Simply stock trading

[Your_Full_Name]

Looking at SIKA prompted me to go through the MSCI Switzerland. Surprisingly many that look interesting for my investment style, but most are too expensive.

Zurich is probably buyable right now, Baer and Partners group also based on fundamentals (but require more research), Swiss Re probably also on fundamentals, but too difficult for me to understand.

Zurich

Zurich Insurance Group AG is a holding company, which engages in the provision of insurance products and related services. It operates through the following segments: Property and Casualty (P&C) Regions, Life Regions, Farmers, Group Functions and Operations, and Non-Core Businesses.

Not entirely sure why FCF is expected to drop so heavily. Gemini claims it’s because they have a proposal out to acquire UK specialty insurer Beazley plc.

I like ZURN.

• It’s a tad overvalued right now but that probably won’t matter in the long run.
• I like that they cut their dividend only partially during the GFC.
• I like their excellent credit rating and their low debt.
• And of course I love their long dividend track record with CAGR of 10%

The acquistion of Beazley seems fine as Beayley isn’t overvalued. Quite the contrary.
I don’t really get ZURN’s share buybacks (given the company isn’t undervalued), but of course it helps with growing EPS.

Julius Baer

Julius Bär Gruppe AG engages in the provision of private banking services. Its services include discretionary mandates, investment advisory, open product and service platform, financial market services, investor services, financing, and wealth planning.

• overall FASTgraph looks fine (undervalued)
• dividend track record a bit meh although I prefer a frozen dividend to a cut
• debt seems a bit high

I’d have to do more research on this one, I kind of don’t like their track records of CEOs and scandals with dirty money. They’re already on their 7^th CEO since I worked for them more than two decades ago. One of those 7 committed suicide …

Partners Group

Partners Group Holding AG engages in investments in private markets with growth and development potential. It operates through the following segments: Private Equity, Private Debt, Private Real Estate, Infrastructure, and Royalties.

It surprised me to see this one on my screen.

• seems fairly valued
• nice dividend growth track record
• a bit iffy for FCF covering the dividend going forward, but I’d be surprized if they cut
  
  
  
  They’ve had previous years where FCF didn’t cover the dividend, but they just sailed past those:
  
  

I’m skeptical about private equity in general, so I’d have to take a deeper look before dipping my feet into this.

Swiss Re

Swiss Re AG engages in the provision of reinsurance, insurance and other insurance-based forms of risk transfer. It operates through the following segments: Property and Casualty Reinsurance, Life and Health Reinsurance, Corporate Solutions, Life Capital, and Group Items.

Well, their earnings are all over the place. And it took them a while post GFC to establish a dividend again.

Let’s look at cash flows:

Looks a bit less erratic. And dividends are paid even if FCF doesn’t cover it.

I guess I have no idea how to look at a re-insurance business …

I asked Gemini why FCF is expected to drop so heavily …

… and it gave me a lengthy answer about reinsurance market cycles that I didn’t really understand. Reminded me of the BOFH when SOLAR FLARES came up as the answer for today’s helpdesk call – I asked Gemini about FCF dropping and MARKET CYCLES was on its excuse sheet …

Anyway, looks somewhat interesting but requires more research. Or maybe I’ll just go with the businesses more easily understandable. Remember, no points awarded for picking complex businesses.

The rest look (mostly) fine based on fundamentals, but just too expensive.

ABB

ABB Ltd. is a technology company, which engages in the development and provision of electrification, motion and automation solutions. It operates through the following business segments: Electrification, Motion and Automation.

BKW

BKW AG engages in the international energy and infrastructure company. It operates through the following segments: Energy Solutions, Power Grid, and Infrastructure & Buildings.

Fairly valued, so in principle buyable, but less than 3% yield for a utility that for stretches of years can be bought for half the P/E it sports currently … I’ll patiently wait for such a stretch in the future.

Geberit

Geberit AG engages in the development, manufacture, and distribution of sanitary products and systems for the residential and industrial construction industry. It operates through the following segments: Installation and Flushing Systems, Piping Systems, and Bathroom Systems.

Good old Geberit … reminds us of themselves almost every time we use a pissoir. Always too expensive and their growth is only borderline acceptable.

Givaudan

Givaudan SA engages in the manufacture and distribution of fragrance and flavour products. It operates through the Fragrance & Beauty and Taste & Wellbeing segments.

Growth is a bit borderline acceptable and dividend growth needs a magnifying glass to spot.
Only barely made the list.

Helvetia Baloise

Helvetia Baloise Holding Ltd. engages in insurance and financial services, with a diversified business portfolio comprising life and non-life insurance, reinsurance, asset management, other fee and commission–based activities, and banking.

Lindt & Sprüngli

Chocoladefabriken Lindt & Sprüngli AG is a holding company, which engages in the manufacture and sales of chocolate products. It operates through the following segments: Europe, North America, and Rest of the World.

Someday I’ll buy them. I really want their yearly suitcase full of chocolates.
That day is not today.

Lonza

Lonza Group AG engages in the supply of pharmaceutical, healthcare, and life science products. It operates through the following segments: Biologics, Small Molecules, Cell and Gene, Capsule and Health Ingredients, and Corporate.

Novartis

Novartis AG is a holding company, which engages in the business of developing, manufacturing, and marketing healthcare products.

Roche

Roche Holding AG is a research healthcare company. It operates through the Roche Pharmaceuticals and Diagnostics segments.

Sandoz

Sandoz Group AG engages in focusing on generic pharmaceuticals and bio similar medical products. It acquires, manages and sells investments and intellectual property in the healthcare and medical device industry and conducts all business at home and abroad.

SIKA: see previous post.

Swiss Life

Swiss Life Holding AG engages in the provision of life insurances, pensions, and financial solutions. It operates through the following segments: Switzerland, Germany, France, International, Asset Managers, and Other. The Switzerland, France and Germany segments provide life insurance operations and distribution units.

UBS

UBS Group AG is a holding company, which engages in the provision of financial management solutions. It operates through the following segments: Global Wealth Management, Personal and Corporate Banking, Asset Management, Investment Bank, Non-Core and Legacy, and Group Items.

Not really overvalued, but I’d like to understand how their having to hold more capital in CH plays out politically.

VAT

VAT Group AG engages in the development, manufacture, and supply of vacuum valves. It operates through the Valves and Global Service segments.

Holcim was close to meeting my bar (of investment style), but didn’t make the cut because they … ahem, cut their dividend in 2020 (for no reason really as far as I can see from FASTgraphs). Can’t have that.

[cubanpete]

@Refugee

“why only US”, “didivedns are irreverent”

In which timezone are you drinking?

This was discussed over and over, I can just give my opinion:

I don’t invest only in U.S. companies but I trade only in New York because it is the cheapest and most liquid place to trade. Sector diversification is way more important than country diversification; if a sector runs good or bad it does so usually in all countries.

Dividends are completely irrelevant, but the companies that pay dividends are not. They seem to have better cash flow and less risk than companies that do not pay dividends.

From a companies point of view there are two possibilities to return money: buying own shares or paying dividends. From the investors point of view on dividends he pays tax and on buybacks the management options get a lot of the money. So, weighting this, I prefer to pay tax than to feed the anyhow overpaid management even more.

Just my 2 cents.

[Refugee]

Was a joke! Not drinking, CET time.

[Phil_MCR]

After I foolishly sold my Swiss holdings a while back: Holcim, Zurich airport, Jungfraubahn, etc. I figured I should hold some Swiss stocks and bought: Nestle, Emmi, Zurich, Romande Energie Holding (No idea why I bought that one).

[cubanpete]

I must admit, except for Alusuisse, which is actually French now, (CSTM, +104% in a year) I do not hold any Swiss stocks. Don’t see why I have to give as a credit 35% of my dividends to the state.

[Your_Full_Name]

@Phil_MCR

bought: Nestle, Emil Frey, Zurich, Romande Energie Holding (No idea why I bought that one).

Nestlé is in the MSCI Switzerland and should have landed in the “investable but too expensive pile”. Not sure why I forgot them.

Nestlé

Nestlé SA is a nutrition, health, and wellness company, which engages in the business of manufacturing, supplying, and producing prepared dishes and cooking aids, milk-based products, pharmaceuticals and ophthalmic goods, baby foods, and cereals. It operates through the following segments: Zone North America; Zone Europe; Zone Asia, Oceania, and Africa; Zone Latin America; Zone Greater China; Nestlé Health Science; and Nespresso.

A little slow in growth over the past 20 years and anemic dividend growth in recent years. Also a little high on the payout ratio.
I was tempted to buy them when they dipped to a 15 x P/E last year, but passed in the end.

Emil Frey AG? Aren’t they privately held? Are you the owner?

Romande Energie Holding looks like an (expensive) bond

@cubanpete

except for Alusuisse

Constellium looks like a long snake slithering near the ground ;-)

You should be glad they pay no dividends as the French would keep a cut of the withholding tax that you can only get back by filling out forms manually, patience and with the ritual of drinking Pastis with each meal (including breakfast).

@cubanpete

Don’t see why I have to give as a credit 35% of my dividends to the state.

Sir, this is your personal contribution to a zero interest loan to the Swiss government. This helps the notoriously understaffed Bundesbeamten come up with new regulations that in turn stimulate business activity in Switzerland.

[Phil_MCR]

@Your_Full_Name

Emil Frey AG? Aren’t they privately held? Are you the owner?

Yes, I inherited it.

I wish. No, I was just a mis-type. I meant to type Emmi, the dairy company.

I just bought a bunch of Swiss companies ignoring valuation.

[Your_Full_Name]

@Phil_MCR

Yes, I inherited it.

Nice.

If I had that kind of money I wouldn’t have to work anymore and would spend all my time arguing with strangers on the Internet. Oh, wait …

Emmi

It wasn’t in the MSCI Switzerland, but I would put this into the “investable but too expensive” pile. In fact, I just added it to my “Switzerland watchlist”.

Thanks!

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Fun Emmi memory of mine:

In one of my secondary school years (7^th to 9^th grade) ca. 1982 to 1984 or so I landed a winter job at Emmi via a Temporärbüro during what we then called Sportferien (most of my Swiss classmates would go skiing for a week – or even two! – of the two week vacation; my family couldn’t afford this and I couldn’t ski anyways).
This was in February in central Switzerland. And remember, the winters back then were nearly as cold as in the last ice age. No climate change to the rescue yet …
Bicycled 8 kilometers to Emmi to start my shift at 8am – it was pitch dark. And does anyone remember actually clocking in to work with a card that gets time-stamped?
Sorted used empty’ish yoghurt glasses properly into crates and stacked them outside in their area where small trucks unloaded the crates collected from retail stores so the yoghurt glasses could then be industrially washed later.
The folks working in the warm offices watching me felt so much pity after day two that they brought me hot tea in a thermos flask for the Znüni and the Zvieri. I felt like a child king!
Once I got paid for two weeks of work I invested all that money into Monster Beverages Inc. which made me so rich over the past 100 years or so that I could now buy Nvidia, Space X and Tesla and still have some change left I believe I was finally able to buy that much coveted Sony D-50, their first portable CD player. First CD bought was Michael Jackson’s Thriller IIRC.

I’ll now brace for @cubanpete to rain on my parade telling me what a spoiled soft wimp I was already back then.

[Roxi]

Swiss Re had to be saved by Buffett with a large credit, IIRC $2 billion, as a result of the GFC. I seem to recall 14% interest rate but don’t quote me on this.

The problem with any insurance company is that they’re virtually guaranteed to be involved in PE&PC (see below) as investor/creditor. If there really are many more cockroaches, their assets will be negatively affected and the only question left is “how much”.

Partners Group (PG) is a private equity firm, they pay 95% of the net earnings as dividends (always have AFAIA). They act as intermediary, collecting and pooling investment money from private individuals as well as institutional investors, to invest in privately held companies (PE, private equity) they buy or to provide credit (PC) to them, respectively. Contrary to their US counterparts PG’s business is almost exclusively in Europe.

PE&PC have gotten heavy flak in recent months due to suspicions of malmanagement and portfolio misvaluation, triggered by the bankruptcy of the companies First Brands and Tricolor. These two seem to have used, multiple times and thus fraudulently, the same assets as securities for different credits, something that seems to be fairly easily avoidable.

Many a PE company’s stock lost 30% or more from its TTM top due to these allegations, including KKR, Ares, Apollo, and Blue Owl. PG lost 40% and haven’t recovered, which is why they now trade at an investable valuation.

Someone posted an FT article some weeks ago on the issue, probably @Phil_MCR, its core message being that the PC default rate is expected to rise very mucho, possibly double or more, in the nearer future. Jamie Dimon drily commented on the two bankruptcies with “when you see one cockroach there’s probably many more”. Mind, he also wouldn’t buy stocks or long treasuries at this time.

An additional issue is risk concentration, I’ve seen claims that around 40% of PE is invested in software companies though due to opacity and thus by necessity that’s just a guess.

Further, with the exception of Ares, the US PE companies listed above recently bought or are otherwise intimately linked with an insurance company, companies that can be used to offload any PC&PE they don’t find buyers for elsewhere. Though now that Trump authorised 401(k) to join the fray and buy those products, the carousel may well have some more turns left before it breaks.

[Phil_MCR]

I feel that some of the SaaS bond fears may be overblown, but credit spreads are super tight right now and we’ve had some of the most amazing economic conditions in the last decade or two since the GFC.

If we see these ‘cockroaches’ appear when things are relatively benign, I wonder what happens if the economy turns. With Iran, Oil disruption and potentially inflation coming down the line, I feel there might be heightened risk of a change in credit/economic conditions which reveal greater issues.

[Your_Full_Name]

Thanks for your spotlight on this.

@Roxi

The problem with any insurance company is that they’re virtually guaranteed to be involved in PE&PC

I came across this only recently when learning – see some post above – that insurance companies were invested in “long term” assets like data centers for the AI build-out. Wait, what?

MET and UNM (both in my portfolio) were mentioned in the WSJ article that I believe already referenced. Many others are probably in the force field of PE/PC. I am slowly trying to rotate out of these insurance businesses, even though it’s not straightforward to distinguish which insurers are better shielded. Maybe none?

@Roxi

Partners Group (PG) is a private equity firm, they pay 95% of the net earnings as dividends (always have AFAIA).

Indeed, they’ve been paying out almost all of their earnings as dividends.

I believe my personal take-away is again: this is too complicated for me to understand. Luckily, there are more easily understandable businesses for to look at. Maybe there’s more profit to be made with Partner’s Group, but it’s difficult for me to buy and hold them with conviction, while other – even Swiss – companies are in the (almost) no-brainer category (see post Simply stock trading - #666 by Your_Full_Name). Ok, admittedly not that many, but still easier ones to pick than Partners Group?
Maybe you’re more critical?

[Your_Full_Name]

Apropos Nestle …

[cubanpete]

I have a friend who is the perfect short signal. Whenever he stops working for a company its stock goes down down down. He just left Nestlé

My “Nestlé” yesterday is from a sector you would not expect to go down at the moment. But the market is volatile. Fracking company Liberty Energy yesterday said it is diworsifying into power generation for data centers and will spend $1.5 billion there. That made the stock fall almost 22%.

The idiot managers of those companies still don’t get it: if it rains money you put out a bucket and that is it. At current prices nobody needs electricity generated from oil or gas! It may serve later to hedge falling oil prices, but for that we have the future markets. And maybe prices will never come down again…

Without Liberty (which is still in the green in my portfolio) of course yesterday would be a winning day for me, but that way I lost 0.28% (less than the Liberty loss). Life is hard… but OK, index lost like 1-2%.

[Conquestador]

Is Nestle now undervalued? I have sold 2 puts with a 70CHF strike in September cashing in on the volatility.

@Your_Full_Name would you able to also run SGS with Fastgraph to complete the Switzerland section?

In any case, I highly appreciate your posts as always and act on some of your analysis. Recently I also added 3 Singaporean bank after some investigation (D05, O39 and U11) that have a nice earning story but more important they are dominating the beautiful skyline in the night in Singapore Marina bay.

[Your_Full_Name]

I saw SGS when screening the MSCI Switzerland but it doesn’t meet my criteria for an investable company mostly because it froze its dividend after COVID, and also a bit because of its slow growth and relatively high debt. Expand below for some FASTgraphs.

SGS

SGS SA engages in the provision of inspection, verification, testing, certification and quality assurance services. It operates through the Testing and Inspection, and Certification segments.

@Conquestador

Is Nestle now undervalued? I have sold 2 puts with a 70CHF strike in September cashing in on the volatility.

I feel it’s still overvalued (for my taste), but it certainly trades (slightly) below its normal valuation of about 18xP/E. Fair value according to FASTgraphs would be slightly below 70CHF. See also post Simply stock trading - #671 by Your_Full_Name for a NESN FASTgraph.

If you enjoy Nestle doom porn, there’s an article on Insideparadeplatz today: Mega-Probleme für Navratil bei Nestlé – Inside Paradeplatz

[Roxi]

I’m mostly on the sidelines for the time being (“when you don’t know what to do you do nothing”), there’s simply too many issues right now(*) for me to comfortably buy stuff. But I do see me buy PG later on, the business model is very profitable and the company seems sound (the three founders still hold 5% each). VAT Group (in your list) for instance was a PE firm held by PG and taken public perhaps a decade ago - it’s a ten-bagger since but highly cyclical. And probably a canary in the coal mine for the inevitable semiconductor bust.

(*) There’s the sky-high CAPE; private credit; the Iran war and therefore oil. The notoriously cyclical semiconductor sector is 20% of the SP500 nowadays, once the inevitable down move occurs it’ll draw the entire market down. I think the volatility in single IT stocks, as well as Korea’s index Kospi, show that we’re on very thin ice. Ukraine’s successes against Russia’s shadow tanker fleet and the refineries have RU strike other transport types, renewing the threat that the Ukraine war throttles UA+RU commodities exports, which in turn (and again) threatens worldwide food safety, just like in 2022/23.

[Phil_MCR]

These geopolitical issues lead me to increase exposure to US-based oil refining companies.

[Roxi]

Like which? What I’ve checked lately doesn’t really look appealing.

[Your_Full_Name]

They’ve kind of all risen in price. I wonder why …

Screening with FASTgraphs these might still be worth a look:

Phillips 66

Par Pacific Holdings (actually, scratch this, I mistakenly looked at earnings instead of Operating Cash Flow

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Please note that I know nothing about these businesses, I just ran a FASTgraphs screen and pick the ones that looked pretty to me from an OCF perspective.

[Phil_MCR]

DINO, PBF, VLO, CVI, MPC, PSX

Unfortunately, they were not so attractive pre-Iran and are now already up 30%-50%.

Maybe it was possible to buy lower at certain times e.g. when ceasefires signed etc. right now they seem risky due to a lot of uncertainty.

For me it is hard to read the situation properly, but I’m guessing with Ukrainian attacks on Russian refining and Iran situation maybe going on for longer than people expect, the refineries should print money for now:

Inventory levels are at 7 year low in Asia and 4 year low in Europe. However, given the political impact of rising fuel costs, I expect the US to ultimately ban fuel exports to keep a lid on domestic prices.