Time to focus again

Investment Analysis Clubs Saul’s Investing Discussions
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This board is meant for the discussion of individual growth stocks. Keeping a focus is what has kept it great. If we wander off in too many directions then the board becomes just a mishmash of subjects.

We’ve had some interesting discussions on some very Off-Topic subjects, from bitcoin to sector rotation to what the general market is going to do, and I have contributed (to the bitcoin discussion, at least), but let’s get back to the subject of our board. There are other free boards for discussion of the other subjects if you wish to follow them.

Thanks for your cooperation.

Saul

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Speaking of that. . .

I have a list of “Saul” stocks. There are none that I wish to part with. None keep me awake at night and all are growing.

ANET
EXAS
HUBS
NTNX
NVDA
SHOP
SQ
TLND
UBNT
VFFIF

All are full positions except SHOP which is overweighted. I would like to raise cash. Just a little, but selling anyone of these is tough.

It is like choosing lilies at the lily farm.

http://lilyfarm.com

You want two new lilies. so they give you 8 flags. You walk down the rows and see “Oh that one is beautiful.” and you put your flag on it. Pretty soon you have 8 flags out representing 500 dollars worth of flowers. Then the hard part starts, you walk back by and remove 4 of the flags, the pretty, but not the prettiest flowers. Then it gets really hard. You have to remove 2 more flags.

You go home with the
prettiest lilies. (My mom got the three colored violet one, and my mother in law the peach one with heavy lace around the edges, I have both)

But, stocks are even harder. How do I compare the value of a monster sized chip company with the world changing in bound marketing company? Or choose between a company that eliminates anal probes, or one that grows mind expanding weeds?

This I think is the hard part.

Qazulight

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Okay but please don’t stop making fun of Andrew Left, the comments on him were hysterical.

There should be an ETF of the stocks he’s gone after. I already own a handful of them.

Dominic

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I think you need to look at the bigger picture here and what will survive in the next 10 years …we all have this conundrum and I am going thru the same set of issues but we need to look at for e.g. the long term trends are cloud services and automation in software, automation in manufacturing , disaggregation in transactional services e.g. banking (block chain) etc etc (its the convenience and quality at lower cost) and then how big will they grow from here and who are the jockeys (key people)/

ANET - lots of growth left
EXAS - dont know
HUBS - dont know
NTNX - iffy we don’t know their story but the area they are in is great
NVDA - Too big and will not grow 10 times in next 10 years
SHOP - great growth story but lot of risks
SQ - convenience but I dont know much…
TLND - Analytics is the next frontier like cloud, ML and automation
UBNT - dont know
VFFIF - dont know

Rajesh

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I think you need to look at the bigger picture here and what will survive in the next 10 years …we all have this conundrum and I am going thru the same set of issues but we need to look at for e.g. the long term trends are cloud services and automation in software, automation in manufacturing , disaggregation in transactional services e.g. banking (block chain) etc etc (its the convenience and quality at lower cost) and then how big will they grow from here and who are the jockeys (key people)/ I think you need to look at the bigger picture here and what will survive in the next 10 years …we all have this conundrum and I am going thru the same set of issues but we need to look at for e.g. the long term trends are cloud services and automation in software, automation in manufacturing , disaggregation in transactional services e.g. banking (block chain) etc etc (its the convenience and quality at lower cost) and then how big will they grow from here and who are the jockeys (key people)

I like the way you are thinking about them Rajesh. My positions in order of size are:

Shopify
Square
Nutanix
Arista
Hubspot
Nvidia
Talend
LGIH
Wix
Varonis
Splunk
Ubiquiti
Nectar

and here’s how I would rate them using your criteria:

Shopify - I agree, great long-term growth story, but there are risks. Great founder CEO.
Square - Run by smart people and the short-term story is great. New products all the time. Don’t know about long term.
Nutanix - Terrific field to be in and the dominant company that is taking market share.
Arista - I agree there is lots of growth yet, but I think it’s a watch-carefully stock rather than a hold-for-10-years stock.
Hubspot - Short term story is terrific. I haven’t a clue where they’ll be in even three years.
Nvidia - They don’t have to go up 10 times to be a good investment.
Talend - Copy what I wrote on Nutanix: Terrific field to be in and the dominant company that is taking market share.
LGIH - Will have great closings comparisons in Jan and Feb but more than 6 months ahead is impossible to predict in a cyclical field like theirs.
Wix - Good new products but they aren’t a high conviction stock for me.
Varonis - This one and Splunk are in analytics and may be in a wave of the future.
Splunk - This one and Varonis are in analytics and may be in a wave of the future.
Ubiquiti - Not a high conviction stock with a lot of future visibility, and near an all time high, so I’ve trimmed it a little for cash to buy other things.
Nectar - Could have a big future but should stay a small position.

Saul

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This board is meant for the discussion of individual growth stocks. Keeping a focus is what has kept it great.

If you look at Top Recommended Fools, (by clicking “Best of” near the top of the screen, and then Top Recommended Fools), you’ll see that 3 of the top 4, and 4 of the top 6, come from our board (out of the 10,000 or so public and paying boards that the Fool has. That’s an amazing record, thanks to you all.

Saul

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Last night, I caught up on a few of the Motley Fool podcasts, and the contributors highlighted a few stocks that they’re interested in researching:

TDOC Teladoc
SFIX Stitch Fix
COHR Coherent
SGMO Sangamo Therapeutics
IDXX Idexx Laboratories
STAG Stag Industrial

I’m familiar with Teledoc, but not the other five. I hope you find the list useful.

TracyK

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My word! I’ve never looked at the “Top Recommended Fools” before. To mys surprise I’m at number 6. I had no idea my posts were receiving so much traffic. Thank you everyone who even took the time to read my posts let alone recommending them.

OTH, it was no surprise to see Saul at the number one spot.

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I was in IDXX for a while (I think I came across it in Hidden Gems? Not sure). They are a provider of animal healthcare products and services, primarily for the pet market, but they also address some farm animal needs.

I think it’s a good company. They are poised to take advantage of the exploding pet market in China (that’s not statistical, it’s a personal anecdotal observation). I sold out because I felt there were better opportunities elsewhere, not that I found anything specifically wrong with the company.

I don’t know anything about the rest of those companies.

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Veronis vs Splunk

https://www.gartner.com/reviews/market/UserandEntityBehavior…

rather similar, Veronis is better in user recs.

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Their headquarters is down the street. With a PE over 50 and a share price double in the last 24 months, it’s hard to see a big upside from here any time soon. The price has been treading water since Spring.

It’s a science company that sells test kits for animal husbandry, pets, also water potability, customers worldwide. Profits have been growing about 10% a year lately, will probably hit $4 in two years.

Good place to work.

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Sorry, that note was about IDXX

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Hard to glean much from this Gartner report. In most cases Splunk only had 2 or 3 reviewers. Varonis had 30+. Both samples are very small.

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My portfolio certainly “focused” today! Up 2% for the day.

The two stocks I’m working on right now are The Trade Desk (TTD) and The Lending Tree (TREE). I already have a position in TDD but not in TREE.

What these two stocks have in common is that both service marketplaces, TTD the advertising market and TREE the lending or debt market. Marketplaces are at the core of the economy, that’s where all trades take place and where exchange value is created. You can have the best product on Earth but unless you find a buyer for it it’s quite useless economically speaking.

Businesses that empower buyers and sellers increasing the efficiency of a marketplace can be extremely profitable. The first such business that I knew was “Sabre” the airline reservation system owned by American Airlines. I remember one time when AA was having difficulties with their union negotiations, the CEO threatened to close down everything but Sabre which supposedly was more valuable than the whole fleet of airplanes. Look at priceline.com, the travel and hospitality marketplace – 45% average CAGR

http://invest.kleinnet.com/bmw1/stats16.prev/PCLN.html

PCLN is already a large CAP at 83.865 billions. TTD is a small CAP at 1.862 billion and TREE a mid CAP at 3.725 billion. Both have lots of room to grow and both are profitable unlike some of the high tech companies followed here. What I find interesting is that both are addressing markets that are essentially virgin. There are lots of travel, hospitality, rental, and dinning marketplace service companies but in advertising and debt TTD and TREE have the first mover advantage. What has been tried so far in advertising has not worked out well because there were flaws in the approach. The Trade Desk is Jeff Green’s second advertising venture, the first he sold to Microsoft. I think he has the right approach. I don’t now enough about The Lending Tree to give an opinion but it’s a company I’ll be studying in the near future.

Here is a recent thread about TTD at the NPI board:

http://discussion.fool.com/what-to-do-about-the-trade-desk-32914…

Denny Schlesinger

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The two stocks I’m working on right now are The Trade Desk (TTD) and The Lending Tree (TREE).

Just FYI, Denny:

When I rated a few hundred stocks again recently, ANET came in at #1 and TREE at #2. The way it’s set
up, one or a few places between companies normally doesn’t make much difference, but these 2 scored
so far above the others that they were pretty much in a class by themselves. The one caveate would be
that it’s apples & organges, but still it’s pretty telling that a lender could compete with high tech when
the focus is on growth and momentum. I don’t see any roadblocks whatsoever, so this may become a long-
term holding for me as long as they continue to perform like they have to date.

My only regret so far in buying TREE is that I wish I would have bought twice as much.

The other thing I really like is the way the stock price reacted to the recent dip in the rest of my
holdings—pretty much just continued to climb.

Dan

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denny I recently bought some TREE. But I do not see much of a moat and it is not cheap.

I have owned TTD sold it , bought it back, sold it again. I just can not get a grip on advertising like I can on E-commerce, electric cars, GPU ETC.

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<<<I have owned TTD sold it , bought it back, sold it again. I just can not get a grip on advertising like I can on E-commerce, electric cars, GPU ETC.>>>

I did the same with TTD. I just did not want to hold it instead of what I currently was holding. I have a hard time investing in what I do not feel is optimal. Slowing revenue growth at this currently not so large stage of the company was the #1 concern I had. If TTD can show accelerating growth again, then I think it will take off. But the risk/reward is not comparable to what I currently hold (talking longer term, not shorter term).

The other issue I have with TTD is much of the company is about evangelizing and about “vision” that is not embodied in its actual current business. TTD says the walled gardens of Google and Facebook (and now Amazon is entering the picture) will have to come down in a few years This appears material to their long-term business in North America and Europe. Not so much in Asia.

TTD also says its mission is to create better value and confidence in advertisers. That also is visionary. We have no way to know how TTD is doing with this relative to competition. There are multiple self-serving software options. Without being in the ad industry, one can only figure this out from holistic evidence reading what is out there. It seems that TTD is the leader in its field, but that does not mean much at this stage of its existence if its growth is going to materially slow. Faster growth will go a long way to evidencing their leadership.

Anyways, I had the same experience with TTD. In the end, too much of its business is currently in the visionary stage and not in the real business stage (that does not mean TTD is not doing great business, it is, but what it means is that the true long-term growth and dominance factors are still visionary. Unlike say Nvidia that is a practical monopoly in its field and ANET appears to be doing the same in its own niche relative to its peers and competition).

So why I was like you with TTD.

Tinker

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Raptor Dan writes:

When I rated a few hundred stocks again recently, ANET came in at #1 and TREE at #2. The way it’s set up, one or a few places between companies normally doesn’t make much difference, but these 2 scored so far above the others that they were pretty much in a class by themselves. The one caveate would be that it’s apples & organges, but still it’s pretty telling that a lender could compete with high tech when the focus is on growth and momentum. I don’t see any roadblocks whatsoever, so this may become a long-term holding for me as long as they continue to perform like they have to date.

Thanks Dan for the info. The Lending Tree is NOT a lender any more than a stock broker is a fund manager. Years ago we discussed who the real beneficiaries of high tech would be, providers or users. The consensus was on the users. The Lending Tree is using high tech (the Internet a.k.a. the WWW) to deliver information about credit issues to borrowers. It’s optimizing the retail credit marketplace. The Lending Tree has no credit risk, if it did I would not even consider them as an investment.

Think convergence. High tech is the fastest growing sector of the economy with healthcare or finance, depending on who you listen to, in second place. The Lending Tree puts you at that sweet spot just like BEAT, IRTC, and BTCY put you at the convergence of high tech and medicine.

Further along the tread mauser96 writes:

denny I recently bought some TREE. But I do not see much of a moat and it is not cheap.

None of these stocks look cheap while, in fact, they are cheap if they perform as expected. A big “if” no doubt. If you don’t see the moat it would be difficult to invest in them.

These convergence businesses have a different kind of moat than, say, high cost of entry, a typical moat in the industrial era, or patent hurdles. The moat here is mostly the network effect which is one reason companies like Amazon prefer to gab marketshare than to make a profit. It’s inherent in the “increasing returns” kind of business or “the more you sell the more you sell” kind of business. In the computer business that applied to IBM in the 1970s, to Wintel in the 1990s. You didn’t have to have Windows but not having Windows made it difficult for business to communicate since everyone else was “talking” Windows. One reason to go to Amazon to buy books is because that’s where the book reviews are.

These moats are not very permanent, they can be breached in time like the real moats surrounding castles could be overcome. What you want to look for is the number one provider in each category. Does The Lending Tree have a real competitor here and now? It might later on and that will be the time to rotate your money elsewhere.

Looked at in a “lifetime” framework, growth is best described by the “S” curve. We want to be invested during the middle, fast-growth time, when the stock is too expensive by traditional metrics but supported mostly by growth.

Tinker likes TTD but likes other stuff better. There is no arguing with that! I concur that NVDA’s moat is more physical than TTD’s. But these preferences sometimes turn into blinders. I replied to Tinker’s Amazon objection

These three companies mentioned in the article alone will spend more than $800 million with Amazon over the next year, which is multiples greater than TTD’s entire revenues for the year.

This is an ants to aardvarks comparison. The $800 million is what TTD calls “gross spend.”

We generate revenue by charging our clients a platform fee based on a percentage of a client’s total spend on advertising, data and other features through our platform, the total of which we refer to as gross spend. We enter into ongoing master service agreements with our clients as opposed to episodic insertion orders. To further align our interests with those of our clients, we do not buy advertising inventory in order to resell it to our clients for a profit.

http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=123…

TTD’s nine month 2017 revenue was $205.6 million, call it $275 million for the year. If they charge 5%, the “take rate,” then the gross spend is 20 times that, $5,500 million. I could not find any indiction of what the take rate is except it is variable.

http://discussion.fool.com/tinker-thanks-for-the-link-did-you-kn…

Denny Schlesinger

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TTD says the walled gardens of Google and Facebook (and now Amazon is entering the picture) will have to come down in a few years
wishful thinking?
The only way Google will be dethroned is by anti trust action. No lawyer but IMO that is overdue.

I’m too old to concentrate in 2 or 3 stocks . But might if I was younger and had the steady income I once had. But I do concentrate in those stocks where I have the most conviction. Usually I have less conviction in the stock than the company. With TTD I can not muster up a lot of conviction in either.

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With TTD I can not muster up a lot of conviction in either.

That 30% drop in price increased my conviction. LOL

Denny Schlesinger