TIP660: Mastermind Q3, 2024 w/ Stig Brodersen, Tobias Carlisle and Hari Ramachandra
Sep 15, 2024
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Tobias Carlisle, a value investor and host of The Acquirers Podcast, and Hari Ramachandra, a savvy investor and blogger, dive into intriguing stock picks. Tobias shares his insights on investing in Virtu Financial, discussing its market resilience. Hari pitches Nintendo, highlighting its strategic place in the gaming console cycle. They also debate potential risks and rewards related to their choices, including the impact of market perceptions. The discussion blends analysis with humor, making investing feel accessible and engaging!
Stig emphasizes Betsson's competitive edge as a smaller gambling company trading at low earnings, despite regulatory challenges and market competition.
Tobias considers Virtu Financial a solid investment due to its market-making role and focus on shareholder returns, while acknowledging potential market downturn risks.
Hari highlights Nintendo's strong brand franchises and cyclical advantages in gaming, indicating long-term revenue growth potential despite current valuation concerns.
Deep dives
Investment Opportunity in Betsun
Betsun is a gambling company that operates in a lucrative market while trading at less than nine times earnings. This company boasts strong inside ownership and high potential for growth, making it an attractive investment choice. The pitch emphasizes its financially robust position, despite the ongoing challenges within the gambling sector, including regulations and market competition. The speaker expresses conviction in Betsun as one of the most compelling stocks in their portfolio, expecting it to perform well in the long-term.
Current Position of Virtue Financial
Virtue Financial, initially pitched at $18 and now trading at $29, remains a strong pick, although the opportunity for great gains may not be as high as it was previously. As a market maker, the company earns from trading activities, benefiting from heightened trading volumes. Despite facing challenges due to high debt levels and market fluctuations, it has maintained dividend payouts and share buybacks, reflecting its focus on shareholder returns. The commentary presents a balanced view, questioning how well Virtue will withstand potential market downturns while maintaining its value.
Nintendo's Strong Market Position
Nintendo is seen as a potentially attractive stock due to its high-quality intellectual property and successful game franchises like Super Mario and Zelda. Although the stock may not seem cheap at the moment, the ongoing cyclicity of game console releases ensures consistent revenue opportunities. The company operates in a niche that appeals to family and casual gamers, distinguishing it from competitors like PlayStation and Xbox. With a strong balance sheet, a growing revenue base, and innovative plans for future growth, Nintendo is positioned to leverage new technological trends in gaming.
Navigating Value Traps in Investing
The discussion highlights the challenge of identifying value traps in the stock market, emphasizing that investing in seemingly undervalued stocks requires patience and a keen eye for fundamentals. It illustrates that sometimes stocks may take years to realize their potential, necessitating a long-term perspective. The conversation suggests that continuous evaluation and diversification across a portfolio can help mitigate risks associated with value traps. Ultimately, maintaining a focus on cash flow and business quality is critical to discerning good investments from those that may underperform.
Emerging Trends in Online Gambling
The rise of online gambling, particularly among younger demographics, is creating significant growth opportunities in the industry. Notably, 25% of young adults in the U.S. are expected to wager on high-profile events such as the Super Bowl, indicating a cultural shift towards gambling. Companies are increasingly utilizing technology to enhance the gambling experience, providing gamified and immersive environments through online platforms. This trend signals an ongoing demand for gambling services, though it also raises concerns regarding regulation and market management.
Valuation of Bettson in a Competitive Market
Bettson, a smaller player in the gambling industry, operates with competitive pricing at roughly 8.8 times earnings amid considerable market saturation. The company employs a strategic model of acquiring licenses from existing businesses to expand into new markets, which contributes to its growth amid regulatory challenges. However, the potential regulatory risks can impact profitability, especially given its exposure to unregulated markets. Despite these challenges, Bettson's ability to generate solid EBIT margins positions it favorably in the competitive landscape.
In today's episode, Stig Brodersen speaks to Tobias Carlisle and Hari Ramachandra. Stig only owns five individual stocks, and in this episode, he outlines why Betsson is one of them. Hari’s pick, Nintendo, is at an attractive spot in the console cycle, and Tobias pitches Virtu, a value stock trading at an appealing valuation.
IN THIS EPISODE YOU’LL LEARN:
00:00 - Intro
02:04 - Why Toby has invested in Virtu Financial (Ticker on NASDAQ: VIRT).
13:23 - The bear case for Virtu, including a discussion of whether their service is superior.
24:44 - Why Hari is bullish on Nintendo (Ticker on the Japanese Stock Exchange: 7974).
26:19 - The bear case of Nintendo, including their valuation.
43:14 - Stig’s bull case is for Betsson (Ticker on the Swedish Stock Exchange: BETS).
55:56 - The bear case for Betsson, including their exposure to Turkey.
Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.
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