Screener A – December 27, 2024

1 Albemarle Corporation (ALB) – remains on list

First appearing on the list in August 2023 (Y230819) and intermittently thereafter, Albemarle is headquartered in Charlotte, NC and is a producer of lithium, bromine products (for oil refining), and specialty chemicals. With facilities in ~100 countries, the company is one of planet earth’s largest lithium producers, with their Lithium & Advanced Materials segment comprising 74% of 2023 sales and 86% of operating income. In the past few years, global lithium overcapacity has driven a collapse in price for the soft metal, causing the industry, and particularly Albemarle, to consolidate and enter scale-back mode. The common stock pays a dividend however, shares outstanding are slowly trending in the upward direction (net issuer of common stock).

COMMENT: Despite the highly cyclical swings, we think lithium is likely to play a material role in the future development of energy storage and transportation markets. That said, we would like to see the somewhat elevated level of short positions to cover, or company insiders to place some buy orders (instead of the inverse order) before we dig in much further.

2 Brown-Forman Corporation (BF-A) – remains on list

First appearing on the list in June 2024 (Y240609) and intermittently thereafter, Brown-Forman is a producer, marketer and wholesaler of alcoholic beverages. Based in Louisville, KY, the company sells in +170 countries, is the largest American-owned spirits company, and is best recognized for their Jack Daniel’s brand. Sales and EPS have grown on average ~5% YoY for the past 10 years. The company pays a steadily increasing dividend, but does not repurchase a material amount of stock. Debt to EBITDA is in the mid-2.0x range, notably lower than other global spirit makers. Brown-Forman is publicly-traded however the Brown family controls the majority of the voting shares and a +50% economic interest in the common.

3 Biogen Inc (BIIB) – remains on list

First appearing on the list in July 2019 (Y190717), Biogen Inc. is a global biopharma company with drug products that treat neurodegenerative diseases and autoimmune disorders. Headquartered in Cambridge, MA, their current focus is on non-Hodgkin’s lymphoma, multiple sclerosis (MS), Alzheimer’s, and rheumatoid arthritis. Revenues have grown over 10% annually on average looking at the past 10 years, while earnings have expanded slightly less at ~8% annually on average. The company does not pay a dividend or repurchase a material amount of stock. More recently however, within the past ~4 year period, sales have consistently decreased as multiple flagship products have aged off patent protection windows and the company’s broader portfolio appears mature or in the phase of decline.

4 BioMarin Pharmaceutical Inc. (BMRN) – new this week

First appearing on the list in October 2019 (Y191003), BioMarin is headquartered in San Rafael, California and develops biopharmaceuticals for human diseases. The company has approved drugs for treating mucopolysaccharidosis, phenylketonuria and LEMS disease as well as several other drugs in various stages of development. The company has grown top line revenues at ~10% annually for the past decade while EPS have been mostly negative. The company does not pay a dividend and is a net issuer of common stock (no buybacks). As of late 2024 the stock has sold off considerably on the perceived threat of a competitor drug to BioMarin’s VOXZOGO a therapy used to treat achondroplasia / human dwarfism.

COMMENT: Because biotechnology company valuations can vary widely, often spiking and plunging on news related to regulatory approval or perceived drug performance results, we remain very hesitant on the sector broadly.

5 Devon Energy Corporation (DVN) – remains on list

First appearing on the list in June 2019 (Y190615), Devon Energy Corporation is a oil and gas exploration and production (E&P) company. The company recently acquired Grayson Mill Energy with a combination of stock and cash (debt + cash on hand). Devon is accelerating production growth and has driven sequential QoQ volume increases so far. With the cyclicality of O&G, revenues and earnings have been essentially flat when comparing the period 10 years ago, to today. The company pays a dividend and typically repurchases stock. With the recent acquisition using a stock consideration component, common share count has increased YoY.

6 Humana (HUM) – remains on list

First appearing on the list in March 2024 (Y240310), Humana is headquartered in Louisville, Kentucky and is one of the largest health benefit providers in the U.S. The company has more than tripled top line and EPS from 2013 to 2023, pays a dividend, and has outstanding shares trending in the right direction (down). As of Dec 2023, Humana had ~17mm members on medical benefit plans and ~5mm members in specialty products. During 2023, 84% of total premiums and services revenue were derived from contracts with the U.S. federal government.

COMMENT: Being dependent on government healthcare reimbursement rates, Humana and the broader healthcare industry has faced material headwinds. Further, COVID related shocks and the cascading economic aftereffects, particularly for healthcare related companies, continues to present uncertainty.

7 Intel (INTC) – remains on list

Intel is one of the world’s largest semiconductor companies that designs and manufactures computer CPUs and related technology. Headquartered in Santa Clara, CA the company has recently been the primary beneficiary of the CHIPS and Science Act and is the central component on Washington’s big re-think on semiconductor manufacturing. Spurred by the perceived over-dependence on Taiwan for cutting edge chip manufacturing, the U.S. Federal Government has rolled out capital programs and incentives to entice chip manufactures to make more chips in the continental U.S. Intel’s net revenue (2023A) outside the United states was 74%. Top line and EPS are trending sharply down. The dividend has been cut and share repurchases are expected to be nonexistent. The company is facing gigantic headwinds as their customers have found substitutes for their core CPU technology / architecture. New market entrants have begun successfully designing their own purpose-designed chips. 

COMMENT: From our perspective, Taiwan’s TSMC has likely fundamentally shifted the operating model, with their fab-as-a-service approach. The capital intensity of the industry has put Intel in a severe bind (debt / EBITDA approaching ~5.5x in June 2024). This appears to be a moment in time for Intel when tectonic realignment is required, but the execution risks are immense. With Pat Gelsinger no longer the ship’s captain, we feel the immediate future for the company is likely to be very challenged.

8 MongoDB Inc. (MDB) – remains on list

Intermittently on and off the list throughout 2024, MongoDB first appeared in June (Y240609). The company offers a cloud-based database solution for storing, analyzing, and retrieving documents and data. The New York, NY based MongoDB has ~47,800 customers across 100 countries, was founded in 2007 and went public via IPO in 2017. The company’s revenue and customer count has increased consistently since going public, however profits are still an illusion. The company has not had a single year of profitability (on a GAAP basis) since it’s founding, and is not expected to produce a profit in the near term. There are no company dividends and management is a net issuer of common stock (no buybacks). There is $1.1bn of outstanding debt which all matures within the next few years. Fortunately for the company, the debt is all convertible (with a a coupon well below 1.0%) and they had strong cash position as of Q3 2024 ($2.3bn cash + short-term investments).

9 Moderna (MRNA) – remains on list

Intermittently on and off the list throughout 2023 and 2024. Moderna is a biotechnology company that researches and develops drugs. Headquartered in Cambridge, MA the company’s drugs are based on Messenger RNA (mRNA) – a key component studied within the field of molecular biology and used to deliver vaccine solutions for the COVID-19 pandemic. The company’s revenue is purely from their COVID-19 vaccine although they have recently gained FDA approval for a vaccine intended to treat RSV (respiratory syncytial virus). The company went public in December 2018 and has only achieved profitability on a GAAP basis for FY 2021 and 2022. Revenues have collapsed sharply since their 2022 high. Some believe mRNA can be used to create new medicine classes and drugs with the potential to materially improve human lives and open entirely new markets.

COMMENT: Because biotechnology company valuations can vary widely, often spiking and plunging on news related to regulatory approval or perceived drug performance results, we remain very hesitant on the sector broadly.

10 Nucor Corporation (NUE) – remains on list

First appearing on the list in March 2020 (Y200301), Nucor Corporation is a steel and steel products manufacturer. Headquartered in Charlotte, North Carolina the company’s primary products include hot rolled steel shapes, cold finished bars, joists and deck plates. Company revenues have grown on average ~9% over the past 10 year period, while earnings have grown materially faster at ~30%. The company pays a consistent dividend and repurchases stock. The steel industry is cyclical and stock prices often mirror the cyclicality.

COMMENT: Nucor’s common stock hit an all time high in April 2024 and has subsequently fallen ~25% since that time, roughly inline with the deteriorating outlook on, or the general uncertainty in, the broader steel industry.

11 Rivian Automotive (RIVN) – remains on list

Rivian designs and manufactures electric vehicles. Headquartered in Irvine, CA the company’s vehicles include a pickup truck, an SUV and a commercial delivery van. Founded in 2009, the company went public in 2021 and has yet to turn a profit on a gross margin basis. The capital intensity of the industry, cyclicality of durable consumption, relatively low adoption rates of electric vehicles and high levels of competition from other electric vehicle manufacturers present material headwinds (among others). Amazon.com is the company’s largest investor (16% of shares outstanding) and has ordered 100,000 electric delivery vehicles from Rivian. The company has recently partnered with Volkswagen AG to jointly develop software. As part of the JV, Volkswagen invested $1.0bn in an unsecured convertible note and is expected to invest a further $4.0bn. Rivian has a considerable amount of debt outstanding (~$5.5bn) for a FCF negative operating profile.

12 Symbotic Inc (SYM) – remains on list

First on our screen in August 2024 (Y240802) Symbotic Inc (SYM) is a supply chain optimization company focused on developing, building, and deploying automated distribution centers. The company’s customized warehouse product is designed around a palletized system that handles inbound freight (from trucks) and dynamically stores and retrieves the cases / pallets / items with a proprietary mobile robot. Rick Cohen is current Symbotic CEO (and CEO of C&S Wholesale Grocers) which was originally founded in 2006 to develop advanced technologies with the vision ‘to make the supply chain work better for everyone’. Cohen’s foundation holds 69% of shares outstanding. Since taking Symbotic public via SPAC merger in 2022, Cohen has remained the dominant shareholder with other major backers (Walmart Inc. and SoftBank) further increasing their equity contribution. Symbotic has no debt, over $700mm of cash on the balance sheet and a backlog over $23bn at the end of 2023. Walmart first began partnering with Symbotic in 2017 and by 2021 had signed on to introduce the company’s automated systems to an additional 25 regional distribution centers (out of 45 total). The substantial growth in the past few years for the company has not come without bumps along the way. By mid-2024 management disclosed construction delays and increased implementation costs which had squeezed profit margins, and spurred Cohen and his team to warn that fixing the issues might temporarily slow revenue growth. On November 27, Symbotic disclosed it had “identified errors in its revenue recognition related to cost overruns on certain deployments that would not be billable, which also affected system revenue recognized in the second, third, and fourth quarters of fiscal year 2024.” Symbotic management restated Q2-Q4 2024 in just a few business days, well within the 15 calendar day limit allowed by the extension filing. System revenue was reduced by $34mm (-2.0% for FY 2024) inline with prior guidance ($30-$40mm).

COMMENT: Symbotic is a very closely held company (less than 7% of total shares trade). Mr. Cohen’s family business is one of the largest privately held companies in the U.S. and is over 100 years old. Since a few short seller reports were circulated in August of 2024, coinciding with Symbotic’s first entry to this list and when the stock was previously in the $40-$45 per share area, there has been substantial shorting of the stock. We view the company’s future, under Rick Cohen’s leadership and with support from Walmart, SoftBank and C&S Wholesale Grocers, as extremely promising. It is challenging to put a hard value on a company growing so quickly, however we think the story gets materially brighter than the recent accounting hiccups illustrate. Read the full investment thesis here.

13 Nike Inc (NKE) – lost this week

Nike has lapped some of the largest drawdowns in the stock’s price which occurred outside of the last 52 week period. Therefore, the company is no longer on the list as the price performance (last 52-week period) is no longer below (30)%. Shares are still changing hands in the mid $70 per share area.

First appearing on the list in July 2022 (Y220703), Nike is a designer, developer, marketer and global retailer of footwear, apparel and sporting equipment for men, women and kids. Nike also owns the Jordan & Converse brands and sells to retail accounts (wholesale), through Nike-owned stores and website (DTC), and through a mix of independent distributors and licensees. This Dow member has shown impressive top line and bottom line growth over the past 10 years, excluding 2018 and 2020. COVID shook Nike particularly hard and the company has seen their market capitalization fall by ~60% since it’s 2021 high. With a recent strategy realignment to pivot back towards wholesale partners and a new CEO at the helm, Nike is looking to regain shelf space and revive their well-recognized styles. The company pays a consistent dividend and has repurchased a cumulative ~$38bn in common stock, net of SBC, since 2014.

COMMENT: We like Nike’s long term strategy and positioning. Further, they have historically exercised good judgement with capital allocation and have supported consistent distributions to shareholders via dividends and repurchases. Very low leverage, strong cash position, and the swoosh (one of the most recognized brands globally) holds a GAAP book value of zero ($0) dollars. See our full investment memo here.

Interpreting results

Broadly, this is an output of U.S. companies with a current market equity value above $10bn with a (30)% decrease in price per share over the last 52 week period. While the circumstances that push a company to meet these criteria are virtually infinite, typically the company is facing heightened profitability risks, competitive challenges, legal or regulatory risks, or other circumstances directly endangering the probability of future profits.

Every so often, we find a company that is facing temporary challenges and / or circumstantial headwinds. These instances warrant timely investigation and review.

Why this screen can be helpful

We find watching this output over time, allows us to quickly identify potential companies or situations to investigate further, augments the weekly Value Line publication well, and keeps us informed on the less-loved corners of the public markets without having to watch misleading charts or spin our wheels on short-term market movements.  We like to observe new entrants and subsequent exits to the list, over time, and share with our trusted readers.