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- [00:00]
Brett Schaefer
This episode is presented by Interactive Brokers. Interactive Brokers is the best platform for global investors. From their one of a kind market coverage to their best in class pricing, IBKR truly has it all. If you're serious about investing, head on over to ibkr.com stay tuned for more Interactive Brokers later in this episode.
- [00:23]
Ryan Henderson
Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Shafer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is not formal advice or recommendation. Now. Please enjoy this episode.
- [00:51]
Brett Schaefer
Welcome into Chit Chat Stocks, a podcast to help you find your next great investment. My name is Brett Schaefer and I'm joined as always by Ryan Henderson. We have some great Wednesday episodes in the queue as well week, so make sure to follow the show Chitchat stocks, Spotify, Apple, YouTube, wherever and you can listen and watch and never miss an episode. Plus subscribe to our newsletter. The link will be in the show notes there to join our free substack conversations. We talk a lot about investing and all sorts of topics related to our episodes, as well as topics for the Investing Power Hour. So speaking of, we had a great listener question in the Substack Chat the other day. Here's what they said. If you had to rebuild your portfolio with 10 names you've never owned, maybe five for you and five for Ryan at today's prices, what would it look like? We thought this question was great and we decided to turn it into a full podcast. That's the as people can see from the title, that is the topic we are going through today. We have 10 stocks on the list that we are going to quote buy for the portfolios that we've never owned in our history of investing, we're going to spend about five to six minutes each. Hopefully, you know, not make this too long talking through our basic thesis, we may or may not own these stocks in the future. You know, as a full disclosure, these are stocks that are probably the top highest on our watch list. But again, these are stocks we either Ryan or I have never owned before. So it excludes anything we've owned in the past or existing holdings today. These are fresh looks at stocks may or may not want to buy in the future. And again, this is not disregarding valuation. The stocks we would want to buy right now we had to rebuild our portfolios from scratch. So for example, I think a company like Rocket Lab is quite Exciting, but it trades at what, 50 times sales? It's not something that I'm excited about buying right now. And I think that gets. That should explain things. Ryan, why don't you introduce more information and introduction before we get into the meat of this episode?
- [02:59]
Ryan Henderson
Yeah, I love this prompt. It really kind of forces me to think, I will say it's probably harder for me than it is for Brett because I use starter positions in my portfolio. So a lot of the companies that I've wanted to own in the past, I just bought a starter position. And now we are doing only stocks that are not in our current portfolio. And like Brett said, this isn't a stocks we want to own, but we're waiting for the right price. This is stocks that we think are a reasonable price today, and for whatever reason, we just don't own them. Brett's got five, I've got five. I'm going to go through a little bit of my thinking here as I was building this out. It's five companies equal weighted. That's at least how I thought about it. Five companies equal weighted. So these are going to be 20% of my portfolio for each position. So for me, I would want some blend of durability as well as high growth potential. So I'd probably want a few stocks that I think are going to be like true multi baggers that, you know, have clear upside but maybe slightly riskier business models per se. I would also want some geographical diversification. So I wouldn't want all these companies based in the United States, at least me personally. And I would want some mix of physical versus digital business models. For me, I think this last two years was kind of a good example of. And even though I like a lot of the digital businesses that I still own, the stocks have dropped a lot for me in the last year or so. And having the mix means my whole portfolio isn't going to draw down at the same time, hopefully if it's some physical businesses compared to digital businesses, where if you have too much industry concentration, I think there's kind of a thematic trade where you end up having to sell one loser to buy another loser, that kind of thing. And then of course, all the stocks, I think trade at an attractive valuation. Before I get into my first stock, I'm going to show my full portfolio here because like I said, there's a lot of starter positions. So it can be if people are wondering, why wouldn't you talk about this stock or whatever, it's because in this case, this is when my starter Positions approach really hurts me. So I'm Sharon Portcito here. This is the portfolio performance tracking tool that we use and it's got a nice little allocation tab that has a pie chart of all your holdings. So remitly coupang Airbnb. Those are kind of the largest positions for me at the moment. Same with Mexican airports. One of them Omab Nelnet, Adobe wise. And then as we get into the starter positions, I'm just going to, I'm going to rattle these off because that way when people say why don't you talk about this company, you'll know why we've got Adyen as a starter position corporation. American Airports, that's like the Argentine airports. Dr. Horton, Taiwan Semiconductor, Autodesk, Monday.com, google and Amazon I guess you could call startup positions that are less than 4%. So those, it's heavily concentrated for me at the top. But there's a lot of kind of smaller positions that I maybe would want to upgrade today. But we have to exclude them because they're not in the portfolio for this episode. Before we move on, I do want to say again, this is Portcito. This solved a huge pain point for both Brett and I. You literally upload your transaction history. It's one click download from your brokerage, download all the transactions, import it into Portcito and it gives you your total return compared to an index. It's really nice. Like tracking this manually would have been an absolute pain. So go ahead, check it out. It's portcito.com we'll have a link in the show notes for, for anyone to check it out. But yeah, portcido.com one more time. Any, any comments, Brett, before we get
- [07:12]
Brett Schaefer
into this, the one thing I like about Portsido that I will show that I think a lot of listeners would like as well is it goes through specific trade analysis for you so you can look at what are your biggest winners and what are your biggest losers from decisions over a period and you can say, oh well, this was a great performer, but actually on a percentage basis or of my portfolio was tiny and this other one has been a huge winner or a huge detractor for my performance. That can really help you show, oh, am I managing the portfolio at adequate size for these positions and what's actually been the best decisions to compound my performance. But let's get into the episode. Ryan, we have your first company here. I will disclose it's one I have owned in the past.
- [07:54]
Ryan Henderson
Wix.com also one you've written about on emerging moats, which was helpful for my research. But of all the companies on my list, I'll just go ahead and say this. This is the business model that I like the least. It and I used to love this business model. I still think it's okay. But shares of Wix over the last nine years, so since 2017 are basically flat. Revenue over that time has gone from 290 million to $2 billion roughly. So investors have completely soured on this business. And I don't know if it's entirely uncalled for because just for the basics, WIX is historically has been a drag and drop website building platform. So you could set up your website, make it look nice without having to code at all and then it's kind of evolved to a promptable website building platform as well. So you can kind of there's AI elements as well and you can use that to make the website you want. They also have this large like partners network WIX does, which accounts for a lot of the registered or premium subscriptions on their platform. And then they have partnerships with like service providers. So say you're a restaurant and you want order processing, you can get the plugin for that through wix. It just makes it, it's not just a landing page builder. You can actually run a small business using a WIX website. So they have 6 million premium subscribers today, just over. But that has been flat. It's actually been declining over the last two years. And the reason I'm excited about this stock is because it looks extremely cheap. There seems to be a consensus view that AI is going to destroy website building, specifically business models like wix. I don't think that's super likely. I think they are losing customers, not necessarily purely to AI. Maybe there's some of that happening, but at the margins I think they're losing customers or premium subscribers because the space is hyper competitive. It's a really competitive space. There's a lot of software as a service, content management systems out there, Squarespace, Shopify. I think there's probably some newer AI powered ones that have maybe attracted some customers but ultimately it's pretty competitive. The core business that wix, true website hosting business, I think it's fine. They've offset a lot some of those subscriber losses with price increases, but not great. I'll talk about the valuation but before I do I do want to say they also bought base 44, which maybe if you're, maybe this is just my algorithm but I've seen you maybe have seen some ads for them on YouTube before that, that seems to be a common destination for them to be running ads. This is, they bought this in June of 2025, so nine months ago, 10 months ago for $80 million. Today they already have $100 million in ARR. It's been one of the fastest growing AI based application and it's actually kind of a really exciting investment. Very insane growth and part of that's been supercharged by WIX pouring ad dollars into it. But long story short, they've got a decent core business, might shed customers slowly, but those will likely be offset by pricing gains and a hidden business underneath. That I think could honestly be something massive. If base 44 were an independent company, privately run, I think the private valuation would be insane, truly. Maybe that's not the way to think
- [11:43]
Brett Schaefer
about valuation, but yeah, is it actually worth that? Is OpenAI and Anthropic, are they worth $800 billion each? Not sure. But yeah, it's true. I mean base 44, you look at the figures, it's gone from nothing to 100 million at ARR and usage seems to be going off the charts and they're gaining a lot of market share within an extremely fast growing category.
- [12:05]
Ryan Henderson
Yeah, the pretty much the only reason I am interested in wix right here, aside from what we just talked about, they just announced that they're acquiring, or maybe have now finished acquiring, 32% of their shares outstanding. So let me repeat that, 32% of their shares they are swallowing in one gulp through a Dutch Dutch auction tender offer at $92 per share. So this company, Wix, a $4.6 billion market cap company, is spending $1.7 billion on their buyback. I can't think of a bigger vote of confidence from management about feeling like their stock is cheap. I think the EV to free cash flow right now is less than nine times and the stock is now trading below where they just bought a third of their company back at. So again, okay, business model in my opinion, but I think this is a ludicrous valuation.
- [13:09]
Brett Schaefer
Yeah. And if you look at what their market cap probably implied is maybe $3 billion right now their free cash flow and the free cash flow potential is probably even higher just because they're reinvesting a lot in base 44 at the moment you're maybe trading at five times that market cap. So you're, you're already getting a price where you do okay. If they allocate capital correctly, return it to shareholders and repurchases. If the core website building business, which has grown double digits despite the competitive nature of the industry, is in a declined state. But let's keep it moving. We have 10 to cover here, so we want to move quickly. My first one is going to be, and people might be surprised that I've never owned this. Maybe not, because I kind of complain about them a lot. It is Amazon. I'm going to begin with them, even though I rag on them all the time. On the Power hour for Capital Allocation with Andy Jassy, the new CEO or at least five years new, rightfully being called a financial terrorist by a lot of people online in the investing world. So in the last 10 years, let's give some context. Amazon has produced a 600% total return cumulatively versus 275% for the S&P 500 index. However, in the last five years it is only up 33% while the S&P 500 is up 75%. And I think investors are fed up with two things. Uncertain capex reinvestment and spending money on science projects with uncertain ROI. Wall street hates uncertainty, which is a fair point, but also something that I think as an individual you can take advantage of when you look at something on a five year time horizon. You can look at Amazon's Capex chart which I've shared in my show notes here with our friends from fiscal AI. They are, they've gone from, and I have a little smaller a decade ago, what a couple billion, maybe 5 billion a decade ago. In capex they're doing 130 billion in 2025 or they did 130 billion in 2025 and they're expected 200 billion in 2026. They're going to be cash flow negative for the year. People don't know what this ROIC is going to be on all this. AI CapEx spent the company invested in OpenAI's latest round. They're like the last hyperscaler to do this. We at the time of recording the sentiment on OpenAI could not be worse. People think, such as myself, that that company might go bankrupt. I mean, I think a wework situation is entirely out of the question and they're taking on loads of debt to do this. So look, there's, there's reason to be uncertain. Sure. But if we look at operating earnings, which I think should normalize to cash flow at more maturity with this AI spe, we get just the reinvestment cycle on the cloud infrastructure normalizes. You know, I think it's fine, it will over the long term. I think the company is Doing just fine. If you look at their operating earnings, they're at an all time high. It was at $80 billion in 2025. That's a record. I think that should keep climbing, but you have to ask as well. And maybe this is wishful thinking, but how much higher would operating earnings be if they stopped investing in money losing items such as Project Leo, which is the Starlink competitor, Alexa, which has gotten like $100 billion of investment over the last decade to nowhere. Amazon music device projects, international markets like India and Brazil. Twitch. Remember Twitch, Audible, IMDb, Ring Blink. Do you know what Blink is? No one knows what Blink is.
- [16:47]
Ryan Henderson
I don't know.
- [16:49]
Brett Schaefer
Not a soul. It's just a money pit. There's one medical Zoox. Zoox might be okay, but that's obviously lost them a lot of money since it generates no revenue today. I mean, I think it's clear that operating earnings could be significantly higher. Maybe it's wishful thinking to think that will be there, but you should still get steady revenue growth from E Comm over the next five years. There's a lot of market share for the overall industry to gain, even in North America. Cloud growth might be lumpy if the AI bubble pops, but I think it's likely higher five years from now. If we look at revenue, $717 billion in 2025, we grow that cumulatively or not cumulatively, 12% annually for the next five years. That's $1.25 trillion in revenue, which I think is entirely reasonable. And combining everything together, even with the risk that the AI bubble pops, and if CapEx normalizes, I think that should lead to really strong cash generation. Operating margin is 11% today. I think that gets to 15% over the next five years pretty easily. Just because cloud's going to have a higher percentage of revenue, third party seller services will have a higher percentage of revenue and advertising will have a higher percentage of revenue, which are all higher margin in the core business. I think they could easily get to 20% if they wanted to, but I wouldn't expect them to have this level of financial discipline. We apply that 15% margin, $1.25 trillion in revenue. We're at $190 billion in operating earnings versus a current market cap of $2.25 trillion. A lot of numbers. A lot of numbers. But what is that? Roughly 11 to 12 times earnings? Something like that five years out feels like you get a decent outcome over owning Amazon over the next five years. However, you know, it doesn't make it into my portfolio today because I'd rather own it. I want sub 10x 2030 earnings. I'm just a little greedy. I think you do good but not great. It's why it's on my watch list and I'm waiting for a better price.
- [18:44]
Ryan Henderson
So two questions for you. First one, what business line do you think will have more revenue in 2030? AWS or online stores?
- [18:56]
Brett Schaefer
What's online stores at? Is that all Ecom or North America
- [19:00]
Ryan Henderson
or that is all E Com? Let me double check. So online stores. All Ecom AWS stores are twice what AWS is at right now.
- [19:10]
Brett Schaefer
Oh, only twice?
- [19:12]
Ryan Henderson
Yeah. Third party seller services is different.
- [19:17]
Brett Schaefer
Oh oh oh. Who knows, maybe a third party seller takes higher share. I don't know if that's the right question because it really matter if it's first party versus third party. It's more like they don't report this which is annoying. But is overall GMP growing?
- [19:34]
Ryan Henderson
So here's my follow up question. To own Amazon, do you need to have a view on whether or not the current accounting for GPU depreciation schedules is valid?
- [19:48]
Brett Schaefer
Yeah, that's fair. That's why I think you needed more of a discount to what these earnings power could be. And you need to expect potentially lumpy growth if there is any fallout from an AI bubble popping. Not saying it will again, we've talked about this plenty of times. Just some sort of outcome you need to maybe be pricing it in or expecting or what have you.
- [20:10]
Ryan Henderson
If you're a regular listener to chit chat stocks, then you've probably heard us talk about Interactive Brokers. Here are three reasons why we think Interactive Brokers is better than any other brokerage platform. Number one, they've got it all. Stocks, bonds, ETFs, options, crypto, you name it. 170 markets, 36 countries, 28 currencies. Number two, they've got best in class pricing. They have zero commissions on US listed stocks and ETFs and offer margin rates up to 54% lower than the industry. Number three, you can ditch the separate high yield cash account. Interactive Brokers offers up to 3.14% interest on instantly available cash held in your investment account. Head on over to ibkr.com Rate subject to change margin involves risk restrictions apply. Interactive Brokers is a member of sipc. Okay, let's shift gears to my second company for the day. This is I guess, sort of a controversial one.
- [21:04]
Brett Schaefer
Battleground. Love it.
- [21:05]
Ryan Henderson
It's a battleground stock uber. I honestly think maybe the reason I'm so interested in this business is probably through like anecdotal evidence. I still use the service pretty regularly and every time I think this is like a pretty phenomenal network. But the obvious concern, I'm just going to get right to it. The obvious concern from everyone is autonomous vehicles. Like what happens in a fully autonomous future? Where does Uber sit? What value do they provide? Specifically Waymo, as they're kind of, I believe in us major US cities, they're kind of the only truly operational one generating revenue. So, and correct me if I'm wrong on that, but there, there are some others that have made progress, Zoox being one of the ones included there. But I believe Waymo is the only one that's fully operational.
- [21:56]
Brett Schaefer
I believe so. Well, Tesla and your city of Austin, right? Or is that really small?
- [22:02]
Ryan Henderson
I mean the only one that know what's true there. Okay, I, I have never seen a Tesla Cyber Cab driving around, but maybe, maybe it's possible the.
- [22:13]
Brett Schaefer
Well, okay, Waymo is by far the leader. Let's say that.
- [22:17]
Ryan Henderson
Yeah, here's why I think Uber's network will still be valuable and difficult to replace even in a AV centric, AV heavy future. First one, and we've talked about this on the show before when Aria came on and pitched Uber, oscillating demand needs flexible supply. So for anyone that Uber's posted these charts before of, of what does demand look like for Uber, like ride demand at various times in the day and it's, it oscillates. There's, I think its peak after work is kind of the highest and then you'll see like Friday nights there's a massive spike and then there's obviously very little demand in the middle of the night. Big events are going to require extra supply of drivers as well. It presents a difficult dynamic for Waymo, which is either in order to meet that, meet that heavy demand at peak times, they have to have enough cars, but then those cars are potentially sitting idle the rest of the day or not. Or they're having too much supply or worse, they're not servicing all the customers and the customers are frustrated because there isn't enough rides available, because there isn't enough driver supply. Uber solves that. They can incentivize more drivers to join. They can sit, you know, Uber driver sitting on his couch say here's $25 bonus to go pick someone up from a Taylor Swift concert, whatever. There's ways they, they can kind of flex supply at various times. The second one, and this is where I imagine you may have some disagreements with me is getting actual demand for, for Waymo. So let's say Waymo does increase its supply so much so that it can pick everyone up from the Taylor Swift concert, which would be probably uneconomical, but let's say they did. How will they get enough demand to go directly to Waymo? Now I've heard you say, well, if they just have a plugin on Maps or something like that, but right now I think a lot of people, when they are starting their ride sharing journey, they're going directly to Uber. So like, you know, you're leaving the concert, you're leaving whatever, you're going to Uber, you're not necessarily going to Maps unless you're walking. Obviously they can spend a lot of money on advertising, but again, I think Uber has that supply or that demand already. It's, I think it's an uphill battle for Waymo to get people to go directly to them on the app. Any thoughts there?
- [25:04]
Brett Schaefer
Yeah, I'm going to disagree with that one. Alphabet is what, seven platforms with 2 billion users. So whatever city they go in, I think they'll be able to easily advertise and say download the Waymo app, try it out and then. Yeah, pretty easy. Good Gmail, YouTube search, what have you. And that's free. Like they, they already own the platforms.
- [25:30]
Ryan Henderson
Yeah, I mean they can pre install everything on an Android device. That's.
- [25:33]
Brett Schaefer
Yeah. Oh yeah, I forgot about that. That's also nice, I think.
- [25:37]
Ryan Henderson
Think it's kind of this weird like where do they bridge the gap? Because it feels to me like if, if they poured a whole bunch of money into marketing the Waymo app and everyone went there, they wouldn't be able to service everyone, people would get frustrated, they go back to Uber, that kind of thing.
- [25:56]
Brett Schaefer
Yeah, you see that problem happening in places like San Francisco and Austin, but why not download both? People have Lyft, you always have lift at the backup. There's also the other competitor that's pretty small, but it's called Empower. It's not, it's not in a city I've ever lived in, but just price check. Because as we're going to see with this profitability here, Uber's not afraid to hit that pricing lever. And if I see, if I see a bad number, I'm definitely going, just going over to Lift.
- [26:24]
Ryan Henderson
I mean, I price check. Well, I used to price check all the time and I was, it's been rare that I found a cheaper price on Lyft lately. The third one though I will talk about is In a world where other AV companies do make progress, like how long until there are other viable AV companies in certain cities?
- [26:47]
Brett Schaefer
Long time, you think? Yeah, I mean maybe in three. Maybe they can be in three cities. It takes a long time and there's regulations. I mean there what is. Waymo's in what like 12 cities? It's taken five years, something like that.
- [27:06]
Ryan Henderson
We've got a whole bunch of Zooxes running around here in Austin, but that seems to be the test city for every AV company.
- [27:12]
Brett Schaefer
So yeah, yeah, Texas is pretty easy to test. Texas and Arizona, you know, good weather.
- [27:17]
Ryan Henderson
I would say that if I'm going to be optimistic here and say there are some other AV companies that succeed, if that does happen and Waymo decides they want to go purely direct, people will stick with whoever can provide them the lowest cost rides, which unless they want to run Waymo as a loss leader forever, I would guess that with more driver competition, if, let's say there's two or three other AV companies on Uber plus the actual normal drivers with all that supply competition, I would guess Uber remains the low cost provider. So my opinion.
- [27:54]
Brett Schaefer
Low cost for who?
- [27:57]
Ryan Henderson
Lowest cost rides?
- [28:00]
Brett Schaefer
I don't know.
- [28:02]
Ryan Henderson
What do you mean?
- [28:02]
Brett Schaefer
For customers?
- [28:04]
Ryan Henderson
Yes. Lowest price rides for customers. If they have all the drivers plus all the av. Other AV companies, two to three AV companies, let's say they're going to have so many drivers that they can continue to offer the lowest price rides. Whereas your throttling.
- [28:21]
Brett Schaefer
Do they have data that they're the lowest price? Because I feel like there's a lot of anecdotes that they price gouge.
- [28:30]
Ryan Henderson
I, I mean I don't know but isn't all, isn't the lowest price going to go to whoever has the most driver supply?
- [28:40]
Brett Schaefer
Well, the data I've seen from the company Empower, which again is only a couple cities, they have a different pricing model where I think it's like if subscription or something for the drivers and they, they charge about half the price of Ubers. I mean you can look at it, it's, it's significantly cheaper and yeah maybe it depends from city to city, person to person. There's also data out there that people again it's, it's Internet sleuthing but people that are subscribed to Uber one get served higher prices and then have a discount on top of that. So the pricing is extremely dynamic. Maybe it's impossible to tell, but I would be hesitant to say they're always the low price cost provider. Maybe the best value because you get the Quickest ride but I don't see
- [29:23]
Ryan Henderson
how they half off when gross margins for Uber are like high 30s.
- [29:29]
Brett Schaefer
Well that's their net. I mean that's their net right? Like it's technically the unit Economics can be it doesn't matter
- [29:40]
Ryan Henderson
but who's what drivers are going to go for that?
- [29:43]
Brett Schaefer
Oh no, the drivers keep again I can look up empowered business model but I'm pretty sure the drivers keep more because like
- [29:55]
Ryan Henderson
going to sustainably if they can keep costs that low forever. But again I do think there's a lot of anecdota that comes out about Uber and the reality is they have 200 million monthly active customers. I think if there was a better alternative like Lyft, if there, if Lyft was actually better they wouldn't have 200 million active customers. The, the other part here because I know we're going long on this one. I like Dara. I think he's done a good job running the company. He's increased margins while also keeping stakeholders generally happy. I think as a rider I'm happy they have tons of drivers so obviously they're keeping them satisfied enough to remain on the platform and he's done a good job moderating stock based compensation while seeing this profit inflection. Long story short, I think growth of more than 10% revenue for the next call it 5 to 10 years I think is very feasible especially we haven't even talked about UberEats but I think they're in a good position there and I think margins can continue to expand EV to EBIT today is 27 times so it's not screaming cheap potentially in my mind but if you can get 15 to 20%, 15% plus per share earnings growth over the next five to 10 years I think you can generate solid returns.
- [31:27]
Brett Schaefer
Yeah and they do have. We don't need to go into all the details but a lot of room for margin expansion. I'm showing a chart here. KPI chart from our friends at Fiscal AI. This is a good time to shout them out. Fiscal AI chitchat. Use our link in the show notes. Get 15% off any paid plan. We love them. I've been using the new annotation product on conference calls. It saved me tons of time and it's just helpful when doing stock research. Again, it's well worth the money. Check them out. I have a chart here. One of their KPIs that I like to look at for Uber monthly active platform customers or really monthly active users. We're at 200 million. It's growing at 18% over the last decade or so. What do you think this is at five to ten years from now?
- [32:08]
Ryan Henderson
Expedia.
- [32:09]
Brett Schaefer
Hey you.
- [32:10]
Ryan Henderson
What you doing? Scrolling doom scrolling looking at other people's vacations. Miami, San Diego, Cancun. Okay, what about you? What places will you go? Expedia is the one place you go to go places your trip can earn rewards which you can use towards your next eligible stay. Soon people will be doomscrolling you. You'll be that friend's friend, but with rewards. What are you waiting for? Expedia, the one place you go to go places. Terms apply.
- [32:39]
Brett Schaefer
So good, so good, so good.
- [32:41]
Ryan Henderson
New markdowns up to 70% off are at Nordstrom Rack stores now. And that means so many new reasons to rack. Cause I always find something amazing.
- [32:50]
Brett Schaefer
Just so many good brands because there's always something new.
- [32:54]
Ryan Henderson
Join the NordicLub to unlock exclusive discounts. Shop new arrivals first and more. Plus buy online and pick up at your favorite Rack store for free. Great brands, great prices. That's why you rack.
- [33:11]
300 million. They also have a big presence internationally, which I think it's understated.
- [33:20]
Brett Schaefer
There's just the income. I don't know how many people can afford Ubers internationally. Well, maybe, maybe more than two.
- [33:29]
Ryan Henderson
Probably a couple hundred million different, right? I mean, the pricing is localized, right?
- [33:33]
Brett Schaefer
At those prices, they can't wait.
- [33:37]
Ryan Henderson
What do you mean?
- [33:38]
Brett Schaefer
Like there's a million active customers. I'm saying in a lot of these poor, poor countries, like the addressable market of customers is not the entire population by far. It's probably 10, 15%. There's just so many, frankly, poor people out there worldwide.
- [33:58]
Ryan Henderson
Sure. But I mean, Grab had to buy Uber's business for a reason. Like it was a. It had a lot of market share in Southeast Asia, which was one of the lower income areas. Some of those countries were.
- [34:11]
Brett Schaefer
Yeah, I mean, there's definitely room to grow from 200 million for sure.
- [34:14]
Ryan Henderson
We've gone long on this one. Let's get to your second stock.
- [34:17]
Brett Schaefer
Let's see, what do we have here? All right, this is one you can talk about for maybe in an hour if you wanted to. It's pretty complicated business, but I'll keep it short. It's new holdings, new bank tickers. Nu. This is a stock I'm actually going to be covering with a full research report on emerging moats later this quarter.
- [34:32]
Ryan Henderson
Oops.
- [34:33]
Brett Schaefer
And my headphones accidentally hit my headphones out there. So nubank, they fascinate me because of their speed of customer acquisition. It's gone from just 3 million active customers at the end of 2017 to 109 million at the end of 2025. And this combination of, I think poorly operated banks in Mexico, Colombia and Brazil, which are the three places they operate, combined with smartphone usage and digital payments adoption, has been kind of a lollapalooza, maybe is the right term, tailwind. That's been a huge opportunity for companies like New bank to fill. And this is why it's been one of the big winners in the space. The bank mainly makes money from interest income, you know, credit cards, personal loans, and then fees on credit card or debit card swipes, as well as from additional products sold to customers who are not that are not within the lending business. And like most digital banks, it has lower overhead costs that has enabled superior ro return on equity while giving customers what they want, which is access to credit, you know, saving time, membership benefits, for example. This is the one I like the anecdote. I like to use the traditional banks in places like Mexico, Colombia and Brazil will, if you have, they'll force people to go to a branch to get money, take cash out. There's going to be exorbitant fees on your ATMs that work half the time. It's terrible. And they'll make people wait an hour in line to to get any sort of service. It's ridiculous. And the hurdle to a better business model was so easy, which is why a company like nubank succeeds now with greater scale, I think nubank will be able to leverage its overhead costs in these three core markets again. Brazil, Colombia and Mexico. It does spend a lot on marketing, but it was actually only $246 million in 2024 versus over $8 billion in revenue after credit losses in that same year. We don't have the 2025 numbers yet. I don't think the 20F was out, or at least I couldn't find it. And I think this is really astonishing efficiency and shows how starved the Latino market is for workable banking solutions or were starved before Mercado Pago and new banks showed up. I think a good metric to use again for them is monthly revenue per active customer, which has continued to climb. This along with steady customer growth in Mexico and Colombia, they're already half of the population in Brazil, but Mexico and Colombia, they're at about 10% and can keep grow. That can drive revenue growth for really years to come. You can sprinkle in some call options from the US expansion, which is a bit uncertain, but you know hey, there could be some opportunity there. And then you could have some other Latin American markets that they could expand to. And I think this will be a much larger business in five years. If we look at consulted net income. Oh gosh, I had a screenshot. That's small. I think we're at $2.8 billion versus in 2025, versus something like $15 billion in revenue. And net income has scaled up from about break even. And they've gained a ton of leverage on that. So I think that leverage will continue. Again, they're not spending that much on marketing to require or acquire and retain customers. It's a lot on regulation, setting up this stuff in local markets, getting the banking license, which should scale because it's just a pure smartphone application that really the software is going to be the same country to country. You just have to change the language. I think revenue after credit losses could reach $25 billion within a few years and net income could honestly reach $10 billion. That's not out of the question. And the stock trades at a $70 billion market cap. Again, on current net income, it's not that cheap. You have to expect a lot of operating leverage here, which might be the wrong term for a bank, but I think listeners understand. But if you think that net income can get to $10 billion like I can over a five year period, feels pretty cheap to me. Even though it's a bank and they just have executed perfectly. Really, really hard to find. Besides the fact that they're lending to maybe we mentioned like poor customers in places like Brazil and Mexico. That's what they target kind of the underbanked population. Yeah, that's maybe the biggest flaw of their business model that could pop up and create some headwinds if they go through a rough patch. But besides that, it feels very, very cheap to me. And they've executed flawlessly over the last decade.
- [38:49]
Ryan Henderson
Yeah, this is one that I was hoping to have on my list today. But I gotta get to the doc first.
- [38:54]
Brett Schaefer
Gotta get to the doc first.
- [38:55]
Ryan Henderson
Brett had it in there. So five years ago, Nubank had $5 billion in customer deposits. Today they have $42 billion in customer deposits. So you can see how much money they are attracting to their app. For context, Banco do Brasil, which I think is one of the largest other banks, traditional banks in Brazil.
- [39:22]
Brett Schaefer
There's also like, there's always, it's always just the bank of Blank, bank of Brazil, bank of Chile, bank of Argentina, bank of Mexico. Yeah, just they're gonna have a terrible customer experience from yeah.
- [39:34]
Ryan Henderson
Banco DE Brazil has 170 billion in deposits. So I mean, there is still a lot of low hanging fruit, I imagine. And what kind of interest is Banco Do Brazil giving to their customers? I would guess it's extraordinarily low. This is like, feels like the oldest playbook. Like just give more to customers. Classic innovators dilemma, essentially. I like nubank as well.
- [40:00]
Brett Schaefer
You want to hear an anecdote? I was in Colombia and Banco de Colombia just stole my money. Like I deposited it and it didn't show up in my account. No, I got to use the ATM and it's like, oh, it's malfunctioning. Wait, oh, I can't get my money back and there's no one there to help you. I was like, this is 30 bucks, 40 bucks. I'm not going to wait an hour. Long line. Yeah, that's, you know, you can see why Mercado poc on new banks succeed. All right, let's keep it moving though. Ryan, your third one here. We're going to move into a stock I've owned. Again, not, I don't own it right now, but it's one of our Mexican airport operators.
- [40:38]
Ryan Henderson
Yes. I mentioned at the top of the show I wanted to have a balance of durable physical businesses along with some of the digital ones. I've now given two digital businesses. So this is about as durable as you can get. I think airports are extremely durable businesses and I probably could have taken any of the Mexican airport operators that I don't own, but I just decided to go with this one. So this is Pacifico Airports. Technical name is Grupo Aeroportario del Pacifico, but we're going to call it Pacifico. They operate 14 airports in total, the biggest ones being in Guadalajara, Tijuana, Cabo and Puerto Vallarta. It's worth noting Tijuana. Part of the reason it's such a popular airport is because a lot of people who are flying to San Diego actually fly through Tijuana and then they take the pedestrian bridge across the border.
- [41:33]
Brett Schaefer
That's my brother's hack. Half the price is what you. You park your car in San Diego, walk across, it's beautiful.
- [41:41]
Ryan Henderson
And it's probably going to continue to be a boost to travel for Tijuana because I've read a lot of, there's like a lot of environmental restrictions for San Diego for expanding their airport. So they're not, they've been limited in how much they can expand, which for extra travel.
- [42:00]
Brett Schaefer
NIMBY bulkheads. Well, again, we don't have Much time. But the location of the San Diego airport is not ideal for expansion. It's like in the middle of the city.
- [42:11]
Ryan Henderson
Okay, yeah, well I imagine that bodes well for the Tijuana airport and Pacifico specifically. Anyways, we have talked a lot about airports on this show. If you're a regular listener, you know that I love these business models. They are natural monopolies. We just talked about it. It's hard to a, it's hard to expand airports, it's hard to build a second airport in most cities. I mean I think oftentimes you literally can't, you don't have, don't have the rights to or whatever. And the airports have, specifically the Mexican airports have built in price escalators into their contracts for the aeronautical revenue. So the airlines, they have agreements with the airlines that say basically your toll fees are going to go up whatever 5% or I think it's inflation linked. So good inflation hedge there, the non aeronautical side. So think about like the shops in the airports, they're unregulated, but Pacifico in their contracts with the third party merchants have built in price escalators. Again, so lots of pricing power. Given the limited geography for these airports, this is why they've sustained above 50% operating margins for a decade. And then on top of the structural benefits of just being an airport, I'm pretty optimistic about Mexico generally. I think traffic, both business travel and tourist travel will continue to grow. Mexico, we've talked about this before, has a great population age pyramid and the average income per capita continues to rise, which makes me think travel domestically will continue to grow as Mexicans have more discretionary spending. And then beyond that, I think tourism will be rock solid because it's hard to replicate the Baja Peninsula. It's harder for someone else to build that. So side note, Guadalajara is one of the host cities for the World cup, which I think could be a little nice boost to travel come. What would that be? Q2, Q3. So maybe we get a slight elevation there. The EV to EBITDA is 12 times for a business that has increased EBITDA by 14% a year for a decade. I think that seems very reasonable and I think it's just really hard to go wrong owning any of the Mexican airports.
- [44:30]
Brett Schaefer
Yeah, we have a nice chart here of group operating income from specifically our personal friend at fiscal AI. I should mention again fiscal AI chitchat get 15% off any paid plan. I mean it's just up outside of the pandemic, up and to the right. There's currency fluctuations, of course. But hey, it's a pretty darn good business. And for anyone that's doubting the World cup stuff I was looking at for stock that we both own, that would be on this list, but we already own it. Grupo Omab, which is the one that owns the Monterey Airport, and they had, I think, a qualifying game between Iraq and Bolivia. And the city seemed to be flooded with people from Iraq, which is extremely far away. So they had to fly in and think about that's a qualifying game. It's not just the people going to the match. It's a lot of people going to the city to be. And these are again, going to be richer customers because the tickets are extremely expensive. Only certain people can afford to fly. So anyone that doubts the little tailwind there, that there could be in 2026, I think maybe, maybe rethink that. All right, that moves to mine. The other Mexican airport operator that I've never owned, Grupo Aeroporto. So I'll just call it the Southern Airport Operator in Mexico, or Azure, maybe, maybe not, because Azure is Microsoft Azure. Well, we'll call it the Southern Airport Operator. But unlike Grupo Omab or maybe even Group of Pacifico there, this is a company that has reinvested in new airport concessions to just diversify away from now being just a Mexican airport player to a full Latin American airport operator. They've been a huge winner. I mean, just look at the total returns of some of these stocks. They've been a hundred baggers since going public pretty much in 2001, which has been a total return CAGR of 20% per year for over two decades. Ryan mentioned why these are great businesses, so maybe I'll just move on to talk about what they do specifically. You have three different regions before their recent acquisition, which I'll talk about later. You have Mexico, Colombia and Puerto Rico. Total traffic in 2025 was 71 1/2 million people. Coming from Cancun, number one place, 29 million total airport passengers. That was down 3 1/2% year over year. There's San Juan, Puerto Rico, which had a total of 13.6 million passengers. And then Medellin, Colombia, 11.2 million total passengers. These three cities make up 75% of Azure's traffic. Medellin for the last few decades has been, you know, it's gone from being the most dangerous city in the world to a place that a lot of people go for tourism now. So there should be steady growth there, especially if the Colombian economy keeps growing. Cancun, there's a bit of a risk because people are nervous about Cancun peaking. It's just been. There's so many tourists there that there's just fears. It's. It's an entire tourist place. There could be replacements other, other, you know, in other areas across the Caribbean or, or Mexico, especially for American, European, Canadian tourists and tourists from all over, really. You talk to people in South America, they, they want to go to the, the Yucatan Peninsula. But I still think it's a good asset. But it's one where it has been like the fears, I think are justified for Cancun being such a large percentage of the portfolio. Which brings us to a recent decision they made that I think should it. Maybe it gets me a little more excited about owning, potentially owning the stock. And it's a blockbuster acquisition of different airports from a company called Motiva. The, the name doesn't matter, but they have stakes in airports from Quito. It's the capital of Ecuador. San Jose, Costa Rica, Curacao and a few Brazilian airports combined they did 45 million passengers in 2024. The price was only 10 times EBITDA from Motiva's share of earnings for these airports. They're not the best, you know, airport assets. I mean, Quito, it's not, it's not Cancun. This isn't necessarily known as a travel destination. It's had safety issues in recent years. These aren't also the best Brazilian airports. You don't have Sao Paulo or Rio de Janeiro. But 10 times EBITDA is very cheap for a business that could see, I think, a general travel tailwind if these economies grow. And then overall pricing power, as we've talked about many times from airport operators, plus you were diversified more from this Cancun travel risk. The purchase price was $2.56 billion in USD, which Azer is going to finance. With cash on hand and debt. We can see from this chart I have, and anyone can look it up again on fiscal AI, that their net debt has gone from negative to positive. But if, I mean, they were at what. What am I Negative net debt. Yeah. So they had, they had a net cash position going into this acquisition and now they have about $1.1 billion compared to 1.1 billion in EBITDA before this transaction. So it's not like they're over levering their balance sheet to acquire these businesses. You can add in some EBITDA from the acquisition, about 2,250 million dollars and we can probably get to $1.5 billion in annual EBITDA sometime soon. You know, as long as these assets keep growing and they can be run more efficiently at greater scale. The stock is currently trading at below $12 billion on an enterprise value, so you could be at sub eight times maybe for 2026, maybe 2027. If it takes a little longer to integrate, I think that's not bad. And it could be great timing if Airports get hit with this oil scare
- [50:02]
Ryan Henderson
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- [50:30]
AI is incredible. It can teach you how to fry an egg and even write a poem pirate style, but it knows nothing about your work. Slackbot is different. It doesn't just know the facts, it knows your schedule. It can turn a brainstorm into a brief. And it doesn't need to be taught because Slackbot isn't just another AI, it's AI that knows your work as well as you do. Visit slack.com meetslackbot to learn more. Yeah, these businesses, I think they are rock solid. All of them, all the Mexican airport operators. And the other part, you know, you talked about these not being sort of the tier one airports or the tier one cities that they're expanding into. I tend to think like, I feel like global travel is just going to continue to outpace like expectations.
- [51:25]
Brett Schaefer
Unless oil goes to 200 for an extended trip.
- [51:30]
Ryan Henderson
True. But I think if you look out 10 years, you're going to get really solid global travel growth.
- [51:38]
Brett Schaefer
Yeah, just think about the San Jose airport in Costa Rica. It's probably the only big one there. A lot of people like going to Costa Rica from the United States and Canada, among other places. Yeah, I think that's just going to keep growing.
- [51:51]
Ryan Henderson
Yeah, this actually made me the airports might be at the top of my list. From this list specifically.
- [52:00]
Brett Schaefer
All right, well, our last ones are not just airports and we'll try to go through quickly. So we don't go for two hours on this episode.
- [52:07]
Ryan Henderson
Yeah, let's move fast here. My fourth one. It's. It's a bit redundant because I already picked Uber, but I'm going with another ride sharing marketplace grab. So we've done a full episode on this one as well. But it's basically the Uber of Southeast Asia. It's kind of what it's been referred to as. It's also Uber is the largest shareholder in Grab and Dara, the CEO of Uber is on the Grab board of directors. So a little bit of ride sharing inception here. Anyways, for those unfamiliar, grab is the uber+doordash/instacart in Southeast Asia. So they started as a mobility service, a ride sharing very similar to Uber. One one minor difference that I would call out is they actually rent the cars to their drivers. So Grab will partner with auto companies like BYD or Hyundai and they'll buy or lease fleets that they then sell or rent to the driver. So I don't think it's meaningful for them financially. They're probably doing this basically at cost, but it helps them increase supply of drivers because that would be one of the biggest barriers is someone that wants to offer rides. Get on Grab, start earning income. Maybe they don't have a car, don't have a vehicle. Grab helps them finance that. So this business is pretty mature. The mobility side of things. It's at 50% EBITDA margins. They are the leader in seven out of eight of the Southeast Asian markets. The only one that they are kind of neck and neck is with Gojek in Indonesia, which is the largest population wise. So anyways, second business for them is deliveries. Again similar to UberEats. Actually it was Uber Eats for a while. So they got into this business because in 2018 they acquired Uber in Southeast Asia and it was this big transaction that gave Uber the stake in grab. So UberEats had already kind of done the heavy lifting in terms of getting the merchants onto their platform. And then Grab just kind of progressed the business from there. They already sort of had the lead to begin with. They've expanded into grocery delivery as well, and even parcel delivery. So like last mile parcel shipments, this is the largest revenue contributor, but it's slightly lower margin than the core mobility business. So I do think eventually this will probably be biggest in terms of profit contribution, but we'll see. And then the last One here is GrabPay. So this is where people kind of think like, why on earth are they in fintech? It seems like every tech company wants to be in fintech, but they kind of started this in the same way that MercadoLibre started Mercado Pago, which was they needed it basically. So in the early years, payment methods between drivers and riders was a big issue because the region was heavily cash based. So in 2016, Grab introduced Grab Pay, which allowed both the drivers and riders to have a secure cashless payment system. It was particularly helpful for drivers because they would hold a bunch of cash in their cabin or their car and they'd be the victims of theft over and over. So this was very much a solution to a specific problem. But it's now kind of graduated to buy now, pay later, merchant financing, auto loans for drivers, working capital loans and some others. So this is probably the biggest question mark I have is like, how, how. What is the end state for this business? Like is, are they becoming a bank? Do I need to figure out what default rates are going to look like for all these loans? But why do I like this business? I think they're operating in basically a winner take all or a winner take most industry. And they are the winner for most of their regions. If you want food delivery, you go to the platform with the most restaurants. You want to ride, you go to the place with the cheapest rides, which is usually the one with the most drivers. That's Grab. It's one of those self reinforcing network effects that I've talked about on the show a bunch. But I really like these because it allows them. The network effect allows them to get to profitability or control, sort of their own destiny. They can naturally grow without having to pour money into marketing. And you've seen that they've gone from. It's the ideal operating leverage chart for anyone that's trying to visualize it where they were just hemorrhaging money and now this last two quarters, trailing 12 months they've had GAAP operating profits. So EBITDA. EBITDA 40 times looks expensive, but EBITDA margins are just now turning the corner. So you should see a big inflection there. I like it. I think they've got the guiding hand of DARA on the board too, who has gone through the journey that Grab is trying to go through to profitability while keeping stakeholders happy. I mean they've done, they've done that well. So I like this business.
- [57:20]
Brett Schaefer
Yeah. And it might be even cheaper than Uber. And if you're worried about the AV risk, like I am probably less so in these markets.
- [57:28]
Ryan Henderson
Yeah. Gonna be tough. I think, like if you go to some of these markets, I think you'll see what I mean. A lot of these are motorcycles, by the way.
- [57:39]
Brett Schaefer
Or like. Exactly. Yeah, yeah. You can buy and just hop on the back. Yeah. That's the thing. You haven't lived until you bought a $2 one. I'd never do it. I bought $2 motor ride. All right, let's move on to my fourth one. It's one I've covered recently and I'll be quick here. Anyone wants more details, we did a defense stock episode that covers it a little bit more in depth. It's called Leidos Corporation. It's a stock we've covered. They do they operating extremely boring stuff software for defense and other government agencies such as Veteran Healthcare. I already feel the listeners falling asleep. The Stock is down 20% from its highs. I think they had a revenue miss last quarter. It was a 4% decline. Some margin compression. But if I look at bookings, I really see no concern. There might be some lumpiness just in contract stuff. Here's a quote from the press release. Net bookings total $5.6 billion in the fourth quarter and at $17.5 billion for 2025, representing a book to bill ratio of 1.3 and 1.0 respectively. As a result, our backlog at the end of fiscal year 2025 was $49 billion. Revenue was $17 billion last year. It's grown in the double digits over the last 10 years. And again you have that high level of backlog versus revenue. I think there should be pricing power across all these type of contracts. It should be sticky. You should be along for a long around for a long time. It's also working on intelligence software that should be a growth avenue and hypersonic missile software, which should be a really big growth avenue in the years ahead. The government is proposing a $1.5 trillion defense budget and a larger growth for things like the Space Force and Golden Dome, which would be a huge jump if implemented. Operating margin has expanded a little bit for them coming out of the pandemic, but I think at only 12% the business is not at a huge risk of margin compression over the long term. We're at a PE of 16 and a half EV to EBIT 11.5 and they buy back stock consistently. I kind of think you get a good return going forward here. Like this is not going to be your 100 bagger, but maybe over a 30 year period, which is fine, but still. Look, I feel like it's really, really hard to lose with this thing if they keep powering, hammering home the buyback even if the stock falls.
- [59:55]
Ryan Henderson
Yeah, this seems like one of those super boring companies that operates in a niche niche of a niche that no one cares about that's going to produce better than market returns and it's probably one that's very easy to own. Like they don't make you think too much on a quarterly basis would be my guess. I'm going to move to my fifth one because we don't want to go too long for listeners, I guess. Any other thoughts on Leidos?
- [60:27]
Brett Schaefer
Nope. Let's keep moving. Close it up quickly.
- [60:29]
Ryan Henderson
Okay, so my fifth stock is American Express. I was thinking about going with Ferrari or Hermes because they're both in big drawdowns.
- [60:37]
Brett Schaefer
Ooh, Hermes would have been a good one. Forgot about them.
- [60:40]
Ryan Henderson
Yeah, they've moved up my watch list for sure. But I think as I was kind of forecasting growth, I would guess that American Express is going to grow faster than Ferrari or Hermes from here and it trades at a cheaper multiple. So it's a little hard to justify picking the other ones.
- [60:57]
Brett Schaefer
A little more terminal value risk, but maybe we can talk about that
- [61:01]
Ryan Henderson
potentially. Yeah. So, yeah. Anyway, American Express stock is in 20% drawdown. It's still been a great last five years for them. They're up 122% total return. A good chunk of that has been driven by multiple expansion. Not all of it. The performance has been really good too. But if you go back to American Express five to ten years ago, I think the brand was, I would argue not. It was different. I wouldn't say it was not as strong, but it was different. It was seen, I think as a lot more for ultra rich or like the wealthy. And a lot of people would say like American Express isn't accepted everywhere even though like it was accepted in most places. But there was kind of a stigma around American Express not being accepted. Maybe I'm misremembering the time frames, but I know that was a common thing and people would complain about that like, oh, be careful with American express, you
- [61:57]
Brett Schaefer
know, 10 to 15 years ago.
- [61:58]
Ryan Henderson
Yeah. Today merchant acceptance rate is equal, is virtually equal to Visa and MasterCard. It's pretty much everywhere. I can't remember the last time I went to a place where they didn't accept Amex. And B, the second point here, they've added 40 million new cardholders which for pretty much a decade they added no cardholders up until like 2019. And now they've added 40 million new ones while still maintaining an aspirational brand. And I think the second, I think that is really important because it's hard to do if you introduce, if you've had a hundred million cardholders for a decade and all of a sudden you add 40, 50 million new cardholders in the span of three or four years. There's a lot of risk that you erode your brand, that maybe it's not seen as, as aspirational anymore. But American Express, I think, has done a good job bridging the gap. The example that I hear often is people will say like, oh, American Express is dead now. Their lounges are always packed, the lines are too long, and all that tells me is there's more pricing power. I mean, they, they can continue to make it harder to get into the lounges. And for people that aren't familiar with how they've done this, they've tiered out their card structure in a way where you can become a cardholder and kind of get acquainted with the American Express ecosystem of products without having to pay $1,000 a month or what is it, $1,000 a year?
- [63:36]
Brett Schaefer
895.
- [63:38]
Ryan Henderson
Is that the highest tier?
- [63:39]
Brett Schaefer
Yes, that is the highest tier, yeah.
- [63:42]
Ryan Henderson
So you can get entry level American Express products, but if you want all the benefits, all the lounges, priority, the stuff that makes you feel special, then you start to have to pay up. And if you look at their business, the average fee per card has increased every single quarter for basically a decade. And now average fee per card, I believe, has grown at 12% a year for the last six years. So tons of pricing power there. And they've been able to grow their cardholder base in the process. So that kind of shows you how well they've done at bridging the gap here. By the way, they also, for anyone less familiar with the business, they earn, they own kind of the full stack compared to other cardholders. So they earn swipe fees, they earn subscription fees for having their cards, and then they earn carried interest on their interest on carried balances as the actual underlying bank. Today they try to trade at a price to earnings just under 20 times earnings per share has grown at 12% a year since 2019. I think they'll be able to keep that up again. Obviously. I wish I was getting it cheaper, but I would not be upset owning it at these prices.
- [64:56]
Brett Schaefer
Yeah. The one downside that I think makes a little sense, but I believe they have the moat to insulate themselves from this threat, given their membership program. It's really just like a travel and entertainment membership ecosystem, I'd say, especially if you, if you have a city that has. How I like to think about it is if you have a city with one of their lounges and you fly like five times a year, it's probably worth it, honestly. Like if you just want to be value Investor oriented and not care about the actual card. The, the one downside though is the rise of people not accepting or, or adding in different credit card fees as a merchant, that type of stuff. Or people talk about stablecoins. People talk about a lot of different things that could disrupt the card charge fees. I think that could happen over the next 20 to 30 years, something like that. But there's ways they'll be able to adapt and I think they'll still have the membership ecosystem.
- [65:59]
Ryan Henderson
I'm not a believer in the stablecoin risk honestly. I've thought about it a lot for a number of my holdings and the no. 1, no one seems to have the solution for the off ramps which, yeah,
- [66:11]
Brett Schaefer
that's a totally stable coins. I don't think disrupts Amex, but I feel like if there's more of, hey, you get a 5% surcharge if you use a credit card versus X solution, whatever it may be, debit card, what have you. I think that could be a headwind for them because you see that pop up more now and again. But sometimes if you get 3% cash back, you're like, yeah, whatever. I don't know, maybe we're to say that, I don't know, maybe if you're pinching pennies, you might think about that. But yeah, that's kind of. I think that's the one risk.
- [66:53]
Ryan Henderson
Okay, let's move to the last one for the day and then I've got some questions to wrap up.
- [66:58]
Brett Schaefer
All right, this is one we haven't talked about in a long time. It is Hagerty. It's a small cap who's actually CFO made, maybe old CFO now we actually had on the podcast like five years ago. Hagerty is a specialty car insurer for collectibles. So limited edition items, benches, vehicles, stuff like that, projects people want to do. Hey, I got this classic 1965 Chevy something. It also operates a membership model that gives people roadside assistance, discounts and access to experiences. And now is expanding into a marketplace for auctioning off vehicles within its niche. Growth has been very solid. Total written premium up 16% annually since 2018. Loss ratios are pretty stable. And marketplace. Marketplace revenue has gone from Nothing to over $100 million in just a short period. Net income has grown as it ditched some weak ancillary businesses to focus on insurance, membership and auctions. That's what I kind of see as the three things they're focusing on. It was $140 million in 2025 stock trades on a market cap of $3.65 billion or a PE of 26. However, looking forward a few years, it may be cheap. They just made a deal with Markel, its partner, to stop seeding premiums to the company and is now going to take 100% of the risk and earnings of underwriting itself. I think this is a smart move given how durable this model is. And really the beauty of, of insuring specialty cars is that people take extreme care with them. And there's just the loss ratios aren't that bad. As a part of this deal, Hagerty is going to report an accounting loss this year, but it expects to grow premiums by 15% year over year and post adjusted earnings of $240 million. I think double digit growth and the potential diversification of the marketplace model, which is growing 80% year over year last quarter, leads them to, I think to get a PE closer to 10 faster than we think versus the current market cap. I don't love the price today, but I think if you're a believer in the marketplace, it keeps growing and kind of over a three year period you see that net income trajectory. As we get to the other side of this Markel deal, I feel like earnings are going to grow extremely quickly. PE comes down, it's a great business. It's kind of a monopoly player in its niche, I think. And I feel like it's durable.
- [69:18]
Ryan Henderson
Yeah, yeah, I like this. I checked. It is a, I believe, a former, former CFO that we had on the podcast. So it's been a while, maybe a
- [69:29]
Brett Schaefer
little yellow flag, a lot of executive turnover, but they've changed their strategy quite a bit. They were spac, a lot of stuff going on, you know, could be a nice story for people that want to dig in deep and actually look at the true fundamentals of the business.
- [69:43]
Ryan Henderson
Yeah. Since we're running up on time here, we have now discussed 10 companies that we would be interested in if we were rebuilding our portfolio from scratch. I'm going to go through these just one more time so everyone remembers. We've got wix, Amazon, Uber New Holdings, Grupo Pacifico, Airports, the Southern airports, both Mexican airports, Grab Holdings, Leidos, American Express and Hagerty. Brett, of the five that you had, what would you feel most inclined to add a position to today?
- [70:23]
Brett Schaefer
Southern airports would be number one. I think the price is pretty good because people aren't really looking at what the pro forma Ebitda could be over the next few years.
- [70:37]
Ryan Henderson
All right, of the five I had, which would you be most?
- [70:41]
Brett Schaefer
Let's See, I'm trying to remember. I, I might say.
- [70:43]
Ryan Henderson
Can't say the airports again.
- [70:44]
Brett Schaefer
I might say Grab. I might say grab. I think people probably. And then, well, I've owned Wix so I can't talk. I can't choose them. But I probably, I probably would put them on the list. They're on my watch list for sure. I like Grab because I think that profit inflection chart is probably getting underrated. People just go, ah, it's trading at 40 times earnings. Why. But you look at that, their potential for margin expansion seems pretty robust.
- [71:11]
Ryan Henderson
Yeah, I like when companies are just turning the corner because I think you get a lot of people just discarding it on valuation. For me, of the five I had, I might be with you on Grab. They just made a big acquisition though, which kind of complicates things. But Grab might be up there of year five. I think I would go with New bank.
- [71:37]
Brett Schaefer
You gotta love new bank. I just saw a tweet that 50% of like I don't. I hate calling them just poor people, but whatever. The lower incomes in Brazil are defaulting on loans so maybe, maybe there's a better buying opportunity that's going to materialize. But yeah, like that's the one risk to the business and but I do like it. I mean they're growing active customers. They seem to have good underwriting models. It's one to watch. I've never owned it, but I could definitely own it in the future and later this quarter. As a free advertisement for our own festive research, I guess I'm the one writing it, but on emerging moats, the link is in the show notes. I will be doing a full research report on new holdings. Ryan, anything else before we get out of here?
- [72:21]
Ryan Henderson
Nope, that's going to do it. We went a little long for this episode. Hope everyone enjoyed it. Thank you to the I believe is anonymous subscriber in the chat for recommending this prompt. This was really fun. Before we get out of here, one more shout out to portfolio tracking tool portcido. Check out portcido.com p o r t s e I d o dot com and then if you want a research terminal fiscal AI chitchat gets you two weeks free automatically so you can check it out and 15% off any paid plans and interactive brokers as well. For being the best brokerage platform, we want to remind listeners that Brett and I are not financial advisers. Anything we say or discuss here on Chitchat Stocks is not formal advice or recommendation. We may buy, sell or hold any of the securities discussed in this podcast. Thank you everyone for tuning in and we'll see you next time. I finally had a light bulb moment about a stock we've all heard about growing at 18 a year and a 15 pe. I shared this insight in a special Deep Dive report to subscribers of my research service, Value Spotlight. The report is called a Generational Moment Reigniting human connections through a tangible network of intangible assets. Chit chat listeners can get a discount to my research@stockwriteup.com that's stock W R I-T E U P.com your next chapter
- [73:59]
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