Bought: Air Lease (AL)

I have been buying Air Lease (AL) a few times over June and July (avg. $41,42 with transaction costs) because:

I first heard about Air Lease on The Meb Faber podcast (episode #165) when Chris Mayer, PM at Woodlock House Family Capital fund, mentioned the company as one of his favorite investment ideas. I decided to have a look and do my own fundamental analysis as from the surface Air Lease seemed to have many things going for it from a value standpoint. After researching the company for a couple weeks, I considered the stock to be a bargain at around $40.

Air Lease's business model is relatively straightforward: the company buys and leases commercial airplanes. At the end of Q2 2019, the company owned 297 aircraft (135 Airbus and 162 Boeing) and had a diversified global customer base, with 100 airline customers across 57 countries. Today, over 40% of the world’s commercial airplanes are leased, from zero in the 1960s.

The underlying market for Air Lease is air travel, which has continuously grown over the past 40 years. I don't see that trend slowing down anytime soon. Commercial airlines need an increasing number of jets, and Air Lease is there to provide. But why would airlines lease rather than buy? Leasing helps airlines maintain a good balance sheet and access aircraft which need to be ordered years in advance. "In bad times, carriers need our balance sheet. In good times, they need our delivery slots," the company says. At the moment, Air Lease has 343 aircraft on order, so growth is organically built in.

All In Stocks has written a well-balanced report on Air Lease's business fundamentals, which I encourage anyone to read. Among other things, the relatively low trailing P/E of around 9 and forward P/E of only 6, steady growth in numbers across the board, and constantly growing air travel market made very bullish on Air Lease. If the company can keep turning their flywheel, the stock price should eventually catch up with the financials and growth trajectory.

The biggest risk that I see here is Air Lease's indebtedness. The company uses short term money to fund long term assets which, understandably, makes some investors hesitant to invest. Especially at a time when recession fears loom over the market. However, I'm not too worried to invest in Air Lease's balance sheet, given the company's strong management team and the fairly predictable nature of their business. Also, macro-level factors like low interest rates and oil price only favor Air Lease and their number one customers.

Bought: Genovis (GENO.ST)

I bought Genovis (GENO) on 28 May at 18.10 SEK because:

I’ve been on the lookout for a lesser known growth stock to spice up my otherwise quite conservative portfolio and chose to bet on the Swedish enzyme maker Genovis for multiple reasons. The 1.15 billion SEK market value for a company with only 34,5 million SEK in annual sales (2018) is sky high, but if one takes a proper look at how both the business and the numbers have developed from quarter to quarter, it starts to seem clear that Genovis is entering a rapid growth phase while becoming profitable at the same time.

Genovis’ business model is based on producing enzymes that help large biotech and pharma companies develop and test biological drugs quicker and more efficiently. Given that the market size for pharmacological drugs is somewhere close to a trillion dollars a year and big pharma companies spend enormous bucks on R&D, Genovis, with its clear value proposition, certainly holds exponential growth potential.

Genovis’ products are used in several stages of the drug development value chain by an impressive lineup of customers, including practically all major big pharma companies from Johnson & Johnson to Pfizer. The sales of Genovis’ enzymes have surged over the past three quarters and in the first quarter of 2019 net sales grew by about 91 percent compared with the corresponding period in 2018. Operating earnings have also improved significantly and Genovis has now achieved an operating profit for three consecutive quarters.

Currently Genovis’ product lineup consists of 13 products, with the latest product launch taking place just yesterday. A particularly satisfying piece of news, as all the previous Genovis products have seemed to find their place on the market and the sales have grown steadily across the whole product portfolio.

As a stock, Genovis is currently extremely speculative, but the company has many things going for it:

• The balance sheet is in a decent shape.

• Genovis has a solid product portfolio. Plus a customer base with pockets as deep as the Mariana Trench.

• The fundamentals are progressing rapidly every quarter.

• Genovis has validated its road to profitability.

• Genovis is becoming a lucrative acquisition target for multi-billion dollar companies.

I couldn’t resist the temptation to put a little skin in the game.

The stock has already traded above 21 SEK, so I expect Genovis to break out from the 20 SEK level very soon if they keep firing on all cylinders. I’m in this for the long term and hope Genovis produce exponential returns in five to ten years.

Bought: Alphabet (GOOG)

I bought Alphabet (GOOG) on 15 May at $1,116.78 because:

Google’s parent company Alphabet just reported their Q1 2019 earnings and Wall Street didn’t like what they saw. The Q1 revenue and earnings came out lower than expected and the stock tanked about 10% after the earnings call, which provided me a long-awaited chance to pick up one of my favorite value stocks at a discount. Here’s why I consider Alphabet to be not just a great business but a great stock as well.

I’ve blamed myself for years for not owning Google even if I’ve been fully aware of the value their ad network – especially paid search – has brought to advertisers since the invention of search advertising and the Google AdRank system. For over ten years, I’ve seen the phenomenal ROI of search advertising in practice, and it’s been clear all the way that the ad engine behind the majority of Google’s profits is built to last. With the global digital marketing spend predicted to grow from the current $230 billion to $300 billion in the upcoming year(s), and Google owning nearly 40% of the digital advertising market, it seems clear that the core business is set for growth despite regulatory risks and the quickly arising competition from Facebook and Amazon.

Even if the Q1 revenue growth was a disappointment for analysts, I considered the dip an awesome buying opportunity as for a company this big, Google has had an amazing capability to constantly grow the top line while retaining extraordinary operating margins. What struck me most in the Q1 earnings was the extremely impressive free cash flow, coming in at over $7.36 billion, which is an increase of over 70% year-over-year. Alphabet is a cash generating machine and I remain optimistic that their top leadership and intelligent workforce will keep finding good use for the money.

Alphabet has a monster balance sheet with over $138,207 billion in current assets, $245,349 billion in total assets, and just $61,877 billion in total liabilities, making it one of the best balance sheets out there.

I still consider the YouTube, Waymo, and Google Cloud parts of Alphabet’s business to be undervalued, setting the company up for growth in the not-so-distant future. Without even mentioning the company’s potential to capitalize on their lead in AI/machine learning technologies. Google has only a little exposure to China so the escalating trade war is not a big concern to me.

At $1116, the stock was trading at the same levels than almost exactly a year ago, and the business has gone forward a lot since that. With a healthy and growing core business and promising “other bets” I see Alphabet in the $1100 - $1120 range as a good value play with a potential 20% upside still this year.