Consistently generating alpha on the short side
2024 was the largest alpha year in OWS's history - an equal-weighted basket of their short ideas outperformed the inverse of the S&P 500 index by 21.3 percentage points, with Atkore, Nucor and Upwork outperforming the most. They showed an impressive consistency, beating the index in each quarter. In Q4, OWS initiated 4 new short recommendations including Penumbra and Signet Jewelers. At the end of year, they had 17 short recommendations outstanding. For 2025, they see opportunities in cyclical setups, AI and in speculative small caps.
Edition: 202
- 10 January, 2025
Materials
NUE provided weak 4Q24 EPS guidance, sending the shares down -10%. Despite collapsing near-term estimates, the multiple has expanded as investors hope for a mega rebound in 2025, which management continues to encourage, even in the face of deteriorating demand. NUE's bigger problem, however, is supply, where there is currently new supply under construction equivalent to ~7% of total US steel production capacity. OWS sees continued EPS misses alongside the growing realisation among investors that the ~$8.60 now expected for this year might not represent trough, but rather mid-cycle, earnings. OWS believes normalised, mid-cycle earnings power is c.$8 and their TP of $110 represents a generous 15.4x multiple on their now-lowered $7.16 estimate for 2025.
Edition: 198
- 01 November, 2024
Materials
NUE “beat” a much-lowered bar for 2Q24 EPS, but gave weak 3Q24 guidance. Street estimates are still too high for 2H24. Off Wall Street’s thesis is playing out. Since peaking at ~$200 earlier this year, the stock price is down more than 20% in an up market. The problem for bulls is that, even as the stock price has been dropping, NUE isn't getting any cheaper, because EPS estimates are dropping just as fast. The shares trade at 14x consensus EPS for calendar 2025, but OWS thinks those 2025 consensus estimates are probably a chimera. Their TP of $110 (30% downside) implies a similar 13.6x multiple on their own $8.08 EPS projection for 2025.
Edition: 191
- 26 July, 2024