Monday Morning Links Week 2
A New Year's Hangover for Global Markets?
Week one of 2024 is in the book. I love the beginning of the year; it’s a clean slate, full of promise, uncertainty and yes… doubt.
After breathless consensus that 2024 would be a raging bull market again, US markets hit a bit of a snag last week. Some might call it a hangover from the stunning two-month rally that finished 2023 (+17% on the Nasdaq 100 and +22% on the Russell 2000 small cap index since November), and I’m not particularly inclined to disagree. But risk is always on the table, and it can come back in a hurry.
In the past few years, we’ve seen some major trends persist stateside. Particularly, blue-chip tech, with the Magnificent Seven taking over from the FAANG trade, kept marching upwards last year.
But every year, some once-maligned sectors rise from the ashes. These are, hands down, my favorite stories of the investing year. I like to try to predict which left-for-dead sector comes back to life. I am rarely correct, but that never stops me from guessing.
For 2024, I’m calling a relative comeback for US Midstream Companies. This sector has been (kind of) dead money since the great MLP Meltdown of 2015-16. In my view, investors haven’t fully realized the bimodal nature of pipeline asset returns. FERC regulated pipe, in particular, should support dividend yields for the foreseeable future. Utility equities are yielding 3% while pipeline operators (PAA, KMI, ET) with large FERC portfolios seem stuck at 7-9%. Maintenance CapEx remains the elephant in the room, but the risk/reward seems promising, given how expensive US equities have gotten broadly.
Do me a favor and drop a comment below with your favorite hated sector in 2024!
Americas:
Special Situation Investing on Eagle Materials (🇺🇸 EXP US - US$6.9 billion)
Jared Leary on Dentalcorp. Jared posted his thesis on the Canadian Dental Practice rollup in November, but gives some excellent color on the business in a podcast interview. I think lots of people assume that big healthcare earnings aren’t profitable in Canada, but 93% of dental practices are private in the country. Great listen. (🇨🇦 DNTL CA - US$989 million)
Aaron Pek on Dollar General (🇺🇸 DG US - US$29.8 billion)
Mokapu Capital on Grupo Aeroportuario del Centro Norte. This report argues that 12x 2023 earnings for this Mexican Airport operator is a steal, given the growth opportunities and European comps trading at 20-30x earnings. (🇲🇽 GAER.F MX - US $3.8 billion)
Europe, Middle East & Africa:
Valuabl on Fevertree Drinks PLC, with an interesting and contrarian take that the beverage maker will have significant tailwinds on macro factors (🇬🇧 FEVR GBP - US$1.5 billion)
Value Stock Geek on Diageo PLC. Another British Beverage (Alcohol) maker (🇬🇧 DGE GBP - US$78.5 billion)
Devin LaSarre on Logista. Sticking with vices this week in Europe, this thesis notes that while tobacco operations make a bulk of the operating profits, growth in non-tobacco operations have macro and operating leverage tailwinds for the Spanish firm (🇪🇸 LOG EUR - US$3.6 billion)
Asia-Pacific:
Altay Capital on Asagami Corporation, a Japanese logistics microcap (🇯🇵 9311 JPY - US$50 million)
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Kat McGowan on Dementia treatment as a proving ground for robotics and machine learning. The clunky way “AI” works may be constructive in adapting to the challenges of mental degradation. (24 Minutes)
Noah Smith with a great piece on the future growth potential of an industrialized Africa (11 minutes)
As someone with an extensive background in Air Pollution and Climate, I hate over-simplification of Climate Change as a rule; that said, Tomas Pueyo’s breakdown of actionable steps to get Carbon and temperature under control is a good read. (16 minutes)
Rick Juzwiak at Slate with an amusing and all too familiar read on Quitting things and the zen of letting go of self-hatred. (8 minutes)
Researching Global Stocks’ review of their core portfolio was fun for me, as a total neophyte in emerging market small and mid caps (22 minutes)
Great summary on the politics and market dynamics of Nvidia chips in China from Raffaele Huang of the WSJ. (8 minutes)
Hunter from Lewis Enterprises discusses factor investing as a nice companion piece to the Wigglesworth Quant Investing feature from last month. (12 minutes)
(listening time)
My Worst Investment Ever Podcast had Gabe Marusca on to talk about personal health. This one really hit me hard, because I know the feeling of grinding too hard. Heck, I hit a wall a few times myself last year. This is less “investing” content and more a reminder that your body, the meat sack that holds your brain, needs rest. (47 min)
Odd Lots had Craig Fuller of FreightWaves on last week to discuss commercial transport shifts due to geopolitical risks in the Middle East. The focus is a lot on the Red Sea, but Craig has some great observations about the sector as a whole. Highly recommended listening. (55 min)
Zach Abraham of Bulwark Capital talks about macro setups for 2024 on the Know Yout Risk Radio Podcast. Zach argues that a recession risk still looms. (53 min)
This chart from Genuine Impact might point to one of the most important metrics for markets in 2024. Apple’s nearly $3 Trillion dollar capitalization is a key support for passive inflows and total market value of US equities. As Apple’s hardware sales plateau (or shrink), can the company keep earnings growing enough via software to support the company’s valuation? The knock-on potential for global markets is massive.
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