Welcome back, everyone. Today on the Jezel Carlson Show.
As all of us are looking for very high quality companies that
are going through a dip, maybe the market is getting them
wrong, maybe there's a bad narrative surrounding them.
And in this case, I've identified 8 companies, 8 of
them for our consideration, and we'll be going through each one.
Some of these are buyback machines.
Some of these are incredibly powerful earnings growers, and
some of them are frankly being ignored.
But we're going to be going through each one of them.
We'll also be looking at a portfolio update.
We know that every month I have a document where I go through
and I log the growth of the portfolio, the current
allocation we go to, the performance against the various
benchmarks and my thoughts on the market and and different
sentiments for holdings. We'll be taking a look at this
and giving you some insight into how I'm managing my investments.
Now finally, we do have some news.
Today. The Wall Street Journal has
reported that Paramount and Skydance are looking to buy out
Warner Bros Discovery to make a massive behemoth of a streaming
service, one that's so big, that has such a huge catalog, that
has so much money that it will compete with Netflix.
And this media conglomerate looking to happen very soon is
owned by Larry Ellison's son, Larry Ellison, who has $400
billion. So this is a real competitive
threat to Netflix. We'll be looking at what this
means for Netflix going forward, the probability of this buyout
happening and how it changes the dynamics with one of my largest
positions. And then, of course, it's the
weekend, which we look to financial TikTok to get some
advice, some insight that only we can get from the likes of
TikTok. In this case, it's a person, an
individual here showing us the best way to get a job in
customer service. He has some unique methods of
doing that. We'll look at it at the end of
this episode. We have a lot to get to now.
I'll start things off with a quick look at My Portfolio
overall, the strategy, and that leads into the companies that
I'm looking at buying. When we look at My Portfolio
every month, I update this document here it says August,
but I'm going to be updating it for September.
I've already updated the composition and performances.
So this is just from a few days ago.
This is what the portfolio looks like.
This is the actual waiting when all of the holdings are
combined. Now I have a more detailed
breakdown of this on Qualtrim. We'll be looking at some of the
gains and losses of these individual positions.
So we have the allocation and we can also look at the performance
of the portfolios against the benchmarks.
We have the passive income portfolio, the story fund
against the S&P 500 and QQQ, the passive income portfolio.
Overall, the compounded annual growth rate has been around
11.7%. Now this does change all the
time, every day it's changing because the portfolio goes up
and down. So this this will be different
next week, but this is a running total around 1111 1/2%.
Now if we look at the Story Fund, that's actually where most
of the outperformances happen between my 2 portfolios.
The Story Fund is now becoming a very large portfolio.
It's grown at around 21% per year and it's done so because
it's highly concentrated, 5 to 6 holdings, and a lot of money is
put into highly high conviction bets.
A lot of money was put into Netflix at the Lowe's.
A lot of money was put into Amazon at the Lowe's, Google at
the Lowe's, Microsoft at the Lowe's.
When I saw these big companies that were extremely robust,
resilient companies sell off in 2022, I put a lot of money in
them and concentrated my capital, especially in Netflix.
Netflix is around 6X since the bottom, which has made it a a
huge winner. So a lot of that performance is
driven from those buys. But even year to date this year,
it's up 22%. The 20% tears just from a couple
days ago up 22% and that's including Duolingo.
So Duolingo going down that portfolio is still up 22%.
Now overall again 21% about double S the performance of both
relative benchmarks. That's where I'm getting a lot
of my out performance and I think it's going to continue on
because the companies in this portfolio are fantastic.
Now when we look at the combined portfolio, we have that here in
Qualtrim combined value of one point $3,433,000 in gains.
Now these gains that you're seeing here do not include sold
holdings. So any that I've sold and I no
longer hold, they're not included here.
Even if I've realized some gains in my current holdings, they're
they're not included here as well as dividends aren't
included here. If you include all of my
previously sold positions, that's about another $100,000.
So my total gain throughout the lifetime of the portfolio is
around $530,000, give or take. When we look at the individual
positions, you can see S&P Global right at the top, but
Google's catching it. I think Google very likely will
become the top position of My Portfolio soon.
That's because I keep buying it and the stock keeps going up, a
dangerous combination. When you keep making a a
company, you keep buying it, the stock goes up, it becomes a huge
holding. So we're seeing that with
Google, and I'll highlight more of that one to come.
We also have Amazon. This one could also become the
very biggest position of My Portfolio.
And when you look at the gains of these two companies, it's
actually strikingly similar, 46800 in gains in Google, 46400
with Amazon. Now Google pays some dividends
that aren't included here, so it's a little bit higher, but
that's so close. These two companies, like I
said, I just don't know which one to buy.
I'm always wanting to buy both of them.
I think they're both fantastic. Then we have Netflix under that
$80,000 in gains in this one. Then we have MasterCard, we have
Microsoft. We have Costco, huge winner in
the portfolio, booking holdings into it ASML.
Then we have Salesforce, one of the losers in the portfolio
right now, $7000 in the red. We have Moody's, big winner in
the portfolio, Equifax. This one's a little early, but
it's in the green. Texas Roadhouse is understated
here. I sold $30,000 of the position.
I really made around $45,000 of gains in this one.
And then Duolingo currently as a loser, down $2000.
We have Apple as a big winner. Now, the reason I share this is
because portfolio allocation is important.
You should be thoughtful in the way that you're constructing
your portfolio. For example, this all may look
like a a lot of random tech companies.
That's not really the case. S&P Global is an indicee
company. It's a data company.
It's a market company. The risks that S&P Global has
compared to Google are very different.
The risks that Google have compared to Amazon are very
different. The risks that Amazon have
compared to Netflix are very different.
Again, Microsoft MasterCard very different.
The amount of overlapping risks with these companies are very
few. I don't have a bunch of banks,
Oregon, a bunch of credit card companies, or just a bunch of
SAS software companies. These are all operating in
completely different industries, different markets, different
customers, and you go down the list.
And that's the case throughout my entire portfolio.
There's very little overlapping risk, and that makes it so that
when one thing happens to one company, it doesn't typically
affect another company. The only thing that affects all
these companies are macro risks, which you can't diversify away
from. But you can also invest in
companies that have incredible balance sheets and they can be
resilient through macro risks. So these companies are highly
defensive against macro risk and they're also highly diversified
against specific risk. That is an intentional
construction. On top of that, these companies
possess I think some of the widest moats in the market.
Like the portfolio analysis suggests here, many of these
companies operate under models anchored by highly reoccurring
revenue. They have subscription based
income. Now I have a huge preference for
companies that have that type of income, where you have the
guaranteed monthly revenue, you have high operating leverage.
I think those make for incredible investments.
It only makes sense to do it in a company where subscription
revenue actually makes sense, where they can continually
improve for the customer. So these companies also have a
huge preference for that. S&P Global has a massive
subscription business. Google has hundreds of millions
of people on their subscriptions.
Amazon has Amazon Prime with 300 million subscribers.
Netflix has 300 + 1,000,000 subscribers on its service.
MasterCard isn't quite but it's highly reoccurring revenue.
Microsoft is overall a subscription company, the
majority of the revenue subscription.
Costco is a subscription company.
They have a membership and then Booking Holdings is building out
a subscription into it says subscription and so on.
And this strategy is working. The passive income portfolio is
at an all time gain of $358,000. That's including dividends.
So that's the total gain of that portfolio.
We can look at the story fund and likewise this one has made
incredible gains. It's at now $169,000.
It's a combined gain of $528,000.
So over half $1,000,000. The goal is to double these
portfolios over the next five years to turn this from
$1,000,000 to 2 million, from 2:00 to 4:00 and so on.
So there's a lot more compounding ahead now when we're
looking at companies that I, I personally think are in a dip,
they're they're on a, a deal right now.
I'm going to go through the list here.
We have a SMLASML is a company that has a dual pronged mode.
First of all, the technology they create is very difficult to
replicate. But then they also have massive
distribution. They have partnerships, long
term partnerships with their customers.
That's also another thing that's going to be very difficult to
disrupt. So I look at this as a highly
resilient, predictable line of revenue and you can see the
revenue growing over time. This does overtime transfer in
the cash flow and earnings. Now the cash flow is a little
bit lumpy, which I don't prefer. I rather have more linear growth
in cash flow. But in this case, it all comes
down to when they build their customers, that's it.
They simply invoice customers all at the same time, they pay
all at the same time. That way you have the lumpy cash
flow. So it's not actually the
fundamentals of their business that are lumpy.
It's basically just accounting overall, the free cash flow on a
per share basis is growing. They're doing buybacks, they're
growing earnings per share. I think it's going to grow a lot
over the next couple of years, and this one's a bit more
insulated from the cyclicality than most other companies in
this industry. So this is one that I continue
to believe is undervalued. It's not at an extreme low, but
I believe the ASML could trade up to $1000.
I think that's relatively fair. The next one that we're looking
at is Salesforce. While the stock price has gone
down, the cash flow has gone up. I like looking at this on a
trailing basis. I think it illustrates it best,
but this is what the free cash flow looks like on a trailing
basis. This doesn't strike me as a
company having too much trouble. At least it's not showing up in
the numbers. But then if we look at the free
cash flow per share, it's growing even faster because
while they're growing their cash flows, they're doing share
buybacks. Many people be quick to point
out the enormous amount of stock based comp that this company
does, but that's a bit of an old take.
I used to have that take as well.
When we were right here in 2023, over half of the free cash flow
was diluted away by stock based comp.
That's not the case anymore. Look at what's happened.
The stock based comp has been completely flat for the past
three years. The free cash flow has doubled
and then it's gone up tripled. So the free cash flow has gone
up substantially. The stock based comp has stayed
remarkably the same, making it so that the stock based comp
impact is only 25%. That's less than a meta.
So Salesforce is actually becoming a leaner, more capital
efficient company, even in the way that they pay their
employees. They're also growing agent
Force. You can see the total customer
growth every single quarter. Again, this is on a quarterly
basis, not annual. We look at the paid customers
and this is growing. There we go.
This is growing as well every single quarter.
And they have a nice funnel there.
It's kind of like Spotify where you have free members and then
you have the paid. A lot of these customers are
going to be funneling down to the paid membership over time.
So when we look at this, I like the fundamentals of the company.
I like the earnings growth. I like the balance sheet, I like
the valuation. Salesforce is again near an all
time low valuation, even going back five years. the PE ratio is
down to its all time low. The free cash flow yields at an
all time high, making this company the cheapest it's ever
been. Now I got a plug in Duolingo.
This is the most volatile stock I own, meaning that the stock
price trades around all the time.
It went down to $270 recently, and then it bounced right back
up to 310. While there's literally no news
going on. The only notable news about a
couple days ago is that a lot of these companies like Apple,
Meta, you name it, they're trying to make live language
translation tools. Whether it's in your glasses or
your Air Pods, they're trying to make these augmented language
translation tools. Now, a lot of people argue
that's a Big Bear case for Duolingo.
I don't believe it is. I think that the reason people
are learning languages is not because of a lack of language
translation tools. I think there's a lot of other
motivating factors to learning a language.
So personally, I don't buy into that bare thesis and I believe
that Duolingo is a very good company.
You can look at these charts. I I mean, just look at them.
This doesn't take rocket science.
Every single chart is going up. That's what's happening with the
company right now. So I'm going to take a look at
the fundamentals. That's what I'm going to follow
overtime. If I'm wrong on Duolingo, that's
fine. I'm OK being wrong.
Every investor is wrong on a couple holdings.
It happens to everyone. Literally name your favorite
best investor in the world. They've had their share of
losses on different holdings. That's part of the game.
So if I'm wrong on Duolingo, that's fine, but I just want to
give it a year or so. Right now, I believe the
company's both undervalued based on its free cash yield of 2.2%
and it's incredibly fast growth. Next up, we have Equifax.
This is another company, I would say this one is a bit more
conservative. If you're looking for a steady
compound over time that has far less volatility but has a reason
for upside, Equifax I think is 1 worth studying now.
I've looked into this company extensively.
Equifax is incredibly wide mode. They have products that are
deeply entrenched in the systems and processes of all different
customer bases from the government, from real estate,
real estate owners, landlords, businesses that hire people.
They have, I mean, they're everywhere.
They're the credit rating agency that has your credit report.
They have the work number, workforce verification
solutions. These products are actually
growing rapidly. Despite interest rates being
high and mortgages being unaffordable, they're still
growing their revenue Ave. steadily.
If anything improves in these categories.
If interest rates go down, if homes become more affordable,
you better believe one of the companies that will benefit the
most is Equifax. If we have the same mortgage
volume that we did just a few years ago, Equifax would make a
fortune. Most of that excess credit pulls
would drop to the bottom line. But even if that doesn't happen,
even if we don't have that additional upside, this still
should be a decent company that compounds at an attractive rate.
Now next we move out of My Portfolio.
We have a company that's caught my attention here, Adobe.
Now Qualtrm has a new feature here.
We've always had new snippets, but now we have much more in
depth, real time news on every company.
And we have of Adobe reporting their fiscal Q3 results that
beat estimates and raise their financial year 2025 revenue and
earnings per share outlook, citing strong demand and
accelerating monetization of AI features cross Creative Cloud
and Acrobat. So even the Creative Cloud is
doing well. That's what I thought was under
threat by Canva and a lot of other companies.
Doesn't seem like it is. They mentioned that the new AI
features are monetizing well, They're accelerating
monetization. Management also noted that
artificial intelligence infused annual reoccurring revenue has
surpassed 5 billion. The guidance Lyft helped the
stock trade higher after hours. This may ease some of the
concerns about the pace of AI monetization versus rising
competition. Adobe's facing new competitive
threats. You have challenges to the Moat
of the company. Primarily you have smaller
players like Canva. You have companies that have
kind of circumvented them in design, like Figma, which they
weren't able to buy. And you also have Gemini,
Google's AI image editing feature, doing a lot of the same
things that Photoshop used to be able to do.
So now we have a situation where Adobe seems like it's just
surrounded by new technologies, new competitive threats.
Investors are very concerned about this long term, and I am
as well. It's caused me to to look away
from the stock for a bit. But the numbers don't lie.
They don't lie historically. They don't paint a perfect
picture of the future, but they don't lie.
When we look at the numbers here, the digital media is
growing 11.6%. This includes Creative Cloud.
So Creative Cloud is growing, not shrinking.
This is a very similar feeling to what we just had with Google
where Chachi BT this new dynamic crazy competitive threat was
going to kill Google, but Google just kept growing and the
numbers quarter after quarter finally beat down investors bear
thesis. And I believe we could see a
similar situation where quarter after quarter Adobe just
continues to grow despite whatever bad narrative you throw
at it. The next thing that we can look
at here is the total performance obligations.
Adobe has grown its performance obligations, which are contracts
over time by 13%. So again, this is growth right
on pace. As usual, nothing concerning.
In this report we look at Adobe's PE ratio.
We'll zoom into it here. the PE ratio is 15.
Then we have the free cash flow yield, 6.3%.
Now a 6.3% free cash flow yield. You factor in stock based comp.
Even if you factor that in, it's around a 20% hit, which means
after stock based comp, it's a 5% yield.
Now we can see what that yield looks like historically over
time. We'll zoom out to the past five
years. We'll look at the free cash flow
yield. It's the highest yield the
company has been at over the past half a decade.
If we look at it on APE ratio. So no longer cash flows, but
we're looking at it on earnings. Remember, the lower this goes,
the cheaper it is. In this case, it's again the
cheapest the company has ever been throughout it's history.
This is the maximum bearishness investors have been.
Every single metric you can look at from Adobe is super cheap.
And at some point, at some point, it's going to price in
the fears around it. At some point, investors are
going to say this is enough. This company's already priced in
the potential of disruption. In fact, they priced it in too
much. And if that disruption doesn't
come, if it never happens, imagine if this company gets
rerated back to a 20 multiple or a 25.
This stock price could quite literally double from here from
3:50 to 700. This is another very interesting
case of the valuation of another high quality company that's gone
down because of a very bad narrative.
And what is management doing during this time period?
Well, what they're doing is they're deploying their capital
and doing what every investor says management should do.
They're buying back shares aggressively.
They've effectively reduced the share count by 4% year over year
from the last quarter. So this speeds up their earnings
per share growth. It speeds up their free cash
flow per share growth. This is exactly what investors
want management to do. Now finally, we get to United
Health Group. This is another one that I
believe was formerly considered a very high quality company, but
then it went through a rough patch.
Narrative went down, and part of the problem here was a
deliberate decision from United Health Group.
They frankly just wrote bad policies on their behalf.
They over insured people. They didn't realize how much
people would actually use health insurance.
Everybody used it like crazy. It cost United Health Group A
lot of money and that takes time to work its way through.
So you're going to have a couple years of the financials looking
bad, but they'll eventually roll over.
It's just something that's going to have to work its way through
the United Health Group financial system, but they'll
eventually get the the policies back on track to where they
should be. It's going to take a hit for the
company, but it should recover. At the same time, this company
trades at cheap valuations, 22 PE ratio, a 7.8 free cash flow
yield, so super low free cash flow yield.
The stock price is down 28% even after a recovery of being up in
the past month, 32%. Now, like any company, it's
nearly impossible possible to buy the entire bottom.
Even Buffett's team didn't do it.
So you can't time the bottom perfectly.
But I think looking forward over the next couple of years that
buying now is likely still a good time to buy.
I think this company is too big to fail, too big to go away.
It'll be around forever and it's one to still consider if you're
looking for a group of undervalued, high quality
companies. Now, the next two to round out
the list are two companies that I'm not going to go into in any
level of depth. I'm just going to mention them.
Google's one of them. I think it's going to go to $300
per share in this case. Again, I think that Google has
been proving people wrong for a long period of time, and it's
easy to want to take off the gas pedal.
I don't think investors should. I think looking back five years,
investors will wish they bought Google for $240 per share.
Another one that I think investors will regret not taking
advantage of over the next five years is Amazon.
Just in the past day, Morgan Stanley reiterated Amazon as a
top pick at $300 price, including the company's same day
fresh grocery delivery to 1000 new cities.
Amazon was facing one basic competitive threat, which was
Walmart's grocery delivery. And now they're addressing that
problem. They're creating their own
delivery network for groceries that is growing rapidly.
So I see that as another risk being reduced for Amazon.
They're building massive clusters for GPU processing with
AWS to increase their fulfillment capacity.
We had that semi analysis report saying that they're going to
have an uptick in growth in AWS, far surpassing what investors
expect. So I think there's a lot of
bullish catalysts over this one over the next five years.
Right now is a time to consider for Amazon, and that rounds out
the companies that I'm looking at.
Now. Let's go ahead and get to some
news. Now moving on, we get to the new
competitor for Netflix. This is news that's happening in
the media world and it comes down to Larry Ellison, that guy
that's worth over $400 billion. He's one of, if not the richest
person in the world. He's right there next to Elon
Musk. So it's a bit debatable.
It might change day-to-day, but he's about the richest person in
the world. And Larry has a son.
The son is named David Ellison. He's around 41 years old, I
believe. And David has a interest.
His interest is buying media companies, changing the media
landscape. He's very interested in this
category and he's moving rapidly.
He's already bought Paramount. He did it with his company
called Skydance. So Skydance came in, they took
over Paramount. Then on Paramount, they
immediately made changes. They got South Park on it and
they made a deal with the UFC in like a week.
They were doing these type of multibillion dollar deals.
David's moving fast. He has a lot of money to work
with and he has ambitious plans. And now reportedly the next
ambition he has is for Skydance and Paramount, these two
companies that he just recently combined together to take over
Warner Brothers Discovery. Remember that Warner Brothers
and Discovery merge together, now Skydance and Paramount merge
together and now they want to merge these previously 4
companies combined into a massive media empire, one of
which that would match the likes of Netflix or the likes of
Disney. The bid will be for the entire
company, including its cable network movie studios, the
people said. Warner said late last year that
it planned to restructure into two operating divisions, 1
focused on the legacy cable television business and the
other on streaming in studios. By preparing a play for the
company before Warner's plan split, Paramount, Skydance is
attempting to pre empt a potential bidding war for the
studio and streaming unit and could include that could include
deep pocketed technology companies such as Amazon and
Apple. If successful, such a deal would
bring together 2 of Hollywood's most storied studios and the
parent companies of streaming services HBO Max and Paramount
Plus. Warner is the home to Barbie, BC
comics, Harry Potter and TV shows such as The White Lotus,
as well as cable news network CNN, TBS and TNT.
The scale of the potential combination could bring
antitrust and regulatory scrutiny.
Now Netflix investors are looking at this like I am.
This is one of my largest positions.
So I look at any competitive dynamic change and this is a
negative for Netflix. It would not be good for Netflix
if these two companies combined. First of all, Netflix makes
money by licensing both of their content.
So they license content from Paramount, they license it from
Warner Brothers Discovery. That's why you get movies like
Dune on Netflix. Those aren't Netflix's property,
they're just licensing them. When the companies combine
together, it makes it much more difficult to license and barter
with them. They basically have more chips
on the table. They can barter better.
So Netflix will be closed off from a lot of content that they
probably have access to today. Now, Netflix is really well
prepared for this. They can produce their own
content. They have enormous budgets.
In fact, even after combining both Warner Brothers Discovery
and Paramount, Netflix still has around double the money to
invest in content. So they have an enormous cash
flow pile every year to invest. So this does change the
landscape slightly for Netflix, but no matter how much you slice
and dice or combine companies together, it really hasn't
affected Netflix in the long run.
So far, this company has withstood all of these type of
changes that these other companies make.
Now finally, we take a look at financial TikTok, where we get
advice and insight that you just can't find anywhere else.
TikTok is the home of, of course, the best financial
advice. Today we're looking at someone
that's interviewing for a customer service job and he
shows how it's done. He's recording his interview for
this customer service job. Tell me a little bit about
yourself and why you're the right person for this role.
Yeah, absolutely. I really think I'm going to be
the perfect candidate for this. I have eight years experience in
marketing. I've grown businesses by
millions of dollars. I have a full year's experience
in customer support where I handle thousands of tickets each
month. And on top of that, I like you
said, I do come highly recommended because I know how
to get results. OK, I couldn't even hear what
you were saying. You need to turn off the TV or
whatever you're. Doing how is she not smiling?
Come on, people like this. I know it's an interview.
She's probably, you know, she feels like she has to take it
seriously. If someone I've interviewed a
lot of people in the jobs that I had prior to YouTube and even in
with YouTube, but the interviews I've had, if someone did this, I
could not I, I, I would die laughing if someone called in
and had music playing in the background while they gave a
speech. How can you be that serious?
Relax a little bit. It's OK.
The the kids obviously having fun.
And that was actually a very articulate, well timed little
monologue. He did that.
That was actually impressive. That's harder.
You try doing a monologue for 45 seconds or whatever it was, you
know, 35 seconds and timing it perfectly with music, it's
easier said than done. So that's actually a little bit
impressive. You know, if I, if I saw someone
doing this again, I, I would just laugh.
This is this is hilarious. It continues on.
I really need this. Please, I'm very desperate.
I am begging you. I do have some disabilities and
with that comes some tools that I like to use to make my life a
little easier, OK? The problem is this is a client
facing role. OK, so she's taking it super
serious. She's doing her job.
I, I don't blame her. No problem with this lady.
But she's she's doing her job, taking it serious, explaining
that this doesn't work and it it just goes on here.
There you go. You have the best of TikTok
there. That is how you do an interview.
Just time it to some theme music, put some heroic music as
you're talking about your strengths.
And then if they decline to give you the job, just play some sad
music in the background. That'll be it for this episode.
See you next time.