Geopolitical tension is a really important theme for me in 2022. If you read my insights yesterday, I explained that the risk of Russia invading Ukraine is rising. People I know and trust on the subject have been reaching out to share their concerns and insight. I’m not basing my concerns on hysterical headline writers.
It sounds ugly to say this… but there’s always money in War. And I’ve discussed in the past how companies like Lockheed Martin (NYSE:LMT) and Boeing (NYSE:BA) are always going to have billions thrown their way by the U.S. government. And investors can always rely on our ever-increasing spending on new missile systems to keep up with China and Russia. But there’s something else that I’m noticing as we start the year.
The Acquirer’s Multiple
Tobias Carlisle is a money manager, author, and value investor based in Torrence, California. I’ve read all of his books. He wrote The Acquirer’s Multiple back in 2017, and it’s a faster, easier read than any value-based thesis written by Benjamin Graham. I highly recommend this book to anyone looking for a great, proven value strategy for the years ahead. As interest rates rise, I expect that money will rotate out of the riskier elements of the tech and healthcare sector and spill back into the stocks that he discusses.
The book outlines a proprietary metric that financial buyers would use to locate takeover targets. It’s deep value and linked to some basic, yet-often ignored metrics like Enterprise Value. He also operates a free screener over at his website by the same name (though there is a paid subscription for small-cap stocks and international companies).
Low Multiples in Commodities
Interestingly, a number of metals, mining, and forest products companies right now have extremely low multiples and quickly garnered my attention. In a time where geopolitics and inflation continue to rear their heads, I am warming up to the contrarian nature of some of these companies. Some names on there include Vale SA (NYSE:VALE), Ternium SA (NYSE:TX), West Fraser Timber (NYSE:WFG), and Sibayne Stillwater (NYSE:SBSW).
We’ll discuss this thesis a bit further in the final week of the year. I hope that everyone has a terrific Christmas if you are celebrating.