I though the new pitch from Joel Litman at Altimetry was kind of interesting, and it sure teased a bunch of ideas, so we’ll run through that one today. The newsletter being touted is Hidden Alpha ($49 first year, renews at $199), and it’s part of the Altimetry group that’s a joint venture between Litman’s Valens Research organization and Stansberry Research (now part of Beacon Street, which has agreed to go public through the ACND SPAC).
The general pitch from Litman over the years has been that accounting is broken, that GAAP accounting creates a “garbage in, garbage out” situation for investors, where valuation arguments are based on faulty data, so his newsletters and his research organization focus on identifying places where their uniform accounting would highlight a stock that’s a better value than GAAP accounting implies — they describe this as being a “stock cop” in the latest ad, “policing” portfolios for stocks where the as-reported accounting would send you astray.
Litman and Valens/Altimetry sell several different research products, and access to their databases of adjusted financial results, but this particular offering is sort of the “entry level highlights” version — they find a universe of companies where differences between their “uniform accounting” and GAAP accounting create a real discrepancy, and then also do what they call “forensic analysis” of the earnings calls to help identify when company management is either unusually evasive or unusually excited about the future, and pick the best stocks using that info. They say this Hidden Alpha service focuses on relatively safer large-cap stocks (High Alpha, which is the “upgrade” newsletter in this particular marketing funnel, at about $5,000 a year, focuses on small caps).
So… what’s he pitching now? The lead-in is about how the vaccine progress clobbered some of the big pandemic “winner” stocks…
“The market lost a third of its value when Covid hit…
“But I believe the vaccine’s effect on the market could be even worse than the virus itself.
“This ‘stay-at-home’ sector could see losses of 75% or more after the vaccine takes hold.
“As Americans lives go back to normal, many of these ‘stay-at-home’ stocks will be exposed as short-term fads…”
He puts stocks like Zoom Video (ZM) into that category, but that’s not what’s interesting here — he also hints at some other ideas that will continue to be profitable.
“The chance to position your portfolio correctly – ahead of time – is an opportunity you may never get again.
“Because not everything will go back to normal once Covid-19 has gone away.
“Some of the changes we made during the pandemic will stick.
“In the last year, we’ve undergone a massive shift in habits.”
And he repeatedly touts something he calls his “L.O.C.K. System”, which is described as: Looking for stocks that have outlier financials, with big discrepancies between “real” and “as reported” financials; Checking out the Operations of those companies to qualitatively assess the potential, the managers, the industry, their long-term strategy; Analyzing their conference Calls for those CEO voice patterns that indicate stress, deception or optimism; and then making a decision (that’s K, for “keep it or kick it”).
Doesn’t sound terribly different than any other assessment you might make of a stock, though I guess it standardizes the things that a lot of experienced investors do almost by habit — the quantitative adjustments to large numbers of stocks through uniform accounting is different than the one-stock-at-a-time decisions about places where the SEC filings are hiding a story that’s better than it appears, and the computerized screening of the conference calls is perhaps a better high-volume solution than listening to the calls yourself and making your own qualitative assessment of management.
Here’s a bit from the ad to get us back on track:
“When I ran these stay-at-home companies through L.O.C.K., I found a common thread that separated the winners from the losers.
“The key to understanding which companies will thrive in the post-vaccine world – and which won’t – is simple.
“If the new habit was an improvement over the old, it will stay…
“If it was just a temporary fix, it won’t.”
That I agree with — some stuff will clearly drift back to the way it was, some of the better tools we adopted during COVID will stay adopted. I’ve noted this a few times in the case of Chewy (CHWY), for example — once you’ve gotten your pet food delivered on a set schedule every month, never running out and never having to lug a 40-pound bag of dog food to your car, you don’t go back to the old way. Bringing new people into e-commerce was a one-time shift, but a lot of those people will stay shifted for a lot of their purchasing, whether it’s dog food or groceries or a thousand different things from Amazon.
Litman goes on…
"reveal" emails? If not,
just click here...
“But there are three habits that have proved overwhelmingly convenient during the pandemic.
“These options are far superior to how we did it before Covid-19.
“And there’s barely any extra cost to the consumer for the convenience.
“All evidence suggests the genie can’t be put back in the bottle.”
And, as you might imagine, e-commerce is one of those “habits” — here’s his first bit of teasing:
“ENDURING HABIT #1: We Will Never Shop The Same Way Again…
“Americans are shopping online at an exponentially higher rate than before the pandemic.
“In fact, 3 out of 4 people tried shopping online for the first time in 2020…
“Half of all those people said they would continue to buy groceries online, even after the pandemic….
“As more consumers went online, companies spent more to bolster their online shopping systems.
“Eventually, this network acceleration becomes a permanent change.”
He goes off on an aside about what a terrible business food delivery is, particularly singling out DoorDash (DASH) as a company that can’t make money, but then goes on to get us thinking about the safer winners…
“Rather than try to pick winners in a highly competitive business – why not invest in all of them at once?
“And the way to do that is by investing in companies who power the infrastructure of the online shopping industry.”
The first one has something to do with payments…
“How does money get from one place to the other online?
“Extremely complicated remote payment programs.
“And this company’s proprietary technology is at the heart of the remote payment business.
“They’ve been around almost as long as the internet.
“On average, their software handles 41.5 million transactions every single day.
“That amounts to over $20 billion in remote payments every week.
“8 in 10 online buyers use their technology – even if they don’t know it.”
OK, so it’s one of the companies in the payment processing business. Any other hints about it?
“Right now, this payment processing giant is flying under the radar.
“But the L.O.C.K. system says the company has the same potential for growth as Square.
“You could have gotten in back in 2016 and watched as it went up as much as 816%.
“Could this new recommendation go even higher?”
That $20 billion/week number narrows things down a bit — as, of course, does the “8 in ten” number. That means we’re dealing with one of the very large and established companies in the payments business. Which one? There are two that come close to matching and seem pretty interesting at this point, Adyen (ADYEY, ADYYF) and Global Payments (GPN).
Adyen in the last quarter did about $16 billion in transaction volume a week, so that’s in the neighborhood (it’s not really a precise clue, so we shouldn’t be too exact… but it should be close), and it wasn’t founded until 2006. It has been the fastest-growing big payment platform for a long time, thanks to its digital-first design that has it providing services for new giants like Netflix, but it hasn’t been around all that long.
The back-of-the-napkin numbers for Adyen are a market c