Portfolio quicky: 3i – inflation, infection, invasion

In our great good investing community someone mentioned the three I‘s and I used this for writing down some thoughts about my portfolio positions.

(If you prefer to read the pdf version click here. links may not work in pdf)

Inflation, infection, invasion are the current three ‘Is’. In general higher inflation and higher rates should — everything else equal — together with higher risk (premiums) result in lower stock prices.

On May 5th, another down day when writing this line, I realized once again, that I like my companies buying back their shares (green/bold formatting). 

CHKP clearly benefits from the invasion and infection, both resulting in more demand for cyber security. Inflation is a minor concern to the company (vs average company), and might represent some opportunity since competitors are rising prices more aggressivly (Q1 call), it seems. Though, some supplies are limited, reducing effective demand (if a customer is not able to finish a datacenter due to other missing parts). If no better opportunities for all its net cash appear, at least it profits from higher rates, and at least directionally ‘tuck in deals’ should get cheaper.

  • I recently read an industry conference, in which CHKP stated US chief information security officers usually tend to buy cyber security solutions from a very diverse set of verndors, because this is more expensive, resulting in higher budgets, resulting in higher salaries/ego. Naively how I am, I believe there might be some truth to that. Now in an inflationary environment, some firms might scrutinise expenses and budgets more and they might find out consolidating ist vendors and using one big solution from CHKP would be strongly beneficial.

PGR is clearly hurting from fierce inflation for used cars and limited spare parts supply, reducing underwriting profits. Rising rates ahead of competition will limit growth, in addition to cut marketing spend. High gasoline prices and infections might limit driven miles and thus increase preferences for telematics. Further, inflation should support higher interest rates for higher investment income. Protector, Qualitas are largely comparable.

SES might experience delays in its launching schedules if certain equipment is unavailable, ultimately risking fcc milestones (but unlikely). Inflation might increase CapEx, which is currently at a peak, but most might be contracted already without allowing for price revisions. The invasion results in more government demand. Infections limited cruise/aero and should revert back to growth now (if no new severe variants). During times of War, more people tend to watch news, ie traditional TV.

Shinoken might enjoy higher demand for its products as investment alternatives like stocks are deemed to volatile/stressful — or lower demand due to higher general uncertainty. It might experience cost overruns due to cost inflation and labor/material shortages. War might worsen international business opportunities.

FLOW profits from disorder, and thus might profit from each factor. Expenses and especially fixed wages rise.

Inpex profits from higher energy prices, inflation might increase CapEx – partially motivated by politics.

Africa oil profits from higher energy prices, but so far hedges limit the full upside. Political instability might have adverse effects.

Oriental Watch might profit from inflation as more customers see expensive watches as investments to transfer wealth over generations. Infections might result in unprecedented revenue declines in greater China. The handling of infactions/the pandemic result in record departures of HK citizens, besides other factors. Less econmoic strength in HK.

Nintendo is limited in its switch sales as parts are missing. Inflation might limit profitability. New infections might result in more software sales (during lockdown and structurally). Invasion should be of limited damage (stolen mario movie would do damage, higher costs of living reducing park visitors). More tension between China and US-EU-JP block might limit Chinese sales.

L’Occitane might sell more products due to infections but inflation might limit customer spending on luxury items and war might limit tourism spending/shopping.

Bollore, ODET have lots of cash to deploy after selling African assets and might benefit via lower prices from disorder. Overall, fright forwarding should continue to benefit from geopolitical unstability, inflation, supply chain problems/infections and the willigness to spend in western nations.

Tencent might enjoy increased usage during Chinese lockdown but might be ordered to pay outrages fines if certain contend against the ruling party is not deleted fast enough. Ideology might trump economic considerations.

Krka is strongly affected by the war with almost a third of sales from Russia /Ukraine, though cash is mostly held domestically, and assets and market positions might ultimately partially be recouped. Krka might be in a better position with its integrated model to handle inflation or material shortages. Abating infections enable more sales activity, and general inflation might highlight the need for more generics.

Mobruk in Poland might be affected by reduced industrial activity in a country close to Russia. Inflation is high but should not severly affect the company.

Tick TS projects might be reduced if banks cancel budgets during a recession. On the other hand, more consumers might realize the need to invest their cash with inflation in the media and thus banks might see more need for modern solutions. Marked disorder might result in more trades (load dependent models).

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