Weekend Reading

22 July 2016 | by Paul Perrino, CFA

A summary of this week’s best articles. Follow us on Twitter (@INTRINSICINV) for similar ongoing posts and shares.

Peculiar Stock Leadership in 2016 (Travis Fairchild, The Investor’s Field Guide)

Last week (read here) we reviewed the outperformance of high-yield stocks for the first half of 2016. This article looks at the outperformance from another angle, Value versus Growth. It uses the Russell 1000 as it’s proxy and analyzes the factors that are driving the outperformance. Against intuition, it turns out that Investors have been bidding up the prices of low growth companies. The top 10 performers of the Russell 1000 Value make up 20% of the benchmark. Ranking the companies by EPS or sales growth, most of these top 20 companies are in the bottom percentile.

We’ve Just Witnessed One of the Least Volatile Economic Recoveries on Record (Ben Carlson, @awealthofcs, A Wealth of Common Sense)

The slow growth in this economic recovery has been accompanied by abnormally low volatility. This is economic stability is an overlooked positive aspect of the current economy cycle. Ben also points out that over the past 70 years, stock market volatility has been 10 times higher than economic growth volatility, illustrating why market swings present opportunities for investors.

Mastercard Buys Most of Britain’s VocaLink for $920 Million (Jennifer Surane, @jennysurane, Bloomberg)

In the largest deal in Mastercard’s history, they purchased VocaLink. This UK company has developed an alternative (and faster) bank to bank transfer process than ACH. They also process 90% of UK’s payroll payments and 70% of online bill pay.

China: A Transition Well Underway (Andy Rothman, @MatthewsAsia, ValueWalk)

The rotation from industrial spending to consumer spending has been the topic of conversation for many years. Final consumption has reached 73% of China’s GDP, which is up from 42% a decade earlier. US companies are benefiting from this rotation. Almost 1/4 of all iPhone sales in 2015 were made in China. Along with this increase in consumer spending is the shift from State Owned Enterprises (SOEs) to privately run businesses.

Trucking Company Failures on the Rise (Robbie Whelan, @RWhelanWSJ, WSL)

The trucking industry is extremely fragmented. There are over 160,000 interstate motor carriers with over 2 million trucks carrying goods around the US. These companies range from small independent truckers to larger trucking companies. Under “ideal conditions” turnover is typically contained to independent truckers, while the larger companies stay in business. As gas prices start to rise, both segments are starting to feel the pinch, setting up conditions for the strongest players in the industry to consolidate market share.

Ensemble Capital’s clients own shares of Mastercard (MA).

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