TIP177: MASTERMIND DISCUSSION 1ST QUARTER 2018

W/ HARI RAMACHANDRA & TOBIAS CARLISLE

10 February 2018

Before the recent 10% correction in the 1st Quarter of 2018, we saw more call options compared to put options by 2 standard deviations. We also saw the price at 3 standard deviations above the 200 Day Moving Average (DMA). On top of that, the Stock market is currently priced at levels only seen in 1929 and 2000.

With that said, we have assembled the Mastermind Group to talk about any opportunities that still might exist in the market that could out-perform the S&P 500 index.  For Toby, Hari, and Stig, they talked about individual companies. Preston, on the other hand, talked about the first deep learning, artificial intelligence ETF that’s completely autonomous in its stock selections.

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IN THIS EPISODE, YOU’LL LEARN:

  • If the mastermind group likes two of Billionaire David Einhorn’s favorite stock picks.
  • The risks and rewards from investing in cyclical stock picks.
  • How to invest in private companies in India.
  • About an Artificial Intelligence ETF.

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Preston Pysh  0:02  

After the first month in 2018, the market sure looked like it was unstoppable and the price was going parabolic. Before we saw this 10% correction, we saw more call options compared to puts by two standard deviations. In addition to that, we saw the price at three standard deviations above the 200-day moving average. 

To put things simply, the stock market hasn’t been priced at the levels we’re seeing today since 1929 and the year 2000. With all of that said, we’ve assembled the Mastermind group to talk about any opportunities that still might exist in the market that could potentially outperform the S&P 500 index. 

On today’s show, with Toby, Hari and Stig, we talked about individual companies, but my selection was a little bit different from theirs. Instead, I talked about the first deep learning artificial intelligence ETF that’s completely autonomous in its stock selections that was just recently rolled out in the last two months. 

Hopefully, some of our ideas and our conversations help you think through the picks in your own portfolio and help you navigate the interesting times that we’re currently seeing in the markets. If you’re ready, let’s go ahead and get started.

Intro  1:15  

You are listening to The Investor’s Podcast where we study the financial markets and read the books that influenced self-made billionaires the most. We keep you informed and prepared for the unexpected.

Preston Pysh  1:35  

Alright guys, we got the Mastermind assembled again here for the first quarter of 2018. Let’s talk about the format that we’re using for our Masterminds for people who are joining us for the first time.

So each person brings a topic or a pic to the discussion. Then the group kind of goes around, kicks it around and tries to play devil’s advocate of why it might not be a good pick. After, the person who’s presenting it provides basically all the pro points on why it might be a good pick

Anyone want to go first? I think Toby told me he wanted to go first before we started the show. Was that right, Toby?

Tobias Carlisle  2:10  

I don’t mind going first. I think I went first last time, but I’m happy to let you guys eat my dust and give it to you.

Preston Pysh  2:17  

All right. Well, you do have a very strong background to say that after the last Mastermind because Toby recommended Gilead. I think that’s up 20% since you recommended it on the last show.

Tobias Carlisle  2:28  

It’s something like that, but I think in the interest of full disclosure, we also have to mention assured guarantee, which has had a bit of a stuffing kicked out of it. I still really like a short guarantee, but it’s down what *inaudible*. It looks like it’s a little bit of a disaster. 

I think that AGO assured guarantee is going to be okay. I like it where it is at the moment. I think it’s still really cheap. It’s still in my screens where it is, but just in the interest of full disclosure, I’m going to own up to that one too.

Preston Pysh  2:54  

There you go. Okay, well, let’s hear what you got for us today.

Tobias Carlisle  2:59  

My pick today is a funny one. It’s Micron Technology. The ticker is MU. It’s one that I have recommended on the Acquirers Multiple site on October 1, 2015. At that time, it was trading at $14.56. Right now, it’s trading a good deal higher than that. It’s at $42.49. It’s up almost three times. I’m about to recommend it again which might sound crazy.

I’ll tell you why I really like it. Market cap is $49 billion, enterprise value is about $53 billion so it’s got that $3 billion in excess of debt over its cash. It trades on a very low PE just under seven times. It trades on a very cheap Acquirer’s Multiple. 

The problem with this stock is that it tends to be pretty cyclical. The earnings are up and down a fair bit. When I recommended that at $14, I think it was trading on roughly the same at Acquirer’s Multiple. It was trading 5.7 at the Acquirer’s Multiple lens. It’s up three times on the same Acquirer’s Multiple which tells you what the operating income has done over the last two years and a quarter. 

That’s what happens with its stock. The operating income is up and down. It’s as close to as expensive as it has ever been. 

The reason that I like Micron so much are two reasons. David Einhorn has a big shareholding in it and he is a super smart investor. He’s had that shareholding since I recommended in 2015. It’s not something that he’s necessarily buying now. It’s something that he was buying when it was 1/3 as cheap as it is now. 

However, it’s still as cheap on a valuation basis as it was then. So I don’t mind. It’s in a semiconductor sector which is very boom bust and it’s booming, but it remains as cheap as it has been.

I think it’s an interesting stock. I don’t like really buying things at the very peak of a stock market run up. I don’t really like buying something three times higher than I’ve bought it in the past. However, if I look at that screen, in a market, it’s pretty tough to find things. I think Micron is interesting. 

Preston Pysh  5:18  

Toby, when I look at this, just the numbers. I’m looking at the top line, the revenue on it. It seems like the revenues are really all over the place. What’s driving these cycles for the semiconductor industry?

Tobias Carlisle  5:33  

That’s the nature of the industry. It’s a little bit of a boom and bust. It’s the very end of the whip. The consumer end of the industry is always pretty stable. However, by the time you get through to the manufacturers, to the OEMs, it gets very volatile. That’s where these guys. It is very subject to those cyclical moves and so it’s a stock that does look cheap, when it’s actually expensive. That’s the main concern.

 If you do a rough DCF on it, and these things are pretty tough to do discounted cash flow analysis on which I don’t typically love, because they’re always very… The DCF moves around a lot depending on the inputs that you use, but I think if you look at sort of the last 5 or 10 years of growth and you punch those statistics in, I think you get fair value for me something like this is around  $70-90. I think at $42, it’s worth putting a small part of the portfolio in understanding that it’s a very cyclical stock.

Preston Pysh  6:31  

What discount rate are you putting in to get that price that you just quoted?

Tobias Carlisle  6:34  

I’m using a discount rate of 12%.

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