Key insights
- Analyst highlights opportunities in cyclical (NVR), UK-based AI-impacted (RMV, AUTO), and sin-tax sectors (MO, DGE). The rationale centers on attractive valuations relative to pretax income, strong market positions, and potential for shareholder returns through buybacks and dividends. Limited US market influence as the focus is on individual stock picking and some non-US equities.
Interesting year thus far, but still opportunities out there if you look hard enough. Here is what i’ve been buying - not financial advice.
Cyclical, Commodity: NVR - Normalized to mid cycle earnings, it is trading around 9x pretax income. All FCF goes to share repurchases, compounding machine. Land-light model keeps ROIC high and they remained profitable during the GFC.
AI Driven Fear (UK): RMV (RightMove) & AUTO (Auto Trader) - Similar story in both these companies, currently trading 10.5x-11x pretax income. Wide moat businesses with incredible network effects selling off due to AI fears. My belief is that integration of AI will only help these businesses, not replace them. Sustainable revenue model, high ROIC, market shares over 75%.
Sin Tax: Altria (MO) & Diageo (DGE) - Again, similar story in both these companies. Tobacco is undoubtedly in decline but Altria continues strong pricing power on their products. Tobacco-less products could be a tailwind but I am not banking on growth in this area. Alcohol make be in systematic decline, but the quality of brands under Diageo’s catalog will insulate them well at these prices. Altria was previously trading below 9.5x pretax income. Diageo trading at 9x pretax income (excluding writedown in 2025). Both will be around long enough for a solid return on investment at these prices, with upside potential.