6 Stocks for the Buy & Hold in 2024 (+Patreon Update)

Here's a comprehensive summary of the YouTube video transcript, maintaining the original language and technical precision:

Key Concepts

• Portfolio Performance: Comparison of personal stock portfolio returns against S&P 500 and DJ World indices.
• Internal Rate of Return (IRR): A metric used to estimate the profitability of investments.
• Small and Micro-Cap Investing: Focus on smaller companies, which can be more volatile but offer higher growth potential.
• Value Investing: A strategy of investing in stocks that appear to be trading for less than their intrinsic or book value.
• Patreon: A platform used to share private investment portfolio details and updates.
• Business Quality Assessment: A framework evaluating a company's ability to retain profits and customers (the "hole in the bucket" analogy).
• Key Financial Metrics:
  • Return on Invested Capital (ROIC/ROI): Measures how efficiently a company uses its capital to generate profits.
  • Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA): A valuation multiple used to compare companies.
  • Price-to-Earnings Ratio (P/E): A valuation ratio of a company's current share price to its per-share earnings.
  • Earnings Yield: The earnings per share divided by the market price per share, representing the return on investment.
• Mega Trends: Broad societal or technological shifts that can drive long-term growth for companies.
• Owner-Operators: Company founders or executives who also hold significant ownership stakes.
• Moat: A sustainable competitive advantage that protects a company's long-term profits and market share.
• Cyclical Business: A business whose revenues are strongly tied to economic cycles.
• Turnaround Case: An investment in a company that is currently underperforming but has the potential for recovery.
• Asymmetric Bet: An investment where the potential upside significantly outweighs the potential downside.

Portfolio Performance and Strategy Update

The speaker provides an update on their private stock market portfolio, managed with a friend via Patreon, which has been active for nearly a year.

Historical Performance (Since August 2013)

• Overall Portfolio: The speaker claims to have beaten both the S&P 500 and the DJ World indices by a significant margin over approximately 11 years.
  • Broker's Estimate: 16% annual return.
  • Speaker's Estimate (IRR-based): 19% annual return.
  • S&P 500: 11% annual return.
  • DJ World: 6.5% annual return.
  • These figures are stated to be net of fees and taxes.

Performance Over the Last Year (Patreon Period)

Despite investing in small and micro-caps, which have underperformed recently, and experiencing a scam in a major holding (Kindred), the portfolio has still managed to outperform.

• Portfolio Return: 17.4% to 18.5% (depending on calculation method).
• S&P 500: 15.2% return.
• DJ World: 11.7% return.

Strategic Shift: Efficiency and Time Management

While pleased with absolute returns, the speaker notes a decline in efficiency, requiring significantly more effort for similar returns. The strategy is shifting back to a less frequent, but more impactful, portfolio evaluation and overhaul, planned for every six months. This aims to maintain performance while freeing up time and simplifying tracking for subscribers.

Patreon Content Update

Approximately half of the portfolio holdings will now be revealed on Patreon, giving potential subscribers a clearer expectation of content. The subscription price has also been reduced from $33 to $10 per month.

Six Companies in the Portfolio (Next 6 Months Outlook)

The following are six companies currently held, with expectations to retain them for at least the next six months. A disclaimer is noted as being present.

1. Careium (Swedish Healthcare Services)

• Business: Provides healthcare services for the elderly, utilizing hardware devices connected to response centers. Staff manage alarm responses.
• Key Characteristics: Non-cyclical, recurring revenues, wide customer base, aligned with a mega-trend.
• Market Position: Market leader in Sweden and the UK (60% of sales).
• Investment Analysis Parameters:
  • Organic Growth: Expected high single digits.
  • Return on Invested Capital (ROIC): Around 30%.
  • Business Quality: Rated 4/5. This is explained using a "bucket" analogy: growth and ROIC fill the bucket, while business quality represents the size of the "hole" (customer retention). Careium has a "fairly small hole."
  • Price:
    • EV/EBITDA: 13.37 (considered a good sign).
    • P/E: 16.8.
    • Adjusted EV/EBITDA (adding back amortization): 10.9.
    • Adjusted P/E: 12.5.
    • Conclusion: Considered too cheap for a quality business.

2. Zumiez (American Retailer)

• Business: Retailer of skate fashion (clothing and hard goods like skateboards).
• Store Count: 597 in the US, 47 in Canada, 87 in Europe, 25 in Australia. Primarily located in larger malls.
• Private Label: Accounts for approximately 20% of sales.
• Growth Outlook: Limited expansion potential in the US; more room in Europe and Australia. Expected organic growth of mid-single digits (store growth + inflation).
• ROIC: Around 20% in a normal year.
• Business Quality: Lowered due to recent weak customer demand. Considered a turnaround case.
  • Challenges: Mid-priced fashion products are not "must-haves," leading to cyclicality and intense competition. Retailing requires constant innovation.
  • Industry Context: Competitors like Foot Locker and Tilly's are also facing headwinds, suggesting a potential industry-wide recovery.
• Financial Strength: No debt, significant cash reserves.
• Valuation & Upside Potential:
  • Historical graph suggests potential return to $900 million in sales and a 7% operating profit margin.
  • Current EV/EBITDA: 6.6.
  • Historical Valuation: Around EV/EBITDA 10.
  • Conclusion: Significant upside potential if the company reverts to historical valuation multiples and performance. The current problems have depressed expectations, making it attractive.

3. Wittchen (Polish Luggage and Accessories)

• Business: Manufactures, markets, and sells suitcases, bags, clothing, and accessories under the Wittchen brand.
• Ownership: Owner-operated by Jacek and Monika Wittchen, who own 60% of the company.
• Sales Distribution: Majority from Poland, split evenly between 115 stores and online channels.
• Growth Outlook:
  • Short-term: Limited growth expected due to tough comparables from 2023 (post-COVID tourism/shopping rebound).
  • Long-term: Expected low double-digit growth rate from 2024 onwards, gaining market share.
• ROIC: Expected to remain around 30%.
• Business Quality: Rated 3.5/5.
  • Strengths: Own brand provides a moat; nearly 10% market share in main categories.
  • Weaknesses: Highly competitive retail market (suitcases, handbags) with strong players like Samsonite and Gucci; cyclical business susceptible to recessions.
• Valuation:
  • Last 12 Months P/E: 10.
  • Last 12 Months EV/EBITDA: 8.5.
  • Conclusion: Attractive valuation, especially compared to potential US market multiples. The earnings yield alone could provide market-beating returns.

4. Komju (Finnish Used Car Retailer)

• Business: Acquires used cars from auctions, individuals, and leasing companies, performs minor maintenance, and resells them through showrooms.
• Geographic Presence: Finland (market leader, 10% share), Sweden, and Germany. Sweden and Germany currently operate at a loss.
• Business Quality: Rated 2.5/5.
  • Concerns: Competitors gaining market share in Sweden and Finland question Komju's moat. Difficulty in turning a profit in Sweden and Germany suggests an inability to differentiate. Cyclical industry, though less so than new cars.
• Growth & Profitability:
  • Historical: Founder focused on 20% CAGR growth.
  • Current Strategy: New CEO shifting focus to profitability. Expected growth rate to slow to mid-single digits, while maintaining a 20% ROIC.
• Valuation:
  • EV/EBITDA: 8.
  • P/E: 8.5.
  • Target: Return to historical long-term estimates including a 3.5% operating margin. This is considered achievable by maintaining Finnish profitability and stopping losses in Sweden/Germany. Komju's own target is a 4% operating margin.
  • Conclusion: Significantly undervalued, with a clear path to improved profitability.

5. Olvi (Finnish Brewery)

• Business: Owns top beer brands in Finland, the Baltics, and Belarus.
• Market Position: Market leader in several countries.
• Key Characteristics: Non-cyclical, slow rate of change, strong brand localization.
• Business Quality: Rated 4.5/5. Considered one of the best-positioned companies due to strong brand loyalty in the beer industry.
• Growth:
  • Organic Volume Growth (2018-2023): 4.5% per year.
  • Total Growth (including acquisitions and inflation): Estimated around 6% per year.
  • Outlook: Confident in continued historical performance.
• Valuation Concerns:
  • Current EV/EBITDA: 8.9.
  • Current P/E: 11.5.
  • Issue: A portion of profits comes from Belarus, creating uncertainty (potential confiscation).
• Valuation Analysis (Excluding Belarus):
  • If the rest of Olvi returns to historical profit margins (12%), the valuation for Finland and the Baltics alone would be EV/EBITDA 9.6.
  • Current margin is 8%.
  • Valuation of Finland/Baltics profits alone (even at current margins): EV/EBITDA 15.3, which is lower than the valuation of the entire company including Belarusian profits.
• Conclusion: Presents an asymmetric bet, described as "heads I win, tails I don't lose much," due to the undervaluation of its core operations.

6. On the Beach Group (UK Online Holiday Retailer)

• Business: Online retailer of beach holidays, primarily in the UK, selling vacation bundles (flight, hotel, etc.).
• Capital Requirements: Very low, leading to near-infinite ROIC. Most earnings can be distributed to investors.
• Growth Outlook:
  • FY2024 Sales Forecast: ~$200 million, representing a 10% CAGR since 2019 (last normal year).
  • Future Growth: Expected to moderate to around 6% per year, which is still considered strong with near-infinite ROIC.
• Business Quality: Rated 2/5.
  • Concerns: Potential winner-takes-all effect due to network effects; difficulty competing with giants like Booking.com long-term. Cyclical business as holidays are not a necessity.
  • Strengths: Customer reviews are good (4.2 average rating from ~60,000 reviews); has maintained its position well so far.
• Valuation:
  • Next 12 Months EV/EBITDA: 9.7.
  • Next 12 Months P/E: 9.1.
  • Conclusion: Considered a bit too cheap given the historical growth numbers. The company's investor presentations are noted for their cheerful branding (inflatable flamingo, palm trees).

Conclusion and Patreon Call to Action

The six companies discussed represent some of the smaller positions in the portfolio. For details on the most important holdings, position sizes, and longer write-ups, subscribers are directed to the Patreon page. Updates on portfolio changes will also be provided there. The speaker humorously refers to the Patreon content as "seeing the Matrix for yourself." The Patreon is now priced at $10 per month.