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6 Growth Stocks That Just Turned Profitable; Brett's Hot Buffett Take; Latest Super Investor Buys: Plus, We Have a New Chamath SPAC
01:04:52
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- [00:01]
A
Welcome to Chit Chat Stocks, a podcast that helps you discover your next great investment. I'm one of your hosts, Ryan Henderson, and I am joined as always by the one and only Brett Schaefer. And today we've got one of our Power Hour episodes. Actually our 175th power hour. Not that has any real meaning, but we've been doing these for a long time. Listeners seem to love it on these shows. We talk about all things financial markets, anything that's in the news, anything that's on our minds. And we've got a bunch of different topics. This week it's 13F season, so we're going to be going through some super investor latest buys. So, hint, Hint, Warren Buffett, UnitedHealth. I know people wanted us to talk about that. Brett has quite a controversial take that we'll get into on that as well. But we do these shows live every Thursday at 5pm Eastern Time, 2pm Pacific Time. Are doing it a little late this week because I had a power outage, but that's besides the point. Let's get right into the episode. Brett, what topics do you want to hit to start?
- [01:05]
B
Yeah, I have a very controversial take that I don't necessarily care what a guy that's about to retire is investing in, and it might not be even him. But that's a fun topic that we'll hit shortly with the super investors. Let's discuss. Well, I know retail roundups, kind of fun, but what do you think the most fun topic would be? I got earnings. I got Mercado Libre earnings, new bake earnings, even a little airport operator from Argentina. Bubble watch is quite exciting this week. Chamath has a new spec. We could really start anywhere. I'm good with anything.
- [01:43]
A
I kind of want to talk about the nationalization of Intel.
- [01:47]
B
Yes. Okay. That, that is a fun one. Softbank back in the mix, making large investments. Why don't you take the listeners through the numbers?
- [01:54]
A
Yeah. So news came out this week that the Trump administration is considering converting grants from the Chips and Science act into an equity stake in Intel. The reports indicate that the administration is weighing a 10% stake. Now, I'm not sure exactly how these grants were initially designated, but I believe they were intended to invest in basically invest in projects alongside semiconductor companies like intel and other big semi companies like Taiwan Semiconductor and sort of incentivize them to build manufacturing capability and fabrication centers in the United States. Well, we're taking things a little step further here. Trump is saying, apparently he said word for word, why shouldn't we get equity for our investment. We could talk about the merits of that in a second. But on top of that, SoftBank invested $2 billion in intel this week as well. Where should we go? What do you think of all this? Do you think A, do you like government taking stakes in businesses? And B, do you think this gives intel any more of a realistic chance of revival?
- [03:23]
B
Well, in a vacuum, no. I know Intel's in a tough spot. This, I don't think is the right way to do it. If the government was just going to invest in the company and if they were also only just turning the money that's supposed to be granted through the CHIPS act and then turning that into an equity stake, they're not even funding them with cash that they need to make all these capital expenditures and essentially go on this huge roadmap to try to build semiconductor powerhouse from an American company. And this is really the only chance for an actual manufacturing company to do it. I saw you put in this as a topic, I saw it as a news article this week and I was kind of spitballing, just thinking myself what the best way to go about this is. And I feel like something like what SoftBank is doing here, investing $2 billion into the company, but taking that to a grander scale is what needs to happen. There are a lot of companies out there as well as banks that, that could help fund this. You could have some of the big commercial banks, you know, JP Morgan, bank of America, what have you. And then you could have all of the players that are related to intel, Nvidia, amd, the big tech companies, some others that I'm missing. And they could fund $100 billion, if not more of debt and equity onto Intel's balance sheet. And that could let them split off the manufacturing division, you know, have the design division call it something else. This is what AMD did back in the day. I think that GlobalFoundries was maybe it's one of the other fabrication companies. I think they used to be AMD's manufacturing facility and now, you know, AMD is sort of like Nvidia's and then their own separate one. But besides the point, they need the breathing room, I believe to give them, you know, a decade long Runway to invest in semiconductor manufacturing capabilities to try to catch up without going oh, every six months. We're running into liquidity issues. It's a whole mess. They just need breathing room. The world and the United States definitely wants this to happen, but I don't think government taking a stake in it is going to do anything. They need the money. They probably need some fixed rate debt at 6%, something that the banks are going to want to lend out on a long enough time horizon. And maybe you could do convertibles, maybe you could have cash infusions from Nvidia and other companies. But you want more than just Taiwan Semiconductor. You want to, even if it's just going to be an oligopolistic industry, you don't just want a monopolistic industry from just Taiwan Semiconductor. And even though they are investing in the United States, it's nice to have competition. So those are my thoughts. I don't think they're going to do that. But what do you think, Ryan?
- [06:24]
A
It makes sense from a government's perspective to want to have a competitive manufacturer and design company, but we have obviously some of the leading design companies, so.
- [06:37]
B
That'S pretty much all.
- [06:39]
A
Yeah, I think that's less of a worry. But I just have doubts about like anytime I see like government involvement, I have real doubts that that's actually going to help the business compete effectively against a company like a Taiwan Semiconductor. Even though, I guess early days Taiwan Semiconductor was sort of a byproduct of collaboration between the government over there and, and what's his name's efforts. The CEO.
- [07:15]
B
Yeah, the. I feel like backing the loans and saying, hey, look, we're gonna let intel do its thing. We're gonna, you're gonna make these loans. Maybe it's considered like some socialist thing, but you're gonna make these loans to intel, you're gonna get this rate, they're gonna have the customers out there, we're gonna get them on the right footing. The government can kind of back that. But taking an equity stake, I don't know what issue that actually solves.
- [07:39]
A
I know, I think not to degrade the president, but I think he's thinking like an investor where he's like, you know, I should get something for the money I'm laying out here. But it's like that's not the point of laying out the money in this case. In this case, the point is to have a company in the United States that's competitive in this field. Who cares if you get some dividends along the way? Like that's not going to really matter as much as maybe any sort of national security issues that come along down the line with this kind of thing. I don't know. I agree. It makes more sense for them to come up with some different sort of financing structure if they want. If the US wants to build a Sovereign wealth fund and buy public equities that I don't think that's helping anybody, frankly.
- [08:34]
B
Yeah, we could do a whole hour long discussion on how sovereign wealth fund doesn't make sense for the United States, although it makes sense for other countries. But that's not the type of show we're doing. I will say the government should learn from what I would call the mistakes of the Boeing bailout during the pandemic. They don't just need to bail them out. With $50 billion. There would have been plenty of investor interest at the right price. Now shareholders are going to get wiped out, but that's fine. That's the risk you take. The equity shareholders, it's risky. You are the first one that gets wiped out in the bankruptcy and the bondholders get paid first. If at the right price, there would be so much interest from convertible debt to just raising money through an equity offering to buy shares of Intel. It still has a market cap of $100 billion. They still are one of the only players out there. Let's just not try to bail this out to further shareholders. They took the risk. Investing in Intel's been a really bad proposition. Let's try to get this business on the right footing. But we have to do it a hundred percent. We can't just go, oh well, let's give them $5 billion and see what happens. That's not nearly enough. You need probably a hundred billion dollars if not more.
- [09:51]
A
Yeah. Taiwan semiconductor spending what, $50 billion on CapEx this year? Somewhere around there.
- [09:57]
B
That might be high, but it might be 25, but either way pretty high. Very high.
- [10:02]
A
Yeah. 5 billion is not going to do it. And not to mention Intel's got to play catch up. But let's shift gears a little bit. We've got John in the comments saying Zoom earnings. Do we want to take a look at those? Do a little live earnings review here?
- [10:15]
B
Yeah, sure. Yeah, I saw the stock popped. I actually have the investor page open right now because he piqued my interest that I was listening. I can, I can multitask. I was listening to what you're saying. What is it? Zoom first quarter fiscal year 2026. All right, Ron, I'm going to read these to you and then we can look at the valuation. Revenue up 4.7%. Basically the same at constant currency enterprise revenue up 7.7%. Not 7D. GAAP operating margin 26%. Non GAAP operating margin 41%. So pretty good. Repurchased 6 million shares, bringing total shares. Repurchased under the current plan to 27 million. Number of customers contributing more than 100k in trailing 12 month revenue each up 9%. Hey, pretty good. I'd say stock up after hours. What, what's the, what's the valuation here?
- [11:10]
A
Here's the. But for me, net dollar expansion rate for enterprise customers has been 98% for four quarters in a row. So leaky actually. Yeah. So that, that could be them losing some customers. But like you just said, it sounds like they are gaining enterprise customers at a 9% clip annually. So what that tells me more so is that the enterprise customers are saying, hey look, we've got lower cost alternatives. We're going to shift to another solution unless you can come down on price. So I think they're having to take price down or maybe some of the customers are saying, I guess we don't need all the solutions that you're trying to offer or maybe we don't need as many seats or whatever it is. That to me is concerning. I've been on the fence about Zoom for I guess the last two or three years now, lapping Covid. It's kind of astounding to think that Covid may have actually hurt this business in the long run. Like I, I honestly believe Zoom would be. I think they have a lower market cap today than they did pre Covid and they had a huge surge in growth. But a lot of that is they also had a huge surge in competition. And you had a lot of companies, as much as people hate teams and hate Google Meets.
- [12:46]
B
Hey, we're on, we're on a podcast. Specific competitor in Riverside right now.
- [12:53]
A
Exactly. There's a lot of companies built solutions fast to, to meet the need and I think in the long run actually ended up hurting Zoom. But like as long as revenue. I haven't checked the valuation in a while, but I remember thinking if they don't, if they get honest about who they are and they don't try to be more than they are, because that was a big issue. They had a lot of success from COVID And then they're like, you know, we're going to be this whole solution that companies run on across the board. And there was this call center stuff and Zoom phone.
- [13:31]
B
Oh yeah, yeah.
- [13:32]
A
It's just like, just be a, be the best meeting solution, have the best integrations with other platforms, make it so intuitive for everyone that it's really easy to use. Just focus on that. And I think they would have been all right, but they probably would be generating more cash if they didn't venture into some of those other bets.
- [13:56]
B
Let me read out the valuation numbers courtesy of our friends at Fiscal AI. Use our link in the show notes get 15% off any paid plan. People have been doing that, so really appreciate it. Buyback yield 7% EV to gross profit 4 EV to EBITDA 10 EV to EBIT 15. Not bad, not great, not terrible. As the from the Chernobyl guy, let me give a little trivia for you. What do you think their EBITDA gross profit was in January of 2021? I got it right here on the fiscal AI table.
- [14:33]
A
2021. I'm going to go with 25 times.
- [14:37]
B
No, January 2021. Remember this is right before the bubble popped.
- [14:44]
A
And you said what EV to gross profit.
- [14:46]
B
EV to gross profit. You still going to say 25?
- [14:50]
A
Yeah. So this is at the peak, right?
- [14:52]
B
Yeah.
- [14:53]
A
25.
- [14:54]
B
Yeah. 59.
- [14:57]
A
What are they? Wow. What are they at today?
- [15:00]
B
4.
- [15:02]
A
Yeah. Multiple compression got them pretty good. I mean here's they're growing at mid single digit percentage on the top line.
- [15:14]
B
It could work here. It could work.
- [15:18]
A
Yeah, I think it could. EV to EBIT 15 times. Slow but reasonable growth. Maybe there's some margin expansion. They buy back a ton of stock. It's a recipe for decent returns. But there's just this. This won't be a home run. I think Covid honestly ruined their chances of being a home run.
- [15:37]
B
Yeah, well, Google Meet exists today in its current form. If the pandemic didn't happen, not so sure. Let's move on to another topic though. Ryan. Super investors. I know people like this. We can also talk about how I guess people on Twitter think that I hate Warren Buffett even though I'm one of the biggest diehard Buffet fans in the world. But let's go through the super investor buys and sells. It's 13F season. For anyone that doesn't know, every 45 days after a quarter ends, investment funds or investment holding companies such as a Berkshire Hathaway have to report publicly their buys and sells from the quarter. So it's 45 day stale or more that it could happen during the period. But we can see what they own at the end of the quarter and what they bought and sold. So Ryan, you have a list of I think four, five or six here of ones that interested you. You know people that don't trade too often, buy and hold people. What stood out and what did you find with your research?
- [16:40]
A
Yeah, there you can kind of pick and choose which investors you like to follow. The difficulty with the difficulty with 13Fs in general is a. It doesn't encapsulate international holdings. It's US listed holdings anyways. And in a world where equities have risen a lot, valuations have risen a lot in the U.S. my guess is that you're getting more and more international exposure with some of these professional fund managers. The other part is you see this all the time. Really successful investors start to build these fund of funds or they have portfolio managers under them that actually all kind of get included in the same 13F. And so the portfolio is like really hard to gauge in terms of what that investor specifically did versus what did. It's like looking at Berkshire, right, a little bit different. But like what did Todd and Ted invest in versus what did Buffett invest in? If you could separate out those portfolios, there might be. Obviously in this case, Buffett kind of has a bigger say, but a lot of the times they're kind of meshed together and it's a little hard to disaggregate. But there are a couple fund managers that I really like to follow. One of the most controversial ones is Norbert Lou, people. So he. Norbert Lou, yeah. He runs Punch Card Capital, which is this old. Like for anyone that's not familiar with the punch card theory, I, I think it was Buffett that maybe someone told it to him, but he basically said, imagine as you're making investments, you get a punch card and you only get 20 hole punches. Like being basically cautious with the investments you make to not lose money because after 20 you don't get to make any more kind of thing. Which I think is a flawed approach, but it does, it kind of forces people to maybe do more due diligence.
- [18:39]
B
Mindset. He was saying the 90s when the day trading was really prevalent. But anyone that literally tries to copy that, and I actually wrote about this in our newsletter this week, I think it's a mistake and can hold you back. It makes, you know, gun shy. You watch a lot of pitches go down the middle, as the baseball analogy would say. But Norbert Lou is someone that I think follows the punch card mentality pretty closely. Ryan at Punch Card Capital, it's in the name and he bought two new stocks. I won't spoil it. You can tell the listeners. What did he buy?
- [19:12]
A
Yeah, so a little more, a little more backstory. Norbert Lou is notoriously like super selective, barely. I think the most stocks he's ever held in one time in his 13F was like 5. And it's usually Berkshire is One of them. So he's basically just any made the bulk of his returns holding NVR for 20 years. So he's very concentrated, very selective and people were making jokes because the two new stocks that he bought were PayPal and Crocs, which people were like, are you Serious? You waited 20 years? You waited 20 years to watch pitch go, pitches go by and these are the two stocks you buy. But this is another example where I think it's mostly his money at this point. And I wouldn't be surprised if he owned a lot of foreign investments. So it really might not be that genuinely accurate to what he actually owns.
- [20:12]
B
Possibly. Yeah, he was an international guy. Great story in the super investors profile we did on him of, what was it, the Argentinian beer company. That was a fascinating story. So go listen to that if you want. I'm looking at PayPal right here on Fiscal Ryan. What do you want to guess? I know we're kind of doing a guessing game this week. Their buyback yield is.
- [20:34]
A
I looked at this recently. I think it's around 8%, isn't it?
- [20:38]
B
Last 12 months, 10%. It's increased quite a bit over the Last/ few quarters EV to EBITDA 8 and EBITDA free cash flow 10. I don't follow the numbers though. What is this business looking like? Because I still think they're losing market share to third party payment processors as well as Apple Pay, Google Payments.
- [21:01]
A
Yeah, this is a company that loves to announce press releases of partnerships that never materialize into anything useful, frankly.
- [21:12]
B
Mercado Libre partnership that's going well now.
- [21:15]
A
It's like all these blockchain partnerships. And the real story here is that branded checkout. The PayPal button is declining. People are paying with Apple Pay, Google Pay, they're going around PayPal. There's just so many different alternatives at this point. The remittances business is declining. There's too much competition there. And they're sort of the legacy player with high fees and they're really kind of. I don't think it's a focus for them. But then under the hood they've got Braintree, which is sort of a competitor to Stripe. It's a payments processor that is great, I believe primarily for like online businesses, but it's much lower take rate. So volume can grow, but revenue might not go anywhere. I think that's kind of the gist of the story here. If Braintree, if you believe Braintree is going to be a big business and maybe Venmo is a bigger business than I think Here, I think Venmo is a solid business.
- [22:16]
B
They've I believe gotten that debit card, credit card game and kind of the monetization engine more solid in recent quarters, although it took them a decade to get there. But they're definitely making money on that now.
- [22:30]
A
Yeah. So I, I always have a hard time with these payments businesses that have basically just become a hodgepodge of assets and some of them are in terminal decline and some of them are in competitive fields but have general tailwinds. PayPal is one of those. I think you can make money, but once again, I don't think you're getting home run returns. Crocs, on the other hand, I think it got down to like seven times free cash. Crocs is such a meme because everyone thinks like there's no way this business has staying power. They make plastic shoes.
- [23:07]
B
But it's, it's been around since, for 20 years now.
- [23:10]
A
Yeah. And I think revenue is up like 100x over the last 20 years.
- [23:13]
B
Yeah. EV2 free cash flow of 8. You are correct there. EBD gross profit 2 and a half. I was also reading in the Wall Street Journal this week, the brand is growing really quickly in China and I know that's a tough market, but it's almost. What am I trying to compare it to? It's almost like Nike in that market where, you know, Nike is a premium brand in the United States, but in China it's an ultra premium brand. Crocs is not like some niche thing. It's, it's almost, you can sell it a little bit of a premium in that market. I'm not going to pretend to understand the Chinese consumer, but there is an article out there four days ago in the Wall street style section which I think is kind of an oxymoron. How Crocs conquered China. Fans flock to US Brand after discovers the secret of Chinese taste. Let's see, like maybe there's a good quote in here. There's, you know, marketing campaigns with pop stars. There's. Yeah, this is, this is what it is. Crocs marketing campaign such as an ad featuring pop star Tan Jianchi. Think I'm mispronouncing that in pink. Platform Crocs riding a pink whale through the sky are dreamed up in Shanghai, not Colorado. The company recruits the glitziest names in Chinese pop culture as brand ambassadors. So this is what you're betting on if you're a value investor. And I think it might work. It could work.
- [24:50]
A
I could see it working. I still have a Hard time being when I think of what businesses are doing billions in revenue today and could not exist in 10 years. Crocs is maybe at the top of the list. But I could also see this working out really well and it being a much bigger business. They've gone from $100 million in revenue in 2005 to about $4 billion this year. The rumors are they're going to get rid of their hey dude, stake or not stake that they wholly owned. They acquired hey dude, I think three or four years ago and it was a horrendous acquisition. The business has basically been in decline since Crocs acquired them and all those synergies that they talked about with suppliers or like retail shops has not materialized whatsoever. So if they can dispose of that, stick with the core Crocs business. I think there's value here. It just seems weird for a person that only makes a bet every 10 years or every few years to choose something that seems like it could have such a questionable staying power. But we'll see.
- [26:03]
B
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- [26:56]
A
All right folks, if you are a regular listener to Chitchat stocks, then you know that we use Fiscal AI. Formerly known as FinChat Daily. Fiscal AI is our complete stock research terminal. It's where we have our investment dashboards. It's where we create financial charts. It's where I read all the transcripts for conference calls, sell side events, shareholder meetings, and it has Morningstar's high quality reports on more than 1700 companies. It really is the complete research platform for stock focused investors. If you use our link Fiscal AI Chitchat, you will automatically get two weeks of Fiscal Pro for free. And if you find that it's worth upgrading, which I think you will, you'll get 15% off any paid plans with our link. Again, that is fiscal AI chitchat. The link will be in the show notes. Let's talk about some of the other super investors. Chuck Akri of Alkri Capital Management. I don't think he really runs the fund anymore.
- [27:52]
B
I think it's officially retired for like five years now. Ryan.
- [27:55]
A
Yeah, okay, it is. What's the. Do you know the name of the guy who's running it now?
- [28:00]
B
I will look it up. Now.
- [28:04]
A
It'S a fund that I like to follow because they have a phenomenal track record of finding quality businesses that are, that just earn really good returns on invested capital. For a long time. One of his biggest investments or most successful investments was American Tower. He's actually basically sold out of American Tower at this point that he's significantly reduced his stake. And then the two companies, two new companies that he added to are Copart and Fico. I guess Brett, it looks like you're looking something up at the moment.
- [28:37]
B
But yeah, ACRI is the chairman I don't think does much work anymore. I'm assuming John Neff. Haven't heard of him. CIO and chief Executive officer. There's maybe you can recognize these names as their analyst. Andrew Millett, Trey Tickner, never heard of them. But new team, same philosophy.
- [29:02]
A
Yeah, I don't. They bought Copart and Fico, which feels like two businesses that fit perfectly in there portfolios I guess, but small.
- [29:12]
B
Still feels expensive.
- [29:13]
A
But maybe they have historically not been averse to expensive headline valuations. That fund in general. Okay. Other, other ones that are interesting. We'll save Buffett for last with United Health. Dennis Hong of Shaw Spring Partners. I, I think he's a really good software investor. Took a big stake in Okta, which is his only new company. We're going to talk about Octa in a second potentially. But let's see if I can share this chart. They. I'll just talk through it. They have been unprofitable for a decade, probably near two decades and in Q1 of 2020 so basically three years ago they were burning about a billion dollars a year on I think a billion in revenue roughly. Now they have completely turned the corner to profitability. They have gone from negative 25% margins to 0.4% actually they just got over the corner to profitability. So I think there's a lot of people that were skeptics of this business because they had like a big data breach at one point or like a big security issue and they are an identity and access management company. So security should be like top priority. And a lot of people just discarded them. But once this is a part of an organization, it's so sticky. This is like the last thing you want to switch because it's not revenue accretive. Like it's not like, oh, let's improve our identity and access management system because it's going to create a surge in sales. It's one of those things that you just. As an enterprise, you buy it, you get people on the system and hopefully you don't have to change it for a long time. Keep the same supplier which seems to be showing up in the. In the margin expansion.
- [31:19]
B
Yeah, I still can't figure out what they exactly do, but I have to use them every day to log in. So I don't think that's going to be changing anytime soon. Seems interesting. What's the. What's the valuation look like? Did you already.
- [31:32]
A
Did you already say that 14 billion dollar enterprise value. They do, I think 2.8 billion in revenue.
- [31:41]
B
So it's not that attractive.
- [31:46]
A
You can make a case. I think you really could make a case. Let's. If you assume that they grow 10% a year for the next few years and they get to. This is probably where it gets rosy. But if you believe they can get to 20% operating margins, which probably isn't too crazy for this type of business at scale, they're doing just under $1 billion in profits on a $14 billion enterprise value. There's a case to be made there, but it's optimistic.
- [32:17]
B
Gotta believe in that margin expansion story. All right, we have three more. Li Lu, our favorite investor.
- [32:25]
A
The Chinese Warren Buffett.
- [32:27]
B
Yeah, the Chinese Warren Buffett that we did a super investor series on.
- [32:31]
A
Yeah. He bought a stake in Pinduoduo PDD Holdings. It's now his third largest US Holding. He interestingly has basically sold his entire Apple stake. I was looking at that. He has like a tiny little remnants of his ownership left, but he's sold out of that.
- [32:50]
B
Smart man.
- [32:52]
A
The other one, Ackman, who just loves to be in the news.
- [32:59]
B
The general made a school. Did he start a school?
- [33:02]
A
I think he did, yeah. He made Amazon a 10% position for his portfolio. This. These are the ones where it's like Ackman at this point has basically become. He's almost mirroring big tech, I would guess because like a huge chunk of his portfolio is just big tech. And whenever that happens, I'm not looking.
- [33:26]
B
I'm looking at. I'm gonna look at a Himalaya right now, but I think so. Yeah. It's. I. I'm not opposed to that strategy of some of the big tech companies that you like, you know, buying them when they kind of get cheap. I'm assuming he. He had a good entry price. He's pretty good at entry prices usually, except for that Netflix debacle. But, yeah, it makes sense to me. Amazon feels pretty cheap here. At least it did when in Q2.
- [33:55]
A
I agree. It's just, okay, 20% stake. 20% of his portfolio is Uber, 18 and a half percent is Brookfield, 11% is Quicks, QSR, Restaurant Brands International, and then Amazon. Google's basically like a 15% stake. I just wonder, like, I guess this is part of having a ton of money that it becomes harder to have interesting picks, but. Yeah, I just can't imagine that he crushes the index from here.
- [34:29]
B
Yeah, we'll see. Did he get out of Chipotle?
- [34:33]
A
I think he did. No 9% stake in Chipotle? Yeah. Okay, let's talk the last one here. Warren Buffett bought big stake in United Health, which was pretty much all anyone cared about for, like a day last week also. Michael Burry did as well. And it kind of synced up. And then Bury tweeted again for the first time in, like, three years.
- [34:59]
B
I did see that. Yeah. I was like, I do not need to spend time on here. Just United Health ones tweeting. Now I'm gonna say, Ryan, I put out a tweet that got the most. The only time I've ever gotten personal hate online was from this tweet. I had people saying I looked older than Warren Buffett, and also people saying I look like a child. And people said, this one cut deep, that I had worse hair than Buffett, which is a big insult. But I try to take it a good stride. I am serious about what I said, though, and I'm curious what you think, agree or disagree. I said I don't care what Buffett buys or sells. The man is 95 years old. And I'd probably follow up that with context. He's going to retire in four months, and he may not even have made this purchase.
- [35:46]
A
Okay, so I was thinking about this because, first of all, it was a provocative tweet. Be it just, you know, anything, I guess anything negative about Buffett becomes provocative. But, yes, he is old. When you think about the retirement. He is stepping down as CEO. He will remain chairman. And I do think there are, like, energy requirements, like, like personal energy effort requirements for the CEO role. That.
- [36:22]
B
Right.
- [36:23]
A
He can't do. But I still think he's one of. I still think he can read an annual report and synthesize it as well as he did 10 years ago. Like, I don't think his cognitive decline is that steep.
- [36:38]
B
Orion. I just.
- [36:39]
A
How do you know this was records pretty good still.
- [36:44]
B
Yes.
- [36:44]
A
He wasn't that young when he bought Apple.
- [36:47]
B
I think it was 85 maybe. Yeah.
- [36:52]
A
And if he can. If he can talk through those annual meetings at this age. My. And I know it's slower than it used to be, but he can still think like it seems he can still think. And the other caveat here is I imagine he talks to a Jane about these things. I just.
- [37:20]
B
That's fair.
- [37:20]
A
I wouldn't. I wouldn't totally be dismissive of his actions purely on age because he still has a super team around him and he is. He has more experience with insurance than probably anyone living in the world today. There. I think there's some reason to. If you're a United Health shareholder, feel a little more optimistic that Buffett's in your corner.
- [37:46]
B
Well, that is true.
- [37:48]
A
It usually helps the capital allocation approach from management teams that.
- [37:55]
B
Yeah, that's fair. We don't know if he even made the purchase. It's Berkshire. They're about to transition. I think the investment portfolio to these other managers. I would say the portfolio managers under him. Jeet obviously tremendous track record. But the two portfolio managers, their track record is not phenomenal at Berkshire. Buffett I think has probably beat them from an equity standpoint.
- [38:26]
A
He.
- [38:29]
B
Look, unh. I don't, I don't know much about the business except I'm assuming it's the health care insurance company. If you like that. I would check out our show on Oscar Health. I think that one's maybe more of a long term growth story than United Health and doesn't have the fraud stuff that could. That could bring him down. But I will add that in. I think it was the Journal. While Buffett admitted that he is feeling like quote, unquote slow this year and that's why he decided to retire. So I believe he is in a different state. And when you say he's gonna be the chairman, I want to speak frankly. How long he knows he's going to pass away soon and that's. That's just the deal. So Frank, that's.
- [39:22]
A
Yeah.
- [39:22]
B
Kind of sums up why I don't really care about what he's doing anymore. Sure.
- [39:29]
A
But when I think about the. Like your post was centered around the United Health acquisition yes. Investment. I wouldn't, I, I would care. Like, if I were a United Health shareholder, it would make sense to care if Berkshire were taking a big stake. Buffett, Berkshire, for the moment, they're still synonymous.
- [39:50]
B
Sure. Yeah, I guess that is synonymous. But I honestly think this is probably more the other parts of the team.
- [39:57]
A
It's possible. Yeah. Probably likely. Okay.
- [40:01]
B
Are you, Are you buying UnitedHealth on this?
- [40:04]
A
No. No. Well, I don't, I've, I've never been one to really blindly copy any, any big fund manager. I've, I have copied people that have come on the show and given like a really good pitch where I've just been like, you know what, I'm gonna take a flyer and buy some shares because I was, I'm borrowing their work, I guess. But I've never just looked at a portfolio and thought, okay, he owns it, I'll own it. Like, you don't know why. You don't know when he bought. You don't know whether or not he's trying to get out. Yeah, it's, there's so much going on. So.
- [40:39]
B
Yeah. It is illuminating to though to say if you say anything critical of Buffett, there is an army of people that will act like you insulted their child or their mother.
- [40:51]
A
He has built up a sterling reputation.
- [40:56]
B
Yeah. With me as well, but it doesn't mean I need to defend him to the death.
- [41:00]
A
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- [41:31]
B
Race the rudders. Race the sails. Race the sails. Captain, an unidentified ship is approaching. Over. Roger, wait.
- [41:39]
A
Is that an enterprise sales solution?
- [41:42]
B
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- [42:00]
A
Fair. All right, let's do bubble watch. There is some other stuff we can get to as well, but I want a little more light hearted topics here.
- [42:09]
B
You had a. You had one chamath.
- [42:12]
A
Our favorite investor, I say in jest for anyone who doesn't listen to the show regularly is launching another SPAC special purpose acquisition company this time it's going to be called the American Exceptionalism Acquisition Corp. Now, for those of you that don't know Chamath, he has a spotty track record when it comes to launching SPACs. Here are the returns on some of his previous SPACs. OpenDoor, -65% Clover Health. -74% Virgin Galactic -99%. 23andMe Bankrupt. -100% SoFi, actually, despite really impressive performance. -20% Berkeley Gray. -74%. The list goes on and on. There is one spec that's up. It's MP Materials. It's up 72%. If you invested alongside him in all of these, you lost a tremendous amount of money.
- [43:10]
B
Sofi isn't even up.
- [43:12]
A
I don't think so.
- [43:13]
B
Wow. I mean, the company is doing. The company's doing well, but I guess maybe the price wasn't. Price wasn't great.
- [43:21]
A
Well, it just depends when you. They are down from their highs. Yes, but if you got in at SPAC price, you made money.
- [43:33]
B
Yeah, I'm. I'm just proud of Virgin Galactic for the stock still trading. I would have thought this company was gonna go fully bankrupt two to three years ago. I. That's, you know, it's kind of just. I'm proud of them for that. They're still around. The equity is still tradable.
- [43:49]
A
Yeah, there. So I saw someone comment basically, like, at this point, with everything Chamath has done, if you lose money on this, like, you deserve it. And I think that's totally true. Honestly, like, don't. Yeah, he has shown you, like, this is a path for him to make money. It's not necessarily a path for investors to make money. I will have a hot take here. I don't mind this. I don't. Let's say he makes a little bit of money in the process and basically dumps his bags on public shareholders. Four or five years down the road, you've got potentially a list of public stocks that you can now analyze. As a public equity investor. I am okay with this.
- [44:39]
B
Is he taking out more or is it just one right now?
- [44:43]
A
I think it's just one. But like, okay, even we think about how bad all these businesses ended up being. For the most part, Sofi could be.
- [44:54]
B
A gem so far.
- [44:55]
A
Lemonade could maybe do something at some point, but the. The thing that I like here is that he is. Companies are going public through this and I'm not going to like it when it first comes out for sure. But five years down the road, you've got more publicly Listed stocks to look through that to me is more fun than having all these private companies.
- [45:17]
B
Yeah. Yeah. The thing I believe and what grinds my gears with Chamath is how confident he is in the face of clearly being a snake oil salesman.
- [45:32]
A
Yeah. I don't think he.
- [45:34]
B
Does he actually believe in himself. That's what I think. Grinds everyone's gears because it's, it's like, you know, you don't believe in yourself, but you are misleading people into basically taking a cut off of their funds. You give them, they give you.
- [45:51]
A
I, I think there are people out there who just genuinely don't care. It's a bit like theft. Right. Like, I'm gonna take care of mine, I'm gonna take care of my money. It's everyone else's problem if they lose money. And I think that's gen. That's Chamath Frank, because he probably made money through all these spacs, I assume.
- [46:14]
B
Yeah.
- [46:14]
A
Because he liquidated, I think, all stakes in all of them.
- [46:17]
B
So the famous. I'm selling Virgin Galactic to manage my liquidity. Remember that famous tweet?
- [46:24]
A
Yeah. I just think he doesn't, I just think he's kind of a sellout. But yeah, no one should listen to him for investment advice.
- [46:38]
B
Well, they have a podcast a hundred times popular as ours or he does. So seems people do.
- [46:45]
A
Yeah, well, but that's, that's where I say, like, look, if you lose money through Chamath again, you deserve it.
- [46:50]
B
Yeah. His track record speaks for itself.
- [46:53]
A
Yeah. Okay. Any other bubble watch topics?
- [46:57]
B
Well, I wanted to talk chat GPT5 coming in as a potential bust. People were not happy with the update, which was talked about for I think two years from Sam Altman and OpenAI. People seemed to think it wasn't really much of an improvement. They rolled back the attitude of it, I guess I don't really get that stuff. But more most important is it doesn't seem like there's radical improvements to the technology. You're hitting sort of a wall in the capabilities of these chatbots, perhaps. And we saw Palantir Nvidia slip from highs. Meta froze their AI hiring. This isn't. Are you going to call the top in a bubble because of one week of news and ChatGPT5 being underwhelming? I don't think so. But could you look back in three years and say, hey, look, this was the time when people started to get more rational about this market. Maybe because it feels like and may, maybe we can talk about some of the stuff Google's putting out on their phones and stuff. But it feels like the innovations have been few and far between in the last year as compared to the last two to three years before that.
- [48:17]
A
Yeah. And maybe there is some sort of a theoretical ceiling or limit, but I wouldn't like. I would still say I'm very long term optimistic. The AI benefits and how that they can improve profit margins at a lot of companies and the applications that are out there. Like, so I would say there's a lot of people that basically talk about this being like a new.
- [48:52]
B
What.
- [48:53]
A
What's the word they always use? Like it's a new era. Like it's a new. Like how the Internet was in 2000. This is the AI, not cycle, but yeah, era. It's a new paradigm. They say paradigm there. That's the word.
- [49:09]
B
I was saying paradigm is a good word.
- [49:12]
A
I kind of buy it. Like, I know it's. Yeah, I don't know. Yes, I do. So I do get to see some of this stuff firsthand, but it takes the workload off of a ton of people and it speeds a lot of things up. So, yeah, I guess, call me optimistic, but if we're comparing this to the Internet paradigm, there were probably periods where it felt like the innovation slowed down, but that doesn't mean it's like coming to a stall or a halt. I'm sure there were operating systems where it felt like you were going back in terms of innovation. IPhone, like if, if this is GPT5, I bet there was an iPhone iteration where it felt like there was less progress. You know, the kind of. The list goes on and on. There's going to be slowdowns, but I wouldn't say it's like we're running into a wall here.
- [50:15]
B
Well, a few weeks ago, Altman was calling it the Manhattan Project, so hype might be a little bit higher than actual results. This was a strange quote I saw from a CNBC article. I don't know where Altman goes on a lot of media outlets. I'm not sure where it was, but he said, quote, the models have already saturated the chat use case. They're not going to get much better and maybe they're going to get worse. That last part kind of set up some alarm bells. Like, what are you seeing here that's going to make them worse? That made no sense to me.
- [50:53]
A
Yeah, maybe just like recycled content, like models learning off of other models and then it just becomes like not impression. Yeah, the. I could see that for the chat. Like, I could say, oh, it doesn't get that much better. I think the applications are kind of endless and there, there's kind of a lot of possibilities there for this getting like, for the reasoning models turning into a lot of productive businesses. But I could see how there's. It's pretty close to, I mean, what it's training on public information, right. Like, so it's already all out there. How much better can it get?
- [51:32]
B
Not sure. I'm not an AI scientist.
- [51:34]
A
The information gets a lot better, right?
- [51:36]
B
Well, yeah, I don't know where they're going to get that information. It seems like they've already trained on the whole Internet. It would be just the way they train would improve. I saw though, I think this is some study. So you know, TBD, if it's actually correct, 40% of the sourcing for Chat GPT results are Reddit or what, Sorry, Reddit posts. That's how they get their information.
- [52:08]
A
I can see how he gets, I can see how he thinks things might get worse if that's the case. There's a lot of. I've spent some time on Reddit lately because frankly, you have to like, it's. It shows up so high in search rankings that if you want to be relevant for a lot of businesses, I think you got to be like kind of sneaky into Reddit, but.
- [52:32]
B
So you're saying this as a marketing guy.
- [52:34]
A
Yeah, it is. There's a lot of bad information on Reddit, like truly bad information. And I could see how if a lot of the answers from Chat GPT are coming from there, it could become an issue. And if people are filling more and more information into Reddit because they know it's going to be the most relevant source and ranked the highest on search, I can see how things could potentially be getting worse or at least where Sam Altman believes it.
- [53:09]
B
Well, let's spend $500 billion on data centers and just see what happens.
- [53:15]
A
Now, there's other sides to this. Like, I read that report about Meta's advertising benefits from AI and it's pretty remarkable what they're able to do in terms of like using AI. For businesses that just say, here's what I am, here's my product. And they just take it from there.
- [53:39]
B
Like find the optimal, the most, keep optimizing the correct person to find, to advertise to.
- [53:46]
A
Yeah.
- [53:47]
B
Now, as a, as a user, you should get off these platforms because they are going to basically hack your brain into spending money. So don't go on there. Don't. Don't go on there. I'm serious. They're going to get you to spend money. They are so good at it. Now you're not even going to realize.
- [54:01]
A
It but you're speaking to pretty much the entire digital population and my bet is people will stay on there.
- [54:07]
B
So yeah, I'm saying this as a personal recommendation. It's not I'm gonna change anything.
- [54:12]
A
There's so much that's great for businesses if you can just say here's who I am and they figure out who your customers are, who your target customers are. They figure out who's responding well to them. They're iterating on it. They're building ad copy for you. It's not even just like the, the ad targeting side of it. It's also like the ad copy itself they can help with. I mean it's, I could see how there's a lot of real world benefits as opposed to some of the like just general chat functionality. Let's shift gears though. Do you want to talk retail roundup?
- [54:56]
B
We well let's get your 1 UT 6 growth stocks that just turned profitable because this is for anyone that's beginning investor, anyone that we've talked about this concept before. If you can find something that doesn't screen well, that's just making that transition from unprofitable to profitable and has great unit economics. There can be hugely underpriced stocks and that's something that's a lot of great investors have talked about in the past and that's where the opportunities can be. So Ryan, go through what are the six ones you found?
- [55:27]
A
Yeah and just to give a quick spiel, kind of add on what you just said there. I actually love to track companies that are making the climb to profitability. I think a lot of the best opportunities, investment opportunities that I have found is when the true earnings potential of a business is being masked. And sometimes that's like Philip Morris for example. When I first bought shares of Philip Morris they were investing heavily in the new products and you were going to see the operating leverage like a year or two out. It was pretty clear like the margins were depressed. When you got that margin expansion you kind of got a multiple rerating with it. But I think more common case is where you have a company where there's a large reinvestment Runway and they are just choosing to prioritize long term investments like sales marketing expenses today over maximizing any sort of near term profitability. Those businesses I think you tend to see Amazon's done this for 30 years. They're like the prime example of this and you see it a lot in software because there tends to be such high lifetime value. But let's get to some of the companies. The first one here, I talked about it. Okta Brett, maybe you can share the screen and show some of these charts here. The they have grown revenue at 33% annually over the last five years and the margin expansion has been huge, specifically over the last three. I think I mentioned this already but basically went from negative 25% to just going like just over the hurdle. 0.4% net margins. This. Yeah, this last two quarters. I'm going to go through the next, I guess five here pretty quickly because I don't want to talk numbers all day but Doordash has just turned the corner to profitability. They've been pouring tons of investment into growth and trying to attract customers. Remitly, a stock both of us own. They've been doing this. Yeah, you've got a good chart there. You think about it from Remitly's perspective, like if you get a customer who's going to spend likely going to spend with you on a recurring basis and you see that in your analysis, like if you're looking at your existing customers and they spend more each year or they stay on for six years, whatever that lifetime value estimate is, you can, you can invest pretty aggressively and effectively and you don't need to see the profits today because you know that they're going to come eventually. Number four is Toast, the point of Sale system and restaurant software operator. Five is Nutanix and then six is Trans Medics. I don't know much about those last two but I guess do any of these pique your interest?
- [58:31]
B
Remitly? Of course. I looked up Toast. I think that's a good business, maybe not a great business. Haven't researched them in a long time. Their valuation didn't look too appealing even from a sales and gross profit perspective. So maybe it's not that cheap. I've heard pitches that Transmedic is a fraud. So I don't know who is right or wrong but there's some very aggressive shorts and some very aggressive longs on that one. Maybe I'll stay out of it. They're doing private jets for organ transplants. It seems like that's a way to. Maybe there could be some shady stuff in there, but those ones are of interest. DoorDash, I don't know if their moats as wide as a lot of bulls think, but they've executed well. And hey look, I'm a competitive advantage Investor. I like to see that there. I'm not sure I think there's a competitive advantage with them. Even though people can talk about their network effect all day, I just don't see it.
- [59:36]
A
Yeah, yeah. The big risk here is we're looking at the companies that have turned the corner to profitability. The risk becomes when you get a company that thinks they have a certain lifetime value. Zoom's probably a good example. Even though they've been profitable for a long time. But you think, oh, I've got these customers on for a long time and they spend more each year and they're stick around for six years, whatever it is. And then competition comes down the road and suddenly that lifetime value gets cut in half or whatever. So that becomes the big risk. But I really okta. Really piqued my interest here. I think a business like that is not something you want to replace on a regular basis if you're a big enterprise. And if they're turning the corner to profitability now, I think I don't see why they couldn't have 20 operating margins. I mean, it's software. B2B SaaS.
- [60:36]
B
Yeah. Yeah.
- [60:38]
A
Unless I'm missing something, it seems like kind of the sky is the limit potentially here for their. Their margins. The. Yeah. The only issue I have with TOAST is that yes, businesses probably don't want to replace you once they've like integrated their systems onto toast. But a lot of TOAST customers just go out of business. Like restaurants are kind of a difficult customer group to have. So if you're spending a lot of money to attract those restaurants and it is a competitive field, there is like a natural level of churn that reminded.
- [61:18]
B
Me of PAR Technologies. Do you remember that one?
- [61:21]
A
I do.
- [61:22]
B
Stock flat over the last five years.
- [61:25]
A
There was a point of sales, like bubble. Bubble a bit, yeah.
- [61:30]
B
Little bubble.
- [61:32]
A
Because it's. It sounds compelling. It's like, oh, look at, you know, it's like a system that the whole restaurant is built on.
- [61:37]
B
They get money every time you swipe. Do you want. Should we quickly go through this? I think timely retail roundup. There are some things I didn't get to that we can probably just talk about. Next week, companies are interested in new holdings. Mercado Libre, Google's new AI stuff on their phone, and whether anyone would ever actually switch from Apple. Probably not yet, according to what people are saying. And then this new airport operator, we can save those for next week. But retail roundup there was Home Depot, Lowe's, Target and Walmart this week. Costco, I think is in next week or maybe within the next couple of weeks. So this is good macroeconomic consumer spending indicators. Go through quickly. Home Depot only 1% comp store sales growth. Third party analysts had them two 2.6% decline in foot traffic. Now Lowe's had comp store sales growth of 1.1% but they had I think double the traffic decline. So almost close to 4%. And like home Depot, they're making an acquisition for a building parts distributor Target comparable sales decline of 1.9%. New CEO is coming in from the CEO role or COO role. So the current chief operating officer is becoming the new chief executive executive officer. And then Walmart reported today of a recording 25% growth in e commerce sales. 4.8% comp store sales growth excluding fuel. My question is, is it just turning into an Amazon, Walmart, Costco retail economy? Because that's what it feels like.
- [63:10]
A
Yeah. They seem to be the only one with with resilient comp store sales. Walmart has had 22 consecutive quarters of more than 4% comp store sales growth in the U.S. wow, that's impressive. Yeah, and keep in mind that's at a time when a lot of retailers have struggled. It's not like just some perfect period where inflation plays in there as well a little bit. But other retailers have struggled. So yeah, Walmart and Costco just seem to have a self reinforcing cost advantage that I don't see going away anytime soon. Did you know Walmart generates more membership revenue than Costco?
- [64:01]
B
Oh, did not. Fun fact of the day.
- [64:05]
A
Yeah, that blows people's minds because everyone thinks of Costco as the like. Did you know they're, they're actually, they make all their money through membership fees. You know, everyone loves to say that.
- [64:17]
B
Wow, Walmart, that's just, that's just our coastal elitist coming out. Costco instead of the Walmart real America. I'm gonna leave on an ominous note from the CEO of Walmart who said either on a conference call or the press release that cost increases are happening every week on new inventory due to tariffs. Add that in with the healthcare stuff. We're seeing 20% growth in healthcare inflation coming in next year on these ACA plans. We may see a reacceleration of inflation. And on that note, let's we'll get out of here because we're running out of time. Anything else Ryan, before we close things out?
- [64:56]
A
No, I think that's going to do it.
- [64:58]
B
Okay.
- [64:59]
A
Maybe Powell was right.
- [65:00]
B
Maybe Powell was right. Maybe Jerome Powell was right. We're not at Jackson hall, so we can't talk to him, but let's get out of here. Thank you for everyone for listening. Thank you to our sponsors. We've had some fun episodes coming out. Check out the Rocket Lab episode we did with Simon Erickson. That one seems to be highly popular. As a disclosure, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan I or any podcast guests may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you everyone for tuning in once again on the live show and asking any questions. And we see. We'll see everyone next week.