- The UK equity risk premium is one of the most attractive in the developed world.
- It is also near the highest it has been vs. its own history.
Stocks
Interesting, and often contrarian, Snippets on individual companies and the stock market.
Margins
- Small business survey data suggests margins could come under pressure.
- Source: JPM AM.
Valuation Distribution
- Single stock price to earnings ratio (PE) distribution.
- Right now there is a record proportion of stocks with P/Es between 25 to 40x.
- And a record low proportion of stocks less than 15x.
- Source: Longview Economics.
Financials ROE
- The US financial sector return on equity (ROE) has almost closed its relative gap to the market.
- Despite this the relative price to book ratio is still below pre-covid levels.
- h/t MRB Partners.
Subscription Mix and Returns
- Mature software companies that move to more subscription based business, tend to have strong share price returns.
- Source.
Valuation and Long Term Stock Returns
- Over the long-term valuation is the best predictor of stock returns.
- However, volatility dominates over shorter holding periods.
- h/t BCA Research.
Bond Equity Correlation
- The negative correlation between bonds and equities, as demonstrated by UK data, is actually a feature of the last two decades.
- Historically bonds and stocks moved together more often than they didn’t.
Dying Wells
- Interesting article about a company you probably haven’t heard of, but one that owns far more onshore oil and gas wells than Exxon.
- The strategy is one of buying old “dying” wells to squeeze more life out of them.
- The company isn’t short on controversy – the environmental cost of such wells is high (they leak gas) and once done they need to be plugged, which the company seems to do at a fraction of the cost of others.
- Interesting contrast in a world of rising energy costs.
Sector Rotations
- 2020-2021 have seen an unprecedented level of sector rotation under the surface.
- h/t Daily Shot.
Chasing CAPEs
- Allocation to equities since the 1950s by the average investor has moved in tandem with the cyclically adjusted P/E ratio (CAPE).
- Both measures are near records set during the dotcom boom.
- Food for thought.
- h/t Variant Perception via Daily Shot.
Digital Assets
- Companies mentioning a digital asset keyword (e.g. bitcoin) on conference calls is back above the previous peak.
- Classic second stage of hype cycle?
Economically Sensitive Flows
- Nice chart showing flows into ETFs of economically sensitive sectors (Financials, Energy, Materials and Industrials).
- It went from extremely strong inflows to extreme outflows.
Big Tech Acquisitions
- Provocative chart from latest Bain technology report.
- “When the facts are reviewed, most big tech M&A spending actually benefits consumers and doesn’t hamper competition. That’s according to Bain’s analysis of all $300 million-plus acquisitions, totaling more than $150 billion, from 2005 to 2020 by the five US hyperscalers: Alphabet, Amazon, Apple, Facebook, and Microsoft“
- Overall they find that, excluding Linkedin, 72% of M&A spending created value for consumers, rising to 89% if we exclude Nokia/Motorola.
- For those interested the methodology is in the appendix of the report.
The Value of Simple Language
- The type of language used in earnings calls has a significant impact on stock returns.
- According to Nomura, simple language (as measured using Gunning Fog Index) leads to higher returns and a considerably better Sharpe ratio when compared to complex language.
- This is distinct from earnings call length – which doesn’t correlate to complexity.
- For those interested we previously posted further interesting stats on language in company publications.
Gitlab Handbook
European Banks’ Health
- European banks look a lot healthier than they have for many years.
- Record low non-performing loans (NPLs) and high levels of capital.
Japanese Equities
- Everyone is underweight Japan.
Inflation and ROEs
- According to this analysis, inflation doesn’t have a huge impact on return on equity in corporates.
- Even in a high inflation environment (something not seen for 28 years) it is only 150bps lower.
- Source: Pzena.
PayPal
- Interestingly the Paypal brand resonates the most.
Healthcare Sector
- Healthcare sector trades at a record discount to the market in the US.
- Source: Broyhill.
