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We like the NTR’s valuation, trading at 10.7x Forward P/E, which is at the lower end of historical averages (ranging from 7x to 20x). The balance sheet is also decent, with net debt/EBITDA in only at 1.3x. The company has a shareholder-friendly policy of aggressively repurchasing shares. Although the near-term outlook is not so attractive, we think investors could do quite well at this valuation three or five years from now. Overall, we would be comfortable adding here, to a position size that reflects its cyclicality.
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INFY operates as a global consulting firm and is now trading at 21.5x times' Forward P/E. In 1Q-2024, INFY’s revenue grew 4% to $4.62B, beating estimates of $4.61B and EPS was $0.17, slightly missing estimates of $0.18. The balance sheet is strong, with net cash of $1.1B. Over the last few years, the company generated solid cash flow which was returned mostly to shareholders through dividend increases and buybacks, we think the company has shareholder-friendly policies. The share price was under pressure due to the weak guidance for FY 2024, with growth for the whole year expected of around 1%-3.5%. We think given the challenging global economy, we think the result/guidance is acceptable. We would be comfortable holding at this valuation.
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For the recent quarter, FTIB grew sales 8% to $2.19B, in line with the estimate, and EPS was $0.82, slightly missing estimates of $0.83. Average deposits declined by 1% indicating a sticky deposit base, as other large banks lost deposits during the same quarter. ROEs improved to 13.9% compared to 12.3% in the same period last year. The result was okay given the challenging macro environment. Like other regional banks, FITB is an attractive acquisition target due to recent pressure in share price; FITB is now trading at 9.0x times' Forward P/E. In the last five years, FITB’s Return on Equity (ROE) has consistently been around the 13%-15% range, not excellent, but still a pretty good performance. FITB had a few years when it repurchased a significant amount of shares while paying growing and sustainable dividends over the years. We think FITB is also cheap ona Price/Book basis, currently trading at 1.3x P/B.
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Rising Interest Rates: Should I sell all my bonds?
Most investors know that bond prices decline when interest rates rise. Many investors are wondering why they hold any bonds at all. We think this thinking needs to stop. First, bonds are not in your portfolio to make capital gains — they are there to provide balance and regular income. Second, as we’ve noticed this week, the fear of higher rates can hurt the stock market at times, also. Going 100 per cent equities from a 60/40 stock/bond split could have serious consequences to an investor. If not in performance, then most definitely in stress and sleep. We would suggest sticking to your overall investment plan, and to not “react” to short-term market events with big portfolio changes.
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He's seeing conflicting economic data, a tug of war, and sentiment is stretched. For instance, interest rates are rising while homebuilding shares are hitting all-time highs. He's cautiously invested. The S&P and Nasdaq have been on a tear while the TSX has risen respectably, but lags them. The TSX trades at a 60% discount to the S&P in terms of price-to-book, a gap that's a 20-year highs. The good Canadian banks look fine now. He will discuss these later today.
Not in his top 3 Canadian banks, because their operations in Latin America never earned proper returns. Also, they had to go outside the company to replace the CEO last year, and he wasn't even in banks. This is a risk and could lead to a revolving door of execs. This remains a show-me story. Historically, BNS has lagged its peers, returning shareholder returns at 3% annually over the past 5 years vs. peers of 5-14%.
It isn't immune to the oil price though doesn't have a lot of raw commodity exposure. Its pipelines move 2.8 million barrels of oil and it scores 11 million barrels of oil. Also processes 5 billion cubic feet daily of natural gas. 70% of their revenues are take-or-pay contracts, plus 20% are fee-for-service. It's like a toll road. Pays a yield of 6% and trades at 15x PE, in line with peers. PPL is a reliable compounder over time, 8% annual compunded return.
He sold it after a recent disappointing earnings report (lowered their guidance a lot). After all, they're not in a cyclical business. Their acquisition of a Chinese company was interesting, though the structure was unusual--they bought $100 million in preferred shares with warrants but no dividend and took a minority share in the Chinese business. That was the right move in the Chinese market. Otherwise, JWEL's fundamentals didn't impress him. The stock isn't getting much love these days.
It rallied hard when Russia invaded Ukraine, but potash prices were 3x their historic average and demand pulled back. They missed earnings for a few quarters. That said, it's a quality company. It's much better than the days when they dealt merely potash. Their supply stores offer good returns on capital. There will be a time to get back into this. Sales were so strong last year that this year's comps will look unflattering. He will wait for this to bottom.
Has been choppy. Utilities are sensitive to interest rates and pressured valuation. But they benefit from population growth in Florida where they operate electricity. Their other business is renewable energy Solar and wind), so they benefit from Washington's green energy incentives. A third tailwind is ongoing ESG investing. Fundamentals remain sound.
Poorly run, and it's losing money hand over fist.