Durable Value Creators

Here's the current state of the Durable Value Creators investable universe. Spent some time recently narrowing down the focus. Primary themes include picks & shovels of secular trends, recurring revenue, razor-razorblade model, mission-critical, and/or relatively asset-light.

@sidecarcap They’re also one of the worst home builders in terms of quality of work. Ducking public appearances might be in management’s best interest, especially in the era of social media.

Companies like NVR are a Rorschach test for investors. No guidance …earnings calls …conferences …CEO media appearances It’s easy to believe they aren’t transparent or shareholder friendly. Perhaps the real question should be; how valuable are those things?

Or perhaps the alternative view is, maybe myself and the people around me aren't using AI enough... But I don't use AI just for the sake of using AI, must have a purpose or task in mind. Feels like some people are just setting tokens (and money) on fire for the sake of it.

This seems kinda crazy to me. I don't know anyone at work using more than several hundred dollars worth of Claude tokens per month. Even with only using Opus and mostly using max effort I've still haven't hit the $500/mo mark using it most every day. What are these people doing?

@avalondrexmore I guess because buybacks give them more control over when that capital is deployed whereas a special dividend is a one time immediate departure of that cash. Plus makes a dent in the share count after SBC.

Their repurchases have been exceptionally accretive as the stock has compounded massively even when they were buying at what looked like highs at the time, so who am I to critique. But they still have ~$39 billion remaining on their existing repurchase program and just announced an additional $80 billion in buybacks. “We have so much cash, we don’t know what to do with it” is a great ‘problem’ to have - why not go the Transdigm route and issue large, opportunistic, special dividends paired with a slightly scaled-back repurchase program?

We see these posts every year now yet $NVDA revenue and profits continue to rip higher. Let's think for a second. In 2020 they spent $2.8B on R&D. This latest Q alone? $6.3B. TSMC makes all their chips so not much to spend on capex. What are they supposed to do besides return it?

"Just reinvest it" is a common argument. But R&D CAGR over the last 5 years is ~40%. They're pouring massive amounts into new projects. New projects take time to start and ramp up. They aren't a light switch you just flip on. Dividends and buybacks are good in this situation.

@CapstackCapital @Krokodil_V @EndThePods I don’t know if I can look at Q after the love-hate relationship I had with ENTG haha…

I love to hear that fam! Thank you! Both $MTPI and $ELMT are so interesting. ELMT Q1 will tell me a lot and give me a better insights. Eventually I’d like to add to it. And I really want back in MPTI. Massive regret selling it last year. $SOLS is another name I wanna get into and $Q possibly as well. You might like be intrigued by $Q as well, but I think SOLS might fit your style better.

Bull case, I think $SOLS can clear $200 just off RAS. - Nuclear: assume greenfield doubles capacity, ASP in ~$60s, EBITDA margins ~38% (Orano levels). AES clears $11B EV at 22x EV/EBITDA ($CCJ and $LEU type multiples). Is there demand for this conversion? Per DOE estimates for nuclear ("the US would need access to 70K to 95K MT per year of UF6"). Again noting $SOLS atm does 9-10K MTU (can go up to 15K MTU) and they are the sole US source. - Data center 2 phase cooling - $CC had previously sized the fluid as a $1.5B to $3B TAM 2 years ago; $SOLS / $CC at 50% share of this = $8.5B EV at 15x. CCing smarter guys for their views too @EndThePods @CapstackCapital @leveraged_cat @MNTonX

@CapstackCapital @Krokodil_V @EndThePods Hey man, I really appreciate it and likewise the same to you. I've gone down several interesting rabbit holes after seeing some of your posts, most recently the missile supply chain stuff. MPTI is now a name on my radar, and there's a few others ones I'm learning about like ELMT.

@DurableCreators @Krokodil_V @EndThePods 🫡 ofc dude! I gotch you! I’m glad I could find something of interest to you. You are a true investor unlike so many on Twitter that invest for hype. So much respect for you!

@CapstackCapital @Krokodil_V @EndThePods Appreciate the tag. I've actually never looked at SOLS but you make a number of good points and it is the type of business that interests me. Intriguing end market exposure with secular tailwinds, key input specialty materials for customers. I'll have to take a deeper look.

Lastly, I just want to say, it’s really cool and humbling to be asked for my thoughts. But what’s even more awesome is being part of the FinTwit community and understanding people’s investing styles to the point that I was comfortable enough and knew enough to tag @DurableCreators maybe give him in idea as well and loop him in. It’s such a great community of true investors we have on here!

@returnoncap Agree with the overall idea, I've started a small basket of similar themes (but different names) in my own portfolio. Curious if you think $WST belongs in the group as well?

Companies that pass the grandchildren inheritance test: $MCO $KO $LIN $V $CP $WM $XOM $CB $BRK.B

@fivepointscap That's fair. I just struggle with the incremental value that Meta gains off this level of spending, especially with costs for chips/memory/power right now. They obviously have more insight than me, just feels like their app ecosystem will still be here in 10 years either way.

@DurableCreators People forget they’re also a frontier model company. They create LLMs and other AI models themselves. So that’s a big chunk of the capex. Gotta remember this is like Search in the year 1994. Far from settled, we have no idea who is going to “win” consumer AI.

The most common bear argument against $META is their data center capex won’t produce a strong ROI. This makes sense for a couple of reasons. For one, Zuck has a history of overspending on projects that haven’t produced a strong ROI (metaverse). And two, Zuck has a unique level of control over the company. He can’t be fired for any reason at all as he controls over 50% of voting rights for the company. This certainly adds the risk that Zuck could simply be using Meta as a vehicle for his own pet projects. If Meta were to fall 99%, Zuck would still be a billionaire so given the setup, it’s not crazy to think that ROI isn’t on Mark’s mind. However, Meta is also uniquely setup to capitalize on the capex. For one, ad targeting and ad conversion is a problem that is suited perfectly for advanced AI and machine learning. We don’t know how good digital advertising can get, but my guess is that we are nowhere near a theoretical limit and this alone can drive huge ROI. Next, people often forget that Meta is a frontier lab. They are creating frontier LLMs, and they have the compute and distribution to compete with Google, Anthropic and OpenAI on this front. Meta are also masters of engagement and consumer AI is fundamentally an engagement game. Getting people to use your product more often and for longer is what Meta does better than anyone else. Beyond that, you have the optionality that all this spending brings. Meta wants to be on the bleeding edge of whatever products and services AI can create, and they have a distribution network of over 3B people to provide them to. Meta can and, most likely will adjust their spending if the ROI isn’t strong enough. They don’t have to spend $150B per year on data centers forever. I have faith that they will be able to recognize they’re overspending (if they are) and adjust accordingly. Ultimately, while Meta is probably the riskiest of the Mag 6, it also has the highest upside. And I think that upside is being undervalued while the downside is being overstated.

@analogcap Yeah, seems to be the case. For some reason I thought Ashtead had made the change sooner. I'm still curious about the investor concentration in Sunbelt though relative to United. I've only looked at both at a high level but came away thinking United was the better business.

@DurableCreators it's a relist / name change - all these funds already owned Ashtead

A name worth flagging, Sunbelt Rentals $SUNB (formerly Ashtead Group) has been popping up quite a bit this quarter on 13Fs. They're the 2nd largest equipment rental company in the US behind $URI. Maybe activity related to the listing change but interesting nonetheless.

@OnyxAurelius That's actually a good point. They may have *only* bought $2.6B of $DAL, but they have access to billions more in cash to deploy into similarly bad ideas. Also, isn't a large chunk of that cash tied to insurance reserves? It's not like they can hypothetically just invest it all.

@DurableCreators “Inspire confidence if I was a shareholder” they have USD 400bn of cash on the balance sheet brother

Buffett taught Abel well. Buy one generational business ($GOOG) to cement your legacy, then a bunch of junk (joke) On a serious note, I largely support the consolidation but dumping $V and $MA while buying stuff like $DAL and $M wouldn’t inspire confidence if I was a shareholder

I've always thought United Rentals was the better run company (and they've consistently had the higher margins). Checking Dataroma's site for $URI activity doesn't show much, so it makes me curious why the big names would be more interested in $SUNB, regardless of listing.

@HighbrowHaze I think I could accept the buys or sells on their own but together it's a confusing signal. Even if $MA and $V profitability was cut in half, they'd still be superior businesses vs $M or $DAL... and that's not even considering some of the other names sold like $AMZN too.

@DurableCreators Agreed. I sold $BRK a couple of weeks ago because I was tired of watching most of my individual positions outrun whatever they are doing. I lost faith when they sold $TSM at $74 after a great entry. Selling $MA and $V for $M is just stupid imo.

RBC Bearings Q4 earnings call summary and Q&A $RBC Another great quarter with strong backlog growth and high demand in aerospace & defense markets. 40% of long-term agreements are still at pre-covid pricing, with the remainder rolling over in 2027.

I kinda like what AKO Capital is cooking here. Buys of infrastructure/physical asset names $WMB, $APD and $LIN, plus $SUNB. Adding to $FICO when its actually trading at a more rational valuation. Big bet on $ALC (eye care) is intriguing too and not a cookie cutter MAG7 play.