Stocks

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

Stocks

Valuation Distribution

  • An interesting chart from SG via Einhorn’s Q1 letter.
  • It shows the distribution of valuations (using a book to price ratio).
  • It compares today (solid green line), distressed periods (dark green and dotted) and average (since 1990).
  • The conclusion is that today’s valuations are more extreme – especially the cheapest and most expensive stocks.
Stocks

Farnam Ackman Interview

  • Really interesting podcast interviewing Bill Ackman.
  • It is by Farnam Street’s Knowledge Project.
  • “One of the most influential things he [Buffet] said to me was if you want to be successful, all you need to do is look around the room and think about the classmate or classmates you most admire and what qualities they have and just decide to adopt those qualities. If you do that, your chances of being successful go up enormously.”
  • “I actually think that people will be that much more desperate for human connection after this experience than they were before.”
  • He is probably right on the last point – long human connection?
Stocks

Greenlight Q1 2020 Letter

  • Latest investment letter from Einhorn’s Fund Greenlight Capital.
  • The fund is -21.5% in Q1 and down a futher -1.1% in April (despite the market rebound).
  • Interesting discussion of how, despite taking net from 74% to 15%, they still struggled with performance against a falling market.
  • Eninhorn’s value style is struggling in recent years and these markets. Despite this Greenlight is starting to market the fund again.
  • Letter includes interesting debate on inflation post-crisis, what to buy in that environment, his current holdings and shorts (incl TSLA), new positions. Always worth a read.
Stocks

P/E vs. real rates and inflation

  • Two great charts from KKR Macro Insight.
  • They plot the markets trailing P/E ratio against CPI inflation (right hand side) and the 10-year real treasury yield (left hand side).
  • The data is from 1948 to today and sourced from BofAML
  • As real-rates go negative or inflation falls multiples tend to be lower.
  • KKR analysis suggests there isn’t some funny data skewing results here.
  • What about today? at the current real 10-year yield of -1.5% and inflation rate of 2.3% (likely to fall) the 17.5x P/E ratio for the market (since increased) stands out as too high.
  • These types of equity strategy charts are good to hang on to.
Stocks

Pharma R&D Productivity

  • It is taken for granted in the industry that pharmaceutical company productivity is in decline (here and here).
  • Indeed productivity has fallen by 8.4% per year since the 1950s.
  • However, these views are outdated (data tends to run to 2010), often fail to account for start-ups (i.e. by following a pre-existing cohort) and are an extrapolation of a trend.
  • The pictured chart is an updated graph of the number of new drugs or new molecular entities (NMEs) per $bn of R&D spend.
  • Interestingly it has actually been stable for much of the 2000s and can be explained in part by the industry having better information and how it is used. This article explains in depth.
Stocks

Barry Diller Interview

  • Worth listening to Barry Diller on the picture right now.
  • Barry acquired Expedia right after 9/11. Saying “where there is life there is travel“.
  • He described today as cataclysmic, no sharp reversal and not being analogous to 09 or 9/11.
  • Diller spoke of advertising as particularly hit as of Q2.
  • Expedia (he is chairman) typically spends $5bn per year on advertising but revenues at zero it will be lucky to be $1bn this year.
  • On that topic this is a good article describing what is happening at GOOG and FB in terms of advertising.
  • Despite their strong positions and likelihood to gain share things are looking bad.
Stocks

Remdesivir Update

  • Remdesivir, an antiviral, is one of the leading drugs in development for COVID-19.
  • Recent published cohort analysis was supportive.
  • “In this cohort of patients hospitalized for severe Covid-19 who were treated with compassionate-use remdesivir, clinical improvement was observed in 36 of 53 patients (68%).”
  • Crucial to understand the limitations of this data – the need for a randomised placebo controlled trial.
  • Gilead’s (GILD) CEO Daniel O’Day in an open letter expresses this.
  • These trials are ongoing with results coming in end of April/May.
  • “While it may feel like a long wait for data given the urgency of the situation, it has been only two months since the first clinical trials began. Given that it can take a year or more to have the first clinical data for an investigational treatment, it is remarkable that we expect to have the first remdesivir trial data so soon.” 
  • The latest buzz from Chicago is also just a snapshot and drawing conclusions is “scientifically unsound“.
  • We will have to wait – but not long.
Stocks

Sector Composition of SPX

  • Long run (1974-2020) chart of sector composition of the S&P 500 index.
  • Energy is just 3% of the S&P down from 26% in 1980s.
  • Financials have also shrunk from 22% to 11%.
  • Interestingly IT is now 25% from 33% at the peak.
  • However, we need to add Communication Services (10% today) – which puts it above peak.
Stocks

Microsoft

  • Microsoft is seeing an explosion of usage across their cloud product suites – this is expected.
  • Interestingly they are rather selective with the data they provide.
  • This includes making a mistake in a recent post:
  • We have seen a 775 percent increase of our cloud services in regions that have enforced social distancing or shelter in place orders.
  • We have seen a 775 percent increase in Teams’ calling and meeting monthly users in a one month period in Italy, where social distancing or shelter in place orders have been enforced.
  • That is a big difference.
  • They also put out press saying video calling on Teams was +1000% in March – yet without an absolute figure or comparison this isn’t that meaningful.
  • There is no doubt Teams is growing – now up to 44m daily average users (DAU) from 20m in November 2019.
  • However, as Slack CEO points out (and he would) – this is only 20% of Office 365 users.
Stocks

Covid Impact 8 – BofA

  • “March was really different each week. From the beginning of March to the end of March, the amount of money that flowed through the company by our consumers went from around $60 billion a week to $mid-40 billion a week and that can bounce around depending on the week runs and where it is in the monthly cycle. But you saw it slow down.” Bank of America CEO
Stocks

Vodafone

  • Interesting slide pack from Vodafone about how digital is transforming their business.
  • The figure shows their goals – the virus impact likely accelerates this change and the cost savings are massive.
  • Getting digital to 40% of sales channels could save on the €2.5bn spent on commissions per year.
  • Less than one human interaction per year by next year could cut into the €1.2bn spent on customer operating costs.
  • VOD also built the Dreamlab app – which connects mobile phones during the night to a powerful network to aid research.
Stocks

Ad tracking

  • Apple have taken a big step – entirely banning third-party cookies in Safari browsers by default.
  • This is the final step since introducing Intelligent Tracking Prevention (ITP) which started to severely restrict cookies.
  • This could have serious ramifications for online advertising businesses but likely strengthens the big giants – FB and GOOG.
  • Other browsers are likely to follow suit (likely MSFT new improved Edge browser).
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