Summary
Highlights
The speaker introduces the concept of value investing, stressing that even great companies can be bad investments if bought at the wrong price. He plans to discuss three stocks he owns or previously owned, highlighting that he only buys when the price makes sense relative to value. He aims to teach a process for stock analysis that gives investors an edge.
Target stock has declined by 35% year-to-date due to inflation pushing consumers to competitors. The company is investing $5 billion to improve stores, digital shopping, and product quality. Target has a strong dividend and a history of recovery. Financial metrics show a $39 billion company with $38 billion in debt (mostly leases). Free cash flow is 2.95 billion, lower than its 5-year average. The current PE is 10 and price of free cash flow is 13, which is considered cheap. The speaker expresses dislike for the high dividend yield, preferring that Target use free cash flow for share buybacks if the stock is undervalued. The 5-year return on invested capital is 14.25%, indicating a good company. Key metrics for analysis and a free PDF guide are offered. The stock analyzer tool with reasonable assumptions suggests Target's intrinsic value is between $106 and $270, making it a compelling buy at its current price of $86.
Adobe's stock has fallen 27% this year due to concerns about cheaper AI tools and the company's ability to monetize new AI features. However, Adobe has a strong business with high switching costs for its users. The company is actively growing in AI and digital marketing. Financial highlights include high free cash flow ($9.6 billion last year) exceeding net income, a gross margin of 90%, and strong revenue growth (10-17% over the last 3-10 years). Return on capital is impressive at 22-30%. The community rates Adobe as a buy with an intrinsic value of $456. An analysis based on analyst estimates projects earnings per share to grow from $21 to $34 in five years. The stock analyzer, with revenue growth assumptions of 4-10% and free cash flow margins of 38-42%, suggests an intrinsic value range of $380-$820, with a middle price of $560. The presenter considers selling puts to acquire Adobe at a lower price, like $300, highlighting the strategy of being paid to buy a desired stock at a discount.
Meta was considered 'dead' in late 2022 when its stock fell to $88. The speaker admits to selling too early at $195. Meta has recently fallen 18%, re-sparking the presenter's interest. The company is investing heavily (up to $72 billion) in AI and data centers, causing short-term profit concerns. Despite a one-time tax hit, Meta's core online ad business is growing rapidly, with potential overseas and new monetization avenues like WhatsApp and Threads. Financials show a $1.6 trillion market cap, minimal debt, an 82% gross margin, and consistent 30% profit margins. Meta generated $45 billion in free cash flow despite losing $12 billion annually in the metaverse. Community members rate Meta as a 'hold' with an average intrinsic value of $731. The 8-pillar analysis shows strong fundamentals but overvaluation based on current P/E and price to free cash flow. Analyst estimates predict EPS growth from $28 to $39 in four years and significant revenue growth. The stock analyzer, with revenue growth of 6-12% and profit/free cash flow margins of 30-38%, estimates Meta's intrinsic value between $510 and $1250, with a middle price of $800. The presenter concludes by emphasizing the importance of a plan and avoiding hype for successful investing, promoting their 'Everything Money' platform.