YWR: Fresh Meat & the Mystery Metal Trade
YWR: Fresh Meat & the Mystery Metal Trade
Disclosure: This is market commentary and personal views only. These are not investment recommendations. For that seek professional help.
"...everyone thinks we rally into Valentine’s Day, everyone emotionally bullish, but still intellectually bearish and likely to stay that way until leadership changes".
Hartnett
We know Big Tech has done well this year and everyone missed it. What’s done is done.
But will Big Tech be the story of 2024?
Remember the set up for Tech at the beginning of the year. After the huge COVID/Everything goes Digital/Retail Trading Frenzy of 2021, 2022 was a bloodbath for tech as the Fed started raising rates, which set up the surprise for 2023.
So skate to where the puck might be for 2024.
Where are the bloodbaths?
What are the set-ups?
Where is the Fresh Meat?
Here are 4 potential Fresh Meats and a Mystery Metal Trade for 2024.
Fresh Meat #1: US Regional Banks and Investment Banks. The European Banks trade of 2023.
Do work on Wells Fargo, Citibank and US Bancorp. Take the last 6 months, reduce the loan loss charge and annualise. Next compare this number with the consensus estimate.
Take Wells Fargo for example.
WFC made $2.73/share in the last 6 months including $1.2 billion of extra allowances for future loan losses. Maybe loan losses decline in 2024, not that the economy is especially great, just in line with what they expected in 2023 when they were creating the provisions. So nothing incremental to provide for.
Maybe Wells makes $6 billion/quarter. Or let’s dial it back and say $5.8bn/quarter or $23.2 billion for 2024. On 3.65 billion shares that’s an EPS of $6.3 vs. the consensus of $4.86.
Which means WFC earns $6 instead of $5, everyone is underweight, they decide maybe it’s worth 10x earnings and you get a 30% move on a household bank everyone loves.
Next.
Investment Banking has been tough with fixed income prices moving against them all year, but maybe the big fixed income sell off is over and activity picks up next year. It’s really hard to predict investment banking, but the trade here is Goldman Sachs.
Fresh Meat #2: Autos and Auto Parts (F, GM, MBG, BMW, PAH3, STLA)
We’ve written a lot about the Auto set up (Killer Autos), but Auto Parts companies could be even more interesting.
The stocks are at all time low valuations, auto inventories are low and the average age of cars is at all time highs.
And isn’t it a big deal when GM announces a $10 billion share buyback and its market cap is only $44 billion? They are going to buy back 25% of the company?
Fresh Meat #3: Renewable Energy (Orsted, Siemens Energy, Nextera)
I hate the nonsense in this sector, but renewables have been destroyed this year and I keep seeing slides that get my attention like this one from Nextera.
It seems the long-term plan for utilities is to keep adding heavily to renewables (both solar and wind). The Big Energy companies are the same way. BP just bought in the 50% it didn’t own of its solar JV, LightSource.
You have to decide if these are long-term good businesses, but if you like renewables, now is the time to buy because it looks like the big corporates are going to keep ploughing money into renewables projects and governments will keep giving them incentives to do so.
I like BP and Total as backdoor renewable energy plays.
Gold and the Mystery Metal
We’ve been waiting 3 years for gold to breakout and it just happened.
But already the skeptics are comparing the immediate retreat in the gold price off the highs to the strong action in Digital Gold (BTC). Bitcoin has been acting better.
I like both (BTC and Gold), but have a different take.
Investors have been selling $2-3 billion of Gold ETF’s every single month.
The cumulative selling in Gold ETF’s over the last 2 years has been $20 billion!!!
So if something consolidates for 3 years at the highs and then makes a massive break out despite traders selling $2 billion month of it, and everyone saying it can’t go up because of high interest rates, isn’t that massively bullish?
If gold can break out while everyone selling, what happens when the flows turn positive?
It makes me think the gold move has legs and will be a theme in 2024.
Which brings us to:
The Mystery Metal Trade
Who am I?
My price is -68% from the highs.
40% of my supply comes from Russia
I am a ‘cousin’ of gold. If precious metals do well, it’s likely my price gets pulled up along with the rest of the space
Traders are extremely negative on me right now. Short interest is at all time highs
People say I have no future.