Discover more from Hourglass Investing
Recapping the Market Week of July 17-21
Welcome to the first Hourglass Newsletter! These will be sent out every week to recap the biggest news, investor insights, valuable reads, updates on what’s new at Hourglass, and any other investment-related topics from the week.
El Nino Heatwaves
Italy, Spain, Greece, and many parts of the U.S. are facing extreme temperatures as a result of El Nino, the name given to the warming effect on the Pacific Ocean. Though a completely normal cycle, El Nino often brings with it very hot temperatures and excessive waterfall in certain areas of the world. And these temperatures are not expected to abate anytime soon, with some analysts predicting a climb of up to 48 degrees Celsius (about ~118 degrees Fahrenheit for my U.S. listeners, I got you!).
This year, El Nino is combining with climate warming to make extreme weather events far more likely. The result of this, undoubtedly but very tragically, will be the deaths of many people and the destruction of homes, cropland, and ways of life across the globe.
While I’m not huge on ESG investing (a topic requiring its own article), this got me thinking about the sort of businesses that could potentially help to mitigate damages from and protect against climate change - businesses like Planet Labs ( PL 0.00%↑ ) and XPEL ( XPEL 0.00%↑ ) came to mind, leave a comment if you can think of others that will be important players in the fight against climate change!
AT&T + Lead
AT&T stock has taken a hit this week following the release of a damning report on the use of toxic lead lines in their cell network infrastructure. Lead, for those who don’t know, is linked with a higher likelihood of neural disease and is highly damaging to the central nervous systems.
The report made a real stink for the company, causing it to briefly sink down to a new 52-week low (also, more significantly, a 30-year low) before bouncing back later in the week. If the company is required to replace their aging and toxic lead infrastructure, it could cause significant damage to the company that stretches beyond its reputation - the cost of this replacement could be enormous, though many analysts have noted an exact figure is very difficult to estimate.
Either way, it’s not looking particularly good for the company in the short-term, and perhaps not in the long-term either. That said, it’s offering you a +7% yield to sit around and wait, so if dividends are your thing, maybe this drawdown is an opportunity to pounce. I myself will not be touching it with a ten-foot pole.
If you’re more of a pessimist on AT&T’s outlook for the long-term, and believe they have to replace these lines, it may be interesting to look at some infrastructure plays that have some skin in this game.
Goldman Sachs Cuts the Odds of U.S. Recession
Goldman Sachs announced that it has cut the odds on a possible recession in the U.S. within the next year from 25% down to 20%. This came off data and indicators that suggest, at least to Goldman Sachs analysts, that inflation is cooling enough with current fed policies and inflation measures to not require a recession.
This may, may, suggest that after all the talk of a recession in the last year and a bit that the Fed could actually be successful in piloting a soft landing for the economy. If so, it would be very impressive. However, I would be surprised if much changed on their outlook. Many indicators are extremely lagging, and I don’t believe the Fed is very interested in pulling off the gas on their current strategy until they have very sufficient evidence to suggest their efforts are working - other administrations have loosened their grips too soon, to great calamity for the average investor and low- & middle-income families across the country.
Zero to One - Peter Thiel
This is a double whammy - for anyone interested in entrepreneurship or in investing (or both), this should be a must read. Peter Thiel has been involved with the creation of (PayPal) and early investments in (Facebook) some of the biggest companies we know and invest in today.
In this book, Thiel dives into what sets a successful company apart - from management to business structure. It not only helps to frame your mind for solving the next big problem and creating a truly unique business from an entrepreneurial standpoint, but also helps to identify some of the characteristics of strong investments from an investor perspective. I highly recommend the read, it’s one of those rare ones that I read in about a day - I just couldn’t put it down, and it makes for incredibly fascinating and easy reading, with tons of examples of real world companies and CEOs to drive the points home.
Here’s a snippet from the book that I particularly enjoyed: “Tolstoy opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.”
This first shoutout goes out to an entire community of awesome and supportive investors - the people over at Commonstock have done a really bang-up job of creating a supportive and insightful investing community for people interested in all walks of the investing life.
There’s seriously something for everyone there, and I’ve been blown away at the quality of the group over there! While investors are happy to challenge opinions and debate topics, my experiences have been highly positive and rewarding. I’m so glad that I came across Commonstock, and I don’t think a day has gone by since where I’m not on the platform, so a huge shoutout to the people getting it done over there! If you’re not a member of this community and are interested in investing, I highly recommend making a profile and checking it out (& following me!)
This Week’s Watchlist
Schrödinger (Ticker: SDGR)
Schrödinger provides AI software that helps to identify new molecules for the development of drugs and materials. Their predictive modelling platform allows companies across a litany of industries to save time, resources, and costs throughout the discovery and development phases - ultimately allowing them to find potential new products faster and bring them to shelf sooner.
The company makes revenues off its software, which naturally is structured as a subscription service. What’s really interesting about the business is that the other portion of their revenue (~50% in the last quarter, a +109% increase YoY) comes from drug discovery revenues - these are partnerships they have entered into with pharma companies to license out the software, which significantly speeds up the development process for the pharma companies. In exchange, Schrödinger is offered up milestone payments (for instance, if the pharma company achieves a certain regulatory hurdle with the drug), shares in the company, or royalties from the drug.
This is huge. There’s so much value added through the software for the customer, and a ton of drug discovery revenues can potentially be generated from the creation of successful products made using Schrödinger’s platform.
I think this is an exciting company - it’s also highly complicated, and extremely expensive to boot. A snapshot:
Market cap: ~$3.5bn
Gross Margins: ~60%
While this is a highly intriguing company, I question whether I can ever understand the business well enough to be comfortable making an investment in it. I hope to look into it more and see if this is the case, and that’s why it’s the Watchlist stock of the week!
What’s New at Hourglass
Hourglass Investing Podcast
The Hourglass Podcast released its first episode this week! It’s not very interesting - it’s primarily a short introduction to what the series will be and what to expect from the audio format of Hourglass Investing - it will be slightly different from the articles, but I won’t spoil that here.
If you’re at all interested in some extra content, or are maybe keen on getting a sense of my deep-dive articles without diving into a ten thousand-word monologue right off the bat, then the Podcast may just be for you! I would love and appreciate if you could please check it out on Spotify at Hourglass Network - let me know what you think! Next week’s episode will be the audio shallow dive into Stem, Inc., so stay tuned for that release on Wednesday, July 26th!
Planet Labs Deep Dive
Speaking of ten thousand word monologues, I just released one this week! I know that sounds like a big commitment, but I promise I try really hard to make these articles light and easy reading for you guys! I am not trying to bore you to death - that said, it is a great resource if you’re keen on finding out more about an amazing business building a moat in the highly nerdy and exciting satellite imagery sector, then please check it out here.