Company Reports

Starbucks is the largest specialty coffee chain in the world, generating $36 billion in sales during fiscal 2023. The firm’s attention to premium-quality coffee distinguishes it from chained competitors, alleviating pressure from quick-service peers and at-home consumption while underpinning substantially higher pricing for what has historically been a commoditized product. This positioning looks increasingly important to us moving forward, as vending, single-serve coffee machines, and quick-service restaurants continue to improve at the lower end of the market, and as China approaches a similarly tiered competitive equilibrium.

With over 1,400 affiliated retail locations across multiple different banners, no-moat Canadian Tire serves as one of Canada’s leading general merchandise retailers. The firm sells a wide assortment of goods spanning automotive parts, home furnishings, appliances, and home improvement items at its iconic namesake banner, which accounts for over 500 locations. Recent acquisitions of various sporting goods and apparel chains have further bolstered its footprint and given the firm an ingrained presence in Canadian communities.

Like peers, narrow-moat Kimberly-Clark has been inundated by a slew of challenges, including a tepid economic environment and elevated cost pressures. In this context, management has been forthright that its market share has lagged, and consumers are increasingly trading down to lower-priced options in select categories to preserve cash. We think this could prompt a step-up in promotions across its categories—now that industrywide supply/demand imbalances have largely been put to rest.

A decade-long transformation of Michigan's utility regulation and DTE Energy's business mix sets up the company for a long runway of growth investment opportunities. The clean energy transition is the cornerstone of this growth.

NOV is the fourth-largest diversified oilfield-services supplier after Schlumberger, Halliburton, and Baker Hughes. It competes with the Big Three in many end markets, but its significant presence in equipment manufacturing sets it apart. NOV is the largest original equipment manufacturer of rig systems for oilfield-services providers in both onshore and offshore markets. It's maintained majority market share for two decades, controlling over half the market.

Cogent provides internet and private network connections for enterprises, and it carries internet traffic for internet service providers, content producers, and other websites. Both businesses face challenges as technological advancements allow those functions to be performed at lower cost, but we think Cogent's strategy leaves it positioned to succeed.

Weatherford is one of the larger oilfield service firms in an otherwise hyper-fragmented industry. However, in terms of size, it remains some distance from the industry’s Big Three: Schlumberger, Baker Hughes, and Haliburton.

Tenaris is the largest provider of oil country tubular goods, the steel tubing used to construct oil and gas wells. It controls nearly half the global OCTG market, providing premium and nonpremium solutions for offshore and onshore applications.

The fruits of Clorox's work to put pronounced inflationary headwinds and supply chain angst to rest were sidelined as a cybersecurity breach in mid-August forced it to take some information technology systems (including ordering) offline. Although this initially strangled sales and profits, we don’t surmise the firm’s competitive edge has been eroded. On the contrary, we think its entrenched standing with retailers will continue to enable it to build back its shelf position, similar to its inventory revival coming out of the pandemic.

Expedia's migration to a unified platform during 2020-23, which shares data, supply and loyalty (OneKey) across its brands, versus having it in a siloed structure previously, stands to support its network advantage, the source of its narrow moat, and foster margin expansion opportunity. We think worker flexibility will increase long-term travel demand. We developed this positive stance because higher-income occupations (like those in technology, finance, legal, and architecture) are in industries that are the most likely to support ongoing work from remote locations.

Narrow-moat Hanesbrands is the market leader in basic innerwear (about 60% of sales) in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, slowing demand for apparel, higher interest rates, and a highly competitive athleisure market, we think Hanes' share leadership in replenishment apparel categories puts it in position for improving results in the coming years. In May 2021, the firm unveiled its Full Potential plan to expand Champion globally, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

Covid's headwind on Wynn's Macao operations (51% of estimated 2024 EBITDA) eased greatly in 2023, after China removed restrictions Jan. 8, 2023. Still, the Macao government continues to heavily regulate VIP play, elevating long-term operational risk. Also, Wynn has exposure to the expected long-term shift away from VIP gaming revenue toward nongaming and mass play. That said, we see an attractive long-term growth opportunity in Macao, with Wynn's high-end iconic brand positioned to participate, leading to an estimated low-teen percentage gross gaming revenue share in 2024.

While inflation and credit market concerns present potential risks to Booking's near-term travel demand, we see the company exhibiting solid financial health and a stout network advantage. We expect Booking's global online travel agency leadership position to increase over the next decade, driven by a healthy position in the Asia-Pacific, continued leadership in Europe, and an expanding presence in vacation rentals, restaurant bookings, experiences, flights, and payments, all of which are backed by leading marketing and technology scale.

Catalent is a leading contract development and manufacturing organization, or CDMO. The company has an extensive network of partnerships with pharmaceutical and biotechnology firms that leverage its expertise and scale to optimize drug production and avoid the risks of in-house drug manufacturing. The challenges and compliance risks associated with changing a drug’s manufacturing process create a sticky relationship for Catalent’s customers. Drug companies tend to stick with trusted suppliers with good track records of regulatory compliance, which makes them unlikely to switch to a different CDMO.

Lithium Americas aims to become a pure-play lithium producer. The company was created as a result of the former Lithium Americas separation, which split the firm's North America business, which is the current Lithium Americas, from its Argentina business, which was named Lithium Argentina.

Squarespace offers subscription-based drag-and-drop website-building software that caters to various use cases, including e-commerce, blogging, and portfolio websites as well as stand-alone software for social media content design, hospitality management, and scheduling.

Umami, the fifth basic taste, lays the foundation of Ajinomoto's business, which centers on the research and development of amino acids and related products. Ajinomoto has diversified its business into fields ranging from food to animal nutrition to healthcare by leveraging its research findings of umami and fermentation technologies used for amino acid production.

We think Sega Sammy is now seeing new opportunities through the globalization of its well-established intellectual property, or IP, with expanding platforms and markets. In addition, the acquisition of Rovio has also helped to expand its IP library, providing positive synergy in growing its mobile game business, and expanding its global presence. We expect all of this to improve Sega’s competitiveness and growth outlook. Coupled with the solid operation and decent profitability at Sammy’s pachinko and pachislot machine business, this should allow it to generate economic profit well into the future, unlocking the company’s long-term value.

Pan Pacific International Holdings established its footprint in Japan through Don Quijote, its chain of discount retail stores, which attract foot traffic through the abundance of closeout products and constantly changing assortment of products. Discount store buyers have more flexibility versus general merchandise stores in procurement and decision-making to source the most suitable products for local communities where stores are located, enhancing their market position.

We view Gen Digital as a strong vendor in the consumer-oriented security space. With offerings ranging from security, identity protection, and privacy, Gen has its fingers in many consumer-focused pies. However, as we look at the overall consumer-focused cybersecurity space, we see cutthroat competition, a lack of pricing power, and a lack of evident customer switching costs. With these factors top of mind, we expect Gen's future growth prospects to not be in excess of low single digits.