Short model portfolio outperforms by 31%
26 out of New Constructs’ 32 ideas outperformed in 1H22 with an average return of -50% compared to a 19% decline for the S&P 500. Underscoring just how important reliable fundamental research is in turbulent markets, their model portfolio has beaten the S&P by an even wider margin (48%) since the start of 2021. Top performers have been Coinbase, Carvana, Peloton, Snap, Beyond Meat and Lyft. As we enter 2H22 high conviction shorts include Netflix, Uber, Shopify and Robinhood.
Edition: 140
- 22 July, 2022
Companies with dangerous inventory levels
"FISH" - First In, Still Here. Two Rivers deconstruct their Earnings Quality model to focus solely on one aspect of poor earnings quality: significant inventory slowdowns. This looks at 1) The materiality of inventory levels to the business. 2) The trend in turnover. 3) The magnitude of the slowdown. As the odds of recession rise, companies caught with excess inventory will find themselves forced to offer price concessions, leading to sales and margin declines, and to earnings disappointments. Highlighted names include Alcoa, Amazon, Arista Networks, Beacon Roofing, Beyond Meat, First Solar, LGI Homes and Walmart.
Edition: 139
- 08 July, 2022
Busted Converts: Screening the HY universe for investment opportunities
Potential target list of $38bn+ of converts from over 70 issuers with an average YTM of ~15% when adjusted for the option value of each convert - with a recent back up in yields and credit given Covid / Ukraine war, there has been seen some price dislocation across the convert space which has created opportunities for investors looking for yield. Asterisk Advisors flags Beyond Meat which is a $3bn TEV plant-based meat company with $1.15bn of convertibles yielding 13% covered at market value by cash and covered over 5x by the equity value of the company, which they see as very interesting as these bonds are down 15 points in the last six weeks.
Edition: 133
- 14 April, 2022