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 35,455.80, with the DIA advancing 0.97% for the week ending August 27. All three major indices were positively impacted by Fed Chair Powell's dovish comments on Friday at the Jackson Hole Economic Symposium.
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The S&P 500 closed at 4,509.37, with the SPY moving 1.55% higher this week. We maintain our view that the S&P 500, in aggregate, is reasonably priced in part because of the net-cash-rich balance sheets, free cash flow generating prowess and phenomenal earnings-expansion potential of many S&P 500 companies. Facebook (FB), Alphabet (GOOG), and Microsoft (MSFT) remain some of our favorite ideas.
- The NASDAQ closed at 15,129.50, with the QQQ jumping the most of the three large indices on the week, up 2.26%. We continue to like the NASDAQ, and many of the largest companies in the index have material product pricing power to more than offset inflationary headwinds to drive strong earnings and free cash flow expansion.
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The cryptocurrency market remains very healthy, with Bitcoin hovering just shy of $49,000. MicroStrategy (MSTR), a proxy for equity exposure to Bitcoin, continues to purchase Bitcoin and is now estimated to hold ~110,000 bitcoins at an average cost of ~$26,800. MSTR is up over 80% year-to-date.
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The alternative asset market continues to burgeon. This week, a non-fungible token ('NFT') of clip art of a rock (“EtherRock NFT”) sold for 400 ether, or ~$1.3 million. Many are viewing ownership of NFTs as status symbols, no different than the fancy watch or expensive sports car. Visa (V) also entered the NFT space this week, purchasing a “CryptoPunk” for an estimated $150,000 in ethereum. The latest developments in the alternative asset market this week come months after a "CryptoPunk" NFT sold for north of $11.7 million in a Sotheby's (BID) auction.
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We continue to prefer big cap tech and large cap growth thanks in part to their ability to price significantly ahead of inflation. Microsoft’s recent price increase across its Office 365 suite is but one example. Taiwan Semiconductor (TSM) is also looking to raise "chip" prices across the board, and Apple (AAPL) may follow suit with price increases on its iPhone 13 suite. We love the pricing power in the big cap tech and large cap growth space! On the other hand, in the near term, we expect profit pressures in the consumer staples space from higher inflation and supply chain issues (e.g. SJM, CPB).
- The Best Ideas Newsletter portfolio >>
Top News
- 13 U.S. service members were killed in a terrorist attack (suicide bombing) outside the Kabul airport in Afghanistan on Thursday, as the US continues its efforts to evacuate Americans from the country. The US retaliated with drone strikes that reportedly were successful but also may have killed three children. The optics in Afghanistan do not look good and bring to light concerns over the US's counter-terrorism capabilities to protect Americans in the homeland. The likelihood for another terrorist attack in Kabul remains elevated in the near term, as ISIS-K and other terrorist organizations grow in strength in the now-Taliban controlled Afghanistan.
- Exactly 16 years after Hurricane Katrina devastated New Orleans, the city is in the path of another major hurricane. Category 4 Hurricane Ida has already made landfall in Louisiana, and federal, state and local authorities are on high alert as the state faces this natural disaster head on. We continue to monitor the situation, and the recovery will be long.
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Dividend Growth Newsletter portfolio idea Dick’s Sporting Goods (DKS) rallied to a new all-time high amid an excellent fiscal second-quarter report. The company also raised its quarterly dividend 21% on a sequential basis, announced a special dividend of $5.50 per share, and increased its buyback authorization to $400 million. Dick’s Sporting Goods is included as an idea in the Dividend Growth Newsletter portfolio. Read more: "Dividend Growth Idea Dick’s Sporting Goods Announces Great News"
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Chinese stocks may have finally found their footing, at least in the near term, as a strong earnings report from JD.com (JD) and buybacks from Tencent (TCEHY) have combined to slow the selling for now. If one is forced to consider Chinese equities exposure, we think JD.com may be worth a look, but we generally prefer US-based entities that have far less geopolitical risk, particularly in the areas of big cap tech and large cap growth. Time to Consider Buying Chinese Equities? Not Exactly >>
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Johnson & Johnson (JNJ) recently reported that a booster shot of its COVID-19 vaccine, which was given emergency use authorization in the US and elsewhere as a single-shot regime, produced "a rapid and robust increase in spike-binding antibodies" according to interim data from ongoing clinical trials. The firm also noted that those given a single shot of its vaccine "demonstrated neutralizing antibody responses" that "were strong and stable through eight months after immunization" in an August 25 press release.
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Best Ideas Newsletter portfolio idea Vertex Pharma (VRTX) inked a deal with Arbor Biotechnologies to collaborate in the development of therapies that make use of Arbor’s CRISPR gene-editing technologies. The deal offers investors in Vertex Pharma even greater exposure to the long-term potential of the CRISPR space. Vertex already has an agreement with CRISPR Therapeutics (CRSP). Insiders at Vertex have been scooping up shares, too. We continue to like Vertex Pharma as a more diversified way to gain CRISPR exposure.
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Best Buy (BBY) reported strong fiscal second-quarter results as the electronics retailer continues to show resilience in the face of e-commerce proliferation. Enterprise comparable store sales leapt ~19.6% during the period, and management issued guidance for the fiscal third quarter above consensus expectations. Williams-Sonoma (WSM) also recorded a strong fiscal second-quarter report, with comps leaping 29.8%.
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Dollar General Corporation (DG) reported second-quarter earnings for fiscal 2021 (period ended July 30, 2021) that beat both consensus top- and bottom-line estimates. Dollar General updated its full fiscal year guidance in conjunction with its latest earnings report in a favorable manner, though investors were expecting more, and shares of DG fell moderately after the report was published. We continue to like Dollar General as an idea in the Best Ideas Newsletter portfolio, however. "Best Idea Newsletter Portfolio Idea Dollar General Provides Key Update for Investors"
Economy
- US real gross domestic product advanced at an annual pace of 6.6% during the second quarter, according to the second estimate from the BEA. This is a modest acceleration from the 6.3% leap in real GDP in the first quarter. Current dollar GDP advanced 13.2% at an annual rate in the period, while the PCE price index leapt 6.5%.
- For the week ending August 21, seasonally adjusted jobless claims were 353,000, up 4,000 from the prior week. The jobless claims number was slightly worse than consensus forecasts, but we’re not reading too much into it.
- Crude oil prices are bouncing back after a tough week last week. Most traders continue to position themselves against expectations related to the U.S. dollar, while assessing the impact on demand from the ongoing spread of the “delta” variant of the coronavirus (“COVID-19”) and the impact on supply from Hurricane Ida.
- According to the latest report from the National Association of Realtors, released August 23, the median existing home sales price rose 17.8% in July. Home sales continue to be robust in the “upper-end markets,” and inventory is starting to increase to meet the strong demand from consumers reevaluating their living and at-home working space in a post-COVID-19 world.
- The US Census Bureau reported this past Wednesday (August 25) that new durable goods orders dropped 0.1% in July 2021 from June 2021 levels. Excluding transportation, new durable goods orders were up 0.7% during this period, highlighting the ongoing negative impact the semiconductor shortage is having on the broader transportation space.
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Major automakers including Ford (F), General Motors (GM) and Toyota (TM) plan to significantly curtail their output in September as the ongoing semiconductor supply shortage continues to create headaches for the industry. Ford and General Motors have already had to curtail their production several times previously due to the chip shortage, while Toyota is finally throwing in the towel and accepting its inventories will not be enough to keep its output levels steady going forward.
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Demand for PCs remains strong according to HP (HPQ) and Dell Technologies (DELL), both of which recently reported earnings, as consumer demand for desktops and laptops is supported by the work-from-home ('WFH') trend. However, supply chain hurdles remain a major concern.
Valuations
- We have a large number of stock report refreshes scheduled for the upcoming week, and we'll notify members of the changes once they are complete.
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As with the past two weeks, there are 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 1.31%, 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.
Fed and Treasury
- The Jackson Hole Economic Symposium on Friday reassured markets that the Fed will remain accommodative, assuaging fears about any near-term rate hikes even if it may begin tapering of asset purchases later this year. The Fed has done a fantastic job managing markets through the COVID-19 crisis, and we remain confident that it will continue to do a fantastic job as the world emerges on the other side of the COVID-19 pandemic.
- In a recent CNBC interview, Dallas Fed President Robert Kaplan stated he would like to see the Fed announce a plan to begin tapering its monthly purchases of US Treasuries and mortgage-backed securities in September. Among other things, Mr. Kaplan cited concerns regarding speculative activity in the high-yield bond market as a reason for tapering to begin soon.
- St. Louis Fed President James Bullard noted on CNBC that he believes that loose monetary policy could be contributing to a housing bubble and that the time may be ripe for tapering. Also reported on CNBC, Kansas City Fed President Esther George seems to have a similar position as Bullard, wanting to begin tapering soon.
- Though concerns about a housing bubble have surfaced, we maintain our view that inflation remains relatively healthy and that many homeowners across the country have finally been able to recover from the housing bust, now more than a decade later. National housing price increases have been reasonable, in our opinion, and we do not believe that housing is anywhere near a bubble. We continue to welcome healthy levels of inflation across asset markets.
ETF News
- The cryptocurrency market continues to heat up, and companies are positioning themselves in the ETF space before the SEC opens the floodgates. AdvisorShares is the latest issuer to file for an actively-managed Bitcoin strategy ETF under the ticker symbol CRYP.
- Nuveen, a TIAA company, had roughly $39 billion in assets under management ('AUM') through ESG-focused strategies at the end of June 2021. The ESG investment management space has grown substantially in recent years.
On Deck
- The September editions of the Dividend Growth Newsletter and High Yield Dividend Newsletter are scheduled to be released September 1.
- The data in the stock page tables on the website are generally updated on Sunday evening and will be updated later today. The weekly screener will also be available later this evening.
- OPTIONS: Due to the increased demand for our services, all additional options commentary members are receiving four ideas per month. We hope you continue to enjoy this product, and we appreciate your continued interest. The third and fourth options ideas for the month of August will be released early next week. Please let us know if you have any questions.
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On August 25, Dick’s Sporting Goods reported second-quarter earnings for fiscal 2021 (period ended July 31, 2021) that soared past consensus top- and bottom-line estimates. Furthermore, Dick’s Sporting Goods raised its full-year guidance for fiscal 2021, doubled its minimum share buyback program to $0.4 billion for fiscal 2021, increased its regular quarterly dividend by 21% on a sequential basis to $0.4375 per share (bringing its annualized payout up to $1.75 per share), and announced a special dividend of $5.50 per share during its latest earnings update. We are incredibly pleased with the company’s performance of late. Dick’s Sporting Goods is included as an idea in the Dividend Growth Newsletter portfolio.
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Image Shown: Dividend Growth Idea Dick’s Sporting Goods Inc has put up tremendous performance of late. |
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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.
info@valuentum.com
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 info@valuentum.com. 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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