1 00:00:00,100 --> 00:00:01,900 Nope, we're not going to do it today. 2 00:00:02,000 --> 00:00:04,500 We're not going to talk about drum pal. 3 00:00:04,800 --> 00:00:06,900 We're not going to talk about the federal funds rate. 4 00:00:06,900 --> 00:00:09,100 We're not going to talk about inflation whether or not it's 5 00:00:09,100 --> 00:00:11,400 going to go up or down. We're not going to talk about 6 00:00:11,400 --> 00:00:15,000 commodity prices and mortgage rates, and the housing bubble 7 00:00:15,300 --> 00:00:17,800 and car prices and so on and so forth. 8 00:00:18,200 --> 00:00:20,900 I want to talk about something a bit different today, I want to 9 00:00:20,900 --> 00:00:24,600 talk about investing in particular, stock picking. 10 00:00:24,800 --> 00:00:26,800 And in this video, we're going to go over three stocks that 11 00:00:26,800 --> 00:00:28,800 actually think are Great Value right now. 12 00:00:28,900 --> 00:00:32,400 These are companies that That I own a share of, I have a little 13 00:00:32,400 --> 00:00:35,100 bit of them and I'm going to be adding more to them. 14 00:00:35,200 --> 00:00:38,600 The companies are Microsoft Google and Adobe, and we're 15 00:00:38,600 --> 00:00:40,400 going to be looking at the fundamentals of each of these 16 00:00:40,400 --> 00:00:43,000 three companies. Now, before we jump into that, 17 00:00:43,000 --> 00:00:45,300 specifically, I just want to highlight something here. 18 00:00:45,800 --> 00:00:49,800 If we look at this map of the market, this is the S&P 500, you 19 00:00:49,800 --> 00:00:53,900 can see clearly that it's red. In fact, this is vibrant red. 20 00:00:54,000 --> 00:00:58,100 We have companies down 15 16 percent just over the past 30 21 00:00:58,100 --> 00:01:01,900 days. This is a Off many people were 22 00:01:01,900 --> 00:01:05,200 asking for sell-offs a year ago. They were saying everything's 23 00:01:05,200 --> 00:01:07,400 too expensive. I wish prices would come down a 24 00:01:07,408 --> 00:01:09,300 little bit. That's what a lot of us were 25 00:01:09,300 --> 00:01:13,000 saying a year ago that stocks were up too high and we like to 26 00:01:13,000 --> 00:01:15,700 get them at a discount but now we have the discount. 27 00:01:15,900 --> 00:01:19,100 Now we have stocks trading down like crazy now. 28 00:01:19,100 --> 00:01:23,000 Ironically when stocks are the best time to be buying them, 29 00:01:23,000 --> 00:01:25,600 they're the best price in the valuations have come down 30 00:01:25,800 --> 00:01:28,500 dramatically. Now, nobody wants to talk about 31 00:01:28,500 --> 00:01:31,000 individual stocks. All the content that we're 32 00:01:31,000 --> 00:01:35,400 seeing on YouTube, on Twitter, on Tick-Tock is all about the 33 00:01:35,400 --> 00:01:37,900 FED. All about inflation, all about 34 00:01:37,900 --> 00:01:41,000 macroeconomics. Well, I want to change Pace in 35 00:01:41,000 --> 00:01:45,400 this video, I want to turn and focus on actually investing and 36 00:01:45,400 --> 00:01:46,900 investing in individual companies. 37 00:01:46,900 --> 00:01:49,600 And we all know the phrase, we should become more greedy. 38 00:01:49,600 --> 00:01:53,500 We should become more aggressive when others become more fearful, 39 00:01:53,600 --> 00:01:57,200 and, anyway, you slice and dice this any objective measurement. 40 00:01:57,200 --> 00:02:01,900 We look at, we see investors, Not only fearful but extremely 41 00:02:01,900 --> 00:02:03,300 fearful. That's the measurements. 42 00:02:03,300 --> 00:02:06,400 Now, other investors are becoming extremely fearful, and 43 00:02:06,400 --> 00:02:10,699 now may be a good time to start increasing our byes and looking 44 00:02:10,699 --> 00:02:13,400 at the best potential deals. So in the spirit of 45 00:02:13,400 --> 00:02:16,300 stock-picking in the spirit of actually making Investments, 46 00:02:16,300 --> 00:02:19,700 that might make us money over the next while I want to focus 47 00:02:19,700 --> 00:02:22,600 on three different companies that are ones in my portfolio 48 00:02:22,600 --> 00:02:24,500 that I plan on buying over the upcoming months. 49 00:02:24,500 --> 00:02:26,800 And these are ones that I'm invested in, but the price has 50 00:02:26,800 --> 00:02:28,800 gotten so low for them. That I think it's worth 51 00:02:28,800 --> 00:02:30,900 revisiting. Before we get into those 52 00:02:30,900 --> 00:02:33,400 specific companies, I have to do a portfolio update. 53 00:02:33,400 --> 00:02:35,900 For those of you new. I track my performance with 54 00:02:35,900 --> 00:02:40,100 transparency, my net returns every single video all the time. 55 00:02:40,100 --> 00:02:42,600 So any time you check in, you'll be able to see this performance. 56 00:02:42,600 --> 00:02:45,600 Now, the story fund is my tech growth portfolio. 57 00:02:45,600 --> 00:02:49,600 It's not the only one I have but this is this is my main Tech 58 00:02:49,600 --> 00:02:51,200 portfolio. This is the only one that I have 59 00:02:51,200 --> 00:02:55,000 that's focused purely on growth, which if we look at this on a 60 00:02:55,100 --> 00:02:59,800 total return basis right now, we're down around 25%. 61 00:03:00,400 --> 00:03:05,200 The S&P 500 is down 7% so we're underperforming spy, you can see 62 00:03:05,200 --> 00:03:08,800 my portfolio and blue. The S&P 500 in red were 63 00:03:08,800 --> 00:03:12,300 underperforming right now but we've actually been slightly 64 00:03:12,300 --> 00:03:15,300 closing the Gap over the past couple of months. 65 00:03:15,800 --> 00:03:19,400 Unfortunately, both the market and my portfolio have taken a 66 00:03:19,408 --> 00:03:22,800 nosedive over the past week. So this is what the performance 67 00:03:22,800 --> 00:03:25,500 looks like, right now, the markets down. 68 00:03:25,800 --> 00:03:29,000 But again, we look at this as an opportunity, not as something to 69 00:03:29,000 --> 00:03:32,300 be concerned about When I look over my Holdings out of all, the 70 00:03:32,300 --> 00:03:34,900 companies that I've invested in and even outside of those 71 00:03:34,900 --> 00:03:38,800 companies, one of them I think is the best risk-reward 72 00:03:38,800 --> 00:03:42,200 currently speaking the best one. I think it's Microsoft. 73 00:03:42,200 --> 00:03:45,000 I think it beats out Google, I think it beats out a dhobi. 74 00:03:45,000 --> 00:03:48,000 I think it beats out meta the much cheaper, big tech 75 00:03:48,000 --> 00:03:50,300 companies. I think Microsoft has the best 76 00:03:50,300 --> 00:03:53,200 risk reward, and I want explain why we could look at other 77 00:03:53,200 --> 00:03:55,100 examples. If you're looking for just 78 00:03:55,100 --> 00:03:58,700 inexpensive lowest multiple, then I think meta is probably 79 00:03:58,700 --> 00:04:01,700 the top one. It's at a 12 for PE ratio. 80 00:04:02,100 --> 00:04:04,700 That is very cheap. We even have Google hair. 81 00:04:05,700 --> 00:04:08,000 Google's another cheap company. That I frankly think is a great 82 00:04:08,000 --> 00:04:11,700 buy right now. It's at a 16 PE ratio, but even 83 00:04:11,700 --> 00:04:15,000 outside of that, the one that I think's a better buy than either 84 00:04:15,000 --> 00:04:18,500 of those is Microsoft and it trades at a higher multiple, a 85 00:04:18,500 --> 00:04:22,000 24 forward, P/E ratio. The reason why is because many 86 00:04:22,000 --> 00:04:24,800 people looking at buying Google and meta need to take into 87 00:04:24,800 --> 00:04:27,900 account that they run their businesses off of AD revenue, 88 00:04:27,900 --> 00:04:31,700 and AD revenue is susceptible to economic Ebbs and flows. 89 00:04:32,000 --> 00:04:34,400 The economy's doing really well and all of these startup 90 00:04:34,400 --> 00:04:37,500 companies are wanting To promote their products at any expense 91 00:04:37,500 --> 00:04:40,700 necessary then ad revenues going to go up in Google and met. 92 00:04:40,700 --> 00:04:43,900 It's going to be a lot of money, the economy really shrinks and 93 00:04:43,900 --> 00:04:48,000 it slows down ad revenue is going to go down CPM rates, the 94 00:04:48,000 --> 00:04:51,300 RPM rates, the different ways of tracking the amount of Revenue, 95 00:04:51,300 --> 00:04:54,500 you earn per thousand views, that's going to go down and that 96 00:04:54,500 --> 00:04:57,900 will affect Google and meta much more than it will affect 97 00:04:57,900 --> 00:05:00,300 Microsoft. Microsoft owns LinkedIn. 98 00:05:00,300 --> 00:05:04,600 So they do have some exposure to ad Revenue, but far less than 99 00:05:04,600 --> 00:05:06,800 Google or meta. Microsoft is far more 100 00:05:06,800 --> 00:05:10,700 Diversified, they have huge revenues, through gaming. 101 00:05:11,000 --> 00:05:15,200 Through subscription gaming, they have another deal right now 102 00:05:15,200 --> 00:05:17,600 through Activision Blizzard where they're buying this 103 00:05:17,600 --> 00:05:21,400 company, that's a purely gaming company that has a huge amount 104 00:05:21,400 --> 00:05:24,200 of free cash flow. So they have a pending deal 105 00:05:24,200 --> 00:05:26,800 going on right now that I think will be great for Microsoft. 106 00:05:27,500 --> 00:05:31,900 They have 80% plus of their revenue as subscription. 107 00:05:32,500 --> 00:05:35,300 So it's far more reliable than a dress. 108 00:05:35,500 --> 00:05:37,600 Vanunu that you get from something like Google or meta. 109 00:05:37,900 --> 00:05:40,600 So I look at the PE Ratio. I realize it's more expensive 110 00:05:40,600 --> 00:05:43,100 than a company like meta it's more expensive than Google, but 111 00:05:43,100 --> 00:05:46,100 I just think that the earnings are far more, they're far more 112 00:05:46,100 --> 00:05:49,900 reliable than Google or meta or any other AD company. 113 00:05:50,000 --> 00:05:53,200 That's part of the reason. I also think in terms of moat 114 00:05:53,200 --> 00:05:56,400 when you look at competitors to Microsoft consider, the fact 115 00:05:56,400 --> 00:06:00,700 that right now Tick Tock is, they're presenting themselves as 116 00:06:00,700 --> 00:06:03,900 a threat to both metaphor. Sure they're a threat to 117 00:06:03,900 --> 00:06:08,000 Medicare stealing engagement from the That's the, the target 118 00:06:08,000 --> 00:06:10,900 audience that met is now focusing on met is going after 119 00:06:10,900 --> 00:06:14,000 them with Instagram but they're having this battle this back and 120 00:06:14,000 --> 00:06:17,300 forth, Tick Tock is a real present threat to meta and 121 00:06:17,300 --> 00:06:20,500 anyone working at that company meta will tell you that they'll 122 00:06:20,500 --> 00:06:24,300 say, we are concerned and focused about focused on 123 00:06:24,300 --> 00:06:26,600 Tick-Tock the same thing with Google. 124 00:06:26,800 --> 00:06:29,900 Google's going after tick talk with their short form video, you 125 00:06:29,900 --> 00:06:31,100 can see them pushing those a lot. 126 00:06:31,100 --> 00:06:33,500 They're always in your feed when you're scrolling, that's because 127 00:06:33,500 --> 00:06:36,300 they consider them to be a threat to the Video format 128 00:06:36,400 --> 00:06:40,100 Tick-Tock could expand to longer form videos and even put 129 00:06:40,100 --> 00:06:43,300 pressure on YouTube. What's Microsoft's. 130 00:06:43,800 --> 00:06:45,800 What is, what is their competitors doing who's 131 00:06:45,800 --> 00:06:49,400 competing against Microsoft that their scurrying about very 132 00:06:49,400 --> 00:06:53,100 concerned about Apple. Not really, not really affecting 133 00:06:53,100 --> 00:06:56,700 their business and corporate software, sales force to some 134 00:06:56,700 --> 00:06:59,400 extent, but the metrics show that Microsoft holding up just 135 00:06:59,400 --> 00:07:02,300 fine. Microsoft is taking market share 136 00:07:02,500 --> 00:07:05,300 from Amazon with Azure their Cloud business. 137 00:07:05,500 --> 00:07:08,400 Doing amazing. I don't see any real competitive 138 00:07:08,400 --> 00:07:11,100 threats to Microsoft. They are the most insulated a 139 00:07:11,100 --> 00:07:12,600 big Tech. My opinion. 140 00:07:12,600 --> 00:07:14,500 Probably the biggest moment of all of them. 141 00:07:14,900 --> 00:07:18,700 So when I compare them, again, either in terms of earnings 142 00:07:18,700 --> 00:07:21,900 predictability or the mo of the business and competitive 143 00:07:21,900 --> 00:07:25,200 threats, I think that Microsoft is topped hair. 144 00:07:25,400 --> 00:07:28,000 I think they're the highest quality of the highest quality. 145 00:07:28,200 --> 00:07:31,100 I put them right there in the category with apple. 146 00:07:31,200 --> 00:07:35,300 And I put them with having the same moat sizes, Amazon these 147 00:07:35,500 --> 00:07:38,700 SLI wide moat businesses that have very difficult to replicate 148 00:07:38,700 --> 00:07:42,600 modes. So Microsoft is top tier of 149 00:07:42,600 --> 00:07:46,000 topped hair, Quality Companies. Now let's go ahead and talk 150 00:07:46,008 --> 00:07:48,800 about the actual numbers here. The valuation and the 151 00:07:48,800 --> 00:07:52,800 fundamentals, we know that Microsoft again is buying a 152 00:07:52,808 --> 00:07:54,300 company called Activision Blizzard. 153 00:07:54,300 --> 00:07:57,100 This is supposed to close June of next year. 154 00:07:57,100 --> 00:08:01,000 If you want to do an Arbitrage play, you can by Activision 155 00:08:01,000 --> 00:08:05,400 Blizzard right now and if the deal closes, you'll get $95 per 156 00:08:05,400 --> 00:08:07,100 share. Share, which is around a 28 157 00:08:07,100 --> 00:08:09,400 percent returns so that's something to consider their the 158 00:08:09,400 --> 00:08:12,400 deal falls through. You still own a great company 159 00:08:12,400 --> 00:08:14,000 Activision Blizzard's a great company. 160 00:08:14,500 --> 00:08:18,700 In my opinion this Arbitrage has a lot more risk or lot more 161 00:08:18,700 --> 00:08:21,100 reward than risk. I think it's a really good play 162 00:08:21,400 --> 00:08:25,000 but if the deal falls through you stand to lose maybe 15 20 % 163 00:08:25,000 --> 00:08:28,300 and you just hold the company at that point so they're buying 164 00:08:28,300 --> 00:08:31,300 Activision Blizzard which is a company. 165 00:08:31,300 --> 00:08:34,100 Not a lot of people like some people hate the games but it 166 00:08:34,100 --> 00:08:36,200 makes a lot of money and that's It really counts. 167 00:08:36,400 --> 00:08:40,100 They have the Modern Warfare franchise, which is massive. 168 00:08:40,200 --> 00:08:43,799 It's like Disney with Pixar and Star Wars. 169 00:08:43,799 --> 00:08:47,100 That's kind of how gaming is what modern warfare massive 170 00:08:47,100 --> 00:08:48,900 franchise. They've announced that they're 171 00:08:48,900 --> 00:08:52,200 coming out with Diablo for and 2023 and it seems like they're 172 00:08:52,200 --> 00:08:54,000 really trying to make a community let game. 173 00:08:54,200 --> 00:08:57,300 I think they'll be a success, they own so many other games, 174 00:08:57,300 --> 00:09:00,600 you could go through, look at the list, but this is a massive 175 00:09:00,700 --> 00:09:04,000 company that has high amounts of free cash flow that has a ton of 176 00:09:04,000 --> 00:09:07,100 intellectual property. We'll add to the franchise of 177 00:09:07,100 --> 00:09:09,100 Microsoft, if this deal goes through. 178 00:09:09,200 --> 00:09:12,400 So, the Activision Blizzard deal, I think, is a huge 179 00:09:12,400 --> 00:09:14,300 Catalyst for Microsoft. I think it's going to make the 180 00:09:14,300 --> 00:09:16,500 company much stronger. They'll have more gaming 181 00:09:16,500 --> 00:09:20,300 franchise to add to their huge. I think big dominant leading 182 00:09:20,300 --> 00:09:23,500 gaming, the only company that they're smaller than in gaming 183 00:09:23,500 --> 00:09:26,100 is tencent. Microsoft will be in second 184 00:09:26,100 --> 00:09:28,900 place after this deal closes, if it closes. 185 00:09:28,900 --> 00:09:31,900 So, as a Microsoft shareholder, I'm hopeful that the deal goes 186 00:09:31,900 --> 00:09:34,100 through. I think it's a great property 187 00:09:34,100 --> 00:09:37,100 for them to pick up now. Now the price has come down for 188 00:09:37,100 --> 00:09:39,900 this company. Microsoft is down, twenty nine 189 00:09:39,900 --> 00:09:43,100 percent year-to-date and that's about from its all-time high. 190 00:09:43,100 --> 00:09:46,100 So it's down 29% from its all time high it trades. 191 00:09:46,100 --> 00:09:50,300 At the 24 PE ratio which is just too cheap for this company 192 00:09:50,700 --> 00:09:54,000 trades at a free cash flow. Yield of 3.7%. 193 00:09:54,200 --> 00:09:57,200 Again my opinion, just too cheap for this company. 194 00:09:57,600 --> 00:10:01,300 If we look at some of the actual metrics here, we have the growth 195 00:10:01,300 --> 00:10:05,300 of the company, it's growing in the last five years. 196 00:10:05,600 --> 00:10:09,500 Seventeen percent annualized, Seventeen percent compound 197 00:10:09,500 --> 00:10:12,700 annual growth rate in the past five years, right now, with 198 00:10:12,700 --> 00:10:16,900 their growth, because of the macro economic situation, 199 00:10:17,000 --> 00:10:20,300 because of, especially foreign exchange ratios with the dollar 200 00:10:20,300 --> 00:10:24,000 being so expensive. Right now, their revenue outside 201 00:10:24,000 --> 00:10:26,400 of the u.s. is actually worth less than it used to be. 202 00:10:26,600 --> 00:10:28,300 And that's hurting their profitability. 203 00:10:28,600 --> 00:10:31,800 So they are getting a lot of growth, but the foreign exchange 204 00:10:31,800 --> 00:10:34,700 issue is a problem that Microsoft currently dealing with 205 00:10:34,700 --> 00:10:35,900 that. They're trying to Get over. 206 00:10:35,900 --> 00:10:38,500 Then we can look at the other growth rates at the company we 207 00:10:38,500 --> 00:10:42,200 have the ibadah growth at a five-year compound, annual 208 00:10:42,200 --> 00:10:45,500 growth rate of 24 percent. See this explosive growth, 209 00:10:45,900 --> 00:10:50,500 what's amazing to me is the past five years, Microsoft has grown 210 00:10:50,500 --> 00:10:52,900 much faster than the past 10 years. 211 00:10:53,300 --> 00:10:57,600 Meaning that over time, the law of large numbers says, as the 212 00:10:57,600 --> 00:11:00,000 company gets bigger growth should slow down. 213 00:11:00,100 --> 00:11:02,600 That's what people always say. Company gets bigger and bigger. 214 00:11:02,600 --> 00:11:04,900 It's harder to grow. So the growth should slow down. 215 00:11:05,200 --> 00:11:07,000 Now. Not what Microsoft has done. 216 00:11:07,300 --> 00:11:10,700 You look at the actual growth rates of the company and it was 217 00:11:10,700 --> 00:11:15,200 10% 14 percent during this time period in the past five years 218 00:11:15,200 --> 00:11:18,500 with Azure, with all their business developments growth is 219 00:11:18,500 --> 00:11:20,900 actually accelerating in the past one year. 220 00:11:20,900 --> 00:11:25,200 It was again, 17% pretty incredible growth, the free cash 221 00:11:25,200 --> 00:11:27,600 flow looks very similar, the past two years. 222 00:11:27,600 --> 00:11:30,200 It's been ten percent per year or 20 percent per year. 223 00:11:30,200 --> 00:11:34,700 Sorry, the past five years, it's average of 15 percent compound, 224 00:11:34,700 --> 00:11:37,200 annual growth Great just incredible growth and 225 00:11:37,200 --> 00:11:39,900 profitability ibadah and overall Revenue. 226 00:11:40,200 --> 00:11:43,900 We see the same things in their their net income, massive 227 00:11:43,900 --> 00:11:46,900 growth, we see the same things in their earnings per share. 228 00:11:47,100 --> 00:11:49,900 All these profitability metrics are showing a very fast-growing 229 00:11:49,900 --> 00:11:55,100 company, the EPS grew at 28.9% compound annual growth rate for 230 00:11:55,100 --> 00:11:58,300 the past five years. Even if you zoom out to the past 231 00:11:58,300 --> 00:12:03,000 ten years, it's 17 percent. So, add a 24 forward P/E ratio 232 00:12:03,400 --> 00:12:05,300 with an unassailable. Why? 233 00:12:05,300 --> 00:12:09,500 Note that Microsoft has and the above average growth rate given 234 00:12:09,500 --> 00:12:12,300 the rest of the market. I don't think it's expensive at 235 00:12:12,300 --> 00:12:14,100 all. In fact, I continually believe 236 00:12:14,100 --> 00:12:17,400 this company is undervalued. My fair value estimate. 237 00:12:17,400 --> 00:12:22,000 For Microsoft currently is 350 dollars over a hundred dollars 238 00:12:22,000 --> 00:12:23,700 above what it currently trades at. 239 00:12:23,700 --> 00:12:26,300 So, we are so far apart of where, this company actually 240 00:12:26,300 --> 00:12:28,300 trades today. And where, I think the fair 241 00:12:28,300 --> 00:12:32,100 value is over $100 difference, and it looks like it might even 242 00:12:32,100 --> 00:12:34,900 get further every day. It's just trading downwards, I 243 00:12:34,900 --> 00:12:36,300 don't think. I think this is because the 244 00:12:36,300 --> 00:12:38,700 fundamentals of the company are deteriorating. 245 00:12:38,800 --> 00:12:40,700 Microsoft has incredible fundamentals. 246 00:12:40,700 --> 00:12:44,400 That get better every single year, the acquisition of 247 00:12:44,400 --> 00:12:47,900 Activision Blizzard, was an expensive one, they're paying a 248 00:12:47,900 --> 00:12:51,700 lot of cash for the company about 70 billion dollars for it. 249 00:12:51,700 --> 00:12:54,800 So it's inexpensive company. It'll take a big hit on the 250 00:12:54,800 --> 00:12:57,600 balance sheet but Microsoft can afford it. 251 00:12:58,000 --> 00:13:01,200 And basically one year, but they're one year of operating 252 00:13:01,300 --> 00:13:03,500 free cash flow. They can pick up a company like 253 00:13:03,500 --> 00:13:06,200 Activision Blizzard without using Any debt. 254 00:13:06,400 --> 00:13:10,100 So they're not putting the shareholder in a situation where 255 00:13:10,100 --> 00:13:13,300 they're buying a company but they're leveraging taking a lot 256 00:13:13,300 --> 00:13:16,400 of risk and taking on a lot of debt at questionable interest 257 00:13:16,400 --> 00:13:19,800 rates know, Microsoft doesn't do that, they buy the company using 258 00:13:19,800 --> 00:13:22,600 cash on hand, their cash to debt. 259 00:13:22,600 --> 00:13:25,100 Will likely be pretty neutral, they're not going to be 260 00:13:25,100 --> 00:13:29,300 leveraged at all and any cache hit that they get again, they'll 261 00:13:29,300 --> 00:13:32,300 likely be able to make up in one year's time and meanwhile, 262 00:13:32,300 --> 00:13:34,800 they're buying Activision Blizzard which is a Cash Cow of 263 00:13:34,800 --> 00:13:36,900 a company. A itself adding billions of 264 00:13:36,908 --> 00:13:38,600 dollars of free cash flow per year. 265 00:13:39,100 --> 00:13:42,300 So this is something again, beneficial to the shareholder. 266 00:13:42,900 --> 00:13:46,000 The dividend growth is another strong point of Microsoft eleven 267 00:13:46,000 --> 00:13:48,500 point, six five percent compound annual growth rate of the 268 00:13:48,508 --> 00:13:51,300 dividend over the past. Decade they grow at 10 percent 269 00:13:51,300 --> 00:13:54,900 last year, the shares outstanding we can see this 270 00:13:54,900 --> 00:13:57,100 going in the reverse, which is what we want to see. 271 00:13:57,400 --> 00:14:00,200 So we want to see the shares outstanding going down as 272 00:14:00,200 --> 00:14:02,200 they're giving us more equity in the company. 273 00:14:02,200 --> 00:14:04,900 Buying back, shares it over the past decade. 274 00:14:05,400 --> 00:14:08,500 It's been about one percent per year, they reduced the shares 275 00:14:08,500 --> 00:14:10,500 outstanding. So you see the share is going 276 00:14:10,500 --> 00:14:13,100 down a little bit every single year. 277 00:14:13,300 --> 00:14:17,200 That's exactly what we want to see the ratios of the company. 278 00:14:18,000 --> 00:14:20,500 If you're a follower of Terry Smith and you're looking for 279 00:14:20,900 --> 00:14:23,700 high quality companies, you'll know that one of the ways to 280 00:14:23,700 --> 00:14:26,300 judge a high quality company is What's called the return on 281 00:14:26,300 --> 00:14:30,900 Capital employed are oce. It's basically a measurement for 282 00:14:31,200 --> 00:14:34,400 how much the company spends in its business and reinvestment 283 00:14:34,600 --> 00:14:37,200 and how much money It makes back from those reinvestments. 284 00:14:37,500 --> 00:14:42,100 Microsoft's Roc e is incredibly and consistently high. 285 00:14:42,500 --> 00:14:45,600 Now, this chart doesn't look consistent because it starts at 286 00:14:45,600 --> 00:14:49,000 10 percent but a baseline of 10% is great. 287 00:14:49,100 --> 00:14:54,600 That means the lowest it's ever gone since 1987 is down to 12% 288 00:14:54,900 --> 00:14:57,000 in. This is really good, that's 289 00:14:57,000 --> 00:14:59,600 actually very high. Some companies don't even get up 290 00:14:59,600 --> 00:15:02,900 to 12%. So this are oce from Microsoft 291 00:15:02,900 --> 00:15:05,200 is phenomenal, the history of it shows that heh. 292 00:15:05,400 --> 00:15:09,000 Flo's. Some periods like 2008 was 52%, 293 00:15:09,100 --> 00:15:12,000 it went down to 13%. But now it's starting to Trend 294 00:15:12,000 --> 00:15:14,600 back upwards with Azure and these other Investments, making 295 00:15:14,600 --> 00:15:17,600 huge returns. We're trending back up to 30%, 296 00:15:17,600 --> 00:15:21,800 plus huge amounts of our oce. Good Returns on the Investments 297 00:15:21,800 --> 00:15:25,200 they make, when they get money out there in their business, 298 00:15:25,300 --> 00:15:29,000 they get better Returns on it, gross margins, very consistently 299 00:15:29,000 --> 00:15:30,900 high. If you can't see right here, the 300 00:15:30,900 --> 00:15:33,800 Baseline 60%. So this shows that changes over 301 00:15:33,800 --> 00:15:36,900 time but they're Ready. Dramatized here overall the 302 00:15:36,900 --> 00:15:41,900 gross margins sticks somewhere around 65 to 70% Microsoft is 303 00:15:41,900 --> 00:15:45,800 dead set on having their gross margins right around 70 percent. 304 00:15:45,800 --> 00:15:47,500 They'll always make that their target. 305 00:15:47,700 --> 00:15:50,500 So if you look at this chart look at the 70 percent Mark, 306 00:15:50,500 --> 00:15:52,500 that's right. Where Microsoft wants to keep it 307 00:15:52,900 --> 00:15:54,500 operating. Margin is always incredibly 308 00:15:54,500 --> 00:15:57,100 good. It's up to 42% right now profit. 309 00:15:57,100 --> 00:16:00,800 Margins also incredibly good right now, it's at 37 percent. 310 00:16:00,900 --> 00:16:03,900 High profits, High margins. High return on Capital employed, 311 00:16:04,100 --> 00:16:07,400 fast growing business. Peccable balance sheet wide 312 00:16:07,400 --> 00:16:09,600 moat, I think it faces virtually. 313 00:16:09,600 --> 00:16:13,900 No real significant threat in the marketplace right now and 314 00:16:13,900 --> 00:16:18,600 its trading out of 24 PE ratio. My opinion is worth over $100 315 00:16:18,600 --> 00:16:21,100 more. So the thing that we look at 316 00:16:21,100 --> 00:16:24,100 here when I'm looking at buying, these companies just a reminder, 317 00:16:24,400 --> 00:16:28,100 there's two basic risks that you look at buying a company like 318 00:16:28,100 --> 00:16:33,100 Microsoft or apple or Tesla, or any of them to basic risks. 319 00:16:33,600 --> 00:16:36,800 One of them is fundamental risk. Uuuuuugh fundamental risk is 320 00:16:36,800 --> 00:16:40,200 when the company fundamentally performs really poorly, they 321 00:16:40,200 --> 00:16:43,700 have deterioration, they have competitors, take their business 322 00:16:43,700 --> 00:16:46,100 or their mode, you have some companies that fundamentally 323 00:16:46,100 --> 00:16:49,400 face a lot of issues and that's one risk that you want to 324 00:16:49,400 --> 00:16:52,100 minimize. Now, the way that you minimize 325 00:16:52,100 --> 00:16:55,300 fundamental risk is by investing in high quality companies 326 00:16:55,700 --> 00:16:59,600 companies with the qualities that Microsoft has minimizes 327 00:16:59,600 --> 00:17:01,900 that fundamental risk. The other risk that you have 328 00:17:01,900 --> 00:17:05,300 investing in a company like this is valuation risk evaluation. 329 00:17:05,300 --> 00:17:08,599 Risk means you just buy a great company too expensive and it 330 00:17:08,608 --> 00:17:12,099 trades down to fair value. That's the valuation risk, the 331 00:17:12,099 --> 00:17:15,599 way that you minimize your chances of having valuation risk 332 00:17:15,599 --> 00:17:18,900 is buying the company when others are very fearful about 333 00:17:18,900 --> 00:17:22,000 it, when others don't want to own individual stocks, when 334 00:17:22,000 --> 00:17:23,099 they're selling out of the stock market. 335 00:17:23,099 --> 00:17:28,099 So, you can minimize the chances of valuation Risk by buying on 336 00:17:28,099 --> 00:17:31,700 significant drops and price, significant discounts. 337 00:17:31,700 --> 00:17:35,000 So, with buying a company like Microsoft, or right, now, I'm 338 00:17:35,000 --> 00:17:37,500 minimizing Rising to risks. I'm minimizing the fundamental 339 00:17:37,500 --> 00:17:39,900 Risk by buying a company that has incredibly strong 340 00:17:39,900 --> 00:17:42,200 fundamentals. And I minimizing the valuation 341 00:17:42,200 --> 00:17:43,800 Risk by buying it, when it's traded. 342 00:17:43,800 --> 00:17:47,200 Well below its historical average, and a huge dip, that 343 00:17:47,200 --> 00:17:49,600 doesn't mean that the risks are entirely gone. 344 00:17:49,700 --> 00:17:52,800 You can't completely erase all risk, but these are ways to 345 00:17:52,800 --> 00:17:55,700 minimize them and I think I'm doing both of them in this case 346 00:17:55,900 --> 00:17:58,100 with Microsoft. Currently, now, having said 347 00:17:58,100 --> 00:18:00,100 that, let's go ahead and move on to the next one, which is 348 00:18:00,100 --> 00:18:02,300 Google. I've highlighted this one as one 349 00:18:02,300 --> 00:18:04,600 of the Best Buys in the market right now. 350 00:18:04,900 --> 00:18:07,000 It's one of Larger Holdings in my portfolio. 351 00:18:07,000 --> 00:18:09,000 I've invested 15 thousand dollars into it. 352 00:18:09,400 --> 00:18:11,500 And like most of these companies, it's recently sold 353 00:18:11,500 --> 00:18:14,200 off I'm down around 1,900 dollars now, let's go ahead and 354 00:18:14,200 --> 00:18:15,500 look at Google here for a minute. 355 00:18:16,100 --> 00:18:17,800 When I bring this one up and look at it. 356 00:18:17,800 --> 00:18:20,400 The first thing that I'm drawn to is the PE ratio of the 357 00:18:20,400 --> 00:18:26,100 company its traded at a 16 .39, forward, P/E ratio, which is 358 00:18:26,100 --> 00:18:28,800 basically in line with the S&P 500. 359 00:18:29,100 --> 00:18:33,400 Meaning investors are looking at this as the same valuation as 360 00:18:33,400 --> 00:18:37,000 the average of the S&P 500. And I think the reasons why 361 00:18:37,000 --> 00:18:38,800 files to nail it down to one thing. 362 00:18:39,000 --> 00:18:41,900 I don't really think it's Tick-Tock, I don't really think 363 00:18:41,900 --> 00:18:44,500 it's the ad apocalypse. I think those type of things 364 00:18:44,500 --> 00:18:47,200 play a little bit of a role, but I think the reason why is 365 00:18:47,200 --> 00:18:51,600 because Google's expected this year to actually have an 366 00:18:51,600 --> 00:18:54,800 earnings decline, I think that's why the stock is trading down. 367 00:18:55,100 --> 00:18:59,700 For example, we have the analyst estimates here and for 2022, the 368 00:18:59,700 --> 00:19:03,200 year of your earnings growth is expected to decline by around 369 00:19:03,300 --> 00:19:06,800 seven percent. So we see, am I Decline an EPS 370 00:19:06,800 --> 00:19:10,200 because of the very tough comparables last year and then 371 00:19:10,200 --> 00:19:13,500 they are expected to re-accelerate growth but the one 372 00:19:13,500 --> 00:19:17,400 your expectations, a lot more predictable than two or three or 373 00:19:17,400 --> 00:19:19,400 four years out. The further you get out the more 374 00:19:19,400 --> 00:19:22,200 unpredictable, the earnings are. So investors are looking at this 375 00:19:22,200 --> 00:19:25,400 and they're saying, sheesh, Google's a great company, but 376 00:19:25,400 --> 00:19:28,900 they did. So great in 2021 that they 377 00:19:28,900 --> 00:19:31,000 simply can't compete with that year. 378 00:19:31,300 --> 00:19:33,900 It was an unreal year where everybody was stuck home. 379 00:19:34,100 --> 00:19:37,400 Everybody was looking at Those all day, Google made a fortune 380 00:19:37,400 --> 00:19:41,000 through lots of one-time benefits like for example, 381 00:19:41,000 --> 00:19:46,000 everybody let me highlight this this will make sense for example 382 00:19:46,500 --> 00:19:51,100 in 2020, everybody was locked in home so they were stuck at home 383 00:19:51,400 --> 00:19:54,000 and then in 2021 everybody went on vacation. 384 00:19:54,500 --> 00:19:56,900 Well guess what? Company makes a lot of money 385 00:19:56,900 --> 00:20:01,100 from ads on vacation websites and different different travel 386 00:20:01,100 --> 00:20:02,700 websites. Google does. 387 00:20:02,900 --> 00:20:04,600 There are huge beneficiary of that. 388 00:20:04,800 --> 00:20:08,500 So with the Economy reopening while people are watching videos 389 00:20:08,500 --> 00:20:12,100 the vacation boom and the ad boom from that was massive for 390 00:20:12,100 --> 00:20:14,400 Google. So those are one-time benefits 391 00:20:14,400 --> 00:20:17,500 that aren't going to last long term for the company and now you 392 00:20:17,500 --> 00:20:20,700 can see the earnings starting to decline again because they did 393 00:20:20,700 --> 00:20:24,800 so good last year and I think this is the reason the stock 394 00:20:24,800 --> 00:20:26,600 price is in the gutter. Right now, the reason it's 395 00:20:26,600 --> 00:20:29,900 starting to Trend back down but if we look at the actual company 396 00:20:29,900 --> 00:20:33,100 itself, we can look at some of the fundamentals and then we can 397 00:20:33,100 --> 00:20:35,900 go through whether or not I think that this full of cash 398 00:20:35,900 --> 00:20:39,800 flow revenue and earnings is ultimately sustainable. 399 00:20:40,200 --> 00:20:41,600 Let's go ahead and look at some of this. 400 00:20:42,000 --> 00:20:47,600 We have a free cash flow, yield of 5% above 5% for Google, I 401 00:20:47,600 --> 00:20:51,100 think that is it's too high. I think the company should have 402 00:20:51,100 --> 00:20:54,000 a lower free cash flow yield meaning that the stock price 403 00:20:54,100 --> 00:20:57,000 should go up. I think it's just under value 404 00:20:57,000 --> 00:20:59,500 based on a free cash flow yield. I think it's undervalued based 405 00:20:59,500 --> 00:21:03,200 on the PE Ratio either way you look at the valuation which 406 00:21:03,200 --> 00:21:05,600 those are, the two biggest ones. I look at I think it's 407 00:21:05,600 --> 00:21:10,200 undervalued if you use price to sales as well, 4.6 arguably 408 00:21:10,200 --> 00:21:13,000 undervalued for a company that has the margins of Google. 409 00:21:13,300 --> 00:21:15,500 Microsoft trades more at a 9 or 10. 410 00:21:16,000 --> 00:21:19,400 But again, Google probably should trade at least a 7 here. 411 00:21:19,800 --> 00:21:21,700 I don't use price to sales quite as much. 412 00:21:21,700 --> 00:21:24,600 I like looking at profitability metrics like PE and free cash 413 00:21:24,600 --> 00:21:27,500 flow. But again overall any way you 414 00:21:27,500 --> 00:21:30,900 look at this company, any metric you use, I think it's 415 00:21:30,900 --> 00:21:33,100 undervalued. We look at the growth rate of 416 00:21:33,100 --> 00:21:36,700 it. Over the past decade Google has 417 00:21:36,700 --> 00:21:40,200 been one of the faster growing companies faster growing than 418 00:21:40,200 --> 00:21:42,400 all of the big tech companies except for Amazon. 419 00:21:42,400 --> 00:21:45,300 Amazon has beat Google but it's be all the rest of big Tech 420 00:21:45,600 --> 00:21:48,100 Google has grown its tenure Revenue. 421 00:21:48,400 --> 00:21:51,300 The tenure compound annual growth rate is twenty one 422 00:21:51,300 --> 00:21:57,100 percent and then last year, from 2022 2021, they grew by 41 423 00:21:57,100 --> 00:21:59,200 percent. And that's the tough one to 424 00:21:59,200 --> 00:22:02,200 beat. So as they had this amazing year 425 00:22:02,200 --> 00:22:07,300 from 2020 2021 Now, they're going from 2021 to 2022 which is 426 00:22:07,300 --> 00:22:10,300 expected to slow down a lot. If I switch this to quarterly, 427 00:22:10,300 --> 00:22:13,900 we can see that here to see how we see the big jump up from here 428 00:22:13,900 --> 00:22:15,900 to here and then it starts to slow down. 429 00:22:16,400 --> 00:22:18,600 It's just tough comparables. There's nothing they can do 430 00:22:18,600 --> 00:22:22,200 about that, but overall this might be a window of opportunity 431 00:22:22,200 --> 00:22:25,000 for us, the ibadah shows, the same thing, they're highly 432 00:22:25,000 --> 00:22:27,800 profitable. Growing their ibadah 21 percent, 433 00:22:27,800 --> 00:22:30,700 compound annual growth rate for the last decade, the free cash 434 00:22:30,700 --> 00:22:32,900 flow shows. The same thing over the past 435 00:22:32,900 --> 00:22:35,300 five years. The Cash flow growth has a 436 00:22:35,300 --> 00:22:39,400 kegger of 21%. That is incredible. 437 00:22:39,900 --> 00:22:42,200 When you look at this on a free cash flow per share basis, it's 438 00:22:42,200 --> 00:22:44,900 the exact same because even though Google does some 439 00:22:44,900 --> 00:22:47,400 stock-based compensation, they buy back their shares 440 00:22:47,400 --> 00:22:50,800 continually so they're actually growing their free cash flow per 441 00:22:50,800 --> 00:22:53,900 share, 21 percent over the past five years. 442 00:22:54,200 --> 00:22:56,200 Incredible growth on their free cash flow. 443 00:22:56,500 --> 00:23:01,100 Incredible growth with their net income five-year keggers 31% the 444 00:23:01,100 --> 00:23:03,600 earnings per share. Show the same thing, but again, 445 00:23:03,900 --> 00:23:07,000 We switch this over to quarterly and we look at 2022. 446 00:23:07,300 --> 00:23:09,600 These are starting to revert a little bit. 447 00:23:09,800 --> 00:23:13,500 The ad revenues going down for many channels on my channel. 448 00:23:13,500 --> 00:23:17,700 For example, I have two channels and the ad Revenue per thousand 449 00:23:17,700 --> 00:23:21,000 views has gone down a little bit over the past six months, which 450 00:23:21,000 --> 00:23:23,300 just means that less companies are advertising. 451 00:23:23,300 --> 00:23:26,500 There's a little bit less demand, so that softness in 452 00:23:26,500 --> 00:23:29,800 demand is impacting Google's earnings than this is. 453 00:23:29,800 --> 00:23:32,900 Where investors are becoming nervous looking at the balance 454 00:23:32,900 --> 00:23:35,700 sheet. Don't know if many companies 455 00:23:35,700 --> 00:23:39,900 maybe two or three that might have equally as good or better, 456 00:23:40,100 --> 00:23:42,500 balance, sheets and Google. But this has to be one of the 457 00:23:42,500 --> 00:23:45,600 top ones in the entire Market, they have a hundred and twenty 458 00:23:45,600 --> 00:23:50,100 five billion dollars of cash Cold Hard Cash and then they 459 00:23:50,100 --> 00:23:54,700 have actual debt long-term debt of ten point five billion in. 460 00:23:54,700 --> 00:23:57,800 Then the rest of their debt is what's called Capital leases 461 00:23:58,200 --> 00:24:01,300 which is basically rental agreements with different things 462 00:24:01,300 --> 00:24:05,300 they have for warehouses for probably servers and different 463 00:24:05,300 --> 00:24:07,400 things that they do. So that's it. 464 00:24:07,800 --> 00:24:10,300 In total they have a massive amount of cash over a hundred 465 00:24:10,300 --> 00:24:13,400 billion dollars of excess cash. They are very cash rich company. 466 00:24:13,900 --> 00:24:16,900 The shares outstanding you're going down over time since 2019 467 00:24:17,200 --> 00:24:19,800 over the past five years, they've declined around the same 468 00:24:19,800 --> 00:24:23,200 amount as Microsoft, which is about one percent annualized. 469 00:24:23,700 --> 00:24:25,400 And then we look at the ratios here. 470 00:24:25,600 --> 00:24:27,100 Let me switch this over to annually. 471 00:24:28,000 --> 00:24:31,900 When I look at the high quality companies, again you can look at 472 00:24:31,900 --> 00:24:34,500 the different things that Terry Smith, references with great 473 00:24:34,500 --> 00:24:37,900 companies, return on Capital employed is one of the main ones 474 00:24:37,900 --> 00:24:41,400 that he looks at the x-axis here starts at twelve percent. 475 00:24:41,600 --> 00:24:45,300 So you see very consistently High return on Capital employed 476 00:24:45,500 --> 00:24:48,600 it's gone down to 15% which is a little low for a company like 477 00:24:48,600 --> 00:24:53,400 Google but then in 2021 it spiked to 27 percent overall 478 00:24:53,800 --> 00:24:56,800 good enough it's good enough return on Capital employed gross 479 00:24:56,800 --> 00:25:01,300 margins are very high. 57%, operating margins very high, 31 480 00:25:01,300 --> 00:25:03,400 percent. Google is a highly profitable 481 00:25:03,400 --> 00:25:06,200 company 30% profit. Margins, not as good as 482 00:25:06,200 --> 00:25:08,400 Microsoft. The fundamentals here are not as 483 00:25:08,400 --> 00:25:10,200 good as Microsoft, in my opinion. 484 00:25:10,500 --> 00:25:13,400 The only thing that I think is better is the growth rate has 485 00:25:13,400 --> 00:25:16,400 been a little bit better over a longer time period and the cash 486 00:25:16,400 --> 00:25:19,300 balance is better but I think Microsoft has better ratios 487 00:25:19,300 --> 00:25:21,400 outside of that. So again when I look at Google 488 00:25:21,400 --> 00:25:25,300 over all right now trading at less than $100 per share, a 16 489 00:25:25,300 --> 00:25:29,600 forward, P/E ratio, and a 5%. Free cash flow yield even with a 490 00:25:29,600 --> 00:25:33,000 little bit of softening in the fundamentals of the business and 491 00:25:33,000 --> 00:25:35,800 the growth going down a little bit of their earnings per share. 492 00:25:36,000 --> 00:25:37,800 I think that's a temporary phenomenon. 493 00:25:38,000 --> 00:25:41,100 They grew a ton last year, it's going to decline a little bit 494 00:25:41,100 --> 00:25:43,400 this year and then it will start to re-accelerate. 495 00:25:43,600 --> 00:25:46,600 And I think this time period of the sell-off, I think people 496 00:25:46,600 --> 00:25:49,200 will be looking back two or three years from now and just 497 00:25:49,200 --> 00:25:51,200 kicking themselves for not buying this company. 498 00:25:51,500 --> 00:25:53,200 My opinion is undervalued right now. 499 00:25:53,600 --> 00:25:56,000 You'll probably have to hold it for a year or so before you see 500 00:25:56,000 --> 00:25:59,300 any uptick in it, I think it's worth the buy in my opinion. 501 00:25:59,400 --> 00:26:02,800 Now, the next one that we'll look at is Adobe a company that 502 00:26:02,800 --> 00:26:05,900 I've gone over with their figma agreement but I want to revisit 503 00:26:05,900 --> 00:26:07,400 this one. Now if we look at a Dobby, 504 00:26:07,400 --> 00:26:09,000 there's two valuation metrics that. 505 00:26:09,000 --> 00:26:12,700 I look at most closely and both of them show in my opinion. 506 00:26:12,700 --> 00:26:16,500 This company is undervalued buying Adobe at a 20 or below 507 00:26:16,500 --> 00:26:18,200 forward P/E ratio. I think. 508 00:26:18,200 --> 00:26:20,800 Right there is arguably going to be a good. 509 00:26:20,800 --> 00:26:22,400 Bye. And then we look at the free 510 00:26:22,400 --> 00:26:25,000 cash flow yield, which is my favorite valuation metric. 511 00:26:25,300 --> 00:26:28,000 And this is at a five point four, eight percent that it is a 512 00:26:28,000 --> 00:26:30,800 high free cash flow yield much higher, the most tech companies 513 00:26:30,800 --> 00:26:34,000 in the market. The the problem with Adobe is 514 00:26:34,000 --> 00:26:36,900 one that I've gone over in recent videos, where they're 515 00:26:36,900 --> 00:26:40,700 buying this startup company or rather, not a startup company. 516 00:26:40,700 --> 00:26:44,100 But a smaller company called figma a fast-growing design 517 00:26:44,100 --> 00:26:47,000 oriented company and they're buying it for 20 billion 518 00:26:47,000 --> 00:26:49,100 dollars. So investors said no way I don't 519 00:26:49,100 --> 00:26:50,900 like this purchase. It's too much money for the 520 00:26:50,900 --> 00:26:53,800 small company and they're selling out of adobe and the 521 00:26:53,800 --> 00:26:59,000 stock price cratered like 15% now the What's going down 51 522 00:26:59,000 --> 00:27:01,500 percent. Year-to-date can be looked at as 523 00:27:01,500 --> 00:27:03,800 a problem. If you own the company or an 524 00:27:03,800 --> 00:27:07,000 opportunity, I look at this as an opportunity because I think 525 00:27:07,000 --> 00:27:12,400 Adobe did the right thing buying figma, figma completes the Adobe 526 00:27:12,400 --> 00:27:15,900 moat and makes it so that they have their foot in the door of 527 00:27:15,900 --> 00:27:19,100 literally every tech company that does any amount of design 528 00:27:19,600 --> 00:27:22,900 figma with Adobe. I think will be an incredible 529 00:27:23,200 --> 00:27:26,400 incredible boost to this company and they could not have 530 00:27:26,400 --> 00:27:27,600 recreated figma. They could. 531 00:27:27,700 --> 00:27:30,100 Not have competed with them that wasn't an option. 532 00:27:30,100 --> 00:27:32,000 So I think buying them was the right thing to do. 533 00:27:32,100 --> 00:27:34,300 Now, even outside of the figma deal, if we just look at a 534 00:27:34,308 --> 00:27:37,400 Dobies fundamentals, then numbers are pretty staggering 535 00:27:37,700 --> 00:27:40,900 over the past five years, the compound annual growth rate of 536 00:27:40,900 --> 00:27:47,100 the revenue is 22% 22% and it's accelerating over time. 537 00:27:47,100 --> 00:27:51,100 Like many of these companies that we see the ibadah is 29%. 538 00:27:51,300 --> 00:27:55,300 They're growing their ibadah kegger at 30% over the past five 539 00:27:55,300 --> 00:28:00,200 years, the free cash flow. Only 8% I don't know of any 540 00:28:00,200 --> 00:28:02,500 other big tech company that's growing its free cash flow. 541 00:28:02,500 --> 00:28:06,400 This rapidly five-year compound annual growth rate of 28 percent 542 00:28:06,400 --> 00:28:08,200 even on a free cash flow per share basis. 543 00:28:08,500 --> 00:28:10,900 It's actually gone up, more 29 percent because they're doing 544 00:28:10,900 --> 00:28:14,600 share BuyBacks incredibly profitable growth from this 545 00:28:14,600 --> 00:28:16,600 company. The net income shows the same 546 00:28:16,600 --> 00:28:20,500 thing. Five years is 32%, the EPS 547 00:28:20,500 --> 00:28:24,600 growth is five-year 34%. Incredibly good numbers. 548 00:28:24,600 --> 00:28:26,600 Now, the balance sheet right now, looks really good. 549 00:28:26,600 --> 00:28:29,700 It has no Leverage Reg. Meaning they have more cash than 550 00:28:29,700 --> 00:28:32,800 debt or their Capital leases, which is good right now. 551 00:28:32,800 --> 00:28:36,700 But remember, they're paying for the figma deal with half half 552 00:28:36,700 --> 00:28:39,900 stock, so they're going to do a little bit of dilution and half 553 00:28:39,900 --> 00:28:41,600 cash. They're going to be paying 10 554 00:28:41,600 --> 00:28:43,000 billion dollars of it using debt. 555 00:28:43,200 --> 00:28:47,000 So this debt will go up from 3.5 billion to thirteen point five 556 00:28:47,000 --> 00:28:50,200 billion which will make it. So they have around six or seven 557 00:28:50,200 --> 00:28:52,900 billion dollars of excess dead, so they will become a leveraged 558 00:28:52,900 --> 00:28:55,800 company. Again, that puts them in a 559 00:28:55,808 --> 00:28:57,600 little bit worse of a position with their balance. 560 00:28:57,800 --> 00:28:59,600 Eat. But what the amount of free cash 561 00:28:59,600 --> 00:29:03,700 flow, this company can generate six to seven billion dollars per 562 00:29:03,700 --> 00:29:05,300 year. They should be able to bring 563 00:29:05,300 --> 00:29:08,000 those debt levels. Back to a nun leverage position 564 00:29:08,500 --> 00:29:11,600 within one year easily back to a nun, leveraged position and then 565 00:29:11,608 --> 00:29:13,400 they should be able to pay for the whole thing within two 566 00:29:13,400 --> 00:29:15,800 years. If they really want to, they 567 00:29:15,808 --> 00:29:17,300 don't currently pay dividend right now. 568 00:29:18,000 --> 00:29:21,300 The shares outstanding, however, are going down and over the past 569 00:29:21,300 --> 00:29:25,500 five years, they've gone down a little bit under 1% per year. 570 00:29:25,500 --> 00:29:29,200 So they're just doing enough to Barely lower the share count but 571 00:29:29,200 --> 00:29:31,200 it's not an aggressive buyback schedule. 572 00:29:31,500 --> 00:29:33,800 If we look at the Returns on Capital employed of the company 573 00:29:34,200 --> 00:29:37,100 over the past five years it's been a little bit lower than 574 00:29:37,100 --> 00:29:39,400 we'd like to see. But now it's starting to Trend 575 00:29:39,400 --> 00:29:43,600 much higher up to 29% to give this some context. 576 00:29:43,900 --> 00:29:47,500 A company like Costco has around 16%. 577 00:29:47,700 --> 00:29:51,000 A lot of airlines have like six or seven percent, which is 578 00:29:51,000 --> 00:29:54,700 awful. So, having a 30% are oce, is 579 00:29:54,700 --> 00:29:56,100 really good. That means that they're getting 580 00:29:56,100 --> 00:29:57,600 a lot of money back for the money. 581 00:29:57,700 --> 00:30:01,000 Putting in their company, the gross margins for Adobe are 582 00:30:01,000 --> 00:30:04,500 very, very good 88%. Better than Microsoft's. 583 00:30:04,700 --> 00:30:07,300 The operating margins are 37 percent. 584 00:30:07,600 --> 00:30:11,000 Also very good, those are the margins of topped are tech 585 00:30:11,000 --> 00:30:13,100 companies. The profit margin is also 586 00:30:13,100 --> 00:30:16,900 incredibly good at 31% little bit below apple and Microsoft, 587 00:30:16,900 --> 00:30:19,500 but good nonetheless. So look, I look at a company 588 00:30:19,500 --> 00:30:21,700 like Adobe. And again we have those two 589 00:30:21,700 --> 00:30:25,200 different, those two different risks that we want to minimize 590 00:30:25,400 --> 00:30:27,500 the first one being fundamental risk. 591 00:30:27,700 --> 00:30:30,900 Uuuuuugh Adobe is fundamentally a very strong company. 592 00:30:30,900 --> 00:30:34,000 So we minimize fundamental Risk by buying a very strong company, 593 00:30:34,000 --> 00:30:37,400 a high quality company, they're becoming even more high quality 594 00:30:37,600 --> 00:30:41,500 with their acquisition of figma, because Sigma is a, would be be 595 00:30:41,500 --> 00:30:44,200 a competitor for Adobe, but now they own them. 596 00:30:44,300 --> 00:30:47,600 Making them have one less big competitor and have a more 597 00:30:47,600 --> 00:30:50,200 well-rounded product Suite. So there are high quality 598 00:30:50,200 --> 00:30:52,400 company. That reduces the risk of 599 00:30:52,400 --> 00:30:55,100 fundamental risk, and their company is trading at a very 600 00:30:55,100 --> 00:31:00,600 reasonable valuation. 1840. Ratio 5.4 free cash flow yield. 601 00:31:00,800 --> 00:31:04,200 That reduces the valuation risk because right now, Adobe trades 602 00:31:04,200 --> 00:31:08,800 at $270 per share. Just last year, the company was 603 00:31:08,800 --> 00:31:12,300 creating at six hundred and eighty seven dollars per share. 604 00:31:12,600 --> 00:31:17,000 The PE Ratio is into the 40s. So as the price comes down, the 605 00:31:17,000 --> 00:31:20,400 valuation risk, minimizes if the qualities of the company 606 00:31:20,400 --> 00:31:23,000 maintained or stay the same or even get better, then the 607 00:31:23,008 --> 00:31:25,200 fundamental risk is lower as well. 608 00:31:25,500 --> 00:31:29,100 Overall, I think Adobe is Another by right now, these are 609 00:31:29,100 --> 00:31:31,600 three of the companies that I personally think are great deals 610 00:31:31,600 --> 00:31:33,700 right now, but they're not the only ones out there. 611 00:31:33,700 --> 00:31:35,900 There's lots of stocks at Great Deals. 612 00:31:36,200 --> 00:31:39,100 Keep that in mind, when you're going about your day, listening 613 00:31:39,100 --> 00:31:42,500 to different content, most content will be centered around 614 00:31:42,500 --> 00:31:44,700 the economy. That's what gets the clicks. 615 00:31:44,700 --> 00:31:47,100 That's what gets the fiery thumbnails and lots of people's 616 00:31:47,100 --> 00:31:49,400 attention. What the FED is doing what 617 00:31:49,400 --> 00:31:51,900 inflation is doing. That draws a lot of attention 618 00:31:52,100 --> 00:31:55,400 but where you'll actually make the money is buying great 619 00:31:55,400 --> 00:31:59,700 companies at discounted prices, And I foresee two or three years 620 00:31:59,700 --> 00:32:02,900 down the road, I'm going to make a prediction that there's a me, 621 00:32:02,900 --> 00:32:05,100 a lot of people that were distracted during this time. 622 00:32:05,100 --> 00:32:09,100 Period, that look back right now and say, I wish I would have 623 00:32:09,100 --> 00:32:12,400 bought one prices were so cheap on all these obviously, great 624 00:32:12,400 --> 00:32:14,300 companies. I see a lot of that happening in 625 00:32:14,308 --> 00:32:16,500 the future. So that's my thoughts overall. 626 00:32:16,500 --> 00:32:18,500 I hope you enjoyed the video, I'll see you next time.