Tuesday 7, December 2021

Borg Warner

Borg Warner used to have a plant in Caerphilly, S. Wales, close to where I grew up. I think the company probably advertised a bit around the area, and I think that one of my early schoolfriends had a father who worked there. It’s a company that people don’t think about much. It makes bits for cars that are purchased by car manufacturers you have heard of. I think the plant in Caerphilly made auto transmissions: gearboxes, I suppose. Thus items which are boring but important, and which smart cookies in Silicon Valley are content to say well clear of. The company is trading on a P/E of 11.6, and has had a pretty solid growt in profits over the last five years of approx 25%. I bought Delphi Technologies, the former parts division of GM. This is so “old economy:” a company that has physical inventory, and makes steadily growing profits.

Well, it’s price hasn’t moved much, but it is generating loads of cash, and is a big player in a small market. It does make stuff for EVs too as this article makes clear.

The recent revenue (trailing twelve months) has been 50% up on last year, suggesting that when the Q3 figures are announced, this stock might get a re-rating. The company has beaten estimates reliably, and it might be that the next beat will trigger a re-rating. I don’t suppose that it will ever become another Tesla, but it certainly could justify a P/E of 20, I feel. As usual, this is not investment advice. DYOR.

Wrap

This was another strong risk-on day. Equities and commdities were up strongly, virtually across the board. Apart from crypto currencies, which are not really currencies, there was not much movement. The Turkish Lira recovered a bit from the recent rout. Treasuries were generally down a bit, yields up, but very little, as price discovery in this market has been severely compromised by central bank buying. Brazilan yields were down, presumably reflecting a reduced credit risk.

There seems essentially no catalyst for this. My view is that we are still in a bull market in risk assets and these will continue to trend higher until there is some major dislocation, a Minsky Moment. We are probably still a good way off this, as the private sector has repaired its balance sheet over the course of the pandemic, assisted by the public sector. My concern is that very large public sector debt levels will kill growth and inflation.

Tweet of the day

Most moats are overrated, and the most durable moats are found in industries where chance of technological disruption is minimal (rails, airports), regulatory hurdles are insurmountable (tobacco), & growth is so low it doesn't attract competition (old industrials)

— Lawrence Hamtil (@lhamtil) December 19, 2019