FA Alpha Weekly Digest - 10 31 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 discuss the Fed’s Senior Loan Officer Opinion Survey, Atkore (ATKR), Louisiana-Pacific Corporation (LPX), Alpha Metallurgical Resources (AMR), and Farallon Capital.

Trouble in private equity means trouble for all

The Federal Reserve utilizes the Senior Loan Officer Opinion Survey (SLOOS) as a quarterly survey that collects input from senior loan officers, offering insights into the condition of the banking sector. The most recent SLOOS report revealed that 51% of banks are tightening their lending standards, suggesting a reluctance to provide loans. This serves as a warning signal for broader economic concern—an increasing likelihood of a recession.

This company stands to benefit from growing infrastructure?

Atkore (ATKR), a leading provider of electrical, safety, and infrastructure solutions, stands to benefit from the United States’ decade-long investment in infrastructure and supply chains. This trend has already led to a significant increase in the company's Uniform ROA, rising from 25% in 2020 to 62% in 2022. However, market expectations appear to be overly pessimistic, underestimating the company's potential to capitalize on this trend.

Not all homebuilders are facing a cliff edge, this company is the proof

Rising interest rates and housing prices are driving higher costs of borrowing and financing. Consequently, both homebuyers and homebuilders have grown cautious about entering the housing market. This, coupled with the financial risks exacerbated by the current economic climate, has led rating agencies to adopt a pessimistic stance towards the homebuilding sector. However, there are standout companies in this challenging environment. For one, Louisiana-Pacific Corporation is a provider of construction materials and solutions for new construction and remodeling projects. The company has taken proactive steps to diversify and adapt to the evolving needs of the construction sector, thereby mitigating the cyclical nature of the housing market. Unfortunately, rating agencies do not fully acknowledge these developments, giving the company an unwarranted high yield credit rating.

This company is fueling infrastructure growth with Met Coal

Alpha Metallurgical Resources (AMR), a leading supplier of metallurgical coal for steel production, is benefitting from increased U.S. infrastructure investments. Despite AMR's remarkable growth, with its Uniform ROA rising from -5% in 2020 to 86% in 2022, the market remains cautious. The Embedded Expectations Analysis (EEA) reveals market expectations of a significant ROA decline for AMR in the coming years. However, AMR's strategic position amid the U.S. supply chain supercycle and sustained steel demand align the company for continued growth.

FTC pushback is no problem for this fund

Tom Steyer gained recognition initially as the founder of the successful hedge fund Farallon Capital. This fund revolutionized the hedge fund industry by attracting investments from university endowments, broadening access beyond high-net-worth individuals. Farallon Capital, a pioneer of absolute return investing, employed diverse strategies, including event-driven investing, merger arbitrage, real estate investments, credit investments, and emerging markets. While Steyer left the fund in 2012 for his political pursuits, Farallon has maintained its core strategies, continuing to find success in various investment spaces, such as the Amgen-Horizon deal and activism efforts in Exelixis.

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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