Why we are getting more bearish reason #2345453 — Subprime auto loan delinquencies
Repeat after me: The four most dangerous words in investing are: ‘this time it’s different’ (Sir John Templeton).
Conviction list updates
NZ> Remaining buy-rated on IFT, SKL, NZX, MFT. Turning a little bearish on property cos, gentailers (fairly valued) and Sky City (‘value’ or ‘value trap’? Opinion in the research team diverge!)
AUS> Remaining buy-rated on DGL, DUR, CSL
Bearish on the prop cos – DXS, etc.
US/EUR: Continue to love V, MA. Like LVMH at depressed levels. DGE good value too (booze barons).
Bearish on big tech > we’re not “sell” but hard to see value in MSFT, AMZN etc at these prices.
Too big for their boots?
Tech makes money. We’re not questioning that — we’ve been long Apple and Microsoft for a long time — what we question is whether both Apple and Microsoft should be weighted more than the entirety of four S&P sectors, combined. We like to think of it this way — if you owned every energy company listed there (Exxon, BP, etc), every utility and materials maker, and every real estate company — imagine the millions of square feet — you still wouldn’t have as big of a weighting as Apple and Microsoft.
Buffett talks about gold this way: you could buy all the gold in the world (244,000 metric tons) and you could melt it together and fit it into Yankee Stadium. It’s not going to do anything. It’s gold. It is shiny, and valuable, and not productive. The market value of the gold is something like $12 trillion. The gold is never going to produce cashflow — again, it’s gold. Instead of buying the gold you could buy 4.2 Apples, or 8 Amazons. Apple made $99bn in profit last year, so your four Apples would render you $419.16 billion dollars in profit per year, assuming it never grew. Or you could own gold — which will produce you, exactly, zero dollars in profit.
Or, you could buy the entire US energy sector — ($1.2tn) about ten times over. Apple makes a lot of money, but should it be valued at a four times premium to an entire sector? It’s something to think about…
Two very interesting articles re: Sanford — the fisheries company. One in the NZ Herald here and another in BusinessDesk here. There’s some speculation that Ngai Tahu would like to engage in a full takeover if the price is right (in the BusinessDesk article) while another director blames the actions of “significant but minority” shareholders. No view on the stock — as we always say, stay away from fish, chicken and milk. Just had results – $49.4m NPAT, slightly below expectations.
IFT > Morrison & Co-backed data centre owner CDC Data Centres is busy restocking its balance sheet with a new debt package. Via AFR Street Talk — CDC is working with Barrenjoey Capital Partners to supersize its bank debt facilities by upwards of $1 billion. Expecting more colour on this at Infratil’s earnings on Thurs. Earnings guidance gives CDC a valuation of 30x EBITDA (rich!) . Yet the valuation is justified given the 30% CAGR…see below.
Shares in Elders surged +15% yesterday after reporting better-than-bad earnings — NPAT fell 38% to $100.8mn for the 12 months ended September 30 as falling livestock prices and lower prices for farm chemicals and fertilisers dented profit margins. Revenues were down 4% to $3.32bn and the company cut its final dividend to 23¢ per share, compared with 28¢ a year ago. The underlying return on capital came in at 16%, above the group’s long-term target of 15%. Looking ahead market conditions are expected to remain challenging but to a lesser degree as opposed to getting worse with margin improvement benefits from recent acquisitions being realised. If you can hold through the near-term volatility we remain BUY-rated over the medium-term.
Things we have been reading
Excerpt from “The Fund” (NYMag). Link.
Peter Thiel is taking a break from democracy. Link.
Jeff Zucker – “Do you have a problem with the truth?” Link.
Watching > “The billionaire, the butler and the boyfriend”. Trailer
