This past weekend... was "Slick, yo!"
2024 BRK event, Omaha, NE
May is my favorite month. Whoever says it is difficult to make friends after 20s has not travelled to be at a conference in a subject that they deeply care about. Few people travel to conferences. Fewer have subjects they care about. These people die lonely. My goal is to find folks who are the opposite. For me, a good place to do this is on the first Saturday of May in Omaha each year and while people go there for different reasons, I go there to make new friends.
This year was no different. I met authors, bloggers, vloggers, hedge fund managers, partners, VCs, CEOs. I even bumped on to crypto-bros who seemed to have lost their way. I stood across a Chinese businessman who was traveling with two translators (one for in-bound, other for outbound communication) and bumped onto someone who had put all his life savings to make it to this event!
There are many events, BBQs, brunches, dinners, peddling of financial services that happens before and after the AGM (Annual General Meeting) where the legends hold the podium and you can see all about this on any social media where recordings, selfies, swag crowd your feed. I go to all of these, find a corner table and screen the room for misfits among misfits. The folks who are there neither to buy, nor sell are the ones I prefer. The ones hanging out there just for the fun of it! The ones you would want to take trips with, no matter the destination.
Having a common subject is important. For me, at this phase, it is investing. So if you are not an investor, feel free to hit unsubscribe. You may find something of interest on my personal blog instead.
After a few polite exchanges on the ASL/weather-type questions, I find my type when I ask them about their favorite idea. (Please keep in mind, favorite idea is just that, “an idea”, it is NOT a buy/sell/hold recommendation.) This makes their jet-lagged, sleepy eyes open wide, and a twinkle finds a way through them. A barrage of questions follow on both sides, and a new friendship is born. Most people crowd the celebrities. Rightfully so but they return disappointed on several occasions for not receiving ‘any stock tip’.
Well, I would encourage you to make it to the event one these years. (Or any other that you have been meaning to go to.) Until that happens, I wanted to share a few ideas that were exchanged while I was there. I have not yet been able go deep in any of them and these are in my reading/researching list. I hope you treat them the same way and do your own due diligence. Actually do me a favour and pinch your left ear-lobe using your right thumb and index finger and say to yourself, “This is NOT stock advice”.
Think yourself as a shark from shark-tank and find a reason to say “I am out!” to the pitches below. If you feel comfortable, please do share your thoughts publicly or privately on any or all of these.
Garrett Motion, a leading turbocharger manufacturer, is undervalued with a market cap of $1.8B and an EV of $3.3B. It’s expected to generate $350-$400m of FCF annually over the next 5 years. The market incorrectly assumes Garrett’s products have less than 5 years of viability left. However, the company is well-positioned for the future with its products for ICE vehicles and developing EV products. The company’s recent restructuring and private equity ownership have led to misunderstandings about its business quality and durability. If the company continues to perform well, its stock should rerate to market multiples. If not, cash will accumulate on the balance sheet, and management will buy back shares. The company’s turbo business is a high-quality, long-duration cash cow, and its EV products under development offer a longer-term growth option. This makes the risk-reward ratio asymmetric at current prices. The company’s balance sheet has been cleaned up, and it’s now poised for growth. However, the market has overlooked this due to misconceptions about its ICE exposure and spending on BEV products. The company has no coverage and doesn’t benefit from passive flows, which has contributed to its undervaluation.
The risks associated with Garrett Motion include a significant reduction in ICE vehicle production, which could impact the company’s performance. However, the increasing penetration of turbos provides a margin of safety during production slowdowns. Another risk is potential mismanagement, such as empire building and bad investments. However, the CEO’s focus on generating shareholder value and long-term investment mitigates this concern. Lastly, there’s an overhang from distressed owners who still own ~60% of the company. They are expected to continue selling down, which could lead to a negotiated buyback.
Created with TradingView Evolution Gaming is a leading global provider of online casino solutions. They create gambling games and live casino betting solutions for operators like William Hill, Betfair, and DraftKings, and also help land-based casinos expand online. Their revenue comes mainly from commission fees and fixed fees for dedicated tables paid by operators.
They’re an attractive investment due to their dominance in the market, wide competitive advantage, and potential for growth as online gaming becomes a larger part of the global gaming market. Despite a recent sell-off, they’re trading near an all-time-low P/E valuation, offering a good entry point with a potential 65-80% upside.
Their competitive advantage comes from their significant scale, allowing for more R&D spending on game creation and tech development, and the industry’s unit economics that support a winner-take-most structure. This makes it difficult for competitors to match Evolution’s product innovation and revenue generation.
The main risks for Evolution Gaming are regulatory and competition.
Regulatory risks come from the fact that 60% of their revenue is from unregulated markets, where online gaming isn’t explicitly legal or illegal. Changes in these markets can cause disruptions, but the trend is towards these markets staying unregulated or becoming regulated. Evolution’s wide geographical diversity, with no country making up more than ~5% of revenue, limits this risk.
Competition risks come from other companies trying to enter the market. However, Evolution’s significant scale and quality innovation make it difficult for competitors to displace them. Some B2C operators are trying to build their own live casino products, but this is expected to have a minimal impact on Evolution.
While there are these risks, Evolution’s strong position in the market and wide geographical diversity help mitigate them. They face regulatory uncertainties and competition, but their dominance and innovative approach provide a solid defense.
Created with TradingView Nu Bank is a compelling investment opportunity for a variety of reasons. Firstly, it has a strong market presence, having surpassed 100 million customers in Brazil, Mexico, and Colombia. This makes it the first digital banking platform to reach this milestone, indicating a high level of customer trust.
In terms of financial performance, Nu Bank has shown impressive results. It boasts a market cap of $57.19B, revenue of $8.03B, and net income of $1.03B. The company’s stock price has also been on a positive trend.
What sets Nu Bank apart is its focus on innovation and customer satisfaction. Its credit strategy leverages technological agility, large-scale data analysis, and customized risk management. This approach allows the company to stay ahead of the competition and continually meet customer needs.
The company also has significant potential for growth. It has shown incredible long-term upside and has attracted the interest of several billionaire investors. This suggests a high level of confidence in the company’s future growth prospects.
Furthermore, Nu Bank has the backing of reputable investors. Berkshire Hathaway, led by Warren Buffett, has invested in the company and likely scored a 93% gain on Nubank stock, making it one of their best performers. This shows that reputable investors see value in the company however, the regional risks associated with opportunity nad potential future competition from MELI should not be ignored.
Created with TradingView Roblox presents a compelling investment opportunity for a variety of reasons. Firstly, the company has shown significant growth and engagement, with daily active users and total hours engaged expected to rise significantly on a year-over-year basis. This indicates a strong user base and high levels of engagement.
In terms of innovation, Roblox is continually adding new and exciting content to drive user engagement. Their ability to innovate and adapt to user needs is a key strength that sets them apart in the market.
Another positive sign is Roblox’s successful demographic expansion. The company has seen an 18% increase in experiences where the majority of users were 13 and older. This is crucial for a company that could risk losing users as they age, indicating a successful expansion into older demographics.
From a valuation perspective, despite a recent earnings miss, the stock has never been cheaper with one recent exception. Its current price-to-sales (P/S) ratio is well below its one-year average P/S ratio of 25.16. This presents an attractive entry point for investors.
Finally, as one of the pioneers of the metaverse, Roblox is well-positioned to benefit from the increased attention and growth in this new virtual world.
Roblox’s strong user engagement, innovative approach, demographic expansion, attractive valuation, and pioneering role in the metaverse make it a promising investment opportunity.
Investing in Roblox comes with risks such as a short track record as a public company, ongoing GAAP-accounting perceived losses despite rapid expansion, a high valuation, potential regulatory changes, and dependence on maintaining and growing its user base. Any decrease in user engagement or increased competition could negatively impact the company.
Created with TradingView Hingham Institution for Savings, one of the oldest banks in the U.S., has a strong portfolio in commercial real estate and a proven management team led by CEO Bob Gaughen since 1993. They operate six branches in Massachusetts and a lending office in Washington D.C., serving high-income customers and receiving wholesale deposits from the Federal Home Loan Bank. The bank has expanded its lending to Washington D.C. and San Francisco, focusing on small and medium developers in high-income coastal cities. Gaughen’s team is known for their conservative risk management and efficiency in a commoditized banking industry.
However, HIFS’ success hinges on its ability to expand beyond Massachusetts. The growth of loans in D.C. and San Francisco is crucial to monitor. Interest rate fluctuations can impact the net interest margin, as seen when profitability flatlined during the interest rate rise in 2005-2007. Additionally, any changes in the management team, given their excellent track record, could warrant reconsideration of the investment.
There were a lot more pitches made and if there is more interest I can do a part II and maybe III for all the equity sharks if this was helpful. In the meantime, if you feel hungry for esoteric and eccentric content, here is links to a few youtube and website resources. I continue to be bullish on in this region and this sector.
Finally, for those who were able to attend, the event was “Slick, YO”!? Attaching the will of our hero who continues to give beyond the grave!
See you next year!? Please do text, call, email, snail mail, if you find something interesting or just want to chat. Until then, stay safe! Be rich!