Giles Capital Weekly - Week 50
Welcome to another edition of Giles Capital Weekly. I'm excited to announce that we're expanding our offering to include a podcasts section of the newsletter, starting with a few key podcasts and plans to feature more over time. As we approach the final weeks of 2024, the investment landscape presents a fascinating mix of opportunities across traditional value plays and emerging growth stories. While the S&P 500's 27% gain this year has drawn attention to obvious winners, finding value requires looking beyond the surface. This week brings particularly interesting contrasts: from Intel's potential revival in the AI age to China's signals of "moderately loose" monetary policy (language not seen since 2009) to emerging opportunities in Southeast Asian markets.
My top picks for this week are two compelling opportunities in the digital economy. Capitalist Letters presents NuBank (NU US), a Latin American digital banking disruptor that has built an impressive moat through superior technology and customer focus, with customer acquisition costs of just $9 versus $500 for traditional banks and a 33% net income margin in a region where 45% of the population remains unbanked. From Barron's Streetwise podcast, Andrew Bary highlights Uber Technologies (UBER US), which has evolved beyond ride-hailing into a dominant global platform well-positioned to benefit from the emerging robotaxi market. With strong pricing power and improving unit economics, Uber's current valuation appears to undervalue its potential as it continues to scale operations.
Americas
Capitalist Letters on NuBank (🇺🇸NU US - US$56 billion) Latin America's largest digital bank leveraging superior technology and customer focus to disrupt traditional banking, with a 33% net income margin and customer acquisition costs of just $9 versus $500 for traditional banks.
Leahi Capital on Janus International (🇺🇸JBI US - US$1.1 billion) Leading provider of self-storage doors and solutions trading at 6x EBITDA. Core business generates strong free cash flow while management executes a multi-year plan to divest non-core assets.
Kroker Equity Research on Lululemon (🇺🇸LULU US - US$47.7 billion) Q3 2024 update shows strong international growth with China Mainland revenue up 39%, though Americas growth was modest at 2%. Company maintains high operating margins above 20%.
Eloy Fernández Deep Research on Build-A-Bear Workshop (🇺🇸BBW US - US$554.5 million) Strong retail sales growth of 9.1% driven by existing stores in US and UK. Company is executing well with plans to add at least 65 new locations through various business models.
The Net Worth Club on Innoviz Technologies (🇺🇸INVZ US - US$115 million) LiDAR technology provider trading at depressed valuations with improving financials and strong growth potential in autonomous vehicle market. Management estimates suggest significant revenue growth ahead while the company trades at just 0.7x sales.
Value Degen on Kohl's Corp (🇺🇸KSS US - US$1.64 billion) Trading at 0.1x sales with potential catalysts including jewelry counter redeployment, Babies R Us partnership, and possible middle-class spending recovery.
Investment Ideas by Antonio on Okta (🇺🇸OKTA US - US$56 billion) A rapidly growing cloud identity management platform benefiting from AI adoption, trading at 5.5x P/S with improving profitability and strong cash flow conversion at 23% of revenue.
Europe, Middle East & Africa
Undervalued and Undercovered on Alpha Group (🇬🇧ALPH LN - £976 million) FX services provider trading at 11x P/E despite clear path to double-digit growth, with new CEO committed to increasing stake and founder maintaining lockup.
Invariant on British American Tobacco (🇬🇧BTI LN - £65.9 billion ) Facing challenges in NGP (Next Generation Products) strategy but benefiting from postponed menthol ban and strong core business, though leverage concerns persist.
Asia-Pacific
Dungeon Investing on Square Enix (🇯🇵9684 JP - ¥750B JPY) Gaming giant with undervalued IP library and improving non-gaming segments, including publishing and amusement, showing strong margin expansion.
Noahpinion - Insurance companies aren't the main villain of the U.S. health system Thought-provoking analysis challenging common assumptions about U.S. healthcare costs. Essential context for healthcare investors. (12 min read)
Quality Stocks - What Paypal Teaches us About How the Stock Market Works Interesting analysis of market psychology using PayPal as a case study of market cycles and bubble phases. Good reminder about the importance of fundamental analysis. (8 min read)
Panda Perspectives - China Macro: How the Politburo's Signals Shape the CEWC Playbook Detailed analysis of China's latest policy signals and their implications for investors. Particularly valuable for understanding the nuances of Chinese monetary policy. (10 min read)
The Great Wall Street - The Development Almost Everybody Currently Misses About Investing in China Fascinating deep dive into consumption trends in lower-tier Chinese cities, challenging conventional narratives about China's economy. Essential reading for understanding the nuances of Chinese consumer markets. (20 min read)
The International Investor - Asia's Economic Crossroads: Growth, Expansion, and Opportunity - Insightful analysis of Southeast Asia's emerging economic opportunities, particularly in Vietnam and Thailand (15 min read)
Quality Investing with René Sellmann - Meta's Path to a $10 Trillion Market Capitalization: A Bold Thought Experiment? Fascinating analysis of Meta's potential growth drivers, particularly their lead in AR technology and AI integration. A must-read for understanding the company's long-term potential. (15 min read)
Quality Investing with René Sellmann - Inside Jeff Bezos' Mind: Lessons on Growth, Leadership, and the Future of Humanity Distills key insights from Bezos' recent DealBook Summit interview, covering everything from wealth creation to space exploration. Worth reading for his perspective on building lasting value. (12 min read)
Rock & Turner - Mental Model 5 | Scale Economics Shared - An excellent analysis of how companies like Costco and Amazon built moats through customer-focused pricing strategies (20 min read)
Stock Picker's Corner - Why We'll Need Coal For Years To Come Insightful conversation with coal expert Matt Warder discussing coal's critical role in energy transition and steel production. Provides unique perspectives on why coal remains essential despite the push for green energy. (15 min read)
Value Degen's Substack - Firesale on the Water Detailed analysis of opportunities in shipping stocks following recent selloff, focusing on companies with long-term fixed contracts. Covers Höegh Autoliners, Cool Company, and Okeanis Eco Tankers. (20 min read)
TQI Capital - Christmas special: The "Santa" #2 - A thoughtful review of Graham & Doddsville's Fall 2024 issue, featuring insights from leading value investors including Nadim Rizk and Kevin Tanner (15 min read)
Barron's Streetwise - Andrew Bary's Top Stock Picks Andrew Bary presents his top stock picks for 2025, acknowledging his disappointing 2024 performance where his picks lagged the S&P 500. Key picks include Uber, Citigroup and LVMH, with detailed analysis of each company's competitive position and valuation metrics. Discussion touches on broader market themes including interest rates and potential market-friendly policies under a new administration. (Listening time: 26 minutes)
Key quote: "While stocks are expensive, I think the environment in Washington and on Capitol Hill will probably be pretty good for stocks."
Stocks discussed:
Uber (UBER) - Growing earnings at double-digit rates with international dominance, potential beneficiary of robo-taxi partnerships
Citigroup (C) - Trading at 10x 2025 earnings and below tangible book value, transformation under new CEO showing promise
LVMH (MC FP) - Trading at 20x earnings with CEO buying shares, potential China recovery play
The Security Analysis Podcast - Sam Walton: Made in America Fascinating discussion of Sam Walton's autobiography, exploring his retail innovation, technology adoption, and corporate culture. Provides valuable insights into Walmart's early growth strategy, including their focus on small towns, distribution systems, and early adoption of computing technology. The episode emphasizes Walton's obsession with low prices and operational efficiency that became Walmart's cornerstone. (Listening time: 61 minutes)
Key quote: "What we were obsessed with was keeping our price below everybody else's. Our dedication to that idea was total. Everybody worked like crazy to keep the expenses down."
Stocks discussed:
Walmart (WMT) - Extensive discussion of growth strategy and competitive advantages
We Study Billionaires - TIP683 The Evolution of a Legend: Lessons from Charlie Munger Comprehensive examination of Charlie Munger's investment philosophy through Janet Lowe's biography "Damn Right." Details Munger's evolution from law to investing, his partnership with Warren Buffett, and his approach to business analysis. Particularly valuable insights into his investment in See's Candies and how it shaped Berkshire's future investment philosophy. (Listening time: 70 minutes)
Key quote: "The difference between a good business and a bad business is that a good business throws up one easy decision after another. The bad business throws up painful decisions time after time."
Stocks discussed:
Berkshire Hathaway (BRK.A) - Detailed discussion of investment philosophy and returns
Costco (COST) - Analysis of long-term investment thesis and competitive advantages
Stratechery - Intel's Death and Potential Revival Comprehensive analysis of Intel's historical dominance, strategic missteps, and potential path forward through AI chip manufacturing. The episode traces Intel's journey from the IBM PC era through mobile computing's rise, examining how their x86 instruction set became both a moat and millstone. Discussion includes detailed analysis of Intel's potential future role in AI chip manufacturing and the possibility of government support. (Listening time: 25 minutes)
Key quote: "AI is the potential integration point to solve both problems at the same time - Intel lost its reason to exist, even as the U.S. needs it to exist more than ever."
Stocks discussed:
Intel (INTC) - Analysis of strategic challenges and potential revival through AI
TSMC (TSM) - Discussed as dominant force in chip manufacturing
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.