By GeoTeam|2022-10-24T08:47:13-04:00October 23rd, 2022|
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We are not averse to taking a critical eye on the microeconomics of the stocks we follow. The financial ecosystems we get exposed to in our microcap research tend to have their own set of idiosyncrasies, making it imperative to comb through the caveats associated with each instance.
Can macroeconomic events and sentiments bleed through to the internal dynamics of the companies in our research funnel? Sure, sometimes. Do we think it is important to heed caution when warranted? Of course.
But let’s be serious for a second. The success of a microcap company often boils down to its own set of specific circumstances and criteria that can sometimes be detached from the overarching externalities that affect their large cap counterparts, especially microcaps targeting niche markets.
In the most extreme of market environments, public expert commentary isn’t typically conveyed with the smaller company in mind.
CNBC, in true brand-name mainstream media format, makes it perfectly clear that it will take the negative over the positive…it just makes for better provocative investor banter and retweet fodder. It’s not the only outlet that does this, but we’re going to use them as the example of their complicit omission of any positive comments that might come out of a source that screams fire on a regular basis…say those of, for example, JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon.
Like him or not, Dimon is a provocateur in his own right. And CNBC likes that. We’d venture to say that the cabal of mainstream outlets breathlessly run with replays and snippets of his interviews and conference call commentary because it will invariably fit the expected narrative.
The water cooler talk anticipation of his most recent interview with CNBC must have been palpable, especially after Dimon’s bold, yet boring and tiringly old prediction in April 2022 that he saw “storm clouds’ ahead for the U.S. economy later this year.” It wasn’t exactly a prophecy unique to him, but it predictably resonated with his well-crafted echo-chamber of individuals that invite this type of sentiment with open arms.
Then, the NASDAQ by June 2022 declined by ~27% to a trough prior to a temporary relief rally. It was a perfect scenario for Dimon to usher in another similar sentiment that sought to galvanize his point of view, stating that people should brace themselves “for an economic hurricane caused by the Fed and Ukraine war.”
Hold on though. Wasn’t it already determined that the U.S was in a recession after it showed GDP retraction 2 quarters in a row, which has historically been the technical indicator defining a recession? Many dispute this criterion as the sole culprit, stating that there are many more things wrapped into a recessionary environment that make the determination a little more hairy. Regardless, Dimon is obviously part of the latter group.
But, is it possible to find any silver linings anywhere within the litany of instances where it is easy to cherry pick the “Dimon negative” to unveil a positive? Most definitely, but in most cases we’d venture that you likely won’t find it on the mainstream media.
Instead, you might have to do a little digging of your own. Staying on the theme of Dimon, you actually don’t have to dig too deep to find the seed of something that might sprout into something on a larger scale, when in JPM’s third quarter 2022 earnings release, he said,
“I think I’d say – we’re in an environment where it’s kind of odd, which is very strong consumer spend. You see it in our numbers. You see it in other people’s numbers, up 10% prior to last year, up 35% to pre-COVID. Balance sheets are very good for consumers. Credit card borrowing is normalizing, not getting worse. You might see – and that’s really good, so you can go into a recession, you’ve got a very strong consumer.”
Of course, CNBC would probably not prefer not to make Dimon’s quote the lead, and probably not even bury on page 5. Heck, if they had their choice, they might even pay Dimon not to say this kind of stuff at all, else risk flipping the narrative to something more that suits their style.
So, one might surmise that we have “Good CNBC” and “Bad CNBC”, a 20/80 split perhaps? But one thing can be certain, they have an endless supply of water coolers to drum up the next headline to bait you into group think.
Now, we are not discounting the fact that we are certainly in some unprecedented and unpredictable times, and potentially to the detriment of the economy and companies.
Our point is, one’s perceived lost hope does not have to equate to a lost hope of the collective. There’s always money to be made in the stock market, even in uncertain times, and it’s GeoInvesting’s job to find those opportunities. For example:
10/25 As of 10/14, there are 2,194 stocks that are up YTD. If you look hard enough, there are a good amount of stocks trading at valuations we can research. (Based on 11,584 stocks in @Sentieo database) pic.twitter.com/OGmWuYtS3h
What we do think CNBC should be talking about is that the market environment is now basically the time to dig hard and start following a value investing strategy to beat the market. Stocks that are growing revenue and earnings with strong or improving balance sheets, and selling at reasonable valuations, are going to do well, even if the broader market does not.
Thus, CNBC’s headlines should encompass the theme that “stock picking is finally back”, after a 15 year hiatus during which investors were blindly buying stocks with a low regard to quality of business and valuation.
14/25 Over the last 15 years, GARP took a backseat to investing in companies aggressively growing sales and in “story” stocks with little regard to the value or earnings part of the equation. GAAP: Growth at any price.
15/25 Now, It just makes sense that the new riskier environment we are in will reward stock pickers and punish those who invest in companies that can’t make money as we exit an everything goes up investment era.
16/25 That doesn’t mean speculative & high multiple fast rev growth Cos won’t rise. It just means more investors will place greater emphasis on valuing stocks based on earnings, cash flow & balance sheets vs solely on sales & pipe dreams, a marked divergence from the last 15 yrs
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