⁠The Kobeissi Letter
BREAKING: China signals openness to U.S. trade talks but warns against continued threats.

S&P 500 futures extend gains to +2.5%. https://t.co/Z7O0iLNvoC
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⁠The Kobeissi Letter
Retail investors were just cheated:

Yesterday at 12:00 PM ET, US Treasury Secretary Bessent said he sees "de-escalation with China" and the current situation is "unsustainable."

These comments were provided at a CLOSED-DOOR investor summit hosted by JP Morgan.

This summit was not open to the public or to the media.

Then, at 5:18 PM ET, President Trump said tariffs on China "will not be as high as 145%."

Bessent effectively told a closed-group of Wall Street investors that de-escalation with China was coming BEFORE the public knew.

The result was a move of +5% in S&P 500 futures, for a total of +$2.2 TRILLION of market cap.

Investors at the JP Morgan event were able to front-run these headlines.

How is this fair for retail investors?
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⁠soken
RT @Ashcryptoreal: TARRIF DEALS ARE COMING

BULL MARKET IS BACK 🚀 https://t.co/auunW0IYS7
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⁠App Economy Insights
$TSLA Tesla just posted its worst quarter in 3 years.

What’s behind the slump?

🧨 Political backlash
📉 Deliveries down 13% Y/Y
🤖 Autonomy bet with execution risk

📊 Let's break down the numbers 👇
https://t.co/bFwx9N4oST
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⁠soken
RT @nostalgiafkninc: An America of 20 million https://t.co/3c7UEOSEq5
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⁠Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $LRCX 🧘🏽‍♂️

•NTM P/E Ratio: 16.66x
•10-Year Mean: 20.20x

•NTM FCF Yield: 6.80%
•10-Year Mean: 5.51%

As you can see, $LRCX appears to be trading below fair value

Going forward, investors can receive ~21% MORE in earnings per share & ~23% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $LRCX is a good business

BALANCE SHEET✅
•Cash & Short-Term Inv: $5.67B
•Long-Term Debt: $4.48B

$LRCX has a strong balance sheet, an A- S&P Credit Rating & 25x FFO Interest Coverage

RETURN ON CAPITAL✅
•2021: 40.0%
•2022: 46.8%
•2023: 39.3%
•2024: 31.3%
•LTM: 34.9%

RETURN ON EQUITY✅
•2021: 69.8%
•2022: 74.8%
•2023: 62.3%
•2024: 45.7%
•LTM: 50.4%

$LRCX has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2014: $4.61B
•2024: $14.91B
•CAGR: 12.45%

FREE CASH FLOW✅
•2014: $571.55M
•2024: $4.26B
•CAGR: 22.24%

NORMALIZED EPS✅
•2014: $0.44
•2024: $3.03
•CAGR: 21.28%

PAID DIVIDENDS✅
•2019: $0.44
•2024: $0.80
•CAGR: 12.70%

SHARE BUYBACKS✅
•2015 Shares Outstanding: 1.77B
•LTM Shares Outstanding: 1.30B

By reducing its shares outstanding ~26%, $LRCX increased its EPS by ~35% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 47.7%
•LTM Operating Margins: 29.7%
•LTM Net Income Margins: 26.5%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~21% MORE in EPS & ~23% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $LRCX has to grow earnings at an 8.33% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2028 EPS growth over the next few years to be more than the (8.33%) required growth rate:

2025E: $3.75 (23.7% YoY) *FY Jun
2026E: $3.88 (3.6% YoY)
2027E: $4.65 (19.8% YoY)
2028E: $5.50 (18.3% YoY)

$LRCX has a decent track record of meeting analyst estimates ~2 years out, but let’s assume $LRCX ends FY 2028 with $5.50 in EPS & see its CAGR potential assuming different multiples:

20x P/E: $110.00💵 … ~20.2% CAGR

19x P/E: $104.50💵 … ~18.3% CAGR

18x P/E: $99.00💵 … ~16.4% CAGR

17x P/E: $93.50💵 … ~14.3% CAGR

16x P/E: $88.00💵 … ~12.2% CAGR

While it’s certainly reasonable for $LRCX to trade for 18x - 20x, I wouldn’t want to rely on that assumption as it doesn’t leave us with a substantial margin of safety

Yet, $LRCX still appears to have attractive return potential if we assume 16x - 17x, a multiple that’s justified by its excellent capital allocation, wide moat & growth rate

Moreover, $LRCX derives a large portion of its revenues from memory chip production, which is a strong growth driver for the company

~40% of revenue comes from recurring-like services, making $LRCX more predictable softening sector volatility

Today at $63💵 $LRCX appears to be a great consideration, with some margin of safety

Given its high uncertainty, I’d buy in tranches and leave some room to add more if it declines further, e.g. 1/3 at $63, 1/3 at $55, 1/3 at $50
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦[...]

𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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⁠The Kobeissi Letter
Keep watching the U.S. Dollar:

As the S&P 500 rises +5% in 2 days on “tariff de-escalation” headlines, the U.S. Dollar Index, $DXY, is up a mere 0.2% today.

The U.S. Dollar is just about the only asset not buying these headlines today.

Furthermore, the U.S. Dollar has been a key leading indicator of trade war sentiment.

It’s almost as though the U.S. Dollar thinks U.S. trade headlines have lost credibility.

Something is off.
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⁠The Kobeissi Letter
BREAKING: Vietnam says it has started trade talks with the United States.

This is at least the third time it’s been reported that trade talks have “started” between the U.S. and Vietnam.

Days ago, it was reported that the U.S. and Vietnam were close to a deal.
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