The Long Investor
$SPY if you want to see the future, study the past.

MACD and RSI on the weekly chart is as clear as it needs to be. https://t.co/Ezv7z7gHQf
tweet

Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $GOOG 🧘🏽‍♂️

•NTM P/E Ratio: 22.81x
•5-Year Mean: 23.49x

•NTM FCF Yield: 3.77%
•5-Year Mean: 4.19%

As you can see, $GOOG appears to be trading near fair value

Going forward, investors can receive ~3% MORE in earnings per share & ~13% LESS in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $GOOG is a great business

BALANCE SHEET✅
•Cash & Short-Term Inv: $108.09B
•Long-Term Debt: $13.22B

$GOOG has a strong balance sheet, an AA+ S&P Credit Rating & 332x FFO Interest Coverage

RETURN ON CAPITAL✅
•2019: 16.4%
•2020: 16.2%
•2021: 27.6%
•2022: 26.1%
•2023: 28.1%
•LTM: 30.2%

RETURN ON EQUITY✅
•2019: 18.1%
•2020: 19.0%
•2021: 32.1%
•2022: 23.6%
•2023: 27.4%
•LTM: 29.8%

$GOOG has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2018: $136.82B
•2023: $307.39
•CAGR: 17.57%

FREE CASH FLOW✅
•2018: $22.83B
•2023: $69.50B
•CAGR: 24.93%

NORMALIZED EPS✅
•2018: $2.19
•2023: $5.80
•CAGR: 21.50%

SHARE BUYBACKS✅
•2018 Shares Outstanding: 14.07B
•LTM Shares Outstanding: 12.65B

By reducing its shares outstanding ~10.0%, $GOOG increased its EPS by ~11.1% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 57.3%
•LTM Operating Margins: 30.3%
•LTM Net Income Margins: 25.9%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~3% MORE in EPS & ~13% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $GOOG has to grow earnings at an 11.41% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be more than the (11.41%) required growth rate:

2024E: $7.50 (29.4% YoY) *FY Dec
2025E: $8.33 (11.0% YoY)
2026E: $9.56 (14.7% YoY)

$GOOG has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $GOOG ends 2026 with $9.56 in EPS & see its CAGR potential assuming different multiples

24x P/E: $229.44💵 … ~11.4% CAGR

23x P/E: $219.88💵 … ~9.7% CAGR

22x P/E: $210.32💵 … ~7.9% CAGR

21x P/E: 200.76💵 … ~6.0% CAGR

As you can see, $GOOG appears to have attractive return potential if we assume 23x - 24x earnings (a multiple near its 5-year & 10-year mean)

At 24x earnings, $GOOG CAGR potential is solid & it’s not unreasonable for the business to trade for 24x (given current growth rate estimates, its moat, balance sheet, & exemplary capital allocation)

Today at $173.69💵 $GOOG appears to be fairly valued

Those investing today can do well & expect decent returns, albeit without much of a margin of safety

$GOOG presents excellent value & a wide margin of safety closer to $150💵 or 16.2% below today’s price

At $150💵, investors can reasonably expect ~12% CAGR even assuming 21x earnings

#stocks #investing
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
tweet

The Long Investor
$BTC I have white circled the moment the price hit the 50 Day MA on Tuesday and Weds this week and rejected.

The $SPY is now testing the 50 Day MA from below.

$BTC looks to be a few days ahead of the market....is this an indication of what will happen to the $SPY next? https://t.co/EjYfUyq6Lg

$BTC let there be no doubt who has been correct on $BTC for the last year.

Chart below on the 16th of March and today, with no changes.

Wave A is currently underway, 0.38 fib is the target. https://t.co/GcKUVTzYtM - The Long Investor
tweet

The Long Investor
$QQQ on the weekly chart giving the same indications as the $SPY chart. https://t.co/oIKzOH9upp
tweet

The Long Investor
$PFE Earnings due on Weds before the market opens.

$22 would be the sweet spot to add

But has this beaten down stock got the ability to drop another 15% to get there?

Trying to catch the bottom is normally not a good idea. https://t.co/cN5K7uaQNa

$PFE bounced within the 0. 618 Fib - 0.78 Fib in 2009

It is showing signs of bouncing in this range now too.

It may be the ultimate cyclical stock and a 5.95% dividend too.

Very attractive long term hold. https://t.co/2cD5yeGfnl - The Long Investor
tweet

The Long Investor
Wall Street does not inform retail investors when they expect a correction.

People will generally stop buying, there will be less trades and many leave investing or trading for good and do not return....they'll make one sell and exit.

This is not how Wall Street makes money

When have you heard Wall Street say, be patient, wait, control your triggers....instead they are exploring 24/7 trading instead.
tweet

Giuliano
In their last letter, $BUR made clear what the path forward is.

This must not be overlooked, for it dramatically changes $BUR economics.

In 2008, Chris noticed demand for funding litigation claims and thought he should take his hobby seriously. Alongside Jonathan Molot, both decided to raise institutional capital to address this unmet need. Burford raised 130M dollars in its IPO. Demand was so strong that Chris and John did a follow up in 2010. More equity was sold on a secondary offering for an aggregate of 175M dollars. Ever since, no more capital has been raised via this avenue. Rather, the team waited for their investments to yield results for writing more business.

In 2014, Burford started issuing debt in the UK market, though moderately. Two years later, management acquired GKC, an investment management firm. The purpose of this acquisition was to invest in other verticals legal finance offers that they couldn’t do otherwise, for capital was a major constraint. Managing private funds offers flexibility and capacity for rapidly raising capital. This way, Burford grew its group-wide business to over 7bn dollars.

However, private funds’ commitments were taking share of the overall business. In 2019, out of 1.6 billion in commitments, only 726M were Burford-only. The former had quadrupled while the latter didn’t even double in the prior 3 years. Management mentions not to have liked this dynamic as shareholders themselves. Managing private funds ended up being a costly way to grow. Indirectly, it capped the company’s capacity to write new business and was poised to continue on such a path.

Having passed the phase and counting Burford with more resources now, it would’ve been a mistake to keep running the business in this manner.

In consequence, management focused on accessing the US market. In 2020, they registered with the SEC and added $BUR listing to the NYSE. This allowed the company to tap into the US debt market. Thereafter, Burford issued debt on four separate occasions.

This ought not to be overlooked, for it dramatically changes Burford’s economics:

“This cost of capital is game-changing for us. With 2/20 fund capital, we pay around 80% of investment profits to our fund investors for the use of their capital. Now, given the average 7% interest rate on our debt and the average 2.5-year duration of our matters, we are instead paying only a total of around 20% of investment profits for the debt, fundamentally changing the economics for the balance sheet.”

The team has on getting capital from this cheaper source and reducing their reliance on private funds. Their 2/20 structure turned out to be highly disadvantageous, considering the team’s skill. In fact, BOF-C is generating 88% of asset management income, although the portfolio is smaller than that of the others. It is to be observed that BOF-C fee structure differs from the rest of partnerships.

Burford closed the Strategic Value Fund and decided not to immediately replace Burford Opportunity Fund. New complex strategies investments will be carried out with capital from the balance sheet, if sound investments are found. BOF-C agreement was renewed last year. Finally, another Advantage Fund will not be immediately raised after expiry. To the extent lower-risk legal finance investments are made, they’ll be done so with balance sheet capital.
tweet

The Long Investor
$QQQ the 24 Year Resistance line has been tested and rejected. https://t.co/jNRYOZsXEH
tweet