Please click the link to view a short excerpt from our discussion on CNBC Asia Squawk Box regarding YUM China. We discuss the company’s execution and the valuation of the shares.
An article in today’s WSJ notes that nearly 2/3 of professional economists predict recession in 2023. This has basically never happened before.
“The retail management teams with whom we speak do not consider themselves to be economists,” Zolidis said. “They have little ability to forecast inflation beyond what is immediately apparent. They’re no better at predicting interest rates than anyone else.”
Consumer discretionary stocks have bounced 20% in two months but we’re still hearing companies are expecting mid-single-digit inflation next year, suggesting higher rates and implying risk to the economy and stock prices. We’re remaining with our investment strategy.
John Zolidis, founder and president of Quo Vadis Capital Inc., compared the disappointing results to 2008, when the economy was weakening and Target was losing ground against Walmart (for similar product mix reasons as this week).
“We had expected that Target was better positioned for consumer weakness this time around, due to its improved competitive position and upgraded capabilities,” Zolidis wrote in an investors note Wednesday. “But, it certainly does not feel that way, looking at this year’s performance.”
Chipotle (CMG – SELL) Trifecta of Negative Metrics ValueX Middle East Nov 9 2022 website version
Equity prices bounced in October but have slumped to start November. The S&P 500 is down 20% over the past 12 months and the Nasdaq is off 34%. Jerome Powell and his not-so-merry band at the Fed signaled their continuing hostility to equity prices by raising rates last week and their intention to keep going.
Veteran analyst John Zolidis of Quo Vadis Capital argues that transactions might have dropped 5.4%, based on his calculations, a number arrived at by modeling transactions as the difference between the price and sales increases. Zolidis, who has a Sell rating on the stock, wasn’t the only analyst raising questions about the impact of price increases on traffic. BMO analyst Andrew Strelzik, who rates the stock a Hold, noted that “[questions] about value proposition gain steam as traffic declines accelerate. Still, 72% of the 36 analysts tracked by FactSet rate the stock as Buy or equivalent.
Three Conflicts for Value Investors, Athens Talk Oct 7 2022 v3