Tag: Equity Research

Lifeway Foods (LWAY) – Danone Ups Offer to $27

Posted on by cpatches


Friday, November 15, 2024

Joe Gomes, CFA, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Ups Offer. In an amended Schedule 13D filing on Friday morning, Danone upped their offer to acquire the shares of Lifeway not already owned to $27, all cash, from a prior $25. According to a letter filed with the amended 13D, Danone believes the “updated indicative price fully reflects the fundamental potential of the Company and provides Lifeway’s shareholders with the certainty of an attractive and immediate cash premium.”

3 Week Timing. Although Danone has yet to be granted access to any due diligence, Danone is prepared to conduct due diligence as soon as provided access to a data room. Danone also is ready to enter into immediate negotiations regarding the terms of a potential transaction. Subject to Danone being able to access immediately the information required as part of confirmatory due diligence and negotiating Transaction Documentation in parallel, Danone is confident in its ability to reach a definitive agreement in three weeks.


Get the Full Report

Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

GDEV Inc (GDEV) – Nearly Doubles Street Expectations

Posted on by cpatches


Friday, November 15, 2024

Michael Kupinski, Director of Research, Equity Research Analyst, Digital, Media & Technology , Noble Capital Markets, Inc.

Jacob Mutchler, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Over delivered on Q3 results. Total company revenue was $110.7 million, beating our $103.0 million estimate. With costs in line with expectations, the revenue upside flowed to adj. EBITDA, which substantially exceeded our expectations, of $16.9 million versus our estimate of $4.9 million, as illustrated in Figure #1 Q3 Results. We believe that the results beat Street estimates, with consensus adj. EBITDA of $8.5 million.

Upside variance. The company is seeking ways to make efficient use of its marketing spend, particularly in areas that provide sufficient returns. Sales & Marketing expenses of $52.0 million were lower than our $53.0 million estimate in spite of better than expected revenues. We anticipate Sales & Marketing expenses to accelerate in coming quarters as the company hones in on its marketing strategy and expands into new territories. 


Get the Full Report

Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

The Crucial Role of Quality Research in Small-Cap Investing

Posted on by slightbourne@noblecapitalmarkets.com

In the dynamic world of small-cap investing, distinguishing genuine opportunities from mere hype is paramount. Quality research serves as the cornerstone for informed decision-making, offering investors a comprehensive view of emerging growth companies. This article explores what constitutes quality research and why it’s indispensable for small-cap investors.

Quality research goes beyond surface-level information, providing a thorough examination of a company’s operations, market position, and financial health. Comprehensive research reports should offer detailed financial analysis, market trend assessments, competitive landscape overviews, and potential growth catalysts. For instance, when evaluating a small-cap tech company, quality research would not only present the latest earnings figures but also analyze the product pipeline, R&D efforts, and strategic partnerships. The goal is to make complex concepts accessible to all investors, regardless of their expertise level.

Effective research leverages visual tools to enhance understanding. Reports should incorporate charts and graphs illustrating financial trends, infographics depicting market share and competitive positioning, and timelines of key events and milestones. For example, a report on a biotech firm might include a flowchart of its drug development process, a bar graph comparing its market share to competitors, and a timeline of regulatory milestones. These visual elements make the research more engaging and easier to digest.

Maintaining objectivity is crucial in quality research. Investors should look for fact-based analysis, transparent disclosure of assumptions, and balanced presentation of strengths and risks. Analysts should clearly state the basis for their conclusions. For instance, if a company’s growth projections hinge on a new product launch, the research should detail assumptions about market adoption rates, pricing strategy, and anticipated competitive responses.

Quality research situates a company within its broader context. Reports should include industry analysis sections, exploration of relevant macroeconomic factors, and discussion of regulatory landscapes. For a renewable energy company, research might explore trends in government subsidies, advancements in solar technology, and shifts in consumer demand for green energy. This context helps investors appreciate external factors that could impact a company’s trajectory.

A rigorous and multi-faceted research process is essential. This typically involves primary research through interviews with company executives, in-depth analysis of regulatory filings and financial statements, industry expert consultations, and comprehensive review of competitor activities and market dynamics. Top-notch, licensed, and experienced financial analysts bring a wealth of expertise to their reports, ensuring that the research is of the highest caliber and provides investors with trustworthy and actionable insights.

Modern research benefits from advanced technological tools. Big data analysis for market trend identification, AI-driven insights for pattern recognition, sentiment analysis from social media and news sources, and predictive modeling for financial forecasting are all becoming standard in quality research. Experienced analysts leverage these tools to enhance their analysis, combining cutting-edge technology with their seasoned judgment to deliver superior research products.

When evaluating company-sponsored research, investors should be aware of potential biases. Look for clear disclosure of the relationship between the research provider and the featured companies. Quality research providers adhere to strict ethical guidelines, encourage readers to cross-reference findings with other sources, and maintain editorial independence in their analysis and recommendations.

Quality research should guide decision-making. Reports should conclude with clear, data-supported recommendations (buy, hold, or sell), a summary of key findings, potential risks and mitigating factors, and growth opportunities and catalysts. For example, a “buy” recommendation might be based on strong revenue growth, a robust balance sheet, and promising strategic initiatives, while also cautioning about potential regulatory hurdles.

To make the most of research reports, investors should check the credibility and track record of the research provider, look for clear disclosure of methodologies and potential conflicts of interest, pay attention to the depth of analysis and quality of sources cited, consider how well the report addresses potential risks and challenges, and compare the insights with other reputable sources.

In the fast-paced world of small-cap investing, quality research from experienced analysts is indispensable. It provides the depth, context, and objectivity needed to make informed investment decisions. By leveraging advanced technologies, adhering to strict ethical standards, and providing actionable insights from experienced financial analysts, quality research empowers investors to navigate the dynamic small-cap landscape effectively.

If you’re looking to enhance your small-cap investing strategy with access to quality research from experienced analysts, consider joining online communities dedicated to small-cap investing. These platforms often provide valuable insights, research reports, and opportunities to connect with other investors. By registering for free with reputable small-cap investing communities like Channelchek, you can take a significant step towards making more informed investment decisions.

What is Equity Research? Tips for Making Informed Investment Decisions

Posted on by slightbourne@noblecapitalmarkets.com

No matter if you are just starting your investing journey or a seasoned professional, making a sound investment decision is always complex. However, one crucial aspect that can separate successful investors from the rest is equity research.

But, what exactly is equity research, and why is it so vital in the world of investing?

Today, we are going to dive deep into this topic to help you understand how equity research can be leveraged to make more informed investment decisions. By shedding light on this intricate process and providing valuable insights from free equity research reports, you can arm yourself with actionable tips and tools to become a smarter investor.

Understanding Equity Research

Equity research is the detailed analysis and evaluation of companies and their equity securities like common and preferred stocks. The core goal is to develop an informed, unbiased opinion on the financial valuation and future prospects of a public company along with its shares. Equity researchers, often referred to as equity analysts, conduct rigorous financial modeling, ratio analysis and due diligence research to provide actionable investment recommendations and targets.

These comprehensive equity research reports become invaluable resources that help all classes of investors make prudent decisions on which stocks to buy, hold or sell. The reports provide a holistic perspective of a company’s financial health, operations, industry dynamics, and management team. By reviewing equity research reports, investors can better assess the inherent risks and growth opportunities of a potential investment.

For example, research reports incorporate detailed financial projections, valuation models, and investment theses that indicate whether a stock may be undervalued or overpriced. Having access to high-quality equity research from Wall Street analysts can provide individual investors with a distinct edge when selecting stocks to build their portfolios.

What are the different types of equities?

Common Stock – This represents ownership in a company. Common stockholders typically get voting rights and a claim on dividends and corporate earnings after other stakeholders are paid.

Preferred Stock – This represents partial ownership in a company. Preferred shareholders have priority over common stockholders when it comes to claims on assets and earnings. They typically receive regular dividend payments before common shareholders. However, preferred stock usually does not come with voting rights.

Blue Chip Stocks – These are stocks of large, reputable companies with a long history of sound financials and steady dividends. Blue chip stocks are generally considered lower risk. Examples include companies like Johnson & Johnson, Procter & Gamble, and Coca-Cola.

Growth Stocks – These are stocks of companies expected to grow at an above-average rate compared to the broader market. Typical growth stocks trade at higher valuations and reinvest profits into expansion rather than pay dividends. Examples include tech companies like Alphabet, Facebook, and Netflix.

Income Stocks – These stocks regularly pay out higher than average dividends to shareholders. They are ideal for investors seeking regular income. Traditional income stocks include utilities, real estate stocks, and consumer staples companies.

Penny Stocks – These are inexpensive stocks that trade for under $5 per share. Penny stocks are generally more volatile and risky since they belong to smaller companies.

Now you may be wondering, who actually conducts all this intensive equity research that gets distilled into reports? Equity research is primarily conducted by financial analysts employed by investment banks, wealth management firms, hedge funds, pension funds, and other institutional investors. These analysts possess deep financial acumen and industry expertise that allows them to build complex financial models and derive reliable stock valuations for public companies.

Top firms like Goldman Sachs, Morgan Stanley and Noble Capital Markets have entire teams of equity analysts covering different sectors, industries, and regions. The lead analyst generally focuses on and specializes in a specific industry they have experience in. For instance, some analysts may focus on just healthcare stocks or technology companies. These specialists leverage their knowledge to provide invaluable insights and analysis.

Why is Equity Research Essential?

Now that we’ve covered the basics of what equity research encompasses, let’s discuss why it is such an indispensable tool for investors:

Identifying Promising Investment Opportunities 

One of the biggest benefits of equity research is it can uncover promising investment opportunities that may be flying under the radar. The due diligence conducted by analysts digs much deeper into a company’s fundamentals to determine if its stock is potentially undervalued relative to its growth prospects. This allows analysts to identify stocks poised for upside that the broader market may be mispricing.

Assessing Downside Risks

While finding hidden gems is great, equity research also evaluates potential downside risks and red flags that may not be apparent to an average investor. This cautionary perspective helps mitigate losses from investments that seem enticing but have underlying issues.

Making Informed Investment Decisions 

Equity research provides a holistic 360-degree perspective of a company that individual investors typically lack. Investors can leverage these comprehensive insights to prudently decide where to deploy their capital and build conviction around investment choices.

Gaining Expert Industry Knowledge

Seasoned equity analysts also provide key insights into industry trends, competitive dynamics, economic cycles and sector outlooks that most retail investors do not possess. Their expertise helps investors make bets in promising high-growth industries primed for secular tailwinds.

Considering these myriad benefits, equity research can aid all types of investors ranging from novice individuals to large institutions. Even professional fund managers at marquee hedge funds and investment banks routinely utilize equity research to inform multi-million dollar investment decisions. Leveraging expert third-party research analysis levels the playing field.

The Equity Research Process

Now that we’ve covered why equity research is so invaluable, let’s explore how analysts actually conduct this complex and meticulous process:

Step 1 – Data Gathering & Financial Analysis

The first step of equity research involves gathering all available data and information on the target company. Analysts will thoroughly study annual reports, SEC filings, earnings calls, conference presentations, industry publications, news articles, economic data, and management commentary to ensure nothing is overlooked.

Next, they dive into analyzing the company’s financial statements and operating metrics using various techniques:

– Building detailed financial models based on historical financials

– Projecting future income statements, balance sheets, and cash flows

– Calculating financial ratios like P/E, EV/EBITDA, PEG, current and quick ratios

– Benchmarking metrics and multiples against peers through comparable company analysis

This rigorous financial analysis focuses on developing an objective understanding of the company’s financial health and performance.

Step 2 – Industry and Competitive Analysis 

Analysts will also conduct in-depth research on the company’s industry, end-markets, competitive landscape and business model. This includes identifying market size, growth trends, industry drivers, pricing dynamics, competitive threats, opportunities, and regulatory issues.

They’ll assess the company’s positioning and advantages versus rivals. The goal is to develop specialized industry expertise and perspective.

Step 3 – Technical Analysis

Equity researchers will analyze the stock’s price patterns, trends, volatility, trading volume and momentum indicators over time to identify optimal entry and exit points. This technical analysis complements the fundamental financial analysis.

Step 4 – Valuation Analysis

Armed with the financial data and industry insights, analysts derive price targets and fair valuation ranges for the stock. Common valuation methodologies include:

– Discounted cash flow (DCF) analysis

– Applying P/E multiples based on industry averages

– Leveraging valuation multiples from past M&A transactions

Each methodology makes certain assumptions that are tested through sensitivity analysis. The end valuations consider both quantitative data and qualitative assessments.

Step 5 – Final Recommendation

Finally, the analyst sums up their buy/sell recommendation and 12-month price target in an equity research report. This final call is based on the upside potential versus downside risks assessed through their rigorous analysis. Top analysts revisit and update their models regularly as new data becomes available.

Tools and Resources for Equity Research

For those looking to leverage equity research, many free resources are available:

Access Free Equity Research Reports

Channelchek is a resource that provide clients with free equity research reports on companies and stocks they cover. New  and seasoned investors should take full advantage of these free resources.  When reviewing equity research, look for reports that exhibit quality and objectivity. Some hallmarks to seek out: impartial analysis not motivated by investment banking relationships, the right balance of quantitative and qualitative insights, data/assumptions from credible sources, and serious financial modeling.

Additonally, resources like Capital IQ allow you to practice modeling, while reading analyst reports from top firms can provide templates to learn from. Investor education sites like Investopedia also have introductory content to develop core competencies.

Register with an account with Channelchek today to get free access to our Equity Research Reports.

Equity research is the fuel that powers informed investing. By properly leveraging analyst insights, both novice and seasoned investors alike can make smarter stock picking decisions. As you embark on your investing journey, be sure to educate yourself on the equity research process and analysis techniques. With quality research in hand, you can invest with conviction and confidence. Check out our free equity research reports to accelerate your investing education today!

Is Nvidia Stock Positioned for a Classic Slide?

Posted on by phoffman@channelchek.com

What History Says About MegaCap Companies with NVDA’s Multiples

What’s riskier, a stock like Nvidia that has been moving up since the start of the year and has now risen more than 200%, or the stock you pick by throwing a dart at the Wall Street Journal? Nvidia (NVDA) will report earnings on Wednesday, the report has a significant risk of disappointing, even if it exceeds forecasts.

Background

The last time Nvidia reported quarterly results, the chip maker forecasted record revenue that was far above anything it had accomplished before. Naturally, investors sent the stock up and then up some more to the level we see today. On Wednesday, August 23rd, the company will share the actual results of its second-quarter earnings. If it doesn’t deliver or exceed expectations, there may be a lot of disappointed investors. Plus, a repeat projection of future earnings growth would seem necessary to maintain its trajectory. Nvidia’s current valuation is extremely high, it has been the poster child of the AI investment boom, it would seem there are more scenarios where it will disappoint the frenzy in the market for the stock then there are positives for a company with such high valuations.

Source: Koyfin

What Does History Say?

The phrase “the bigger they are, the harder they fall” was used in the context of the stock market as early as the 19th century. In 1873, the New York Stock Exchange crashed, and many investors lost their life savings. The crash was blamed on the overvaluation of stocks. Since then, there have been a number of times the market and individual stocks have come to terms with the idea that the price has gotten ahead of itself, causing speculators to flee, causing a sharp decline.

Nvidia was big and has gotten bigger. As it relates to its report on second-quarter earnings on Wednesday, analysts have been expressing positive expectations. In a “buy the rumor sell the news” way of thinking, this alone may cause the stock price to deflate after the report.

An article published by Barron’s on August 21st points out, using data from WisdomTree, that Nvidia has a price-to-projected sales ratio, of 25, this jumps to a whopping 40 when using 12-month trailing sales.

The company now holds the distinction of having the highest price-to-sales ratio in the S&P 500. It is only the 100th company to hold that title since the 1960s. Tech companies had been in this position 27 times, and utilities a mere once. What has happened to these mega-cap hot stocks in the years to follow?

Image: Research conducted for stocks for the long run 6th edition, Jeremy Siegel w/ Jeremy Schwartz (2022).

Over the next year, the average price-to-sales monsters saw their price rise 12% versus the average for the market of 11%. Then, over the next three years, the average stock dropped 4% annually, compared to the market’s 9% rise. The relative fall off continued over the next five years, as the average for these stocks had fallen 2%, versus the market’s 10% gain, according to a book by Wharton economic professor Jeremy Siegel.

Image: Research conducted for stocks for the long run 6th edition, Jeremy Siegel w/ Jeremy Schwartz (2022).

As illustrated in the table above, the underperformance is even greater for the tech companies that hold the biggest price-to-sales ratios. And the median performance for stocks at these price-to-sales ratios is even worse.

Take Away

Based on its guidance, there is little doubt that Nvidia is on track to post results that are beyond enviable. At least a dozen equity analysts have recently raised price targets on NVDA. But can the news be good enough in light of its current pricing and the history of tech stocks that have come before? NVDA would have been a great stock to have bought months ago and held; the current probabilities, based on history, now suggest the run-up is over, and the potential for a decline within a year has increased dramatically.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.marketwatch.com/story/expectations-for-nvidias-earnings-are-massive-will-they-even-matter-b054a1?mod=search_headline

https://www.marketwatch.com/story/the-history-of-companies-with-nvidia-like-valuations-isnt-a-good-one-17f46efe?mod=home-page

Is the 2024 Social Security COLA level a Foregone Conclusion?

Posted on by phoffman@channelchek.com

It Seems Likely that Grandma and Grandpa are Getting a Much Smaller Raise Next Year

In 2023, Social Security recipients received the highest COLA in more than 40 years, 8.7%. At the same time, the entire U.S., including those retired, was impacted by the highest annual inflation in over 40 years. The result is the increased pay impacted recipients differently. Those with a higher percentage of variable costs or expenses, especially where inflation was worst, such as rent, travel, or fuel did not benefit as much, if at all. Those with a greater percentage of fixed costs may have found themselves with more money at the end of each month.

Consumers in the U.S., including Social Security recipients, have not had their purchasing power eroded as much during the first seven months of 2023, as they experienced in 2022. Social Security cost of living adjustments (COLA) are based on a formula that will cause the increase paid next year to rise almost by a third of what it rose at the beginning of 2023.

While not yet official, the new forecast comes after the release of July’s Consumer Price Index (CPI), and is largely based on little change over the next 45 days.   

How is a COLA Calculated?

Ignore for a moment the inflation rate percentages you see in the news headlines. The 12-month CPI is calculated by using the set cost of a basket of goods during the month, divided into the cost of the same basket a year earlier. SSA COLA is calculated by the average price of the basket July, August, and September, and dividing it by the average of these months a year earlier. The CPI used in this case is not the CPI-U (all urban consumers) typically reported in the news, but instead, CPI-W (Urban Wage Earners and Clerical Workers). CPI-W is calculated on a monthly basis by the Bureau of Labor Statistics. The most recent release was August 10, 2023.

COLA increases are rounded to the nearest tenth. The adjusted benefit payments are effective as of the first month of the new year.

What to Expect

Social Security recipients could see a 3% bump up next year, based on July’s CPI data, and the current stagnation in the level of inflation. A 3% COLA would raise an average monthly benefit of $1,789 by $53.70 and the maximum benefit by $136.65 per month.

Retired Americans who find Social Security a nice addition to 401(k) or 403(B) investment returns or ample pensions may find themselves with a few extra dollars to take road trips or treat themselves to dining out, or gifts for grandchildren. But investors looking for industries that may benefit from the fatter checks older Americans will receive may find that there is little difference in spending for the majority.

In its recent survey of retirees, the Senior Citizens League found that more than 66% of those that completed its survey have postponed dental care, including major services such as bridges, dentures, and implants. Another 43% said they have delayed optical exams or getting prescription eyeglasses. Almost one-third of survey participants said they have postponed getting medical care or filling prescriptions due to deductibles, out-of-pocket costs, and unexpected bills.

Persistent high prices aren’t the only challenge. Findings from the survey suggest more than one in five Social Security beneficiaries (23%) report they paid tax on a portion of their benefits for the first time this past tax season.

Take Away

When economic numbers are released, they are of interest to a expansive variety of economic stakeholders. This includes investors determining how new statistics will impact corporate earnings, economists deciding how it could impact the Fed’s next move, equity analysts reviewing their industry and companies in the sector, the young couple looking to furnish a new home, and those past their working years that are in general more vulnerable.

The CPI number from July and those that will be reported for August and September will have a noticeable impact on the high percentage of elderly in the U.S. come January 2024.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.ssa.gov/oact/cola/latestCOLA.html#:~:text=The%20Social%20Security%20Act%20specifies,the%20Bureau%20of%20Labor%20Statistics.

https://www.wsj.com/articles/social-security-payment-increase-cola-2024-retirement-a3fce38e

https://www.ssa.gov/news/press/factsheets/colafacts2022.pdf

https://www.wsj.com/articles/social-security-payment-increase-cola-2024-retirement-a3fce38e

https://www.ssa.gov/news/press/factsheets/colafacts2022.pdf

Antitode for a Potential Indexed Fund Bubble?

Posted on by phoffman@channelchek.com

Equity Research Allows Investors to More Confidently Step Away from the Growing Index Valuations

Hedge Fund Managers Michael Burry and Bill Ackman have expressed deep concern over indexed funds for a years and for different reasons. Burry primarily fears a bubble growing, and Ackman agrees but also fears investors are giving away control to parties that may not have their best interests at heart. Both make understandable cases. Below we discuss the overall concerns and how an individual investor who shares their concerns may “hedge” their portfolio against these risks.

Michael Burry

“The bubble in passive investing through ETFs and index funds as well as the trend to very large size among asset managers has orphaned smaller value-type securities globally,” Michael Burry told Bloomberg News in August of 2019. “Orphaned” presumably refers to a lack of attention now paid to this market segment.

Burry’s concerns centered around the idea that the rise of passive investing could lead to distortions in the stock market. He believed that as more and more investors put their money into indexed funds, the valuations of the companies included in those indices might become disconnected from their underlying fundamentals as fund managers were required to own the index at the established weighting. In his view, this could create a bubble-like situation where certain stocks are overvalued due to indiscriminate buying driven by the popularity of index funds.

While many view this hedge fund manager, made most famous by the movie The Big Short, as a pessimist, it is easy to think of him as an optimist finding opportunity, even where there could be trouble.

As he discussed then, the rush into indexed funds has punished small cap value stocks. Burry also highlighted, “There is all this opportunity, but so few active managers.”

Bill Ackman

“We believe that it is axiomatic that while capital flows will drive market values in the short term, valuations will drive market values over the long term. As a result, large and growing inflows to index funds, coupled with their market-cap driven allocation policies, drive index component valuations upwards and reduce their potential long-term rates of return,” according to Bill Ackman in a statement which agrees with Burry’s thoughts. Bull Bill Ackman also sees another risk.

In a letter to shareholders earlier this year, the activist investor, and big boss at Pershing Square Capital, made the point that the passive funds not only follow indexes but encourage active managers to stay close to the index where investors pay for active management, but get index-like results because the fund company fears shareholder reaction if returns deviates sharply from the index benchmark.

More telling is Ackaman’s fear of proxy votes and other governance taken out the hands of the masses and bestowed on so few. Ackman believes that passive managers like Vanguard, BlackRock, and State Street hurt investors by concentrating corporate power in a small group of players “who get larger by the minute.” With 20%  or more of fund flows headed to an indexed fund or ETF, Ackman wonders who will “look out for one another’s interests?”

Actively Managed and Self-Directed Investing

The Nasdaq 100 index just reorganized in order to lessen potential risks to being overweighted in a few stocks. Surrounding this event and through the years there has been no shortage of discussion around index bubbles and why some see indexes as an eventual train wreck:

“Is There an Index Fund Bubble?” (Bloomberg, September 4, 2019)

“The Index Fund Bubble Is Coming” (The Motley Fool, January 23, 2020)

“Is the Index Fund Bubble About to Burst?” (Investopedia, March 11, 2021)

“The Index Fund Bubble Is Real, and It’s Going to Burst” (MarketWatch, April 20, 2022)

“The Index Fund Bubble Is Even Bigger Than You Think” (Barron’s, May 23, 2023)

And there is also fear in the consolidation of power into the hands of a few fund companies that could impact all of us more subtly.

While index fund investing is growing in popularity and has been rewarding, investors can prepare by scaling down these investments and making their own selections, weighting their portfolio in a way that makes more sense in light of the risks to them. This could include seeking managed funds with a manager that has a good track record over the years, but it also may mean adding stocks that are not well represented in major indexes. Investors like to use Morningstar for fund selection, for stocks information including excellent research on what Burry termed “small-cap value stocks,” and other small and microcap offerings is likely found on Channelchek.

The Forgotten Benefits of Equity Research

Informed stock market investors read equity research reports for several reasons:

Informed Decision-Making: Equity research reports provide detailed analysis and insights about a company’s financial performance, industry trends, competitive landscape, and growth prospects. Investors may save weeks putting together enough information to believe they understand an opportunity enough to make a decision.

Valuation Insights: Research reports will include valuation models that estimate a company’s intrinsic value. This can help investors understand whether a stock is overvalued, undervalued, or fairly priced, guiding their buy, sell, or hold decisions. Some research will actually provide an analyst’s price target.

Risk Assessment: Equity research reports assess the risks associated with an investment. This could include factors like regulatory changes, industry volatility, management quality, and financial stability. Understanding these risks helps investors manage their portfolios effectively.

Industry and Market Trends: Research reports not only focus on individual companies but also provide insights into broader industry trends and market dynamics. Investors can gain a better understanding of how macroeconomic factors might impact their investments.

Company Performance Analysis: Detailed financial analysis in these reports helps investors understand a company’s revenue streams, profit margins, debt levels, and growth potential. This information is crucial for evaluating a company’s overall financial health.

Competitive Landscape: Equity research reports often compare a company’s performance to its competitors. This analysis helps investors gauge a company’s competitive position within its industry.

Long-Term Investment Strategy: Investors with a long-term perspective can benefit from equity research by identifying companies with strong growth potential, sustainable competitive advantages, and solid management teams.

Industry Diversification: Research reports can make it easier for investors to diversify holdings by defining the category the company is in and even highlighting opportunities in various sectors or industries.

News Interpretation: Equity research reports can provide context and interpretation for press releases and other news including, earnings releases, and developments related to the company. This helps investors understand the potential impact on the stock price.

Investor Growth: For novice investors, equity research reports can provide valuable insights into how professionals analyze stocks and make investment decisions, enhancing their investment knowledge over time.

It’s important to note that equity research reports are typically produced by financial analysts working for brokerage firms, investment banks, or independent research firms. Investors should exercise critical thinking and compare and contrast multiple sources of information.  

Take Away

Credible professional investors make the case that the surging assets in index funds are leading to a bubble. There is also concern that control is taken out of the hands of individuals and placed in the hands of a few large companies whose corporate interests may not match individual investor interests.

Taking back control of the management of one’s portfolio may seem daunting, but quality equity research is a tool that can serve to help the selection process while at the same time increasing the self-directed investors’ understanding of what is important to watch. Channelchek is a no-cost platform leading the way in North America, providing company-sponsored research on small and microcap stocks.  

Individual stock investors may also wish to consider attending NobleCon19, in December. This investment conference is widely recognized as the place investors go to discover small emerging companies that they may act upon through their traditional brokerage account. Discover more about about NobleCon19 here.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.bloomberg.com/news/articles/2019-08-28/the-big-short-s-michael-burry-sees-a-bubble-in-passive-investing

https://www.harriman-house.com/press/full/2958#:~:text=%E2%80%9CIndex%20funds%20and%20other%20passive,is%20good%20reason%20for%20this.

https://www.marketwatch.com/story/bubble-in-passive-investing-offers-small-cap-opportunity-big-short-investor-says-2019-08-28