Conor Mac's avatar
$337.4m follower assets
Equity Duration & Inflation: Lessons from the Nifty Fifty

This memo from Ensemble brilliantly highlights the relationship between inflation and multiple contraction and expansion for equities.

“In the early 1970s, a group of high-quality growth stocks such as Coca-Cola, Procter & Gamble, Johnson & Johnson, Walt Disney, American Express, and Pfizer generated gangbuster returns. At the time, these stocks were referred to as the Nifty Fifty. At their peak in late 1972, these stocks traded at a PE ratio of 42x while the overall S&P 500 was trading at a PE of 19x. But in 1973 and 1974, inflation rose rapidly, a recession hit, the overall market declined, and Nifty Fifty stocks underperformed sharply.”

The Nifty Fifty is an interesting bucket of stocks to study for any stock market historian. Often cited to have been a bubble, the composite of companies was actually incredibly high quality and buying at the peak of the Nifty Fifty era would have netted long-term investors a CAGR of ~12% today, about the same as the S&P 500. The bucket did poorly in the 1970s, but performed extraordinarily in the decades which followed all whilst remaining considerably undervalued relative to the S&P 500 for many years.

Coca-Cola $KO, for instance, traded at a PE ratio of 46x at the end of 1972, a considerable premium to the S&P 500’s PE ratio of 19x. However, Coca-Cola still went on to generate a 16.2% CAGR over the next two decades, a return well ahead of the S&P 500’s 12.7%. Whilst, not every Nifty Fifty constituent did as well, in hindsight, it’s tough to argue that the Nifty Fifty as a whole was “overvalued”. So, the question begs; why did they perform so badly in the 1970s? The answer is stagflation; the simultaneous appearance in an economy of slow growth, high unemployment, and rising prices (inflation). Inflation troubled the market for nearly a decade at this point and the multiples of growth stocks plummeted. Only once investors believed that inflation would remain at lower levels on a sustainable basis, did valuations quickly reset to higher levels. I will share the excerpt that so eloquently details how multiples expand and contract during inflationary environments.

The team conclude by pontificating about what we can learn from this era in relation to what we are witnessing today; with inflation rife, growth slowing and unemployment not yet spiking. Although there are similarities, to the Nifty Fifty era, much of what is about to unfold in the world economy is uncertain. Should the bout of inflation be contained within 2-3 years, then we may see attractive near-term multiple expansion for those names (quality names) that have been hit hardest today. Should we face a more drawn-out bout of rising prices, much like in the 1970s, then that pain may linger for considerably more time, and the delayed gratification will be extended.
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Nick Garcia's avatar
$16.2m follower assets
1 of 4
Last Week
Made some additions to some positions 🎶

$KO & $EBAY in my long term account.

$BLBD & $RDFN in my other account, it's short term if possible lol.

I like to add to my positions while they are down, i'd like to have a process for how I make decisions, that just takes some time to figure out. Gotta learn as you go!
Where Did All the Coke Go?
$KO 's inventory has dwindled to very low levels. This could be an indication that the company has merely delayed some of the impact of rising costs. This and other problems are explored in our latest free Substack.

Fever-Tree Analysis - A billion pound company taking on $KO and winning.
With the British summer in full swing, I decided to take a closer look at Fever-Tree.

Fever-Tree (£FEVR) is a classic Buffet stock. They encompass a first-mover advantage, are a consumer staple, generate high gross margin and are a market leader.

You can read more about them in my monthly write up 🍋

Neil's avatar
$35.4m follower assets
$KO Taste the Coke side of life
Non-GAAP EPS of $0.70 beats by $0.03
Revenue of $11.3B beats by $730M

FY2022: Organic revenue (non-GAAP) growth of 12% to 13%
Currency neutral EPS growth of 14% to 15% and comparable EPS growth of 5% to 6%, versus $2.32 in 2021 and consensus growth of 6%.
Erick Mokaya's avatar
$102.4m follower assets
$GOOGL just has to be the top pick for the next 40dys. So lock up on this stock. I need the advance's when it stops $2k in September start
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Luka 🦉's avatar
$103.6m follower assets
Coca-Cola 💸 $0.44/share (in line)
I love this Dividend King. 👑
No matter economy and market conditions, you can be sure that a fat dividend from $KO will hit your and Buffett's bank account each quarter.
Yield 2.86%
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Dividend Portfolio Update
As you may know, I write many updates, economic analysis, and opinion pieces on my website, you can ready my most recent full portfolio update here. However, it's been a while since I've shared an update on Commonstock so let's do one!

To date, I have invested $10,110 into the account (WOOT WOOT WE PASSED 10K), the total value of all positions plus any cash on hand is $9,887.69. That’s a total loss of 2.20%. The account is up $142.95 for the week which is a 1.47% gain.

We started building this portfolio on 9/24/2021 and when compared to the S&P 500 we are outperforming the market so far! Within that same timeframe, the S&P 500 is down -12.48% whereas our portfolio is down -2.20%! I love tracking my portfolio against a benchmark like the S&P. The above chart comes from Sharesight which makes portfolio and dividend management a breeze!

We added $120 in cash to the account this week. The trades made this week will be broken out below.

Below is a table of everything we are invested in so far. There you can see my number of shares, shares bought through dividend reinvestments, average cost, gains, and more. The tickers in green are positions that I bought shares in this week and the blue ones are positions that I reinvested dividends into. The positions that we added to increased our annual dividend income by $9 at a yield of 4.42%.

This week we received $6.72 from two dividends: $0.49 from Coca-Cola ($KO), $6.23 from Best Buy ($BBY).

In my portfolio, all positions have dividend reinvestment enabled. I don’t hold onto the dividend, I don’t try to time the reinvestment, I just let my broker do it automatically. The Coca-Cola dividend was actually received last Friday, but got reinvested on the following trading day.

Dividends received for 2022: $179.42
Portfolio’s Lifetime Dividends: $202.34

Below is a breakdown of my trades this week!
July 5th
  • Best Buy ($BBY) – dividend reinvested
  • Coca-Cola ($KO) – dividend reinvested
  • Comcast ($CMCSA) – 0.5 shares bought at $39.26
  • Lowe’s ($LOW) – added 0.125 shares at $175.84
July 6th
  • $SCHD – added 0.1399 shares at $71.48 (recurring investment)
  • $XYLD – added 0.233198 shares at $42.88 (recurring investment)
July 8th
  • Intel ($INTC) – added 0.25 shares at $37.96
  • AT&T ($T) – added 2 shares at $20.86

We also bought some $SSSS and sold it the next day for a ~5% gain. This is not something I do often so I won't provide the dates and prices for those orders.

This was sort of a slow week on top of an already shortened week. It was a pretty positive week driving by the tech and consumer discretionary sectors as discussed in my weekly market review, therefore there wasn’t too many amazing opportunities to buy down. I mainly just took this week to add a little bit into some of my favorite down positions and positions on ex-dates.

Next week I plan on keeping my eyes on Lowe’s, Cummins, and Altria for the reasons below:
  • Lowe’s ($LOW) for its ex-date coming up on July 19th.
  • I’ll also be looking to add to Cummins ($CMI) which I’m down 4% on right now. Their yield is 2.89% which is slightly above their 5-year average and their P/E is at 10.8 which is about 20% underneath the 5-year average. They have a 29-year dividend streak with 16 years of consecutive growth. I’m anticipating a dividend increase on their Q3 payout and thus would like to add earlier now while down.
  • I’ll also be watching Altria ($MO) to add to next week. I’m currently down 12.3% on this stock. Its yield is juicy right now at 8.67%, roughly 2% higher than its 5-year average. This company has great financials and the JUUL headlines don’t concern me too much due to the company’s limited stake in it. Similar to $CMI, I’m expecting their next announced dividend to be increased and I want to add early while down now.
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