Valens Market Phase Cycle Monitor & Corporate Credit Macro View - April 2018
In general, management teams tend to be value buyers, buying when their stocks dip and withdrawing when their equity rallies. If they don't, it can be a sign of their concern about fundamentals. Watching this statistic can be helpful in confirming other signals about the fundamental outlook. Over the past month, with earnings related black-out periods removed, company management teams have taken the opportunity to buy their stock at higher than average levels. Management teams are showing confidence in their business fundamentals, even as the market remains volatile because of the macro backdrop. This is confirmed by the continued management confidence based on aggregate analysis of earnings calls, showing that management remains to be optimistic about investing in growth. Management teams have plenty of reasons to be optimistic, reasons the market is likely to start to realize more as we enter earnings season and the focus returns to corporate performance as opposed to news flow. The market is not yet pricing in these reasons for optimism, which is likely to spell opportunity for equity upside as we head deeper into 2018. Those reasons for optimism include: - Strong Uniform Accounting earnings growth for 2018 - Safe balance sheets and credit profiles for corporates, which have kept IG and XO iCDS safe, and led to a recent drop in HY iCDS - Access to credit that remains healthy, with bank balance sheets healthy and credit standards easing - Ample room for cash usage to buy back shares, fuel growth, and otherwise deploy and return capital with improving profitability and the recent tax break
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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