Chart: Yields on US 10yrs are now almost equal to the trailing yield on the S&P 500…
US
Ford > Hybrids lead the way Ford recorded a 41.4% increase in sales of hybrids, reflecting a continued consumer preference for gas/electrics rather than pure EVs. EV sales grew ~14% by comparison (sales of gas vehicles grew +15%).
Nike > fast footed Sales grew 8% with net income declining by just 1% — analysts expected a ~20% drop in net income. Shares of Nike are sitting at $95.00 (2x sales). We continue to have a preference for Nike shares in the consumer disc. space — they have navigated slowing sales and increased inventory well.
Dollar General > trading at ~$108. We wrote of our concerns on Monday. Has the stock bottomed? Still so much to do to turn it around…Birkenstock > has upped its IPO range to a ~$9bn valuation. Roughly 20x EBITDA. Noting firms associated with the Arnault family are buying more stock at IPO. Hard to love at this kind of valuation — some of us were burned on Dr. Martens at IPO and saw what happened there (demand saturation, inventory woes, lack of quality control — ironically, Dr. Martens looks like much better value now – 10x earnings, ~6.00% div yield — shoulda coulda woulda). Will wait this one out — maybe value at 1/2 IPO multiple. Wall Street (1987)…I’ve been burned on tips before.
NZ/Aus
Going up/Going down
⬆ Duratec > we like it at $1.16. What they do is boring: maintenance on long-lived assets. 15x earnings, double digit CAGR.
⬆ DGL > Holding strong at 82c. We think this has the opportunity to re-rate at 15-16x earnings
⬇ Warehouse > poor earnings, strategy needs a rethink. NPat down ~56%. Better buying elsewhere.
⬇ ERoad > continues to flail around at ~67c. We still think they were better off taking Volaris/Contellation’s offer.
The New Zealand market (NZX 50 Index) was flat yesterday, as the RBNZ’s interest rate decision contained no surprise, with markets recovering from it’s earlier loss heading into the announcement.
The Australian market (ASX200 Index, -0.8%) fell following a weak lead from Wall Street, as bond yields spiked to 16-year highs – as interest rates across the globe are set to remain higher for longer as central banks remain hawkish.
The RBNZ left the Official Cash Rate unchanged at 5.5% at the Monetary Policy Review yesterday – no surprise to the market. The accompanying statement suggested there is little change in the Bank’s assessment from the August Monetary Policy Statement. While noting ‘interest rates are constraining economic activity and reducing inflationary pressure as required’ there was a suggestion, at the margin, that rates may need to stay elevated for longer than it had previously forecast.
At its meeting on Tuesday The RBA decided to leave the cash rate target unchanged at 4.10% and the interest rate paid on Exchange Settlement balances unchanged at 4.00%.
Interest rates have been increased by +4.00% since May last year.
Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.
We feel both the RBNZ and RBA have a high chance of hiking once more before the end of the year, and will be holding back the first cut later – showing a willingness to be more restrictive and more pain for mortgage holders to come. We do not expect any significant relief next year for mortgage holders, therefore we remain bearish on anything sensitive to high-interest rates particularly housing and discretionary spending.
Going up…Global Warming…
