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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Gift That Keeps Giving

Familiar MLP with 11% Yield
  • The largest U.S. MLP by cashflow currently trades at a 20% discount to peers and yields nearly 11%
  • Recent oil spills and low energy prices have cast a short-term cloud over valuation
  • Management sets specific goals for lower leverage during the most recent earnings call
  • Cash flow on target to grow by low double digits as new projects come online in coming quarters market

Early in my career, I clerked for a legendary money manager who generated 20-30% annual returns over several decades by adhering to a simple strategy: Chose 75 companies and know everything about them… Determine levels where they should be bought and sold… Trade them back and forth, year after year. Mr. S. had encyclopedic knowledge and could recite fundamentals by heart. I once complimented him on the cigars he lit every day at 3pm. He reached into his credenza and produced an invoice from the 1970s. “Pre-Castro cubans, please take one and enjoy it.” When you’ve followed a company for a long time and know it intimately, you have a certain level of comfort stepping in as a buyer, even as others head for the exit. This is how value investors think, and the scenario is playing out right now at one of my favorite master limited partnerships. We owned it through March at much higher prices, and sold it quite favorably. The company has since completed two mergers and its stock has declined by a third, which creates considerable value given an 11% yield. Borrowing a page from The Master’s playbook, I think it’s time to get back in.

July 15, 2017

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Right Under My Nose

Electric Vehicle Surprise
  • California drivers account for approximately one-sixth of all zero emission vehicles (ZEV) globally
  • The state leads the nation in ZEV ownerships and has mandated 1.5 million registered ZEVs by 2025
  • Utility regulators have already approved rate increases needed to fund new capacity and plug-in stations
  • Electrical demand for plug-in vehicles could generate $600M annually in new revenue for CA utilities

Hedge fund analysts LOVE spotting something no one else has seen, then creating a cash flow model in Excel and convincing the boss to make it a top portfolio holding… with an edge like this, how could we go wrong! Over several months I’ve been looking for ways to leverage the transformational shift to battery powered Electric Vehicles (EV). Thus far I’ve written up three lithium miners (AAL CN, LAC CN, LIX CN)… an evolving Ford Motor Co. (F) under a new tech-minded CEO… an electrical systems supplier spinning out its legacy powertrains business (DLPH), and an auto-focused semiconductor manufacturer which has already been acquired (NXPI). I think I’ve found another opportunity, and this one is right under our noses. It’s the third largest utility in the country, and because it serves customers in California, it operates at the epicenter of the EV movement. Regulators have already approved rate increases tied to capital expenditures required to install new charging centers, and increased power demand from all-new customers will accelerate earnings growth. I’ve never before thought utilities were particularly compelling, but I may have spotted something new.

July 15, 2017

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Janet & Jamie

Positioning for Higher Rates
  • Fed Chair Yellen suggests an upward path for U.S. interest rates which is both gradual and consistent
  • During testimony on Capitol Hill Chair Yellen noted the Fed Funds rate is still well below “neutral”
  • J.P. Morgan CEO Jamie Dimon warns the unwinding of Fed assets will create unprecedented dislocation
  • Bond yields have likely bottomed and will progressively rise as the Fed normalizes policy

Early in my time at Bloomberg Television I was sent to ESPN in Bristol, CT for immersive interview training with legendary anchoring coach John Sawatsky. Since I was hired off a trading desk as an expert on markets, I knew absolutely nothing about how to interview others on TV. Mr. Sawatsky drilled me for 14 hours, and what I remember most was how the simplest questions elicited the best responses… What happened? Why’d that work? How’d it make you feel? The lesson has certainly served me well in television and business… dinner parties too. So today I am putting my media training to good use. I weave together this week’s comments about higher rates from Fed Chair Janet Yellen and JPM CEO Jamie Dimon, as though I actually interviewed them on Bloomberg. Their words are taken verbatim, and my “questions” are inserted intermittently to foster a narrative. In this context a very clear picture emerges. I believe rates will trend higher than markets currently surmise, and I offer a specific strategy for shorting Treasuries. I had fun writing this, but my conclusions are quite genuine. Enjoy.

July 15, 2017

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6.5

As in Factset estimates earnings growth of 6.5% for 2Q, half of which derives from the energy sector where YoY comps are especially strong.
#We’llTakeIt

20.8

As in Wall Street professionals believe Janet Yellen’s chances of serving a second term as Fed Chair are just 20.8%, according to a new WSJ survey.
#ToughCrowd

69,000,000,000

As in Uber’s most recent financing round valued the company at $69B, but now several early backers are in talks with Softbank to sell shares.
#RingTheBell

img-1

“Given what we are discovering about the costs of Brexit, how can it be right to deliberately take off the table the option of compromise?”
–Former UK PM Tony Blair questioning whether to move forward on Brexit
#ThePeopleHaveAlreadySpoken

“The U.S. has to start to focus on policy which is good for all Americans and that is regulation, tax, education. We have to get those things done.”
–Jamie Dimon during J.P. Morgan’s 2Q earnings call

#Yes!

“Congratulations Garbine, amazing. I know how hard you work and I’m sure this means so much to you and your family. Well one today. Beautiful.”
–Venus Williams congratulating Garbine Muguruza after losing 2-0 in the Wimbledon finals.

#ClassAct