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  • Writer's pictureShernel Thielman

Newsletter week 28



  • Financial Markets & Economies: High Consumer Expectations

  • Good to know: Environmental, Social, Governance

  • Your portfolio highlights: Solar Value Fund, Cactus Inc

  • In other news: Brookfield and Tesla are Teaming Up, Dominion and Berkshire End $1.3B Deal, China’s GDP grew by 7.9% in the second quarter

Financial Markets & Economies

We are back in earnings season. This means that publicly traded companies around the world will be releasing their Q2 earnings reports. We are about to see how the companies we own or think about owning fared over the last 3 months. As investors we lookout for demand/ revenue, profitability, cash flow generation to name a few. The projections for the 2nd part of the year are influenced by the current earnings. The earnings reports do not only inform us on the microeconomic level but also on the macroeconomic. These businesses are components of the economy, their operating results can be used to gauge the economic recovery and expansion. The Federal Reserve Bank of New York released a survey on consumer expectations this week in which a median expected inflation of 4.8% over the next 12 months was reported. That is a 0.8% increase from a month ago. The highest ever recorded since the survey was initiated 8 years ago. It is not only inflation that is expected to rise in the next 12 months. According to the survey, household income and spending are also expected to increase. Household income is expected to increase by 3% and spending by 5.2% (also an all-time high). Although expectation is not actuality, expectation does drive actuality. Our decisions of today are based on our expectations of tomorrow. The Consumer Price Index (CPI) for the month of June was released and it showed a 5.4% jump from a year ago. This is the fastest year-over-year growth since 2008. The items with the highest changes in prices were vehicles, airline tickets, gasoline, and apparel. Markets were mixed throughout the week.

Good to Know

Have you heard of ESG? ESG stands for Environmental, Social, and Governance. The environmental criteria consider how a company performs as a steward of nature. The social criteria examine how the company manage relationships with employees, suppliers, customers, and their communities. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. ESG is increasingly used as a criterion when it comes to corporate and investment decision making. Businesses, unlike the past, are now more concerned with the environment and society and not just their bottom lines. No matter if it is voluntary, due to regulatory or investor pressures; it is good to know that steps are being taken to ensure sustainability. As you can see from the different companies we present each week, no matter their sectors, they are glad to communicate their sustainability efforts. These efforts will be increasing with time as the U.S., China and several European countries set ambitious goals on sustainability such as a 40-50% reduction in carbon emissions by 2030.

Your Portfolio Highlights

The in-house Solar Value Fund (SVF) as you know it invests in American equity securities. Stock selection is based on thorough fundamental analysis and not mere market price movements. The fund concentrates it research and capital on undervalued companies chosen from a carefully defined universe of high quality industrial and consumer product and services companies. The fund returned +22.62% so far this year and +124.57% since its inception in July 2005. This equates to a compound annual growth rate of +5.19% for the period. In the spotlight this week is Cactus Inc. (+51.10%).

Cactus, Inc. (WHD) is a company focused on designing, manufacturing, selling and renting of wellheads and pressure control equipment. A wellhead is the component at the surface of an oil or gas well that provides the structural and pressure-containing interface for the drilling and production equipment. The company’s principal products include Cactus SafeDrill wellhead systems, frac stacks, zipper manifolds and production trees. The products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion (including fracturing) and production Phases of its customers' wells. Cactus has operations in the U.S., Australia, Middle East, and China. The management team at Cactus is well experienced and well aligned with shareholders’ interests. This is because they jointly own more than 20% of the business and their compensation is partly based on performance. Scott Bender is at the helm as President, Chief Executive Officer, and co-founder of Cactus LLC. Joel Bender, the brother of Scott Bender, is the Senior Vice President, Chief Operating Officer, and co-founder. Although Cactus LLC was founded in 2011, the company dates back to 1959 when it was originally founded as Cactus Pipe. Cactus is very ESG (Environmental, Social, and Governance) focused which makes their offerings faster, cleaner, and safer than their competitors’. Additionally, they have a dynamic manufacturing advantage that increases their responsiveness and scalability all while operating at lower costs. The company is doing well and has high expectations for their Q2 2021 results soon to be announced. The company is currently valued around $40.11.

*Please visit the Cactus Inc. website for more information or click on one of the images below for their latest presentation.

Cactus Inc. - year-to-date stock price movement

In Other News

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