Value Investor Daily #5

2024 Bullish Predictions Backed by Data, Bill Ackman Talks to David Rubenstein, 2023 Year in Review With Charts

In Today's Edition:

Ed Yardeni's 12 Reasons to Be Bullish in 2024

Renowned economist Ed Yardeni has provided 12 reasons for his bullish outlook on the S&P 500 in the upcoming year.

Some of these reasons include the normalization of interest rates to 4-5%, robust consumer purchasing power, strong corporate cash flows, and a resurgence in the housing market as mortgage rates fall.

Yardeni expects the S&P 500 to reach 5,400 points in 2024, up 13%, which is at the higher-end range among Wall Street analysts.

He envisions a decade of technological advancement and productivity growth, similar to the Roaring 20s, driven by the widespread adoption of new technologies.

Maggiulli: 2024 Likely to Be Another Up Year

Nick Maggiulli explores whether the stock market will experience an upward trend in 2024 based on historical market data.

He predicted 2023 would be positive given the rout stocks faced in 2022. Historically, large positive returns tend to follow big down years.

Similarly, he notes, the average 1-year return following a big up year like 2023 is higher than in other years. If history repeats itself, and that’s a big if, there’s more upward momentum in play for 2024.

But he says, at some point, the momentum has to stop. Typically, over the next 5 years after a down year followed by 2 strong up years, there is no historical outperformance.

Intel Up 92% in 2023, Secures $3.2 Billion Grant

Intel's stock is closing the year out strong, gaining 13.5% in December compared to the S&P’s 4.6% increase.

The company's stock is up 92% year-to-date after a tumultuous 2022. The company secured a $3.2 billion grant from the Israeli government for a new chip plant.

Additionally, Intel CEO Pat Gelsinger has expressed optimism about the company's potential in the AI market, announcing a chip to power generative AI software.

Despite the recent gains, Intel's market cap still falls short of its top competitors, Nvidia and AMD.

Nvidia - 238% YTD return, 64.6x cash flow

AMD - 125% YTD return, 125x cash flow

Intel - 92% YTD return, 14.6x cash flow

Southwest Down 50%, Time to for a Look

Southwest Airlines (LUV) has experienced a 3-month gain of 10.37%, but it’s down over 50% from its pre-pandemic peak. It could be worth a look here.

GuruFocus estimates a fair value of $61.91 compared to the current stock price of $29.15.

However, the company faces challenges in terms of growth and profitability. Margins are thin at 2.9% in the latest quarter, down from 20% in 2015, but up from -40% in the depth of the pandemic.

Management continues to run the business skillfully, with 29 out of the past 30 years turning a profit.

Copart: Relentless Long-Term Compounder

Online vehicle auction and remarketing services provider Copart (CPRT) has been identified as a "long-term compounder" due to its consistent growth, strong financial health, and shareholder-focused strategies.

The company has achieved a total return of over 30,350% since 1994, significantly outperforming the S&P 500.

Copart's sustainable competitive advantage lies in its Virtual Bidding Third Generation technology, which has created a strong network effect moat, and attracts a growing number of bidders and sellers to its auction platform.

The company has also shown consistent growth in revenue, profits, and cash flow, and has a remarkable return on invested capital with minimal debt.

A dollar invested into Copart at IPO in 1994 would be worth $305, vs. “only” $16.54 for the S&P 500.

ROIC has been positive and has grown steadily for 30 years.

This is a wonderful business—the type you want to burn into your brain and buy when presented with the chance.

It’s not cheap, trading at 33 times cash flow, but as Munger says, “Buy wonderful businesses at fair prices.” 

Copart stats:

TTM P/E - 35x

TTM Price/Cash-Flow - 33x

TTM EPS Growth Rate - 23%

TTM Rev Growth Rate - 11%

ROIC TTM - 32%

Debt to Equity Ratio - 2%

Bill Ackman Visits the David Rubenstein Show

In a recent interview on The David Rubenstein Show, (former) activist investor and hedge fund manager Bill Ackman discussed the evolution of his investment strategy and offered insights into the future of AI and the markets.

It’s short but full of insights…

  • How he started a fund with no experience or track record

  • How Ackman unlocked over $5 billion of value in Wendy’s as an activist

  • How he’s changed over time from “activist-investor” to “owner-partner”

  • His current macro bets

  • How Google is playing the AI battle, and how it created the opportunity for Ackman to buy $2B of the stock

  • His view on capitalism vs. philanthropy

  • His current criticism of Harvard

Charlie Bilello: 23 Charts to Wrap Up 2023

Charlie Bilello, shared 23 charts showcasing how 2023 broke a mind-boggling number of the “rules” of Wall Street. It’s truly a humbling reminder that none of us can predict anything in the short run.

Stocks can go up even if the Fed raises rates

Stocks can go up even if the Fed shrinks its balance sheet

Bonds are volatile, too

That’s all for today. Thanks for reading and happy investing!