In September 2016, we recommended going long the misunderstood advertising company Omnicom Group Inc if certain events took place.
The historical high correlation between OMC and the S&P500 Index made OMC a sub-optimal, high beta proxy for the SPY despite its above average ROIC & EVA.
Strategies for improving OMC's relative stock price performance included optimizing its balance sheet (principally via a material stock buyback) and implementation of a number of additional corporate governance reforms.
The good news is that since the Brexit vote in June of 2016, the OMC stock price performance has decoupled from the S&P500 Index.
The bad news is that OMC has materially underperformed the S&P500 Index during this ongoing equity bull market. We would continue to avoid OMC until internal or external reforms are implemented. Read More
A number of market commentators have drawn positive attention to the low PE multiple and high dividend yield of B&G Foods (NYSE: BGS). While we would not go so far as to call B&G Foods a value trap, the stock still carries material downside risks. In particular, the long thesis should, at a minimum, take into account the B&G Foods leverage, payout ratio and management compensation incentives. Read More
New article on New Jersey Resources / South Jersey Industries merger speculation. Most likely outcome, if there is any deal at all, is a low premium merger-of-equals. A 30% premium, 50% stock / 50% cash deal is also possible but requires some transaction structuring and extensive merger due diligence Read More
The Australian dollar has historically been highly correlated with the price of crude oil. Which might appear counterintuitive given the relatively small quantity of Australian crude oil production, and the market mantra that foreign exchange rates are all about interest rate differentials. If you understand how Australian LNG exports are priced, and how Australian LNG export contracts differ to North American LNG, then the relationship makes more sense from an empirical and theoretical basis. If this relationship between the Aussie dollar and crude oil prices continues into the future, it allows investors and speculators to reduce their emphasis on future Australian residential housing prices and/or RBA interest rate changes (provided, of course, that you have strong views on the future of crude oil prices) Read More
SA Pro Editors discuss our 2016 research report on Lannett Company and provide an update on its intrinsic value. Read More
OMC continues to be highly correlation to the SPX. Over 80% since our report publication in September 2016. Balance Sheet and Corporate Governance reforms might be the only way to avoid the cycle of underperformance during the next equity bear market. Read More