Bullseye Brief presents three thematic, actionable investment ideas every other week. My goal is to help identify only those opportunities most worthy of your time… by analyzing data, distilling complexity and sharing insights from a deep network of experts. I love what I do and invite you to join me.
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Adam Johnson

Adam Johnson anchored several business programs at Bloomberg Television over five years, interviewing CEOs, heads of state, and Nobel laureates. His daily video investment blog, Insight and Action was sponsored by a major U.S. lender. Previously he managed global risk assets for ING Furman Selz and Louis Dreyfus, trading oil futures, listed equities and equity options. Adam began his career at Merrill Lynch with a degree in economics at Princeton.


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Too Strong to Ignore

  • GE shares have fallen 42% YTD and trade for less than a third of the high during Jack Welch’s tenure
  • New CEO Flannery’s restructuring plan fails to impress analysts but shares are too cheap vs peers
  • 85% of revenue derives from businesses where GE ranks number one globally

I have rarely witnessed such hand-wringing, anguish and utter despondence among sell-side analysts as I did last week following GE’s epic Analyst Day. They couldn’t slash their ratings fast enough. Newly installed CEO John Flannery had already told them it would be bad, but they didn’t think it’d be THAT bad… cutting the dividend in half, cutting earnings in half and cutting the company in half. Sorry if his plans upend the carefully crafted whisper numbers they had come to expect under Jack Welch, or the bed-side quietude of successor Jef Immelt, but Mr. Flannery is doing the right thing. GE is way too complex and it’s time for triage. I’m actually glad so many have become so disenfranchised. This is how bottoms happen, especially with shares down 42% YTD… though I admit I’m eating a little humble pie here. I recommended shares four weeks ago at $23, and they’re now $18. I rarely add to losers, but I believe the stock is washed out and I want to own more. I make the case in a Q&A format to illustrate my own thought process, and to share some excellent questions from fellow subscribers.


November 18, 2017

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King of Glass

US/China Success Story

  • One Chinese manufacturer dominates the global auto glass market with 26% market share
  • No other auto glass manufacturer provides a pure play on the sector or matches its profitability
  • Rapid electric vehicle adoption in China and stable demand in the U.S. provide multi-year upside

In 2015 I traveled through rural Alabama to see for myself why the world #1 manufacturer of HVAC copper tubing had relocated production from a factory in China to the poorest county in the state. Despite of being three quarters of a mile down a dirt road, managers explained the location provided easy access to ports and highways as well as cheap natural gas for power. By reducing transportation time and eliminating tariffs, they could produce pipes at a lower cost AND cut order fulfillment time from three months to three weeks. Turns out, Golden Dragon is not alone. Non-U.S. companies account fort 15% of the jobs created in Alabama since 2009. It might be the new model for global manufacturing… build your plant where the customers are and employ locals to do the work. Now you’re no longer a foreigner. One Chinese auto glass manufacturer has adopted the model as its own, building factories around the world and capturing 29% global market share in the process. Just last week its Ohio workers voted NOT to unionize, suggesting the new model has traction. With earnings forecast to grow 21% next year, I’d say it has acceleration too.


November 18, 2017

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Backdoor Beneficiary

Profiting from Tax Cuts

  • Proposed tax cuts would increase disposable income for the average $55k/yr U.S. household by 2%
  • U.S. consumer loan default rate still well below pre-crisis low for a 31st consecutive month
  • Strong credit trends and stimulative tax policy create a runway for sustained consumer spending

Amid all of the noise surrounding tax reform, one group of consumers clearly wins disproportionally: Households across middle America making less than $100k. They will likely receive the largest tax cut in percentage terms, capture the most benefit from increased child/standard deductions, and be least effected by the removal of State/Local deductibility. These are the bread and butter consumers of America. As tax reform puts more money in their pockets, they will spend their newly found disposable income, using credit cards to do so. Fortunately, we have a virtual consumer credit pure-play to capture this shift, an often over-looked finance company which dominates the market for branded credit cards. Amazon and Wal-Mart are customers, so are Gap and Dick’s Sporting Goods. Granted, sub-prime borrowers account for 29% of the account base, but delinquent loans are still near a record low 4.5% and tax cuts should fortify consumer balance sheets. If you believe as I do tax reform WILL PASS, consumption will rise and consumer credit will expand. This makes for a powerful combination, and potent driver of profit.


November 18, 2017

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7

As in Verizon and the NFL are close to a deal which would allow Verizon to stream NFL games to any device, expanding the current agreement which limited streaming to screens of 7 inches or less.
#FootballOnYourPhoneWasJustSilly

55,000

As in Walmart EVP David Cheesewright sells 55,000 shares (1/3 of his holdings) as the stock pops 13% to an all-time high on strong earnings powered by e-commerce.
#NiceTrade

78,500,000,000

As in the Medical Care Journal estimates opioid abuse has cost $78.5B to date, setting the stage for a massive potential settlement as Oxycotin maker Purdue Pharma LP approaches multiple state Attorneys General in hopes of avoiding litigation.
#CrisisOfOurOwnMaking

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“We’ve got a great set of brands and a great set of assets that we really like.”
–FOX CEO James Murdoch as Comcast, Disney and Verizon consider bidding for parts of the company
#PlayingHardToGet

“We can’t wait for people to experience HomePod, but we need a little more time before it’s ready.”
–Official statement after Apple postpones the pre-Christmas launch

#SiriTheGrinch

“As the labor market tightens and uncertainty falls, the relationship between slack and wages should begin reasserting itself.”
–ECB President Mario Draghi preparing policy makers to expect higher inflation in coming months

#WagePriceSpiral