Transcription
Look, you know as well as I do that what constitutes a great stock deal for you might well be totally different to what a great deal looks like to the next guy. It's all about what fits your goals, your risk tolerance, and a slew of other factors. And to be honest, anybody here on YouTube saying that this or that stock is the best deal for everybody is just being straight reckless. Of course, I do have three stocks to analyze with you today, and let's focus on how you can tell when a good deal is really a great deal.
Stock number one, guys—remember, I own Alibaba. It's actually my largest position, but don't ever buy a stock just cuz somebody on the internet or even Warren Buffett does it. Now, Alibaba just dropped some solid Q4 numbers—that's 8% revenue growth, hitting $38.6 billion. Not bad, right? Now, this shows that they're still a major player, adapting in a constantly shifting economy. But the real hell dime for them—AI and cloud. They unveiled QWQ32B, their latest AI model with 32 billion parameters, because apparently size does matter in AI, and they're not stopping there. They're throwing $52.4 billion into cloud computing and AI over the next 3 years. That is serious capital investment, folks. They're also teaming up with Apple to bring AI features to iPhones in China, plus they're launching an AI partner accelerator under their cloud partner reinforce plan—yeah, weird name, but the focus is clear: AI-driven expansion, all about AI these days. Now, Baba stock is up 80% in the last year, bouncing back from prior lows. Strategic investments plus innovation equals long-term value. Now, can they execute? That's what really matters.
Now, well, here's what's interesting: back when Amazon was doing strategic investments and innovation and not making money, it was all about, "Amazon's so great, they don't care about the present." But the story for Alibaba and China has been very different. They're doing the same things Amazon did back in the day, sacrificing short-term profit in order to grow in the future, but now it's, "Well, China's terrible, and they're communist, and blah, blah, blah." Maybe so—that's a very valid concern—but let's go check out Alibaba and the company and remember that in the future as you think about these companies: $350 billion market cap; free cash from the last 5 years has averaged $18 billion; last year was $13 billion; increasing returns on capital, which is great because it got pretty bad there for a while; compounded growth rate—5 and a half, 15%, and 30% in the three, five, and 10-year numbers, guys; profit margin—11 and a half percent over the last 5 years, 12 and a half percent. I mean, price-to-sales ratio of 2.5, even though the gross margin is 39. I threw a lot of numbers out there. Now, of course, I have a bias—it's my number one position. Now, part of that is because it's grown so much this year, but I also look at it saying, "My basic thesis on Alibaba is they're in China, the fastest-growing middle class in the world—1.6 billion people out there, 1.5 billion, whatever the number is. Yes, they've had a population decline, which I won't get into right now, but I don't necessarily think is a bad thing." But I look at this thinking to myself, "Where's the potential here? This—this country—the average person makes one-sixth of what the average person in the US makes." That's pretty big numbers there. Let's go check out their eight pillars—what's the story on the eight pillars telling us? A pretty bad story—five X's, four X's, and four checks. This is what I love right here—this is a company putting their money where their mouth is. This helps eliminate some of the concerns I have about fraudulent numbers coming out of Baba. You know, it's a big concern about China, but they're buying back shares. If they're going to create fraudulent numbers to buy back shares, I mean, is that really what's happening here? Maybe. But if they're going to commit fraud with your stock going from $300 and some dollars down to $58, commit fraud and lie about the numbers on the high side, not the low side. All right, so I look at these things thinking, "Okay, these are pretty good. I mean, low debt on beaten-down free cash flow numbers—I'm feeling good about this kind of stuff." But let's see what the analyst thinks. Analysts—next three years—going from $8.86 per share to $11.17—double-digit growth for the next two years, and revenue growing—nothing sexy—6.886, 4.5%—nothing to write home about, guys. Nothing to write home about at all. Are they a little low? Maybe. But I like the way this looks from the perspective of what the future holds.
Now, we have a story. The story is China. The story is a fast-growing economy. The story is when they have a recession, it's 4 or 5% growth, not negative growth. We have the numbers, which looked a lot better when the stock was at $80 versus $140. So that's what you got to remember as an investor—the price changes the outlook here in terms of investment criteria, because our fourth tenant of our principal-driven investing is a great story can become a bad investment if you pay the wrong price. That's why we use a stock analyzer tool. The stock analyzer tool helps us put all of these things together to come up with the right price that—that fits our story with the numbers. Our story is going to drive down the—drive these assumptions. So here are my assumptions that I made: 3, 6, and 9% revenue growth—nothing to write home about, nothing great, nothing bad; profit margin—I did 12, 15, and 18%—pretty much in line with our last 10 years; now, free cash flow—I went higher because in the last 5 and 10 years they had higher free cash flow than profit margin, so I put 15, 18, and 21; and for a PE and price of free cash flow, I put 15, 17, and 19; and finally, what is your desired return? Now, I always put in 9%. You can put in 10. That's to find intrinsic value, but remember, we're not here to buy individual companies at what they're worth. If you're going to buy an individual company, buy them with a margin of safety in there. And the reason being is we're humans, and we make mistakes, and the future's unknown. So for individual companies, if you want to just get the market return, just buy an ETF—buy SPY, buy QQQ—and roll with it, which I highly encourage everybody to do. But if you're going to buy individual companies, you need to have a higher desire return. I'd put in 9% just to come up with intrinsic value. Hit the analyze button, and guys, a low price of $100 to $130, high price of $285 to $330, middle price of $175 to $210. So according to my numbers, there's still some juice left in this squeeze. But as you can remember, guys, when the stock was at $80, it was all green. If you go look at our past numbers, all green. Now, the great news is, guys, whatever your assumptions are here, share them with people—have—get input from people. If you're in our community, by all means, I love when I see people share their stock analyzer. And there's a reason why this thing was used over a million times last year, because people—you know, Tim just said to me, "Paul, I bet you a lot of people would put double-digit growth in Frab for revenue." Maybe so. I just like to be more conservative at times to see how good of a buy is this really.
Stock number two—another position of mine: Southwest Airlines. All right, folks, let's talk about Southwest. So in Q3 2024, they barely eaked out a profit of $67 million—not really that great. That's a sharp increase thanks to rising labor and operational costs. So what's their move? Well, they have a 15% corporate workforce cut—their first mass layoff in 53 years. That's an ouch, but it's meant to save them $200 million this year and $300 million next year. Now, big changes are coming: no more open seating—assigned seats rollout this year with premium options and redeye flights on the way. And Southwest finally joined the AI airline partnership game, teaming up with Iceland Air for international reach. Now, what's the cherry on top? Activist investor Elliot has shaken things up—new leadership, a fresh chairman change is here. Will these moves revive Southwest? Maybe. But as investors, we need to focus on numbers, not nostalgia. So let's see if they execute. Now, if you've watched our videos in the past, Southwest is another position of mine—actually, I believe it's my biggest potential stock right now, and I'll show you that shortly in the stock analyzer tool. But you got to remember my big thesis is this: let's go to the metrics—look at these numbers: profit margin last year—1.7%; last 5 years—minus 0.6, guys. Before COVID, they were consistently 10 to 15%. That is my thesis—that they're going to get back to that because margins mean revert—they all go back to the historical average. But you'll see in my stock analyzer tool that it's actually—I'm actually being more conservative than the historical average. Let me show you guys. Let's get right to our stock analyzer tool where I can show you guys what's going on because they're current revenue is at record revenue levels. So let's pull up the stock—oh, actually, you know what? Let's first see what analysts are saying because that's really important here. Analysts expecting $165 this year, $240, $320, $465—almost 3x the profit in the next two or—or three years. Let's go look at their revenue growth—not much, but 6, 5, 4, and some random minus 3% by the two analysts. At the end of the day, that's a lot of potential there—still growing, still making record revenue every single year. So I'm going to pull up the stock analyzer tool. I want you guys to see what I'm thinking. So my 10-year analysis: 2, 4, 6% revenue growth; profit margin, guys—that's what I said—4, 8, and 12. Like I said before, COVID, they were consistently 10 to 15%. I'm going on my middle assumptions only at 8—I'm being conservative there; PE—it's an airline—let's go even more conservative than the fact that they're the leading airline—they've never declared bankruptcy, and until COVID, they'd never had a losing year. Let's assume 12, 14, and 16 times earnings, and free cash flow, and 9% desired return. The stock's currently at $32, guys. Look at this: low side—$21; high side—$102; middle side—$54 per share. And again, guys, I think I was being conservative on my numbers. I look at Southwest going, "Okay, what's their—let's sell to somebody"—kind of price it—it's probably somewhere in the high teens where somebody starts looking at acquiring them. So my downside is about 35%, but my upside way higher.
Now, guys, as I said to you, there's a reason why the stock analyzer tool is used so much—over a million times a year by our users. How confident are you in your investing decisions? Do you really understand the companies you're buying, or are you just following stock tips? Our tools—our software—allows you to understand what you're buying. I know what it feels like to invest without a real process because I've been there early in my investing journey. I bought a stock called Global Crossing. It was recommended to me by my sister's boyfriend's father, and it was going to be the next big thing in telecom. And guess what? I didn't do any research. I didn't understand that every investment is the present value of all future cash flows. I had no process. You know what I had? I had a stock that went to zero—gone. It was painful, but it was a necessary lesson. If I—if you don't know what you're doing, the market's going to humble you. This is exactly why I built Everything Money. The stock analyzer tool was actually what got us to release the software, everybody, because I was using an Excel sheet that had a data feed that built this tool, and everybody would say, "Paul, how do I get that?" I'm like, "Oh, you can't get it—it's a data feed." But you know what? We figured out a way to give it to you guys, and now thousands of investors use it every single day to help them avoid the mistakes I made early on. Look at this, guys. If you understand that every investment is the present value of all the cash flows that a company's going to bring in, you can estimate those cash flows, and it'll tell you the price to pay and your returns based on those prices. But we're doing something here on April 15th—we are making major changes. You have one month left—this offer will be gone forever. If you join before then, you'll be grandfathered in for life in the best deal we've offered. This means you're locked in on your pricing tier forever, and you get unlimited access to all of our investing tools that involve real estate, stocks, calculators, and most importantly, our community of several thousand like-minded investors who help each other stay rational, and when the markets are bad, they cheer. That's right, guys—we've had nothing but excitement for the last month. So guys, if you want to change the way in which you live, if you want to change the way in which you sleep at night, if you want to make your investing results better and have that warm and fuzzy feeling inside knowing that you're thinking different than all the lemmings out there, join our software—everything.com/signup. But do me a favor—I only want serious investors. If you're looking to skip steps and have people give you stocks to buy, this is not the place for you. We only want people who want to learn how to fish. If you want fish, go to the supermarket. If you don't want to go on this journey alone, sign up now, guys.
The third company—this is going to be different: Dillards. Dillards is the big department store. They just wrapped up its fiscal year with $6.75 billion in sales and, surprisingly, $740 million in net income. That's pretty solid execution driven by strong inventory management and operational efficiency—two things that retailers must nail to stay competitive, especially in this world of online shopping. But here's what really grabs my attention: the 26% drop in their stock price from their all-time high of $510 on—on February 21st of 2025. That's a very, very fast drop. But let's talk about share buybacks. Dillards has shrunk its shares from 42.6 million in 2015 to—ready for this one—16 million shares today. That's an insane reduction, guys. Why does that matter? Well, let's look at it this way: let's say they do the $750 million a year for the rest of the time—they have 16 million shares outstanding right now—that's roughly $45 per share. Okay, now I'm making an assumption here, but I'm going to go even worse: let's say their profit drops in the next five years to $500 million, but they buy back 10 million more shares—they're down to 6 million shares. What's your profit per share here now? What is that? $85 a share. So even though their profit went down by two—by one-third, they buy back shares that are smart purchases—back—they drive the price—the earnings per share to $85 a share. That's the power of strategic stock buybacks. But the most important part is they got to be buying back cheap shares. And here's what I love: their price of free cash flow is 8.71; their current PE is nine. They're buying back cheap shares—that's what I love. You know what I hate? The stupid dividends. Hey, Dillards, what the—are you doing? Why would you pay a dividend? Buy back those shares—$300 million a year—buy that back. So even for a dying business, as long as they're able to stay profitable and get more and more efficient, even if they're declining their revenue and their profit, if they use all their cash flow to buy back cheap shares, it can be a big winner. So let's go see the eight pillars in this company and see what it looks like. Oh, actually, surprised here—checks all around; low debt; buying back shares; single-digit price of free cash flow. Guys, you might be wondering, "Well, Paul, why aren't you buying this?" Well, it doesn't fit my investing criteria, but I do think this is very interesting. This is the kind of thing that a true value investor would look at saying, "Okay, if Dillards can stick around and just maintain for the rest of the time, this would be a very great investment." If they're literally—if God came down to me right now and said, "Paul, Dillards is going to make $750 million a year for the rest of the time," then I would buy this company, because I look at this going, "Wow, they're going to buy back shares; they're going to keep the same profit—it's just going to keep—they're going to do—then eventually, at some point, they're gonna just have to pay out dividends because they're the share prices are too expensive to buy back, and they're just going to pay out dividends all the time." Let's see what analysts are saying for this—let's see what they think the earnings per share will be. Oh, big drops—33, 28, 17—it's not for the faint of heart, guys. Revenue—actually not bad—I would have thought way worse—$6.5 billion—a slight increase and then a decrease of 7%. Now, guys, another reason—I wouldn't be shocked if Dillards is gone in 10 years, but doesn't mean there can't be money to be made today in it. But for me, I don't want companies I have to sit there and watch them and see what they're doing every second of every day—that means I'm going to make less money. But this is pretty interesting here. So let's go to the stock analyzer tool. Let's make my assumptions here. Let's see how DDS does. Let's see if I've ever done it before—I have. All right, I'm going to go even more extreme—I'm going to go negative 4%, negative -2%, and let's say they stay the same profit margin—I cut it in half—to 4, 4 and a half, and 5—even though the last year they've been 9% or so; free cash flow—I did 5 and a half, 6 and a quarter, and 7, guys; let's make it the same thing as before—PE—7, 9, 11—and 9% desired return. Hit the analyze button. Well, so guys, this is a bad return at today's price, according to my assumptions, but my assumptions could be wrong. And the other thing is my assumptions don't factor in them buying back shares for the stock price. That's the other thing, guys. You just saw me identify some undervalued stocks that can lead to massive upside, but here's the truth: watching one video won't make you a great investor. In fact, I still repeat the same basic mantras over and over to myself every single day, because the difference between someone who gets lucky on a trade and someone who builds long-term wealth isn't just knowing what stocks to buy—it's knowing why they're undervalued before the rest of the market catches on. And that's exactly what you need to master, because if you want to consistently spot high-upside stocks before they take off, you need a solid framework, and more importantly, you need to be able to stomach that when we were buying Alibaba when everybody said we were crazy—I don't know where Alibaba is going to go—it could go right back down to $58 a share, or it could be on its march up to true value. That's what the next video is going to help you do. So don't stop here—click the video on the screen now and start thinking like a principle-driven investor.