Left Brain Thinking: October 21, 2020

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. Today we're talking about CrowdStrike and Uber, two stocks that the firm recently took a fresh look at. Here to discuss it is Nolan Langford, Chief Executive at Left Brain Investment Research. Learn more about the firm at leftbrainir.com and on Twitter @leftbrainir. Nolan Langford, thanks for joining me again on Left Brain Thinking.

It's always the highlight of the week, Chuck. We're always happy to be here.

We need to start, because Left Brain Thinking is new, at least in terms of the audience, we need to start with the idea of a fresh look, because a fresh look is a thing on leftbrainir.com. So before we get into the two that we're going to talk about where you have new reports coming, why a fresh look? What does a fresh look entail? Help everybody understand when we say, hey, we got a fresh look at CrowdStrike and Uber, what does it actually mean and entail?

To answer your question, a fresh look and an ongoing look are very similar. I would Imagine there's about 80% overlap. Where they differ, in, in an ongoing report, if Janice or one of our other analysts or Brian covers a name, they will reference, hey, in our previous look, here's what we were looking for. They'll reference past materials. Maybe there were competitive dynamics in the past quarter that moved stock price up or down. They will reference that. But in a fresh look, it's just that. It's the first time we've approached the name and we wanted to make it obvious to the subscriber that it was the first time we were looking at a name.

So here you are taking a look at CrowdStrike. What brings that to the fore and what's the research opinion?

The research opinion is it's a green light. The analysts like it, both from a fundamental, a technical, and a quantitative standpoint. From a business fundamental standpoint, we like it. But also Brian Dress, who's our director of research, recently did a CEO profile on the leader and founder of CrowdStrike, George Kurz. He was also very impressed with the business, the strategic vision and the profitability of the business. And for us, we also follow the business from a Jarvis ranking score. And CrowdStrike has been high on our list for quite some time, and that has continued this past week. So that's why we're highlighting it at this time.

Jarvis, of course, for anybody who has forgotten, Jarvis the system, the rigorous standard that mixes the science and the art in the left brain process. When you're looking at CrowdStrike, ticker symbol CRWD, this is a name that has been popular for a while. You are a growth investor, so you're not looking to buy something that's undiscovered. You want to see the growth and have it be something that you think is sustainable. So is there a particular point where you're hoping you're going to hit an entry sweet spot, and what does that look like?

We've never been able to time an entry sweet spot. That's really a short-term phenomenon, meaning if your holding period is long enough, it almost doesn't matter which point that week or that month you entered the shares. It may— if you're going to hold them 3 or 4 years or something, where they got into something at 18 or 22 is not really going to be relevant, especially not when you're looking for triples and doubles and those sort of things like we are. So that's generally how we would evaluate it. But we really like the business. The business momentum from a fundamental standpoint is what we like, meaning that we see the sales growth in usage of the platform accelerating. And we also see the use case because CrowdStrike has the platform really to help send all internet traffic and all traffic in organizations to allow it to be cleaned and to keep the bad guys out. And their threat detection, because of how it's crowdsourced, that's why it's called CrowdStrike, They use artificial intelligence, so every other platform or every other user on their network where malicious or bad guys have tried to get in, they actually send it up the chain, and so now they can do threat detection on every other user in their network. So it grows smarter over time. And now, because everybody's stuck at home, what used to be a— maybe a steady stream of traffic going online in this new Internet 2.0 world. Now it's been forced there because of circumstances. So we think that that business momentum and the business use case is sustainable and we think it's going to accelerate. Now what surprises us is the profitability. At this early stage of growth, generally when you're still investing in either sales force or your network or R&D or engineering or that sort of thing. So the fact that they're showing sustained free cash flow growth at scale when sales are accelerating, that is very, very unusual and very interesting to us. And that's why it impressed Brian in the CEO profile. And why it impressed our analysts when they wrote it up and Mark posted it to the IR site for subscribers.

Now let's turn our attention to Uber, which is a stock that you have mentioned as liking from a business perspective. Your fresh look at Uber suggests what for that stock?

That generally the business use case for Uber for us as a transportation platform, for us, has always made sense. The fact that you're going to need either people or goods or something transported someplace, somewhere, at some point in time, that's existed since the beginning of Silk Road and the beginning of humankind. So the fact that they have a first mover on that in this new digital age is very interesting. Now we look at the sort of the car or the auto dynamics, but you also have Uber Eats, and I know there was some other things that they were toying with, like autonomous cars and some other things. But the point is, once you have that network and those users, it's very easy to flip on a new service, and that's what's interesting. Where we are now with Uber, now that we're coming out of being closed up, and you're starting to see this pent-up demand to get out. People may not travel far, but we know local trips are happening and they're continuing to happen at a more frequent pace. And that means Uber, which is where they get the majority of their trips, are local destination trips. That business has really good margins on it. The second business that they have is the Uber Eats business. That business has been consolidated The Grubhub consolidation really, really helped, and now you have really two strong players, and they will be looking for profit. So you will have both engines of growth as we come out of this pandemic, and you have a share price that hasn't moved very much since the IPO. You couple that with a strategic leader, Dara Khoskari, who we've admired from his days at Expedia. And the share price hasn't moved yet, but I think if you look out over the course of 18 or 24 months and you look back, I think you're going to like what you see.

Nolan, great stuff as always. Thanks for sharing with us. Look forward to chatting with you again down the line.

Make it a great one and stay safe, my friend.

Left Brain Thinking is a joint production of Left Brain Investment Research and Money Life 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 transactions. I'm your host, Chuck Jaffe, and you can learn more about my weekday podcast at moneylifeshow.com. Thanks to my guest, Nolan Langford, chief executive at Left Brain Investment Research. Learn more about the firm and its analysis at leftbrainir.com. The firm's on Twitter at Left Brain IR. Left Brain Thinking is available every Wednesday. Please subscribe on your favorite podcast app. And until next week, stay safe, everybody.