S&P 500 (459 to 440) - 6 Extremely Interesting Investing Stories (PNW, SOLV, GNRC, ECHO, GEN, IVZ)

Good day fellow investors, we continue with our stock by stock analysis of the SAP 500 bottom up and today I have six extremely interesting investing stories from utilities, spin-offs, SpaceX at a 50% discount through a company that owns 2% of it. So a lot of interesting stories, we're going to go one by one, timestamps below, so enjoy the video. And if you like this kind of analysis, please smash that like button. Let's start immediately with Pinnacle West Capital, Arizona Utility and explain what does investing in utilities mean, when is the best time to invest in utilities, and how those might fit your portfolio. We have a good dividend yield, 3.49%, a P ratio of 20, and a stock that's growing on On expectations, both. on Arizona growth but also on data center investments and expansion. As it is a utility, investing in utilities also means protection from inflation because they should be able to increase prices in accordance with inflation as the local government allows them to have higher returns on invested capital in line with their costs. The company's growth is projected to hit 5-6% per year up to 2030. If they reach that, perhaps have even some price improvements because data centers pay more for electricity. Those are good positives. Of course, that also requires investments. So 10 billion invested over four years is not a small amount. Especially as the debt level is already there but that is standard with utilities as you have to first build it in order to sell it or use it later. If all is well managed it should lead to the continuation in the dividend growth thus all good for dividend investors there. However However, if I look at things, we must always check where we are now with the price compared to the investment. And there are always shocks with these utilities. The Enron shock, the wholesale issue in 2002, the stock fell 40% in a few months. Also recessions 2007-2009, that's always something that can hit the company. Plus it was much lower in 2022 when the market expected a recession. So when it comes to these utilities, you have to ask yourself, am I going to buy this and build a position there when everything is exuberant, the stock price is exuberant, the growth is already priced in. If there is a recession, the company will keep on doing its job. Perhaps there will be some refinancing issues, some higher interest costs, they might have to sell something. But The business, the underlying fundamentals will still be there because I'm pretty sure you will keep on turning the light on at night, depends how you prefer it, lights on, light off, let me know in the comments. But the key when it comes to investing in a utility is timing the entry point. When there are recession fears, let's say that the data center build-out freezes For a moment, for six months. This stock is 40% down, the dividend yield goes to 5-6% in line with the 10-year treasury. So I would say, okay, if you want to invest in this, take a look at this when there is a cyclical downturn. And with these companies, Arizona, especially if you know the market there, you know that it will be cyclical and therefore it's better to buy at cycle lows. It's very difficult to buy then because it looks terrible. compared to now when it looks good. But we have seen many companies that looked good five years ago like Nike crash into oblivion. So for me a very interesting story but not the right time to invest in utilities because you are paying full price for something that still needs to happen. I prefer looking at utilities when Nothing is expected when it looks terrible and unbuying value. The second interesting story is Solventum, a spin-off investment where 3M spun it off and then there is a lot of financial engineering, there is this, there is that. The PE is at 11, thus it seems cheap and if 3M spun it out, likely there should be some value. Let's see. Surgical solutions, dental solutions, health information system. It looks good. Stable margins. Profitable. There will be still some spinning off. Costs. Everything looks good. The guidance is for stable growth, strong earnings per share, leading to a low PE ratio. The cash flows are pretty low compared to the earnings per share. But that's still based on the huge costs related to migrating of 3M systems, litigation charges, etc. Now, they have another idea to spin out the health information systems because that is the most valuable and growing and not related to the other businesses. As we'll see later, with spin-offs, the parent company dumps a lot of debt on the spin. It gets money and everybody happy. But in my eyes, all these spins that are made and discussed and things like that are more for the parent to clean out the bed and dump the debt on the spin on some promising story rather than some kind of strategic value investment. So spinoffs can sometimes offer for interesting If a company paying a high dividend spins a growth company, investment all the ETFs and index funds dividend focused have to sell this, opportunities, creating huge selling pressure that then creates an opportunity. Also, investors, 3M investors that get it, especially dump it just to dump it because they don't know what to do it. in the future. And we have seen the decline immediately after the spin. Then now the company is recovering. But there are still these spin effects that make it too hard pile and of course we missed this watching what happens with the stock after the spin, after the high cost, the bad ideas and that is also one kind of strategy. For now too hard pile for me and I don't see the real value behind what's going on. Now this is a very interesting story. AI bubble or not, the investments are there, the trillions are flowing in, why not invest a pick and shovels company that supplies the AI build out, the AI boom, therefore you can buy something on the cheap and benefit from the AI craze. The stock is Generac Holdings, it's already significantly up, but if we look at what's going on And what they produce and the demand coming for that, the growth there, the industrial demand for this company that produces what data centers need, and that is backup power solutions alongside the residential sector that depends on power quality. Blackouts have been minimal the last few years, so demand for the residential side of the company was lower, but that was mitigated by higher data center demand, where they are now investing into production of all this data center. Power backup and their backlog is already 1.6 billion. That led to 30% growth expectations for their industrial segment. And you can see here, this will not fit in your house, but it is good for a data center. Earnings per share should already be nine for the year, giving it a P ratio of 20 and where that growth for the data center build-out should continue in the next few years. And there we already have contracts with Amazon and another hyperscaler that might go for Amazon just eight billion over the years, which is leading to high growth rates for the company. If residential If the residential sector has more outages, that might also revert the story. Therefore, margins might improve. They are investing heavily now in capacity and everything. So when the situation stabilizes in a year or two with some buybacks, improved margins, earnings per share can go even higher than the expected 16 from the analysts by 2028. 16 time of fee ratio, 15-20, that's 50% up or more from the current levels. Therefore, Generac looks like a lower risk than AI Play, contracts already there, no matter whether Amazon makes money or not, this is the picks and shovel idea. From a personal perspective, I find it very interesting, I would like to find these situations. Before it's already clear, but this might still be a good time. As Peter Lynch used to say, you have to buy now the earnings two years from now. That is where nobody looks at. And we have the Amazon contracts. We have this. The market usually doesn't see it until it happens. And then they get exuberant. So this might be a very interesting AI picks and shovels bet. Speaking of AI bets. A SpaceX value investment? EcoStar, old business, satellites, TV, things like that, all declining, all looking terrible. Then the stock goes from 25 to 90, even higher, to 140, down to 90 now. What happens? Well, all the businesses declining, but when you see wireless, what do they own? They own the wireless spectrum. Cash flows are terrible, everything looks terrible. However, they managed to sell some part of their spectrum to AT&T for 23 billion. That transaction eliminates all of the debt the company has. Then they had announced the The Spectrum sale and commercial agreement with SpaceX. Cash Plus! they just own two percent of spacex bought at adjusted stocks price split now 42. so this company bought two percent of spacex at 42. now the stock price of spacex is a little bit higher at 150. Therefore, There is value from that perspective. UBS upgrading it because sum of parts value, and the analyst there makes simply the calculation. What do we have? SpaceX still 11 billion in the remaining spectrum value, some few billions in the old business value, and then paying the capital gain taxes, obligations, discount for whatever. You still get to a target price of 150 six compared to the 90 which is significant what's that 60 upside and you own spacex okay spacex made the stock split so they bought the stock at 40 to 40 or got the So, for SpaceX investors, very interesting, here is the explanation in the visual. You would say, Sven, this is a great value investment, buy it, well, in my opinion, SpaceX will be worth zero down the road. So if you cancel out SpaceX from here, this is also worth not much more than a few billion And it's already trading at higher. So, risky, but if you believe in SpaceX, you can get it much cheaper here. We continue with the analysis stock by stock. GenDigital It is cheap for a reason, so a stock that doesn't do much for two decades raises some questions. The p-ratio is 14, the dividend is just 2%. The business seems good, recently growing at double digits. They have 8 billion in debt at pretty high rates which is always an issue. Guidance is there, still profitable. However, when you look at what The management wants to do and how they intend to survive or grow. Then they go out and try to buy GoDaddy, make crazy acquisitions of companies that are equal to them. Then you simply ask yourself whether the cash flows that might be there for 10% are enough to outweigh the risks of the company. Anything can happen, but that's not a sustainable strategy in my eyes. The company owns Norton and Avest brands. I remember it using them, but that's so far away. Some people still use. There are these digital companies of the past that still survive there, still go and then try to do acquisitions, take on more debt, more risk. I don't know whether this is just the management trying to survive rather than trying to really create value for shareholders, perhaps in these businesses. And we will see that a lot. The management first thinks of their own survival and then about the shareholders. which is not good. Carl Icahn a long time ago said that corporate management is the worst disease of American corporate life and here are some examples where one could start questioning it. The management I mean. Now before we go to another very interesting story in Vesco just a reminder that I have a research platform with my portfolios with the library of stocks that we follow Make Analysis Intrinsic Values. There is a lot of research that we do. If you want to read the previous SAP 520 stocks analysis, those are here. This one will also be here available to read. So feel free to check my research platform out. The price is going up by the end of the year. So if you want to lock in this price forever, check the research platform now. There are some very good investments, even hedges, which are essential for this environment. Invesco. If you look at the company, the stock is doing well, the company is making profits, these are the ETF, the funds providers, the Nasdaq, the QQQs, things like that. With stock markets going up, assets under management go up, profits go up, everything looks great. And Wall Street estimates profits to continue to grow. 2028 consensus 3.71, the P-E ratio could be 7.69, which is a crazy low P-E ratio, and the current P-E ratio for this year is 10. Invesco, ETFs, assets under management, fees on that represents the market. Why is the market trading here at a P-E ratio of 10, while the exuberance is trading at a P-E ratio of 30? The S&P 500. And here the discrepancy is mind-blowing, because if the bubble doesn't burst, Invesco will keep on growing in line with the market, therefore it deserves a p-ratio of 30. If the bubble bursts, yes, Invesco will go down 50-70%, but so will the market. So Invesco shows the real risk of this However, The rest of the market doesn't because of passive investing, because of gambling, because of everyone going into what goes up instead of looking into the real risks and reward. So for me, this trading at a peer ratio of 10 represents the risk and reward fairly priced for the market. You can see the ups and downs on the long-term stock chart, What happens when the market crashes? The fact is that... The discrepancy in valuation is insane. This is reality, what's out there is unfortunately distorted by flows, nobody cares about fundamentals. With these small stocks, 12 billion market cap, fundamentals matter and that's why we are searching. In this case I would say fairly priced, but it just reflects a bigger picture onto the market. Textron doing good, great, everything looks good, but do you really need the jet now? And we all know, again, connected with the market, if the market crashes, AI, these guys buy less jets, things like that. For me, it's simply too risky, too cyclical. Even if the results look good now, but not for me. Look at this inter-recession, but then again, you might look at something more interesting. JM, Smucker, or how do I pronounce that? Food companies, high-debt. These guys need a miracle to do something more than what they are. Doing. So stagnating for the last 10 years. They usually again go in to do some crazy acquisitions, try to manage those cash flows, but you have declining businesses, declining net sales. Yes, long-term objectives are for growth, but you need a miracle for growth. And therefore, these food businesses are cheap for a reason. I don't see the upside. I see risks. Anything can Those are priced cheaply when you look at the fundamentals. But not attractive from a risk and reward perspective. As a value investor, you want a catalyst, you want a hidden value, something that you know you can count on no matter what the market thinks. In this case, the market thinks rightly. Allegian, fairly priced compounder, has been doing great over the last 14 years. The ratio of 22 and we are here in the 6-7 estimated return with 3-4% growth, dividend, something like that, perhaps even higher. If you adjust that the business niche is very interesting, some weakness in Europe, perhaps some weakness coming from housing, but with the ups and downs, I would say a fairly priced compounder. Let's say not a sector that I'm going to look in or not yet. perhaps p-ratio of 22 should be at 15 for making it interesting dividend yield a little bit higher so that's something to consider but at these levels it is there okay part of the index but nothing spectacular. GoDaddy that the other company wanted to acquire gen digital Which is crazy and then it boomed in 2024 on AI exuberance. Then everybody forgets about it. Now it's rebounding a little bit. They are trying to mix, get more out of their customer from domain only, charge more. But the results are okay. Capital allocation, they are even doing some buybacks. This is high buybacks compared to the Market capitalization, high single digits, buybacks, that's something, but the legacy products are declining, 85% churn rate is pretty high in my opinion, AI is hard to compete with the hyperscalers, 300 million in stock-based compensation, that's also a lot and we haven't had A recession in 70 years which will clean up a lot of the wannabe digital influencer websites, etc. So too risky for the pricing. Avery Dennison, the stock did great for the 2010s, not much has happened since then. The labeling company that labels the world we are living in, The ratio of 20, yes, they expect 5% growth. At the dividend, that's the 6-7% targeted, which is the current expected returns for these industrials. Again, for me, that's not enough. Should be above 10% for these to be value investments. You can see here the stock boomed, but not on great results. Net income doubled over the last 20 years, which is not much. So it was just an expansion of valuation, things like that. Buybacks, a P ratio of 10 is the maximum for this. It needs to be 50% lower. FedEx Freight Holdings, of course, FedEx spin-off, did recently well on earnings that were reported a few days ago. But look at the financial engineering. They raised $4 billion in debt because they are likely better companies than FedEx. The expected capital requirements are better. Therefore, they can take more debt. The parent company gets $4 billion and then lowers its debt. Then there have been a lot of costs and issues with separation. But for me, this is again, OK, good numbers, faster than expected developments. And then the stock booms after earnings 14%. But again, risk, recession, what happens then? Then all the numbers and analysts adjust, maybe some tax advantages. not for me. REITs we already discussed them often 6.5% yield is on the higher side that's not that good of a quality business 10% free cash flow 10% funds from operation yield sorry high dividend yield and then you see that the occupancy is not 100% especially in the life science overhang they They are saying, selling the crown jewels to keep their business. Looking the same and not going to debate whether this REIT should yield 6% or 8%. That's simply not interesting for me. Tyler Technologies down significantly. What's going on? Well, the SaaS apocalypse and whether they will be impacted. I don't know. Yes, the growth is there. But when I see a p-ratio of 50, which was then 100 just two years ago, to me this is still crazy. Hasbro fairly prized for what it offers. You might see the stock going up. 17p ratio and then those who bought here on the lows did great, however now everything looks good with the new toys doing well but again if you buy when things look ugly as they did just a few years ago that is when those that bought at 40 enjoyed the returns. Now everything is This is guided good, but this depends then. What will customer preferences be 2028 which is simply not my game and therefore I say fairly priced. So nothing here that goes on to the quadrant but I think a highly interesting research educative video on the various stories of investing. The discount of SpaceX, the AI picks and shovels, the utility, the spin-offs, how that works, great insights into the corporate world, into what we are invested, into how things are priced, from fairly priced to exuberantly priced, nothing really truly cheap. If you don't think SpaceX is fairly priced, then Echo is the best buy here. However, I hope you enjoyed the video. I'll try to do one every week, so next week we'll do the next 20, some interesting names there. Thanks for watching, and I'll see you in the next video.