Giles Capital Weekly - Week 13
Welcome to another edition of Giles Capital Weekly. The market rallied on Monday, with the S&P 500 gaining 0.55% to end a dismal first quarter of 2025. Despite this final-day comeback, both the S&P and Nasdaq recorded their worst quarterly drop since 2022. Concerns grow about Wednesday's anticipated White House tariff plans. The proposed 25% tariffs on imported cars and parts could disrupt the entire U.S. auto supply chain, creating what Politico sources describe as chaos within administration circles. Meanwhile, the luxury market is navigating challenges, with companies like Moncler showing resilience, while in tech, firms like Lam Research continue to demonstrate compelling long-term potential in semiconductor manufacturing as the industry shifts toward more complex architectures and advanced processes.
My top picks for this week highlight two compelling value opportunities in energy and technology. From Hidden Market Gems, Maurel & Prom (MMP.PA) stands out as a significantly undervalued oil and gas company with exceptional financials, including a 30.4% net profit margin and P/E ratio of just 5. Their diversified global asset portfolio delivers stable recurring revenue despite market volatility, while their early achievement of ESG targets positions them well for sustainable growth. From Panda Perspectives, Contemporary Amperex Technology Co, CATL (300750.CH) emerges as the backbone of global electrification, maintaining impressive 24.5% EBITDA margins despite intense competition. Their strategic expansion into energy storage systems and innovative technologies like sodium-ion batteries creates multiple growth vectors, while their upcoming Hong Kong listing could serve as the catalyst needed to properly value this cash-generating powerhouse.
Americas
Long-term Investing on Alphabet (🇺🇸GOOGL US - $1.99 trillion) Google's $30 billion Wiz acquisition, the largest in company history at 40x sales, aims to strengthen its cloud security offerings against Microsoft and Amazon while raising questions about the company's ability to develop such technology internally.
Rijnberk InvestInsights on Lam Research Corp (🇺🇸LRCX US - $96 billion) Semiconductor manufacturing equipment provider growing revenues at 14% CAGR since 2013 with 24% EPS CAGR, maintaining 50%+ ROIC and trading at just 19x forward earnings with a PEG ratio of 1x despite projected 12% revenue CAGR through 2028.
Compound & Fire on The Trade Desk (🇺🇸TTD US - $29.3 billion) Leading demand-side platform for programmatic advertising boasts exceptional 80.7% gross margins and operates outside top 50 markets, though high stock-based compensation (20.2% of revenue) and rich valuation at 27% above intrinsic value raise questions about future returns.
Alex of Rome Capital on NCR Atleos (🇺🇸NATL US - $2 billion) ATM manufacturer disrupting the banking industry with its ATM-as-a-Service model that increases wallet share 2-2.5x with higher 30% EBITDA margins, currently trading at attractive 6.2x EV/EBITDA and 9.5x P/E despite strong growth prospects.
Undervalued and Undercovered on Kohl's (🇺🇸KSS US - $942.91 million) Deep value play on Kohl's with intrinsic value between $22-70 per share based on its extensive real estate holdings (410 owned stores valued at $4-10B) and modest debt of $1.8B, with activist investor interest likely to re-emerge once stability improves.
Value Degen on Hyster-Yale (🇺🇸HY US - $740.81 million) Forklift manufacturer with 76% of sales from the Americas, currently undervalued with revenue per share up from $160 in 2014 to $243 today, trading at 0.19x P/S versus historical peak of 0.5x.
LongTermValue Research on Power Solutions International (🇺🇸PSIX US - $605 million) AI datacenter power play trading at just 6x P/E and 6.2x EV/EBITDA with revenue growing 6% and EBITDA projected for mid-teens CAGR through 2027, benefiting from soaring datacenter power demand and potential triple-digit upside over three years.
Idea Hive on Lifeway Foods (🇺🇸LWAY US - $375 million) Kefir producer likely to be acquired by Danone, with a $27/share offer already rejected but a recent proxy battle likely to force a deal at an even higher premium to the current price.
Investing501 Newsletter on Townsquare Media (🇺🇸TSQ US - $130 million) The only radio broadcaster focused exclusively on markets outside the Top 50 DMAs has transformed into a digital business with 55% of revenue from digital sources, trading at just 6x 2025 EBITDA with an 8.6% dividend yield.
Hurdle Rate on Sylogist (🇨🇦SYZ CA - CAD$170 million) Cloud-based ERP provider to public institutions has transitioned from maximizing free cash flow to investing in growth and sales under new CEO Bill Wood, potentially replicating his success at Blackbaud which now has a market cap of over US$3B.
Wolf Of Oakville on ZoomD Technologies (🇨🇦ZOMD.V CA - CA$70 million) Digital advertising platform delivering remarkable turnaround with 100% Q4 revenue growth to $15.1M and 41% gross margins, trading at just 5.6x P/E and 0.91x P/S despite generating 20% net income margins.
Wolf Of Oakville on Neupath Heath (🇨🇦NPTH.V CA - CA$11.79 million) Healthcare services provider with 10.1% revenue growth to $72.8M in 2024 and 19% gross margins, trading at just 0.16x P/S but facing challenges with high debt costs after replacing zero-interest related party loans.
Europe, Middle East & Africa
Quality Investing with René Sellmann on Moncler (🇮🇹MONC IT - €15.57 billion) Luxury outerwear brand growing revenue at 16% CAGR over the past decade with 29.5% EBIT margins and 20% ROE, benefiting from premium positioning and expanding DTC channels while trading at reasonable 25x earnings despite strong growth prospects.
Stock Doctor on Wise (🇬🇧WISE GB - $12 billion) Fintech disruptor in cross-border money transfers growing customers by 20% annually, processing $14 billion monthly with a potential to capture 12% of the $34 trillion global cross-border market, potentially yielding 18% compounded annual returns over the next decade.
Kairos Research on Asseco Poland (🇵🇱ACP PL - $1.9 billion) Software developer for banking and public institutions in Central and Eastern Europe recently received a strategic investment from Topicus subsidiary TSS, potentially implementing Constellation Software's proven acquisition playbook at just 5x EBITDA.
Hidden Market Gems on Maurel & Prom (🇫🇷MMP FR - €1.14 billion) Independent oil and gas company with operations across Latin America, West Africa, and Southeast Asia trades at just 0.6x tangible book value with a 2.6% dividend yield and minimal leverage.
Duck Pond on Dowlais Group (🇬🇧DWL GB - £849.74 million) Analysis of Dowlais Group's merger with American Axle, highlighting strong synergy potential of £300 million annually by year three, with projected EBITDA margins expanding from 12% to 14.5% and upside of 74-128% through 2028-2029.
Best Anchor Stocks on Judges Scientific (🇬🇧JDG GB - £414 million) UK-based scientific instrument manufacturer is poised for a strong 2025 after a challenging 2024, with new Coring contracts, improving orders in China, and multiple recent acquisitions providing momentum at a reasonable valuation of 6.0x 2026 EPS.
WinterGems Stocks on European Companies with Strong FCF Yields (🇫🇷🇬🇧🇳🇱Various EU - €610 million-287 billion) Analysis of seven European stocks with strong free cash flow yields: French small caps Thermador (10.35%) and Neurones (8.75%), Euronext (4.72%), Adyen (4.37%), Rolls-Royce (3.45%), Safran (3.11%), and LVMH (3.41%).
Asia-Pacific
Panda Perspectives on CATL (🇨🇳300750 CN - ¥1.13 trillion) Analysis of CATL's upcoming Hong Kong listing as a catalyst for re-rating, highlighting the battery giant's strong financial profile with Rmb64.1B operating profit, Rmb65.8B free cash flow, and dominance in both EV batteries (72% market share in premium segment) and energy storage systems (93 GWh shipments in 2024).
Leahi Capital on Aeon Credit Service (Asia) (ðŸ‡ðŸ‡°900 HK - $325 million) Hong Kong consumer finance firm trading at just 0.6x tangible book value with an 8% dividend yield and 30-year profitability record, currently experiencing a cyclical credit quality downturn that should reverse by 2026.
Doomberg - WrestleMania Brilliant analysis of Trump's tariff policy and its potential impact on the auto industry, explaining why the administration's efforts to revive US manufacturing through 25% tariffs may backfire by failing to recognize the complexity of global supply chains and China's technological advancement. (8 min read)
Elliot's Musings - The Vibe Recession: When the Mood Doesn't Match the Data An intriguing look at the disconnect between gloomy economic sentiment and relatively robust economic data, exploring historical precedents and what might happen when perception eventually aligns with reality. (5 min read)
Jimmy's Journal - A Revolution is Underway in US Energy. Here's What You Need to Know An in-depth exploration of America's LNG export boom that's reshaping global energy markets, with capacity set to double by 2028 and $40 billion in new investments. Essential reading for understanding how this transformation is strengthening U.S. geopolitical influence while creating compelling investment opportunities. (10 min read)
Rijnberk InvestInsights - Stock Market Briefing #2 Weekly market update covering the Fed's latest decision, consumer confidence hitting its lowest level since 2008, BYD's revolutionary 5-minute EV charging technology, and notable analyst calls including upgrades for Intel, Microsoft, and Netflix. (5 min read)
AI Proem - China's AI Startups Pivot Amid DeepSeek's Rise A fascinating analysis of how China's "Four Tigers" AI startups are pivoting to consumer apps and vertical markets as DeepSeek's dominant model transforms the competitive landscape. Essential reading for understanding the evolution of China's AI ecosystem. (10 min read)
Dragons Invest - My views and perspectives on current and future global macro in a deeply divided and unstable financial world: The U.S. and the New Cold War A provocative historical analysis examining the U.S. dollar's position as the global reserve currency and how its weaponization in the Russia-Ukraine conflict may accelerate de-dollarization and reshape the global monetary order. (15 min read)
Quality Investing with René Sellmann - What Do Ray Dalio and Salesforce's CEO Know about the Future that You Don't? Fascinating breakdown of Dalio and Benioff's recent CNBC conversation, covering hyperscale data centers becoming commodities, AI-driven "digital labor" transforming work, and Dalio's warnings about unsustainable U.S. debt levels creating a "supply-demand problem." (8 min read)
GHGInvest - 6 Brutal Truths About the New Macro Regime (That Most Investors Are Ignoring) A sharp, no-nonsense take on the structural shifts in inflation, interest rates, and global capital flows that are reshaping investment paradigms, making a compelling case for fundamental changes to portfolio construction. (8 min read)
Long-term Investing - Ben Graham's net-net strategy A detailed exploration of Benjamin Graham's net-net investment approach, examining its historical performance, limitations in modern markets, and why this highly conservative value strategy might still work for small investors today. (11 min read)
Rock & Turner - Portfolio Concentration | The Secret Compelling case for concentrated investing through the wisdom of Buffett, Munger, and Fisher, highlighting how winners naturally take over a portfolio through compounding – illustrated by Amazon growing from 3% to 93.2% of a hypothetical portfolio over 28 years. (8 min read)
The Pareto Investor - Lessons from 100+ Years of Stock Market Crashes Fascinating historical analysis of market crashes since 1873, quantifying downturns through the "pain index" that measures both depth and duration, with clear examples of how $100 fared through five major crashes – illustrating that markets always recover, given enough time. (10 min read)
HindeSight Letters - Innovation, Industry, and Investing Fascinating historical perspective on Cognac production and how international cooperation saved France's wine industry from devastation, with thoughtful parallels to modern trade tensions that could threaten the luxury spirits sector - a unique lens for considering resilience in global trade. (5 min read)
Coughlin Capital - My Investment Strategy: Active Patience Thought-provoking defense of "active laziness" as an investment approach, arguing that patient inaction and careful stock selection of great businesses at reasonable prices (like Brookfield, Markel, and Amazon) drives long-term wealth creation - a refreshing counterpoint to market hyperactivity. (6 min read)
Quality Investing with René Sellmann - Can Simple Metrics Trump Complex Valuation Approaches? Insightful examination of whether valuation multiples can replace complex DCF analyses, arguing that simple metrics like P/E ratios can be highly effective when combined with deep business understanding - uses Wise plc as a compelling case study of how a seemingly expensive 31× multiple might actually represent better value than a 10× "value trap." (7 min read)
This collection of fund letters from late 2024 and early 2025 reveals notable concerns about market concentration, valuation disparities, and similarities to the dot-com era. Several managers highlight specific portfolio adjustments in response to these conditions, with particular focus on opportunities in undervalued segments and international markets.
Moon Capital Management: Emphasizes dangerous market concentration with the "Magnificent Seven" accounting for over 50% of S&P 500's 23% return in 2024. Management liquidated positions in CVS, Goldman Sachs, and KKR due to valuation concerns despite strong market performance of 27% for their equity portfolio. Letter discusses:
CVS Health (🇺🇸CVS - $50 billion) - Liquidated - Disappointing holding despite cash flow generation; management criticized for "burning through" $18B on overpriced acquisitions
Goldman Sachs (🇺🇸GS - $202 billion) - Liquidated - Sold at $605/share after buying below $200 in 2019; trading at 1.9x tangible book value, a level rarely seen in past decade
KKR (🇺🇸KKR - $150 billion) - Liquidated - Sold at $153 after 80% rally in 2024; original investment at $20 in 2018 when it traded at less than 5x earnings
Oakmark Fund: Employs a value-oriented approach with 2.04% return for Q4 vs 2.41% for S&P 500. Management sees opportunities in valuation disparities despite overall elevated market multiples. Since 1991 inception, fund has returned 12.82% annually vs 10.67% for the index. Letter discusses:
Airbnb (🇺🇸ABNB - $76.10 billion) - New Position - Strong network effect between hosts and guests with long growth runway in alternative accommodations
Carlyle Group (🇺🇸CG - $15.59 billion) - New Position - Trading at less than half the P/E multiple of peer group despite improving outlook and growing distribution capabilities
Elevance Health (🇺🇸ELV - $98.22 billion) - New Position - Trading at depressed multiple of depressed earnings due to industry headwinds in managed care
Oakmark Global Fund: Globally diversified value strategy underperformed with -5.78% for Q4 vs -0.16% for MSCI World. Current portfolio allocation is 57.9% US, 30.1% Europe ex-UK and 8.2% UK. Since 1999 inception, fund has returned 9.01% annually vs 6.35% for the index. Letter discusses:
Bayer (🇩🇪BAYN - €22.25 billion) - Existing Position - Stock declined on PCB litigation developments and soft 2025 guidance; management believes CEO Bill Anderson's restructuring will unlock improved performance
DSV (🇩🇰DSV - DKK$326.88 billion) - New Position - Exceptionally well-managed freight forwarder with industry-leading margins recently acquiring Schenker, the fourth-largest freight forwarder globally
Vail Resorts (🇺🇸MTN - $6.03 billion) - New Position - Leading mountain resort company with significant pricing power potential for Epic Pass, currently priced at material discount to competing Ikon Pass
Oakmark Global Select Fund: Concentrated global portfolio returned -4.96% for Q4 vs -0.16% for MSCI World Index. Portfolio allocated 61.1% to US, 20.8% to Europe ex-UK and 15.2% to UK. Since 2006 inception, fund has returned 7.37% annually vs 7.61% for the index. Letter discusses:
Diageo (🇬🇧DEO - £45.34 billion) - New Position - Global producer of premium drinks including Johnnie Walker and Guinness; recent industry destocking and weaker demand created attractive entry point
Charles Schwab (🇺🇸SCHW - $141.11 billion) - New Position - Leading brokerage with $9 trillion in client assets; temporary earnings pressure from clients shifting cash to higher-yielding alternatives provides attractive entry point
Oakmark International Fund: Focused on non-US equities with -8.48% return for Q4 vs -7.43% for MSCI World ex USA. Portfolio allocation is 71.5% Europe ex-UK, 15.1% UK and 5.7% Asia ex Japan. Since 1992 inception, fund has returned 8.19% annually vs 5.92% for the index. Letter discusses:
KB Financial Group (🇰🇷KB - ₩30.97 trillion) - New Position - South Korea's largest bank with strongest capital position and renowned low-cost deposit franchise; poised to lead banking industry improvements with focus on shareholder returns
Oakmark International Small Cap Fund: Focuses on smaller non-US companies with -10.92% return for Q4 vs -7.86% for benchmark. Portfolio allocated 57.0% to Europe ex-UK, 16.6% to UK and 8.9% to Asia ex Japan. Since 1995 inception, fund has returned 8.26% annually. Letter discusses:
Auction Technology Group (🇬🇧ATG - £729.15 million) - New Position - Online marketplace connecting auctioneers to millions of bidders; benefiting from e-commerce penetration in auctions with opportunity to increase monetization
Campari (🇮🇹CPR - €6.94 billion) - New Position - Italian spirits producer with portfolio including Aperol and Wild Turkey; well-positioned to benefit from growth in cocktail culture with recent industry destocking providing attractive entry point
Oakmark Select Fund: Concentrated US portfolio returned 6.01% for Q4 vs 2.41% for S&P 500. Since 1996 inception, fund has returned 11.88% annually vs 9.82% for the index. Letter discusses:
Paycom Software (🇺🇸PAYC - $12.25 billion) - Existing Position - Top contributor with accelerating revenue growth and strong margins; cloud leader in payroll with opportunity to take market share from legacy players
Equifax (🇺🇸EFX - $29.81 billion) - New Position - Leading US credit bureau with proprietary Workforce Solutions database; earnings currently depressed due to significant downturn in mortgage activity
RGA Investment Advisors: Highlights "bad breadth" with 2024 resembling dot-com era as only 24% of stocks outperformed the index. Notes extreme valuation gap between US and European equities, with equivalent earnings streams in Europe trading at 42% discount. Letter discusses:
Amazon (🇺🇸AMZN - $2.04 trillion) - New Position - Purchased at prices last seen in 2021; expecting free cash flow to more than double from 2024 to 2026 with 4.5% FCF yield based on 2026 expectations
Diageo (🇬🇧DEO - £45.34 billion) - New Position - Purchased after third consecutive year of 20% stock market declines; trading at 15x earnings with free cash flow expected to jump by over 20% in current fiscal year
Uber (🇺🇸UBER - $152.14 billion) - New Position - Stock declined on autonomous vehicle concerns; expected to generate $6.5B in free cash flow in 2024 growing to over $8B in 2025, representing 4.8% and 6% FCF yield respectively
Thanks to Letters & Reviews (lettersandreviews.blogspot.com) for compiling investment letters, which is where I sourced these letters.
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Disclaimer: This newsletter is for informational purposes only and does not constitute investment advice. All opinions expressed are those of the quoted authors and do not necessarily reflect the views of the newsletter creator. Always do your own research before making investment decisions.