Transcription
Good day fellow investors. This is last month's quadrant. It's time to update it. A lot of news and interesting developments with the stocks we cover, and I'll always add a few more.
So, the quadrant is made in a way that on this side, you have the reward started from low and going towards high. On the y-axis, you have the risk starting from high and going towards low. So, if you want to find low-risk, high-reward investments, you have to check my research platform here. This is the public one that we use for education and some ideas. I'll add one here later for YouTube, but you can check my premium research platform, Quadrant, where you can see also the positions I'm considering and how I put them into my portfolios. 21-day money-back guarantee. Check it out if you like how I think when it comes to investing, which is something you'll see through this video.
And let's immediately start with the S&P 500, which, let me be blunt, in this video, I think it's garbage. Since April, it has been a straight line up. And now expectations are for even more exuberance. 9,000 because there is still so much room to run in this bubble. The Fed will cut rates. AI spends support a pro-risk view. BlackRock says, "Everybody is cheering. What am I doing? I'm bringing the S&P 500 from some return to zero returns. Very high risk, very low reward." Why? Because at this level, the bubble might have another few legs to go, but then eventually, somewhere, it will revert to fundamentals, which are practically non-existent. At a P ratio of 30, there will be competition with AI. All these high cash capex will not lead to returns, and it will look ugly. With a 1% dividend yield, it's disgusting.
However, if you are invested in the S&P 500, why don't you do it the value investing way? So, there is 40% potential upside. There is also 50% potential downside. How to protect from the downside? Spend 5% of your portfolio, buy a put option for, I don't know, December 2026. That's 12 months of protection. Here you have it, 5.9% of your portfolio, and you can sleep well for a year. That means that your gain will not be 30%, it will be 25% if the market goes up 30%. No risk. That's value investing. No risk, high reward. Your maximum loss 5.9% for the next 14 months minus 1.2 dividend is 4%. Maximum upside, don't know, 25, 30%. Maximum loss 4%. No risk, high reward on a yearly basis. Then you can put the S&P 500 with a put option somewhere in the good situation. But it is a risk because you can lose. Why doesn't anybody do the put option? Because everybody's so greedy and nobody even thinks about it. And then on high volumes, pension funds, it's a little bit tricky. Nevertheless, without a put option, this is the intrinsic value video of the S&P 500. You'll find all the links to the detailed explanations in the description of this video below.
Next one, Canadian Railway. We just discussed it a few days ago. Nothing terribly wrong, but also nothing terribly good. Therefore, just a, eh, investment. What you can expect is the dividend yield and build on that. But with 2%, it's better than the S&P 500, but not that much.
Then here we have Google. The stock just kept on going here. We discussed it how at 160, it is a good buy. How it can even go to 500, and it's on its way up, 22%. However, again, as a value investor, I look at fundamentals. Yes, earnings are growing 22%, but look at the capex, 90, 60, 40, 70% growth spending hundreds of billions and more on the capex. Just a note here, look at Apple's capital expenditures, 10 billion. Because Apple is printing cash, and Apple, with the mobile phone, has a moat that allows them to print cash. Google needs to invest a lot. We'll discuss also Apple and the changes there. The key question with Google's and everything, who is the disruptor now? Who will be the disrupted? Because I use Google less. Now, with AI, you never know what our phones will look like two years from now. Will we use Google? It's just in the starting. AI will change the world. It is an investing bubble, but it will change the world, and therefore it might also impact these companies. So, at these prices, I'll keep Google here at a high risk for a medium reward. Not interesting for me.
Let's look also at Apple, as we are already here. P ratio 40, market cap almost 4 trillion. The stock has been ballooning, booming, everything looking great. However, if you look at the growth, total net sales are up a few percentage points. Earnings, net income, a little bit more, but it's not stellar. The company is not really growing. They're enjoying their position and trying to slowly grow. But slow growth doesn't justify a 40 P ratio. That's a little bit more. And now they even make the mistake of joining the party, and they will invest 500 billion in the US over the next four years. I think that's a mistake, which means the stock will go lower. Therefore, it's risky. They are going to pledge investing in American innovation after they have been enjoying for the last decade Chinese production and everything. So, our country's future, where were you the last 10 years as you were producing everything in China? So, I cannot understand who reads this BS and then thinks there is anything here American if a company is a Chinese company. But okay, doesn't matter. This is just marketing, as always. They will invest everything. Great. Wow. Wow. However, with this AI and everything, especially with the high competition, if everybody's investing $500 billion, we as customers will profit. Everything will be for free because they will chase us like crazy. Like the internet, you're practically paying peanuts to watch me now from across the world telling you how Apple is expensive. That's not how you make money. Making those expensive phones, Apple, is how you made your money. Now you're changing that, which means risky, something new, too risky for a P ratio 40. Anyway, I'll put here Apple, much uglier than Google, much less growth, much less everything. So, I'll put it here on the quadrant.
If we go to our Amazon, okay, P ratio even lower than Apple, but Amazon is a company that's still growing 10%. It is still expanding its ecosystem. It's still doing great. Even as they focused a little bit of net income, they pushed it much higher, but they're not investing in those models and AI. They are investing in their own cloud and AWS, things like that. So that might be something. Nevertheless, there is always, you have to think about the shares, the dilution. If they manage dilution, they have to buy back 100 million shares. That's 25 billion. That's also a question mark. That then, from a fundamental perspective, changes things a little bit. And they have spent 102 billion over the last 12 months on capex. So, okay, I still think they will do well. Perhaps there will be some ups and downs. So, 6, 7% return, bitter higher risk on the volatility there.
Now, yesterday and the day before that, we have discussed Vail Resorts and Nomad. The link in description below for the videos. Interesting place, value investing place in this environment.
Then we have Schwab Dividend ETF. A lot of you requested it, and look at this. Interest rates expected to go down. Schwab goes down too. What's going on? Well, this is a dividend player. Therefore, it is related to the real economy. The Fed is lowering rates because the real economy, jobs, is not doing good. You're spending your retailers, your consumer staples, your car companies, and things like that. And that's why it is under pressure, despite interest rates going lower. I even didn't think about that. It really surprises me checking this stock price now because when you look at this, okay, there's pharma that you never know how it will go. Those are the high payments. Maybe the government will intervene. Altria, Chevron, okay, oil players, Home Depot, and things like that. They are collecting those yields across the, let's say, sectors. But these sectors can be under pressure, let's say, in a negative financial environment because it's not AI. AI is not paying dividends. So that is the reason of the bad situation. Given the situation, I'm lowering a little bit the return, putting it closer to the dividend yield, and then expecting it to be stable for a while, given the environment and related situations. So, just a little bit on the conservative side.
Now, as always, we have Berkshire here with us. Very low risk because it's a financial fortress. However, also low reward because of the price. I told you in 2020, buy Berkshire at a 10% yield. Now it is here. So, for me, Berkshire is always Berkshire, but it will grow at a trend of 6, 7, 8%, and you need to try to buy it below trend for good returns. This will always be okay, but it will be like your 4, 5% because you are paying that on the current good fundamentals. Nothing wrong with Berkshire. Buffett will deploy the cash when the opportunities start to rain in the next crash. So, he's waiting for the crash. For most of you, it's better to be in Berkshire than in S&P 500 index and things like that. Nothing wrong. For me, I just wait for the right price. The same as Warren Buffett is doing with his 350 billion. So, don't get mad at me. I love Berkshire. It's the best business out there. I'll buy it, too. Just give it to me at a little lower price.
Now, we have here a group of Verizon, Nutrien, BHP. I'll skip that. Looked a little bit, nothing new to update there from last month's iron ore related risky fertilizer. When the time comes, we'll dig into a sector in this. They just keep on paying their dividend, stable, and that's it. Nothing to mention there.
Now, ASML. Here we have something to mention. We've discussed it a little bit in the past, the risk and reward situation, and now, now the return has already been made as the AI bubble is there. If we look at our intrinsic comparative value table, all of these things, the quadrant, and everything can be found on my free value investing course and the premium versions on the research platform. However, with ASML, here you have it. Let's check the valuation. If I look at from a purely value investment perspective and put a P ratio 15, of 20, even 12, then yes, it's overvalued when you compare things. However, as we discussed here, lower price, better buy, and the lower the price was, the risk and reward was better. I think I explained it in the videos and also here in the short. So, with a P ratio of 30, when it, the stock was at 600, given the expected projected most likely earnings growth, there you would still be at 900, you would make money. On the other hand, if it goes to 40 on exuberance, it goes to 1,600. So, that low-risk scenario betting on AI has unfortunately passed. Now the risk is a little bit higher, but it still can double from here if the exuberance stays. So, I'm just transferring ASML a little bit to the lower reward for the same risk. Nothing wrong with it, but just price is higher. I have to do that.
Then the next one, we have the oil companies, and the most notorious in the last few weeks was Occidental Petroleum by selling their OxyChem to Warren Buffett. Now, when it comes to oil stocks, stories, news, selling this, selling that, buying that, left and right, it will always depend on my dear friends, on oil prices. So, when oil prices are high, everybody's flooded with money. When oil prices start to go down, the stock will follow, no matter what. So, the key question is now, is it a buy as they will lower their debt with their OxyChem transaction, and what kind of returns can we expect? Okay. So, they will get their 6.5 billion debt reduction. 1.5 billion will go to the balance sheet. Debt below 15 billion will then allow for perhaps more buybacks, perhaps higher dividends. We'll see about that. But for now, they will also save 300 million on interest savings as they pay off 6.5 billion in debt. Keep in mind, this is the low interest rate they got in the past. Now, interest rates for sad junk debt is around 7%. So, refinancing this would make this 500 million per year, and therefore that's also something that explains the OxyChem transaction. They should be able to start accelerating shareholder returns, repurchase program, further debt reduction. However, there are always some skeletons there with OxyChem. They still have the warrants for Warren Buffett. They still have 8% preferred shares that Warren got. I also want to invest in OxyChem with an 8% guaranteed return until I want the shares to be redeemed. So, that's something to keep in mind. However, we have to understand they didn't sell something worthless. They sold OxyChem that was expected to make around 700 million after-tax income. Also, the biggest growth of their cash flow improvement was expected to come from chemicals. So, that is then also gone. There should be from midstream, but this is gone. And that's also something that you have to calculate in your, let's say, valuation. Another thing, when does Warren Buffett buy things on the cheap? Give me my 8%, and then you can do whatever you want. Not here paying 20 billion or 15 here when it looks ugly and then at the bottom of the cycle. So, always Warren Buffett has said before, Berkshire is a great investment, just too pricey for now. Nevertheless, if oil prices go down 10 bucks, OxyChem loses 2.5 billion in cash flows. And if we look at the cash flows, 2024 was around four, five billion the free cash flow. So, with prices down 10 bucks, you can expect lower free cash flows. That means that the likely going forward cash flows, especially without OxyChem, will be now not 5 billion, but perhaps four, three billion, especially if the weakness in oil prices persists. So, the key driver here is oil. I think that when it comes to oil, we are in a downturn, but not yet those downturns that make you, okay, this is so cheap like it was in September 2020. Some of you that follow me since then might remember when we discussed 2020 was a time to buy oil. Now, we are still not there. If there is a recession, if this, if that, then this will look much uglier. Occidental will not make any money. Looking for money from Buffett, perhaps. Then it will be the time to look again at oil companies, especially these riskier, higher cost, higher leverage oil companies. Because of that oil risk, and as time goes on, I have lowered a little bit the expected return on Occidental, kept the same risk.
If we want less risk, you can see it here towards the lower side on the risk. We have Aker and Equinor. The Norwegian lower cost, lower debt production, oil production. As said, Aker, we discussed at the beginning of the year. It's already a little bit up going forward because simply the dividend there was 10%, now it's likely 8%. Still good. Nothing wrong there. Good numbers last quarter. Dividends still good. So, this is a little bit more diversified, I think, but I'll keep them here. So, check Norwegian taxes on dividends with your broker, whether it is 8% or six or five, and then compare to other investment opportunities.
We have Archer Daniels Midland. We discussed it in the beginning of the year, but just to show you the craziness of this market. ADM, AMD went crazy, and the same day AMD went crazy. ADM also went crazy because AMD went crazy, and people are a little bit dyslexic and miss things out. So, that's the market, just tickers, just betting, just craziness. This is just crazy. Nevertheless, there is a good trend in food. Things are not as bad as many expected there. So, the dividend is not 5% anymore. But another thing to discuss here is look at the 52-week low, 40. 52-week high, 64. That's plus 60%. That is something normal when it comes to stock market investing in a year. And I find that an essential driver of returns to buy and wait for the right prices. And that's why I have this list of stocks that I follow, commodities, Chinese, and when these stocks fall to low levels where it is smart to buy them. This is my research platform, the covered list. And then you put them into the various portfolios. For those looking to more diversification, diversified model, for a research platform model portfolio, and for crazy investing, you have my personal portfolio. That is what I do. And that's something I think everybody should have a list of 30 to 50 stocks. You just here and there watch a little bit what's going on. And then when the market is irrational, and nobody can tell me this is not irrational. Just a few months ago, this was 40. Now it's 60. The same business, same food, same everything. Then you buy when the market is irrational. That's the value investing strategy.
Then we have Green Brick Partners, David Einhorn's low P ratio. If you like real estate in, where was it? Austin or something. Check this business out. But to add another Einhorn idea, there are some others that I have to check. We'll make videos in the coming weeks.
Then we have this again, food-related stock that is now down. But given the cycle, as we discussed here, over the next three to five years, it should be an interesting, let's say, agricultural play as the sector goes through its cycles. And here is my valuation. You can see it here at 13. The stock price is at 10. That's a 12, 13% likely return going forward across the cycle. So, I'll put it here at 10% on the riskier side of things. But a very interesting proposition there.
Then we have Valaris. Too much value, likely here, and it's just climbing up, slow and steady, as that market gets the value there. That's also something interesting. As the stock price goes up, I have to, let's say, increase the risk and lower the reward there, or just in this case, lower the reward. The risk and reward, likely the risk, likely remains the same.
Now, Sunoco. You say, okay, give us a strong buy, not just these Norwegian high-dividend tax things. Okay, let's go. As discussed at the beginning, Amsterdam Commodities. I've discussed it here and there on, uh, this channel already two years ago, then here also, and here also as a crash strategy. 6% yield. Now it's five. Okay, 5% growth. That's something on food because this is a spice trader from the Netherlands. Stable, big history. They do tea, dried fruit, chocolate, nuts, things that are defensive, and I don't think AI will be able to disrupt this. Their strategic financial objectives are to grow to two billion in sales over the next few years, get to a good margin, good dividend payouts, and they will do that with organic growth. Keep in mind inflation, food, slow and steady going forward. And then they also grow through M&A. Just recently announced this. What did they buy? Italian Manuti. So, they are constantly buying these smaller players, integrating them into the system. They recently bought something in Norway. And this M&A of small integration into big ecosystem is usually the best way to do M&A. That's why I like them. And you can see also here, revenue doubled over the last five years. Sales also going towards the double. Keep in mind, this is food. So, there will always be the ups and downs depending on food prices, but they are doing their own job. If we look at the intrinsic value template from my research platform, in this case, dividend per share, if they reach their goals, their dividend will be to around 2030. Put that into a perspective, then the present value for a 10% return is still around 30, 40, 30-something euros, and that is something compared to the current stock price. Of course, given the food cyclicality and sector, when the market is pessimistic, there will always be some issues. Cocoa prices, hedges were the issue here, but those that accumulated did really well. The investing scenarios, 5% yield gives you 50% up in a decade, no matter what. If there is 5% growth, that's a double in 7.2 years. You can also then reinvest the dividend in those things that are cheap on your covered list. And that's how you compound over time. So, here there is Amsterdam Commodities. I think it will be a 10, 8, and 10% lower risk compared to everything else investment situation.
So, this is the quadrant. This is my quadrant on the research platform. Check that out. There is a 21-day money-back guarantee. I always tell people, just for the context to understand what value investing is and what we do on this channel, always check my research platform. Thanks for watching. Here you have my performance and more on the platform. I'll see you in the next.