Europe

Holland Advisors

Consumer Staples

A lollapalooza opportunity - where strong growth, pricing power, resilient market share and great allocation all come together. Post spin-off of the cigar business c.95% of EBIT will come from smoke free products, but it is the potential of the company’s ZYN pouch product in the US which Andrew Hollingworth is most excited about. His analysis looks to dispel investor concerns around rivals’ attempts to gain market share by undercutting ZYN's prices. Andrew has also built two models to look at what the future compounding of SWMA might look like - results in 12% and 19% annual returns over the next 7 years.

Energy

Accelerating competition in hydrogen electrolyzers the key reason for continued Sell recommendations - as the industry moves to scale production (post 2025) industry dynamics for EU OEM electrolyzer incumbents turns negative: tech becomes diffused, advantage shifts to the “lowest cost at right performance” and more vertically integrated players gain share. Prior to 2025 green hydrogen production will disappoint - models only 3MW vs. EU target 6MW & Street ~4.5MW. Real demand from new industries will only really start in the 2030’s - ITM and NEL are unlikely to be independent by then and both will have to raise capital in the next few years.

Intron Health

Healthcare

Using Intron’s extensive proprietary database of 617 drug approvals and the outcome of 404 P3 assets, they show concrete evidence that the rate of innovation across the BioPharma industry is accelerating. They believe it’s almost impossible that the sector isn’t making a supernormal ROI on R&D. Based on the burgeoning output of the industry Intron shows that EU Big Pharma still looks undervalued. Their top picks are Sanofi, AstraZeneca and Novo Nordisk.

Healthcare

What to do with all the cash?! Management’s track record in M&A bodes well for ALBIO - having become a European leader in Covid antigen tests ALBIO now boasts €115m net cash and this war chest is expected to reach c.€150m by the end of the year (representing more than three quarters of the current M/Cap). On FY23 estimates ALBIO is valued at barely 0.2x revenue and 1.1x EBITDA (lowest multiples in the Covid testing industry), French small-caps expert Julien Onillon sees substantial upside. TP €28.00 (55% upside).

Vision Research

Industrials

Trades more than $30m/day and has short interest below 5% - over-earned in 2021, faces increasing competition and bullish estimates, and its inventory accounting method may have unsustainably boosted margins.

Vision Research aims to find liquid, non-consensus, fundamental US & European shorts, generating ~25 new ideas p.a. The shorts initiated by Vision during 2021 have fallen an average of 9%, with average alpha of 16%. Stocks that fell more than 25% included Peloton, UiPath, Allegro, Boohoo, Traeger, Children’s Place, SimilarWeb and Vital Farms.

Forensic Alpha

Technology

Disconnected from reality - bullish on future demand, the company was comfortable building inventory ahead of sales in 2021, and it was a bet that paid off nicely. However, with the Christmas season over, inventories remain elevated even though growth in 2022 is likely to be far lower. What’s more, disclosure in the 10-Q reveals that management have made large non-cancellable purchase commitments that could lead to inventory rising even more. Shifting tech hardware in a slower demand environment may necessitate promotional activity. Forensic Alpha’s price checks suggest this process may already be under way.

North America

Sales Pulse Research

1) The acceleration from legacy security solutions to the newer generation of solutions - SASE / shake-up of enterprise networking and network security (Zscaler, Cloudflare, Palo Alto Networks).
2) Leverage of AI in cloud-based communications and collaboration (CCaaS) to the advantage of vendors who are separating themselves from commodity services and pricing (Five9, NICE). Changing competitive landscape as Zoom, Microsoft, and others collide in the large and growing UCaaS market.
3) Further strength in BI / Analytics / Observability to the benefit of vendors with the strongest cloud-based solutions (Datadog, Dynatrace), but more mixed results from vendors transitioning to SaaS (Teradata, Elastic).

New Constructs

Communications

Still overvalued by at least $114bn - the firm is a bait fish in a tank filled with sharks. Considering the subscriber miss in 4Q21 and weak guidance the flaws in NFLX’s business model are undeniable. New Constructs uses their reverse DCF model to show the implied value of NFLX under a scenario with a realistic assessment of the mounting competitive pressures it faces. There’s 66% downside if margins fall to the 5-yr average (9.2%) and revenue grows by 11% compounded annually through 2027 (and this assumes YoY change in invested capital is only 10% of revenue vs. an average of 24% p.a. since 2013).

Veritas Investment Research

Communications

The case for a major comeback - already disappointed that Rogers didn’t take CCA out, the market is terrified management will embark on a long, expensive wireless network build-out. Veritas do not believe that this will be the case. Shaw and Quebecor have already proven how expensive it is even to try, and there are better ways to build out a wireless business without destroying $1bn+ in capital. CCA’s shares are discounted by 2-5 turns of EBITDA vs. peers. CCA only needs to be rational with its wireless expansion for shareholders to reap attractive returns - a very low hurdle. TP C$130 (60% upside).

JJK Research Associates

Consumer Discretionary

JJK looks for the consumer’s appetite to renew normal living to support upside across PVH, Victoria's Secret, TJX and Ulta Beauty. Demand driven by a return to work, social activities and travel should fuel continued demand strength for apparel, accessories and beauty. With strong evidence from the luxury players including LVMH and Capri Holdings, JJK expects the consumer’s strong demand for these categories to be sustained, with little resistance to elevated pricing.

Customer Growth Partners

Consumer Discretionary

Building momentum at home and abroad - very strong Holiday season at Coach and Kate has continued in January as they benefitted from a more focused distribution structure and enhanced pricing discipline. Coach is riding the crest of an elevated market positioning and the return of lapsed customers to the brand, while Kate appears fully back on track. TPR is a hugely improved company under CEO Crevoiserat and her next challenge is to buy (or build) a new luxury pillar of growth, well beyond TPR's smallish Weitzman brand.

Two Rivers Analytics

Energy

The trend is inevitable - in the near term, the market will increasingly favour renewable diesel over the biodiesel which dominates REGI’s portfolio. REGI’s unfavourable mix will lead them to post earnings disappointments. In the intermediate term, feedstock competition from oil majors will compress REGI’s margins further, leading to more disappointments. Longer term, hydrogen will displace diesel first in California (the LCFS market) then more broadly in the markets that are critical to REGI: transportation.

Portales Partners

Financials

Downgrades to Sell following 4Q21 results - Charles Peabody cuts his 2022 EPS estimate from $7.50 to $6.65, which implies an RoTCE of ~8.5%. Capital returns should prove constrained and uneven. The fourth quarter fundamental metrics were weak, the monetisation of Banamex will take time to accomplish and the much-anticipated March Investor Day is likely to show that any turnaround is going to be a slow, grind-it-out, multi-year process. In short, there’s no silver bullet that will get Citi back to a 12% RoTCE anytime soon, and those returns are still likely to prove to be subpar relative to its peer group. TP $55 by summer 2022.

Obex Capital Research

Technology

Guess it wasn’t just a pig through a python…but is this a compounder on sale? While eBay alone is not the reason PYPL’s stock crashed 25% this week, Aaron Gabin believes management kitchen sinked this quarter and its guidance. Once PYPL works its way through the tough comps, the narrative for 2H22 is a great one…reaccelerating growth, which will put it back in the hearts of GARP investors and compounding earnings 20%+. He thinks 2022 EPS comes in closer to $5 than the $4.70ish guidance and if PYPL returns to 20% EPS growth in 2023, we’re looking at $6 in earnings, putting it closer to a 22x P/E on today’s stock price, which is a very attractive entry point.

Technology

Poised to outperform - Northcoast's proprietary contract tracker points to a record quarter of bookings in 4Q21. They are expecting the shares' momentum will return, and return in a big way in 2022 as the company continues its streak of driving revenue and profitability growth above a combined 40%. AXON has laid the heavy groundwork building out its sales staff in new international markets, jails / correctional facilities and Federal agencies. Additional growth will come as agencies move up the value chain to add new features with its VR training modules the biggest draw for customers. TP $237 (70% upside).

Huber Research Partners

Technology

Sentiment is going down, but numbers are going up! Ignore the cacophony of near-term issues/noise - Street downgrades (expectations that growth will be compromised by disruptors) are unwarranted according to Douglas Arthur. While he expects some disruption, he does not expect NLSN’s central role as currency to change much, if at all - and neither do the major Ad holding companies, who at the end of the day call the shots. Trades at 7.1x forward EBITDA despite emerging financials not that different from higher-valued peers: MSD organic growth, mid-40%’s EBITDA margin, improving balance sheet and heightened potential for a stock buyback. TP $35 (90% upside).

Japan

LightStream Research

Industrials

Margin mayhem - valuation bubble bursting? Nidec missed 3Q consensus as operating profit came in 12.6% below consensus despite a 5.8% beat at the top line. The deterioration in profitability across the Auto, Machinery, and Appliance, Commercial and Industry businesses is a significant concern. It also suggests that consensus expectations for 22.6% OP growth next year (to ¥236bn) may prove highly optimistic (Mio Kato is forecasting a significant decline; expects ¥170bn). Nidec’s EV/EBIT multiple had risen as high as 45x recently. Mio believes 10x is more appropriate; 15x if you are bullish the EV business which he is not.

Emerging Markets

Niko Partners

1) China’s regulatory approach will shift from reform to enforcement; upgrades the risk of a Steam International ban in China to high.
2) Gaming companies will capitalise on the metaverse trend better than tech companies, but it’s still too early for the concept.
3) App store take rates - as pressure continues to build, expects platform holders to make further concessions this year.
4) Korea and Japan to continue deregulation of the gaming and esports industry.
5) India will have 400m+ gamers in 2022 and will be the next billion-dollar games market.

Niko’s 2021 predictions can be found here (9 out of 10 came true).

Creative Portfolios

Financials

Paul Hollingworth reveals that of the large EM banks, Itau Unibanco and Santander Brasil are producing a prodigious quantity of NNNPLs relative to their Equity. Of the large global systemic banks, Banco Santander stands out as a vulnerable entity (trouble stems mainly from LATAM). Broadly, it appears that banks in India, Peru, Colombia, South Africa and Brazil are generating a swelling quantity of NNNPLs. Conversely, Greece is reducing NNNPLs at a phenomenal rate.

Edge Research & Consulting

Healthcare

Market leader in the Bangladesh Pharma industry with ~17% market share. It has RoIC of ~40%, net margins above 30% and net cash/M.Cap of 25%. Trades on a forward PE of 10.7x. Square had seen a major derating in its multiple over the last 5 years. However, there has been a clear turnaround with double digit top line growth from 2020-21, which is continuing with latest quarter revenue and EPS growth of 15% and 21% respectively. With the onset of Omicron, Edge Research are expecting a further boost to revenue. Meanwhile, the company has also resolved the management gaps and removed all loans to sister companies. Square looks poised for a multi-year rally.

BlackRobin Group

Real Estate

Hong Kong property developer Country Gardens and Logan Group both tapped the convertible bond market during the week leading to the New Chinese Lunar Year with 4-year USD 500m and USD 250m equivalent issues, aiming to refinance offshore debt. These partial refinancings may pave the way for more equity-linked issues and invite investors to re-consider the battered property market as the PBOC ease monetary conditions and revisit access to liquidity.

Horizon Insights

1) Wind & Power installations to enter a high growth stage after 1Q22 (Ningbo Orient Wires, Luoyang Xinqianglian).
2) PV installations to see strong demand this year. Alpha opportunity re. granular silicon (GCL-Poly); industry beta opportunity of PV EVA film is also clear (Hangzhou First Applied Material).
3) EV Supply Chain: Upstream lithium sector will be the only area that can justify the high valuation due to unbalanced demand/supply dynamics (Keda Industrial).
4) Two-Wheel EVs: New safety standards will see leading companies further increase market share (Yadea).

Developed Markets

Suttle Economics

The shift from QE to QT in 2022 will take just 6 months. Phil Suttle points the blame towards the optics and market difficulties associated with huge central bank balance sheets, as well as the inflation fundamentals. His latest report predicts who does what in the months ahead, with an underlying belief that we will see rates in most DM economies rise above 3% by 2023’s end (excl. EMU and Japan) - without QT, they’d need to be even higher.

Blonde Money

The departure of Munira Mirza, one of Boris’ close allies, was done to distance herself from the occupants of Number 10. It highlights that even the PM’s own friends question his behaviour and integrity. The process of finding Boris’ replacement is accelerating even faster, claims Helen Thomas, generating its own unstoppable momentum – expect a No Confidence vote next week and a new PM soon, alongside a new Chancellor.

Eurointelligence

The consensus narrative sees the reappointment of President Sergio Mattarella as a catalyst of stability to politics and the economy, but Wolfgang Münchau isn’t so optimistic. Not only is it a red flag – it was against Matteralla’s own wishes – but the relief in the continuation of the status quo will instil a false sense of security in the short-run and bring forth long-run instability. Political chess moves are still being played and observers should remain wary.

Greenmantle

The European labour market has clearly weathered the pandemic much better than it did the Eurozone crisis. Niall Ferguson believes the combination of a decade of structural reforms and the recent expansion of EU fiscal policy will drive strong jobs growth over 2022-23. Although labour shortages aren’t excessive, Niall expects wage growth to accelerate over the coming months, and expects the ECB to accelerate its hiking schedule from 2023 to 4Q22. As markets price this in, expect the euro to recover some strength over the next two quarters.

RW Advisory

Ron William believes that the endgame of the secular bull-market and grand finale of the Minsky risk, marked by irrational exuberance, is due to arrive soon. We’ll see the end of a 3-stage correction beforehand; when the endgame hits, expect it to be led by cyclicals/value, whereas defensives and growth-technology will underperform. With the S&P500 increasing sharply after Ron’s publication [24th January], is his prediction about to come true?

Andrew Hunt Economics

Andrew Hunt expected US liquidity conditions to tighten sharply in Q2/2022, but it is occurring ahead of schedule. Worryingly, it is occurring in a way that is invisible to the FOMC and the Fed may be on the cusp of a policy error. Liquidity is being withdrawn alarmingly fast from a system ill-repaired to deal with the consequences; the swing in the US BoP, sharp rise of finco leverage and asset price behaviour all hint at systemic fragility within the financial system.

Perma-hawk Kansas City Fed President George called for Fed balance sheet run-off as a substitute for rate-hikes. TrendMacro predicted the Fed would take this view as a means of catering to the present intense and politicized concern with inflation, while doing no economic harm. Last week's FOMC published a special statement drawing attention to balance sheet run-off, and now the most inflation-phobic Fed spokesperson has endorsed it. It is a harmless placebo to administer while inflation resolves itself.

Renaissance Macro Research

Commercial Real Estate (CRE) has been left out in the cold in recent years. Good news, Neil Dutta believes it is behind us. The sluggish CRE rebound is understandable once you understand the dynamics within, and a commercial construction boom is on the horizon – yes, remote work will shake things up, it just means the type of CRE builds will evolve accordingly. For investors looking to grab higher yields, CRE properties make a lot of sense, and the Fed can’t rain on this parade.

Emerging Markets

CrossBorder Capital

The collapse in Central Bank liquidity is adding a fierce headwind for investors in 2022. This will be a year for capital preservation. However, not just Global Liquidity matters; investors’ risk positioning is also affected by economic developments. Michael Howell argues that latest daily data points to weakening economies and may itself warrant lower equity exposure. The exception here is China, where already low investor holdings of stocks is starting to confront a strong pick-up in positive economic surprises.

PRC Macro

Xi’s common prosperity agenda is at odds with the government’s top-down initiatives to curb quasi-fiscal debt. It just won’t work. William Hess expects no easing on front-end financing for property developers in 2022, and predicts govt fund revenue and expenditure to fall by RMB 1.5-2trn which will offset the impulse from a larger effective broad deficit. In the absence of much stronger easing from the PBoC, the effective augmented fiscal stance in 2022 will be neutral at best.

Greenmantle

Beijing will have to put rebalancing, decarbonisation and deleveraging on the backburner as it gears up for President Xi Jinping’s third term in October. Niall Ferguson expects more monetary and fiscal easing this year, leading to a modest recovery in Chinese equities—even though Chinese tech is not fully out of the regulatory woods. As the PBoC diverges from the rest of the world with its easing bias, Chinese bonds should rally. Meanwhile, the CNY is poised for a slight weakening.

Totem Macro

Whitney Baker explains how India’s position in the world remains uniquely strong; from political to economic factors, they all point to the reason why Indian domestically-geared value plays (like the beleaguered public banks) warrant a structural growth premium. Yet, they trade at a historically large discounts vs. the index. Whitney believes the Indian new economy froth will unwind, and the cheap public banks will rally in the face of domestic drivers pushing up profitability and valuations. Go LONG the public bank index vs short the overall market.

Oxford Analytica

Modi and the leaders of all five Central Asian republics recently held a summit. It will lead to greater collaboration between the nations, especially on energy matters through improved gas pipeline progress and greater nuclear cooperation, which could well prove useful in pushing back on the growing influence of Beijing. Nevertheless, the lack of physical connectivity will impede heavily on hopes for greater economic progress between the nations.

Capital Alpha Partners

Capital Alpha Partners predicts military conflict at scale in the coming weeks and their recent note reviews sanctions that are likely and their risks and limits. One of the main issues would be the uneven impact sanctions would have on Europe and other countries. Can Europe survive painlessly without Russian gas? No. Demand could be curtailed even in food markets, with higher food prices triggering political instability. Hitting Russia with certain sanctions could weaken the effectiveness of future sanctions. It’s not an easy choice.

Commodities

Despite current geopolitical events, John Karle maintains a sceptical perspective on crude oil and doubts the durability of the current trend. His thinking is underpinned by the analysis of the extreme backwardation of the forward curve of the WTI – front-month crude is more than $6.50 above the 12-month strip. The premiums investors are willing to pay for prompt delivery are historically excessive and have routinely preceded significant declines – every time since 1984 that similar premiums occurred, one-month losses have exceeded -20%. Increase short exposure and use a closing stop above $90.

Global Macro Investor

With huge demand for Raoul Pal’s Exponential Age Digital Asset Fund of Funds, so far $100m+ has been put into the markets into the sell-off and the list of large institutions and family offices looking to join Raoul’s fund is growing by the day. Raoul sees an age of exponential growth coming as AI, blockchain, robotics, and tons of other advancements all combine together to bring forth unparalleled expansion. He frequently recommends short- and long-run trades to take advantage, with recent suggestions including BUY crypto (ETH and Solana), ARK, NDX and USD.

Global Mining Research

Headwinds from labour shortages and inflation have made 2021 performance lacklustre, but factors that usually favour gold, such as inflation and geopolitical risk, are clearly on the rise. Growth capital expenditure is set to more than double the rates of a few years ago at ~US$375/oz in FY22 in order to satisfy investors. David Radclyffe’s preferred exposure to Aussie gold is through Northern Star Resources and Evolution Mining (recently upgraded to BUY), whilst St Barbara falls in last place as difficult choices lay ahead.

J Ganes Consulting

Judith Ganes predicts headwinds in the year ahead for goods demand. Cotton is most vulnerable: if the weather is favourable in spring and the acreage is bumped up on high prices, there will be significant stock build. The FCOJ market, raced higher on tight supplies, can be resolved with Mexican product. Cocoa demand could ebb but it is better weather that renders the market vulnerable for a hasty retreat. Improving conditions keep sugar amply supplied, but to what extent all depends on the direction of crude prices.

CPM Group

Jeffrey Christian discusses in his latest video the future of the precious metals and the implications for investors. Jeffrey examines the transition to EVs and the roadmap, present and future PGM mine supply and predictions for market prices. CPM Group also provide the only independent source of PGM supply and demand data, not produced by a group that markets/sells PGMs. Click here

ERA Research

North American OSB markets have shifted into high gear, with benchmark North Central 7/13” prices up by $145, to $800 over the last three weeks (see chart). While demand has been robust, supply shortages have had greater impact on the market. Despite two OSB mill restarts in 2021, prices have not begun cycling back closer to historical averages and higher prices are here to stay for another couple of years. To play it, go for West Fraser Timber and Louisiana-Pacific Corp.