YWR: Global Factor Model

Let’s review the top scoring stocks, sectors and countries for November using the YWR Factor Model.

Remember, we are looking for stocks where estimates are rising, valuations are attractive and price momentum is positive.

Global Top 20

When the YWR Factor model scours the world do you know what it likes best?

It likes Chinese insurance companies (P/E’s of 3-5x), Asian shipping companies (P/E’s of 3-5x) and Chinese brokerage firms (P/E’s 9x).

I know what you are thinking.

“Erik, can you screen for US (or Canadian) stocks with strong estimate momentum and decent valuations, but haven’t moved yet (weak price score)?

Strong Estimate Score but Weak Price Momentum (US)

With the US market at one of its highest valuation levels ever, that’s a tough ask, but here’s what I found.

To make this type of sorting easier I created an interactive scatter chart on Tableau with Price along the X-axis and Estimate momentum along the Y-axis. You are looking for stocks in the top left corner (strong estimate momentum, but Price score is low).

What could be interesting:

Paramount B Shares: Not sure if you’ve been following the buyout of Paramount by Larry Ellison and son David Ellison. B share holders will get $15/share in a mix of cash and shares in the new combination of Paramount and SkyDance. With the B -shares at $10 it seems like a good deal, but there is only $4.5bn of cash to go around which is 48% of the B-share float (not including National Amusements).

Everyone thinks the implied valuation of SkyDance ($4.75bn) is inflated and the whole deal is only happening because Larry Ellison loaned Shari Redstone $186mn so she wouldn’t default on the loans she took out against her Paramount holdings. It seems the Ellison family sees this as a great opportunity to own a major media franchise and turn it around.

Meanwhile, the Paramount DTC channel does have some momentum (Tulsa King, Yellowstone).

Do you buy the B shares at $10, get some cash ($3-4) and take a view the new Paramount with David Ellison works out?

Micron EPS estimates can be volatile, but they are on an upswing.

Qualcomm is doing well. It’s growing EPS 33% and expanding from mobile phones to PC’s and cars. QCOM also supplies the chips for the Meta Ray-ban glasses. With AI coming to mobile phones there is a lot of opportunity. But Qualcomm is also in the midst of a big patent dispute with ARM. ARM’s semiconductor technology is the basis of QCOM’s chips, but QCOM is also ARM’s biggest customer. QCOM has been trying to move away from ARM and claim its new designs aren’t based on the ARM technology and they don’t have to pay royalties to ARM, but ARM says they do, and it’s going to court in December.

Top 5 Industries

The ‘once in a century’ boom in new account openings at HK and Chinese brokers is why Investment Banks and Brokers are scoring so well.

Edmund Hui (許繹彬), chief executive officer of one of Hong Kong’s biggest local brokerages, Bright Smart Securities & Commodities Group Ltd (耀才證券金融集團), said his firm has experienced a “massive jump” in account openings. Many of his customer support staffers have canceled planned holidays, and are standing by 24 hours a day to handle the unprecedented surge in client inquiries. (Source)

The top scoring banks are Israeli and UK. We continue to like Barclays in YWR Dirty Dividends.

Discount Bank EPS Estimate revisions. My quick read on the Israeli banks is that the banks took large pre-emptive credit provisions in 2023 expecting the economy to be weak in 2024, but the economy has turned out to be more resilient than expected. Analysts are surprised credit costs in 2024 have much lower and had to raise their EPS estimates. For Discount Bank the NPL ratio actually fell from 2.1% in December 2023 to 1.8% at Sept 2024.

Monthly Industry Trends

Top 5 Countries

The US is back as the best ranked country. I suspect this is coming from strong price momentum rather than valuation.

Monthly Country Trends

We comment each month that China, Japan, Taiwan and South Korea are the New Europe. A new regional block of countries where we need to invest. The challenge is it’s not a region most of us are familiar with.

Just below top 5 countries, at #6 is the UK.

Below are the top ranked UK stocks… #1 is surprising…

Actually, lots of them look good.

I encourage you to go over the full dataset Factor Model dataset linked below.

Also check out the link to the Tableau Dashboard where you can review the Estimate-Price Scatter chart.