5 Interesting Value Bets From Investing Quadrant

Good day fellow investors. We did the quadrant with a dozen interesting situations or buys, depends on how you want to call them. We still have the bets part of the quadrant to discuss to see whether there is something that might spice up your portfolio with asymmetric risk and reward. Thanks everybody for the 54,000 views in the four days on the quadrant video. Let's go now to the bets and start with Constellation Software. We have discussed this in this video yesterday a little bit more in depth, but I think this is not an AI issue. It's more a business model of aggressive M&A and the true value there, the organic growth is not justifying the prices paid and therefore I'm not even considering this a bet anymore, a safe bet or an interesting bet as long as the price is where it is. Maybe if it falls 50%, but then again it's hard to know what's behind the numbers. So, that one is out. I'll be cleaning a little bit and just stick to the very interesting bets to give you a little bit more of clarity. Next one that we discussed over the last year is Adobe and what can we say here? Money made 50% up since the last time we discussed we discussed it already at 270 where we are now. So, yes, Adobe is a buy, but mind the risk and reward with portfolio exposure. Then when it drops as it did drop, you have to add, now maybe rebalance and now we are here where we were just six months ago. So, now the story is, okay, what kind of a bet it is now? We powered up Excel to see what's the value of Adobe. You can download this template intrinsic value template, in the links in the description below on my free value investing course. Adobe, here it is. You simply click here, and I have used the true earnings, not adjusted for stock-based compensation. At the high single-digit growth rate, a P/E ratio of 15, the intrinsic value is closer to the price we have had recently, but far from the current price. Of course, if we push growth just a little bit higher to the low double digits, P/E ratio of 20, then Adobe is severely undervalued, and this is what the bulls, or a positive momentum situation, can, let's say, explain Adobe at at 380. And there is still room for 30% up from that perspective on the gain you already made. So, you have to see about momentum, perhaps earnings next week positive, and then you can ride the run a little bit. If Adobe gets disrupted, low P/E ratio, then we are far, far from a margin of safety. Adobe remains a buy if what you consider normal when it comes to investing is a price-to-earnings ratio of 25, maybe 30. It is the market's P/E ratio. At a P/E ratio of 15, where you look at things from an absolute value investing perspective, it is not a buy. Yes, it is still growing, the premium version, they are adding customers, but that's like desperate ways to find growth, Saudi Arabia or whoever giving everybody free Adobe for a year. So, there are some, let's say, deals. They are not growing organically from the quality because there is so much competition. And with the size, growth inevitably slows down. So, it might still have some room to run, but not stellar value. And perhaps, if you bought at 190 as a bargain, then you can sell now. You make 50% and then you go next. We'll see whether we'll do an update depending on how interesting will be the September 10th earnings. So, I'm turning Adobe from green to orange as less good offer risk and reward situation. The next stock there is Alibaba. It has been very volatile over the last 5 years. Then it boomed on AI, then it went down again on AI, on capex. We have discussed this recently in this analysis video. I have adjusted my Alibaba stock valuation because simply the promises made 5 years ago have not been reached. And therefore, what's left is just now promises on AI. They are launching new models, best models, etc. That is okay, but pricing very low, which means that there will likely be a race to the bottom with all these models. And if you have these models, for them to work at those low prices, you need a moat. You need something that you can put together and then make money using that AI. Something that is the dream of every hyperscaler and that only one company in the world has, and that's Tencent. They have the Facebook, the connections, they have the marketing, the gaming, the payment system all in one super app that Alibaba, unfortunately for Alibaba, doesn't have. Just a comparison there. So, they can invest a lot, but if they can't apply it, they're just lowering the costs for others to apply it, which is then a risk for the providers of the cable of internet versus the users, the Microsofts of the power of the internet. So, with e-commerce, there is no true moat, a lot of investments, margins down. They're not scaling that in China. The promise was better customers, growing margins. It's not going international, high competition, damn old things like that, regulation in Europe, AI. What will be the price of it, the profitability? So, there is definitely some value, but to invest in Alibaba, you really need it cheap, perhaps even cheaper than it was. So, orange bet, not really something to follow. Now, if it gets lower in the double digits, we will check again. Then, we have Flower Foods. It was already marked as red in the bad segment. We discussed this over the last few months a little bit more. The dividend has been cut, the P ratio gets uglier, the stock gets uglier, and we have discussed this with the food brands analysis video. All the links to the videos will be put by my editor in the description below. And all these brands are struggling, weight loss drugs, perhaps lowering demand a little bit, huge supply, competition, margins down, everything gets down. There was a common saying that General Mills perhaps bottomed. Yes, but that all depends on the next earnings, the next quarter, the next year, where the situation can be ugly. If we look at Flower Foods, last quarter, 4% down net sales. That's terrible. Net income, 17 million down. They're not even putting percentages because what's that? 40% down. That's terrible. That's ugly. If you look at sales, ugly. Even with price increases, volumes are terrible. Therefore, there are big issues with the business. They did this stupid acquisition a while ago, incurred a lot of debt. When you incur a lot of debt, you have tangible assets that have to be impaired. Take minus 1 billion at least of impairments, and there goes your shareholder equity. There is nothing left, and the bondholders take over the company. That is the situation. Looked a little bit at the cash flows. They are still positive there. When I calculate things here, they will likely get to 200 million in cash flows per year compared to the market cap of 1.5. It's still interesting, but with declining sales and with a declining business, the cash flows might not save you. So, those are huge, but they are declining big time. Are they enough to pay debt? If they start, I don't know, 100 million debt payments, it will take 8 years to get to 800 million. By that time, given the trend, and they need a miracle to recover because the market is simply like that. The cash flows can already be 100 million in 3 years, which means no more dividend, just debt repayment. Then again, the question is, okay, what's next? And something to consider here, this sucker is going up. So, there is more need for capital. People demand a higher yield from things. It's not like this was 2% 5 years ago, 1%. Now Now closer to five, and people say, okay, I can risk it with flower foods with declining cash flows that now look like 15% but in three years might be 7% and then you compare the seven with the sure thing of this four or five percent and then you say okay, it might not be that interesting. Therefore, I'm not going to follow it anymore. It still remains a bet but an ugly bet that maybe will do good. There is nothing inherent in the business that I would say okay, this will save it no matter what. Losing everything to get 50% up or 100% up is simply not a smart thing to do. So we continue. CNH Industrial produces tractors, agricultural machinery, has been stable over the last few years as that agricultural sector from 2021 to 2022 has its headache because of too much investment and too much buying. The cycle takes over six, seven years and now we are still in the downside of the cycle. Sales are stable but margins due to competition are going down. Operating cash flows hugely down. Recent earnings show that cash flows are a little bit better than expected. Therefore, the stock is immediately up a little bit. However, the outlook is still for the market to be down general five 10% for the 2026 year. They will have flat sales, likely price increases margins down. When margins are good, they make good money and you can see here they improved a little bit the free cash flow situation. Also, the net sales, that is the positive impact on the stock price. Earnings a little bit up. However, it's all about the agricultural cycle and that cycle, yes, in a good year they can make 2 billion, which will then push the market cap 10 billion up. However, that is 50, 60, 70% upside, maybe even more in an agricultural tech AI boom. On the other hand, it is defensive as it should not be related to recessions. However, when will the agricultural cycle turn? 2027, 2028. I'm simply One might say bored with this. Can I find a competitive advantage? Not a highly competitive bet that might do well, might not do well. If I don't have an edge when I look at these things, it's better to find something else. So, CNH is also going out of the picture to clear things up a little bit. Then we have Pabrai's wagons fund. Those are certainly bets like coal, rigs, India, even better, Turkey, Kazakhstan, and the Constellation Software that we already discussed at the beginning. If we look at the buckets, six buckets that explain the portfolio, we have to take our hat off to oil services that has been nailed by Pabrai. Also, he has nailed the coal businesses that have really done well recently. But he still has that India, Turkey, and now the Constellation Software that he bought low, so that's doing well. However, Warrior Met Coal, money made, great. Transocean, think he started buying here, so again, great return there. We have now India. If they continue going on with their spin-offs, looks good, looks interesting, but that's again emerging market. Even more than emerging markets is Turkey, inflation, politics, things like that. Pabrai likes it. You can get exposure to that, but it's always Turkey. So, if it's not really cheap, it might be too risky. Kazakhstan, Kaspi, the super app there, that has expanded in Turkey. They are pushing the dividend higher again after the Turkish investment. P/E ratio is low. The stock has already recovered from the lows from a few months ago. And here we have Kazakhstan, we have Turkey, the businesses doing well. Everything is growing, not that much, but given the investments, EBITDA is also growing. Okay, the business is growing in the teens. Everything looks good. They're in also building a Kaspi personal AI assistant. Every app now has their own personal assistant. Everything looks interesting. Perhaps we can follow it over time. We'll put it on the bedside, and then perhaps if it goes lower or if something happens again, as it is a pretty volatile stock, perhaps if it is at the lows, maybe it will be interesting to make a deep dive, or it will just keep on going higher. You never know. But I have put it here as an interesting bet to follow, perhaps write up in detail over the coming weeks. Then we have Constellation, the group there. Pabrai bought everything. I'm questioning the business model. You might want to check that. Topicus also hasn't recovered like Constellation, but might be interesting for you, not for me. On my conclusion of wagons, we have Turkey, we have India, we have software. Yes, it is bets that offer 5x, 3x, but things can also go wrong, very wrong. Then, these are bets that don't reward you now immediately, and that is Pabrai's strategy. You buy assets that make no money in bad periods and make huge amounts of money in great periods. If you buy them when they make no money, nobody likes it. Analysts like Swen Carlin that don't like it because there is nothing earning me money now. There is nothing rewarding me now, but it is a timing issue. If there is an emerging market crisis or who knows what, a global recession, then all these markets might suffer more than the rest. So, those are bets per se, but also on an aggregate feeling. When you look at from a long-term perspective, he should do well, but we have to accept the inherent volatility. Then, we have oil. Depends on oil prices. We had it as green value investments. When the oil price was here, we were buying even some Norwegian businesses. Now, oil prices are still 50% what they were. I cannot know what the decisions, what the political situations will be. Therefore, a bet, and then we'll have to see when oil prices hit again value investing, boring, cost of production, margin of safety situation, which might make it interesting again. For now, we'll keep on watching. Then, we have Uber. The stock is down a little bit, up over the last few years. We discussed this in a video. It's the big position for Bill Ackman, and we can then check it in our intrinsic value table. You have all the links to a lot of analysis that we have made here. So, if we go to Uber, if the free cash flow just keeps on growing at 20, 15% with a P/E ratio of 20 at the end of the 10-year calculation, the intrinsic value is much higher than the current stock price. With faster growth rates, the present value is 3x with what you can buy it now. In case things go south, then we are still 50% down on still growing cash flows, but just 10%. So, this is the bet on scaling autonomous vehicles that all these companies will use. Uber, that will not happen that fast, not in the next few years. So, Uber as a company might keep on growing at 10, 20%. Perhaps that's something that Bill Ackman is taking as his margin of safety. They will keep on growing next quarter, next quarter, get revalued, the market will get excited, he makes 50% 2x, and then he sells. That might be something if Uber doesn't get all the contracts with all the autonomous vehicles. So, if you like real bets, huge upside, also with downside, Uber is something to consider for buying now and holding for the next 3-5 years. If you make your money earlier, then money made, thank you. So, I'm putting it as a green bet there. Then we have Nike. We discussed how it really smells like value now, like bottoming. Nike at 70 billion, 60-70 billion cannot get cheaper. Then we dug deeper into the whole sector, the whole sportswear sector. Lululemon is interesting, Nike is interesting. I went to a shop and everyone was running on clouds. Now I know what On On is, and I see them on all people. And then when it comes to fashion, the key is to buy the next trend, not the current trend. Because next year something else will be fashionable. That's fashion. So, perhaps Nike will catch up, perhaps Lululemon, some things come back in fashion, some things go away. If I look at Lululemon, 1 billion buybacks, cash flows, they can survive the downtrend and perhaps double when they get trendy again. Nike, same story there. They have logistics, they have the warehouses. Very interesting situations. But, for me this is too crazy. On the other hand, good dividends, buybacks. Wait, play the volatility. If you buy, always be ready to buy more. When it goes up, trim down. Very interesting green bet for Nike there, which I think you can make some money on if you play it smartly. Then we have Kuaishou, the Chinese app. We discussed this few months ago, 6 months ago. Burry promoted it. The stock went down 50%. The chart looks terrible. But now, things are getting interesting. P/E ratio of 8 for a company that has daily average users of 412 million and they spent 2 hours on the app. That is insane. Profits, okay. And then we have also Kuaishou AI revenue generating revenue growing 500 million dollars over next 12 months. Then that company took in 2.8 billion from Tencent, Alibaba, other Chinese investments. If you value that, it is 15 billion valuation. Kuaishou still has 68%. What's that? A little bit more than 10 billion. Compare that to the market cap, which is not 8, but 9 billion so just clean AI covers the market cap if it is a real AI value. And then you had quite show the whole platform with 400 million users for free or you get clean AI for free. Depends how you watch it. If you want an AI bet, small niche video service bet now that who Sora is out of the game. Perhaps again something to dig a little bit deeper in. Then we switch from quite show to another company that I'll have to dig deeper in. Here we made a video two months ago and it's now the story of asset light platform going to asset heavy businesses. The management says they are building the next Pinduoduo in the next three years. If they deliver, this will double or triple. If they don't deliver, this might stagnate. So the downside because of the cash, because of the everything might be limited because of what they are building and the upside might be great. But with these Chinese companies you have to always be careful with those promises. They're always building, building, investing, investing and you never know when it works or not. That's why it is under the bet segment. Results were good, still 8% growth, everything looks good. Profitable margins a little bit down on investments, but if you look at the cash, short-term investment, cash, restricted cash, that's a lot of money compared that's what 60 billion compared to the market cap of 120 billion 50% is cash, but they will use that to build the next Pinduoduo. We discussed Google as a bet and you can see it here as red. Warren Buffett's buying, Sven you're a value investor, you should buy too. Not at current prices. P/E ratio 16, that's cheap. Not if you adjust for Antropic or Open AI or whatever they own, reported earnings. That's just gain on valuation. True earnings are higher. Check that video. Also, if you go to look at the reality of their earnings, the growth in cloud, who is the customer? And the customers are not profitable. Another issue there. So, I'm just putting it here for reference as a red bet. We'll keep it for educational purposes. Still a bet, it might double. Don't get me wrong. But now it's a much different bet than where it was just a year ago. Then we have Charter Communications. If you wanted to check an ugly chart, this is an extremely ugly chart. The stock has bottomed 2 months ago, a month ago. Now we are only a little bit up. However, if we look a little bit at the results, the results are still ugly, still declining. Revenue down, EBITDA down, capital expenditure stable, not yet going down. Yes, they have the assets, they have the scale, they have the 30 million customers, but that's going down. Mobile is going up, so customers are leaving the broadband and they are going towards the mobile. Okay. Video stable, but also declining. Capital expenditures still high. That's still extremely high. That should change as the capex subdues already next year and then next year. That should allow for buybacks, more buybacks. They have paused them, but let me show you something. They have repurchased 60% of shares in the last decade. What did the stock do? The stock, since they started the repurchases, did practically nothing. The market cap now is 17 billion, and this is my answer for whenever somebody says, "Sven, repurchases, shareholder buyback yield that you have to take into account." Okay, let me show you something. 70 billion spent over the last decade. Let's say that they paid down the debt. That's now 94 billion, 70 billion used to pay down the debt. The debt would now be 20 billion, even less with interest, likely 10 billion, or no debt. 5 billion in cash flows, add a billion of interest, that's 6 billion * 10, the market cap would be 60 billion. What's that? 4 5 times the current market cap. No buybacks, just debt repayment and dividends. Interesting. But then again, as the free cash flow grows because of lower capital intensity, if they hit that and the business remains stable, this is a double or triple. So, still good, but you really have to be willing to take the strategy. If there is a recession, if there are issues, if interest rates go higher, the bondholders will take over politics, this, who knows what. So, it is still a green bet there. Therefore, you have to see how it fits you. As a whole, we have five interesting bets now: Uber, Kuaishou, Nike, Charter, and Pinduoduo. You have to see how these risk and reward situations fit your portfolio. When it comes to me, I have spent 50% of my diversified portfolio that I'm building on my research platform, I'm searching to find investments for the next 50% perhaps 40% and remaining 10% in cash from the quadrant I own Fiserv interesting position. That's something that I see the value there that I see segments of value in those businesses that will likely be there and then if they can improve or stabilize the rest, that's a good return in the next year or two. I have a catalyst with this very interesting. The rest I don't own it. I follow it from now. So something to think about. And in that context, when it comes to bets I don't want ugly so I'm trying to avoid ugly because it's simply not worth my time. I love my life so no point in that. Nike might be very interesting at 60 billion. Somebody would need 70 80 90 to take it out privately. Private equity doesn't have that kind of money. Perhaps if it goes a little bit lower then some groups might take it over. So there might be a margin of safety. Uber too much tech, too risky too techy for me. Charter the debt is huge can really get ugly. Don't forget to check the links in the description below. If you have any questions, there is only one email invest with Sven. Be careful when you comment on YouTube. They're taking your YouTube tag name, adding Gmail to it and then sending fake spam fraud emails. I'm not sending you an email. You can send me an email and then you can communicate with me. Thanks for watching. Check what I do in the links in the description below and I'll see you in the next video.