In this note, we examine that while negative earnings revisions are virtually guaranteed, the market can still appreciate or have multiple expansion while earnings expectations are being downwardly revised.
In this, the last of our five-part series analyzing capital uses and their consequences, we assess corporate leverage. Previously we have analyzed buybacks, dividends, M&A, capital spending, and R&D. With materially higher interest rates over the last few quarters, we think it is timely to analyze the level and changes to corporate debt, both total and net, and the impact corporate decision-making about leverage has on equity performance.
In today’s note we focus on the key issues that have consistently surfaced in our recent investor conversations.
There is a tension between deteriorating macro condition and high earnings expectations, and the material reset in valuation. We think this creates some interesting long / short opportunities.
In this note, we analyzed several metrics and concluded through efficacy and parsimony that six signals – both level and change – across liquidity, volatility, and conviction by way of 13-F filings are good signals for identifying crowded stocks. We combined these six signals in multiple ways – equal-weighted, weighting liquidity more, weighting conviction more – into a set of proprietary crowding scores – in which we generally looked at beta-adjusted spread portfolios of the signal’s top quintile (“least crowded”) and bottom quintile (“most crowded”).
Our latest market overview: a comprehensive document containing the best of our recent work and up-to-date views.
We provide a detailed mid-year summary of our research and forward outlook, which is designed to help investors to identify emerging trends and risk management concerns, find new long/short ideas, and help with all upcoming communications. This note addresses the current macro setup, perspective on the recent drawdown, earnings, risks, long/short ideas, and more.
In this note, we take an unemotional look at longer-term revenue growth trends, multiples, and near-term expectations for growth to see if the meaningful market pull-back implies any relative opportunities. While quantitative tightening requires a different investing roadmap than quantitative easing, we do not believe all innovation is dead. Even if growth stocks continue to lag until any directionally dovish commentary surfaces, we want to provide “growth-neutral” pair trades for stock pickers in this environment.
The investment landscape is presenting different and potentially unconventional ways to outperform as the Fed implements quantitative tightening. One possible paradigm shift could be how investors think about buying cyclicals given how anticipatory markets have been of a recession-induced earnings decline.
The market drawdown has caused continued investor angst, and most of our client meetings have had an increasingly bearish overtone. Few, if any, want to take the bull side in a bull-bear debate.
Every market pundit tries to predict the market trough by using a combination of sentiment, positioning, fundamentals, macro, and valuation to reach their conclusion. Because many of those metrics do not have consistent predictive value, we thought it would be instructive to take a step back and look at the longer-term history of price performance to contextualize this current sell-off.
Many long-only portfolio managers do not view utilities as particularly important, given the bench-weight is around 2.6%, and most hedge funds do not cover the space. However, as the market has been declining, and it feels late to short hyper growth stocks (many of which are down more than 50% YTD), our view is that CIOs should be looking to the utilities sector to find short ideas. In this note, we examine utilities front to back and give our case for why this sector is underexamined and what to look for in short/long ideas.