Giles Capital Weekly - Week 5

Welcome to another edition of Giles Capital Weekly. Markets experienced significant volatility this week as DeepSeek's breakthrough in AI efficiency triggered widespread reassessment of technology valuations. As I explore in one of the included articles below, this development has important implications for the semiconductor industry and broader tech landscape. Meanwhile, the initial shock from President Trump's tariff announcements has evolved into a more nuanced situation, with Mexico and Canada securing a 30-day suspension after agreeing to enhance border security measures. China's counter-tariffs and ongoing domestic political tensions around federal agency changes add layers of complexity to the market outlook.

My top picks from this week's fund letters focus on overlooked value opportunities in retail and healthcare. From Christopher Kirincic's analysis, Dollar General (DG) stands out at one of its lowest historical valuations, trading at just 11.3x 2025 earnings despite doubling cash flow and tripling sales over the past decade. Their proven business model in rural markets and consistent profitability suggest significant upside from current levels, with management actively addressing short-term operational challenges. From White Falcon Capital Management, Perrigo (PRGO) emerges as a leading consumer health company transforming under new leadership. Their global scale in store-brand medicines, combined with near-term catalysts including infant formula recovery and the launch of the first over-the-counter birth control pill, position them well for growth while trading at just 10x earnings.

Americas

• Quality Stocks on Semiconductor Equipment Manufacturers (🇺🇸AMAT US, KLAC US, LRCX US - $145.4B, $99.0B, $103.2B) Comprehensive analysis of industry leaders trading at varying multiples:

  • Applied Materials: 47% gross margins with broadest product range

  • KLA Corporation: Premium valuation justified by 61% gross margins and niche dominance

  • Lam Research: 48% gross margins with strong services focus comprising 43% of revenue

• Jimmy's Journal on MercadoLibre (🇺🇸MELI US - US$93 billion) Dominant Latin American e-commerce platform with 33% market share growing revenue at 43% CAGR since 2014, trading at 30x 2026E P/E with significant fintech optionality through Mercado Pago.

• Safe Harbor Stocks on Genuine Parts Company (🇺🇸GPC US - $16.1B) Leading auto parts distributor with 68 years of dividend increases, trading at 13.7x 2025 earnings with 3-4% annual revenue growth and strong cash generation.

• Christopher Kirincic on Dollar General (🇺🇸DG US - US$15.72 billion) Value retailer trading at historically low valuation with near-term catalysts from store remodeling and digital initiatives, offering 17% dividend yield supported by free cash flow.

• Quipus Capital on XP Inc (🇺🇸XP US - $7.4B) Leading Brazilian retail broker trading at 8-10x forward earnings with 15-20% growth. Company maintains 40-50% market share in individual equities while expanding into new financial products.

• Alpha Ark on Valaris (🇺🇸VAL US - US$3.4 billion) World's largest offshore driller trading at 16 cents on the dollar of enterprise value based on replacement cost, with strong industry tailwinds and improving day rates. Fleet valued at $26.6bn versus $4.2bn EV.

• Hidden Market Gems on Blue Bird Corporation (🇺🇸BLBD US - US$1.14 billion) School bus manufacturer with 33% US market share transitioning to electric vehicles, trading at attractive P/E of 12x and positioned to benefit from $5 billion EPA Clean School Bus Program.

• Kairos Research on Acuren (🇺🇸TICA US - US$845 million) Asset integrity testing and certification company with 95% recurring revenue, trading at attractive valuation post-SPAC with proven value creator Martin Franklin involved.

• Unconventional Value on Pagaya Technologies (🇺🇸PGY US - $696M) AI-powered credit infrastructure platform trading at 10x forward earnings while scaling profitably. Company is achieving 15-20% growth with improving unit economics as risk retention requirements decline.

• Compound & Fire - Computer Modelling Group Software company dominating the oil & gas simulation market with 95% recurring revenue and strong competitive moat in reservoir simulation technology. (12 min read)

• Value Investing by Double Alpha Factory on GBank (🇺🇸GBFH US - US$547.91M) Regional bank showing explosive credit card growth with Q1 projections of $135M in transactions, representing 100%+ QoQ growth. Trading at compelling valuations with expected 50% net margins from credit operations.

• Wolf of Oakville on High Tide (🇨🇦HITI CN - CAD$305M) Canadian cannabis retailer showing 7% revenue growth and 27.3% gross margins, though path to significant profitability remains challenging at current scale.

• Wolf's Substack on Gatekeeper Systems (🇨🇦GSI CN - CAD$43.11 million) Significant deterioration in operating performance with 98% decline in operating profit despite strong balance sheet. Trading at 260x TTM P/E after recent disappointing quarter.

• Central Tendency on ESSA Pharma (🇺🇸EPIX US - US$80 million) Broken biotech trading at 35% discount to net cash post failed Phase 2 trial, with activist Tang Capital involved and strategic review underway pointing to likely sale.

• Wolf's Substack on Thermal Energy International (🇨🇦TMG CN - CAD$25.10 million) Record Q2 revenue of $8.7M but margins declined 1600bps YoY to 33.1%. Recent operational spending increases and margin pressure make current valuation difficult to justify.

Europe, Middle East & Africa

• Rijnberk InvestInsights on ASML Holding (🇳🇱ASML NA - €278.8B) Semiconductor equipment monopolist trading at 28x 2025 earnings despite 15-20% growth potential through 2030, supported by AI-driven demand and technology leadership.

• InvestingWithWes Newsletter on 4imprint Group (🇬🇧FOUR LN - £1.69 billion) Leading promotional products company growing steadily with PE ratio of 22x and Price to Free Cash Flow of 24x, benefiting from increasing economic activity.

• Eloy Fernández Deep Research on Robertet SA (🇫🇷RBT FP - €2.1B) Natural ingredients producer for fragrances and flavors with 170-year heritage, trading at 15x earnings with strong competitive advantages in natural and organic ingredients. Vertical integration and extensive portfolio of proprietary molecules create high barriers to entry.

• Value Degen's Substack on SuperCom (🇺🇸SPCB US - US$26M) Israeli security electronics company gaining significant traction in US market with 20 new contracts across six states. Trading at compelling valuation with potential 10x upside based on 4-8x revenue multiple on projected growth.

Asia-Pacific

• Long-term Investing on Reliance Industries (🇮🇳RIL IN - US$200 billion) India's largest conglomerate with integrated operations across petrochemicals, retail, and telecom. Jio platform leading digital transformation with 480 million subscribers.

• Bamboo Works on BeiGene (🇨🇳BGNE US - CNY 185.35B) Biotech firm approaching profitability milestone with blockbuster blood cancer drug reaching $1.82B in sales for first nine months. Global clinical team expansion positions company for accelerated drug development.

• Dragon Invest on Hong Kong Value Portfolio (🇭🇰Various HK - HK$0.5-200 billion) Analysis of undervalued Hong Kong stocks, highlighting three compelling opportunities:

  • China Mobile: Leading telecom provider at 2.43x EV/EBITDA with strong cloud growth and 7% yield

  • Dickson Concepts: Luxury retailer with HK$2.87B net cash vs HK$1.9B market cap and 10% dividend yield

  • Natural Food International: Health food leader at 6x PE with PepsiCo backing and 13.5% revenue growth

• Emerging Value on Jardine Matheson Holdings (🇸🇬J36 SI - SGD 13.77 billion) Asian conglomerate trading near all-time low price-to-book ratio despite strong growth in Astra automotive business and Hong Kong property portfolio.

• Dragon Invest on DPC DASH (🇭🇰1405 HK - HK$10.36 billion) Leading Domino's Pizza operator in China targeting 2,000 stores by 2027, with compelling unit economics and breakfast revenue growing to 8.5% of sales.

• AltayCap on Chuoh Pack Industries (🇯🇵3952 JP - ¥6.7 billion) Japanese net-net receiving 273% premium buyout offer at ¥5,034 per share. Trading at 0.5x price-to-tangible book with consistent profitability for over 20 years.

• Noahpinion - Trump starts to break things Insightful analysis of Trump's new tariff policies and their potential economic impact. (12 min read)

• Philoinvestor - Sunday Review Insightful analysis of DeepSeek's market impact and implications of Trump's latest trade policies. (10 min read)

• The Great Wall Street - How to Judge Management in China- When Saying Less is More Fascinating comparison between management styles in Chinese tech companies, using Pinduoduo and MeiDong Auto as case studies. Shows why sometimes the quietest companies deliver the best returns. (18 min read)

• Panda Perspectives - China Weekly Wrap Deep dive into Chinese market dynamics including retail consumption trends, AI developments, and implications of U.S. tariffs. (20 min read)

• Capitalist Letters - Bullish On Chinese Companies, Bearish On China... Analysis of why China's AI progress like DeepSeek shouldn't be underestimated, while structural issues limit long-term economic potential. (15 min read)

• Giles Capital - The real winners of the AI efficiency war Yours truly examines how DeepSeek's efficiency breakthrough could reshape the AI landscape, with specific implications for hardware manufacturers and infrastructure providers. (15 min read)

• High Growth Investing - What DeepSeek really Means for Tech Stocks Deep dive into how DeepSeek's breakthrough could reshape AI infrastructure spending and impact major tech players. Thoughtful analysis of potential winners and losers in the evolving landscape. (15 min read)

• GHGInvest - AI Just Got 45x Cheaper—And It Might Be Nvidia's Biggest Threat Yet Detailed breakdown of DeepSeek's technological breakthrough and implications for the AI industry. (15 min read)

• Charly AI - Is DeepSeek a signal of the top for NVIDIA? A detailed analysis of DeepSeek's impact on AI industry dynamics and implications for the Magnificent Seven stocks. (20 min read)

• Stock Picker's Corner - Up the (Deep)Seek Without a Paddle? Not Necessarily Level-headed analysis of the DeepSeek situation, providing historical context and practical investment implications. (10 min read)

• Finbite Insights - Nvidia's Risk: Overcapacity Meets Efficiency Improvements Thoughtful analysis of how AI model efficiency gains could impact near-term GPU demand. (8 min read)

• Generative Value - OpenAI, Part 1 Comprehensive history of OpenAI from its founding through recent developments, offering valuable context for understanding today's AI landscape. Essential reading for anyone following the AI space. (20 min read)

• Noahpinion - Patrick Collison interview + at least five interesting things Fascinating discussion covering productivity trends, future of liberalism, and concrete policy proposals with Stripe's co-founder. (25 min read)

• Value Degen's Substack - Industrials Roundup Comprehensive review of industrial stocks including Babcock & Wilcox, Titan Machinery, and Alta Equipment Group. Excellent analysis of sector dynamics and individual company opportunities. (12 min read)

• Deep Value Returns - Portfolio Strategy: Beyond The Heat, The Process That Delivers The Prize Insightful discussion on developing investment discipline and focusing on process over prizes. Particularly relevant in today's market environment. (10 min read)

• Investment Ideas by Antonio - Wise: Taking the Entire $190T International Payments Market Deep dive on Wise's potential to disrupt international payments through its cost leadership and network effects. (20 min read)

• KonichiValue Japan - Why the Japanese Stock Market Stands Out: Insights with Yuka Marosek Illuminating discussion of opportunities in Japanese equities and market reforms. (Audio)

• The Magic Bakery - Mark Leonard Chronicles Compelling deep dive into Japan's digital transformation and the unique opportunity in Japanese software companies. Well-researched piece highlighting structural advantages in this market. (20 min read)

• Long-term Investing - Ben Graham 1894-1976 Excellent overview of Benjamin Graham's investment philosophy and enduring influence on value investing. (12 min read)

• Rock & Turner - From Jelly Beans To The Stock Market Fascinating exploration of collective wisdom versus market inefficiency through historical examples. (10 min read)

The period was marked by a notable divergence between speculative and quality assets, with bitcoin and high-beta stocks outperforming. Several managers noted parallels to the 2021 bubble, while expressing concerns about current market valuations.

• Heartland Mid Cap Value Fund: Strategy focused on companies with self-help catalysts and strong balance sheets, avoiding speculative stocks. Letter discusses:

  • Sysco Corporation (🇺🇸SYY) - New Position: Nation's largest food distributor trading at 80% of sector EV/EBITDA multiple, implementing digital capabilities and specialty platform expansion

  • Willis Tower Watson (🇺🇸WTW) - Existing Position: Insurance broker trading at 17.1x 2025 earnings vs peers >23x, operational streamlining driving margin expansion

  • Centene Corporation (🇺🇸CNC) - Existing Position: Health insurer trading at 8.5x earnings with $3-4/share earnings recovery potential in Medicaid/Medicare segments

• Heartland Value Fund: Generated 15.68% return for 2024, outperforming benchmark. Strategy emphasizes lagging areas with historical correlation to current market leaders. Letter discusses:

  • Sealed Air Corporation (🇺🇸SEE) - New Position: Global packager trading substantially below intrinsic worth and less than half market's P/E ratio

  • Delek US Holdings (🇺🇸DK) - Existing Position: Energy refiner with sum-of-parts valuation of $31/share vs $17 current price, implementing $400M share repurchase program

• Heartland Value Plus Fund: Strategy focused on companies implementing self-help strategies and operational improvements. Seeing broadening of market beyond mega-caps. Letter discusses:

  • FB Financial (🇺🇸FBK) - Existing Position: Regional bank trading at 1.8x tangible book value despite strong deposit/loan growth

  • Semtech Corporation (🇺🇸SMTC) - New Position: Technology solutions provider trading at 20-25% discount to peers, benefiting from AI data center demand

• Patient Capital Management: Strategy returned 14.4% for 2024. Portfolio maintains 94.2% active share with focus on travel and financial sectors. Letter discusses:

  • SoFi Technologies (🇺🇸SOFI) - Existing Position: Fintech company executing on new fee-for-service lending platform

  • United Airlines (🇺🇸UAL) - Existing Position: Accounts for ~30% of industry profits, initiated first buyback since COVID

  • Perrigo (🇺🇸PRGO) - New Position: Consumer health company with projected earnings growth from infant formula recovery and Opill OTC contraceptive launch

• White Falcon Capital: Strategy returned 14.4% for 2024. Portfolio shifted toward value and mid/small-cap stocks with 93.6% invested in equities. Letter includes detailed analysis of:

  • Perrigo (🇺🇸PRGO) - Existing Position: Trading at 10x 2024 earnings, projecting recovery in infant formula business and margin expansion to 40%

• Headwaters Capital: Strategy returned 14.0% for 2024. Manager notes concerning parallels to 2021 speculative bubble, particularly in AI and crypto-related stocks. Letter discusses:

  • Climb Global (🇺🇸CLMB) - Existing Position: Benefiting from strong cybersecurity and data center spending

  • Transmedics (🇺🇸TMDX) - Existing Position: Organ transplant device maker facing market saturation concerns

• Claret Asset Management: Focused on long-term investment approach while warning about current market speculation. Letter provides historical analysis of market bubbles and challenges conventional wisdom on dividend investing. Does not discuss specific positions but offers perspective on:

  • Private equity investments - warns against illiquid assets being marketed as liquid

  • Market valuation - notes Nvidia's market cap exceeds five G7 countries combined

  • Historical bubble analysis - examines five major market bubbles since 1927 and their recovery periods

Thanks to Letters & Reviews (lettersandreviews.blogspot.com) for compiling investment letters, which is where I sourced these letters.

---

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.