Stocks

Interesting, and often contrarian, Snippets on individual companies and the stock market.

Stocks

GAAP vs. Real Losers

  • This chart shows the performance of three groups of firms.
  • GAAP losers – firms where expenses exceed sales, but once an intangible investment adjustment is made they turn profitable. In other words they are investing.
  • Real losers – these are firms that even after the adjustment is made are still loss making.
  • Profitable firms – at the outset these firms are profitable i.e. sales exceed all expenses.
  • From 1980 – 2017, GAAP losers substantially outperformed
  • NB the outperformance vs. profitable firms really shows up post 1996. “The message is that the market ultimately recognizes and pays for intangible investments that create value, even if they create losses in the short term.“
  • This chart comes via Investment Talk, a brilliant curation of all manner of investment resources.
  • Source, Original.
Stocks

Value Stocks Valuation

  • The cheapest stocks are no longer that cheap.
  • Source.
  • Footnote: Empirical Research Analysis, National Bureau of Economic Research. As of June 30, 2022. Cheapest quintile refers to the most undervalued 20% of stocks in an analysis of large-capitalization US stocks. Standard Deviation is a measure of dispersion of a data set from its mean. Prior to 1952, the spread is measured using the price-to-book data of the largest 1,500 stocks. Current Level refers to the valuation spread as of June 30, 2022 which is 0.4 standard deviations above the mean.
Stocks

Clean Energy and Financial Engineering

  • “Oversimplifying monstrously, clean energy technology requires big CapEx outlays today for low or next-to-no OpEx for decades.“
  • “This is why finance is so important to clean energy—it’s the way we teleport those future OpEx savings through time and space to cover those higher upfront costs.“
  • So argues this interesting article, exploring clean energy.
  • This chart summarises the idea nicely (excludes things like biomass which are an exception).
Stocks

US College Enrolment

  • We are seeing a third year of declining undergraduate enrolment into colleges in the US.
  • Although the rate of decline is smaller, it is still a lot worse than many predicted by this point.
  • There are, however, some green shoots in spring application data (here and here).
  • Useful for followers of the Education sector.
Stocks

CEOs Appearing on Podcasts

  • A new paper examines the question of why CEO’s allocate precious time to appearing on podcasts.
  • Between 2016 – 2020 over a quarter of all S&P 1500 CEOs appeared on at least one podcast.
  • This has grown from 6% in 2016 to 22% in 2020.
  • They find it tends to be CEO’s of firms more focussed on consumers and ESG.
  • It also tends to be CEOs who have strong reputation incentives (looking for a new job, have own twitter account, founders).
Stocks

ESG Ratings Divergence

  • ESG ratings from various providers just don’t agree and this is a nice chart to demonstrate this point.
  • The horizontal axis takes Sustainalytics ratings for 924 firms as a benchmark.
  • Ratings by other providers are then plotted on the vertical axis using different colours (see key).
  • For each rater the ratings are normalised to a Z score (zero mean, unit variance).
  • The results = for any level of benchmark rating there is a big range of values given by other ratings.
  • The divergence is so bad between firms “it is difficult to tell a [ESG] leader from an average performer”.
  • The paper then goes on to try to understand why this is.
Stocks

Private Equity Valuations Paid

  • Bain report on private equity industry is always worth a flick.
  • This was an interesting chart on valuations – showing that multiples started to drift up from 2015 onwards reaching highs last year.
  • Part of this was a mix shift towards growth and technology, where 2020/2021 saw ballooning multiples paid for software businesses (here, page 49).
Stocks

Financial Plumbing

  • The Global Financial crisis 14 years ago ushered in a new era of attempting to understand the pipes of the global financial system – especially incorporating the shadow banking world.
  • One big node point is pledged collateral and so called collateral velocity. The world expert on this is IMF senior economist Manmohan Singh.
  • This latest post on FT AV by Singh is absolutely worth a read to understand what is going on now.
  • These charts are one part of the picture – showing how pledge collateral has grown but also moved around.
  • “As you might expect, a lot has changed since 2007, with the disappearance of Lehman Brothers and Bear Stearns, the reshuffling of business models by UBS, Credit Suisse and Deutsche Bank, and the rise of JPMorgan and Barclays.“
Stocks

Refining Margins

  • Spectacular pop in refining margins.
  • “Permanent refinery closures since the start of 2019 reduced global capacity by around 4.7mn barrels per day, Barclays estimates, and new refinery capacity such as at Kuwait’s Al Zour can’t be brought quick enough. As a result, US and European refinery gross margins are least four times the long-run average“
Stocks

Tyre Pollution

  • Tyres are an order of magnitude worse source of particles pollution than exhausts.
  • “We came to a bewildering amount of material being released into the environment – 300,000 tonnes of tyre rubber in the UK and US, just from cars and vans every year.”
  • Whereas “Tailpipes are now so clean for pollutants that, if you were starting out afresh, you wouldn’t even bother regulating them.”
  • Listed tyre companies (GT, ML) are generally ranked low on ESG risk.
Stocks

Cure for High Prices

  • As the saying goes – the best cure for high prices is high prices.
  • According to GS this is now coming to battery metals (cobalt, lithium and nickel).
  • In other words, despite an exponential demand profile, the surge in prices is bringing on a huge supply response.
  • “We forecast all three metals to shift into sustained surplus over the next 1-2 years” (see chart).
  • “Lithium is the most prominent in this trend, where we expect supply growth to average just over 30% per year over 2022-25, reflecting the ramp-up of new projects in Australia, China and Chile in particular.” 
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