the future of air travel, as one might expect. Still reeling from the COVID-19 crisis with an overleveraged balance sheet and genuine distrust by the general public, the company forecasts a market for commercial aerospace and defense products and services of $9 trillion over the next decade, up a cool $500 billion from estimates last year. The reality, however, is that Boeing will have its hands full righting the ship in the coming years given its ominous financials, and we prefer exposure to Berkshire Hathaway (BRK.B) and its holding, Precision Castparts, when it comes to general industrial exposure to the aerospace recovery. The Best Ideas Newsletter portfolio >>
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Virgin Galactic (SPCE), which is seeking to revolutionize the space tourism market, is pushing its next flight to mid-October as it works through issues in its supply chain. The company’s last flight is also being investigated by the FAA as it had deviated off course for just shy of two minutes. The space tourism market is in its early innings, and Virgin Galactic remains a very speculative entity. Virgin Galactic’s stock page >>
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Last Monday, Goldman started two of our favorite ideas, Facebook (FB) and Alphabet (GOOG) with “Buy” ratings. The research house expects considerable revenue and earnings growth rates in the coming years, as do we.
- In the wake of the recent announcement of the formation of the AUKUS alliance (between Australia, the UK, and the US), France recalled its ambassadors to the US and Australia. Most analysts view this move as retaliation over France effectively losing its ~$40 billion conventional submarine contract with Australia which was signed back in 2016 (that deal involved submarines powered by diesel, though Australia scrapped that accord as part of its pivot to nuclear-powered submarines).
Economy
- The heavily-watched Consumer Price Index (CPI), excluding food and energy, increased at a meager pace of 0.1% in August, offering further support that inflation scares are merely transitory, as the Fed has emphasized now for months. Prices for airline fares, used cars and trucks, and motor vehicle insurance all fell modestly.
- Natural gas prices leaped to a seven-year high thanks to elevated demand for US LNG in Europe and Asia. With the front month contract reaching north of $5.46/MMBtu this week, we expect it will be difficult to sustain such high prices over the long haul given pressures from a resumption of drilling activity in the US and Canada, along with greater gas pipeline exports to Europe from Russia. The news, nonetheless, is a good sign for U.S. exploration and production companies.
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Aluminum hit $3,000 per metric ton for the first time this week since late last decade as supply issues linger. Iron ore prices, on the other had, tumbled below $100/ton as China looks to cleaner solutions. Alcoa’s stock page >> BHP's stock page >> Rio Tinto's stock page >>
- According to the US Census Bureau, the median household income in the US fell by 2.9% in 2020 versus 2019 levels, hitting approximately $67,500 as the domestic economy contended with serious headwinds from the COVID-19 pandemic. The last time median household incomes in the US fell was in 2011 in the wake of the Great Financial Crisis ('GFC').
- The US Commerce Department reported that domestic retail sales (adjusted for seasonal variations) rose by 0.7% in August 2021 versus July 2021 levels and were up over 15% versus levels seen in August 2020. Though concerns over the Delta variant of COVID-19 remain, it appears the US economy continues to recover in earnest from the worst of the public health crisis.
- Weekly jobless claims in the US rose to a seasonally-adjusted 332,000 in the week ended September 11 according to the US Department of Labor, up moderately from the prior week (which stood at a revised 312,000). However, part of that increase was likely due to recent hurricane activity in the US Gulf Coast region that also negatively impacted the Atlantic Coast region. The four-week average of weekly jobless claims continued to trend lower in the week ended September 11.
Valuations
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No fair value estimate changes this week. The latest industry refresh was the Disruptive Innovation industry, which can be accessed here. Reports for DE, DKS, DIS, and WSM were also refreshed recently.
- The 10-year Treasury fell below its 50-day moving average this week, but bounced higher, closing at 1.363% on the week.
- 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
- US Federal Reserve Chairman Jerome Powell recently ordered a review of the Fed's ethics rules, according to CNBC. This news comes in the wake of the financial news agency reporting recently that several of the Fed's regional presidents engaged in active trading activity in 2020.
- U.S. Treasury Secretary Janet Yellen continued to push lawmakers to either increase or suspend the US federal government's debt ceiling, which snapped back into effect August 1, 2021, after being suspended for two years back in 2019. Should lawmakers fail to act, the Treasury Secretary has repeatedly warned that the US would likely run out of extraordinary measures to keep funding the government sometime this upcoming October (when the new fiscal year of the US federal government begins).
ETF News
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Though we generally don’t like to play speculative commodity-based ETFs, it’s worth noting that many uranium ETFs, including the North Shore Global Uranium Mining ETF (URNM), have been on a tear so far in 2021, some advancing over 100% year-to-date. We won’t be adding any to the newsletter portfolios, however. Investors believe that nuclear will be one of the long-term answers to the world’s shift away from fossil fuels.
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AdvisorShares has come to market with an ETF to capitalize on the emerging psychedelic drug industry. Investors interested in such exposure can evaluate the AdvisorShares Psychedelic ETF (PSIL). We're not interested though.
On Deck
- The markets may be a little jittery this coming week as the Federal Reserve will meet to discuss monetary policy. The recent broad-based weakness in the markets may give them pause in easing any expansionary measures, which could be a good thing.
- Next up: Members to our additional options commentary should expect the second two options ideas for the month of September soon.
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The global economy is steadily recovering from the worst of the coronavirus (‘COVID-19’) pandemic, though variants of the virus remain a concern. Enterprise Products and Magellan Midstream are well-positioned to capitalize on this recovery while continuing to make good on their “generous” payout obligations.
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Image Source: Enterprise Products Partners L.P. – August 2021 IR Presentation. |
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Contact Us
Valuentum Securities, Inc.
info@valuentum.com
www.valuentum.com
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