Summary
Highlights
The host discusses significant portfolio gains this year, noting the S&P 500 is up 13.4% and the QQQ up 17.4%. Despite overall market bullishness and rising valuations, the video will highlight five companies that remain cheap and haven't participated in the recent rally. It also briefly mentions other topics to be covered, such as credit market concerns, EA's LBO, potential tariffs on movies, and the 'fail of the week'.
The market's strong performance has led to increased investor confidence and inflated stock prices, a situation that often precedes bear markets. The S&P 500's price-to-earnings ratio has increased significantly since 2008, and after a period of correction in 2021-2022, valuations are now returning to all-time highs. The 'Magnificent 7' tech companies, in particular, trade at elevated P/E ratios, further contributing to concerns about market overvaluation.
S&P Global, a diversified financial data company, is presented as an attractive buy. Despite steady revenue growth (10-11% annually) and increasing free cash flow, the stock is down year-to-date. Its current trailing P/E of 37 and a healthy free cash flow yield of 3.6% (3.4% adjusted for stock-based compensation) represent one of its lowest valuations in recent history, making it a reasonable entry point.
Amazon, despite its fundamental growth, has seen its stock price remain flat in 2025 and only up 40% over the last five years. During this period, its revenue has doubled, and AWS contractual revenue has quadrupled. The company has demonstrated explosive free cash flow generation and rapidly growing earnings per share. Its price-to-earnings ratio is near its cheapest ever, making it an attractive investment that has not been caught up in the current bull market.
Adobe is an 'out of favor' stock, down 18% year-to-date and 26% over the past five years, mainly due to competitive concerns from Google's AI tools and Canva. However, its fundamentals show consistent revenue growth (around 10-11% annually) and significant earnings growth. Management is aggressively buying back shares, reducing the share count by 4% year-over-year. With a P/E ratio cut from 40 to 22 and a 6% free cash flow yield, Adobe is considered uniquely cheap compared to its caliber.
Constellation Software is a 'compounding machine' that acquires niche software companies. It is down 17% year-to-date but has delivered staggering long-term returns (over 560% in 10 years). The company boasts consistent revenue growth (around 16%) and a 20% year-over-year growth in free cash flow per share. It represents a high-quality company that is currently undervalued in a soaring market.
Copart, a company operating a global online auction platform for salvaged vehicles, has seen its stock drop 20% year-to-date. Despite this, it has delivered nearly 1,000% returns over the past decade. The company has a strong moat due to its extensive network, insurance relationships, and proprietary software, allowing it to continually grow earnings and cash flows. Its valuation has plummeted from its typical 35-40 trailing P/E ratio, making it an attractive opportunity.
The credit market is showing signs of frothiness, with investors gobbling up corporate debt at low rewards, causing concern among veterans like Howard Marks. He warns that 'the worst loans are made at the best of times', citing recent bankruptcies. However, economist Jeremy Seagull offers a more optimistic view, suggesting tame inflation and rising GDP estimates could lead to a continued positive economic environment. Meanwhile, the ultra-rich are reportedly pulling back from risk assets to preserve capital, indicating caution.
Electronic Arts (EA) is going private in a $55 billion leveraged buyout (LBO), led primarily by Saudi Arabia's public investment fund. This deal is significant as the largest LBO ever. The host expresses concern, citing the negative history of LBOs (e.g., Caesars, Toys R Us) and their tendency to amplify risk and lead to bankruptcy. He also worries that the immense debt load will put even greater pressure on EA to monetize games through microtransactions, exacerbating an existing problem in the video game industry.
President Trump is threatening a 100% tariff on any movie made outside the United States, claiming foreign countries are 'stealing' the movie-making business through tax incentives. The details of how such a tariff would be implemented and its scope are unclear, leaving the industry uncertain about its potential impact.
The 'fail of the week' spotlights a San Francisco woman who charges up to $30,000 to name babies, offering services like 'baby name branding campaigns' and 'genealogical investigations'. The host criticizes this as a 'grift,' reflecting a trend where wealthy individuals outsource even personal tasks like naming their children. He argues that paying someone else to name one's child is not only a failure but 'dishonorable,' as it's a responsibility parents should undertake themselves.