Author Topic: Which industries are currently UNDER-earning?  (Read 1950 times)

Nell-e

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Which industries are currently UNDER-earning?
« on: February 13, 2018, 08:19:03 PM »
Here's the thread for industries that are OVER-earning:
http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/which-industries-are-currently-over-earning/msg324336/?topicseen#msg324336

Invert always invert- which industries are under-earning due to temporary capital spending, macro headwinds, secular shifts, or changes in the regulatory environment? I'll put forth my guesses

1) plain vanilla US Regional Banks?  - low net interest margin, deregulation expectations, better tax rates, more fiscal stimulus to broader economy from the tax cut

2) catastrophic insurers who took it on the chin from the hurricanes last year
3) industries catering to babies, young parents in China due to the end of the 1 child policy

What do other members think?   




BPCAP

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Re: Which industries are currently UNDER-earning?
« Reply #1 on: February 13, 2018, 09:24:33 PM »
Amazon and Costco—intentional.
Pharma—biz just gets harder.
GE—poor choices.

DTEJD1997

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Re: Which industries are currently UNDER-earning?
« Reply #2 on: February 13, 2018, 11:19:16 PM »
I am going to disagree on the plain vanilla & regional banks.

I think right now the banks are operating in a very easy business environment and are making good money.

Real estate is up, bad loans are very low...

A few years from now, that might be a very different case.

Banking seems to be a very cyclical industry with big blow ups every 10-15 years.

scorpioncapital

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Re: Which industries are currently UNDER-earning?
« Reply #3 on: February 14, 2018, 01:49:33 AM »
I think one should start with the base case that the market is relatively efficient and built into prices is some inkling of earning power and business quality. Of course, around the edges, the market is not efficient at all and this spells opportunity. On a temporary basis if you look at some of berkshire's smaller moves like SYF and some store REITs you would think they believe the consumer is under-earning! And in fact all eyeballs were on the 2.9% wage inflation. If wages rise, perhaps consumer stocks and financials are under-earning simply because the consumer is under-earning :)

"It was the fifth consecutive year of annual household debt growth with increases in the mortgage, student, auto and credit card categories."

https://seekingalpha.com/news/3330822-u-s-household-debt-soars-13t
« Last Edit: February 14, 2018, 02:09:57 AM by scorpioncapital »

bizaro86

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Re: Which industries are currently UNDER-earning?
« Reply #4 on: February 14, 2018, 06:14:21 AM »
Things I think are under earning:

Labour - corporate profits very high vs wages

Disney - content library monetization via streaming service a meaningful catalyst in 2019+

Canadian oil/gas - WCS and AECO spreads should both come in, even without new pipelines

DTEJD1997

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Re: Which industries are currently UNDER-earning?
« Reply #5 on: February 14, 2018, 09:23:01 AM »
Things I think are under earning:

Labour - corporate profits very high vs wages

Disney - content library monetization via streaming service a meaningful catalyst in 2019+

Canadian oil/gas - WCS and AECO spreads should both come in, even without new pipelines

Wages in general have been going up.  I was surprised to learn that minimum wage in Michigan is now a little bit over $9/hour.

Wages for attorneys have also been going up...until the other day.  I saw a large bankruptcy project looking to bring attorneys on board for $20/hour.  I was surprised to see that as I've seen projects paying $23-$24/hour and even $25/hour!

Overall though, I think I would agree that wages are going up in the near future.

KJP

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Re: Which industries are currently UNDER-earning?
« Reply #6 on: February 14, 2018, 11:06:29 AM »
Indian OTAs

Rod

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Re: Which industries are currently UNDER-earning?
« Reply #7 on: February 14, 2018, 11:15:57 AM »
Land developers active in Alberta and Saskatchewan. Residential land development is slow due to the crash in oil. The prices of the developers stocks do not reflect any expectation of recovery. Case in point: Dream Unlimited (DRM-T), also Melcor Developments (MRD-T).

KJP

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Re: Which industries are currently UNDER-earning?
« Reply #8 on: February 14, 2018, 11:23:08 AM »
Land developers active in Alberta and Saskatchewan. Residential land development is slow due to the crash in oil. The prices of the developers stocks do not reflect any expectation of recovery. Case in point: Dream Unlimited (DRM-T), also Melcor Developments (MRD-T).

Perhaps Dream deserves it's own thread, but I have followed it for several years and don't understand the capital allocation, in particular the huge amount of capital they've devoted to buying shares in what ought to be the retail-oriented REITs they manage.

Rod

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Re: Which industries are currently UNDER-earning?
« Reply #9 on: February 14, 2018, 11:48:46 AM »
Land developers active in Alberta and Saskatchewan. Residential land development is slow due to the crash in oil. The prices of the developers stocks do not reflect any expectation of recovery. Case in point: Dream Unlimited (DRM-T), also Melcor Developments (MRD-T).

Perhaps Dream deserves it's own thread, but I have followed it for several years and don't understand the capital allocation, in particular the huge amount of capital they've devoted to buying shares in what ought to be the retail-oriented REITs they manage.

The largest part of their shares in Dream Office were obtained in exchange for giving up the management contract. They have been more active in buying shares in Dream Alternatives. I would guess there are a few reasons why they are doing it. One, they want to increase the level of recurring income to balance the volatility of the development business. Two, they see the shares as undervalued. Three, and this applies mostly to Dream Alternatives, they want to be able to demonstrate to the market that they are large investors in their own fund. They have ambitions to grow Dream Alternatives by issuing new equity at NAV. Currently it trades well below NAV. This is a similar strategy that Brookfield uses. Reason number two has been confirmed by management, one and three are my own guesses.