Leandro's avatar
$123.2m follower assets
The Contest of Compounder Champions Grand Final
After a week of some tight pairings we get to the final of The Contest Of Compounder Champions. $V and $ASML have made it to the final!

Visa left $ZTS, $COST and $CNSWF behind, whereas ASML left Hermes, $ADBE and $LVMUY behind!

Who will win? It's up to you!
Which of the following would you say is a higher quality company?
37%Visa
62%ASML
24 VotesPoll ended on: 06/21/22
New Lows Today @ 10am
Visit highsandlows.substack.com to see more
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Overall Pet Spend Increasing and $ZTS
An idea that has interested me over the last year or so is the general increase in overall pet spending. This applies to both food and more importantly medicine.

This chart shows that increase and while I was unable to find more current data the growth has been exponential after 2020.

The company that I have been looking at most closely is Zoetis $ZTS.

Zoetis has been on a roll these past few years - with rapid revenue growth in both US...

And International revenues the slight decline in US livestock revenue is more than made up for by the boom in international revenues.

$ZTS is a spinoff of Pfizer $PFE and just like its former parent company works incredibly hard to develop and patent new drugs for animal care.

When these new drugs are developed, much like the ones given in human medicine, the drug maker receives a patent and what's called "Marketing Exclusivity."

The big difference is that this exclusivity on animal drugs only lasts 5 years instead of 20 in human medicine.

That means animal drug makers have to work extra hard in order to stay ahead.

The above is the list of what Zoetis refers to as "Blockbusters" - these are developed drugs that have brought in $100 million or more in annual revenue.

This plethora of products has allowed $ZTS to become and sustain market leadership across the world.

And I believe it is likely that Zoetis will be able to sustain this market leadership well into the future given how entrenched they are across the world

The company is also making great strides in improving margins and increasing net income. Going from 24% to 37% in just 7 years is pretty impressive in my book.

While I do think the future is bright for $ZTS I also believe the stock to be fundamentally overvalued.

With an over 11 Price-to-Sales...

And a 5YR price to Free-Cash-Flow (I like to see under 20) I think I will wait on the sidelines for the price to fall quite a bit before considering buying.

I do want to point out the solid profit margin...

And the reduction in shares outstanding recently though. Both are great to see I think.

Also, the dividends are easily afforded and growing rapidly. $ZTS easily has enough free cash flow to continuously increase its dividends every year and plenty of room to do so as well.

Overall I think $ZTS is a tremendous company and a critically needed one at that. I just think it is worth waiting for the price to reconnect to the underlying fundamentals before investing in this possible future world-class company.
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Austin Lieberman's avatar
$459.2m follower assets
February 2022 Portfolio Update. 70% Dividend Growth 30% Tech/SaaS = 100% Awesome (and less stress)
Will share more details later, but wanted to jump back on the portfolio sharing train.

I haven't been able to share my portfolio or individual stock commentary publicly because of restrictions from my previous job.

I set this account up last week in M1 Finance (which I'm a big fan of). I did this for two reasons.

#1 I've always wanted to share my portfolio, transactions, and performance completely transparently.

#2 I've done a ton of research into dividend growth investing over the last several months and realized I was foolishly dismissing it as a strategy for people in their prime accumulation years.

My portfolio allocation is now 70% dividend growth stocks and 30% tech/SaaS. I realize I might give up a bit of upside, but as I think about investing over the next 20 to 30+ years, this will minimize the stress, emotional/behavioral mistakes, and keep investing fun because I still have exposure to exciting tech companies.

Austin, why the heck do you own dividend stocks?!?!

Great question. I own dividend growth stocks because I think they'll encourage a longer-term mindset and behavior which is something that I know will lead to better outcomes for me.

Also, sustained dividend growth can lead to some incredible compounding.

Here's a look at the 1-year, 5-year, and 10-year average dividend growth rate of these stocks from SimplySafeDividends.

Here's what a portfolio with $500 monthly contributions, 4% stock price CAGR, 13% dividend growth CAGR, and a 1.98% starting yield (the average dividend yield of the companies in my portfolio) would be with dividends reinvested after:

10-years:
Total Contributions: $60,000
Annual Dividend Income: $3,320
Portfolio Value: $87,850
Portfolio Annual Rate of Return: ~8%

20-years:
Total Contributions: $120,000
Annual Dividend Income: $30,942
Portfolio Value: $362,058
Portfolio Annual Rate of Return: ~10%

30-years:
Total Contributions: $180,000
Annual Dividend Income: $463,054
Portfolio Value: $2,533,758
Portfolio Annual Rate of Return: 14.5%

As you can see in the numbers, it takes a while for the dividend growth to kick in, but at the 20 and 30-year mark, the dividend income and portfolio value start to exponentially increase.

These are just baseline calculations so the results will definitely be different, but the point is that this type of investing is very sustainable for someone who has a job and other responsibilities outside of managing their portfolio.

It requires monthly (or even quarterly) reviews of their stocks to make sure the businesses are performing well, pay-out ratios are staying in range, and the dividend growth rate is staying on track.

There are definitely ways to outperform these examples (I think I was being a bit conservative to be fair changing the dividend growth rate to 14% from 13% drastically improves the results.

I also have 30% of the portfolio allocated to tech and SaaS names which will give me exposure to more upside with less overall volatility and stress than being 100% invested in tech/Saas.

What I've realized over the last year is that I need to remember WHY I invest. I invest to compliment my life, not consume it. This strategy will help me focus my time on what's most important. My family, my health, my job, etc while still building long-term wealth.

In the coming weeks, I intend to share a lot more detail and full write-ups on this strategy and the companies I own, but this is a good starting point.

If you want to see where I got those calculations from, check out this Youtube video (I subscribed to his Patreon to get the spreadsheet so I won't share it publicly)

Here's why I decided to use M1 Finance for this portfolio. It allows me to build "slices" or buckets of stocks, then allocate to each of them.

Here's a look into the Dividend slice which makes up 70% of the portfolio. 13 holdings, 1.98% dividend yield, with targets of 7% - 8% (these are each 4% or 5% of the entire portfolio) $FNF, $ZTS, $SNA, $TSCO, $ABBV, etc

Here's the Growth slice which makes up 30% of the portfolio. 10 holdings that I believe are dominant long-term companies allocated at 10% each (~2.5% of the overall portfolio each). $SHOP, $NOW, $COIN, $UPST, etc

The next feature is pretty cool. M1 allows me to turn "auto-investing" on which will invest any contributions or dividends according to my target allocations. To my knowledge, it won't sell securities down if they are overallocated.

This is a pretty cool feature because it takes so much emotion out of the equation for me.

I have no affiliation with M1 Finance but I have really enjoyed the platform so far.
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February earnings
I think upcoming earnings are going to be really important in this volatile market. Companies will likely get punished (further) on even slightly bad results or outlook, and I'm hopeful strong earnings like we saw with $TEAM or $AAPL will buoy the overall market or at least software sector that I'm playing close attention to.

Personally, I have a handful of companies on my buy list including $CRM, $COUP, $ESTC, $SMAR, $POSH, but will only do so once they make it past earnings either scathed (lower price) or unscathed (peace of mind) :)

So we've put together our most anticipated earnings for all of Feb!


Keep an eye out!
2: $FB $ABBV $TMO $NVS
3: $AMZN $LLY $MRK $TNX
21: $UIS
28: $JLL TGNA $LAZR $SAIL
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Austin Cox's avatar
$26.1m follower assets
A deep fundamental dive on $ZTS (Hold)
I recently finished a deep fundamental dive on Zoetis. For those of you who don't know, Zoetis is a spin-off from Pfizer focusing on animal pharmaceutical products. What makes Zoetis unique in that space is its focus on companion animals (pets). Whereas many competitors earn a disproportionate amount of revenue from livestock, Zoetis has about a 50/50 split between pets and livestock.

Why does this matter? Because meat production is forecast to decline worldwide. On the other hand, the pet space is forecast to grow to roughly 10 billion dollars by 2026. Clearly, Zoetis has been making smart plays by focusing its efforts on pets, as revenue has grown more than twice as fast over the past 5 years as its competitors.. Additionally, with 13 blockbuster drugs, Zoetis is only dependent on its top ten products for 40% of revenue, demonstrating product diversification which I find to be incredibly important. This means that as many competitors begin to really struggle with meat trends shifting, Zoetis can continue to thrive in the pharmaceutical space.

Source: Statista

With that being said, why do I recommend holding this company, and not buying? To understand my reasoning, we need to talk about Pumpkin Insurance.

This is a new venture that Zoetis is undergoing in order to have a foothold in the $1.5 billion pet insurance market. This number should continue to rise 1) as pet ownership continues to increase in the United States, and 2) as the increasing humanization of pets encourages consumers to only want "the best", including when it comes to pharmaceuticals. If Pumpkin Insurance catches on, I believe that not only will Zoetis have increased revenue from existing customers, they will also attract new customers who are seeking an affordable way to buy the best medication for their pets. By offering Zoetis products at an affordable rate with Pumpkin, they can lock pet owners into the Zoetis ecosystem, and further expand on their market share in the pet space.

However, this is a very new venture, only around since April, so I don't think it's possible to predict with any certainty if this will catch on and begin to chip away from existing offerings. Thus, I didn't incorporate it into my financial projections

Since $ZTS revenue is about a 50/50 split between US and International, I divided up those projections accordingly. I forecast 10% annual growth in the US and 6% worldwide, both aggressive, yet in line with previous years. Even in COVID, people are buying more pets, so regardless of vaccine roll-out time, I feel confident in these projections. With a projected net profit margin of ~30%, well above competitors, this results in almost 3 billion dollars of revenue in the final year of my projections.

I next created projected financial statements out to 2024. I won't post them here for simplicity's sake, but I'm happy to let others review them, just ask!

By projecting out future cash flows into the future, I attempted to determine a fair value for Zoetis's stock.

My WACC of 5.4% was based on a COD based on the current bond rating for Zoetis, a COE based on CAPM, market values for equity, and book values for debt, with that number being used to discount my cash flows.

As you can see, I determined a fair target price to be 167.21, with 3.4% upside from current levels. Thus, I don't think it's time to be buying more or starting to sell.

I'm looking at pet ownership trends over the next year to see if I can spot any signs that benefit or hurt Zoetis with the upcoming vaccine. While I think that Zoetis can continue to be successful even if new pet adoption reverts to pre-covid levels, that doesn't raise my projected intrinsic valuation. More importantly, I'm looking to see how Pumpkin Insurance does. I think it could be a real game-changer and be very beneficial to all shareholders. At this point, however, it's too new a venture to project out, and I think that incorporating that revenue would be irresponsible. Thus, I'll be maintaining my position in Zoetis, and looking to see how trends impact Zoetis' current offerings. If more people adopt pets still, even if Pumpkin is a flop, Zoetis could be a stock worth buying in my opinion. For me though, the key is Pumpkin Insurance, if that catches on, I'll be slowly adding more over time, as I believe that would make it the undisputed leader in the companion animal space.

Feel free to reach out if you want to see more of my work on Zoetis, and also feel free to follow me on Twitter @theaustincox. I'd love to get any questions or feedback as well, definitely helps make me a better investor!
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Austin Cox's avatar
$26.1m follower assets
Some thoughts about index investing
I think that as investors, a lot of us are chasing the next big thing, and it’s easy to fall into a trap of under diversifying. A lot of investors have done really well for themselves in the tech sector this year, but a worrying amount of people have a huge majority of their portfolio in a couple tech stocks, which may not be the best option long-term.

I’ve long advocated that we need to rethink our understanding of the tech industry, as risk is very different between $AMZN, $TSLA, and $NET, but constantly chasing huge gains leads to underexposure in other areas, increasing risk, while not proportionally increasing reward.

There’s nothing wrong with chasing growth. I chase growth myself, but I also know that I can’t time the market, and if my portfolio is all growth, there’s a very real chance that it could mostly vanish just as fast.

I think we really need to reevaluate how we view index funds. For many people, it’s an effective way to build diversification cheaply while still maintaining a section of your portfolio devoted to high growth.

Why do I believe that this will result in higher long-term returns?

We live among one of the most exciting eras in human history with a constant stream of innovation. This has resulted in an incredible amount of new and exciting companies popping up left and right. While this tech revolution has been building for decades, it’s only recently that it’s been booming.

The problem? Winners now could just as easily become losers tomorrow. Apple wasn’t the first computer manufacturer, and 20 years ago, IBM was a huge home PC manufacturer. The first mover advantage, long-term, is overblown, and that doesn’t always bode well for new and innovative companies.

If you look at my portfolios, most of my holdings are in index funds, and I like that. I still chase (and have gotten) massive growth in many of my holdings, boosting my returns to a level I’m very happy with, but I also feel comfortable knowing that I’ll be just fine in economic downturns or if my big winners don’t actually turn out to be big winners long-term. Index funds also allow me to invest in companies I may not know as much about, as I think you’re kidding yourself if you think you can invest in companies and have success if you don’t do weeks or months of research first to understand how they make money.

I realize many may disagree with this viewpoint, but this rapid growth doesn’t last forever. For the last few years, investing has been easy: just invest in tech and make 40% each year. At some point though, the growth will slow, stocks may not crash, but undervalued companies now will likely drive future gains then.

(Sometime in the next week, I’m going to be posting my analysis and complete modeling of $ZTS, so stay tuned for that)
Great memo! I do agree that we've been spoiled in recent years with tech just rolling forward at a crazy growth rate. That said...we're still only around inning 4-5 based on cloud adoption rates and this is even lower in certain sectors. Further, e-commerce is still sub 30% of all shopping behavior (RIP malls?).

To your point though - I also do something similar with my retirement accounts (ETFs + $WMT...should probably go with $AMZN though) and think that using them as an anchor for safety and a baseline is a safer strategy.

However, with things like Commonstock and more accessible reporting by ETFs (like ARK for example) it's becoming easier and easier to form a basket of ~20 stocks that could provide the diversification (and possible higher return) that a typical ETF does.
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