FTNT is one of the fastest growing companies on the market.  FTNT has delivered a 5 year  130% ROIC, a 20% net margin, and is a leader in an industry that continues to grow as cybersecurity threats become more sophisticated and the need for professional cybersecurity becomes a necessity.

ALB is a “picks and shovels” play on the secular trend toward EV (electric vehicles) through their dominant position in lithium mining.  ALB expects a 5 year CAGR of 20-30% in lithium gross sales.  With an ROIC of 35%, net margin of nearly 50%, and low debt / equity of 0.37, ALB is a strong company in a volatile commodities market.

This is a pure growth story coupled with a thesis for peaking and declining interest rates.  Estimates place SHOPs CAGR over the next 10 years at 30%.  This makes them highly sensitive to interest rates, forward guidance, and trajectory.  To support the current valuation it has to live up to the growth forecasts AND interest rates need to at least stay where they are. 

PINS is an acquisition play. It is the least successful of the various social media platforms but it is also the least controversial and has the smallest market cap at under $20B.  There have been no negative news stories or reputational risk associated with Pinterest, which in our mind would make it a great acquisition target.  The stock is trading near its IPO price nearly six years ago despite growing revenue each year, albeit with growing expenses.  We believe that a larger company that wishes to get into social media with no reputational damage could purchase PINS.

ADBE is a wide moat company that has embedded itself into the daily operations of thousands of businesses worldwide through their suite of creative cloud products.  Their shift away from single purchase to a recurring subscription model has helped to push their valuation to SaaS levels, currently trading near 30x forward estimates.  But with strong growth, a 33% profit margin, and a coveted place in many businesses’ tech stacks as simply irreplaceable, we believe the company will continue to execute.

UBER is a turnaround story.  Since founder Travis Kalanick was ousted and replaced with professional CEO Dara Khosrowshahi the company has been executing on their turnaround plan, playing nicer with governments and regulators, and growing their cash flow and top line revenues.  The company expects to become profitable in 2023 and has executed several strategic partnerships that should cement their position as the industry leader.  With Lyft in serious trouble, UBER has a dominant market position and is on the verge of profitability. 

UBER also continues to disrupt other industries. UBER Freight is just starting to get off the ground and can provide a cost advantage that other firms may not have.

NRG is an activist play.  On paper, NRG looks quite dismal.  Negative margins, misallocation of capital, and failure to deliver on projections.  We got a favorable entry after the Vivint home acquisition was announced and the stock took a major hit.  Our thesis on this company is an activist investor play through Elliott Management.  They have amassed a 13% stake in the company and appear committed to turning the company around.  Their letters describe the upside and the $5B of shareholder value they believe can be unlocked by holding management accountable (or replacing them) and to focus on their core business.  We believe that Elliott’s track record of having sustained impact in companies and the stocks depressed valuation is a compelling story.

MODG is a golf industry growth story. Young people are coming into the game and off-course players are at record levels. MODG stands to benefit the most from those trends as providers of both on and off course merchandise and experiences.  Additionally, the proposed merger between the PGA tour and the Public Investment Fund of Saudi Arabia should bring a large multi-billion dollar influx of capital into the development of the game worldwide.  We are bullish on golf.

NFLX is the incumbent weathering the storm.  The original streaming service has seen its market share challenged by a “stream” of other providers, but NFLX continues to grow and defy expectations.  This may not be a long-term hold, but our purchase price near the lows of 2022 make for a good intermediate term trade..

META’s earnings fell almost 40% in 2022, but the stock fell nearly 80%. It was a no-brainer buy at those levels.  While there are many risks with this company, including the self-inflicted, its family of apps are still used by nearly half the population of the planet on a daily basis. The company earns a ton of FCF and we believe the concern over the reality labs cash burn is overblown.

CSX is a member of the US rail oligopoly and as such is able to maintain high margins and has little threat to market share.  We believe that rail is massively underutilized in the US and that immense public investment into our rail infrastructure will need to be made over the coming years and decades. We expect increasing rail volumes as the push to green the economy gains momentum.  Rail is far more fuel efficient than road based transportation. We expect CSX to benefit from these secular trends.

MSFT is one of the true wealth compounders of our generation.  The company has a 33% profit margin, is growing sales by double digits a year as a mature company, and continues to innovate across their cloud and hardware businesses.  Their investments in AI and rapid integration to their SaaS suite presents significant opportunities. We believe they will continue to compound.

NVO is a demographics story.  With more than 40% of US adults considered obese, along with 20% of children with no sign that those trends will reverse, the addressable market for drugs that can help people lose weight safely and effectively is massive. NVO and LLY represent an essential duopoly on the weight loss and diabetes care market. As safe and effective drugs for weight loss penetrate the market we expect both to continue growing into their valuations.

FSLR is a play on the secular trend to address climate change, a government subsidy story, and a bet on the 2024 election.  It also happens to be a well-run company and doing astronomical numbers. The best of the bunch in solar energy panel production and critically not dependent on China. They have benefitted and will continue to benefit from the Inflation Reduction Act subsidies and investments for solar energy production and from the broader secular trends to focus on climate change.  If Biden should win a second term, the industry and FSLR will continue to benefit from the Washington DC tailwind for domestic solar energy manufacturing.

This is a comeback story and a counter play to the pandemic rebound narrative.  The prevailing travel storyline is that there was a one-time pandemic “revenge spend” of cooped up households taking all the trips that they couldn’t take the prior few years and that this demand will soon dry up.  We disagree.  We think that we are in the middle innings of a shift from goods to services and that despite higher ticket prices, delays, and FAA issues, more people are traveling by air than ever before. DAL is the best run of a dysfunctional industry and at position start trades 40% under pre-pandemic levels.

CF is a hedge against further escalation of conflict in Europe and a supply / demand imbalance in global fertilizer play.  CF is a phenomenally run company with excellent margins, high FCF, and low debt. With the Ukraine grain deal now no longer in force, we expect the price declines seen over the past year to cycle back higher, from which CF will benefit.

VLO is North America’s largest refiner and a play on stable to higher oil prices and a soft-ish landing for the US economy.  We expect OPEC to defend oil prices, a Democratic US executive branch to limit expansion of supply through 2028, and the economy to perform better than expected.  VLO pays a healthy dividend and generates a ton of FCF. 

JPM is owning the biggest and best.  In banking, size and strength are the most important attributes a company can have and no company can boast the size and strength that JPM does.  We believe that the yield curve will un-invert over the next several quarters, but not necessarily because we enter a significant recession.  We expect longer-term rates to stay relatively stable while the short-end comes down.  The best bank in the business will benefit from those dynamics.

GSL is an under the radar, fundamental analysis play.  With shipping rates down from 70-80% of highs, the runway is long. If GSL trades to book value, it provides a 50% return from current levels. This is a small cap shipping lease company with a 7% dividend, a 45% net margin, and 30+% five year sales growth.  It is the smallest company in the portfolio by far and gives us exposure to a less covered area of the market. 

VRSN is a monopoly play.  The company is the sole domain registry for the .com and .net domain identifiers. Sporting a 50% profit margin and reliable cash flows, this is a slower growing company but does provide a level of stability few other names can. VRSN has grown their FCF each of the last eight years.

HD is a housing market and demographic story. With population up 10+% since 2010 and housing inventory down 10+% since 2010, the demand for housing and thus housing prices we believe will remain elevated.  With mortgage rates above 6 and 7%, most homeowners locked in below 4%, and a limited and expensive supply of new housing, we believe there will be a sustained increase in demand for renovations in place.  These trends will benefit HD.

KLAC is a way to play the AI and associated chip boom without purchasing the larger more expensive names like NVDA.  KLAC has a 60% market share in the process control segment of semiconductor manufacturing.  They produce the inspection and measurement systems that are critical to that production.  We believe that the AI hardware market will continue to grow, but most of the avenues of investment entry are prohibitively expensive.  KLAC provides that avenue along with double digit growth rates and strong margins of its own.

In the recent earnings report, LULU reported that growth in the men’s segment matched the growth in the women’s segment 15% vs 16% and international revenue significantly outpaced North American growth 52% to 11%.  Both of these trends support our investment thesis.

LULU is a quality product story expanding to the other half of the population.  Traditionally viewed as a women’s clothing company, LULU is shifting their go-to-market strategy by focusing on international consumers and male consumers. We believe the market has not yet fully priced in the potential growth in the men’s category. On top of this, the management has run this company exceptionally well. Strong profit margins and excellent ROIC has doubled the average annual return of retail of the past 15 year period. Also, LULU is starting to diversify its revenue and expand more outside of the US as that only represents 16% of sales.

CEIX is a counterintuitive play on the global secular trend toward decarbonization.  CEIX is a $2B coal producer that can fly under the ESG radar, does not have other mining or mineral operations, is generating record amounts of FCF, and is committed to returning it to shareholders. Despite the headline that “coal is dead”, global coal demand hit all-time highs in 2022 and again in the first half of 2023 despite mild winters and El Nino in the global North. There is no credible path to eliminate coal in the developing world in the foreseeable future, but the large multi-national, multi-channel producers are taking steps to reign in supply.  This will keep prices elevated and serve smaller producers like CEIX well.