Value Investor Daily #4

CPG Companies Falter in 2023, Last Day for Tax Harvesting, and Sticking With Stock Over Gold

December 27, 2023

In Today's Edition:

Good Morning Investors, we hope you had a safe and cozy Christmas.

News is light on this final week of the trading year, so let’s stroll together through the rest of the week’s stories.

Enjoy!

CPG food stocks down over 20% in 2023

Packaged Food Stocks Fell in 2023, Time to Buy?

Campbell Soup, General Mills, J.M. Smucker, and others, experienced significant declines in stock prices in 2023. They faced weak overall demand for the year, potentially caused by a lowering of SNAP benefits by states.

Investors also feared a drop in CPG food sales earlier this year due to the surge in new obesity drugs.

But overall, average prices of their goods are still elevated from pre-pandemic levels. They’ve been able to absorb the impact of supplier inflation and pass the cost increases on to consumers.

The stocks are starting to look cheap:

Campbell Soup (CPB), TTM Price/Cash Flow - 11.76x

General Mills (GIS), TTM Price/Cash Flow - 11.92x

J.M. Smucker (SJM), TTM Price/Cash Flow - 9.3x

Conagra Brands (CAG), TTM Price/Cash Flow - 11.6x

Mircosoft is a shameless cloner

Pabrai: Be a Shameless Cloner Like Microsoft

Mohnish Pabrai, the value fund manager, appeared on Schroders' podcast, The Value Perspective, to discuss investing strategies on October 10, 2023.

Pabrai shared his insights on various aspects of investing, including the importance of having a long-term perspective and being patient to achieve successful returns.

He also covered the enduring value Microsoft has created by being a shameless cloner. Microsoft has deftly copied applications for years, resulting in some of their biggest hits including Word, Excel, and Teams.

Pabrai religiously follows the trades of other value investors to clone their best ideas, shamelessly.

He did the same with his fund, by copying Buffett’s original partnership structure.

Time’s Up—Dec 27th Last Day for Tax Harvesting

Investors who want to take advantage of tax-loss harvesting for the year need to act quickly, as the deadline for selling securities for this purpose is December 27th. Tax-loss harvesting involves selling securities at a loss to minimize capital gains for the year.

By doing so, investors can offset some of their gains or use the losses as a write-off against ordinary income. It’s also important to be aware of the "wash-sale" rule, which prevents investors from repurchasing the same position within 30 days of a sale.

Does it work? Yes, according to Forbes, it can improve your returns by up to 1% over the long run, but the key is to actually invest your tax savings.

Mastercard: US Holiday Retail Sales Grow 3.1%

US retail sales during the holiday season grew 3.1% between November 1 and December 24, lower than the 3.7% growth forecasted by Mastercard in September and last year's 7.6% rise.

Higher interest rates and inflation are seen as factors that have affected consumer spending, leading to the lower growth rate. The report also showed slower e-commerce growth, at 6.3% compared to the previous year's 10.6%.

Apparel and restaurant sales rose, while electronics sales experienced a decline. However, the overall increase in retail sales indicates consumers are still spending but are price-conscious.

Ackman Sees Rate Cuts: 3 Stocks That Could Benefit

Bill Ackman, founder and CEO of Pershing Square Capital Management, has predicted that the Federal Reserve will start cutting interest rates in the first quarter of next year.

"We're betting that the Federal Reserve is going to have to cut rates more quickly than people expect. That's the current macro bet that we have on."

Bill Ackman

This move will benefit certain stocks, including Tesla, Alphabet (Google's parent company), and Caterpillar.

The expected rate cuts would make electric vehicles more affordable and reduce financing costs, which would boost the returns on capital for both Tesla and Alphabet, Ackman’s biggest holding.

Meanwhile, lower interest rates historically benefit industrial stocks like Caterpillar by increasing construction activity in the economy.

Here’s how cash flow multiples look on the three companies:

Tesla (TSLA) - 66x TTM cash flow

Alphabet (GOOGL) - 16.6x TTM cash flow

Caterpillar (CAT) - 12.7x TTM cash flow

Ken Fisher Takes a Closer Look at Gold Investing

While gold prices have recently surged, billionaire Ken Fisher argues that gold requires impeccable market timing and that its returns are often more volatile and lower compared to global stocks.

Gold returned just 6% per year since 1973 with 19% volatility vs. stocks at 11.1% and 15.5% respectively.

Furthermore, it turns out gold does not act as a hedge against inflation nor do falling interest rates boost gold prices.

Fisher says, for most investors, unless you have perfect gold timing, stick with stocks and bonds.

Q&A

As always, send us your questions and feedback. Got a stock you want us to do a deep dive on? Have a burning question on value investing? Just hit reply and let us know.

That’s it for today, thanks for reading!