Best Investment Idea(s) for 2023

[frommi]

9 hours ago, K2SO said:

Why should it? Altria is in big trouble with PM re-entering the US market and is way behind the competition on RRPs. Given management's recent history (look no further than JUUL) I'm not betting on them to right the ship anytime soon. At the end of the day all they will have is the Marlboro brand in the US and that's a declining customer base. 

Thats 2-3 years out and will start very slowly. Its not even clear if HNB will be a success in the US. Declining customer base is nothing new and has not stopped Altria from being the best performing stock for a very long time. Missteps were made by the old CEO, he is replaced already.

[kab60]

6 hours ago, frommi said:

Thats 2-3 years out and will start very slowly. Its not even clear if HNB will be a success in the US. Declining customer base is nothing new and has not stopped Altria from being the best performing stock for a very long time. Missteps were made by the old CEO, he is replaced already.

You might be right. But I don't think the risk-reward is as attractive anymore, and there is a chance you're wrong.

 

I was quiet long BATS and Altria going into 2022 and did very well (relatively), but I since sold it all.

 

My thesis was always that they'd be able to increase prices more than volumes would decline, which combined with increased margins would lead to MSD earnings growth on top of a 10% FCF yield. Not too bad for a resilient business in a cozy duopoly.

 

The huge drop in volumes this year has been worried though. It might just be an anomaly, and things might go back to the normal trend of 4-6% volume declines, but I'm not sure, and I'm not sticking around to find out this time.

 

I think there's a very real social effect at work here, and as more people switch to alternatives, I think declines could accelerate.

 

Anecdotally, at first, one of my friends started using nicotine pouches. Now everybody has quit their cigarettes and started using pouches instead. I guess it's the same dynamic with vaping.

 

I just think that pouches are a much better product than vapes and cigarettes for a lot of folks (and it doesn't kill you it seems), as it's discrete and can be used socially (you can have one during dinner and not have to leave the party).

 

Now pouches just might increase the TAM and overall nicotine consumption, but I do think there's a chance this time is a little different. Sweden, which is the furthest ahead on nicotine pouches and snus, have very few smokers left. Pouches are still a small part of the overall market in the US, so it might take long, and if one was comfortable with capital allocation, I don't think you could lose a lot of money here around 10xFCF, but I think it's incrementally less attractive. Even though Altria owns on!, and Swedish Match is a great business (PM), it's not clear the economics will eventually shape out to be as attractive as with cigarettes (though growth might make up for that).

 

And the valuation is basically where it has been for a long time - right around 10xFCF.

[frommi]

The volume decline last year was just downtrading, look at IMB, their volumes have gone up +2% in the US last year. I doubt that this goes on for long, since that was because of inflation and that is already cooling.

[StevieV]

On 1/1/2023 at 3:50 PM, StevieV said:

I still like APO, but if I had to pick an alt today, I think I'd go with KKR.  I expect both to do well over the medium/longer term, but I'm not sure about '23.  KKR in particular I expect to bounce fast if the market rallies, but I have no idea when that will be.

 

KKR out with a new "teach-in" presentation this week.  I have to take a closer look as I am not entirely clear what is going into their valuation frameworks ($7+ of DE in 2026 - slide 8;  $6 of "earnings power" today - slide 131).  For the DE, they suggest DE x multiple.  I usually see people value KKR as DE x multiple + book value or some % of book.

 

Off to a quick start - Up 15% YTD.  

 

https://irpages2.eqs.com/download/companies/kkrinc/Presentations/KKR Teach-In - January 2023.pdf

[Simba]

Stocks have been absolutely pummeled for 2022, so wouldn't be surprised to see the worst performers bounce back in 2023.

[KJP]

11 hours ago, Simba said:

Stocks have been absolutely pummeled for 2022, so wouldn't be surprised to see the worst performers bounce back in 2023.

 

This seems to be already happening.  For example, YTD on a few names familiar to CoBF:

 

Charter +14%

IAC +16%

SNC Lavalin: +19%

 

All beat up last year with an additional selloff near year end, now bouncing back.

[E. Nashton]

On 1/3/2023 at 2:42 PM, Dean said:

Just throwing out the idea of buying a basket of some of the worst big-tech performers of 2022 including darlings AMZN, META, MSFT, GOOG, ADBE, NVDA, TSLA, SPOT, SHOP, etc. 

 

This is a 2023 thread but I can see a future where the 1-3 year returns are decent with this basket. Uneducated, simple and contrary - should be fine    

Well I'm clearly a genius and will be closing up shop for the year. Toodles ! 

[drzola]

Anybody here have a large percentage of there equity portfolio in QQQ Etf's? 

Invesco QQQ ETF up 17.5% YTD and after AMZN and GOOGL earnings this week may likely break 20%  Just WOW.

[Simba]

8 hours ago, drzola said:

Anybody here have a large percentage of there equity portfolio in QQQ Etf's? 

Invesco QQQ ETF up 17.5% YTD and after AMZN and GOOGL earnings this week may likely break 20%  Just WOW.

It's tough to do... as driven by so few companies (Apple 11%+ weight, Microsoft ~12% weight) 

 

 

[changegonnacome]

Best trade of 2023 is the - "you better believe exactly what Jerome Powell is saying trade". It's now my highest conviction idea.

 

There will be no cuts to Fed funds in Q4 2023 as is priced in......in fact the real direction of travel I think is that terminal rate expectations & reality are going to go marginally higher from here......thats your higher of the higher for longer story.....Powell then also needs to ensure that a pause isn't misinterpreted as a pivot.....not sure what the answer for him on this is smaller more spaced out hikes....10bps vs. 25bps! This market just loves to rally.....30 years of Pavlovian conditioning will do that I guess.

 

Need help COBF on how best to express this in the most levered way possible!!!?

 

In the equity markets where I know best -  its clearly short the long duration and/or interest rate sensitive stuff. Recent retail rally stuff (not huge fan of the asymmetry of shorting and buying puts means you have to get direction and timing exactly right). Pair that with short duration/low PE/rate beneficiary stuff I guess...energy etc.

 

However the purest expression of this I'd imagine is in the bond market.......where I admit I'm a novice.....I bought a bond for the first time in my life recently...............interest rate options? on the short end of the curve? What instrument is likely to react the most violently to expectations of cuts later this year getting dashed? 

 

If anybody has any ideas feel free to DM me on it - very interested in exploring this.

[SHDL]

2 hours ago, changegonnacome said:

Best trade of 2023 is the - "you better believe exactly what Jerome Powell is saying trade". It's now my highest conviction idea.

 

There will be no cuts to Fed funds in Q4 2023 as is priced in......in fact the real direction of travel I think is that terminal rate expectations & reality are going to go marginally higher from here......thats your higher of the higher for longer story.....Powell then also needs to ensure that a pause isn't misinterpreted as a pivot.....not sure what the answer for him on this is smaller more spaced out hikes....10bps vs. 25bps! This market just loves to rally.....30 years of Pavlovian conditioning will do that I guess.

 

Need help COBF on how best to express this in the most levered way possible!!!?

 

I'm overweight some banks/insurers for this reason. But it's not like I'm looking to 2x in 12 months or anything.

 

If I had stronger conviction and had the time/energy to babysit my positions all day I would probably be trading FF and/or US treasury futures. 

Edited February 4, 2023 by SHDL
word choice

[Dinar]

15 minutes ago, SHDL said:

I'm overweight some banks/insurers for this reason. But it's not like I'm looking to 2x in 12 months or anything.

 

If I had stronger conviction and was a professinoal macro trader I would consider trading US treasury futures or similar. 

Be careful with banks, some may be insolvent due to collapse in bond prices

[SHDL]

1 hour ago, Dinar said:

Be careful with banks, some may be insolvent due to collapse in bond prices

 

Yes, I always feel a bit nervous about them. Hopefully the Fed's stress tests are reliable enough and they won't do anything so reckless as to topple the money center banks but you never know for sure. SCHW is technically a bank with a somewhat different risk/return profile - I have some just as a diversifier.

[Dinar]

28 minutes ago, SHDL said:

 

Yes, I always feel a bit nervous about them. Hopefully the Fed's stress tests are reliable enough and they won't do anything so reckless as to topple the money center banks but you never know for sure. SCHW is technically a bank with a somewhat different risk/return profile - I have some just as a diversifier.

Well, there is an accounting concept held to maturity (Spek & others discussed it before.)  Basically, it means that if bank plans to hold security to maturity, it does not have to mark it to market.  So when bonds go down 40%, the balance sheet does not reflect this.  While the Fed may not shut the bank down, the loss will manifest itself through the income statement overtime due to much lower net interest margins.  

[SHDL]

Right that is something to keep in mind. It may be part of the reason why some of these banks look superficially cheap. 

[Gregmal]

Come on guys. With all the divergences out there, is the best idea this year really betting on whether YE FF is 4.25/4.5 or 5? I’m always open to ideas with toque but I am not even convinced there’s an effective yo-yo to play such a wager. I mean maybe the market grinds 10-15% lower…which if you know the options game, probably means you’re lucky to break even unless you time it absolutely perfectly. I would still wager shorting AAL bonds or buying far OTM puts on a 2025 refi crunch is the best higher rate shock/recession play out there. But splitting hairs on a thesis down to 50 bps on FF seems like you’re giving yourself too many ways to lose.

[LearningMachine]

2 hours ago, Dinar said:

the loss will manifest itself through the income statement overtime due to much lower net interest margins.  

 

Yes, in case of banks, where the deposits are not due to primary relationship where money is needed to clear day-to-day checks, they will have to indeed pay higher interest rates to keep those deposits, and thereby have losses spread out over time.

 

However, in case of banks, where the deposits are due to primary relationship, where customers are going to keep bulk of the deposits regardless of zero interest, you can think of the deposit franchise as farmland were rents (interest on loans made using those deposits) are going up as old leases expire (securities mature and old loans are refinanced/paid back).  The rents are going to go up multiple times on the new leases on that farmland over the next some years, and those higher rents are going to start showing up in the income statement at some point. 

Edited February 4, 2023 by LearningMachine

[SHDL]

1 hour ago, Gregmal said:

Come on guys. With all the divergences out there, is the best idea this year really betting on whether YE FF is 4.25/4.5 or 5? I’m always open to ideas with toque but I am not even convinced there’s an effective yo-yo to play such a wager. I mean maybe the market grinds 10-15% lower…which if you know the options game, probably means you’re lucky to break even unless you time it absolutely perfectly. I would still wager shorting AAL bonds or buying far OTM puts on a 2025 refi crunch is the best higher rate shock/recession play out there. But splitting hairs on a thesis down to 50 bps on FF seems like you’re giving yourself too many ways to lose.

 

My portfolio is already 50% JOE and 49.9% MSGE and I really needed to think hard what to do with the remaining 0.1%. 

 

Jokes aside, for me this is more of a long term bet on interest rates staying elevated while the economy does okay. Right now I get the sense that the macro outlook is either we get a nasty recession and the Fed cuts rates or inflation goes down and the Fed cuts rates - and at least on the surface it looks like bank valuations reflect this. So … what if the economy actually does okay and the Fed doesn’t cut rates? Not to mention that scenario is arguably closer to what the Fed ultimately wants to achieve. Anyway that’s the thesis for this half-assed macro bet of mine. Is it the best idea for 2023? Nah, I think there are better ones already mentioned on this thread (thanks guys). But it’s good enough for a slice of my portfolio.

[changegonnacome]

23 hours ago, SHDL said:

I'm overweight some banks/insurers for this reason. But it's not like I'm looking to 2x in 12 months or anything.

 

If I had stronger conviction and had the time/energy to babysit my positions all day I would probably be trading FF and/or US treasury futures. 

 

Yeah futures seem to be the way to go on the fed funds stuff........

 

Banks are good one in terms of the ZIRP sea change piece but as i think @Spekulatius pointed out previously......banks with outstanding low cost & stable deposit collecting franchises are the way to go here........WFC might be my favorite of the big banks for this reason moving forward.....an ultra low cost funding base is a huge competitive advantage moving forward.

 

Insurers - I guess it depends........I'm always conscious depending on the type of insurance.....that its fundamentally a commodity product.....while they can deploy premium into unexpectedly higher yielding fixed income instruments today benefiting the bottomline in the short-run.......its much more likely, for certain insurance types anyway, that higher for longer fixed income yield benefits will actually flow through to the consumer via lower premiums.....just given the competitive dynamics.

 

Curious what banks/insurers you've looked at in this space that you like.

[SHDL]

I just went with some old COBF favorites for the time being … BAC, SCHW, BRK, FFH. BAC for me is the pure play, SCHW I added for diversification (but have less confidence in), BRK/FFH are more than a play on interest rates but they’ve got a nice tailwind. I haven’t bought WFC and probably won’t until the asset cap is gone (or it gets much cheaper). Also CASH (Pathward Financial) is looking interesting but I haven’t really done any work on it yet.

[Spekulatius]

3 minutes ago, SHDL said:

I just went with some old COBF favorites for the time being … BAC, SCHW, BRK, FFH. BAC for me is the pure play, SCHW I added for diversification (but have less confidence in), BRK/FFH are more than a play on interest rates but they’ve got a nice tailwind. I haven’t bought WFC and probably won’t until the asset cap is gone (or it gets much cheaper). Also CASH (Pathward Financial) is looking interesting but I haven’t really done any work on it yet.

There are extremely cheap smaller banks out there. Think price/tangible book of ~1 and 13%+ ROE or some screen like this, Buy a basket of those and I think it will do well over the next few years, unless the economy totally goes of the rails.

[SHDL]

1 minute ago, Spekulatius said:

There are extremely cheap smaller banks out there. Think price/tangible book of ~1 and 13%+ ROE or some screen like this, Buy a basket of those and I think it will do well over the next few years, unless the economy totally goes of the rails.

I should try that too.

[Spekulatius]

7 minutes ago, SHDL said:

I should try that too.

Run the following screen, if you have Tikr for example (or a derivative).

[changegonnacome]

Another overlooked beneficiary of the post-ZIRP world with limited credit risk are the custodian and fund administrators…State Street / BNY Mellon for example…….when you strip away the business process outsourcing side (which is a sticky consolidated scale game for sure now) they are fundamentally cash handling businesses.
 

Moving the custody and/or administration of your fund to collect a few extra bps of cash interest (for your LP’s!)….has both a ‘just not worth it element’ and an agency problem element associated with OPM….. which should all things being equal in this now consolidated industry see the players collect healthy NIM’s with little chance of price wars on cash deposit rates held by their asset management clients.

Edited February 6, 2023 by changegonnacome

[StevieV]

On 2/4/2023 at 6:36 PM, SHDL said:

My portfolio is already 50% JOE and 49.9% MSGE and I really needed to think hard what to do with the remaining 0.1%

 

Eh, I got a kick out of this.