Transcription
[Music] Now let's look at the other side of the coin. So, like I said, in this market right now, there are certain parts of the market that are very expensive, in a bubble, like these. But there are also certain parts of the market that are very, very cheap because they've been, they've been ignored by Mr. Market. They've been neglected. It's kind of like everyone is chasing the AI, chasing the uranium, chasing the quantum computing that they have ignored these sectors.
So, when money flows into the hot sectors, they flow out of the non-hot sectors. And these non-hot sectors, the market price has been dropping, dropping, dropping, even for companies that are making good money. And now they are very undervalued. And as a result, for us as investors, they present great opportunities. Pick them up at a huge discount. It's kind of like this guy has got a beautiful wife, but he's neglected his wife because he's chasing the new hot chick, right? So, as he's chasing the new hot chick, he's not watching his wife. His wife is neglected. So, we go in and we grab his wife from him. Yes.
So, what are these sectors? What are these industries that have been neglected by Mr. Market? We can go in and we can grab them. Number one, healthcare. I've said this many, many times that healthcare is undervalued, and they are still undervalued. Although they've rebounded quite a bit, but they've got a long way to go.
Number two, software stocks. So, as you guys know, there's a lot of fear that, oh, AI will make software companies obsolete. So, many of the software stocks that are very high quality, they've been dropping like flies, and they're really undervalued. And let's take a look at a few examples in a while.
And number three would be certain consumer discretionary stocks, certain industrial stocks, certain consumer defensive stocks, and certain financial stocks have all been neglected. Let's take a look at some examples.
So, healthcare. Uh, what are some examples? Now, again, these some of these stocks are not new. I've mentioned them before, and um, uh, they have been up quite a bit since I mentioned them, but I think they're still undervalued, and they're still presenting a lot of, uh, great value right now. So, first would be, of course, United Health, which I've been banging the table is so plenty cheap, right? I've been buying, and of course, now it's way above my average price. And as we know, uh, even Warren Buffett couldn't resist it. He said, it's too cheap, I can't take it anymore, I got to buy it. He bought it, right? So, again, the intrinsic value of United Health is $44. And at the current price of $358, uh, even though it has, let's check it out, it has come out quite a bit, right? You can see there was a plunge over there. It made a double bottom, and now it's kind of like on its way to, you know, rebound back, right? But it's still undervalued. Intrinsic value for four, right? Now, 358. By the way, this intrinsic value is very conservative. It's based on very low growth projections of only 2% in the next 3 to 5 years and less than 1% in the long term. By the way, these growth projections are provided by analysts compiled by FactSet, which I think are too conservative. So, if United Health goes back to its previous growth of 12 to 15%, okay, then the valuation could be increased to $600, you know. Uh, so what you're seeing here is the very, very conservative valuation. It could be worth a lot more than that.
Uh, next would be Eleven's Health. So, Eleven's Health, same thing. You can see that it has rebounded, uh, from the bottom as well. That's the bottom. You can see it's beginning to rebound, and the intrinsic value is $512, right now $3.49. So, this remains very undervalued as well. So, there are a lot of cheap, uh, high-quality companies in the market.
Next, we have got, um, software companies. So, again, there's this fear that AI will destroy all the software companies, and as always, the market tends to overreact. Will all AI companies be destroyed? Will they all be disrupted? Some of them, yes. Some of them, no. Some of them, honestly, I'm not sure. So, out of all of them, I would say the ones that I am the, I've have got the most confidence in that they will, in fact, benefit from AI and not be disrupted from it would be examples like Salesforce. And I think Salesforce doesn't get enough credit. They have been, uh, delivering very good profits, cash flow, but the stock price is still very cheap again because of this fear that, oh, they'll get killed by AI, which I, I don't think so. Again, I could be wrong. You know, I'm not, you know, I'm not infallible, right? But in terms of probability, I think they've got a good chance of, uh, riding and doing well in the AI wave. So, Salesforce, you can see that it has been, you know, uh, wave up, wave down, wave up, wave up, sorry, wave up, wave down. It's kind of been consolidating here, and I think eventually it's going to rebound back up. Uh, so, intrinsic value is 320. You can see the current share price 245. So, again, it looks quite undervalued, and the fundamentals are pretty strong, right? Very strong predictability, relatively good profitability, good growth, strong moat, high financial strength. Um, and if you take a look at the financials over here, and you know, there's really no complaint about the financials, right? You can see revenue has been growing. You've got net profit, uh, in green that's been growing. You've got free cash flow that has been growing very well. So, again, it's supported by earnings.
So, here's a good example. Another great software company, in my opinion, is a Canadian software company listed in Toronto under CSU, but they've got a US OTC ticker, which is CNSWF, which is Constellation Software. So, this is another company which is very, very high quality. You can look at their financials. Financials have been very, very strong as well. Uh, look at their free cash flow growth. Look at their revenue growth, and their intrinsic value is 3341. Again, remember that how is intrinsic value calculated? Intrinsic value is calculated in many ways, but in this case, it is the using a discounted free cash flow valuation model. So, in other words, you add up all the projected free cash flow, how much cash the business will generate in the next 20 years, and you discount it to present value. So, that tells you what the company's worth. And right now, the share price at 2788. Um, now, I've been actually watching this stock for quite a while, but I've never bought it because it was too expensive. But recently, it got cheap, and I started buying it for the first time. And why did it get cheap? Why did the share price drop below the intrinsic value? Uh, because of, again, this fear, oh, AI is going to destroy it. And the founder recently stepped down because of medical reasons. And to me, I think a lot of these fears are irrational. Okay.
Now, I know some of you have been asking me about Adobe a lot in the comments, and I have mentioned it many times. Some of you have not heard what I said, so I'm going to say it again. I've already sold Adobe right now. Adobe to me, uh, is one that I'm really not sure. Okay. Will it be disrupted by AI? I'm really not sure. And that's why I decided to sell it. My actually, my daughter is a lot smarter than me, it appears, right? My daughter, she bought Adobe as her first stock about, uh, it's about three years ago, right? And she sold it at like 600 bucks. And I, I asked, I said, you know, why are you selling it? Right? And eventually, it collapsed. So, she was actually smarter. She got out a lot earlier. I got out at about close to 450, thereabouts. 400, 450, I got out, right? And she said to me, because she's a designer, she's in the creative industry, and she says, Adobe now, Adobe now sucks. They are so expensive, they keep raising their prices and subscription model, and I can use something a lot cheaper, which is what, uh, Canva and stuff like that. So, she sold it because she felt that she was not happy as a customer, which was a pretty good idea, right? So, I'm out of Adobe. I don't plan to buy back. Now, again, could I be wrong? Could Adobe succeed and do well? It could, right? I can't predict the future. But again, when I look at all the software stocks, whether Adobe and Salesforce and Tyler Technologies and ServiceNow and Constellation Software, I can't buy all of them, obviously, right? So, if I can't buy all of them, I'd rather buy the ones that I think have the strongest chance of doing well in the AI arena. So, Adobe, I'm not sure, and that's why I've not, you know, bought it back since I sold it at a pretty good profit, actually. Right.
So, those are software companies. What else? Okay. So, in the other sectors, uh, you have got again, great companies have been neglected. And nothing wrong with the companies. They are making money. Their revenue growing, profits are growing, but again, the share price dropped. Why? Because it's like the husband, nothing wrong with the wife, but the husband is just chasing a younger chick and ignoring her and neglecting her. That's why her market price fell. That's why we want to go in there, like I said, steal the wife. All right.
So, what are examples of, um, some industrial stocks? So, one of them is actually Copart. Um, so, Copart has dropped like crazy, as you can see, you know. And again, there's nothing wrong with the business. Business is doing really, really, really well. Okay. If you look at the financials, check it out. You know, revenue is growing, as you can see. You know, profits are growing, free cash flow, free cash flow is growing. They've got so much cash. They've got hardly any debt. Right? Now, if you can't see the lines, let me change to a bar chart. It's easy to see, right? You know, they've got so much cash. They got hardly any debt. Fundamentals are solid. They've got a return on equity of 18%, ROIC 18%, very strong fundamentals. Intrinsic value $54, right now $44, you know, undervalued right now. Again, these are not recommendations for you to buy. I'm not making any recommendations. I'm just sharing it with you, uh, as a case study for educational purposes. You know, but for me, I've been buying. All right. I've been buying. And of course, does it mean that you'll go up tomorrow? No. It could still go lower, right? Because it's being neglected. It could still go lower in the short term, but I know that these are companies where if I just buy, close my eyes, 3, 5 years from now, likely they're going to be double or, you know, more, right? So, that's these are investments. These are not short-term trades.
Another example of, um, industrial stock that has been kind of like, uh, neglected is Waste Management. Not a terribly exciting stock, you know, Waste Management, clearing waste to recycle and all that. But again, look at the fundamentals. Okay, they've got a very high ROE of 32%. And, uh, if you look at the financials, you can see very strong business. Okay, revenue growing consistently. And again, uh, free cash flow, free cash flow has been a bit flat because they've been making a lot of acquisitions, right? But you look at the net profit, and green profit has been growing up very consistently as well. And this is a dividend aristocrat. But this is slightly undervalued, uh, but it's not terribly undervalued, but it's still not expensive. Right. So, intrinsic value 226, um, and right now selling at 217. Okay.
So, again, there are many of these stocks. I, I give you one last example. Financial companies. And certain financial companies like financial analytics companies like FactSet, S&P Global, you know, recently they dropped again for no good reason, simply because they are ignored. They are neglected by Mr. Market. And S&P Global again is a very high-quality company that's got a very strong economic moat. Fantastic financials. Check it out. Get revenue growing consistently. You can see free cash flow, sorry, net income increasing, free cash flow going up. And, uh, return on equity, you can see it's, uh, 11.76%. Which is not bad, right? I mean, not super high, but it's not bad as well, right? Intrinsic value 528, and now it's at 478. You can see recently it dropped over here, and you can see the wave patterns, right? You know, wave up, wave down, wave up, wave down, wave up, wave down, wave up, wave down, wave up, wave down. Now we're going through a wave up. There will be wave downs, but we should see the market again continue to go higher at least for the next, uh, 2 to 3 years, at least.
Now, eventually, will there be a bubble bursting? Yes. When will it happen? I don't know. Now, here's the trick. In order to continue to succeed in investing and to build our wealth, must we be able to time the top of the bubble? I wish we could, but it's impossible. So, the trick is not to time the top of the bubble. The trick is not to get out before the bubble burst. No, no, no, no, no. That's not the trick. The trick is to ensure that for our investment portfolio, our investment portfolio, we only invest in companies which are not in a bubble. That means companies that are actually making money, generating free cash flow. Companies where the profits support the stock price. And for those stocks that we are in that are in a bubble, we have to put a very tight stop-loss. So, the moment the bubble burst, the price goes down, hits the stop-loss, we get out, and we lock in the profits. You see the difference?
Now, let me share something interesting with you. Look at this chart. Now, the blue line over here, uh, was, is the NASDAQ. So, the NASDAQ consists mainly of tech stocks, which in that time in the year 2000, these were mostly the dot-com stocks that were again, not making money. Okay. So, that's the blue line. Now, this line over here, the second line, this was the S&P 500, that consists of all kinds of stocks, tech stocks and non-tech stocks. The green line that you see is the stock price of Berkshire Hathaway, which is the company managed by Warren Buffett. Now, notice something interesting. Notice that when the dot-com bubble was forming, right, the NASDAQ was going up 97, 98 to the year 2000, the S&P was also going up. Can you see that? This was going up. This was going up. But what happened to Warren Buffett's company? Berkshire was going down. Why? Because Warren Buffett had no tech stocks. He had zero tech stocks. And so, when everyone want, everyone was chasing the tech stocks, it was going up, and everyone was neglecting the non-tech stocks. Hence, Warren Buffett's companies were all dropping in price, although the companies were making good money, like what I mentioned, right, the neglected companies.
Now, eventually, when the bubble burst, what happened? The companies that were not making money, the dot-com companies, they dropped 77%. Okay, from 2000 to 2002, in 2 years, it dropped 77%. And people basically lost their life savings, those who were fully in the tech stocks. Okay. The S&P 500, which consists about half of the tech stocks, dropped 49%. In the next two years. But what happened to Warren Buffett's company, Berkshire Hathaway? Notice that from 2000 to 2002, when the S&P dropped 49% and the NASDAQ dropped 77%, Berkshire went up 80%. Why? Why? Because Buffett was holding all the non-tech stocks. So, when the tech stocks burst, all the money ran away from the tech stocks, and they bought into the non-tech stocks, and the non-tech stocks went up. So, what were the non-tech stocks that Buffett was holding that went up 80%? These were his major positions. Gillette, you know, the, the shaving razor thing, Gillette, which no longer exists because it's been acquired. The Washington Post, which also doesn't exist anymore, it's no longer listed. Coca-Cola, that's still around. Moody, still around, and American Express, because these were all the non-tech stocks.
So, what is the lesson? The lesson is to ensure that in your portfolio, you should have only a small allocation to the bubble stocks, which again are the speculative, non-profitable AI stocks, quantum computing, uh, cryptocurrency, uh, uranium, right? You must have a small allocation, and for those, make sure you've got a stop-loss. So, when a bubble burst, you cut loss very fast. But at the same time, the majority of your portfolio must be companies that are making money, that have got high free cash flow, which are some AI stocks, but you should also have a lot of non-AI stocks. And that's, so, if you look at my portfolio, about 40% of my companies that I own have got nothing to do with AI directly. These are the healthcare companies, the financial companies, the consumer staples, the consumer discretionary, and the industrial companies, because I know that when the bubble bursts and everything goes to hell, my portfolio could still go up 50 to 80%, and so will yours.
Okay, hope this has been useful. And as always, keep watching. Subscribe if you have not, and may the markets be with you. If you want to catch my latest videos, click on the subscribe button right now. Click on the bell so you get instant notifications once I upload my latest video. If you want to check out my online courses, go on to piranhaprofits.com, where you're going to learn how to invest and how to trade the financial markets and create an income from all around the world. If you want to join my live Wealth Academy program, go on to wealthacademyglobal.com and find out more about how you can learn investing and trading live online. This is Adam Coup, and may the markets be with you.