Bullseye Brief for January 8, 2023


Week of January 8, 2024

Bullseye Brief explores American Ingenuity… the People, Companies and Technologies transforming our world. When I find a stock with a great story, supported by compelling data and a timely catalyst, I write a report and add it to the Bullseye Portfolio. I love what I do. -AJ 917.710.8347


Executive Summary

Special Issue: 44 Picks… 44 Paragraphs

In this special quarterly report I present one paragraph per pick, highlighting why I’m long and what I expect.

Actionable Trades

Buy – MRVL, VC
Sell – EVR

Picks Making News


Also in this Issue

Catalysts Next Week
Portfolio Performance
Trader Talk: Earnings Growth
Bullseye View on Stocks, Bonds, Oil, Gold, Dollar


Bullseye View

S&P 500 Index 4,686 -1.74% YTD

Pause that Refreshes – Stocks pullback slightly in the first week of 2024 after last year’s 24% rally, which was punctuated my the best year-end rally in a decade. Fine. Earnings and GDP are rising faster than expected. Inflation is coming down and the Fed is poised to cut rates. I am comfortable adding to positions on weakness.


10-yr Treasury 4.05% (vs. 3.72% 1-yr ago)

Potato Po-TA-to – Rates rise above 4% for the first time in a month as traders ratchet back rate cut assumptions. Fed fund futures now predict two cuts by July with 95% certainty, compared to three cuts by June with 100% several weeks ago. Whatever. Inflation is coming down and rate cuts will happen. It’s just a question of timing.


Dollar Index (DXY) 102.68 -2.51% (1-yr chg)

Like Clockwork – USD rallies with rates, since higher rates of return provide more incentive for non-US investors to hold dollar-denominated assets. USD fell 5% in Q4 on rate-cut expectations, but as the world’s reserve currency, it never falls too far. Reassuring to see the Laws of Nature remain in effect.


Gold $2,051/oz. +11.55 (1-yr chg)

Dead Money? – Gold has finally rallied above $2,000. But will it stall here for a fourth time in five years? We’ve had a US debt downgrade, 50-year inflation highs, runaway deficits, border chaos and revolt on Capitol Hill… and yet gold can’t seem to breakout. I treat gold as a range trade. Buy gold in the $1,600s and sell it in the $2,000s.


Oil $73.64/bbl +0.14% (1-yr chg)

Crude Reality – Oil bounces slightly from a 6-month low, but the world remains well supplied. The US is producing the most ever, and exports continue to flow from Iran, Russia and now Venezuela. OPEC cutbacks have had little impact. Generally speaking, you buy oil under $65 and sell oil over $90. Otherwise, do nothing.


Actionable Trades


Marvell Technology Inc. (MRVL) – I will add under $50.
Visteon Corp. (VC) – I will add below $120.


Evercore Inc. (EVR) – Above my $165 target so I am closing the position.

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Picks Making News

Boston Properties Inc. (BXP) – Receives its first upgrade in months, as Jefferies says negativity around commercial real estate has gone too far. Thank you! BXP has been trading at a 10-year valuation low of less than 9 times Funds From Operations (FFO) and the shares yield 5.7%.

Expedia Group Inc. (EXPE) – Rises to an 18-month high as several sell-side analysts raise earnings and targets on higher than expected travel volumes and a “no recession” scenario for 2024.

Microsoft Corp. (MSFT) – New Microsoft PC keyboards will include a new key that activates an AI-driven function called Co-Pilot. While details are vague, Microsoft suggests activating Co-Pilot will enhance functionality, from auto-completing sentences to embedding links on relevant topics.

Salesforce Inc. (CRM) – IDC predicts the customer relationship management software market will double by 2027 to $130B, which is positive for leading provider CRM and may accelerate its forecasted revenue growth above the current 11% annual rate.

Wynn Resorts Ltd. (WYNN) – Rises the most in six months as Macau gaming revenues rise 334% YoY.

Bullseye Performance

Open Positions

Dividends paid and option premium written reduce basis when applicable.
Access all reports on the Past Issues tab, or search by ticker using the magnifying glass icon upper right.

Closed Positions in 2023


Catalysts Next Week


  • On This Day – In 1812, General Andrew Jackson defeats the British at New Orleans to end the War of 1812.
  • Conferences – 42nd Annual JPMorgan Health Care Conference (4 days)
  • Earnings – None


  • Steady Eddy – NFIB Small Biz Optimism expected 90.8 vs. 90.6 the previous month.
  • Conferences – Consumer Electronics Show
  • Earnings – None


  • Blame Rates – Weekly Mortgage Applications expected -5.0% vs. -10.7% the previous month.
  • Conferences – None
  • Earnings – None


  • Inflation #1 – CPI MoM expected +0.2% vs. +0.1% the previous month.
  • Inflation #2 – CPI MoM expected +0.2% vs. +0.3% the previous month, ex Food and Energy.
  • Inflation #3 – CPI YoY expected +3.2% vs. +3.1% the previous month.
  • Inflation #4 – CPI YoY expected +3.8% vs. +4.0% the previous month, ex Food and Energy.
  • Conferences – None
  • Earnings – None


  • Inflation #5 – PPI MoM expected +0.1% vs. +0.0% the previous month.
  • Inflation #6 – PPI MoM expected +0.2% vs. +0.0% the previous month, ex Food and Energy.
  • Inflation #7 – PPI YoY expected +1.3% vs. +0.9% the previous month.
  • Inflation #8 – PPI YoY expected +1.9% vs. +2.0% the previous month, ex Food and Energy.
  • Conferences – None
  • Earnings – BAC, BLK, C, DAL, JPM, UNH, WFC


Trader Talk

Single Best Chart – Corporate America is back to making money, and that’s good for stock investors. After back-to-back quarterly earnings declines last year, S&P 500 companies are expected to post robust growth in 2024. Credit goes to strong employment, resilient GDP, steady to lower interest rates and supply chain normalization.


Enjoying the View?
S&P 500 Earnings (YoY)


Special Issue: 44 Picks… 44 Paragraphs

In this special quarterly report I present one paragraph per pick, highlighting why I’m long and what I expect.

Looking To 2024 (Q1)
One Paragraph Per Pick

  • Our portfolio of 44 stocks spans six dynamic investment themes offering long-term growth potential
  • Stocks have rebounded on expectations of rate cuts and a soft-landing but many remain below 2021 highs
  • American Ingenuity prioritizes best-in-breed, high-quality companies poised to lead the new bull market

Focus – Bullseye enters 2024 with a balanced perspective, having posted strong gains in 2023 but declines the year before. I am optimistic looking forward, primarily due to the resilience of earnings and employment, coupled with falling inflation and lower expected interest rates. That said, election-year uncertainty and geo-political instability could create some volatile moments in coming months. Such is the world. Our Bullseye American Ingenuity Portfolio leverages powerful themes that transcend mere headlines. Artificial Intelligence creates an entirely new ecosystem, where Computing Power becomes increasingly important and Core Ingenuity increasingly dominant. Digitization and Logistics reflect changing consumer patterns. Clean Energy faces challenges, but there will still be winners and I think we own a few. Transformative Health is always relevant, as is the evolving process of Normalization. We are balanced and well-positioned as 2024 begins.

American Ingenuity Portfolio
Stocks Grouped Thematically


Clean Energy & Logistics (10)


Aptiv (APTV)
Current $85 / Target $190

Opportunistic purchase of world #1 wiring harnesses manufacturer for electric, autonomous and smart ICE vehicles.

Aptiv leads the world in the manufacturing of wiring harnesses for electric, hybrid electric and advanced gasoline  powered vehicles. The company’s unique platform integrates all components of the on-board electrical system, from sensors and semiconductors to the actual wiring itself… like a secondary chassis sitting atop the structural chassis. Chrysler/Dodge, Ford, GM and Volkswagen each account for roughly 10% of Aptiv revenues, and nearly every major automaker in the world relies on Aptiv for at least a portion of its onboard wiring systems. Tesla is the company’s fifth largest customer at 5% of sales. Revenue will likely rise 10-15% this year, driving earnings growth of 25-35%. Shares attractive at 14x 2023 estimates. https://bullseyebrief.com/part-computer-part-car-aptv-issue-208-9-12-22/

Darling Ingredients (DAR)
Current $48 / Target $95

Largest producer of renewable diesel and processor of animal by-products leverages global ESG pivot.

World’s largest publicly traded company producing renewable diesel and processing animal byproducts into both food and fuel. Founded in 1882, Darling processes one out of every seven animals in the world using its network of 270 factories in 22 countries. Non-edible animal parts are rendered into collagen for beauty products, proteins for animal feed, oils for food preparation and feedstocks for renewable fuels. Darling processes two-thirds of N. America’s waste fats and ranks as Europe’s third largest green energy producer. CEO Randall Stuewe anticipates raising guidance again. I think Darling represents a unique opportunity to leverage the global pivot to cleaner fuel and more efficient food production at an attractive P/E of just 10x. https://bullseyebrief.com/green-machine-dar-issue-226-2-6-23/

GXO Logistics, Inc. (GXO)
Current $58 / Target $155

World’s largest contract logistics provider leverages the convergence of Automation, e-Commerce and Outsourcing.

GXO is world’s largest pure-play contract logistics provider, ideally positioned to capitalize on the three mega-trends of Automation, e-Commerce and Outsourcing. With 120k employees in 900 locations, GXO serves thousands of blue-chip clients across nearly every business vertical by managing their inventory, distribution, and even returns… from spare parts at Boeing to extra shoes at Nike. If scale and expertise are the company’s defining attributes, consistency and profitability are its hallmarks. GXO has beaten earnings estimates each quarter since being spun off from XPO Inc. in 2021, by an average of 17%. Guidance is equally compelling. Managment has articulated a pathway to 8-12% topline growth annually through 2027, implying earnings growth of 20-30% YoY and a forward multiple in the high teens. There are very few companies which rank #1 in their field, leverage game-changing mega-trends, provide investors several years of clarity AND trade even with the S&P 500 Index. https://bullseyebrief.com/revolutionizing-supply-chains-gxo-issue-254-9-25-23/

Joby Aviation, Inc. (JOBY)
Current $7 / Target $50

Most advanced, electric-powered heli-taxi creates attractive call option on the future of mobility… Uber of the Skies.

Joby will quickly become the Uber of the Skies, as builder and operator of the world’s most advanced, electric-powered heli-taxis poised to transform short-haul travel. Joby grew out of the $6.5B SPAC created by LinkedIn Co-founder Reed Hoffman and Zynga Founder Mark Pincus. It is the world’s first Electric Vertical Takeoff and Landing (eVTOL) manufacturer to receive FAA certification and US Air Force airworthiness. It’s also the first company to deliver a working eVTOL to the Air Force for actual mission testing. Joby aims to launch commercial service by 2024/5, operating short-haul flights priced similarly to UberX and with the energy efficiency of a Tesla… while cutting travel time by 75% for the typical 25 mile trip. Joby will build and operate its own fleet, initially ferrying travelers between airports and large urban centers like Los Angeles and New York. Management guidance of $2B in revenue by 2025/6 pegs valuation at 1.3x EV/Sales. This is cheap compared to 3.5x for other transformative companies at similarly early stages of their evolution (First Solar, Square, Tesla, Uber). Notably, these companies have traded as high as 11x on average. Toyota, Delta and Intel are all equity partners, collectively owning over 20% of the company. To quote lead investor Reed Hoffman, “My ideal investing is stuff that looks crazy now and in 3-5 years is obvious.” https://bullseyebrief.com/uber-in-the-sky-rtp-issue-137-3-8-21/

MP Materials Corp. (MP)
Current $20 / Target $67

World’s lowest cost producer and only US miner of rare earth minerals for electro-magnets leverages EV adoption.

MP Materials is the world’s lowest cost producer and only US miner of rare earth minerals for electro-magnets and next-generation battery components. These evolving technologies simultaneously increase total output while extending battery life… they also make GE wind turbines more efficient, Tomahawk missiles more accurate and Union Pacific locomotives more powerful. Mineral deposits at the company’s California mine account for 15% the world’s known rare earths reserves and have six times the mineral content of other mines. It’s a strategic asset and a guaranteed source of domestic supply, freeing the US of Chinese dependance. As an environmentally sensitive producer, MP Minerals returns 95% of its tailings to the ground and very little offsite water is used in the mining process. A major capex campaign has entered its third and final phase, resulting in the company being able to mine and refine minerals, as well as produce finished electro-magnets. MP Minerals will be the world’s first and only fully integrated supplier of electro-magnets… and the world’s lowest cost producer. https://bullseyebrief.com/minerals-and-magnets-mp-issue-224-1-23-23/

Prologis, Inc. (PLD)
Current $128 / Target $157

World #1 industrial REIT for high-quality logistics facilities in prime locations at historically low valuation.

Prologis builds and owns the world’s largest network of industrial warehouses adjacent to major city-centers, serving over 6,600 customers across four continents with 1.2 billion square feet… roughly equal to 20,000 football fields. Structured as a REIT, Prologis collects rent from tenants and passes through the majority of net income in the form of dividends, which currently yield 3.4%. Occupancy remains near 97% and lease renewals reflect average price increase of 8%, suggesting Prologis clients see no imminent threat of recession. By contrast, investors have sold shares down to historically low levels. PLD trades at 23 times funds from operation (FFO), compared to an all-time low of 17x and a 10-year average of 25x. While commercial office space faces headwinds due to changing work habits, warehousing demand remains strong, reflecting the tectonic shift to e-commerce and outsourced logistics. Prologis is best-in-breed, cheap, and levered to creating value across the global economy. https://bullseyebrief.com/location-location-location-pld-issue-261-11-20-23/

Symbotic, Inc. (SYM)
Current $44 / Target $75

Robotic warehouse-of-the-future transforms logistics with first-mover advantage and Walmart as a partner.

Symbotic transforms the traditional labor-intensive warehousing business into an automated ballet of AI-powered robots. Because human hands are virtually eliminated from the handling process, customers report efficiency gains of 5-9 times and accuracy rates of 99.99 percent, accompanied by annual cost savings of $10 million per warehouse. Walmart owns 26% of the company and is Symbotic’s largest customer, followed by world #1 wholesale grocer C&S Grocery and world #3 retail supermarket Albertsons. The company has a backlog of $11B projects, which represent five years of development at current rates, though management is quickly scaling its ability to serve these client. Guidance implies top line growth of 50% annually over the next three years, which will result in earnings by 2025 and an implied P/E of 80x 2025 estimates, so it’s no longer cheap… we bought it for $10 less than a year ago. I think some of the price momentum mid-summer reflected a belief that SYM is an artificial intelligence play. It is to an extent, but SYM is attractive as the leading automation solution for large-scale logistics operators. I sold half my position at around the initial $35 target, and remain long with a $75 target on the next tranche. https://bullseyebrief.com/warehouses-of-the-future-sym-issue-218-12-12-22/

Sunnova Energy International, Inc. (NOVA)
Current $14 / Target $66

Leading solar provider with largest installer network leverages the transformative shift to Residential Solarfication.

Sunnova ranks as the nation’s third largest installer/servicer and network operator of residential solar systems, but number one in terms of profitability… no other company comes close to matching its industry-high gross margins of 50%. Sunnova’s regional network of dealers provides flexibility and lower operating costs, while its sophisticated use of tax credits and customer contract securitization generate significant operating leverage. Trading less than two times sales, I think shares could rise significantly. Near-term, emerging sources of poly silicon outside of China will lower input prices. Longer-term, the pivot to residential Solarfication could drive NOVA many turns higher… fewer than 2% of US households rely on self-sufficient solar systems. Management raised guidance several quarters in a row, citing accelerating new customer growth of 150-175k per year, compared to 87k in 2022. Although Sunnova loses money, revenues are growing 35% per year and shares recently traded at their cheapest valuation ever, reflecting the burden of higher rates on businesses which require upfront capital expenditures. As inflation recedes and rates decline, Sunnova should benefit. https://bullseyebrief.com/solar-inflection-point-nova-issue-143-4-19-21/

Uber Technologies, Inc. (UBER)
Current $58 / Target $80

Global leader in shared mobility poised to double revenue and achieve profitability by 2023 as new businesses scale.

Uber operates the world’s largest ride-hailing and food delivery business. There are five things you need to know about Uber… and five reasons why I own it: 1. Scale – Uber is the largest ride-sharing and food delivery business in the world (35-38% share in 63 countries 2. Growth – Uber is the fastest growing large cap Services & Sharing Economy provider (51% vs 30%) 3. Expansion – Uber is leveraging its technology to rapidly develop new businesses (groceries, liquor, freight) 4. Profitability – Uber will be EPS positive all four quarters this year for the first time ever 5. Valuation – Uber trades at a reasonable valuation (2.7 times 2024 estimated sales vs. 2.6x for the S&P 500 but with 10x the growth). Passengers now account for less than half of Uber’s revenue, which I see as a huge positive because there’s no limit to what Uber can carry. Uber trades just below its all-time high in 2021… 2024 breakout candidate? Yes, I think so. https://bullseyebrief.com/reinventing-ridesharing-uber-issue-175-12-13-21/

United Rentals Inc.
Price $550 / Target $650

#1 US equipment rental agency reiterates 20% growth yet trades at historically low valuation on recession concern.

URI is N. America’s largest renter of specialty industrial equipment, with 17% share of this $65B annual market. The company’s fleet of 990k machines at 1,465 locations provides unparalleled opportunity to serve clients in nearly every industry, from construction and infrastructure to energy and manufacturing. URI has posted consistent 25% eps growth and annual revenues hit a record $14.3B in 2023 (up 22% YoY). Management has reiterated a strong outlook for 2024, amid solid GDP growth and an attractive secondary market in which to sell its used equipment…. lower rates will also help financing costs. Like so many cyclical stocks, shares had been punished by recession concerns but are re-inflating. United Rentals is a best in breed operator trading at a below-market multiple despite double-digit growth, with a stellar balance sheet and proven C-suite. As recession fears ebb, I believe URI will continue rising to new highs. https://bullseyebrief.com/take-the-long-view-uri-issue-238-5-15-23/

Computing Power (7)


Axcelis Technologies, Inc. (ACLS)
Current $125 / Target $200

Global #1 supplier of ion implantation equipment essential to semiconductor production leverages current up-cycle.

Axcelis ranks #1 globally at producing equipment which implants silicon wafers with ions, thereby creating the circuits that make computing possible. It’s a billion dollar annual market, and Axcelis has 50% share. The company has raised guidance three times in the past year, and management continues to convey optimism about additional upside. Shares traded through my initial target and I sold half. I am holding the balance with an amended $200 target, about 25x 2024 estimates that imply 20% growth YoY. This is consistent with the stock’s historic multiple. The company’s dominant share, critical relevance to production and rising revenues show no sign of slowing… especially since chip content across industries continues to accelerate at a non-liner rate. Could I raise my target again? Maybe. https://bullseyebrief.com/more-power-please-acls-issue-150-6-7-21/

Dycom Inc. (DY)
Current $112 / Target$145

Leverages rising demand for 5G services and cloud-deployed A.I. by enabling high-speed bandwidth at scale.

Dycom operates as one of the country’s largest specialty contract services providers to the telecommunications infrastructure and utility industries. Active in 49 of 50 states, Dycom designs, installs and maintains arial and buried fiber optic cable systems, copper and coaxial communications networks, cellular towers and base stations, and large-scale electricity generating plants. Demand for Dycom’s specialized products and services is surging, as telecom operators race to upgrade systems for 5G connectivity, cloud computing and now artificial intelligence. Earnings are rising 20-40% annually, but like many companies in the Russell 2000 Small Cap Index, shares trade at less than 15 times earnings due to deflating impact of higher rates. Fine, rate hikes are nearly done and the telecom capex cycle is just beginning. I am happy to own high growth at low valuation, especially in an industry tied to the buildout of artificial intelligence. https://bullseyebrief.com/oversold-but-in-demand-dy-issue-258-10-23-23/

Marvell Technologies, Inc. (MRVL)
Current $56 / Target $92

Marvell advances A.I. by helping companies manage and manipulate vast data sets faster and more reliably.

Marvell delivers semiconductor solutions that move, store, process and secure the world’s data faster and more reliably than competitors. The company’s carrier infrastructure tools link its data centers to large enterprises via 5G, uniting computing speed with cloud flexibility and network scale. As Artificial Intelligence permeates virtually every business, Marvell will increasingly become part of the backbone that enables high-powered computing and real-time analysis. Shares are notoriously volatile, surging on higher earnings guidance and retreating on cyclical tech-sector capex. The stock appears to be troughing near long-term support and I want to begin building a position in anticipation of the next upturn. With AI increasingly essential to business success, and Marvell already integral to AI infrastructure, I expect shares will rally in 2024. https://bullseyebrief.com/leveraging-artificial-intelligence-mrvl-issue-263-mrvl/

Nvidia Corp. (NVDA)
Current $475 / Target $600

Manufacturer of world’s fastest processors leverages mega-trends of AI, EVs, crypto, gaming and the metaverse.

Nvidia is the dominant leader in the design of ultra-high performance semiconductors. It has also become the go-to way to invest in Artificial Intelligence, as designer of the fastest chips in the world. Nvidia’s newest processors are capable of 60 trillion calculations per second, 2x faster than the previous generation and 20x faster than the competition (ResearchGate). If you’ve ever wondered why computer games look so shockingly realistic, where hundreds of 3D images shift simultaneously in realtime, then you’ve experienced Nvidia’s chips in action. Nvidia’s chips have also become essential to the complexity behind cryptocurrency mining, autonomous vehicle operation and augmented reality. Like much of the technology sector, shares fell significantly las year but are on their way back. Revenues are forecast to continue growing 50-60% this year, which makes the stock look cheap at 24 times earnings. The company’s patent-protected chip designs will generate significant earnings growth over the next several years. https://bullseyebrief.com/tech-down-too-much-nvda-issue-181-1-24-22/

NXP Semiconductor, Inc. (NXPI)
Current $210 / Target $300

World #1 automotive and #2 payments chipmaker leverages key themes at reasonable valuation.

NXP ranks #1 globally in the production of auto-related semiconductors, and #2 globally in the production of near-field communications chips. NXP is the sole provider of secure processors enabling ApplePay, and through established supply relationships with Alibaba, Qualcomm and Samsung, NXP appears likely to dominate burgeoning 5G technology as well… a business which IDC estimates will grow 150% annually through 2024. Critically, two-thirds of NXP’s 25k customers actively promote the chipmaker as a strategic partner, placing NXP in the 95th percentile of technology companies with the highest customer satisfaction (Gartner). Last year marked an all-time high for earnings, which analysts expect to decline 10% this year but rebound 10% next year… that’s the generic recession forecast embraced by the Street at the moment. At 14x earnings, shares are slightly below the historical average. I arrive at my $300 by anticipating that the economy avoids recession and NXPI earnings rise 10-20% this year and next. Applying a slightly higher multiple of 16x to 2024 eps of $19 (peers historically trade over 20 times earnings), I arrive at $300. https://bullseyebrief.com/two-themes-one-stock-nxpi-issue-145-5-3-21/

Qualcomm, Inc. (QCOM)
Current $140 / Target $225

Global #1 holder of 5G patents leverages the #1 driver of efficiency and connectivity at attractive valuation.

Qualcomm is the dominant global innovator for 5G technology. The company holds roughly one-third of the world’s patents for advanced semiconductors, chipset designs and communication protocols which enable ultra-fast communication across high-frequency spectrum. Critically, Qualcomm outranks competitors 3-to-1 based on the impact of its patents, according to IEE (Institute of Electrical and Electronics Engineers). Qualcomm’s innovations are so essential that Apple, Ericsson, Huawei, LG Electronics, Samsung and ZTE all pay royalties to incorporate Qualcomm’s defining interoperability standards into their own 5G products. Catalysts abound, including new iPhones which provide global connectivity via satellite thanks to new chips from Qualcomm, accelerating driver-assist opportunities related to the recent Veoneer acquisition, rising handset marketshare from top 5 customer Huawei in China/India, and steady demand increases for Qualcomms RF chips that enable IoT applications like touch-to-pay. Shares trade at 14x forward earnings, well below the S&P 500 Index and its own historic valuation of 21x. Applying an 18x multiple to my 2025 estimate based on 20% annual growth, I arrive at $250. https://bullseyebrief.com/plugging-back-in-qcom-162-9-6-21/

Ultra Clean Technologies (UCTT)
Current $33 / Target $62

Key semiconductor equipment maker trades near record low valuation despite strong macro/micro outlook.

Ultra Clean is a mission-critical company with a differentiated product in a mission-critical sector: Semiconductor manufacturing equipment. The company is the industry’s leading supplier and servicer of highly-controlled, gas-filled chambers where pure silicon wafers can be flawlessly etched into precision semiconductors. The world’s two largest semi cap equipment makers (Applied Materials and Lam Research) are the company’s two largest clients, accounting for 63% of revenues. Other important customers include ASML, Intel and Taiwan Semi. Without Ultra Clean’s vacuum equipment and on-going service agreements, the semiconductor industry would come to a standstill. Revenues and earnings for the entire semi cap equipment sector have come down double-digits, reflecting an industry that completed an up-cycle for new builds in 2022. Reshoring away from China should ignite a new up-cycle in 2024, with many countries scrambling to add capacity. I see growth over the next two years powering a potential doubling in the stock as estimates and multiples reflate. UCTT trades at just 9x 2025 estimates, that’s how much estimates have been slashed… likely a cyclical low. https://bullseyebrief.com/ride-the-rebound-uctt-issue-2017-8-22-22/

Core Ingenuity (6)


Amazon.com, Inc. (AMZN)
Current $145 / Target $215

The seller of everything and dominant online infrastructure operator is too cheap and too essential to ignore.

Amazon excels at nearly every business it enters. The company’s core e-commerce unit is on the cusp of selling more merchandise online than Walmart sells across its entire platform, and its web services division (AWS) commands a market-leading 33% of all cloud infrastructure globally. Though a return to in-person shopping post-Covid knocked earnings down 69%, earnings will recover half the ground as thanks to Amazon Web Services, which doubles every 18-24 months. Amazon shares fell 60% in 2002 and recovered about two-thirds of the loss in 2023. From here, I think shares can nearly double based on a sum-of-the-parts approach to valuation. Specifically, I accept an inline multiple of 13 times 2023 EV/EBITDA on the retail business (77% of revenues) and a premium multiple of 100 times EBITDA on AWS… which is doubling every 18-20 months. This seemingly high EV/EBITDA multiple is actually inline with other SaaS cloud providers. By adding together the two halves of Amazon’s business, I arrive at $215. https://bullseyebrief.com/is-amazon-a-buy-amzn-issue-202-7-18-22/

Facebook/Meta Platforms Inc. (META)
Current $300 / Target $525

Where two billion people connect… The gateway to the metaverse… And not our nanny.

Facebook is like a toll collector at the crossroads of the world, and the only place in the world where 2.2B people gather everyday. Near term, monetization of Instagram is job #1… adding One-Click-to-Pay and taking a percentage of sales for example. Have you noticed more targeted ads btw? That’s another important lever. Longer term, WhatsApp provides signifiant B2C engagement opportunities, especially in light of the recently announced partnership with Meta to provide/expand B2C engagement for businesses large and small. One year ago I would have called the metaverse a call option. Now I call it an increasingly irrelevant experiment and that’s fine. Mr. Zuckerberg learned his lesson and returned to prioritizing cashflow, driving shares into the $300s from $80. Meta has historically traded at 25 times earnings. Applying this multiple to my 2025 estimate (20% annual eps growth) yields a target of $525. https://bullseyebrief.com/the-big-six-aapl-amzn-fb-googl-msft-nvda-issue-167-10-11-21/

Google/Alphabet Inc. (GOOGL)
Current $140 / $210

Buying one of the world’s Biggest/Best companies down 25% at 20 times earnings with 18% growth… keep it simple.

Alphabet/Google Inc. completely dominates the digital landscape, ranking #1 globally in Search and Advertising with 92% and 28% marketshare respectively. No other company touches more people every day than Google, and despite its size, profits rise double-digits year after year. In the pantheon of World’s Best Companies, Google stands apart. Incredibly, the stock has fallen 40% from its high and now trades at just 20 times earnings, compared to 29 times over the past decade. I think the world’s third largest and second fastest growing mega-cap deserves a premium valuation. It’s also an excellent business I want to own. Expanding connectivity and perpetual population growth provide ample runway for Google revenues to continue rising, while its ground-breaking Labs subsidiary creates optionality on new technologies like artificial intelligence, drone delivery and autonomous service vehicles. Google is high quality, highly profitable and highly attractive at current valuation. https://bullseyebrief.com/keep-it-simple-googl-issue-194-5-9-22/

Microsoft Corp. (MSFT)
Current $370 / Target $450

World’s 2nd largest tech company trading 40% off its high at lowest valuation in 5 years despite double-digit growth.

Microsoft is the world’s second largest company by market cap behind Apple. You may think of Microsoft as the operating system loaded onto your PC from the 90s, but today it’s so much more. Cloud-enabled software now accounts for about half of revenues, while legacy Windows installations on individual machines represent only about a tenth of the business. The company’s ground-breaking Azure product provides an entire ecosystem in the cloud, so large enterprises can run everything remotely. Microsoft’s portfolio also includes LinkedIn, Halo gaming and Bing search. Its partial ownership of ChatGPT creates an interesting call option on artificial intelligence. Microsoft guidance implies double-digit eps growth, well ahead of Gartner’s forecast for 5% IT capex increases this year. Against this positive backdrop, shares recently rebounded from their cheapest valuation in five years. Buying at that point was easy. Buying today is logical. https://bullseyebrief.com/big-but-unloved-msft-issue-216-11-14-22/

Palo Alto Software, Inc. (PANW)
Current $284 / Target $350

Best-in-Breed full-service cybersecurity platform offers steady upside in an increasingly must-own sector.

Palo Alto builds comprehensive, AI-enhanced security platforms to protect enterprise-wide networks for 85,000 customers globally. It’s the top-ranked, fastest growing and largest network security provider in the world, having recently eclipsed Cisco Networks by marketshare. Israeli-American engineer Nir Zuk (formerly of CheckPoint) founded the company in 2005 to enable interoperability of multiple applications within a secure environment, an important innovation for the industry and key reason why Palo Alto has grown so quickly. Rather than simply restricting access and siloing specific tasks, as had been the standard approach, Palo Alto distinguishes itself by creating protocols which enable secure connection between all trusted parties across unlimited operating applications. The company has beaten earnings estimates every quarter since going public in 2012 (by 10.7% on average), and 2024 could mark the eleventh consecutive year of 20-30% topline growth. Shares are not cheap at 45x forward earnings, but no other cybersecurity company matches Palo Alto’s growth at scale. My target of $350 reflects $7 in eps multiplied by a 50x P/E… my multiple may sound high, but I think my earnings estimate could prove low. https://bullseyebrief.com/protecting-the-perimeter-panw-issue-205-8-8-22/

Salesforce.com (CRM)
Current $250 / Target $325

Tactically buying the world’s first, largest and top-ranked customer relationship management software provider.

Salesforce is the world’s first and largest customer relationship management software provider, ranked #1 globally for the eighth consecutive year by IDC. The firm’s 24% market share is so dominant that it exceeds the next four closest competitors combined (Adobe, Microsoft, Oracle and SAP). Salesforce succeeds by giving its users a customizable and integrated platform that tracks every aspect of their clients’ experiences, ultimately improving service and driving sales. Salesforce says that 72% of customers using more than one of its apps report faster ROI, and 95% report improved efficiency and productivity as well. Revenue had risen 20-25% consistently, but slowed to 10% last year… leading to layoffs, a restructuring and the arrival of five activist funds. The strategy has worked. Growth appears back on track and Wall Street is reengaged with CEO/Founder Marc Benioff. Shares have doubled from the low. I arrive at my $325 price target by averaging calculated upside under four scenarios: Peer valuation, historic multiple, discounted cash flow, M&A precedent. https://bullseyebrief.com/know-your-customer-crm-issue-192-4-25-22/

Digitization (6)


Block Inc. (SQ)
Current $70 / Target $200

Top-tier B2C and C2C payments provider growing double digits offers significant runway for growth at low valuation.

Block Inc., formerly known as Square, operates two fast growing businesses: Payments processing for merchants (Seller) and money management for people (CashApp). You’ve probably seen Square’s little white device that turns an iPhone into a cash register, but it’s more than that… real-time sales data feeds inventory replenishment, payroll, etc. The consumer-facing side of the business is giving PayPal a run for its money, and there are significant synergies between the two operating units. The company recently reported results that nearly doubled the estimates, which speaks to how negative sentiment has gotten across the sector. Management sees Seller gross profits tracking +50% and CashApp gross profits tracking +20%. The stock was down 80% from its high, has regained some of its lost ground but still trades at just 1.7x sales, compared to an average of 7.5x over the past five years. Last year, short-seller Hindenburg Research asserted that as many as one third of the payments accounts were fraudulent and the platform had become a money transfer mechanism for drug dealers. The stock initially declined 20% but recovered. The analyst community debunked the report across the board. Large institutional investor have bought shares and management has followed up with several better than expected quarterly results. https://bullseyebrief.com/growth-meets-value-sq-issue-186-3-14-22/

Coinbase International Inc. (COIN)
Current $150 / Target $200

First and most comprehensive crypto platform becoming industry backbone as institutional adoption accelerates.

What a difference a year makes: from the SEC suing the company for failing to meet vague securities regulations, to lawmakers criticizing the SEC for a baseless lawsuit. With the stock now up 500% from the low, Coinbase has established itself as one of the top three global cryptocurrency platforms, providing fully-integrated trading and transfer as well as secure custody and wallet services. Coinbase has partnered with BlackRock, the world’s largest asset manager, to offer full prime brokerage and custody services for crypto to the firm’s largest institutional clients. The company was founded six years ago and has developed proprietary operating systems which would be extremely hard to replicate. In the same way that Amazon created AWS and now dominates internet transactions, Coinbase has created software and transactional protocols used by customers and competitors alike. The company’s profitability fluctuates with the value of bitcoin, since commissions are calculated as a percentage of gross dollar volume. Any increase in bitcoin is therefore a positive. Additionally, custody services will increasingly provide bank-like earnings visibility, and the company is working with regulators to insure integrity of the overall ecosystem. Again, a positive. The company has $5B of cash on the balance sheet. My target of $200 reflects a scenario, where bitcoin averages $40-50k over a 12 month period and annual revenues re-inflate to $7B from $3B. https://bullseyebrief.com/crypto-cornerstonecoin-issue-149-may-25-2021/

Expedia Inc. (EXPE)
Current $145 / Target $265

Top US travel aggregator pummeled by market selloff despite strong earnings/guidance presents tactical opportunity.

Expedia is the largest US online travel agency/aggregator, generating over $125B in annual bookings through fourteen platforms which include Hotels.com, Orbitz, VRBO and namesake Expedia among others. Revenue is on track hit another new all-time high this year, as consumers appear eager to spend record amounts on travel and leisure. Critically, average daily room rates at US hotels are 10% higher than before Covid, and air traffic risen to all-time highs. While Expedia’s promotional spending has been higher than in years past, trends are normalizing and management has joined Delta Air Lines in raising guidance twice in six months. At just 12 times earnings, Expedia trades cheaper than the S&P 500 Index, despite 40% eps growth. Expedia represents a compelling opportunity, especially as investors realize recession is unlikely and the AI rally broadens out. https://bullseyebrief.com/irrational-opportunity-expe-issue-198-6-6-22/

SoFi Technologies, Inc. (SOFI)
Current $8 / Target $25

Best managed neo-bank targeting Millennials and GenX borrowers with strong credit and rising financial needs.

SoFi provides a complete suite of financial services on a single app, including cash management, checking, savings, trading, credit cards, loans, loan refinancing and investment advice. SoFi’s 2.5M customers are predominantly Millennials and GenXers with strong credit, who consider themselves digitally native and seek complete control of their finances from a trusted mobile device. Critically, these aspirational consumers rely on SoFi for multiple products, creating a powerful flywheel effect which drives margin expansion and topline growth. Sofi also operates a third-party payments and processing platform called Galileo, licensing its software to other online banks in much the same way Amazon Web Services facilitates digital commerce for other retailers. Anticipated revenues of $2.5B this year represent 25% growth and enable full-year profitability for the first time in company history. Last year the company received its banks charter, which has dramatically lowered its funding costs by enabling deposits in lie of stock/bond offerings. Managment is highly pedigreed and appears to have the goodwill of Wall Street, a noted positive for a relatively new public company. CEO Anthony Noto buys significant amounts of stock in the open market nearly every month, and is now the company’s 17th largest shareholder. https://bullseyebrief.com/get-your-money-right-sofi-issue-168-10-18-21/

Unity Software, Inc. (U)
Current $40 / Target $100

Global #1 provider of 3D immersive gaming software leverages the mega-trend of metaverse digitization.

Unity ranks #1 globally as the only publicly traded pure-play platform enabling the creation and operation of interactive, real-time 3D content (RT3D). Over 70% of the world’s top 1,000 mobile games are made exclusively using Unity software, and nearly 2.6B people engage monthly within Unity environments. At the design stage, the company’s unique tools empower game developers, building architects, automotive designers, and filmmakers to bring complex creations to life. Once operational, Unity’s platform provides a comprehensive set of solutions to implement and monetize immersive content across mobile phones, tablets, PCs, consoles, augmented and virtual reality devices. Revenues are growing 40-50% YoY and are on target to surpass $2B this year, which sets the stage for a doubling of earnings and first-ever year of after-tax profitability. Despite this success, shares have fallen 80% from the all-time high in 2021, and management must prove its new pricing structure will drive profitability without alienating developers. My target implies a 12x multiple on 2025 sales of $3B. https://bullseyebrief.com/software-for-tomorrow-u-issue-174-12-6-21/

The Walt Disney Company
Current $93 / Target $160

Global #2 tourist attraction operator and US #2 media content platform trading at a discount on multiple metrics.

Disney is the world’s second largest tourist attraction operator behind the National Parks Service, and the country’s second largest media content and distribution platform behind Comcast/NBC Universal. Two-thirds of sales are driven by the company’s digital platforms, in a world increasing relying on digitization to drive commerce. Disney turns 100 this year and will make more money than ever before, potentially posting a third consecutive year of double-digit growth. Curiously, the company had an opportunity to sell ABC for $10B via two unsolicited offers and refused… the market knows these assets are too cheap, with the stock having lost half its value. Newly returned CEO Bob Iger told reporters that Disney had gotten away from story-telling, focusing too much on messaging and I agree. Get back to creating great content, and then distributing that content over a multi-faceted platform (Movies, TV, Networks, Hulu Digital and via merchandise). Six of the top 10 shareholders have added to positions, as have insiders. Every time DIS stock descends below $100, buyers emerge. This is a top global franchise with multiple businesses, repositioning for growth under a proven leader, and the stock is historically cheap. https://bullseyebrief.com/100-years-of-innovation-dis-issue-235-4-17-23/

Normalization (12)


Alexandria Real Estate Equities Inc. (ARE)
Current $125 / Target $235

Largest and only pure-play REIT serving specialty life-sciences tenants offers high cash flow and stable growth.

Alexandria Real Estate is the largest and longest-tenured owner/developer of specialized AAA commercial space focused exclusively on meeting the unique needs of the life sciences sector. For investors this translates into a compelling combination of high cash flow, stable dividend income and consistent earnings growth. From fully-wired, high-tech workspaces to customized laboratories housing billions of cutting edge equipment across corporate campuses, Alexandria owns 74M square feet in North America and has 6M additional sq ft under development. Future commitments already in planning total another 17M sq ft and provide significant runway for growth. The company’s uniquely focused business model ensures a high-quality tenant base, resulting in higher occupancy, longer leases, stronger cash flow and industry-leading capital appreciation. Notably, current occupancy is 96% and lease renewals are being signed at 6% increases, both of which provide ample support for the 4.5% dividend yield. Ironically, shares trade at a 25% discount to long-term valuation on the assumption all commercial real estate is doomed by higher rates and work from home demographics. I disagree, and I think the current valuation anomaly will correct as stability returns to the market. Buying Alexandria now provides a rare opportunity to acquire an investment-grade company at a near-distressed valuation. https://bullseyebrief.com/backdoor-bet-on-biotech-are-issue-206-8-15-22/

Bank of America (BAC)
Current $34 / Target $43

Large money center bank at historically low valuation amid broader selloff offers entry point for tactical investors.

The benchmark KBW Bank Index representing the nation’s 22 largest lenders fell 35% in just one week last March, and while I could probably make a case for several constituents, I bought BofA for its safety, upside and a dividend. The bank has twice as many deposits as loans, which is very conservative. Additionally, the bank could come up with $555B in cash if it needed to, and could secure another $632B in loans from the FDIC for a total $1.1T, which is more than half its deposits. So even if half the depositors wanted their money back, BofA could comply. And the absurdity of that notion is that BofA is the bank where people go for safety, not the other way around! As a direct result of Silicon Vally Bank closing its doors last year, BofA saw inflows of $15B in three days. BofA’s fortress balance sheet makes it a safe haven of choice. BofA’s profits are steady, and shares trade at book value. Historically, BAC trades at 1.7x book value. It’s cheap and it also yields 2.7%. This is one one own and forget about. https://bullseyebrief.com/danger-or-opportunity-bac-issue-231-3-20-23/

Blackstone Inc. (BX)
Current $123 / Target $200

World’s largest alternative asset manager leverages scale and brand as rates rise and the economy strengthens.

Blackstone is the undisputed private equity leader, and the stock’s 50% decline amid market volatility has provided an attractive entry point… BX is a stock to buy on pullbacks because it generally recovers faster than the market. Blackstone is a money machine, the largest and fastest growing alternative asset manager in the world. The company earns fees by managing client assets and capturing profits when it invests its own capital, typically alongside clients. Profits have topped analyst estimates by an average of 25% in five of the last ten quarters, though high rates have pressured exit multiples and kept earnings flat-ish. That said, lower expected rates this year should provide buoyancy. BX typically trades at 30-35 times earnings, and currently it’s at 23x. As the dominant operator in a business defined by legendary founder Steve Schwarzman, Blackstone should probably be a core holding. https://bullseyebrief.com/money-machine-bx-issue-179-1-10-22/

Boeing Company (BA)
Current $245 / Target $300

Eye of the storm for the long-awaited rebound from lockdowns and lingering concerns around airworthiness.

Boeing is coming back from the dual crises of Covid and the 737 MAX grounding as a stronger, more focused business with a rapidly improving outlook. New orders for the 737 MAX exceed 800, and total backlog is the highest in Boeing’s history. All 450 airplanes which had been stockpiled during Covid found buyers last year, resulting in $9B of much needed cash flow. Boeing’s journey to improved fiscal health and better public perception is taking time, but markets always look forward and I see runway ahead. Quality-control issues which impacted the 787 Dreamliner have been settled, and voluntary lay-offs last year have given way to new rounds of hiring this year. Notably, the military business represents 35% of revenue and continues to generate stable cashflow. My $300 target reflects 25 times more normalized earnings of $12, which compares to $18 in 2018 and an all-time high of $450. https://bullseyebrief.com/ready-for-takeoff-ba-issue-112-8-17-20/

Boston Properties, Inc. (BXP)
Current $59 / Target $140

Premier owner/operator/developer of Class A office space will earn 17% more than in 2019 yet trades 25% cheaper.

Boston Properties is the nation’s largest office REIT and the standard by which all other real estate development businesses are judged. The company owns 195 of the highest quality buildings, leased to the most established corporate tenants, at the best locations in just five winning cities: Boston, Los Angeles, New York, San Francisco and Washington DC. New projects happen only if two-thirds of the space can be pre-leased to strong anchor tenants, ensuring development costs are fully-funded, and Boston Properties has never reported an annual loss… not even in 2009. Throughout Covid, the company collected 98% of rents due from office tenants, and 94% from retail tenants. Multiple lease renewals being negotiated currently (at higher rents) will lift occupancy from 90% to 92%… which compares to an all-time high of 94% pre-Covid. Shares trade at a wide discount to long-term valuation (9x P/FFO vs 21x) and yield 5.7%. https://bullseyebrief.com/back-to-the-office-bxp-issue-114-sep-14-2020/

Charles Schwab Corp. (SCHW)
Current $67 / Target $95

Fear of contagion in the banking sector creates a unique moment to buy the nation’s largest stock brokerage.

Charles Schwab is the largest US stock brokerage firm and twice the size of its next closest competitor, with $7.5 trillion under management across 33 million accounts. The company also operates as a well-capitalized and sizable bank, at $460B in deposits and $40B in loans. As regulators forced several regional banks to close their doors in last year, Schwab attracted $17B in new assets looking for a home. This vote of confidence by nervous depositors sent a strong signal to potential investors about Schwab as a beacon of trust. I see four reasons to buy shares of Charles Schwab now: Customers are bringing new money onto the platform; Structural changes which created the selloff have reversed; Insiders are buying; The stock is historically cheap. Not long ago, SCHW’s price to earnings multiple traded lower than at the Covid low, and that was the lowest since the financial crisis. This institution is too high quality to trade a multi-decade valuation low, and I think the stock is a buy. https://bullseyebrief.com/quality-trust-value-schw-issue-232-3-27-23/

Chubb Ltd.
Current $227 / Target $290

World’s largest and most profitable P&C insurer trades at single-digit valuation despite double-digit growth.

Top-ranked insurance company operates in 54 countries and manages $200B in assets. Recognized for its “no questions asked” approach to paying claims, Chubb charges more but earns more by astutely investing incremental premiums to generate superior returns for shareholders. The company is also adept at managing costs, with a consistently lower combined ratio than peers. Critically, recent quarterly results demonstrated strong pricing power, prompting analysts to raise earnings growth estimates to 26% YoY. At a P/E of 12x, Chubb trades at a 25% discount to its 10-year average. That’s rare for a blue chip like Chubb, especially with book value accelerating as maturing assets get reinvested at 5% vs. 3% in 2022. https://bullseyebrief.com/this-ones-still-cheap-issue-245-cb-7-10-23/

Delta Air Lines, Inc. (DAL)
Current $39 / Target $68

Top airline defined by superior fundamentals and relentless innovation leverages no-recession scenario at low P/E.

Delta is the strongest full-service US operator (highest margins, most innovative, best balance sheet), and the only airline I’ve ever owned. While airlines are a notoriously tricky business, Delta CEO Ed Bastian is an exceptional leader, adept at trimming the aircraft for maximum efficiency at speed. In additional to industry-leading fare segmentation that maximizes profits in the cabin (eg paying extra for an aisle, checked bag, early seat assignment, etc.), Delta’s frequent flyer program with Amex and its third-party maintenance services with other carriers generate hundreds of millions as standalone businesses. Additionally, the company’s oil refining subsidiary provides a unique hedge in the industry against record fuel prices. Before Covid, Delta was the industry’s most profitable airline, and since Covid, the company has fortified its balance sheet with the most amount of cash. Delta trades at just 6 times earnings. That’s absurd. https://bullseyebrief.com/ready-for-takeoff-again-dal-issue-199-6-20-22/

Ford Motor Company
Current $13 / Target $25

Well-known industrial levered to EV acceleration also generates significant income at historically attractive valuation.

Ford ties General Motors as the largest US automaker by sales, and the two rank third globally behind Toyota and Volkswagen. The company pioneered mass production in 1902, never took government assistance in 2009 and wants to become the #1 EV producer in America by 2026. EVs represent a compelling opportunity to turbocharge profitability, with 2-3 times the margins of gasoline-powered engines given fewer moving parts and faster automated assembly. While EV estimates have been tempered, the EV boost to profitability is still notable. Ford stock trades near one-year lows at just 6.5 time earnings and yields 5%. As the market moves past its preoccupation with rates and recession, I think the stock will bounce from its current area of support and could ultimately double. As for last year’s settlement with the UAW, labor costs represent just 8-10% of an automobile’s cost and Ford can easily recover the added $700 per vehicle by raising prices. https://bullseyebrief.com/three-themes-one-stock-f-issue-239-5-29-23/

Korn Ferry, Inc. (KFY)
Current $55 / Target $83

Top-ranked executive search firm creates call option on growth having already discounted recession at 10-yr low P/E.

Korn Ferry consistently ranks at or near the top of Forbes’ global ranking of Largest and Most Influential Executive Search Firms. Operating 100 offices in 55 countries, Korn Ferry places executives and advices boards on strategic decisions, making it an indispensable partner where 90% of annual billings constitute repeat business. Revenues have hovered near $2.8B for two years, but I think growth will resume in 2024 as companies pivot from trimming to hiring. Additionally, while executive search accounts for the over half firm-wide revenue, management consulting services and data analytics are increasingly playing a bigger role in profitability, widening the moat around KFY’s value-added services to clients. Anticipating recession last year, investors sold shares from all-time highs to their cheapest valuation in ten years. Korn Ferry is a world-class franchise offering considerable value, especially if the economy avoids recession as I believe. https://bullseyebrief.com/king-makers-head-hunters-kfy-issue-217-12-5-22/

Visteon Corp. (VC)
Current $116 / Target $195

Top electronics supplier to auto industry at historically low valuation despite UAW resolution and strong growth.

Visteon is the auto industry’s digital cockpit leader, replacing traditional dashboards covered by gauges and buttons with fully integrated electronic displays that include driving information, navigation screens, climate controls and infotainment systems. The company is also an electric vehicle pioneer, providing auto OEMs with multiple systems that maximize battery performance and optimize charging. Earnings are growing 25-35% and the balance sheet is strong, but shares trade at an historically low valuation of just 12.5 times forward earning, reflecting lingering concerns over recession and the UAW strike. As these issues dissipate, I believe valuation will rerate to a more normalized level. Visteon exemplifies American Ingenuity and offers a compelling combo of growth and value. https://bullseyebrief.com/bargain-hunting-vc-issue-262-12-4-23/

Wynn Resorts, Limited (WYNN)
Current $94 / Target $183

Down 60% from pre-Covid high with revenues down just 20% and the $100M online betting platform coming online.

Wynn Resorts operates six premier hotel/casinos serving the VIP gaming and entertainment market across the US and China. In addition to its signature Wynn and Encore properties in Las Vegas, the company operates a stunning new hotel/casino on Boston Harbor, and three stellar destination resorts in Macau. Three of its six properties rank 1, 2 and 3 on Forbes Global list of largest and most comprehensive 5-star resorts, while Trip Advisor consistently rates Wynn Las Vegas the number one destination casino in the US. Business imploded during Covid but has come roaring back. The company’s Las Vegas properties are sold out nearly every weekend, and China’s Macau is seeing volumes rise dramatically. Longer term, the company is developing a new destination resort in Abu Dhabi and pursuing a potential first-ever gaming license in New York City. Earnings are expected to rise 165% this year and 65% next year. https://bullseyebrief.com/betting-on-a-vaccine-vegas-wynn-issue-118-10-19-20/

Transformative Health (3)


CVS Health Corp. (CVS)
Current $81 / Target $132

Healthcare leader and sixth largest US company by sales trading at record low valuation despite solid growth/outlook.

CVS has grown into the nation’s sixth largest company by sales, a $340B per year healthcare platform providing health insurance, specialty benefits, walk-in clinics, in-home treatment, preventative care and retail pharmacies. Through a series of transformative mergers over several years, management has successfully expanded from narrow retailer to full-service provider, while generating consistent earnings growth year after year. Incredibly, the stock trades at just 9 times earnings, less than half the multiple of the S&P 500 and its cheapest valuation in 20 years… even cheaper than during the Covid plunge of 2020. By comparison, United Health Group trades at 22x earnings. I think the discount reflects market perception of a less focused enterprise, and one which needs to prove it can integrate $17B of new acquisitions closed in 2023. Fair point, but I’ll happily buy a market leader trading on the cheap, especially in light of consistent growth, proven C-suite and 3% dividend yield. https://bullseyebrief.com/take-the-long-view-cvs-issue-237-5-8-23/

Progyny Inc. (PGNY)
Current $36 / Target $88

Leading assisted pregnancy provider could see its addressable market rise severalfold over several years.

Progeny produces 30% more successful pregnancies than competitors at three-quarters the cost, and ranks #1 by market share in this rapidly expanding business. Originally launched in 2008 as a research platform to help women navigate the myriad of decisions and procedures associated with infertility and pregnancy, Progeny has since expanded to provide full counseling, pharmacy benefits and even concierge services across the entire fertility journey from egg harvesting to childbirth. Companies hire Progeny to match employees with doctors and procedures based upon AI-assisted pre-screening data, and the results are stellar. Progeny’s track record of healthy pregnancies is nearly double the national average, which is likely to drive +100% customer enrollment growth and 30-50% annual revenue growth for the fourth straight year. My target of $88 reflects a 40x multiple on 2025 eps of $2.250. Why 40x? because that’s double the S&P 500, with earnings growth of 4-5x the S&P 500. Arguably, my target is conservative.   https://bullseyebrief.com/were-having-a-baby-pgny-issue-187-3-21-22/

Rapt Therapeutics (RAPT)
Current $23 / Target $60

Unique approach to modulating the immune system up to fight cancer or down to minimize allergy could be a takeout.

Rapt rocketed from $18 to as high as $50 in 2020 on strong data in its Phase I trial to treat atopic dermatitis (AD), and has since traded several times between $15 and $30 on the precarious funding environment which has enveloped biotechnology. Focusing on the data, patients with moderate-to-severe AD who received Rapt’s RPT193 showed a 36% improvement from baseline in the Eczema Area and Severity Index (EASI) score, compared to 17% in the placebo group. Notably, after six weeks, that margin widened to 53%, versus 9% in the placebo group. The stock recently declined on news the follow-on Phase II trial will take longer than expected to report results,… mid-2024 vs. year end 2023. Separately, This same drug is being tested in a Phase II trial to treat asthma which just began in March 2023. Rapt’s other drug candidate (FLX475) is in Phase II trials to treat cancer, blocking the migration of regulatory T-cells to tumors that would otherwise help tumors disguise themselves as healthy tissue. While seemingly very different, allergic response and cancer defense are related immunological mechanisms. RAPT’s unique approach modulates the singular cellular receptor responsible for both inflammatory response and cancer-fighting capability, tuning it up or down as needed. Rapt is an innovative company with a highly differentiated approach that could make it appealing as an acquisition once capital markets normalize Critically, it’s also well capitalized to fund development, with $250M in cash as of 12/31/22. https://bullseyebrief.com/biotechs-cutting-edge-rapt-issue-96-2-feb-17-2020/ screen-shot-2016-09-17-at-11-27-27-am


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Women’s Health (EVFM – Issue #104.1 – 6/8/20)

Women’s Health
Safeguards & Solutions

  • 47 million US women are at-risk for pregnancy and one third want reliable hormone-free contraception

  • An estimated five percent of women globally age 18 to 49 will contract chlamydia or gonorrhea by 2025

  • FDA recently approved a new pH-focused contraceptive and fast-tracked a related STI treatment 

New Era – Women’s Health is one of the most talked-about and actionable investment themes in healthcare today. I think this reflects a rising tide of female empowerment and proactive discussion across social media, as well as new technologies which open doors that were previously shut. No longer is egg-freezing a mysterious concept contemplated with doctors in private. Now it’s a perk openly offered by many of Silicon Valley’s largest employers to entice top female talent. Greater awareness often sparks better solutions, and one San Diego based company has just received approval for the first new contraceptive innovation in decades. Its patented solution is entirely hormone free, giving women greater control over their bodies without disrupting natural cycles. There’s also a pathway to profitability and follow-on drugs in the pipeline. This will be my third Women’s Health addition to the portfolio, and like the other two, I see significant runway for growth… possibly even a takeout.

Evofem Biosciences, Inc. (EVFM) was founded to advance the lives of women by developing drugs and treatments which impart control over sexual and reproductive health. The company’s unique and patented approach relies on user-applied gels which change the pH balance inside a woman’s reproductive canal, paralyzing sperm and creating a hostile environment for bacterial diseases transmitted during sex. Evofem’s treatments are 100% hormone-free and produce superior outcomes than many alternatives. The contraceptive product was approved by the FDA in May, and its late-stage prophylactic for STIs has been fast-tracked. Each has a significantly large addressable market, making Evofem attractive as a potential “tuck-in” acquisition for a large pharmaceutical company looking to expand its Women’s Health franchise.

Evofem’s Pipeline
Safeguarding Women


How it works. The body’s natural pH is slightly alkaline at about 7.3 on a scale of 1 to 14, where 1 is most acidic and 14 is most alkaline. However, certain parts of the body require a far more acidic environment. This is true of the stomach and small intestines in order to facilitate digestion (pH 2-3), as well as a woman’s vagina in order to prevent bacterial growth (pH 3-4). Male spermatozoa like alkaline environments of 8-9, so during intercourse, a woman’s body release chemicals which temporarily raise pH. This change helps sperm to swim more effectively, but also facilitates bacterial reproduction. Evofem’s two drugs counteract the body’s alkaline response, introducing acidic chemicals suspended in a user-applied gel to restore vaginal and uterine pH. Recently FDA-approved Phexxi is a contraceptive, EVO100 is an STI prophylactic. Each relies on pH as a means of action, though the chemicals differ as do their targets.

“FDA approval of Phexxi means women now have access to a non-hormonal contraceptive option that they control, on their terms, to be used ONLY when they need it. Empowerment results from innovation and we are proud and excited to deliver new innovation to women in a category ready for change.”

-Saundra Pelletier, CEO Evofem Biosciences, Inc.

“During my 15-year career at the FDA, I participated in the review and approval of many sexual and reproductive health products, and I believe that Phexxi serves a true unmet need in contraception.”

-Lisa Rarick, M.D., former FDA Division Director and Evofem board member 

Evofem’s drugs are the first of their kind, and Phexxi is the first hormone-free contraceptive launch in decades. The company has invested significant resources into demonstrating the treatment’s effectiveness (hence the recent FDA approval) AND in paving the way for robust commercialization (hence the recent $100M secondary offering). Managment has mapped out a pathway to profits based on several key components.

  • Demand – 47 million US women are at-risk for pregnancy, and one-third identify as beyond hormones due to related complications, or because they seek contraceptive solutions which meet their particular needs (KJT Research). Evofem believes its high-touch concierge approach can conservatively capture 5% of this 17M cohort, which may prove conservative since 46% of the 860 women in Evofem’s trial said they preferred Phexxi to their previous birth control method (2.7 times higher than the 17% who opted to stay with their current regimen).
  • Pricing – Evofem intends to price Phexxi at approximately $1,200/yr, which is comparable to the pill (assumes 7 boxes  per year containing 12 applicators each, allowing for sex 2-3 times per week.) This run-rate would generate $1B in revenue annually.
  • Reimbursement – 60% of insurers have already agreed to cover the full cost of Phexxi with $0 co-pay as a contraceptive alternative (Putnam Research). The number rises to 90% among ACA payors. This suggests relatively fast and friction-free uptake.
  • Direct to Consumer – Evofem intends to market directly to consumers via a hi-touch telemedicine approach, where marketers connect potential patients with local doctors via video in order to secure prescriptions. This creates a more pleasant user experience, leverages significant economies of scale and cuts the company’s SG&A.
  • Additional Upside – Evofem’s prophylactic to prevent chlamydia and gonorrhea will enter Phase III trials later this year, potentially providing additional commercial upside if ultimately approved. Given the potential size of this market (which the company defines as two billion women globally), this become a significant call option.

Simpler & More Direct
Evofem’s Telemedicine Approach


The Trade: Buy Evofem Biosciences, Inc. (EVFM) at $3-4 with a $14 target and a $2 alert.


I like owning EVFM in the mid-$3s, which coincides with previous support and the stock’s 52-week low. While I recognize shares traded as low as $2 two years ago, that was prior to commencement of the Phase III trials which recently secured FDA approval. This puts EVFM on a very different trajectory and I expect shares will rally, since the early-June financing provides $100M in working capital to initiate commercialization. Note shares are down due to dilution… our entry point.

My target of $14 implies a market capitalization of approximately $1B, which equates to one year’s worth of sales if management succeeds at executing its plan. Assigning a target multiple of 1x sales to a pre-commercial company provides both an aspirational and achievable goal. Curiously, the four sell-side analysts covering Evofem have targets from $7 to 25, with an average of $15. screen-shot-2016-09-17-at-11-27-27-am

Buying at the Low
Evofem Biosciences, Inc. (EVFM)



Position Updates (Issue #58.4 – July 16, 2018)

Bullseye Portfolio
Open Positions as of 07/13/18


Bullseye Portfolio
Closed Positions YTD


Position Updates

Checkpoint Software (CHKP)COVERED at -5.19% – Shares closed above my $108 stop so I covered my short. This company is so poorly positioned… three quarters of its business is still centered around installed systems, rather than cloud deployments and sales are only tracking up 1%… but shares have rallied 15% in two weeks. Sometimes I’ll stay long through a stop, but rarely will I ride a short. Shorts can run and keep running. 

NXP Semiconductors (NXPI) SOLD at +14.62% – This position was become too unpredictable given trade contentiousness so I have booked my gain… not as much as I expected but a gain nonetheless. The stock closed Friday $107.50. If Chinese regulators approve the proposed merger with Qualcomm, the transaction will close very quickly at $127.50. If they do not, or if the two companies terminate the deal as they have said they will do absent a decision by July 25, NXP will fall precipitously. As a standalone company, NXP is probably worth $120, but it could easily fall into the $70s if the deal implodes and current merger arbitrage holders dump their shares. At that point I’ll go back in as a buyer. If you still want to play for a merger, the August 120 calls trade around $2.75, which would be worth $4.75 if the deal closes ((127.50 – (120 + 2.75)).  One final point, the U.S. Commerce Department finalized its arrangement with Chinese telecom equipment provider ZTE, allowing it to resume U.S. sales. The implicit understanding had always been “give us ZTE and we’ll give you NXPI/QCOM” but the goal posts have apparently moved. Like I said, the outcome has become too difficult to predict. screen-shot-2016-09-17-at-11-27-27-am


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Bullseye View (Issue #17.4 – 11/11/16)

Bullseye View

S&P 500 Index – 2164 +5.90% YTD

The Index is expensive at 20.2x trailing earnings, but in a world of few alternatives (negative rates in Europe and Japan as well as questionable growth in China) the U.S. stands out. Trump’s election paves the way for tax reform and reduced regulation, both of which are business friendly. However, his stance on trade implies protectionist policies aimed at preserving domestic jobs. This is potentially a significant negative, since S&P 500 companies earn 70% of revenues overseas. Sector selection is key. Growth and Inflation are in, Defensives and Income are out.

10-yr Treasury -2.15%

U.S. Treasury bonds yields rose 33 basis points over the three days following the election, reflecting anticipated inflation associated with higher presumed income/spending from Trump-driven tax cuts. This is both highly presumptive and exceedingly speculative, as tax reform is many months away at the earliest. By the same token, rising wages argue inflation is already brewing. Fed Funds Futures currently peg odds of a December rate hike at 84%, a new contract high. Fed Chair Yellen has told us she wants to let the economy run hot. Bond traders (courtesy of Mr. Trump) are already doing the job for her.

Gold – $1,224/oz +15.48% YTD

Gold’s $40 decline during election week may go down as the second biggest surprise associated with November 8th. Rising inflation expectations argue for higher gold prices. The uncertainty of a Trump platform argues for higher gold prices. But investors want none of it. They are deploying capital into growth equities which should benefit from a new business friendly White House. Safe havens are not in vogue with America “open for business.” I have been negative gold and gold miners, though I already covered shorts and have no position currently. $1,200 should provide support, especially if inflation indicators accelerate.

Oil – $43.41/bbl +17.20% YTD

NOTHING has changed here… OPEC is powerless, Iran wants to regain share and U.S. shale producers are profitable down to $32-35/bbl. In short, the world is awash in oil and there is little reason to buy at the moment. I sold the favored E&P names (CXO and EOG) when oil crested near $52 and gas hit $3.30. We will have our chance to buy them back. For now, I have no E&P positions in energy. Trump is likely to be fossil fuel friendly (which will help the 200-plus stalled pipeline/infrastructure projects), but excess supply is a far more important determinant of price currently.

Copper – $2.51/lb +17.52% YTD

Copper rose a staggering 21% between Election Day and Friday morning’s early session. It marked the largest three-day move since 1986, and it was PURELY driven by emotional buying associated with the prospect of a Trump-driven infrastructure initiative. Short at your own peril, but this is not reality. In a related vain, world #1 copper producer Freeport-McMoRan Inc. (FCX) popped 25% in three days. If you want to play the short side, write calls here. The implied vols are epic. Please call to discuss specific strategies.screen-shot-2016-09-17-at-11-27-27-am

Ahead of Your Skis (AMP – Issue #17.2 – 11/11/16)

Ahead of Your Skis
14 Stocks Too High on Trumphoria 

  • The 10% rebound in U.S. stock futures from Election night lows marks the largest 3-day run since 2009

  • 51 stocks in the S&P 1500 Index rise at least 20% in the two days immediately following Election Day

  • Perceived Trump-friendly companies include Energy, Financials, Healthcare and Infrastructure

  • Excessive price dislocations and extreme option volatilities create opportunistic short trades



Skiing “double blacks” off the summit of Aspen Highlands is one of the craziest, most exhilarating things I try to do at least one a year. Getting that close to total disaster, and somehow still managing to have fun in the moment is beyond compare. The key is doing exactly the opposite of what you’re mind is telling you: Face directly downhill and get over your skis so the edges can bite the snow. Only one catch, don’t get too far forward, or you’ll tumble farther than you’ve ever imagined. It’s an apt metaphor as U.S. equities stage their strongest three-day rally since 2009, and a select few have ignored Ski Patrol altogether. Certain stocks perceived as beneficiaries of a Trump Presidency have risen as much as 35%, despite lack of specific news and an Inauguration still two months away. These stocks are WAY ahead of their skis… and just like at Aspen, the pending fall will not be pretty.

President-elect Trump is pro-business, anti-regulation and decidedly populist. Banks and Healthcare have rallied on his pledge to dismantle Dodd-Frank and ACA. Infrastructure has rallied on his promise to double Mrs. Clinton’s pledge of $250B over five years. Aerospace is up on based on a speech promising 15% increases for Department of Defense. Some of these are core tenets and likely to stick, others are harder to quantify, but the market has spoken.

The Trump Effect
Day After Elections (% Chg)

Two Specific Examples

Please note: My goal is to highlight some of the companies which have moved the most, and yet have no definitive catalyst on the horizon. I’m calling this Trumphoria. To be clear, these are highly opportunistic, short-term positions geared mostly for options traders. If they don’t feel appropriate for your own longer-term orientation, don’t do them. Instead, consider them provocative conversation starters with co-workers and clients about what could come next.

1. Ameriprise Financial, Inc. (AMP) +25.3%

Financial advisory stocks have had a spectacular 3-day run since Tuesday’s election on the assumption a Trump Administration will scale back stringent rules governing how certain products are marketed to investors. Here’s the thing though… actually several things… this move is based on hope and what-ifs. First, the tougher Fiduciary rules meant to curb commissions and encourage brokers to promote funds from other broker-dealers (for which they generally receive lower commissions) are not even expected to take effect until 2018, so their ultimate adoption was already highly suspect. Second, the Department of Labor’s recommendation doesn’t preclude brokers from selling in-house funds, so they can still do it anyway and continue collecting profits. Third, Trump himself never directly voiced concern on this new ruling, it was simply criticized by Trump financial supporter Anthony Scaramucci. Fourth, Congress would actually have to reopen Dodd-Frank (which I admit it will likely do eventually), and repeal the entire law (good luck without a super majority) for this specific rule to get struck. In other words, this week’s 25% move is based solely on conjecture about major policy initiatives which may or may not happen over the next two years.

AMP’s top line revenue growth grew 1% last year and is forecast to decline 2% this year… not exactly inspiring. While bulls will argue it’s cheap at 10.8x forward earnings versus an average valuation of 12.8x since 2005, AMP has risen far too fast on far too little. It was in a secular downtrend pre-Trump, and his election doesn’t fix a weak company.

I’m inclined to express a negative view by writing December 115 calls at $2.00 with the stock about $110. This provides a little added cushion and generates an annualized return of 18.4% if the stock stays below $115 at expiration.

Ameriprise Financial, Inc.

2. United Rentals, Inc. (URI) +24.5%

United Rentals, Inc. is one of the fast-money crowd’s favorite infrastructure knee-jerk trades –along with aggregates producers Martin Marietta Materials, Inc. (MLM) and #1 global copper producer Freeport-McMoRan Inc. (FCX). Traders swoop in to buy these names whenever politicians start talk shovel-ready projects creating “good paying jobs for hard working Americans.” The problem is few projects are shovel ready. In addition, Congress already approved a $275B Highway Infrastructure Plan last year. With taxes likely to decline, and a GOP Congress less willing to spend money it doesn’t have, the case for doubling down on infrastructure spending seems hard to imagine. True, Congress could pass something symbolic in the First 100 Days to demonstrate commitment and begin rewriting its “Do Nothing” moniker, but this is all speculation… and that’s exactly my point. Hope, hope, hope.

URI’s earnings growth has fallen from +41% in 2014, to +16% in 2015, to +2% this year. Analysts tracked by Bloomberg forecast 2% growth next year and into 2018 as well. If the country’s leading equipment rental company can’t do better than low single digits during the strongest construction boom in decades (the current number of hotels under being built will increase total rooms available nationally by 10%), then I fail to see how an as yet indeterminate infrastructure program will move the needle for URI. Higher oil and gas prices will boost demand for equipment, not campaign promises, especially in light of URI’s recent 1.7% reduction in rental rates.

I suggest writing the December 100 calls at $1.25 with the stock at $90. This position allows me to reflect a negative view while providing a12.5% cushion if the stock continues to rally. Looking at the chart, I have a hard time seeing URI rally above $105, however euphoric traders may get between now and December expiration. If the stock stays below $100 at expiration, this position generates a 14.5% annualized return.

United Rentals, Inc. (URI)

I found a total of 15 companies in the S&P large and mid-cap indicies rising on Trumphoria, i.e. potentially compelling fundamental catalysts which are as yet unsubstantiated. Please feel free to call me at 917.710.8347 if you’d like to discuss specific options trades. While not core to long-term fundamental investing, these positions allow us to test our intuition at the margin, and they are highly satisfying to get right.screen-shot-2016-09-17-at-11-27-27-am

Trumphoria’s Fourteen
3-Day Returns 11/7-10

Billion Dollar Cannabis Gel (ZYNE – Issue #15.3 – 10/14/16)

Billion Dollar Cannabis Gel
A Patented Approach to Pain & Epilepsy

  • Cannabis sales will total $7B in 2016 and could triple by 2020 according to researcher Arcview Market

  • Several dozen biotechnology companies are focused on the perceived analgesic benefits of cannabinoids

  • Addressable patient markets for cannabis-derived compounds include epilepsy, osteoarthritis, neuropathy

  • Bloomberg will feature a Cannabis symposium in November for family offices and high net worth clients

Scientists, regulators and millions suffering from pain are trying to get their hands on cannabis –but not the kind you smoke, eat, or grow in an alley. This is the cleaner side of marijuana. One small biotech company has figured out how to synthetically manufacture the plant’s two defining compounds, cannabinoid (CBD) and tetrahydrocannabinol (THC), then deliver to them to patients as a wearable patch or topical gel. Preliminary results are impressive: No nausea, no high, no pain… and for investors, no correlation to the S&P 500. The breakthroughs are so promising five separate Phase II trials are either planned or underway. If recent results from a competitor are any indication, FDA applications could follow. From backyard contraband to laboratory legitimacy, pot has grown up.

screen-shot-2016-10-11-at-2-44-06-pmZynerba Pharmaceuticals (ZYNE) has been getting a lot of attention recently, more than most companies valued at just $132M. Its two patented compounds are synthetic versions of the pain-suppressing, anti-inflammatory chemicals which appear naturally in marijuana, and unlike competitors, Zynerba has figured out how to transmit them through the skin, avoiding many of the side effects associated with oral ingestion by regulating chemical flow more evenly. Its 5 independent Phase II trials are fully funded through 2017, and Zynerba owns its two proprietary compounds outright, with patent protection for 14 years.

  • ZYN002 is a CBD transdermal gel which appears to lower the incidents of seizures among patients suffering from epilepsy, as reflected in an initial Phase I trial focused on Zynerba’s unique transmission mechanism. A Phase II trail is now underway involving 180 adults, with top line data expected 1H 2017. An estimated 2.2 million Americans suffer from epilepsy, and another 3.1 million in Europe and Japan. ZYN002 has two additional applications: Osteoarthritis and Fragile X Syndrome (an autism-like genetic condition affecting 71k). Osteoarthritis affects 31 million Americans, so the potential commercial opportunities here are significant. As with the lead Phase II trial for epilepsy, results for the Phase II trials involving Osteoarthritis and Fragile X Syndrome will be available 1H 2017.
  • ZYN001 is a patch formulation of synthetic THC. By keeping THC out of the digestive tract, hallucinatory side effects are avoided and clinicians can instead focus on the perceived pain-relieving (analgesic) benefits of THC. Phase II studies begin early in 2017 for two applications: Fibromyalgia and neuropathy, or chronic pain. These are also potentially significant markets in the U.S., with 5.6M and 14.0M patients respectively. This will be the first major study involving the patch transmission in humans, though Zynerba has already demonstrated success in animals. In addition, these studies will mark the first time THC’s analgesic benefits have been tested for fibromyalgia and neuropathy.

The Scientific Side of Pot


Okay, I admit this is heady stuff, but here’s the key: I want to allocate a portion of capital to uncorrelated and unique technologies as a way of diversifying and distancing capital from the drone of Fed policy, low GDP and excessive gov’t regulation.


Zynerba offers a promising, patent-protected technology which could serve millions of potential patients globally. It could also prove an excellent acquisition for large pharma if even one of its five current Phase II or pending Phase II studies moves closer to commercialization. I should also note the company has sufficient cash to see each Phase II trial to completion through 2017, given $32.1M as of 6/30 and a quarterly burn-rate of $4-6M. While subsequent Phase III trials necessary for approval would require additional capital, the company could likely attract a licensing partner or float additional stock. Here’s the take from H.C. Wainwright & Co. analyst Corey Davis, Ph.D., who initiated with a BUY on October 7.

“Cannabinoids are quickly becoming medicalized, and the pharmaceutical industry has moved closer to capturing the clinical benefits with validated trials acceptable to the FDA. The likelihood of success is higher than normal for the average pre-Phase II company. This is not baked into the current valuation and Zynerba is not as early stage as many believe… given the validation of CBD from the success that GW Pharmaceuticals has recently had with Epidolex Phase III trials [as 88% of subjects responded positively].”

The comparison between Zynerba and GW Pharmaceuticals PLC (GWPH) is meaningful. GW has tripled since March on a series of positive outcomes for its own cannabis-related treatment for epilepsy. Zynerba has risen about 40% in sympathy. The difference however is that GW’s regimen is administered orally and ingested, producing adverse side effects, whereas Zynerba’s patch/creme solutions avoid the liver and GI tract altogether. The hope among analysts like Dr. Davis is that Zynerba replicates GW’s 88% response rate but with fewer complications… and its stock rallies by an equal magnitude. All six analysts covering Zynerba rate it a buy and the average target is $31, up about 2.5x from the current price of $12.50.

Zynerba & GW

The Trade

At the moment, Zynerba’s stock price is arguably more reflective of GW Pharma’s success than its own, having risen on positive GW data well ahead of its own Phase II data. due next spring. As a result, Zynerba is a stock to buy on pullbacks, ideally closer to $10. Currently it’s $10.90. Without quibbling too much over a few dollars when playing for a triple, here’s the action plan.


Buy the stock under $11. The green trend line of support is about $8.50, and trial results are not expected until next spring, so we can take our time building a position.

Write puts on down days. Zynerba puts trade at wildly inflated implied volatility premiums, making them particularly appealing as sales. Remember, writing a put means we potentially buy the stock if it trades through the strike. Sell the November $10 puts at $1.00 with the stock at $10.90. Either we’ll become buyers at $9.00 (close to the $8.50 trend line) if the stock declines, or we’ll generate $1.00 in income over 35 days if the stock rallies or trends sideways. That’s 96% annualized.

Writing out-of-the-money puts for the next year at 96% annualized means, we’ll collect enough premium to own the stock for free. Good science meets good trade. screen-shot-2016-09-17-at-11-27-27-am

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Turning the Aircraft Carrier (PCY – Issue #15.2 – 10/14/16)

Turning the Aircraft Carrier
Two Debt ETFs Caught in the Wake 

  • IMF officials voice serious concern over record public and private debt now 225% of global GDP

  • Bridgewater’s Ray Dalio and Janus’s Bill Gross call bond market “clearly overvalued”

  • China and Hong Kong lead debt growth as a percentage of GDP since 2008

  • Shifting spreads between key risk instruments indicate capital flight to home markets


The TradeThe USS Harry Truman stretches three football fields in length and provides pilots like my friend Steve about 4.5 acres of flight deck when it’s time to land. To say the ship is big is to say the sun is bright or the the moon is high. These magnitudes are so unimaginable we don’t have the words… and one is even man-made!. Steve and I catch up every year at our high school reunion and I pepper him with questions like how fast can a carrier go, and how long does it take to turn around? The answers are understandably classified, so our honorable aviator suggests cool YouTube links https://www.youtube.com/watch?v=d4KnCqcTEOU and offers nebulous comments along the lines of “Faster than you’d think, but still a long time.” Carriers need time, and so do investors. As we debate the IMF’s warning last week about unsustainable leverage, I find myself wondering: How long will it take to turn this giant around and put low rates in our wake?

Warning Shot

The International Monetary Fund (IMF) sprang quite literally from the ashes of WWII in order to foster global stability and long-term growth through international trade, monetary cooperation and focused lending initiatives. Its 189 members gather twice annually to offer an assessment of their current outlook and to highlight potential flash points. Their recently published Fiscal Monitor ahead of the Oct 7-9 meeting in Washington offered a particularly sober assessment, arguably a shot across the bow aimed squarely at low rate loving central bankers.

“At 225% of world GDP, total global debt (government, household, and non-financial corporate) is currently at an all-time high, which as documented in an extensive literature carries great risks. The reason is that the absence of fiscal buffers curtails the ability to conduct countercyclical fiscal policy, especially in emerging market economies. Highly indebted borrowers will sooner or later decrease their consumption and investment, as they are unable to service their debt and can no longer borrow. This is particularly relevant now… private sector leverage has increased significantly over the past few years… setting the stage for a vicious feedback loop. It is clear that meaningful deleveraging will be very difficult without robust growth and a return to normal inflation [neither of which is currently apparent nor remotely evident in the forecasts].”

Bloomberg published the IMF’s lead chart on the front page of its own Economic Brief to underscore concern about global leverage and further the conversation. NEVER has the world reached such high levels of debt. The IMF’s calculation includes all debt owed/issued by governments and non-financial corporations globally, as well as all borrowings held by households globally. It’s a comprehensive figure and a loud wake-up call. We’re not simply talking about debt issued by central bankers which can write checks with the stroke of a pen and increase money supply with touch of a printing press. This is all of us.

Churning Waters

Two-thirds of the $152T in debt cited by the IMF is private sector, meaning Main Street and Wall Street are leveraged to the hilt. It’s 2008 all over again, and the vast majority of countries around the world have piled on, from developed markets to emerging markets. The IMF data paints quite a picture. Notice Hong Kong and China at the bottom of the charts below. Their private debt levels have risen by 110% and 70% in GDP terms since 2008.

Private Debt Change as % of GDP (by country)
Developed Markets & Emerging Markets

IMF Fiscal Chief Victor Gaspar sounded the bosun’s whistle at last week’s summit, telling attendees “History has taught us that it is very easy to underestimate the risks associated with private debt.” These are sobering words for a polite statistician, but hardly news to global portfolio managers who’ve already ordered helmsmen to starboard. Their new course is evident in the churn of the past several weeks. Capital is steaming back to port.

  • German Bunds have moved back into positive territory for a third time since July as global investors recognize the cost of safety (negative rates) is untenable long-term.
  • The U.S. 10-yr has popped to 1.74% as Fed Fund Futures on the CME indicate 64% odds of a December rate hike.
  • The window to fund purchases of U.S. Treasuries funded by short sales of Japanese JGBs and German Bunds has finally closed, as rising FX premiums on forward hedges negate arbitrage margins.
  • Much beleaguered U.S. banks have appreciated 14% against dividend-paying utilities since June 30.

Dalio & Gross Sound General Quarters

Bridgewater Associates Founder Ray Dalio sits atop $150B in assets, much of which is deployed in global bond markets and he too is concerned. On the same day the IMF released its none-too-smiley Fiscal Monitor, Mr. Dalio addressed the New York Fed’s 40th Annual Central Banking Seminar.

“Long-term debt cycles are approaching late-stages. Central banks are pushing on a string, both because interest rates are approaching their maximum lows, and because the effectiveness of QE is approaching its limits as risk premiums and spread compress. This is a global problem. We see an intensifying financing squeeze from slow growth, low return and high debt. It would only take a 100 basis point rise in Treasury bond yields to trigger the worst price decline in bonds since the 1981 bond market crash. And since those interest rates are embedded in the pricing of all investment assets, that would send them all much lower. Rarely do we as investors get a market that we know is overvalued and that approaches such clearly defined limits as the bond market right now.”

If you think Mr. Dalio is either alone in his view or simply overreacting, please think again. Bill Gross first sounded the alarm on negative rates in Europe over a year ago. He calls German Bunds “the short of the century.” On Friday October 6, after the U.S. Department of Labor released a September unemployment rate of 5.0% (the highest since April) and disappointing non-farm payroll gains 154k (only marginally above the breakeven figure to accommodate population growth), Mr. Gross addressed the current debt bubble on Bloomberg.

“Because of this highly levered world, which I do not think we’ve experienced as far back as 70 years, central banks cannot afford to raise rates… because 50 or 100 basis points might rake the system. Return is not proportionate to risk, and capitalism itself at the margin starts to turn inward.”

The Trade

When markets turn inward, capital goes home and it doesn’t return for a long time. This problem is especially acute for emerging markets, where portfolio managers have turned in search of yield given unacceptably low returns closer to home. Pros look at the J.P. Morgan Emerging Market Indicies on sovereign and corporate bond spreads (JPEIGLSP and JBSSCOMP Index <GO> on Bloomberg, respectively). Spreads have contracted significantly over the past year, and while not at all-time lows, they are getting close. Put another way, there’s a lot more room for them to widen than to contract. Helmsman: Hard to port!

You can see the opportunity quite clearly on the chart of the PowerShares Emerging Markets Sovereign Debt Portfolio ETF (PCY). In addition to rising significantly this year as capital moved into the region, note how the index has fallen hard each of the past three Decembers as capital repatriates into yearend. Combine seasonality with huge inflows and two-fold price appreciation relative to the past three years, and I see something which begs a call to stock loan… I need a borrow and I want to go short.

Ghosts of Christmas Past
Emerging Markets Sovereign Debt ETF (PCY)

PCY trades an average of 1.7M shares per day ($51M notional). It holds 86 positions in the sovereign debt of countries across the globe. The largest single country exposure is Venezuela at 4.27%, followed by Brazil, Columbia, Indonesia, Kazakhstan. Top ten holdings account for 16.75% of capital. Dividends are paid monthly and the fund yields 4.90% annually. If you are short, you are also short the dividend, so the monthly cost is 41 basis points. You can also short corporate debt in emerging markets via the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB), though its dividend yield is slightly higher at 5.18% and the chart offers slightly less room to fall. My trade is to short PCY above $30, with a target of $27 by December 31. screen-shot-2016-09-17-at-11-27-27-am

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Change of Possession (Issue #15.1 – 10/14/16)

Change of Possession
Ten Offensive Names as Defense Gets Benched

  • Tech, Energy and Banks have beaten defensive Telecom and Utilities by two to one since July

  • Record S&P 500 payout ratios highlight company and investor preoccupation with income

  • September FOMC minutes indicate a Fed poised to raise rates in December on strong job gains

  • Prepare for a rising rate environment by rotating into growth companies like the 11 profiled here


Imagine a football game where linebackers scored and quarterbacks tackled… not just the occasional pick six or on-sides kick… but quarter after quarter. Fans would shout in disbelief and coaches would throw their clip boards in disgust. If it happened the following week, there’d be talk of rewriting the playbook. A third episode would confirm the trend. Breathless commentators would explain how the world had changed and why It’s different this time. The best players would aspire to defense, and general managers would build franchises around safety. Impossible? Look at Wall Street’s winners of the past two years. Utilities and Telecoms have marched up the field to dividend cheering crowds as flashy Semis and Banks have languished on the bench. Dee-fense has ruled, but not any more. Coaching staffs dusted off the old playbook at pre-season in July. Look at the scoreboard now. Offense owns the field.

The TradeOffensive sectors have dramatically outperformed since the beginning of July. Semi-conductors have led the way, reflecting a perception that rising economic growth creates demand for goods and the sensors which increasingly power them. Energy is finding a bid as oil rises to $50, and banks are finally attracting buyers on the assumption rising rates will improve net interest margins. As for the dividend paying sectors, they are now officially off the roster.

Growth Is IN… Dividends Are OUT
S&P 500 Sector Returns Since July 4th

Several factors have contributed to the pivot from D to O, and like any close game that keeps us on the edge of our seats, it’s not one-sided. Consider the current field conditions:

  • Higher Rates – The Fed has made clear it has pivoted from “accommodation to a more normalized” rate environment as “a substantial majority now view near-term risks to the economic outlook as roughly balanced. Notably, only 5 of 17 members envision a scenario where inflation falls below the current rate of 1.1%
  • Stronger Jobs Market – Weekly jobless claims of 246k remain at 42-year lows and headline unemployment of 5% appears like the new structural low. As former Fed Vice-Chair Alan Blinder taught me in Econ 101 at Princeton, the Wage-Price Spiral is ultimately what drives CPI higher, and strong employment metrics generally lead to higher wages.
  • Dividend Payouts Maxed – S&P 500 companies currently distribute 55% of earnings in the form of dividends, near the upper bound of the historic range. Yet earnings have fallen five quarters in a row and dividend growth has slowed to 4.7%, less than half the 3-year average according to FactSet. Coupled with sky-high valuations, dividend sectors look tired. No wind-sprints today. Time to hit the showers.


The combination argues for a move into cyclical, high-quality growth names… cyclical to reflect an improving labor market and rising rates, high quality to reflect the importance of selectivity with GDP still below 2%. I also want to deploy capital away from the Division I names of the S&P 500 which get all the attention, focusing instead on faster growing companies of the S&P 400 Midcap Index. I think this is important at this point in the cycle. Macro talk from the Fed has dominated headlines and portfolios for too long. If we believe in the thesis of U.S. economic growth, we should place our bets on companies with good field position. To me, this implies midcaps not large caps, as they have more opportunities to grow. Another key point, my stock screen for high quality recruits prioritizes strong cash flow and low debt. Play ball.

High Quality Recruits
Only 10 of 400 Make the Cut

This screen generated ten buy candidates from the 400 companies considered. On average they are up 17% YTD. They generally serve niche markets are are growing rapidly. Six have no long-term debt (denoted by n/a above under Debt to Cashflow). Seven offer attractive entry points, two are respectable (IDCC, TYL) and FII needs to find a tradable bottom. Charts for each are shown below.

Astute readers will recall MarketAxess (MKTX) as the subject of my Robo Trader write-up on July 22.  The company is turning the bond market upside down by providing a listing platform where buyers meet sellers directly, introducing transparency and displacing dealers in the process. The company reports earnings on October 26 and is currently trading at its support line. screen-shot-2016-09-17-at-11-27-27-am

Abiomed Inc. (ABMD)

Align Technology, Inc. (ALGN)

Cognex Corp. (CGNX)

Federated Investors, Inc. (FII)

Gentex Corporation (GNTX)screen-shot-2016-10-13-at-3-29-40-pm

InterDigital, Inc. (IDCC)

Manhattan Associates, Inc. (MANH)

MarketAxess Holdings, Inc. (MKTX)

Tyler Technologies, Inc, (TYL)

United Therapeutics Corporation (UTHR)

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Government’s Greatest Gift (Issue #14.3 – 10/02/16)

Government’s Greatest Giftscreen-shot-2016-09-30-at-11-55-01-am
How to Double The S&P 500


  • Dividend reinvestment in pre-tax accounts generates significant outperformance over time

  • Only 54% of U.S. working adults participate in retirement benefit plans

  • Second quintile dividend stocks offer the best risk-adjusted returns

  • Q4 rebalancing yields SIX NEW DIVIDEND STOCKS


American illustrator J.M. Flagg created his iconic image of Uncle Sam for Army recruiting posters in 1917. He borrowed the nickname from the troops themselves. They’d affectionately dubbed an Army meat supplier Uncle Sam for stamping the letters “US” on steaks headed to the front during the War of 1812. Flagg loved the story and decided it fit his image of what government ought to represent. Our perception of government may have shifted somewhat, and arguably pork has replaced steak as Washington’s meal of choice, but there’s still one feast every American deserves: Tax-deferred compounding and 100% dividend reinvestment in a 401(k) account.

Congress first introduced language on tax deferred savings plans into the U.S. tax code in 1978. Today, more than 88 million Americans participate in at least one of 638,390 registered defined contribution retirement plans according to the American Benefits Council. The number may sound impressive, but there’s a problem here. Only 54% of working Americans engage in pretax retirement planning based on data from the Bureau of Labor Statistics. This is absolutely crazy. Pre-tax investing is the single greatest mass market opportunity for individuals to build wealth and retire in time to enjoy the fruits of their labor.

401(k) Ground Rules for 2016

  • Pre-tax investing equates an interest-free loan from the government, since every dollar up to a maximum contribution of $18,000 accrues without paying tax until the time of withdrawal
  • Many employers match contributions, and the government allows a combined total of $53,000 per year
  • Returns earned on investments held in a 401(k) account can be reinvested on a tax-deferred basis. This includes interest, dividends and stocks sold at a capital gain.

This last point is the real kicker, especially when you consider reinvesting dividends without paying tax. You put the money in tax-free, it generates income tax-free, and you reinvest it tax-free. It’s a triple whammy, and it repeats every year. You are compounding your money on the government’s dime. 401(k) accounts represent the single most advantageous retirement plan available and we should all be participating. THANK YOU Uncle Sam.

To better illustrate the point, consider returns on the S&P 500 Index relative to its Total Return Index, where dividends are reinvested pre-tax and commissions are zero. Every time a company in the index pays a dividend, the amount automatically goes towards purchasing additional shares.

Thank You Uncle!
Pre-Tax Dividend Reinvestment

The difference is staggering when seen on the chart above. The Total Return Index produced nearly double the return over the same period (1,120% compared to 658%). The reason is simple: Dividends were reinvested pre-tax and then compounded pre-tax for 25 years. Again, it’s as though the Government is giving you an interest-free loan, enabling you to reinvest dividend income without paying tax. Yes, you will eventually have to pay taxes on the proceeds when you withdraw funds in retirement, but you will have earned income on the Government’s dime for decades. This is a very good deal.

$2.06 Million in 25 Years

Let’s put some real world numbers on this to further prove the point. We’ll be especially conservative in our calculations. We’ll assume the company does not match employee contributions, and the IRS maintains its current maximum of $18,000 per year rather than adjusting upwards for cost of living. Plugging in actual average annual returns from 1990 to 2015 of 8.5% for the S&P 500 Index and 11.4% for the Total Return Index (Bloomberg data), the outperformance of dividend reinvestment in a 401(k) exceeds a million dollars.

Power of Pre-Tax Compounding
S&P 500 Index Returns (1990-2015)

The same S&P 500 stocks in a 401(k) account produced nearly double the return of a standard index fund. In this real-world example, $18,000 contributed annually became nearly $2.1 million over 25 years. This is the power of pre-tax investing coupled with compounding over time. For all the talk (and effort) of finding the next great growth company in Silicon Valley, buying consistent dividend-paying companies and reinvesting the proceeds on a tax-deferred basis works exceptionally well.

Most 401(k) plans offer employees multiple investment funds from which to choose and indexing to the S&P 500 will likely one of them, possibly even the default option. However, choosing an index fund does not guarantee dividends will be automatically reinvested. You have to read the terms of each fund carefully and then either chose a fund which specifically reinvests dividends, or elect dividend reinvestment through the Administrator.

Attention Stock Pickers


For the vast majority of people, selecting an index fund which reinvests dividends is good enough… especially when $18,000 invested annually into a broad index fund can produce a $2.1 million nest egg in 25 years.

I also recognize some of us appreciate the benefits of stock selection. The investment team at Strategas Research Partners L.P. looked at the risk-adjusted returns of S&P 500 component stocks sorted by dividend yield. (This is simply return divided by the volatility of returns over time, measured by standard deviation). Their research showed the risk/reward tradeoff is maximized when investors buy the second decile of highest yielding stocks (i.e. stocks ranked 61-80% in terms of yield) and rebalance every 6 months.

As their data illustrates, the second quintile produced the highest returns on both an absolute and risk-adjusted basis. In other words, you don’t want the highest yielding stocks, you want the highest yielding stocks adjusted for risk. Second quintile stocks optimize this trade-off AND produce the highest returns over time.

To confirm their results myself, I back-tested the strategy with Bloomberg Analytics on the Dow Jones Industrial Average (DJIA) between 2000 and 2015. The second quintile group outperformed the overall DJIA by a margin of three to one, returning a cumulative 151% compared to 52%. The point is, if you participate in a self-directed 401(k), you have greater leeway to select stocks in your portfolio. Uncle Sam presents one gift, and data presents another. Combine them, and you’re building wealth.

DJIA Second Quintile Dividend Winners
As of September 30, 2016

Investors looking to incorporate the second quintile dividend strategy can follow this simple methodology:

  • Buy the second quintile dividend components of the DJIA as of 09/30.
  • Rebalance on 03/31, and every 6 months thereafter.
  • Buy new shares of stock with proceeds from dividend distributions.
  • Recognize the backtest revealed 51% turnover annually, meaning three stocks were bought and sold on average every 6 months.

Clearly, EVERYONE should have a 401(k) plan and begin saving as early as possible. In addition, everyone should maximize the full benefits of pre-tax investing by reinvesting dividends earned in a 401(k) plan AND utilizing company matching programs where possible. Finally, hands-on investors may be able to produce additional returns by utilizing the proven dividend selection strategy outlined above.

At the very least, educate yourself on the full spectrum of 401(k) benefits and options by speaking with your financial advisor and visiting IRS.gov. screen-shot-2016-09-17-at-11-27-27-am

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Traps Not Trusts (VNQ – Issue #14.2 – 10/02/16)

Traps Not Trustsscreen-shot-2016-09-30-at-11-31-58-am
4 Reasons to Short REITs Now



  • Major U.S. cities are seeing the fastest pace of new construction in several decades

  • The total number of hotel rooms in the U.S. will increase 10% in 2 years

  • Investors have invested a record $7.1B into real-estate related ETFs YTD

  • Rising e-commerce volumes threaten the viability of mall-based retailers


New York s skyline has become a tangled jungle of 50-story cranes swinging girders of steel and buckets of concrete. Forty new buildings will hit the market in the next few weeks, and appraiser Miller Samuel forecasts five years of excess supply by 2017. Travel to Houston and you ll see the same thing… ditto Charlotte, Portland, San Francisco, DC. Low rates have turned the American Dream into an American Tragedy as U.S. construction spending rises to within 1% of the record $1.15T high in 2005. Like the venus fly trap you couldn’t wait to watch in sixth grade biology, the approach is beguiling, the views spectacular, and unsuspecting tenants get a nasty surprise.

The exceptional volume of new projects poised to swamp markets nationally stems from a combination of low financing rates, low returns on financial instruments and an influx of non-U.S. investors looking to park large blocks of capital in hard assets. Builders have been eager to build, and investors have been eager to invest. Real Estate Investment Trusts (REITs) have become their mutual vehicle of choice, as investors have plowed a record $7.1B into real estate related funds this year, more than twice any other sector. Anyone investing in REITs today should recognize oversupply is just the tip of the iceberg. REITs will face several structural headwinds in coming months.

1. Build Baby, Build

In just one 9-block space along New York City’s far west side, developers are constructing 17M square feet of new space, the equivalent of eight Empire State buildings. Here s the take from the New York Building Congress 2016 Annual Report, Sky’s the Limit.

An amazing $40 billion worth of construction projects were initiated across the five boroughs in 2015. More new office space is being built than at any other point in the past quarter of a century. Spending on residential construction is at an all- time high and is likely to produce more than 90,000 new units between 2015 and 2017. New hotel rooms have been added at a blistering pace.


Burgeoning supply has cut investment in future NY Metro area projects by 9% this year, according to Real Capital Analytics (RCA). And it s not just the Big Apple. Nationally, RCA s 2Q overview shows gross investment in new commercial properties has fallen 16%. RCA cites declines of 49% in Houston, 29% in Atlanta, 24% in San Francisco and 21% in Chicago. Demand can only absorb so many new properties, and developers are beginning to realize they may face oversupply in coming months.


2. The Big Squeeze

In addition to the simple math of more properties coming to market without more tenants to buy/rent/lease them, loan documents analyzed by RCA on thousands of projects nationally indicate developers have financed at historically low cap rates of 3-4% (property net income divided by purchase price). This means they have to own/operate these properties at 100% occupancy for 25-30 years just to recoup their initial investment. Like LBOs of the 80s which buckled under their own weight, there’s little room for error, since the vast majority of tenant cash flow goes to paying down debt. Good luck if your building has a leaking roof, needs an HVAC repair, faces unexpected tax increases, higher insurance premiums, or struggling tenants who can’t make rent. These are all real world problems and they happen with stunning regularity. If you’ve ever bought a big house and levered it to the max, you ll recognize this is not a prudent business model, especially with so much inventory coming to market.

3. Up, Up and Away


September 20 Fed Chair Yellen told us The Committee judges that the case for an increase in the federal funds rate has strengthened and traders now put odds of a December rate hike at 55%. This is not good for REITs. Company filings show REITs fund themselves with combination of fixed and floating rate debt, and floating rate adjustments will raise overall borrowing costs. Meanwhile, a combination of sluggish economic growth and increasing supply will likely cap REITs’ ability to raise rents and/or lease prices. The resulting margin squeeze sets the stage for a potential cash flow crunch which, at best lowers effective earnings, and at worst threatens REIT dividend payouts. Bottom Line: The looming prospect of rising rates in a weak economy is bad for REITS, and rates are about to rise for several years.

4. Amazon

Total e-commerce volume in the U.S. has risen 4.5% in the past year and now accounts for 8.1% of U.S. retail sales according to the Census Bureau. By contrast, total sales per square foot at mall operator Simon Property Group Inc. (SPG) fell 2.3%. SPG is the largest mall operator in the country, and the pivot by consumers away from brick-and-mortar stores represents a very direct threat to mall operators. It’s one of the reasons why Sears/K-Mart, Macy s and Target have announced over 200 store closures this year. Fellow mall REIT operator General Growth Properties (GGP) has seen revenue decline 7%, while top line growth at SGP has slowed from 8% to 3% this year. Occupancy rates have slipped 150 basis points at each as stores close and shoppers go online. Amazon’s U.S. retail sales have doubled in three years to $82.14B.

Picture Perfect
Vanguard REIT ETF (VNQ)


Room To Fall

The easiest way to express a negative view on REITS is to short the Vanguard REIT exchange traded fund (VNQ). It holds 150 REITs and the average P/E is 34.8x, double the valuation of the S&P 500 Index. The chart is a beauty. VNQ sports successively lower highs on rising volume, which implies accelerating selling pressure as price falls.

Short VNQ in the upper 80s with a $72 target, the 12-month low. screen-shot-2016-09-17-at-11-27-27-am

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