Consider buying Salesforce (CRM), as the stock appears significantly undervalued at a 5-year low valuation while fundamentals like margin expansion remain strong. Capital is also being deployed into Google (GOOGL), which is viewed as potentially 30% undervalued, and the competitively insulated chip-equipment maker ASML Holding (ASML). For a high-growth opportunity, Duolingo (DUOL) is a top analyst pick with a $540 price target, despite its recent volatility. As a risk management strategy, review highly appreciated positions like Texas Roadhouse (TXRH) to potentially lock in gains if valuation has become a concern.

Texas Roadhouse (TXRH)

• The podcast host sold $30,000 worth of his Texas Roadhouse stock, which was about half of his total position. He has held the stock for about five years and it has been a "massive winner."
• He is locking in substantial gains, as over half of his $75,000 position was pure profit.
• Reasons for Selling:
  • High Valuation: The stock is roughly twice as expensive as when he first bought it, based on its free cash flow yield. The yield has dropped from around 5% to 2.7%, meaning investors get less cash flow back for every dollar invested.
  • Slowing Growth: Revenue growth has decelerated slightly from 16-17% to a more recent 12%.
  • Increased Competition: Competitors like Chili's are improving their operations (upgrading kitchens, redoing menus, lowering prices) and competing more fiercely.
  • Portfolio Management: The position had grown to be one of the largest in his portfolio. The host felt it was not a smart move to have a "small market cap restaurant company" as such a large holding.

Takeaways

• This was a "trim," not a complete sale. The host is taking profits after a long and successful run but still holds a significant position.
• Investors who own TXRH might consider if the current valuation and slowing growth warrant a similar re-evaluation of their position size, especially if it has become an oversized part of their portfolio.
• The key takeaway is the discipline of taking profits when a stock's valuation becomes stretched and its growth story changes, even if it's a long-term winner.

New Investments (Buys)

The host is reinvesting the $30,000 from the Texas Roadhouse sale into three other companies, putting $10,000 into each.

Equifax (EFX)

• Described as a "deeply embedded data-driven company."
• It has an entrenched position with its "work number" product, strong pricing power, and is well-diversified.
• The host sees it as a better risk-reward opportunity compared to Texas Roadhouse at its current price.

Google (GOOGL)

• Despite a recent run-up in the stock price, the host believes there is "more room to run."
• Valuation: He notes that Google trades at a lower P/E ratio (around 20) than Texas Roadhouse, which he finds incredible given Google's powerful businesses like YouTube, Waymo, and Google Cloud.
• He believes Google is undervalued and should trade at a 25 P/E ratio, suggesting it could be 30% undervalued today.

ASML Holding (ASML)

• This company has "technological supremacy" with its EUV lithography machines, which are essential for making advanced computer chips.
• Competitive Moat: No other company can replicate its technology, making it highly insulated from competition.
• It has a huge product pipeline with revenue projected a decade into the future, suggesting strong, long-term cash flow growth.

Takeaways

• The host is rotating capital from a successful but now expensive investment (TXRH) into what he perceives as high-quality, wide-moat companies (EFX, GOOGL, ASML) that are trading at more attractive valuations.
• This strategy highlights a focus on buying deeply entrenched businesses with strong competitive advantages when they offer a better price relative to their growth prospects.

Investment Theme: AI vs. Software-as-a-Service (SaaS)

• A major market narrative right now is that "AI is eating software." The fear is that AI tools will allow companies to operate with fewer employees, reducing the need for seat-based software subscriptions from companies like Salesforce, ServiceNow, and Adobe.
• This fear has caused significant drops in the stock prices of many SaaS companies.
• The Host's Counter-Argument (Bullish on SaaS):
  • SaaS companies can use AI themselves to become more productive and increase their own profit margins.
  • Higher employee productivity historically leads companies to hire more people, not fewer, because each employee generates a higher return.
  • SaaS companies like Salesforce are deeply entrenched and solve complex problems that most businesses do not want to build solutions for themselves.
  • The host believes this negative narrative will fade over time as these companies continue to report strong financial numbers, similar to how the "Google is the next Kodak" narrative faded.

Takeaways

• The current fear around AI's impact on SaaS may be creating a buying opportunity in high-quality software stocks that have been sold off.
• Investors should look past the narrative and analyze the actual financial performance and guidance of these companies.

Salesforce (CRM)

• The host is very bullish on Salesforce and recently added to his position, viewing the current negative sentiment as an opportunity.
• Valuation: The stock is trading at a 5-year low valuation based on its free cash flow yield (5.6%). This makes it "roughly half as expensive as Google" on that metric.
• Improving Fundamentals:
  • Concerns about high stock-based compensation are "two years old." The company has gotten it under control, and its impact is now less than that of Google or Meta.
  • Salesforce is buying back shares, paying a dividend, and expanding its profit margins.
  • While revenue growth has slowed, profit margins have "skyrocketed," and the company is guiding for 8-9% revenue growth to continue.
  • Contract growth (13%) is outpacing revenue growth, suggesting future revenue is secure and growing.

Takeaways

• The host believes the market is overly pessimistic about Salesforce and that the stock is significantly undervalued.
• He argues that the numbers (strong cash flow, share buybacks, margin expansion) do not support the narrative that the business is being "eaten alive" by AI. This represents a classic contrarian investment opportunity.

Apple (AAPL)

• The host is becoming more bullish on Apple and has put the stock back on his watchlist.
• The recent news about Apple's ambitious push into AI and robotics is the first thing that has gotten him excited about the company in some time.
• Planned new products include home robots, a smarter Siri, and home security systems, which would make Apple's product ecosystem even "stickier."
• While execution is not guaranteed, this new strategic direction gives investors a potential future growth story to believe in, following disappointments like the Vision Pro.

Takeaways

• After a period of perceived stagnation, Apple may be entering a new phase of innovation focused on AI and robotics in the home.
• While still in the early stages, this could provide a new catalyst for the stock if the company can successfully execute its plans. This is a stock to watch for further developments.

Duolingo (DUOL)

• The host owns Duolingo and is holding his position despite recent volatility. The stock has seen swings of 30% or more.
• He is focused on the strong business fundamentals, particularly the 46% growth in subscription revenue.
• He highlights that respected Wall Street analyst Mark Mahaney recently named Duolingo as his top pick in small-cap tech.
  • Mahaney's thesis is that Duolingo is a market leader with low overall market share, giving it a long runway for 30%+ revenue growth.
  • Mahaney has a $540 price target on the stock.

Takeaways

• Duolingo is a high-growth, high-volatility stock. Investors should be prepared for large price swings.
• The bull case is based on continued rapid growth in its core market and expansion into new areas like math and music. The validation from a top analyst adds weight to this thesis.

Amazon (AMZN)

• The host is bullish on Amazon's major push into grocery delivery, calling it a "notable positive on the stock."
• This move directly targets Walmart (WMT), which the host sees as Amazon's biggest and most effective competitor in e-commerce, largely due to the success of its Walmart+ grocery service.
• Amazon is now bundling free same-day grocery delivery for Prime members on orders over $25, a powerful move to counter Walmart+.

Takeaways

• Grocery has been a relative weak spot for Amazon. This aggressive push shows they are serious about winning in this category.
• Successfully competing with Walmart in grocery could strengthen Amazon's overall competitive moat and be a significant long-term growth driver.

Paramount (PARA) & Netflix (NFLX)

• Paramount won the bidding for exclusive UFC rights with a $7.7 billion, 7-year deal.
• The host, a Netflix shareholder, views this as a win for Netflix because they didn't overpay for the rights.
• Reasons Netflix likely passed:
  • Global Focus: The UFC deal is primarily for US rights, while most of Netflix's subscribers are international.
  • High Cost: At $1.1 billion per year, the deal was "absurdly expensive" and would have consumed a massive portion of Netflix's content budget.
• The expensive deal will put more financial pressure on Paramount, which already has a weak balance sheet and struggles with profitability.

Takeaways

• This highlights Netflix's financial discipline. The company is avoiding expensive bidding wars for sports rights that may not provide a good return on investment, especially on a global scale.
• The move is risky for Paramount, as it adds a huge fixed cost that may be difficult to make profitable.