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 35,120.08 on Friday. The DIA fell 1.19% on the week as a result of modest profit taking in blue chip stocks.
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This week, the S&P 500 marked a doubling from its panic COVID-19 intraday low in March 2020, representing the fastest time the market has doubled since the 1930s. The book Value Trap noted roughly a year before COVID-19 shocked the world that volatility would increase significantly, and we've witnessed the fastest bear and bull markets in decades during the past 20 months while meme-stock volatility has baffled traders and investors alike. After reaching an all-time high Monday, the SPY fell -0.57% on the week. The S&P 500 closed at 4,441.67.
- Despite the preponderance of bull-and-bear battleground stocks, the NASDAQ continues to prove to be the most resilient across market indices given the absence of banking and commodity producers and thanks to the strong net cash rich and free cash flow powerhouses that make up a good chunk of the index. The QQQ reached an all-time high Monday, but finished off -0.3% on the week. The NASDAQ closed at 14,714.66.
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We continue to be huge fans of the areas of large cap growth and big cap tech given the moaty, net cash rich, secular growing, and free-cash-flow generating powerhouses that make up these indices. Large cap growth and big cap tech entities may fare well in an inflationary environment thanks to their product pricing power. Microsoft (MSFT), in particular, is flexing its muscles, raising subscription prices on its Office 365 suite. View Microsoft's stock page >>
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The cryptocurrency market remains very healthy, even as the asset class lacks free cash flow support and suffers from "greater fool" tendencies. Bitcoin continues to work its way to $50,000, and we expect the SEC to approve a variety of cryptocurrency-related ETFs in the coming months to years. Crypto-exchange platform Coinbase (COIN) announced that it will add crypto to its balance sheet and allocate some of its profits in support of crypto. Though it may pose the biggest risk to long-term economic health given the introduction of a future potential currency crisis, crypto is here to stay whether we like it or not.
- This week, a T206 Honus Wagner baseball card sold for $6.6 million, breaking the record for the highest-selling sports card in history. Previously, a 1952 Topps Mickey Mantle and a 2003-2004 Upper Deck Exquisite Collection Lebron James sold for $5.2 million. The alternate asset markets remain healthy.
Top News
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The US botched its exodus from a 20-year long war in Afghanistan leaving the country to Taliban fighters and potential terrorists. Billions of dollars of US-funded state of the art military equipment was left behind as the Afghan army disbanded. With Afghanistan home to plentiful rare-earth minerals, VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) could see some investor interest in the near term as the world struggles to understand the military debacle, perhaps the worst by US high command in over a century.
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China continues its regulatory crackdown on the tech sector. Shares of some Chinese equities look cheap from a discounted cash-flow standpoint (e.g. BABA), but we’re not going near them until more clarity can be had. Consistent with the Valuentum methodology, we’d like to see a sustained rebound in their equity prices before considering them in the Best Ideas Newsletter portfolio. The market must eventually agree with our undervalued assessment of shares, as evidenced by an appreciating stock price for any call to be correct. We see no need to rush to catch falling knives and prefer to let the market tell us through bottoming share prices when its time to consider shares of undervalued equities.
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Macy’s (M) and Kohl’s (KSS) continue to labor through the post-COVID-19 economic recovery, but the long term remains ominous for the pair. The department store business model continues to lose share from e-commerce and specialty retailers. Amazon (AMZN) is also considering opening large physical retail operations that would largely resemble department stores, starting with locations in California and Ohio. Read about the recovery at Macy's and Kohl's here >>
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Shares of sporting goods retailers were helped by Foot Locker's (FL) outlook, including Dick's Sporting Goods (DKS), one of our favorite retail dividend growth plays in the Dividend Growth Newsletter portfolio. Home Depot (HD), Walmart (WMT) and Target (TGT) reported solid quarterly results this week. Home Depot is another one of our favorite big box retail dividend growth plays, and it’s difficult to argue that surging housing prices haven’t made its outlook even brighter. Home improvement retailers continue to be as resilient as it gets, showcasing perseverance during the Great Financial Crisis and throughout the COVID-19 meltdown. More on Home Depot's quarterly performance >>
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We continue to like big cap tech. On August 18, Cisco Systems (CSCO) reported fourth quarter earnings for fiscal 2021 (period ended July 31, 2021) that beat consensus top- and bottom-line estimates. Cisco Systems also offered guidance for both the first quarter of fiscal 2022 along with full-year guidance for fiscal 2022, breaking with tradition (usually the company does not offer full fiscal year forecasts). Cisco Systems is included as an idea in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios. Read more about the quarterly report here >>. Nvidia (NVDA) is one for the watch list. Its stock page can be found here >>
- The US is getting ready to offer booster shots of approved COVID-19 vaccines to most Americans according to health officials, including U.S. Surgeon General Dr. Vivek Murthy. This is in the wake of the "delta" variant and rising confirmed cases of the pandemic across the nation, with the booster shots expected to become widely available starting this upcoming September.
Economy
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The energy sector (XLE) continues to face pressure. The OPEC+ oil cartel does not intend to raise crude oil supplies at a faster pace than what the group had already agreed upon after the Biden Administration recently called on the group to do so to ease inflationary pressures. Crude oil prices are also lower as a result of concerns over reduced demand due to the COVID-19 "delta" variant spread and a strengthening US dollar. WTI and Brent prices (Oct) are now trading at $62.14/bbl and $65.18/bbl, respectively. Though a much smaller part of the S&P 500 these days, energy still plays an important role in a diversified equity portfolio. ExxonMobil Continues to Optimize Its Asset Base >>
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The Commerce Department reported that US retail sales fell by 1.1% in July 2021 versus June 2021 levels, though the drop narrowed to 0.4% when excluding autos. Chip shortages continue to plague the auto sector, with Toyota (TM) and Volkswagen (VWAGY) warning about ongoing potential production cuts.
- Weekly jobless claims hit their lowest level since March 14, 2020, for the week ending August 14, with the advance figure for seasonally adjusted initial claims coming in at 348,000, down 29,000 from the prior week’s revised level.
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Aluminum prices are on the rise as supply challenges in China rear their ugly head, with aluminum futures reaching the highest price since June 2011. However, concerns over Chinese steel production have driven weakness in iron ore and copper prices. Prices for near term copper futures have fallen meaningfully from their recent highs seen in May 2021, though copper futures are still trading at levels not seen in years.
Valuations
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Though single-year snapshot valuation multiples continue to be elevated relative to history, bears fail to consider the impact of the Trump tax cuts, all-time low benchmark rates, material and unprecedented government stimulus, a tremendous wealth effect from the housing market and appreciation in alternative asset prices, as well as the net-cash-rich balance sheets and strong free-cash-flow profiles that define much of the S&P 500. We believe the market deserves to be valued on a comparatively high earnings multiple given these factors and when combined with still-recovering earnings from the COVID-19 meltdown. We continue to believe the areas of big cap tech and large cap growth offer the best ideas for consideration, including Facebook (FB), Alphabet (GOOG), and Microsoft, among others.
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As with last week, 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 1.255%, 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
- Federal Reserve officials are leaning towards tightening monetary policy soon by scaling back the purchase of US Treasuries and mortgage-backed securities, according to minutes released from the Fed's July 27-28 meeting. Despite the skepticism of the Fed held by many market participants, we highly doubt the Fed will take any action to cause any market dislocations or put an end to one of the best bull markets in financial history.
- Boston Fed President Eric Rosengren told CNBC this past Monday that he is prepared to see the Fed begin tapering its monthly purchases of US Treasuries and mortgage-backed securities by October or November. Furthermore, he stressed that this proposed tightening of monetary policy should occur no later than December during the interview.
- Minneapolis Fed President Neal Kashkari said at a conference in Montana that the Fed’s reduction in asset purchases is “a matter of when, not a matter of if,” and that any moves will be economic data-driven. Dallas Fed President Robert Kaplan indicated that he expects unemployment to fall to 4.5% by the end of 2021.
- We expect the Fed and Treasury to continue to support markets in the long run.
ETF News
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Michael Burry of Scion Asset Management, perhaps best known for being depicted in the movie The Big Short, has taken a short position in Cathie Wood’s ARKK ETF, as of the second quarter. We believe that both could be right. In the short term, it’s possible some of the extended, next-generation innovative companies could show outsized volatility. In the longer run, however, we remain bullish on many equities that make up the NASDAQ.
- AdvisorShares plans to launch a leveraged ETF called the Poseidon Dynamic Cannabis ETF [PSDN]. We generally dislike leveraged products and aren’t too big of fans of the industry structure of the cannabis industry, relatively speaking.
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Barstool Sports’ founder Dave Portnoy backed ETF, the VanEck Vectors Social Sentiment ETF (BUZZ), which offers exposure to stocks that have positive online/social sentiment, has accumulated over $200 million in assets since its inception in early March.
On Deck
- The September editions of the Dividend Growth Newsletter and High Yield Dividend Newsletter are scheduled to be released September 1.
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If you're interested in ESG investing, please be sure to add the service to your membership. The inaugural edition of the Valuentum ESG Newsletter will be released September 15. Subscribe >>
- Add the Exclusive >>
- 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.
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On August 12, The Walt Disney Company reported third quarter earnings for fiscal 2021 (period ended July 3, 2021) that beat both consensus top- and bottom-line estimates. Disney’s video streaming services reported a sharp uptick in paid subscribers while the financial performance of the segment that includes its theme park and resort operations staged an immense rebound. We continue to be huge fans of Disney’s capital appreciation potential and include shares of DIS as an idea in the Best Ideas Newsletter portfolio.
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Image Shown: The Walt Disney Company’s video streaming growth ambitions showed signs of significant progress last fiscal quarter. Image Source: The Walt Disney Company – Third Quarter of Fiscal 2021 Earnings Press Release. |
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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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