Market Turbulence & Generac

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And we’re back! We’re in the final two months of 2025 which has been an interesting year, again. From the April lows we’ve basically just rallied in most names, including the shit-cos like $OKLO ( ▼ 11.94% ) and others while some value names still received little to no love as retail investors are obsessed with 0DTE’s and options trading this year but we have hope that this will fade out as these market highs wipe out the tourists.

Things are choppy the last few weeks and we are still in the Government shutdown which is surely causing many underlying problems and on top of that we have the hopes that the Supreme court strikes down the tariffs.

While I think this may help the markets if we can re-open I think it may just be a short-term fix. The real ‘rocket-fuel’ is if we get a ruling against Trump’s tariffs and I shared some of my thoughts this week with Business Insider on that, albeit short.

Earnings season so far, for lack of a better word, has sucked. Many names have reported, beat and sold off pretty poorly which makes it no fun and leaves investors searching for answers, myself included.

When I talk to investors I try to explain to them what we do and why we do it in the way we do it because it helps to dampen out the volatility most run from. I am not here to tell you I enjoy volatility but I embrace it because you have to if you want outsized returns….if you don’t then there’s structured notes, maybe buying a franchise or some other fixed income product.

But, that’s not what we do here.

This is a cute quote from Uncle Warren (who I am a fan of) but the reality is that you are going to lose money with investments and trading from time to time the trick, as I see it, is to not make a recurring habit of it.

Berkshire Hathaway began investing in BYD in 2008, purchasing approximately 225 million shares for $230 million. This represented a 10% stake in the company at the time and it was a small position for them, relatively. Over the next 17 years, BYD's share price surged more than 20-fold, turning Berkshire's initial $230 million investment into a valuation exceeding $4.6 billion.

I am not telling you this story this week to advocate this idea of having to hold 17 years to see a return or that finding just one name is going to do “the trick”. It’s not what we do (our holding time is 3-24 months) and it’s not what I believe in as far as making one investment bring home the proverbial bacon: we believe in spreading that risk out across a portfolio of ideas, and for good reason.

But there are take aways from this.

One, patience works in any endeavor but most people lack it because they quit or freak-out at the first sign of any stress. We can look at names like $BA ( ▼ 0.57% ) on lows this year when nobody wanted it to only see it rally or in names as of current like $GNRC ( ▼ 3.39% ) and others that will sell off here that nobody will want until they’re green.

Two, portfolio construction matters. You have winners and you have losers and when we run long/short portfolios it’s with the expectation that some win and lose and for those new here this idea may be foreign because they don’t concern themselves with building out portfolios but rather predicting market moves.

At at the end of all this you still experience portfolio volatility, there is no escaping it which is why we accept this as fact and create solutions for it.

But the reality is most don’t care to burden themselves with either. They want results tomorrow and the easy path because it “hurts less” and requires less work which everyone is after but still wants to reap the rewards - it’s a tale as old as time.

In short, the markets are on highs and a bit turbulent but we’ve seen this movie before many times and we’ll see it again which makes me ask the question to those who seem surprised: “If you’ve seen this movie before why do you continue to act surprised as if it’s the first time you’ve seen it?”

The stock doubled from the April lows and then surged nearly 40% in three weeks of trading post earnings back In July before doing what stocks do: retracing a bit and punishing the pigs who don’t like to book gains.

Earnings were a mixed bag here and after the -20% to break-even move to now back to nearly $150s we’ve been in for a wild ride. I’ll be the first to admit it’s not fun and I could have cut my longs into the earnings rally and been flat the position (on P&L as well) but I didn’t and have been adding into it here this week.

This name, like Boeing, is not going anywhere and we saw that on earnings because their backlog is is growing with data centers only growing as well which was one of our original views on owning this name into 2026 and playing the AI theme.

1.Data Center Acceleration: This is the undisputed bright spot. The company confirmed its backlog for large-megawatt generators for the data center market has doubled in the last 90 days, building on the $150 million reported in Q2. Initial shipments began in the quarter, turning this from a future story into a current revenue stream.

2.Residential Standby Collapse: This is the core problem. Management cited a power outage environment that was “significantly below baseline” and the “lowest third quarter of total outage hours since 2015.” This directly hit demand for high-margin home standby and portable generators, causing the Residential segment’s sales to fall 13% YoY.

3.Significant Guidance Reduction: After expressing confidence last quarter, Generac cut its full-year 2025 guidance across the board. The outlook for sales growth, adjusted EBITDA margin, and free cash flow conversion were all lowered, signaling that weakness is expected to continue through Q4.

4. C&I and International Strength: Beyond data centers, the traditional Commercial & Industrial (C&I) segment held up well, with sales growing 9%, driven by strength in telecom and industrial channels. The International segment was a standout performer, with sales up 11% and notable margin expansion.

5. Margin Pressure: Profitability took a hit. Gross margin fell 190 basis points to 38.3% due to an unfavorable sales mix (less profitable residential generator sales), higher tariffs, and lower manufacturing absorption. Adjusted EBITDA margin compressed by 250 basis points to 17.3%.

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