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
- U.S. markets will be closed tomorrow, Monday, in observance of Labor Day. We hope that you and yours have a nice day of rest, and that you make time with family and friends.
- The Dow Jones Industrial Average closed at 35,369.09 last week. Blue chips closed down modestly, with the DIA falling 0.12%.
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The S&P 500 closed at 4,535.43 Friday. The SPY advanced 0.63% during the trading week, and we maintain our view that S&P 500 companies are reasonably priced, particularly as the U.S. economy continues its breakneck recovery, and companies with product pricing power such as Microsoft (MSFT), Apple (AAPL), and PayPal (PYPL) lead the way higher.
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The NASDAQ closed at 15,363.52 on the last trading day before the long holiday weekend. The tech-heavy QQQ closed up 1.47% on the week thanks in part to strong performance from Apple, which advanced 3.84% on the week, and Broadcom (AVGO), which put up beat-and-raise fiscal third-quarter results. We continue to believe that the NASDAQ remains an attractive place to be, with some of our favorite net-cash-rich and free-cash-flow generating powerhouses residing within. The QQQ has advanced 21.62% so far year-to-date and is up over 225% during the past five years.
- In the most recently-released edition of the Exclusive publication, we highlighted an income idea that has paid out a lofty ~12% dividend yield during the trailing 12 months. We believe it is one of the most fascinating income ideas that we've ever found and makes use of the NASDAQ 100 index. Let us know if you'd like to add the Exclusive to your membership. The success rates* for both capital-appreciation and short-idea considerations have been ~90% since inception (July 2016).
- The cryptocurrency market continues to forge ahead, and many now believe Ethereum will garner an even larger market capitalization that Bitcoin in the not-too-distant future. Bitcoin is trading hands at over $51,500, and there appears little will stop the adoption of cryptocurrencies as regulators remain swamped with Bitcoin ETF registrations.
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The alternative asset market continues to roar with enthusiasm. We're witnessing strong traction on the sports card NFT space and believe this area helps to solve traditional counterfeiting and may counteract the vast backlogs at the grading and authentication companies. It was reported that OpenSea, the biggest marketplace for NFTs, recorded $3.4 billion in volume on Ethereum in August, a 10-fold increase from the prior month. This week, Sotheby's (BID) is auctioning off a collection of monkey-themed digital images ("Bored Ape Yacht Club"), with estimates that the collection could garner as much as $20 million.
- Warren Buffett celebrated his 91st birthday this week. A treasure trove of information can be had by reading his Berkshire Hathaway Letters to Shareholders, and we credit Mr. Buffett for his teachings, many of which we embrace at Valuentum. Berkshire Hathaway remains an idea in the Best Ideas Newsletter portfolio.
Top News
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Apple’s shares hit a new all-time high this week, and we expect further upside. The high end of our fair value estimate of Apple stands at $180 per share. Apple’s stock page >>
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PayPal noted that it is looking to get into the retail trading space with a possible stock trading platform. We continue to like PayPal as one of our favorite ideas in fintech. To learn more about its latest developments, "Best Idea PayPal Is a Tremendous Enterprise with Ample Capital Appreciation Upside."
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The SEC noted that the controversial method of “payment for order flow (PFOF)” at Robinhood (HOOD) is “on the table” for a potential ban. A further cost-benefit analysis of the impact of PFOF on the consumer may be warranted, however. It remains to be seen how free brokerage commissions are harmful to the investor in an environment where advisory fees on index-fund driven asset-allocation strategies and financial plans could be north of 1-2% per annum, every annum.
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Aluminum prices set a 10-year high as recovering demand and curbed supply in China paved the way for appreciation. Investors should note that aluminum prices remain highly volatile through the course of the economic cycle. Shares of Alcoa (AA) are up 104%+ year-to-date.
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The coronavirus (“COVID-19”) pandemic has accelerated a number of digital developments including web conferencing. Zoom Video (ZM) put up an excellent fiscal second-quarter report, but in-line third-quarter guidance has some on Wall Street a bit skeptical of the company’s ability to continue to put up breakneck growth in a post-COVID-19 world. Investors should expect phenomenal expansion, in any case, the trajectory of which is the only question.
- At a recent meeting, the OPEC+ oil cartel agreed to keep their planned output increases going at a moderate pace through 2022 (the group aims to boost their collective oil output by 0.4 million barrels per day every month going forward after taking almost 10 million barrels of daily oil production off the market last year). Oil demand is recovering, albeit at an uneven pace, in the face of recovering demand for refined petroleum products and certain petrochemical products.
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Workers are on strike at several of Mondelez International's (MDLZ) manufacturing and distribution operations in the U.S., affecting production of Ritz crackers and Oreo cookies among other items, as union contract negotiations have proved unfruitful so far. Supply chain disruptions continue to grow across the country for a variety of reasons.
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Procter & Gamble (PG), maker of Charmin toilet paper and Bounty paper towels, is ramping up production to meet recent increases in U.S. demand for such items. Market research firm IRI recently noted that during the three-week period ended August 22, demand for paper products was up 8% versus year-ago levels.
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By the end of next year, Walgreens Boots Alliance (WBA) will become the latest to raise its minimum wage for hourly workers to $15 an hour. The move follows CVS Health (CVS) that noted it will raise its minimum hourly wage to $15 by July 2022. We’re viewing this as a bullish sign as higher worker incomes will only serve to strengthen the broader economic system.
- The popular media firm, Reddit, which has been the source of the meme-stock craze and WallStreetBets, is now looking to go public. It is reportedly seeking investment bankers for an IPO.
Economy
- Though nonfarm payroll growth disappointed for the month of August (235,000 vs 720,000 consensus), the U.S. labor market continues to improve, even in the face of headwinds created by the Delta variant of the COVID-19 pandemic. Weekly unemployment claims in the U.S. for the period ended August 28 fell by 14,000 to a seasonally adjusted 340,000 while the four-week average fell to a pandemic-era low of 355,000, a promising sign as enhanced federal unemployment benefits are set to expire soon.
- The Consumer Confidence Index dropped in August to 113.8, down from north of 125 in July. Lynn Franco of The Conference Board noted the following: "Concerns about the Delta variant—and, to a lesser degree, rising gas and food prices--resulted in a less favorable view of current economic conditions and short-term growth prospects. Spending intentions for homes, autos, and major appliances all cooled somewhat; however, the percentage of consumers intending to take a vacation in the next six months continued to climb. While the resurgence of COVID-19 and inflation concerns have dampened confidence, it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead."
- The Chicago Business Barometer, while fading a bit in June, still registered its highest quarterly reading in nearly a half century. According to the report: “Prices paid at the factory gate surged to the highest level since December 1979. Companies noted higher prices due to material shortages. Across Q2, prices rose to 90.6, also a near 41-year high.”
- The consumer-price index in the Eurozone showed the region's annual inflation rate grew to 3.0% in August 2021 from 2.2% in July 2021, according to data provided by Eurostat. Rising energy prices were key, and core inflation growth came in at 1.6% in August 2021 (excludes energy, food, alcohol, and tobacco).
- European bond yields have started to climb higher of late as inflation is now running north of the ECB's 2% target, and the Eurozone economy has shown signs of significant improvement from the worst of the COVID-19 pandemic. Investors are apparently speculating that the ECB may potentially begin to scale back its purchases of European government bonds in the near future.
Valuations
- We continue to work through a large number of stock report refreshes, and we'll notify members of the changes once they are complete.
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As with the past few 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 1.326%, 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
- There wasn't much news on the Fed or Treasury front this week, with the Jackson Hole Economic Symposium last Friday, August 27. We fully expect Fed and Treasury officials to remain highly accommodative.
ETF News
- During a recent interview on CNBC, Dave Nadig, CIO and Director of Research at market research service ETF Trends, noted that ETFs using options strategies are steadily growing in popularity with approximately $5 billion flowing into such products over the past half year or so.
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Based on data as of June 2021 cited by the WSJ, several prominent hedge funds are betting against ARK Innovation ETF (ARKK), which is run by Cathie Wood, CEO and CIO of ARK Invest. That includes Scion Asset Management which is run by Michael Burry, famous for his depiction in the book and movie "The Big Short."
- According to data provided by Morningstar, $705 billion net flowed into global ETFs during the first seven months of 2021, and US ETFs accounted for $519 billion of the net inflows. As of July 2021, the total global assets included in ETFs stood near $9.1 trillion.
- We continue to stress that we remain bullish on U.S. equities over the long haul.
On Deck
- The Exclusive was released yesterday, September 4. Next up: the first edition of the ESG Newsletter as well as the September edition of the Best Ideas Newsletter, both scheduled for release September 15.
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Subscribe to the new ESG Newsletter here >>
* The percentage of ideas highlighted in the Exclusive that have moved in the direction of our thesis (i.e. up for capital appreciation ideas and down for short idea considerations) through the current price or closed price, with consideration of cash and stock dividends. Success rates do not consider trading costs or tax implications.
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The world of medicine and therapeutics continues to evolve, with gene editing CRISPR technology offering the medical community an immense source of potential life-saving therapies over the years and decades to come. Vertex Pharma is well-positioned to capitalize on any potential CRISPR technology breakthroughs, and we continue to like shares of VRTX as an idea in the Best Ideas Newsletter portfolio. Should the company's experimental gene-editing therapy CTX001 get commercialized, that would provide Vertex Pharma with an incredibly powerful growth catalyst, complementing its existing portfolio of commercialized drugs that treat cystic fibrosis (‘CF’).
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Image Shown: An overview of Vertex Pharmaceuticals commercialized drug portfolio and pipeline. Image Source: Vertex Pharmaceuticals Inc – Second Quarter of 2021 IR Earnings Presentation. |
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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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