Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Our Thoughts on Apple Launching Its First-Ever 5G-Capable iPhone
Image Shown: Shares of Apple Inc have surged higher year-to-date. On October 13, Apple announced its first-ever lineup of 5G-capable iPhones along with a new smart home speaker offering HomePod Mini. While the 5G-capable iPhone announcement was largely expected, we appreciate the good news all the same. We include shares of Apple as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios and are big fans of the name. The HomePod Mini offering represents Apple’s way of staying competitive with similar offerings from Amazonand Alphabet.

Dollar General’s Promising Growth Outlook
Image Source: Dollar General Corporation – Fiscal 2019 Annual Report. We are big fans of Dollar General Corp and continue to like shares of DG as a holding in our Best Ideas Newsletter portfolio. After updating our discounted cash flow model, we increased the fair value estimate and the top end of our fair value estimate range for Dollar General. Under our “bull” case scenario, Dollar General now has a fair value estimate of $223 per share. Even if Dollar General surpasses the top end of our fair value estimate range, we prefer to let our winners run until their technicals turn against them. The latest 16-Page Stock Report covering Dollar General can be accessed here.

The Resilience of the US Digital Advertising Market and Alphabet
Image Shown: Shares of Alphabet Inc Class C shares, a top-weighted holding in our Best Ideas Newsletter portfolio, have performed very well over the past year. Going forward, we see room for significant capital appreciation upside as the digital advertising market has proven to be very resilient of late. To ride out the ongoing coronavirus (‘COVID-19’) pandemic, we continue to prefer large-cap tech companies with pristine balance sheets, strong cash flow profiles, and promising long-term growth outlooks. Ideally, we are searching for companies with outlooks that are supported by secular growth tailwinds, allowing for several winners in their respective end markets. Digital advertising is a prime example of a resilient high-quality market that is supported by secular growth tailwinds. Alphabet perfectly bits the bill given its ~$117.1 billion net cash position at the end of June 2020 (not including ~$13.0 billion in non-current non-marketable securities, and with no short-term debt on the books), and considering it generated over $14.0 billion in free cash flow during the first half of 2020 alone. We include Alphabet Class C shares as a top-weighted holding in our Best Ideas Newsletter portfolio, and the top end of our fair value estimate range sits at $1,795 per share of GOOG.

Facebook’s Promising Growth Outlook
Image Shown: Top-weighted Best Ideas Newsletter portfolio holding Facebook Inc has seen its stock price surge higher over the past year and we see room for considerably more capital appreciation upside. Facebook’s growth trajectory will depend in large part on how effective the firm is at generating more revenue per active user, especially in markets outside of the US & Canada. The emergence of a large global middle class should assist in these endeavors. We view Facebook’s growth outlook quite favorably and continue to be big fans of the social media giant. Facebook continues to be one of our favorite companies out there. Shares of Facebook are included as a top-weighted holding in our Best Ideas Newsletter portfolio. Our fair value estimate for FB sits at $284 per share, though should the firm outperform our “base case” assumptions, Facebook could carry a fair value estimate as high as $355 per share. We are enormous fans of Facebook’s net cash balance (~$58.2 billion in net cash at the end of June 2020), high quality cash flow profile (relatively modest capital expenditures are required to maintain a certain level of revenue), and incredibly promising long-term outlook that is supported by secular growth tailwinds.

Costco Closes Out Fiscal 2020
Image Shown: Shares of Costco Wholesale Corporation have been on an upswing over the past five years. The ongoing coronavirus (‘COVID-19’) pandemic has upended daily activities and encouraged households worldwide to stockpile consumer staples products. When Costco Wholesale Corp reported its fourth quarter fiscal 2020 earnings (16-week period ended August 31, 2020) on September 24, management noted that Costco’s worldwide foot traffic was down ~1% year-over-year last fiscal quarter though its average basket size was up ~13% year-over-year during this period. Households are apparently making the most out of every shopping trip in order to socially distance. Costco’s ancillary businesses, like its in-store opticians and food courts operations, were hurt by temporary closures last fiscal quarter, though its core business held up very well. Costco’s gas business took a hit from reduced travel demand, though its membership renewal rates were broadly flat versus the same period a year ago last fiscal quarter.

Update on TikTok Saga
Image Shown: Shares of Oracle Corporation, a holding in our Dividend Growth Newsletter portfolio, have performed well recently as excitement grows over the company’s improving long-term growth outlook. Oracle may soon become a strategic shareholder in the rising social media star TikTok, alongside Walmart Inc and various US-based venture capital firms. Some big news emerged this past weekend involving TikTok that we wanted to bring to our members attention. We covered this story in detail in late-August and mid-September, and encourage our members to check out those articles for additional background information. In brief, TikTok is currently owned by Beijing-based ByteDance, a company that has been accused of being an extension of China’s central government (meaning a security threat to Western interests) which in turn prompted the White House to push for a sale of TikTok’s US operations or an outright shutdown/ban of the app in the US. This past weekend, President Trump stated he approved of a proposed deal that would involve Oracle Corp and Walmart taking a strategic equity stakes in a newly created firm called TikTok Global, which will likely be based in the US.

Our Thoughts on Nvidia Acquiring Arm
Image Source: Nvidia Corporation – Nvidia to Acquire Arm IR Presentation. On September 13, Nvidia Corp announced it would acquire Arm Limited (a semiconductor company with a heavy focus on smartphones and gaming devices) from SoftBank Group Bank Corp. and SoftBank’s Vision Fund through a transaction valued at approximately $40 billion. That deal will see Nvidia pay SoftBank and the Vision Fund $12.0 billion in cash (including $2.0 billion payable at signing), $21.5 billion in Nvidia stock (equal to 44.3 million shares at the time of the announcement, though that figure could change as it depends on NVDA’s average closing price over the last 30 trading days), and the deal has an earn-out component that could see Nvidia pay an additional $5.0 billion in cash or stock if certain financial hurdles are met. Furthermore, Nvidia will issue $1.5 billion in equity to Arm’s employees if the deal closes.

Oracle Appears to Be Front-Runner for TikTok’s US Assets, Though There Are Caveats
Image Shown: Shares of Dividend Growth Newsletter holding Oracle Corporation jumped higher on September 14 as the tech giant is reportedly getting closer to acquiring TikTok’s operations in the US and potentially elsewhere, though there are a lot of unknowns at this point. Reportedly, Oracle Corp has submitted a proposal to become the “trusted technology partner” of the popular yet controversial social media app TikTok, particularly at TikTok’s US operations (and possibility some other countries as well). TikTok is currently owned by Beijing-based ByteDance. We will likely know more about a potential deal sooner rather than later, though there are a lot of unknowns at this point as it does not appear Oracle’s proposal is a straightforward acquisition.

Oracle’s Transformation Continues
Image Shown: Shares of Dividend Growth Newsletter portfolio holding Oracle Corporation are on an upward trajectory after the tech giant reported that its strategic transition towards cloud-based offerings was going well during its latest earnings report. On September 10, Oracle Corporation reported first quarter fiscal 2021 earnings (period ended August 31, 2020) and we liked what we saw. In constant currency terms, the company’s ‘cloud services and license support’ and ‘cloud license and on-premise license’ segments reported year-over-year sales growth of 2% and 8%, respectively. We appreciate that Oracle’s cloud-oriented businesses are finally starting to gain some real traction in this lucrative and hypercompetitive market. Additionally, Oracle’s strong performance occurred in the face of the ongoing coronavirus (‘COVID-19’) pandemic, highlighting the resilience of its business model and the company’s ability to rise to the occasion.

Good News for Microsoft
Image Source: Microsoft Corporation – Fourth Quarter of Fiscal 2020 IR PowerPoint Presentation. Microsoft offers investors a combination of income growth and capital appreciation upside. Shares of MSFT yield ~1.0% as of this writing and given its large net cash position and high quality cash flow profile, we see room for Microsoft to push through annual double-digit (per share) dividend increases over the coming years. Our fair value estimate for Microsoft sits at $216 per share (above where shares are trading at as of this writing) with room for upside as the top end of our fair value estimate ranges sit at $259 per share.