I Valued Every Stock In My $1.3 Million Portfolio

Key Concepts

Valuation Metrics: Price-to-Earnings (P/E), Price-to-Operating Cash Flow, Price-to-Free Cash Flow (P/FCF), and Price-to-Sales (P/S).
Discounted Cash Flow (DCF): A valuation method used to estimate the value of an investment based on its expected future cash flows.
Moat: A company's competitive advantage that protects its market share and profitability from competitors.
Operating Leverage: The degree to which a company can increase operating income by increasing revenue, often through fixed-cost efficiencies.
Multiple Compression/Expansion: The phenomenon where the valuation multiple (e.g., P/E ratio) of a stock decreases or increases, affecting the total return regardless of earnings growth.
Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets.

Valuation Methodology

The speaker evaluates his portfolio using a two-pronged approach:

Historical Analysis: Comparing current valuation multiples against a 5-to-10-year historical range to determine if the stock is trading at a relative high or low.
Future Projections (DCF): Estimating future Earnings Per Share (EPS) growth and applying an appropriate exit multiple to calculate an expected annual return. The speaker sets a 15% annual return hurdle rate as his benchmark for a "good" investment.

Portfolio Analysis

1. Meta (META)

Status: Recent major purchase ($160k).
Valuation: Historically cheap compared to the last decade (excluding the 2022 anomaly).
Outlook: The speaker projects ~17% EPS growth. With a target P/E of 26, the model suggests a potential 20.3% annual return.
Key Argument: Low disruption risk from AI or competitors; highly insulated business model.

2. Amazon (AMZN)

Status: Large position ($137k).
Valuation: P/FCF is currently high due to heavy Capex investment, but P/E is compressing.
Outlook: Projects ~20% EPS growth. With a target P/E of 30, the model suggests a ~20% annual return.
Key Argument: Massive scale and potential for operating leverage through robotics and advertising.

3. ASML (ASML)

Status: Large position ($121k).
Valuation: Currently on the higher end of its historical range.
Outlook: Even with optimistic 18% growth and a 40x P/E, the projected return is ~13%, falling below the 15% hurdle.
Verdict: Hold. Fairly valued but not a current buy.

4. Costco (COST)

Status: Long-term holding ($87k).
Valuation: Consistently expensive; multiples have doubled over the last decade.
Outlook: DCF analysis suggests a 6–9% return, failing to meet the 15% hurdle.
Verdict: Overvalued.

5. Duolingo (DUOL)

Status: Smallest, worst-performing position ($17k).
Valuation: Volatile; has trended downward recently.
Outlook: Projects 20% growth with a 22x P/E, yielding a potential 17% return.
Verdict: Undervalued, though high risk.

6. Google (GOOGL)

Status: Crown jewel ($71k in Story Fund; $19k in Passive Income).
Valuation: Fair value.
Outlook: With 16% growth and a 27x P/E, it hits the 15% return target.
Key Argument: An "earnings machine" with multiple revenue streams (Ads, YouTube, Subscriptions).

7. Intuit (INTU)

Status: $47k position.
Valuation: Cheapest it has been in 10 years due to recent "SAS apocalypse" fears.
Outlook: Projects 13% growth; potential 20% return if AI fears subside and multiples expand.
Verdict: Undervalued.

8. Mastercard (MA)

Status: Large position.
Valuation: Trending toward cheaper levels.
Outlook: High-margin business; 17% return projected with a 33x P/E.
Verdict: Undervalued.

9. Moody’s (MCO) & S&P Global (SPGI)

Status: Both sold off recently due to financial/SAS sector fears.
Valuation: Both are at recent lows.
Outlook: Both are considered wide-moat businesses. The speaker expects multiples to revert to historical averages (35x–36x), leading to market-beating returns.
Verdict: Undervalued.

10. Microsoft (MSFT)

Status: $66k (Passive) / $20k (Story).
Valuation: Recent valuation compression makes it attractive.
Outlook: 15% growth and a 28x–32x P/E yields a 17–20% return.
Verdict: Undervalued.

11. Netflix (NFLX)

Status: Recent surge in price.
Valuation: Multiples are healthy; room for expansion.
Outlook: Potential for 20%+ returns based on operating leverage and subscriber growth.
Verdict: Attractive/Hold.

12. Texas Roadhouse (TXRH)

Status: $46.8k position.
Valuation: Fair value.
Outlook: 13–14% growth yields a ~16% return, but downside risk exists if multiples compress.
Verdict: Fairly valued.

Synthesis/Conclusion

The speaker concludes that while some stocks (Costco, ASML) are currently overvalued or at "hold" status, the majority of his portfolio remains undervalued. He emphasizes that the recent market fears regarding AI disruption (the "SAS apocalypse") have created buying opportunities in high-quality, wide-moat companies like Intuit, S&P Global, and Moody's. His strategy relies on long-term compounding and the belief that high-quality companies will eventually see their valuation multiples expand back to historical norms.