Consider buying high-quality companies that have recently sold off despite strong fundamentals. Adobe (ADBE) is a compelling contrarian opportunity, down 18% year-to-date with a low 22 P/E ratio and aggressive share buybacks. Similarly, S&P Global (SPGI) presents a good entry point for a wide-moat business with steady growth and a healthy 3.6% free cash flow yield. The recent 20% drop in Copart (CPRT) and 17% dip in Constellation Software (CSU.TO) offer rare chances to invest in proven market-leading compounders. Lastly, Amazon (AMZN) remains a buy as its stock has lagged its fundamental business growth, creating an attractive valuation disconnect.

S&P Global (SPGI)

• The host owns this stock in both of his portfolios.
• The stock has had a recent sell-off and is now priced below $500 per share. It is down year-to-date, having given up all its gains.
• The sell-off was attributed to negative news from a competitor, FactSet (FDS), which also sells market data.
• Valuation:
  • Trades at a 27 forward P/E ratio (25 based on 2026 earnings).
  • Its current trailing P/E of 37 is one of the lowest valuations the company has traded at historically.
  • The free cash flow yield is a healthy 3.6%.
• Business Fundamentals:
  • Described as a "tremendously powerful, diversified, wide-moat company."
  • Revenue is growing steadily at 10-11% per year.
  • Free cash flow is near all-time highs, generating over $5 billion in the most recent quarters.

Takeaways

• The host believes this is a good entry price for a high-quality, diversified company.
• The stock has been left behind in the recent market rally, presenting a potential opportunity for investors looking for value in an expensive market.
• Despite the recent price drop caused by a competitor's weakness, S&P Global's own fundamentals, such as revenue and cash flow growth, remain strong.

Amazon (AMZN)

• The host holds a large position in Amazon and has been consistently bullish on the stock.
• The stock has been flat year-to-date and is only up 40% over the past five years.
• This underperformance is contrasted with strong business growth over the same five-year period:
  • Revenue has nearly doubled from $347 billion to $670 billion.
  • AWS contractual revenue has quadrupled from $50 billion to $195 billion.
• The company has demonstrated an ability to generate explosive free cash flow, swinging from negative $30 billion to positive $48 billion in just 12-15 months.
• Valuation: The price-to-earnings (P/E) ratio has continually declined and is now near its cheapest-ever level in the mid-30s.

Takeaways

• The host believes Amazon is still a buy and that its stock price has not kept up with its fundamental business growth.
• The significant disconnect between the company's revenue/AWS growth and its 5-year stock performance suggests it may be undervalued.
• Investors looking for a "secular compounder" that has not been caught up in the recent market hype should consider Amazon.

Adobe (ADBE)

• Described as a "hated stock" that is out of favor with investors, primarily due to concerns about competition from companies like Canva and Google.
• The stock is down 18% year-to-date and 26% over the past five years.
• Bull Case (Contrarian View):
  • Despite competitive fears, revenue growth remains incredibly consistent and resilient at 10-11% quarterly.
  • The company is aggressively buying back its own stock, reducing the share count by 4% year-over-year. Management is repurchasing $12 billion of stock per year.
  • Adobe claims its customer base is growing and expanding into new segments, contrary to the narrative of it losing users to competitors.
• Valuation: The stock is considered "uniquely cheap" for a company of its caliber.
  • The P/E ratio has been cut from 40 down to a 22 trailing P/E (the host also mentions a 15 P/E later).
  • The free cash flow yield has increased to 6%.

Takeaways

• Adobe represents a potential contrarian investment opportunity. The negative market sentiment has pushed its valuation to very attractive levels.
• The company is using the low stock price as an opportunity to create shareholder value through massive stock buybacks.
• If the company's fundamentals (like revenue growth and customer acquisition) remain strong despite the competitive narrative, the stock could be significantly undervalued.

Constellation Software (CSU.TO)

• Described as a "traditional compounding machine" that is currently experiencing a sell-off.
• The stock is down 17% year-to-date. However, its long-term performance is strong, up 150% in five years and 560% in ten years.
• Business Model: The company's unique strategy is to acquire many small, niche software companies and then implement best practices to help them grow, creating a vast and diversified portfolio.
• Fundamentals:
  • Consistently grows revenue at around 16%.
  • Consistently profitable and grows its free cash flow.
  • Free cash flow per share grows at nearly 20% year-over-year.

Takeaways

• The current 17% dip offers a potential entry point into a high-quality, long-term compounder that has historically beaten the market.
• Investors who favor a business model of disciplined capital allocation and consistent growth should look into Constellation Software while it's trading down.

Copart (CPRT)

• Described as another "compounding machine" that is popular among "super investors."
• The stock has had a massive sell-off, down 20% year-to-date, causing it to underperform the market over the past five years as well.
• Long-term, the stock is up nearly 1,000% over the past decade, showing the recent drop is a newer event.
• Business Model & Moat:
  • Operates a niche business as the leader in global online auctions for salvaged and damaged vehicles.
  • Has a strong moat due to its network effects with insurance companies (which provide a constant supply of inventory) and its proprietary software built specifically for its complex operations.
• Valuation: The stock's valuation has "plummeted" from its normal 35-40 trailing P/E ratio down to levels approaching its 2022 lows.

Takeaways

• The significant 20% year-to-date drop presents a rare opportunity to buy into a high-quality, niche market leader at a discounted valuation.
• The company's strong competitive advantages (moat) suggest its long-term prospects remain intact, making the current sell-off attractive for new investors.

Broader Market & Sector Insights

• Overall Market Valuation:
  • The market is considered expensive, with the S&P 500 and QQQ trading at high P/E multiples similar to the 2021 peak.
  • The host's strategy is not to sell out of the market, but to be more cautious and focus new investments on reasonably valued companies that have been left behind by the rally.
• Credit Market Risk:
  • Financial experts like Howard Marks are growing nervous about the credit market, stating it is "frothy" and "priced for perfection."
  • The sentiment is that "the worst loans are made at the best of times," suggesting that the current optimism could be leading to risky investments in corporate debt that may not pay off if the economy falters.
• Video Game Industry:
  • The leveraged buyout (LBO) of Electronic Arts (EA) is viewed as a negative development for the industry and for gamers.
  • The host is concerned that the massive debt load from the LBO will force EA to become even more aggressive with unpopular microtransactions to service its debt, potentially harming the player experience.