september 2019 meetings/sep 2019... · + sentiment has an impact to the extent it impacts actual...

1 © GKV Capital Management Co., Inc. | gkvcapital.com

GKV Capital ManagementSeptember 2019

Investment Outlook


President, Portfolio Manager+ 25 years in investment analysis and portfolio

management.

+ Expert investment analysis asset valuation.

+ Ranked in the Wall Street Journal’s “Best on the Street” analyst survey for his work as a research analyst for the software industry.

+ Frequent guest on CNBC, Bloomberg and CNN. Appearance in the major financial press and daily stock market updates for KNBR 680 AM and 104.5 FM

Greg Vogel


Fundamental security analysis+ Fundamentals: sales, earnings and growth are the valuation arbiter+ Macro economic factors matter- inflation, wages, unemployment dictate changes to asset allocation+ Sentiment has an impact to the extent it impacts actual sales and earnings+ Politics only matters to the extent it impacts actual sales and earnings

The markets are made up of human investors+ Semi-efficient and prone to overreactions- fear, momentum, greed+ Investment will revert to the fundamentals given time+ Economic growth rates, asset performance eventually revert to the mean

Evaluation of Investment Opportunities


Valuations are optimistic (12% earnings growth in 2020 and 16.4x 2020 earnings) Slower earnings growth in 2019, will earnings growth accelerate in 2020?

Tariffs and Trade Wars are Bad for Earnings Global Economy is Weak; US Consumer is Great

Inflation Risk+ Bad for equities, very bad for fixed income, bad for real estate

Recession Risk+ Bad for equities, negative for fixed income, bad for real estate

Geopolitical Risk+ Bad for equities, bad for fixed income

Macro Risk Factors


Economic Outlook

2014 2015 2016 2017 2018 2019E Change 2020E ChangeU.S. 2.4% 2.9% 1.5% 2.2% 2.9% 2.3% -0.2% 1.9% +0.1%World 3.4% 3.4% 3.2% 3.6% 3.6% 3.3% -0.2% 3.6% 0.0%

GDP Growth

Positive Earnings/Slower Global Growth+ Corporate earnings growth is slowing with global weakness+ Earnings growth is forecast at 11.9% in 2020+ Record profitability (operating margins of 11.2% vs 13 year average of 8.8%)

Risks include trade disputes, U.S. political, geo-political. Long-term- debt growth

IMF, April 2019 WEO update


Corporate Earnings Drive Stock Prices

0

500

1000

1500

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3000

$0

$20

$40

$60

$80

$100

$120

$140

$160

$18019

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

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1620

1720

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20

EPSSPX

Dow Jones LLC, estimates 9/24/2019


Equity Valuations

0x

5x

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15x

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25x

30x

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40x

100

600

1,100

1,600

2,100

2,600

3,100

3,600

S&P 500P/E

GKV Capital, February 28, 2019


Equity Valuations

Source: Dow Jones LLC * as of 9/26/2019

2013 2014 2015 2016 2017 2018 2019E 2020ES&P 500 EPS $107.30 $113.01 $100.45 $106.26 $124.52 $151.60 $161.46 $180.64EPS y/y growth 11% 5% -11% 6% 17% 22% 8% 12%S&P 500 Index 1848 2059 2044 2239 2673 2507 2966Index y/y return 30% 11% -1% 10% 19% -6% 17% YTDTrailing P/E 17.2x 18.2x 20.3x 21.1x 21.5x 16.5x 18.4xForward P/E 16.4x 20.5x 19.2x 18.0x 17.6x 15.5x 16.4x


Earnings Estimate Revision History

Source: Dow Jones, LLC as of 9/26/2019

2013 Estimate$117.91

2013 Actual $107.22


2014 Actual$113.04

2015 Estimate $137.24

2015 Actual$100.45


2016 Actual$106.60


2017 Actual$124.52

2018 Estimate$147.27 2018 Actual

$151.60


$176.29

$161.46


$180.64

$98.00

$108.00

$118.00

$128.00

$138.00

$148.00

$158.00

$168.00

$178.00

$188.00

$198.00


Equities are Volatile

38%

23%

-13%

20%

-30%

32%

-12%

26%

-10%

1%

26%

2%

27%

-7%-2%

34%

-23%

26%

-38%

23%

0%

30%

-1%

19%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

1958

1960

1962

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1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Std. Deviation of 16.2%

Average Returnof 8.3%

Dow Jones, LLC


Traditional Finance

S&P 500 Return 8.2%

TheoreticalReturn 8.2%

InvestmentReturns

InvestorReturns

Investors are rational

+ Accurate forecasting+ Unemotional+ Unbiased judgement

Markets are efficient


Behavioral Finance

Investors are human

+ Heuristics+ Emotional+ Flawed assumptions

Markets are semi-efficient

S&P 500 Return 8.2%

BehavioralGap 6.1%

ActualReturn 2.1%

Source: DALBAR, Inc. Average investor returns are based on an analysis by DALBAR, Inc., which utilizes the net aggregate ofMutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized and representThe 20-year period ending 12/31/15.

InvestmentReturns

InvestorReturns


Managing Volatility

Total Std. Total Std. Total Std.Return Deviation Return Deviation Return Deviation

3 Year 14.6% 11.2 9.4% 7.6 5.6% 5.15 Year 10.8% 11.2 8.7% 7.4 4.7% 4.810 Year 10.8% 12.9 7.6% 8.6 5.5% 5.615 Year 8.3% 13.6 6.3% 9.2 4.9% 6.0

Cash10%

Equities30%

Bonds60%

ConservativeCash10%

Equities60%

Bonds30%

Moderate

Equities100%

Aggressive

Source: Morningstar, data for periods ended December 31, 2018Annualized monthly standard deviationBond index is Barclays US aggregate total return


Unemployment vs. Inflation

Source: Bureau of Labor Statistics

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

InflationUnemployment


10 Year Treasury Yields

0%

1%

2%

3%

4%

5%

6%

7%

8%

U.S. Federal Reserve, 8/30/2019


U.S. Government Debt as % of GDP

IMF World Economic Outlook

40%

50%

60%

70%

80%

90%

100%

110%

120%

US Gov't Debt


Asset Class Performance - Quarterly


Performance by Sector

* as of 9/24/2019

Sectors

YTD Performance Gross Profit Margin (Quarterly)

EV to EBIT (TTM) Dividend Yield (TTM)

PE Ratio (TTM)

Basic Materials 12.53% 23.80 14.3 4.5 12.9Communication Services 23.26% 54.41 11.9 5.3 15.1Consumer Cyclical 21.55% 27.00 18.8 3.8 20.0Consumer Defensive 19.27% 28.22 18.7 2.8 22.2Energy 8.50% 25.19 10.0 5.2 11.3Financial Services 23.57% 42.84 8.9 6.0 10.3Healthcare 7.79% 38.10 19.8 3.3 21.4Industrials 25.10% 23.92 16.3 3.8 17.0Real Estate 27.29% 42.57 19.4 3.6 20.0Technology 29.88% 39.98 20.3 2.8 22.6Utilities 23.07% 32.80 17.9 4.3 16.8


GKV Capital Management

GKV Capital Management is a registered investment advisor with the SEC since 1974

We provide independent, client-specific, expert portfolio management services

Independent – fiduciary responsibility; no products, no conflictsPersonal – custom portfolio construction to meet individual needsExpert – actively managed to reduce investment volatilityTransparent – understand your investments, performance, and fees


Greg VogelPortfolio Manager

GKV Capital [email protected]

Contact Us

mailto:[email protected]

september 2019 meetings/sep 2019... · + sentiment has an impact to the extent it impacts actual...

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