April 12, 2019

Valens Conviction Long List – April 2019

Value stocks top our April Valens Conviction Long List, with Capital One Financial (COF) remaining at the top of our list. Our other picks this month are: CRUS, CVS, FSLR, GRMN, WGO, EBAY, PINC, MTZ, HIG, THRM, ASGN, DISC.A, FB, LRCX, DHI, MYL, GILD, TPR, AMN, NOV, CTXS, and BHC.

  • Capital One Financial (COF) remains our top pick. COF continues to have a strong franchise and is benefiting from the higher rate environment, and reduced competition. COF trades below peers, with improving returns and growing management confidence per Earnings Call Forensics™

  • Cirrus Logic Inc. (CRUS) is in the second spot on the list, due to accelerating fundamental momentum and very low market expectations. CRUS is gaining share and seeing a favorable product cycle, with strong returns and growing management confidence per Earnings Call Forensics™

  • Even after the strong rally through Q1, valuations remain suppressed relative to strong profitability. 14 Value names make up the largest portion of our Conviction Long List this month, and GARP make up the second largest group, with seven names

  • The sectors with the most companies in the April list are Consumer Discretionary and Health Care, with six firms. Technology has four, Communication Services, Financials, and Industrials have two, and Energy has one company

  • We removed Alphabet (GOOGL) and Planet Fitness (PLNT) from the list. GOOGL had seen a strong rebound to start the year, approaching prior all-time highs, however at the same time, management has been showing more concerns about cost pressures, their need for ramping capex, and forecasts for ROA’ have taken a step down for the first time in 3+ years, pointing to deceleration for the business. With higher valuations that were approaching a poor risk-reward level, and declining momentum, GOOGL was no longer a compelling idea. PLNT was removed because of how successful the idea had been. Valuations had reached levels very close to the high end of valuation ranges, while management’s actions to bring stores onto the balance sheet had changed the business dynamics

  • We added CVS Health (CVS), MasTec (MTZ), and Discovery (DISC.A) to the idea list this month. CVS has the opportunity to recreate the fundamental transformation that United Healthcare executed the past 6+ years after the Aetna acquisition. MasTec is being valued like an average Construction & Engineering firm in a late cycle period, when it actually is a 5G play that has strong order book and visibility for the next several years. Discovery is being priced as though it is doomed because of cord cutting, but the stickiness of their content and economic moats say otherwise
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