E2229 - July 20, 2022

THE PERSON THAT TURNS OVER THE MOST ROCKS WINS THE GAME. – PETER LYNCH

Jul 20, 2022

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THE PERSON THAT TURNS OVER THE MOST ROCKS WINS THE GAME.
– PETER LYNCH

Today we discussed oil and gas markets and Hunt rationalized the perspectives of futures contracts buyers and sellers which has resulted in a high level of backwardation for both oil and gas. For an an oil and gas producer to warrant investment, they must be able to increase or at least maintain production levels by spending less than 2/3 of their cash flow. The companies that can do this are highly capital efficient. Here are a few of the producers mentioned today that we will discuss in further detail after they release Q2 earnings.

On the other side of the coin are technology companies. We discussed a few companies today, one of whom, Tesla, reports this afternoon. We expect weak earnings in Q2 due to Shanghai lockdowns.

In the next year we think that the company can produce in excess of 2 million cars with its four factories when running at normal capacity. In a previous episode (E2223) we discussed an appropriate valuation given that level of production. That valuation, $500 / share, is well below today’s price.

As I am writing this, Tesla has published an earnings presentation and will be hosting an earning call at 2:30 pacific today. As expected, production is down month over month, but still up by 25% year over year. Furthermore, they have provided more details on production capacity at their new factories. Current capacity is >1.9m.

Tesla did point out that production in Shanghai in June reached a record level while Fremont hit a record this quarter as well.

We will discuss these results and more next week.

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1 SuperCompounders

2 Macro

3 Energy

3.1 Oil & Gas

3.2 Metals Powered

4 Tech

Cloud Multiples - Check out the most recent edition of Clouded Judgement for the latest SaaS multiples.
Semiconductors
- Semiconductor Industry Association Global Billings Report
- Bureau of Economic Analysis Semiconductor Import / Export

Cryptocurrency

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