Quick Value 2.3.20
Market Performance
[Index | Last week ==> This week | % change]
S&P 500 | 3295 ==> 3226 | -2.1%
Dow Jones | 28990 ==> 28256 | -2.5%
Russell 2000 | 1662 ==> 1614 | -2.9%
Russell Microcap | 616 ==> 593 | -3.7%
10-Year | 1.69% == 1.51% | -18bps
Gold | 1572 ==> 1591 | +1.2%
Oil | 54 ==> 52 | -3.7%
VIX | 15 ==> 19 | +26%
Market Stats
Pretty exciting to see stocks falling again… Especially on the smaller end of the spectrum where Microcap indices trade at levels seen earlier in 2019 (and 2017 too!). I came across an article in Barron’s highlighting the “earnings season is better than you think” for going from big declines to smaller declines. A snippet from the author’s comment on the 2020 outlook (a view I share):
Another potential bullish indicator (domestically at least) is the housing market…
Sales of new single family homes have been and continue to grow:
That doesn’t look like it will slow as housing starts are finally starting to increase again after flat-lining from 2015-2019:
As I’ve mentioned before, consumer financial picture doesn’t look stretched either as debt service levels are near historic lows and personal savings rates are elevated and still climbing…
Interesting backdrop with trade tensions, inflation, China issues, elevated market valuations, etc. but there are still signs pointing toward room to run from here…
Quick Value
Liberty Global ($LBTYA)
A big rise followed by a long decline…
Liberty Global provides cable, broadband, and mobile to customers in 6 European countries (think: combination of Comcast and Verizon in a smaller sense). At $20.50, this is a $13bn company.
A few good things about this business:
Generates a LOT of cash — $2.2bn through 9 months of 2019
They have been buying back a LOT of their own stock — $10bn worth since 2016!
Recently sold a business unit for $12bn — Now sitting on a large cash pile and an improved balance sheet
Cheap stock — Liberty trades at less than 10x operating cash flow and 8x EBITDA
It hasn’t been all positives for this stock. Revenue and cash flow haven’t grown in aggregate for years and during that timeframe, the company has taken on a lot of debt while buying back a lot of stock. Many of those share repurchases were done at levels much higher than today’s price too.
Where the stock goes from here depends quite a bit on what the company does next with its cash pile. It’s a business with plenty of cash generation but a management team with a penchant for buying back stock and keeping higher levels of debt (tax avoidance)…