⁠Capital Employed
Another big batch of quarterly letters added. 56 added so far with more to come 👇

https://t.co/z8VTurKKQI https://t.co/SPdJhBURvE
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⁠Capital Employed
What the fudge. That's nuts.

"South Korea is also implementing a policy to boost the stock market where excess cash on the balance sheet will be taxed" - Michael Fritzell (Asian Century Stocks)
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⁠Stock Analysis Compilation
Night Watch IM on X-FAB Global Foundries $XFAB FP

Thesis: X-FAB Global Foundries (XFAB FP) offers a strong upside with potential earnings growth and major catalysts in semiconductor demand, alongside insider ownership backing

(Extract from their Q3 letter) https://t.co/qvuS99A5E7
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⁠Hidden Value Gems
Pretty impressive: Mag7 stocks responsible for most of earnings growth of the S&P500 index 👇🏼 https://t.co/mAt6qQrdrG
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⁠Startup Archive
Keith Rabois explains “Founder Mode” and its similarities to how PayPal was run in the early days

“At PayPal, we never promoted anybody based on their management skill. We promoted everybody based on their craft. So if you wanted to run the design team, you had to be the best designer. If you wanted to run the engineering team, you had to be the best engineer. If you wanted to run product, you had to be the best product person. The CFO had to be the best finance person.”

The elimination of middle management from company org charts that Airbnb founder Brian Chesky talks about and Paul Graham’s viral essay Founder Mode, Keith argues, “re-popularized ideas that are pretty old school… It’s the antithesis of hiring someone whose expertise is managing versus someone whose expertise is building.”

Keith points out that Elon Musk has always run his companies in “founder mode” with the slashing of headcount by 80% and promoting individual contributors to managers at X being perhaps the most prominent example.

But Apple has been run this way for a lot of its history too:

“At Apple you get promoted by mastering something. Not by being a generalist… Apple collates and collects a bunch of people who are literally the best in the world at 26 different things and mixes them together. That’s a much better model.”

When asked what to do if, say, the best salesperson can’t grow into a VP of sales, Keith replies that most people should be able to and you should try it anyway:

“Sometimes its mentoring, pairing them with the right person, giving them the right feedback. But at least if you promote that person, you’re not going to demoralize your team because everybody knows that they were the best salesperson… They may have to learn how to coach and mentor other people, but you have enthusiasm and energy from the rank and file.”

He contrasts this to the alternative scenario:

“If you bring in someone who’s never hit a quota, never proven that they can sell product X, and you’re like ‘Oh, you’re the new manager.’ Sometimes people are like, ‘Who the hell are you?’ And it’s a very valid critique.”

Video source: @imchrisvasquez (2024)
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⁠Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $ELV 🧘🏽‍♂️

•NTM P/E Ratio: 11.52x
•5-Year Mean: 14.05x

•NTM FCF Yield: 8.28%
•5-Year Mean: 6.87%

As you can see, $ELV appears to be trading below fair value

Going forward, investors can expect to receive ~22% MORE in earnings per share & ~20% MORE in FCF per share🧠***

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

BALANCE SHEET✅
•Cash & Equivalents: $7.86B
•Total Investments: $40.35B
•Long-Term Debt: $24.68B

$ELV has a strong balance sheet, an A S&P Credit Rating & 1.93x FFO Interest Coverage Ratio (temporarily lower FFO)

RETURN ON CAPITAL✅
•2019: 12.3%
•2020: 14.7%
•2021: 14.3%
•2022: 13.4%
•2023: 14.7%
•LTM: 14.5%

RETURN ON EQUITY✅
•2019: 16.0%
•2020: 14.1%
•2021: 17.7%
•2022: 16.3%
•2023: 15.8%
•LTM: 15.5%

$ELV has solid return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $71.02B
•2023: $171.34B
•CAGR: 9.20%

FREE CASH FLOW✅
•2013: $2.41B
•2023: $6.77B
•CAGR: 10.88%

NORMALIZED EPS✅
•2013: $8.52
•2023: $33.14
•CAGR: 14.54%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 303.80M
•LTM Shares Outstanding: 234.10M

By reducing its shares outstanding ~23%, $ELV increases its EPS by ~30% (assuming 0 growth)

MARGINS🆗
•LTM Gross Margins: 9.4%
•LTM Operating Margins: 6.1%
•LTM Net Income Margins: 3.7%

PAID DIVIDENDS✅
•2013: $1.50
•2023: $5.92
•CAGR: 14.71%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~22% MORE in EPS & ~20% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $ELV has to grow earnings at a 5.76% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be greater than the (5.76%) required growth rate:

2024E: $35.36 (6.7% YoY) *FY Dec

2025E: $39.00 (10.3% YoY)
2026E: $44.01 (12.8% YoY)

$ELV has a great track record of meeting analyst estimates ~2 years out, so let’s assume $ELV ends 2026 with $44.01 in EPS & see its CAGR potential assuming different multiples

14x P/E: $616.14💵 … ~19.1% CAGR

13x P/E: $572.13💵 … ~15.2% CAGR

12x P/E: $528.12💵 … ~11.2% CAGR

As you can see, $ELV has attractive CAGR potential if we assume a >12x multiple (below its 14.05x 5-year mean & below its 14.22x 10-year mean)

More importantly, 12x is MORE than reasonable for a business that’s expected to grow earnings at a >10% rate & has a strong history of linear earnings growth ( $ELV has increased EPS annually since 2008 🎯)

I also like the negative price correlation $ELV can have, relative to tech, in the short-term … adding a layer of safety in a portfolio

In short, $ELV appears to be a strong consideration at $430💵

However, knowing that health insurers often face volatility amid the perception of political risks (among other things), it’s wise to piece in & perhaps be prepared to add a second tranche at lower prices (as I’ve mentioned before)

#stocks #investing
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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.
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⁠Stock Analysis Compilation
Vltava Fund on Brookfield Corporation $BN

Thesis: Brookfield Corporation, with its massive global asset management business and strong infrastructure holdings, presents an attractive long-term investment with a 15% projected annual growth rate

(Extract from their Q3 letter) https://t.co/NaJZN0jjfz
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⁠iinvested
3Q'24 Third Avenue Small-Cap Value Fund on $SD, $PBF

More fund letters here:
https://t.co/ccjFhSQnS3 https://t.co/IwDxy8wYjU
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