Giles Capital Weekly - Week 3
Welcome to another edition of Giles Capital Weekly. As we begin 2025, markets face fresh uncertainty as newly inaugurated President Trump signs an executive order directing the Department of Justice not to enforce TikTok's ban for 75 days, despite bipartisan legislation requiring ByteDance to sell or face shutdown. The move creates significant uncertainty for tech giants like Apple and Google, who could face up to $850 billion in penalties for continuing to work with TikTok, even with Trump's assurances. Meanwhile, in Switzerland, RV Capital's 2025 Annual Gathering in Engelberg offered a refreshing contrast to the political theatre, featuring fascinating discussions with industry leaders including Will Lundin of IPCO and "The Outsiders" author Will Thorndike on capital allocation and building durable businesses.
My top picks this week showcase two industry leaders with exceptional competitive positions and compelling growth trajectories. From Capitalist Letters, TSMC stands as the undisputed king of semiconductor manufacturing with over 90% market share in advanced chips and industry-leading yields, while the exponential growth in AI compute positions them to capture significant value regardless of which chip designer wins. Their capital-intensive moat and high switching costs create an essentially undisruptable business model. From Alphyn Capital Management's quarterly letter, KKR emerges as a standout in alternative assets, having grown their Infrastructure AUM from $13B to $77B in five years while building a $240B+ credit platform. With 80% of strategies not yet fully mature and projected core asset dividends of $300M+ by 2026, KKR's efficient capital allocation points to significant growth ahead.
Americas
Rijnberk InvestInsights on Adobe Inc, Advanced Micro Devices, and PepsiCo (🇺🇸ADBE US - US$193B | 🇺🇸AMD US - US$194B | 🇺🇸PEP US - US$132B) - An analysis of three market leaders: Adobe trading at 20x forward earnings despite double-digit growth, AMD at 23x FY25 earnings with 35% projected EPS CAGR, and PepsiCo at 17x forward earnings with strong pricing power intact.
Long-term Investing on Blackstone Inc (🇺🇸BX US - US$132 billion) - World's largest alternative asset manager trading at compelling valuations with strong fee-related earnings growth and expanding product offerings.
Quality Stocks on PepsiCo (🇺🇸PEP US - US$132 billion) - Trading at 17x forward earnings, a 28% discount to its 5-year average, with a well-covered 3.75% dividend yield. Recent fears around GLP-1 drugs appear overblown given the company's diversified portfolio and pricing power.
MileHighMonk on Vail Resorts (🇺🇸MTN US - US$6.54 billion) - World's leading mountain operator with 42 resorts globally and 20% North American market share. Epic Pass model provides revenue visibility with 65% of lift revenue secured pre-season.
Value Degen on Mattr Corp (🇨🇦MATR TO - US$6.0 billion) - Manufacturing conglomerate trading at 4.2x EBITDA with 70% gross margins and projected margin expansion to 30% by 2030, driven by strong demand for oil & gas infrastructure.
Investing501 Newsletter on UGI Corporation (🇺🇸UGI US - US$6.44 billion) - Utility and energy company trading at 7.8x EV/EBITDA with multiple pathways for value creation. Weak performance at AmeriGas division masks strong natural gas utility and midstream assets.
Jimmy's Journal on VTEX (🇺🇸VTEX US - US$1.09 billion) - Fast-growing ecommerce platform that's changing the way businesses sell online. Platform has grown AUM from ~$105B to $273B around 2018 with net retention rate improving from 94% to 99%.
Value Degen on Medical Properties Trust (🇺🇸MPW US) - Healthcare REIT trading at 7-8x earnings with 8% dividend yield and potential catalyst from debt covenant changes in September.
Europe, Middle East & Africa
Rijnberk InvestInsights on Deutsche Telekom (🇩🇪DTE GR - US$150 billion) - Europe's leading telecom provider trading at 15x earnings with projected 11% EPS CAGR through 2027, benefiting from declining capital intensity and growing free cash flows.
Manuel on TeamViewer (🇩🇪TMV GR - US$1.5 billion) - Leading remote access software provider trading at 8.5x trailing earnings despite strong fundamentals. Growing enterprise division (20%+ growth) and potential margin expansion offer significant upside.
Value Degen on KGHM Polska Miedz (🇵🇱KGH WA PLN 24.96B) - Polish copper miner trading at 0.77x price/sales with significant upside potential from copper price recovery and geopolitical risk reduction.
Dungeon Investing on tinyBuild (🇬🇧TBLD LN - US$30 million) - Game publisher trading at compelling valuation with two major upcoming releases ranked #19 and #57 on Steam's most wishlisted games.
Asia-Pacific
Capitalist Letters on TSMC (🇹🇼TSM US - US$500+ billion) - World's dominant semiconductor manufacturer trading at 10x forward earnings with 40% net margins, projecting 13% earnings CAGR and strong AI-driven demand growth.
Long-term Investing on Tata Consulting Services (🇮🇳TCS IN - US$178 billion) - India's largest IT services company trading at attractive valuations with strong fundamentals. Over the past decade, revenues and operating profits have grown at 11% CAGR with consistent margins.
Panda Perspectives on Hibiscus Petroleum (🇲🇾HIBI MK - US$1.5 billion) - Malaysian oil & gas company trading at 7.9x P/E with strong production growth outlook. Recent acquisitions and development projects position company for significant growth.
Silver Bulletin - "Why Biden failed" - A comprehensive analysis of Biden's presidency, examining how misreading his mandate, age-related challenges, and multiple crises led to his departure. Essential reading for understanding the political context driving markets. (25 min read)
Quality Stocks - "Top Analysts' Major Predictions for 2025" - Comprehensive compilation of Wall Street's outlook for 2025, including GDP forecasts, sector picks, and market targets. (15 min read)
The Coal Trader - "US Met Coal Price Assessments Are Getting Stupid Again" - Insightful analysis of pricing dynamics in metallurgical coal market and the disconnect between spot price assessments and market reality. (15 min read)
Noahpinion - The Pettis Paradigm and the Second China Shock - Excellent analysis of China's growing trade surplus and potential policy responses. Thoughtful exploration of tariffs' effectiveness and limitations. (20 min read)
Made in Japan - "Why I think Japanese SaaS is undervalued" - Fascinating deep dive into the Japanese SaaS sector, explaining why these companies trade at significant discounts to global peers despite solid fundamentals. (40 min read)
Jimmy's Journal - Amazon Logistics: Building the Moat of the Future - Deep dive into how Amazon's logistics network is becoming a key competitive advantage and potential revenue driver. (12 min read)
A Letter a Day - Letter #253: Matt Cohler (2010) - Early Facebook executive and Benchmark partner's prescient insights on technology disruption and social media impact. (15 min read)
TQI Capital - "RV Capital's 2025 Annual Gathering" - Excellent coverage of RV Capital's annual event, featuring insights from Will Lundin on IPCO's capital allocation strategy and growth prospects. A masterclass in long-term value creation. (30 min read)
Harbinger Hub - The odds are against you - Insightful piece on why triple-digit returns are rarely sustainable and the importance of realistic expectations in investing. (15 min read)
Best Anchor Stocks - Books of 2024 - Curated selection of investment-focused books with detailed reviews and key takeaways. (20 min read)
StockPicker's Corner - "Put Your Eggs in This Basket — And Win" - Thought-provoking discussion of concentrated portfolio strategy using Andrew Carnegie's investment philosophy. (20 min read)
Quipus Capital - "Chile 2025 Primer: will Chile return to the fold?" - Excellent analysis of Chile's economic trajectory and investment landscape, with detailed analysis of accessible ADRs and ETFs. Essential reading for EM investors. (30 min read)
Noahpinion - Why I'm long-term bullish on the Middle East - Fascinating perspective on the region's potential, particularly given advances in solar power and desalination technology. (15 min read)
Key insights from Q4 2024 fund letters reveal contrasting perspectives across managers:
Alphyn Capital Management: Value-oriented fund returned 16.9% for 2024, underperforming S&P 500's 25.0%. Manager emphasizes high-quality compounders while becoming less forgiving of underperforming investments. Letter discusses:
KKR & Co (🇺🇸KKR) - Existing Position: AUM growth with infrastructure division expanding from $13B to $77B in 5 years; Credit platform exceeds $240B
Amazon (🇺🇸AMZN) - Existing Position: Same-day shipping available to 40M users; advertising revenue hit $14.3B (+19% YoY)
Exor NV (🇳🇱EXXRF) - Reduced Position: CEO Tavares's early departure suggests deeper board tensions. His aggressive pricing strategy hurt demand for Jeep and RAM brands while straining stakeholder relationships
Melrose Industries (🇬🇧MRO.L) - Existing Position: Released detailed document on 19 risk-sharing partnerships, projecting £22 billion in cash flow over coming decades
Middle Coast Investing: Portfolio slightly outperformed Russell 2000 but lagged S&P 500 in 2024. Focused on portfolio management lessons and position sizing. Letter discusses:
Progressive (🇺🇸PGR) - Existing Position: Management discusses missed opportunity in not adding to all accounts earlier
First Citizens National (🇺🇸FCNCA) - Existing Position: More than doubled in 2023 after SVB acquisition, up 50% after Q4 earnings
Palm Valley Capital Fund: Defensive positioning with 78% cash at quarter end. Returned 4.22% for 2024. Concerned about speculation in markets and cryptocurrency mania. Letter discusses:
Kelly Services (🇺🇸KELYA) - New Position: Trading at 6x trailing adjusted operating profit and 27% discount to tangible equity
Seaboard Corp (🇺🇸SEB) - New Position: Diversified commodity business trading at decade-low and 50% of tangible book value
Vltava Fund: Added semiconductor equipment manufacturers amid market correction. Letter discusses:
Applied Materials (🇺🇸AMAT) - New Position: 27% net margins and 30% ROCE with strong free cash flow
Lam Research (🇺🇸LRCX) - New Position: Leading wafer fabrication equipment manufacturer with 27% margins
St. James Investment Company: Provides detailed analysis of market dynamics and currency debasement concerns. Discusses how "financial nihilism" drives younger investors to take excessive risks due to unaffordable housing and asset inflation.
Right Tail Capital: Takes responsibility for underperformance rather than blaming market conditions. Emphasizes importance of finding opportunities in market underbellies despite challenging environment. Details shift in research focus to industries including convenience stores, insurance, and royalty companies.
Leaven Partners: Returned 5.8% for 2024, significantly underperforming broader markets. Discusses elevated market valuations and concerns about speculative excess. Letter discusses:
Money Partners Group (🇯🇵8732) - Exited Position: Sold after 94% gain following buyout by Gaitame.com at ¥474 per share
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.