Stocks

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

Stocks

Alcoholic Fizzy Water?

  • There is a fast growing market in the US for alcoholic or hard seltzer (i.e. fizzy water). Biggest brands are White Claw and Truly.
  • It is on trend for a health conscious younger demographic that has shunned beer.
  • So far this has been largely a US phenomenon but is likely to spread to the rest of the world.
  • The big brewers are waking up and bringing in their own brands.
  • Google search trends do suggest it was a summer phenomenon.
Stocks

Asset Management

  • “Just over 20 years have passed since the publication of Mark Carhart’s landmark 1997 study on mutual funds.
  • Its conclusion—that the data did “not support the existence of skilled or informed mutual fund portfolio managers”—was the capstone of an academic literature, which began with Michael Jensen in 1968, that formed the conventional wisdom that active management does not create value for investors.
  • We review the literature on active mutual fund management since the publication of Carhart’s work to assess the extent to which current research still supports the conventional wisdom.
  • Our review of the most recent literature suggests that the conventional wisdom is too negative on the value of active management.“
  • Full paper here.
  • Although fully disclosed this paper was supported by IIA Active Managers Council and hence might be biased.
Stocks

US online takeaway

  • We have posted Snippets about GrubHub before here and here.
  • This is another interesting and long article on how online takeout is turning out to be bad for restaurants as well.
  • The article is rather sensational (and we aren’t convinced the Online Travel analogy is apt).
  • Regardless it is full of interesting stats and analysis.
Stocks

Texas Instruments is the World

  • Texas Instruments, the semiconductor company, is very diverse (largest product is just 0.8% of revenue).
  • Their sales growth therefore largely follows global PMIs.
  • It makes them a great barometer of what is going on.
  • They have now experienced four quarters of revenue decline and are guiding for a fifth (typical semi-cycle is 4-5 quarters).
  • From their recent conference call:
  • “Revenue decreased 11% from a year ago and came in below the midpoint of our guidance as we saw most end markets continue to weaken further …  the weakness we’ve seen in the third quarter was broad-based across all markets and most sectors … We saw weakness across all major customers, regions and technologies … our sense is that customers are just far more cautious than they were certainly a year ago, but even 90 days ago.”
Stocks

Grubhub

  • Grub Investor Letter after their recent profit warning (and -43% fall in the shares) is worth a read.
  • We have previously pointed out how alternative data was suggesting competitors were beating Grub.
  • The letter points out how the online takeout market is getting a lot more competitive.
  • “Furthermore, we believe online diners are becoming more promiscuous … our newer diners are increasingly coming to us already having ordered on a competing online platform, and our existing diners are increasingly ordering from multiple platforms … the easy wins in the market are disappearing a little more quickly than we thought.”
  • Well done Chanos on shorting the stock.
Stocks

Vodafone Idea in India

  • Indian supreme court, after 10 years deliberation, hands a real shocker for Vodafone’s merged entity in the country (Vodafone Idea).
  • Essentially the court is forcing all companies to pay levies for spectrum on total revenue (not just telecoms revenue).
  • Vodafone Idea are forced to pay $4bn.
  • This is likely to put Vodafone Idea under (It has net debt of $14bn or 20x Net Debt/EBITDA).
  • Hard to see in the share price chart but that last drop was 35%.
  • Upstart Jio, which has been waging the mother of all price wars (it gave services away for free!), is unscathed by this ruling.
Stocks

Third Point

  • Latest Investment Letter for Q3 from Third Point is out.
  • It contains their view on activism and their edge in this strategy.
  • They review of the successful Sotheby’s (BID) investment (acquired recently at a 61% premium).
  • It also has an analysis of their new big holding in EssilorLuxottica (EL) and why they like it (mostly the merger synergies).
Stocks

Spotify

  • SPOT have reported Q3 and there are lots of interesting points.
  • The latest initiative, Podcasts, is seeing exponential growth (+39% Q/Q)
  • They are also launching paid recommendations.
  • On competition – “We continue to feel very good about our competitive position in the market. Relative to Apple, the publicly available data shows that we are adding roughly twice as many subscribers per month as they are. Additionally, we believe that our monthly engagement is roughly 2x as high and our churn is at half the rate. Elsewhere, our estimates imply that we continue to add more users on an absolute basis than Amazon. Our data also suggests that Amazon’s user base skews significantly more to ‘Ad-Supported’ than ‘Premium’, and that average engagement on our platform is approximately 3x.“
Stocks

Nokia

  • Big profit warning from Nokia last week.
  • They are seeing margin pressure from competition, and are having to make bigger investments into next generation mobile networks (5G).
  • As a result they are also cutting the dividend.
  • This competitor driven intensity ahead of a new investment cycle (5G) is very typical of the telecoms equipment industry.
  • Their customers merging is not helping as they likely standardise on one supplier. They are also delaying 5G roll outs as a result.
Stocks

Cigarette Filters

  • The press are making another push to ban cigarette filters on the grounds they are toxic for the environment and aren’t safer.
  • Essentra (ESNT.L) is a leading independent provider of these filters.
  • This scientific review article makes sober reading.
  • Evidence is presented that, not only are discarded filters not biodegradable, toxic chemicals actually leak from them such as arsenic, nicotine, PAHs, and heavy metals such as cadmium and lead.
  • They are not safer for smokers either – The National Cancer Institute’s comprehensive review of light and low-tar cigarettes concluded that “Epidemiological and other scientific evidence, including patterns of mortality from smoking-caused diseases, does not indicate a benefit to public health from changes in cigarette design and manufacturing over the last 50 years.”
  • “The yellow discolouration was an innovation deliberately created to reassure smokers that the filter was working, and comes from a change in pH rather than an accumulation of tar.”
Stocks

Sohn San Fran Notes

  • Market Folly is a great site.
  • They often have insightful investment conference write ups.
  • At these conferences leading managers around the world pitch their ideas. Be critical though – they are obviously talking their own book.
  • Here and here are the latest from Ira Sohn San Fransisco.
  • Common sense disclaimer. Just because a hedge fund is buying a stock doesn’t mean you should. One never knows what offsetting hedges or positions they hold. Be smart, do your own work, use common sense and invest responsibly. 
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