Ideas Dinner (Pro and Institutional Members) – August 19, 2025

Welcome to our Long Ideas Dinner. Let me know what questions you guys have. Would love to take some requests from the audience. Stick them in the chat or the Q&A, and I will tee them up. Otherwise, we can go over some of our recent long ideas and other offerings. But welcome, welcome to our professional members. What can I do for you today? If you don't have any requests, you can just listen to me riff on some recent picks. You know, one of the things I would like to talk about is new constructs as an AI. And because we're doing a lot of work on in the AI area these days, and We are really kind of understanding more about how AI works, and we're talking to some of the big hyperscalers, some very sophisticated firms. And what we have found is that— okay, we got a couple questions. All right. So I'll be quick on this. But what we found is that, you know, people want, like, they want, they wanna learn, they want, they want a machine. Everybody wants somebody to tell, give them the answers. Right? And AI is the new genie coming out of the bottle that can give you all the answers. Now, we now know the genie is not always fully equipped to give the answers. When the genie tries to get the answer from the internet, the genie doesn't really do much better than a low-level research or secretary. But the genie is great. ChatGPT is great. It's like having a million secretaries. We don't really need a million secretaries. Right. So how do you really teach a machine to do something sophisticated? And so it's occurred to us and some of the bigger players in the field that our screener, our screening tools are like an AI, right? You can go in here and say, give me the best stocks in the tech sector, right? Give me the most profitable stocks in the tech sector. Just sort by return on invested capital. That's not sorting right, is it? Oh, wait a second. Yeah, the zero is, I think, an infinite return on capital. So that's, that's top down, you know, and, or give me the best free cash flow. And you can do this across a variety of metrics. Now, this screener lets you do a lot. It doesn't let you do as much as you can do with our institutional screening tool, which is dynamic data. It's called Dynamic Data and lets you screen on a lot of stuff. And it's like effectively an infinite number of things, almost like a bunch of operational metrics, valuation metrics. You can see a ton of stuff. But being able to go to a machine and ask it questions like, give me the best stocks, give me the most profitable stocks, give me the cheapest stocks, and getting a real answer. I think it's super powerful. Super powerful. That's, that's AI-level capabilities. Now what we need to put on top of that is a chatbot. And I'd be happy to let you know we're working on that. Working on that for, for you guys in the future. Alright. So first come, first serve on questions. Again, I'm getting questions about Verizon here in the future. So give me a second. I'm going to check and see if my crystal ball is working. Yeah, no, my crystal ball is not doing so well. It's turned into a kettlebell. I've given up on my crystal ball. So yeah, I'm not— I don't have— I don't have a good answer for you, Bob, on the future of Verizon. I think I told you our bullish thesis on Verizon died a few years ago when they got out of the live entertainment business. I thought that was a smart place to be in terms of growth and profitability. Right now, I just— it feels a little bit of a commoditized business, and it's just kind of them and AT&T battling for who's got the best commercials and cheapest phones and phone access. So I don't— I just don't know how much long-term upside potential we can expect from Verizon. It's got a pretty decent business. You can see the credit rating. Neutral stock rating, attractive. A lot of that's because it's pretty cheap. Stock price implies profits are going to decline by 20%. Maybe that's true. Maybe that's true in a commoditized, commoditized business. So, I mean, we saw what happened with AT&T's wireline, you know, traditional business, right? Like traditional, like phone calls, long distance. Prices and profits came down. It got crushed on, on that eventually. And I'm not saying that's going to happen to cell phones overnight, but I wouldn't be— it's hard for me to be bullish on Verizon. Sorry about that, Bob. Just being honest. All right. Hamilton Beach Brands. Is this one of those appliance companies, Peter? Is that what we're talking about here? Let me see. Let's look this up. HBB, Hamilton Beach Brands. Yeah, appliances. I would say I feel pretty similar about Hamilton Beach as I do Verizon. I think these appliances just keep getting cheaper and crappier. I mean, come on, man. I mean, who— raise your hand if you remember when dishwashers lasted for more than 5. They lasted 30 years. Refrigerators lasted for 30 or 40 or 50 years. You just put a new one in, Move one to your garage, and it lasted without air conditioning in the summer for that long. Yeah, I think like I feel like the appliance business is just it's kind of gross to be honest. They do own Clorox, Brita that could be helpful. Bartesian that looks interesting. So maybe some of these other brands are are going to be better. I don't know them as well. Branded small electric household and specialty houseware appliances. So what does Bartesian do? Cocktail system. Oh, so they got a new kind of appliance. That's cool. That's innovative. I could get into that. I mean, make me a custom cocktail. I mean, that's not bad. I think, I think drinking is— I hear drinking is going down amongst young people. So that's, that's maybe not super bullish. Oh, irons, steam products. Yeah. I mean, that's a better, fancier iron. I, I don't— I, that's— I got a hard time getting very bullish on that. Clorox bleach, you know, that's— there's not a lot going there. Brita, Brita filters, we use a lot of those, but again, I'm not seeing much of a moat. I'm sorry, much of a moat. Plant-based milk you've ever had. The new milk revolution. Premilled ingredients, best tasting with no prep, no straining or repurposing. Add a new pouch to the machine and enjoy the freshest Interesting. Hmm. Yeah. You know, it's another one that's like, hey, they got something cool. New ideas are going to drive growth that people want. This is sort of like a Keurig machine, I guess, but for milk. I think it could be a nice short-term growth spurt. They're going to need to keep coming up with one of these at least once every 6 months or a year to see growth because it's pretty easily copied. Sharp, smart sharp spin. Okay. This is just, I think, a way to get, throw away your needles. Which is, you know, again, kind of a growing business because people are getting a lot of injections these days. Hamilton Beach. Yeah, just this, this, this is sort of some of the basic stuff. True, True Air. Clicked on this. True Air. It's just another, this is just maybe a blog. Weston. Oh, it's a burger. So you do this with your George Foreman machine and you're just, you know, you're really crushing it. Yeah, I like this. Feel the table. Oh, it's a grinder. Is that a grinder? Meat grinder, slicer, saws, sausage stuffers. Yeah, not bad. Not amazing. Smokers, slow cookers. I mean, these are definitely more popular. I like that this is an indoor version, to be honest with you, because if I'm gonna have an outdoor oven, I'm not like that pumped about it. Like, I'm, you know, I like— if I'm gonna be outdoors, I'm cooking with fire and I'm full caveman. But if I'm just turning a dial and I'm doing that outside, that's like, that doesn't, doesn't scratch the itch for me in cooking. So that's what I think about HBB, Peter. Hope you don't mind being straight with you. Dear. Yeah, this is another one. I think it's gotten beat up a little bit recently, but it's, yeah, come up here, got beat up pretty bad. You know, this one's, this one's fully priced. I don't know how great a business it is. I do think the industrialization of the world, the matriculation of the world up the ladder of progress and civilization is good for Deere. They got good stuff there, but I think it's all priced in. It's all priced in. You have to keep in mind that these meme stock investors, they did get smart. They were bored apes for a long time, but they got a little smarter. They said, oh, I can pile my money into junk stocks or I can pile my money into actually a good company. And I think we've seen that with some of the sort of legacy popular old names across a variety of sectors. Obviously, the Fab Four, the Mag Seven, is a big beneficiary of that. Huge. But I think Deere and some other names, including Berkshire Hathaway, Walmart, some of these just big names that people are like, you know what, if I'm going to gamble, why don't I just throw my money into something? Why not put it in something that might not go to zero? So you get a little bit of a meme effect, not quite the exaggerated one, but you dramatically reduce the risk. So yeah, good company, not such a good stock. Agco. Before we get to the really hard question for Bob. Bob, don't hold back with me on me here with like impossible questions. I have to pull my crystal ball out here again and ask it if you keep pushing me this hard. Agco Corporation, not looking so good. Not looking so good. I'm guessing profits have been up and down here. Yeah, down. Economic earnings going the opposite way of accounting earnings. That's not good. But it looks like interesting— positive and rising, negative and falling in the TTM, and we only get a neutral rating. I'm gonna have to look into that. Oh, economic earnings. Yeah, a negative and declining. These are positive and rising. Hmm. I need to take a picture of this. Give this to the team. Not looking so good for these guys. Unattractive, unattractive. Not such a great business. That's what I think about that. All right. To Bob's question, how best to combine an analysis of macro trends with new constructs information? So if you have a strong opinion on Macro trends. The best way to combine those is is to is to is to use our reverse discounted cash flow model. Now this is sophisticated stuff, folks. This is not going to be super simple until we got the AI working on this stuff too, which we will. In fact, I'm going to make a note on some of the macro trends stuff here. So the answer would be there's two parts here. All right, first of all, inflation. So, if I want to know how inflation would affect the valuation of a particular stock, I would go into— I would get access to a model. This is an institutional service where you can go into a model. And I would go into the WACC, and I'd look at weighted average cost of capital. And I'd say, you know what, if inflation is going up, cost of capital is going up. So, I would raise The cost of capital from 12.5 going forward, maybe I make it 13. I save that off. And now I've got higher cost of capital due to higher cost of debt, right? I mean, that's ultimately where it comes from. And if you wanted to be more specific about what drives the cost of capital, you can do some stuff with beta, I guess. But we, we used to break out every element of the cost of capital as an override. We stopped doing that because nobody really used it except for the— they only used sort of the overall because it just got too complex. So, yeah. So, for cost of capital or for inflation, I think that the question you have to ask for any of these macro trends is, how do I link the macro trend to something specific about the company? That's the value-add. Then, of course, you need a tool that can reflect. changes in that specific thing about a company on the valuation. So step 1, inflation affects cost of capital. Could it also drive up top-line revenue? Yes. Could it also drive up top-line costs? Yes. How much do those offset? Depends how leveraged the company is and in terms of like its margins. But you could also go in and say, all right, well, I think inflation is going to give us more revenue growth. In fact, I'm going to say it's going to give us 33% revenue growth instead of 30%. And then I'm going to say, but my margins are going to be a little bit lower because I got to pay higher costs. And so, I would say maybe my margin goes down by 1% to reflect inflation. And then that's inflation. Tariffs would also hurt your margins or raise your revenue. So you would just make another adjustment to, you know, let's say for whatever reason, tariffs are going to really hurt your competitors and they're going to have to charge higher prices. So you can get away with raising your prices too, but still less than what your competitors raise the price. So you will still be a lower-cost alternative. But you're going to take a little bit of action out of the, you know, the raising of the tariffs. You know, maybe that doesn't happen at all. Let's say you are sourcing materials from another country that's high in tariffs. So your cost is going to go up. That's going to knock your margin down. So maybe it goes from 6 to 5 or 5.5, or instead of from 9, it goes to 8.7775. However specific and granular you want to be, you can be. Now, what I can't do is ask a crystal ball to tell us exactly how much does tariffs affect Company A. I don't know if anybody knows that. I don't know if the companies themselves know that coming out of earnings season where some companies said it did affect, some companies didn't. I'm sure the CFOs and their finance team have a much better sense of how much tariffs are going to affect, but they're not really talking about it. So anyway, but if you can get that information, by all means, take it. And you see how it affects things in the model. And once your model's updated, then you save off the scenario. And you can look at the impact on the valuation of the company. And we did this all in the optimistic scenario as an example. And I will show you how you can look at exactly what the optimistic scenario shows. So we'll go optimistic. Optimistic, and when we got that super high revenue growth there in Kava, you know, it's got to go for 14 years, but we have it going, I think, out for like 20. You can see how that just drives the stock price up like crazy. So it looks weird, but really the way to look at it is more like this, you know, or even this. And so you can see evaluation. Now, if we wanted to have another scenario that was just like optimistic, But without the adjustments, you would just come back in here and say, okay, let's make the neutral the old scenario, which was what, 30, 30, 30, 30, 30, 30. And then this can just be the same. You can knock that to 10. And then optimistic would be where these guys were before. Wasn't it like 6, 9, 10, 11, 12, 12, 12? 12, 12. So that was the all optimistic. You get the idea. You can have 2 scenarios. The only difference between the 2 would be the impacts of inflation and tariffs. And then we could compare the impact on valuation, impact on implied profits, impact on implied return on invested capital, all that. So we would go neutral and optimistic. And you can see what you get there, right? So that faster growth rate gets us to The current stock price in a shorter amount of time. It's got slightly higher margins, right? So all this makes sense that this would go faster. And then we can look at implied revenues. You can see what that looks like. 25 years. You can see that's a pretty big hockey stick, but you get the, you get the idea exactly of, of the impact of inflation. Versus not. You can see long-term, it doesn't look that bad. That's how I would do it, Bob. Peter Bates, we got another Ask R. All right. This is my crystal ball. Hey, crystal ball, what industries, businesses can benefit the most from artificial intelligence? I think it's yet to be seen, Peter. I think the answer to that question is going to really depend on how many people out there are really able to teach machines to do sophisticated things. Because right now I think AI is like having a million secretaries or a million junior analysts. We don't need more of those folks. What we need are people who can teach a machine to do something really, really sophisticated. And we have a hard time with that in this world. And by sophisticated, I mean navigating the real world, giving us real practical answers. You know, we have a hard time getting a car to, you know, to drive by machine only. And, you know, you can make the argument that that can be done, performed by a fairly Unsophisticated human. Maybe that unsophisticated human doesn't— isn't a perfect driver and gets in accidents a lot, but you get the idea. And so, but I did see a report not too long ago, and I think you can look this up pretty easily, like which— gosh, I saw this on Twitter. Which industries, which jobs are most likely replaced by AI? Alright. Here we go. Customer service, data entry and basic admin, telemarketing and sales. I think telemarketing and marketing in general, making websites. I've got a friend who's in the business of, like, doing HubSpot stuff, and she's like, dude, in 2 years, AI is gonna make, make us go away. Right? Do we really need a human to, like, you know, especially what you can tell these things to do in terms of images and stuff like that? I think, I think customer service, obviously, we've already seen that with chatbots helping people out. Computing pro— computer programming, a lot of the low-level programming I think is going to be taken by machines because I think the, the programmers are good at teaching machines how to do what they know how to do. So that one's going to, that one's going to go. Bookkeeping and accounting, legal and administrative assistance, any kind of assistance, proofreading and copy editing for sure. I think interpreters and translators, I mean, that's a lot. I mean, the translation tools are pretty intense, pretty intensely good. Writers, authors. Yeah, everything in media. You know, now this does not displace what I call the virtuoso effect. If you are a virtuoso in anything you do, I think you are fine. But that's what you got to do. You can't just be an also-ran. Maybe this will be a great culling of mediocrity. I don't know. Depends on how we handle it. Yeah, Peter, that works. Internal data that could be used to grow crops better, keep machines running, read and interpret sensor data to produce flawless products. Absolutely. 100%. To the extent these things can be automated, then they are basically replaceable by AI. I'm still gonna cook my steak on a grill without a thermometer though, because I like that. AI doesn't get that job. I don't mind mixing my own drinks either. I don't know if I want a drink machine. That might be kind of fun. But if I'm doing it for scale, for like lots of people at a party and they wanna like, you know, as a party trick, hey, I'll make you a Cosmo. I'd rather machine make someone a Cosmo than, than make a Cosmo myself. Anyway, good questions, guys. I, I think teachers, another one. Graphic designers. Yeah. Bookkeepers, lawyers, a lot of lawyers. You know, that are just repeating some basic stuff. That could be it. All right. I will, I guess I'm not, was I sharing my screen most of this time or not? I wasn't. When did I stop sharing my screen? Goodness gracious. Did you guys see any of my reverse DCF models? Did I never share my screen on this? Oh man, I'm so sorry. So here, here's the reverse DCF model and how that works. Let me just make sure. I'm not running into another meeting. Yeah. So here's the reverse DCF model, and here's the implied revenue versus, or NOPAT, without inflation and with inflation. And then on the forecast page, what I was doing is going in and adjusting margins down. So the optimistic scenario is with inflation for a company where the revenues go up because they're able to participate in Higher inflation, and so they're they're going to see growth because prices are going up. But they're going to see lower margins where when I came in here and I put in the lower margin. So gosh, guys, someone's got to like raise their hand and tell me, "Hey David, you're not sharing the screen next time." I apologize. But that's what we did here is we went into the reverse DCF model, which comes from this button on the rating page. Sorry, company model button on the ratings page. And then you can go in and look at all kinds of scenarios and get a sense of, okay, well, my optimistic is with inflation, neutral is without inflation, and see what the implied values are based on without inflation, with inflation. And so, you know, that's how I would link these 2 together. So apologies for not sharing. More of the screen there. And yeah, I went through the Hamilton brand stuff here too, like the different items that they had on their website that were doing different things. Here's that, that Keurig machine for milk. Here's the Brita water filters. These are the different irons. This is the, this is the bartender. That's what I was doing all this. So yeah, sorry guys. I, I make this mistake more often than I'd like. That's a huge bummer. But yeah. Feel free to hit me up in the chat if I make that mistake again, because I know it's got to be confusing if I'm not sharing my screen. But you did at least get to see the video of me picking up my crystal ball kettlebell. I hope you guys got a laugh out of that. I don't really have a crystal ball. If you guys don't have any more questions, I'm going to let you go. Thanks for being with me. We'll post a replay to this to the private section of the online community. Thank you. Have a great day.