The Buy Scan | July 28, 2023

Published on 07/28/23 | The Buylyst Team | 709 Words

The BuyGist:

  • We send out The Buy Scan at least once a week.
  • We cover the most pertinent (and trending) topics in investing.
  • We rely heavily on our primary valuation tool - The Buycaster - to get actionable insights.
  • We hope that each Buy Scan provides at least one salient insight.

The BuyChart of the Day: Meta-casting

A few weeks ago, we had done a quick-ish take on Meta. They had just announced Threads, so we were curious about the stock. You can read all about it here, but the key insight was this: Buying Meta today would mean believing that Zuck & Team will seriously temper growth in both Fixed Operating Costs and Capital Expenditure.

Since they reported their new Q2 2023 numbers this week, there’s a chart from that analysis that we wanted to update. Here are both iterations:

There have been some cost improvements (as we had hoped), which is why the new Buycaster Rating is better (albeit still very low at 3.3). But more importantly, it turns out that with a slightly better cost structure now, we don’t have to believe in fairies and goblins to consider buying the stock. If Meta can bring down cost increases down to about 10% CAGR (quite reasonable, we believe), META gets a rating of almost 9, which is what we need to consider buying a stock.

Please read our previous analysis if you need more context.

The BuyTheme of the Day: Media & Entertainment

And here’s how Meta stacks up against the other social media & advertising players, according the Buycaster Rating (remember that some of these companies have not reported Q2 2023 numbers yet):

Note: The Buycaster Rating is a score of out 10, which signifies how rational it is to expect the stock to deliver our required return (ours is 80% cumulative within 5 years). The higher the score, the more rational it is, and the more likely we are to buy the stock. The ratings are a combination of Sanity & Safety. Sanity refers to “what needs to happen in the business for us to – rationally – expect the stock to generate our required return”. Safety refers to the potential capital loss if revenue growth is anemic over the next 5 years. Generally, we like stocks with overall Buycaster Ratings above 9, which implies high Sanity and Safety. You can unpack these Buycaster Ratings in granular detail in The Buycaster.

Macro Dose: Fed Fun!

It seems that the equity markets are focused on the first derivative of inflation – that would be the rate of change of the rate of change of prices. That’s about the only positive thing that Jerome Powell mentioned in this latest update. It seems that inflation is showing signs of cooling.

Here’s another first derivative (in the calculus sense) that the equity market’s probably squinting at – the rate of change of the Fed Funds rate. Oh, and it turns out that the last 12-18 months saw the fastest increase in interest rates in the modern central banking era (post The Volcker Disinflation). We’ve all heard about the Silicon Valley Bank and Credit Suisse debacles, but we’re surprised more banks didn’t go belly up. The Fed was quick and dirty!

Note: We’re not Macro investors, nor do we indulge in Commodities, Currencies or Cryptos. However, we like to keep an eye on possible overreactions in the equity markets due to macro factors, so we can be greedy when others are fearful, and vice versa.

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