AkhenOsiris
Awww Dan, the retest of the lows was so close ๐ฅ
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Awww Dan, the retest of the lows was so close ๐ฅ
I continue to look beyond the tech sector & the Magnificent 7 for ideas through year-end. I like consumer staples, telecom services & utilities as sectors that will benefit from rate cuts through year-end though roughly overbought near-term. Sentiment in oil is now getting negative enough that I believe it is a good time to look at the energy sector as well.
WTI oil last traded at these levels of $66 in December of 2021 and is near oversold levels. I believe for prices to go much lower, that global GDP growth will need to slow dramatically despite: 1) low oil prices now acting as a stimulant for global growth, and 2) expected rate cuts by central banks. - Dan Nilestweet
Offshore
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โ Hidden Value Gems
A thought-provoking 24-page piece by @CliffordAsness on sticking with value investing, even if it is harder now than before.
Some excerpts:
โก๏ธ"I believe markets have gotten less efficient over the 34 years since the data in my dissertation ended. I believe itโs likely happened for multiple reasons but technology, gamified 24/7 trading on your phone, and social media in particular are the biggest culprits."
โก๏ธ"I think the ups and downs will be bigger and last longer, making more money for those who can stick with it long term, but making it harder to do so."
โก๏ธ"Smart investors worry about good strategies getting arbitraged away. That is, too many people are doing them, so going forward they will not look as good as their presumably attractive past. I think old-school active value and quality stock picking has seen the opposite occur. We should all look to fade strategies that have been arbitraged down and feed strategies that have been starved for capital."
โก๏ธ"Good investing has always been a challenge combining a) discerning what is right, and b) sticking with what is right. Both have always been vital and both still are. But if markets are indeed โless efficient,โ the first task has actually gotten easier, and the second is harder โ and the skills needed to pursue good investing have shifted."
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A thought-provoking 24-page piece by @CliffordAsness on sticking with value investing, even if it is harder now than before.
Some excerpts:
โก๏ธ"I believe markets have gotten less efficient over the 34 years since the data in my dissertation ended. I believe itโs likely happened for multiple reasons but technology, gamified 24/7 trading on your phone, and social media in particular are the biggest culprits."
โก๏ธ"I think the ups and downs will be bigger and last longer, making more money for those who can stick with it long term, but making it harder to do so."
โก๏ธ"Smart investors worry about good strategies getting arbitraged away. That is, too many people are doing them, so going forward they will not look as good as their presumably attractive past. I think old-school active value and quality stock picking has seen the opposite occur. We should all look to fade strategies that have been arbitraged down and feed strategies that have been starved for capital."
โก๏ธ"Good investing has always been a challenge combining a) discerning what is right, and b) sticking with what is right. Both have always been vital and both still are. But if markets are indeed โless efficient,โ the first task has actually gotten easier, and the second is harder โ and the skills needed to pursue good investing have shifted."
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โ Stock Analysis Compilation
Baron Capital on Power Grid Corporation of India $PGCIL IN
Thesis: Power Grid is at the heart of Indiaโs energy transition, offering stable returns as it powers the nationโs growing demand and shift to renewables
(Extract from their Q2 letter) https://t.co/DpogwCWMj3
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Baron Capital on Power Grid Corporation of India $PGCIL IN
Thesis: Power Grid is at the heart of Indiaโs energy transition, offering stable returns as it powers the nationโs growing demand and shift to renewables
(Extract from their Q2 letter) https://t.co/DpogwCWMj3
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twitter.com
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Offshore
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โ Stock Analysis Compilation
Harris Associates on Misumi $9962 JP
Thesis: Misumi 's unmatched one-stop shop for factory automation and die set components positions it for long-term growth, especially as it capitalizes on its scale and unique offerings in a competitive market
(Extract from their Q2 letter) https://t.co/xnYiC22TGK
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Harris Associates on Misumi $9962 JP
Thesis: Misumi 's unmatched one-stop shop for factory automation and die set components positions it for long-term growth, especially as it capitalizes on its scale and unique offerings in a competitive market
(Extract from their Q2 letter) https://t.co/xnYiC22TGK
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Offshore
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โ Value Spotlight (Andrew Sather)
Calculate ROIC on an EVEN MORE Complex Balance Sheet (Tutorial):
$NEE https://t.co/XePgfAuky3
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Calculate ROIC on an EVEN MORE Complex Balance Sheet (Tutorial):
$NEE https://t.co/XePgfAuky3
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Offshore
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โ Stock Analysis Compilation
Baron Capital on Texas Instruments Incorporated $TXN US
Thesis: Texas Instruments is strategically positioned to emerge stronger from the cyclical downturn, leveraging its expanded U.S. manufacturing capacity and leadership in key markets
(Extract from their Q2 letter) https://t.co/CtEhd98FTf
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Baron Capital on Texas Instruments Incorporated $TXN US
Thesis: Texas Instruments is strategically positioned to emerge stronger from the cyclical downturn, leveraging its expanded U.S. manufacturing capacity and leadership in key markets
(Extract from their Q2 letter) https://t.co/CtEhd98FTf
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Offshore
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โ Dimitry Nakhla | Babylon Capitalยฎ
A sober valuation analysis on $AVGO ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 25.06x
โข5-Year Mean: 17.22x
โขNTM FCF Yield: 4.19%
โข5-Year Mean: 7.00%
As you can see, $AVGO appears to be trading above fair value
Going forward, investors can receive ~31% LESS in earnings per share & ~40% LESS in FCF per share ๐ง ***
Before we get into valuation, letโs take a look at why $AVGO is a good business
BALANCE SHEET๐
โขCash & Short-Term Inv: $9.95B
โขLong-Term Debt: $66.80B
$AVGO has an ok balance sheet, a BBB S&P Credit Rating & 5.57x FFO Interest Coverage
RETURN ON CAPITAL๐โก๏ธโ
โข2019: 7.4%
โข2020: 6.6%
โข2021: 13.3%
โข2022: 22.8%
โข2023: 25.9%
โขLTM: 10.9%
RETURN ON EQUITY๐โก๏ธโ
โข2019: 10.6%
โข2020: 12.1%
โข2021: 27.6%
โข2022: 48.2%
โข2023: 60.3%
โขLTM: 12.5%
$AVGO now has stronger return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2013: $2.52B
โข2023: $35.82B
โขCAGR: 30.39%
FREE CASH FLOWโ
โข2013: $0.49B
โข2023: $17.63B
โขCAGR: 43.08%
NORMALIZED EPSโ
โข2013: $0.29
โข2023: $4.23
โขCAGR: 30.73%
SHARE BUYBACKSโ
โข2013 Shares Outstanding: 2.52B
โขLTM Shares Outstanding: 4.64B
$AVGO increased its shares outstanding ~84%, however strong revenue & earnings growth more than made up for the share dilution
MARGINSโ
โขLTM Gross Margins: 74.7%
โขLTM Operating Margins: 31.6%
โขLTM Net Income Margins: 11.7%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~31% LESS in EPS & ~40% LESS in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $AVGO has to grow earnings at a 12.53% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be more than the (12.53%) required growth rate:
2024E: $4.85 (14.8% YoY) *FY Oct
2025E: $6.17 (27.3% YoY)
2026E: $7.26 (17.7% YoY)
$AVGO has an excellent track record of meeting analyst estimates ~2 years out, so letโs assume $AVGO ends FY 2026 with $7.26 in EPS & see its CAGR potential assuming different multiples
27x P/E: $196.02๐ต โฆ ~15.3% CAGR
25x P/E: $181.50๐ต โฆ ~11.3% CAGR
23x P/E: $166.98๐ต โฆ ~7.2% CAGR
21x P/E: $152.46๐ต โฆ ~2.8% CAGR
As you can see, $AVGO appears to have attractive return potential if we assume >25x earnings (a multiple well below its 5-year & 10-year mean, HOWEVER a multiple more than justified by its expected growth rate and wide-moat)
Itโs important not to knock $AVGO for its current multiple given the attractive growth rates, so while $AVGO may appear to be trading above fair value, it is actually trading somewhere near fair value today
Although I wouldnโt want to rely on an elevated multiple, that has a recently added premium, when making certain assumptions โฆ especially because $AVGO traded for much lower multiples despite historically aggressive growth rates
Today at $148๐ต $AVGO appears to be trading near value
Iโd be more interested in $AVGO closer to $125๐ต where I can reasonably expect ~11.0% CAGR, assuming a 21x multiple
#stocks #investing
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๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐จ๐ฆ๐ฉ๐ฅ๐๐ญ๐๐ง๐๐ฌ๐ฌ ๐จ๐ซ ๐๐๐๐ฎ๐ซ๐๐๐ฒ.
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A sober valuation analysis on $AVGO ๐ง๐ฝโโ๏ธ
โขNTM P/E Ratio: 25.06x
โข5-Year Mean: 17.22x
โขNTM FCF Yield: 4.19%
โข5-Year Mean: 7.00%
As you can see, $AVGO appears to be trading above fair value
Going forward, investors can receive ~31% LESS in earnings per share & ~40% LESS in FCF per share ๐ง ***
Before we get into valuation, letโs take a look at why $AVGO is a good business
BALANCE SHEET๐
โขCash & Short-Term Inv: $9.95B
โขLong-Term Debt: $66.80B
$AVGO has an ok balance sheet, a BBB S&P Credit Rating & 5.57x FFO Interest Coverage
RETURN ON CAPITAL๐โก๏ธโ
โข2019: 7.4%
โข2020: 6.6%
โข2021: 13.3%
โข2022: 22.8%
โข2023: 25.9%
โขLTM: 10.9%
RETURN ON EQUITY๐โก๏ธโ
โข2019: 10.6%
โข2020: 12.1%
โข2021: 27.6%
โข2022: 48.2%
โข2023: 60.3%
โขLTM: 12.5%
$AVGO now has stronger return metrics, highlighting the financial efficiency of the business
REVENUESโ
โข2013: $2.52B
โข2023: $35.82B
โขCAGR: 30.39%
FREE CASH FLOWโ
โข2013: $0.49B
โข2023: $17.63B
โขCAGR: 43.08%
NORMALIZED EPSโ
โข2013: $0.29
โข2023: $4.23
โขCAGR: 30.73%
SHARE BUYBACKSโ
โข2013 Shares Outstanding: 2.52B
โขLTM Shares Outstanding: 4.64B
$AVGO increased its shares outstanding ~84%, however strong revenue & earnings growth more than made up for the share dilution
MARGINSโ
โขLTM Gross Margins: 74.7%
โขLTM Operating Margins: 31.6%
โขLTM Net Income Margins: 11.7%
***NOW TO VALUATION ๐ง
As stated above, investors can expect to receive ~31% LESS in EPS & ~40% LESS in FCF per share
Using Benjamin Grahamโs 2G rule of thumb, $AVGO has to grow earnings at a 12.53% CAGR over the next several years to justify its valuation
Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be more than the (12.53%) required growth rate:
2024E: $4.85 (14.8% YoY) *FY Oct
2025E: $6.17 (27.3% YoY)
2026E: $7.26 (17.7% YoY)
$AVGO has an excellent track record of meeting analyst estimates ~2 years out, so letโs assume $AVGO ends FY 2026 with $7.26 in EPS & see its CAGR potential assuming different multiples
27x P/E: $196.02๐ต โฆ ~15.3% CAGR
25x P/E: $181.50๐ต โฆ ~11.3% CAGR
23x P/E: $166.98๐ต โฆ ~7.2% CAGR
21x P/E: $152.46๐ต โฆ ~2.8% CAGR
As you can see, $AVGO appears to have attractive return potential if we assume >25x earnings (a multiple well below its 5-year & 10-year mean, HOWEVER a multiple more than justified by its expected growth rate and wide-moat)
Itโs important not to knock $AVGO for its current multiple given the attractive growth rates, so while $AVGO may appear to be trading above fair value, it is actually trading somewhere near fair value today
Although I wouldnโt want to rely on an elevated multiple, that has a recently added premium, when making certain assumptions โฆ especially because $AVGO traded for much lower multiples despite historically aggressive growth rates
Today at $148๐ต $AVGO appears to be trading near value
Iโd be more interested in $AVGO closer to $125๐ต where I can reasonably expect ~11.0% CAGR, assuming a 21x multiple
#stocks #investing
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๐๐๐๐๐๐๐๐๐๐โผ๏ธ: ๐๐ก๐ข๐ฌ ๐ข๐ฌ ๐๐๐ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐. ๐๐๐๐ฒ๐ฅ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅยฎ ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ซ๐๐ฉ๐ซ๐๐ฌ๐๐ง๐ญ๐๐ญ๐ข๐ฏ๐๐ฌ ๐ฆ๐๐ฒ ๐ก๐๐ฏ๐ ๐ฉ๐จ๐ฌ๐ข๐ญ๐ข๐จ๐ง๐ฌ ๐ข๐ง ๐ญ๐ก๐ ๐ฌ๐๐๐ฎ๐ซ๐ข๐ญ๐ข๐๐ฌ ๐๐ข๐ฌ๐๐ฎ๐ฌ๐ฌ๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ.
๐๐ก๐ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ข๐ฌ ๐ข๐ง๐ญ๐๐ง๐๐๐ ๐๐จ๐ซ ๐ข๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง๐๐ฅ ๐ฉ๐ฎ๐ซ๐ฉ๐จ๐ฌ๐๐ฌ ๐จ๐ง๐ฅ๐ฒ ๐๐ง๐ ๐ฌ๐ก๐จ๐ฎ๐ฅ๐ ๐ง๐จ๐ญ ๐๐ ๐๐จ๐ง๐ฌ๐ญ๐ซ๐ฎ๐๐ ๐๐ฌ ๐ข๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐๐ฏ๐ข๐๐ ๐ญ๐จ ๐ฆ๐๐๐ญ ๐ญ๐ก๐ ๐ฌ๐ฉ๐๐๐ข๐๐ข๐ ๐ง๐๐๐๐ฌ ๐จ๐ ๐๐ง๐ฒ ๐ข๐ง๐๐ข๐ฏ๐ข๐๐ฎ๐๐ฅ ๐จ๐ซ ๐ฌ๐ข๐ญ๐ฎ๐๐ญ๐ข๐จ๐ง. ๐๐๐ฌ๐ญ ๐ฉ๐๐ซ๐๐จ๐ซ๐ฆ๐๐ง๐๐ ๐ข๐ฌ ๐ง๐จ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐ ๐จ๐ ๐๐ฎ๐ญ๐ฎ๐ซ๐ ๐ซ๐๐ฌ๐ฎ๐ฅ๐ญ๐ฌ.
๐๐ง๐๐จ๐ซ๐ฆ๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐๐ข๐ง๐๐ ๐ข๐ง ๐ญ๐ก๐ข๐ฌ ๐ญ๐ฐ๐๐๐ญ ๐ก๐๐ฌ ๐๐๐๐ง ๐จ๐๐ญ๐๐ข๐ง๐๐ ๐๐ซ๐จ๐ฆ ๐ฌ๐จ๐ฎ๐ซ๐๐๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐๐ ๐ญ๐จ ๐๐ ๐ซ๐๐ฅ๐ข๐๐๐ฅ๐, ๐๐ฎ๐ญ ๐ข๐ฌ ๐ง๐จ๐ญ ๐ ๐ฎ๐๐ซ๐๐ง๐ญ๐๐๐ ๐๐ฌ ๐ญ๐จ ๐๐จ๐ฆ๐ฉ๐ฅ๐๐ญ๐๐ง๐๐ฌ๐ฌ ๐จ๐ซ ๐๐๐๐ฎ๐ซ๐๐๐ฒ.
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