Systematic Ideas - Short Genuine Parts & Neste Oil, Long Paccar - 11 J
New Longs: PCAR
New Shorts: GPC, NESTE FH
Closing Positions: WKL NA, CNA LN, PNDORA DC, TIT IM, TSO
Short Genuine Parts Co (GPC US)
Increasing debt, declining margins and stagnant revenue numbers have put a lid on Genuine Parts’ stock price for the last few years.
Increased competition in the automotive business that is already skewed towards lower margins has seen Genuine Parts lose third place (by sales) to O’Reilly in 2016. With the tailwinds in the automotive segment expected to slow over the coming quarters and Industrial & Office remaining weak it looks like the stocks’ underperformance could now accelerate.
Given the sluggish outlook, it seems odd that the stock trades at the highest premium to peers on a (blended forward) P/E basis in the last 5 years (Fig.1). The last time the stock saw such a high premium was in late 2014 from where the stock saw a ~30% decline. We expect the current level of premium not to persist. Other quantitative signals are flagging decay too, so we short here.
Short Neste Oil (NESTE FH)
Neste Oil topped out over a year ago against the broader SXXP Index as well the SXEP Index (EU Energy Index) and has been stuck ever since.
Neste’s revenues have declined from over Eur 17 billion in 2013 to just under Eur 12 billion in 2016. The company missed Q1 EPS estimates in Q1 2017 and competition from new plants from 2018 is expected to pressure margins further.
The uncertainty surrounding the US blenders’ tax-credit continues to pressure margins and with palm oil prices increasing, the pressure on earnings looks likely to persist into the foreseeable future therefore the underperformance should continue.
NESTE’s implied volatility has made a multi year low (Fig.2), whereas the realized volatility hasn't fallen below its 2016 September low (where the price subsequently fell ~23%). We are in a situation now where the realized volatility is slowly rising and due to the extremely low levels of implied volatility, the chance of a large, fat-tailed move is increasing. We expect this move to be negative for NESTE. Consensus expectations for the name have been declining YTD too so we short here.
Deydun Markets
Deydun Markets, founded in 2010 and based in London, is a specialist quantamental research boutique. The client base includes institutional equity investors across the spectrum audience primarily from fundamentally driven long term investors to long / short high turnover hedge funds. Deydun covers all global markets through a macro lens as well as bottom up stock picking with the major overlay being the proprietary quantitative models that we have built over the years. The models are rebalanced to suit clients specific needs including quarterly, semi-annual and up to annual rebalance.
Deydun specialises in providing real-time securities recommendations including providing market timing advice and actionable short-only strategies. They use robust quantitative approaches to help isolate alpha for their clients. The systematic models attempt to be:
Right at the right time
- Avoid drawdowns
- Maximise diversification
The differentiated suite of empirical models that Deydun has developed adapt dynamically to mean reversion and momentum states.
The Deydun service is delivered through notes, “Key Thoughts”, that highlight new stock ideas and track the real-time performance of all the Live Book as well as those in the (unique) Flip Book when they have changed the side of the recommendation. These prove outstanding records of divining alpha in very liquid global equities. The models typically achieve 15% to 35% CAGRs in blind forward and real time proofing over one to two business cycles.
Deydun endeavours to provide each client with independent and relevant ideas and transparently track all their calls. Tier one clients receive a bespoke portfolio service and often share their positions to enhance the impact of the Deydun service.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.