Disruption in Weight Loss Drugs, and the Dangers of Buying Into Hype

December 22, 2023 in Best Ideas Conference, Letters

This article is authored by MOI Global instructor Jeff Auxier, president of Auxier Asset Management, based in Lake Oswego.

Jeff is an instructor at Best Ideas 2024.

Over the last several years, more companies have gone public with sky-high valuations, little-to-no profit and big promises of transforming their markets. When money was cheap it was easy for a new business to attract significant investment. Not so today as the spigot is shut off.

One company that fell victim to overhype is Beyond Meat which went public in May of 2019. The alternative meat company’s stock surged 163% on its first day of trading which at the time made it one of the best day-one performances for an IPO in nearly 20 years. JPMorgan originally estimated that Beyond Meat would be able to grow their sales to $5 billion in 15 years. The hope was that millions would abandon traditional meat for plant-based meat which was deemed to be more environmentally friendly and sustainable. After the IPO, the market consensus was for Beyond Meat to turn free cash flow positive by 2022 and have compound annual sales growth of around 40%. Instead sales fell 10% that year and they have yet to attain positive free cash flow even today. The company continues to struggle due to factors like its premium price and low availability. Since the stock’s all-time high in July of 2019, it has fallen over 95%.

Another more extreme example of a torpedo is WeWork. Its valuation ballooned to $47 billion in 2019 before crashing to less than $100 million today and it is closing in on bankruptcy. Euphoria surrounding the growth of electric vehicles led Rivian’s valuation to surpass $120 billion before the company reported even a single dollar in revenue. The company’s valuation has since fallen to under $16 billion.

The Robinhood trading app tried to capitalize on the massive IPO craze by going public in 2021 with a peak market cap of over $45 billion. Since then the stock has declined over 80% to a market cap of around $9 billion. Talk is cheap and the markets tend to eventually punish bad behavior.

Disruption in Weight Loss Drugs

New weight loss drugs have recently become increasingly popular; some are proclaiming them as the next big breakthrough in the health industry. These products, called GLP-1 agonists, work by making patients feel less hungry and can also affect how the body absorbs fat. Novo Nordisk and Eli Lilly are the two leaders in this new market which analysts at Goldman Sachs and JPMorgan estimate could reach $100 billion by 2030.

Some investors are concerned that these drugs will be so effective at curbing appetites that they could fundamentally change consumption patterns and impact demand for businesses like food and beverage companies. Investors worry that fast food restaurants already contending with rising inflation will also have to deal with a potential loss in customers if the use of weight loss drugs becomes more common. It is estimated that just over 42% of US adults are obese and could potentially be prescribed weight loss drugs.

Wall Street has been quick to herald these drugs as the ultimate healthcare product, but it is important to take a more cautious stance, especially in the early stages of research. There are still many unknowns surrounding these treatments, specifically around potential side effects like thyroid tumors, pancreatitis, diarrhea and nausea. It is expensive too, with an average monthly cost for shots of around $1000.

In the third quarter excitement over these drugs led to indiscriminate selling in food, beverage, medtech and medical devices to name a few examples. It is similar to the selloff in traditional food stocks when Beyond Meat went public as referenced earlier in the letter. McDonald’s believes there are currently about five million people using obesity drugs with the potential to increase to 15 million in the next few years, which they figure could hurt volumes by one half a percent. Pepsi and Starbucks have seen no change in demand year to date.

Energy was the best performing S&P 500 sector during the quarter, up 12.2%. Continued supply cuts by OPEC+ have kept oil prices elevated as the West Texas Intermediate (WTI) Crude rose by 29% in the third quarter. The US Energy Information Administration (EIA) expects that OPEC+ will keep production limited for the remainder of 2023 and into 2024. They forecast an average Brent Crude spot price of $91 per barrel in the fourth quarter and an average of $95 per barrel for 2024. The recent conflict in Israel has fueled fears over the stability of global oil markets as there are uncertainties around what countries like Iran will do in response to escalations. Iran is one of the largest producers of oil in the world and in August their output reached 3.1 million barrels per day, the highest since 2018 (Reuters). Potential Iranian involvement should lead the US to enforce stricter sanctions on the country’s oil exports. Iran also controls the Strait of Hormuz which is the most important oil checkpoint in the world, with around 20% of global oil supply passing through daily.

Insurance Hard Market

Property casualty stocks are enjoying a hard-pricing market. Global commercial insurance pricing increased for most lines of coverage in the third quarter, according to Marsh McLennan, marking the longest run of consecutive quarterly rate hikes since 2012. US property rates are up 14% for the quarter. Auto insurance rates are up 15.5%, with rates in Florida up 88% and electric vehicles up over 70%. Disciplined operators benefit from rising prices and rising premium volume. In addition, higher interest rates improve portfolio cash flows. The insurance component of the S&P 500 trades at 12 times next year’s earnings, a steep discount to the overall market. We have a wide exposure to the property casualty industry with names like Berkshire Hathaway, Travelers, AIG, Marsh McLennan, AON and Ryan. In addition, health-related insurers like Aflac, UnitedHealth and Elevance are seeing positive fundamentals in pricing and volume trends.

In Closing

On a recent multistate trip we visited the new $40 billion Taiwan Semiconductor (TSMC) facility under construction in North Phoenix. The amount of cement required is straining supplies for the entire metro area. Over 60% of the workforce for that plant will have a masters or higher degree. This is just one of several plants going in as a result of the government CHIPS act. That roughly $52.7 billion stimulus has attracted another $200 billion in private funds which is just starting to filter through the economy. In addition, $433 billion of government spending is earmarked over the next 10 years under the Inflation Reduction Act. It is hard to see a recession in those industries related to such massive fiscal stimulus.

Most stocks and bonds have been in a grueling bear market for two years. More than half the Russell 3000 stocks are down over the past twelve months. Usually the last third of a bear market is a capitulation and the most painful. We are finally seeing attractive values in many businesses that have been experiencing multiple compression with tighter money, especially in smaller companies. Our biggest winners coming out of the 2000-2002 bear market were in smaller companies like Scottsdale credit card processor eFunds. It traded at a single digit p/e under $10, was debt free and ultimately acquired by private equity for over $37. During these challenging market conditions we strive to add value by mitigating risk through our cumulative knowledge and experience along with a ramped-up research effort. Our research centers on the earnings power and growing intrinsic value of the individual businesses we own. Longer term there is a direct correlation to the earnings and ultimate stock price return.

Gokul Raj Ponnuraj on Value Investing in Developing and Developed Markets

November 24, 2023 in Audio, Equities, Full Video, Interviews

We had the pleasure of speaking with value investor Gokul Raj Ponnuraj, portfolio manager at Bavaria Industries Group AG (Germany: B8A), an owner-operated investment holding company, based in Munich, Germany.

MOI Global’s Rohith Potti hosted Gokul Raj for this exclusive interview.

Gokul Raj Ponnuraj is a value investor with a focus on small and mid-cap compounders and spin-off’s with a bias towards emerging markets. He has been investing in the Indian markets since 2006 and in global markets since 2017. Gokul Raj manages the public equities portfolio at Bavaria Industries Group. The firm uses its balance sheet assets (permanent capital) to invest in opportunities with an attractive risk-reward trade off. Gokul Raj holds a Master in Finance degree from London Business School and a CFA charterholder.

Gokul Raj is an MOI Global instructor and has presented multiple ideas.

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The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Shyam Sekhar on Value-Oriented Investing in India

November 7, 2023 in Asia, Audio, Equities, Full Video, Interviews

We had the pleasure of speaking with value investor Shyam Sekhar, founder of ithought Financial Consulting, an investment advisory firm, based in Chennai, India.

MOI Global contributor Rohith Potti hosted Shyam for this exclusive interview.

Shyam Sekhar is the ideator and founder of ithought Financial Consulting LLP. He is an active and renowned value investor with over 30 years of experience in financial markets. His focus as an investor has been on identifying investment opportunities in emerging companies through a sound research driven process. Shyam also built the first independent proprietary equity research desk in Chennai. He is an advocate for investor awareness. He was president of Tamil Nadu Investors Association (TIA) from 2012-2015. He is an active speaker in public forums and is a regular columnist at Dinamalar and Livemint.

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The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

J.Dennis Jean-Jacques on His Idea Search Criteria and Selection Process

October 26, 2023 in Audio, Diary, Discover Great Ideas Podcast, Equities, European Investing Summit 2023, Ideas, Member Podcasts, Transcripts

J.Dennis Jean-Jacques of Ocean Park Investments discussed his investment approach, idea generation process, and selected areas of opportunity at European Investing Summit 2023.

Dennis has also authored an illuminating article on investing in dislocations.

For additional background, enjoy our original interview with Dennis.

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About the instructor:

J.Dennis Jean-Jacques serves as Founder and Chief Investment Officer at Ocean Park Investments LP. He is an accomplished and seasoned investor having invested approximately more than $3.2 billion of client capital in the US and European public markets during various market cycles over 20 years.

For a decade, prior to Ocean Park, Mr. Jean-Jacques was a Managing Director and portfolio manager at alternative platforms including Verition Fund. Prior to running low net, alternative strategies, Mr. Jean-Jacques was an investor in the Public Equities Division at Olayan Investment Group and apprenticed at Mutual Shares focusing on companies undergoing or likely to undergo significant change, dislocations and other unique special situations with a strategy and asset mix consisting of domestic and foreign equities, arbitrage positions, shareholder activism and bankruptcy positions. For ten years, Mr. Jean-Jacques served as a board advisor and as an actively engaged shareholder in several campaigns including in the operational restructuring of a global industrial company, the outright sale of an American appliance manufacturer, and, at the boardroom level, helped lead the break-up of an S&P 500 conglomerate where his work was profiled in BARRON’s, Business Week and The Wall Street Journal.

Mr. Jean-Jacques is also an author on portfolio construction, valuation and risk management where his published work, “The Five Keys to Value Investing” is used at many universities and has been translated into three languages including Mandarin Chinese. He began his investment career at Fidelity Investments in equity research in 1993. Mr. Jean-Jacques received a BSSE from Boston University College of Engineering and an MBA from Harvard Business School.

Eurofins: Quality Business With Continuing Structural Growth

October 20, 2023 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2023, Ideas, Member Podcasts, Transcripts

Stuart Mitchell of S. W. Mitchell Capital presented his investment thesis on Eurofins (France: ERF) at European Investing Summit 2023.

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About the instructor:

Stuart Mitchell is the Managing Partner and CIO of S. W. Mitchell Capital and the Investment Manager of the SWMC European Fund, as well as a number of managed accounts.

Prior to founding SWMC in 2005 Stuart was a Principal, Director and Head of Specialist Equities at JO Hambro Investment Management (JOHIM, now Waverton Investment Management). At JOHIM he set up and managed the Charlemagne Fund, a long/short European fund, and the JOHIM European Fund, a long only European fund. The JOHIM European Fund rose by 133% since inception in December 1998 until March 2005 compared with 8% for the benchmark index and was number 1 rated by Micropal within its sector and three star ranked by S&P.

Upon leaving university in 1987 Stuart joined Morgan Grenfell Asset Management (MGAM) and soon afterwards assumed responsibility for managing the continental European equity assets for MGAM’s British pension fund clients. Stuart was appointed a director of MGAM in 1996. He was then made Head of European Equities and was responsible for $27 billion of equity assets. Whilst at MGAM he managed the Morgan Grenfell European Fund which rose by 123% from January 1990 to June 1996 compared with 85% for the benchmark index and was awarded 1st place by Micropal (5 year awards) in 1996.

Stuart was born in Scotland and educated at Fettes College and St. Andrews University where he read Medieval History. He is also a graduate of the Owner/President Management programme from the Harvard Business School. Stuart speaks English and French.

ISS: Facility Management Services Leader With Customer Behavior Moat

October 20, 2023 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2023, European Investing Summit 2023 Featured, Ideas, Member Podcasts, Transcripts

Markus Matuszek of M17 Capital Management presented his investment thesis on ISS A/S (Denmark: ISS) at European Investing Summit 2023.

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About the instructor:

Markus Matuszek is an investor and entrepreneur. He is the founder, CEO and Chief Investment Officer of M17 Capital Management, who invests into long/short value positions as well as private opportunities, biased towards European ideas. His group also acquires ownership positions in companies and seeks to maximise their long-term potential by working with management and other shareholders. It invests its own capital and works with a select group of co-investors. Markus aims for controlling positions yet is flexible in holding periods and transaction structures. His focus is to invest in stable companies which are undergoing change and he does not shy away from distressed situations or structural dislocations, provided the risks are acceptable and he believes in a company’s long-term value creation potential.

Prior to M17, Markus ran asset management and advisory firm Hermes Capital Management as well as he was a managing partner at hedge fund Gabelli & Partners. He has been investing in listed securities, private companies and real estate over 20 years with a solid track record. Earlier in his career, Markus was a senior advisor / interim manager with extensive advisory and hands-on work in strategy, restructuring, organizational change, corporate finance/M&A and risk management in Western Europe, Eastern Europe and the US. He started his professional career with McKinsey & Company. His education includes a M.A. in finance, accounting and controlling from the University of St. Gallen (Switzerland), a master degree from CEMS and dual MBAs from Columbia Business School and London Business School (with honors). Furthermore, he studied at the Warsaw School of Economics and University of Geneva and received several merit-based fellows and scholarships. He is also a CFA charterholder and a long-term jury member for the CFA Institute’s Research Challenge in Switzerland as well as for EMEA.

Savencia: Well-Managed French Cheese and Dairy Leader at Discount

October 20, 2023 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2023, Ideas, Member Podcasts, Transcripts

Brian Chingono of Verdad presented his investment thesis on European equities and Savencia (France: SAVE) at European Investing Summit 2023.

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Brian Chingono worked at Dimensional Fund Advisors and Credit Suisse before joining Verdad. Brian earned an AB from Harvard College and an MBA with honors from the University of Chicago Booth School of Business. As a graduate student, Brian co-authored two research papers related to Verdad’s investment strategy: Leveraged Small Value Equities and Forecasting Debt Paydown Among Leveraged Equities.

SolidWorld: Fast-Growing Italian 3D Digital Systems Integrator

October 19, 2023 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2023, Ideas, Member Podcasts

Massimo Fuggetta of Bayes Investments presented his investment thesis on SolidWorld Group (Italy: S3D) at European Investing Summit 2023.

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Massimo Fuggetta is the founder, Chairman and Chief Investment Officer of Bayes Investments. He started his investment management career in 1988 at JP Morgan Investment Management in London, where he rose to become Head of the Global Balanced Group, with responsibility for international balanced portfolios. In 1999 he left JPMIM to become Chief Investment Officer, Director General and then CEO at Sanpaolo IMI Asset Management in Milan. He left the company in 2001 to start Horatius, an investment advisory company incorporated in 2004, which in 2007 became an asset management company. He left Horatius in 2012 to go back to London, where in 2014 he founded Bayes Investments. Massimo holds a Doctorate (DPhil, 1991) and Master’s Degree (MPhil, 1987) in Economics from the University of Oxford (Trinity College). He graduated in Economics at LUISS, Rome in 1984. He taught Behavioural Finance in the Master in Economics course at Bocconi University in Milan in 2000-2002 and in the same period served in the Editorial Board of the Financial Analysts Journal. In 2012 Massimo started the Bayes blog at www.massimofuggetta.com, which has acquired popularity in the Value Investing community.

Stellantis: Deeply Undervalued, Well-Financed, Well-Managed Auto OEM

October 19, 2023 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2023, Ideas, Member Podcasts, Transcripts

Adam Crocker of Logbook Investments presented his investment thesis on Stellantis (Italy: STLAM, US: STLA) at European Investing Summit 2023.

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Adam Crocker, CFA is Founder and Chief Investment Officer of Logbook Investments, a value fund with core positions based on insights from books. Logbook launched in 2016 and is seeded by his former employer. Prior to Logbook, Adam was a co-manager at Metropolitan Capital Advisors, a long/short equity fund founded in 1992. Before joining Metropolitan, he was an analyst at Morgan Stanley Investment Management conducting research on behalf of growth and value investment teams. He began his career in Leveraged Finance investment banking at JPMorgan. Adam is a 2005 graduate of the Value Investing Program at Columbia Business School and has an undergraduate degree in Economics from Columbia University.

Eurofins: Fast-Growing, Best-in-Class, Family-Owned Lab Operator

October 19, 2023 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2023, European Investing Summit 2023 Featured, Ideas, Member Podcasts, Transcripts

Independent wealth manager Samuel Weber presented his investment thesis on Eurofins Scientific (France: ERF) at European Investing Summit 2023.

Samuel also updated his investment theses on four ideas he had presented at previous editions of European Investing Summit. Samuel commented on Deutsche Bank (Germany: DBK, US: DB), Lanxess (Germany: LXS), Swatch Group (Switzerland: UHR), and Holcim (Switzerland: HOLN).

Access the original presentations as follows:

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About the instructor:

Samuel S. Weber is an independent wealth manager based in Zug, Switzerland. He is a value investor, who is focused on generating long-term, market beating returns by investing in high-quality opportunities in the stock market (www.samuelsweber.com). Samuel holds a master’s degree in strategy and international management from the University of St. Gallen and is a member of the Board of Trustees of HBM Fondation.

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