Giles Capital Weekly - Week 29

Welcome to another edition of Giles Capital Weekly. Asian stocks rebounded on a chips rally as South Korea's July exports hit a record on AI-driven demand, reinforcing the technology cycle narrative even as Oracle's credit risk reached an 18-year high on AI debt concerns. US strikes on Iranian targets and Houthi threats to Red Sea shipping pushed gold higher and kept oil uncertain. Latin America outperformed as emerging market currencies gained, a reminder that alpha this decade may sit far from where current multiples are highest.

Our top picks this week are Show me the incentives... on InMode, an Israeli medical device company where $537m in net cash sits against a $960m market cap, and two competing groups are contesting control at a premium to the current price, and Musa Iftikhar on Lucky Cement, Pakistan's largest cement producer at 6x forward earnings despite a 35% five-year growth rate and half its earnings now generated outside the country.

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N.R98 on The Buckle (🇺🇸 BKE US - US$2.2bn)
Strip out the Q1 litigation benefit and earnings were flat. Founder family owns a third, zero debt, $266m in cash. Insiders are net sellers.

Rebound Capital on Amazon (🇺🇸 AMZN US - US$2.6tn)
AWS has a $364bn contracted backlog and silicon cutting compute costs roughly in half. Fair value sits well above today's price. Strong thesis, not a cheap entry.

Hated Moats Investors on MercadoLibre (🇦🇷 MELI US - US$92bn)
Dominant across LatAm e-commerce and fintech, though margins remain thin at 4.7%. Revenue grew nearly 50% in Q1 and the stock still fell. Growth thesis only.

N.R98 on Compass Diversified (🇺🇸 CODI US - US$760m)
Management fee was halved on July 13, bonuses now tied to the stock price, CEO succession settled. Trades at $11 against a sum-of-parts value of $27.

Marc Rubinstein on Stryker (🇺🇸 SYK US - US$125bn)
Surgical robotics market leader with an unbroken 32-year dividend streak. Trading below its own historical average post-cyberattack. Net debt of $12.3bn is the counterargument.

Show me the incentives... on InMode (🇮🇱 INMD US - US$960m) TOP PICK
Two groups are bidding above market. Net cash of $537m covers more than half the $960m market cap. The balance sheet is doing most of the work.

Angsana Anderson on Craneware (🇬🇧 CRW LN - £490m)
Dominant US hospital software at 40% market penetration. The stated 14x P/E may be significantly higher after adjusting for a regulatory delay. Recovery thesis. Tread carefully.

Price to Tangible Bruce on Orchard Funding Group (🇬🇧 ORCH AIM - £13m)
Micro-cap UK lender at 4x earnings, below tangible book, 20% ROE. CEO holds the majority. Two-year-old fraud resolved, overhang removed. Liquidity extremely thin.

Simon on Trainline (🇬🇧 TRN LN - £2.0bn)
Trading at 7x EV/EBITDA with returns consistently above 20%. CEO exits in September, successor already named. UK regulatory headwinds are real. European rail liberalisation is the multi-year thesis.

Musa Iftikhar on Lucky Cement (🇵🇰 LUCK KSE - US$2.3bn) TOP PICK
Pakistan's largest cement producer, 6x forward earnings despite 35% five-year growth. Half its income now comes from outside Pakistan. The frontier discount hasn't fully closed.

Adrian Ford on Reckon (🇦🇺 RKN AU - US$31m)
Core accounting software for Australian SMEs trading under 4x EV/EBIT. The CEO draws nothing until shareholders receive A$150m in cumulative distributions. Liquidity thin.

Ozeco on Samsung Electronics (🇰🇷 005930 KS - US$220bn)
Quarterly profit came in 19x the year-ago number. The headline 4.6x P/E is much less cheap once cycle-normalized. Buyback program and possible US listing remain unpriced.

Quality Equities on SK Hynix (🇰🇷 SKHY US - US$55bn)
More than half the high-bandwidth memory market, with Q1 margins above 70%. Cycle-normalized earnings make 5.4x look considerably less cheap. Worth revisiting if the capacity ramp stalls.

Eric Jurado on PTFC Redevelopment (🇵🇭 TFC PM - US$30m)
Debt-free Philippine compounder in storage and leasing, trading well below intrinsic value. 18% ROIC sustained for a decade. Market cap under US$30m, trading thin.

DAN KOE on BYD (🇨🇳 1211 HK - ~US$90bn)
Q1 earnings fell more than half on domestic price war compression. Overseas sales surged. Cheap on the headline number. Where the earnings floor sits is the question.

The Financial Pen - From Chickenjoy to Capital Allocation
Jollibee's grip on the Filipino diaspora is extraordinarily strong. Its hold outside that diaspora is not. The Financial Pen uses the Chickenjoy phenomenon to examine what happens to capital allocation when a brand's cultural moat becomes a geographic ceiling, and whether acquisitions can substitute for organic reach. (22 min read)

Invariant - Flash in the Pan
Devin LaSarre profiles Woodhull and Claflin, the first women brokers on Wall Street, whose market success evaporated in the Panic of 1873, and Hetty Green, who used the same crisis to compound her fortune. Buy when nobody wants it. Sell when they're crazy to get it. (8 min read)

The Intellectual Edge - An all too common investment story
A case study walking through the full lifecycle of a familiar investor mistake: the initial thesis, the signals that it was wrong, and why most people don't act on them. The Intellectual Edge traces the cognitive fault lines from entry to exit. (8 min read)

Lionheart Investing - Cheapskate: Ride or Die
Lionheart launches a concentrated paper portfolio built entirely from Net-Net stocks, applying no quality filter. The thesis: accept blow-up risk from individual names, trust diversification to cover losses, and let statistical cheapness do the work. A useful counterpoint to the quality-at-a-price consensus. (12 min read)

Quality Equities - What Is a Reverse DCF? How to See What the Market Is Already Pricing In
The reverse DCF flips the standard model: instead of forecasting growth, you solve for what growth rate the current price implies, then ask whether that figure is reasonable. Clean framework for separating expensive stocks from unjustifiably expensive ones. (12 min read)

TQI capital - Fundsmith's Hard Reality
Fundsmith's assets have shrunk from £29bn to £12bn as the fund trailed the MSCI World for most of the past five years. Terry Smith's response: 51.8% portfolio turnover in H1 2026, his highest ever. TQI Capital reads this as capitulation rather than adaptation. (12 min read)

Neo Kim - Why Investors Are Cooling On India?
India's GDP is growing fast. Foreign investors are leaving. Priyanka Kishore talks with Capital Economics' Shilan Shah about the disconnect: elevated equity valuations, accelerating portfolio outflows, rupee pressure, and doubts over revised GDP figures. Worth hearing before adding India exposure. (38 min listen)

Q2 2026 produced the strongest S&P earnings season since the post-COVID rebound, with earnings up nearly 29% year-on-year and the index returning 15.2% for the quarter. Value-oriented managers found little overlap with what drove it: FMI explicitly identifies the AI-related cohort as a bubble, noting 42 companies account for 76% of index returns while comprising under 10% of its members. The divergence in quarterly fund returns is stark, from Alger's +26.9% to Oakmark's +2.45%, all measured against a common S&P benchmark.

Right Tail Capital: No aggregate return reported this quarter; letter devoted entirely to initiating a position in HCA Healthcare. Letter discusses:

• HCA Healthcare (🇺🇸 HCA US - US$70bn) - New Position: largest US hospital operator at ~12x P/E; Frist founding family retains 30%, EPS compounding ~17% annually since 2011 relisting

Oakmark Fund: +2.45% Q2 vs S&P +15.20%; bought Booking Holdings near a 10-year trough valuation as LLM disruption fears created an entry point. Letter discusses:

• Booking Holdings (🇺🇸 BKNG US - US$160bn) - New Position: direct-booking loyalty program covers more than half of room nights; LLM disruption concern dismissed as observable traffic remains negligible

• Equitable Holdings (🇺🇸 EQH US - US$12bn) - New Position: less than 6x 2027 distributable cash flow; repositioning toward fee-based capital-light earnings via Corebridge merger

Wedgewood Partners: +9.4% Q2 net vs S&P +15.2%; makes the case that investors who sold hyperscalers to buy semiconductor hardware have made a category error. Letter discusses:

• Alphabet, Amazon, Meta and Microsoft - Increased: hyperscaler defense; Alphabet growing 30% returns on a $450bn asset base, Meta's DRAM capex largely offset by AMD warrants worth ~$90bn

• Hermes International (🇫🇷 RMS PA - €220bn) - New Position: 200-year luxury compounder, 11.8% long-term revenue growth, Birkin and Kelly allocation-only distribution creates structural scarcity impossible to replicate

Fiduciary Management Inc: Quality Compounders proxy fell 1% Q2 vs S&P +15.20%; Philadelphia Semiconductor Index gained 88% in the same period. FMI explicitly flags this as bubble pricing. Letter discusses:

• FTI Consulting (🇺🇸 FCN US - US$2.8bn) - Existing Position: AI displacement fears misplaced for crisis-specialist work; 2025 employee defection was isolated and resolved, buybacks continuing

• Capital One Financial (🇺🇸 COF US - US$65bn) - Existing Position: Discover acquisition could create a viable third payment network to challenge Visa and Mastercard with no additional credit risk

• Fluidra (🇪🇸 FRD SM - €3.5bn) - Existing Position: 70% of revenue tied to pool repair and replacement; post-COVID destocking largely complete, recovery entry point

Madison Small Cap Fund: +12.70% Q2 vs Russell 2000 +21.49%; limited AI and semiconductor exposure cost relative performance. Letter discusses:

• Indie Semiconductor (🇺🇸 INDI US - US$1bn) - New Position: selling commodity China business, acquiring industrial robotics and physical AI from Osram; automotive semiconductor inventory overhang clearing, intrinsic value $15/share

• Extreme Networks (🇺🇸 EXTR US - US$4bn) - New Position: cloud-managed enterprise networking taking share from Cisco and Juniper; Wi-Fi 7 upgrade cycle drives higher software attach rates, intrinsic value $40/share

• Belden (🇺🇸 BDC US - US$5bn) - New Position: acquired Ruckus Networks (Wi-Fi enterprise plus AI-driven cloud platform); market sold off on deal, Madison views it as transformational at limited integration risk, intrinsic value $175/share

Alger Capital Appreciation Fund: +26.94% Q2 vs Russell 1000 Growth +16.74%; outperformed by roughly 10 percentage points on concentrated AI infrastructure positions. Letter discusses:

• Nebius Group (🇳🇱 NBIS US - US$4bn) - Existing Position: vertically integrated AI cloud infrastructure; 1.2GW data center campus announced, in-house software and proprietary data center design deliver superior performance vs. GPU cloud rivals

• Western Digital (🇺🇸 WDC US - US$22bn) - Existing Position: HDD industry consolidated to two scaled manufacturers; cloud customer shift and areal density discipline improving margins, Q3 results beat on enterprise and cloud demand

• Astera Labs (🇺🇸 ALAB US - US$20bn) - Existing Position: PCIe, CXL, and Ethernet connectivity chips for AI data centers; expanding hyperscaler relationships, positioned at center of AI infrastructure build-out

Thanks to Insider Monkey for compiling the investment letters which are featured here.

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Disclaimer: This newsletter is for informational purposes only and not investment advice. The intro reflects my views, while investment summaries are my interpretations of original authors' analyses. Information may not be fully verified and is subject to correction. Original authors' complete views may differ. Always do your own research before making investing decisions.