Giles Capital Weekly - Week 14
Welcome to another edition of Giles Capital Weekly. President Trump's sweeping "Liberation Day" tariffs dominated this week's financial news, sending the S&P 500 into volatility as the duties took effect, including a 104% levy on Chinese imports. China swiftly announced retaliatory tariffs of 84% on US products, with the EU adopting duties on $23 billion of US goods in the metals dispute. While Wall Street experts like JPMorgan's Jamie Dimon warn a recession is the "likely outcome," the varied impact across sectors creates both challenges and opportunities. Amid the chaos, companies with limited China exposure, those adapting quickly like Amazon canceling Chinese orders, and businesses outside regions affected by tit-for-tat measures may present compelling cases.
My top picks for this week showcase two standout companies with promising futures. From Max Dividends, Lockheed Martin (LMT) dominates the defense sector with $71 billion in revenue and a massive $147.3 billion order backlog. Their leadership in aircraft, missile systems, and space technologies is reinforced by an impressive 82% government contract win rate and 22+ years of consistent dividend growth, offering investors both stability and income. From Just A Value Investor, Table Trac (TBTC) represents an underappreciated opportunity in casino management systems, featuring a fortress balance sheet with more cash than liabilities. Their Linux-based systems deliver superior security at 30% less than competitors' prices, helping them steadily expand beyond their current 300 casinos while growing maintenance revenue at 14% CAGR since 2015.
Americas
Max Dividends on Aerospace Giants (🇺🇸LHX US, LMT US, NOC US - $37.93 billion-101.37 billion) Analysis of three leading US aerospace companies – L3Harris, Lockheed Martin, and Northrop Grumman – highlighting their consistent dividend growth (42-62% over 5 years), strong balance sheets, and 20%+ EBIT margins despite cyclical defense spending fluctuations.
Northwest Frontier Capital's Research on Lululemon (🇺🇸LULU US - $31.81 billion) Deep dive on Lululemon's recent selloff showing strong fundamentals with sustained conversion rates and increased average order value despite traffic headwinds, now trading at its lowest valuation in 10 years while continuing to deliver 20%+ international growth.
Quality Stocks on Deckers Outdoor (🇺🇸DECK US - $16.09 billion) Analysis of Deckers' 42% YTD stock price decline despite strong Q3 FY25 results (revenue +17.1%, EPS +19%), highlighting tariff concerns while noting the stock now trades at a more reasonable 19x earnings with significant ongoing buybacks.
Max Dividends on Unum Group (🇺🇸UNM US - $12.58 billion) Detailed look at Unum's 175-year history as a leading insurance provider, featuring 16 consecutive years of dividend growth, strong fundamentals with a 20% dividend growth rate over the past three years, and a conservative 17.7% payout ratio providing room for future increases.
Stock Picker's Corner on Nu Holdings (🇺🇸NU US - $11.4 billion) Brazilian fintech banking company growing at massive pace with 1,782% revenue increase over five years, trading at 18.45x forward P/E while projecting 25% annual sales growth and 30% profit growth over next five years.
Canopy Research on Ormat Technologies (🇺🇸ORA US - $7.6 billion) Leading geothermal energy provider with high capacity factors of 80-90% trading at a 24% discount to fair value, uniquely positioned to benefit from growing AI data center demand for reliable renewable power.
Hidden Market Gems on Atkore (🇺🇸ATKR US - $2.2 billion) Electrical infrastructure manufacturer trading at 11.8x FCF with strong free cash flow generation of $3.7 billion in 2024, positioned to benefit from grid modernization, renewable energy build-out, and data center growth.
Value Degen on Everus Construction Group (🇺🇸ECG US - $1.71 billion) Engineering firm with exposure to Low Earth Orbit satellite systems, trading at less than 8x earnings with EV/EBITDA of 5.4 and potential for a big shift to value in small and emerging stocks.
Hidden Market Gems on GigaCloud Technology (🇺🇸GCT US - $605 million) B2B e-commerce platform for large parcel merchandise growing rapidly with 65% year-over-year revenue increase to $1.16 billion in 2024 and trading at an attractive P/E ratio of 4.65.
Value Degen and Value Don't Lie on Kelly Services and ZipRecruiter (🇺🇸KELYA US - $431.45 million and 🇺🇸ZIP US - $513.27 million) Comparative analysis of staffing companies with Kelly Services trading at potential double-your-money 2x forward multiple, while ZipRecruiter offers 4-11x return potential despite its 48% revenue decline from peak.
Quality Investing with René Sellmann on Computer Modelling Group Ltd. (🇨🇦CMG CA - CA$650 million) Calgary-based niche software developer specializing in reservoir simulation for oil and gas, trading at 17.5x earnings with compelling growth prospects in energy transition projects (23% of revenue) and a strong balance sheet with zero debt.
Sempiterno Investments on Boston Omaha (🇺🇸BOC US - $436.26 million) Analysis of two holdings: Boston Omaha showing broadband revenue growth of 10% with cash flow margin of 39% in billboard segment, and The Italian Sea Group with 11% YoY revenue growth and 400bps margin improvement despite struggling to close new sales following a yacht incident. Worth translating from Spanish for insights on these underappreciated businesses.
Wolf of Oakville on Healwell AI (🇨🇦AIDX CA - CA$227.64 million) Critical analysis of AI healthcare company with concerning balance sheet (0.88 current ratio), significant cash burn ($22.6M in 2024), and growing share dilution (3x since January 2024).
Ahead of the Curve on Duos Technologies (🇺🇸DUOT US - $54.05 million) Comprehensive analysis of Duos' transition from rail inspection technology to high-growth edge computing and mobile power generation businesses, with projected revenue growth more than tripling in 2025 and a path to 70% gross margins in the edge business.
Deep Value Insights on Deswell Industries (🇺🇸DSWL US - $36.97 million) Overlooked manufacturer trading at just 0.38x book value and 3.6x earnings, with a 50% discount to NCAV (Net Current Asset Value) and significant liquid assets nearly double its current market capitalization.
Wolf of Oakville on NowVertical Group (🇨🇦NOW CA - CA$48.91 million) Data analytics company showing EBITDA improvement from 10% to 17% in Q4 2024, significant revenue growth despite historical challenges, earning an upgrade to three stars.
Just A Value Investor on Table Trac (🇺🇸TBTC US - $18.56 million) Small but profitable casino management systems provider trading at 11x earnings with 77% of market cap in net cash and 14% CAGR in maintenance revenue since 2015.
Europe, Middle East & Africa
Asymmetric Ventures on Porsche AG (🇩🇪P911 DE - €48.7 billion) Luxury automaker reporting weak guidance with forecast free cash flow potentially halving in 2025, facing a challenging transition from its 80% BEV target to a hybrid model with high investment requirements.
Kroker Equity Research on CTS Eventim (🇩🇪EVD DE - €8.64 billion) Deep-dive into Europe's largest ticketing company, highlighting its record 2024 results with 19.1% revenue growth to €2.8 billion and 21.9% EBITDA growth, maintaining 19.3% margins while expanding internationally through strategic acquisitions.
Northwest Frontier Capital's Research on YouGov (🇬🇧YOU GB - £306.00 million) Detailed analysis of founder Stephen Shakespeare's return to YouGov and its strategic refocus on platform-based services, trading at just 9x P/E and 14% FCF yield despite maintaining +20% EBIT margins and strong renewal rates above 80%.
Sempiterno Investments on Italian Sea Group (🇮🇹TISG IT - €295.74 million) Analysis of two holdings: Boston Omaha showing broadband revenue growth of 10% with cash flow margin of 39% in billboard segment, and The Italian Sea Group with 11% YoY revenue growth and 400bps margin improvement despite struggling to close new sales following a yacht incident. Worth translating from Spanish for insights on these underappreciated businesses.
Javen's Substack on Perlen Industrial Holdings AG (🇨🇭PERL:SW CH - CHF 106 million) Analysis of a Swiss paper manufacturer trading at just 1x EV/EBITDA with CHF 70 million in cash and zero debt, potentially positioned to benefit from EU deforestation regulations as a recycled paper producer while competitors struggle to comply.
Favona Hathaway on Passat (🇫🇷PSAT FR - €19.93 million) French consumer products company trading at 0.59x NCAV with 41% of current assets in cash, a P/NCAV ratio of 0.59x, and family ownership of 69%.
Asia-Pacific
LongTermValue Research on Valeura Energy (🇸🇬VLE SG - $487 million) Headquartered in Singapore, this oil producer has four fields in the Gulf of Thailand. Company trades below 0.5x P/NAV with $230m net cash and should generate 80% of current market cap in cash by YE 2026.
Weighted Capital on Essex Biotech (🇭🇰1061 HK - HK$2.27 billion) Hong Kong-listed pharmaceutical company focusing on ophthalmic products, with patents ending in 2030 and potential for ground-breaking new drugs.
Citrini Research - Market Memo: Seeing the Stag In-depth exploration of how Trump's blanket tariffs could create stagflationary pressures through supply chain disruptions and pricing pressures, with a detailed basket of potential winners and losers. (30 min read)
Silver Bulletin - Wall Street thinks Trump's tariffs will eat Main Street alive Data-driven analysis of Thursday's market reaction to Trump's tariffs, using detailed stock performance across consumer segments to paint a picture of what traders expect: Americans cycling down to cheaper goods, avoiding discretionary purchases, and preparing for potential recession. (7 min read)
Letters to a Young Investor - "Liberation Day" and the Gilded Age Thoughtful historical analysis comparing Trump's tariff policies to the McKinley era, with detailed market heat maps showing sector impacts and practical investment recommendations for navigating the resulting uncertainty. (10 min read)
Value Degen - Cutting the Gordian Tariff Knot Insightful analysis of Trump's tariff strategy as a negotiation tactic rather than ideological stance, with historical context and discussion of potential economic impacts. Worth reading for the balanced perspective on a contentious policy approach. (20 min read)
Sinocism - Xi Jinping is investing in China's science and technology research as Trump is gutting America's research foundations Eye-opening comparison of Chinese and American approaches to technological development and research investment, essential reading for understanding the shifting competitive landscape in global innovation. (18 min read)
KonichiValue Japan - Frenemies No More? How Trump's Tariffs Might Push China and Japan Into Each Other's Arms Thought-provoking speculation on how US tariffs might drive an unlikely alliance between historical adversaries China and Japan. Fascinating perspective on geopolitical realignment that challenges conventional wisdom about Asian regional dynamics. (15 min read)
GB Capital - AfterHours Tales: Anduril Industries Detailed exploration of defense tech unicorn Anduril's business model, from its AI-powered Lattice OS to its new energy business with Fortress Investment Group, offering insight into how defense technology is evolving beyond traditional contractors. (15 min read)
Generative Value - The Evolution of Marketplaces Comprehensive framework for analyzing marketplace business models and their future, looking at how AI impacts companies like Uber, exploring three potential outcomes for marketplaces in an AI-driven world. (23 min read)
Noahpinion - How Brazil built a world-beating aircraft manufacturer Fascinating case study of how Embraer succeeded through focused industrial policy, technological partnerships, and export orientation—proving developing economies can build world-class manufacturing with the right approach. (18 min read)
Rock & Turner - Three Stories Every Investor Should Know Brilliant distillation of timeless investment principles through historical tales of the Chevalier de Méré, the Turtle Traders, and racing odds—explaining why successful investing is about probability, discipline, and risk-adjusted returns. (12 min read)
Eagle Point Capital - Independent Thinking (An Excerpt From Our Recent Letter) Compelling exploration of conformity in markets through the lens of psychology experiments, making a case for strategic mediocrity in investing. Essential reading on maintaining independent thinking during market panics. (10 min read)
Security Analysis - Trump, Tariffs, and the Case for Doing Nothing Contrarian perspective emphasizing the futility of market timing during tariff-induced volatility, with historical evidence supporting diversified portfolios of uncorrelated assets that provide both decent returns and psychological comfort during market stress. (12 min read)
TQI Capital - Fundsmith Annual general meeting 2024 Detailed breakdown of Terry Smith's annual meeting insights explaining recent underperformance, concentration of returns and the rise of passive funds, with valuable perspective on quality investing during market turbulence. (15 min read)
These fund letters provide unique perspectives on economic policies, market corrections, and investment positioning for early 2025, with particular focus on Trump's tariff policies, inflation concerns, and sector-specific opportunities.
Absolute Return Partners: Examines the potential strategic motivations behind Trump's tariff policies. Author theorizes that Trump may be deliberately engineering an economic slowdown to force Fed rate cuts before the 2026 midterms. U.S. recession probability estimates have risen to 40% according to JP Morgan, with Russell 2000 down 16% since November peak. Letter discusses:
U.S. Treasury Yields (🇺🇸10Y - N/A) - Declining trend from 4.8% to 4.2% since mid-January indicating recession concerns
Russell 2000 (🇺🇸RUT - N/A) - Performance down 16% since November, approaching bear market territory at 20% decline
CDT Capital Management: Focuses on insider buying trends as a contrarian investment signal. Fund entered March with 27% cash reserves as insider purchases declined, then reduced reserves to 18% as market conditions improved. CDT's basket of 7 insider-buying stocks outperformed "Magnificent 7" by nearly 20% YTD (+4.09% vs -15.8%). Letter discusses:
CDT 7 (Various - N/A) - Portfolio of companies showing strong insider buying activity, delivering +4.09% YTD returns while broader market declined
Consumer Sentiment (🇺🇸Michigan Index - N/A) - Dropped to 57 in March from 64.7 in February, lowest since November 2022
Century Management: Presents comprehensive views on U.S. debt challenges, inflation persistence, and Trump's economic agenda. Takes contrarian stance supporting tariffs as potentially beneficial for U.S. manufacturing, citing economist Michael Pettis. Portfolio emphasizes energy value proposition, gold as inflation hedge, and AI-related opportunities. Letter discusses:
U.S. National Debt (🇺🇸Treasury - $37 trillion) - Interest expenses now consuming 17% of tax revenues vs 10% a few years ago
Energy Sector (🇺🇸Various - N/A) - Currently 3.15% of S&P 500 versus 7.3% 20-year average, presenting significant undervaluation opportunity
WTI Crude Oil (🇺🇸CL - N/A) - Fund sees fair price between $70-$85 per barrel, balancing producer profitability and consumer sustainability
Thanks to Buy Side Digest (buysidedigest.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.