I built an online tool that will give you a quick and dirty cost of capital estimate in US$ for any company you're looking at. It uses my data I update each week.

It's ugly, and basic, and probably has problems. But I will improve it and expand its capability over time.

Hope it's useful

The S&P 500 index closed the week at 4,205.45, just peeking above the 4,200 key resistance level. In the absence of any "consequential" fundamental news (remember fundamentals trump technicals), we should expect some friction around these levels. If we move higher from here, I would expect the market to pullback a little and re-test that 4,200 level. This is an unsure market, there doesn't seem to be a lot of conviction in either direction among participants. We've been trading in a bit of a sideways direction these last few months in a "wait and see" market.

From a technical analysis perspective, the S&P 500 index still has an up-trending bias, trading above a rising 50-Day SMA which is in turn is trading above a gently rising 200-Day SMA. Higher lows add to the weight of evidence the trend is up, but we're restrained at the 4,200 level which has proven to be level of exhaustion for willing buyers in the past.

The lack of conviction in this market recovery is reflected in the percentage of stocks trading above their 200-Day SMA and 50-Day SMA remains below 50%. The market index is being fuelled by the few industry leaders while most other stocks are still struggling to get any upside price momentum.

This is a market preoccupied by news about the debt ceiling and interest rates. It's hard to know what expectations have already been priced in to the market, so technical traders are going to be cautious at current levels. If the macro news is better than market expectations triggering a significant breakout above the 4,200 level on higher volume, we could be off to the races as we look to recover back to previous all time highs. But economic commentators are expecting a rocky ride for the remainder of the year, so any rally from current levels is probably going to be a choppy, ugly, hated rally. (most market recoveries are)

This click-bait Bloomberg headline from a couple of days ago caught my attention.:

I originally thought the article headline was referring to technical traders so I was keen to find out how these technical traders have been duped given we only trade what we see on the charts. The Bloomberg article covers market predictions/expectations of Morgan Stanley’s chief US equity strategist and noted "Bear", Mike Wilson. He states:

Mike Wilson is making a clear prediction on future market direction here: "the second half is going to be choppier and probably downward in the index". Most technical traders go in the direction of the current trend. We trade what we see. The current trend is up and there's potential for overhead resistance because there's moderate conviction at best when market breadth is low. We don't really predict too far into the future, we just assume an established trend will continue ... until it doesn't. Then we change our positions to align with the new trend. When the market is choppy and trend-less, most professional trend traders step out of the market and trade some other market that is currently trending.

When Mike Wilson says "the index is telling you things are rosy and fine and the breadth is telling you otherwise", technicians already know this. We're always looking at market breadth. So the word "duped" in the headline seemed like an interesting choice. To be fair, Mike Wilson never said the word duped himself, it's probably hyperbole by the journalist to capture eyeballs (like mine). Maybe the headlines are referring to investors trading on fundamentals, not technicals ... :)

The below is an extract of the latest deep dive released in our newsletter. In this write-up, we cover $CARR.

For the full write-up (in-depth analysis of financials, industry, management, valuation and more) you can click here --> Carrier: The Path to Becoming a Global Climate Champion

If you enjoy this memo, make sure that you subscribe to our newsletter. You can always join as a free subscriber, spend some time evaluating our work and decide later if you want to jump in.

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Carrier operates through three main segments: HVAC, Refrigeration, and Fire & Security. In FY 22, these segments accounted for approximately 64%, 19%, and 17% of the Company's revenue (excluding inter-segment eliminations), respectively. This represents a change from the 2019 revenue mix, where HVAC accounted for 50%, Refrigeration for 21%, and Fire & Security for 29%.

The increase in the HVAC segment's contribution primarily stems from higher organic growth (6.8% CAGR from FY17 to FY22) and the acquisition of Toshiba Carrier Corporation (TCC) in 2022. Conversely, the decline in the Fire & Security segment is attributed to lower organic growth (0.4% CAGR during the same period) and the divestment of Chubb Fire & Security Business (“Chubb”) in 2021. Furthermore, in Q1'23, Carrier announced its intention to exit the Fire & Security business to further concentrate on its HVAC/R business.

In terms of geographic revenue distribution, Carrier generates 60% of its sales from the Americas, 23% from Europe, Middle East, and Africa (EMEA), and 17% from the Asia Pacific region. This reflects a change from FY 19, where the Americas accounted for 55%, EMEA for 30%, and Asia Pacific for 15% of revenue.

Regarding revenue sources, new equipment sales contributed 77% to the company's revenue in FY 22, while parts and services (aftermarket) accounted for the remaining 23%. This compares to a split of 72% and 28% in FY19, respectively.

Management’s target is to grow aftermarket sales to $7+ billion by 2026, implying a CAGR of approximately 9% and compares to historical low single-digit level growth prior the spin off. It shall be noted that Patrick Goris, CFO, recently indicated that their aftermarket business (c. $5B) only covers 20%-25% of the available revenue of its installed base and that expanding on this front is a key priority. Additionally, aftermarket sales have higher margins (+10%) thus any expansion will be margin accretive.

HVAC SEGMENT

This segment provides a wide range of products and services for both residential and commercial customers. Notable offerings include air conditioners, heating systems, heat pumps, controls, and aftermarket components. Carrier's portfolio encompasses renowned brands such as Carrier, Toshiba, Bryant, and Automated Logic, further establishing its market presence in the HVAC industry.

The HVAC segment of Carrier has exhibited significant revenue growth in 2021, driven by a 17% organic growth fueled by favorable market conditions such as increase new construction, stay-at-home trends, higher distributor stocking levels, and pricing improvements.

In 2022, the HVAC segment grew 18%, with organic growth of 12% primarily attributed to price improvements rather than volumes. The remainder was driven by the consolidation of TCC results. Moving into Q1’23, HVAC segment seems to hold strong with organic growth of 6%, orders up 5% and backlog up by double digits year-over-year with the driving factor being commercial HVAC and aftermarket sales.

The HVAC segment underwent significant changes in recent years as part of its strategic focus on its core businesses, resulting in notable impacts on profitability. The most notable changes include:

These transactions had varying effects on the financial performance of the HVAC segment, contributing to changes in profitability over the years. Excluding non-recurring gains and losses, HVAC adjusted operating profit margin averaged at a rate of 15.8% from FY19 to FY22 with FY22 adjusted margin standing at 15.2%. The lower adjusted operating margin in FY22 compared to adjusted operating margin of 15.7% in FY21 is mainly due to the acquisition of TCC which had 70 bps dilutive impact.

TCC, a variable refrigerant flow ("VRF") and light commercial HVAC business, was previously operated as a joint venture between Carrier and Toshiba, with ownership stakes of 40% and 60% respectively. In August 2022, Carrier acquired an additional 55% ownership for $930 million, increasing its total ownership to 95%. Since the acquisition, TCC has contributed approximately $800 million in sales.

Considering an estimated annual sales of $1.9 billion, Carrier's acquisition of TCC implies a price-to-sales multiple of approximately 0.9x. When compared to Carrier's average Price/Sales multiple of 1.9x, it appears that the Company did not overpay for the acquisition.

The Refrigeration segment offers transport refrigeration equipment and monitoring systems for trucks/trailers and shipping containers as well as commercial refrigeration products. Transport refrigeration products are used for the management and monitoring of temperature-controlled environments necessary for the transport and preservation of food, medicine and other perishable cargo. Commercial refrigeration equipment includes refrigerated cabinets and freezers.

Along with the announcement in Q1’23 of the intention to exit Fire & Security business, the Company also announced its plans to exit its Commercial refrigeration business. The divested part approximates to [$1](https://commonstock.com/asset/1:equity).1B sales or ~28% of Refrigeration segment and will be margin accretive as it had an adjusted EBITDA margin at the high single digit levels (lower than the average).

During FY17 to FY22 the refrigeration segment grew at a CAGR of 0.4% while organic growth stood at 2.8%. The spike in revenue observed in FY21 was mainly driven by transport refrigeration which grew by 28% as a result of global supply chain improvement and Covid-19 vaccine monitoring. The significant increase in operating margin observed in FY18 can be attributed to the divestment of the foodservice equipment business, Taylor, for $1 billion, resulting in a gain of $799 million. Using adjusted operating margin, the refrigeration segment's profitability averaged 12.5% from FY19 to FY22, with FY22 standing at 12.4%.

The Fire & Security segment provides residential, commercial and industrial technologies for property and fire protection. The segment provides installation and maintenance services for products such as fire, intruder alarms, access control systems and video management systems.

The Fire & Security segment has experienced relatively flat organic growth with a CAGR of 0.4% over the period under review. However, in FY22, there was a significant decline in revenue due to the sale of Chubb for $2.9B, resulting to a gain of $1.1B. Chubb generated $2.2B in sales in FY21.

When excluding the impact of the Chubb sale in FY22, the segment's adjusted operating profit averaged at 13.7% over the period, with FY22 adjusted margin standing at 15.2%. It is evident that the Chubb business had lower margins compared to the rest of the segment. Management successfully sold Chubb at a 13x EBITDA multiple and expects to sell the remaining businesses at even higher multiples due to their superior profitability. It is worth noting, that the planned divestment is likely to be margin neutral to the Company as it had a similar EBITDA margin with the HVAC segment in FY22.

--END OF EXTRACT--

📢 The rest of the business overview covers the Acquisition of Viessmann Climate Solutions and Investments in joint ventures. Hope you enjoyed this extract! If you did, consider signing-up and/or share it with friends. Your support will be appreciated.

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Disclaimer: The content of our newsletter is not a trading or investment advice and we do not provide any personal investment advice tailored to the needs of any recipient. The information provided should not be considered as a specific advice on the merits of any investment decision.

Bernstein initiation on Adyen $ADYEY

“Adyen will likely continue to gain market share with a single global platform vs. a competitor set of largely legacy providers with decades old technology and platform complexity due to several rollups.”

When looking at this chart on the homeownership rates of different generations, we notice that Baby Boomers were big on homeownership since their younger days while Gen X was minimal in homeownership during that same age period. While Millennials did better than Gen X in terms of starting homeownership rate, Gen Z surprises people by having higher homeownership rates during these times.

From a NYT article in 1977, we learn that mobile homes were popular with young families and retired people. Disregard the retired people for the purposes of this memo because they don't belong to the baby boomer demographic. Focus on the young families. It's common knowledge that boomers started families when they were younger and with mobile home being popular among young families, we can assume that the majority of the surge in homeownership rates for boomers during their young days were because they chose to buy a mobile home and live there than rent an apartment or single family home.

Today, young people don't desire to live in a mobile home. This is because they rarely think of it as property that they can own. The idea of homeownership emphasizes the ownership of a single family home. Townhomes and condos are also visualized by people when it comes to homeownership, but those property types are secondary options as people have a single family home as their main vision. With so much competition from different generations on owning a single family home, young people are better off redirecting their homeownership efforts and acquire a mobile home than compete with their older peers in bidding wars for a single family home. That's what many boomers did and that's why they've thrived more economically than other generations.

My main takeaway is that I think that I think mobile homes played a major role in the economic success of baby boomers. If there are any professors on this platform, I hope that my memo inspired a new research topic for you.

Source: https://www.nytimes.com/1977/05/22/archives/mobile-homes-growing-up-mobile-homes.html

I was today years old when I found out that Diageo owns 34% of LVMH's wines & spirits business. $DEO $LVMUY

"Know what you own, and why you own it" is a famous quote from Peter Lynch

Here is my take on Peter Lynch's wisdom and the modern-day emphasis on understanding ownership dynamics

"The CAPE ratio is a valuation measure that uses real earnings per share (EPS) over a 10-year period to smooth out fluctuations in corporate profits that occur over different periods of a business cycle. The CAPE ratio, using the acronym for cyclically adjusted price-to-earnings ratio, was popularized by Yale University professor Robert Shiller. It is also known as the Shiller P/E ratio. The P/E ratio is a valuation metric that measures a stock's price relative to the company's earnings per share. EPS is a company's profit divided by the outstanding equity shares." (Investopedia)

$EWJ $SPY $QQQ $IWM $DIA

Media, Groceries, Macro, Oil, Gold, couple of Shorts, lots of Tech companies, some Retailers, lots of Podcasts, a few Compounders, knowledge from successful Investors, + other things to munch on...

After $NVDA 's mammoth stock price jump, companies are even likelier to use AI to improve the perception of their prospects. This is just the beginning. All in on the AI hype.

https://commonstock.com/post/7ee4933f-f1ab-4692-8252-fc5e0649e340 by @stockopine

https://commonstock.com/post/7ee4933f-f1ab-4692-8252-fc5e0649e340 by @stockopine

“More money has been lost because of four words than at the point of a gun. Those words are ‘This time is different.’” - Carmen M. Reinhart

Most of the time, the collective wisdom expressed by financial markets appears sound, but occasionally things spiral out of control. It was only half a year ago that $META appeared to be swirling the drain - a bleak picture painted by stagnating growth, ballooning expenses, growing competition, and other threats. While some of the specific concerns were new, it all seemed eerily reminiscent of 2018, which I wrote about in Meta: Pain and Patience.

Most discourse also lacked respect for WhatsApp, which was examined in WhatsApp: Meta’s Next Growth Engine.

These were followed by reiterating that most of what was being framed as definitive headwinds would likely flip to tailwinds during a longer timeframe, as covered in The Zuckerberg Flop.

It is undeniable that the narrative and expectations pushed by the market have shifted dramatically. But are things really all that different? I’m focused on a handful of points:

Let’s explore.

I had previously expected Meta’s increase in spending to slow after 2023. I was not only wrong on the timing but also the degree, with what is widely referred to as the year of efficiency more akin to the year of brutality, with Zuckerberg cutting costs as if wielding a chainsaw rather than a scalpel, leading to full-year expected capex to be within $30-33 billion, only potentially slightly higher than 2022.

And regarding headcount, perhaps it’s more apt to say that Zuckerberg is using a guillotine.

Q1 2023 above reflects the entirety of the headcount reduction announced on November 9, 2022. The estimate made for Q2 2023 reflects the headcount reduction announced on March 14, 2023, encompassing 9,500 of the 10,000 reductions in Q2, estimating the remaining 500 occurring sometime during the rest of the year.

In Q1, R&D increased 22% over last year, though this was largely from restructuring charges by way of facilities consolidation and severance expenses and headcount-related costs. G&A increased 22%, again from similar headcount-related expenses; however, other such operating expenses were slashed, with Q1 reporting marketing and sales down 8%. Total full-year expenses are guided to be between $86 and $90 billion. Moving forward, lapping $3-5 billion in total restructuring charges for the full year, total expenses appear under control, a distinct reversal from the past several years. Zuckerberg stated on the Q1 call:

Balanced against expenses, everything Meta does comes down to the formula:

Once again, reports of Meta’s death have been greatly exaggerated.

Despite anecdotal reports of users abandoning Facebook and Instagram, more people than ever use the platforms.

I wrote in Meta: Pain and Patience:

Throughout last year management provided insights into some of the returns they were seeing from early investments in the three initiatives listed above, and the start to 2023 has been even more promising based on Mark Zuckerberg’s comments during the Q1 call (emphasis added):

"Now moving on to our products and business. We're seeing strong engagement growth across our apps and good progress on monetization efficiency, which combined to drive good business results. Reels continues to grow quickly on both Facebook and Instagram. Reels also continue to become more social with people resharing Reels more than 2 billion times every day, doubling over the last 6 months. Reels are also increasing overall app engagement, and we believe that we're gaining share in short-form video, too.

One clear pushback is the trend in ad pricing, except that this can be explained by several functions. First is that—along with a pullback in advertising spending largely from the impact of ATT—price, fundamentally, is not just a function of demand but also supply. As users and time spent on the platforms grow, along with efficiency and shifting toward an open graph, the total supply side grows. At the same time, even with price going down, the value from the lens of the advertiser can grow as other efficiency efforts, such as Advantage+ campaigns, reduce cost per action and increase conversion rates. Additionally, a great deal of this downward pressure is due to Reels, which launched on Instagram in 2020 and on Facebook in early 2021. Reels, despite experiencing a quarter-over-quarter monetization efficiency increase of 30%, is still a monetization headwind for the company as it cannibalizes higher monetizing media that would be consumed otherwise. There are structural challenges with Reels in this regard, with the company highlighting Reels taking more time than Feed and Stories content, inherently limiting total opportunities to interject ads. However, the company expects Reels to reach revenue neutral by the end of the year or early 2024.

An ongoing concern is that while the multiplicative effects of the formula paint a virtuous cycle, large-scale missteps can have an extremely large effect as well, and any future momentum in the wrong direction may prove difficult to reverse. Nonetheless, it seems that many criticisms the core business has faced are quashed - at least for now.

TikTok could very well continue to grow and succeed, but the above dispels it as the bogeyman it was claimed to be. Not only does Meta believe it’s gaining share in short-form video, but TikTok’s total worldwide downloads have fallen not just behind Instagram but also below Facebook as of late.

The standalone app WhatsApp Business is not shown in the graph above. However, it has been a top-ten most downloaded app on the Google Play store for the past several months, with 16m downloads in March and 13m downloads in April, with usage growing rapidly.

...Finish reading by following the link below:

Another juicy dividend from $MCD - more than $100 is going to hit my bank account, and considering I am now on a KETO diet, I can't "reinvest" that into burgers so that I will inject it into my portfolio 👍

Yield 2.13%

It is not about being polarising, to sell stories, hype, to generate and attract attention.

In good times, in the short-term you might do very well. In bad times, you will do poorly and might not survive over the long-term. It is about avoiding the latter.

It is far more about building and instilling long-term trust, especially when done consistently through words and actions. It is much more enduring.

Why do we need a #CDBC? We don't.

An unnecessary distraction by the Federal Reserve?

Happy reading👇

#projecthamilton #federalreserve #Unicus #unicusnews #Research #USA #monetarypolicy #CDBC

In an interview with CBS, I was surprised to hear CEO David Risher say that he thinks Uber, Lyft, and consumers to have consumers download both the Uber and the Lyft apps. As he notes, "[L]ook, if every single person has Uber and Lyft on their phone...it's actually better for everyone because sometimes one of them is going to mess you up, I hope it's never me, but at the end of the day you want both and I think if we get both then people are going to start to use us more because people like Lyft."

While most Silicon Valley entrepreneurs and corporate executives prefer to create their walled gardens and compete for incremental revenue, David Risher's mindset is unheard of and what catches people's attention. As someone who has both the Uber and Lyft app installed, I find Lyft significantly cheaper than Uber, and I think that Risher's comment shows that he genuinely believes that Lyft will win a price war with Uber. Assuming that price is the main driver behind people choosing one rideshare app over another, having more people exposed to Lyft will help bring more riders to Lyft.

As for drivers, I assume that Risher prefers drivers to be loyal to one platform or another. That way, any drivers operating under the Lyft network will be able to add convenience to any Lyft riders demanding a ride when they need it. If drivers are allowed to provide rides for both platforms simultaneously, it can lead to a more balanced distribution of drivers between the two, potentially diluting each platform's market share and reducing their individual competitive advantage. Also, there is a risk of inconsistencies in service quality, vehicle branding, and overall customer experience, which can diminish the brand value of those rideshare giants. Plus, if drivers were allowed to work for both Uber and Lyft simultaneously, it would be challenging for each platform to gain comprehensive insights into driver performance, trip patterns, customer preferences, and other valuable data. Exclusive driver partnerships provide platforms with a more complete view of their operations and enable them to make informed decisions to optimize their services.

There is a case to be made that it would be to both platforms' benefit to let drivers provide rides to both platforms. Firstly, it unlocks more supply of drivers for both platforms. Consumers get shorter wait times, drivers make more money, and the rideshare platform that has a customer waiting will be better able to provide a ride to that customer. Drivers will be better utilized as their idle time will be reduced and they can remain busy. Few people think about the increased driver satisfaction that comes with letting drivers switch between apps. When they're able to capitalize on higher prices in one platform, they're able to make more money and the satisfaction that comes with being able to advantage of an app's surcharge opportunity makes them more motivated to keep driving and provide great customer experience too. This will also allow drivers to reduce the deadhead miles problem. For context, deadhead miles refer to the distance a driver travels without a passenger. In sum, while letting drivers work for both Uber and Lyft benefits drivers more, the profit maximizing aspect of letting drivers work for both platforms allows Uber and Lyft to maximize the revenues that they can generate.

In conclusion, the surprising perspective of Lyft CEO David Risher challenges the conventional wisdom of creating exclusive walled gardens to maximize profits. While his suggestion of having consumers download both Uber and Lyft apps may seem counterintuitive, it reflects a belief that increased exposure to Lyft can ultimately benefits by having their customers be consumers of both apps. This strategy is rooted in the assumption that price plays a significant role in consumers' choice of rideshare apps, and Lyft's competitiveness in terms of affordability could position them favorably in a price war with Uber. However, when it comes to drivers, maintaining exclusive partnerships with a single platform offers advantages such as brand consistency, data insights, and operational control but it also prevents them from maximizing profits. By striking a balance between driver flexibility and platform loyalty, Uber and Lyft can maximize their revenues and operational efficiency. Ultimately, the debate surrounding whether allowing drivers to provide rides for both platforms benefits Uber and Lyft remains complex, with potential advantages and disadvantages to consider for all stakeholders involved.

Throughout the week, I post threads on all of the economic data releases and news headlines that move the market.

Below is the highlight for each day this past week, enjoy the recap!

Monday: Bank stocks had a strong showing, spurred on by the news that $PACW had entered into an agreement with $KW to sell a portfolio of real estate construction loans with an outstanding balance of $2.6B

Tuesday: The Manufacturing PMI fell to 48.5 (contractionary territory) down from 50.2 in the prior reading.

The Services PMI rose to 55.1 from 53.6, the highest level in 13 months.

The Composite PMI rose to 54.5, also highest level in 13 months. Overall, strong growth in May.

Wednesday: No significant data, headlines tended to surround the fact that debt ceiling negotiators were still far apart on settling and Fed Gov Waller emphasized flexibility for the next FOMC meeting, rather than a pause.

Thursday: US GDP Q1 numbers were finalized at +1.3%, up from the initial 1.1% estimate. This change was mostly due to an upward move in private inventory investment. Consumer spending was also revised higher to 3.8%, a good sign in spite of ongoing inflationary pressures.

Friday: The Personal Income & Spending report had a lot to digest. Both the PCE and Core PCE indexes rose 0.1% on their year-over-year readings, the first increase in a number of months. Personal income was in line with expectations while personal spending surprised to the upside

Bonus: Below is the CME FedWatch tool that shows a 64% chance of a 25 bps hike in June, up from 51% yesterday and 13% last month.

Of course, these items weren't the only figures to note for each day! For a bull breakdown of this past week in the stock market and an outlook on next week, check out my full article below and add your email to the notification list on the home page 👇