Europe

Forensic Alpha

Most companies provide a detailed breakdown of overall inventory in the notes to the accounts, showing how it splits into "Finished Goods", "Work in Progress" and "Raw Materials". Forensic Alpha’s systems can now extract this data and analyse changes over time to alert investors of any concerning patterns. European stocks flagging as "high risk" for both DSI and Inventory Breakdown include GN Store Nord, Pandora, SCA and Vestas Wind Systems.

CTFN

Consumer Discretionary

888 is unlikely to accept a takeover offer for the time being, according to CTFN's industry sources. This follows an article in the Sunday Times reporting that Playtech made a £1.56 per share offer for the company earlier this year. DraftKings has also held talks with certain 888 shareholders about an acquisition, but CTFN's sources said the company's founding shareholders, the Shaked family, would be unlikely to accept even a £2 per share deal. 888 is operating under new leadership and has a favourable debt package that gives it until 2027 to execute a turnaround.

Starling Advisors

Consumer Staples

BEI trades at an unwarranted 30% discount to L’Oreal - Alex Dwek sees untapped improvement potential for Nivea under a new leadership team focused on globalising / modernising the brand with bigger, fewer, and more impactful innovations and global marketing campaigns strategically focused on skin care to accelerate growth in large markets like China and the US. Alex also expects Eucerin to gain market share in dermocosmetics (a market growing double digits) and La Prairie to grow in the luxury segment. He forecasts MSD revenue growth for the foreseeable future and a margin expansion reaching 15.5% by 2025.

ResearchGreece

Energy

Following MOH's impressive Q3 performance, ResearchGreece makes big revisions to their forecasts. With refining market conditions expected to remain tight, they now estimate EBITDA of €1.5bn in 2023 (vs. previous estimate of €1.2bn), then €1.3bn in 2024 (was €906m) and €1.0bn in 2025 (was €627m). Furthermore, €1.9bn of total FCFE (post lease payments) is expected to be generated in 2023-26, which implies great dividend capacity (on top of investments). On a 20-40% payout ratio, ResearchGreece believes MOH can sustain a 7.0%-8.5% dividend yield. Valuation multiples (2024E): 3.5x clean EPS / 2.9x clean EBITDA. TP increased to €30.

Silk Road Research

Industrials

In SRR’s 3Q23 China survey report, channel checks indicated that KONE had outperformed the industry in terms of orders growth for the first time in over a year. SRR's latest dealer checks reveal that this outperformance has continued. While easy comps is one factor, industry contacts also cited management turnover at OTIS Electric (new China CEO effective Sept 1st) as having introduced a degree of uncertainty into the company, which may be benefiting KONE in the near-term. Other major brands mentioned for recent outperformance are Fujitec and Thyssen with Toshiba, Canny, Schindler and Yungtay underperforming.

Smart Insider

Industrials

Angela Strank (Non-Executive since 2020) buys £70,000 of stock at £2.69, increasing her stake by 60%. She has made a series of purchases into rising prices since her first buy at £1.44 in Oct 2021 and it's notable to see her now make her largest purchase post strength. It is also her largest purchase across her Director roles at Mondi, Severn Trent and SSE. Stuart Bradie (Non-Executive since May 2023) recently bought £248,000 of stock in his first purchase since joining in 2023. Smart Insider ranks the stock +1 (highest rating).

North America

Hedgeye

Communications

CHTR faces 1) a saturated market with home broadband and internet penetration rates well over 90%, 2) increased competition on the margin from fibre and fixed wireless, and 3) capital misallocation - expensive rural buildouts are resulting in higher levels of capex and declining FCF. Meanwhile, management continues to be adamant about repurchasing shares at 4.5x leverage. Ultimately, Andrew Freedman struggles to see how it can grow EBITDA. He made CHTR his top short idea at the end of Nov, which proved timely as the stock fell 9% earlier this week as management guided down for Q4 internet adds. With the shares trading at $368, Andrew still sees ~50% downside.

Portales Partners

Financials

While many are trumpeting the fact that GS is returning to its roots, investors should remember what those roots were and why investors and (GS itself) wanted to transform this organisation into something different. Charles Peabody loves a turnaround story and has been alongside Bank of America in the past, Wells Fargo, and more recently Citigroup, emphasising that it generally takes 5 years to transform a company. GS is no different. He would exit the shares and favours Citi as a turnaround, WFC as a work in progress about to exit a regulatory yoke, BAC as a play on rates, and JPMorgan as a defensive fortress.

Off Wall Street

Healthcare

EXAS’s Cologuard business (~75% of revenues) faces disruption from upcoming blood-based colorectal cancer tests by Guardant Health and Freenome, as well as competition from several new stool-based tests. Encouraged by EXAS management, OWS believes investors are underestimating these competitive threats. Meanwhile, the group’s strategy to expand beyond Cologuard appears to be floundering. A string of Precision Oncology acquisitions have shown little success so far and growth of the acquired businesses appears to be slowing significantly. TP $39 (40% downside) is based on 2.5x OWS's 2028 sales estimate of $3.5bn.

Paragon Intel

Industrials

Paragon Intel is positive on UNP’s new external CEO, Jim Vena, who took the reins earlier this year after a 17-month search. They believe the industry veteran will surprise sceptics by balancing early gains in operating efficiencies with volume gains driven by better service in a tougher labour and regulatory environment. Paragon’s research includes interviews with Vena’s former colleagues who worked with him for more than 90 years combined - there was only one critic - who cautioned that he lacks experience dealing with US regulators.

Gordon Haskett Research Advisors

Real Estate

GHRA 1) Examines the two most pressing class action lawsuits facing the industry (Sitzer/Burnett & Moehrl), which will likely determine the fate of secondary cases. 2) Explores the dynamics of eight other class action lawsuits across the US. 3) Compiles buyside exposure across a half dozen companies. 4) Runs sensitivity analyses to illustrate how topline challenges could impact EBITDA for Compass, Redfin and Zillow. 5) Analyses commentary from more than a dozen management teams to provide investors an in-depth view into how the US residential real estate industry is grappling with what could be the biggest regulatory-induced business model change GHRA has come across.

New Constructs

Technology

New Constructs uses their DCF model to illustrate the expectations baked into NVDA’s current stock price - sees 40% downside even with massive growth. To justify its current share price NVDA would have to immediately improve NOPAT margin to 38%; grow revenue by consensus in fiscal 2024 (101%) and 2025 (47%); and grow revenue 25% each year thereafter through fiscal 2038. This implies revenue hits $1.45trn, which is larger than Mexico’s GDP! Even if one assumes NVDA can maintain NOPAT margin at 35%; grow revenue by consensus in fiscal 2024 and 2025; and grow revenue by 20% each year thereafter through fiscal 2038, then the stock would be worth just $290 today.

MYST Advisors

Technology

A rebound in advance rates to propel FCF inflection / increased share repurchases - the alternative energy specialist who presented this idea at MYST’s Industrials Idea Forum last pitched RUN as a long in 2017 when the shares were trading at ~$4, before they rose to nearly $100. The company has faced several challenging years, but with the stock down ~90% from its peak and fundamentals beginning to turn, he believes now is a good time to revisit RUN as a long. His thesis is not predicated on lower interest rates and he does not assume a recovery in the overall residential solar market, as he believes the industry will remain challenged. TP $35 (150% upside).

AceCamp International

Technology

AceCamp recently interviewed a senior expert in the field of deep learning to discuss several questions including: 1) What is the architecture of the Gemini model? How does it compare to GPT-4? 2) When will virtual personal assistants or agents become a reality? 3) How to interpret rumours suggesting Google's next-generation TPU will not collaborate with Broadcom. 4) What is Google's plan for the penetration rate of AI search? How much does it cost, on average, to perform a query using TPU-based search? 5) What is the integration of SGE and traditional recommendation systems, including the processes involved? In which aspect does Google have an advantage?

Australia

Global Mining Research

Materials

On several metrics Rio Tinto now looks more attractive than BHP, but the difference is not that marked and partly explained by BHP’s large market cap. P/E, P/CF, EV/EBITDA, FCF yields and dividend yields are somewhat similar. For the coming year which one outperforms may be as simple as aluminium vs. met coal price moves, with copper favouring BHP. However, information flow in 2024 possibly favours RIO with good news from Oyu Tolgoi. With a positive outlook for copper and met coal, GMR prefers BHP for 2024 (upgrades to Buy; TP A$52). This is a non-consensus call with most preferring RIO. For best value and yield they prefer Vale.

Japan

LightStream Research

Consumer Discretionary

Mio Kato provides his take on the crossholdings sell-down - the trend of governance reform in Japan continues with Toyota, Toyota Industries and Aisin selling shares of Denso. Denso is buffering some of the flow impact by repurchasing roughly half of the shares to be sold. While the size of these moves is relatively large, Mio believes their impact could be disproportionately large for the market as a whole. He considers this to be further confirmation of the relatively positive backdrop for asset allocation away from China and into Japan, especially in the long-term.

Emerging Markets

Churchill Research

The Indonesian stock market is priced for bad times, but CPI has fallen sharply and the central bank should start cutting benchmark rates soon. While some companies are suffering cost creep and margin contraction, Mike Churchill continues to find plenty of stocks that are posting good earnings and decent top-line growth. Stocks recently added to his Classical Insights portfolio include: Bank Danamon, Bumi Serpong, Delta Dunia Makmur, Indofood, Jaya Konstruksi, Kobexindo Tractors, Mulia Industrindo, Surya Semesta and United Tractors.

India Independent Insight

With Bharat Connect Flash, Iii’s objective is to bring their readers on-ground insights based on interactions across key channels located in tier 2 & 3 locations, which they refer to as 'Bharat'. They anticipate Bharat to be India's next growth engine and, hence, the focus of their checks. Iii recently visited FINOPB’s Customer Service Centre to understand the bank’s offering and competitive moat. They visited a BYD showroom in Ahmedabad, with the objective of understanding the preference for EVs in India and judging how Chinese brands are now being perceived by the customers. Finally, channel interactions with a transformer industry executive suggests a strong tailwind for VAMP.

New Street Research

Communications

Despite the ~45% rally YTD, New Street continues to like the Brazilian Telco stocks. Wireless operator dynamics remain very favourable with FCF supported significantly for TIM in the near-term by Oi tower decommissioning, with a potentially broader reset for the industry relative to the Tower cos over the mid-term (part of a broader EM theme perhaps following IHS in Nigeria). New Street has lifted their estimates again after TIM's Q3 results (particularly EBITDAaL). With the IOC tax issue (elimination of tax deductibility) likely a 2025 issue at the earliest they see the stock continuing to run into 2024. TIM is preferred over Vivo at these levels on valuation and with higher wireless exposure.

TobaccoIntelligence

Consumer Staples

KT&G reported record-high quarterly revenues for the third quarter of 2023, with a significant contribution from its next-generation product (NGP) category. The company is also aiming to expand the production capacity of its NGP HTP business in response to the growing demand it has seen in domestic and overseas markets.

Blue Lotus Research Institute

Financials

Downgrades to Sell - Blue Lotus believes FUTU is stepping into a stagnant phase in 2024. Client asset inflow from overseas is not meaningful (overseas user quality (avg. client asset at HK$9k) is much lower than Mainland China/HK users (avg. client asset at HK$400k)) and growth from the mainland is frozen by regulation. Japan will not be a game changer either. There is slow progress in the restructuring of Moomoo Japan as well intensified competition and the “zero commission” environment will hinder Futu’s revenue gain from its to-be-launched Japan stock trading function. Blue Lotus expects Futu’s revenue growth to slow to 11% Y/Y in 2024E from 35% Y/Y in 2023E.

Lynx Equity Strategies

Technology

TSMC is enjoying renewed investor interest after its surprisingly strong Oct monthly sales. In KC Rajkumar’s view, the consensus bull thesis for 2024 - ASP increase as the 3nm node ramps, cyclical upturn in PC / smartphone - is inadequate. KC expects upside theme to TSMC’s consensus expectations next year includes significant 5nm demand from major cloud service providers - Microsoft’s newly unveiled AI accelerator chip and Amazon’s newly unveiled Graviton-4 CPU. Relative to Nvidia, KC believes TSMC is an inexpensive vehicle to invest in the AI theme as MSFT's internal AI program makes a major effort to find an alternative to NVDA’s GPU. TP NT$750 (30% upside).

Developed Markets

Global Macro Investor

Raoul Pal has believed that since 2008, business cycles are largely in sync all around the world, driven by the global debt jubilee when rates were set to zero. When the interest payments inevitably rise, GDP growth falls below the cost of these payments, and a cycle later these payments end up on the balance sheets of central banks, debasing the currency. This has created a near-perfect cyclicity in the global economy hitherto unimaginable. The next step for Raoul’s The Everything Code was for the Fed to go on hold, and next up should be the end of QT and rate cuts in 2024. This is the path of The Everything Code, which if it plays out will be the greatest macro trade of all time. How to take advantage? There’s a lot that investors can do, but Raoul believes that Coinbase and Tesla will both massively outperform next year, and Solana and Ethereum even more.

Belkin Report

A deep dive into the model forecast for economic indicators suggests a major business cycle downturn is starting, according to Michael Belkin. PMIs across the board are already for negative, forecasts are pointing down, economic contraction is underway. This is great for government bonds, with TLT a top LONG recommendation. The US Dollar remains a top SHORT recommendation, with the decline a great opportunity for gold and silver, with a major bull market now underway. The sector rotation forecast does not support a stock market rally, investors should look to overweight defensive bond-like stock market sectors and underweight and short tech, financials and cyclicals.

Intertemporal Economics

Economic analysts face a perverse incentive to be the first to predict a recession. However, Brian Pellegrini comments that these forecasters have fallen into a methodological trap as a result. There was indeed a growth downcycle, likely driven by monetary policy feeding into financial conditions, which was the recession that today’s bears were looking for. In contrast, recent bearish signals being sent by indicators such as the LEI are the result of outdated indicators and capacity constraints. Furthermore, there is a difference between growth slowdowns caused by demand restriction and those caused by capacity constraints, which prior to 2019 existed only in history books. Unless there is a massive increase in productivity or a large-scale recession that opens up excess capacity, we are cursed to live with the consequences.

PPG Macro

For the past month, Patrick Perret-Green has been more upbeat about the UK economy. While Andrew Bailey says the UK’s potential growth trajectory is the worst he has ever seen, the latest Lloyds Business Barometer has continued to gather pace, returning to 2021-22 levels. The outlook for the next 12 months is even stronger: at +48, it’s the highest it’s been since the end of 2017 (see chart). However, businesses’ own price expectations rose to a new high against the CPI index, but Patrick says this should not come as a surprise given the recent PMI that showed renewed signs of sticky inflation in November. There’s also the Lloyds price expectations against CPI and the 10-year gilt less Bank Rate (chart 2), which is starting to look like a Dirty Harry chart.

Grey Investment

The DAX recently returned back to resistance around the area of the 2021 peak, and a weekly close above 16,750 would suggest the 2-year ceiling has been conquered and an advance to around 18,500 was underway. The next long-term target is around 24,000, triple the 2000-13 ceiling of 8,000. MACD looks to be turning up again and RSI has room for another test of Overbought 70. The Grey Investment team remain 50% LONG from 15,119, with a stop a daily close below 14,313.

Eurointelligence

Wolfgang Münchau discusses the growing problems in Sweden, the epicentre of Europe’s real estate crisis. One firm, SBB, has been hit particularly badly, with shares plummeting above 66 krona to around 4. SBB’s woes reach beyond Sweden, however, with the ECB owning SBB bonds as part of its portfolio. The problem isn’t with the resulting losses, but rather the role the ECB itself played in the property bubble to begin with. In 2016 it warned of such a bubble forming, yet was buying up bonds in firms like SBB. If the real estate sector’s problems become a more serious issue, there will have to be an appraisal of how monetary policy decisions contributed to it. Achieving an objective at the expense of collateral is one thing, but causing the damage whilst struggling to meet the objective is another.

ImagineAlpha

The latest Jolt data has reinforced Carlos Daurignac’s view of the labour market. The spread between the Jolts and the total unemployed (black – rhs in the graph below) is closing in the US. At 2.2M it is where it stood in July 2021. At the peak of the previous FED tightening cycle in 2019 the differential stood at 1.4M and at the peak of the 2007 cycle it stood at 0.75M. As a consequence of Jolts declining and unemployment rising, the steepening of the US yield curve (2y10y inverted – blue - lhs) is only in its infancy but will carry on for months to come. There is little doubt about the direction of travel more about the pace. The market has decided to take the “fast lane”. Will the central banks follow?

Quill Intelligence

Spillover risks to the labour-intensive service sector are multiplying. Manufacturing New Orders, Shipments and Inventories are contracting simultaneously. Manufacturing New Orders fell -2.1% YoY in October while Shipments fell -1.6% YoY and Inventories fell -0.3% YoY. The falloff in Lightcast Job Postings and subnormal credit extended to services also signal a build into a labour market recession. An unprecedented negative reading on hospitality via Canada, where Americans regularly flock, flags the stalwart of US travel as the next vulnerability to be exposed.

Emerging Markets

The Macro Compass

Alfonso Peccatiello claims the EM complex is under-owned and is overall a cheap and sensible exposure to have. Looking through a long list of countries, he has created a shortlist of three darling EMs to own. First comes Malaysia, a net commodity exporter with a new government keen on structural reforms, and an equity market that trades at an acceptable 15.0 forward P/E. It will benefit from global supply chains shifting away from China, as will Indonesia, Alsonso’s next choice. The recent banning of unprocessed export nickel shows how Indonesia could attract investments going forward, and the market trades at a 13.5 forward P/E. Last but definitely not least is Poland, which is a productive economy that has beaten most of its European peers in per capita GDP growth, has a new government headed by ex-European Council President Donald Tusk, and has an equity market trading at a meagre 8.0 forward P/E!

Heckman Global Advisors

In her latest EM equity allocator, Leila Heckman remains underweight emerging Asia and China. There are more downward than upward revisions to earnings estimates, although 12-month price momentum has improved. However, Leila has increased her overweight in Taiwan, with a strong price momentum and upward GDP growth revisions, as well as Malaysia. In emerging Europe, ME and Africa, several EMs are overweighted, including Hungary, Greece and Poland. Turkey remains overweighted, but Leila urges caution with a high inflation environment and raised short-term interest rates. LatAm continues to be underweighted with the exception of inexpensive Brazil, with an improved GDP forecast, easing monetary policy and narrowing sovereign risk spreads over the last 24 months.

Alberdi Partners

In the absence of presidential elections in 2024, discontent will be channelled through street demonstrations and protests throughout South America. Marcos Buscaglia expects growth to be varied, with Brazil’s economy due to slow down, thus dragging down LatAm’s average growth rate, and Argentina’s to fall drastically in Q1 before rising from then on. However, growth in the Andeans will accelerate to 2%. LatAm currencies will strengthen, driven by high interest rates, higher commodity prices and stronger capital flows into the region; Marcos expects the BRL, CLP, COP and PEN to strengthen by 5%, 4%, 6% and 4% in bilateral terms against the USD, respectively. Marcos’ forecasts for falling inflation are below consensus, a by-product of his call for stronger-than-consensus LatAm currencies.

Greenmantle

Niall Ferguson and his team spent a week in mainland China and Hong Kong, speaking to authoritative policymakers, academics, entrepreneurs and financial elites about the country’s economy. They also engaged in high-level diplomatic talks between China and Australia over the past month. Now, Niall is even more convinced that some of the worst financial and macro-economic risks to the economy have passed, with some silver linings or green shoots emerging in key sectors, particularly EVs and green tech. On geopolitics, we are entering a period of sustained détente between China and the US. China’s economy isn’t out of the woods yet, but the recovery now resembles more of a U-shape than an L-shape.

PRC Macro

William Hess continues to believe the recent rebound to the RMB exchange rate reflects a domestic cyclical inflection point. Although this has been helped by a weaker dollar and SOE bank buying, William believes this momentum can be sustained in 2024 as the effects of the manufacturing restocking cycle and official efforts to revitalise FDI and portfolio inflows take over as supporting factors. The restocking cycle will be driven by steel, energy, chemicals, healthcare and consumer electronics, and will last until Q4/2024, helping to bring GDP growth to 6% YoY. Moreover, pending dollar sales by Chinese exporters will accelerate the pace of RMB appreciation against the dollar – William reiterates his call that USD/CNY will return to the 6.9-7 range by the end of this year, and 6.6-6.7 by 2024’s end.

East Asia Econ

Paul Cavey’s model for the CBC’s reaction function continues to indicate a central bank firmly on hold. The inflation data for November doesn’t argue against this view yet does not confirm that this is indeed the path that Taiwan is following. Prices in the PMI do suggest real downside risk for CPI inflation, but other indicators don’t; the manufacturing PMI is weak but has been so for months, and non-manufacturing sentiment doesn’t appear to be fading. Exports will really have to surge to produce an upside surprise in rates, but the case for a rate cut is not clear. If rates remain on hold when the rest of the world is cutting, that will reinforce the pressure for a stronger currency that would usually be expected to accompany an export recovery.

ESG

Sustainable Market Strategies

Rising interest rates were detrimental to renewable energy stocks in 2023, underscoring that using solely renewable energy plays as short hand for climate change investing is myopic and risky. The consequences of climate change go far beyond a low-carbon energy transition and the associated investment opportunities (and risks) are equally numerous and varied; building an environmental portfolio requires careful consideration of the macro backdrop. In the current macro context, the Sustainable Market Strategies team find US plays particularly compelling. Newly listed Veralto Corp, Owens Corning and Weyerhaeuser are three companies that should do well next year and are tackling three distinct environmental problems.

Saltmarsh Economics

Post COP-28 there will be much more focus on emissions by country, and investors can be expected to start to more systematically rank sovereigns, as well as credit and equities, on climate grounds. The Saltmarsh Economics Climate Index (SECI) already takes account of 60+ metrics in over 50 countries and was recently flagged as a tool to help central banks better manage their reserves in the transition to net zero. This could lead to substantial portfolio shifts, and ultimately lead to the central banks holding fewer dollars, but more euros and sterling. With climate challenges potentially raising government debt-GDP levels in advanced economies by 10-15% by 2050, investors need to be prepared.

Commodities

Steno Research

The Saudis exported much more than they were supposed to ahead of the recent OPEC meeting, and there is no conviction in markets that OPEC will manage to take the control back. The issue for the group is that the US energy balance is stronger than ever, and that Biden’s got an SPR to bill, meaning the US would welcome a sudden flooding of the oil market with open arms. The 2014 playbook isn’t a feasible option for the Saudis, which makes continued cuts the only reasonable path ahead despite the strategy failing miserably currently. Andreas Steno is cutting his losses in the energy space here and comments that he will need to find a firmer footing in price action to consider getting involved again.

CPM Group

After strong gains on Sunday evening, gold and silver prices relapsed back to previous levels. CPM Group’s Jeffrey Christian discusses the reasons behind the price movements and what investors can expect moving forward. Following the update to CPM Group’s long-term Platinum Group Metals Outlook, Jeff also shares some updates on PGM Markets. He discusses CPM’s views on platinum, and how the PGMs can provide incredible opportunities for investors.
Click here to watch.