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HOLT Macro Overview: Markets priced for perfection
March 2017
+44 207 883 3649 [email protected]
Michel Lerner, CFA, Global Co-Head of HOLT
Market Commentary
HOLT
credit-suisse.com/holtmethodology
Felix Rusli, Head of HOLT, APAC +852 2101 6482 [email protected]
HOLT
Trumponomics and equity valuations
Opportunities at the style and sector level
Reflation implications for equities
AGENDA
1 THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
HOLT Offers Global Experience and Expertise
Global database covering 67 countries and 20,000 companies. This includes 37 Emerging Market Countries
and nearly 9,500 APAC stocks. Our database contains ca. 98% of Global Market Cap.
North America
(US and Canada) >6,000 firms
1,901 firms > $1B Mkt
Cap
Europe
19 countries
>3,800 firms
1,047 firms > $1B Mkt Cap
Japan >3,600 firms
549 firms >$1B Mkt Cap
Non-Japan Non-EM
Asia
4 countries
>3,000 firms
580 firms > $1B Mkt Cap
Global Emerging 40 countries
>3,400 firms
1,694 firms > $1B Mkt Cap
HOLT’s 40+ sector specialists review the data and make
adjustments on
a global basis
Quality, Consistency & Breadth
Complete global coverage
of > 20,000 companies
in over 67 countries
Data ingested from highest quality independent data
vendors in each region of the world
2
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
HOLT can help you…
Compare and value stocks, sectors and regions on a global basis
Gain insights into what is priced into stocks, sectors and regions
Generate and filter ideas more efficiently
Identify key investment risks
Make money by identifying mispriced assets
3
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Trumponomics and equity valuations
4
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
HOLT Global Economic Cycle is back into Recovery territory
Source: Credit Suisse Fixed Income Research
Date: February 8, 2017
5
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Fueling improvements in consensus-driven CFROI (world > €5 bn market cap)
Source: Credit Suisse HOLT
Date: March 6, 2017
6
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Revisions are particularly strong in cyclical sectors
Source: Credit Suisse HOLT
Date: March 2017
7
HOLT
Scope for US CFROI to move up on tax cuts Tax Rates: U.S. vs Global Through Time
Source: HOLT Data. OECD Tax Database at OECD.org/tax. Universe for U.S. effective tax rate is largest companies (ex financials, REITs) by market cap (1,300 firms) ; based on
medians; excludes companies with negative pretax income. OECD average tax rates shown are combined corporate income tax rate - shows the basic combined central and sub-central
(statutory) corporate income tax rate given by the central government rate (less deductions for sub-national taxes) plus the sub-central or state tax rate.
8 THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
US companies with high tax rates could benefit
COMCAST CORP CMCSA Media $163,454 36% $8,252 25%
UNITEDHEALTH GROUP INC UNH Health Care Providers $144,657 36% $8,478 26%
ALTRIA GROUP INC MO Tobacco $126,509 35% $5,458 23%
WALGREENS BOOTS ALLIANCE INC WBA Food & Staples Retailing $92,433 37% $2,003 27%
UNION PACIFIC CORP UNP Road & Rail $83,983 38% $6,128 28%
CVS HEALTH CORP CVS Food & Staples Retailing $79,715 39% $6,868 32%
REYNOLDS AMERICAN INC RAI Tobacco $77,948 36% $3,327 25%
EOG RESOURCES INC EOG Oil, Gas & Consumable $51,523 42% $2,524 39%
EXPRESS SCRIPTS HOLDING CO ESRX Health Care Providers $47,326 36% $2,246 26%
AETNA INC AET Health Care Providers $44,008 35% $3,044 24%
CSX CORP CSX Road & Rail $32,798 37% $2,525 27%
HUMANA INC HUM Health Care Providers $31,013 37% $2,239 26%
EXELON CORP EXC Electric Utilities $30,828 35% $2,003 23%
NORFOLK SOUTHERN CORP NSC Road & Rail $30,526 36% $2,243 25%
SOUTHWEST AIRLINES LUV Airlines $29,473 38% $1,340 28%
Company Ticker Industry
Market
Cap
Total
Corporate
Tax Rate
5 yrs Median
Estimated
Impact on Net
Income
(5 yrs Total)
% Impact on
Net Income
(5 yrs
Median)
Source: HOLT Data and Factset
Universe: S&P 500 (ex Financials, REITS, Inversions and negative pretax income). Companies with five yr median tax rate > 35% and less than 10% foreign sales. Estimated impact on
net income is trailing five year impact of setting the yearly tax rate from as reported to 20%. Top 15 companies sorted by market cap in descending order shown.
9
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Policy risks out of sync with equity market complacency
10
Source: Credit Suisse Executive Panel: Politics
Date: February 24, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Even if earnings recover, valuations look full (US large caps ex-Financials)
11
Source: Credit Suisse HOLT
Date: March 6, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
HOLT market-derived discount rate can be used for valuation signals
A market-derived discount rate is the rate which equates expected future cash flows to the current market value.
FCFF
1 + DR
Forecast
Observe
Solve
Market Enterprise
Value
HOLT Model
12
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Trump potential policies within a historical context
Source: Credit Suisse HOLT, Credit Suisse Global Strategy, Robert Shiller
Note: Pre-1976 the Discount Rates are estimated based on regression to the Trend PE’s (Most recent price/ Trend earnings which is the 10-year trailing average)
**NB: Quartile lines are drawn according to HOLT data back to 1950.
For further details see Wealth Creation Principles 2011, Vol 1 Issue 2 13
Smoot-Hawley tariffsGATT
Uruguay Trade
agreement
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Equities no longer cheap vs. bonds
Excludes Financials & Regulated Util ities
14
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Equi
ty R
isk
Prem
ium
(%)
Equity Risk Premium - USA
Equity Risk Premium 75%ile Median 25%ile
13*Derived Cost of Equity: WACC = (%D)(Kd) + (1-%D)(Ke), Equity Risk Prem ium = Ke - Rf
SolveKnow
Source: Credit Suisse HOLT
Date: March 6, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
The case for Asia remains stronger on a relative basis
15
Source: Credit Suisse HOLT Data
Date: March 14, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Korea- and Hong Kong-listed companies remain relatively attractive within Asia
16
Source: Credit Suisse HOLT Data
Date: March 14, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
The region is also in the m idst of a strong upgrade cycle, benefiting cyclicals more than defensives APAC ex Japan aggregate CFROI revisions
CFROI Revisions - Cyclicals CFROI Revisions – Defensive sectors
17 Source: Credit Suisse HOLT Data
Date: March 14, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
The Credit Suisse HOLT Country Ranking Model provides investors with a monthly index ranking of the MSCI AC World countries using a rules-based systematic process. HOLT’s multi-
factor model uses Valuation, Market Sentiment and CFROI® Sentiment to rank each country.
Asia now dominates 4 out of the top 5 markets in the HOLT Country Ranking Model
Source: Credit Suisse HOLT Data
Date: March 14, 2017 18
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Into a recovery, risk-on value/ low quality styles perform best
historically
Source: Credit Suisse HOLT, Data: Global developed, largest 1800, Dec 1992 to Dec 2012.
Note: Styles are ranked from 1 to 8, with 1 being the best-performing and 8 the worst. O:Operations; M: Momentum; and V: Valuations
Overheating Slowdown Contraction Recovery
Best in Class 1 1 4 2 +O +M +V
Contrarian 5 4 5 6 +O -M +V
Restructuring 6 7 11 1 -O +M +V
Quality at Any Price 2 5 3 4 +O +M -V
Yesterday's News 10 8 7 11 +O -M -V
Momentum Trap 8 10 9 8 -O +M -V
Value Trap 7 6 6 3 -O -M +V
Worst in Class 11 11 10 10 -O -M -V
Cyclicals 9 9 8 5
Defensives 3 3 2 9
eCAP 4 2 1 7
19
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
HOLT Best in Class Stocks presenting at the AIC
20
Source: Credit Suisse HOLT Data
Date: March 15, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
China State Construction International Holdings (3311)
Sales Growth (%) Warranted Price
(% Upside/ Downside)
6% HK$ 13.81 (-)
0% HK$ 11.75 (-14%)
15% HK$ 18.86 (37%)
Market Implied Scenario – What’s priced in?
Scenario Analysis
Transitioned from
Contrarian to Best
In Class as CFROI
revisions improved
IBES
Consensus Est.
21 Source: Credit Suisse HOLT LensTM
Date: March 15, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT 22
Source: Credit Suisse HOLT Data
Date: March 15, 2017
HOLT Restructuring Stocks presenting at the AIC
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Bluescope Steel (BSL) Bluescope Steel is currently priced for margins to quickly revert back towards 6% by FY21, leading to a fall in CFROI back to
1%.
Market Implied Scenario – What’s priced in?
23 Source: Credit Suisse HOLT LensTM
Date: March 15, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
The Case for Quality Growth Stocks
24
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Value has outperformed at the expense of Quality—will this continue?
Last 12 Month HOLT Factor Performance (Relative Returns) – Global Stocks
25
Source: Credit Suisse HOLT
Date: February 28, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Economics aside, valuations do not suggest the performance of Value should persist in the US
26
Source: Credit Suisse HOLT Data
Date: February 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
US high quality high growth valuation premium has reverted vs. lower quality low growth
27
Source: Credit Suisse HOLT Data
Date: March 3, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
US high quality growth
Name Symbol
Market
Capitaliz
ation
(bil)
[EUR]
Growth
Percentile
Operational
Quality
Percentile
Valuation
Percentile
Price
Return -
Region
Relative
26
Weeks
SABRE CORP SABR 5.7 81 83 48 -30.6
ACUITY BRANDS INC AYI 9.1 86 92 58 -28.5
MONSTER BEVERAGE CORP MNST 24.3 79 81 13 -25.1
TRANSDIGM GROUP INC TDG 12.8 98 100 88 -20.2
REGENERON PHARMACEUTICALS REGN 37.4 79 94 81 -18.8
ZIMMER BIOMET HOLDINGS INC ZBH 22.2 92 89 71 -18.1
FORTUNE BRANDS HOME & SECUR FBHS 8.5 93 76 31 -17.8
NATIONAL RETAIL PROPERTIES NNN 6.4 85 75 75 -17.0
TYLER TECHNOLOGIES INC TYL 5.3 98 88 36 -14.0
CONSTELLATION BRANDS STZ 29.7 90 85 47 -12.4
O'REILLY AUTOMOTIVE INC ORLY 24.1 77 90 29 -11.8
POST HOLDINGS INC POST 5.0 98 79 74 -11.1
BLACK KNIGHT FINANCIAL SVCS BKFS 5.5 80 93 17 -10.8
SBA COMMUNICATIONS CORP SBAC 13.3 84 94 5 -10.7
HIGHWOODS PROPERTIES INC HIW 5.1 84 79 84 -8.7
STARBUCKS CORP SBUX 78.3 80 83 27 -8.0
FLEETCOR TECHNOLOGIES INC FLT 14.9 80 99 24 -7.1
ALEXION PHARMACEUTICALS INC ALXN 28.0 97 86 69 -6.9
PAYCHEX INC PAYX 20.9 82 87 27 -6.2
QUINTILES IMS HOLDINGS INC Q 9.0 76 85 27 -5.8
ALLEGION PLC ALLE 6.6 88 80 63 -5.0
GLOBAL PAYMENTS INC GPN 11.5 98 94 53 -4.6
EQUINIX INC EQIX 25.5 91 88 12 -4.3
CENTENE CORP CNC 11.5 92 78 62 -4.0
INTERCONTINENTAL EXCHANGE ICE 32.5 96 79 19 -3.4
LABORATORY CP OF AMER HLDGS LH 13.9 88 87 34 -3.3
KRAFT HEINZ CO KHC 104.5 91 98 8 -2.8
SMITH (A O) CORP AOS 8.4 90 85 40 -2.3
MSCI INC MSCI 8.6 96 81 26 -0.9
MIDDLEBY CORP MIDD 7.6 95 98 31 -0.4
IHS MARKIT LTD INFO 15.8 96 99 9 -0.2
28
Source: Credit Suisse HOLT Data
Date: March 3, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Rolling 12-month relative returns of global high quality & growth stocks against
global low quality, low growth stocks
The underperformance of quality growth has been particularly pronounced in Asia
Universe: Largest 1,000 stocks by market cap in each major region. High (low) Quality & Growth = top (bottom) half of regional universe on HOLT Quality and Growth scores. Source:
Credit Suisse HOLT, Data as of 31/12/2016, extracted from the report, A Bad Year for Good Companies (HOLT Quantitative Strategy Team, 18 January 2017).
29
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Asia’s High quality growth but underperform ing stocks
30
Source: Credit Suisse HOLT Data
Date: March 15, 2017
Name Symbol Country
Market
Cap (bil
USD)
Operational
Quality Percentile
Growth
Percentile
Price Return -
Market Relative
52 Weeks
CFROI
Forecast
HOLT
Upside (%) Sector
CK HUTCHISON HOLDINGS LTD 1 HKG 48.2 70 71 -17.5 7.1 -35 Industrials
HINDUSTAN UNILEVER LIMITED HLL IND 29.7 95 73 -14.7 38.1 -57 Consumer Staples
SUN PHARMACEUTICALS INDUSTRIES LTD SUN IND 25.6 67 61 -38.8 13.9 49 Health Care
GF SECURITIES CO LTD 1776 HKG 16.7 95 65 -4.8 11.1 -8 Financials
AMOREPACIFIC 090430 KOR 16.6 70 83 -29.1 11.7 -35 Consumer Staples
ASIAN PAINTS LIMITED ASPN IND 15.4 97 67 -2.8 18.0 -49 Materials
SK INNOVATION 096770 KOR 13.0 70 81 -6.9 7.7 20 Energy
LG HOUSEHOLD & HEALTH CARE 051900 KOR 12.3 81 78 -10.0 18.4 -25 Consumer Staples
JG SUMMIT HOLDINGS, INC. JGS PHL 10.9 68 81 -0.4 7.7 5 Industrials
GOODMAN GROUP GMG AUS 10.1 95 64 -0.5 7.2 -29 Real Estate
EICHER MOTORS LTD EICH IND 9.8 98 98 -0.7 27.1 -8 Industrials
S-OIL 010950 KOR 9.4 72 87 -2.6 7.6 -19 Energy
VIETNAM DAIRY PRODUCTS JSC VNM VNM 8.4 92 77 -9.1 27.3 -19 Consumer Staples
AMOREPACIFIC GROUP 002790 KOR 8.3 63 86 -20.9 12.9 -36 Consumer Staples
DALI FOODS GROUP CO LTD 3799 HKG 8.0 67 76 -1.0 19.8 -29 Consumer Staples
CHINA GAS HOLDINGS LTD 384 HKG 7.9 91 82 -1.2 13.1 -15 Utilities
DABUR INDIA LIMITED DABU IND 7.2 90 65 -8.1 20.4 -21 Consumer Staples
LENOVO GROUP LIMITED 992 HKG 6.8 73 61 -41.7 27.2 621 Information Technology
SIEMENS INDIA LIMITED SIEM IND 6.7 67 64 -1.3 8.1 -56 Industrials
ZHUZHOU CSR TIMES ELECTRIC CO LTD 3898 HKG 6.4 97 66 -14.8 15.3 71 Industrials
ENN ENERGY HOLDINGS LIMITED 2688 HKG 6.2 89 73 -6.2 11.2 19 Utilities
AUROBINDO PHARMA LTD ARBN IND 5.8 78 69 -28.4 15.2 66 Health Care
BRITANNIA INDUSTRIES LIMITED BRIT IND 5.7 98 81 -6.6 22.8 -33 Consumer Staples
SINGAPORE EXCHANGE LIMITED SGXL SGP 5.7 74 65 -10.5 35.3 -34 Financials
REA GROUP LIMITED REA AUS 5.7 92 71 -0.8 44.1 -31 Consumer Discretionary
MARICO LIMITED MRCO IND 5.5 94 63 -3.7 27.8 -56 Consumer Staples
PIDILITE INDUSTRIES LIMITED PIDI IND 5.4 99 85 -4.3 19.1 -27 Materials
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
LG Household and Health Care (051900) LG H&H has historically traded at a premium, with market-implied CFROI above consensus forecast CFROI. However more recently, implied CFROI
has declined to near 10-year lows while forecast CFROI has remained relatively stable.
Market-implied scenario: Using HOLT’s MICAP analysis, LG H&H is currently priced to maintain its forecast CFROI of 18% along with 7% asset growth
for a further 15 years. This appears conservative relative to regional peers which have historically priced for a MICAP of 40 years.
Note: MICAP – Market implied Competitive Advantage Period. HOLT assesses the number of years the company would need to maintain its high CFROI in order to justify its current
share price.
31 Source: Credit Suisse HOLT LensTM
Date: March 15, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Reflation implications for equities
32
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Inflation: Good for cyclicals
33
Source: CS Strategy Research
Date: November 2016
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
APxJ cyclical laggards classified as Best in Class and
Restructuring
34
Source: Credit Suisse HOLT
Cyclical with less than 10% share price performance YTD. As of March 15, 2017.
Name Symbol CountryMarket Cap.
(bil USD)Sector
Price Perf.
YTD (%)
CFROI
Forecast (%)
HOLT
Upside (%)
Investment
Style
LINK ADMINISTRATION HOLDINGS LTD LNK AUS 2.1 Information Technology 0 22 -8 Best in Class
JB HI-FI LTD JBH AUS 2.3 Consumer Discretionary -5 17 9 Best in Class
WHITEHAVEN COAL LTD WHC AUS 2.2 Energy 10 11 216 Best in Class
SOUTH32 LIMITED S32 AUS 11.4 Materials -2 5 138 Restructuring
AURIZON HOLDINGS LTD AZJ AUS 8.2 Industrials 5 6 10 Restructuring
CHINA HONGQIAO GROUP LTD 1378 HKG 6.6 Materials 5 9 119 Best in Class
MAN WAH HOLDINGS LTD 1999 HKG 2.6 Consumer Discretionary -4 25 -20 Best in Class
CHINA SHENHUA ENERGY COMPANY LIMITED 1088 HKG 41.4 Energy 10 6 71 Best in Class
GUANGSHEN RAILWAY COMPANY LIMITED 525 HKG 4.4 Industrials 4 4 0 Restructuring
SHENZHEN INTERNATIONAL HOLDINGS LIMITED 152 HKG 2.8 Industrials -2 5 -5 Restructuring
BHARAT ELECTRONICS LIMITED BAJE IND 5.5 Industrials 9 10 16 Best in Class
OIL & NATURAL GAS CORPORATION LIMITED ONGC IND 37.2 Energy 2 4 91 Best in Class
LOTTE CHEMICAL 011170 KOR 10.8 Materials -1 12 75 Best in Class
CJ E&M 130960 KOR 2.5 Consumer Discretionary 9 12 28 Best in Class
SK HYNIX 000660 KOR 29.8 Information Technology 5 8 65 Restructuring
HANKOOK TIRE 161390 KOR 6.2 Consumer Discretionary -1 8 38 Restructuring
LG DISPLAY 034220 KOR 8.9 Information Technology -11 1 129 Restructuring
LG 003550 KOR 9.5 Industrials 5 8 45 Restructuring
SAMSUNG ELECTRONICS 005930 KOR 243.4 Information Technology 10 7 20 Restructuring
HUTCHISON PORT HOLDINGS TRUST HPHT SGP 3.4 Industrials -2 6 68 Restructuring
INDORAMA VENTURES PCL IVL THA 4.8 Materials 7 7 6 Best in Class
IRPC PUBLIC COMPANY LIMITED IRPC THA 2.9 Energy 9 6 73 Best in Class
AU OPTRONICS CORPORATION 2409 TWN 3.7 Information Technology 1 2 242 Restructuring
INNOLUX CORP 3481 TWN 4.0 Information Technology 6 2 213 Restructuring
WISTRON 3231 TWN 2.1 Information Technology 6 3 32 Restructuring
LITE-ON TECHNOLOGY CORPORATION 2301 TWN 3.8 Information Technology 4 7 14 Restructuring
HON HAI PRECISION INDUSTRY COMPANY LIMITED 2317 TWN 50.5 Information Technology 5 10 34 Restructuring
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Guangshen Railway Company Lim ited (525)
US-Americas Railroads AggregateGuangsheng Railway
Eroding margins for
Guangshen Railway
Guangshen Railway’s CFROI could potentially improve on better cost control and announce tariff hikes. The stock offers
potential upside in our model if CFROI can reach levels similar to developed market peers.
Comparing Guangshen Railway to US Railroad sector
35 Source: Credit Suisse HOLT LensTM
Date: March 15, 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Rising inflation expectations without a drop in investor tax rates carries risks to equities (70% correlation between CPI and US discount rate)
36
Source: Credit Suisse HOLT data, Bloomberg
Date: Dec 8, 2016
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
With rising inflation, margins tend to come under pressure
37
Source: Credit Suisse HOLT Data
Date: March 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Fewer companies have the track -record of offsetting margin pressures with higher asset efficiency
0.64
0.66
0.68
0.70
0.72
0.74
0.76
0.78
0.80
0.82
0.84
0.86
1987-1996 1997-2006 2007-2016
Me
dia
n A
sse
t Tu
rns
x
United States Europe Japan
38
Source: HOLT US Investment Strategy
Chartbook – Feb 2017
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
Stocks with pricing power, high asset turns and attractive valuations with a higher discount rate
Name Symbol Country
Market
Cap (bil)
[EUR]
CFROI
2015/16
CFROI
2016/17e
CFROI
2017/18e
Asset
Turns
2015/2016
Regional
Industry
Median
Asset
Turns
Warranted
Upside -
Downside
to Low
Price (%)
SKYWORKS SOLUTIONS INC SWKS USA 16.545 24.38 24.65 23.10 0.66 0.44 131
GILEAD SCIENCES INC GILD USA 85.946 39.03 30.18 19.78 0.57 0.01 111
GREAT WALL MOTOR CO LTD 2333 HKG 10.044 17.04 17.43 14.67 1.14 0.99 85
JAPAN AIRLINES CO., LTD.(C) 9201 JPN 10.892 15.39 13.93 11.70 0.73 0.46 84
LAM RESEARCH CORP LRCX USA 17.958 11.45 15.33 12.42 0.45 0.44 82
TRANSDIGM GROUP INC TDG USA 12.202 36.63 42.19 39.02 0.88 0.71 82
ALEXION PHARMACEUTICALS INC ALXN USA 27.256 20.62 24.89 25.24 0.39 0.01 80
CONTINENTAL AG CONG DEU 38.711 12.56 11.64 11.71 0.91 0.84 78
GREAT WALL MOTOR CO LTD 601633 CHN 15.914 17.04 17.43 14.67 1.14 0.99 77
FOCUS MEDIA INFORMATION TECHNOLOGY CO LTD002027 CHN 14.326 50.43 48.27 33.93 1.20 0.81 76
BIOGEN INC BIIB USA 59.199 18.41 16.93 16.87 0.35 0.01 75
CHINA HUARONG ASSET MANAGEMENT CO LTD2799 HKG 14.553 14.07 12.46 11.00 0.52 0.45 60
MAGNA INTERNATIONAL INC MGA USA 15.472 9.10 9.04 9.14 1.36 1.00 59
CELGENE CORP CELG USA 89.532 19.62 19.74 20.43 0.32 0.01 57
CBRE GROUP INC CBG USA 11.488 25.30 25.25 23.43 2.98 0.16 56
REGENERON PHARMACEUTICALS REGN USA 37.197 22.99 20.97 19.50 0.45 0.01 54
PRUDENTIAL FINANCIAL INC PRU USA 45.011 10.68 12.68 11.80 1.88 1.19 47
FUJI HEAVY INDUSTRIES LTD.(C) 7270 JPN 27.725 17.31 11.79 13.78 1.11 0.96 46
ABBVIE INC ABBV USA 95.537 17.21 18.05 20.06 0.36 0.01 45
GREE ELECTRIC APPLIANCES, INC OF ZHUHAI000651 CHN 23.187 20.82 20.48 20.30 1.28 1.00 42
CIGNA CORP CI USA 36.717 20.80 15.59 16.79 2.05 1.01 42
LINCOLN NATIONAL CORP LNC USA 14.764 10.16 13.12 12.88 1.22 1.19 41
DEUTSCHE BOERSE AG DB1Gn DEU 14.604 23.13 22.05 21.29 0.58 0.55 40
LYONDELLBASELL INDUSTRIES NV LYB USA 34.721 14.50 15.46 14.46 0.85 0.57 37
APPLE INC AAPL USA 690.658 17.87 15.96 15.21 0.68 0.57 37
HYUNDAI MOBIS 012330 KOR 18.819 8.92 8.62 8.34 1.53 0.69 37
CHINA VANKE CO LTD 000002 CHN 30.542 14.24 15.30 13.61 0.98 0.20 35
MAGNA INTERNATIONAL INC MG. CAN 15.521 9.10 9.04 9.14 1.36 1.00 33
SAUDI TELECOM COMPANY SJSC 7010 SAU 33.029 9.75 8.34 8.18 0.33 0.22 33
PICC PROPERTY AND CASUALTY COMPANY LTD2328 HKG 21.625 20.46 18.64 16.75 2.68 1.75 33
HCL TECHNOLOGIES LIMITED HCLT IND 17.047 24.96 23.43 21.70 1.31 0.87 31
HEWLETT PACKARD ENTERPRISE HPE USA 35.810 10.35 9.12 9.15 1.09 0.57 29
APPLIED MATERIALS INC AMAT USA 37.603 16.47 20.51 20.50 0.68 0.44 29
MS & AD INSURANCE GROUP HOLDINGS, INC.(C)8725 JPN 18.961 14.02 11.99 11.55 3.13 1.39 29
THE PEOPLE'S INSURANCE CO (GROUP) OF CHINA LTD1339 HKG 16.266 14.01 12.83 13.11 2.61 1.75 29
DISCOVERY COMMUNICATIONS INC DISCA USA 10.926 31.28 29.37 28.46 1.00 0.50 29
NOVO NORDISK AS NOVOb DNK 79.163 24.68 22.92 23.03 0.51 0.29 28
DELPHI AUTOMOTIVE PLC DLPH USA 19.306 16.26 17.49 18.83 1.09 1.00 27
SIAM CEMENT PUBLIC COMPANY LIMITED (THE)SCC THA 16.946 9.50 10.11 9.52 0.54 0.37 27
JOHNSON & JOHNSON JNJ USA 317.560 12.33 13.04 12.79 0.37 0.10 25
D R HORTON INC DHI USA 11.552 8.26 8.97 8.99 1.12 0.92 24
REYNOLDS AMERICAN INC RAI USA 82.166 74.38 84.63 90.30 2.36 1.17 23
39
Source: Credit Suisse HOLT Data
Date: March 2017
Name Symbol Country
Market
Cap (bil)
[EUR]
CFROI
2015/16
CFROI
2016/17e
CFROI
2017/18e
Asset
Turns
2015/2016
Regional
Industry
Median
Asset
Turns
Warranted
Upside -
Downside
to Low
Price (%)
SKYWORKS SOLUTIONS INC SWKS USA 16.545 24.38 24.65 23.10 0.66 0.44 131
GILEAD SCIENCES INC GILD USA 85.946 39.03 30.18 19.78 0.57 0.01 111
GREAT WALL MOTOR CO LTD 2333 HKG 10.044 17.04 17.43 14.67 1.14 0.99 85
JAPAN AIRLINES CO., LTD.(C) 9201 JPN 10.892 15.39 13.93 11.70 0.73 0.46 84
LAM RESEARCH CORP LRCX USA 17.958 11.45 15.33 12.42 0.45 0.44 82
TRANSDIGM GROUP INC TDG USA 12.202 36.63 42.19 39.02 0.88 0.71 82
ALEXION PHARMACEUTICALS INC ALXN USA 27.256 20.62 24.89 25.24 0.39 0.01 80
CONTINENTAL AG CONG DEU 38.711 12.56 11.64 11.71 0.91 0.84 78
GREAT WALL MOTOR CO LTD 601633 CHN 15.914 17.04 17.43 14.67 1.14 0.99 77
FOCUS MEDIA INFORMATION TECHNOLOGY CO LTD002027 CHN 14.326 50.43 48.27 33.93 1.20 0.81 76
BIOGEN INC BIIB USA 59.199 18.41 16.93 16.87 0.35 0.01 75
CHINA HUARONG ASSET MANAGEMENT CO LTD2799 HKG 14.553 14.07 12.46 11.00 0.52 0.45 60
MAGNA INTERNATIONAL INC MGA USA 15.472 9.10 9.04 9.14 1.36 1.00 59
CELGENE CORP CELG USA 89.532 19.62 19.74 20.43 0.32 0.01 57
CBRE GROUP INC CBG USA 11.488 25.30 25.25 23.43 2.98 0.16 56
REGENERON PHARMACEUTICALS REGN USA 37.197 22.99 20.97 19.50 0.45 0.01 54
PRUDENTIAL FINANCIAL INC PRU USA 45.011 10.68 12.68 11.80 1.88 1.19 47
FUJI HEAVY INDUSTRIES LTD.(C) 7270 JPN 27.725 17.31 11.79 13.78 1.11 0.96 46
ABBVIE INC ABBV USA 95.537 17.21 18.05 20.06 0.36 0.01 45
GREE ELECTRIC APPLIANCES, INC OF ZHUHAI000651 CHN 23.187 20.82 20.48 20.30 1.28 1.00 42
CIGNA CORP CI USA 36.717 20.80 15.59 16.79 2.05 1.01 42
LINCOLN NATIONAL CORP LNC USA 14.764 10.16 13.12 12.88 1.22 1.19 41
DEUTSCHE BOERSE AG DB1Gn DEU 14.604 23.13 22.05 21.29 0.58 0.55 40
LYONDELLBASELL INDUSTRIES NV LYB USA 34.721 14.50 15.46 14.46 0.85 0.57 37
APPLE INC AAPL USA 690.658 17.87 15.96 15.21 0.68 0.57 37
HYUNDAI MOBIS 012330 KOR 18.819 8.92 8.62 8.34 1.53 0.69 37
CHINA VANKE CO LTD 000002 CHN 30.542 14.24 15.30 13.61 0.98 0.20 35
MAGNA INTERNATIONAL INC MG. CAN 15.521 9.10 9.04 9.14 1.36 1.00 33
SAUDI TELECOM COMPANY SJSC 7010 SAU 33.029 9.75 8.34 8.18 0.33 0.22 33
PICC PROPERTY AND CASUALTY COMPANY LTD2328 HKG 21.625 20.46 18.64 16.75 2.68 1.75 33
HCL TECHNOLOGIES LIMITED HCLT IND 17.047 24.96 23.43 21.70 1.31 0.87 31
HEWLETT PACKARD ENTERPRISE HPE USA 35.810 10.35 9.12 9.15 1.09 0.57 29
APPLIED MATERIALS INC AMAT USA 37.603 16.47 20.51 20.50 0.68 0.44 29
MS & AD INSURANCE GROUP HOLDINGS, INC.(C)8725 JPN 18.961 14.02 11.99 11.55 3.13 1.39 29
THE PEOPLE'S INSURANCE CO (GROUP) OF CHINA LTD1339 HKG 16.266 14.01 12.83 13.11 2.61 1.75 29
DISCOVERY COMMUNICATIONS INC DISCA USA 10.926 31.28 29.37 28.46 1.00 0.50 29
NOVO NORDISK AS NOVOb DNK 79.163 24.68 22.92 23.03 0.51 0.29 28
DELPHI AUTOMOTIVE PLC DLPH USA 19.306 16.26 17.49 18.83 1.09 1.00 27
SIAM CEMENT PUBLIC COMPANY LIMITED (THE)SCC THA 16.946 9.50 10.11 9.52 0.54 0.37 27
JOHNSON & JOHNSON JNJ USA 317.560 12.33 13.04 12.79 0.37 0.10 25
D R HORTON INC DHI USA 11.552 8.26 8.97 8.99 1.12 0.92 24
REYNOLDS AMERICAN INC RAI USA 82.166 74.38 84.63 90.30 2.36 1.17 23
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
SUMMARY Limited scope to be complacent given how extended valuations now are
Pick-up risk selectively, mostly outside the US
Increase the focus onto stocks with pricing power, strong capital discipline and attractive
valuations
40
CLARITY IS CONFIDENCE
HOLT
THIS IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT
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