Fact of the Week:
Among America’s 3,000 largest public firms, the biggest 1,000 account for 95% of total value. The next 2,000, which form the Russell 2000 index, are collectively worth less than Apple, the world’s most valuable company.
It’s been an eventful week at The Boyar Value Group! We’re excited to have released both our latest quarterly letter as well as the eagerly awaited July Opportunity Report.
We also published the first part of our highly anticipated annual Fresh Looks 2024 edition.
Part 1 contains:
Small Cap Opportunities: Reports on three small cap companies with significant upside potential: One is a well-regarded online business with a hidden asset that is facing negative sell-side sentiment. The second is a company that has been unduly punished for making an acquisition that we believe will add significant value in the long run. The third is a company with impressive brand recognition that is trading at a reasonable valuation and has repurchased approximately 60% of its shares since its IPO.
Mid Cap Insights: We delve into a mid-cap conglomerate with a well-known activist investor pushing for changes—the type of scenario where we have historically found success. We believe the stock is trading at an approximate 40% discount to our sum-of-the-parts calculation utilizing what we believe are conservative assumptions.
Large Cap Leader: We provide insight into a household name outside of the realm of traditional value investors that offers tremendous growth potential while still selling at a reasonable valuation.
For our loyal Substack readers, we're excited to offer a $200 discount off the purchase price.
If you have any questions, please email amalia@boyarvaluegroup.com or call 212-995-8300.
Don't miss out. Click the link below to unlock these valuable investment opportunities, as well as discover the bonus reports included with purchase.
The Week in Review:
The shift from mega-cap technology giants to small and mid-cap stocks continues.
For the week the Russell 2000 advanced by a solid +3.47%, and the S&P 500 equally weighted index nudged up by +0.8%. Meanwhile, the S&P 500 market cap-weighted index slipped by (0.83%), and the tech-heavy Nasdaq took a hit, declining by (2.08%). The Russell 2000 has now outperformed the S&P 500 for three straight weeks!
The so-called Magnificent Seven lost some of their shine, collectively dropping by (3.8%) and are now down around (~13%) since their peak on July 10th. In contrast, the Russell 2000 has surged by nearly +10% over the same period.
Leading the pack in sector performance were Utilities, up by +1.47%, Materials with a +1.37% gain, and Healthcare, which rose by +1.35%. On the flip side, Communication Services shares dipped by (3.76%), Technology slipped by (2.44%), and Consumer Discretionary stocks fell by (2.32%).
The Russell 2000 has certainly come a long way since July 10th. However, what we said last week still holds true:
We caution investors to curb their enthusiasm. Over the past few years, there have been several small-cap rallies that ended up just being head fakes. However, we believe that at some point, this under-owned area of the market will have its day in the sun. We think it is just a matter of time.
Notable Reads:
Goldman’s Top Stock Analyst Is Waiting for AI Bubble to Burst
https://www.bloomberg.com/news/articles/2024-07-18/goldman-s-top-stock-analyst-is-waiting-for-ai-bubble-to-burst
Over three decades on Wall Street, Jim Covello has learned how painful it can be to bet against an inflating tech stock bubble. The market has a way of minting riches, month after month, even after it’s clear the latest breakthroughs aren’t playing out quite as expected.
It happened with dot-com companies in the late 1990s and more recently with cryptocurrencies. And Covello, the head of equity research at Goldman Sachs Group Inc., says it’ll likely happen with artificial intelligence, too, making it dangerous, if not outright foolish, to start wagering against the likes of Nvidia Corp.
And yet, he has no doubt that the reckoning is coming. It might not be this year or even next year, for that matter, but at some point, he says, it’s happening. As he sees it, the hundreds of billions of dollars companies are plowing into AI won’t set off the next economic revolution — or even rival the benefits of the smartphone and the Internet. And when that becomes clear, all the stocks that have surged on the back of its promise will come sliding down, too.
Our Take: Covello's view that AI won't trigger the next economic revolution challenges the prevailing bullish sentiment among investors and tech companies. We disagree with his assertion and align more with Jamie Dimon's perspective. He has stated that AI will unleash extraordinary changes, potentially as transformative as those brought by the printing press, the steam engine, and electricity. However, we believe that investors have driven up the shares of many AI related businesses that may not be the long-term winners in this trend.
Much like the dot-com boom and bust, we expect many of the publicly traded AI related companies to either fail or see significant declines in their market value. However, there will be long-term winners that emerge as giants, similar to how Amazon.com did after the dot-com bubble burst. The question remains: which of the current market darlings will be the Pets.com of this cycle and which will be the Amazon? For those looking to invest in AI at current levels, all we can say is: caveat emptor.
Speaking of AI's impact on businesses—and referencing JP Morgan’s Jamie Dimon’s prediction—will research analysts (and research services!) become obsolete? When my father Mark started in the business, having a calculator was considered a competitive advantage! See the article below on how AI may be transforming investment research.
JPMorgan Pitches In-House Chatbot as AI-Based Research Analyst
https://www.ft.com/content/96dfec5f-4d5f-4c3e-8f66-ebd0dfc8392d
JPMorgan Chase has begun rolling out a generative artificial intelligence product, telling employees that its own version of OpenAI’s ChatGPT can do the work of a research analyst. The US bank has given employees of its asset and wealth management division access to a large language model platform which the bank is calling LLM Suite, according to an internal memo seen by the Financial Times. Executives told staff LLM Suite can help them with writing, idea generation and summarizing documents through access to third-party models…
The Secret Battle for the Future of the Murdoch Empire
https://www.nytimes.com/2024/07/24/business/media/rupert-murdoch-succession-fox.html
Rupert Murdoch is locked in a secret legal battle against three of his children over the future of the family’s media empire, as he moves to preserve it as a conservative political force after his death, according to a sealed court document obtained by The New York Times.
Mr. Murdoch, 93, set the drama in motion late last year, when he made a surprise move to change the terms of the Murdochs’ irrevocable family trust to ensure that his eldest son and chosen successor, Lachlan, would remain in charge of his vast collection of television networks and newspapers.
The trust currently hands control of the family business to the four oldest children when Mr. Murdoch dies. But he is arguing in court that only by empowering Lachlan to run the company without interference from his more politically moderate siblings can he preserve its conservative editorial bent, and thus protect its commercial value for all his heirs.
Those three siblings — James, Elisabeth and Prudence — were caught completely off-guard by their father’s effort to rewrite what was supposed to be an inviolable trust and have united to stop him. Lachlan has joined on Mr. Murdoch’s side. Remarkably, the ensuing battle has been playing out entirely out of public view.
Our Take: This story is worthy of the Murdoch-owned New York Post! It could have implications for News Corp, which we've written favorably about in Boyar Research. We believe the company trades at a significant discount to our intrinsic value estimate. If the Murdoch family can't agree on a strategy for the company after Rupert Murdoch's passing (he's 93 years young and just got married for the 5th time!), we wouldn't be surprised to see the company either put up for sale or broken up. In either case, we believe shareholders in the future could receive much more for News Corp than what the stock currently sells for.
The Hottest Job Market in a Generation Is Over
https://www.wsj.com/economy/jobs/the-hottest-job-market-in-a-generation-is-over-92f61452
The Hottest Job Market in a Generation Is Over
Americans’ once-in-a-generation job market has come to an end.
The red-hot hiring and rock-bottom unemployment that helped millions of workers find new gigs, boost their wages and reinvent their careers are giving way to more prosaic times. While the market is still healthy by many measures, signs of difficulty are creeping in.
The unemployment rate ticked up to 4.1% last month—the first time it has crossed above 4% since 2021. That’s still low by historical measures, but it’s up from 3.4% early last year. Workers have stopped quitting jobs at a frenzied pace, and college grads are having a hard time breaking into the market at all. The number of open positions for every unemployed person is back to the prepandemic level of 1.2, down from over 2 in 2022.
And while the risk of getting laid off is still low, hiring has fallen beneath its pre-Covid level.
Many economists see a job market that has come back into balance, though some worry that conditions could continue worsening.
“The labor market cooled back to a strong place. This is a good labor market. But it’s not clear if the cooling is done,” said Claudia Sahm, chief economist at New Century Advisors, an investment firm.
Our Take: Yet another sign that inflation is being tamed. The key question for investors is whether the Fed will lower rates in time to achieve the hoped for soft landing.
Alexa Is in Millions of Households—and Amazon Is Losing Billions
https://www.wsj.com/tech/amazon-alexa-devices-echo-losses-strategy-25f2581a
Amazon.com’s Echo speakers are the type of business success companies don’t want: a widely purchased product that is also a giant money loser.
Chief Executive Andy Jassy is trying to plug that hole—and move away from the Amazon accounting tactic that helped create it.
When Amazon launched the Echo smart home devices with its Alexa voice assistant in 2014, it pulled a page from shaving giant Gillette’s classic playbook: sell the razors for a pittance in the hope of making heaps of money on purchases of the refill blades.
A decade later, the payoff for Echo hasn’t arrived. While hundreds of millions of customers have Alexa-enabled devices, the idea that people would spend meaningful amounts of money to buy goods on Amazon by talking to the iconic voice assistant on the underpriced speakers didn’t take off.
Customers actually used Echo mostly for free apps such as setting alarms and checking the weather. “We worried we’ve hired 10,000 people and we’ve built a smart timer,” said a former senior employee.
As a result, Amazon has lost tens of billions of dollars on its devices business, which includes Echos and other products such as Kindles, Fire TV Sticks and video doorbells, according to internal documents and people familiar with the business.
Between 2017 and 2021, Amazon had more than $25 billion in losses from its devices business, according to the documents. The losses for the years before and after that period couldn’t be determined.
Our Take: This helps illustrate that Amazon is not invincible. Like every company, they have had their failures too (remember the Amazon smartphone!). Investors should keep this in mind the next time Amazon enters a new category, such as their current foray into the pharmacy business, and shares of companies in those categories fall because investors believe Amazon will dominate the competition. While this outcome is possible, it is far from guaranteed.
Important Disclosures. The information herein is provided by Boyar’s Intrinsic Value Research LLC (“Boyar Research”) and: (a) is for general, informational purposes only; (b) is not tailored to the specific investment needs of any specific person or entity; and (c) should not be construed as investment advice. Boyar Research does not offer investment advisory services and is not an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) or any other regulatory body. Any opinions expressed herein represent current opinions of Boyar Research only, and no representation is made with respect to the accuracy, completeness or timeliness of the information herein. Boyar Research assumes no obligation to update or revise such information. In addition, certain information herein has been provided by and/or is based on third party sources, and, although Boyar Research believes this information to be reliable, Boyar Research has not independently verified such information and is not responsible for third-party errors. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable. Investing in securities involves risk, including the possible loss of principal.
Important Information: Performance Information. Past performance does not guarantee future results. The reports in this sample are for informational purposes only and the performance of the stocks selected is not indicative of the performance of all the stocks profiled in Boyar Research. The performance of the stocks selected and the performance of the stocks in Boyar Research may in fact diverge materially. Additional information regarding the performance of other companies featured in Boyar Research is available from Boyar Research upon request. This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research. Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Clients of an affiliate of Boyar Research and employees of Boyar Research own shares in News Corp.