Top ATAs 5/13

Saturday, May 13th 2023

Commentary

Happy Saturday! Here are the top questions from Ask Titan Anything this week. As always, reach out to us if you have any questions.

Q: Any updates on our Schwab position?

Charles Schwab, like many of its banking peers, has seen heightened volatility since the crash of SVB in March (and most recently First Republic Bank). Fears of a potential banking crisis have continued to put downward pressure on the sector. That being said, Schwab’s earnings last month were better than feared, supporting our view that concerns surrounding the sustainability of the business were overblown. The company’s recent Spring Business Update also suggested cash sorting headwinds abating (previously top of mind for many investors). While our team has been and will continue to watch these trends closely, we believe recent events have created a highly compelling investment opportunity to own a high-quality franchise at a discounted valuation.

Q: What are the implications to the US not raising its debt ceiling? Does this put treasuries at risk for being defaulted on?

This is something we're monitoring closely. Never say never, but the U.S. government has historically eventually agreed to raise the debt ceiling when necessary to avoid defaulting on its obligations. This uncertainty will likely lead to some volatility in the markets over the short-term, but all parties are extremely incentivized at the end of the day to keep our government operating. In regards to how this may impact Treasury, back in 2013, there was a disagreement over the Affordable Cares Act which led to a 16-day partial government shutdown. During this shutdown, the U.S. Treasury prioritized interest payments to avoid a default. If, a similar event were to occur, we'd imagine that the Treasury would look to do the same. We'll be keeping a close eye on the situation, but we're cautiously optimistic that there will be a resolution.

Q: TDG is the largest position in Flagship, any take on earnings?

It was a big day for TransDigm Group (TDG), which is up 5+% after reporting strong 2Q earnings this morning. The Cleveland-based company beat analyst expectations and raised guidance for 2023 — we believe guidance is still on the conservative side and may be revised up further. Over all, the report was a great set-up for the year ahead. We remain bullish on our TDG thesis continuing to play out over next 12-18 months, as accelerating aftermarket results combined with company's strong pricing power should flow through and drive further margin upside. 


Ask Titan Anything is intended to be informational in nature and does not take into account the specific objectives, financial situation, or particular needs of any specific person. Nothing in this content should be construed as investment advice, or a recommendation to buy or sell securities.

As of this writing, TDG was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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