What Stock Would Warren Buffett Buy If He Started Over In 2024?
12 Feb 2024 (7 months ago)
Intro
- The hosts, Sean and Sam, introduce the concept of "Stockapalooza," where they will each present a stock pick and make a case for it, similar to the TED-style talks at the Sohn Conference.
- They encourage viewers to watch the video on YouTube to see the slides and charts they have prepared.
- They ask viewers to subscribe to their YouTube channel to support their efforts.
- Each host will have 20 minutes to present their stock pick.
- Sean will ask questions but try not to interrupt too much.
- After both presentations, they will discuss the stocks and answer questions from viewers.
Rules of Stock-a-palooza
- The video analyzes choosing a single stock that has the potential to outperform the S&P 500's 10-year annual return of 10.5% and potentially provide a 5x return in 10 years.
- Warren Buffett's investment criteria are studied to gain insights into successful stock selection.
- Buffett's criteria include:
- Understandability: Investing in businesses that are easy to comprehend.
- Economic moat: Preferring companies with few competitors, pricing power, and long-term durability.
- Competent management: Valuing strong management teams.
- Margin of safety: Buying stocks at a discount to their intrinsic value.
- Strong financials: Seeking companies with high earnings, low capital expenditures, and low debt.
5 reasons to buy brands not stocks
- Warren Buffett shifted his investment strategy in his 60s from focusing solely on financials to prioritizing brands.
- He believes in paying a fair price for a great business rather than a great price for a fair business.
- Some of his current investments include Apple, Bank of America, American Express, Coca-Cola, and Geico, all of which are well-established brands.
- The speaker shares an example of using HubSpot's landing page tool to generate leads for their company, Hampton.
- They created a landing page with a survey about founders' finances and offered access to the survey in exchange for email addresses.
- The landing page was shared on Twitter and attracted thousands of visitors, many of whom provided their email addresses.
- The speaker can track the source of the traffic and measure the revenue generated from the survey, including how many people signed up for Hampton membership.
Shaan's stock pick: TKO
- TKO, the parent company of WWE and UFC, meets Warren Buffett's criteria for successful investing: understandable business model, global appeal, high lifetime value fans, monopoly-like market share, and competent management.
- TKO has a market cap of around $14 billion and generates over $1 billion in annual revenue.
- The company is relatively recession-proof and AI-resistant, with the potential for significant growth through renegotiating media rights deals.
- Risks include a high debt load and recent poor stock performance.
- If Warren Buffett started over in 2024, he might consider companies like Alphabet (GOOGL) and Amazon (AMZN) for their strong fundamentals, long-term growth potential, and history of innovation.
But the risks…
- Potential risks associated with the UFC:
- Fighters unionizing and collectively bargaining for higher pay.
- Dana White, the CEO, retiring and the impact it could have on the business.
- Liability concerns due to the nature of the industry (grown men fighting in their underwear).
- Controversial statements and actions by Dana White, including a domestic violence incident.
- Controversial figures in the UFC, such as Sean Strickland, who make statements that some people find offensive.
- Despite the risks mentioned, the UFC has shown resilience and continued success:
- The business has survived and thrived despite Dana White's controversial statements and actions.
- The UFC has demonstrated "anti-fragility" by successfully navigating challenges such as the COVID-19 pandemic, which heavily impacted live events.
Forecast: Rising micro tide
- The UFC demonstrated adaptability during the pandemic by creating "fight island" in Abu Dhabi, showcasing untapped growth potential in markets like Africa, India, and China.
- The UFC's storytelling and character creation make them successful on social media platforms compared to other sports leagues.
- Endeavor's expertise in negotiating media rights and sponsorships contributes to the UFC's financial growth, with recent major streaming deals highlighting the potential for lucrative streaming revenue.
- Dana White's departure could negatively impact the UFC due to the loss of his leadership and charisma.
- The UFC's fighter compensation structure, paying fighters 14% compared to the NFL and NBA's 50%, faces a lawsuit alleging monopoly practices, potentially altering the UFC's economics and changing fighter compensation.
- Despite championship status, some UFC fighters, like Francis Ngannou, face financial struggles and rely on additional income sources like driving for Uber, highlighting the challenges UFC fighters encounter.
Sam's rule: Numbers be damned
- UFC fighters are underpaid compared to mid-level engineers at Google.
- Underpaying fighters could negatively impact the sport's longevity and business.
- Rivian
- 23andMe
- Container Store
- HubSpot (owned by the speaker)
- The speaker will focus on the story rather than the numbers.
- The speaker will base their analysis on what they find cool and interesting.
LVMH model
- The speaker suggests potential stocks for investment if starting over in 2024.
- Amazon is considered a slow and predictable investment, while Tesla and Elon Musk's ventures are dismissed as unappealing.
- Microsoft is acknowledged as a great company but deemed unexciting.
- Inspired by Bernard Arnault, the CEO of LVMH, the speaker emphasizes the importance of heritage, high margins, and affordable luxury in the luxury goods industry.
- Aston Martin is initially considered but rejected due to low valuation, poor margins, and lack of exclusivity.
- The speaker ultimately identifies an unnamed company that meets the criteria of longevity, high margins, exclusivity, and desirability.
Sam's pick: Ferrari
- Enzo Ferrari, the founder of Ferrari, was passionate about race car driving and dissatisfied with the performance of Fiat cars.
- Ferrari focused on creating powerful engines and eventually gained recognition for his expertise.
- In 2023, Ferrari experienced a 17% revenue growth to $6.5 billion and a net profit of $1.3 billion.
- Despite selling only 13,000 cars compared to Honda's 1.2 million, Ferrari's market capitalization reached $72 billion, making it one of the largest car companies globally.
- Ferrari has a high PE ratio of 54, indicating a relatively high valuation compared to its earnings.
- Ferrari is considered a cash cow in the industry, generating more profit per unit sold than any other car manufacturer.
The ultimate brand play: Exclusivity
- Ferrari generates a significantly higher profit per car sold compared to other luxury car manufacturers due to its strict and exclusive buying process, which includes a waiting list and requirements to purchase multiple base models before accessing higher-end models.
- Ferrari enforces strict rules and restrictions on owners, including limitations on modifications, repainting, and reselling without permission, to maintain brand exclusivity and ensure brand integrity through a "bounty program" that encourages people to report violations.
- Ferrari generates a substantial portion of its revenue from merchandise sales, with a significant percentage of car sales going to existing Ferrari owners, who are attracted to the brand's strong heritage and the exclusivity it represents.
- Despite the high price tag and potential drawbacks such as being loud, rough, and attracting a lot of attention, Ferrari products are highly sought after and command a premium price, making it a strong and successful brand with a loyal customer base.
- While Ferrari's PE ratio is high, indicating potential limited value left in the stock, its consistent growth with an average annual stock price increase of around 30% since going public in 2018, along with the recent signing of Lewis Hamilton, suggests continued success and appeal for the brand.
The downsides
- Ferrari is a luxury brand with a high PE ratio, making it a risky investment.
- Younger generations' declining interest in cars could affect Ferrari's future demand.
- EU regulations requiring hybrid components in cars by 2030 pose a potential risk to Ferrari.
- Ferrari's success is attributed to its founder's passion and focus on building an aspirational brand.
- The company's refusal to compromise its brand by offering lower-priced models has contributed to its success.
- Warren Buffett would likely invest in a company like Honda or Toyota, which sells over a million units.