Report by CHA-AM Advisors

In the latest edition of David Scott’s A Strategist’s Diary, he argues that the jet-fuel panic has become an “ex-crisis”, with investors too quick to extrapolate higher fuel prices into a broader inflation problem. Instead, he sees demand destruction, airline fare discounting and rising supply from the US and China as evidence that the shock is already mean reverting. The investment implication is contrarian: sectors he would normally avoid, including airlines and state-owned Chinese oil/refining names, now offer compelling valuations. David highlights PetroChina and CNOOC as surprisingly well-run and still cheap despite strong prior returns, while also finding opportunities across global airlines including Spring Airlines, Delta, Ryanair, Eva Airways, IAG and IndiGo.

Report by Willis Welby

Methodology - the initial universe are stocks with $2bn+ M/Cap. After that Willis Welby starts with a quality cut off based on their measure of Intrinsic Return on Capital Employed. They then narrow down using a combination of share price momentum and EBIT revisions before incorporating their expectations analysis via their measure of the implied to Y3 EBITM ratio. This has been another month of low turnover for the UK screen and it is notable that stocks coming in are exclusively in Consumer Services with the return of three retailers (B&M, Pets at Home, WH Smith) and Flutter. The four stocks leaving are Burberry, IAG, Hikma and Serco.