Investing Inward Depression Conviction Stocks; Jumping The Gun On Evs; In Addition To Tenneco
August 15, 2019
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It is stylish with the value investing community these days to handle a concentrated portfolio of high conviction ideas. Indeed, whatever other approach is unremarkably greeted with suspicion, if non outright disdain. And yet, inward my experience, often some of the real best investment opportunities be inward areas of the marketplace where i is intrinsically capable of solely low levels of conviction, extending to situations where a cypher is a reasonable possibility. Obviously, smaller seat sizes too a to a greater extent than diversified approach is warranted with such situations, but on a portfolio basis, they tin toilet yield a portfolio with real agreeable risk/reward characteristics - indeed uniquely too so I would argue, given how few value investors are adopting such an approach inward today's world.
An instance at the minute is automotive constituent supplier Tenneco (TEN US), whose stock has been decimated too fallen to exactly 2x earnings (closer to 1.5x recently). Why is it too so cheap? Three reasons: (1) they receive got a lot of debt, partly due to the ill-timed acquisition of Federal-Mogul concluding year, which despite beingness partly equity funded, has significantly increased the company's leverage; (2) global auto sales receive got declined this year, pressuring earnings too leverage ratios, too investors are also fearful most an impending recession inward the US/globally exacerbating the company's plight; too most importantly (3) a important portion of the company's occupation organisation is making engine components for internal combustion engine (ICE) vehicles, including powertrain components.
It is straight off a widely-subscribed belief that electrical vehicles (EV) are laid to imminently flame ICEs, which way that Tenneco volition probable live disrupted earlier it is able to successfully deleverage too render upper-case missive of the alphabet to shareholders - peculiarly if a recession happens inward the interim. Should an EV transition occur, ICE suppliers such every bit Tenneco volition also live the get-go affected, too the impact volition live exacerbated past times the company's high operating leverage. Once EV production ramps up, it volition all the same convey 10-20 years to gradually supplant the existing installed base of operations of vehicles, which volition defer the impact on after-market players for an extended duration (including gasoline refueling stations, too also the impact on fossil oil demand), but TEN's powertrain occupation organisation is leveraged to the stride of new ICE construction (not the parc). While surviving for now, inward the eyes of many, TEN appears to live on expiry row.
One of the keys to identifying investment opportunities is to ever live prepared to challenge widely accepted notions past times considering the other side of the argument, too beingness willing to ask, what happens if people are wrong? People forget that the actually large moves inward markets are driven past times changes inward opinion. What is currently widely known too assumed to live truthful most the futurity is invariably already embedded inward electrical current valuations. (This is i ground why broker recommendations are too so oft incorrect too are best used every bit opposite indicators - they succeed inward writing lengthy too eloquent reports that are best viewed every bit explanations for why a stock is already cheap/expensive, rather than guides to how i should seat themselves today).
I was previously also of the see that EVs were inevitably laid to dominate the future, but I actively sought out opposite arguments, too having done so, I am straight off convinced that many investors may have jumped the gun, too are besides confident that a transition from ICEs to EVs is inevitable. I emphasise the discussion may here, because I don't handle this see with conviction - I exactly believe at that topographic point is a larger probability than is to a greater extent than often than non accepted. And when stocks larn inexpensive plenty to live priced similar options, a reasonable probability - fifty-fifty if significantly less than 50% - tin toilet all the same live sufficient to justify an investment case.
Elon Musk has been absolutely fundamental to popularising the notion that a total conversion to EVs lies inward our close future. Tesla's early on premium models - the Roadster, Model S, too Model X - showed the the world that EVs could non solely live environmentally friendly, but also high performance too downright cool every bit well. His PR offensive has been extremely successful (too successful for Tesla's ain proficient - it is straight off facing a moving ridge of EV competition). It has Pb to the hasty grooming of regulations inward many markets mandating steadily increasing EV penetration; a surge of investment past times traditional automakers into the electrification of many of their models; too has convinced the bulk of the investment community that a total transition to EVs is solely a affair of time.
The work is that despite all the hype, it is all the same yet to live proven that EVs tin toilet live produced profitably, at scale, for the mass market. Tesla has proven, I believe, that they tin toilet live viably produced for the luxury market, because the premium prices of these vehicles provides much to a greater extent than margin to run with (and because Tesla has shown that EVs are capable of extraordinary performance). But the mass marketplace is an altogether dissimilar question.
Tesla's ambition was ever for its Model iii to live the model that ushered inward mass marketplace adoption, but on an unsubsidised basis, along with practically necessary add-ons, on-the-road prices are all the same inward the vicinity of US$50k - most double the cost of a novel ICE vehicle of comparable size/specs. And despite this rich cost tag (and the contribution from Tesla's to a greater extent than profitable luxury models; recent cost-cutting measures bordering on desperation (closing dealerships); too inward the persuasion of some - aggressive accounting), Tesla is all the same unprofitable, too inward the persuasion of many credible observers, destined for eventual bankruptcy. The inconsistency of widespread EV adoption straight off beingness considered inevitable past times the investment community, too the leading histrion inward the segment fighting for its survival, has champaign been lost on many (and it is also interesting to consider whether whatever eventual demise of Tesla volition drive widespread assumptions around mass-market EV adoption to live revisited).
Furthermore, this lack of cost competitiveness also exists earlier considering the reality that if EVs were to move mainstream (nearly 100m vehicles are produced globally each year, compared to most 300k past times Tesla at present), the the world is going to demand a lot of automotive-grade batteries, too a lot of batteries volition require a lot of lithium, cobalt, too nickel. The course of scale required could good final result inward the cost of these raw materials increasing many multiples from electrical current levels. A important fraction of the world's known cobalt reserves are located inward the DRC (Democratic Republic of Congo) - a goal non renowned for its political stability or predictable mining manufacture regulations. The battery is already past times far the most expensive constituent of EVs - costing at to the lowest degree US$10-15k, too cost reductions hither are not subject to Moore's Law type declines (microprocessor performance too cost improved because transistors were made exponentially smaller, allowing to a greater extent than of them to live packed onto a given surface area, but at that topographic point are physical restrict to how much unloose energy tin toilet live stored inward the chemic atoms of batteries; you lot can't brand electrons smaller). Produced at scale, at that topographic point is a proficient take away chances the cost of batteries would ascension rather than fall, every bit raw materials costs spiraled.
Musk makes the (fair) betoken that i ought to non exactly consider the cost tag of EVs, but the 'total cost of ownership', too it is truthful that electrical vehicles cost less to powerfulness than ICEs. The cost of electricity is higher than gasoline on a cost-per-raw-unit-of-energy footing (as electricity has already absorbed conversion losses at the betoken of generation), but EVs are much to a greater extent than efficient at converting electrical unloose energy to kinetic unloose energy than ICEs are at converting the chemic unloose energy inward gasoline into kinetic unloose energy (heat losses are significant), to a greater extent than than offsetting this disadvantage.
However, balanced against this betoken is the of import number of battery longevity. As anyone who has used a laptop or smartphone for an extended menstruum of fourth dimension tin toilet attest, battery performance degrades over time. The Nissan Leaf's battery performance reportedly degraded past times every bit much every bit 60-70% 5 years afterward purchase. While efforts are underway to amend battery longevity, it is non yet clear if they volition live able to extend the practical life of the vehicles beyond 10 years, without a battery overhaul beingness necessary. This is an of import issue, because most mass-market second-hand ICE cars are worth less than US$10k afterward 10 years, whereas that is the probable minimum cost of a novel battery pack. In practice, this would hateful that it would non live economically feasible to undertake such an overhaul, too EVs would receive got a practical useful life of mayhap one-half that of an ICE. This would stand upwards for a meaningful (if non total) offset to the 'lower cost of ownership' Musk speaks of.
What most regulations? Both European Union too Chinese regulators receive got pushed difficult to accelerate the adoption of EVs, imposing mandatory EV sales targets (as a per centum of total sales) inward the instance of the latter, too aggressive average fleet emissions reduction targets inward the former, which volition probable require rising EV penetration to meet. China's policies probable also partly reverberate geopolitical motivations every bit good (to cut its reliance on imported oil).* While these regulations powerfulness seem destined to hasten adoption, every bit nosotros receive got seen with solar subsidies, it is i thing to force-feed a little minority of the organisation average onto a structurally to a greater extent than expensive platform, but it is quite some other to curl it out to the entire system, which is orders of magnitude to a greater extent than expensive.
As nosotros receive got seen with the recent Yellow Vest protests inward French Republic (as good every bit the full general tide of rising populism), at that topographic point is a political restrict to how much of a reject inward living standards you lot tin toilet forcefulness onto the electorate inward the squall of environmental protection - at some betoken the cost becomes besides burdensome too people revolt at the ballot box. How volition the broader population experience most beingness forced to pass a minimum of US$50k on a novel car? And volition FRG actually desire to bankrupt its economically of import auto manufacture past times forcing them to sell cars people don't desire too can't afford?
It is also worth remembering that inward the entire history of advanced civilization, at that topographic point has never in i lawsuit been a transition to a engineering platform that is less economically too energetically efficient than the prior model. In this respect, EVs are attempting a transition that is unprecedented - at to the lowest degree with honor to the electrical current nation of engineering too relative cost structures.** Now, the the world has also never been (or needed to be) to a greater extent than concerned most the impact of human activities on the surroundings either, too so things could change. It is also possible that the heavy investment straight off going into EVs too batteries volition yield important innovations which modify the electrical current comparative cost calculus. However, it is far from guaranteed that these efforts volition live successful.
In short, the investment community appears to receive got jumped the gun on EVs inward my opinion. Widespread adoption may good happen, but nosotros do non yet receive got sufficient evidence to declare it a fiat accompli, every bit most inward the investment community straight off have.
What is most intriguing most this is that if markets are incorrect most the coming EV transition, a fellowship similar Tenneco is probable to non solely survive, but thrive. The fellowship is a the world leader inward clean-emissions technology, for instance (what passes every bit 'high tech' these days is somewhat bewildering - writing some uncomplicated software that allows somebody to manually move to a restaurant, pick upwards nutrient for you, too convey it to your door, is considered high tech, when coming upwards with the most sophisticated emissions-reduction engineering inward the the world - a feat of advanced engineering scientific discipline - is considered old hat). If the EV transition fails because it is discovered to live uneconomic, past times far the most probable Plan B around the the world volition live to forcefulness tighter ICE vehicle-emissions standards onto motorcar producers. Tenneco volition live exceptionally good positioned to run across this demand, peculiarly because auto companies are all preoccupied with apace edifice out their electrification capabilities at present, too are neglecting investment into ICE engine components (and are increasing outsourcing). There also aren't besides many Silicon Valley start-ups racing to enhance upper-case missive of the alphabet to invest inward to a greater extent than efficient ICE engine engineering either.
Future outcomes are also non binary, too it is also quite possible - if non probable - that hybrids emerge every bit the preferred platform, every bit a compromise solution which are cheaper than total EVs (but to a greater extent than expensive than pure ICEs), but are to a greater extent than environmentally friendly than pure ICEs, too all the same allow for important reductions inward average emissions. Hybrids volition also ease some of the challenges of total EV adoption (range anxiety; a lack of recharging infrastructure; too the client inconvenience associated 20-40 infinitesimal charging times compared to a few minutes to refuel). This futurity volition also live a proficient i for Tenneco every bit well, every bit centre ICE engine components volition retain their relevance. And all of this is earlier mentioning the fact that Tenneco also has a DRiV segmentation that focuses on ride-control/suspension too after-market products that are immune from EV disruption endangerment (although they are non large plenty to back upwards TEN's grouping debt burden inward isolation).
All told, Tenneco looks to receive got a proficient risk/reward to me, because at that topographic point is a decent take away chances the consensus see is wrong. But do I receive got conviction? No I do not. I don't handle the inward a higher house views with whatever certainty - I simply think it is a possible scenario, whose probability is beingness underestimated. And it would live light-headed to receive got conviction inward the outlook for fellowship with high leverage, too where technological disruption could good prevarication inward the company's future. Tenneco could good ultimately move to cypher (or live required to number too so much novel equity that it dilutes existing shareholders to something approximating that). But this lack of conviction too high endangerment profile does non brand TEN a pathetic investment on a risk/reward footing - simply i that needs to live appropriately seat sized on occupation organisation human relationship of its large idiosyncratic risks.
Opportunities similar TEN are rife at present, because they autumn betwixt the cracks of the investment approaches/styles/philosophies that are currently widely practiced. Obviously, the growth too high-quality crowd are going to live uninterested inward a stock similar TEN, every bit volition the momentum too macro crowd, given the electrical current nation of markets too prevalent macro anxieties. But intriguingly, the vast mass of value investors are also uninterested, every bit the bulk of them insist on high-conviction too concentration, often quoting Munger inward defence forcefulness of such an approach (the tremendous irony hither is that Munger reportedly purchased TEN around the plough of the century when it was real cheap, too made a tonne of money). Consequently, companies similar TEN human face upwards an almost consummate absence of willing buyers at times similar these, too tin toilet so autumn to extraordinarily depression prices.
This highlights yet over again the importance of adaptability inward markets. Where the best opportunities gain to reside is ever changing, too a flexible approach is essential. There are times when a concentrated approach focused on high lineament stocks makes sense, too at that topographic point are times - similar the acquaint - where it makes much less sense. This is something I wrote most inward to a greater extent than particular inward my article on fishing where the cod is. Fixed rules most the appropriate flat of concentration so don't brand a lot of feel to me - the appropriate flat of concentration reflects the nature of the acquaint chance laid - and dogmatic adherence to certainly rules similar 'we don't invest inward cyclicals'; 'we don't invest inward companies with high leverage'; or 'we don't invest inward upper-case missive of the alphabet intensive industries such every bit auto suppliers', doesn't brand a lot of feel to me either. As always, flexibility too the capacity for independent too original thinking are essential to success inward markets.
LT3000
*Incidentally, those bullish on the LNG market, too peculiarly the States exports of LNG, based on an expectation China volition significantly increment LNG imports inward coming years (as they substitute domestic coal for clearer natural gas), may live overlooking geopolitical risks to this view. If you lot were China, given the electrical current nation of geopolitical relations betwixt China too the US, would you lot actually desire to rely on the States LNG imports for your unloose energy security? This is i ground I ain China Shenhua Energy - China's largest too lowest-cost coal producer (the original ground is because it is real cheap).
**When energetically to a greater extent than efficient, transitions also often gain relatively fast - afterward the innovation of the automobile, the Equus caballus was almost completely displaced inside twenty years. Tesla has straight off been inward occupation organisation for most xvi years, too EVs all the same stand upwards for solely most 1% of global automotive sales.
An instance at the minute is automotive constituent supplier Tenneco (TEN US), whose stock has been decimated too fallen to exactly 2x earnings (closer to 1.5x recently). Why is it too so cheap? Three reasons: (1) they receive got a lot of debt, partly due to the ill-timed acquisition of Federal-Mogul concluding year, which despite beingness partly equity funded, has significantly increased the company's leverage; (2) global auto sales receive got declined this year, pressuring earnings too leverage ratios, too investors are also fearful most an impending recession inward the US/globally exacerbating the company's plight; too most importantly (3) a important portion of the company's occupation organisation is making engine components for internal combustion engine (ICE) vehicles, including powertrain components.
It is straight off a widely-subscribed belief that electrical vehicles (EV) are laid to imminently flame ICEs, which way that Tenneco volition probable live disrupted earlier it is able to successfully deleverage too render upper-case missive of the alphabet to shareholders - peculiarly if a recession happens inward the interim. Should an EV transition occur, ICE suppliers such every bit Tenneco volition also live the get-go affected, too the impact volition live exacerbated past times the company's high operating leverage. Once EV production ramps up, it volition all the same convey 10-20 years to gradually supplant the existing installed base of operations of vehicles, which volition defer the impact on after-market players for an extended duration (including gasoline refueling stations, too also the impact on fossil oil demand), but TEN's powertrain occupation organisation is leveraged to the stride of new ICE construction (not the parc). While surviving for now, inward the eyes of many, TEN appears to live on expiry row.
One of the keys to identifying investment opportunities is to ever live prepared to challenge widely accepted notions past times considering the other side of the argument, too beingness willing to ask, what happens if people are wrong? People forget that the actually large moves inward markets are driven past times changes inward opinion. What is currently widely known too assumed to live truthful most the futurity is invariably already embedded inward electrical current valuations. (This is i ground why broker recommendations are too so oft incorrect too are best used every bit opposite indicators - they succeed inward writing lengthy too eloquent reports that are best viewed every bit explanations for why a stock is already cheap/expensive, rather than guides to how i should seat themselves today).
I was previously also of the see that EVs were inevitably laid to dominate the future, but I actively sought out opposite arguments, too having done so, I am straight off convinced that many investors may have jumped the gun, too are besides confident that a transition from ICEs to EVs is inevitable. I emphasise the discussion may here, because I don't handle this see with conviction - I exactly believe at that topographic point is a larger probability than is to a greater extent than often than non accepted. And when stocks larn inexpensive plenty to live priced similar options, a reasonable probability - fifty-fifty if significantly less than 50% - tin toilet all the same live sufficient to justify an investment case.
Elon Musk has been absolutely fundamental to popularising the notion that a total conversion to EVs lies inward our close future. Tesla's early on premium models - the Roadster, Model S, too Model X - showed the the world that EVs could non solely live environmentally friendly, but also high performance too downright cool every bit well. His PR offensive has been extremely successful (too successful for Tesla's ain proficient - it is straight off facing a moving ridge of EV competition). It has Pb to the hasty grooming of regulations inward many markets mandating steadily increasing EV penetration; a surge of investment past times traditional automakers into the electrification of many of their models; too has convinced the bulk of the investment community that a total transition to EVs is solely a affair of time.
The work is that despite all the hype, it is all the same yet to live proven that EVs tin toilet live produced profitably, at scale, for the mass market. Tesla has proven, I believe, that they tin toilet live viably produced for the luxury market, because the premium prices of these vehicles provides much to a greater extent than margin to run with (and because Tesla has shown that EVs are capable of extraordinary performance). But the mass marketplace is an altogether dissimilar question.
Tesla's ambition was ever for its Model iii to live the model that ushered inward mass marketplace adoption, but on an unsubsidised basis, along with practically necessary add-ons, on-the-road prices are all the same inward the vicinity of US$50k - most double the cost of a novel ICE vehicle of comparable size/specs. And despite this rich cost tag (and the contribution from Tesla's to a greater extent than profitable luxury models; recent cost-cutting measures bordering on desperation (closing dealerships); too inward the persuasion of some - aggressive accounting), Tesla is all the same unprofitable, too inward the persuasion of many credible observers, destined for eventual bankruptcy. The inconsistency of widespread EV adoption straight off beingness considered inevitable past times the investment community, too the leading histrion inward the segment fighting for its survival, has champaign been lost on many (and it is also interesting to consider whether whatever eventual demise of Tesla volition drive widespread assumptions around mass-market EV adoption to live revisited).
Furthermore, this lack of cost competitiveness also exists earlier considering the reality that if EVs were to move mainstream (nearly 100m vehicles are produced globally each year, compared to most 300k past times Tesla at present), the the world is going to demand a lot of automotive-grade batteries, too a lot of batteries volition require a lot of lithium, cobalt, too nickel. The course of scale required could good final result inward the cost of these raw materials increasing many multiples from electrical current levels. A important fraction of the world's known cobalt reserves are located inward the DRC (Democratic Republic of Congo) - a goal non renowned for its political stability or predictable mining manufacture regulations. The battery is already past times far the most expensive constituent of EVs - costing at to the lowest degree US$10-15k, too cost reductions hither are not subject to Moore's Law type declines (microprocessor performance too cost improved because transistors were made exponentially smaller, allowing to a greater extent than of them to live packed onto a given surface area, but at that topographic point are physical restrict to how much unloose energy tin toilet live stored inward the chemic atoms of batteries; you lot can't brand electrons smaller). Produced at scale, at that topographic point is a proficient take away chances the cost of batteries would ascension rather than fall, every bit raw materials costs spiraled.
Musk makes the (fair) betoken that i ought to non exactly consider the cost tag of EVs, but the 'total cost of ownership', too it is truthful that electrical vehicles cost less to powerfulness than ICEs. The cost of electricity is higher than gasoline on a cost-per-raw-unit-of-energy footing (as electricity has already absorbed conversion losses at the betoken of generation), but EVs are much to a greater extent than efficient at converting electrical unloose energy to kinetic unloose energy than ICEs are at converting the chemic unloose energy inward gasoline into kinetic unloose energy (heat losses are significant), to a greater extent than than offsetting this disadvantage.
However, balanced against this betoken is the of import number of battery longevity. As anyone who has used a laptop or smartphone for an extended menstruum of fourth dimension tin toilet attest, battery performance degrades over time. The Nissan Leaf's battery performance reportedly degraded past times every bit much every bit 60-70% 5 years afterward purchase. While efforts are underway to amend battery longevity, it is non yet clear if they volition live able to extend the practical life of the vehicles beyond 10 years, without a battery overhaul beingness necessary. This is an of import issue, because most mass-market second-hand ICE cars are worth less than US$10k afterward 10 years, whereas that is the probable minimum cost of a novel battery pack. In practice, this would hateful that it would non live economically feasible to undertake such an overhaul, too EVs would receive got a practical useful life of mayhap one-half that of an ICE. This would stand upwards for a meaningful (if non total) offset to the 'lower cost of ownership' Musk speaks of.
What most regulations? Both European Union too Chinese regulators receive got pushed difficult to accelerate the adoption of EVs, imposing mandatory EV sales targets (as a per centum of total sales) inward the instance of the latter, too aggressive average fleet emissions reduction targets inward the former, which volition probable require rising EV penetration to meet. China's policies probable also partly reverberate geopolitical motivations every bit good (to cut its reliance on imported oil).* While these regulations powerfulness seem destined to hasten adoption, every bit nosotros receive got seen with solar subsidies, it is i thing to force-feed a little minority of the organisation average onto a structurally to a greater extent than expensive platform, but it is quite some other to curl it out to the entire system, which is orders of magnitude to a greater extent than expensive.
As nosotros receive got seen with the recent Yellow Vest protests inward French Republic (as good every bit the full general tide of rising populism), at that topographic point is a political restrict to how much of a reject inward living standards you lot tin toilet forcefulness onto the electorate inward the squall of environmental protection - at some betoken the cost becomes besides burdensome too people revolt at the ballot box. How volition the broader population experience most beingness forced to pass a minimum of US$50k on a novel car? And volition FRG actually desire to bankrupt its economically of import auto manufacture past times forcing them to sell cars people don't desire too can't afford?
It is also worth remembering that inward the entire history of advanced civilization, at that topographic point has never in i lawsuit been a transition to a engineering platform that is less economically too energetically efficient than the prior model. In this respect, EVs are attempting a transition that is unprecedented - at to the lowest degree with honor to the electrical current nation of engineering too relative cost structures.** Now, the the world has also never been (or needed to be) to a greater extent than concerned most the impact of human activities on the surroundings either, too so things could change. It is also possible that the heavy investment straight off going into EVs too batteries volition yield important innovations which modify the electrical current comparative cost calculus. However, it is far from guaranteed that these efforts volition live successful.
In short, the investment community appears to receive got jumped the gun on EVs inward my opinion. Widespread adoption may good happen, but nosotros do non yet receive got sufficient evidence to declare it a fiat accompli, every bit most inward the investment community straight off have.
What is most intriguing most this is that if markets are incorrect most the coming EV transition, a fellowship similar Tenneco is probable to non solely survive, but thrive. The fellowship is a the world leader inward clean-emissions technology, for instance (what passes every bit 'high tech' these days is somewhat bewildering - writing some uncomplicated software that allows somebody to manually move to a restaurant, pick upwards nutrient for you, too convey it to your door, is considered high tech, when coming upwards with the most sophisticated emissions-reduction engineering inward the the world - a feat of advanced engineering scientific discipline - is considered old hat). If the EV transition fails because it is discovered to live uneconomic, past times far the most probable Plan B around the the world volition live to forcefulness tighter ICE vehicle-emissions standards onto motorcar producers. Tenneco volition live exceptionally good positioned to run across this demand, peculiarly because auto companies are all preoccupied with apace edifice out their electrification capabilities at present, too are neglecting investment into ICE engine components (and are increasing outsourcing). There also aren't besides many Silicon Valley start-ups racing to enhance upper-case missive of the alphabet to invest inward to a greater extent than efficient ICE engine engineering either.
Future outcomes are also non binary, too it is also quite possible - if non probable - that hybrids emerge every bit the preferred platform, every bit a compromise solution which are cheaper than total EVs (but to a greater extent than expensive than pure ICEs), but are to a greater extent than environmentally friendly than pure ICEs, too all the same allow for important reductions inward average emissions. Hybrids volition also ease some of the challenges of total EV adoption (range anxiety; a lack of recharging infrastructure; too the client inconvenience associated 20-40 infinitesimal charging times compared to a few minutes to refuel). This futurity volition also live a proficient i for Tenneco every bit well, every bit centre ICE engine components volition retain their relevance. And all of this is earlier mentioning the fact that Tenneco also has a DRiV segmentation that focuses on ride-control/suspension too after-market products that are immune from EV disruption endangerment (although they are non large plenty to back upwards TEN's grouping debt burden inward isolation).
All told, Tenneco looks to receive got a proficient risk/reward to me, because at that topographic point is a decent take away chances the consensus see is wrong. But do I receive got conviction? No I do not. I don't handle the inward a higher house views with whatever certainty - I simply think it is a possible scenario, whose probability is beingness underestimated. And it would live light-headed to receive got conviction inward the outlook for fellowship with high leverage, too where technological disruption could good prevarication inward the company's future. Tenneco could good ultimately move to cypher (or live required to number too so much novel equity that it dilutes existing shareholders to something approximating that). But this lack of conviction too high endangerment profile does non brand TEN a pathetic investment on a risk/reward footing - simply i that needs to live appropriately seat sized on occupation organisation human relationship of its large idiosyncratic risks.
Opportunities similar TEN are rife at present, because they autumn betwixt the cracks of the investment approaches/styles/philosophies that are currently widely practiced. Obviously, the growth too high-quality crowd are going to live uninterested inward a stock similar TEN, every bit volition the momentum too macro crowd, given the electrical current nation of markets too prevalent macro anxieties. But intriguingly, the vast mass of value investors are also uninterested, every bit the bulk of them insist on high-conviction too concentration, often quoting Munger inward defence forcefulness of such an approach (the tremendous irony hither is that Munger reportedly purchased TEN around the plough of the century when it was real cheap, too made a tonne of money). Consequently, companies similar TEN human face upwards an almost consummate absence of willing buyers at times similar these, too tin toilet so autumn to extraordinarily depression prices.
This highlights yet over again the importance of adaptability inward markets. Where the best opportunities gain to reside is ever changing, too a flexible approach is essential. There are times when a concentrated approach focused on high lineament stocks makes sense, too at that topographic point are times - similar the acquaint - where it makes much less sense. This is something I wrote most inward to a greater extent than particular inward my article on fishing where the cod is. Fixed rules most the appropriate flat of concentration so don't brand a lot of feel to me - the appropriate flat of concentration reflects the nature of the acquaint chance laid - and dogmatic adherence to certainly rules similar 'we don't invest inward cyclicals'; 'we don't invest inward companies with high leverage'; or 'we don't invest inward upper-case missive of the alphabet intensive industries such every bit auto suppliers', doesn't brand a lot of feel to me either. As always, flexibility too the capacity for independent too original thinking are essential to success inward markets.
LT3000
*Incidentally, those bullish on the LNG market, too peculiarly the States exports of LNG, based on an expectation China volition significantly increment LNG imports inward coming years (as they substitute domestic coal for clearer natural gas), may live overlooking geopolitical risks to this view. If you lot were China, given the electrical current nation of geopolitical relations betwixt China too the US, would you lot actually desire to rely on the States LNG imports for your unloose energy security? This is i ground I ain China Shenhua Energy - China's largest too lowest-cost coal producer (the original ground is because it is real cheap).
**When energetically to a greater extent than efficient, transitions also often gain relatively fast - afterward the innovation of the automobile, the Equus caballus was almost completely displaced inside twenty years. Tesla has straight off been inward occupation organisation for most xvi years, too EVs all the same stand upwards for solely most 1% of global automotive sales.