Together with 800° GO

The end of the tech bubble is incoming. Nasdaq is down 21% year-to-date. The famed Ark Innovation ETF is down 50%. Valuation multiples are collapsing for any company that doesn’t generate a meaningful amount of free cash flow.

Most high flying tech stocks are down 70-90% from their all time highs:

• TSLA: -27%

• ZM: -83%

• ROKU: -81%

• TDOC: -80%

• COIN: -64%

• SQ: -64%

• EXAS: -61%

• U: -63%

• TWLO: -73%

• CRSP: -74%

• PATH: -78%

• SPOT: -70%

• NTLA: -71%

• SHOP: -74%

• BEAM: -69%

• PD: -47%

• FATE: -71%

• DKNG: -80%

• HOOD: -86%

• SGFY: -61%

Despite the fallout and total implosion of these once high flying tech stocks, cash flow and earnings multiples still remain at nosebleed levels. As an example, Tesla is trading at a P/E ratio of 117x. Shopify has a 129x EV/EBITDA. Block Inc. has a EV/EBITDA of 173x!

These valuation levels imply that investors (“speculators”) are betting high growth continues for years to come. Tech valuations are built on ultrahigh growth rates and hopes and dreams. It is a pile in mentality where everyone bids up equity prices on hopes they can dump it at a higher price in the future.

Here is the question that I propose to all investors new to the game. What would you rather buy:

Company A

• $57 billion market cap

• $5 billion cash, $5 billion debt for $57 billion enterprise value

• $17.5 billion revenue

• $333 million EBITDA

• $166 million net income

Company B

• $67 million market cap

• $57 million cash, $3 million debt for a $13 million enterprise value

• $135 million revenue

• $13 million EBITDA

• $10 million net income

The answer to this question should be easy for anyone who has been closely following my newsletter. With Company A you are betting on hopes, dreams and the future that endless growth will eventually catch up to the sky high valuation.

With Company B, you make all of your money back in one year and are protected by a massive cash balance should earnings in the future disappoint. The margin of safety is large here and should be attractive to any investor who is interested in owning actual businesses, not hopes and dreams.

The goal of all investors is to buy low and sell high. Every talking head on CNBC spews this. Every FinTwit account jokes about it. Every hedge fund manager attempts it. But few actually practice the art of buying low and selling high.

My sense is that most individuals don’t know what buying low and selling high really means. Most investors focus on the stock chart when attempting to buy low and sell high. But stock charts are not really what buying low and selling high really means.

Buying low means buying a company for as cheap of a valuation that you can get. My goal with every stock I purchase is to buy it for significantly under its intrinsic value. I calculate intrinsic value differently with every company but in the end I tend to look for situations where:

• Hard assets (buildings, land and equipment) are worth more than the enterprise value

• The company is trading under its cash and working capital (hard to find in a bull market)

• Hidden assets (growing segments that are spitting off cash flow and revenues hidden by a legacy depleting asset)

Sometimes there are other intrinsic value calculations that I attempt but these are the three key ones that I look for. When I find a great stock idea I then try to buy it meaningfully below the intrinsic value (25-50%) below what I think fair value is.

I don’t rely on growth. I don’t forecast a new technology development. And I don’t buy on hopes and dreams. I buy undervalued assets that Mr. Market does not want to own.

P.S. I will be writing up Company 2 for Alpha Letter Pro Subscribers over the next coming weeks. Stay tuned. This stock is ultra cheap for only trading at 1x EBITDA and it is growing as well!

Time’s (Almost) Up! Invest In This $233B Industry Disruptor Today

The global pizza market is expected to reach $233 billion by 2023. You have until TOMORROW NIGHT to get a slice of the pie.

People want good food delivered fast. That’s why 800° GO has designed a fully-autonomous pizzeria to cook artisanal pies in just 3 minutes. 

Investors have plenty more reason to jump aboard…

• Each pizza pod is 40 square feet, fitting easily in a variety of high-traffic areas.

• 800° GO systems are $200,000 cheaper to build than your traditional pizzeria. 

• Real estate and labor savings can ultimately raise vendor margins by up to 2x.

It’s a high-growth business model with a massive cost-cutting advantage and they’re already launching in markets across the globe. 

Invest before the round closes tomorrow night at midnight PST! 

Updates

Over the past couple weeks I have written up two new investment ideas. The first one is a fallen angel. The equity value of the stock a few years ago was over $2.5 billion. Today it is just under $100 million. There is a significant amount of debt and industry headwinds which will prove challenging to navigate through. But if the company is able to survive this one could be a big winner. Yesterday they announced an asset sale and one time cash refund for over $100 million. The stock was up 20% yesterday and I expect additional asset sales in the future. Please see the research report here.

The second investment is a derivative on the hopeful sale of an oil and gas investment I have been a long-term holder of. The derivative is illiquid, unknown and trades off the beaten path. If my thesis is right on the value of the underlying, there is clear upside of over 100%. If the oil and gas market tanks, this one could be worth zero as it is a derivative and now and ownership in a common stock. That being said, the maturity is long-dated and there are tailwinds in the energy industry combined with a potential asset sale that make this a good bet. Please see the research report here.

Headliners

• Citigroup said to cause flash crash in European stocks on Monday (Seeking Alpha)

• Italy unveils new stimulus plan as economic outlook darkens (Reuters)

• After five record crops, heat wave threatens India's wheat output, export plans (Reuters)

• 10-year Treasury yield hits 3%, first time since 2018, ahead of Fed meeting (Seeking Alpha)

• Analysts see ongoing chip strength in March data despite some seasonal slowness (Seeking Alpha)

• Warren Buffett says he took a $600M bite of Apple stock in 2022's first quarter (Seeking Alpha)

• Morgan Stanley issues list of 45 highest conviction stock picks (Seeking Alpha)

Oil and Gas

• UK asks North Sea oil and gas sector to set out plan to reinvest profits (Reuters)

• Kwarteng and Sunak at odds over windfall tax on oil and gas profits (The Guardian)

• Oil Rose Amid Surging Refined Products Markets (Bloomberg)

• USA Adds More Rigs (Rigzone)

• 890MM North Sea Barrels Could be Sanctioned in 2023 (Rigzone)

• Chevron to Ramp Up Production at Biggest USA Oil Field (Bloomberg)

• Long-term U.S. LNG deals pick up as demand increases (Reuters)

Memes

Dallas Liam @prisoninvestor1

I've owned and operated private prisons for over two decades. Private prisons are the single greatest real estate investment vehicle around. Here is what I have learned. 👇👇👇

7:15 PM ∙ Apr 13, 2022

---

18,213Likes4,151Retweets

John W. Rich (Fake Tech Exec) @Cokedupoptions

Learning a lot from the Berkshire meeting this year. Great stuff.

4:17 PM ∙ Apr 30, 2022

---

978Likes24Retweets

Not Jerome Powell @alifarhat79

My money was losing 8.5% a year due to inflation so I decided to invest it in the stock market. Now I’ve lost 85% in one week

7:35 PM ∙ Apr 29, 2022

---

17,227Likes1,693Retweets

Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page.  All statements and expressions herein are the sole opinion of the author or paid advertiser.

Alpha Letter is a publisher of financial information, not an investment advisor.  We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.  

THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME.  THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION.  INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.  

Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable.  They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.  Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein.  The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.

The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities).  To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

By using the Site or any affiliated social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.

For Full Terms of Use Click HERE. For the Privacy Policy Click HERE.

alphaletter.co (“Alpha”) is a website owned and operated by Substack. Alpha is paid fees by the companies that make investment offerings on this website. Be aware that payment of these fees may put Alpha in a conflict of interest with the investor. By accessing this website or any page thereof, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website shall constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Alpha is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Alpha does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the "Securities Act") are available to U.S. investors who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Alpha does not verify the adequacy, accuracy or completeness of any information. Neither Alpha nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Alpha nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis