My 5 Favorite Stocks
Hi Friend 👋
I’m Pieter and welcome to a 🔒 subscriber-only edition 🔒 of Compounding Quality.
Please note that starting from the end of September, the Portfolio will only made available to ⭐ Founding Partners ⭐.
The prices:
Regular subscription: $499 (there now is a 20% discount)
⭐ Founding Subscription ⭐: $1,200
Everyone who is a Partner of Compounding Quality before the end of September will be upgraded to the Founding Subscription without extra charge.
Take a paid subscription and get upgraded to the Founding Subscription for free:
A new month, a new Best Buys List.
Each month, I’ll give an overview of my favorite stocks of the month.
Let’s dive into this update and talk about September’s favorite stocks.
August 2024
In August, the S&P 500 increased by 2.3%.
The Fear & Greed Index indicates that we are currently in ‘Greed’ Mode.
Best & Worst Performers
This overview shows you the best and worst performers in our investable universe.
The cheaper we can buy great companies, the more we like it.
Worst performers
Best Performers
Investable universe
As you might know already, we are working hard on creating a Buy-Hold-Sell list based on the entire watchlist.
People who take a paid subscription before the end of next week will be upgraded automatically from the regular paid subscription to the Founding Subscription without extra charge (The Buy-Hold-Sell list is in there).
This means we’ll execute an Earnings Growth Model and Reverse DCF for the entire Portfolio (more info about both models here).
Here’s an example already with the output of the Earnings Growth Model:
Best Buys September 2024
Over the past few months, I’ve come to a drastic conclusion.
Secular trends last way longer than you think.
This also means that companies active in these trends tend to do well for way longer than you expect.
That’s why it might make sense to pay up for these kind of companies.
Always use a 10-year timeframe to make investment decisions.
In 10 years, will there be more or less demand for a certain product?
You want to invest in companies that offer products/services where demand structurally increases.
Some examples:
Hearing aids: Sonova and Demant
Cybersecurity: Fortinet and Qualys
Obesitas: Novo Nordisk and Eli Lilly
Digital Payments: Mastercard and Visa
Pet treatment: Zoetis and IDEXX
…
Now let’s dive into our favorite stocks for September 2024.
I only mention companies that can’t be found within the Portfolio today.
I love the companies within Our Portfolio and I think most are still (significantly) undervalued.
5. Watsco
What?
Watsco is the largest distributor of heating, air conditioning, and refrigeration (HVAC/R) products in North America.
What’s the secular trend for Watsco?
Climate change is a thing.
A company that will benefit from this?
Watsco as it offers sustainable HVAC solutions. The demand for energy-efficient systems will increase steadily over the next few years.
In the US, the HVAC market is expected to grow at a CAGR of 7.4% until 2030:
Source: Grand View Research
Why is Watsco interesting today?
Watsco is an amazing business.
The stock returned 43,000% (!) to shareholders since 1990.
This means an investment of $10,000 turned into $4.3 million!
Their business model is simple and easy to understand.
Here’s why it is a good business:
Watsco is the largest distributor of air conditioning, heating, and refrigeration (HVAC) in the United States
Serial acquirer with decentralized business model (just like Constellation Software)
Ownership culture: insiders own more than 60% of the voting power and almost 50% (!) of employees own shares of the company
Strong competitive advantage based on pricing power, a strong reputation, and economies of scale
Compounding Machine: Watsco returned 20% per year to shareholders since its IPO in 1980
The current valuation looks like this:
Forward PE: 32.0x (10-year average: 25.1x)
Expected Return Earnings Growth Model: 9.2%
Reverse DCF: Watsco should grow its FCF by 14.1% per year to return 10% per year to shareholders
4. Zoetis
What?
Zoetis is a global animal health company that develops, manufactures, and markets vaccines, medicines, and diagnostic products for livestock and pets.
What’s the secular trend for Zoetis?
Loneliness is a serious problem in our society.
A solution to this? Pets.
More and more people are treating their pets as full family members.
I can attest to that.
When my girlfriend wakes up, she always passes me first to say good morning to the dog. After a short cuddling session with her, I get - if I am very lucky - a good morning as well.
Life is all about setting your priorities straight!
The global pet care market is expected to reach $500 billion in value by 2030. This would mean the market would grow at a CAGR of 7% until 2029.
Companies like Zoetis, which offer vaccines, medicines, and diagnostic products for livestock and pets will benefit from this.
Source: Statista
Why is Zoetis interesting today?
Warren Buffett said that it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Zoetis is a perfect example of this.
When Zoetis can keep growing its intrinsic value by 10% per year for multiple years and preferably even a decade or two, investors will be fine paying up for this great company.
Forward PE: 30.3x (10-year average: 30.5x)
Expected Yearly Return Earnings Growth Model: 10.1%
Reverse DCF: Zoetis should grow its FCF by 14.5% per year to return 10% per year to shareholders
Source: Finchat
My 3 Favorite Stocks
My 3 Favorite Stocks are only available for Partners of Compounding Quality.
Please note that starting from the end of September, the Portfolio will only made available to ⭐ Founding Partners ⭐.
The prices:
Regular subscription: $399 (temporary discount)
⭐ Founding Subscription ⭐: $1,200
Everyone who is a Partner of Compounding Quality before the end of September will be upgraded to the Founding Subscription without extra charge.
Everything in life Compounds
Pieter (Compounding Quality)
Book
Order your copy of The Art of Quality Investing here
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Finchat: Financial data