Passing on Liberty Energy, XPeng, and Cadence

Adding a quick write-up to remove a few more stocks from consideration from the Green Screens. Most of these fall under previously detailed rationale, so I'll just touch on each of them briefly and link back to the longer articles on why they don't seem like attractive options for our Watch List.

Cadence Design Systems (CDNS): We did a detailed write up on semiconductor electronic design automation (EDA) stocks that pitted Cadence against primary competitor Synopsys (SNPS), both Green Screen stocks. The conclusion was that both Cadence and Synopsys were attractive businesses worthy of consideration, but Synopsys won out based on a relatively more attractive valuation (neither stock looks "cheap"). Cadence isn't a "hard pass" - this is still an excellent company that should perform well in the longer-term, but we'll stick with its competitor as a watch list stock for now.

XPeng (XPEV): XPeng is an electric vehicle maker in China. It has a full range of vehicles ranging from SUVs to sport and family sedans. Basically, the firm is a native Chinese competitor to Tesla (TSLA), itself a Green Screen stock at present. We will save Tesla for another day, but suffice to say I don't find the automotive business - ICE or EV - all that attractive. It is incredibly competitive - in the Chinese EV space alone, XPeng competes against Tesla, Nio, Li Auto, and incoming models from majors like Volkswagen, Ford, and GM. The fixed costs and capital expenditure demands are enormous. And auto sales are highly sensitive to economic conditions and supply chain challenges. Autos have NEVER been a good long-term business. The risk in being a native Chinese stock is just a cherry on top of the "no way" sundae here. Pass.

Liberty Energy (LBRT): A while back we went in depth on oil and gas stocks and concluded that the only particularly interesting segments of this industry patch were the midstream and integrated names. Liberty Energy falls into the unattractive exploration and production (E&P), or "upstream", segment of the market, offering hydraulic fracturing and exploration services critical to oil and gas extraction activities. Essentially, the firm acts as a contractor for larger producers that extract and sell crude oil to midstream firms. A lot of companies in this space have benefitted over the past year from elevated extraction activity in the U.S. due to the shock of reduced Russian oil and gas entering Western economies. Whether this lasts or not is one question, but the lack of an economic moat is another - if it does last, I expect lots of new competition that will ultimately drive profitability into the ground. We discarded a number of E&P stocks a month or so back, and for the same reasons, will discard Liberty Energy today.