2019 demographics...sept. 3, 2019 disclosures for important disclosures and rating histories...
TRANSCRIPT
Sept. 3, 2019
Thomas J. Lee, CFA AC
Head of Research
twitter: @fundstrat
2019 Strategy
For Reg AC certification and other important disclosures, see Disclosures, Slide 2.
Demographics
helping US de-couple
Ain’t catching me
‘late cycle’
a company
Sept. 3, 2019
DisclosuresFor important disclosures and rating histories regarding sectors or companies that are the subject of this report, please contact us or visit FS Insight website at www.FSInsight.com.
Analyst Certification (Reg AC)
Thomas J. Lee, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.
Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. There is a possibility that we will from time to time have long or short positions in, and buy or sell, the securities or derivatives, if any, referred to in this research
Conflicts of Interest
This research contains the views, opinions and recommendations of FS Insight. As of the time of writing and publication of this presentation, FS Insight does not know of, or have reason to know of any material conflicts of interest at the time of the publication of this presentation. The Company has no contractual relationship, nor have we received any compensation from any of the companies listed in this research report.
Analyst Industry/Sector Views
Positive (+): The analyst expects the performance of his industry/sector coverage universe over the next 6-18 months to be attractive vs. the relevant broad market benchmark, being the S&P 500 for North America.
Neutral (N): The analyst expects the performance of his or her industry/sector coverage universe over the next 6-18 months to be in line with the relevant broad market benchmark, being the S&P 500 for North America.
Negative (-): The analyst expects his or her industry coverage universe over the next 6-18 months to underperform vs. the relevant broad market benchmark, being the S&P 500 for North America.
General Disclosures
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information is available upon request. Information has been obtained from sources believed to be reliable but FS Insight does not warrant its completeness or accuracy except with respect to any disclosures relative to FS Insight and the analyst's involvement (if any) with any of the subject companies of the research. All pricing is as of the market close for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, risk tolerance, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. The recipient of this report must make its own independent decision regarding any securities or financial instruments mentioned herein. Except in circumstances where FS Insight expressly agrees otherwise in writing, FS Insight is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client website, fsinsight.com. Not all research content is redistributed to our clients or made available to third-party aggregators or the media. Please contact FS Insight sales representative or visit www.FSInsight.com, if you would like to receive any of our research publications.
Copyright 2019 FS Insight LLC. All rights reserved. No part of this material may be reprinted, sold or redistributed without the prior written consent of FS Insight LLC.
Slide 2
This material is provided for information only and is not an offer to sell or the solicitation of an offer to buy any financial instrument or asset class
This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Neither the presenter Thomas Lee or FS Insights is registered with FINRA or the SEC.
FS Insights is not affiliated with Interactive Brokers LLC, or any other FINRA broker-dealer.
The information provided in this presentation is believed to be accurate, but the accuracy and completeness of the information is not guaranteed.
Past performance is not indicative of future results.
Disclosure
Sept. 3, 2019
• World is scary, US stocks ready for bounce
• US equities are de-coupling from RoW
• Labor shortages benefit US competitiveness
• Demographics destiny: Millennials
• Recommended Investment Strategies
Slide 3
Executive Summary
Sept. 3, 2019 Slide 4
Overwhelmingly Bear case… but the Fed is a “Trump” card
Global economy late cycle
Inverted curve
Plague of negative rate bonds (30%)
Trump ‘unpredictable’
Brexit
Crashing global PMIs
Earnings recession
DB ‘tip of iceberg’
No bullets left
Fed mixed credibility
Bear case:
HYBRID
Hawk-
dove Fed
Sept. 3, 2019 Slide 5
PMIs WEAK: PMIs around the world are very weak
Source: Fundstrat, Bloomberg
Composite PMI Source 8/18 9/18 10/18 11/18 12/18 1/19 2/19 3/19 4/19 5/19 6/19 7/19 8/19
Global Markit 53.4 52.8 53.0 53.1 52.7 52.1 52.6 52.8 52.2 51.2 51.2 51.7
Developed Markets Markit 54.0 53.3 53.6 53.3 52.7 52.3 52.9 52.7 52.0 51.1 51.3 51.7
Emerging Markets Markit 51.8 51.6 51.3 52.6 52.5 51.6 51.7 52.9 52.4 51.3 50.9 51.5
Total 85% 85% 81% 70% 63% 63% 74% 67% 81% 67% 59% 70% 53%
Developed 92% 83% 83% 83% 83% 67% 75% 83% 83% 83% 75% 92% 83%
Emerging 86% 100% 86% 43% 43% 57% 57% 43% 71% 57% 43% 43% 20%
Commodity 75% 75% 75% 75% 75% 63% 88% 75% 88% 63% 50% 63% 50%
USA ISM 59.0 60.7 59.7 60.2 57.6 56.7 59.1 56.0 55.2 56.4 54.7 53.4
Canada* Markit 56.9 53.9 52.7 53.5 51.4 49.6 51.4 50.5 50.6 52.0 52.1 52.0 49.5
Eurozone Markit 54.5 54.1 53.1 52.7 51.1 51.0 51.9 51.6 51.5 51.8 52.2 51.5 51.8
Germany Markit 55.6 55.0 53.4 52.3 51.6 52.1 52.8 51.4 52.2 52.6 52.6 50.9 51.4
France Markit 54.9 54.0 54.1 54.2 48.7 48.2 50.4 48.9 50.1 51.2 52.7 51.9 52.7
Italy Markit 51.7 52.4 49.3 49.3 50.0 48.8 49.6 51.5 49.5 49.9 50.1 51.0
Spain Markit 53.0 52.5 53.7 53.9 53.4 54.5 53.5 55.4 52.9 52.1 52.1 51.7
UK Markit 54.2 54.1 52.1 50.8 51.4 50.3 51.5 50.0 50.9 50.9 49.7 50.7
Japan Markit 52.0 50.7 52.5 52.4 52.0 50.9 50.7 50.4 50.8 50.7 50.8 50.6 51.7
Australia* Australian Ind. Group55.9 57.1 54.7 50.8 50.0 52.5 54.0 51.0 54.8 52.7 49.4 51.3 53.1
Singapore Markit 51.1 49.6 52.6 53.8 52.7 50.1 49.8 51.8 53.3 52.1 50.6 51.0
Hong Kong Markit 48.5 47.9 48.6 47.1 48 48.2 48.4 48 48.4 46.9 47.9 43.8
Mexico* Markit 50.7 51.7 50.7 49.7 49.7 50.9 52.6 49.8 50.1 50.0 49.2 49.8 49.0
China Markit 52.0 52.1 50.5 51.9 52.2 50.9 50.7 52.9 52.7 51.5 50.6 50.9
Taiwan* Markit 53.0 50.8 48.7 48.4 47.7 47.5 46.3 49.0 48.2 48.4 45.5 48.1 47.9
South Korea* Markit 49.9 51.3 51.0 48.6 49.8 48.3 47.2 48.8 50.2 48.4 47.5 47.3 49.0
Vietnam* Markit 53.7 51.5 53.9 56.5 53.8 51.9 51.2 51.9 52.5 52.0 52.5 52.6 51.4
Poland* Markit 51.4 50.5 50.4 49.5 47.6 48.2 47.6 48.7 49.0 48.8 48.4 47.4 48.8
India Markit 51.9 51.6 53.0 54.5 53.6 53.6 53.8 52.7 51.7 51.7 50.8 53.9
Brazil Markit 47.8 47.3 50.5 51.6 52.4 52.3 52.6 53.1 50.6 48.4 49.0 51.6
Nigeria Markit 56.1 56.3 54.4 55.5 55.0 54.0 53.3 53.6 55.5 52.9 54.8 54.6
South Africa Markit 47.2 48.0 46.9 48.2 49.0 49.6 50.2 48.8 50.3 49.3 49.7 48.4
Indonesia* Markit 51.9 50.7 50.5 50.4 51.2 49.9 50.1 51.2 50.4 51.6 50.6 49.6 49.0
Russia Markit 52.1 53.5 55.8 55.0 53.9 53.6 54.1 54.6 53.0 51.5 49.2 50.2
Malaysia* Markit 51.2 51.5 49.2 48.2 46.8 47.9 47.6 47.2 49.4 48.8 47.8 47.6 47.4
UAE Markit 55.0 55.3 55.0 55.8 54.0 56.3 53.4 55.7 57.6 59.4 57.7 55.1 51.6
Saudi Arabia Markit 55.1 53.4 53.8 55.2 54.5 56.2 56.6 56.8 56.8 57.3 57.4 56.6 57.0
"Diffusion"
(% above 50)
Sept. 3, 2019 Slide 6
NEGATIVE RATES: Plague of negative yielding debt soaring…
Sept. 3, 2019 Slide 7
Figure: Price changes since September 2018Japan and Germany
MOMENTUM TRADE: Falling rates have created massive upside in bondsThe decline in interest rates has created massive upside for bonds, particularly longer term (long duration) bonds.
• The 30-yr and longer bonds of governments have soared 30%-plus since rates began falling. This is the
reason we believe momentum trading is driving the shift into bonds. This is not solely about deflation/ risk-
off, it is a massive momentum trade.
Source: Fundstrat, Bloomberg, Factset
Germany 60-yr bond
(due 2078)
Germany 10-yr bond
(due 2028)
Germany
DAX
+60%
+10%
-8%
Nikkei 225
Japan 40-yr bond
(due 2057)
+30%
-15%
Japan 10-yr bond
(due 2028)
-1%
+32%
+1%
+14%US 10-yr bond
(due 2028)
S&P 500
US 30-yr bond
(due 2048)
Massive upside Massive upside
Massive upside
Sept. 3, 2019 Slide 8
Figure: 10-year Government Bond Yield (%)Sorted lowest to highest
REASON #1 ZERO US RATES: The US 10-year could fall to zero TINALess influenced by the Fed, the 10-year US Treasury yield is a good indicator of the economy’s health. Recently, the yield
on 10-year US Treasury has fallen to 1.58%, the lowest level since September 2016.
• However, compared with other developed economies, the yield on 10-year US Treasury is still relatively high,
reflecting US economy is still strong. We have previously pointed out that the US is the safe haven and
massively outperforming the rest of world.
Source: Fundstrat, Bloomberg, Factset
-1.03-0.65 -0.60 -0.53 -0.39 -0.38 -0.37 -0.32 -0.32 -0.24 -0.08
0.14 0.170.45
0.901.14 1.15 1.23
1.51 1.58 1.65 1.762.05
3.01
3.61
6.63
7.24 7.267.47
Sw
itze
rlan
d
Germ
any
Denm
ark
Neth
erlan
ds
Aust
ria
Finla
nd
Fran
ce
Sw
eden
Bel
giu
m
Japan
Irel
and
Spai
n
Port
ugal
United
Kin
gdom
Aust
ralia
Hong K
ong
Can
ada
South
Kore
a
Ital
y
United
Sta
tes
Sin
gap
ore
Pola
nd
Gre
ece
Chin
a
Russ
ia
India
Mex
ico
Bra
zil
Indones
ia
Why won’t bond buyers start
buying US Treasuries,
pushing further lower rates?
Sept. 3, 2019
10094 98 100 101 102 103 105 110 114
Calc
ula
ted
Pri
ce a
s %
of
Par
Yield to Maturity
107
80
95108 113 118 123
135
161
194
Yield to Maturity
120
67
98
133148
166186
235
385
651
Yield to Maturity
Slide 9
Figure: Upside potential for bonds if interest rates keep fallingUS Treasury 2-year vs. 10-year vs. 30-years; log scale
REASON #3 ZERO RATES US: Momentum trade, juice in long-term bonds…If indeed, investors believe US rates are going to fall, the rational investor will be buying long-term bonds (see below).
• There is more juice in long-term bonds if interest rates fall. This means, long-term bonds see more buying
pressure (momentum), which makes the curve even more inverted.
Source: Fundstrat, Bloomberg, Factset
+3%+15%
+55%
US 2-yr note
US 10-yr bond
US 30-yr bond
If markets believe US rates could go to zero, there is a
rush to buy long-term (duration) bonds, which have
more upside…
…but this causes curve to invert.
Sept. 3, 2019 Slide 10
US YIELD CURVE: Entire rate structure of US govt bonds < FFWe believe the Fed does need to cut interest rates, even more than 50bp (consensus) because of the term structure.
• Only a 75bp cut would bring Fed Funds below any of the existing rates today (5-year is lowest at 1.5%).
Figure: US yield curve 1M to 30Y and correlation against Fed Funds Effective Rate since 2012As of 8/1/2019
Source: Fundstrat, Bloomberg, Factset
Fed funds
2.00-2.25
Fed funds
1.25-1.50
With a 75bp cut, the
term structure of
interest rates would
normalize…
Sept. 3, 2019 Slide 11
Figure: Past 16 years: Google Search Trends for “Inverted Yield Curve” and “Recession”2004 to Now
POINT #1: Focus on recession risk overly sensitive, 4X > than ’05-’08 periodIn order to appreciate the "over sensitivity" to recession risk, we compared the search volumes of key words “inverted
yield curve” and “recession” today to 2005-2008 period.
• The search for "recession" did not not surface until January 2008. In other words, "recession" fears didn’t
surface until a full 25 months AFTER SEARCHES FOR YIELD CURVE INVERSION PEAKED. By contrast, both
"inverted yield curve" and "recession" are going ballistic now.
Source: Fundstrat, Google Trends
Dec 2005
4X search volume!!!!
Jan 2008 Matches Jan 200825 months
inverted yield curveSearch term
recessionSearch term
Sept. 3, 2019 Slide 12
DON’T FIGHT THE FED: When economy mid-cycle and Fed cut… BLAST OFFTiming of the Fed cut is key. When the Fed cuts and the US economy is in expansion, the first Fed cut drives positive
equity returns.
• As shown below, the S&P 500 has seen gains 100% of the time when the Fed cuts and the US is not in
recession. 100% of the time.
% return
(avg) Win-ratio
3M -8.0% 20%
6M -4.1 20
9M -4.6 20
12M -0.9 40
% return
(avg) Win-ratio
3M 9.7% 100%
6M 13.5 100
9M 15.7 100
12M 16.5 100
Fed cut + recession:July ‘74, April ‘80, June ‘81,
Jan ‘01 and Sept ‘07
Fed cut + Expansion:Jan ‘71, Oct ‘84, Oct ‘87,
July ‘89, July ’95, Sept ‘98
Sept. 3, 2019 Slide 13
Positive LEIs when Fed cuts is positive; implies S&P 500 at 3450
Figure: 6-month forward returns and implied S&P levelBased on LEI level at first cut of easing cycles
Average 6M gain of 14.4% if LEI is positive when Fed cuts
• The gain ranged from 22.3% to 10.4% for the 5 instances
• This implies S&P 500 at 3450 in 6M, with a range of 3300-3700
Source: Fundstrat, Bloomberg
22.3%
15.5%12.0% 11.9%
10.4%
14.4%
27.2%
8.9%
(7.9%) (8.2%)
(15.2%) (16.1%)
(1.9%)
Average
14.4%
Average
(1.9%)
6-Month Forward Return Average
3685
3481 3376 3371
3328
3448
3832
3282
2775 2765
2554 2529
2956
Average
3448
Average
2956
Sep '98 Oct '87 Jul '95 Jul '89 Oct '84 Average Apr '80 Jan '71 Jun '81 Jan '01 Sep '07 Jul '74 Average
Implied S&P Level Average
3.1 4.2 (7.0) (1.7) (3.5)
LEI YoY
3M Avg(%) 4.2 4.1 1.4 8.3 (7.0) (3.3) (0.4) (1.2) (7.4)
Fed cut + LEI Positive Fed cut + LEI Negative
Sept. 3, 2019 Slide 14
VIX TERM STRUCTURE INVERSION: 6M average gain of 8.9% The VIX term structure inverting is often a sign of an imminent low. The exceptions are January 2016 and October 2018,
when markets still had a 2-4 weeks of further downside.
• Even in those two cases, the further downside was 3%-4%, and while that seems huge, recoveries were rapid.
Source: Fundstrat, Bloomberg, Factset
Figure: VIX term structure (4M-1M) and the S&P 500Since 2014
Days
to low:
0
Days
to low:
0
Days
to low:
1
Days
to low:
34
Days
to low:
3
Days
to low:
18
Days
to low:
6
Sept. 3, 2019 Slide 15
Figure: Equity declines of 3% and VIX term structureSince 2009
DOWN 3% IN 1-DAY: 6M average gain of 15.3%It is a positive sign when stocks fall 3% in a day and the VIX term structure is inverted.
• Of the 24 instances, when stocks fall 3% in a day, positive returns seen 87% of the time with average gain of 8%.
Source: Fundstrat, Bloomberg, Factset
S&P Level
1 Day
Change
1 Month
forward
return
3 Months
forward
return
6 Months
forward
return Spot Vix
Vix 4M -
1M Term
Structure
1 3/5/2009 682.55 (4.3%) 23.4% 38.1% 47.0% 50.17 (7.15)
2 3/30/2009 787.53 (3.5%) 10.9% 17.7% 35.0% 45.54 (4.55)
3 4/20/2009 832.39 (4.3%) 8.5% 14.3% 31.9% 39.18 (1.35)
4 6/22/2009 893.04 (3.1%) 6.8% 19.2% 24.7% 31.17 (0.20)
5 2/4/2010 1063.11 (3.1%) 7.1% 6.1% 5.9% 26.08 0.45
6 5/6/2010 1128.15 (3.2%) (5.6%) (0.2%) 8.2% 32.80 0.10
7 5/20/2010 1071.59 (3.9%) 4.3% 0.4% 11.7% 45.79 (1.65)
8 6/4/2010 1064.88 (3.4%) (4.0%) 3.7% 15.0% 35.48 (0.70)
9 6/29/2010 1041.24 (3.1%) 5.8% 10.2% 20.9% 34.13 1.25
10 8/4/2011 1200.07 (4.8%) (2.2%) 5.1% 10.5% 31.66 (2.90)
11 8/8/2011 1119.46 (6.7%) 7.1% 12.7% 20.1% 48.00 (8.90)
12 8/10/2011 1120.76 (4.4%) 3.0% 9.7% 20.5% 42.99 (8.60)
13 8/18/2011 1140.65 (4.5%) 6.6% 6.6% 19.1% 42.67 (5.60)
14 9/22/2011 1129.56 (3.2%) 9.6% 11.0% 23.3% 41.35 (4.75)
15 11/9/2011 1229.10 (3.7%) 2.1% 9.8% 10.2% 36.16 (3.50)
16 8/21/2015 1970.89 (3.2%) (0.7%) 6.0% (2.7%) 28.03 (1.63)
17 8/24/2015 1893.21 (3.9%) 2.4% 10.2% 2.8% 40.74 (4.43)
18 6/24/2016 2037.41 (3.6%) 6.8% 6.2% 11.1% 25.76 (0.65)
19 2/5/2018 2648.94 (4.1%) 2.9% 0.9% 7.6% 37.32 (12.28)
20 2/8/2018 2581.00 (3.8%) 8.0% 5.5% 10.6% 33.46 (8.25)
21 10/10/2018 2785.68 (3.3%) (0.2%) (7.2%) 3.7% 22.96 (2.20)
22 10/24/2018 2656.10 (3.1%) (0.9%) (0.7%) 10.2% 25.23 (1.25)
23 12/4/2018 2700.06 (3.2%) (9.3%) 3.3% 3.8% 20.74 (0.25)
24 8/5/2019 2844.74 (3.0%) 24.59 (2.70)
Average (3.8%) 4.0% 8.2% 15.3% 35.08 (3.40)
Median (3.5%) 4.3% 6.2% 11.1% 34.81 (2.45)
Win Ratio 69.6% 87.0% 95.7%
23%
11%
9%
7%7%
-6%
4%
-4%
6%
-2%
7%
3%
7%
10%
2%
-1%
2%
7%
3%
8%
0%-1%
-9%
(15%)
(10%)
(5%)
0%.
5%.
10%.
15%.
20%.
25%.
30%.
(14) (12) (10) (8) (6) (4) (2) 0 2
1 M
onth
forw
ard
retu
rn
Vix 4M - 1M Term Structure
S&P 500 sees strong 3M + 6M returns
following 3% declines + inverted VIX
Sept. 3, 2019 Slide 16
AAII BULLS – BEARS < -26: Avg 6M gain of 9.3%
Average: 4.2%
Win ratio: 73%
S&P 500 6M
(1987-now)(weeks=1,641)
% bulls-bears
> -26(n=1,585)
% bulls-bears
<= -26(n=56)
Average: 4.0%
Win ratio: 73%
Average: 9.3%
Win ratio: 73%
PMIs
US PMIs
<= 51(n=48)
Average: 9.1%
Win ratio: 73%
US PMIs
> 51(n=8)
Average: 10.5%
Win ratio: 75%
AAIIMarket
We have looked at the forward 6-month returns of the S&P 500 under different combinations of AAII and PMIs.
• When AAII is this weak, we can see that comparative returns are better than when AAII sentiment is > -26.
• Moreover, when we factor in the level of US PMIs, forward equity returns are considerably better (+10.5% 6M)
and a win-ratio of 75%. This suggests that risk/reward for equities is quite attractive currently.
Figure: Comparative 6M returns of S&P 500 based upon AAII and upon PMI levelsSince 1987
Source: Fundstrat, Bloomberg, Factset
Current:
AAII -26.5%
Current:
PMI = 51.2
Sept. 3, 2019
• World is scary, US stocks ready for bounce
• US equities are de-coupling from RoW
• Labor shortages benefit US competitiveness
• Demographics destiny: Millennials
• Recommended Investment Strategies
Slide 17
Executive Summary
Sept. 3, 2019 Slide 18
Figure: Beneficiaries of a US recession or rising economic gloomPer Fundstrat
Beneficiaries of a US recession…
Source: Fundstrat, Bloomberg, Factset
1. Short Sellers Obvious
2. Democratic Candidates Economy is THE swing factor.
3. Trump Haters Obvious
4. Bond Holders Falling rates = massive upside to bond price
5. China A recession forces Trump to capitulate.
6. Media turmoil sells Ads baby!!!
7. Europe Misery loves company + Schadenfreude
8. Private Equity $2 trillion of dry powder
9. Federal Reserve??? To Be Determined
Sept. 3, 2019 Slide 19
Figure: S&P 500YTD
Despite Armageddon prognostications, S&P 500 up 17% YTD
Source: Fundstrat, Bloomberg, Factset
+17% YTD
Sept. 3, 2019 Slide 20
S&P 500 — The Bull market “takes a licking but keeps on ticking”
Sept. 3, 2019 Slide 21
Overwhelming Bear case… but the Fed is a “Trump” card
Bull case:
Don’t fight the Fed
US de-coupling structural reasons
US mid-cycle
Millennials
Sentiment so bad, its bullish
Inflation picking up
Sept. 3, 2019 Slide 22
S&P 500 pulling away from Global equities for some time…The S&P 500 continues its relentless outperformance against global equities in 2019—our assessment since start of year.
• The big picture drivers continue to be: strong US franchises (Technology, Healthcare, in particular); plus,
supportive White House/ government policy and lastly, supportive central bank policies (easing financial
conditions).
Source: Fundstrat, Bloomberg, Factset
2005 to now…
Figure: S&P 500 vs MSCI World IndexSince 1970
Sept. 3, 2019 Slide 23
Figure: Long-term yield curve 10M change (advanced 16-months) and ISM ManufacturingPast 6 years
STRUCTURAL: Yield curve ISM bottoms 2H19, soar through 2020…The long-term yield curve (10M change of 30Y-10Y yield spread) signaled 16M ago a downturn in ISM PMI was coming.
• Since our April 2017 study, the long-term yield curve seems to be doing a pretty good job of predicting ISM.
• And it currently suggests the ISM will fall towards 50 by 3Q19 but then soar to new highs in 2020. This move
upwards, in our view, is explaining the outperformance of Cyclical stocks.
Source: Fundstrat, Bloomberg, Factset
51.7 June
51.2 July
48.0 (Fall 2019)
Sept. 3, 2019 Slide 24
BIZ MIX: US stock market higher share of “High-value” sectors• The S&P 500 has a higher mix of ‘high-margined” or “high-value” sectors such as Technology and Healthcare
Source: Fundstrat, Bloomberg, Factset
Figure: Global Equity Indices Sector WeightAs of 9/3/19
Technology
20.8%
Healthcare
12.9%
Financials
12.4%
Discretionary
10.1%Energy + Materials
6.6%
Industrials
8.9%
Others
28.2%
16%
34%United States
(S&P 500)
Technology
11.5%
Healthcare
8.4%
Financials
9.9%
Discretionary
19.3%
Energy + Materials
6.6%
Industrials
20.1%
Others
24.1%
27%
Japan
(TOPIX)
20% Technology
5.8% Healthcare
4.5%
Financials
37.0%
Discretionary
6.0%
Energy + Materials
15.5%
Industrials
14.1%
Others
17.2%
30%
China
(SHCOMP) 10%
Technology
5.0%
Healthcare
13.0%
Financials
15.5%
Discretionary
11.8%
Energy + Materials
14.0%
Industrials
13.3%
Others
27.4%
27%
Europe
(STOXX 600)18%
Sept. 3, 2019 Slide 25
Demographics explain why US is pulling away….US is pulling away from the rest of the World in terms of population growth.
• Over the next 20 years, the US population will have grown by 43 million, while other G7 and other countries
have shrunk or stagnated (at best).
Source: Fundstrat, Bloomberg, Factset
Figure: Total Population Growth — 2019 to 2039Per UN DESA
Population CAGR
Population
(in mm) Population CAGR
Population Delta
(in mm)
1999 - 2019 2019 2019 - 2039 2019 - 2039
US 0.8% 329.1 0.6% 43.3
Europe 0.1% 743.1 -0.1% -13.1
Germany 0.1% 82.4 -0.1% -1.2
Japan -0.0% 126.9 -0.5% -11.0
China 0.5% 1,420.1 0.0% 1.2
Russia -0.1% 143.9 -0.3% -7.7
Sept. 3, 2019
China: 42.7
India: 28.5
Korea*: 31.1
Canada: 23.0
Hong Kong: 21.8
Turkey: 29.8
Spain: 20.6Russia: 21.6Mexico: 22.3
Switzerland: 24.5Japan: 24.0
Italy: 17.5
France: 22.5
Brazil: 15.6
EU: 19.8
Sweden: 24.9
Germany: 20.4
Greece: 12.5
UK: 17.2
US: 17.2
Iraq: 25.3
Afghanistan: 17.7
Zimbabwe: 12.6
Taiwan: 21.1
Australia: 16.9
Netherlands: 17.8
Saudi Arabia: 20.0
Venezuela: 17.7
Thailand: 14.3
Argentina: 17.7
10
15
20
25
30
35
0 10,000 20,000 30,000 40,000 50,000 60,000
Gro
ss F
ixed
Inve
stm
ent
as %
of
GD
P (
2017
est
.)
GDP Per Capita ($) (PPP) (2017 est.)
Slide 26
Figure: Gross fixed investment as % GDPSince CIA World Factbook, 2017 estimates
INVESTMENT: US private investment same as third world nations…Investment spending levels in the US are depressed and best evidenced when compared to other nations. We previously
showed these spending levels as a time series (see earlier slide).
• At 17% for gross fixed investment spend as % GDP, US is about the same as Italy, Venezuela, Afghanistan.
Basically, third world nation levels of spending.
Source: Fundstrat, Bloomberg, Factset. CIA World Factbook
50
3rd world 3rd world 3rd world
G7
G7 G7
Sept. 3, 2019 Slide 27
KEY MID-CYCLE SIGN: Not happened yet, Investment spending >27%
Source: Fundstrat
Private Investment peaking is logically the peak of the business cycle—when private sector has over-invested.
• This ratio (past 50 years) is 27% and needs to rollover before we see a recession. At 24.4%, ratio is quite low.
Figure: Private Investment (sum of capex + durables + residential investment) as % GDP is still below 27%Since 1970
24.4%
Private inv. % GDP
= 27%
>27%>27%>27%>27%>27%
rollover
rollover
rollover
rollover
rollover
+260bp
$520 billion
Sept. 3, 2019 Slide 28
Figure: Comparative components of private investment spending (as % GDP)Since 1970
MEAN REVERSION ONLY: +280bp upside to investment as % GDPThere are 5 components for private investment spending (shown below), (i) Capex; (ii) IP spend; (iii) Non-res building; (iv)
Res. Construction; and (v) consumer durables purchases
• Just “mean reversion” to 50-yr averages implies 280bp upside to investment spend, or $560 billion in capex.
Source: Fundstrat, Bloomberg, Factset
50-yr avg:
6.5%
50-yr avg:
2.9%
50-yr avg:
3.4%
50-yr avg:
4.5%
50-yr avg:
8.3%
5.9%
4.3%
2.9%
3.7%
7.2%
+60bp
+50bp
+80bp
+90bp
Capex(% GDP)
Intellectual Property(% GDP)
Consumer Durables(% GDP)
Residential Investment(% GDP)
Non-Residential Investment(% GDP)
MEAN REVERSION ONLY:
+280bp = $560 billion capex
Sept. 3, 2019 Slide 29
Figure: 10Y less 2Y in various countries.As of 8/21/19
ECONOMIC-ANXIETY: Why is the US the only inverted 10Y-2Y?The most curious thing about the 10Y-2Y inversion is that the US is the only country (besides Hong Kong) with an
inverted curve. Sure, Canada and Mexico, but their rate structure follows the US.
• This lends credence to the arguments that non-economic/non-fundamental factors can be causing the US
inversion.
Source: Fundstrat, Bloomberg, Factset
Spread
10Y - 2Y 30Y - 10Y
United States 0.00% 0.49%
Canada -0.18% 0.23%
Mexico -0.29% 0.46%
China 0.36% 0.60%
Hong Kong -0.52%
Japan 0.07% 0.44%
Australia 0.18% 0.62%
South Korea 0.08% 0.01%
Singapore 0.13% 0.23%
India 0.76% 0.42%
Germany 0.22% 0.54%
France 0.40% 0.87%
United Kingdom 0.00% 0.57%
Spain 0.68% 0.89%
Switzerland 0.15% 0.43%
Denmark 0.23% 0.23%
Netherlands 0.33% 0.39%
Finland 0.38% 0.49%
Sweden 0.36% 0.44%
Ireland 0.41% 0.86%
Portugal 0.75% 0.88%
Italy 1.33% 1.07%
Greece 1.18% 0.77%
Russia -0.39%
US-centric
China-related
Eurozone
Shouldn’t cyclical
regions like Asia and
Europe have inverted
10Y-2Y curves if
fundamental drivers
are causing the US
inversion?
Sept. 3, 2019
7
7.2
7.4
7.6
7.8
8
8.2
8.4
8.6
8.8 Aug 18, 1978 Inversion
3M 6M 1Y 2Y 5Y 10Y 30Y
2Y rise 10Y fall
+
Flat long end
8
8.5
9
9.5
10
10.5
11
11.5
12 Sep 12, 1980 Inversion
3M 6M 1Y 2Y 5Y 10Y 30Y
2Y and 10Y rise
+
Flat / inverted
long end7.5
7.7
7.9
8.1
8.3
8.5
8.7
8.9
9.1
9.3Dec 13, 1988 Inversion
3M 6M 1Y 2Y 5Y 10Y 30Y
2Y and 10Y rise
+
Flat / inverted
long end
5
5.2
5.4
5.6
5.8
6 May 26, 1998 Inversion
3M 6M 1Y 2Y 5Y 10Y 30Y
2Y and 10Y fall
+
Steep long end
3.9
4.1
4.3
4.5
4.7Dec 27, 2005 Inversion
3M 6M 1Y 2Y 5Y 10Y 30Y
2Y rise 10Y fall
+
Steep long end
0.8
1
1.2
1.4
1.6
1.8
2
2.2
2.4
2.6
2.8Aug 14, 2019 Inversion
3M 6M 1Y 2Y 5Y 10Y 30Y
2Y and 10Y fall
+
Steep long end
Slide 30
Figure: US Treasury Interest Rate CurvesInversion day and 1 month ago
POINT #2: Only 1 of 5 10Y2Y inversion is due to drop in yields, like ’19 PanicWe below compared the 5 initial inversion instances with current inversion. Historically, the 10Y-2Y curve inverts because
Fed is raising front end rates and this raises front end faster than long-end and we get an inversion
• In other words, the yield curve is not some magic 'divining rod' -- it historically inverts because the Central
Bank wants that, to slow an overheated economy.
Source: Fundstrat, Bloomberg, FRED
Current...Both 1998 similar to today
Sept. 3, 2019 Slide 31
S&P 500 new ALL-TIME HIGHS 5 of 5 times post 10Y-2Y INVERSION
Figure: Time from first inversion of 10Y-2Y until the equity market peaks and the cumulative S&P 500 gainSince 1976
The S&P 500 has managed new all-time highs 5 of 5 times we saw the first inversion of the 10Y-2Y (2Y only since 1976).
• 5 of 5 times, the equity markets staged further gains, with an average further gain of 23%, but averaged 33% in
the past 3 instances.
+33%
+40% +25%
Sept. 3, 2019 Slide 32
Figure: Time from first inversion of 10Y-2Y until the equity market peaks and the cumulative S&P 500 gainSince 1976
PANIC NOW? Last 3 times, gains continued for 17-20 months…The S&P 500 has managed further gains 5 of 5 times we saw the first inversion of the 10Y-2Y (2Y trade only since 1976).
• 5 of 5 times, the equity markets staged further gains, with an average further gain of 23%, but averaged 33% in
the past 3 instances.
Source: Fundstrat, Bloomberg, Factset
Months after inversion
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37
S&P 500 further gain
14 months +6%August 18, 1978 Recession start
3 mos +12%September 12, 1980 Recession start
18 months +33%December 13, 1988 Recession start
22 months +40%May 26, 1998
22 months +25%December 27, 2005 Recession start
Recession
start
In past 3 instances,
further gains
average 33%...
Sept. 3, 2019
• World is scary, US stocks ready for bounce
• US equities are de-coupling from RoW
• Labor shortages benefit US competitiveness
• Demographics destiny: Millennials
• Recommended Investment Strategies
Slide 33
Executive Summary
Sept. 3, 2019 Slide 34
LABOR: Global excess supply of labor is gone, first time since 1973
Source: Fundstrat
Global labor supply is falling into a deficit. This is shown below and is most acute in high income countries (4.9% labor)
• The decline in labor is widespread (except Africa and India, basically) and total shortfall is 43 million workers.
Figure: Spread between total population growth and workforce growth (age 16-64)Per UN DESA
2018 2028 Delta CAGR
Total
Workforce
(16-64) Total
Workforce
(16-64) Total
Workforce
(16-64) Total
Workforce
(16-64) Shortage
% current
workforce
World 7,632,819 4,983,447 8,407,900 5,446,592 775,081 463,145 1.0% 0.9% (42,903) (0.9%)
World ex-Africa 6,344,899 4,264,461 6,778,314 4,501,749 433,416 237,288 0.7% 0.5% (78,025) (1.8%)
High-income countries 1,197,191 783,527 1,242,592 775,187 45,401 (8,340) 0.4% (0.1%) (38,054) (4.9%)
Mid/Low-income countries 6,435,628 4,199,919 7,165,308 4,671,404 729,680 471,485 1.1% 1.1% (4,849) (0.1%)
(0.6%)
(0.4%)
(0.2%)
0.0%
0.2%
0.4%
0.6%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
2052
2054
Labor
shortage
Labor
surplus
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%Forecast by United Nations
DEMAND:
Total World
population
WORKER:
Population age 16-64Shortage of labor:
2018-2054
First time since 1973
labor shortfall…
Sept. 3, 2019 Slide 35
Source: Fundstrat
Figure: Spread between total population growth and workforce growth (age 16-64)Per UN DESA
China
Asian Tigers
India
Africa Labor shortage
Labor surplus
Labor shortage
Labor surplus
Labor shortage
Labor surplus
Labor shortage
Labor surplus
Tigers era of “cheap labor”
covered 1968-2000
China stepped in but its labor
supply swung in 2016…
India retains labor
surplus until 2046
Africa maintains
labor surplus
Forecast by United Nations
LABOR: From Tigers to China to India (until 2046) and AfricaChina and the Four Asian Tigers (Hong Kong, Korea, Singapore and Taiwan) entered labor shortage recently.
• In the chronology below is the progress of labor supply. The Tigers were the first, followed by China joining in
the 2000s, and now we're seeing a shift in India. India's labor surplus will start to diminish in 2019, but won't
enter labor shortage until 2046. Africa will maintain its labor surplus through the forecasted period.
Sept. 3, 2019
2014
1998
2013
2018
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
2024
2027
2030
2033
2036
2039
2042
2045
2048
2051
2054
Slide 36
Source: Fundstra
* Japan Statistical Yearbook
Figure: Spread between total population growth and workforce growth (age 16-64)Per UN DESA
Japan
US
Europe
Korea Labor shortage
Labor surplus
Labor shortage
Labor surplus
Labor shortage
Labor surplus
Labor shortage
Labor surplusJapan has been short
of labor since 1998
South Korea entered labor
shortage in 2018
Forecast by United Nations
LABOR SHORTAGE: From Japan to Europe and US to KoreaWith ~1/3* of its population aged 65 or above, Japan has been in labor shortage since late ’90s. Europe and US, the
major developed regions, have been short of labor since 2013 and 2014, respectively. Korea, one of the Asian Tigers that
used to provide abundant labor force, also entered labor shortage in 2018.
• In the chronology below is the progress of labor supply. With both aging population and low birth rates, the
labor condition in Japan, Europe and Korea will persist through the forecasted period. US is relatively better,
but still will maintain labor shortage until 2043.
Europe entered labor
shortage in 2013
Following Europe, US entered
labor shortage in 2014, and will
not be recovered until 2043
Sept. 3, 2019 Slide 37
AUTOMATION: Labor Shortage drives demand for ‘automation’
‘Demand for automation drive by necessity’
Sept. 3, 2019
-1.4%
-0.7%
0.0%
0.7%
1.4%
'10 '15 '20 '25 '30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 '25 '30 '35 '40 '45 '50 '55 '60
T. Pop CAGR less WA Pop CAGR
Slide 38
AUTOMATION: Overweight Technology and Cyclicals
Source: Fundstrat
We have compared the performance of US Technology stocks (vs S&P 500) and indicated periods of labor shortage.
• The outperformance of Technology during periods of labor shortage is substantial—and we believe the
forecasted 2015-2047 to benefit Technology stocks.
Figure: Comparative relative performance of US Technology stocks during periods of US labor shortageSince 1930-now
Labor
shortage
Labor
surplus
Shortage of labor:
2015-2047
Shortage of labor:
1991-1999Shortage of labor:
1948-1967
'30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 '25
TechnologyPrice Ratio vsS&P 500 (leftscale)
Tech goes
parabolic
Tech goes
parabolic
Tech goes
parabolic
Labor
shortage
Labor
shortage
Labor
shortage
Sept. 3, 2019
• World is scary, US stocks ready for bounce
• US equities are de-coupling from RoW
• Labor shortages benefit US competitiveness
• Demographics destiny: Millennials
• Recommended Investment Strategies
Slide 39
Executive Summary
Sept. 3, 2019 Slide 40
DEMOGRAPHICS: Explains business cycles better than people realize…Millennials are significant for two reasons: sheer size, both in the US and the rest of the world, and relatively young age.
• First, they are the largest single generation ever (larger than Boomers) at a population of 2.5 billion globally.
• Second, at an average age of 26.5, they are just entering their prime income years.
Generation…
Years of
birth
Average
age
Greatest Generation 1910 1927 92.9
Silent Generation 1928 1945 78.5
Baby Boomers 1946 1964 61.3
GenX 1965 1980 44.5
Millennials 1981 2000 26.5
Generation Z 2001 2018 8.3
43.2
44.1
79.5
65.8
95.8
96.2
Source: Fundstrat. Peak population figures above include immigration. **Reduced immigration will lead to a smaller overall size of GenZ.
At peak (year)
1930
1974
1999
2018
2038
2060
Figure: Total US Population divided by age groups2017. Data provided by the DESA UN Data sets.
Sept. 3, 2019
30
300
3,000
30,000
1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Dow
Jon
es In
dust
rial A
vera
ge (
log
scal
e)
Slide 41
Source: Fundstrat, Bloomberg
DEMOGRAPHICS: Major market turning points with each generation’s peak
Figure: Dow Jones Industrials AverageSince 1900
Notably, equity markets tend to peak with each generation’s peak. Notice this below.
• GenX is reaching the peak size of the cohort in 2018.
Greatest Generation
Peak 1930
Silent Generation
Peak 1974
Boomer
Peak 1999
GenX
Peak 2018
Millennial
Peak 2038
89%
decline
35%
decline
>30%
decline
>20%
decline?
Sept. 3, 2019
(100%)
0%
100%
200%
300%
400%
500%
600%
1881
1886
1891
1896
1901
1906
1911
1916
1921
1926
1931
1936
1941
1946
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
2001
2006
2011
2016
2021
2026
2031
S&P 500 10Y Rolling Total Return
Source: Fundstrat, Bloomberg.
Figure: 10-year rolling returns of the US equitiesSince 1881
Bubble
Generational
Buy
10
yr
15
years
20 years 26 years42 years
30X P/E
25X P/E25X P/E
10
yrs.
Slide 42
10-15
yrs.
4/1897 8/19399/1974 2/2009
10/1929
6/1959
9/2000
9
yr
Long-term bull markets see peak acceleration to 500% 10-yr returnsLong-term bull markets last 20-42 years and peak returns accelerate to cumulative gain 500%…
• The current bull market has risen for 10 years and if the history plays out, S&P 500 could reach
19,000 YE 2029 vs. 3,000 now.
Today CAGR 15%
6,747
Implied
S&P 500
YE 2029
CAGR 20%
19,349
12,642
CAGR 8%
To achieve 19,349 by '29
EPS
GAGR
P/E
CAGR
Ending
P/E
15% 4% 26x
12% 7% 34x
10% 9% 41x
8% 11% 49x
5% 14% 65x
Sept. 3, 2019
(100%)
0%
100%
200%
300%
400%
500%
600% S&P 500 10Y Rolling Total Return
Slide 43
Figure: Prime Leverage years: # adults age 30-48Since 1935 per the US Census Bureau
Source: Fundstrat, Bloomberg, BEA, National Association of Realtors, US Census Bureau
-5.0
0.0
5.0
10.0
15.0
20.0
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
5-yr
% c
han
ge
Primary debt leverage (age 30-48) -- 5-yr % chg historical Primary debt leverage (age 30-48) -- 5-yr % chg US Census forecast
5-yr % change adults
age 30-48
GenZ: age 28-48
Stagflation
Pre-conditionsFinancial
crisis
Millennials: age 28-48Greatest generation: age 28-48 Silent generation: age 28-48 Boomers: age 28-48
Bubble
Generational
Buy
CAGR 15%
Implied
S&P 500
YE 2029
CAGR 20%
19,349
12,642
CAGR 8%
Today
6,747
STOCK: Like housing, equity markets also follow moves in adults age 28-48We overlay the # of adults in “prime leverage age” (age 30-48) against the 10-year rolling total return of S&P 500 below.
Sept. 3, 2019
Source: Fundstrat, Bloomberg, Updata
Slide 44
Figure: Life cycle of Millennial spending and incomeSurvey of Consumer Finance for 2017 “real income” levels (born between 1981-2000)
Source: Fundstrat, Bloomberg, Census Bureau
Millennials average age is 26.5… still early in life cycle The oldest millennials are 36 but the average age is 26.5. As shown below, this means the peak of millennials are driving the
automobile market but just beginning to impact the housing market. And early in the investing market.
• As the following slides show, millennials are now the most important cohort to follow for several key segments.
$15,080
$21,684
$27,924
$40,456
$50,440 $49,556$51,324
$48,932
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67
Ave
rag
e an
nu
al e
arn
ing
s
Age of Millennial
Age 21-35
Automobile
+ Drinking age
Age 25-45
Home
purchasing
Age 30-60
Prime Income
years
2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058
Millennials
Average Age
today
Sept. 3, 2019
Source: Fundstrat, Bloomberg, Updata
Slide 45
Figure: Composition of Generations by age groupCensus bureau
Source: Fundstrat, Bloomberg, Census bureau
Millennials maturing autos, peak homebuying and early prime incomeTo highlight the life cycle of various generations, we have highlighted population distribution and shown the various generations
and their respective distribution. Additionally, we shaded the various life cycle behaviors (auto buying, etc.).
• Millennials are now dominating Automobile purchasing, entering homebuying and beginning to generate prime
income.
8.9
22.1
20.1
16.9
5.8
2017
12.6
19.7
21.0
12.6
2017
12.8
22.2
23.5
22.0
8.7
2017
20.2
20.3
20.7
12.6
2017
20.2
20.3
20.7
21.1
22.2
23.5
22.0
21.3
19.7
21.0
21.4
22.1
20.1
16.9
12.9
8.8
6.0
3.9
1.9
0.6
Age 0 ~ 4
Age 5 ~ 9
Age 10 ~ 14
Age 15 ~ 19
Age 20 ~ 24
Age 25 ~ 29
Age 30 ~ 34
Age 35 ~ 39
Age 40 ~ 44
Age 45 ~ 49
Age 50 ~ 54
Age 55 ~ 59
Age 60 ~ 64
Age 65 ~ 69
Age 70 ~ 74
Age 75 ~ 79
Age 80 ~ 84
Age 85 ~ 89
Age 90 ~ 94
Age 95 ~ 99
Age 100 ~ 104
2017 GenerationZBoomers GenX Millennials
1st time Car
buyer (21-35)
1st time
homebuyer
(25-49)
Prime income
(30-64)
Retirement years
(65+)
Peak per capita
Healthcare costs
(75+)
Sept. 3, 2019 Slide 46
Figure: Median debt balance by Age GroupUS data. From Urban Institute.
LEVERAGE: Household debt peaks between ages 28-53, or 2019 to 2039…• Millennials are about to become prime consumers of leverage. The Urban institute shows that leverage peaks
between age 28-53. For Millennials, this is between 2019-2039.
Source: Fundstrat, Bloomberg. https://www.urban.org
Millennials 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059
Median age 18.0 23.0 27.0 32.0 37.0 42.0 47.0 52.0 57.0 62.0 67.0
Age 28-48 peak years…
Millennials hit this between
2019-2039...
Millennial
average age
26.5
Sept. 3, 2019 Slide 47
Figure: Prime Leverage years: # adults age 30-48Since 1935 per the US Census Bureau
DEMOGRAPHICS: US adults age 30-48 inflecting up and surgingThe number of adults in “prime leverage age” (age 30-48) is below, based on data from the US Census Bureau.
• This figure fell from 2001-2008 (is GFC not a surprise?) and as shown below, set to accelerate 2018 to 2026.
5-yr % change adults
age 30-48
Generation… Birth years
Greatest Generation 1910 1927
Silent Generation 1928 1945
Baby Boomers 1946 1964
GenX 1965 1980
Millennials 1981 2000
Generation Z 2001 2018
Source: Fundstrat, Bloomberg, BEA, National Association of Realtors, US Census Bureau
-5.0
0.0
5.0
10.0
15.0
20.0
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
5-yr
% c
han
ge
Primary debt leverage (age 30-48) -- 5-yr % chg historical Primary debt leverage (age 30-48) -- 5-yr % chg US Census forecast
2019
Sept. 3, 2019 Slide 48
Source: Fundstrat, Bloomberg
Millennials Credit card spending growing faster than GenX or Boomers…
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
25-34 35-44 45-54 55-64 65+ National
~Millennials
Figure: Chase credit card spending growth based upon age cohort.
Per Chase Bank
Credit card spending growth by age cohort is shown below. What is being measured is the year over year aggregate
spending on Chase Credit cards.
• Millennials spending growth is far outstripping any other cohort. In fact, Boomers, Silent Generation and
Greatest Generation are actually seeing declines.
~GenX
~Boomers
~Greatest Gen
~Silent Gen
Sept. 3, 2019
125
145
165
185
205
225
'44 '49 '54 '59 '64 '69 '74 '79 '84 '89 '94 '99 '04 '09 '14 '19 '24
Housing Value as % of GDP
-5.0
0.0
5.0
10.0
15.0
20.0
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
5-yr
% c
han
ge
Primary debt leverage (age 30-48) -- 5-yr % chg historical Primary debt leverage (age 30-48) -- 5-yr % chg US Census forecast
Slide 49
Figure: Prime Leverage years: # adults age 30-48Since 1935 per the US Census Bureau
HOUSING: Home values follow moves in adults age 28-48We overlay the # of adults in “prime leverage age” (age 30-48) against the historical housing value as % of GDP below.
Greatest generation: age 28-48 Silent generation: age 28-48 Boomers: age 28-48 GenX: age 28-48
2019
5-yr % change adults
age 30-48
GenZ: age 28-48
Stagflation
Pre-conditionsFinancial
crisis
Generation… Birth years
Greatest Generation 1910 1927
Silent Generation 1928 1945
Baby Boomers 1946 1964
GenX 1965 1980
Millennials 1981 2000
Generation Z 2001 2018
Millennials: age 28-48
Source: Fundstrat, Bloomberg, BEA, National Association of Realtors, US Census Bureau Housing value before 1965 was estimated by using residential capital cost valuation published by Bureau of the Census
Housing
bubble
Sept. 3, 2019
• World is scary, US stocks ready for bounce
• US equities are de-coupling from RoW
• Labor shortages benefit US competitiveness
• Demographics destiny: Millennials
• Recommended Investment Strategies
Slide 50
Executive Summary
Sept. 3, 2019 Slide 51
Figure: We see these trades continuing to workSince base dates noted
CONTINUATION OF WORKING TRADES: US (vs RoW) + Asset Light + Large-cap + CyclicalsThe 4 pillars of working strategy since 2009, we believe, keep working with the Fed cut, primarily because we see
TINA driving asset flows into the US. Hence, these strategies continue to outperform.
Source: Fundstrat, Bloomberg, Factset
Fed
CutsFed
Cuts
Fed
Cuts
Fed
Cuts
Asset light
beating
Asset heavy
S&P 500
beating
RoW
Large-cap
beating
Small-cap
Cyclicals
beating
Defensives
Sept. 3, 2019 Slide 52
Figure: Relative performance (vs S&P 500) – Asset heavy vs Asset light stocksSince 2009. Asset light is lowest 5% of S&P 500 stocks Assets/EBIT and Asset heavy is highest 5% of Assets/ EBIT
ASSET LIGHT: Since 2015, Asset light crushed asset heavy stocksWe can create a proxy for asset light and asset heavy based on Assets/$1mm of EBIT. And the price performance of top
and bottom 5% is shown below.
• Since 2015, as investors see permanency in falling rates, they have started to heavily favor asset light stocks.
Source: Fundstrat, Bloomberg, Factset
+93%
-24%
Asset
heavy
Asset
light
In a world of falling
rates, world in love
with Asset light …
Sept. 3, 2019 Slide 53
0%
2%
4%
6%
8%
10%
12%
14%
16%
5
7
9
11
13
15
17
19
21
23
25
Fixed Assets / Corp Profits Chained 2012$, 3YMavg US 10Y Treasury, right axis
Source: Fundstrat, Bloomberg, BEA
Figure: Real Fixed Assets per million 2012$ of corporate profits (3 year moving average) vs 10 Year Treasury YieldSince 1945
ASSET LIGHT: As interest rates fell, corporations became asset light…Below we show the relationship between fixed assets needed to generate $1 million of corporate profit (in 2012 dollars),
and the US 10-year Treasury yield.
• As interest rates soared from 1965-1982, US corporates became “Asset Heavy” using more assets to generate
$1 million in REAL profit. Similarly, as interest rates plunged, corporations became ”asset light.”
Sept. 3, 2019 Slide 54
MID-CYCLE: Semis hit new highs... seems to quash the late-cycle viewSemis NEVER rally in late cycle and NEVER make new highs in late cycle - Semis saw failures in 2001 and 2007, in
terms of both absolute price and relative to the S&P 500.
• Semis’ new highs seem to disprove the late-cycle view. If we are in late cycle, Semis should be rolling over
now. But what we see is prices at new highs and strong ‘relative performance’ vs. S&P 500.
Source: Fundstrat, Bloomberg, FactSet
Figure: SOX index and SOX index relative to S&P 500 (lower)1996 – 2009; Past 24 months;
1996-2009 Past 24 months
Sept. 3, 2019 Slide 55
Figure: Gold divided by CPI – inflation adjusted gold priceSince 1970
Gold ready to make new “inflation-adjusted” highs, on Fed cuts.Inflation-adjusted gold should benefit from further Fed cuts, as lower rates makes USD less fundamentally strong.
• Thus, the recent rise in gold is consistent with expected weakening of the fundamentals of USD (lower rates).
Plus, Gold is likely seen as a good hedge against the surging risks implied by doubling of negative yielding
debt.
Source: Fundstrat, Bloomberg, Factset
Fed
Cuts
Prior highs
Gold could make further
gains on Fed cuts…
Sept. 3, 2019 Slide 56
Figure: Healthcare as % GDP and “private investment spend” as % GDP
Since 1980. The ratios are indexed to 100=1980.
BIG PICTURE: Healthcare has crowded out private investment spendingIn the larger picture, Healthcare’s rising costs, evidenced in its rise as % GDP has crowded out private investment
spending. Since 1980, Healthcare’s share has doubled (as % GDP) while investment spend has fallen. This makes
sense—Healthcare has crowded out private investment dollar (available to be spent on private investment spend).
Source: Fundstrat, Bloomberg, Factset
Healthcare spending has
arguably crowded out
private investment
spending..
Sept. 3, 2019 Slide 57
Figure: Relative price ratio of Healthcare to S&P 500Since 1990
Recent Healthcare sell-off sends relative price back to 2012 levels…The recent sell-off in Healthcare is severe enough to push Healthcare’s relative price back to 2012 levels.
• One longer term concern for Healthcare is the recent sell-off has reversed the relative price of Healthcare (to
S&P 500) back to 2012 levels. In other words, reversing 7-years of relative gains and also affirms that
Healthcare has underperformed the broader market since 2015.
Source: Fundstrat, Bloomberg, Factset
Healthcare relative
performance has not
worked essentially since
2015…
Price ratio back to
2012 levels…
5-years
underperformance
Sept. 3, 2019 Slide 58
STRATEGY: Increase “win-rate” of stock picks…
Shaquille:(career success)
52%
Rick Barry:(career success)
90%
Sept. 3, 2019 Slide 59
Figure: Granny Shots are the “best of the best”Stocks which appear in multiple themes.
STRATEGY: Granny Shots represents the “best of the best” from ThematicsThe granny shots represent the best of the best from the thematic portfolios.
• This is derived from looking at stocks which appear in multiple themes. As listed on the following pages, no
stock appears in 6 of 6 thematics, but several appear in 4 or 5 of 6.
# stocks
Style tilt 22
Seasonality 13
FANG 7
# stocks
Millennials 28
Automation/ AI 48
Asset intensity 26
Tactical (6M-12M)
Thematic (3Y-5Y)
Rick Barry career free throw percentage
was eye-popping 90%, incredible
considering Shaquille O’Neal’s only
52%.
His secret? The unorthodox style of
underhanded throws, which is
considered “not macho” enough for
most players.
Granny
Shots
# overlaps
“layups” Tickers
5 GOOG
4 AAPL
3 FB, NKE, TSLA
BKNG
2 ADP, AMGN, AMP,
AMZN, AXP, BF/B,
CLX, CSCO, GRMN,
MA, MNST, NVDA,
PG, PM, PYPL,
ROK, V, XLNX
Sept. 3, 2019
3.2
1.6
2.1
0.3
1.9
-4.1
1.7
0.6
-0.5
-5
-4
-3
-2
-1
0
1
2
3
4
YTD Jan Feb Mar Apr May Jun Jul Aug
Granny Shots Monthly Performance (%) Relative to S&P 500
Slide 60
Figure: Granny Shots Portfolio PerformanceMonthly; As of 8/30/19
GRANNY SHOTS: Beat S&P 500 6 out of the 8 months since inception…The relative performance of Granny Shots is below and as highlighted, has beaten the S&P 500 by 320bp YTD.
• Granny Shots, which are the “best of the best” for our thematic portfolios (and rebalanced every quarter) has
beaten the S&P 500 by 320bp YTD. May was tough month, but since has bounced.
Source: Fundstrat, Bloomberg, Factset
(Since 1/10)
YTD(return since 1/10/19)
Beating the S&P
500 by 320bp YTD
12.7
15.9
11.9
9.8
7.7
11.4
11.3
13.9
S&P 500
Granny
Shots
Style
Tilt
Seasonality
FANG
in
odd years
Millennials
AI /
Automation
Asset Intensity
(Since 1/10)
Sept. 3, 2019 Slide 61
GRANNY SHOTS: Best bets in 2019
Source: Fundstrat, Bloomberg, Factset
We recommend investors our granny shots, comprised of 24 stocks.
• These stocks are recommended across at least two of our investment strategies for 2019, which makes them
likely to benefit from multiple themes and secular tailwinds.
Figure: Granny shots – recommended across at least two investment strategies for 2019Per Fundstrat
Rick Barry career free throw percentage was eye-popping 90%,
incredible considering Shaquille O’Neal’s only 52%.
His secret? The unorthodox style of underhanded throws, which is
considered “not cool” enough for most players.
Company information Fundamentals & Valuation Theme Membership
Analyst Ratings
Ticker Company name
Current
Price
Mkt cap
($ mm)
3m avg
daily
liquidity
($ mm)
YTD perf
(relative to
S&P 500)
FC Mean
(5=Buy
1=Sell) (1)
Mean
implied
upside (2)
Dividend
Yield
Issuer
Rating
Short
interest %
of float
2019E
sales
growth (3)
2019E EPS
growth (3)
P/E
('19E) ROE
1 GOOG Alphabet Inc-Cl C $1,168.39 $810,534 $1,696.3 -3.1% 4.73 18% 0.0% AA+ 0.9% 19% 12% 23.9x 20% • • • • • 5
2 AAPL Apple Inc $205.70 $929,595 $5,238.0 14.5% 3.76 7% 1.6% AA+ 1.1% -3% -2% 17.7x 53% • • • • 4
3 BKNG Booking Holdings Inc $1,941.78 $82,549 $619.7 -3.2% 4.06 8% -- A- 2.8% 4% 10% 19.0x 53% • • • 3
4 FB Facebook Inc-Class A $182.39 $520,350 $3,113.2 23.2% 4.59 27% -- — 1.1% 26% -13% 27.8x 20% • • • 3
5 NKE Nike Inc -Cl B $84.67 $132,668 $514.0 -1.7% 4.26 11% 1.1% AA- 0.7% 8% 16% 29.3x 43% • • • 3
6 TSLA Tesla Inc $225.01 $40,305 $1,925.1 -48.3% 2.74 17% -- B- 29.6% 15% -186% nm -14% • • • 3
7 ADP Automatic Data Processing $167.21 $72,560 $319.1 11.6% 3.67 5% 1.9% AA 0.9% 6% 20% 30.7x 45% • • 2
8 AMGN Amgen Inc $205.52 $123,251 $582.5 -10.4% 3.77 4% 5.3% A *- 1.6% -4% -1% 14.4x 62% • • 2
9 AMP Ameriprise Financial Inc $127.20 $16,647 $136.1 5.9% 4.54 31% -- A 1.7% -6% 12% 7.9x 33% • • 2
10 AMZN Amazon.Com Inc $1,789.84 $885,355 $6,636.5 3.2% 4.89 27% -- AA- 0.8% 20% 19% 75.0x 27% • • 2
11 AXP American Express Co $117.60 $97,570 $388.7 7.4% 3.78 12% 1.4% BBB+ 1.0% 8% 1% 14.7x 31% • • 2
12 BF/B Brown-Forman Corp-Class B $59.44 $28,160 $72.8 9.0% 2.90 -7% 1.2% A- 3.8% 5% 4% 33.2x 54% • • 2
13 CLX Clorox Company $162.35 $20,414 $144.4 -10.6% 2.67 -7% 2.5% A- 6.6% 1% 1% 25.7x 128% • • 2
14 CSCO Cisco Systems Inc $46.50 $199,054 $1,144.4 -8.6% 4.00 16% 3.1% AA- 0.9% 5% 19% 15.0x 30% • • 2
15 GRMN Garmin Ltd $81.21 $15,438 $86.8 12.3% 2.80 -6% -- — 2.7% 8% 7% 20.6x 19% • • 2
16 MA Mastercard Inc - A $280.11 $284,188 $907.1 32.5% 4.79 9% 0.5% A+ 0.7% 13% 17% 36.7x 131% • • 2
17 MNST Monster Beverage Corp $57.64 $31,407 $179.1 1.2% 3.80 15% -- — 3.1% 10% 13% 28.2x 28% • • 2
18 NVDA Nvidia Corp $164.17 $99,980 $1,623.8 7.0% 4.18 9% 0.4% BBB+u 1.7% -8% -19% 30.5x 29% • • 2
19 PG Procter & Gamble Co/The $121.36 $303,720 $858.5 16.1% 3.83 1% 2.5% AA- 0.8% 1% 7% 26.8x 8% • • 2
20 PM Philip Morris International $72.66 $113,047 $483.5 -7.1% 4.30 33% 6.5% A 0.6% 1% 2% 13.9x — • • 2
21 PYPL Paypal Holdings Inc $106.75 $125,610 $710.5 11.0% 4.46 20% -- BBB+ 1.1% 15% 30% 33.9x 16% • • 2
22 ROK Rockwell Automation Inc $148.23 $17,344 $147.5 -17.4% 3.17 13% 2.7% A 2.0% -0% 7% 17.1x 79% • • 2
23 V Visa Inc-Class A Shares $179.20 $355,518 $1,186.1 19.9% 4.68 11% 0.6% AA- 1.6% 11% 17% 33.2x 41% • • 2
24 XLNX Xilinx Inc $100.40 $25,362 $354.4 1.9% 3.73 29% 1.5% NR 2.6% 12% 7% 27.1x 38% • • 2
Average $222,109 $1,211.2 2.8% 3.92 13% 2.0% 2.9% 7% 0% 26.2x 42%
Median $106,513 $601.1 4.6% 3.91 12% 1.5% 1.4% 7% 7% 26.8x 33%
% of stocks positive 56% 78% 70% 70% 85%
Str
ate
gy
Co
un
t
Val
ue
/ G
row
th T
ilt
Se
aso
nal
ity
FA
NG
in o
dd
ye
ars
Mill
en
nia
ls
AI
/ A
uto
mat
ion
Infl
atio
n
Sept. 3, 2019 Slide 62
STRATEGY: Granny Shots represents the “best of the best” from ThematicsThe granny shots represent the best of the best from the thematic portfolios.
• We have performed two reconstitutions and rebalances since we launched it on January 10th. Below we show
the details of constituent changes during these rebalances.
Figure: Granny Shots constituents before and after rebalanceAdditions highlighted in Blue; Deletions highlighted in Red;
Granny Shots Portfolio
As of inception on 1/10
GOOG
KLAC
MNST
NKE
TSLA
AAPL
AMGN
AMP
AMZN
AXP
BF.B
BKNG
CSCO
DE
DIS
FB
GRMN
LOW
MKSI
NVDA
PM
PSX
PYPL
ROK
XLNX
Deletions
Additions
Deletions
Additions
Current
Granny Shots Portfolio
DE
MKSI
QCOM
VAR
EBAY
MO
LOW
EBAY
KLAC
QCOM
ADP
CLX
MA
PG
V
GOOG
AAPL
BKNG
FB
NKE
TSLA
ADP
AMGN
AMP
AMZN
AXP
BF.B
CLX
CSCO
GRMN
MA
MNST
NVDA
PG
PM
PYPL
ROK
V
XLNX
PSX
MO
VAR
DIS
2Q19
Rebalance(Effective on 3/10)
3Q19
Rebalance(Effective on 7/12)
Source: Fundstrat
Sept. 3, 2019 Slide 63
AUTOMATION: Labor Shortage drives demand for ‘automation’
‘Demand for automation drive by necessity’
Sept. 3, 2019
-1.4%
-0.7%
0.0%
0.7%
1.4%
'10 '15 '20 '25 '30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 '25 '30 '35 '40 '45 '50 '55 '60
T. Pop CAGR less WA Pop CAGR
Slide 64
AUTOMATION: Overweight Technology and Cyclicals
Source: Fundstrat
We have compared the performance of US Technology stocks (vs S&P 500) and indicated periods of labor shortage.
• The outperformance of Technology during periods of labor shortage is substantial—and we believe the
forecasted 2015-2047 to benefit Technology stocks.
Figure: Comparative relative performance of US Technology stocks during periods of US labor shortageSince 1930-now
Labor
shortage
Labor
surplus
Shortage of labor:
2015-2047
Shortage of labor:
1991-1999Shortage of labor:
1948-1967
'30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 '25
TechnologyPrice Ratio vsS&P 500 (leftscale)
Tech goes
parabolic
Tech goes
parabolic
Tech goes
parabolic
Labor
shortage
Labor
shortage
Labor
shortage
Sept. 3, 2019 Slide 65
AUTOMATION/ AI: Identifying suppliers and beneficiaries
Source: Fundstrat
We have established criteria to identify both suppliers of AI/automation and companies leveraged by adoption of AI and/or
automation technology.
• The screening criteria is shown below and does rely heavily on qualitative factors.
Strategy Style Tilt Seasonality FANG Millennials AI/ Automation Asset Intensity
Source: Fundstrat, Bloomberg, FactSet
* Cash to Net Income ratio is calculated by using the sum of Cash, Cash Equivalents, LT Investment (unrestricted) divided by Net Income
Figure: Automation/ AI stock list criteriaPer Fundstrat
Factor type Criteria Rationale
Suppliers AI High exposure to AI and AI-related products
Provides components needed to implement AI
Automation Producer of autonomous or robotic equipment
Supplier of components for autonomous or robotics
Beneficiaries Qualitative Current business will leverage AI/ Automation
Labor skills required are more likely to be automated
Labor demographics more easily substituted by AI/ automation
Leverage labor efficiency Market cap per employee lower than 3-yrs ago
Employee hiring outpaced Sales + EPS growth
Operating leverage EBIT margins declining compared to 3-years ago
Quantitative DQM Quantitative Model Ranked Quintile 1
Sept. 3, 2019 Slide 66
Figure: AI/ Automation Stock listPer Fundstrat
AUTOMATION PART I: The suppliers We identified 48 stock ideas from our quant model that are related to the adoption of AI and/or automation technology
• The 31 stocks listed below are the producers or the suppliers of AI and/or automation products which have
high exposure to the adoption of AI and/or automation technology.
Company information Fundamentals & Valuation
Analyst Ratings
Ticker Company name
Current
Price
Mkt cap
($ mm)
3m avg
daily liquidity
($ mm)
YTD perf
(relative to
S&P 500)
FC Mean
(5=Buy
1=Sell) (1)
Mean
implied
upside (2)
Dividend
Yield
Issuer
Rating
Short
interest %
of float
2019E
sales
growth (3)
2019E EPS
growth (3)
P/E
('19E) ROE
Auto Parts & Equipment 1 APTV Aptiv Plc $83.68 $21,576 $122.7 15.5% 4.26 6% 1.1% BBB 3.3% 2% -5% 16.8x 29%
2 GNTX Gentex Corp $27.10 $6,926 $38.0 13.6% 2.78 -19% -- — 3.3% 3% 3% 16.2x 23%
3 SRI Stoneridge Inc $33.59 $964 $6.9 15.8% 4.60 4% -- BB 7.7% -2% -20% 21.0x 18%
Automobile Manufacturers 4 TSLA* Tesla Inc $264.88 $47,179 $2,514.7 -40.9% 2.69 -2% -- B- 31.4% 17% -113% nm -14%
Consumer Electronics 5 GRMN Garmin Ltd $79.49 $15,091 $86.1 5.1% 2.80 -5% -- — 2.8% 6% 1% 21.4x 17%
Aerospace & Defense 6 CW Curtiss-Wright Corp $129.96 $5,559 $32.9 6.8% 4.25 7% 0.5% — 2.2% 5% 12% 18.3x 18%
7 MOG/A Moog Inc-Class A $96.01 $3,351 $12.0 3.5% 4.50 9% -- BB+ 1.3% — — #N/A 13%
8 TDY Teledyne Technologies Inc $299.64 $10,858 $51.7 24.3% 4.20 -7% -- — 1.3% 7% 7% 31.0x 16%
Agricultural & Farm Machinery 9 DE Deere & Co $167.18 $52,995 $324.9 -8.4% 4.17 -0% -- A 2.0% 5% 9% 16.3x 30%
Electrical Components & Equipm 10 AME Ametek Inc $89.98 $20,501 $101.5 12.5% 4.75 4% 0.6% BBB+ 1.0% 8% 11% 22.1x 18%
11 EMR Emerson Electric Co $67.26 $41,367 $198.3 -7.9% 4.00 10% 2.9% A 1.1% 8% 5% 18.5x 27%
12 RBC Regal Beloit Corp $82.88 $3,549 $18.0 -2.1% 3.60 6% 1.4% — 2.1% -4% 4% 13.2x 11%
13 ROK Rockwell Automation Inc $168.88 $19,989 $148.9 -8.2% 3.00 1% 2.4% A 2.9% 2% 9% 19.2x 59%
Industrial Conglomerates 14 ROP Roper Technologies Inc $374.64 $38,903 $160.5 20.1% 4.20 1% -- BBB+ 1.5% 4% 10% 28.8x 14%
Industrial Machinery 15 LECO Lincoln Electric Holdings $89.87 $5,644 $30.0 -6.5% 3.67 4% 2.2% NR 4.0% 2% 4% 17.9x 35%
16 PH Parker Hannifin Corp $178.25 $22,867 $161.3 -0.9% 3.26 -1% 1.9% A *- 2.3% 0% 12% 15.3x 24%
Application Software 17 ADSK Autodesk Inc $173.51 $38,106 $272.5 14.5% 4.48 6% -- BBB 1.8% 28% 180% 61.3x —
18 SNPS Synopsys Inc $137.62 $20,629 $144.9 42.9% 4.40 -2% -- — 1.3% 7% 11% 31.6x 17%
Communications Equipment 19 CSCO Cisco Systems Inc $57.23 $244,986 $1,202.5 11.6% 4.06 1% 2.6% AA- 0.9% 5% 18% 18.6x 32%
Electronic Equipment & Instrum 20 FLIR Flir Systems Inc $52.04 $7,047 $42.6 -0.9% 4.78 14% 1.3% BBB 1.4% 9% 6% 22.1x 15%
21 ZBRA Zebra Technologies Corp-Cl A $187.94 $10,144 $140.6 -2.4% 4.20 22% -- BB 4.3% 7% 14% 15.0x 35%
Semiconductor Equipment 22 MKSI Mks Instruments Inc $89.54 $4,867 $42.2 18.1% 4.88 19% 0.9% BB+ 3.6% -5% -36% 17.8x 17%
Semiconductors 23 AVGO Broadcom Inc $303.77 $120,923 $848.0 -1.0% 4.34 1% 3.6% BBB- 1.6% 9% 3% 14.1x 13%
24 NVDA Nvidia Corp $178.66 $108,804 $1,806.2 13.4% 4.07 0% 0.4% BBB+u 2.0% -6% -20% 33.7x 38%
25 QCOM Qualcomm Inc $75.87 $92,235 $1,269.5 12.9% 3.97 12% 3.6% A- 2.3% -10% 3% 19.9x 18%
26 XLNX Xilinx Inc $132.14 $33,169 $489.6 34.7% 3.70 -3% 1.1% NR 3.0% 13% 8% 35.2x 38%
Technology Hardware, Storage & 27 AAPL Apple Inc $208.67 $960,106 $5,178.5 11.8% 3.77 1% 1.5% AA+ 1.0% -3% -4% 18.3x 49%
28 IMMR Immersion Corporation $7.67 $242 $3.3 -34.8% 4.33 56% -- — 11.0% -65% -114% nm -27%
Health Care Equipment 29 ISRG Intuitive Surgical Inc $543.04 $62,587 $375.2 -7.1% 4.16 5% -- — 1.8% 17% 10% 44.8x 18%
30 VAR Varian Medical Systems Inc $133.81 $12,169 $69.7 -2.4% 3.40 8% -- — 2.0% 10% 5% 28.8x 21%
Interactive Media & Services 31 GOOG Alphabet Inc-Cl C $1,137.81 $790,537 $1,766.1 -10.6% 4.73 16% 0.0% AA+ 0.9% 17% 6% 24.6x 16%
Average $91,093 $569.7 4.6% 4.00 6% 1.7% 3.5% 3% 1% 23.6x 21%
Median $20,629 $144.9 5.1% 4.17 4% 1.4% 2.0% 5% 6% 19.5x 18%
% of stocks positive 55% 74% 77% 77% 93%Source: Fundstrat, Factset, Bloomberg,
* TSLA is not DQM Quintile 1, but we believe it is an important producer of autonomous equipment (the Tesla Autopilot)
Strategy Style Tilt Seasonality FANG Millennials AI/ Automation Asset Intensity
Sept. 3, 2019 Slide 67
Source: Fundstrat, Factset, Bloomberg,
AUTOMATION PART II: The beneficiaries
Figure: AI/ Automation Stock listPer Fundstrat
Company information Fundamentals & Valuation
Analyst Ratings
Ticker Company name
Current
Price
Mkt cap
($ mm)
3m avg
daily liquidity
($ mm)
YTD perf
(relative to
S&P 500)
FC Mean
(5=Buy
1=Sell) (1)
Mean
implied
upside (2)
Dividend
Yield
Issuer
Rating
Short
interest %
of float
2019E
sales
growth (3)
2019E EPS
growth (3)
P/E
('19E) ROE
Apparel, Accessories & Luxury 1 CPRI Capri Holdings Ltd $36.71 $5,541 $98.8 -23.6% 3.85 41% -- BBB- 4.6% 15% -1% 7.5x 24%
Automotive Retail 2 AAP Advance Auto Parts Inc $158.50 $11,370 $176.0 -19.8% 4.22 18% 0.2% BBB- 5.0% 2% 15% 19.4x 12%
Department Stores 3 KSS Kohls Corp $51.62 $8,364 $251.0 -42.6% 3.75 23% 5.6% BBB 12.3% 1% -6% 9.8x 15%
Distributors 4 GPC Genuine Parts Co $97.30 $14,213 $79.2 -19.1% 3.31 5% -- — 2.6% 5% 1% 17.0x 22%
General Merchandise Stores 5 DG Dollar General Corp $139.15 $35,946 $225.2 8.3% 4.27 -0% 0.9% BBB 1.5% 7% 8% 21.5x 25%
6 TGT Target Corp $89.09 $45,644 $422.3 14.3% 3.86 -0% 2.9% A 4.1% 3% 10% 15.0x 27%
Home Furnishings 7 BSET Bassett Furniture Inds $12.63 $131 $0.5 -57.4% 3.00 66% 4.1% — 0.7% 0% -29% 23.2x 3%
8 ETH Ethan Allen Interiors Inc $20.77 $552 $5.7 4.0% 3.00 -1% 3.9% NR 10.8% -1% 19% 12.9x 10%
Home Improvement Retail 9 LOW Lowe'S Cos Inc $102.80 $80,484 $500.8 -9.1% 4.39 10% 2.2% BBB+ 1.5% 2% 9% 18.4x 53%
Internet & Direct Marketing Re 10 AMZN Amazon.Com Inc $2,000.81 $985,062 $7,406.3 12.8% 4.85 13% -- AA- 0.8% 18% 35% 73.6x 30%
Restaurants 11 DENN Denny'S Corp $21.70 $1,308 $8.0 13.4% 4.00 -0% -- NR 3.5% -10% -1% 32.3x —
Specialty Stores 12 TSCO Tractor Supply Company $112.49 $13,571 $124.0 14.4% 3.86 1% 1.2% — 2.8% 7% 10% 23.6x 38%
Electrical Components & Equipm 13 POWL Powell Industries Inc $37.63 $435 $1.4 30.0% 4.00 12% -- — 1.3% 12% 151% nm 0%
Industrial Conglomerates 14 CSL Carlisle Cos Inc $139.73 $7,973 $51.7 18.6% 4.00 8% -- BBB 3.6% 8% 30% 17.3x 16%
Industrial Machinery 15 DOV Dover Corp $97.71 $14,211 $93.7 17.3% 3.82 8% 2.1% BBB+ 3.1% -11% 3% 19.7x 21%
Research & Consulting Services 16 HURN Huron Consulting Group Inc $55.00 $1,259 $3.6 -13.3% 5.00 6% -- — 0.7% 9% -3% 26.4x 4%
Hypermarkets & Super Centers 17 COST Costco Wholesale Corp $280.83 $123,506 $424.8 17.4% 4.13 -6% 0.9% A+ 1.1% 10% 16% 41.1x 27%
Average $79,386 $580.8 -2.0% 3.96 12% 2.4% 3.5% 5% 16% 23.7x 20%
Median $11,370 $98.8 8.3% 4.00 8% 2.1% 2.8% 5% 9% 19.5x 21%
% of stocks positive 59% 71% 82% 71% 100%
We identified 48 stock ideas from our quant model that are related to the adoption of AI and/or automation technology
• The 17 stocks listed below could benefit from AI and/or automation technology. All of them have increasing
market cap and positive earnings growth, however, have deteriorating net income per employee and
weakening EBIT margin over the past 3 years.
Strategy Style Tilt Seasonality FANG Millennials AI/ Automation Asset Intensity
Sept. 3, 2019 Slide 68
Figure: What did each generation look like in their 20sFundstrat and public information
DEMOGRAPHICS: Looking at the world through the eyes of a millennial…
Source: Fundstrat, Bloomberg
Baby Boomers
Generation X
Millennials
1980 1990 2000 2010 2020
Tom Hanks: age 26.5
Boomer avg: 26.5
L. Decaprio: age 26.5
GenX avg: 26.5
J. Bieber: age 26.5
Millennial avg: 26.5
Sept. 3, 2019 Slide 69
BOOMER SPEND VS PARENTS:
Consumer Stocks was right vector
Source: Fundstrat, Bloomberg
80.0
160.0
320.0
640.0
1,280.0
2,560.0
5,120.0
10,240.0
20,480.0
40,960.0
81,920.0
163,840.0Top 7 Consumer ’80-‘00
117,159% or
1,171X
S&P 500 ’80-‘00
1,615% or
16.2X
Basket 100 consumer stocks:
93% could go to ZERO,
still at 12X return
Top 7 consumer
stocks were:
Walmart, Circuit City,
Hasbro, Home Depot,
Gap, Limited Brands
and Dillards.
Figure: Comparative performance of Top 7 Consumer stocks1980 to 2000
40.0
80.0
160.0
320.0
640.0
1,280.0
2,560.0
5,120.0
10,240.0
20,480.0
40,960.0
81,920.0
163,840.0
Dec
'97
Mar
'99
Jun
'00
Sep
'01
Dec
'02
Mar
'04
Jun
'05
Sep
'06
Dec
'07
Mar
'09
Jun
'10
Sep
'11
Dec
'12
Mar
'14
Jun
'15
Sep
'16
Dec
'17
Figure: Comparative performance of FANG1997 to now
FANG ’97-now
156,706% or
1,567X
S&P 500 ’97-now
3,605% or
3.6X
70 4,157
# internet users
(millions)# internet users
(millions)60X
Basket 100 internet stocks:
96% could go to ZERO,
still at 16X return
GenX FANG:
Internet
“Generational” Bets paid off for Boomers and for GenX
Sept. 3, 2019 Slide 70
Millennials don’t trust banks….
Source: Fundstrat, Facebook IQ, First Data
Source: Fundstrat, First Data
Source: Fundstrat, First Data
Source: Fundstrat, Facebook IQ
Sept. 3, 2019
Millennial Stock List
Qualitative: Company higher exposure to Millennials
Quantitative Stock Selection: DQM quintile 1
Slide 71
MILLENNIALS: Identify where transform vs accelerate growth…• The screening criteria for our Millennial stock list is shown below.
Figure: Criteria for Millennial stock listPer Fundstrat
Strategy Style Tilt Seasonality FANG Millennials AI/ Automation Asset Intensity
Transformation Acceleration
Category Millennials
Mortgage interest and charges 163.4%
Kids Apparel 110.9%
Other apparel products and serv ices 155.4%
Footwear 148.2%
Apparel and serv ices 130.7%
Vehicle finance charges 106.3%
Other entertainment supplies, equipment, and serv ices 124.6%
Furniture 116.4%
Toys, hobbies, and playground equipment 98.6%
Cellular phone serv ice 105.2%
Gasoline and motor oil 107.6%
Household furnishings and equipment 126.9%
Tobacco products and smoking supplies 102.1%
Vehicle purchases (net outlay) 95.4%
Vehicle rental, leases, licenses, and other charges 102.5%
Maintenance and repairs 115.5%
Pets 125.4%
Alcoholic beverages 98.6%
Vehicle insurance 118.7%
Small appliances, miscellaneous housewares 101.3%
Millennial
% growth
93%
87%
86%
85%
77%
68%
67%
67%
66%
63%
59%
59%
58%
56%
55%
55%
54%
52%
51%
50%
CAGR
2016-2026Category Millennials
Personal serv ices 90.1%
Other household expenses 129.0%
Water and other public serv ices 131.3%
Other household products 121.1%
Electricity 115.3%
Laundry and cleaning supplies 122.7%
Cereals and bakery products 122.2%
Shelter 105.4%
Major appliances 141.3%
Personal care products and serv ices 119.4%
Food at home 120.0%
Miscellaneous household equipment 133.3%
Millennial %
growth
68%
49%
52%
48%
50%
53%
57%
54%
57%
55%
57%
57%
CAGR
2016-2026
Macro: Millennials transform industry or accelerate growth
Sept. 3, 2019
Company information Fundamentals & Valuation
Analyst Ratings
Ticker Company name
Current
Price
Mkt cap
($ mm)
3m avg
daily
liquidity
($ mm)
YTD perf
(relative to
S&P 500)
FC Mean
(5=Buy
1=Sell) (1)
Mean
implied
upside (2)
Dividend
Yield
Issuer
Rating
Short
interest %
of float
2019E
sales
growth (3)
2019E EPS
growth (3)
P/E
('19E) ROE
Industries that will be transformed by MillennialsApparel, Accessories & Luxury 1 COLM Columbia Sportswear Co $105.21 $7,186 $31.7 4.7% 4.43 15% 0.9% — 3.4% 9% 14% 23.1x 18%
2 TPR Tapestry Inc $30.80 $8,936 $146.2 -29.2% 4.48 41% 4.5% BBB- 3.5% 31% 22% 11.7x 21%
Auto Parts & Equipment 3 BWA Borgwarner Inc $42.48 $8,805 $65.2 1.8% 4.40 12% 1.7% BBB+ 3.1% 7% 15% 9.5x 18%
Automobile Manufacturers 4 TSLA * Tesla Inc $264.88 $47,179 $2,514.7 -40.9% 2.69 -2% -- B- 31.4% 83% 85% nm -14%
Automotive Retail 5 ORLY O'Reilly Automotive Inc $396.50 $30,408 $239.8 -5.3% 3.96 3% -- BBB 1.8% 6% 39% 24.6x 506%
Footwear 6 NKE Nike Inc -Cl B $86.70 $135,849 $560.9 -3.5% 4.26 8% 1.1% AA- 0.7% 7% 3% 34.8x 43%
Specialty Stores 7 ULTA Ulta Beauty Inc $352.94 $20,632 $254.7 23.7% 4.73 6% -- — 5.0% 14% 22% 32.3x 37%
Technology Hardware, Storage & 8 AAPL Apple Inc $208.67 $960,106 $5,178.5 11.8% 3.77 1% 1.5% AA+ 1.0% 16% 29% 17.5x 49%
Data Processing & Outsourced S 9 PYPL Paypal Holdings Inc $121.30 $142,770 $626.8 23.8% 4.41 4% -- BBB+ 1.4% 18% 27% 50.1x 16%
10 SQ * Square Inc - A $80.43 $34,019 $598.3 22.9% 3.79 1% -- — 10.1% 61% 74% nm -5%
Consumer Finance 11 AXP American Express Co $127.95 $106,157 $383.3 13.8% 3.78 3% 1.3% BBB+ 0.9% 21% 35% 16.2x 31%
Diversified Banks 12 JPM Jpmorgan Chase & Co $116.83 $378,993 $1,240.3 -0.8% 3.87 2% 3.1% A- 0.7% 8% 31% 13.0x 14%
Property & Casualty Insurance 13 ALL Allstate Corp $102.08 $34,004 $159.6 3.1% 3.76 6% 1.9% A- 1.5% 6% 16% 12.6x 11%
Brewers 14 TAP Molson Coors Brewing Co -B $56.65 $12,360 $89.8 -19.6% 3.48 13% 4.1% BBB- 4.6% -2% 13% 11.2x 7%
Distillers & Vintners 15 BF/B Brown-Forman Corp-Class B $55.38 $26,258 $70.1 -4.1% 2.90 -2% 1.2% A- 4.3% 2% 17% 32.0x 56%
Tobacco 16 PM Philip Morris International $85.02 $132,278 $386.3 6.9% 4.33 14% 5.5% A 0.8% 3% 8% 16.7x —
Interactive Media & Services 17 GOOG Alphabet Inc-Cl C $1,137.81 $790,537 $1,766.1 -10.6% 4.73 16% 0.0% AA+ 0.9% 53% 22% 26.0x 16%
18 FB Facebook Inc-Class A $204.66 $583,885 $3,263.4 35.7% 4.58 11% -- — 1.1% 37% 23% 27.0x 20%
Movies & Entertainment 19 DIS Walt Disney Co/The $141.29 $254,279 $1,303.4 8.4% 4.31 10% 1.3% A 0.9% 8% 24% 20.0x 20%
Wireless Telecommunication Ser 20 TMUS T-Mobile Us Inc $80.61 $68,865 $390.5 6.3% 4.62 3% -- BB+ *- 3.7% 7% 24% 24.0x 13%
Industries where their consumer spending will be accelerated by MillennialsConsumer Electronics 1 GRMN Garmin Ltd $79.49 $15,091 $86.1 5.1% 2.80 -5% -- — 2.8% 8% 26% 21.5x 17%
Homebuilding 2 TOL Toll Brothers Inc $35.28 $5,076 $56.1 -13.3% 3.17 12% 1.2% BB+ 3.9% 23% 53% 7.3x 16%
Environmental & Facilities Ser 3 WM Waste Management Inc $115.80 $49,178 $179.2 9.7% 4.50 2% 1.8% A- 0.8% 3% 30% 27.6x 30%
Household Products 4 PG Procter & Gamble Co/The $112.60 $282,438 $753.1 2.0% 3.83 -1% 2.7% AA- 0.8% 3% 8% 26.7x 20%
Packaged Foods & Meats 5 GIS General Mills Inc $52.84 $31,808 $217.3 15.2% 3.30 2% 3.8% BBB 2.8% 7% 4% 16.4x 27%
Personal Products 6 EL Estee Lauder Companies-Cl A $189.45 $68,557 $242.8 25.2% 4.36 -2% 0.9% A+ 3.0% 16% 30% 42.0x 39%
Soft Drinks 7 MNST Monster Beverage Corp $64.74 $35,191 $184.6 11.1% 3.80 5% -- — 2.7% 13% 22% 35.8x 27%
Multi-Utilities 8 ED Consolidated Edison Inc $86.53 $28,806 $163.8 -7.3% 2.33 1% 3.4% A- 2.0% 3% 5% 20.0x 8%
Average $153,559 $755.5 3.5% 3.91 6% 2.2% 3.6% 17% 26% 23.1x 39%
Median $41,185 $248.8 4.9% 3.91 4% 1.7% 2.4% 8% 23% 22.3x 20%
Slide 72
MILLENNIALS: Stocks levered to transformation and/or growth
Source: Fundstrat, FactSet, Bloomberg,
* stocks are not ranked in DQM quintile 1, but we believe they are highly exposed to growth of millennial population
We identified 28 stock ideas from our Quant Model (DQM) that will benefit from the growth of Millennials’ spending.
• 20 ideas are from the industries where spending by Millennials will outpace the spending of Boomers. 8 ideas
are from the industries where Millennials’ spending will accelerate expenditure growth.
Figure: 28 ideasPer Fundstrat
Strategy Style Tilt Seasonality FANG Millennials AI/ Automation Asset Intensity
Sept. 3, 2019 Slide 73
ASSET LIGHT: We believe market close to “jumping the shark” on asset light
But you now have the four largest companies, by market value, in
the United States — a $30 trillion market — you have four
companies that essentially don’t need any net tangible assets…
…And that is really due to the fact that this has become somewhat,
you could call it an asset-light economy.
Warren Buffett, from Berkshire Hathaway
2018 + 2019 annual shareholder meeting…
Sept. 3, 2019 Slide 74
Multi-decade tailwinds for “Growth” and “asset-light” businesses
1980 2019 Delta
Inflation 10.0% 2.0% 800bp
Interest rates —cost of capital 16.0% 2.4% 1,360bp
Cumulative excess supply:
prime age workforce*
611 million
(27.5%)
Cumulative 15-yr CAGR
Growth vs Value
S&P 500 151.8% 6.4%
S&P 500 Growth 211.8% 7.9%
S&P 500 Value 98.0% 4.7%
Asset Heavy vs
Asset Light
S&P 500 Financials 7.3% 0.5%
S&P 500 Healthcare 207.4% 7.8%
* Excess labor supply is calculated since 1973, the first time labor shortfall
11,380bp
20,010bp
Drivers
of Asset
light…
Drove
multi-
decade
returns…
Sept. 3, 2019 Slide 75
Figure: Relative performance (vs S&P 500) – Asset heavy vs Asset light stocksSince 2009. Asset light is lowest 5% of S&P 500 stocks Assets/EBIT and Asset heavy is highest 5% of Assets/ EBIT
ASSET LIGHT: Since 2015, Asset light crushed asset heavy stocksWe can create a proxy for asset light and asset heavy based on Assets/$1mm of EBIT. And the price performance of top
and bottom 5% is shown below.
• Since 2015, as investors see permanency in falling rates, they have started to heavily favor asset light stocks.
Source: Fundstrat, Bloomberg, Factset
+93%
-24%
Asset
heavy
Asset
light
In a world of falling
rates, world in love
with Asset light …
Sept. 3, 2019 Slide 76
Figure: Interest rates and the comparative returns of Value vs Growth
Since 1926
VALUE-Style Investing: Rising interest rates + Inflation good for Value…• During the 43 year rise of interest rates (1943-1981), Value stocks outperformed most years.
• Rising rates equates to higher nominal returns (either from inflation or real growth) and this
in turn leads to faster EPS growth—hence, rising rates favor Value stocks which
outperform when nominal growth is faster.
Falling Interest Rates: Growth leads1981 to today
1.0
2.0
4.0
8.0
16.0
500.0
1,000.0
Dec '81 Mar '88 Jun '94 Sep '00 Dec '06 Mar '13 Jun '19 Sep '25
US
T 1
0Y
Pri
ce In
dex
(V
alu
e le
ss G
row
th)
Value less Growth US 10Y
US 10yr
Value less
Growth
Value
Leads
Growth
Leads
Source: Fundstrat, Bloomberg
Rising Interest Rates: Value beats1938-1981
1.0
2.0
4.0
8.0
16.0
40.0
80.0
160.0
320.0
640.0
1,280.0
Jan '26 Apr '32 Jul '38 Oct '44 Jan '51 Apr '57 Jul '63 Oct '69 Jan '76 Apr '82
US
T 1
0Y
Pri
ce In
dex
(V
alu
e le
ss G
row
th)
Value less Growth US 10Y
US 10yr
Value less
Growth
Sept. 3, 2019 Slide 77
Figure: MSCI World Growth and Value relative price performance (vs MSCI World) past 45 yearsSince 1974
Key moment: Globally, Value vs Growth retraced 40 years of progress…Arguably, Value versus Growth is facing a more important juncture globally. MSCI Value stocks (price ratio vs MSCI
World) has touched a level that has marked major turning points for Value vs Growth.
• Again, this highlights whether this is a key moment in Value stocks worldwide—it is very telling to us and we
believe now is the time to be OW Value.
Source: Fundstrat, Bloomberg
Growth
Value Key moment…Key moment…
Sept. 3, 2019 Slide 78
Figure: Comparative benefit of Asset heavy/ Value stocks in inflation rising environmentsPer Fundstrat
ASSET INTENSITY: Asset “heavy” beats Asset “light” business models….
Source: Fundstrat, Bloomberg
Balance Sheet Inflation leads to… Income statement
Asset
“heavy”
Asset:
Hard assets
Resources
PP&E
Cash
Inventory
Liabilities:
Long-term debt
Pension deficit
Rise in assets…
Inventory holding gains…
Debt liabilities flat…
Pension deficit falls..
Revenues:
Higher revs (inflation)
Interest income (cash)
Expenses:
Flat (asset FIFO, first in/ first out)
Margin:
Rising
Plus: gains from inventory holding
Plus: pension gains
Risk/ Debt leverage:
Falling debt leverage
Falling pension obligations
Asset
“light”
Asset:
Intangibles/ R&D
Liabilities:
Labor costs
Low leverage
No benefit
Rise in labor costs..
Revenues:
Higher revs (inflation)
Expenses:
Margin pressure labor and assets (inflation)
Margin:
Flat
Risk/ Debt leverage:
No change
Strategy Style Tilt Seasonality FANG Millennials AI/ Automation Asset Intensity
Sept. 3, 2019 Slide 79
Figure: Inflation risk explains Financials (asset heavy) vs Healthcare (asset light)Since 2009
ASSET INTENSITY: Equity markets already recognize this…Comparing inflation risk premia influences how Financials (asset heavy) trades versus Healthcare (asset light)
illustrates that equity markets are good at detecting this inflation risk.
Source: Fundstrat, Bloomberg
INFLATION RISK MEASURE:
Inflation breakevens less CPI
MARKET REFLECTS:
Financials (asset heavy)
vs Healthcare (asset light)
Inflation
Risk
RISING
Inflation
Risk
FALLING
Asset
Heavy
LEAD
Asset
Light
LEAD
Strategy Style Tilt Seasonality FANG Millennials AI/ Automation Asset Intensity
Sept. 3, 2019 Slide 80
ASSET INTENSITY: Stock selection criteria
Source: Fundstrat, Bloomberg, FactSet
* Cash to Net Income ratio is calculated by using the sum of Cash, Cash Equivalents, LT Investment (unrestricted) divided by Net Income
As noted on the prior slides, we believe inflation, particularly wage inflation, will shift favor asset intensive businesses.
• The screening criteria below identifies stocks which benefit from rising overall inflation on both the balance
sheet, income statement but we also layered in qualitative criteria.
Figure: Asset Intensity stock list criteriaPer Fundstrat
Factor type Criteria Rationale
Balance Sheet Asset boost from inflation High Asset to Sales ratio
High Inventory to Sales ratio
High Inventory to Assets ratio
De-leveraging Higher Assets to Equity ratio
Higher Pension deficit to Equity Market Cap
Income Statement Low wage inflation exposure Low # employees per $1 million of EBIT
Cash balance leverage High cash + Investment to Equity Market Cap
Quality Metrics Sales outpaces Asset Growth Sales Growth exceeds Asset Growth past 5-years
DQM Quant Model Ranked DQM Quintile 1
Strategy Style Tilt Seasonality FANG Millennials AI/ Automation Asset Intensity
Sept. 3, 2019
Company information Determinant Ratio Fundamentals & Valuation
Ticker Company name
Current
Price
Mkt cap
($ mm)
YTD perf
(relative to
S&P 500)
Assets
to
Sales
Inventories
to
Assets
Inventories
to
Sales
Assets
to
Equity
Pension
Deficit
as of
Mkt Cap
# of
Employee
per $1m
EBIT
Sales
growth less
Assets
growth
Cash* to
Net
Income
Dividend
Yield
Issuer
Rating
2019E EPS
growth (3)
P/E
('19E)
Internet & Direct Marketing Re 1 BKNG Booking Holdings Inc $1,919.25 $83,087 -9.0% 1.6x -- -- 2.6x -- 4.6 25.5% 348% -- A- 9% 19.0x
2 EBAY Ebay Inc $41.03 $34,414 25.7% 2.1x -- -- 4.3x -- 4.8 16.9% 317% 1.4% BBB+ 19% 14.9x
Communications Equipment 3 CSCO Cisco Systems Inc $57.23 $244,986 11.6% 2.0x 1.7% 3.4% 2.5x -- 4.7 26.8% 308% 2.6% AA- 18% 18.6x
Data Processing & Outsourced S4 PYPL Paypal Holdings Inc $121.30 $142,770 23.8% 3.0x -- -- 3.1x -- 6.4 8.9% 272% -- BBB+ 29% 38.9x
Electronic Components 5 DLB Dolby Laboratories Inc-Cl A $66.16 $6,725 -13.5% 2.4x 1.0% 2.3% 1.2x -- 7.1 (5.0% ) 738% -- — 139% 24.3x
Semiconductor Equipment 6 KLAC Kla Corp $142.65 $23,055 39.0% 1.3x 17.9% 24.1% 3.5x 0.5% 4.0 6.3% 206% 2.1% BBB 5% 17.0x
Semiconductors 7 XLNX Xilinx Inc $132.14 $33,169 34.7% 1.8x 6.1% 11.0% 1.8x -- 4.6 15.8% 1.1% NR 11% 34.2x
Systems Software 8 MSFT Microsoft Corp $140.72 $1,075,523 18.1% 2.2x 0.7% 1.7% 2.8x -- 3.4 8.1% 414% 1.4% AAA 22% 29.6x
9 ORCL Oracle Corp $58.11 $193,844 8.3% 2.8x -- -- 4.5x 0.4% 7.9 22.7% 307% 1.6% A+ 10% 15.0x
Technology Hardware, Storage &10 AAPL Apple Inc $208.67 $960,106 11.8% 1.4x 1.3% 1.9% 3.2x -- 1.9 20.2% 408% 1.5% AA+ -4% 18.3x
Gold 11 RGLD Royal Gold Inc $118.56 $7,768 18.0% 5.9x 0.3% 1.7% 1.2x -- 0.1 14.8% 37660% -- — -10% 75.2x
Oil & Gas Refining & Marketing 12 PSX Phillips 66 $102.42 $46,453 -1.6% 0.5x 6.5% 3.2% 2.0x 1.2% 2.3 22.3% 74% 3.5% BBB+ -34% 13.2x
Asset Management & Custody Ban13 AMP Ameriprise Financial Inc $151.47 $20,282 24.7% -- -- 1.6% 5.6 -- A 12% 9.4x
Consumer Finance 14 AXP American Express Co $127.95 $106,157 13.8% 4.9x -- -- 9.0x -- 5.1 (5.8% ) 612% 1.3% BBB+ 1% 16.0x
Investment Banking & Brokerage15 LPLA Lpl Financial Holdings Inc $87.40 $7,292 22.6% 1.1x -- -- 5.8x -- 5.9 19.4% 410% -- — 32% 12.4x
16 AMTD Td Ameritrade Holding Corp $52.45 $29,021 -13.3% -- -- -- 3.4 2.5% A 20% 13.0x
Distillers & Vintners 17 BF/B Brown-Forman Corp-Class B $55.38 $26,258 -4.1% 1.6x 28.5% 44.3% 3.5x 0.8% 4.4 1.8% 35% 1.2% A- — nm
Tobacco 18 PM Philip Morris International $85.02 $132,278 6.9% 1.3x 21.9% 28.2% 3.7x 2.9% 6.8 14.6% 39% 5.5% A 2% 16.4x
Biotechnology 19 AMGN Amgen Inc $175.77 $107,208 -30.2% 2.8x 4.4% 12.6% 5.3x -- 1.8 19.5% 315% 5.7% A -3% 12.6x
20 ENTA Enanta Pharmaceuticals Inc $81.82 $1,609 -4.9% 2.2x -- -- 1.1x -- 1.5 25.0% 584% -- — -32% 34.3x
Pharmaceuticals 21 NKTR Nektar Therapeutics $32.12 $5,599 -22.7% 1.8x 1.8% 3.2% 1.3x -- 0.9 (33.3% ) 281% -- — -181% nm
Interactive Media & Services 22 GOOGL Alphabet Inc-Cl A $1,139.73 $790,537 -11.4% 1.7x 0.5% 0.8% 1.3x -- 3.6 4.2% 414% 0.0% AA+ 6% 24.7x
Electric Utilities 23 EIX Edison International $71.02 $23,139 4.6% 4.5x 0.5% 2.2% 4.5x 3.0% 5.4 (4.7% ) 328% 3.5% BBB *- 13% 15.2x
24 EXC Exelon Corp $45.48 $44,113 -19.6% 3.5x 1.4% 5.0% 3.6x 9.2% 6.5 (1.4% ) 490% 3.2% BBB+ 1% 14.5x
Multi-Utilities 25 BKH Black Hills Corp $78.28 $4,726 4.2% 4.0x 1.7% 6.7% 3.0x 2.6% 7.3 (0.2% ) 29% 2.7% BBB+ -1% 22.3x
26 D Dominion Energy Inc $75.18 $60,322 -15.2% 5.9x 1.8% 10.6% 3.5x 2.8% 4.5 4.8% 211% 4.9% BBB+ 3% 17.9x
Average $161,940 4.7% 2.6x 5.8% 9.6% 3.3x 2.5% 4.4 9.5% 1947.9% 2.5% 4% 22.0x
Median $39,264 5.8% 2.1x 1.7% 3.4% 3.1x 2.1% 4.6 11.7% 316.9% 2.3% 6% 17.4x
% of stocks positive 58% 72%
Slide 81
ASSET INTENSITY: Stocks positively levered to asset inflation vs wages
Source: Fundstrat, Bloomberg, FactSet
* Cash to Net Income ratio is calculated by using the sum of Cash, Cash Equivalents, LT Investment (unrestricted) divided by Net Income
We identified 26 stock ideas from our Fundstrat Doctor Quant Model (DQM) that will benefit from the rising inflation.
• The benefits will mainly come from appreciation in assets (asset intensive), gains from held inventory, falling
pension deficit and less exposure to wage inflation.
Figure: Asset Intensity stock listPer Fundstrat
Strategy Style Tilt Seasonality FANG Millennials AI/ Automation Asset Intensity
Sept. 3, 2019
Ticker Company Name Company Description
APTV Aptiv Plc Aptiv PLC manufactures and distributes vehicle components such as connector wires, safety restraint systems, pin headers, and underwater towed arrays.
GNTX Gentex Corp Gentex Corporation designs, manufactures, and markets products that use electro-optic technology. The Company's product lines include automatic-dimming rearview mirrors.
SRI Stoneridge Inc Stoneridge, Inc. designs and manufactures engineered electrical and electronic components, modules, and systems.
TSLA Tesla Inc Tesla Inc. designs, manufactures, and sells high-performance electric vehicles and electric vehicle powertrain components.
GRMN Garmin Ltd Garmin Ltd. designs, develops, manufactures, and markets hand-held, portable, and fixed mount GPS-enabled products and other navigation, communications, and information
products.CW Curtiss-Wright Corp Curtiss-Wright Corporation designs, manufactures, and overhauls precision components and systems.
MOG/A Moog Inc-Class A Moog Inc. manufactures precision motion control components and systems.
TDY Teledyne Tech. Inc Teledyne Technologies Inc. provides electronic subsystems and instrumentation such as digital imaging products and software, monitoring instrumentation.
DE Deere & Co Deere & Company manufactures and distributes a range of agricultural, construction, forestry, and commercial and consumer equipment.
AME Ametek Inc AMETEK, Inc. is a global manufacturer of electronic instruments and electromechanical devices and a supplier of electrical interconnects, specialty metals, technical motors and
systems.EMR Emerson Electric Co Emerson Electric Co. designs and manufactures electronic and electrical equipment, software, systems, and services.
RBC Regal Beloit Corp Regal Beloit Corporation designs, manufactures, and sells electric motors and controls such as gearboxes, automotive transmissions, rotary cutting tools, automatic transfer switches.
ROK Rockwell Automation Inc Rockwell Automation, Inc. produces industrial automation products such as control systems, motor control devices, sensors, and industrial control panels.
ROP Roper Technologies Inc Roper Technologies, Inc. manufactures and distributes industrial controls, fluid handling, pumps, medical and scientific devices, analytical instrumentation products, RFID
communication technology.LECO Lincoln Electric Holdings Lincoln Electric Holdings, Inc. designs and manufactures welding and cutting products such as arc welding power sources, wire feeding systems, robotic welding packages.
PH Parker Hannifin Corp Parker-Hannifin Corporation manufactures motion control products, including fluid power systems, electromechanical controls, and related components.
ADSK Autodesk Inc Autodesk, Inc. supplies PC software and multimedia tools that are used across industries for architectural/mechanical design and visualization applications.
SNPS Synopsys Inc Synopsys, Inc. supplies electronic design automation solutions to the global electronics market.
CSCO Cisco Systems Inc Cisco Systems designs, manufactures, and sells IP-based networking and other products related to the communications and IT industry and provide services associated with it.
FLIR Flir Systems Inc FLIR Systems, Inc. designs, manufactures, and markets thermal imaging and broadcast camera systems for a variety of applications.
ZBRA Zebra Tech. Corp Zebra Technologies Corporation designs and manufactures advanced data capture devices, such as laser, 2D and RFID scanners and readers, and specialty printers.
MKSI Mks Instruments Inc MKS Instruments, Inc. develops, manufactures, and supplies instruments and components used to control and analyze gases in semiconductor.
AVGO Broadcom Inc Broadcom Inc. designs, develops, and markets digital and analog semiconductors.
NVDA Nvidia Corp NVIDIA Corporation designs, develops, and markets three dimensional (3D) graphics processors and related software.
QCOM Qualcomm Inc QUALCOMM Incorporated manufactures digital wireless communications equipment.
XLNX Xilinx Inc Xilinx, Inc. designs, develops, and markets complete programmable logic solutions.
IMMR Immersion Corp. Immersion Corporation offers touch feedback technology solutions in mobile devices, automotive touchscreen and touchpads, medical training equipment, gaming consoles.
ISRG Intuitive Surgical Inc Intuitive Surgical, Inc. design, manufactures, and markets surgical systems.
VAR Varian Med. Sys. Inc Varian Medical Systems, Inc. designs, manufactures, sells, and services medical equipment.
GOOG Alphabet Inc-Cl C Alphabet Inc. through its subsidiaries, provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions.
Slide 82
AUTOMATION: Descriptions of AI/ Automation suppliers
Source: Fundstrat, Bloomberg
Below is the descriptions of the AI/ automation suppliers and component suppliers
Figure: AI/ Automation Stock listPer Fundstrat
Strategy Style Tilt Seasonality FANG Millennials AI/ Automation Asset Intensity