November 21, 2021
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
 
  • Due to the Thanksgiving holiday week in the United States, there will not be a Valuentum Weekly for next week, the week of November 21-27. Please be sure to enjoy this wonderful time of year with friends and family. Happy Thanksgiving!
  • The arbitrary area of “growth” continues to outpace that of its arbitrary counterpart “value,” and we’re not surprised at all, as we think many “growth” stocks are the ones that are truly undervalued in today's market, particularly in the segment large cap growth, "Large Cap Growth Has More Room to Run." Year-to-date, the Vanguard S&P 500 Growth ETF's (VOOG) price return of ~32% has outpaced the Vanguard S&P 500 Value ETF's (VOOV) return of ~18.5%.
  • Some of our favorite ideas for capital appreciation potential remain top-weighted considerations in the Best Ideas Newsletter portfolio, Alphabet (GOOG) and Facebook (FB), now Meta Platforms. A couple of our favorite long-term dividend growth ideas are Apple (AAPL) and Microsoft (MSFT), and we continue to favor the area of large cap growth in our new ESG Newsletter portfolio (more here). GOOG has advanced more than 70% so far this year, while FB has leapt more than 26%, both exceeding the return of the SPY, on a price-only basis. We remain bullish on the equity markets and believe that asset allocators that drift away from stock selection will continue to suffer as they have for the better part of the past 20 years. Asset Allocators Fail, Advisors Should Pick Stocks, Save Investors $34 Billion Annually >>
  • We do not believe the stock market is in a bubble. Though comparisons of the crypto market to the dot-com bubble may be appropriate, today's largest companies are as strong as ever with huge net cash positions and tremendous free cash flow. Stocks for the long haul!
Image: Happy Thanksgiving! Image Source: Tim Sackton
Top News

  • Back in October, we highlighted that CyrusOne (CONE), a data center real estate investment trust ('REIT') included as an idea in the High Yield Dividend Newsletter portfolio, was considering selling itself. On November 15, the REIT announced that the private equity firm KKR & Co Inc and the infrastructure investment fund Global Infrastructure Partners (‘GIP’) will be buying the REIT for $90.50 per share in cash. This is great news. High-Yielding Idea CyrusOne Gets Bought! >>
  • Shares of Best Ideas Newsletter portfolio holding and Dividend Growth Newsletter portfolio holding Apple Inc. (AAPL) boomed higher last week on reports that it would have an autonomous vehicle by 2025. We're excited by developments, and even if Apple doesn't deliver on this ambitious goal, we like the net-cash-rich balance sheet and future free cash flow potential at the company, regardless. Apple's stock page >>
  • On November 1, Realty Income Corp (O) completed its stock-for-stock merger with VEREIT, a deal that according to an April 2021 press release had an enterprise value of ~$50 billion. When the merger closed, shareholders of Realty Income owned ~70% of the new entity and shareholders of VEREIT owned the remainder. Realty Income is a real estate investment trust (‘REIT’) with a vast commercial property portfolio that pays out monthly dividends. We are big fans of the REIT and include Realty Income as an idea in the Dividend Growth Newsletter portfolio. Shares of O yield ~4.0% as of this writing. Dividend Growth Idea Realty Income Completes Transformation, Further Expands Overseas >>
  • Over the next decade, dividend growth idea Qualcomm (QCOM) expects its addressable market opportunity will grow by $100 billion, reaching $700 billion, according to guidance put out during a big Investor Day event held on November 16. We appreciate Qualcomm’s ever-expanding growth runway and include shares of QCOM as an idea in the Dividend Growth Newsletter portfolio. On November 3, Qualcomm reported fourth-quarter fiscal 2021 earnings (period ended September 26, 2021) that beat both consensus top- and bottom-line estimates. Additionally, Qualcomm provided strong guidance for its first-quarter fiscal 2022 in conjunction with that report. Shares of Qualcomm have been off to the races since then, and as of this writing, shares of QCOM yield ~1.5%. Shares of Dividend Growth Idea Qualcomm Surge Higher >>
  • On November 17, Cisco Systems (CSCO) reported first quarter earnings for fiscal 2022 (period ended October 30, 2021) that missed consensus top-line estimates but beat consensus bottom-line estimates. Shares of CSCO fell initially after its latest earnings update was published due to its near-term guidance coming in a tad softer than expected, though we caution that this is primarily due to supply chain headwinds negatively impacting Cisco Systems and the networking hardware industry more broadly. As global health authorities work towards bringing the coronavirus (‘COVID-19’) pandemic to an end worldwide, the supply chain situation should improve going forward. We include Cisco Systems as an idea in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios. As of this writing, shares of CSCO yield ~2.6%. Cisco Systems Posts Solid Earnings Update; Supply Chain Hurdles Impacting Near Term Outlook >>
  • Demand for home improvement activities appears to be holding up well, even as lockdown measures related to the COVID-19 pandemic ease up across North America. The outlook for housing activity and construction demand more broadly is quite bullish for several reasons including the need for US housing supply to catch up with new household formation and the large $1+ trillion US infrastructure fiscal stimulus bill that was recently signed into law. Home Depot (HD) has exposure to this upside via the Pro side of its home improvement retailing operations and its recently enlarged MRO business. We view Home Depot’s dividend growth trajectory quite favorably and continue to like shares of HD as an idea in the Dividend Growth Newsletter portfolio. In light of better-than-expected fundamental performance of late, we may tweak our cash flow valuation model of the firm. As of this writing, shares of HD are trading near the top end of our fair value estimate range (which currently sits at $397 per share). Shares of Dividend Growth Idea Home Depot Roar Higher After Latest Earnings Update >>
  • On November 19, the US House of Representatives passed an enormous ~$2 trillion fiscal measure covering social spending and climate change issues along with changes to the US corporate income tax code along a party-line vote. The measure faces an uphill climb in the US Senate as key senators have publicly and privately (according to Politico) stated their objection to aspects of the bill that recently passed the House.
  • Sonos, Inc. (SONO), whose stock has advanced ~35% year-to-date, reported decent calendar third-quarter (fiscal fourth-quarter) results November 17, and the company guided fiscal 2022 revenue growth in the range of 12%-16%, a pace the market seemed to cheer. We’ve been watching the audio-product maker for some time as we find its product line-up quite interesting. Read our November 2020 write-up on the company >>
  • We have an interesting cryptocurrency-related idea to consider. Hut 8 Mining (HUT) is better positioned to capitalize on the cryptocurrency craze, in our view, than many of the other firms out there that are mining and continuously selling off their bitcoin holdings or actively buying bitcoin on the open market seeking to flip those alternative digital assets for a profit down the road (the “greater fool theory” in action). We are keeping an eye on Hut 8 Mining, though in this particular case, we must caution that the intrinsic value of alternative digital currencies like bitcoin is zero. The value is entirely in the eyes of the beholder. To read more >>
  • We view Johnson & Johnson's (JNJ) capital appreciation and dividend growth upside potential quite favorably. The top end of our fair value estimate range sits at $206 per share of JNJ. In this article, we cover Johnson & Johnson's stellar financial performance, recent guidance boosts, and some of its legal hurdles. Johnson & Johnson announced on November 12 that it would spinoff its consumer-facing operations while retaining its medical devices and pharmaceutical operations. Update: Johnson & Johnson Is A Stellar Company With Ample Upside >>
  • Boeing (BA) noted last week that production of the 787 Dreamliner will be reduced as it works through a number of "defects." The company retains a debt-heavy balance sheet, and the flexibility of program accounting doesn't offer the kind of transparency we like with a top idea. Investors should be cautious on Boeing stock. The company's stock page >>
  • If you are looking for gifts for the upcoming holiday season, the second edition of the book Value Trap could be a great stocking stuffer. Order Value Trap on Amazon >>
 
Economy
 
  • All eyes remain focused on the pace of inflation, but we're not worried. We believe the 10-year Treasury rate is the best indicator of future expectations regarding inflation, and it remains quite benign at 1.548%. Pricing power and ultra-low interest rates may continue to serve as a boon for equity prices!
  • The Federal Reserve recently reported that US industrial production rose by 1.6% in October 2021 versus the previous month and was up 5.1% versus October 2020 levels, with manufacturing output jumping higher by 1.2% last month due to a recovery in automobile production. As we have stated many times in the past, we remain bullish on the US economy.
 
Valuations
 
  • We recently refreshed the reports on stocks in the Technology Giants industry. Reports include FB, AAPL, GOOG, AMZN, MSFT, CSCO, V, MA, PYPL, INTC, ORCL, QCOM, TWTR, IBM, ADBE, NVDA, CRM, AMD, AVGO, BABA, BKNG, BIDU, TSM, FFIV, TXN, EBAY, ADP, PAYX, MU, KFY, MAN, KLAC, LRCX, AMAT, ADI, SIMO. Access them here >>
  • Readers will also find new 16-page reports on CPRT and FISV. Our coverage universe continues to move around quite a bit these days to meet client demand as well as new issues on the market.
 
Fed and Treasury
 
  • According to the WSJ, Treasury Secretary Janet Yellen recently sent a letter to members of Congress noting that the US federal government would run out of money and maneuvers to meet its financial obligations by December 15. The U.S. is once again facing a contentious fight over raising the federal debt ceiling after a stopgap measure was passed in early October 2021 to buy more time on this front, which raised the debt ceiling by $480 billion.
  • Three Democrat US Senators have publicly stated their opposition to President Biden reappointing Federal Reserve Chairman Jerome Powell as Chairman of the Fed, with those three senators being Jeff Merkley (OR), Sheldon Whitehouse (RI), and Elizabeth Warren (MA) according to the WSJ. We are monitoring events at the Fed, though we expect that Mr. Powell will keep his current job.
  • Chicago's Fed President Charles Evans noted that he expects the U.S. unemployment rate to fall below 4% in 2022 when speaking at the BKD Financial Services Virtual Symposium.
 
ETF News
 
  • What a week for tech stocks! The Invesco QQQ ETF (QQQ) hit a record high this week. Though there are areas of froth in the crypto market, big cap tech and large cap growth remain two of our favorites. GOOG and FB remain significantly underpriced, while entities such as AAPL and MSFT have huge net cash positions and tremendous free cash flow growth. During its fiscal 2021, Apple generated more than $90 billion in free cash flow alone! The largest big cap tech names have very firm foundations.
  • Leveraged ETFs for airlines are on the horizon. Direxion Shares filed with the SEC to list the Direxion Daily Aviation Bull 2X Shares and the Direxion Daily Aviation Bear. We're not at all interested in trading airline stocks, but these ETFs are nonetheless coming down the pipe, and we wanted you to know.
 
On Deck
 
  • We look forward to releasing the second two options ideas for the month of November in the coming week, and the Dividend Growth Newsletter and High Yield Dividend Newsletter on December 1.
  • Thanksgiving week is upon us, and we're looking forward to analyzing the sales data behind Black Friday and Cyber Monday. We're expecting a very strong holiday sales season.
  • Valuentum Weekly archives >>
We disclose the holdings of the portfolio of the Best Ideas Newsletter in this article. This portfolio can always be found in each edition of the monthly Best Ideas Newsletter.
Image Source: Valuentum
We disclose the holdings of the portfolio of the Dividend Growth Newsletter in this article. This portfolio can always be found in each edition of the monthly Dividend Growth Newsletter.
Image Source: Valuentum
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Valuentum Securities, Inc.
info@valuentum.com
www.valuentum.com
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