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WHILE YOU POUR THE JOE… ☕️
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Remember when we told you about the little love triangle between Donald Trump, Elon Musk, and Argentina’s Javier Milei?

Well, that trouble is starting to move in the right direction. Starting with the fact that Donald Trump has won the presidency again, and Elon Musk played a crucial role in his campaign, we’re now wondering what could happen with Milei. 👀 

So look, it’s all about the narrative here; Milei needs to revive Argentina’s labor market through manufacturing. Elon needs to keep Tesla’s margins as competitive as possible, so we wouldn’t be surprised to see Tesla opening some Argentina factories to make this happen.

That’s speculative but not far from reality, so let’s return to something that we can actually trade, shall we?

Speaking of trading a bigger idea, let’s get on with today’s email 📧…

THERE IS NO PLACE LIKE HOME
Close the Gap and Make it Happen

Here’s the deal: Trump wants to be in good standing with manufacturing workers in the U.S., which is one of the segments that needs to come back to the manufacturing PMI index, which has been contracted for 24 months.

One of the biggest areas promising potential job growth is the semiconductor fabs being built by Intel and other players.

Specifically, these fabs are targeted for Ohio and Arizona, among other smaller centers. This means there’s going to be a rising need for steel and concrete transport, among other things.

So, it’s one thing to examine the raw material makers we’ve examined in previous posts, such as Ternium and Gerdau.

But

Let's start looking into the next step of the value chain, which is the trucking names that will deliver all this steel. 🚚 

That sounds like one hell of an idea, right? You have Max (one of our analysts) to thank for that one after a weekend pow-wow with a cigar and whisky to stimulate our minds.

Alright, look at how Intel trades at a P/B discount of 0.8x, while Qualcomm trades at a much larger premium of 7.6x.

What’s that about?

Well, the market has been very bearish on Intel stock lately, so they’ve driven it down to a ridiculously low price, but here’s where things take a turn.

Intel trades at a massive premium to Qualcomm on a forward P/E basis, so it makes perfect sense to make this acquisition.

If Qualcomm, at 13.2x forward P/E, buys Intel at 22.8x forward P/E, that’s an immediate valuation boost to the buyer’s bottom line. And remember, they’re getting this boost at a 20% discount to book value.

That being said, you know there’s interest and a seemingly bullish outlook on Inte, which also means a bullish outlook on the ones helping build out the fabs in Ohio / Arizona.

Then you have the trucking industry spreads, which show two names that stand out as potential dots connecting back to the whole Intel and Qualcomm deal.

Old Dominion Freight Line and XPO both trade at the largest P/B and forward P/E multiples right now, and after some digging, these are the two best players to help get the job done for Intel.

Why?

Their distribution chain and fleet size have what it takes to transport the football field-sized loads needed to give Intel the domestic manufacturing presence it needs.

Alright, so what’s the play here?

This is the spread between Intel stock and Nvidia, which is a wild card I know.

But

Nvidia is one of the most overextended names in the semiconductor industry as you can see in the spread table above, growing at below-average EPS and trading at above-average forward P/Es.

Not a good mix

More than that, their spread favors a buy in Intel and a short in Nvidia, with a hedge ratio of -0.1039. In English, this means short 10 shares of Nvidia for every 100 you long in Intel and this way, you should be adequately hedged.

We expect the whole Super Micro Computer fiasco 📉 to spread to Nvidia as well this week. If that disaster happens, Intel could come in and take more market share, helping you cash in now that correlations are swinging back to positive.

Now for the trucking trade, which, to be honest, we’re not fully decided yet on which we’re looking to buy.

But

If we had to guess, it’ll probably end up being Old Dominion based on how the market is trading that stock right now.

For the full breakdown, stay tuned for another post later this week where we’ll probably give you the deeper dive on this theme. 💵 

 TRADE OF THE WEEK
Outsourcing Champions

Yes, we’re talking about India, specifically the India ETF through ticker $INDA.

Why India? Look, I think everyone should have at least some exposure to emerging economies. While China has been our top priority over the past five years, we think it’s time to start looking elsewhere, as equity valuations might take off soon.

So, once we take profits in China, the next best thing might be India; here’s why:

That’s not the entire reason, but it helps. The $INDA ETF has now retraced enough from its 52-week high to make us look at the fundamentals, so we may start buying in that gray-shaded area.

You know that inflation scenarios in the US dollar are top of mind for us right now, and so is a recession, a 50/50 camp for now based on how market price action across different asset classes guide us.

Whether we have a recession or inflation 📉 scenario, one thing is certain. Businesses will have to outsource some - if not most - of their operations to cheaper centers like India.

That’s why you see a multi-year aggressive expansion in India’s Services PMI index.

But wait, there’s more:

Let me review some stats with you so that you can get a better picture of what’s happening in India.

Up to 300,000 jobs are outsourced annually from the United States to India, with about 33% coming from the United Kingdom.

This trend has only grown in the past few years, as college graduates (with no experience) demand higher pay as inflation has gotten out of control. 👀 

So, any respectable business will start to look for alternatives, and India has billions of qualified people ready to take those jobs for less pay. It’s more than just IT.

Here are other industries that have been already outsourcing millions of jobs each year to India’s labor market:

• Telecom

• Health and Life Sciences

• Financial Services

• Consumer & Business Development

Think about it: As more and more people are now going to telemedicine and filing their taxes online, who do you think does that?

No wonder Jeff Bezos and Bill Gates have been crazy about trying to get into Indian investments; there’s a lesson to be learned here.

Do yourself a favor, set some money aside to buy India each month, you won’t regret it. 🫰 

NOW GO AND MAKE IT HAPPEN
Global Markets

The world of investing has grown to more than just the US. Emerging markets like China, India, and other Asian economies have successfully attracted investment capital due to their growing trends.

Today’s book recommendation 📖 could help you see the world as one global market. Now, you have us who can travel to India for you and give you a boots-on-the-ground view.

To your success,

G. 🥃