Valuentum Exclusive Analysis for the Discerning Investor

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Chinese Stocks Getting Hammered
Image shown: A confluence of factors are driving Chinese stocks lower, not the least of which is heightened regulatory concerns.Investing is really simple. You don’t need to find terribly underfollowed ideas to do well, just mispriced ones. For example, Alphabet is up over 80% the past 52 weeks, and the company has been a top weighting in the Best Ideas Newsletter portfolio for some time. Facebook has also been an outperformer. There’s no need to make things complicated. Focus on undervalued stocks on a DCF basis that have strong market support through relative strength or a solid technical breakout--and stay away from those net-debt heavy, low valuation multiple value traps!

Best Ideas Newsletter Portfolio Soars!
Image shown: The top weighted ideas in the Best Ideas Newsletter portfolio continued to lead the charge during the trading session Friday, July 23. Facebook and Alphabet rallied on favorable reports from social media peers, while Vertex continues to recover thanks in part to encouraging views on CRISPR technology, while Visa looks to be back on track. DPZ had a strong trading session July 22 and experienced some profit taking. Image source: Seeking Alpha. The digital economy is here to stay, and online advertising is not a luxury but rather a necessity. Though many aren’t too big of fans of Facebook, the company, its stock continues to be severely underpriced, as its Shops and Dating features remain under-monetized, while potential at other properties such as Messenger and WhatsApp remain in the early innings, in our view. Our valuation of Facebook doesn’t include the tremendous promise that it holds in other areas of nascent growth and largely only considers Facebook/Instagram, meaning there is further upside potential beyond our fair value estimate range. Alphabet is benefiting from a lot of similar trends.

Netflix’s Free Cash Flow Remains Poor While Competition Is Intensifying
Image shown: Netflix continues to experience robust growth and improvements in its operating margin, but free cash flow remains weak. Image source: Netflix’s second-quarter earnings shareholder letter. Without a doubt, Netflix has been one of the best-performing stocks the past decade, but we have a hard time making the case for the firm, especially in light of the much better balance sheets, competitive profiles and free cash flow generation at Facebook, Apple, and Alphabet. Our fair value estimate for Netflix stands just shy of $500, and we think the company’s shares will be rangebound until the next catalyst, which we think will be a negative one, given heightened competition. We remain on the sidelines.

Robotic-Assisted Surgery Idea Intuitive Surgical Rebounds Nicely in Second Quarter
Image shown: Intuitive Surgical benefits from a razor-razor blade business model and a large installed base. The more systems it places, the more instruments and accessories are sold. We expect clinical applications for robotic-assisted surgeries to continue to increase. Image source: Intuitive Surgical's second-quarter earnings press release. We’re huge fans of Intuitive Surgical’s razor-razor blade business model (systems/instruments and accessories), and the company remains one of the most innovative in our coverage. We expect clinical applications for robotic-assisted surgeries to increase over time, and Intuitive Surgical is at the sweet spot of this care. Free cash flow generation is consistently robust at the firm, and the company’s balance sheet is very net cash rich. Intuitive is worth a look at the right price, in our view.

Still Bullish -- Stocks for the Long Run!
Image shown: The 10-year Treasury rate has fallen quite a bit since March of this year, suggesting that inflation expectations have come down in recent months. Image source: CNBC. The S&P 500, Dow Jones Industrial Average and Nasdaq continue to hover near all-time highs, and all appears well. We maintain our bullish take on the markets and believe that we are in the early innings of a long bull market that started following the washout March 2020 during the depths of the COVID-19 meltdown. Stock bull markets tend to average about 4.4 years in duration, with the last one enduring ~11 years, while bear markets are very abrupt, lasting only 11.3 months on average, the last one a very short 1.1 months, according to data from First Trust. We’re about 15 months into this new stock bull market, and we continue to believe increased equity exposure may better serve investors of all types going forward, through both the best of times and the worst of times.

Best Idea Facebook Soars!
Image Shown: Facebook's shares soared during the trading session June 28 as the company received a favorable ruling regarding a couple complaints that tried to make the case it is operating as a monopoly. On June 28, a federal judge ruled that a couple antitrust cases lacked legal merit in their attempt to peg Facebook as a monopoly. We view the development positively, and while there is a possibility that amended arguments could be filed, Facebook's shares remain cheap whether it is preserved in current form or whether the market is forced to value it on a sum of the parts basis. Shares of Facebook soared to $355+ on the news, and our fair value estimate still stands at $413. The company remains a top weighting in the Best Ideas Newsletter portfolio.

Two Alerts and Bull Market On!
Image Source: Mike Cohen. "We like stocks in an inflationary environment, and we love big cap tech and large cap growth in any environment." -- Brian Nelson, CFA

Mortgage REITs Have Underperformed Significantly the Past Several Years
Image: An ETF that tracks the mortgage REIT industry has fallen more than 31% on a price-only basis, while an ETF that tracks the S&P 500 has advanced more than 160% on a price-only basis, as measured from May 2013. The yields on mortgage REIT instruments are certainly very tempting, but the payouts just haven’t been high enough to offset their price weakness as book values continue to whipsaw around along with interest rates. We thought it time to take a victory lap on our call made years ago, and we think avoiding mortgage REITs continues to make a lot of sense for most long-term investors.

Energy: A Small Part of the S&P 500 But Making a Comeback
Image Source: Bureau of Land Management. The energy sector is now a small part of the S&P 500, but improving energy resource pricing has enhanced the merits of many in the space, namely the dividend growth and income prospects at ExxonMobil and Chevron. Both companies offer investors dividend yields north of 5%, and both have experienced tremendous improvements in free cash flow generation thanks in part to more prudent capital spending. We’ll be looking to add both to the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio on any market breather. We like the risk/reward opportunity.

Top Ideas Doing Great
Image Source: Aguayo Samuel. The Best Ideas Newsletter portfolio continues to showcase the benefits of diversified stock selection in a portfolio setting over asset-allocation rebalancing (the 60/40 stock/bond portfolio is up just ~3% so far this year). Google and Facebook, the two top holdings in the Best Ideas Newsletter portfolio, continue to roar higher!