YWR: Global Factor Model
Disclosure: Personal views only. Not investment recommendations.
Top 20 Ranked Stocks (excluding Turkey)
There are still lots of highly ranked European banks in the factor model, especially Italian banks. 4Q 2022 earnings were good, with low credit losses and rising net interest income. Time will tell if the recent banking panic persists and filters through into earnings. For now the banks still screen well.
We mentioned reinsurance last month. Insurance stocks like SCOR, RenaissanceRe, EverestRe and SwissRe are moving up the ranks. Last month I shared the anecdote from my friend that reinsurers are writing business on much better terms and these will come through in future results. Here also is a slide from SwissRe confirming the hardening insurance market. Swiss Re will also benefit from a higher yield on new investments.
There is a temporary mark to market loss for insurers when bond yields rise, but it is a longer term positive if they can reinvest premiums at higher investment yields. Assuming they don’t give away this extra investment income in lower premiums. Zero % interest rates were a real problem for insurance companies and banks. They are both benefitting from the move back to higher yields.
Swiss RE is trading with a market cap of CHF 29bn so the valuation is less than 10x earnings on their 2023 net profit target. The dividend yield is 6.5%.
The other big mover is airlines. We now see Lufthansa, Air France, British Airways (ICG), United Airlines and American Airlines in the top 20. Nobody wants to own an airline stock, which makes it especially interesting.
We have to figure out what do to with Turkey….it screens well and has been surprisingly resilient in US$ terms.
The full model is below.