Feel free to share your feedback on portfolio’s allocation and my thesis.
I bought AMZN looking it its deep mispricing by the market when it was between $200-$210. I believe Amazon will grow its operating cash flow at 13% (conservative estimate) giving over 10% cagr easily.
SPGI is similar to Amazon, however has much higher roic and margins. The business is also a duopoly, competing with Moody’s. I don’t consider AI to be a direct threat at this moment as some information that SPGI holds is private. Companies directly communicate this to S&P global than post it publicly. I expect a 11% fcf growth and a good margin on safety on this business.
Copart is a real estate business (however it acts as auction). Copart owns land on which it operates car junkyards. Copart’s business is to list insurance totalled vehicles on its auction marketplace, collect auction fees once cars are sold, 80%+ of their selling listings come from insurance companies, most of the buyers are car dismantlers which sell parts individually. As AI driving comes along, accidents are predicted to go down in frequence but won’t happen anytime soon. Many newer cars are more likely to be totalled due to being higher tech and expensive to repair so this works as an hedge. The business has been mispriced by the market, the company also holds lots of cash on balancesheet.
MA has been under the tailwinds of sentiment being taken over by a newer payment processor in EU (my understanding). However, practically whole of europe would have to invest in something that will work throughout Europe, update merchant machines to accept new type of payment, customers having to carry two different payment cards, banks will need to be incentivized or forced to apply new payment network, again all throughput europe. Again, its stays to be more diversified geographically than Visa, a little faster growth, 40-50% revenue becomes free cash flow, high roic percentage.
WCN was not bought at a mispricing event, but as a hedge for portfolio, waste landfills will become more valuable as time goes on, WCN doesn’t compete with bigger WM but serves suburban areas. In terms of valuation, I believe if I hold this for the next 20-25 years, as the business model doesn’t change too much the price I had paid today would be less relevant. My cagr on stock should be closer to company’s roic percentage the longer I hold it.
AXP was purchased based on the company’s valuation in market. I believe AXP holds more risk than Mastercard as it issues credit as part of its business, but it earns interest and makes a little more money on processing fee. I believe American express is more of a company that sells status and luxury, serving higher net worth individuals, which mastercard doesn’t. Again, this won’t be a long hold but a sell once market starts to see American express’s value. I will likely be trimming this position.
TMO is in simple terms picks and shovels of the scientific research and biotech industry. They sell lab equipment to pharmaceutical companies, hospitals that is used to perform research. Their revenue highly depends on government funding, pharmaceutical company’s budgets and academic research. Governments are incentivized to invest in healthcare similar to defence budgets, pharma companies have limited patents on their drugs and are incentivized to invest more into finding new drugs. More budget is spent on R&D the more TMO will have to supply.
VRSK offers data to insurance companies that they use to make claims to its clients. This is similar to SPGI and there is a good correlation between the two in terms of business of holding proprietary information making them more valuable because of more information and their stock pricing relative to SPGI. I believe VRSK is being mispriced and I will probably trim it as it starts to gain.
RACE is my more like satellite position to me, I am unsure if this will be in my portfolio or not considering the valuation it currently trades at. Ferrari caps production to 14000 cars a year, 2-3 year waitlist for customers. But I think the company is selling at a premium. I had bought looking at its price chart trading lower than its peak, and trying to decide later to add or sell it. The decision is more or less likely to be made in May, if earnings happen to make the price of the stock go down I may add to the position but its highly unlikely. I somewhat believe Hermes would be a better pick than Ferrari looking at current valuations, but still unsure. I thank you for taking the time to read if you’ve come this far.
Let me know your thoughts, any feedback is appreciated.