Left Brain Thinking 20210203

Welcome to Left Brain Thinking, where creative investment ideas meet logical analysis. That's the hallmark of Left Brain Investment Research, where the analysts are looking for growth companies with the potential to double in 2 to 3 years and high-yield bonds with the potential for dramatic price appreciation. And today we're talking with Nolan Langford, chief executive at Left Brain Investment Research, and we're talking about SoftBank Group. That's an interesting company that's based in Japan, but that has a lot of tentacles reaching into businesses that you might be more familiar with. Noland Langford, great to chat with you again.

Thank you, Chuck. It's great to be here. We hope our listeners are doing well, whatever part of the country that they're in. And if they're undergoing a snowstorm, we hope they're staying warm and safe.

Well, one thing that makes everybody warm up, Noland, is great stock advice. You know, you find a company, it's doing the right things, it does warm your heart, not to mention your pocketbook as well. And SoftBank, which is ticker symbol SFTBY, for somebody who is buying the ADR, SoftBank, really interesting pick. So why this stock now for you?

Well, it checks a lot of boxes for us. For one, anytime we can buy a business ran by a leader who we feel actually has the right view, the right vision, particularly one that has proven it, where they've had patterns of success and where they have the majority of their net worth tied up into that company's shares. We're very sure that there's an alignment of interest. And when you couple those things with a really dynamic and a financially attractive business and/or business model, that's usually a good place to start to think about making money.

But the interesting thing to me when I heard that SoftBank was what you wanted to talk about is that this is a company that I've heard of time and again, but I've heard about it almost in cycles. Like all of a sudden, hey, we've got this going on and it's big and it's going to be huge, and it has a run where it's really good, and then you don't hear about it for a while and you kind of find out that, oh, okay, that played out or did whatever, and and then it comes back. Is that how you see it, that this is a stock that has proven it can ride the upswings and it's due for an upswing again?

I don't know that we necessarily look at it that way. For the most part here, it's more simple than that. I think if you take a look at SoftBank, you know, again, it's a conglomerate, so you sort of have to unpack it. And the normal rules of valuation where you're looking at, for example, a straight PE ratio or dividend yield or something, That's really not going to work here. So investors really have to roll up the sleeves. The simple story is SoftBank owns a lot of Alibaba. The shares that it owns in Alibaba alone are worth more than the entire market cap of the SoftBank company, period. And the rest of the businesses and the rest of the earning power you're getting for free. Wow.

And yet it's not just the Alibaba stake that is there for you because the Alibaba stake by itself Well, that's a good value, but you're interested in growth.

First off, I'm not necessarily sure what you mean when you say value. A lot of people, when they say value, we're not really sure here at Left Brain. Are you talking about a valuable business or are you talking about one that's cheap? Because here we like not only the Alibaba shares— remember, they're a growth business. That revenue there, think about them very loosely as the Amazon of China. Remember, the growth rate for GDP in China are much higher. Internet penetration is lower, but it's growing at a much faster rate. And Alibaba certainly is the dominant e-commerce and cloud computing play in China. And the revenue numbers there are well north of 20-25%, and they have profit. So that's the definition of a growth stock. And again, you're getting that business in SoftBank at a discount, and the rest of the businesses, T-Mobile, 'cause they had that business that merged with the Sprint business, you're getting the rest of these businesses, the telephone business from SoftBank that they own. And the other thing is you're getting a lot of earnings power. A lot of people don't remember some of the things that cast SoftBank in a negative light the last couple of years has really sort of turned around. You know, a lot of that is linked to what they did in the Vision Fund. You know, they raised hundreds of millions. A lot of it was sovereign wealth money, but they had a pretty unique strategy. It's almost a private equity within a publicly listed company. So they have these pools of money. They're going to earn fees for managing that money and performance fees and everything else over time. But they had some investments that soured. WeWork was one of them. And even Uber, when it first came out in its IPO, it didn't do very well. That's all changed. You know, if you take a look at what's happened now, they sort of restructured WeWork. Sure, the jury's out. If you take a look at Uber, those shares are hitting a new 52-week high. As people come from lockdown, from pandemic, the first thing that they do is get moving, particularly locally, even before travel kicks in. So that's a business that's done very well. And even DoorDash, they've had in their roster of recent IPOs that have raised capital. So if you take a look at the earnings power and the cash generation ability of the business, the arrow is pointing up there with the stock price that really has a lot of catching up to do.

And my take on value was not the classic what's a value stock or growth stock. It was simply, hey, when you can buy a company and it has the shares, as you pointed out, of Alibaba that are basically worth its stock price and everything else is gravy. That sounds like a bargain, but you're not a bargain shopper. You're the one who wants to find the growth. And that's the bigger side, is that, that the growth here is coming from a number of different sources. And the expectation is that the growth here will be fast enough for you, correct?

That's exactly right. So here, when I mentioned we have a lot of catching up to do, when you say growth, basically we're looking for opportunities to double our money in 2 to 3 years. Wherever those opportunities exist. Sometimes they're in fast-growing business, sometimes they're in turnarounds. And in this case, this happens to meet the definition of kind of both. You know, if you take a look at the shares, they need to do some catching up. They haven't done very much. But you're right, if you take a look at the underlying asset value, we think not only is it high, we think that asset value over time is going to be growing. Even I think if you take a look at some of these businesses that were left for dead, like WeWork, you take a look at the bond price there, credit investors would say otherwise. And I think the entire enterprise where people looked at the Wall Street Journal and heard all these negative stories over the last 18 months and left the shares for dead, you know, again, I think if you take a look at the health of the IPO market, it would suggest that these early-stage businesses and these high-growth businesses, particularly tied to AI and 5G, which is an area that SoftBank has focused on, particularly in this Vision Fund, I think that they have catalysts that are gonna unlock value. And I think this is a prime candidate for shares that can double over 2 to 3 years. And it doesn't look like there's a lot of downside there either.

And that's why SoftBank, ticker SFTBY, is back being looked at and is a really interesting pick in Left Brain Thinking. Nolan Langford, thanks so much for joining me to talk about it.

Thanks a bunch, Chuck. Have a great week and stay safe in the snow, my friend.

Left Brain Thinking is a joint production of Left Brain Investment Research and MoneyLife with Chuck Jaffe. Our conversations are not personalized investment recommendations. But are designed to engage your brain. Please do your diligence before making any financial transaction. I'm your host, Chuck Jaffe, and you can learn more about my weekday podcast at moneylifeshow.com. Thanks to my guest, Noland Langford. He's the chief executive at Left Brain Investment Research. You can learn more about the firm and its analysis at leftbrainir.com and on Twitter @leftbrainir. Left Brain Thinking is available every Wednesday. Please subscribe on your favorite podcast app and plan to put your left brain thinking cap on every week. Until next Wednesday, stay safe, everybody.