Five interesting things that Hodges Capital research analysts discovered this week...

#1 A POET AND DIDN'T KNOW IT: With a $3 trillion market cap, Microsoft is twice the size of the entire energy sector in the S&P 500, yet Microsoft has half as much in annual free cash flow. On the Microsoft Bing browser, a chat with CoPilot (AI) provided the following information, with a bit of taunting, on the following query. When was Exxon last on top?

“Exxon, at its zenith, stood tall, a corporate giant, revered by all. In the annals of wealth, it held its sway, a beacon of power, come what may. Back in 2007, the stars aligned, Exxon reigned supreme, its value defined. The world looked up, its coffers vast, a titan of industry, unsurpassed. But time, that fickle master, weaves its thread, and fortunes shift, as they’ve always said. Exxon’s throne, once solid and grand, began to waver, slipped from its hand. Oil prices danced, economies swayed, the crown grew heavy, the glory frayed. New contenders emerged, tech giants soared, Exxon’s supremacy no longer assured. So, to answer your query, my friend, 2007 was the pinnacle, the zenith’s end. Exxon, once the most valuable star, now shares the stage, no longer afar.”

#2 LABOR PAINS: The BLS (Bureau of Labor Statistics) reports that the 2023 union membership rate of 10% established a record low in the BLS's 40 years of tracking. In 1983, the union rate was 20.1%. By far, unions are holding up better in the Public Sector at 32.5% compared to just 6% in the Private Sector. The state with the highest rate is New York at 20.6%. The lowest is South Carolina at 2.3%.

#3 ACCIDENTS HAPPEN: Verisk, a leading global data analytics and technology provider to insurance companies, has launched an automated generative artificial intelligence (Gen-AI) capability that reviews bodily injury claim information. The Discovery Navigator platform has already proven to be up to 90% faster than manual record review with up to 95% accuracy rates, allowing claims handlers to compile record summaries and settle claims in a fraction of the time.

#4 STICKY PRICES: U.S. January headline CPI slowed to an increase of 0.3% over last year, above the 0.2% that economists were forecasting. On a 12-month basis, this is a 3.1% inflation rate which is above Federal Reserve decision-maker targets. The stock market reacted negatively to this unexpected news as it reintroduced the term 'higher for longer" as it relates to interest rates. The journey of getting back to the Fed's 2% annual target from 9.1% is easier at the beginning than eradicating the stickier last 1% of excess inflation as some items included in the inflation measure, for example, rents that signed for 12-month periods, take longer.

#5 FOLLOW THE CASH: Companies have many options for deploying cash, including share buybacks, paying dividends, reducing debt, returning cash to shareholders in a special distribution, making capital investments, or acquiring other companies. Relative to the S&P 500, the most consistent cash deployment strategy has been share buybacks as measured by stock performance, outperforming from 2016 to 2023 with an annualized 16.1% return. 2024 year-to-date numbers are following the same pattern.

 HCM is an Investment Advisory Firm registered with the Securities and Exchange Commission (“SEC”), is a wholly owned subsidiary of Hodges Capital Holdings and serves as investment advisor to the Hodges Funds. HCM is affiliated with First Dallas Securities, Inc, a broker-dealer, and investment advisor registered with the SEC.

This discussion is not intended to be a forecast of future events and should not be considered a recommendation to buy or sell any security. Past performance is not indicative of future results. Investing involves risk. Principal loss is possible. Investing in smaller companies involves additional risks such as limited liquidity and greater volatility. No current or prospective client should assume that information referenced in this communication is a recommendation to buy or sell any security or is a substitute for personalized investment advice from your individual advisor. HCM does not provide tax or legal advice. Consult your tax or legal advisor for any related questions.

All information referenced herein is from sources believed to be reliable and is provided as general market commentary and does not constitute investment advice. This material was created for informational purposes only and the opinions expressed are solely those of HCM. HCM shall not in any way be liable for claims and makes no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information. The data and information are provided as of the date referenced and are subject to change without notice.