Giles Capital Weekly - Week 42
Welcome to another edition of Giles Capital Weekly. The US presidential race is heating up, with Kamala Harris facing an uphill battle against Donald Trump. Meanwhile, the AI revolution continues to reshape industries, with tech giants like Microsoft and Google making big bets on nuclear power to fuel their data centres.
My top pick this week is EssilorLuxottica, a leader in eyewear with 7.8% organic revenue growth and an impressive 21% EBIT margin. The company's unique position spanning both healthcare and luxury sectors provides a rare combination of defensive stability and premium growth potential. Also piquing my interest is Zoetis, a veterinary drug maker. The company has maintained an impressive 5-year average ROE of 48%, showcasing its operational efficiency in the pet care sector.
Americas
Stock Picker's Corner on Zoetis Inc. (🇺🇸ZTS US - US$88 billion) Zoetis holds the #1 market share in pet pharmaceuticals globally, with 15 blockbuster drugs each generating over $100 million annually. The company's new monoclonal antibody treatments for pet osteoarthritis could grow to over $1 billion in peak sales.
Rock & Turner on Aptiv PLC (🇺🇸APTV US - US$18.7 billion) Aptiv is well-positioned to capitalize on major automotive trends in autonomous driving and connectivity. Trading at 5.4x LTM P/E with a strong technological position and global reach, the company offers an asymmetric opportunity in the evolving automotive sector.
Waterboy's Substack on First Citizens BancShares (🇺🇸FCNCA US - US$20.5 billion) First Citizens has benefited from acquiring Silicon Valley Bank assets, but faces near-term headwinds from lower interest rates and degrading credits. Trading at 12-14x forward P/E, the stock may be fully valued given the potential for earnings pressure.
Quipus Capital on various Mexico Industrials (🇲🇽Various - US$1 billion to US$15 billion) A comprehensive overview of the Mexican industrial sector, highlighting opportunities in cement, chemicals, and transportation. Quipus identifies several companies trading at attractive valuations with potential catalysts for growth. Two standout companies are:
Grupo Mexico Transportes (US$10.8 billion): Owns one of two main railway networks in Mexico, with a duopoly in the centre and northeast. Operating margins of 30% and strong free cash flow generation.
Promotora y Operadora de Infraestructura (US$7.1 billion): Operates highway concessions with high profitability and stable cash flows. A current yield of 10% with potential for growth in infrastructure spending.
Value Don't Lie on Everus Construction Group (🇺🇸ECG US - Market cap TBD, spin-off set for October 31, 2024) Everus Construction Group, a spin-off from MDU Resources, offers exposure to the growing construction services sector. With strong tailwinds from government infrastructure spending, the company could trade at 10-13x EBITDA post-spin off.
Europe, Middle East & Africa
European Value Investor on EssilorLuxottica Part I and Part II (🇫🇷EL FP - €95 billion) A two-part deep dive into EssilorLuxottica, the global leader in eyewear and eyecare. Trading at 25x earnings with a dominant market position and potential for synergies, the company offers steady growth in the defensive vision care market. Essential reading given Meta's possible investment in the AR/VR space.
Dungeon Investing on PlayWay (🇵🇱PLW PW - PLN 1.85 billion) PlayWay, a Polish video game developer, has shown strong growth and profitability. Trading at 10x earnings with a profitable business model focused on niche simulation games, the company offers potential upside in the gaming sector.
Alex of Rome Capital on Cake Box Holdings (🇬🇧CBOX LN - £82 million) Cake Box, a UK-based cream cake retailer, has shown strong growth and profitability. Trading at 10x earnings with a scalable franchise model and high returns on capital, the company offers potential for expansion in the UK market.
Asia-Pacific
Robin's Substack on Tasmea Limited (🇦🇺TEA AU - A$314 million) Tasmea provides maintenance services for fixed equipment in remote areas of Australia. With a 20% CAGR in EBITDA since 2018 and exposure to growing mining and energy sectors, the company could double in value over the next three years.
Bos Invest on Wilmar International (🇸🇬WLIL SP - S$21.1 billion) Wilmar trades at a discount to its listed subsidiaries, offering exposure to palm oil and sugar markets. With a 5% dividend yield and potential for margin expansion, the stock could see 90% upside.
8% Value Investhink writes a Japan Dividend List (🇯🇵Various - ¥100 billion to ¥5 trillion) An analysis of attractive dividend-paying stocks in Japan, highlighting companies with strong capital allocation and growth potential. Two notable picks include:
Bridgestone (Â¥4.2 trillion): The world's largest tire company trading at 1x Price-to-Book while giving a 3.6% dividend yield.
Tecmo Koei (Â¥644 billion): A gaming company with a 40-year niche in historical strategy games, trading at a mid-teens PE and 6-7% FCF yield.
Silver Bulletin - 24 reasons that Trump could win Nate Silver presents a comprehensive analysis of factors favouring Trump in the 2024 election. A sobering look at the challenges facing the Harris campaign and the potential for another Trump presidency. (Estimated reading time: 15 minutes)
Citrini Research - Election 2024: Three Weeks Out A data-driven analysis of the upcoming US presidential election, focusing on the effectiveness of Citrini's proprietary election basket. An interesting look at how to potentially profit from political outcomes. (Estimated reading time: 10 minutes)
Undervalued and undercovered on Palladium and Platinum Hugo Navarro argues that the palladium market appears oversold, with potential for a short squeeze as supply risks from Russia and South Africa could tighten the market. Short interest has dropped by nearly half since its peak, contributing to a 30% price rise. (Estimated reading time: 12 minutes)
Investing in China - The fight against stupidity has only just begun A thought-provoking piece on critical thinking and information analysis in the context of China investing. This article offers practical tools for evaluating claims and avoiding misinformation. (Estimated reading time: 10 minutes)
Leonid's Substack - China's Fiscal Flex An insightful analysis of China's fiscal position and potential for stimulus. Leonid argues that China has more fiscal runway than commonly believed, with implications for global markets. (Estimated reading time: 8 minutes)
Jingshu's Substack - Light at the End of the Tunnel? A thoughtful investor letter discussing recent portfolio performance and insights on Chinese stocks like Pinduoduo and NetEase. Jingshu provides valuable perspectives on navigating the current market environment. (Estimated reading time: 12 minutes)
Generative Value - AI Data Centers, Part 2: Energy An in-depth exploration of the energy challenges facing AI data centres and potential solutions. This piece offers a comprehensive overview of the complex interplay between AI, energy markets, and infrastructure. (Estimated reading time: 20 minutes)
Asian Century Stocks - Analyze capital allocation in 10 easy steps A detailed guide to evaluating a company's capital allocation decisions. Michael Fritzell uses Koshidaka as a case study to illustrate the framework. (Estimated reading time: 25 minutes)
How They Make Money - ASML: Orders Stumble A deep dive into ASML's recent earnings disappointment and its implications for the semiconductor industry. This analysis provides valuable context on the cyclical nature of chip demand and ASML's long-term potential. (Estimated reading time: 14 minutes)
Noahpinion - EVs are just going to win Noah Smith makes a compelling case for the inevitable dominance of electric vehicles, citing superior technology and falling battery costs. A must-read for anyone interested in the future of transportation. (Estimated reading time: 12 minutes)
Currently, I’m only featuring free content. If you're a writer producing free, insightful investment analysis and would like to be considered for inclusion, feel free to reach out. What would you like to see in future editions? Let me know in the comments.
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.