What are you buying today?

[Gregmal]

MSGE and EPSN adds

[Dinar]

2 hours ago, RedLion said:

I've been adding to BX over the last few trading sessions in the low 90s. Would like to build this into a big core position especially if it keeps going down closer in valuation to the other alt managers. 

 

Seeing a lot of other companies I've been interested in that I think are buys right now.

 

META/GOOGL/AXP/WMT/LEN.B/MO 

 

May be adding to these soon, I've been trying to hold onto more cash for this downturn and add in a more measured pace until we see how far the FED goes with interest rates, and when and where the forced selling starts. 

 

 

I would not touch MO (Altria) with a ten foot pole

[Spekulatius]

1 hour ago, Dinar said:

I would not touch MO (Altria) with a ten foot pole

That one could become a cigarette butt literally.

Edited June 23, 2022 by Spekulatius

[Red Lion]

1 hour ago, Dinar said:

I would not touch MO (Altria) with a ten foot pole

 

I sold my position a few months ago into the strength for around a 10% long term capital gain and reinvested the money in other areas (that are all underwater right now). I am conflicted, I think the valuation is solid, Juul is a non issue, they've always managed to raise their prices faster than they lose customers, but that certainly seems to be slowing down. If FDA cuts nicotine by 95% in cigarettes, maybe that would be the final nail in the coffin. Are you opposed to tobacco investments generally, or Altria in particular because of its huge exposure to the US regulatory risk?

[Parsad]

Lots of ATCO - Atlas Corp.  Cheap, cheap, cheap!  Cheers!

[Dinar]

1 hour ago, RedLion said:

 

I sold my position a few months ago into the strength for around a 10% long term capital gain and reinvested the money in other areas (that are all underwater right now). I am conflicted, I think the valuation is solid, Juul is a non issue, they've always managed to raise their prices faster than they lose customers, but that certainly seems to be slowing down. If FDA cuts nicotine by 95% in cigarettes, maybe that would be the final nail in the coffin. Are you opposed to tobacco investments generally, or Altria in particular because of its huge exposure to the US regulatory risk?

I have nothing against tobacco.  I used to own BTI, currently own PM & Swedish Match.  Altria is a melting ice cube.  5%+ volume declines in cigarettes, so say 4% total volume declines for the company.  Even if price = inflation + 2%, still revenues fall at 2% per annum in real terms. IQOS entry will erode profitability even if MO can keep distribution.  Capital allocation has been awful.  

[Viking]

FFH, BAC, SU

Edited June 23, 2022 by Viking

[no_free_lunch]

1 hour ago, Viking said:

FFH, BAC, SU

 

These are some good picks but with the financials, how do you get comfortable with them in an inflationary environment?  Or maybe you don't see inflation as persisting?  I just ask as I have a couple bank stocks on my radar as well but am not sure how well they do given it seems they will lose against inflation.

[Parsad]

7 minutes ago, no_free_lunch said:

 

These are some good picks but with the financials, how do you get comfortable with them in an inflationary environment?  Or maybe you don't see inflation as persisting?  I just ask as I have a couple bank stocks on my radar as well but am not sure how well they do given it seems they will lose against inflation.

 

Rising rates are terrific for banks, especially with large deposit bases like BAC or JPM.  I believe every 25 basis point rise in rates means another $2-3B more in interest income for BAC.  Cheers!

[ICUMD]

RY, BMO, BNS - Canadian banks are exceptional long term holdings.

SU: continue to hold this since it appears to be a cash flow machine.

[Viking]

51 minutes ago, no_free_lunch said:

 

These are some good picks but with the financials, how do you get comfortable with them in an inflationary environment?  Or maybe you don't see inflation as persisting?  I just ask as I have a couple bank stocks on my radar as well but am not sure how well they do given it seems they will lose against inflation.

I think there are lots of puts and takes with financials today. My decision to buy today is more driven by my belief that these 2 stocks (BAC, FFH) will be trading much, much higher in 2-3 years. Yes, lots of volatility, especially for the next 6-12 months. I think the stock prices today bakes in lots of the downside. Will they get cheaper? Probably. But when they move higher it will likely be quick and i do not want to try and get too cute with my positioning. I do have lots of cash to buy more should they continue to sell off. 
 

I bought BAC today at $31.40 (my average cost is around $34). This is close to 40% off its recent high and the same price it was trading 4.5 years ago. They are a cash machine with most of the cash buying back stock (so its market cap at $260 billion is much lower than it was 4.5 years ago). BAC is morphing into a tech play (best in class). And it is levered to the US consumer (who are in great financial shape). 2 to 3 years from now (if not sooner) the stock should be back to $50. I will be buying more if it keeps going down.
 

Fairfax just sold a largely unknown pet insurance business for US$1.4 billion (10% of its market cap of $14 billion). Fairfax shares today are trading at US$480, LOWER than where they were trading 8.5 years ago. Fairfax is also a big winner from rising interest rates (given average duration of bond portfolio was 1.4 years at end of Q1). We are are also in a hard market so top line growing nicely and should continue to increase to offset risks of inflation. Yes, Fairfax’s equity portfolio will be down substantially in Q2 but that is normal for equity holdings. My guess is BV will be up nicely in 2022 to something north of US$675-$700 at year end so shares are trading at about 0.70 x 2022 YE BV. The YE BV will have equities priced at distressed values. And in 2023 interest income will be much higher (perhaps $1 billion) and underwriting income could be stellar as well. I will be buying more if it keeps going down. (I did have US$450 as my ‘get aggressive’ price. The pet insurance sale pushed this higher.)

Edited June 23, 2022 by Viking

[Castanza]

3 hours ago, Parsad said:

Lots of ATCO - Atlas Corp.  Cheap, cheap, cheap!  Cheers!

Picked some up as well! Finally had the price alert hit 

[Spekulatius]

1 hour ago, no_free_lunch said:

 

These are some good picks but with the financials, how do you get comfortable with them in an inflationary environment?  Or maybe you don't see inflation as persisting?  I just ask as I have a couple bank stocks on my radar as well but am not sure how well they do given it seems they will lose against inflation.

Financials don’t have an issue with Inflation. I would argue that financials benefit from some inflation if interest rates increase with inflation as is the case right now. If we get hyperinflation, then this would be an issue for financials as well, but I don’t see this coming.

Edited June 23, 2022 by Spekulatius

[rranjan]

3 hours ago, Parsad said:

 

Rising rates are terrific for banks, especially with large deposit bases like BAC or JPM.  I believe every 25 basis point rise in rates means another $2-3B more in interest income for BAC.  Cheers!

 

Start of year it was 6.5B for every 1% parallel rise in short and long term. Attached snapshot shows details.

 

On March end, it was around 5.5B for the same change. Portion of earning call transcript.

 

-------

 

Q1 2022 Earnings Call

 

Now we typically disclose our asset sensitivity based on a 100 basis point instantaneous parallel shock in rates above the forward curve. And on that basis, asset sensitivity at March 31 was $5.4 billion of expected NII over the next 12 months, and 90% of that sensitivity is driven by short rates. That $5.4 billion is down from $6.5 billion at year-end, largely because higher rates are now factored into and running through our actual or baseline NII.

 

 

[no_free_lunch]

I appreciate the feedback on the banks.  I'm not worried about where they go in the short-term, who knows that, but as long as it's reasonable for them to profit in a sustained 7-10% inflation environment with rising yields.  Better even if they can somehow grow at / beyond the rake.

[Parsad]

3 minutes ago, no_free_lunch said:

I appreciate the feedback on the banks.  I'm not worried about where they go in the short-term, who knows that, but as long as it's reasonable for them to profit in a sustained 7-10% inflation environment with rising yields.  Better even if they can somehow grow at / beyond the rake.

 

Banks (conventional banks) because of their leverage generally can thrive in most environments...they make a nominal spread, after relatively fixed expenses, between their lending products and their savings products multiplied by the leverage in asset to equity. 

 

As long as they stick to that, they generally can stay out of trouble whether it's an inflationary, deflationary or stagnating environment.  The banks that do get into trouble usually have loans in concentrated areas (regional, commercial, housing, etc) that default either because of outlier events...savings and loans crisis, financial bubble in housing, broad economic losses during the Great Depression...or their loan portfolio wasn't diversified enough on a industry/regional level.  

 

It's probably one of the simplest businesses to run, but to do it successfully over a long-period of time means excellent risk management by those that run it.  Again, I'm talking about conventional banks (large or small).  But we hear about bank failures mainly because of poor risk management or greed leads to banks entering lines of business they really shouldn't be in.  Cheers!

[Sinbius]

Aren't Banks cyclical with lot of leverage? I didn't know they can do well in stagflation or recession...but I'm from Italy...so I have bias about this  

 

From the little I know, I thought on average banks are mediocre to bad business in a cycle...of course it is possible to make lots of money on them (...Charlie Munger did...).

 

Any source/reference to see better the opposite point of view?...

[Spekulatius]

5 hours ago, Sinbius said:

Aren't Banks cyclical with lot of leverage? I didn't know they can do well in stagflation or recession...but I'm from Italy...so I have bias about this  

 

From the little I know, I thought on average banks are mediocre to bad business in a cycle...of course it is possible to make lots of money on them (...Charlie Munger did...).

 

Any source/reference to see better the opposite point of view?...

Just look at ROA and ROE of Italian banks vs US banks. Country frameworks and central bank policy really matters for banks. Europe has crippled their banking system with low interested rates.

 

Now with the inflation surging and the ECB forced to raise interest rates, that may actually be changing, so it’s possibly a good time to take a look at some European banks again.

I probably wouldn’t look at Italian banks first out of concern about Italiens weak economy and fiscal policy.

Edited June 24, 2022 by Spekulatius

[Sinbius]

Raising rates is for Banks a net positive only if it does not have very bad consequences on the assets the banks have ...

 

...and most italian banks are trash not because interest rates...but because of bad lending and high leverage (US banks have nowdays less leverage that EU banks)...

 

 

 

Edited June 24, 2022 by Sinbius

[Cod Liver Oil]

My simple heuristic has been to buy world class assets which are currently at COVID lows while business is improving:

PCYO, DIS, MSGE and Nintendo (slightly above Covid lows). The world is a mess but these companies can do well.

[Gregmal]

3 minutes ago, Cod Liver Oil said:

My simple heuristic has been to buy world class assets which are currently at COVID lows while business is improving:

PCYO, DIS, MSGE and Nintendo (slightly above Covid lows). The world is a mess but these companies can do well.

Yup. Buy things, assets or brands that are indestructible, and highly coveted. Check a few boxes...good insider ownership, fortress balance sheet, etc. Then just accumulate for life.

[changegonnacome]

3 hours ago, Spekulatius said:

Just look at ROA and ROE of Italian banks vs US banks. Country frameworks and central bank policy really matters for banks. Europe has crippled their banking system with low interested rates.

 

Yes low interest rates in the EU then add to that there are just way too many banks creating a competitively destructive landscape for earnings......with too many participants fighting over a limited profit pool = disaster for bank earnings and why its not unusual to see some European banks trading at 0.2 TBV & rightly so.....they should be wound up, merged & shareholder equity returned but this is Europe and cozy insiders (boards & management) like to collect the check and prestige while screwing shareholders.

 

in a European bank context....look at the Irish banks AIB & BOI......this is an oligopolistic banking market where two international players just left....its closer to Canada or the US than in EU in terms of the dynamics

[Parsad]

8 hours ago, Sinbius said:

Aren't Banks cyclical with lot of leverage? I didn't know they can do well in stagflation or recession...but I'm from Italy...so I have bias about this  

 

From the little I know, I thought on average banks are mediocre to bad business in a cycle...of course it is possible to make lots of money on them (...Charlie Munger did...).

 

Any source/reference to see better the opposite point of view?...

 

Banks will get hit during a recession, as loan losses will generally increase, but the severity of the losses is dependent on risk management of the loan portfolio.  Many banks suffer large consequences during recessions, because they tend to focus their loan portfolio on specific areas, or the quality of the loans deteriorate...such as requiring less in deposits on mortgages, lower credit rating loans, excessive commercial lending, etc. 

 

During economic booms, many banks try to keep up with the Joneses, and start to do reckless things.  That's why the management of the bank is probably the most important aspect of any investment in banks.  Great example is Citigroup compared to Bank of America, and the risk profile of the underlying assets and loan portfolio over the last decade.  Cheers!

[Gregmal]

Lol this narrative conundrum has been driving all the market nonsense for two months now. Quick! Buy banks they do well with inflation…wait, no sell banks they do poorly in a recession! Wait, it’s inflation, no it’s recession! Hold on, they own mortgage bonds…ah 2008 repeat! 

[KJP]

MSG Entertainment and Clipper Realty