Playing FTSE Episode 42: Peter Lynch‘s PEG bag, Johnson & Johnson splitting and a whole host of 13F‘s
What’s been catching the eye of both Steves this week? What’s Paul going to do about Johnson & Johnson? And which of the Playing FTSE team is the most ill? Find out in this week’s Playing FTSE podcast!
We kick the show off with the Steves talking about things that they’ve been buying in the last week. Earnings reports and other events have caused some significant price movements in stocks that the Steves are interested in, most significantly Brazilian Fintech StoneCo. A fall in the value of one of their investments coupled with a difficult economic situation in Brazil has caused a significant fall in StoneCo’s share price. Both Steves have been jumping on board. Steve D explains why.
Next up is this week’s game, which is all about the PEG ratio. A metric for valuing companies by comparing the Price-Earnings multiple to the anticipated EPS growth, the PEG ratio was made famous by Peter Lynch. Steve W asks the questions as Paul and Steve D try to guess which companies have the lowest (and therefore best) PEG ratios. Along the way, we discuss some of the things that the PEG ratio shows us (how stocks with low PE multiples aren’t always cheap) and some of the limitations of the PEG ratio (its inability to price stocks with no net earnings).
The big story of the week is the separation of Johnson & Johnson into two companies (presumably called “Johnson” and “Johnson”). As JNJ prepares to spin out its consumer products arm and hold onto its medical devices and pharmaceutical businesses, Steve W thinks about the motivations for the move, Steve D points out the change in leadership, and Paul talks about his plans for his JNJ holding.
In earnings news, US retailer Macy’s has shot up after earnings came in stronger than anticipated. A stock that was widely-regarded as a victim of lockdowns, travel restrictions, and pandemic measures, M stock has rallied remarkably since its April lows. Paul reflects on how that one passed him by as the Steves watch on.
Lastly, we finish with a review of some 13Fs. It’s that time of the quarter where the institutional investors show us what they’ve been up to. With quiet reports from Berkshire Hathway and Pabrai Investments, we turn our attention to the endlessly-fascinating Michael Burry. The news is that Burry’s been retreating away from the US and has exited the trading positions that were at the top of Scion’s holdings last quarter. As Steve W comments on Scion’s second-largest holding, Paul wonders about how investment decisions get made at Burry’s firm.