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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (74954)	1/27/2024 11:19:28 AM
From: Harshu Vyas	Read Replies (1) \| Respond to of 78497

My concern with some of these picks is the leverage. Refinancing at higher rates even with opportunistic debt buybacks and asset sales where possible won't work out well for shareholders everywhere. I really don't see CBs cutting rates and too many companies have such high debt burdens that the viability of the business has to be brought into question by analysts. Capital structures are too important to ignore. High interest charges are great because they're tax deductible (according to some "market experts") but what happens when higher interest charges result in a loss-making, cash flow stagnating business? AKA zombie companies. Most leveraged companies simply got lucky for the last forty years as rates fell and economic conditions were fair. I think that has to change. With all of the geopolitical risk in the world, the signs are there. Of course, there are a few outliers where the potential upside cannot be ignored (Burry's QRTEA pick is the most obvious). But too much of your portfolio in such stocks - whilst you may make a huge gain - is risky. Where's the margin of safety? I think value investors will get caught toying with leverage because it hasn't really blown up in their face in the past. Hell, betting on leverage has been the way to go for the "longest" time. You can always buy and sell value companies and there are many, many cheap, leveraged companies on an P/EBITDA basis. But me, I'm trying to not get caught buying companies that will be in a constant cycle of having to tap lenders. But such companies are hard to find at fair prices. Jmo.