The ways to use FCF yield to pick stocks
Trivariate Research's latest report analyses FCF trends of US corporates, both yield and conversion, efficacy of the signal and opportunities that may surface when financial conditions tighten. Key findings include: 1) FCF yield works in SMID cap and middle quality best. 2) From a sector perspective, it is effective in Machinery; volatile in Healthcare. 3) FCF yield matters more when financial conditions are loose. As soon as it begins tightening, de-emphasizing FCF yield and focusing on FCF conversion to pick winners from losers in “junk stocks” is prudent. 4) Quantitatively derived longs include Cigna, Cummins and Centene. Shorts include Elevance Health, Humana and Xylem.
Edition: 187
- 31 May, 2024
Nexans (NEX FP) France
Industrials
Sean Maher adds NEX his green grid infrastructure basket (includes Rolls-Royce, Cummins, Ming Yang) after unjustified YTD weakness on a 14x PER, a 3-point discount to Italian rival Prysmian. Sean highlights NEX’s recent agreement with TenneT (largest in its history) and successful testing of the first 525 kV DC cable which enables a substantial increase in transmission capacity. Furthermore, as digital decoupling from China extends to subsea data infrastructure, what was already a very strong growth market driven by international data volumes in providing highly sophisticated multi-layer cables now has a further tailwind from national security led duplication and redundancy.
Edition: 163
- 23 June, 2023
China: Domestic excavator sales well below expectations
Industrials
Mar sales growth deteriorated to -48% Y/Y from -41% in Jan+Feb, bringing 1Q23 sales to -44% Y/Y off a weak comp (1Q22 -54%). Weakness was broad-based (excl. the mining sector which continues to enjoy strong demand). With Mar historically the most important month of the year (~20% of annual sales), the latest data does not bode well for FY sales. SRR’s conversations with industry contacts suggest that Apr (the second most important month) has not started well either. If the recent trend persists, industry sales could be tracking closer to 70-90K units (-40-50% Y/Y), well below OEM industry forecasts in the -5% to -35% range (with Volvo at the high end and Cummins at the low end).
Edition: 158
- 14 April, 2023
Industrials
China revenue could be cut in half over the next couple of years (vs. investor expectations of a 10-20% decline) - China growth has historically had a disproportionate impact on CMI's valuation multiple given the importance of the country to the company's growth prospects. Three key drivers that have helped stimulate sales are now in the rear-view mirror: 1) Above average replacement demand, 2) Lower prices, 3) Emissions regulations. At the same time, China is targeting 15-20% decline in infrastructure investment over the next five years. ~30% downside.
Edition: 123
- 12 November, 2021
Which fuel cell companies are best positioned to benefit from the Infrastructure Bill?
Plug Power and Ballard Power Systems to benefit the most from The Infrastructure Investment and Jobs Act commitment to hydrogen. PLUG was cited for its industry leadership, strong management, innovation and how its recent acquisitions have expanded its offering across the hydrogen economy. BLDP is well-funded and considered the “big dog” in transportation. Other companies highlighted in Blueshift’s 31-page report include Air Liquide, Anglo American, Caterpillar, Cummins, Hyundai, ITM and Linde. Traditional oil & gas companies will also have a role to play, while Hyzon Motors and Nikola could be M&A targets.
Edition: 120
- 01 October, 2021
Industrials
Valuation anomaly - priced for permanent profit decline despite being aligned with favourable market trends and positioned to grow profits over the long term. New Constructs’ reverse DCF model shows the stock is worth $411/share today (75% upside) based on CMI growing NOPAT by 6% compounded annually over the next decade (NOPAT has grown by 8% compounded annually over the past five years). Should CMI grow profits closer to historical levels, the upside in the stock is even greater.
Edition: 118
- 03 September, 2021