Bullseye Brief presents three thematic, actionable investment ideas every other week. My goal is to help identify opportunities most worthy of your time. I analyze data, distill complexity and share insights from a deep network of experts. In the process I read vast amounts of information, and while the journey sometimes presents more questions than answers, I do my best to pluck kernels of truth which reap bushels over time. I love what I do and invite you to join me.

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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Here Comes the Sun

Buying Banks… Thoughtfully

  • Large bank stocks rise 15% after elections but still trade 25% below pre-crisis levels
  • S&P 1500 Banks have larger capital buffers and less leverage today compared to 2006
  • U.S. banking sector capitalization has risen only 12% in ten years versus asset growth of 44%
  • Record low home ownership implies banks have ample room to increase loan portfolios

U.S. banks have finally found the warmth of day. After a ten year hibernation during which only telecom produced worse returns for investors, the S&P Financial Sector ETF (XLF) has risen 15% since Nov. 8th. Credit the two most powerful people in the world: President-elect Trump, who promises regulatory rollback and fiscal stimulation, and Fed Chair Yellen, who’s raising rates after eight years of near zero percent government-enabled lending. It’s a one-two punch, where fiscal and monetary policy are finally aligned behind a mantle of what I call Back to Normal… no more let’s punish all the bankers, no more let’s punish all the savers. While details about specific policies are few, and there’s no playbook for unwinding the Fed’s trillion dollar balance sheet, a surprisingly unified Washington is bringing hope back to the banks via policies aimed at loan growth and profitability. I admit it’s not exactly Reagan’s Morning in America, but I think I spot the sun.

November 25, 2016

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American Steel: A Dickensian Tale

One Producer’s Disconnect from Reality

  • Record U.S. steel demand across auto and construction segments fails to ignite product price rally
  • 24% pricing declines since June have resulted in lowered guidance by producers
  • U.S. steel stocks have rallied 45-60% in the two weeks since elections anticipating a turnaround
  • President-elect Trump’s $1T ten-year infrastructure program may face funding hurdles in Congress

“It was the best of times, it was the worst of times… the spring of hope… the winter of despair.” Touring cities across the country you would think U.S. steel manufacturers are minting money as never before. Record construction spending, coupled with last year’s $305B highway funding law –and now the promise of another trillion in Federal infrastructure spending– should stuff their coffers to the hilt. If only it were so. Nucor Corporation (NUE) will earn just one-third of what it made in 2008, and United States Steel Corp. (X) will lose money again this year. The problem is oversupply, and therefore price stability. As much steel as producers are producing, they can still make more… and Asia can do it for less! But don’t tell investors. They’ve pushed steel stocks 50% higher in two weeks on unwavering belief Mr. Trump’s plan can rebalance the industry. Never mind funding, or Congressional approval. Again, if only it were so. Time to short steel.

November 25, 2016

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Tea Time

What’s a Fallen Angel Worth?

  • 251 Food/Beverage acquisitions worth $239B have transacted in the U.S. since 2013
  • Median deal premiums have averaged 61% above pre-announcement stock price
  • One $4.1B natural foods producer seeing new interest from activist investors
  • Options offer attractive risk-reward to position for potential takeover

Monday afternoon the CEO of a $4.1B consumer brand juggernaut stopped me dead in my tracks. He was strolling casually up Madison Avenue, smiling into his cellphone as I sprinted to a meeting. I recognized him immediately, and I stopped at once. In August his stock cratered 33% the day he announced accounting irregularities and suspended filing the annual report. By September the lawsuits began. Shouldn’t he be in pinstripes at his desk I wondered, not in jeans on the street… especially at 3pm on a Monday? Turns out, that was probably the exact moment he learned the Audit Committee would announce three days later was clear of wrongdoing. It was also the day 13F filings revealed an activist investor had bought a large block of stock. Activists buy with a plan, and either he’s out with a golden parachute or they’re orchestrating a bid. One way or another, this stock is in play. No wonder he’s smiling.

November 25, 2016

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As in Mexico will book a gain of $2.9B on its oil hedges for 2016. The state oil company spent about a billion on puts struck at $49 in order to hedge production, and given the move in February down to $26/bbl, the bet paid-off.


As in Bank of America may be forced to pay time-and-a-half to customer service agents working more than 40 hours per week, pending a class-action lawsuit filed in Illinois. If you’re paid an hourly rate, exemptions for “professionals” under the Fair Labor Standards Acts may not apply, and the bank may have to pay up.


As in pension obligations of companies in the S&P 500 Index are only funded at 78.5%, according to Morgan Stanley. Higher rates should help narrow the funding gap, but this will take time. Expect CFOs to begin addressing this on upcoming earnings calls as “one of the pluses” behind higher rates.


“I’ve been doing this for 40 years, and I’ve never seen a Friday morning this quiet.”
–Retail analyst Marshal Cohen of NPD Group commenting on Black Friday. e-Commerce now accounts for nearly 10% of retail sales, which is why Macy’s, Target and Sears are closing over 200 stores in coming months.


“There’s a big rotation now into reflationary hedges. TIPS can run much farther.”
–PIMCO CIO Mark Kiesel.


“The Brady Bunch represents what people always wanted: a loving family. It’s such a gentle, innocent, sweet show and I guess it proves there’s always an audience for that.”
–Florence Henderson, loved actress and Brady Bruch matriarch during a 1999 interview. She died this week at 82. Thanks for all the great lessons Mrs. B, always lovingly delivered.