FA Alpha Weekly Digest - 10 02 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 stocks 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 inflation, Vector Group (VGR), AZZ (AZZ), Netflix (NFLX), and AI Powered Equity ETF.

We aren’t out of the inflationary woods yet

Inflation is a critical factor affecting stock valuations. Historically, the best stock market periods have occurred during low inflation and a low tax environment. That said, given the rising inflation rate, the current valuation of 25 times as-reported P/E is unsustainable and could lead to a decline in stock valuation and market selloff.

This pure play company is looking to keep on growing?

Vector Group underwent a transformation by selling its real estate segment and becoming a pure-play tobacco company. This shift streamlined its business model, leveraging the stability and higher profitability of the tobacco industry. Since this transition, Vector has seen a significant improvement in its profitability metrics, with its Uniform ROA reaching its highest in 15 years. However, the market fails to recognize this investment opportunity, overlooking Vector’s growing position in the tobacco industry.

What rating agencies are getting wrong with this acquisition

Companies face challenges in borrowing and refinancing in the current high-interest rate environment, and the looming U.S. recession adds further concern. Despite these, AZZ Inc., a leading provider of metal protection solutions, made a strategic decision to acquire Precoat Metals to scale its operations. This acquisition doubled AZZ's Uniform ROA in 2023. In contrast to its given credit rating, its successful strategic initiatives and financial position suggest a much safer credit standing.

This streaming giant looks bulletproof entering a recession

In the midst of economic uncertainties and rising interest rates, many companies are grappling with credit challenges and the potential threat of bankruptcy. Amidst this backdrop, Netflix showed flashes of resilience. Despite missing its subscriber growth targets last 2022, the company has been on the road to recovery. Netflix witnessed strong customer loyalty after tackling the prevalent issue of password sharing. Most subscribers retained their memberships, and many who were ousted due to shared passwords opted to create their own accounts, highlighting the platform's robust appeal.

This AI tool could replace 1,000 analysts

The hedge fund industry is witnessing an escalating war for talents, with the significant portion of fund fees allocated to retaining top talents at the expense of clients. However, the AI Powered Equity ETF (AIEQ) offers a potential solution. Utilizing the IBM Watson system, AIEQ simulates the work of a massive research team, analyzing data points across various domains to project the performance of over 6,000 U.S. companies. This AI-driven approach could reduce costs and shift the focus from the traditional hedge fund model, providing a more cost-effective investment avenue.

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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