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COMMENT
Investors feel that the virus is under control. Also,the price of oil is falling because the market expects the (Chinese) economy to soften because of the virus. He doesn't expect a recession, because historically before every recession the price of gas doubles. YOY the price of oil is flat. The virus will impact Q1 growth in China but also the US; Chinese productivity will be down because the factories may be closed for another week following the Lunar New Year celebrations. Overall, manufacturing companies may re-examine the place of China in their supply chains, given this disruption; this means less manufacturing in China and more abroad. Other Asian economies may benefit....Bombardier will sell their business jet division and the timing is good; this space also crowded and needs consolidation anyway.
BUY
You could've bought this for most of the last 18 months, based on valuation, such as end-December 2018. Problem was margin compression as competitors gave away free shipping. So, Amazon started to push one-day shipping, but it temporarily compressed margins with higher costs. Now, there's operational leverage and wider margins. Also, they're shifting to providing payments and logistics to other merchants and this offers wide margins. AWS are also profitable. He'd stick with it. It's an excellent business.
specialty stores
DON'T BUY
Auto parts was interesting to invest in during the last recession. He used to own BWA when its business was growing. He exited the space in late-2013, because manufacturing rates for cars peaked again. The long-term problem with this sector is that it is married to the internal combustion engine while there are more and more e-cars in the world. So, the engine becomes smaller and less important; the battery becomes important. Not good for BWA. He won't look at this industry until the next recession. Semis are the best way to get exposed to cars, actually.
Automotive
DON'T BUY
They make state-of-the-art machine vision systems, one of three companies globally that makes them. This automated space is growing nicely, but capex is high too. Given the coronavirus, projects could be delayed and the next quarter could disappoint. Cognex relies on large projects, namely smartphones. Short-term, he prefers a Japanese peer which has more projects on the go.
computer parts mnfctr
COMMENT
The indexes are manipulated. Markets are way too big to be manipulated. In time, markets go up, particularly the US, UK and Switzerland because those economies are advantaged and attract companies. Short term, they do down because of recessions. Short term, markets are highly influenced by credit, and there's a lot more credit available now than even 12 months ago.
DON'T BUY
He doesn't recommend any European or UK banks. They were hoping to expand beyond mortgages (where they led) to investment products, personal lines of credit and small business loans. It's unclear they succeeded. There are a lot of banks in the UK and it's difficult to stand out. Also, Lloyds faces competition from the Americans who don't have a legacy loan book. Also, more of the UK/Euro market is moving to corporate bonds and away from whole loans. Lloyds is more of a personal lender, though.
Financial Services
PAST TOP PICK
(A Top Pick Mar 25/19, Up 20%) They're the world's biggest producer of dental implants. It's a cyclical business, but more people are buying implants instead of dentures, so there's long-term potential growth. Their plants are in Thailand and the Phillippines compared to their competition in pricier North America.
medical services
BUY ON WEAKNESS
An excellent business. He's owned this since 2003, but sold last summer when the yield curve steepened and the CEO turned over. Now looks like a buying opportunity. Inevitably, he comes back to MCD. MCD owns their real estate, so they have the best locations. MCD outperforms when investors look for defensive stocks, but it underperforms when the market takes on more risk (like now). They've added beverages very well in Canada, namely coffee.
food services
COMMENT
As a roll-up It was a roll-up, but not now. The new DHR is a producer of filtration systems and single-use consumables that help make biotech drugs. They have a leading market share, supplying most major biotechs around the world. He likes it. Little is built into the numbers now and investors are very conservative about forecasting the biotech drug market.
machinery
DON'T BUY
He exited energy in 2014; the cycle is over. It's a cyclical business, which means own this infrequently. Between 2026-2032, we might start a new cycle. He won't re-renter until there is production and reserve growth per share. Everybody uses less energy through conservation and e-cars, etc. Wind and solar energy are growing sectors, not oil.
integrated oils
BUY
Investing in water treatment Little competition for them in the creative content publishing space. They made acquisitions to build e-commerce websites (competing with Salesforce now). Adobe has an edge, because Adobe software generates images that can be used for these sites. He likes it.
computer software
processing
