7th Annual Applied Value Investing Stock Pitch Challenge

Key Concepts

• Value Investing Principles: The contest emphasizes the legacy of Ben Graham and his successors, focusing on separating price and value, disciplined analysis, competitive advantage, and relationship building.
• Industry Disruption & Opportunity: Several pitches identify industries undergoing significant change (access control, memory, student loans) and highlight opportunities arising from these shifts.
• AI’s Impact on Investment Theses: The increasing importance of AI is a recurring theme, particularly in the Micron pitch, driving demand for specialized hardware and influencing risk assessments.
• Market Mispricing & Catalysts: Presenters consistently argue that the market undervalues their target companies due to temporary headwinds or a lack of understanding of key drivers.
• Financial Modeling & Valuation: The pitches utilize various valuation techniques (EV/Sales, PE multiples, DCF) to justify target prices and demonstrate potential upside.

Introduction & Value Investing Legacy

The Applied Value Investing Pitch Contest is rooted in the tradition of value investing at Columbia Business School, beginning with Ben Graham’s arrival in 1927 and the publication of Security Analysis and The Intelligent Investor. Subsequent figures like Roger Murray, Mario Gelli, Leon Cooperman, and Bruce Greenwald built upon Graham’s work, emphasizing discipline, rigor, and the importance of sustainable competitive advantages. The contest has evolved over time, with pivotal financial support from Jeff Holm in 2017, and now operates under the Halburn Center. Organizers Jenny and Paul stressed the importance of building relationships within the investment community, mirroring the collegial nature of the field. Columbia’s investment curriculum is exceptionally comprehensive, offering approximately 35 courses.

First Pitches: Doma Carbo & Lululemon

The first two pitches focused on Doma Carbo (locks & access control) and Lululemon (athletic apparel). Doma Carbo is presented as an underappreciated player with a 72% upside to a target price of 106 Swiss Francs per share, driven by growth in electromechanical and connected access control (80-90% of new construction), a new CEO, and conservative guidance. Risks include disruption from building management systems and execution risk. Lululemon is pitched as a high-quality brand trading at a low valuation due to temporary headwinds, with a 91% total return to a $368 target price. Growth drivers include a North American rebound, international expansion (particularly in China), and margin recovery. Risks include new style failures, product quality issues, and increased competition.

Micron Technology: The AI-Driven Memory Bottleneck

The Long Micron pitch centers on the thesis that memory is now the bottleneck in AI development, with GPU memory requirements rapidly increasing (NVIDIA’s B300 requiring 3.6x the memory of the H100). The HBM market is projected to reach $100 billion by 2028, driven by this demand. Micron’s advantages include being the only US-based memory manufacturer (benefiting from government support) and its technological leadership, particularly its 1-gamma node technology and power efficiency in HBM3. The pitch argues that Micron is undervalued, trading at a lower multiple (11x forward PE) than the S&P 500 (20x), with a $743 price target based on a 10x forward PE multiple. A DCF model supports a $380 base case price target. Risks include Chinese competition, though the presenter believes it will initially focus on the domestic market.

Sally Mae: A Compounding Financial in a Changing Landscape

The Long Sally Mae pitch argues the market underestimates the company’s potential as a compounding financial, with a 2028 price target of $60. The thesis rests on three pillars: upside from the HR1 legislation (estimated $6 billion opportunity), overblown delinquency concerns, and a catalytic effect from the KKR partnership. The elimination of Grad PLUS and caps on Parent PLUS loans create a significant market opportunity. Sally Mae dominates the private student loan market with over 60% share. Delinquency increases are considered transitory, driven by policy changes and the restart of federal loan payments, with borrowers having an average credit score of 756 and 92% co-signed loans. The KKR partnership unlocks capital for continued loan origination. The stock is undervalued at 10x earnings, with potential for multiple expansion.

Deep Dive into Sally Mae’s Business Model & Risks

Sally Mae operates in a highly regulated industry with significant barriers to entry, benefiting from the exit of competitors like Wells Fargo and Discover. The company’s balance sheet is strong, with over $5 billion in cash. Growth opportunities stem from changes in federal student loan programs, creating a $25-26 billion TAM. Risks include potential macroeconomic headwinds, particularly rising unemployment and the disruptive potential of AI, though 93% of loans are co-signed. The analyst believes the company’s SG&A expense increase is overstated. Recent increases in FICO scores and delinquencies are attributed to the pause and resumption of federal loan repayments and tightened lending standards following CECL implementation.

Conclusion

The contest showcased a diverse range of investment ideas, united by a commitment to value investing principles. Presenters consistently identified companies facing temporary challenges or market mispricing, supported by detailed financial analysis and a focus on long-term fundamentals. The increasing influence of AI emerged as a key theme, both as a driver of growth (Micron) and a potential risk (Sally Mae). The emphasis on rigorous analysis, disciplined valuation, and the importance of understanding industry dynamics underscored the enduring relevance of the value investing approach.