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  • How A Dividend Growth Investor Can Cope With Risk [View article]
    SDS,

    Thank you for the comment. It's important to separate the economics of business analysis from that of personal investment returns.

    In business, analysis ROIC is the most important measure of a firm's ability to use invested capital to generate returns. The more economic value created, the higher the equity value of the firm. Equity value is linked to equity price in this regard.

    The application of the discounted cash-flow model is not about precision but executing it appropriately to identify outliers and arriving at a reasonable fair value estimate. It's important to understand the discounting mechanism within the discounted cash-flow modeling framework. Cash flows 50 years from now are heavily discounted due to both the time value of money and the underlying forecasting risk.

    The time value of money is perhaps a concept that may be worth digging into. A firm's value will always be worth the present value of its future free cash flows under any business model across any sector. If someone tries to tell you that valuation is not important, tell that person to give you a $1 and you'll give him $0.50 in value. Valuation is always the most important consideration.

    Thanks for the comment!

    The Valuentum Team
    Sep 20, 2014. 11:24 AM | Likes Like |Link to Comment
  • How A Dividend Growth Investor Can Cope With Risk [View article]
    David,

    Thank you for the article. The emphasis on probability analysis is welcome. Each stock has a future free cash flow stream that is relatively uncertain. Under different scenarios, the future free cash flow stream creates a cone of probable fair values . When the share price is at the low end of this fair value range, the risk/reward is tilted in the investors' favor. This is the heart of the Valuentum process.

    It is very important that you've mentioned that historical data is only as good as it is used to inform the future . Historical dividend growth rates, historical earnings growth rates are all backward looking. A forward- looking discounted cash flow model is the most appropriate way to capture an intrinsic value estimate. A PE has its shortfalls because it does not consider wealth or liabilities on the balance sheet. In part, this is why PEs vary for similar companies with similar growth rates and competitive profiles. Varying levels of capex also impact the PE. Remember, the PE is a shortcut and should only be used with an understanding of its pitfalls, which are many.

    There is a significant problem with using return on equity. First, evaluate the well -documented DuPont equation. The third term is assets/equity, a form of leverage. In this light, companies can take on financial leverage and more risk to boost ROE. This is not operational improvement and offers very little insight to the quality of a firms operations. At Valuentum, we use ROIC, which corrects for this dynamic. ROA is also inferior due to the presence of non-core cash in the denominator .

    Kind regards,

    The Valuentum Team
    Sep 20, 2014. 09:41 AM | Likes Like |Link to Comment
  • What Is Risk For A Dividend Growth Investor? [View article]
    David,

    Thank you for writing this article. Thinking about value as a range of probable outcomes remains central to the Valuentum methodology, as in Marks' paper. Buffett's 'approximately right, precisely wrong ' centers on the core of the application and margin of safety bands with the Valuentum process.

    The key risk that you are missing is the very real possibility that in 3-5 years , interest rate hikes will make dividend paying stocks significantly less attractive. The higher interest rate also translates into a higher discount rate in the valuation process, providing further support for lower valuations.

    The risk that interest rates will not rise is the risk that is driving the reward in dividend paying stocks. Unfortunately, market participants aren't factoring in this risk appropriately, and we will likely see a fall out in dividend paying stocks once interest rates on low risk income vehicles become more attractive.

    As we saw in AGNC, NLY, and SDRL, the income investor claims to not care about price volatility, but they often find themselves pulling the sell trigger once any concern about the dividend surfaces.

    The Valuentum Team
    Sep 20, 2014. 01:44 AM | 1 Like Like |Link to Comment
  • Boy, Were We Wrong About Yahoo [View article]
    Hi all,

    Our initiation report on Alibaba (BABA) is now available on our website. FV = $104 per share. Thank you all for reading!

    http://bit.ly/1v0iIoZ

    Kind regards,

    The Valuentum Team
    Sep 19, 2014. 12:02 PM | Likes Like |Link to Comment
  • Why Dresser-Rand's Shares Are Cheap [View article]
    Thanks so much Holthusen!

    Kind regards,

    The Valuentum Team
    Sep 19, 2014. 09:57 AM | Likes Like |Link to Comment
  • Calculating Facebook's Intrinsic Value Is Not Insurmountable [View article]
    cashawash,

    Thank you kindly for the comment!

    Regards,

    The Valuentum Team
    Sep 15, 2014. 04:42 PM | Likes Like |Link to Comment
  • Calculating Facebook's Intrinsic Value Is Not Insurmountable [View article]
    Hi Justin,

    Here's an excerpt from a recent article we wrote about '5 Questions Advisors Should Ask When Interviewing Fund Managers":

    Can you explain the difference between ROA, ROE, and ROIC?

    "What you are looking for in the answer is a response that goes into the pitfalls of using return on assets (ROA) and return on equity (ROE) as a measure of a firm’s ability to generate value for shareholders.

    Ideally, you’d want to hear a response that says ROA is muddied by the inclusion of non-operating cash in the denominator and that ROE is impacted by leverage (assets divided by equity). The very best of fund managers will refer to the DuPont (DD) equation in explaining that the third term when breaking apart ROE is leverage. The best answer may explain how some firms can hide deteriorating profitability (net income divided by sales) and asset turns (sales divided by assets) by taking on more and more debt to bolster ROE.

    What you want is an answer that says ROIC is the best measure of a firm’s ability to generate economic value for shareholders. The very best answer will include a response that says return on new invested capital (RONIC) is the most informative measure of a company’s ability to continue to generate economic value for shareholders. RONIC is calculated by taking NOPLAT (net operating profit less adjusted taxes) divided by net new investment (capital expenditures less depreciation adjusted for working capital).

    Be wary of fund managers that just rely on ROE and ROA. These measures provide some information about the return potential of a company, but they have their pitfalls. Every fund manager should know about them."

    Thank you for reading!

    Kind regards,

    The Valuentum Team
    Sep 15, 2014. 04:41 PM | 1 Like Like |Link to Comment
  • Evaluating Accenture's Economic Value Creation And Fair Value [View article]
    Hi bookzeller,

    All of our analysis is available at your convenience on our website:

    http://www.valuentum.com

    Thanks for your interest!

    The Valuentum Team
    Sep 14, 2014. 07:31 PM | Likes Like |Link to Comment
  • The Market Fully Appreciates Seadrill's Execution [View article]
    Just closing the loop on this comment chain. Seadrill has fallen considerably since this article was published. Thank you all for reading!

    The Valuentum Team
    Sep 13, 2014. 12:05 PM | Likes Like |Link to Comment
  • The Market Fully Appreciates Seadrill's Execution [View article]
    Goalkick9:

    You may have missed this in the article: "We're not saying the dividend is going to get cut at this time, but as was displayed in the financial crisis, the firm's over-leverage can be a recipe for disaster (when shares dropped from nearly $37 to $6 and change). When it comes to dividend growth investing, we don't ignore the capital risks."

    Thanks for reading!

    The Valuentum Team
    Sep 13, 2014. 12:03 PM | Likes Like |Link to Comment
  • The Market Fully Appreciates Seadrill's Execution [View article]
    long_on_oil,

    Even after the fall to the low $30s, we still believe there is tremendous risk to Seadrill's business model.

    Thanks for reading.

    The Valuentum Team
    Sep 13, 2014. 12:02 PM | Likes Like |Link to Comment
  • The Market Fully Appreciates Seadrill's Execution [View article]
    Gary:

    You may have missed this in the article: "We're not saying the dividend is going to get cut at this time, but as was displayed in the financial crisis, the firm's over-leverage can be a recipe for disaster (when shares dropped from nearly $37 to $6 and change). When it comes to dividend growth investing, we don't ignore the capital risks."

    Thanks for reading!

    The Valuentum Team
    Sep 13, 2014. 12:00 PM | Likes Like |Link to Comment
  • Seadrill Doesn't Quite Make The Cut [View article]
    We wanted to close the comment chain on this article. When this article was published in September 2013, Seadrill was trading in the high $40s per share and as of September 2014 is trading just above $30 each. The firm has been a significant underperformer in a market that has gone higher since then.

    Thank you all for reading!

    Kind regards,

    The Valuentum Team
    Sep 13, 2014. 11:57 AM | Likes Like |Link to Comment
  • We Don't Think SeaDrill's Dividend Is Sustainable [View article]
    This article was published August 20, 2012 when Seadrill was trading at $41 and change.

    As of September 12, 2014, it is trading at $33 and change.

    The market has advanced considerably since this time, making Seadrill one of the worst relative performers, even after considering the dividends paid.

    Thank you all for reading. We're honored to close the comments section of this article, knowing that we've done a job well done!

    All the best,

    The Valuentum Team
    Sep 13, 2014. 11:37 AM | 1 Like Like |Link to Comment
  • Evaluating GlaxoSmithKline's Intrinsic Value [View article]
    Thanks rickjoy403! We appreciate it!

    Kind regards,

    The Valuentum Team
    Sep 12, 2014. 11:28 PM | Likes Like |Link to Comment
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