Dec 23, 20242 min read

Newsletter - December 23rd, 2024

Dear Reader,

Attached is a recent list of stocks that passed value screens (e.g. below net current asset value, below tangible equity, etc.) but don’t meet our investment criteria - and our reasoning.

This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.

For reports of stocks that pass our quantitative and qualitative standards:

Join Here

Matthew McLennan - First Eagle Funds

McLennan is head of the global value fund for First Eagle Funds, and a top decile performer over the last decade:

6:00 US Capex

Highly profitable US companies are reinvesting substantial sums in capital expenditures - particularly in AI - which may justify their lofty valuations relative to Europe.

On the contrary, stocks selling at low multiples of earnings (which we focus on) tend to have limited/questionable growth prospects. Our focus is on downside protection, and buying at a large discount to intrinsic value - thereby tilting the odds in favor of gains over losses under average conditions.

7:00 US vs. the world

The earnings yield on US stocks is ~4% whereas non-US stocks yield >7%. The productivity difference is ~1%.

Though the US may have better prospects for growth, these may have already been priced into US stocks (perhaps overpriced) - i.e., it's not a simple matter of ascertaining growth prospects.

8:30 Globalization => Diversification

Globalization has increased the probability of uncertainties impacting investments - perhaps calling for more diversification in investors' portfolios.

9:30 Sparta vs. Athens

McLennan worries about a historic analogy where authoritarian and poorer Sparta defeated the democratic and richer Athenians - through regional alliances.

In a US-China showdown, geopolitical outcomes aren't predictable.

11:15 Gold miners

McLennan is known for investing substantial amounts in gold as "ballast" in the portfolio. While we aren't fans of such passive assets, you can obtain the same benefits by investing in gold miners - whilst also gaining the benefits of capital appreciation via increased retained earnings, and dividend income. We have covered a few such miners in our previous reports.

13:45 Japan and Europe Valuations

McLennan comments on "undemanding" valuations in Japan and Europe. We have covered several such companies trading at apparently attractive valuations.

19:45 Holding companies

Holding companies are generally attractive investments as they usually sell at a discount to their underlying investments. If the underlying investments are also moderately priced, the investor gets a double dip. We've covered a handful of such companies that demonstrate clear value.

21:45 China

A smart play may be to benefit from the Chinese economy without being exposed to the risks. Again, we've covered companies with assets outside China and Hong Kong while benefiting from revenues generated there.

Moreover, Nvidia and Apple are stock market darlings - yet they depend so much on China and Taiwan for their supply chains. Other companies with similar exposure to China haven't been treated so well - indicating some irrationality in market valuations.

For reports on the best investment values in stocks worldwide:

Join Here

Wish you all a Merry Christmas!

Newsletter - December 23rd, 2024

Dear Reader,

Attached is a recent list of stocks that passed value screens (e.g. below net current asset value, below tangible equity, etc.) but don’t meet our investment criteria - and our reasoning.

This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.

For reports of stocks that pass our quantitative and qualitative standards:

Matthew McLennan - First Eagle Funds

McLennan is head of the global value fund for First Eagle Funds, and a top decile performer over the last decade:

6:00 US Capex

Highly profitable US companies are reinvesting substantial sums in capital expenditures - particularly in AI - which may justify their lofty valuations relative to Europe.

7:00 US vs. the world

The earnings yield on US stocks is ~4% whereas non-US stocks yield >7%. The productivity difference is ~1%.

Though the US may have better prospects for growth, these may have already been priced into US stocks (perhaps overpriced) - i.e., it's not a simple matter of ascertaining growth prospects.

8:30 Globalization => Diversification

Globalization has increased the probability of uncertainties impacting investments - perhaps calling for more diversification in investors' portfolios.

9:30 Sparta vs. Athens

McLennan worries about a historic analogy where authoritarian and poorer Sparta defeated the democratic and richer Athenians - through regional alliances.

In a US-China showdown, geopolitical outcomes aren't predictable.

11:15 Gold miners

13:45 Japan and Europe Valuations

McLennan comments on "undemanding" valuations in Japan and Europe. We have covered several such companies trading at apparently attractive valuations.

19:45 Holding companies

Holding companies are generally attractive investments as they usually sell at a discount to their underlying investments. If the underlying investments are also moderately priced, the investor gets a double dip. We've covered a handful of such companies that demonstrate clear value.

21:45 China

A smart play may be to benefit from the Chinese economy without being exposed to the risks. Again, we've covered companies with assets outside China and Hong Kong while benefiting from revenues generated there.

Moreover, Nvidia and Apple are stock market darlings - yet they depend so much on China and Taiwan for their supply chains. Other companies with similar exposure to China haven't been treated so well - indicating some irrationality in market valuations.

For reports on the best investment values in stocks worldwide:

Wish you all a Merry Christmas!

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