Whitney Tilson’s email to investors discussing the returns of stocks trading at more than 15x revenues; the power of the Fed; two e-mails on getting vaccinated.
Q2 2021 hedge fund letters, conferences and more
Returns Of Stocks Trading At More Than 15x Revenues
1) I remember long ago – perhaps a decade – analyzing future stock returns of companies with at least a $10 billion market cap that traded at more than 10 times revenues... not earnings or earnings before interest, taxes, depreciation, and amortization ("EBITDA").
At that time, in the previous few decades (the limit of the database I was using), I could find only a half dozen stocks that had subsequently done well at that market cap and valuation level. The only one I can remember was Microsoft (NASDAQ:MSFT) soon after it went public, plus a few biotech companies.
My conclusion was to avoid all such stocks, which turned out to be a huge mistake, as many of these stocks – for example, many Software as a Service ("SaaS") ones – have been monster performers.
So, it was with great interest that I read New York University marketing professor Scott Galloway's analysis of stocks trading at more than 15 times revenues:
Will Galloway's analysis prove to be as wrong as mine was? Honestly, I don't know. My experience over the past decade has made me a lot less certain about the imminent collapse of some very richly valued stocks – as long as the underlying businesses perform well enough.
That's the challenge if you're going to pay up for a stock: differentiating between the true long-term growth companies versus the pretenders.
That's what my colleague Enrique Abeyta does with his Empire Elite Growth newsletter – and there's nobody better at it, in my opinion.
Last week, Enrique found a unique platform business that is transitioning to a SaaS model, following the path that has sent shares of tech juggernauts Adobe (ADBE), Microsoft, Salesforce (CRM), and other companies to the moon. Shares just sold off sharply on a recent earnings report, but Enrique isn't fazed. As he told his readers...
This is not a company responding to Wall Street pressure to report numbers just to meet quarterly expectations. This is a company with a clear strategy for how to build, grow, and compound value for the long term.
Of course, we're aware that the shares sold off sharply in response to the numbers. But sometimes, Wall Street just gets it wrong. Investors got it wrong with Adobe, and we think they have it wrong with [this one].
To learn how to access Enrique's latest Empire Elite Growth idea, click here.
The Power Of The Fed
2) One of the reasons many richly valued stocks – and, in fact, the entire market – have done so well is the extraordinary monetary stimulus that the Federal Reserve has injected into our financial system. The Fed ramped up in response to the global financial crisis in 2008-2009 and never really let up for the next 11 years. And then it really took off starting 16 months ago when the pandemic hit.
There's enormous controversy over the Fed's actions. Were they necessary? Have they exacerbated income inequality? What will the long-term consequences be? All this is captured well in this new Frontline documentary, posted on YouTube, The Power of the Fed (53 minutes, or half that at 2x speed).
It's well worth watching and listening to when you have the time – as I did during my 24 hours of hiking last week!
Getting Vaccinated
3) As part of my attempt to try to shorten the pandemic and save lives, I have encouraged my family, friends, and readers to get vaccinated. To that end, on Saturday and Sunday, I sent two of the most in-depth, strongly worded e-mails I've ever written to my coronavirus e-mail list, which you can read here and here.
If you or anyone you know is on the fence about getting vaccinated, I hope you will read and share them.
If, however, you are firm in your conclusion not to get vaccinated, then please do not read them because they will almost certainly anger you – and I have no desire to lose subscribers!
Let's just agree to disagree, wish each other the best, and focus on making money together!
Best regards,
Whitney
