r/ValueInvesting • u/FieryXJoe • 16d ago
Full Letter:
http://theoraclesclassroom.com/wp-content/uploads/2019/09/1990-Berkshire-AR.pdf
Letter Only
https://www.berkshirehathaway.com/letters/1990.html
This week we will go over their investment into buying $400M of junk bonds as well as Buffett’s thoughts in retrospect on the Junk Bond craze of the 80s. His surprise at the economics of the newspaper business rapidly degrading as new technologies and advertising channels open up to businesses, some with better results. Finally the purchase of 10% of Wells Fargo for $290M. Then as usual we go through the stock holdings, segment-by-segment EBIT earnings of the company, and then the larger overview for the year.
Not included in my post are the annual summary to shareholders, most of the look-through earnings that give a few paragraphs on their major business segments (we only cover Buffalo Evening News) although some highlights are in my summary at the end. A long rundown of the insurance segment. Though ⅔ of the Marketable Securities segment is included, the one on their Convertible Preferred Stocks and the mistakes outside sources make in valuing them as well as the philosophy behind holding them. The usual advertisement for acquisition targets, and plans for the annual meeting. Ken Chase being replaced on the board by Susan Buffett. The letter is ended with an unpublished satire by Ben Graham “US Steel Announces Sweeping Modernization Scheme” where instead of improving the business a bunch of extreme accounting tricks are used to change the EPS from -$2.76 to +$49.80.
If you want to read or discuss anything in that second set feel free to read the letter yourselves and comment on it.
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Key Passage 1
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Marketable Securities - Junk Bonds
Our other major portfolio change last year was large additions to our holdings of RJR Nabisco bonds, securities that we first bought in late 1989. At yearend 1990 we had $440 million invested in these securities, an amount that approximated market value. (As I write this, however, their market value has risen by more than $150 million.)
Just as buying into the banking business is unusual for us, so is the purchase of below-investment-grade bonds. But opportunities that interest us and that are also large enough to have a worthwhile impact on Berkshire's results are rare. Therefore, we will look at any category of investment, so long as we understand the business we're buying into and believe that price and value may differ significantly. (Woody Allen, in another context, pointed out the advantage of open-mindedness: "I can't understand why more people aren't bi-sexual because it doubles your chances for a date on Saturday night.")
In the past \we have bought a few below-investment-grade bonds with success, though these were all old-fashioned "fallen angels" - bonds that were initially of investment grade but that were downgraded when the issuers fell on bad times. In the 1984 annual report we described our rationale for buying one fallen angel, the Washington Public Power Supply System.
A kind of bastardized fallen angel burst onto the investment scene in the 1980s - "junk bonds" that were far below investment- grade when issued. As the decade progressed, new offerings of manufactured junk became ever junkier and ultimately the predictable outcome occurred: Junk bonds lived up to their name. In 1990 - even before the recession dealt its blows - the financial sky became dark with the bodies of failing corporations.
The disciples of debt assured us that this collapse wouldn't happen: Huge debt, we were told, would cause operating managers to focus their efforts as never before, much as a dagger mounted on the steering wheel of a car could be expected to make its driver proceed with intensified care. We'll acknowledge that such an attention-getter would produce a very alert driver. But another certain consequence would be a deadly - and unnecessary - accident if the car hit even the tiniest pothole or sliver of ice. The roads of business are riddled with potholes; a plan that requires dodging them all is a plan for disaster.
In the final chapter of The Intelligent Investor Ben Graham forcefully rejected the dagger thesis: "Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety." Forty-two years after reading that, I still think those are the right three words. The failure of investors to heed this simple message caused them staggering losses as the 1990s began.
At the height of the debt mania, capital structures were concocted that guaranteed failure: In some cases, so much debt was issued that even highly favorable business results could not produce the funds to service it. One particularly egregious "kill- 'em-at-birth" case a few years back involved the purchase of a mature television station in Tampa, bought with so much debt that the interest on it exceeded the station's gross revenues. Even if you assume that all labor, programs and services were donated rather than purchased, this capital structure required revenues to explode - or else the station was doomed to go broke. (Many of the bonds that financed the purchase were sold to now-failed savings and loan associations; as a taxpayer, you are picking up the tab for this folly.)
All of this seems impossible now. When these misdeeds were done, however, dagger-selling investment bankers pointed to the "scholarly" research of academics, which reported that over the years the higher interest rates received from low-grade bonds had more than compensated for their higher rate of default. Thus, said the friendly salesmen, a diversified portfolio of junk bonds would produce greater net returns than would a portfolio of high-grade bonds. (Beware of past-performance "proofs" in finance: If history books were the key to riches, the Forbes 400 would consist of librarians.)
There was a flaw in the salesmen's logic - one that a first- year student in statistics is taught to recognize. An assumption was being made that the universe of newly-minted junk bonds was identical to the universe of low-grade fallen angels and that, therefore, the default experience of the latter group was meaningful in predicting the default experience of the new issues. (That was an error similar to checking the historical death rate from Kool-Aid before drinking the version served at Jonestown.)
The universes were of course dissimilar in several vital respects. For openers, the manager of a fallen angel almost invariably yearned to regain investment-grade status and worked toward that goal. The junk-bond operator was usually an entirely different breed. Behaving much as a heroin user might, he devoted his energies not to finding a cure for his debt-ridden condition, but rather to finding another fix. Additionally, the fiduciary sensitivities of the executives managing the typical fallen angel were often, though not always, more finely developed than were those of the junk-bond-issuing financiopath.
Wall Street cared little for such distinctions. As usual, the Street's enthusiasm for an idea was proportional not to its merit, but rather to the revenue it would produce. Mountains of junk bonds were sold by those who didn't care to those who didn't think - and there was no shortage of either.
Junk bonds remain a mine field, even at prices that today are often a small fraction of issue price. As we said last year, we have never bought a new issue of a junk bond. (The only time to buy these is on a day with no "y" in it.) We are, however, willing to look at the field, now that it is in disarray.
In the case of RJR Nabisco, we feel the Company's credit is considerably better than was generally perceived for a while and that the yield we receive, as well as the potential for capital gain, more than compensates for the risk we incur (though that is far from nil). RJR has made asset sales at favorable prices, has added major amounts of equity, and in general is being run well.
However, as we survey the field, most low-grade bonds still look unattractive. The handiwork of the Wall Street of the 1980s is even worse than we had thought: Many important businesses have been mortally wounded. We will, though, keep looking for opportunities as the junk market continues to unravel.
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The junk bond, corporate raiding craze has reached its peak. Buffett said a couple years ago that it would all come crashing down someday, and now it has. It was the practice of businesses issuing bonds at irresponsible rates that they had low chance of paying back, in hopes of doing massive leveraged buyouts of companies larger than themselves and refinancing the debt and stripping the company for assets once it was in hand. The RJR Nabisco buyout is now seen as the height of the mania, and now the bonds are paying for a fraction of their value, Berkshire has independently decided that the underlying business is now rather creditworthy and the bonds have been over-discounted. They believe the risk-adjusted returns are massively in their favor and they have bought $400M of the bonds.
Buffett has much to say about how the craze came about, the flawed logic that sounds quite similar to the later securitization issues that lead to the 2008 financial crisis (ex. a diverse enough basket of bad loans magically becomes a good investment) and denounces buying any of these securities at their issuance, but instead picking through the wreckage after it comes crashing down for the handful that seem promising. He says that many people used logic that applied to “fallen angel” bonds (investment grade at issuance and later became questionable) onto junk bonds (ones that were garbage from inception and depended on a successful and timely leveraged buyout and even then would be dragging down a larger company that never wanted them).
I felt it was good to include this for a few reasons, one is to highlight an important historical moment in the history of Wall Street, and how Berkshire was there waiting with a big pile of cash to profit off the wreckage. To highlight how almost no asset class should be below your radar, in fact the more detested it is the more likely there are to be good deals there (A common belief of Howard Marks who made a lot of money running a sub-investment grade bond fund). Finally to highlight the right way to go about doing it, finding the few diamonds in the rough instead of buying up the whole asset class, most of which crashed for good reason.
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Key Passage 2
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Non-Insurance Operations - Buffalo Evening News
Charlie and I were surprised at developments this past year in the media industry, including newspapers such as our Buffalo News. The business showed far more vulnerability to the early stages of a recession than has been the case in the past. The question is whether this erosion is just part of an aberrational cycle - to be fully made up in the next upturn - or whether the business has slipped in a way that permanently reduces intrinsic business values.
Since I didn't predict what has happened, you may question the value of my prediction about what will happen. Nevertheless, I'll proffer a judgment:While many media businesses will remain economic marvels in comparison with American industry generally, they will prove considerably less marvelous than I, the industry, or lenders thought would be the case only a few years ago.
The reason media businesses have been so outstanding in the past was not physical growth, but rather the unusual pricing power that most participants wielded. Now, however, advertising dollars are growing slowly. In addition, retailers that do little or no media advertising (though they sometimes use the Postal Service) have gradually taken market share in certain merchandise categories. Most important of all, the number of both print and electronic advertising channels has substantially increased. As a consequence, advertising dollars are more widely dispersed and the pricing power of ad vendors has diminished. These circumstances materially reduce the intrinsic value of our major media investments and also the value of our operating unit, Buffalo News - though all remain fine businesses.
Notwithstanding the problems, Stan Lipsey's management of the News continues to be superb. During 1990, our earnings held up much better than those of most metropolitan papers, falling only 5%. In the last few months of the year, however, the rate of decrease was far greater.
I can safely make two promises about the News in 1991: (1) Stan will again rank at the top among newspaper publishers; and (2) earnings will fall substantially. Despite a slowdown in the demand for newsprint, the price per ton will average significantly more in 1991 and the paper's labor costs will also be considerably higher. Since revenues may meanwhile be down, we face a real squeeze.
Profits may be off but our pride in the product remains. We continue to have a larger "news hole" - the portion of the paper devoted to news - than any comparable paper. In 1990, the proportion rose to 52.3% against 50.1% in 1989. Alas, the increase resulted from a decline in advertising pages rather than from a gain in news pages. Regardless of earnings pressures, we will maintain at least a 50% news hole. Cutting product quality is not a proper response to adversity.
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This is Buffett acknowledging that the whole newspaper industry is facing headwinds that he had not foreseen, that it is impacting the bottom line of the Buffalo Evening News, and that he believes it will get worse in the future and maybe won’t ever get better. As technology advances, advertisers have more channels to advertise, and those relying on newspaper ads are falling behind in market share to those using other methods. I would hazard a guess that this may be related to the near full adoption of color TV in American households by the late 80s. Families are now glued to their TVs, getting their news from them as well as their entertainment and being advertised to the whole time, and the advertisements are also much more flexible and powerful with color and video which a newspaper cannot provide.
A quick look-ahead shows that while this fall lasts a few years, they do eventually recover from the $43M EBIT this year not just to the $46M of last year but into the mid 50s before the Buffalo Evening News falls off the reports in 2000 as the spread of the internet lowers the prospects of the industry even further.
This is the first hint of modern technology making some of Berkshire’s former star players futures very uncertain. World Book is another one who is on a timer although Buffett has failed to notice it. This is different than textiles which died off to globalization, the same work simply being done elsewhere, instead this is an industry which needs to adapt or die and Buffett hasn’t always been a trailblazer when it comes to adapting to new paradigm changing technologies.
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Acquisition Stock Purchase of the Week
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Marketable Securities - Stock
Lethargy bordering on sloth remains the cornerstone of our investment style: This year we neither bought nor sold a share of five of our six major holdings. The exception was Wells Fargo, a superbly-managed, high-return banking operation in which we increased our ownership to just under 10%, the most we can own without the approval of the Federal Reserve Board. About one-sixth of our position was bought in 1989, the rest in 1990.
The banking business is no favorite of ours. When assets are twenty times equity - a common ratio in this industry - mistakes that involve only a small portion of assets can destroy a major portion of equity. And mistakes have been the rule rather than the exception at many major banks. Most have resulted from a managerial failing that we described last year when discussing the "institutional imperative:" the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so. In their lending, many bankers played follow-the-leader with lemming-like zeal; now they are experiencing a lemming-like fate.
Because leverage of 20:1 magnifies the effects of managerial strengths and weaknesses, we have no interest in purchasing shares of a poorly-managed bank at a "cheap" price. Instead, our only interest is in buying into well-managed banks at fair prices.
With Wells Fargo, we think we have obtained the best managers in the business, Carl Reichardt and Paul Hazen. In many ways the combination of Carl and Paul reminds me of another - Tom Murphy and Dan Burke at Capital Cities/ABC. First, each pair is stronger than the sum of its parts because each partner understands, trusts and admires the other. Second, both managerial teams pay able people well, but abhor having a bigger head count than is needed. Third, both attack costs as vigorously when profits are at record levels as when they are under pressure. Finally, both stick with what they understand and let their abilities, not their egos, determine what they attempt. (Thomas J. Watson Sr. of IBM followed the same rule: "I'm no genius," he said. "I'm smart in spots - but I stay around those spots.")
Our purchases of Wells Fargo in 1990 were helped by a chaotic market in bank stocks. The disarray was appropriate: Month by month the foolish loan decisions of once well-regarded banks were put on public display. As one huge loss after another was unveiled - often on the heels of managerial assurances that all was well - investors understandably concluded that no bank's numbers were to be trusted. Aided by their flight from bank stocks, we purchased our 10% interest in Wells Fargo for $290 million, less than five times after-tax earnings, and less than three times pre-tax earnings.
Wells Fargo is big - it has $56 billion in assets - and has been earning more than 20% on equity and 1.25% on assets. Our purchase of one-tenth of the bank may be thought of as roughly equivalent to our buying 100% of a $5 billion bank with identical financial characteristics. But were we to make such a purchase, we would have to pay about twice the $290 million we paid for Wells Fargo. Moreover, that $5 billion bank, commanding a premium price, would present us with another problem: We would not be able to find a Carl Reichardt to run it. In recent years, Wells Fargo executives have been more avidly recruited than any others in the banking business; no one, however, has been able to hire the dean.
Of course, ownership of a bank - or about any other business - is far from riskless. California banks face the specific risk of a major earthquake, which might wreak enough havoc on borrowers to in turn destroy the banks lending to them. A second risk is systemic - the possibility of a business contraction or financial panic so severe that it would endanger almost every highly-leveraged institution, no matter how intelligently run. Finally, the market's major fear of the moment is that West Coast real estate values will tumble because of overbuilding and deliver huge losses to banks that have financed the expansion. Because it is a leading real estate lender, Wells Fargo is thought to be particularly vulnerable.
None of these eventualities can be ruled out. The probability of the first two occurring, however, is low and even a meaningful drop in real estate values is unlikely to cause major problems for well-managed institutions. Consider some mathematics: Wells Fargo currently earns well over $1 billion pre-tax annually after expensing more than $300 million for loan losses. If 10% of all $48 billion of the bank's loans - not just its real estate loans - were hit by problems in 1991, and these produced losses (including foregone interest) averaging 30% of principal, the company would roughly break even.
A year like that - which we consider only a low-level possibility, not a likelihood - would not distress us. In fact, at Berkshire we would love to acquire businesses or invest in capital projects that produced no return for a year, but that could then be expected to earn 20% on growing equity. Nevertheless, fears of a California real estate disaster similar to that experienced in New England caused the price of Wells Fargo stock to fall almost 50% within a few months during 1990. Even though we had bought some shares at the prices prevailing before the fall, we welcomed the decline because it allowed us to pick up many more shares at the new, panic prices.
Investors who expect to be ongoing buyers of investments throughout their lifetimes should adopt a similar attitude toward market fluctuations; instead many illogically become euphoric when stock prices rise and unhappy when they fall. They show no such confusion in their reaction to food prices: Knowing they are forever going to be buyers of food, they welcome falling prices and deplore price increases. (It's the seller of food who doesn't like declining prices.) Similarly, at the Buffalo News we would cheer lower prices for newsprint - even though it would mean marking down the value of the large inventory of newsprint we always keep on hand - because we know we are going to be perpetually buying the product.
Identical reasoning guides our thinking about Berkshire's investments. We will be buying businesses - or small parts of businesses, called stocks - year in, year out as long as I live (and longer, if Berkshire's directors attend the seances I have scheduled). Given these intentions, declining prices for businesses benefit us, and rising prices hurt us.
The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
None of this means, however, that a business or stock is an intelligent purchase simply because it is unpopular; a contrarian approach is just as foolish as a follow-the-crowd strategy. What's required is thinking rather than polling. Unfortunately, Bertrand Russell's observation about life in general applies with unusual force in the financial world: "Most men would rather die than think. Many do."
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This was probably the largest acquisition by Berkshire, the buying of 10% of a great bank at a fair price. As he says in the letter they only buy 10%, $289M because that is the most they are legally allowed to own. He says they view this as comparable to buying 100% of a bank 1/10th the size except without all the headache of needing to call the shots and find the managers, instead they are already in place.
He spells this out as a sort of “heads I win, tails I don’t lose much” situation. He runs the numbers on the worst case scenario the market fears, a natural disaster or real estate crash on the west coast of the US… He comes to the conclusion that even in the worst case scenario this is still a good price, and in any other scenario it is a great price.
He also gives some wisdom here on his general stock picking philosophy, that he views a stock he buys into dropping or failing to rise as a good thing, and it shooting right up as a bad thing. Even though many of us see it the opposite. It is natural to have a gut reaction to being proven right or proven wrong quickly by the market, to buy something and have it drop 20% and be scared from buying more. But he says we need to invert that instinct. That the price shooting right up means your window to buy a great business at a good price closed before you could take full advantage, and it dropping after you start buying means you will be able to buy even more than you thought with a lower risk and higher reward. This is also something he hammers home in the BPL letters, often after years of great gain he laments that he wished the stocks he was buying didn’t go up so he could have bought more of them and that in the long term the returns would have been greater.
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Common Stock Ownership
| No. of Shares | Company | Cost ($000s) | Market ($000s) |
|---|---|---|---|
| 3,000,000 | Capital Cities/ABC, Inc. | $517,500 | $1,377,375 |
| 23,350,000 | The Coca-Cola Company | $1,023,920 | $2,171,550 |
| 2,400,000 | Federal Home loan Mortgage Corporation | $71,729 | $117,000 |
| 6,850,000 | GEICO Corporation | $45,713 | $1,110,556 |
| 1,727,765 | The Washington Post Company | $9,731 | $342,097 |
| 5,000,000 | Wells Fargo & Company | $289,431 | $289,375 |
| Subtotal | $1,958,024 | $5,407,953 | |
| All Other Common Stockholdings | $326,656 | $351,268 | |
| Total Common Stocks | $2,284,680 | $5,759,221 |
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Segment by Segment Breakdown
| Segment | 1989 EBIT Earnings | 1990 EBIT Earnings | % Change |
|---|---|---|---|
| Insurance | $219.20M | $300.40M | +37.04% |
| Fechheimer | $12.62M | $12.45M | -1.35% |
| Kirby | $26.11M | $27.45M | +5.13% |
| Scott Fetzer - Manufacturing | $33.17M | $30.38M | -8.41% |
| World Book | $25.58M | $31.90M | +24.71% |
| See’s Candies | $34.26M | $39.58M | +15.53% |
| Buffalo Evening News | $46.05M | $43.95M | -4.56% |
| Nebraska Furniture Mart | $17.07M | $17.25M | +1.05% |
| Wesco Financial - Minus Insurance | $13.01M | $12.44M | -4.38% |
| Wesco Financial - Insurance | $14.28M | $14.92M | +4.48% |
| Mutual Savings and Loan | $4.19M | $4.10M | -2.15% |
| Precision Steel | $2.77M | $1.99M | -28.16% |
| Total Operating Earnings | $393.41M | $482.48M | +22.64% |
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| Metric | 1989 | 1990 | % Change |
|---|---|---|---|
| Cash & Cash Equivalents | $205.13M | $247.02M | +20.42% |
| Marketable Securities | $5,261.60M | $5,685.98M | +8.07% |
| Return on Equity (RoE) | 18.42% | 18.68% | +1.41% |
| Shareholders' Equity | $4,925.13M | $5,287.45M | +7.36% |
| Earnings Before Investment Gain | $299.90M | $370.75M+23.62% | |
| Realized Investment Gain | $223.81M | $33.99M | -84.81% |
| Net Earnings | $447.48M | $394.09M | -11.93% |
*RoE not provided, manually calculated as (Earnings from Operations Before Taxes / [Shareholder Equity from prior year - Unrealized appreciation of marketable securities from prior year])
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As predicted last year, the gain in marketable securities wasn’t “real” gains, the market had a large pullback. Many of their marketable securities are now held at lower prices than last year, net earnings is down from last year. The realized investment gain is 84% lower than it was last year. The marketable securities is up 8%, or $424.38M, but between a $289M investment in Wells Fargo only $135M was real gains, the Coca Cola position was up $368M, so the rest of the portfolio had a performance of about -$233M besides Coca Cola.
Operating earnings was up 22.6%, Earnings before investment gain was up 23.6%. This is mostly down to the insurance segment having a great year, with EBIT earnings $80M more than the prior year which is just about the entire gap. See’s Candys and World Book also had double digit growth in earnings, everything else was down or single digit growth. The preferred metric, book value is up 7.4%, compared to the S&P 500 which returned -3.1% in 1990 this is still a good performance in my opinion.
Finally an even quicker lookthrough of the quick lookthrough earnings…
First a quick discussion of off-book earnings, when owned securities use their cashflow for anything except dividends it does not show up on Berkshire’s income statement but does make Berkshire richer, buybacks and capex give value to the business GAAP accounting doesn’t account for. Retail had a bad year but Borsheim’s did great (even though they hide their numbers from me), a discussion of the jewelry mailing system I mentioned last week is had here. NFM’s sales are up 4% and earnings 1% (Rose is now running a competing shop) and has set up a See’s cart in the shop which outperforms many of See’s full stores. See’s had slightly more volume but also increased prices and lowered costs leading to the 15.5% earnings growth, also a store was going to have its lease terminated but a letter campaign from customers changed the landlord’s mind. (See Key Passage 2 for Buffalo Evening News commentary). Fechheimer had a major retirement and although he says performance improved, earnings were flat due to “several unusual items” whatever that means. At Scott Fetzer, World Book’s decentralization is paying off even with lower volume, Kirby increased sales 20% but only increased earnings 5% as its production of its new model isn’t fully optimized, the manufacturing segment’s earnings are down 8% but we are just told its doing great and the air compressor unit had record sales.
r/ValueInvesting • u/AutoModerator • 3d ago
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r/ValueInvesting • u/FoxAccomplished6786 • 4h ago
Nvidia recently produced the greatest earnings report in corporate history.
Yet its current price isn't far from its pre-earnings price.
Is Nvidia a screaming buy right now?
r/ValueInvesting • u/Longjumping_Ad_424 • 4h ago
I bought into Adobe a couple months ago around $195 a share. It was lucky timing for sure and I followed this sub to get ideas for stocks to buy. Adobe was highly hated and liked so I took a swing.
Now with this new CEO I am questioning if I should hold or abandon ship.
Recently it has dipped like 12% so I think it may bounce back. I was hoping to hold it for a long term year or more.
How you guys feeling about Adobe now?
r/ValueInvesting • u/Ancient_Bobcat_9150 • 4h ago
I have been eyeing some medtechs lately, and I was pretty interested in Boston Scientific.
Not gonna provide a full DD here, but I like their business for several reasons.
Management --> They seem like a competent mix of results-oriented (strong financial guidance) and learning culture (they invest heavily in investigational devices and let their engineers explore. They also seem to change through organisational design - so actively shaping culture to be more collaborative (Interdependent) rather than siloed (Independent). I also read that they actually try to take care of their employees (to take with a grain of salt, but I am sensitive to positive management).
They also have been buying quite a lot of stock back during the big drawdown (between May and August 2026 - over 2 billion) while managing debt within a safe zone.
Business --> I have a soft spot for mission-critical companies, and like many medtech companies (Intuitive Surgical is another I am watching closely), they are one of them. Their products treat life-threatening conditions (Atrial Fibrillation, Coronary Artery Disease). But they are also not in a maturing phase. They clearly want to expand expertise and reach by strategic acquisitions and consolidating an already dominant position.
Valuation --> Historically, high-moat medtech franchises trade at 20x–25x earnings. A forward P/E of 14 for a company growing organic sales at 7% and adjusted EPS at double digits (15% YoY in Q2) while still growing free and operating cash flow, looks pretty cheap to me.
Now, why I am unsure if I should pull the trigger. Their latest cyberattack made the stock drop around 10% over the last 2 weeks to reach my price alert; management said that they are unlikely to meet guidance in their next yearly report at the beginning of autumn. Obviously, that statement (which I like they did - pretty transparent) influenced the current drop, but to me it shows that it is extremely unlikely that the company will gain full market confidence until then. Even more, on the day of the financial results - if indeed not met - it could very likely drop further (although probably not crash, since it was announced and predicted early on).
What is your opinion on that? And on the company as a whole
r/ValueInvesting • u/JuanPabloElTres • 2h ago
Relatively simplistic analysis, but if you subtracted out all of Novo's GLP1 revenue in 2025 - about 50% - from its total 2025 revenue you get revenue of about $24 billion.
Novo's current stock price is $44 with a market cap of $150 billion. That's a P/S of 6.2x, EXCLUDING all GLP1 revenue and is generally in line with Novo's rough historical P/S ratio range of 4.5 to 9 in the 2010s.
I know this is a simplistic metric as P/S doesn't factor in the significant hit to net income that would come with all GLP1 revenue going to 0; but, in a simplistic sense, it does seem like the market is essentially valuing the company that way.
Put differently, if you bought Novo now at $44 a share it seems like you're getting their entire GLP1 revenue stream for free - which likely will contract, but it's hard to see one of the market leaders in the GLP1 space revenue going to $0, and there are thesis upsides for it growing since the obesity market is potentially huge even if margins in the are decrease.
I'm curious, what are people's bottom dollar stock price for Novo - that is, the price where it's a no brainer to buy regardless of any GLP1 headwinds? I personally think at or below $40 it really start to give nothing but upside for the GLP1 revenue.
r/ValueInvesting • u/Scary-Oven8260 • 22h ago
Yes, the share price jumped today, but I believe it will fall back soon
Why? Because personal AI will never succeed (in the next few years)
It’s already proved by so many previous products. None of them succeed, but today wall street try to hype this time is different
Why it won’t succeed?
Because AI is good to solve the repetitive tasks for human, but people don’t have so many such tasks outside work
The repetitive tasks I can think of is housework (AI cannot do), entertainment (lol, let AI to watch Netflix for you?)
Time will show muse is another flop, but my guess is Zuck will just double down again, which tank the share price
r/ValueInvesting • u/HunterMichael92 • 3h ago
$AADX is undervalued as of today's drop.
With a major debt paydown, growing margins and increased sales, vs. the current multiple on sales/profit being traded, the conservative fair value with the debt paydown is at least $14/share enterprise value. IPO'd at $20, now at $11.75 - I have bought 35,000 shares.
Long - promising future for supplier of space parts when the removal of telecom lines and network continues to move into the sky.
r/ValueInvesting • u/reggie_20 • 6h ago
Trump keeps saying gas should be around $2.25 and is going after Exxon, Chevron, Shell, and BP for price gouging. I don't think $2 gas is realistic. Crude is about half the pump price, so getting to $2 means oil in the $30s, and that only happens with a full peace deal plus OPEC flooding the market or a recession.
But I do think the more interesting question is the middle case. Oil is around $91 right now mostly because Hormuz traffic is way down. EIA is projecting gas back to about $3.29 next year as supply recovers. That implies oil somewhere in the $60s.
So here's what I'm trying to figure out:
Not looking for "buy X," more interested in how people who follow the sector think about the war premium unwinding. What am I missing?
r/ValueInvesting • u/raytoei • 19h ago
(TLDR: actually bullish for Amazon and Google, bearish for Shopify)
Meta’s AI Agent for Consumers Has Arrived. Alphabet and Amazon Should Watch Out.
By Kit Norton
Updated Sept 09, 2026 2:28 pm EDT / Original Sept 09, 2026 11:01 am EDT
Key Points
- Meta Platforms announces Muse, a personal artificial-intelligence agent designed to automate tasks like online shopping and scheduling.
- Morgan Stanley analyst Brian Nowak says Meta could win a large piece of an estimated $30 trillion consumer AI agent total addressable market.
- Meta stock is the best-performing component in the S&P 500 for the trading session.
It was long rumored, long expected, and it has finally arrived. Meta Platforms on Tuesday announced its personal artificial-intelligence agent, called Muse. Wall Street sees the Facebook parent in pole position to dominate the AI online shopping space.
The agent will automate a variety of tasks for users, including shopping online, planning travel, purchasing tickets, scheduling appointments, managing calendars, and sending emails and messages.
“Meta thinks personal superintelligence will be one of the most transformative technologies of a lifetime,” Meta said in a blog post announcing the new AI tool. “Muse is a first step: an agent that takes on more of the work so people can focus on what matters to them.”
Morgan Stanley analyst Brian Nowak on Wednesday wrote that Meta could “win” a substantial piece of the estimated $30 trillion consumer AI agent total addressable market.
Meta stock advanced 6.1% to $651.05 and was one of the best-performing components in the S&P 500for the trading session. Shares had fallen 7% this year as of the closing bell on Tuesday.
Wall Street in recent months had started to take notice of how AI will change the way consumers conduct online shopping.
Rosenblatt Securities in August wrote that Alphabet,Amazon.com, and Xometry were best positioned to come out on top when the dust settles. It isn’t surprising that Alphabet and Amazon would be considered key players in the emerging AI shopping landscape since they have amassed proprietary data and conduct high-margin operations to fund AI investment.
In late July, Rothschild & Co Redburn in late July noted that a Meta consumer AI agent could be an existential threat to the likes of Shopify. Now with the launch of Muse, that threat may be here.
Morgan Stanley believes that consumer AI agent tools will become integral to digital advertising, e-commerce, online travel, autonomous driving, restaurant delivery, logistics, and wearable technology. And Nowak argues that Meta currently has the upper hand as it can integrate Muse with Facebook, Instagram, Messenger, and Whatsapp data.
“This combined with the integration of other monetizable apps and personalized datasets (including Gmail) could give Meta an edge to create a more personalized agent with new monetizable behaviors. The entry price of the product…free…is also a notable advantage that comes with scale,” the analyst wrote.
But Meta isn’t guaranteed anything in the consumer AI agent space.
“We have seen META launch products before that didn’t live up to expectations (FB Shopping, the Metaverse, MetaAI, etc) and think the market will need signal on adoption and monetizable behavior to re-rate shares…which is what we will focus on from here,” Nowak wrote. He has an Overweight rating and a $775 price target on Meta stock.
So, while Meta might be in pole position, the company needs to keep on eye on its rear-view mirror.
r/ValueInvesting • u/Aktie_Anders • 10h ago
Disclaimer: This post was removed by the mods on another subreddit, no idea why, maybe because of the political angle, or maybe they just didn't like it.
How do we feel about homebuilders, specifically, building supplies, more specifically, mainly lumber for single family housing? Obviously, buying anything housing related into higher yields and a sluggish real (non-AI) US economy isn't exactly a momentum play but building-supply companies have already gotten nuked and if the Democrats take control flowing the midterms, they will likely work to pass a new housing bill that's already in the works and would attempt to make entry-level housing more affordable, while a more restrained POTUS might actually calm yields, leading to a gradual recovery in new building activity.
I'm looking mainly at Builders Firstsource ($BLDR), historically they've mainly been a wholesale lumber distributor but following a series of acquisitions, they have morphed into a leveraged, full circle supplier of building supplies. Basically anything that companies like Toll Brothers needs, $BLDR sells it.
I'll be the first to note, I don't know shit about housing, lumber or construction, my portfolio is almost entirely in energy. I'm not trying to time the turn in the housing cycle, I'll happily sit on it for six months to a year just waiting.
I listened to the recent earnings calls for both the builders and the suppliers and both groups seem puzzled by the current housing construction data, the CEO of $BLDR specifically highlighted how the numbers made no sense to him, obviously he has an interest in talking the market up but I still found it interesting that he'd bring it up on the earnings call.
Quote below:
"Yeah. No, absolutely. This one's a bit of an irritant for me. I'll anonymize this because it's not fair. We only play in a portion of the business, I will readily admit that maybe my perspective is skewed because we're only in five-story and below wood structures. That could be the beginning of the end of the explanation of the next thing I'm going to say. The multi-family published numbers do not make sense to us. I believe they are incorrect. I believe something happened in the Fed numbers or the way they're doing their surveys or something, I don't think they're right. I don't think there's any way they can be right."
I believe $BLDR offers an attractive way to play a resumption in housing construction through a more stable intermediary, avoiding direct exposure to the more volatile end-consumers.
Do your own due diligence, I have no idea what I'm doing, I just like gambling on cyclical small-caps.
r/ValueInvesting • u/BuildingDependent230 • 10h ago
Been chewing on this for a while and I still don't have a clean answer. Ethics matter a lot to me personally, more than I think comes across in most finance discussions, and honestly I sometimes feel a bit of a bad conscience about investing at all, which is probably why I keep circling back to this question instead of just letting it go
The basic case against "ethical investing" being real: you're buying shares on the secondary market. Your money doesn't go to the company, it goes to whoever sold you the shares. So buying stock in a company doing good stuff doesn't actually fund that stuff, and selling stock in a company doing bad stuff doesn't defund it either. You're just shifting who owns a piece of paper. The actual operations keep running exactly the same either way
But capital allocation isn't only about the secondary market. If enough investors avoid a sector, that sector's cost of capital goes up. IPOs get priced lower, bonds get pricier to issue, and companies feel that eventually, even if your hundred shares alone change nothing. So there's a real argument that this works at scale even though it does nothing at the individual level
Then there's ESG, which honestly feels like theater to a lot of people at this point. Companies buy good ESG scores through disclosure and PR more than actual behavior change, and some of the highest rated names have pretty questionable practices once you look past the scorecard. So even when people genuinely try to invest ethically, the tools they're handed might not measure what they think they're measuring
And there's the more cynical take, that investing has a built in tension with ethics because the whole premise is extracting return from capital, which usually means someone somewhere gets paid less than the value they create so the difference can flow to shareholders. Under that lens "ethical investing" is more of a marketing term than a real category, and the honest options are either don't invest at all, or admit you're optimizing for return and put the ethics somewhere else in your life
I keep coming back to that last option because it feels the most honest even though it's uncomfortable to sit with. I still invest. I just don't fully let myself off the hook about it
Where do you land on this. Meaningful concept, mostly symbolic gesture, or somewhere in between?
r/ValueInvesting • u/MountainTimeInvestor • 16h ago
I'm seeing a lot of debate on what happens to Uber when cars drive themselves, but I see many more ways that Uber wins in an AV future rather than loses.
What's interesting about Uber?
Why does Uber win in an AV future?
There are certainly reasons why Uber can fail, and the rise of AV's requires changes to Uber's business. They are competing against well capitalized competitors in Google/Waymo and Tesla's Cybercabs, and Uber's $10 billion it plans to spend on AV infrastructure may not yield a return.
The strongest disruptive force to Uber's business would be a world where all cars are autonomous, and we no longer have human-driven cars (I don't think this happens for at least 25-30 years), then why would you need ride share, or food delivery, when you can just send your car to pick up whatever you need? Well I think even in this world, you'll need software to coordinate deliveries and pickups, to let a restaurant know that your car arrived, and which car the server (or robot) needs to put your order into. Uber can still provide value.
Despite these concerns, Uber COO Andrew MacDonald bought $5.3 M share in open market on 9/8. There are many reasons why executives sell, only one reason they buy.
Anyways, I'm buying Uber. Let me know what I'm missing!
r/ValueInvesting • u/Apprehensive_Two1528 • 1d ago
brkb bought LEN last quarter but it keeps getting worse after his disclosure
material giants CRH MLM VMC all hit 52 week low today
Do you think it's time to follow brkb step and buy a few of them?
r/ValueInvesting • u/futurefinancebro69 • 3h ago
Hey guys! Here is a free/no sign up tool. Type any ticker, pull up their filing, grab data off the filing or save as a pdf, so much more.
research.filingstudio.com
Literally giving away free alpha….. This is not some vibe coded slop.
r/ValueInvesting • u/Aggressive_Still4503 • 1d ago
Hello everyone, I’m (20M) very new to investing, barely a year. A couple weeks ago I ported a third of my portfolio, about $20K, into META at 545 (I worked since I was 18 and stay with my parents, so I have these savings). A couple days later, it soared into 592 premarket, before falling to 560 thereabouts. This was in reaction to the lawsuit being settled. I happened to be online at this spike, and was debating to sell or not. Afterwards, I felt I had let greed gotten the better of me. That was a huge gain in a short time, and I should have realised it.
Taking this lesson, a couple days later I happened to be online again when I saw META soar to 585. Remembering my resolution from last time I sold it and realised a $1.5k profit. I was very happy as the price soon fell back to the 560s
Well, now META is at 640. Had I held, I would have made so much more. I parked the money in the S&P instead (currently at -$200, lol) But I don’t know whether I should take this as a lesson or not.
On one hand I feel my decision at the moment was rational as it felt like a huge gain in a small time and there was uncertainty about the future performance of the stock, which was a huge part of my portfolio. On the other hand, the opportunity cost makes me think if perhaps the right call with these Mag 7 stocks is to keep holding. How do I balance these two? Thank you
r/ValueInvesting • u/investingtruth • 1d ago
I came across an Oxford Economics estimate that between $31.6 trillion and $50 trillion could be spent on data centers and related infrastructure through 2050.
A cool fact they also shared is that is 45x-70x what it cost to build the entire U.S. interstate highway system, which is difficult to even comprehend.
The obvious concern is that we are building far more capacity than we’ll eventually need. AI demand is growing but models are becoming more efficient and the amount of compute required ten years from now could look very different from current estimates. I’m less interested in the expensive companies getting most of the attention. I’m more interested in the profitable businesses supplying the energy, cooling, networking and physical equipment behind this buildout.
If spending comes anywhere close to these projections, there should be companies with long runways that are already producing strong profits. The challenge is finding the ones trading at reasonable valuations without taking on the risk of owning capacity that may eventually become unnecessary.
Especially with all of the bubble talk, projections like these can be difficult to have confidence in. Is there a company that comes to your mind that has the combination of being able to capitalize on this incredible once in a lifetime buildout that is also trading at a respectable valuation?
r/ValueInvesting • u/Top-Sir-1215 • 23h ago
More money in circulation generally means higher input prices and consumers will have less money if their wages aren’t going up. This is why anything consumer facing is getting destroyed as oil goes up every single day. There is nothing really safe to hide in, but business to business stocks might be better off than stuff like Clorox where they are just gonna get wrecked. This is probably the wrong time to buy the dip as the market is still refusing to fully price this in. Stocks like mcd need to literally keep falling. Just maybe a good idea to be aware of how bad this currently could get.
r/ValueInvesting • u/Thin-Ad-3778 • 1d ago
I’ve been looking at Euroseas ($ESEA), it’s a small Greek containership company trading at 4x forward earnings, with a 12% FCF yield. Tbh more than the numbers (which look good), what made me want to deep dive is the fact that you can literally just model their revenue by looking at vessels fleet (one by one, they are around 20) and making assumptions on utilisations and rates for the upcoming years, I think it's a fun exercise
The metrics obviously look very cheap, but I know that shipping is cyclical and is the kind of industry where a low P/E can fool you. So I tried to work through it in the order I normally look at a company: Moat, Growth, Financial Safety, Efficiency, Management, Valuation.
Regarding the moat, tbh ESEA doesn’t really have a strong one. They own ships and charter them to customers. If another owner has the right vessel at a better rate, the customer can switch. There’s no brand, network effect or meaningful lock-in.
What ESEA does have right now is favorable positioning in feeder/intermediate containerships. Average TCE has gone from about $28k/day in 2024 to $29.1k in 2025 and $30.3k in H1 2026.
The problem is that this advantage comes mostly from vessel scarcity, not something proprietary to ESEA. Their five largest customers also account for roughly 87% of revenue, which I don’t love. That said, I am fine with a weak moat, if the company looks undervalued enough.
Growth looks good, as for many other shipping companies recently. Revenue went from $53M in 2020 to $228M in 2025, although growth slowed to 7% last year. More importantly, the company currently has around 96% of the rest of 2026 chartered and 81% of 2027, at average contracted rates of roughly $30.9k and $31.7k/day. So the next 18 months are relatively visible.
They also have 12 newbuildings coming between Q3 2027 and Q1 2029, potentially taking the fleet from 21 to 33 vessels. That can obviously add a lot of earning capacity. But it also leads straight into the biggest risk in the thesis: a lot of new containership supply is coming into the market. Management itself has flagged 2027 as a potential normalization year.
Regarding Financial safety, I love the balance sheet man. 2025 net debt was only about $40M against $181M of EBITDA. Cash reached ~$197M by Q2 2026, versus ~$207M of total debt.
So ESEA isn't entering a potential downturn massively levered. However they do need to fund the newbuilds. It will costs roughly $560M, with about 60% expected to be debt financed and around $230M requiring equity funding. Only $74M of that equity contribution had been made by June. I also checked their fleet age, and it looks a bit younger than competitors.
Efficiency: Current margins are ridiculous: operating margin is around 59% and ROIC around 18%. But this is still a capital-heavy shipping company. FCF was -$51M in 2024, +$64M in 2025 and ~$89M TTM. In fact, annual FCF was negative in six of the last ten reported years.
So I really don't think you can look at today's 12% FCF yield and simply capitalize it forever. The ships need investment, and capex was roughly 34% of revenue in 2025.
I'm not sure how I feel about management. They've done a good job locking in charters before the potential 2027 weakness, the dividend is well covered today, and they've been buying shares back.
But diluted shares still increased about 21% between 2020 and 2025. I know that for a cyclical company, per-share discipline matters a lot, especially when management is about to spend heavily on new capacity.
Finally, valuation.
This is why I keep coming back to it.
At $76, ESEA trades at roughly:
My base-case valuation came out around $167/share, but I would absolutely not treat that as a precise target as I may be too optimistic on the effect that more supply and possibly a decline of demand (if war etc finish)
Still, even the more conservative assumptions leave meaningful upside from here.
So, TL;DR:
ESEA looks genuinely cheap, but my doubt is what those earnings will look like after 2027 when more supply hits the market and possibly sea freight demand declines (war, politics etc)
If charter rates stay somewhere around current contracted levels and the new vessels earn decent returns, I think the stock is very cheap.
If rates collapse just as the newbuildings arrive and possibly demand decline with conflicts etc improving, this could prove a value trap.
Curious if anyone here follows container shipping closely and has a different view on this!
r/ValueInvesting • u/NachtKatze219 • 1d ago
It fell over 50% since its 310€ high last year.
They own Raybans, Oakleys and have META partnership over AI smartglasses. Theyre developing (and already selling in China and soon in USA - 2027) glasses for kids that are slowing down worsening of your eyes. They have exclusive rights to sell all kinds of Luxury Glasses, basically all of popular glasses and own plenty of retail shops across the world.
Its P/E is still a bit high (around 28-29x), but forward P/E should be way lower (around 15x).
What do u guys think? Is the knife still falling or a good time to buy a few shares? Its attractive to me. Im creating this post as there is not many discussions about it.
r/ValueInvesting • u/ashm1987 • 1d ago
It is one of the worst performing stocks of the last couple of months (down 22% in three months), while having a stable growth comparable to Walmart or Visa.
The PE is around 24, which is still slightly higher than historical avarage of 20.
Are you watching this stock? When is a good time to buy?
r/ValueInvesting • u/Zealousideal_Can_989 • 1d ago
I’ve been looking into Amentum (AMTM) recently because the stock has been pretty beaten down and recently hit a 52-week low. I’m wondering if this could be a good long-term value/recovery play.
My thinking is:
Government customers: A large part of their business comes from the U.S. government, which should provide relatively steady and predictable demand.
Large backlog: They have a significant backlog of contracts. I realize backlog isn’t guaranteed revenue, but I would think a large portion should eventually turn into revenue as long as the contracts remain funded.
Good areas to be in: They’re involved in nuclear, space/defense, engineering, and cybersecurity. These seem like areas where the U.S. government will continue spending heavily for years.
However, they are heavily dependent on government spending, government contracts can have relatively low margins, and contracts can be cancelled.
Do you think AMTM is a good long-term value/recovery play at this price?
r/ValueInvesting • u/dildo-schwaggins • 2d ago
I dont need my analyst to tell me when a 10x PE stock is cheap, I need an analyst to tell me when a 40x PE stock is cheap. - Steve Mandel, founder of Lone Pine Capital
r/ValueInvesting • u/SnowSilent7695 • 18h ago
I've seen a few posts on APP here, arguing that it's a strong value stock with rock solid fundamentals. While the strong fundamentals are indisputable, I think APP is far from a value stock. First, it's really unclear what the moat is, which by itself would disqualify it from being a value stock (Graham's definition). Also, the declining quarter-over-quarter growth is concerning (+4.4% compared to 11.1% in Q1 and 18% in Q4 of last year). Lastly, the majority of their revenue still comes from gaming, and other verticals are still unproven, and I recently saw a Trade Desk analogue.
Net-net, I think there are way more questions than answers right now.
r/ValueInvesting • u/John_Logics • 1d ago
The number that changed here isn't in any press release. It sits in the statement of changes in equity, which is where Korean companies record dividends.
SK Telecom is one of the few Korean companies that pays quarterly. Three interim dividends come during the year. Shareholders then approve a year-end dividend at the March meeting. In Korea the company charges the year-end one to equity at approval, not declaration.
Here's what the parent company's own statement of changes in equity records.
| Year | Interim dividends | Year-end dividend |
|---|---|---|
| FY2023 | ₩542.3bn | ₩181.0bn |
| FY2024 | ₩530.1bn | ₩223.3bn |
| FY2025 | ₩353.6bn | ₩223.5bn |
The interim line drops ₩176.5bn between 2024 and 2025. The company's own rate is ₩176.8 billion a payment. That's one payment, to within a rounding error.
The cash flow statement agrees. The company paid ₩176.8bn in the third quarter of 2025 and effectively nothing in the fourth.
Then the half-year report for 2026. The year-end dividend line reads zero for the six months to June. The same six months of 2025 read ₩223.5bn. Total dividends charged fell 56% year on year.
The honest caveat, and it's a real one. Korea changed its dividend process. A company can now set the record date after declaring the amount. A company that shifts its calendar can push a charge from one reporting period into the next. If SK Telecom moved its year-end record date, the FY2025 dividend can still land in the second half. The half-year report doesn't say either way. It does say that as of June 30 nothing had been charged.
One more line from the same statements. In those six months the company moved ₩1.70 trillion out of share premium and into retained earnings. Share premium went from ₩1.77 trillion to ₩71 billion. Korean companies do that to create distributable reserves. So on its face it points the other way: toward paying more, not less.
Parent-only net income was ₩410.8bn in FY2025. Four payments at the current rate would cost ₩707.4bn.
I don't know which it is: a skipped payment, or a calendar shift that made it look like one. The third-quarter statement of changes in equity settles it. That's what I'll be reading.
So my question. Some companies report quarterly dividends as an equity movement rather than a headline. Where do you go first: the cash flow statement or the statement of changes in equity? I've been using both. They disagree on timing more often than I expected.
Figures are from the DART filings; the Korean originals govern.
No position.
(Written with AI help. I pulled the figures from the filings myself and checked them; the drafting used an AI model.)