Omnicom / S&P500 Correlation After The Brexit Vote

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

B&G Foods: Risk Profile is Not Asymmetrical

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