12 11/21 12/11/2021

Weekly Newsletter Week 45

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WEEK 45 | NOVEMBER
WEEKLY NEWSLETTER

 

OVERVIEW

  • Financial Markets & EconomiesInfrastructure Bill
  • Good to knowDisruptions
  • Your portfolio highlights Solar Value Fund, Liberty Media Corp., Berkshire Hathaway, Brookfield Renewable
  • In other news: Retail Giant Already Using Driverless Trucks, Brookfield Is Among The Bidders for Aramco Gas Pipelines, Brookfield Closes Growth Fund with Over $500 Million In Committed Capital, Utility company is selling a near 20% stake in its transmission business to Brookfield
Financial Markets & Economies

The House of Representatives passed a $1.2 trillion infrastructure bill this week. This is good news for the U.S. economy and led stocks of infrastructure related companies higher. The bill includes $7.5 billion which is to be used for building a network of electric-vehicle chargers in 5-years’ time. $5 billion will be used to increase the amount of charging stations along highways, $2.5 billion will be used for alternative infrastructures such as for hydrogen, and an additional $7.5 billion will be used to buy electric and low-emission school busses and ferries.

According to President Biden this infrastructure bill sets the U.S. on the right path to reach 50% of all vehicles sold in the U.S. being electric by 2030. That is not all, there is more in the pipeline. There is another bill on social infrastructure which if passed will include incentives for electric vehicle buyers. Incentive will be in the form of a tax credit that can go as high as $12,500 per vehicle. 

In other news, the majority (82%) of the companies that already reported Q3 earnings performed better than analysts expected. This comes mostly from higher demand and/ or lower supply which in turn puts upward pressure on prices. Consumer inflation just hit a 30-year high. The Bureau of Labor Statistics reported the Producer Price Index (PPI) for the month of October in which wholesale inflation was seen to increase by 0.6%. That is 0.1% more than in September. The core inflation for the last 12 months is 6.2%.

 

Consumer Price Index
Good to Know

As you read in the previous section, various governments and companies around the world are increasingly taking climate actions as part of the global energy transition. These are now mostly voluntary but will soon become a disruption. Disruption is defined as a radical change in an existing industry or market as a result of technological advancements. Technological advancements as we know it has gained momentum recently and will continue to do so. We either jump on board or we stay behind. Because no industry operates in isolation, disruption in the energy sector will also cause disruptions in other industries.

Keep in mind that disruption does not mean the end of it. It just means the end of it as we know it. Disruption therefore creates opportunities for both companies and investors. These opportunities are better exploited by early movers. If we can agree that the energy transition is ongoing, we need to explore the possible disruptions. It has been established that in addition to the fact that renewable energy is good for the environment, it also makes economic sense. Renewable energy such as solar and wind are the most cost-efficient energy sources. This means that it will not be long before renewable energy becomes our main source of energy. The first disruption we can expect is therefore in the energy sector itself. This is not new to us, but what do we do with it? As governments, companies, and investors, we need to align our resources with what we believe to be our future. Click here to read our full article on disruptions.

 
Your Portfolio Highlights
 
The Solar Value Fund (SVF) invests in North American publicly traded equity securities with an emphasis on individual security selection based on thorough fundamental analysis and not general equity market movements. The Fund is long-only and concentrates its research and capital on undervalued, mid-cap companies chosen from a carefully defined universe of quality industrial and consumer products and services companies. The Fund may use currency-hedging related derivatives. The Solar Value Fund returned +29.65% so far this year. One of the Fund’s holdings we like to highlight this week is Liberty Media Corp (+27.6%).
 

Liberty Media (LSXMA) Corporation is a global media and entertainment company founded in 1991 as a spin-off of TCI, an American cable-television group. The Company has three divisions, reflecting its ownership stakes in Formula One (2%), SiriusXM (78.1%), and the Atlanta Braves Major League Baseball team (4%).

Liberty Sirius XM Group consists of Liberty Media’s interest in SiriusXM and Live Nation Entertainment (32%). Sirius XM is a satellite radio company that delivers commercial-free music, sports, entertainment, comedy, talk, news, traffic, and weather content. Live Nation Entertainment is the largest entertainment company in the world. The company consists of concerts, sponsorship & advertising, and ticketing segments.


The Braves Group consists of Liberty Media Corporation’s wholly owned subsidiary Braves Holdings, LLC. This holding company indirectly owns the Atlanta Braves Major League Baseball club, stadium, and associated real estate projects. The Formula One Group consists of Liberty Media’s subsidiary F1 and other minority investments, including Liberty Media Acquisition Corporation, AT&T, and an intergroup interest in the Braves Group. Analyst consensus is that the stock price of Liberty Media Corp is likely to reach $65 in the coming 12 months.


*Please visit the Liberty Media Corp. website for more information or click on one the images below for their Q3 financial results.

Liberty Media Corporation - Year-to-date stock price movement
 
Berkshire Hathaway (BRK.B) reported remarkable figures for the quarter. The company increased its operating profit by 18% despite increased underwriting losses in its insurance business caused by Hurricane Ida and the European flooding. The Berkshire businesses that have seen tremendous growth in the quarter were railroad, utilities, and energy. Berkshire’s operating profit was $6.5 billion for the quarter and its cash pile hit another all-time high of $149 billion.

Berkshire’s performance in Q3 was below expectations and this was attributed to supply chain disruptions. The company had to deal with higher material and freight costs. The share buybacks continued during the period and came to a total of $7.6 billion in Q3 and $20 billion year-to-date. It must be noted however that although Berkshire bought a considerable amount of its shares in the last 4 quarters, it has sold even more of the same. Berkshire is thus a net-seller of its own stocks as the market price increased. The sold shares and the fact that no acquisitions were made in the period is the reason for the increasing cash pile. On the other hand, a rising cash pile is indicative of a financially healthy company.
 
Brookfield Renewable (BEPC) also had good Q3 results. The company had record Funds from Operations (FFO) of $210 million or $0.33 per unit for the period. That is a 32% year over year increase. They agreed on 19 power purchase agreements for about 1,300 gigawatt hours (GWh) of renewable generation in the period. Another accomplishment in Q3 was the progress in construction and advance stage permitting of the 8,000 megawatts development projects. An additional 5,000 megawatts were added to their global development pipeline which now totals 36,000 megawatts. All this happened while maintaining a robust balance sheet with over $3.3 billion of available liquidity.
In Other News
 
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