E2232 - August 10, 2022
Taiwan Semiconductor is going to get their money. Spotify still seems $$$.
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E2232 notes…
Oil
US gasoline consumption is off 10% on a trailing 4 weeks basis
Refineries are shifting production to make more distillate (heating oil, diesel, and jet fuel) which has a higher crack spread (~$20 vs $30)
Looking forward, gasoline demand may get weaker
250 million cars in US, 320 million people
120 million households with 2 cars, the upper end of this group is likely to have one electric car, drawing down the total gasoline demand
Rest of world will probably be more inclined to have more electric vehicles (ex, Europe, China, India)
Natural Gas
Predicted spot price after 2023 to be $4.50 avg, up considerably from pre covid levels
This makes big difference to cashflows; but nat gas investors are getting used to $6 gas
If getting into winter gas price drops to $5-6, there may be a buying opportunity.
Marcellus and Haynesville fields have the best economics
Macro
Inflation energy bill - doesn’t make too much difference to energy business
Fed & Interest rates - the media is focused on Fed funds rate, but we think more focus should be applied to quantitive tightening (QT). If you are interested digging in further, check out this podcast:
Chip Stocks - here’s a list of relevant articles based on our discussion of chips today…
Intel 7nm uses EUV, China’s SMIC accomplished this with DUV, reportedly, copying TSMC process
Shopify
Still expensive at $40 / share
At a 3% expected free cash yield (assuming a 10% net income margin1 on 2023 FY revenue and adding back 2x 1H depreciation and stock based comp), you can get to ~$15 / share + another $2-3 in cash and investments (some of which have been quite volatile).
Supplemental Data
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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Note that this would be quite difficult to accomplish this year given the cuts that are happening, but represents expectations about a steady state operation.