It’s been a while since I’ve written an idea/thematic-heavy Long Pull Report. Mostly because I’m finding so much value in traveling to conferences, visiting other PMs, and writing Field Notes.
However, it’s important to stop and survey the idea landscape. So much is happening in markets that it can feel overwhelming. What do you research? Where do you spend your time? How do you know you’re focusing on the right ideas?
I’ve struggled with these questions for years, and only recently (with Claude Opus 5.5 and Bloomberg Plug-ins) did I develop tools to answer them.
This report explains my “new” process for generating new ideas from soup to nuts with these new tools. Think of it like the HUD for stocks, industries, and sectors.
I’ll use three different industries and company ideas to highlight the process: Apparel, Construction Materials, and Aluminum.
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Ideas & Themes: Where I’m Finding Interesting Setups
Here’s my weekly top-down investment research funnel:
Scan my Breadth Dashboard to see which sub-industries are the most left-for-dead and washed out.
Scan my Valuation Dashboard to see which sub-industries are historically cheap relative to their history, peers, and the S&P 500.
Scan my Growth Dashboard to find sub-industries with growth above their history, peers, and the S&P 500.
I’ve mentioned this before, but adding Dean to the team lets me focus on the opposite end of the momentum spectrum: the things no other investor wants to touch.
Here’s the latest top ten worst breadth sub-industries.
Sometimes each dashboard gives me different ideas, as you’ll see below.
Idea #1: Construction Materials & CRH Plc (CRH)
For instance, this Breadth dashboard flagged Construction and Materials/Equipment companies. So my mind was already “primed” to find ideas within this sub-industry.
I ran the Breadth Dashboard on Monday. On Tuesday, I had a call with a PM I consider high-signal. I constantly scan their 13F for new ideas, and we try to call once a month. And wouldn’t you know it, he pitched me the Construction Materials company, CRH Plc (CRH).
From there, I used my Sub-Industry Screener to compare CRH against its peers (see below).
CRH posted the highest Combined Score (valuation + growth) versus its peers.
That’s very interesting. I also checked CRH’s valuation relative to its history (see below).
The stock is ~2std below its 2YR historical EV/EBIT. It also trades at a 50% discount to more “Compounder Bro” peers like Vulcan (VMC) and Martin Marietta (MLM).
Shares are down 35% from their highs on recession fears, a slowdown in data center build-out, and the recent Arcosa acquisition. Despite those worries, CRH remains a terrific business that has increased revenues and expanded margins each of the last five years (see below).
I also like this business because it owns irreplaceable aggregate and rock quarry assets that benefit from local monopolies and NIMBYism. Aggregates is a location business. The company with the rock quarry closest to the customer wins because longer haulage times mean higher costs. Nobody will build a new rock quarry or aggregates facility if one is already there.
Finally, there’s the weekly chart (see below).
The stock has support around $70-$80/share, which should protect it alongside the low-valuation support.
Idea #2: Aluminum (CENX)
The next two ideas come from my latest “GARP Screen” dashboard. This dashboard combines all valuation and growth metrics to identify which sub-industries are both:
Historically cheap against its own history, peers, and the S&P 500
Growing faster than its own history, peers, and the S&P 500
Here are this week’s results (see below).
Aluminum and Apparel made the top five, with Aluminum in first place.
Remember, idea generation doesn’t live in a vacuum. Last week I called a friend who runs a defense/industrial business. He uses a lot of raw materials to make ballistic shields and other fun toys. I asked him how things were going, and he said, “We can’t get enough material fast enough. Supply is totally constrained, but we can’t really go elsewhere to get it because there isn’t any.”
He then said, “These aluminum stocks are so cheap, and it feels like they’ll have a few years of just insane profits given the supply constraints. Maybe we should take a look.”
Then, on October 21, David Einhorn pitched Century Aluminum (CENX) at the Robinhood Conference. Einhorn’s general pitch is that CENX will generate 90% of its EV in FCF by 2028.
The Sub-Industry Screener also confirms Einhorn’s belief that CENX is the cheapest aluminum stock out there (with the most growth).
Here’s another chart to show just how cheap Aluminum is compared to its history and peers on a Composite Basis (collection of valuation metrics)>
Finally, check out the monthly stock chart below. CENX has retraced ~50% from its highs and trades at the midline of its monthly Bollinger band.
Idea #3: Apparel (BIRK)
Apparel ranked fourth on this week’s GARP Screen. It scored sixth-highest in growth versus the S&P 500. Footwear, specifically, ranked 9th in valuation against the S&P 500 (see below).
However, Footwear/Apparel is a great example of the entire investment idea generation process. Normally, I’d scan the Sub-Industry Screen to see which names look the best on growth and value.
But my favorite idea in this space came from a 13F: Birkenstock (BIRK)
BIRK makes sandals. I guess they make other things? I only know the sandals. But my wife has two pairs, I have a pair, and she even bought my two-year-old daughter a pair.
I have a rule about investing. Obviously, we should buy what women buy (my entire Becky thesis). But we should go one step further and seriously consider anything a woman buys for her babies and toddlers.
The company grows revenues ~12-15%, generates 57% gross margins and 30% EBITDA margins. Those are great metrics.
BIRK currently trades near its lows and almost 2std below its 2YR average valuation (see below).
The company announced a $500M buyback program in August, which is ~9% of all the shares at today’s prices. This should provide some downside protection around the lows.
Conclusion: A Much Better Process
I can’t believe how much better my idea generation process is today than it was even 3-6 months ago. I told Alex last week that looking back, it felt like I was flying blind in markets. Not that I wasn’t finding ideas or coming up with interesting situations. It just never felt cohesive. It felt like I was chasing too much and being too reactionary.
Professional athletes sometimes say the game moves “too fast” when you first enter the major leagues. But over time, as you increase reps, the game “slows down” and you start to “see the ball” much more clearly.
It feels like the game is slowing down. That doesn’t mean it feels easy. But it does mean I’m improving my process to the point that it feels like an inflection point. Less reactive, more proactive. Less scattered, more focused and systematic.
The beauty of investing is that it’s a never-ending journey of perfecting one’s craft. I know I can improve so much more. But this is a great step in the right direction.
Here’s to more proactive hunting for new asymmetric Trifecta Lens setups!