Last week, I introduced the idea of ten concrete concepts that our high yield research team uses to help summarize the many interacting factors and variables that make high yield a unique and challenging asset class. In my previous blog post, I covered the first five: cash flow, capital, cushion, cyclicality, and competition. To finish up this thought, here are the last five:
Cost Structure – A company can’t provide products and services to customers without incurring some costs. Within a particular sector, many companies face similar cost pressures, but not always. For instance, there is a currently great disparity between the cost of natural gas in Europe (high prices) and in the United States (low). This has created a tremendous opportunity for companies in the chemical sector that use natural gas as an input to their production process.
There have been many classic debates in popular culture over the years. In technology we’ve had PCs versus Mac, and then Droid versus iPhone. In beverages, we’ve had Coke versus Pepsi, while in entertainment we’ve suffered through Team Edward versus Team Jacob. And baseball will always have the Red Sox versus the Yankees. Even in investments, we have had our own ongoing version of a great debate, which has been simmering for a few years, yet this one involves asset allocation and is much more meaningful and significant: will there be a “great rotation” out of corporate bonds into equities? Read more
The Principal Financial Group® (The Principal®) is a leading global financial company offering businesses, individuals and institutional clients a wide range of financial products and services.
Our range of products and services includes retirement solutions, insurance, wellness programs, and investment and banking products through our diverse family of financial services companies and national network of financial professionals.