Research

Over the past several months we have researched the implications of management decision-making, by analyzing various capital uses and their consequences. This our fourth of five studies, as we previously have analyzed buybacks, dividends, and M&A. In this note, we investigate trends in the levels and changes in capital and R&D intensity, current trends, and the efficacy of these signals in terms of predictive value for stock performance.

Our latest market overview: a comprehensive document containing the best of our recent work and up-to-date views.

At the start of each quarter, we provide a detailed summary of the just completed quarter with the goal of helping investors make better investment decisions, in addition to provide insights that will facilitate investor communications, client conversations, and quarterly letters. Furthermore, our quarterly report seeks to identify emerging risk management concerns and give investment advice.

A key investment debate today is whether the Fed can “thread the needle” and raise rates without causing a recession. Given that the US consumer is so pivotal to the recession debate, we analyzed key metrics that make up our proprietary consumer gauge and looked at margins and multiples for various consumer stock cohorts to find dislocations and opportunities – and have a few observations and recommendations.

We detail some of the unique aspects of our quantitative framework, including cohort formation, signal transformation, dynamic grossing, and risk management. We believe this approach can be useful for bottom-up stock pickers seeking to pick from a better pool of names, rigorously manage gross exposures, and avoid risks such as crowding.

As we noted at the beginning of the year, SIZE matters. Small caps have had their worst 18-month period of underperformance relative to large caps in the last twenty years, other than during COVID and the Financial Crisis.

In this note, we utilize our proprietary macro-based framework to see if there are certain macro conditions consistent with small cap outperformance, along with examining historical discounts and current margins in small vs large caps. From this, we conclude now may be the inflection point for a small cap turnaround, and give our current top small cap ideas.

In light of the recent surge in oil prices, and uncertainty among investors as to what the appropriate playbook is, we examined prior oil spikes in search of patterns. We found six spikes – defined as breaking a threshold of 25% price increase over a 6-month rolling window – in the last 20 years, lasting a median duration of 70 days, and moving around 20% higher on average after the initial tipping point. After looking at these events, we have a few conclusions.

Our latest market overview: a comprehensive document containing the best of our recent work and up-to-date views.