Postcards: An Escape From MD, A Religious Revival, and Three Reversion Momentum Plays

So long, bag taxes! Goodbye, high income taxes. And good riddance to a $5 tax to flush the toilet. It's been educational. Plus, we valuate three cheap stocks and ask a question about each opportunity.                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: An Escape From MD, A Religious Revival, and Three Reversion Momentum Plays]( So long, bag taxes! Goodbye, high income taxes. And good riddance to a $5 tax to flush the toilet. It's been educational. Plus, we valuate three cheap stocks and ask a question about each opportunity. [Garrett {NAME}]( Nov 24   [READ IN APP](   Dear Fellow Expat: Baltimore County, Maryland, is the first county in the state to implement a bag tax at grocery and retail stores. It’s not going over well. The radio hosts are complaining. The cashiers are apologizing. And there’s already an effort to recall the County Executive, John Olszewski, Jr, who unsurprisingly has spent his entire career in politics or lobbying. Like his daddy, he was a politician, you see. He famously voted for a [Rain Tax]( - one of the dumbest ideas in Maryland history - which was eventually repealed. Look for this bag tax to go away as well. These are the types of government ideas that end political careers. [They’re not just nickeling people to death]( (5 cents a bag), but they’re creating a massive inconvenience while people try to carry lots of groceries (with tons of petroleum-based plastic packaging out of the store.) [It makes NO SENSE](. Launching this tax right before the Thanksgiving and Black Friday shopping season wasn't the best idea. But maybe that was the point of the cash grab before the peasants soon revolted. I’ve seen a lot of dumb taxes in my life. In Chicago, the plastic bag tax hit 10 cents - but no one seemed to care because the [Cook County sales tax was already above 10%](. How can you notice when you’re taxed for everything BUT breathing in Chicago (and don’t worry, [they’re working on that]( It did nothing to reduce plastic waste - as everything in the retail shops has petroleum in them - especially the amount of plastic in the packaging alone. But hey - Progressives. They’re “doing something,” then turn around and condescendingly ask, “What are you doing about the climate?” [The problem is they never stop doing things.]( If you think the plastic bag tax is bad, then be sure to check out Maryland’s Flush Tax. Not long ago, in a never-ending attempt to save the Chesapeake Bay, the defenders of Gaia introduced a $5 per month fee on sewer bills and a $60 a year fee on septic tank owners. Talk about the old government motto: “It it moves… tax it.” And remember all the politicians blaming greedy energy companies for higher taxes at the gasoline pump? The average energy company makes about 10 cents per gallon in margin. The State of Maryland taxes 47 cents per gallon. Maryland’s government would take it all if it could - like most people in Washington - their leaders don’t believe your money is yours. They claim that “government is the things that we choose to do together” - when it’s “what they choose to do to you and your money and your future.” I’m looking forward - once again - to having no state income tax bill again in 2024. Now, let’s try to put some saved money to work. Finding Reversion Potential We’re boarding Flight 3501 on Southwest from Baltimore to Fort Myers. And as you might expect, all the wheelchairs are lined up. Like the last one, there will be a religious revival in about 45 minutes. [This running joke NEVER fails.]( Stand. And WALK! I’ve been sitting here thinking. With the money I’ll save in state taxes this year, it’s time to start looking for reversion candidates in the stock market. I’m talking about companies with strong management, solid margins, little debt, and trade at attractive multiples. Will Maryland Pass a Turbulence Tax? Today, I want to highlight a few ideas before I dig deeper into them next week. These are not recommendations - and they’re for education only. This is the quantification process. The qualifying element comes later. Please do your own diligence before making any decisions. No. 1 - Vishay Technology (VSH) This week, I couldn’t believe that NVIDIA ([NVDA]( nearly hit a 250% return since bottoming out in December 2022. NVDA is a pure momentum stock - and it’s been pulling back from the $500 level and overbought conditions. But it’s trading at a stunning 63x earnings and 26.3 times sales. That latter number means it must pay investors 26.3 years of top-line revenue to justify its price. That’s simply insane. Meanwhile, Vishay Technology ([VSH]( sits in a bin of misfit toys in the semiconductor space. The company produces for the aerospace, automotive, computing, consumer, industrial, medical, military, and telecommunications markets. In the last 5.5 years, the company has produced roughly $1.4 billion in free cash flow and paid $330 million in dividends. Shares have pulled back nearly 30% since July highs, and it’s trading at a more reasonable 9x earnings and under revenue. All the while, it has a reasonable debt burden, with a Z score sitting at 2.95. Its EV-EBIT sits near 5.3. Yet, despite these numbers, Wall Street analysts give this sparsely covered stock upside of just $24.57 (or 10% from today’s prices). And executives at the company (primarily the Chairman of the Board) have been net sellers of the stock - just lower than where the stock sits today. So what gives? That’s what we need to explore in the company’s 10-K, and by talking to analysts across the space. With semiconductor demand expected to swell - especially in a mandated future of electric vehicles (while the government subsidizes the stock), there has to be more to this low valuation. Or shall we suggest a value trap? No. 2 - Ingles Market ([IMKTA]( Let’s move on to something else. I grew up in the grocery business, and I’m always fascinated by how grocery stores lay out and prioritize their products. It’s one of the reasons why I studied Agribusiness at Indiana. We’re looking for low-risk in a sector that isn’t going away. Amazon Prime and Walmart haven’t cracked the code for grandma to stop going to the grocery store. And this is still an industry ripe for consolidation in the future. The only argument I can see against grocery stores is the rise of weight-loss drugs, but we still don’t know much about their long-term efficiency. You can hedge your Novo Nordisk (NVO) - the maker of Ozempic and Wegovy - with grocery stores. The companies that get the big focus are Walmart ([WMT]( or Kroger ([KR]( - largely because my friend Chris Johnson constantly talks about the latter. But something is interesting in the recent pullback in Ingles Market ([IMKTA]( an operator of roughly 200 stores in the southern Appalachian states. It’s a name that’s taken a hit in its valuation and profit figures over the last year - but it’s now trading at 6.7x earnings and at roughly 25% of revenue. And it’s been growing its revenue very well over the last 20 years. On the insider front, one director has been selling shares all year. She’s dropped $3.3 million in stock. It could be that she’s worried about the stock… or she might just buy a mansion along the Appalachian Trail. We’d be more concerned if many executives were all selling simultaneously (a process called Cluster Selling.) We’d need to [look further at this one]( - as I suspect concerns about margins, its current cost of debt, or its debt to cash on hand. That said, grocery stores should have a long-term recession-proof status. The more food inflation levels out, the better a name like this could be. No. 3 - Tenaris SA ADR ([TS]( Now, here’s an interesting tale. Tenaris SA ([TS](. It’s a Luxembourg-based, Italian-founded steel producer and fabricator for the global energy industry. It operates in Argentina, Brazil, Canada, China, Colombia, Italy, Japan, Mexico, Romania, and the US. Its average price target is $43.40 (about 27% higher than today’s price), and it’s trading at an EV-EBIT of 3.4, a PE ratio of 5.5, and it’s kicking off a 3.2% dividend. So what gives? Well, dollar risk comes to mind immediately, as a stronger U.S. dollar has impacted exchange rates and, thus, profits. But this company is weathering the [global geopolitical storm]( concerns about global economic growth, and questions about the future of energy transmission. It has a [Piotroski F score of 9 (perfect)]( a Z score of 6.5, a cash-to-debt of 4.5x, fantastic margins, [and a price-to-Graham number of just 0.56x](. Earlier this year, the stock was sitting on its best revenue, cash flow, and net income metrics since 2014. All the while, the critical metrics that I listed above are hovering near all-time lows. Yet, the stock is effectively flat this year. We’ll need to learn more. But there is an opportunity here - especially as central banks get more active and liquidity expands more and more globally. Qualify Everything One of the most important rules of the Florida Republic is to “[Qualify Every Opportunity”]( emerges for us. We have to ask WHY an opportunity is emerging in this environment. These can be either micro- or macro-economic (and sometimes both). The good news about stocks that we hope to see reversion momentum or mean reversion is that the downside of these names is largely limited. We tend to see far more upside than we do downside, and managing risk is a critical part of the game (that’s why [I cut the price of Republic Risk Letter for TODAY only](. Click here to get your [Black Friday discount]( So, we’ll dive deeper into one of these names over the weekend to decide if it’s worth our long-term focus. Most likely Tenaris, given my desire to “own the roads” regarding the global energy markets - even if there’s a Green Transition](. 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