Chit Chat Stocks Podcast

Company Commentary: Bangalore Airport IPO as a Catalyst for Repricing

"So it's in the NAV just to clarify they have it's in the books for 2.6 billion, I think it's worth more than four. But if you think longer term, like really longer term, it could be worth so much more. I think you're talking about 110 million people per year, and if you just do the math, 110 times 100 gets to 10 billion. I don't think in this excessively hyped Indian stock market this is crazy; 4 billion is conservative. I think you can get to five or six on 4 billion, if you assume that the current share price is 17 and the NAV is 21."

Michael Fritzell provides a valuation commentary on Fairfax India, emphasizing that the market is undervaluing its net asset value. He explains that if the company, largely driven by the Bangalore International Airport asset, trades at around 4 billion, the share price could reprice from its current levels ($17, NAV $21) to around $32 per share, making the upcoming airport IPO a critical catalyst.

Trade Call: Hold Fairfax India for Long-Term Growth

-3.56%current return

"So I personally use some of the parts valuation and I think you should apply 20% discount to that NAV. That's my view. I think people shouldn't be too scared of some of the partial valuations. It's just the fact that if you're buying a company that isn't growing, that isn't paying out dividends, yeah, you can get stuck there for a long time. But in this case, you have like this immense growth tailwinds in terms of the Indian economy and also passenger growth. So I'm very happy to sit on it and if it trades a 20% discount forever, completely fine. I think it's going to grow. The value is going to grow 10% per year if you apply multiple, you know."

Michael Fritzell expresses confidence in Fairfax India despite its current 20% discount to NAV. He highlights the companys strong growth tailwinds, driven by a booming Indian economy and rising passenger numbers, and states his intent to hold the stock long-term, expecting a 10% annual growth in value.

Management Compensation Raises Concerns at Yelp

"So Jeremy Stppleman is still the CEO, the co-founder from 20 years ago, and I think he's done a good job navigating the business towards services. However, as I was reading the proxy, I found myself getting increasingly annoyed. Yelp's management team has a base salary, annual cash incentives, and performance-based stock bonuses tied to revenue and relative return metrics. I was particularly frustrated to see that the co-founder and CEO, who owns 6.3% of the company, is taking an extra $10 million in annual stock compensation. This seems unnecessary given he could benefit directly from share price appreciation."

Ryan acknowledges CEO Jeremy Stppleman’s role in pivoting Yelp towards a stronger services model, but he criticizes the management compensation structure. He is especially troubled by the extra $10 million in stock compensation awarded to the CEO despite his significant ownership, suggesting it may not align with shareholder interests.

Compelling Starter Buy for Yelp

-1.25%current return

"Okay, despite the disappointments with the proxy statement, I am still very compelled by the valuation. I think I'm going to buy some shares. It's going to be a starter position. And the two metrics I'm tracking to potentially raise my position sizing is whether I am right about the services business. Because if they have a unique method of approaching a valuable customer group, this could be a much bigger business and you're going to get the benefit of revenue growth plus operating margin expansion plus either multiple rerating or huge stock buybacks which is a recipe for great returns. You can keep that going to help not only with that upside but with the downside protection as well."

Ryan expresses a strong bullish stance on Yelp, indicating a starter position buy. His rationale is based on the company’s attractive valuation, potential revenue growth and operating margin expansion driven by its expanding services segment, and the benefit of share buybacks as downside protection.

Company Commentary: Caution on United Healthcare as a Potential Value Trap

"First one. United Healthcare. Now this is not one I thought you would know. I don't think either of us has ever have ever ever owned this. People are bullish. Bergkshire is clearly bullish because of the downturn this year in the whole ACA market. And I think you could be walking into a value trap here by saying, "Oh, Buffett bought it." Probably not even him. Berkshire bought it. It's cheap. The healthcare industry is going to just be entrenched forever and ever and ever. And I think you could be walking into picking up some pennies in front of the steamroller."

In this segment, the speaker discusses United Healthcare, cautioning that despite its cheap-looking valuation and bullish endorsements from Berkshire, investors could be buying into a value trap. The commentary centers on structural issues in the healthcare sector and concerns that past performance may not translate into future growth, warning investors against complacency.

Trade Call: Short Sirius XM Due to Structural Decline

-2.22%current return

"Alright, here's my last one. And I think we'll be on the exact same side of the fence here. I'll read off some multiples for you first. EV to free cash flow 16 times, dividend yield of almost 4%. The company which I know not not that cheap. The company is Sirius XM. Oh yeah. Value. This is a dying company. Hate to say it's insane that it's tra It's not even a value trap. It's just a short. Honestly, this is this going to be your first short ever? It is so."

Brett issues a clear sell directive by calling for a short position on Sirius XM. He highlights high valuation multiples and describes the company's deteriorating fundamentals. His remarks underscore the structural challenges Sirius XM faces, including a declining subscriber base and an outdated business model that struggles to attract younger consumers.

Trade Call: Buy Crocs (CROX) for Brand Revitalization and Buyback Yield

+7.99%current return

"there are a lot of stocks in big draw downs and this is one of them. I actually don't have the exact numbers here. It's a company here that we've talked about and I'm breaking one of my rules on investing in apparel. I am buying Crocs and I listed in the Substack chat. I just wrote out a little I didn't do a full newsletter. I think I'm going to do one here shortly on the company and why I'm buying. I don't know the exact allocation. Again, I'll do that in the newsletter which the link will be directly in the show notes. I just have a couple of lists of what made me want to buy a little bit of an invest versus then investigate scenario where I've followed the company for many years but I don't have like my full-on model and write up and thoughts fleshed out."

Brett unveils an actionable trade call to buy Crocs (CROX) despite typically avoiding apparel stocks. He cites brand revitalization efforts, strategic ambassador partnerships, and strong buyback yields as key catalysts. Although he has not detailed his full allocation or long-term model, his invest-versus-investigate approach suggests high conviction in the turnaround story.

Embracing Late Entry in Thematic Trades (Nvidia Example)

"I have one main lesson. It is to not be afraid of being late on a bet. I think an example for investing in stocks is don7t be afraid of investing in a thematic stock if you believe there7s a good management team, a strong competitive advantage, and a self-reinforcing economic trend such as the AI revolution. In early 2023, despite concerns of a forming bubble, the fundamentals of Nvidia proved so compelling that missing the initial entry became a missed opportunity."

This insight uses Nvidia as a case study to illustrate that investors should not shy away from joining a theme late if the company exhibits strong fundamentals and market momentum. The discussion suggests that even when valuations attract caution, exploring the underlying competitive advantages and growth catalysts can justify taking a position.

Texas Stock Exchange Approval: A Moat Test for US Listings?

"The Texas Stock Exchange received SEC approval to operate as an exchange, aiming to reverse the long decline in US public companies by reducing listing burdens. With backing from heavyweights like BlackRock, Schwab, and Citadel, it could be a real test of the duopoly’s moat."

The podcast covers the new Texas Stock Exchange which recently earned SEC approval. The discussion centers around its potential to ease burdens on public companies and challenge the entrenched positions of NYSE and NASDAQ. With institutional backing from major players, it is seen as a noteworthy development though its immediate impact is likely limited.

Electronic Arts Leveraged Buyout: A Big Deal With Mixed Gaming Tailwinds

"This is a $55 billion deal — the largest levered buyout ever, with a 25% premium to EA share price. Despite EA\'s great franchises, I would throw it in the too hard pile because gaming has become relentlessly competitive and cash flow remains stubbornly low."

The discussion turns to EA and its leveraged buyout, which is being executed at a premium. While EA boasts a legacy of blockbuster franchises, competitive pressures and digital transition challenges have hindered margin expansion and free cash flow. The panel acknowledges that the deal was structured as a premium exit but sees gaming tailwinds as mixed.

Interactive Brokers: A Rare, Never-Sell Hold Despite High P/E

"I bought Interactive Brokers earlier this year and even though its PE is high at 36, I see it as an incredible business. Their relentless cost efficiencies and the founder\'s enduring philosophy make it a classic never sell stock in my portfolio."

Interactive Brokers is highlighted as a prime example of a never-sell stock. Despite trading at a high multiple, the panel emphasizes its strong cost efficiencies, management quality, and long-term durability, which justify holding the stock through market cycles.

Avoid Nike: Earnings Struggles & Margin Pressures Deter Long-Term Appeal

+7.31%current return

"Nike reported constant currency revenue growth of minus 1% and its worst gross margin in 20 years. Even if you combine their footwear competitors, I would say, 'no interest whatsoever' in Nike. It\'s difficult to see a 10x move given their size and pricing issues."

The speakers analyze Nike\'s recent earnings where weak same-store sales and margin compression were key issues. With competitive pressures from emerging brands and a high valuation (around 30x earnings), the panel expresses a clear trade call to avoid or trim exposure to Nike, arguing that there is insufficient risk premium for the premium price investors pay.

Portillos: Quality Value Story Hinged on Marketing and Operational Execution

-1.27%current return

"I believe most of Portillos' problems stemmed from not having a chief marketing officer, and now that they have hired a new CMO with a strong background, the narrative is changing. If they stick to their everyday value approach without jacking up prices, the fanatic customer base and impressive per-location economics suggest the stock could see a dramatic rerating from a low price-to-sales multiple to something higher as operational efficiency and scale improve."

The guest provides insightful company-specific commentary on Portillos. He details the operational strengths of the restaurant chain including high revenue per location, exceptional customer net promoter scores, and robust cash flow fundamentals even in a down market. The commentary is nuanced with a focus on the importance of marketing; he suggests that the lack of a CMO was a primary shortcoming that has now been addressed. While the stock is burdened by near-term growth capex and experimental initiatives, the fundamentals and the strong brand may enable an eventual rerating. The risk factor is clearly outlined: should management deviate from the value proposition by increasing prices aggressively, the investment thesis could quickly sour.

Opendoor (OPEN) Trade Call: Buy & Hold for Asymmetric Upside

-0.93%current return

"I'm buying Open Door stock knowing it could be a zero. But if these guys, led by a seasoned team and a new CEO with rapid iteration, manage to disrupt the $2 trillion housing market even with just a 20% chance of success, then the upside from a $6 billion market cap to potentially a 200-billion or even a trillion-dollar company makes this a flip of the coin worth betting on."

The guest clearly outlines an actionable trade idea for Open Door (OPEN). He explains that despite the inherent risk (a 20% success probability), the potential upside is significant if the company can successfully develop its technology platform to disrupt the housing market. His portfolio allocation has grown from a modest 1% (at a previous cost basis) to 15% of his account, indicating high conviction in his bullish outlook. He emphasizes the asymmetry of risk-reward and advises against shorting the stock despite volatility and meme stock behavior. The trade is time-sensitive with expectations for notable gains by May when catalysts related to product rollouts and macro tailwinds (rate cuts) may materialize.

"Constellation Software, under the leadership of Mark Leonard, delivered a total return of 33.6% per annum since 2006 with free cash flow per share compounding at 27% annually. Mark\"s prudent capital allocation and limited dilution have built generational wealth for its shareholders, exemplifying one of the best capital allocators in modern history."

A tribute is paid to the long-term performance of Constellation Software as Mark Leonard steps down due to health reasons. The commentary underscores the company\"s stellar historical returns, disciplined share management, and the creation of generational value.

"Yelp, with a market cap of just under $2 billion and a revenue growth rate of 26% since 2010, has transformed its business by shifting focus from restaurants to services like plumbing and legal, while boosting its operating profit from -$40 million to $183 million. Its 12% buyback yield further evidences its capital discipline."

Yelp is spotlighted as a turnaround small cap with impressive growth and operational improvements. Its evolving revenue mix and strong share repurchase program suggest an undervalued opportunity amid industry headwinds in restaurant advertising.

"Compass is merging with a legacy brokerage to form an entity with roughly 340,000 real estate professionals, aiming to integrate these under its cloud-based platform and promote private listings. This bold move could disrupt platforms like Zillow and OpenDoor significantly."

Compass is recognized for its strategic merger to consolidate legacy brokerages under its tech platform, potentially disrupting traditional MLS systems and imposing pressure on incumbent players like Zillow. The deal is seen as transformative for the residential real estate market.

"Airbnb is discussed as a company that, similar to Booking Holdings in the past, may continue buying back stock. Despite a current buyback yield of around 5.5% and a modest annual share reduction, there is potential for acceleration once the stock is in a drawn down state."

Airbnb is considered a viable pick for share cannibalism owing to its strong cash flow dynamics and potential for accelerated buybacks if the valuation becomes more attractive, keeping in mind risks of a multiple rerating.

"Dropbox has been ridiculed for years, much like AutoZone once was, yet it has reduced its shares outstanding at an 8.7% annual rate and improved its EPS. However, there are concerns about its ability to drive top-line growth."

Dropbox is portrayed as a classic share cannibal that has delivered consistent EPS improvements via buybacks despite headwinds in revenue growth. The tone is cautious, highlighting the risks in its growth profile even as the capital allocation strategy remains solid.

"MGM Resorts International, trading at a market cap of roughly $9.44 billion and a price-to-free cash flow of 7.3x, has reduced its shares outstanding by about 52.5% over the past years. Despite headwinds on casino spending, the strong brand and solid buyback yield make it compelling."

MGM is presented as a strong candidate with impressive historical share reduction (over 50% cumulative reduction) and a cheap valuation driven by its buyback yield. The brand strength and potential catalysts in its core markets support a bullish view.

"My number one company is Adobe. They haven\"t been a historical share cannibal but recently have ramped up buybacks, achieving around a 7-8% buyback yield, while continuing to produce approximately 10% revenue growth each quarter. The risk remains if management shifts focus away from buybacks."

Adobe is highlighted as an unconventional pick among future share cannibals due to its recent accelerated share buyback program and consistent revenue growth. The commentary notes potential risk if the strategy changes.