Podcast Summary: TIP690: Top Stocks for 2025 & The "Buy" List with Eddy Elfenbein

Release Date: January 10, 2025
Host: The Investor’s Podcast Network (Clay Fink)

Introduction

In this episode of "We Study Billionaires," host Clay Fink welcomes back Eddie Elfenbein to discuss his renowned Buy List for 2025. Eddie, the brain behind the Crossing Wall Street blog and the Advisor Shares Focused Equity ETF (CWS), has consistently outperformed the S&P 500 since 2006 by selecting 25 high-quality, equally weighted stocks each year.

Buy List Strategy

Eddie Elfenbein shares his disciplined approach to selecting annual Buy Lists:

• Equal Weighting & Annual Rebalancing: "We pick 25 stocks for the year, all equally weighted, and make changes only once per year" (02:19).
• High-Quality, Undervalued Stocks: Focus on companies with strong market niches, consistent operating histories, rising sales and earnings, and attractive valuations.
• Long-Term Perspective: "We hold each stock for an average of five years," emphasizing patience and discipline (04:36).
• Selective Changes: Annually, five stocks are added, and five are removed, ensuring a balanced and thoughtful portfolio.

2024 Market Insights

Reflecting on 2024, Eddie observes a market dominated by a select group of large-cap "Magnificent Seven" (Mag 7), starkly contrasting with the broader market:

• Market Dominance: "The Mag Seven have dominated Wall Street to an unusual degree," highlighting their outsized influence compared to the rest of the market (05:35).
• Resilience Against Recession Fears: Contrary to widespread predictions, the U.S. economy remained robust with an estimated GDP growth of 2.8% in Q3, and recession fears did not materialize (05:35).
• Market Performance: "The market had two of the best back-to-back years on record, sailing past the scary headlines" (07:07).

Top Performers of 2024

Eddie highlights the standout performers from the 2024 Buy List:

• FICO: Up 77%, continued its strong performance from the previous year.
• Miller Industries: Up 59%, a small-cap, underfollowed company that saw significant growth.
• Fiserv: Up 58% and noted as a "biggest winner" due to unexpected performance.
• Amphenol: Up 44%.
• HEICO: Up 34% (07:07).

Notable Quote:
"I believe the best stock to own is one you already own." – Eddie Elfenbein (10:54)

Patient Investing

Eddie underscores the importance of patience in investing:

• Long-Term Gains: Emphasizes waiting several years to realize gains, aligning with Peter Lynch’s philosophy.
• Emotional Discipline: "Fight your emotions; they’re going to make you a poor investor" (10:54).
• Holding Quality Stocks: Advocates for holding strong, undervalued companies despite short-term volatility.

Handling Mistakes

Eddie openly discusses his portfolio's underperformers:

• Celanese: Dropped over 50%, deemed a "dreadful stock" due to diverging from the original investment thesis.
• Polaris: Suffered due to unanticipated interest rate impacts on a financially leveraged company (12:02).

Key Takeaway:
“It's important to learn from your mistakes,” emphasizing transparency and continuous improvement (13:16).

Stock Additions and Removals

Eddie elaborates on recent changes to his Buy List:

• Adobe Added: Despite a significant run-up, Adobe remains attractive due to its strong market position and recurring revenue model. "Five years from now, people are still going to be using Adobe products" (15:36).
• Allison Transmission: Up 93% year-to-date, recognized for dominating its core market with a reasonable valuation and low analyst coverage. Highlights the value of investing in "boring businesses" with strong fundamentals (19:19).
• HEICO Maintained: Despite high valuations, he remains confident due to the company's robust market position and management quality. "Strong companies are able to routinely make up for elevated valuations" (22:25).

Balancing Macro and Fundamental Analysis

Eddie discusses integrating macroeconomic awareness without letting it overshadow fundamental investment principles:

• Interest Rates and Market Cycles: Analyzes how short-term interest rates influence the value and growth stock dynamics.
• Diversification Across Market Segments: "Defensive stocks, value stocks, and growth stocks all perform differently depending on economic conditions" (24:39).
• Risk Measurement: Focuses on how the economy impacts different market segments, avoiding broad, unfocused macro strategies (30:24).

Managing the ETF

Eddie shares his experience with the Advisor Shares Focused Equity ETF (CWS):

• Creation and Growth: Partnered with Advisor Shares in 2016 to offer an investable product based on his Buy List strategy.
• Performance and Recognition: Achieved a five-star rating from Morningstar, positioning CWS in the top 30% of ETFs.
• Accessibility: Allows investors to own a diversified portfolio of the annual Buy List’s 25 stocks for approximately $66 per share, compared to needing $4-5,000 to purchase individually (34:19).
• Investor Loyalty: "Surprised that it's a very sticky fund," noting strong investor retention even during downturns (41:00).

Conclusion and Further Resources

Eddie directs listeners to additional resources for deeper insights:

• Blog and Substack: Accessible at crossingwallstreet.com and cws.substack.com for regular market commentary and premium content.
• ETF Information: Detailed information about CWS is available on his blog, including Buy List specifics and quarterly summaries.
• Engagement: Encourages joining his ETF and following his investment strategies for sustained performance.

Clay Fink’s Stock Pick: Lumine Group (LMN)

In the final segment, Clay Fink outlines his recent investment in Lumine Group:

• Company Overview: Lumine, a spinoff from Constellation Software, focuses on acquiring vertical market software businesses in the media and communications sector.
• Investment Thesis: Emphasizes Lumine's strategic acquisitions, high return on invested capital (20-25%), and strong management incentives aligned with shareholder interests.
• Valuation and Growth: Despite a high PE ratio of 45, Clay believes Lumine's quality and growth potential justify the premium, projecting sustained intrinsic value growth.
• Strategic Advantages: Lumine’s focus on mission-critical services and diversified customer bases positions it well against economic downturns, enhancing portfolio resilience (43:40 – 54:29).

Notable Quote:
“I think it’s just better to enter a high quality name and average in over time rather than waiting for bargain prices that might never come.” – Eddie Elfenbein (27:51)

Final Thoughts

Eddie Elfenbein’s disciplined, patient approach to stock selection through his annual Buy List and ETF offers investors a structured path to outperform the market. By focusing on high-quality, undervalued companies and maintaining emotional discipline, Eddie provides a replicable strategy for long-term investment success.

Learn More:

• Crossing Wall Street Blog: crossingwallstreet.com
• Substack Newsletter: cws.substack.com
• Advisor Shares Focused Equity ETF (CWS): Available through major brokerage platforms
• TIP Mastermind Community: Join the waitlist at theinvestorspodcast.com or email Clay at clay@theinvestorspodcast.com

This summary is intended for informational purposes only and does not constitute financial advice. Always consult a professional before making investment decisions.