Weekend Reading

20 January 2017 | by Paul Perrino, CFA

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

Ray-Ban Maker Luxottica to Merge With Lens Company Essilor, Creating $49 Billion Eyewear Giant (Inti Landauro and Manuela Mesco; @landauro and @manuelamesco; WSJ)

Instead of competing, these two industry leaders decided to merge. “The merger joins two companies that previously risked stepping on each other’s toes as Luxottica expanded into lens manufacturing and Essilor moved into frames.” The combined company will now represent over a quarter of the eyewear market. The next competitor in this space has a less than 4% market share. The next hurdle is to find a CEO that Mr. Del Vecchio is confident in. “In recent years, however, Mr. Del Vecchio struggled to delegate authority, dismissing one planned successor after another.”

Would you pay $1,500 a month to drive an Escalade whenever you want? (Gene Marks; @genemarks; The Washington Post)

One auto manufacturer is taking a page from the software industry and trying to shift from a single purchase model to a subscription based model. “It’s also a great way for a potential customer to test out a big ticket item before considering a future purchase. At least that’s what Cadillac is hoping.” Cadillac is now offering Book by Cadillac which allows “members” to have unlimited access to several models for as long as they want – registration fees, insurance, and maintenance included.

For Shale Drillers, Rising Oil Prices Also Come With Rising Costs (Lynn Cook, Erin Ailworth, and Christopher M. Matthews; @LynnJCook@ailworth@cmatthews9; WSJ)

In November 2016, Russia and OPEC agreed to curb oil production to increase prices. Since the meeting, oil prices have risen from ~$45 to just under $55. During this same time, US drillers added more than 90 rigs to take advantage of these rising prices. Most drillers view $55 as the breakpoint to profit from new rigs. But, at the same time, drilling suppliers started raising their costs, which is threatening this new activity.

Presidents Have Less Power Over the Economy Than You Might Think (Neil Irwin; @Neil_Irwin; NYT)

The impact a new President has on the economy is highly dependent on the economic cycle. “And the White House has no control over the demographic and technological forces that influence the economy.” The areas the Presidental office does influence, fiscal and regulatory, can take years before the benefits or costs are seen in an economy. It can be quite detrimental for someone to make investments based on their political views. “Ask a conservative who refused to invest in stocks while they notched a 182 percent gain during the Obama presidency — or a liberal who shorted stocks after Donald J. Trump won in November.”

Ensemble Capital’s clients own shares of Luxottica (LUX).

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