Giles Capital Weekly - Week 21
Welcome to another edition of Giles Capital Weekly. Japanese bonds are rallying on news Tokyo may cut debt issuance, while Europe breathes easier as Trump delays his threatened 50% tariffs for more trade talks. Beneath these diplomatic events, real corporate pain is emerging - Volvo just announced 3,000 job cuts as automakers grapple with tariff uncertainty and weakening demand. And as Wall Street fixates on tomorrow's Nvidia earnings and debates whether AI can justify another leg higher, we can look for value in businesses the momentum crowd has forgotten.
My top picks for this week embody this contrarian approach. One-Foot Bars uncovers Douglas AG (DOU), Europe's beauty retail powerhouse inexplicably trading at just 6x free cash flow despite solid margins and market dominance - the kind of post-IPO value creation opportunity that patience rewards. Meanwhile, Net-Net Hunter Japan delivers classic deep value with Lonseal (4224), a Japanese flooring specialist trading at an attractive 0.8x book value while demonstrating steady margin improvement and earnings recovery.
Before diving into this week's newsletter…
Americas
Rock & Turner Investment Analysis on Google (🇺🇸GOOGL US - US$2.1 trillion) Tech giant sitting at potential inflection point trading at reasonable 23x P/E with attractive 4.5% FCF yield, facing legitimate AI disruption questions but maintaining search dominance and cloud momentum.
Asymmetric Ventures Portfolio on GE Aerospace (🇺🇸GE US - US$188 billion) Post-spin pure-play aerospace company with remarkably strong FCF generation, benefiting from commercial aviation recovery and highly profitable aftermarket services growth with multi-year tailwinds ahead.
Max Dividends on American Express (🇺🇸AXP US - US$172 billion) Financial services powerhouse boasting impressive 30% ROE and recent 17% dividend hike, trading at reasonable 19x P/E with premium customer base driving sustainable double-digit growth.
Saadiyat Capital on Nike (🇺🇸NKE US - US$120 billion) Global sportswear giant facing significant brand challenges and persistent China headwinds at elevated 24x P/E, with comprehensive turnaround efforts underway to recapture lost market share.
Long Term Investing on Arista Networks (🇺🇸ANET US - US$118 billion) Cloud networking leader demonstrating exceptional 20%+ revenue growth and expanding margins, trading at premium 42x P/E but arguably justified by massive AI datacenter tailwinds and market share gains.
Kairo's Research on NVR (🇺🇸NVR US - US$26 billion) Uniquely capital-efficient homebuilder trading at attractive 15x P/E with asset-light model, generating strong returns on capital despite facing typical cyclical industry headwinds.
Quality Investing with René Sellmann on DigitalOcean (🇺🇸DOCN US - US$2.4 billion) SMB-focused cloud infrastructure provider trading significantly below IPO price at 25x P/E, showing solid 10-12% revenue growth with improving customer retention and compelling AI platform potential.
Wolf's Substack on Happy Belly Food Group (🇨🇦HBFG CN - CAD$140 million) QSR franchise operator demonstrating explosive 91% revenue growth while approaching breakeven profitability, with steadily improving unit economics across its expanding restaurant portfolio.
Money Machine Newsletter on SCI Engineered Materials (🇺🇸SCIA US - US$20 million) Overlooked nano-cap PVD materials supplier trading at just 10.5x P/E with remarkable enterprise value of only $12.6M, boasting strong cash position and representing potential acquisition target.
Wolf's Substack on Fresh Factory (🇨🇦FRSH CA - CAD$12 million) Early-stage fresh food company pursuing aggressive turnaround strategy with new experienced management team, offering high growth potential despite current unprofitable operations.
Europe, Middle East & Africa
The Value Pond on Bayer (🇩🇪BAYN DE - €29 billion) German pharma/agri conglomerate trading at deeply discounted 8x P/E while facing multiple patent cliffs and litigation overhangs, representing potential breakup candidate with substantial hidden value.
Invariant on Logista (🇪🇸LOG MC - €3.8 billion) Spanish distribution monopoly generating impressive 25% ROCE with highly defensive business characteristics, trading at reasonable 16x P/E with consistently stable margins and predictable cash flows.
D Invests on Greggs (🇬🇧GRG GB - £2.2 billion) UK bakery chain delivering solid 7.6% sales growth with steadily expanding margins, maintaining zero debt while executing 5% annual store growth and trading at reasonable 21x P/E.
One-Foot Bars on Douglas (🇩🇪DOU DE - €1.2 billion) Europe's dominant beauty retailer trading at remarkably cheap 6x FCF with solid 12% EBITDA margins, offering deeply compelling value opportunity following its recent post-IPO weakness.
Smallvalue on Azkoyen (🇪🇸AZK MC - €178 million) Spanish vending machine manufacturer trading at attractive 8x P/E and 6x EV/EBITDA with reliable 5% dividend yield, led by exceptional management team with clear path to value creation.
Asia-Pacific
Generative Value on TSMC (🇹🇼TSM US - US$750 billion) Semiconductor foundry monopoly trading at reasonable 28x P/E as the essential "index on technology" with unmatched pricing power and truly irreplaceable position in global chip supply chain.
Net-Net Hunter Japan on Lonseal (🇯🇵4224 JP - ¥5.8 billion) Japanese specialty flooring manufacturer trading at attractive 12x P/E and just 0.8x book value, demonstrating steady recovery in earnings with consistently improving operating margins.
GHGInvest - Berkshire Hathaway 2025 AGM #3: Cash, Character, and a Legacy That Outlives Time Warren Buffett's profound final reflections from the 2025 annual meeting focusing on timeless capital allocation wisdom, ethical leadership principles, and building enduring value that transcends mere financial metrics. Essential reading for understanding what truly makes businesses last. (18 min read)
Hidden Market Gems - 12 Investing Mistakes You'll Keep Making Brutally honest and entertaining examination of persistent behavioral biases that trap even experienced investors repeatedly, using vivid real company examples from Wirecard to GameStop. Refreshingly practical guide to recognizing your own psychological pitfalls. (12 min read)
The International Investor - Tuk-Tuk to the Future: Riding Southeast Asia's Growth Express Compelling ground-level analysis of Southeast Asian market opportunities beyond the usual suspects, highlighting powerful demographic tailwinds and systematically underappreciated growth dynamics in frontier markets. (15 min read)
AI Proem - Has China Gone All In on Open-Source, Open-Weight, and Why?
Strategic geopolitical analysis of China's calculated pivot to open-source AI development as direct response to chip restrictions, with profound implications for global tech competition and investment opportunities. (14 min read)The Last Puff - What's In My Deep Value Portfolio? #3 [Part 1/2]
Remarkably transparent portfolio review from dedicated deep value practitioner showing impressive 12% YTD outperformance, with brutally honest reflections on costly mistakes and the psychology of patience. (16 min read)Silver Bulletin - ChatGPT is shockingly bad at poker
Nate Silver's absolutely fascinating exploration of LLM limitations using poker as clever test case, revealing critically important insights about AI capabilities and the persistent gap between pattern recognition and strategic thinking. (25 min read)Treasure Hunting - The Power of Being Early: A Microcap Case Study
Exceptionally detailed walkthrough of successful microcap investment demonstrating how early conviction combined with thorough research can lead to life-changing multibagger returns, with actionable lessons on position sizing. (13 min read)Panda Perspectives - What I Learned from the SMM Metals Conference
Valuable on-the-ground insights from major metals industry conference revealing important supply chain shifts and emerging commodity trends that mainstream financial media is completely missing. (8 min listen / 3 min read)Kingswell - Turn Every Page Deeply philosophical exploration of thorough research and the sustainable competitive advantage of meticulous thoroughness in investing, drawing fascinating parallels between investigative journalism and security analysis. (8 min read)
Rustum - Finding Undiscovered Durable Value in Poland Comprehensive deep dive into systematically overlooked Polish equity opportunities highlighting persistent market inefficiencies and structural advantages for patient value investors in Eastern European markets. (17 min read)
Applied Conjectures - How Long Do GPUs Last Anyway? A Look Into Hyperscalers' Depreciation Policies
Technical yet surprisingly accessible analysis of GPU economics and depreciation schedules with major underappreciated implications for AI infrastructure investments and hyperscaler profitability dynamics. (19 min read)The Great Wall Street - Tariffs on, Tariffs off, Tariffs on
Refreshingly balanced examination of constantly evolving US-China trade dynamics and tariff policies, offering genuinely nuanced perspective on actual winners and losers in the shifting geopolitical landscape. (12 min read)
Market volatility dominated the first quarter as Trump's "Liberation Day" tariff announcements triggered significant declines across global markets. Value-oriented strategies generally outperformed growth, with European markets showing surprising strength amid regional fiscal stimulus initiatives. Fund managers consistently expressed concerns about the economic consequences of broad-based tariffs while identifying opportunities amid increased dispersion in valuations.
Bireme Capital: Fundamental Value fund has achieved 371.3% net return since 2016 inception vs S&P at 182.1%, an annual outperformance of 6.7%. YTD 2025 return of 3.1% vs S&P's -13.5%. Letter focuses entirely on analyzing Trump's tariff proposals, arguing they are "an objectively terrible idea" that would function as a tax increase on consumers and create enormous deadweight losses. Management predicts these policies could trigger a recession, dampen business investment due to uncertainty, and potentially spark retaliation from trading partners.
AMG Yacktman Focused Fund: 5-year return of 13.57%, 10-year return of 9.09%, and since inception return of 9.45%. Management highlights historical success protecting capital during downturns, noting double-digit returns during the "lost decade" of 2000-2009. Portfolio positioned defensively with significant international exposure. Letter discusses:
Samsung Electronics Preferred (🇰🇷005935 KS - US$340 billion) - Existing Position: Leadership in memory chips, foundry, and phones at attractive valuation
Bolloré SE (🇫🇷BOL FP - €16 billion) - Existing Position: Net cash position representing about one-third of market capitalization
Canadian Natural Resources (🇨🇦CNQ CN - CAD$85 billion) - Existing Position: Resource producer with consistent operational performance
AMG Yacktman Fund: 5-year return of 14.91%, 10-year return of 9.30%, and since inception return of 10.20%. Managed by the same team as the Focused Fund but with a more diversified approach, reflected in its lower position concentrations - the top 10 holdings represent 40.93% of the portfolio versus 53.50% for the Focused Fund. Commentary aligns with the Focused Fund on market conditions and portfolio strategy. Letter discusses the same key positions but with different weightings:
Bolloré SE (🇫🇷BOL FP - €16 billion) - Existing Position: Top holding at 7.75% versus 10.03% in the Focused Fund
Canadian Natural Resources (🇨🇦CNQ CN - CAD$85 billion) - Existing Position: Second largest position at 6.94% of portfolio
Samsung Electronics Preferred (🇰🇷005935 KS - US$340 billion) - Existing Position: Third largest holding at 5.66% versus 11.09% in Focused Fund
Broyhill Asset Management: Portfolio protected capital during volatility, gaining 2% during three specific market disruptions while S&P 500 fell 6% and the "Magnificent Seven" declined 13%. Management emphasizes globally diversified approach and history of outperformance during market turmoil. Letter discusses:
Philip Morris (🇺🇸PM US - US$160 billion) - Existing Position: Shares up 33% in Q1 after 34% gain last year with 53% increase in ZYN shipments
Baxter (🇺🇸BAX US - US$20 billion) - Existing Position: Gained 18% with improved execution and 4-5% operational sales growth guidance
Uber (🇺🇸UBER US - US$150 billion) - New Position: Dominant ride-share platform with increasing profitability and strong free cash flow
Dollar Tree (🇺🇸DLTR US - US$30 billion) - New Position: Significant upside from higher price points; position increased after tariff-related decline
American Century Emerging Markets Fund: 5-year return of 5.40% and 10-year return of 3.09%. Fund highlighted emerging market resilience despite trade concerns. U.S. tariff announcements were better than expected for Latin American markets, potentially allowing companies there to gain U.S. market share. Letter discusses:
Xiaomi (🇨🇳1810 HK - HK$565 billion) - Existing Position: Electronics maker outpacing industry in smartphone and IoT sales
BYD (🇨🇳1211 HK - HK$675 billion) - Existing Position: EV maker upgrading platform technology and expanding global presence
Bharti Airtel (🇮🇳BHARTI IN - INR$6.2 trillion) - New Position: Telecom gaining market share with robust earnings growth
OTP Bank (🇭🇺OTP HB - HUF$5.5 trillion) - New Position: Hungarian bank with resilient asset quality expected to benefit from rate cuts
Thanks to Buy Side Digest (buysidedigest.com) for compiling the investment letters which are featured here.
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Disclaimer: This newsletter is for informational purposes only and not investment advice. The intro reflects my views, while investment summaries are my interpretations of original authors' analyses. Information may not be fully verified and is subject to correction. Original authors' complete views may differ. Always do your own research before making investing decisions.