Stagwell Inc (NAS:STGW) — mrkt cap $1.5B; Price $5.6; trailing P/E NA
STARTER POSITION INITIATED. Stagwell is a new-age marketing agency that serves blue chip companies and has grown through acquisitions. We believe media fragmentation is an underfollowed mega trend. CMOs are struggling with complexity such as where to advertise (Google, Meta, Ticktock, Amazon, OTT, Linear TV etc. ), how to best measure attribution, how to use AI to optimize ads, and how to best capture data-driven insights about customers. The legacy Big Four advertising agencies may not be fully equipped to deal with these digital challenges which creates an opportunity for STGW. Given the history of M&A in the advertising space, we would not be surprised to see STGW acquired although an EV/EBITDA at about 8x is enough to warrant a small position.
Graftech (NYSE:EAF) — mrkt cap $911mm; Price $3.50; trailing P/E NA
MORE RESEARCH NEEDED. We first wrote about passing on EAF a couple of months ago and it has fallen almost 20% since then. To summarize, EAF manufactures graphite electrodes that are used in electric arc furnaces (EAF) to produce steel. The reason for this update is that another potentially large demand driver for EAF could be EV battery anodes. Thus far, this EV graphite demand has been almost wholly met by China. However, due to subsidies and the domiciling of supply chains, EV manufacturers are looking at more domestic sources of supply. 90% of the graphite produced in China goes into EV batteries and 10% goes into electrodes; this is the exact inverse of the ratio in the USA. EAF is one of the largest domestic producers of needle coke which the primary ingredient to produce graphite and can be large beneficiary from this trend. EAF is currently dealing with a myriad of issues such as full channel inventories, recovering from a premature plant shutdown, and low electrode prices. We will be working to ascertain whether it will be a beneficiary of the EV trend and if so, it can be an opportune time to pick up some shares.
Zevia (NYSE:ZVIA) — mrkt cap $180mm; Price $2.00; trailing P/E NA
PASS. Zevia is a non-sugar beverage (from energy drinks to tea) that uses stevia as an artificial sweetener. Zevia has been around for almost 20 years and is found nationwide in mass market retailers such as Costco and Walmart. Given the new CEO’s marketing background (previously CMO of Redbull), Zevia’s strategy is oriented to breathing new life into the brand by leaning heavily into social media and other advertising mediums. Zevia has grown at modest rates (around 20%) and has recently hit supply chain snags. Zevia is not trading at a lofty multiple and is valued at around 1x sales, with about $40mm in cash and no debt. Predicting consumer tastes is extremely difficult (we passed on Celsius Holdings and it went up almost 40x since then) however that does not stop us from trying. We will continue to monitor Zevia.