Weekly Notes #5

Price vs Value, Thoughts on the current Market, Expedia and much more

Stocks in this episode: Taiwan Semiconductor (TSM), Expedia (EXPE), CrowdStrike (CRWD) and Sentinel One (S)

Difference between price and value

Price is what you pay, value is what you get. Checking the price chart of Taiwan Semiconductor over the last 5 years, Taiwan Semi looks relatively expensive, especially compared to the 2019 and 2020 levels.

One should not forget however, that Taiwan Semiconductor has had an extraordinary earnings growth as well. Based on the strong growth, TSM earnings per share (EPS) have risen from 2.29$ to 6.60$ per share in 2022.

Due to this high growth, TSM is now cheaper (!) based on an earnings level than it was in 2019, when the share was trading at less than half of the current price.

Expedia

Since I am currently on holidays, I decided to check in on Expedia. Expedia reported very strong Q1 numbers in May. 20% higher bookings than Q1/22; FCF 2.9bn and already $600m of shares repurchased in the first months of 2023. That represents 3.5% of all shares outstanding so far this year alone. The B2B segment continues to pick up steam and I booked some accommodations through Expedia myself this vacation as it was significantly cheaper than Booking in some cases.

I caught the low of the shares perfectly at the end of December and will continue to add to my position in a timely manner. Expedia comes in at an EV/FCF adjusted by SBC of only 6.8, and with the targeted growth, that number will continue to fall.

A deep dive on Expedia will follow after I am back from vacation.

Here are two more exciting statements from the CFO:

"Looking ahead, given the strength we continue to see in our business, we are reiterating our full year outlook of double-digit top line growth with margin expansion"

"In closing, 2023 is off to a great start, with record revenue and cash flow. The travel industry appears to be strong and growing, and our growth initiatives are gaining momentum. And all of this, we believe positions us well to drive long-term growth and shareholder returns."

Current Market Comment

The S&P500 gained more than 20% since its low in October 2022 and the bear market is therefore “officially” over.

The volatility index VIX is currently standing at the lowest level since early 2020 and the Fear and Greed Index showing Extreme Greed. All these indicators show me, that now is not the time to spent the cash which is waiting on the sideline. I will wait for better (i.e. cheaper) buying opportunities for the companies which I am tracking.

Fear and Greed:

Markel deep dive

If you have not yet read my deep dive into Markel, I highly advice you to do so now:

https://41investments.substack.com/p/markel-deep-dive

CrowdStrike vs Sentinel One

Both companies are based in the cyber security space. Last week I wrote an explanation, why Sentinel One fell 37% after reporting its earnings:

https://41investments.substack.com/p/weekly-notes-4

Here is a nice comparison, of how Sentinel One compares to its larger competitor CrowdStrike from Twitter account @InvestiAnalyst. Check out the full tweet here:

https://twitter.com/InvestiAnalyst/status/1667258872434929664?t=CrOm2EV1TCj-AxiAcFwtew&s=09

Why its worth to pay up for great businesses

Tiho nicely summarized, why it’s so rare, that great businesses trade at very low multiples. As investors we must be willing to pay more for a great businesses, than for a low quality business. While we keep this in mind, we will of course not pay any given multiple for these great businesses.

Holding period of stocks

The average holding period of stocks continues to fall. While it used to be multiple years, the holdings time is now down to months. As long-term investors, this is very much in our favor. If the investors get shaky hands in market downturns, we are more than happy to buy great businesses from them at a nice discount.

Bonus

Whatever you do: Keep in mind, that nobody has it all figured out. This story is the perfect illustration of it:

I am at the moment in Portugal and hope you enjoy your summertime as well!

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Invest at your own risk, this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.

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