“Hidden” Balance Sheet Shorts

Off Wall Street

High and volatile inflation, historically, means wider swings in corporate profit margins. Uncertainty rises, companies stockpile more inventory, COGS is more volatile and difficult to manage. We saw this in the 1970s “stagflation”. US corporates are sitting on historically high profit margins today. Will that last? If it doesn’t, one potential source of short ideas are companies that have levered up their balance sheets against unsustainably high profit margins. These stocks wouldn’t look highly levered on a ND/EBITDA basis, but if profit margins start to revert lower, “normalised” leverage might be much higher than investors realise. Names of potential interest using OWS's short screener tool include Constellation Brands, Lincoln Electric, Parker-Hannifin, TransDigm and Union Pacific.

- 02 May, 2025

Long ideas in Industrials

Cerundolo Investment Research

The XLI had a strong close last week as it made a new all-time high. Guy Cerundolo has scored and ranked the sector and come up with a basket of long ideas. The highest ranked stocks include Parker-Hannifin (see chart), Copart, Eaton, Grainger, ITT and Trane Technologies.

- 22 December, 2023