Five interesting things that Hodges Capital research analysts discovered this week...
#1 CRE: According to the St. Louis Federal Reserve, banks and thrifts hold about 50% of commercial real estate (CRE) debt as of 12/31/23. CRE lending by U.S. banks has grown substantially over the past decade, rising from about $1.2 trillion outstanding in the first quarter of 2014 to roughly $3 trillion outstanding at the end of 2023. A disproportionate share of this growth has occurred at regional and community banks, with roughly two-thirds of all CRE loans held by banks with assets under $100 billion. Unsurprisingly, potential weaknesses and risks associated with this sector have become top of mind for banking supervisors.
#2 TIGHT SQUEEZE: The orange juice market is, well, concentrated. Roughly 80% of orange juice worldwide comes from Brazil, with the bulk of the remaining portion originating in Florida. Supply woes in both regions have dramatically influenced prices. With adverse weather and an increasingly intense outbreak of a bacterial plant infection called citrus greening, Brazil's orange production is being pushed to its lowest level in over three decades. Brazilian states São Paulo and Minas Gerais, which grow most of Brazil's oranges, could see as much as a 25% annual decline in this year's yield, per estimates from the citrus growers’ association Fundecitrus. But it doesn't look much better stateside. Florida's crops have been blighted by citrus greening for decades. According to the Financial Times, this ongoing infestation has brought the state's annual production down from 240 million boxes 20 years ago to just 17 million today. Prices have already gone up quite a lot. According to Labor Department data and SOFI, frozen orange juice concentrate has jumped to more than $4 for a 12-oz can, nearly a two-dollar increase from before the pandemic.
#3 LONG COMMUTE: According to the Dallas Morning News, as hybrid work schedules have become commonplace and the cost of living has ballooned since 2020, Dallas-area residents are trading longer commutes for suburban perks like more space and lower housing costs. On average, people who work in Dallas have added an extra 35 miles per trip to their commutes post-pandemic, with "super commuting" — over 75 miles — up 29%, a recent analysis by Stanford University researchers found. That's in line with the nine other metropolitan areas the study examined and likely due to the fivefold rise in the share of work conducted at home.
#4 LINEAR VERSUS STREAMING: Netflix launched its streaming service in 2007, initiating its transition from a DVD rental business to a digital content platform. According to Stat Significant, the streaming pioneer began producing original content in 2013, debuting splashy shows like David Fincher's "House of Cards" and Jenji Kohan's "Orange Is the New Black," thus setting a new standard for programming quality. Pay TV adoption peaked in 2012, a year before Netflix's foray into original content, and has since experienced eleven consecutive years of subscriber declines. As of 2023, the number of households with cable, satellite, or telco TV has decreased by 44% compared to its 2012 high. One of the biggest differences between pay TV and streaming is linearity; with cable and broadcast, you must watch or record a program that airs at a set time. In most cases, this temporal constraint is a hindrance, regulating what viewers watch and when—except when it comes to live sports. 93 of the top 100 US TV broadcasts of 2023 were NFL football games, and many of these programs were blowouts or contests between terrible teams. Said differently, broadcast television is being propped up by live sports viewership—a distinct use case when linearity makes sense.
#5 QUEST FOR THE PERFECT GOLF BALL: According to an article in the Wall Street Journal, Callaway spent three years and $100 million to build the world's greatest golf ball. The Callaway 2024 Chrome Tour ball flies farther and faster than other top golf balls on the market, according to company tests performed by a robot and supervised by Golf Laboratories, an independent testing lab. It also travels with more consistency and with less deviation from shot to shot. It's the ball Xander Schauffele used when winning last month's PGA Championship. The team behind the achievement is led by Eric Loper, who is Callaway's senior director of golf ball research and development. Loper responded to a classified ad in a print newspaper for a test engineer at TaylorMade and spent 22 years there until Callaway hired him away in 2020.
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