B (6:11)

The intel stake, you can understand both sides of the argument for banning versus keeping them in China, because if they're not there, well, that incentivizes homegrown players to catch up. And if they are there, then, you know, people can say, well, people just use Nvidia and then they're still attached to this company that has the technological superiority. But if you are giving it to them, that allows them to catch up computationally with all these AI infrastructure. Are you bored of talking about AI yet, Ryan, in general over the last few years? Do you? I, I feel the boredom. There's not, there's been no new products that excite me.

A (6:55)

Yeah, I think I'm with you there. And it's starting to cool. It feels like the AI market is starting to cool a bit. Where I think you had Sam Altman coming out this week and saying we might be in an AI bubble, which I think is funny that he did that after releasing like a bad, apparently a disliked model and he's like, yeah, I think we peaked. It's like, well, okay, could be a you problem potentially, but does feel like it's cooling a bit. The commentary, at least we're not seeing as much, I guess, new announcements from big tech companies around how much they can spend and bragging about how much they spend, but it is boring. And not that Nvidia's earnings are predictable, but it's boring to have a business where like only one thing matters. It's basically like data center revenue was either better or worse than expectations.

B (7:58)

Yeah, I, the predictability on this just seems impossible. I have no clue what Nvidia's revenue growth is going to be next year. If we look at our friends at fiscal AI pulled this up while you're talking the next 12 month forward EV to EBIT estimate is 27 for Nvidia. I think that probably means they're going to continue growing over the next 12 months because what is trailing EBITDA EBIT? Let's pull that up real closely. Oh yeah, trailing EBITDA EBIT is 44.5. Does that make sense to you or would you be worried that there's going to be some stalling? Because I'm looking at your face there, it's kind of just I could go either way. So the uncertainty with this stock is insane and I just don't want to have any exposure to it. I like certainty or I like stuff that is trading at a very, very cheap price.

A (8:59)

Yeah, it, I mean it feels like especially in the short run, you're kind of flipping a coin as to whether or not it's EBIT is going to earnings are going to grow faster than analysts expect. If you have some sort of an opinion on where AI spending will be in 10 years and where Nvidia will fit into that world, then whatever maybe you can make make the valuation. It can seem cheap on that thesis. But yeah, I agree. Who knows? Who knows if 44 times trailing EBIT is cheap when AI spending seems to be sort of a big question mark moving forward. Like there are commitments, there are verbal commitments and obviously we've already seen the huge hyperscaler growth in capex, but at some point that has to slow down.

B (10:03)

Like yeah, or there's going to be efficiency gains. The usage of these tools from a consumer or enterprise perspective are going to probably keep growing, but you can build out too aggressively on that infrastructure side. Yeah, I agree. I have nothing else to really say on the matter. I think it is getting boring, but we do like to talk about it because it is such a hot investing topic. Do you want to talk about something maybe even more important over the long term, and that is Federal Reserve independence?

A (10:34)

Sure, let's do it.

B (10:36)

Hey, this is probably the most, I think, underappreciated. It's getting pretty good appreciation from commentary and economists and the media, but I still think it is getting underappreciated. I think this should be headline news for all the financial media outlets. After 114 years of existing, the Federal Reserve may finally be changing its governing independence from the executive branch of the United States, which means the President and their cabinet. So Lisa Cook, who is a member of the Federal Reserve Board of Governors that votes on monetary policy, which means setting interest rates has been well, the President of the United States wants to fire her for cause, alleging mortgage application fraud. Now, the thing is, you, there's kind of a gray line like, well, you can't just allege someone of doing this and then fire them. Especially if within the Federal Reserve act, you're not like explicitly allowed to fire them except for cause. Because you can't just allege something of doing that something and then fire them. You have to prove it and then you can fire them. Cook says again in retaliation that the President cannot fire her for this and that she did nothing wrong. And then both have essentially said that they want to settle the case in court. So the Supreme Court is going to finally decide and maybe, you know, solidify, codify the relationship between the President and the Federal Reserve. Historically, the Federal Reserve has been something that has been way more independent from the other branches of government. It's almost been its own branch of government in recent years. Yes, the people are nominated by the President that joined them, but it's supposed to act independently. Now, if the Supreme Court case can either say that that is affirmed or can radically change that and say that the executive branch, AKA the President, can fire someone if they are not up to par or, you know, get more control over that when in historically you couldn't. Now, why is this important? Because generally there is a conflict of interest between politicians and setting interest rate policy. Because if you are trying to win an election or something like that, you can say, all right, well, we're going to lower interest rates, run the economy hot. Everyone's going to be happy that automotive loans are cheaper, mortgage loans are cheaper, all this type of debt is cheaper. But then you run the risk of, you know, much, much higher inflation. Having that Federal Reserve separate was supposed to keep the political bad incentives away. And that changes. I would be very nervous about the future of inflation in the United States, Ryan. It's tough to do macro stuff because it's unpredictable. We don't know what's going to happen with this case, if it becomes a court case. But even before the outcome is determined, are you nervous about the potential here? Because I think people are underappreciating how bad this can end up.

A (13:57)

Yeah. The short answer is yes, 100% Fed independence has been, I feel like, without a doubt. And you can just look at, look back at 100 years of American progress and influence in global markets, a benefit to the country, because obviously, obviously the incentives aren't great if you have the control to just fire someone or hire whoever you want whenever they're not doing what you want. If. And I'm talking about like a Fed chair. Like, if Trump could just put in whoever he wants and then if they're not doing whatever he likes, he can just fire him and put someone new in. Like, it's obviously, it's basically like making the president the Fed chair himself.

B (14:52)

So somewhat. Yeah. Or it's similar Secretary where they are doing more of the bidding of the President and the Cabinet.

A (15:04)

Yeah. I think it'd be a massive bummer if anything were to actually change. I also like removing someone for mortgage. For alleged mortgage fraud, apparently. What was it? Application.

B (15:21)

It was saying there's two. Two mortgage applications. And on each one, she said that they were her primary residence. So pretty small in the grand scheme of things of what a lot of other politicians, including the President, have been caught doing.

A (15:35)

And it just obviously, I just hate the idea that it's like, I'm gonna fire this person. Let's go find a reason. Like, right. That. Yeah, this has been probably the shakiest I have felt about, like, U.S. financial position in my short time investing, where it just feels like we're kind of crossing into a world that we probably don't want to go into. I also. I also kind of think that about the intel stake. Like, I don't. I really kind of hate that. I like, I hate the dynamic there.

B (16:13)

And it's a bad idea. It's just a bad idea. They need money. They need. They need capital funding. They don't need the grant to get transitioned to an equity stake and ruin shareholder value.

A (16:23)

And I don't. What's the point of that? Like, they were like, yeah, we need the US to benefit from this. Like, the US as people would benefit from funding for projects and grants. Like, we're paying taxes for you to hopefully reinvest it back into projects that benefit citizens of America, not to get. Have the government get more dividends over the years. That makes. No. That. That doesn't benefit citizens in any way. So, yeah, I think. I feel. I don't know, just like, disappointed, I guess, lately with, like, it feels like America's kind of embarrassing themselves a little bit. But if they want to be the next bag holder on intel, maybe this will teach them a lesson.

B (17:15)

Yeah, there's been a lot of quips out there, and I think I'm trying to read up more on the Argentinian guy and their history because a lot of people have said that we're doing a lot of Argentina's old policies, and Argentina is doing a lot of what we used to do, which I don't think is a good thing because they had hyperinflation. But let's pull the rope back and do ask a question that's more pragmatic because we can't change. We invent. We got to invest in the world how it is now, how we hope it will be. If we look at this time next year, regardless of the outcome of this court case, it seems like with Powell's term coming to the end, some other, maybe some other appointees, I don't know the details there but by this time next year the President will have the majority of appointees on the Fed which could mean drastically lower interest rates. Does this change how you invest at all? Because for me there's a couple of companies in my portfolio I think could benefit specifically Nelnet maybe someone would also have a headwind like a remitly the real brokerage which has I don't know why but done well over the last month after I did that research report episode. They could benefit because the housing market could get unlocked. Are you looking at that specifically for anything for your portfolio but. Or do you disagree that interest rates will just basically guarantee to come down by this time next year?

A (18:48)

No, it seems likely that whoever gets the Federal Reserve chairman role, they're likely to be someone that Trump feels is going to lower rates. Now if I'm not mistaken, they have to be approved which hopefully if we have any sort of trust in the government process, maybe he can't just elect anybody like it has to be someone with some legitimacy. But yes, if the idea is that interest rates are just going to go down in a year or two, I would, I don't know if I'd make a whole lot of changes to my portfolio. I'd like to have companies and I would argue the majority of the companies in my portfolio aren't really high interest rates. Low interest rates, it doesn't make a huge impact. They're not very debt heavy businesses. Over time it shouldn't change too much for them other than if we go to really low rates maybe there's more private competition again and we see sort of a the ZIRP era where like I was reading a quote recently that the Instacart CEO said we didn't get to positive unit economics until 100 million orders. It's hard for someone to compete with that today when the cost of funding is much higher. Whereas if it goes back to zero, maybe we're going to see a lot more private competition for businesses like that. But I don't think it would change a whole lot if any sort, if anything changed with Fed independence, it would change how I invest. I would probably make it more a priority to invest internationally, like focus more of my equity investments on businesses that I like in markets outside of America. My, I, I really think that when it comes to the Fed independence question, capital markets won't let it happen.

B (20:54)

Interesting. That's a possibility. Yeah.

A (20:58)

But it will have such an adverse reaction that people, they're going to have to backpedal.

B (21:04)

I could see that being a scenario as well. Either way, again, like Nvidia, there's just a lot of uncertainty and I think if the Fed changes to someone that's just going to lower interest rates and be in conjunction with what the president wants to do. We're going to get another test on how a portfolio reacts to low interest rates and you're going to get another test on how it reacts to inflation because that would be my number one concern. Do you have stocks in your portfolio that can weather through another inflationary period? Because we're already seeing it pick up again. And if we lower interest rates and inflation picks up, that's. It might get, what do they call it, entrenched like the 1970s. And that, that would be a real concern. Ryan, you're back. I was monologuing on a question on Google, but I was going to transition to something besides that Federal Reserve Board. Did we get a WI fi shutdown? What happened there?

A (22:02)

Yeah, it seems we did. But I'm back. You want to give me the, the, the thumbnail on your monologue?

B (22:12)

I just said someone asked in the comments. Google is still the. Is Google still the most undervalued make seven. Are you expecting a drawdown on them? I, I don't know. Again, I said I don't know if a drawdown is coming. That's impossible to predict. But just a quick update on. Even though Alphabet's at all time highs EVA to EBIT, still 21, so not bad. That's pretty much all I said. Now you're a shareholder. Have you been thinking about the new AI updates they've been doing the new phone and these cloud deals. They've been signed with some of their Mag seven frenemies.

A (22:46)

Yeah, I don't know if I'd still call it the cheapest mag 7. I'm still comfortable holding. My valuation work on this company is pretty limited, frankly. I just, it's, it seems like every time it's traded at a teens EBIT multiple, especially mid teens, it's a good time to buy, which I know is kind of lazy thinking, but my forward assumptions for Google haven't really changed a whole lot. The only other mag7 that I'd say I become more interested in is probably Amazon as of late, just because they're kind of going through this big capex cycle and there's a lot of questions around AWS's competitive positioning.

B (23:32)

But I. I tried the grocery delivery.

A (23:35)

How'd it go?

B (23:35)

You want to get some anecdotal evidence on that?

A (23:38)

Let's do it.

B (23:39)

All right. Well, I'll say cheap. Plus it's, you know, no extra delivery fee, so it's extra cheap. The products were reasonably priced. It arrived strangely in two bundles. So one came within like an hour and the next camera another hour later. But still quick, you know, you get it within a few hours. I think they would hopefully get it within an hour for everything, kind of once they get this up and running, since I just started it. But the only downside was that the offering was limited. So there's about half the things I was looking for that weren't there. I would think they need to change that or else I'm just going to keep using my existing options.

A (24:19)

Okay, that was kind of what I talked about. I'm glad you went through the experience of actually ordering something, because that was kind of one of my suspicions was that one of the benefits of Instacart is the full offering of SKUs and basically just being sort of a connection between you and the grocery store. Whereas if Amazon's doing this sort of fully on their own, and it's not just a connection between you and the grocery store, there could be limits in terms of the types of SKUs and everything that you're wanting to find.

B (24:54)

They can, they can replicate that. That's not hard. They just need to take the time to do it.

A (24:59)

Do you know what the logistics side looks like? Is it like Whole Foods to a delivery person?

B (25:06)

I think it's. I think it's within the Amazon Fresh fulfillment stuff. I'm not exactly sure. It was a bit confusing because some stuff said Whole Foods, some stuff said Amazon Fresh free delivery, you know, on orders over $25. I think it's within the existing delivery network. They didn't just try to prop up their own Instacart or DoorDash, but there's some. It's a good service. I think it's cheaper than Instacart. I would go there first, probably because, like, there's no fees, there's no extra Fees on top of your prime subscription. But there are things I think they need to work out which are solvable. But we'll see if they do it because there is a huge opportunity for them, as we've seen in other markets, grocery delivery, especially East Asia, it can be, if you get it right, it can go quite well for a business.

A (26:00)

Yeah, I would love for them to, like, win in this category. I'm not an Instacart shareholder. I don't have any companies that would be left by the wayside if Amazon did win here. And it would be great for consumers. And if you look at what happened to Walmart after entering Grocery, it was like a major amplifier for returns. It got way more people in the stores. It got way more people the same way I imagine it would. Getting people shopping on Amazon that aren't already or maybe increasing the frequency with which they shop on Amazon. It would be a huge benefit to the business. Not to mention it makes the prime subscription that much more valuable. I'd love for them to win here. I just kind of like prove it is sort of my attitude. Because they've been at this for a while, for a long time. I'd say better part of a decade at this point, trying to go after Grocery. And I don't think they've nailed it yet.

B (27:04)

No, they haven't. And so far the selection was just. It was just weak. There was some items that I thought should have been there that could've. You're supposed to be the Everything store. The whole point is that you have everything on there. But we'll keep an update. Maybe I'll try it again sometime in the future. Do we want to talk Autodesk earnings? Because.

A (27:24)

Sure.

B (27:24)

I'm looking at your numbers here and pretty impressive stuff.

A (27:30)

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B (30:19)

Sort of. Sort of, yeah, It's a good product. People love it.

A (30:23)

Manufacturing up 13%. Everything grew. The other two categories don't really matter. And then the part I like is the operating margin expanded this quarter. So 25% GAAP operating margins, that is a record for them in the subscription era. So in the cloud based subscription era as opposed to the old license model, they may have had higher operating margins back in 2010 time frame. I bet you could actually I could check that on Fiscal AI right now, but I think the quarter was good. This is a company that I've mentioned it, but I kind of love to hate them. It feels like they talk so much about rule of 40. They are so aggressive with Share based compensation and management is compensated on metrics that don't really matter. Not to mention their Rule of 40. Just to be clear, Rule of 40 for them. I believe they're using non GAAP operating margin, so they're stripping out stock based compensation. It's one of those horrible processes.

B (31:34)

Just, just ignore it. If you're an investor, just totally ignore it.

A (31:38)

It's, it's nice to see them get some real GAAP operating margin expansion because once they start to show some sense that they actually care about that, I'll be a little more on board. Also, there was a rumor during the quarter that they were going to make some big acquisition which they love to throw money away on acquisitions. And they came out like a day later and said basically no, we're looking at organic investments as sort of our first priority.

B (32:09)

Which that's positive. Was positive.

A (32:11)

Another step in the right direction. I have been, it's almost like an emotional hedge. I've been a begrudging shareholder for probably five years almost where I just bought some because the software seemed very sticky. Honestly, I believe I bought shares. When I read that there was that letter that the customers sent to Autodesk that was like, please stop increasing prices. There's nothing we can do but continue to subscribe. I was like, well that's. Usually that shows that the platform's pretty sticky, but I've been frustrated with management through pretty much the whole last five years. So it would be nice as a shareholder to actually be kind of proud. But yeah, good results across the board. Once again, the software continues to be best in class. Very sticky. People still continue to use it. They don't seem to be disrupted by AI like maybe some people believed. And then hopefully they're finding religion when it comes to profitability.

B (33:17)

Yeah, we haven't found the AI disrupting software yet, but I think people are going to keep saying that every quarter until it happens along with, you know, agentic AI people, blah blah, blah, blah. Stuff that's going to happen every quarter but doesn't happen. Looking specifically at Autodesk, the. I know there's other metrics you can use. I'm just using this for shorthand because It's a podcast. EV to EBIT again, 45 over the last 12 months. But if we look at that operating margin given this business model, there is room if they truly optimize to get to 40% or higher. And if you're combining that with that strong revenue growth along with a buyback program, the forward 2 to 3 to 5 year earnings may be significantly cheaper than this. But the thing is you have to have confidence in the management team getting smart with efficiency and actually showing the true profitability of these software programs. And I'm not sure you can.

A (34:22)

Yeah, there's also the EBIT slightly off because a quarter ago they had a huge jump in share based compensation which I believe was like a one time event. So the earnings before interest and taxes is slightly depressed there, but it's still a premium EBIT multiple. You're right. I think the thesis here is that they continue. Not only do they continue to have double digit revenue growth, but they expand their profits as well. I might end up selling this thing honestly, but I've just kind of. I don't. I honestly can't even remember why I bought it. It was more just as like a coffee can portfolio like this is a good product that should be sticky. Maybe things will work themselves out over time. And so far that that attitude has worked. But we've also gotten a little bit of multiple expansion as well. So might just be a little luck there for me also.

B (35:29)

Yeah, I agree, I agree. All right, I got something that said Internet trying to reconnect, but I think I hear you talking. You want to move on to new holdings. This is one I wanted to talk about last week, but we had to save. New bank, new holdings.

A (35:45)

To be clear, this is New bank as you just mentioned, not a new EDW holding. This is nu. Let's go through the numbers. How was their quarter?

B (35:59)

Well, stellar. Once again, 107 million customers. 60% of the adult population now uses new bank products in Brazil. Total deposits up 41% year over year to 36.6 billion billion across the board in Mexico, Colombia and Brazil. Customer growth of 17%. 10% customer penetration already in Colombia. Quarterly net income of $637 million last 12 month net income of $2.3 billion. They are seeing rapid growth in Mexico with 12 million customers in that market. Now the market cap is $63 billion at least as of when my last. I wrote this last week. Maybe it's changed a little bit. Not exactly sure. We can kind of look at stuff. I have a chart here from our friends at Fiskel AI that I thought was very insightful. And These are the KPIs they update for us constantly. It really helps with time. And if you want to use our link fiscal AI chitchat you can get a discount on any paid plan for the software. I think it's well worth. It is New bank monthly average revenue per active customer it hit $12.20 in the June quarter and it's grown at a 34 annual rate since December 2020 from $3 and $0.30 to $12.20. So with all their lending products, with their banking products, their high yield savings, their credit cards, debit cards, all the different stuff they built for their financial ecosystem, which for anyone in the United states, I'd say SoFi might be similar to them in kind of their product strategy. We're seeing huge increases in monetization and there was a decrease in recent quarters, but that was because of I think the launches and rapid adoption for customers in Mexico and Colombia. Now we're seeing kind of recovery in that trend. Do you have any valuation numbers in front of you, Ryan? I guess we have $2.3 billion in net income, 63 billion dollar market cap. If they can get to $5 billion in net income within five years, maybe the stock is cheap, something like that. But it doesn't seem overly expensive. But I don't think it's overly cheap anymore. Kind of seems fairly valid.

A (38:19)

Yeah, it looks like basically 30 times trailing earnings. The I think we might end up wanting to do a little more digging on the earnings figure if you're really interested in this because I believe there's some like net interest expansion that can happen there. Like there's some lending involved. So interest income, there's always variability when you're looking at sort of a bank. But this is the dream for a fintech. This chart here, average revenue per active customer basically quadrupling over five years. Like that's 100% the goal. And if I'm not mistaken, their cost to acquire customers hasn't really budged either. So there's a lot of fintechs in the US who kind of brag about their cohort analysis and how they've been able to grow revenue over time with their existing customers, which is great. I mean that is the goal. But when you're spending more to acquire those customers, and I imagine you are in the States just because it's more competitive, it's not quite as attractive as what Nubank has done here. So yeah, I have no idea what holds me back from nubank, but there's just something that it's like I look at all the numbers and I think, wow, that's great progress. But it for some reason I'm like, ah, it's not for me. And I think I was maybe tarnished by all the Latin American fintechs that were not. I'm trying to think of what some of them were called Stone Pax, Stone Kill.

B (40:03)

Let's see how that stock's doing.

A (40:05)

It just felt like there were with consumer products. I struggle on international consumer products like it's. Without having any sort of tangible experience with it. I have some. I never really know like the stickiness of it. Like you can look at the numbers but we've seen misleading numbers from Latin American fintechs before. I just like to have some consumer experience with the actual products. But maybe it's. Maybe that's just a lazy reason for me to have been avoiding New all this time.

B (40:47)

The young coupang. You don't use that.

A (40:50)

True.

B (40:51)

Yeah, that's legit. I want to talk about the other one. Mercado Libre. Another. These are the two horsemen. I think they're dot. They're gonna. They're gonna bring Latin America out of the. What is it, the middle income trap as they say. FX neutral revenue growth was 53% I think in the quarter. 45% growth for commerce, 63% in fintech, 68 million fintech MAUs, up from 52 million a year ago. Ricado labor operates in similar markets to NewBank. I'm sure there's some customer overlap but they are competing pretty, pretty heavily here now. Their profit margins have come down due to their free shipping, investments and advertising while marketing around Mercado Pago, which is their FinTech product. The EV to EBIT or sorry EBITDA. Gross profit of 10 is close to where it has been since 2022. Are you a buyer at these prices and do you worry about increasing competition with nubank because well, there's not infinite amount of customers in Latin America.

A (42:02)

I could see a scenario where they are both winners. And if I'm not mistaken, I read something about how a lot of the active customers for nubank are also active customers in Mercado Pago. It's not like it doesn't have to be one or the other, but I would say I have the same concern a bit over consumer experience. Once again I think that's a of a lazy take for me. I don't know what's holding me back. Maybe it's the fact that I just feel late to the party with Mercado Libre, like they've had nearly two decades of incredible growth that it feels like the story's almost already played out. But if, if they are. If Latin American GDP per capita grows, the income for consumers grows. I think you use the term middle income trap. These companies can benefit without doubling their user counts. They can still grow at a at a healthy pace if the consumers overall just do better down there. I would prefer to own the airport operators because that's a little segue. Yeah, if consumers benefit, so will the airport operators. But I don't know. I honestly don't know what's holding me back. Maybe it's.

B (43:32)

Yeah. Okay. What would you rather own? Mercado Libre this price versus Nubank at this price.

A (43:43)

So you're about to make a trade based on a friend's text but which u do you listen to is it we could buy a house in Tulum, get optioning those options. We could lose everything. Or let's do a little research, get your head in the trade and make the investment decision that's right for you. Learn more@finra.org TradeSmart Abercrombie is an official fashion partner of the NFL and I'm Ceedee Lamb, wide receiver for the Dallas Cowboys. You know I'm here for Abercrombie's Cowboys gear. That's not a question but I need a whole wardrobe to go with it. No shade to the guys, but I'm used to having the best tunnel fits. This season Abercrombie has me covered. Shop NFL by Abercrombie in the app, online and in store.

B (44:39)

Eileen Newbank yeah, I don't know why get a better feel for their execution. I feel like it's cleaner.

A (44:46)

Yeah, I agree. I'd probably land new bank. Although Mercado Libre has done a pretty bang up job for their shareholders as well.

B (44:56)

I mean yeah, are they a hundred beggar yet? It's been really phenomenal and you can see the Runway to keep growing but ev to gross profit of 10. That's not overly cheap. No, no, both are great companies. Now another company that I should say shout out to what I call our Latin American correspondent Ian Bizek. He writes about this company. He's the one that surfaced it for me and I've been following them for for a while now. I don't own it. I think Ryan said he started a starter position here but he can correct me or not. It is Corporacion America Airports or caap. That's their ticker and that's kind of what I think of them as. I don't want to say that long name. They are an airport operator mainly in Argentina, the dominant player in that space. But they also have exposure to Uruguay, a little bit of Brazil, Italy and Armenia. Last quarter they had 14% traffic growth, 15% revenue growth, 19% revenue growth excluding cost node with 0% margin construction services. So the true revenue growth was really 19% and they had 26.4% operating income growth. So as traffic grows you get more commercial spend and you get better operating leverage over these fixed assets. There was actually a great report by Ian Bsek and Ian's Insider Corner on Corporation America Airports and a lot of the other details around the government negotiations with Argentina, how things may change and how the president of Argentina was actually the old head economist at CAP. Now if we look at their EV to EBIT trailing around 10 forward, it's around 7. Is this a great way to play the potential Argentinian economic recovery along with also just being a good business in in general, I feel like this is a low risk, high reward here. Ryan, I think you said you bought some but curious your thoughts and your first look at this business.

A (47:04)

Yeah, I did one of the things that I don't, I don't love to do, but I did it anyways, which is I read a very convincing report. Ian B6 write up and I bought some shares and just promised myself to do more research later on. Still very much a starter position but I really like the dynamics here. Obviously it's a good thing when the president of the country was the former economist, chief economist for your company. But also an airport operator benefits from competition. If there's more airlines trying to serve customers, they're going to sell more tickets. Tickets will be cheaper, more people will come through and airports are functionally toll roads in terms of the aeronautical revenue side, they're basically toll roads where they'll get a chunk of every ticket. Then obviously if more people are coming through, that also is kind of a double benefit for the retail shops and leasing revenue that they can get from commercial businesses. Whenever I look at a country that I'm optimistic about, there's usually two businesses that I look at first. Is there a publicly traded airport operator or is there a publicly traded stock exchange? I think those are kind of two of the most bulletproof businesses and business models that benefit from general economic growth. My I got a feeling that Argentina seems to be on the right path or at least they are going. They've directionally improved and they if I'm not mistaken, there was growth in both international travel as well as domestic passenger travel volume, which is always a good sign. And we look at like Pacifico airports or any of the Mexican airport operators and a lot of them have very high margins already 50% plus EBITDA margins cap does not. I think they were at around 30% EBITDA margins if I'm not mistaken.

B (49:20)

Right, so you're saying more room for margin expansion.

A (49:23)

Yeah. I don't see why these biz. The airports in Argentina which are going to have built in price escalators with set in their contracts with the government, assuming inflation continues to come down, why can't they get to sort of that level of EBITDA margins or profitability as well? I mean, these are. Airports are phenomenal businesses. They are quite literally toll road has to be monopolies.

B (49:53)

Yeah, yeah.

A (49:55)

And there are barriers to entry from a regulatory standpoint. Obviously it's not easy to just build a commercial airport in, in any city. To get the rights to do that is pretty tough. So yeah, they're local monopolies. They gush cash. They have a phenomenal relationship with the president of the country where most of their airports are located. I think there's a pretty compelling setup here. Not to mention it trades at six times ebitda.

B (50:25)

Yeah. Maybe a little higher. Now the stock didn't bump after earnings, but regardless, it didn't bump 100. It didn't bump 50%. Bump like 10%. Yeah, you're convincing me too. I feel like I should buy. And they've been, they've been pretty good at buying new assets as well. Decent track record there. So unlike some of the Mexican players who seem to be content with just paying out dividends, this is someone who may be getting some more assets under the portfolio here shortly, depending on what concessions come up. You want to talk alcohol? Because a listener asked us to look at Boston Beer Company. This is another one of the beer, wine and spirits makers that is in a giant drawdown. Owner of Samuel Adams Twisted Tea, Truly Hard Seltzer and many other brands. The stock is in an 83% drawdown. Revenue has been stagnant for many years, likely due to beer sales decline. Actually, I just, I looked that up after they had basically volume declining at a 3.3% annual rate since 2021, but that has stabilized in recent quarters. So a little bit better. Maybe we're hitting a bottom there. And revenue per volume sold has steadily increased. So they've had some pricing power. The EV to free cash flow right now is 10 and they have a 9% buyback yield that is skyrocketing higher.

A (51:50)

This.

B (51:51)

I don't know if this is the best player to, to get by the dip in the alcohol market, but I, I think being the contrarian investor here works with how cheap these are. Are these the best businesses? No, but I think it probably works. Look, it's steady during a headwind, they've had steady revenue.

A (52:16)

I just don't love the alcohol category. I. If I were, if I had to bet one way as to whether or not we are in a secular decline in terms of alcohol consumption. So for, for reference, people have talked about that ad nauseam lately that alcoholic consumption is declining less and less. People are drinking sobriety is becoming coming a very popular trend and some of the data does support that. But that is, this is something that's existed for thousands of years drinking alcohol. I would, if I had to make a bet as to whether or not the trend reverses versus a perpetual decline, I'd say that the trend reverses and the alcohol consumption starts to grow again.

B (53:03)

Or at least stabilizes.

A (53:06)

But I still just don't love the alcohol companies here.

B (53:11)

Even if it is a competitive category for sure.

A (53:14)

Like what are you gonna get? Single Maybe in the best case scenario I feel like you're getting mid single digit revenue growth. If let's say revenue or let's say volume started to grow again and they continue to increase prices at whatever 3% a year. Good scenario you're probably getting 5, 6% revenue growth. Is that like.

B (53:41)

Well if you're buying back a lot of stock, I think that works at 10 times free cash flow buying back 10 of your shares.

A (53:47)

Yeah, it does. But I, I don't know, I just kind of phased. I feel like I faded away from opportunities like this where it's like yeah it works now but you're not going to get sustained, sustained double digit growth. Like it just becomes a problem for me down the road where I, if, if it does rewrite, that's phenomenal and you make some money. But then you got to redeploy it. I kind of feel like I've looked elsewhere from opportunities like that but with that said, I could see people making money owning this from here.

B (54:23)

Brown Foreman just reported I think either this afternoon or this morning. Net sales down 3%, operating income down 7%. Still facing headwinds in this category I'd like. They kind of got a comp a lot of. I can't read it live here. There's. They got a lot of stuff in their press release. I'm not sure exactly what's leading to that sales decline but it seems like the category is still being hit. And hey, some of the stuff is, it's. It's trading at a cheap price. Now I want to talk about. You have another topic which is pricing power kind of leads as another segue from this Boston Beer 1. What did you come up with here, Ryan? And what, what kind of game did you want to play?

A (55:11)

Yeah, if people have stuck around this long, basically. We studied Dev Kantosaria for a recent episode. Recommend going and listening because he's a very. Is a fascinating investor that's crushed the market. And he says pricing power is the hallmark of a great business. And it kind of got me thinking, like, what are the companies, regardless of valuation, what companies have real true pricing power? And I'm not talking about like, oh, I think Netflix could raise prices a little bit. I'm talking about companies that are able to raise prices above the rate of inflation every year for decades. And I've actually come up with a decent list. I have like 10 companies on the list, but I'll go through a few of them and you tell me if any, if you like any of them. So number one, American Express people. It's hard to replicate the, like, prestige that they've built up around being a cardholder. And the average fee that people are willing to pay to be a cardholder has grown, I think at around 12% a year over the last five years. Number two, Moody's and S and P, the credit ratings. We've talked about this before, but you, you basically have to go through them or else you're going to end up paying more in interest rates and interest expense if you don't have a rating from them. Three, the FICO score. Probably the quickest increase in prices maybe ever, going from less than a dollar per score to 495 in, I believe, two years. So about a 500% increase in two years, which is. That's raised some eyebrows from some people. And then Ferrari, it costs a lot to buy a car. They've been able to raise the average price per vehicle by about 5% a year. Surprising one here, but I actually found some data around this that was interesting. Taiwan Semiconductor, a lot of pricing power. The revenue per wafer shipment has grown at like 18% a year over the last five years. And a lot of that is just because they're the only one that can. The only fabrication manufacturer that can produce the leading edge chips. So people are willing to pay more and more for that.

B (57:51)

And they are Nvidia's supplier. And their operating margin is almost as high as Nvidia's.

A (57:59)

Yeah.

B (57:59)

A lot of profits to be had in that supply chain.

A (58:02)

Yeah. I'm trying to think through some of the others here.

B (58:04)

A couple surprises on your list. I'm looking at it right now.

A (58:08)

ASML I mean it's just basically like anyone that's a sort of a bottleneck in the semiconductor supply chain has pricing power, ASML being one of those. And then Pacifico or basically any airport operator for that matter. You could add cap here where they have built in price escalators with in most cases with the government where it usually says like you can increase the rate the, the aeronautical rates per passenger by whatever inflation is. And then a lesser known one here, verisign, they are, they honestly always forget sort of the business model. But basically if you're registering a domain name that has.comor.net you have to go through them and pay them essentially a royalty. And they've been growing the cost to. It's kind of like the airport operators. There's like a governing body that you have to, that they have a contract with that allows them to get paid for this. They've been growing revenues or the price per domain registration by about 7% a year. So any of those stand out to you in particular? By the way, total returns on all these businesses have been phenomenal. Like pretty good.

B (59:33)

Yeah.

A (59:34)

You buy a business with pricing power, it's kind of hard to go wrong over like a 10 year time frame.

B (59:40)

Yeah, price still matters. Price, the price of the stock still matters. But look at these. In hindsight, yes, it's really about finding the next one that people are underappreciating. I think looking at these, what stands out is there are some that have pure private market capabilities and no government oversight or minimal government oversight, which I think are superior. Asml, Taiwan Semiconductor, Ferrari, American Express, they have pricing power that the government's not going to step in and stop. But Verisign, fico even maybe Moody's and S and P Global, I'm not an expert on these businesses that might be different. There could have been another one that you mentioned that I'm forgetting. But stuff that are the airports. The airports are good, but it's in conjunction with the government. So it's not unfettered pricing power. It's kind of that relationship. And I think that holds those type of businesses back compared to the ones that can just do it at will. Adding to your list. And I know we got to wrap up here. Hermes comes to mind. Another luxury player that can probably is the only one that I think has better pricing power than Ferrari given the what what their after seller market's like. Although they both are top of the game there. Microsoft with its Office subscriptions, they're competing with free and people are still using them I'll actually throw out one that this is only a subsection of the business but shopify subscriptions for small businesses and medium sized businesses selling online or running any sort of business with an online website that does commerce severely underpriced. They could probably 10x that over the next 10 to 20 years and people would still show up. Autodesk. Let's see. I'm scrolling through the companies with the largest market caps. I think that about settles it. People know about consumer packaged goods companies but besides that. No, I think that's it.

A (61:35)

Yeah. I like when it's a. You have pricing power because you have a reputational advantage like American Express or Hermes or Ferrari. Right. Maybe even Moody's an S P as well. Although there's I think they have like some some certain designations like certified rating organization designations. But when it's just a reputational advantage I I agree. I think that's a little stronger than having government gifted moat or pricing power because it can be taken away. But anyway I I thought it was fun to look at those the total returns over the last 10 years been pretty good for every company except the only one that I thought was that I was underwhelmed by was Coca Cola who has basically risen prices by 4% annually since for the last decade. Not very good returns are tough though. Yeah. Once again consumer packaged goods you just. Unless you're a monopoly or a duopoly you. It's very rare I think to have sort of uncapped pricing power.

B (62:49)

Yeah. Yeah. Now. All right, we're running out of time. I was going to ask what our own portfolios we think of companies that have pricing power but maybe we can do that for another day. We are going to do a portfolio update in an episode not next week but sometime in the near future. So watch out for that. That should be a fun one. Thank you to everyone for listening. Thank you to our advertisers, fiscal AI and interactive brokers. As a disclosure, we are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan I or any podcast guest 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. We do these live at 2:00pm Pacific Time, 5:00pm Eastern Time on the Chit Chat Stocks Podcast YouTube channel. But you can listen wherever you get your podcast. They'll come out Friday morning and we'll see you all next time.