• We wish you a restful Memorial Day weekend with family and friends. The U.S. stock markets will be closed for Monday, May 30, in honor of the holiday. The periodic weekly screener found under the 'Stock Screens" column on the left column of the website via the link, "Download Weekly Stock Screener (xls) -- login required" will be refreshed Tuesday evening due to the holiday.
• For those that missed our latest take on why we're still bullish on equities over the long haul, and why we're not expecting anything like the Great Financial Crisis or the COVID-19 meltdown, please see here. Pessimism seems to have reached extreme levels, and valuations for some of the strongest, competitively-advantaged, net cash rich, secular growth powerhouses remain very attractive. For those interested in stylistic exposure, large cap growth remains our favorite area.
• The U.S. stock market is getting back on track, and we like what we saw regarding price activity last week. Stock market prices are forward looking and reflect future expectations (as in the enterprise, discounted cash-flow construct), and we think the stock market rebound last week speaks to improving expectations of company fundamentals and a stronger outlook in the coming months. We're staying positive and view the stock market sell-off so far in 2022 as a normal course of a multi-year stock market cycle. The SPDR S&P 500 Trust ETF (SPY) advanced ~6% during the past week. The SPDR Dow Jones Industrial Average ETF (DIA) also put up a very strong week, advancing over 5%. The Invesco QQQ ETF (QQQ) was the strongest performer out of the three major ETF benchmarks, jumping more than 7%.
• Many are aware that the U.S. stock market has given up much of its gains so far in 2022, but we think it is important to reiterate that the broad stock market, as measured by the SPY, is still up a very nice 70%+ on a price-only basis the past five years, according to data from Seeking Alpha. These are some very strong returns, even in the face of a breakdown in ultra-speculative stocks, inflation fears, worries over the Fed, the pace and magnitude of interest rate hikes, the health of the global economy, rising energy resource prices as well as geopolitical uncertainty about the war in Ukraine. The stock market has been incredibly resilient in this context.
• As we talked about in our latest market commentary, and it may be worth repeating here, the merits of modern portfolio theory with respect to mixing various asset classes in a portfolio to "smooth" volatility continues to be challenged. Jason Zweig, journalist at the Wall Street Journal wrote in a recent article, "It's the Worst Bond Market Since 1842...," noting that "the broad bond market has performed worse so far in 2022...than in any complete year since 1792 except one. That was all the way back in 1842... (sourcing data from McQuarrie at Santa Clara University)." Once again, be careful relying on past correlations to achieve financial goals, particularly when combining various asset classes. Correlations can, do and should change over time!

• The energy sector continues to be among the leading areas in terms of performance thus far in 2022, and the timely "additions" to the simulated newsletter portfolios of Exxon Mobil (XOM) and Chevron (CVX) in October of last year has cushioned the newsletter portfolios quite well in the face of a rather large stock market drawdown this year. We're, of course, never happy when the broader market faces headwinds, but it's been great to see the methodology working, given the opportunistic "entry points" on these energy giants a number of months before the start of the year. On a price-only basis, shares of the Energy Select Sector SPDR ETF (XLE) have leapt an incredible ~50% this year, with Exxon Mobil and Chevron jumping at a similar return clip so far in 2022. Chevron hit an all-time high last week, too! Shares of Newsletter Portfolio Idea Exxon Mobil Are Booming Higher! >> Newsletter Portfolio Idea Chevron Focused on Returning Cash to Shareholders >>
• Continuing with its acquisitive streak, the semiconductor and enterprise software giant Broadcom (AVGO) announced on May 26 that it would acquire hybrid cloud services provider VMware Inc (VMW) through a cash-and-stock deal that values VMware at ~$61 billion. Additionally, Broadcom will assume ~$8 billion in net debt from VMware. This follows in the footsteps of Broadcom’s $18.9 billion deal to acquire CA Technologies in 2018 and its $10.7 billion deal to acquire the enterprise security business of then-Symantec, now NortonLifeLock Inc (NLOK), in 2019. Under the leadership of Hock Tan, Broadcom’s CEO since 2006, the company has built itself into a tech powerhouse through a series of acquisitions. In 2018, Broadcom formally ended its attempt to acquire Qualcomm in the face of antitrust concerns and adjusted its strategy accordingly. By growing its enterprise software business, namely through acquisitions, Broadcom was largely able to avoid antitrust concerns. However, it remains to be seen if regulators will give their blessing to this pending acquisition. Read more: Broadcom Buying VMware as "Empire Building" Streak Continues >>
• Valuentum presented to the Greensboro chapter of the American Association of Individual Investors (AAII) on May 21, and the presentation slide deck can be found at the following link. Valuentum was immensely pleased with the number of AAII members that dialed in to the web conference, and we continue to be active across chapters of the AAII. Contact your local AAII chapter coordinator, if you'd like to see Valuentum in town. We'd love to visit!
• Best Ideas Newsletter portfolio idea Dollar General (DG) soared last week thanks to strong results from it and rival Dollar Tree (DLTR). Both companies may be operating at the sweet spot of the economy at the moment, as consumers may look to trade down in price for certain items in the face of elevated inflation. We continue to like Dollar General as a great idea in this market environment, and the company has held up quite well so far in 2022. Our fair value estimate for shares of DG stands at $234 per share, modestly above the last close of the company's equity. Dollar General's stock page >>

• The 10-year Treasury yield stands at ~2.74%, as of the time of this writing, advancing significantly since the start of the year, but it still remains near all-time lows, and is far away from the massive double-digit rates that came to define much of the early 1980s, when inflation was roaring. A read of Warren Buffett's famous Op-Ed in the New York Times during the depths of the Great Financial Crisis may assuage some concerns in this area, too. Here's an excerpt: "...in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank." It's good to read that Op-Ed from time to time in order to not get too swayed in any one direction by near-term news.
• There was good news on personal spending on Friday, May 27! The Bureau of Economic Analysis released a report for the month of April 2022 indicating that personal spending came in better than expectations and the personal consumptions expenditures (PCE) price index advanced lower than expected. This eased the market's worries about the health of the consumer and offered some easing of concerns about recent inflationary measures. We think it's likely that inflationary concerns may be overblown, more generally, and the PCE price index showed little change in the first quarter of 2022 from the growth rate in the fourth quarter of last year. We think this is good news for market sentiment.
• News regarding pending home sales wasn't great, but the declines can only be expected given the advance in mortgage rates the past few months. Still, it's good to see continued home price appreciation because this has a direct impact on wealth and the capacity for consumer spending. Here's more from the National Association of Retailers: "With mortgage rates rising, Yun forecasts existing-home sales to wane by 9% in 2022 and home price appreciation to moderate to 5% by year's end." We like the wealth effect that housing price appreciation feeds into the economy and stock market.

• Prices of many of the most speculative stocks have fallen aggressively during the past few months, but this only points to the importance of individual stock selection and the hard work that financial advisors and individual stock selectors are doing. Keep going! Stocks, themselves, remain attractive long-term considerations, and we remain bullish on the long haul.
• According to FactSet's latest report dated May 27, 2022, "the forward 12-month P/E (price-to-earnings) ratio for the S&P 500 is 17.1x. This P/E ratio is below the 5-year average (18.6x)." The 17.1x mark may seem unattractive in light of the generally accepted ~15x measure as a "fairly valued" historical point estimate, but today's companies are far healthier than in year's past in light of the massive net cash positions they've built during this strong bull market. Net cash is a meaningful contributor to estimates of intrinsic value, and net cash is not adequately captured within the P/E ratio, particularly in an environment where cash-equivalents contribute very little in interest income to drive earnings these days.
• We recently updated our fair value estimates for the Oil and Gas Complex Industry. You can download the refreshed reports at the following link: https://www.valuentum.com/articles/our-reports-stocks-the-oil-and-gas-complex-industry

• The Fed released the minutes on May 25 from their May 3-4 meeting, and the market rallied nicely on the information. Again, we think markets are poised to make a big run in the coming months, as investor pessimism seems way overblown at the moment. Key takeways on inflation from the minutes: "Market- and survey-based measures of U.S. inflation expectations continued to project a significant deceleration in inflation in the coming years. Nonetheless, far-forward inflation compensation rose over the period, and market participants remained attentive to the risk that, in bringing inflation back to 2 percent, the Committee would need to tighten by more than currently expected." Key takeaways on the federal funds rate from the minutes: "For the current meeting, federal funds futures implied around 50 basis points of policy rate tightening, and Open Market Desk survey respondents assigned an average probability of 80 percent to that outcome. The median Desk survey respondents also projected 50-basis-point increases in the target range at the two following meetings and another 125 basis points of increases by the middle of next year, bringing the projected midpoint of the target range to a peak of 3.13 percent—substantially higher than in previous surveys. Market participants continued to note significant uncertainty regarding the economic outlook and the degree of policy tightening ahead. This uncertainty was reflected in the dispersion in survey respondents' average probability distribution for the target range at the end of 2023." We view this as just Fedspeak.

• Up next is the Dividend Growth Newsletter and the High Yield Dividend Newsletter, both to be released on June 1.
• Please enjoy the holiday Memorial Holiday weekend. Always our very best to you and yours.