This is our third report in our summer valuation series (click for The Intersection of Valuation and Cyclicality and Are Current Valuations Sustainable?). This week, we focus on seven lessons we’ve learned from analyzing stock picking strategies and debunk some common misperceptions.
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Delphi (DLPH) has filed its form 10 with regards to its planned tax-free spin-off of the Powertrain Systems Segment, which is expected to be completed by March 2018. For fiscal year 2016, the Powertrain segment reported $4.5B in revenue. Additional details can be found in the latest investor presentation here.
Last week, we put forth the arguments behind our call for U.S. equity market valuations to remain relatively stable, as improving longer-term growth expectations offset gradually rising inflation and interest rates. While certainly concerning, we don’t expect rising tensions with North Korea or other geopolitical risks to create long-lasting headwinds for U.S. stock multiples.
Scopia Capital, which owns 16.5% of Acorda Therapeutics (ACOR), has submitted a letter to the company’s board urging them to engage actively with any parties interested in a potential transaction and to form a committee to oversee the review of strategic alternatives, including the sale of the company.
We track the share price performance of thematic stock baskets relative to a sector neutral benchmark. Year-to-date, stocks with high EPS growth, companies with high international revenues, our top stock idea model (SIM), high sales growth, and high beta stocks have been top performing themes. Year-to-date, the worst performing themes have been stocks with low P/E’s, banks with high loan growth, value stocks, high short interest, and our ‘All Weather’ theme. In July, the underlying thematic shift that occurred in June reversed, with growth and international themes outperforming, while value and cash usage themes underperformed. Click here for more information.
One of the biggest pushbacks we receive is that valuations are ‘stretched’. Clearly, there’s no denying that S&P 500’s Forward P/E and EV/EBITDA multiples are toward the high end of the historical range. As a reminder, our outlook is based upon our expectations for the earnings outlook to improve — not a re-rating of multiples. As such, the key question for us is whether or not current valuation levels are sustainable. In short, we believe they are.
Brighthouse Financial (BHFWV) will complete its spin-off from Metlife (MET) today. Brighthouse Financial consists of ~20% of the consolidated operating earnings of MetLife (~$240 billion of assets).
We track the share price performance of ~50 thematic stock baskets on an absolute and relative basis daily. In the pages that follow, we provide details of these thematic baskets’ performance over the past month and year-to-date as well as market, sector and industry long-term relative valuations. In July, the underlying thematic shift that occurred in June reversed, with growth and international themes outperforming, while value and cash usage themes underperformed.
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