Giro Lino's avatar
$2.6m follower assets
$PBR announces juicy dividend, but not enough...
$PBR delivered on its promise to pay out as much dividends as possible, announcing a R$48bn payout, or a yield of 12% based on the last closing price. Even though operating is doing great, the lack of visibility about its policy is concerning. Out of this one...

President Bolsonaro just fired the CEO he appointed after he refused NOT follow $PBR bylaws. More recently, he mentioned that $PBR profit was a rape against the Brazilian ppl, though the government just received R$24bn (US$5bn) in dividends from the company.
Portfolio Update: 7 February 2022
The sell-offs this year prompted a lot of action in my portfolio. I've probably done more work this month than I did all year in 2021.

TBD on whether that's good or bad!

Here's what I've been up to so far this year.

Sold:

$ELP: Nothing wrong with the stock or thesis, just wanted to add more liquidity with other buying opportunities. The stock provided some very juicy dividends, and I was up around 6% when I sold. In addition, I wanted to limit my Brazilian exposure since I bought another very large Brazilian company (see below).

$PAM: Same story as $ELP; wanted to limit risk and lock in a gain. I was up nearly 30% when I sold, and I wanted to limit my exposure to Argentina, which is extremely volatile.

$BAH: I still love this company and didn't want to sell, but it has been aggravating to be a shareholder in this company. Management didn't make bad decisions per se, but I thought they would eliminate some risk by buying down some debt, but it seems their priorities lie elsewhere. Locked in around a 9% gain.

$BEPC: When I bought this stock, I was a bit more bullish than I should have been. This was the classic "did the research over a week and talked myself into it" purchase. There's nothing wrong with the company, I just wanted to invest in a company that I had more confidence in.

I broke even on this trade.

Bought:

$JOUT: Just like a lot of businesses right now, the company is having supply problems and slowing post-pandemic sales, which caused the stock to plummet. Over the last quarter, this company's stock has fallen below $90 a share.

I averaged down a bit during this period, but I haven't bought anymore since it's already a big chunk of my portfolio. I have no concerns here because the management is great.

$PBR: After doing my own research and reading an excellent report from Sven Lorenz at Undervaluedshares.com, I decided to buy some shares of Brazilian oil giant $PBR.

In the next five years, the company seems very well positioned to return tons of cash to shareholders through dividends. While elections in Brazil may prove volatile later this year, I believe I will benefit from shareholder-friendly dividends and a huge demand due to current and future energy shortages.

$FLWS: A week or two ago, $FLWS reported some pretty negative quarterly earnings, and the stock price got pummeled. Just like $JOUT, $FLWS is suffering from short term supply chain and labor costs.

As usual, I took advantage of the downturn by buying more. Management is firing on all cylinders despite supply chain problems.

$TROW: One of the top public asset managers. Due to the market overreacting to somewhat negative earnings, I consider this stock to be a steal under $200 per share. It has a great business model, stable growth, a flawless balance sheet, pays a decent dividend, and buys back its shares.

It may not be going to the moon, but $TROW is a solid cornerstone for any portfolio.

$NVR: similar to $TROW, with the exception of no price declines. It took me a long time to decide to buy stock, but now I'm happy I did. $NVR is the safest and most shareholder friendly homebuilder to take advantage of the housing boom.

$GOOGL: You can see my previous post on this I did last week, but it's the same story as $NVR; great business at a fair price. My fear of big numbers was preventing me from owning one of the best businesses in the world, but I quickly changed course.

$PYPL & $FB: Established (small) positions during the large sell off last week. I like both for the same reason: cash cow networks.

Even if both companies lose market share and their FCF declines, the risks (to my mind) are baked into these valuations. Providing the companies continue to hold decent market share, shareholders will receive significant cash flows for many years to come.

For me, everything else (metaverse, crypto, VR, etc.) is free chicken.
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Giro Lino's avatar
$2.6m follower assets
Food for thought
On today’s post:

  • Weird week

  • FED put is still there

  • Don’t be a hero

  • Better Buy Oil

  • Place your bets

  • Portfolio (PRO Content)

  • What Am I Doing? (PRO Content)

  • Rates in Brazil and the $BRL (PRO Content)

  • Stone ($STNE) (PRO Content)

### Weird Week
Monday wasn’t a typical day. Write this down. It was the 6th time that Nasdaq reversed a +4% intraday drop to a close high (since 1990). On all occasions, the forward return for the next three months was negative.
Liquidity remained low while options trading exploded. On Monday, we saw the most significant amount of options traded EVER, with the highest put notional minus call notional EVER.

Source: GS.
The feeling is that someone (probably retail investors) discovered put options. Bonanza time is gone. The FED has transitioned from an easing campaign to a tightening one, meaning that the market will be setting new levels.
### FED put is still there

The first tool the FED implement when looking for tightening or easing conditions is communication. The forward guidance helps the market to adjust to coming actions and gives the FED an answer if the guided steps are appropriate or not.

The market has been telling the FED that actions guided were insufficient, and communication should get more challenging. And, on Wednesday, they delivered just that.

FED suggested that near-term risk increased, and prices should adjust to that given the uncertain path ahead, indicating consecutive hikes ahead.
Chair Powell clarified that FED’s job isn’t to set a floor to stock prices — the so-called FED Put. The problem is that, historically, FED’s decisions are — indeed— influenced by stock prices and volatility.

### Don’t be a hero
As on last week's post, when the S&P 500 lost the 200ma, volatility (fear) increased sharply. With the VIX above 25, fundamentals lose importance, and market participants are more price action-driven, playing macro thematic instead of specific fundamentals.

However, history plays with the bulls unless we see an economic recession. Most people cannot understand that you can only participate in a bull market if you survive the bear.

Perhaps, this isn’t a good year for leverage or to hold companies with a poor unproven operational track record. But, the less you lose today, the more you will make in the future.


### Better Buy Oil
A new report from Morgan Stanley evaluated O&G companies respective to their historical valuation. It’s worth mentioning that, according to their estimates, the sector is pricing WTI at $62/bbl, well below the forward curve at $80/bbl.

Source: Morgan Stanley.
I think that looking for an exit price for the Oil trade is premature. I don’t believe that Oil Companies will outperform the S&P 500 in the next decade, but every commodity cycle comes with an overshoot in prices. We haven’t seen that in Oil yet.

However, the best way to leverage a commodity cycle is through equity. Unlike the physical asset, a company has operational leverage, offering excellent returns if the rotation trade is right ($PBR).

### Place your bets
There was an incredible flow from investors migrating from defensive and cyclical stocks to secular growth in the past decade.

However, since investors became more skeptical about the tightening cycle and the FED suggested they were serious about fighting inflation, investors dumped secular growth stocks and moved to Value stocks.

Higher inflation and resilient growth work well for Oil, but investors will be looking to play the defense game if the latter starts fading away.

Source: Tradingview.
With that in mind, the chart above is interesting. Historically, ISM is an excellent leading indicator for equity returns, especially for value companies. This trade works amazingly well in a sell-off scenario. Keep that in mind.
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