Invest in What's Unloved

[Folster]

Investing in what's unloved is hardly a novel concept especially in the realm of value investing.

But my recent analysis of NVDA got me thinking more about it. There are a lot of companies like NVDA that are fantastic companies, but sentiment is overwhelmingly positive as is the sentiment for the entire semi-conductor industry. I typically avoid those companies as they are typically richly valued and search for unloved companies with good fundamentals. INTC would be an example of this.

It's also a good idea to look beyond individual companies and be aware of unloved industries, sectors, and even regions.

The entire energy sector was written off and shrunk to a miniscule weighting of the overall market. Looking back, was there a bigger buying signal than when oil futures went negative? I'm ashamed I did not take advantage or at least add to my XOM position at that time.

China has been deemed uninvestable by some analysts recently and it's down nearly 50% from its high. China has its unique risks and ethical concerns to be sure, but it's crazy to think they would shut off their markets from foreign investment considering its lofty goals as a nation. They understand they need markets that are hospitable to outside capital. Opening up a 5% position in a solid Chinese company or index would be minimal risk to your portfolio but offer excellent growth potential as they emerge from Covid and concerns about a heavy handed government.

Any way, I really want to hear ideas from you guys. What otherwise solid companies, industries, or regions are unloved? Past examples are great too especially considering the overall bearish sentiment makes it feel as if equities as a whole are unloved right now which would suggest a total market index could be an excellent choice.

 

[elindholm]

I'm somewhat drawn to the defensive sectors in general, for example utilities. Both EIX (Southern California Edison) and TEF (Telefónica, Spanish telecom) are in the green for me YTD, which is to say, they have significantly outperformed my average holding. And they are both good dividend payers also.

I like energy also, but the company has to be at least credible in showing some degree of respect for the environment, so the big oil companies are out. Both ENB (Enbridge) and BHP have been very good for me this year. BHP's acquisition of Woodbridge created a special dividend of 12%, which I was more than happy to cash in last week.

But, I have to say, I've been burned by other stocks that appear to be merely "unloved" but just stubbornly refuse to get off the ground. BUD is a good example there. Analysts agree that it's undervalued, but it never found any momentum while I held it, and it hasn't done any better since I let it go. Another one is HBI (Hanes), which is a perennial Morningstar favorite but just limps along unspectacularly -- or did, until this year, when it has gotten clobbered.

As for INTC, I hold it, but I've lost patience with it, and I'll probably be selling it once it shows a pulse again. But I do like SMH (etf) for broad coverage of semiconductors, even though it's going through a rough stretch.

I dabbled a bit in emerging markets but stay almost entirely away from them now. It's just too difficult for an amateur like me to get a sense of what they're worth, and the analyses I read don't tend to do any better. I took a bath on a couple of individual Chinese stocks before walking away, and the only targeted holding I have left, EMQQ (etf), has also been terrible. So I've decided I'll focus my efforts on established economies.

I am something of a dividend chaser and am drawn to industries where companies have tax incentives to pay most of their profits back as dividends, for example business development companies and REITs. Another of my winners for the year -- remember, I don't have very many of them -- is OFS Capital. It's up 14.1% YTD and has a trailing dividend yield of 8.9%.

I have a few boutique stocks just to keep myself honest there, but for the most part I've done exceptionally poorly at timing them, so they represent the pain of an expensive learning process. I'm badly stuck on OPEN and ETSY, but figure I might as well continue holding them, just in case. I keep not pulling the trigger on UBER, and I had a bad experience with them recently as a passenger, so that will keep me away. I'm keeping a close eye on NFLX and will grab it if it comes down just a bit more.

 

[Devilmaycare]

Where this gets tricky for me is how it also plays with the old "invest in what you know" adage. For me that's the tech industry since it's where I make my living and see a lot of news on it. It's also why I'm black and blue and bloody right now. It's why I picked out an oddball stock like GSAT when I saw a bunch of news about the n53 frequency band that they own being added to Qualcomm's cell modems. I'm trying to diversify into other sectors more now but it feels harder since I don't know the companies as well as I do the tech companies.

As for INTC, I see them as a dying/turning into a dinosaur company and the financials haven't caught up yet. They've really dropped the ball from the tech side with their products. Their chips fell behind which caused them to loose Apple, they completely missed the mobile revolution and got eaten up by ARM processors, etc. Sure they could turn it around at some point but I haven't seen it in the products. It's not the 486 moving towards Pentium days anymore. They can maybe turn into a decent dividend company but I don't see them with growth.

 

[Folster]

As for INTC, I see them as a dying/turning into a dinosaur company and the financials haven't caught up yet. They've really dropped the ball from the tech side with their products. Their chips fell behind which caused them to loose Apple, they completely missed the mobile revolution and got eaten up by ARM processors, etc. Sure they could turn it around at some point but I haven't seen it in the products. It's not the 486 moving towards Pentium days anymore. They can maybe turn into a decent dividend company but I don't see them with growth.

Hence why their valuation is so attractive. Intel is still the overwhelming market leader in many categories and has significant cash flows. They are currently undergoing massive capital investments in R&D and foundries. Combine that with the recent onshoring trends as well as their national strategic importance and it bodes well for their long term outlook in my opinion.

 

[Devilmaycare]

Hence why their valuation is so attractive. Intel is still the overwhelming market leader in many categories and has significant cash flows. They are currently undergoing massive capital investments in R&D and foundries. Combine that with the recent onshoring trends as well as their national strategic importance and it bodes well for their long term outlook in my opinion.

They're currently the market leader in many categories but that list is shrinking. For the last few years their chips are coming in late and underperforming. Hopefully their new R&D push will pay off but from a tech side of things I'm more excited about AMD and TSMC.

 

[Folster]

They're currently the market leader in many categories but that list is shrinking. For the last few years their chips are coming in late and underperforming. Hopefully their new R&D push will pay off but from a tech side of things I'm more excited about AMD and TSMC.

Only TSMC, Samsung, and INTC are actually manufacturing the chips. AMD does not even manufacture their own chips. It's a vital economic security priority that INTC succeeds as TSMC will always be at risk of being under CCP control at some point. INTC is building foundries across the US and in Europe and their respective onshore production will be vital for US and EU economic security. INTC will be manufacturing chips for many companies, even if they are not designing them. I believe chip designers will want to diversify their manufacturing at the very least after recent geo political and covid induced supply chain issues.

I'm bullish, but only time will tell. INTC is only 5% of my brokerage acct and less than 1% of total assets including retirement so in the even my thesis fails to become reality, it won't impact my long term goals.

 

[Devilmaycare]

Only TSMC, Samsung, and INTC are actually manufacturing the chips. AMD does not even manufacture their own chips. It's a vital economic security priority that INTC succeeds as TSMC will always be at risk of being under CCP control at some point. INTC is building foundries across the US and in Europe and their respective onshore production will be vital for US and EU economic security. INTC will be manufacturing chips for many companies, even if they are not designing them. I believe chip designers will want to diversify their manufacturing at the very least after recent geo political and covid induced supply chain issues.

I'm bullish, but only time will tell. INTC is only 5% of my brokerage acct and less than 1% of total assets including retirement so in the even my thesis fails to become reality, it won't impact my long term goals.

Pivoting to be more of a fab than design company is probably a good move for them. They'll always do both but fab might be more lucrative in the future. If they can win something like making Apple's A and M series chips that would be a big plus back to them.

On TSMC the CCP is a real one. I'm hoping the plant they're building here takes off for that reason (among others) and that they end up opening more plants in the US.