Gross up after earnings

Following earnings results from the third quarter, we elected to make tactical changes to our Opportunities strategy as we head into year-end. Full details of the trades can be found in the chart below.

Let’s dive in.

Electric Feel

Once known as a sleepy holding company without much direction, General Electric (GE) has transformed its business over the last several years to become one of the leading aerospace companies operating in a duopolistic industry. 

Recent performance leads us to believe that GE is reaching an inflection point thanks to their joint venture with Offshore’s largest holding, Safran. Entitled CFM International, the joint venture’s aftermarket division (think: engine maintenance) and the transformation to next-generation LEAP engines (which powers 100% of Boeing 737 MAX aircraft and 60% of Airbus A320neos) should be key drivers for both revenue growth and margin expansion.

We believe that the company’s valuation has been unfairly weighed down by its conglomerate discount as well. Said differently, we believe the parts are more valuable than the whole, and the spinoff of the company’s Vernova business in the first half of 2024 may allow the company to command a premium valuation compared to peers. 

Trading at an attractive valuation, we took the opportunity to initiate a 5% position ahead of key catalysts in 2024.

Reshaping real-time data infrastructure

In an increasingly digital world, there is growing demand for applications that are responsive in real-time. For instance, travel chatbots are providing customers with up-to-date flight info, banks are monitoring for fraud, and the retail industry is conducting real-time inventory management. Thus, enterprises big and small are requiring real time data to be processed efficiently and at scale. 

Amidst these tailwinds sits Confluent (CFLT), one of the leading providers of real-time data streaming offerings and a company that sits at the vanguard of this category in data infrastructure. 

Despite fears over the macro environment and a recent sales restructuring, we initiated a starter position following the company’s third quarter earnings miss. We believe the company has been oversold and revenue growth will remain elevated while free cash flow should turn positive in the coming quarters. Thanks to trends like generative artificial intelligence, companies are operating in a new data regime and Confluent is sitting at the center of this innovation cycle.

A digital-first marketing upstart

Stagwell Inc. (STGW) operates an integrated network of advertising agencies and marketing assets, providing a digital oriented strategy for 4,000+ blue chip clients.

At its present valuation, we believe the market is mistaking the cyclical nature of the business as a sign of a business that is unraveling. As a result, the market is heavily discounting Stagwell’s normalized industry leading growth, and structurally improving margin profile. 

Upon the next cyclical upturn, we believe the market will recognize STGW’s potential to grow significantly faster than its competitors and initiating a starter position should allow us to benefit ahead of that changing market dynamic.

Updating after earnings

Following a clear path forward for the Fed and a recession that appears to be pushed back into the back half of 2024, we have reason to be increasingly optimistic as we head into year-end. As such, we elected to add to our highest conviction names including: Canadian Pacific (CP), Elastic (ESTC), Graphic Packaging (GPK), Moody’s (MCO), Okta (OKTA), Raytheon (RTX), and SS&C Technologies (SSNC). 

In an effort to dial back our energy exposure (oil in particular), we elected to sell Alliance Resource Partners (ARLP) and Consol Energy (CEIX) for risk management purposes. Both energy companies contributed positively to the strategy’s performance year-to-date and exiting the holdings allows us to lock-in gains for clients. 

We reallocated a portion of those proceeds to NexGen Energy (NXE) and Denison Mines (DNN). If you haven’t seen it already, we encourage you to check out our recent deep dive on uranium here. Nuclear energy is clean, safe, reliable, and here to stay, and we feel confident about adding to our long-term thesis here. 

As always, let us know if you have any questions about the recent trades; we’re happy to assist.

– Your Titan Team

Disclosures:

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