Why I share good – but not always actionable – stock ideas; Valvoline stock presentation from the 17th annual Pershing Square Challenge; Getting ready to attend my 27th consecutive Berkshire Hathaway annual meeting
1) Today, I'll share the stock idea that won first place – and the $100,000 prize – at Columbia Business School's 17th annual Pershing Square Challenge on Monday...
I'll get to the details shortly. But I'll say up front that while I think it's a good idea, I wouldn't recommend that folks buy it today because the stock isn't cheap enough.
So why bother sharing it, then? I know that most readers are ultimately interested in my pound-the-table, trembling-with-greed ideas.
I have two responses for that...
First, keep in mind that while I share plenty of investing ideas in my daily e-mails, my team and I here at Stansberry Research save our best ideas for subscribers to our various paid newsletters.
For example, our flagship Stansberry's Investment Advisory product. (In fact, we'll have a brand-new recommendation publishing in tomorrow's issue – if you're not already a subscriber, you can find out how to put your name on the list to receive it when it publishes by clicking here).
And second, the more important reason I write about good but not currently actionable ideas here is because, to be a successful investor, you need to develop a deep "bench" of industries and stocks you're familiar with.
Then, like a good manager of a sports team, at any given time, you can have nothing but the best "players" on the field.
That's why I'm always reading, talking to smart people, going to investing and industry conferences, etc. I'm constantly developing my "bench" from which to pull ideas when the time is right.
2) So moving on to the top stock idea from Monday's Pershing Square Challenge...
As I explained in yesterday's e-mail, each year, two dozen three-person teams of first- and second-year Columbia Business School students develop stock pitches for the competition.
They do extraordinary in-depth work over many months – crunching numbers, visiting stores, and speaking with company executives, industry experts, and competitors.
Then the five finalists present to a panel of judges, which this year included my friend Bill Ackman (who established the competition), me, and five others. We awarded the winning team $100,000 and the second-place team $50,000.
The clear winner was Valvoline (VVV), which was presented by Jared Duda, Joe Ferguson, and Garrett Wallis. These students were also kind enough to give me permission to share their slide presentation with my readers here.
They began with a quick overview of the company, which provides oil changes and light maintenance services to car owners across America and Canada via nearly 2,000 centers:
The students argued that Valvoline has underperformed because it was a "forgotten and neglected" subsidiary of Ashland (ASH) for most of its existence.
And then, when it was fully spun out as an independent company in 2017, it was held back because of its inferior Products business, which Valvoline sold last year, creating an "unchained" pure-play, high-quality services business. Here's the slide from the presentation with more details:
As you can see in this price chart, the stock has responded well over the years:
The students did a nice job showing what a good business this is... Here's another slide:
They believe that the stock will appreciate at more than 20% annually over the next three years, as the company opens and franchises new centers and buys back stock. Here's that relevant slide:
You can review the students' entire 55-slide presentation right here.
So why don't I think Valvoline is a buy right now?
First, I think the rise of electric vehicles ("EVs"), which of course don't need the oil changes that account for 74% of Valvoline's business, could be a long-term headwind for both earnings and the multiple that investors place on them.
Second, the stock, which is only a few dollars below its all-time high, trades at 4.6 times trailing revenues and 31.1 times trailing earnings per share. That strikes me as a fair price – but I like buying at unfair prices when I'm confident that the market is making a big mistake!
So I'm going to thank Jared, Joe, and Garrett for sharing their excellent work... and add this stock to my "bench."
3) This weekend, I'll be attending my 27th consecutive Berkshire Hathaway (BRK-B) annual meeting in Omaha, Nebraska.
It's always one of the highlights of my year – and for so many others who, like me, pray in what I call the "church" of the famed Benjamin Graham, David Dodd, Warren Buffett, and Charlie Munger.
Even though anyone can now watch the livestream of the meeting, I continue to go in person because I feel like I learn more and it's such a joy catching up with old friends and making new ones.
I'll be reporting on the meeting and Berkshire's earnings and intrinsic value in my daily e-mails next week, so stay tuned.
This year, I'm going with excitement and anticipation, but also a heavy heart because it'll be the first year without my hero and mentor, Charlie Munger.
Buffett always does most of the talking, but Munger's insights and zingers were priceless. The meeting won't be the same without him. Here's a recent Wall Street Journal article about this: 'Empty Chair Feeling' to Pervade Berkshire Meeting Without Munger. Excerpt:
Shareholders and onlookers agree: Without Charlie Munger, the Berkshire Hathaway annual meeting on Saturday won't be the same.
For decades, attendees of the yearly gathering in Omaha, Neb., relished listening as Warren Buffett and Munger, his longtime friend and partner, spoke for hours about investing, business and life. Munger was 99 when he took the stage for his final annual meeting last May. He died in November, just shy of his 100th birthday.
Buffett is the company's chief executive and the more famous investor, but Munger held a special place in the hearts of Berkshire fans. They heard wisdom in his thoughts on everything from the commercial to the personal. They loved that he was unafraid to speak his mind. And his sense of humor, sometimes biting, made them laugh.
The pairing of Buffett's lengthier and more diplomatic remarks with Munger's acerbic one-liners, along with the clear camaraderie between the two men, could make their appearances feel like episodes in a great buddy comedy of capitalism.
I also loved this story from the front page of today's WSJ: How Berkshire Hathaway's Annual Meeting Became a Hotspot for Romantic Mergers. Excerpt:
This weekend, thousands of investing aficionados will descend on Omaha to hear Warren Buffett hold forth on business and life. If they are lucky, they might catch a passionate shareholder proposal.
In something of a closely held secret, the famed Berkshire Hathaway annual gathering has a romantic history.
While getting engaged at a fancy restaurant or scenic overlook is nice, a select group of couples across the U.S. can trace their big moment back to the well-known weekend confab in Nebraska.
I'm not hosting any events this year... But I'll be attending Bill Ackman's fireside chat Friday afternoon, the Columbia Business School dinner that night, SINA Finance's event Saturday afternoon, and running the 5K race on Sunday morning.
If you'll be attending any of these events, please say hi, or look for me in the lobby of the Hilton Saturday evening around 6 p.m. to 8 p.m. or late Sunday morning before I head to the airport for my 1:30 p.m. flight home. I hope to see you there!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.