FA Alpha Weekly Digest - 03 27 2023

Wall Street’s stock picks can’t be trusted and the advertising bias of the mainstream financial media makes their news only sensationalist-driven. Gain an edge by knowing the trends that matter and some of the mispriced names in the market.

We bring you the FA Alpha Weekly Digest, a roundup of FA Alpha’s unique and unparalleled equity, credit, and macroeconomic insights over the past week.

In today’s digest, we’ll take a look at mortgage-backed securities, D.R. Horton (DHI), TriNet Group (TNET), Hess Corporation (HES), and Long Cramer Tracker ETF.

Mortgage Backed Securities: This Time Is Different

The heart of the financial crisis 15 years ago was the banking industry. Many people credit mortgage-backed securities (MBS) for the Great Recession and thought that this also caused the collapse of Silvergate Capital (SI) and Silicon Valley Bank (SVB). The current run on banks is nothing like what we saw during the 2008 financial crisis when banks had a non-performing loan problem. In 2023, MBS problem was different when it is no longer an issue with homeowners mailing keys back to the banks, and there’s no looming reset that will make homes unaffordable.

Homebuilders are more resilient than they seem

The idea behind rising interest rates is that it slows down the economy. It becomes costlier for companies and individuals to borrow. We would expect to see the demand for housing to drop. Buying a house using credit will be harder with increasing interest and mortgage rates. However, demand for homebuilders remains strong, which greatly benefits companies like D.R. Horton.

Some boring businesses are much safer than they look

Stable businesses like TriNet Group can provide significant returns to investors despite not being associated with high-growth and trendy industries. TriNet Group offers payroll administration services to small and medium-sized businesses, a vital and stable business. The company has enjoyed increasing profitability, with its return on assets jumping from 38% in 2020 to 70% in 2022. However, rating agencies like S&P seem to miss these facts and give it a low rating, which is surprising given the company's rising profitability and overall stability.

Funding of energy companies continues unlike what the market thinks

Many industries, including banks, have committed to net-zero emission goals by 2050, which includes aligning their funding channels to encourage the use of low-carbon energy and discourage fossil fuels. However, banks continue to provide credit for companies investing in growth, including those in the energy industry. Even though banks are nowhere near their 2050 goals, the market expected energy companies like Hess Corporation to be left without funding. However, that is not the case. As such, Hess bounced back strong post- pandemic and is projected to continue to grow..

The ETFs based on infamous TV host’s stock picks are now tradable

The long-awaited ETFs that track Cramer’s recommendations were finally launched in the first quarter of 2023. People who agree and trust Cramer’s stock picks can now buy the LJIM ETF, while those who want to take the opposite position can buy the SJIM ETF. Let’s take a look at? the holdings of LJIM ETF and evaluate it under the lens of Uniform Accounting.

We hope you find this week’s FA Alpha Daily articles insightful.

See you next week as we talk about another set of interesting names.

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