Chit Chat Stocks - 7 Hidden 100 Baggers; ASML Bookings Disaster; Tesla's Toothless Cybercab (ASML, TSLA, TSM, LVMUY)

Starting point is 00:00:00 Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome in to Chit Chat Stocks. This is our weekly Power Hour episode. I am one of your hosts, Ryan Henderson, and I am joined, as always, by Brett Schaefer. I was MIA for the last two weeks as I was on vacation, so you were joined by Dave from the Investing for Beginners podcast. But Brett and I are both back in the quote-unquote studio today, and

Starting point is 00:00:56 We've got tons of topics to revisit. I guess before we get into things, Brett, how are you? What did I miss in the financial world? Ooh, I don't know. Pepsi, tough report. I guess no one's talking about that one, but I think that's quite interesting for the CPG food space. Hindenburg had a report on Roblox, and then there was some short seller on short seller

Starting point is 00:01:21 attacks, I guess, against each other, although we're not really going to talk about that today. And besides that, I think you picked a perfect time right before earnings season. And now we're finally getting some companies updating their reports. We're going to get more than speculation on things. I think we have a good show to go through today. All right. And as always, before we get to that, we want to talk about our friends at Public.

Starting point is 00:01:46 Heads up, folks. Interest rates are falling, but you can still lock in a 6% yield or higher with a bond account at public.com. That's a pretty big deal because when rates drop, so can the interest you earn on your investment. A bond account allows you to lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds. So while other people are watching their returns shrink, you can sit back with regular interest payments, but you might want to act fast because your yield is not locked in until you invest.

Starting point is 00:02:15 The good news, it only takes a couple of minutes to sign up at public.com. lock in a 6% or higher yield with a bond account only at public.com forward slash chit chat stocks. Hey, guess what? I, uh, I did open a bond account and I deposited some money. Not, I liked it. I liked it. It's a, it's like the in-between of a savings account. What? Easy process. Yeah. Fairly easy process. Almost like a, they make it sort of like a savings account, but I should say as a fair warning, it's not exactly a risk-free rate in a savings account. It's kind of in between the savings account and say a full stock portfolio. I think it's something that's nice in the middle. If you're trying to spread out your yield or

Starting point is 00:03:01 spread out your return profiles, if you're trying to save for a down payment on a house, stuff like that, and I found it fairly intuitive. But maybe we need to have you as our resident tech Luddite at some points, test it out because I think that's maybe a better test. Yeah, probably. But anyways, yes, that's our friends over at Public. We have a jam-packed show today. You have a ton of topics. I have a ton of topics.

Starting point is 00:03:26 And a little foreshadowing here. This small cap of the week is my favorite by far that I've ever done. So, yeah, it's – you're on mute there, but I saw you mouth the word wow. Yeah, it's pretty interesting. I think you'll be intrigued. It's exciting. Nice little tease for the listeners. We'll get that about maybe halfway through the episode.

Starting point is 00:03:52 Do you want to talk? And I know we have to talk about this just because people listen to this type of stuff. The RoboTaxi event. WeRobot. Did you check out this at all? Sure. So I have gotten to the point now with anything Tesla related where I just kind of don't pay attention because it just feels like there's so much going on. on a regular basis with them so no to be honest i saw a couple videos um but it's so

Starting point is 00:04:22 whenever i see people like oh my gosh you're not going to believe this technology it's like the boy who cried wolf with obviously the solar panel stuff that was actually faked that's been proven um and there was a little bit of uh fake it till you make it technology here with this one as well so it just kind of i don't know i'm not blown away ever by these events like they're cool but it's it just never feels concrete yeah it's it is interesting like on the one hand yet at the same week spacex has a very cool and seemed to be i know some people call impossible but it was more of just a very difficult engineering challenge uh not to downplay it at all but it was something that you could theoretically do without inventing some new technology

Starting point is 00:05:12 they landed that 20-story rocket and kind of that thing that almost like a reusable thing it's kind of hard to describe you can watch the video that was very cool um business model that i'm not sure no it was the new one called starship so they actually went way bigger and they reused it as a test flight pretty interesting stuff in that regard but i would ignore all that if you're looking at tesla because it seemed to me like this could have been in 2019 2020 2021 2022 to. It was an event that said, hey, look, we got this full self-driving stuff coming. It's coming in a few years. Don't you worry. And we're going to have all these robo taxis. And I'm more, yeah, I'm with you now. Wait until, you know, I see it actually materialize because

Starting point is 00:05:56 there's been all these arguments that, oh, wait, just the next upgrade, the next upgrade. Don't worry, the next upgrade. And it's interesting that Waymo seems to be making real progress. Now, there's some, you know, people do some analysis on their costs, where having all that tech added to the car makes it extremely expensive. So the unit economics might not be that great. But they are actually making progress on the technological side where Tesla doesn't seem to be doing much. It's a lot of, hey, wait, wait till we see what happens. But what do you think about this, Ryan, the last topic here, the optimist bot? Are you taking the over or under on the $25 trillion in market value that it'll generate, according to our good friend, Elon? Is that what he said? That's what he said. He tosses numbers out from time to time.

Starting point is 00:06:50 It's like that scene in Succession where he's like, what's the largest number that's feasible? that i could say you don't know talking about exactly well and then he ignores it but yeah uh so this was pretty clearly at least from from my perspective this was pretty clearly not ai powered it was somebody controlling it remotely the robot was a robot but it was being remotely controlled by an actual person for speech and movement purposes um and at first everyone was like this is insane he he can pour me a drink or whatever and then it kind of came out that okay this is not real it you know someone's controlling it and like okay so this was mostly a person but there was still some ai elements i'm like it's just it's a charade it's

Starting point is 00:07:42 not yeah it isn't real it's cool whatever it's a cool little presentation but it isn't there's nothing of value there like for shareholders yeah what what i would be concerned about is the fact that they're not investing in new models and that the cyber truck is a really nice product so not going to drive much in earnings and then they're going to pour all their new r&d into ai the humanoid robots and these what do they call it the robotech not the cyber cab now we're gonna say that's a probably a better name but if it's all betting on that over the next few years and you don't have these new car models like what happens if these things don't materialize that yeah that would concern me a lot because the existing models are getting quite old and we'll see what happens

Starting point is 00:08:29 on their earnings we'll probably talk about them at least for a bit um but anything else on there because we got a lot of other topics that i think are are fun today no it's just to be honest it just bores me the spacex stuff really cool but the the tesla stuff it just bores me because And I think the thing that bores me the most is that it comes at a time when Waymo is doing some real stuff. Like, you know, they're expanding city by city. There's a commercial growth there. Like, they're generating revenue. And people just seem to be ignoring it at the hope that Robotech or full self-driving ends up materializing at some point.

Starting point is 00:09:10 It doesn't seem like that's going to be the case. But we do have some other stuff we want to talk about. Where do we want to go next? We've got kind of endless topics here. China's back. You want to talk about that? Yeah. Well, it might be collapsing again, I guess.

Starting point is 00:09:26 I should look at what the KWEB index is doing today because I think it may have been because of an interview on CNBC from David Tepper who – I don't know what his motives for doing that were. but he seemed to get the the firepower going if you look at and maybe i'll share a screen but if not it's not too hard the stock market and we can use the crane shares china internet etf kweb it's kind of a proxy here it was down to about 25 and then it shot up to close to 40 within a few weeks and maybe even last maybe like two weeks so there was a huge uh jump and i think it was kind of all on the sentiment about a government change in narrative. And that is so dangerous in China, because you're going, the loss in translation risk is absolutely huge. But I think it's interesting is if you zoom out, over the past five years,

Starting point is 00:10:24 the stocks, the KWEB, China Internet ETF is down 26% cumulatively. And it used to hit an all-time high of 100. And now it's still down at 32. So I don't know if this rally makes much sense. And it doesn't change anything for me. I've always said, and we've talked about this plenty of times, this index, or just use this as a proxy, again, it could be any index in China or any stock, it could be trading at 550 or 500. That doesn't change much when you're worried about um like business law actually being like existing in a country yeah for me it's you know we've called china uninvestable because of the business law concerns and the really the government and sort of capital markets philosophy from leaders over there um and so it's on the one

Starting point is 00:11:24 hand it's like what would i need to see to invest in china i would need to see a change in the approach from political leaders around capital markets but literally a change in the whole country's economic model but on the flip side i'm not buying on any of this like every time i hear there's like more positive sentiment from leaders over there or there's any sort of change i'm like eh, I don't believe it. So I don't know what's going to ever make it investable. I think if I just started seeing Chinese companies with ADRs paying out dividends on a regular basis, that might do it because then you at least have some level of a hedge, but somewhat. Yeah. I mean, I would bother pays a dividend. It's like 2%. I don't know if it's, it's not large enough. I

Starting point is 00:12:09 would, I would like to see a higher yield, uh, just to make up for that risk. But what I thought was interesting and what i compare it to because to me it's again like without the laws it's just things on paper there was a very funny tweet post i don't know what you're supposed to call it now from open c do you remember open c ryan no the nft trading marketplace oh oh yeah yeah kind of yeah it's old hey on october 15th which as yesterday as we were recording this they had a tweet that um basically was pretending it was someone saying something so there's quote nfts are dead and they said please zoom out and then this one guy i'll share the screen here uh zoomed out with some data uh let me load this up as you

Starting point is 00:13:05 can see well if you zoom out i guess in if the chart goes from 2018 to 2024 i guess if you go back to 2018 when they didn't exist there's been infinite growth you know but if you look at open c volume i think it's probably four billion transactions so that's what it peaked uh it looks like maybe on a quarter no probably a monthly and now i would guesstimate that it's probably at it's at 50 million given that this chart is just too small to even really could be 100 million but this type of stuff i don't even know how to think about it because here it's like the business is dead and then this twitter account is out there doing this is the ceo the only one there left is tweeting this stuff is he kind of going full crazy i'm not sure what to even think

Starting point is 00:13:57 about it do you remember when here's the thing that blows my mind about the nft craze people smart people that i respect bought into it maybe they didn't buy nfts or whatever but they were like no you know it's really it really is revolutionary technology but there was like the screenshot stuff are you kidding me oh so good you could just screenshot it and it's like it's not proprietary yeah whatever you might have your own it belongs to you but if it's on the open internet it belongs to everyone frankly so yeah not really sure what's going on there um nice to see that well yeah yeah i mean that's the i just thought it was funny i thought it was funny and comparing it to china i think because the chinese stocks and again we sound like broken drums or

Starting point is 00:14:49 broken records they're that's how we see them is there's no that when the when you don't have rights as shareholders that's how we look at them is almost like an nft where okay i don't have confidence that what i'm getting is what you're saying and what yeah with the the actual idea around those entities yeah it didn't make sense like how do we enforce these royalties like well maybe they have a good system in place already where you have the government you know with the giant military and the police force that can enforce these things in a judicial system you got to build all that to make a legit you know maybe we already got that but here's something that relates to china ryan yeah go ahead and it might be a way to invest in it the luxury companies

Starting point is 00:15:33 did you check out lvmh's report and if not i do have a question from twitter on them so it's not like the official report right it's just like a sales update thing that they post before the official report or maybe that's how they do quarterly periods um yeah because european Yeah, I looked at it briefly. Apparently, sales of cognac are way down in China. So I guess I think, yeah, the government kind of. Yep. Well, I think they're proposing a tariff on them. So maybe that could lead to a short-term increase. But the government seems to have laddered the – given an old ladder attack on them because the European – I think it's the EU is putting on tariffs on electric vehicles, and this is a way to retaliate. But here's the question we got. And actually, it wasn't from Twitter.

Starting point is 00:16:22 It was from a post on YouTube. So if you want to – if you don't like Twitter, but you want to follow us on YouTube and ask us questions, you can do that as well. I think I'm going to try to post that once a week. Here it is. LVMH starting to look cheap. nice luxury brand conglomerate, including Sephora and many others. I didn't know they own so many well-known luxury brands, pretty stable stock up and to the right. My biggest concern is China, 38% of their total revenue. The CEO has a very good track record of creating

Starting point is 00:16:46 value through acquisitions and the family still owns 48%. Are you interested in them at all? I think the free cash flow is about 5%. Let me kind of pull up a number for you, but hey, maybe the consumer depression in China is priced in for them. Yeah, it could be. I think he summarized it pretty well, actually. The biggest concern is probably China. There's the chance that that continues to decline. Maybe there's a chance that it's like a temporary blip and things recover over there, but I would say it feels like there's equal risk both ways in China. The rest of it, yeah. Bernard Arnault has been an exceptional capital allocator and the only other big concern for me would be succession planning um it sounds

Starting point is 00:17:39 like they have like a literal if you've seen the show succession it sounds like that's basically what's going on over there where they're kind of competing to see who's going to run the company among the kids after that uh but i think the existing businesses will be fine so i don't know if it needs to be like some phenomenal acquirer from here to generate solid returns especially at a five percent free cash flow yield or whatever it is so yeah i'm i'm fairly interested but for some reason and i don't know what it is and sometimes this happens to me and i just i have no idea why i have zero interest in lvmh i i don't know why maybe it's too big yeah but there are certain companies for me where i just kind of shrug my shoulders and think it's

Starting point is 00:18:29 it's just not for me maybe it's kind of narrow thinking but that's that's kind of what i think with lvmh yeah and i'm sharing this chart from finchat our good friends over there pe according to them uh about 21 21 and a half so not a crazy valuation if you believe they have that pricing power to keep growing but yeah i agree with you it's it's large um it's i think the risk of losing money over the long term is quite low with this company yeah maybe if i was 50 i would be all over this but who knows i think i think it probably works from here yeah i i would agree uh someone in the comments tyler says last i saw bernard was buying in the open market as well i tell you what But you get a CEO who's nearing retirement that's buying in the open market, that's probably a pretty good sign.

Starting point is 00:19:23 But I mean maybe it's going into some inheritance for the kids or whatever, so it doesn't really matter. But yeah, it probably works out, but I just don't think I'm going to be along for the ride for some reason. I just kind of shrug my shoulders. well the china exposure can be like it's it's not as bad as say the chinese listed stock because it's you know they have a great relationship with that market and it's such a big region for them 38 around me but i have no read into the chinese economy like are we going into a a great leap forward for them where that's just you know this total stuff that you kind of read about that where things could get really bad really quickly i have no clue and that could

Starting point is 00:20:06 crush lvmh's business but yeah i agree 20 times earnings on trough earnings like where they have pricing power where they have proven pricing power and they're going to have more demand the richer the world gets hey look yeah it'll probably work i could see this being a very safe stock if you like low risk things over the over the long term yeah all right i want to do seven companies that are 100 baggers that people probably haven't heard of or maybe they've heard okay but they did not know they were 100 baggers so i'm going to go through this i'm going to give one all right go ahead go ahead that one we have one question in the comments that says do you guys have any thoughts on crocs ticker crox i would say we did a show on them uh which you can look in our feed

Starting point is 00:20:53 from a while back i'm sure that still plays today i haven't kept updated on them but i was too worried about how you're determined by uh people that are 25 and they're what they want to spend money and where because that seems to change every year so no not too interested i will say crocs has been far more of a lasting business than i expected like i would have thought especially like 10 years ago you would have thought there's no way this lasts and the fact that more and more people are buying croc shoes and people buy them actually on kind of a recurring basis it surprised me so i could certainly see it working to the upside i'm probably more positive on them than i am negative but yeah same with you i kind of have a retails not acceptable or

Starting point is 00:21:48 no retail for me approach yeah or apparel apparel uh yeah some guys say crocs has too many holes in it that's a good one too many holes in that thesis all right that's that's a good joke hope a couple listeners chuckled there yeah let's go through seven hidden hundred baggers so number one here and i'm doing this in order of total return and this is just over the last 20 years. So some of these actually, if you bought them 30 years ago, might not have been a hundred baggers that, you know, maybe they had a drop or whatever, but I'm just doing it on 20 year total return. Number one, universal insurance holdings. This stock is up 141,000%, which is outrageous. outrageous and i wasn't banger i think it might might have had some like a bankruptcy

Starting point is 00:22:43 um or something that happened 20 years ago and it was a penny stock and it kind of like came out of bankruptcy and did all right well did better than all right um because the overall returns if you go like max back to the ipo whatever it is we're like blah they were fine but yeah for some reason if you bought this 20 years ago you had outrageous returns number two and just for context that is a residential insurer that operates primarily in florida number two is wisdom tree i did not realize wisdom tree was such a impressive investment they're an etf sponsor asset manager you've probably seen their commercials or something on tv as all etfs and asset managers seem to have seem to run endless tv commercials

Starting point is 00:23:30 up 61,000%, so 610-bagger. EV to EBIT, 14 times. I don't know. Maybe the story's not over there, so we'll see. Did you know that they were such a good investment? I had no clue. I had no clue they were public. I only briefly knew just probably because of seeing a couple commercials

Starting point is 00:23:55 that they were even a company. I've heard of the name, but I couldn't tell you what exactly the financial products they sold yeah this is it's kind of news to me as well um okay third one here is vitek software this is a swedish serial acquirer of software companies and it's performed really well it's like two billion dollar market cap 362 bagger a lot of these have kind of gotten marked up yeah brett's showing the chart here the recurring revenue is up what is that a hundred fold now tenfold over the last 10 years 23 23 and a half percent cagger uh on that recurring revenue that is i should say a little kpi chart from finchat so go check them out this

Starting point is 00:24:43 type of stuff you can't get anywhere else uh use our code finchat.io slash chitchat uh but yeah this is basically a constellation software copycat correct yeah pretty much that's basically what it is and it trades at 35 times ebit so this cat's kind of out of the bag i think on this a bit but you know some of these roll-ups can look like they trade at higher multiples and still perform pretty well depending on how they finance acquisitions and stuff like that so number four though and i know you're gonna hate this one quay chow mutai have you heard of this company uh perhaps but i i have no idea how to say it uh hopefully apologies to any chinese listeners for that butchered for us butchering any spelling or

Starting point is 00:25:33 pronunciation here but i know that this is the biggest market for liquor wine and beer worldwide so i'm sure yeah it's if they dominate i'd seen like pictures of the alcohol they produce i've I think it's like mostly native to China, but they sell wine and liquor products primarily in China, which is kind of ironic because we just talked about how LVMH is seeing cognac sales drop in a big way in China. But they have done really well over the last 20 years, more than a 200-bagger, and they just announced a huge buyback, which seems abnormal for Chinese companies in general. Um, but yeah, it's probably one of the biggest Chinese companies overall, uh, market cap wise and seems to be one that a lot of people just never talk about. But anyways. Yeah.

Starting point is 00:26:29 The thesis can make sense where if foreign brands are kicked out, Hey, they'll probably turn to their products. Yeah, absolutely. All right. I'm just going to go through these last three kind of quickly. CD project. It's a Polish video game developer. they were behind games like the witcher and cyberpunk 2077 cd project had like a horrible ipo

Starting point is 00:26:52 so it makes the returns look a little better but it's been a very lumpy business number six is deckers outdoor which you hear that name and to be honest i think it's like some sort of a decking product like trex or something like trex um but no they sell hokas uh they are one of the biggest footwear companies worldwide. They have a bunch of brands. They still sell their parent company behind UGG, which is kind of starting to become a little more popular again, surprisingly, but it used to be very, very popular. And then HOKA has kind of revitalized that business. Last one I'll talk about here, Monolithic Power Systems, another 100-bagger. These are all 100 baggers uh designs and sells semiconductors based power electronic solutions we talked about this

Starting point is 00:27:46 with the chip stock investor team and they said that was the number one semiconductor stock they did not expect to do well that has performed exceptionally well over throughout this basically sort of ai boom all right good companies what one is your what are your top two what to feel and not on valuation today but any of them investable at the right price to you it's kind of funny because they've all performed so well but i find all these pretty uninteresting What about Vitek or WisdomTree at the right price? I think those are ones we could understand. Yeah, WisdomTree maybe, but I think it's maybe just more commoditized today than when they first started issuing ETFs.

Starting point is 00:28:44 With Vitek, like I said, the cat's out of the bag, trades at almost 40 times EBIT. it's they've had like a business breakdowns episode like it's fairly i think they have maybe i'm wrong on that but the one thing i have been surprised by is these vms vertical market software acquirers have way more acquisition targets than i thought and they're able to do it in big bulk like constellation i would have thought was running out of targets like five years ago. And maybe it's just because vertical market software is still growing, but so the upside seems to be there and they can, I would say those two companies have certainly surprised to the upside relative to what about a residential and what about a residential insurer that operates

Starting point is 00:29:33 primarily in Florida? That sounds like a high risk, high reward opportunity. Yeah. Maybe they're one of the only ones left. I don't really know how they've done so well. I'm curious if they've sold off – I'm curious how much their stock price is tied to natural disasters, like when you hear rumors of a new hurricane or something. How much does the stock take a hit? I imagine it has to be pretty tied to it. So yeah, I'm pretty uninterested in most of these, to be honest. Yeah, well, that can happen where people are uninterested because it's hard to say, get a good thesis going, but then the company executes so well, or perhaps gets lucky. And boom, you go from five times earnings to 30 times earnings, and you're considered a can't miss investment. did you see this uh this is my remember how we used to do hero or zero hero and zero of the week

Starting point is 00:30:34 this uh this might be my hero of the week to be honest but did you see this post on linkedin i did i did yeah what did you think interesting do you admire the the spirit of the guy no going i don't admire any posts on linkedin no i no i delete your linkedin everyone it's stupid uh but the comment was taken down or the page was taken down but good well no one everyone at ftx is if you said you worked at ftx i my base case is you're crazy and this is helping prove my point and so just for context for anyone who didn't see this uh last week ryan solomay i believe is his name he's the former co-ceo of ftx the now defunct crypto exchange fraudulent crypto exchange was uh charged with basically

Starting point is 00:31:38 i think it was money laundering a bunch of different financial charges and given seven years in prison, and he posted a starting a new position LinkedIn post that says, I'm happy to share that I'm starting a new position as an inmate at FCI Cumberland. Perhaps the funniest part about this was you saw how many automated responses there were, because there was a whole bunch of people in the comments that said, congrats on the new position, Ryan. Very excited. LinkedIn sounds so valuable. I can't believe what I'm missing, deleting my account. Yeah.

Starting point is 00:32:14 Anyways. Okay. Where do we want to go from here? I was thinking ASML earnings, but let me hit some comments here. We got a Andrew Marshall from a capital mindset or no mindset capital. I keep, I always mix it up.

Starting point is 00:32:29 The capital mindset is the YouTube channel and they've done shows with us before. It's definitely, it's capital mindset. We should have them back on for sure. Yeah. I have a good residential insurer. in florida if you're talking acic i can give you an in-depth pitch hey maybe we do that that sounds

Starting point is 00:32:49 fun i'd love to love to get those guys back on or at least one of them um let's see other questions from someone how to approach boeing and then the thinking emoji don't stay far away back back away do not back away from the keyboard do not approach them yeah they're raising money uh and might have to raise tens of billions of dollars because their balance sheet is running out of cash. Yeah. I saw a quote this week. The CEO said they could raise $25 billion if they wanted to right now. I would do that. Well, I'm sure you can. At what interest? I'm curious. Probably not a very attractive rate. Who is offering this debt to them? uh well it depends what the price is maybe it's convertible

Starting point is 00:33:41 still it makes no sense to me um good for them i our theory was that it if they were ever bailed out it would look like it wasn't a bailout and maybe that's the case maybe that's where they're raising the money from it's like subsidized by the government in some way um but yeah that could That could make sense. Or raising an equity offering at a really cheap price, you know. There's ways to do it. Yeah, which – when you say how to approach Boeing, if they're doing an equity raise at really cheap prices, that's not good for existing shareholders. Yeah, you got to get to the other side before considering investing here.

Starting point is 00:34:23 Let's see. This one relates to the topic I wanted to do next. So Tyler says, thoughts on TSMC given Intel's collapse and Samsung's semiconductor heads public apology. I didn't see the public apology, but Intel has collapsed and TSMC. Well, I mean, look, TSMC continues to roll and I know they're struggling in some things, but yeah, I wanted to, I don't know. It seems like with TSMC, before we move on to ASML, keeps expanding their lead and keeps locking in the important customers.

Starting point is 00:35:06 Ryan, I know you're an expert on them. I have nothing to add, I think, is the Charlie Munger approach here. I would just say with pretty much anything semiconductors, I'm going to go ahead and say I have absolutely nothing of value to add. tsmc seems to be the leader intel seems to be struggling and i don't see why that would change yeah is that fair yeah sure yeah um like how hard is it to catch up it's got to be pretty difficult you can't just yeah i don't know if you yeah but there's more than just the most advanced nodes so intel will probably end up like they're going to exist. I don't know if the stock's going to do well at all,

Starting point is 00:35:56 but they're going to exist because there's so much investing in tax receipts that are going to come through. But yeah, let's talk ASML earnings. They released it prematurely by accident. Maybe they did it on purpose by accident, quote unquote, because they were pretty bad. But who knows? Probably just a fat finger. Here's a quote from the report. And I think this is what led the stock to fall 20%, I believe, quote, while there continue to be strong developments and upside potential in AI, other market segments are taking longer to recover. It now appears the recovery is more gradual than previously expected. This is expected to continue in 2025, which is leading to customer cautiousness. I'm going to share a chart here, and it is their net order bookings

Starting point is 00:36:42 for essentially just not the revenue earned, but how many orders were placed in the dollar value for that in the quarter. And it was down to 2.6 billion euros way below the semiconductor boom from like the end of 2020 to the end of 2022. And I would have thought this, I really would have thought this would be soaring

Starting point is 00:37:11 if AI, because I get what he said in the press release that AI demand is there. But I thought if it was such a big super cycle, it would make up for everything else lost, given how where these stocks are trading, given the multiples, given the growth projections, all that. Now, if we zoom out the last 12 months, the net orders are significantly higher than pre-pandemic. So it's not the end of the world, but it is one bad quarter. And I was kind of shocked to see it, given that we're still in, it seems like there's no sign of semiconductor spending uh slow down for for these ai that data centers yeah what a lumpy business like yeah like your bookings could be down 75 percent uh year over year just depending on the

Starting point is 00:37:57 timing of like probably two or three orders when you're selling what is it 100 million dollar machines multiple 100 million dollar machines so if you are someone that follows asml really closely i imagine there are a lot of and maybe this is one a lot of buying opportunities that come in because people just can't handle the headline numbers and can't handle what look like big bookings drawdowns even though it's just a very lumpy business because they are huge orders in terms of like one order can kind of make or break a quarter yeah and it could be a buying opportunity i think it's definitely you know if the business hasn't changed that much it's way more attractive right now uh we have comment here from tyler it seems

Starting point is 00:38:48 to be a little more in tune with the industry says intel and samsung seem like they're delaying their fabs which mean manufacturing facilities due to their own internal issues so they won't buy as many euv and eventually high uh na until 2026 those are asml machines their orders will come randomly in 2025 i'd say maybe like we don't know but like am i but what i'm saying what's interesting what's interesting to me is okay the the idea is that ai ai as a whole like take the whole semiconductor market, it's going to lead to demand growth, right? And there needs to be an increase in supply. And it doesn't matter if TSMC is taking a bunch of share from Intel and Samsung, that the sum of the entire industry should be rising of the spend. And I don't

Starting point is 00:39:43 understand why bookings are down. Because I get that Intel is struggling, but why isn't it showing up somewhere else is kind of what I would be concerned about. Yeah, that's a good question. All right. Before we move on, we do want to talk about our friends again at Public. Heads up, folks, interest rates are falling, but you can still lock in a 6% or higher yield with the diversified portfolio of high yield and investment grade corporate bonds only at public.com. You might want to act fast because your yield is not locked in until the time of purchase. Lock in a 6% or higher yield with a bond account only at public.com forward slash chitchat stocks. Anything else to add on ASML?

Starting point is 00:40:26 Because I want to talk about my small cap of the week. I've been dying to talk about this. All right. Yeah, we'll get into that last thing. They said that they're seeing a big slowdown in demand for computers, smartphones, smartwatches, gaming consoles. and i think like that's a little bit of moving the goalposts of of the ai narrative because they're saying no ai is doing well but these other products aren't but

Starting point is 00:40:58 i feel like two years ago or even a year ago there was all these ideas that ai was going to proliferate across computers and smartphones. I guess that narrative is dead. That's my final thought there. All right. Small cap of the week presented by Yellow Brick Investing. I will say joinyellowbrick.com slash chitchat. Join Yellow Brick saved me on this one because I did not really know what this company did that well. Typed in the name, found like five or six super high quality write-ups, but the company is Kelly Partners Group. So I actually came across this through a podcast with the CEO. So Kelly Partners Group is an Australian-based accounting firm roll-up. Does that sound sexy to you, Brett? I don't know. Accounting firms? At least it's

Starting point is 00:41:52 not consulting, right? Accounting seems something that's going to have to be there forever. They own, I believe, 40 different operating businesses now because they acquired two new ones recently. They're primarily in Australia, but they've also added some in the U.S. recently. They seem to be investing kind of heavily in the U.S. in U.S. acquisition targets. Interestingly, if you go to their IR page, they have a quote-unquote here owner's manual, which is – it's a slide deck of what shareholders should expect from the company. It's actually super informative. I really kind of wish that more companies did that. And I linked to it, Brett, if you want to open it up.

Starting point is 00:42:33 It's kind of cool. But most of their operating businesses just provide accounting services to small, mid-sized businesses. So these are not huge offices, but they just help small businesses file their taxes and work on their accounting. And they typically do around $1 million to $2 million in revenue each year. And here's a quote from their slide deck. It says, we operate under our unique partner-owner-driver model where partners are owners of the businesses. So I went to Yellow Brick, typed in Kelly Partners, found a pretty high-quality write-up on it. And here's a snippet from that write-up.

Starting point is 00:43:13 It says, KPG Holding creates a subsidiary. So KPG, Kelly Partners, they create a subsidiary. and their subsidiary owns 51% of the acquired company. So they acquire 51% of it. And the partner who they're acquiring the company from will still own 49%. KPG Holding will not use any equity to acquire new companies

Starting point is 00:43:39 and they will always use debt where the debt is put into the operating business and the acquired company will repay the debt in four to five years. Also, they will split the payout, so the acquisition price, with a third of the acquisition price in year one and two-thirds after two years. So kind of nice from a cash flow perspective where you are recognizing the revenue up front,

Starting point is 00:44:02 but you're not actually paying out the acquisition price until two years after. KPG promises the acquired business to almost double their income. They can promise this as the acquired companies are relatively small with around $1 million to $2 million in revenue on average. This means that sales, general, and administrative expenses – are as a percentage of the revenue are quite high. You're thinking about these small businesses. Part of the biggest, I guess, hurdles of running a small business

Starting point is 00:44:30 is all the SG&A expenses associated with it. KPG is centralizing those SG&A costs. I mean, this is kind of the typical blueprint with a roll-up in general where you can offload those expenses to the parent company. And all of a sudden, if you are the leading accountant at that firm, your income just doubled. And so a lot of these founders of these smaller accounting firms, they're technical people. They're accountants. They don't want to have to run the business. So if they can strip out some of those costs and just earn a much higher

Starting point is 00:45:12 chunk on the net margin, they're more than happy to do so. So there ends up being a lot of acquisition candidates for them. This company is founder run. Brett Kelly founded the company, I think in 2006, and he owns roughly 50% of the shares outstanding. He says they only use debt to make acquisitions, never shares. And then he also said in these interviews that they typically buy these accounting firms at roughly 18% EBITDA margins. Like when they buy them, that's kind of the profit margins they're generating afterward after they offload all those or they centralize all those costs they get them up to 35 percent EBITDA margins so pretty attractive he's also this the CEO is a pretty interesting guy where he really aspires to be like the big serial

Starting point is 00:46:03 acquirers he says they he the people at the company really studied this big serial acquirers like Constellation, LVMH, she talked about Accenture, and what was the other one? Arthur Anderson, and try to model themselves after those companies. The enterprise value- Hopefully not Arthur Anderson. Not late Arthur Anderson. Yeah. I remember it was like a super tiny accounting company for a while, and then they ended up growing. So I think he was talking about the early days, but- Hopefully, yeah. After 1990, we don't talk about that. It's a $240 million market cap, USD.

Starting point is 00:46:45 Now, keep in mind, they do have some debt. So the enterprise value is $311 million. Brett just showed the chart. Revenue has compounded at almost 20% for more than a decade now. Operating income has compounded at roughly 20% for a decade. EV to operating income stands at about 20 times right now. What do you think? Interesting for sure.

Starting point is 00:47:08 Yeah. I'd like to see a lot of it is based on the CEO and trusting their culture. So I'd definitely have to look into that. So I can't make any judgments on whether I'd buy it or not. But the numbers make a lot of sense. I'd like to see the total addressable market. I know that's a hated word, but for these accounting firms. And yeah, we have a comment here that says, do you guys worry that KPG CEO has gone on

Starting point is 00:47:31 a podcast and media spree? Perhaps. And maybe that should make it on your watch list or something. I know that can some people talk about the jinx of going on a podcast and media spree for the CEOs, you know, like with the Shopify guy, the Spotify guy. I don't know if that's statistically significant, but it can lead to perhaps some short term momentum in the stock where people actually find out the name. But if the numbers make sense to you, it shouldn't matter. No. Yeah.

Starting point is 00:48:02 And it's not like they're sharing new shares. so they it's not like they're doing this to finance their own pocketbooks or anything like that the 50 owning 50 of the stock makes me a little more comfortable that he's not just trying to raise awareness so that he can sell his own shows um and he's pretty young i think not like crazy young but he's 40s might might be late 40s that's the sweet spot that's the sweet spot right there yeah anyways it pretty fascinating this is really big in micro cap club this company was the that's actually where on the one hand yes i don't like when ceos go on a bunch of podcasts and

Starting point is 00:48:48 interviews and stuff like that but i would not have heard of this company if he did not go on podcast so uh i was fortunate to hear that and i'm not buying anything yet but this might be uh one for maybe a deep dive later on hey your next stock research report which you just had one released today so maybe that's the one that comes up next uh and i would say buffett was on buffett's in the media all the time probably not not as much anymore because he's like 90 something years old But if that thing was 100% correlated where going on media made it so your stock was going to start underperforming, Berkshire Hathaway wouldn't work. Yeah, this one's interesting for sure. And if you look at it, 20 times earnings, essentially, 20 times operating earnings.

Starting point is 00:49:42 Historically, they've grown operating earnings at 18% a year. and it seems like given their size there's a long runway to continue that if you believe that the company should trade at about 20 times earnings and you don't think there's too much risk of multiple compression well hey that's 18 returns before any capital returns not bad yeah i like it and it makes sense from sometimes with these roll-ups it's like the big question is always why would someone sell to you if you're the acquirer and if you're just an accountant you're a really technical accountant it's you can still get a very good payout and still get a good chunk of owner earnings which will be substantially higher

Starting point is 00:50:29 when you cut out sgna makes a lot of sense i imagine there would be a lot of motivated sellers if that was the case and there's probably some good like i don't know best practices that you can learn from some of the other accounting firms as well so yeah find it fascinating they've been going on a bit of a buying spree lately with u.s accounting firms and i think it's durable like the industry it's huge and you still need that well hey maybe ai will destroy the whole thing now I don't know, but maybe they can use it to make the companies more efficient. We have a question here.

Starting point is 00:51:09 Thoughts on the Wise Q2 trading update? This is another European company that I think does the quarterly update that isn't a full earnings report, but this is one that Ryan owns, one that he did a research report on, I believe, a couple months ago or maybe even more recent. Here's some of the numbers I'm seeing. Cross-border volume growing 20% year over year. underlying income, which I think is kind of their normalized one without the interest income that has been skewing stuff, growing 17% take rate down to 0.59%. So it keeps moving in the right direction and instant transfers, which is those that arrive instantly up from 60% of volume in

Starting point is 00:51:45 Q2 of last year to 63% of Q2 of this year. Other numbers they talked about total active customers, $8.9 million. Let's see. 49% increase in card and other revenue. A lot of wise account adoption. Underlying income. Underlying gross profit remains elevated. This reflects the scaling of cost of goods sold relative to the volumes while also continuing to invest and support and drive growth. Seems good. No complaints. That cross-border take rate is the lowest they've ever had. They dropped the cross-border take rate to almost 0.6% roughly. So yeah, for one, as a customer, I love this because it's great if you can continue to lower what I have to pay you. And on the flip side, it incentivizes me – they have given me all the incentive in the world to keep my cash on the platform.

Starting point is 00:52:57 My only concern here with Wise, they've been – you can't get a Wise card in the States. I don't know why that is because I've been trying to. And they kind of – they've been limiting account openings lately in certain markets. um and i sometimes wonder if they're just like struggling with the demand that they get or i just don't see why they would ever limit account openings in like broadly i mean obviously you don't want a td bank like situation where you're giving accounts to criminals but they seem fairly secure so i don't think that's the concern i just wonder what's why they're limiting growth yeah it's a good question i read their conference call i think and or maybe they didn't

Starting point is 00:53:50 even have one but yeah that's something i would like to hear them ask i think they may have answered that last quarter about the the card in the u.s so there's some regulatory reason that they're not ready yet and that's for business only because i know i had a personal personal one well you've got the card i don't know how you got i do although i gotta say i don't use it much anymore i would i would use it pretty regularly i mean how often are you out of the states sometimes but if you get the thing is they don't offer the point stuff so like it's more of a backup plan to take out cash for free without those foreign transaction fees and that can provide some value but when you have the one thing i would say for the card

Starting point is 00:54:41 specifically for wise that could be a headwind is the huge growth in travel and airline cards that do stuff like since they're international they do um say stuff like oh no foreign transaction fees which you could probably investigate and see that wise is giving you a better deal but no one is looking at that i i'm typically someone that looks at that stuff and i usually forget and don't look at what they're actually charging. And then second, those airline and hotel points. So, yeah. No foreign transaction fees in air quotes.

Starting point is 00:55:13 I know, exactly. Manipulate the exchange rate. I like Wise. Yeah, I know. I've read their stuff. I understand what they're doing, but I still use the credit card sometimes. Yeah, anyway.

Starting point is 00:55:27 Yeah, maybe. Maybe that's a risk. but wise card has still been growing like a weed i think there's probably a lot of customers out there that would use it and i'm curious if is it really that much better to get your points or is it better to get four percent whatever yield while you're holding it in a wise account and paying nothing on foreign transactions well i mean that's a whole there's a lot of that's a whole can of worms because if it's a credit card then you're technically getting more time to pay it back uh on zero interest and you can hold it into high yield savings you can hold it

Starting point is 00:56:10 in a wise account probably although i think in the u.s they don't really offer that high yield thing except if you're a business account but i'm not exactly sure um see this is why like why can't they do that i would yeah because i haven't seen them advertise that to me yeah it's true it's true they're moving slowly on that uh and with that card stuff it's a small part of the business it's a nice thing to have it's almost like a backup plan and something that definitely provides value i just say don't expect 100 billion dollars in payment volume to be processed on these cards anytime soon i think it's more of a it's a nice feature to have to keep people as active customers you know that that need this type of stuff to to change uh to send money uh to different

Starting point is 00:56:55 to different borders cross borders you know what i continue to be more and more interested in is remitley hey let's see what that stock's trading and i own it so i should probably know oh that's a good sign if you haven't checked you know what i want to talk about right before we end this um jason herschman said something in that interview we kind of talked about this on the end of the last episode but jason herschman said something in an interview recently that he did uh with ian cassel and he's like basically he's like if there's something on my watch list i'm just not going to pay enough attention to act when the time comes and i think it makes a lot more sense like i totally agree with that unless you're doing this for a living

Starting point is 00:57:51 you manage money for a living and you're literally monitoring every position including the ones on your watch list and you're taking notes you know keeping tabs on everything i i'm just not going to you i'm not going to read every call if it's on my watch list i don't have the time i i it makes way more sense for me to buy a couple shares have some skin in the game and then all of a sudden i feel more motivated to research it and be ready when the time is right whereas if it's just sitting on the watch list it's probably going to stay there for a while yeah it makes sense it makes sense to me i know you're kind of anti-starter positions yeah i think i'm pretty good at reading the conference calls on the walk for stuff on my

Starting point is 00:58:38 watch list um today that's just me but you know every investor is different but would you i wouldn't want starter positions to make more than five percent of my portfolio though no no i agree you don't want too many or else it's like you basically have a watch list in your portfolio but do you feel like you know the businesses in your own portfolio better than the businesses on your watch list like if they all dropped 20 would you feel more comfortable buying something that well i guess you already own it so you think it has more upside but would you feel more comfortable buying it from your portfolio or your watch list or would it make no difference i don't think it makes too much of a difference

Starting point is 00:59:26 So I'm looking at my watch list right now on FinChat, which allows me to plug in that portfolio stuff, which is quite nice. So stuff on my watch list can range from things like Rocket Lab to Amazon to American Express to Sprouts Farmer's Market, Airbnb, Adyen. I think most of those, I would like almost all of those are on there just because I think the business is good or has some potential and I would buy at a certain price, but the Price might be 50% lower than it is right now. And I guess I didn't fall through with that with Adyen.

Starting point is 01:00:01 Got a little nervous. But if it happened, I would hope that I would buy. If you owned it, do you think you would have bought it? No. Probably not because I'm trying to avoid doubling down on things. But, no, I try to – I think the rule I try to have, and it's harder when you don't own it, is make sure you're in a position where you don't have to do much research at all if the stock drops and you're comfortable buying.

Starting point is 01:00:32 Yeah, that's fair. All right, I think we're bumping up on time. Yeah, I would say you can't do it with 100 companies. I could probably do it. I could do it for like 20. Yeah, I agree. And I will mention, we use FinChat literally all the time here. I work there and I'm super biased.

Starting point is 01:00:51 all the bias in the world. But I think it's a wonderful platform and it's really cheap if you're looking for a place to get all your data in one place. I think it's a wonderful stock research platform. Finchat.io slash chitchat gets you 15% off if you're looking for a research terminal. Yep. Yep. We've seen some people use it. Usually get at least a couple every week, which is beautiful. And that helps us out as well. So we appreciate everyone joining today thank you to our sponsors public yellow brick fin chat and thank you for everyone joining on the live podcast reporting these go out on youtube uh or live on youtube 1 30 p.m eastern time every wednesday or probably 95 of wednesdays depending on our schedule you can watch the

Starting point is 01:01:39 replays on youtube you can listen to the full podcast on spotify apple podcast wherever you your podcasts that come out Sunday morning. We don't care who listens. We just care that you do or how you listen. We just care that you do and find some enjoyment from these podcasts. Well, let's hit the disclosure. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast. I've held them in the past and may buy, sell, or hold them in the future. Thank you, everyone, once again, and we'll see you next week. Thanks for watching!

Chit Chat Stocks - 7 Hidden 100 Baggers; ASML Bookings Disaster; Tesla's Toothless Cybercab (ASML, TSLA, TSM, LVMUY)

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