FA Alpha Weekly Digest - 05 16 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 corporate America’s liquidity, PagSeguro Digital (PAGS), Kraft Heinz (KHC), Amazon (AMZN), and Two Sigma Investments.

The Number of Wounded Companies Is Important for This Reason

As the Federal Reserve continues to raise interest rates resulting in higher borrowing costs, more companies are being pushed into the “high risk” basket.That said, companies with strong balance sheets can withstand the pressure in a high interest rate environment. In recent years, companies have been focused on building cash reserves to handle their near-term obligations, and a significant majority have more cash than debt coming due. Although companies hold less cash compared to pandemic highs, their levels are still above average. This indicates that the overall corporate balance sheets are healthy. Despite the expectation of a mild recession in late 2023 or early 2024, there will be buying opportunities in the market, particularly for companies that can weather the storm.

This payment processor is growing in a thriving industry

Many companies have chosen to list their stocks in the U.S. market given its strong access to public funding, liquidity, and increased brand visibility. Over the years, listed foreign companies in the U.S. have risen from 1.4% in 1980 to 37.2% in 2022, and this trend is expected to continue moving forward. One example is PagSeguro Digital, a Brazilian payment processor that has seen significant growth and increased market share after listing on the New York Stock Exchange back in 2018

Going public helped this massive food company survive

The merger between Kraft Foods and Heinz in 2015 created one of the world's largest food and beverage companies. However, it also resulted in a significant debt burden for the newly formed entity, the Kraft Heinz Company (KHC). Since then, KHC has been paying hefty amounts of debt. Can the company generate enough cash flows to service its obligations moving forward?

This internet giant may finally be slowing down after a decade of high growth

The pandemic caused significant changes in people’s lives, resulting in the At Home Revolution. People changed their shopping, working, and socializing habits, while governments enforced restrictions. This impacted companies differently, with some benefiting and others going bankrupt. Amazon was a big winner, experiencing growth in e-commerce and technology services through AWS. Despite the massive growth it experienced during and after the pandemic, their profitability has not increased.

With another volatility this year, quant funds are poised to benefit again in 2023

Volatility creates uncertainty for investors, but quant funds benefit from it by using advanced techniques to identify opportunities and generate profits. They quickly and accurately process and analyze vast amounts of data to identify patterns and trends in the market. This makes them well-positioned to navigate a volatile market environment and generate alpha. Last year, Two Sigma Investments returned about 25% while the broader market fell by almost 20%. Due to rate hikes and the regional bank crisis, this year seems favorable again for quant funds.

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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