Summary

Kevin discussed how housing demand is at 15-year highs, through COVID-related themes and low interest rates. What is needed is a higher supply of housing, which is being held back by supply chain constraints, resulting in the terrible outlook for the main commercial construction stocks in the past 12 months. Through Kevin’s channel checks the building materials sector is experiencing a soft patch in Q3 which should pick up again. Favorite long idea is commercial roofing company, Carlisle Cos., given 80% of their work is replacement, and mainly non-discretionary, so demand is resilient and solid. For a good short Kevin highlights Eagle Industries, owing to the expectation of a surprising reduction in shipments in the 3Q for the wallboard industry.

John on Autos painted a positive outlook on the tyre manufacturing industry, with Goodyear Tryes his favorite stock. Given the chip shortage and lack of production cars are older and being driven longer which benefits Goodyear, since 70% of their business is in replacement. Furthermore, due supply chain constraints stemming from shipping issues Goodyear will successfully push price increases. Meanwhile the electrification of cars benefits tyre manufacturers, since EVs create different dynamics in terms of pressure and wear-out trends. Goodyear is ahead of Michelin and Bridgestone from an Engineering standpoint in this regard. Second long idea was Lyft, with the taxi ride industry having recovered to 75-80% of the activity of pre-pandemic levels, companies such as Lyft will increase their profitability again. Meanwhile Lyft’s aggressive effort to develop its driver base, through promotions and bonuses, gives them an edge over Uber, where John’s checks have found higher charges and longer waiting times. Lyft has potential to be acquired over the next three to five years, perhaps by an autonomous vehicle manufacturer. For shorts look to the vehicle hire companies, such as Hertz and Avis, which due to COVID related themes and supply chain issues, have experienced 30-40% higher demand and 40-50% higher prices. As these issues resolve expect a large correction.

Kartik discussed increasing consumer demand for self-service across many sectors such as retail and financial services, spurred in part by the COVID pandemic. NCR is an attractive long position as they integrate their merchant acquiring business within their hospitality and retail businesses, which means customers can use NCR for credit and debit card transactions. Furthermore, Kartik’s channel checks suggest that banks are outsourcing their ATM operations, which would massively benefit NCR, where 85% of business is ATM-related, and 15% digital banking.  Paired with potential benefits from acquisition of Cardtronics NCR is highest conviction buy over the next 12-18 months. Meanwhile Fiserv with 40% of their business involves payments, stand to benefit from banks aggressively encouraging people to take out credit cards.  A further tailwind is the potential of ‘Buy now, Pay later’ scheme where Fiserv has unique pricing power, and is likely to offer this service with customers lined up.

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