FA Alpha Weekly Digest - 11 13 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 looming corporate bankruptcies in the U.S., Arch Resources (ARCH), Keurig Dr Pepper (KDP), Cummins Inc. (CMI), and Schonfeld Strategic Advisors.

The worst is yet to come for U.S. bankruptcies

The Federal Reserve maintains a steadfast position with high federal funds rates and has not introduced any measures to bail out banks or companies facing defaults or bankruptcy. Consequently, interest rates are poised to increase, making loans more expensive and harder to secure for borrowers. This, in turn, could lead to businesses grappling with the challenges of sustaining operations and meeting their financial obligations, which may eventually lead to bankruptcy.

Increasing steel demand is a big boost for this company

U.S. infrastructure spending is expected to increase, driving a surge in steel demand. This surge will benefit coal producers such as Arch Resources, given coal's essential role in steel production. Despite market skepticism, undervalued companies like Arch are positioned to benefit from this infrastructure growth.

It’s crunch time for this major beverage company

Increasing interest rates have made Keurig Dr Pepper's debt more expensive to service. This poses a significant challenge to Keurig Dr Pepper's profitability and ability to meet its financial obligations. To keep up with its industry competition, it made growth-oriented acquisitions and investments in marketing and distribution. Furthermore, supply chain disruptions and geopolitical uncertainties have intensified the company's financial strain. Despite these hurdles, rating agencies continue to cite strong brand recognition for Keurig Dr Pepper for its diversified product portfolio and extensive distribution network but Credit Cash Flow Prime? paints a different picture.

This company transforming its legacy business to the future of transportation

Hydrogen, especially through fuel cells, plays a crucial role in the transition to clean energy by offering emission-free transportation and efficient renewable energy storage. Cummins, a leading engine manufacturer, is strategically venturing into the future with its New Power segment, geared towards sustainable energy solutions. Despite contributing only 1% to current revenue, the company envisions this segment becoming its primary revenue generator by 2040. However, the market is skeptical of this move, anticipating a potential decline in Uniform return on assets (ROA) for Cummins. Conversely, Cummins' success in this visionary venture has the potential to exceed market expectations, leading to a transformative impact on future profitability and market standing.

Millenium may be trying to save one of its biggest competitors

Schonfield emerged as a formidable fund manager, challenging industry giants such as Citadel and Millennium. Despite concerns about a potential bailout for Schonfeld, a detailed analysis through Uniform Accounting reveals that the majority of its holdings comprise profitable and reputable stocks, outperforming the U.S. corporate average. However, despite the robustness of its holdings, Schonfeld's overall performance has lagged, marked by asset withdrawals and looming capital issues.

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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