Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
In this month’s 7investing Team Podcast, our advisors share the role that valuation plays in their investing process. We also make seven reckless predictions of acquisitions we expect to see in 2021!
December 22, 2020 – By Simon Erickson
We’ve been hearing a lot of chatter recently about certain investments being “overvalued”.
Some are calling tech stocks, SPACs, and Tesla (Nasdaq: TSLA) overvalued. Others say that certain sectors are selling well above their traditional multiples. And some are even claiming the end is nigh and the stock market as a whole is now sitting in a dangerous “bubble”!
But what does it even mean for a stock or the market to earn that dubious distinction of being overvalued?
Does it mean that euphoria has overtaken reason, and that excessive momentum has bid up prices to unsustainable levels? Or is this subjective description actually completely justified, when the market’s best companies are in fact well-deserving of their premium valuations?[su_button url="/subscribe/" style="flat" background="#84c136" color="#ffffff" size="6" center="yes" radius="0" icon="" icon_color="#ffffff" desc="Get full access to our 7 best ideas in the stock market for only $49 a month."]Sign Up Today! [/su_button]
In our December 7investing Team Podcast, our advisors describe the role that valuation plays in our investing process. We cover several different sectors and our approaches differ significantly. But this is a must-watch for anyone who is internally struggling with how to assess a company’s valuation and why it matters.
And in the second segment of our podcast, we make reckless predictions of acquisitions we expect next year. From the “highly probable” to the “perhaps unlikely” to the “that’s just ridiculous”, we have seven M&A ideas for you to watch for in 2021!
Publicly-traded companies mentioned in this podcast include Alteryx, Amazon, Box, Exxon, Ford, Kohl’s, Microsoft, Salesforce, Schwab, Tesla, and Volkswagon. 7investing’s advisors may have positions in the companies that were mentioned.
00:00 – Introduction: The role of valuation in our investing process.
01:06 – Austin Lieberman
04:15 – Steve Symington
07:07 – Matt Cochrane
10:29 – Dan Kline
15:04 – Maxx Chatsko
18:42 – Manisha Samy
22:58 – Reckless predictions! Each advisor shares one acquisition that they expect to take place in 2021.
Simon Erickson 0:00
Hello everyone and welcome to today’s episode of our 7investing podcast. I’m 7investing CEO and founder Simon Erickson, joined by my entire lead advisor team. We’ve been hearing a lot about valuation in the stock market recently. Some people are saying that stocks are overvalued in certain sectors, others are even going so far as to say the stock market is in a bubble. But of course, at 7investing, we are long term investors. And so my question for the team today will be with regard to valuation and how it plays a role in everyone’s investing process. In the second segment segment of our show today, I’ll be asking each of our advisors to provide one reckless M&A prediction for 2021. So with that in mind, perhaps I’ll start the show by directing this question to you, Austin Lieberman, and then to Steve Symington, because I know the two of you are following tech stocks. A lot of people are saying that there’s parts of the economy specifically in cloud computing, perhaps artificial intelligence, that are getting a little bit frothy out there. But Austin, can you tell me what role valuation plays for you as an investor?
Austin Lieberman 1:06
I just completely ignore evaluation and don’t care about it at all. No, I’m joking. I am happy and willing to buy stocks and own companies that people that you know, the common narrative is that they’re overvalued. But I do actually pay attention to valuation. And so it kind of works on a spectrum for me, right? Like, I’m traditionally looking at companies that are between $1 billon or even up to $100 billion in market cap. In my opinion, as companies move, and they have a higher market capitalization – so if they’re 50 to 100 billion, I start to care about the valuation on a price of sales multiple or something like that a lot more than if a company is a $1 or $2 billion company. And the reasonn is just because it’s harder, as companies grow larger and larger, to accelerate their revenue growth, so to grow revenue even faster, because they run into kind of the challenge of the law of large numbers. So as companies get larger, I focus more on valuation. If a company is smaller, and they have a great product, they’re in an important and growing industry, they have reliable recurring revenue, and they do something important. So for example, we’ve seen CrowdStrike in the news a lot, and there’s been some data breaches, and we’ve seen that stock basically get revalued at a higher valuation, in my opinion, is because the world has now decided that security is important. CrowdStrike has a good product. And that market is going to continue to be more important. I’m happy to own companies like that and continue owning them, even as their valuation extends a little bit. And the biggest mistakes that I have made as an investor is to not own companies because of valuation. I did it with Shopify, I did it with The Trade Desk. There’s even a couple more in there that I’ve done it with, is that always going to be the narrative? Is there going to be some type of sell off or something like that? Possibly, yes. I don’t own Shopify, I don’t own The Trade Desk. I think that their current valuations and the growth rate that they’re going to have as large of companies as they are now is, it’s going to be challenging for them to outperform the market moving forward, but I don’t think the whole market is in a bubble. And I think that because of their dynamic platforms. And again, we haven’t talked about I didn’t even talk about this, but low rates. The lot of these tech companies deserve the higher valuations. But we do have to look for like pockets of way, way overvalued or pockets of bubbles.
Simon Erickson 4:04
I think that makes a lot of sense that the valuations of high flying tech stocks should be a little bit more generous than more traditional companies. Steve Symington, you also follow the tech markets. What’s your approach to valuation?
Steve Symington 4:15
Yeah, I think that’s a great point Austin made about paying more attention to specific valuation metrics as businesses mature. And I think many investors tend to underestimate the ability for companies to grow into seemingly expensive valuations. And I don’t think it’s a bad thing when Wall Street sometimes assigns just seemingly exorbitant multiples. And and when companies are large and they have big opportunities in front of them, often those multiples are high for a reason. So sometimes I will take traditional valuation metrics with a grain of salt if the opportunity is large enough. That’s kind of how I view analyzing businesses is as a function of their current size, current size of their business, and the markets that they’re chasing. So if you have, say, a $1 billion company – company with an enterprise value market cap, $1 billion, and you want to know they’re chasing an industry, that’s worth $500 billion, and you think they have a reasonably good chance of taking a significant chunk of that industry over the long term, I think, eventually, the value of that business will follow suit. And it kind of sometimes the multiples will even expand as it becomes evident that they’re taking that and actually brings me back to an interview with Chris Mayer, a few months ago, that author of 100 Baggers, you know, looking for stocks that return 100 times your money. And he refers often, I love this concept of twin engines in delivering outsized long term returns. So you know, you’re looking at growth in both the size of the business, and the multiples the market puts on the stock. And you’ll find often the risk of companies as they appreciate in value will go down. Because the business is a higher quality business and the markets willing to place a higher multiple on that. So really that’s kind of the way I approach the specific metrics for each company. Kind of depends on the company. But the way I approach those businesses is looking at them as a function of the opportunity they’re chasing, and the chances I think they’re going to get it. So I think that’s a very important way that I try to, to analyze whether a company is undervalued or not relative to its long term potential.
Simon Erickson 6:52
Makes a lot of sense, Steve. Matt, let me ask for your perspective on this one, because you’ve recommended some very large tech companies for 7investing. Steve says that the multiples get higher, because they’re less risky as those companies expand in size. What’s your approach to valuation?
Matt Cochrane 7:07
Oh, yeah, I think some investors place valuation on a pedestal, you know, making it the defining characteristic of their investment process, placing it above all else, and others seem to value it no pun intended as something entirely insignificant. And I think, you know, valuation matters. But traditional valuation metrics are far from the end all and be all of investing. So I would say, along with growth and margins, valuation is usually one of the first things I look at in a company, just to see if a company’s numbers seem to make sense. You know, and if a company is just growing revenue at like, 10%, but it has a price to sales ratio of 50, I just pass it. I only have a finite time to study and learn about stocks. I find this kind of like a hack to help me direct my attention to better current investment opportunities. With what Steve and Austin were saying about the larger the market cap, the more valuation matters – I definitely agree. A small cap has a much better chance of growing into an outsized valuation than a large cap. I completely agree. And then, after studying a company extensively, again I’ll return my attention to its valuation, and this time with a little bit more vigor. Before investing, I must believe that the company’s future cash flow expectations will give shareholders a decent return. If not, but if I like that company’s economic moat, and/or optionality, I might make a small investment to keep it on my radar, and then just kind of slowly buy at different time intervals and just real slowly build myself into a position. Like that’s what Steve was saying about Chris Mayer, and the twin engines of evaluation being rerated and plus the company’s earnings growing. That’s something I picked up. There’s a biography of an investor Shelby Davis, who turned like a $50,000, like inheritance into like, something ridiculous, like a billion dollars by the time he died or something. And he called that a Davis double play, when he would buy a low multiple stock with that could grow, and as the valuation got rerated and it was assigned a higher valuation and the earnings growth, he would call it a Davis double play. And so like what he was saying about Chris Mayer, like twin engines, that reminds me a lot of that.
Simon Erickson 9:33
That’s a great point, Matt, you know, I think that’s kind of aligned with something you and I have talked about a lot for many years now, which is I’ll jump in with my perspective on this too, is that I tend to look for value points along the way where you’re getting you know, those expectations, you mentioned about cash flows or how the business is performing. I tend to like to look at those in a historical context of how would we stand in terms of a multiple of sales of cash flows, of operating margins, whatever it might be, the market should be giving higher multiples as companies expand, but also sometimes even as the stock price continues to go up, you’re getting a better deal in terms of multiple of those fundamentals. And so I tend to look for companies that are performing very well in their sector, we look for all the competitive advantages and all that other good thing. But evaluation does matter. And you always want to get a good deal, especially if you’re investing for the long term. Dan Kline, you have self professed to being one of the most conservative investors on our 7investing team. How do you think about valuation in that context?
Dan Kline 10:29
So I don’t that much, largely because I’m buying companies that I see have strong growth, that tend to be somewhat mature. I’m not buying, you know, an early stagetech company. I mean, I am now because I’m buying Maxx and Manisha’s picks, but I’m letting them do the research. But in general, it’s not something I think about. Look, if you’re buying an established a retailer, and you could say, hey, this retailer is going to add this many stores, those tend to not be these crazy, overhyped valuations. Now, what I will say is, when I look at something that’s in the tech space, it is something I think about. And even when it’s a really high valuation, I say, what’s the opportunity, and if the opportunity is just like, hey, this company is going to keep growing, then I might say, okay, that’s too expensive. If I, if I look at and say, hey, this company is doing this, but they can legitimately like, you know, like Amazon, before they had AWS, what if you thought AWS had any sort of potential, where you could go, geez, this could double, triple this could 10 times, even though as a retailer, it was on its way towards some level of maturity. So I really look at what the optionality is. And, you know, let’s say, let’s take a very mature company like Starbucks, and you can see the exact growth pattern for where they’re going to hit saturation in the US, they’ll eventually hit saturation in China, and there’s not that much more opportunity. So then you look at the premium opportunity, you say, okay, they can, you know, maybe another 50% in sales in premium, well, could they do something else. Could they create? I don’t know what that is. But if they came out with a new concept, and they’ve tried other concepts, like the fruit juice, and things that didn’t really work all that well. But let’s say they came out with, you know, like a dessert concept, and it caught on really well, or an ice cream, or whatever it is, and it was a whole new, well, then you might raise your target. So you really have to understand these companies. And I focus more on opportunity than I do on sort of like what something is worth or valuation any moment because multiples that were unheard of two years ago are not like that. We don’t even talk about that one. So it’s not a big factor for me. Again, I will occasionally dip my toe into the cannabis space. And it’s something I’m going to look at if if I look at something that has one location, and it’s being priced at, you know, 1000 times earnings, and it’s going to have to get to 100 locations to even kind of sort of make sense. Yeah, then I might think about it. For the most part, it’s very low on my scorecard. And I don’t have an actual scorecard for people who are going to email me and say, send me a scorecard.
Simon Erickson 12:50
I think they’re gonna ask more about you dipping your toe in the cannabis space. That might be a question we follow up on later on the show as well.
Dan Kline 12:57
There’s one that I have on my – it’s been my number two, I think three months in a row. So there is one I will eventually get on my scorecard here.
Simon Erickson 13:05
Further explanation required in January. I do like the point that you made about optionality and Starbucks. So many of the forecasts and the price targets are tied to linear forecasts that go into spreadsheet models that there are institutional investors that are expecting kind of straight line appreciation for those forecasts of sales of cash flows, or whatever it might be. I think that this is not appreciating disruptive innovation, or things that might be optionality like you mentioned in or something that would break the models and happen much more quickly. And exponentially than a lot of that can be captured.
Dan Kline 13:40
Let me give a real world example. So Dollar General is a business I like a lot. They open about 1000 stores a year. Their store sales are very predictable. They get to maturity in under a year. You could sort of see the growth pattern and you could see, okay, there’ll be saturated in the US in this many years. So what are their options? Other markets – very expensive from a supply chain point of view. A few months ago, if you remember, they came out with a new store concept based around sort of home stuff, call it sort of like in the Home Goods space, like the Marshal’s sister company, that gives them access to a new market. But it also exploits all their existing supply chain. And it probably is another 1000 stores they can open up so all of a sudden their story changed. So you might have thought, this is predictable. This is boring. There’s only so much growth here. And now all of a sudden – good management finds ways to do that. Finds ways to say okay, we are buying things from all these places. We’re shipping them to all these places, what else could we put nearby that would take advantage of all this infrastructure? So that’s really what you have to watch for is smart management that you know that can pivot and can add optionality.
Simon Erickson 14:46
Let’s take that optionality to the next level, Maxx Chatsko, and talk about biotech and living technologies and the companies that you tend to follow because so many of these companies are still super early stage. Very, very small market capitalizations. How do you even think about valuation for looking at some of these types of companies?
Maxx Chatsko 15:04
Yeah so my stance on valuations has been evolving this year. As you guys know, I’ve hit the Slack channels a bunch of times, like “what’s going on!” So my position has been changing. But, you know, I was in the sweet spot where I’d find these early stage companies that had intriguing technology platforms, they were well run, they had great management teams, within like, under $3 billion market valuation, Things were being overlooked by the market. And in 2020, that list has shrunk considerably. A lot of valuations have been shooting through the roof, even for companies that don’t have any data. So it’s really hard to force me to reevaluate things. So I mean, you know, with with biotech and Manisha’s going to probably do something similar. But, you know, it’s it’s harder, there’s no revenue, there’s no earnings. So you have to value these things based on, you know, the underlying technical potential, the technology platform. And, you know, do I think some of these companies are at absurd valuations, and it’s going to come back to bite some investors? Sure. But again, like I said, my, my stance has been changing a little bit, where I’m willing to get a little more out of my comfort zone in terms of recommending companies or following or buying companies that are, I think, are overvalued, right? So for example, I’ve been kicking around for the last four months that I’ve been her, two companies. I almost recommended Fate Therapeutics, and TG Therapeutics. And I was like, man, I don’t know, these are valued at like $4 or $5 billion, maybe they’re too expensive. Well, they both doubled in the last couple of months, just on good data, things I was looking at as potential catalysts. So maybe I should have recommended them or bought them even more. But so it’s kind of forced me to, you know, get a little out of my comfort zone. But yeah, it is hard. And in biotech, it’s certainly different than, like a cloud computing company, right? You can justify a valuation by saying, well, it’s growing at this clip. And, you know, maybe if you squint and tilt your head, just the right way, you can look through your five years in the future, and say, okay, we can justify this, you know, when you’re valuing companies with clinical data, or no clinical data, you know, eventually the bill does come do with these companies. So I think we’re gonna see some that doesn’t work out so well. And I mean, others just keep going higher. So I think we’re in a different market period, with interest rates being low, they’re gonna be low for a while. So I think investors are willing to take on more risk, because what else are you gonna do with your money? How are you going to return? So it’s an interesting time to be in biopharma for sure.
Simon Erickson 17:31
Yeah, sure, Maxx and talking about that underlying potential of the technology you mentioned, I know that a common metric in pharmaceutical investing is price to peak sales. If they do actually get something commercialized, and it’s out the door, what would be the peak sales and an annual basis? And then what would be the multiple we give on top of that? Any thoughts on that metric? And the type of investing you do or you’re not really paying much attention to that?
Maxx Chatsko 17:56
As a rule of thumb, you say like, maybe five times sales is like a conservative estimate. So there’s some companies that trade at three times sales, there’s some companies have traded 20 times sales. So there’s no real rule there. Again, it’s like based on growth potential, and what else is going on in the pipeline, you know, if one drug or two drugs get approved. But there’s 10 more drugs in the pipeline that based on similar technology, I mean, a company could trade at 20 times sales. So it kind of is a case by case basis, which is what we do here at 7investing, right? We don’t just shotgun approach it and buy everything that’s in, you know, CRISPR genomics or something, we try to pick our shots. But yeah, it’s, you know, it’s hard to really take any specific metric as the end all be all.
Simon Erickson 18:42
Manisha he said CRISPR and genomics, and that’s your field of study right? Now, how do you think about valuation in the stock market?
Manisha Samy 18:49
It is, um, and if I can say the word ditto, and like, point to Maxx, I would do that.
Simon Erickson 18:56
Manisha Samy 19:03
It’s impossible when you’re looking at their theraputics in terms of what the market is going to be for specific indications, you just don’t know. You can model it out, and that’s going to make sense. But you can also model out likelihood of approval for certain indications or certain drugs that is in the pipeline for a specific company. But really, what you’re placing a bet on is, this is the platform technology. And I am placing a bet on this technology, and it’s going to work. It doesn’t matter which indication or what’s going towards the best where you’re placing a bet on and I think that is something that it’s kind of hard it, and it is a bit risky. But if you feel good enough about it, so you like the management, you like the technology, you’ve researched the technology, the outcome should be something good. And that’s how I feel about it. So valuation, I don’t look at it too much. Maybe it will help me, you know, going into a certain name versus not. But in the grand scheme of things, it doesn’t really matter.
Maxx Chatsko 20:38
If I can jump in asking Manisha something. So I don’t really have an answer for this either. But there’s so much going on in our space, cell therapy, genetic medicines, there’s so much competition, right? There’s like, dozens of trials and some specific indications. Do you think that throws off any, like the peak sales estimates for certain assets? I think is it possible that we see an asset get approved, and there’s a lot of potential for the market saying, “oh, this is a blockbuster,” right? $1 billion or more in annual sales, but then something else comes up behind it in a year, or months, or whatever it is, and is better? And then that kind of cuts the legs out from that asset, the first asset? And so it never actually reaches peak sales potential, like, do you think we’re gonna see some, like cutthroat competition? It’s great for patients and everybody, but….
Manisha Samy 21:39
Is that there gonna be a ton of different assets that are going after? I guess there’s peak sales. So the highs that we’ve been seeing for peak sales? I don’t think we’ll be seeing that maybe have a different opinion, Maxx? I don’t know.
Maxx Chatsko 21:58
I think I think it’s gonna be tough to..
Manisha Samy 22:02
I think, products that just kind of level of fat, and with different efficacies and safeties, but would love to hear your thoughts on that as well.
Simon Erickson 22:16
Maxx is going to ask your thoughts on that on the next show. We’re gonna keep everybody in suspense on that one. But it’s a great question for biotech and kind of how this is a more of the foundational technologies it sounds like, rather than just looking at multiples of sales, or things like that for more mature companies. But now I’m gonna shift gears. I’m gonna make the second part of this even more fun, which is where I’m going to ask everybody for a reckless prediction. We talked about valuation, we’ve talked about how that plays a role in our investing. 2021 is coming up next year. We saw a lot of M&A during 2020. Let’s make some crazy predictions on what’s going to happen next year, and we’re going to reverse order for this one. So Manisha, I’m gonna put you on the spot first, what’s the reckless prediction you have for an acquisition in 2021?
Manisha Samy 22:58
Either one of the leading CAR T, or one of the gene editing companies will get acquired is my thought. Is my thought. I hope they don’t, and we’ll see what happens. I I have no idea.
Simon Erickson 23:18
Maxx Chatsko. Let me bring this to you. You were also talking about biotech a little earlier. What’s the company that you think is on the shopping list of other companies out there for 2021?
Maxx Chatsko 23:27
Well, until in 2020, we didn’t see too much acquisition activity in biopharma or pharmaceuticals. We saw the biggest one was just recently was the Alexion Pharmaceuticals acquisition for, I think it was $39 billion. That’s pretty big as far as the industry goes. Besides that, it was Myokardia, I believe, which was like around $13 billion or $20 billion, something around there. And then with just a bunch of smaller companies in the couple of billion dollar range or much less. We saw a lot of companies in the, like $100 to $200 million range for companies that are private. So I think we’re gonna see a pickup of activity in biopharma broadly. But my reckless prediction is that a major oil and gas, super major producer, will acquire a US electric utility. Not the company I recommended, but I think we’re gonna see a top 20 electric utility get acquired by an oil and gas producer as they start to transition away from liquid fuels and into electrification. So we’ve already seen them kind of picking out the edges and dipping around you know, buying assets and solar developers and things, but I think it’s in Europe actually (that) they’ve acquired some utilities but I think they’re gonna bring that to United States in 2021.
Simon Erickson 24:41
Duly noted. Now is Tesla in for consideration for that? I know they have Solar City, that’s kind of a utility for solar. Is Exxon gonna buy Tesla, Maxx? Is that possible?
Maxx Chatsko 24:51
I don’t even want to buy Tesla.
Simon Erickson 24:56
I had to put you on the spot. Good one, Maxx. Okay electric utility with an oil and gas company. Let me bring it back over to you Dan Kline. What’s your reckless prediction for an M&A acquisition in 2021?
Dan Kline 25:06
So I joked earlier that JC Penney is gonna buy Amazon which would of course be crazy. I have a long history of making Amazon is going to buy predictions and they’re always wron. I thought they were gonna buy Radio Shack – I thought the retail footprint -I still do think it makes sense. They know what cables and whatnot you want. They could have easily done a good job in those stores. But I think Amazon’s gonna buy Kohl’s. They already have a partnership. Amazon has spent hundreds of millions of dollars on owned and operated clothing brands and furniture brands and other things that you’re not going to buy if you don’t see them. I don’t know about you, Simon, but I might buy underwear or sports attire on Amazon, but I’m not going to buy it if I’ve never seen it, if I’ve never touched it. So if I can go into a Kohl’s and go, okay, that’s equivalent to what I wear for say gym shorts. Now that’s worked really well for Target. Target has a ton of owned and operated brands. And they’re doing really well. That helps them control their supply chain and allows them to have leverage over other vendors. Amazon really doesn’t have that. The only Amazon owned and operated brand that sells well is Amazon Basics. If they own Kohl’s, they could transform the merchandise there. And that’s something Kohl’s actually needs. Kohl’s has admitted that their merchandise, their owned and operated brands are a little bit tired. That some of their partnerships are tired. So I actually think this is pretty likely. It’s not a big purchase for Amazon. It solves a need, and also gives them a really interesting distribution footprint. And you’ve seen a lot of Kohl’s locations have actually made their store smaller, and are devoting more of the store to back end operations. Some of them have also leased out to Aldi and some other players, things that don’t make that much sense for Amazon. They could close those. The Sephora deal makes them even more attractive for Amazon. So, you know, I’ve been wrong a lot of times, but I do think that deals a good one.
Simon Erickson 26:54
And special deals at those stores if you’re an Amazon Prime subscriber, I would assume Dan?
Dan Kline 26:59
Yeah. I would think just like Whole Foods where, you know, you get extra sales at Whole Foods, they really integrate them, they immediately add things like Amazon lockers so you could pick it up, they would take the package return and they’d even ramp that up. So they do a pretty good job with that right now forcing you to go all the way through the store. They could also use all the data Amazon has to sell you stuff. So they can, okay, in your neighborhood Simon, people are ordering a ton of iPhone adapters and razors to cut your hair. And they could go okay, at our Kohl’s, we’re gonna have a little display of stuff. And it’s going to be exactly what people want to buy in this neighborhood. And that’s going to vary. That’s actually something Amazon does a ton of any way. Now they’ll be able to do it even better if this deal happens.
Maxx Chatsko 27:48
Kohl’s is actually….so they do Amazon returns. And that’s how I’ve returned a couple of things. It’s so easy. You just go up, their like “what are you returning? Give us the code!” You show them your phone, they scan it and they’re like “get out of here!” and then they give you a coupon for 50% off something in Kohl’s.
Steve Symington 28:01
They throw your box at you.
Dan Kline 28:04
You don’t even have to package it, right? You could just be like.., Yes, just
Maxx Chatsko 28:08
Yes! You bring it up. You’re like, “I don’t want this anymore!” They’re like “give it to us!” It’s great. That that actually makes a lot of sense, Dan.
Dan Kline 28:15
Which is why it will not happen based on my history.
Simon Erickson 28:18
Maxx supports this idea. Dan Kline, good one. Okay. Matt Cochrane, let’s come to you. What do you think is gonna happen in 2021?
Matt Cochrane 28:25
Alright so Box Incorporated has about a $3 billion market cap as a leading cloud content management platform and enables organizations to automate and accelerate business processes, power workplace collaboration, and protect in store data, and I believe it will be acquired by Salesforce this year. Salesforce has made a lot of large acquisitions in the last several years. They’re very acquisitive company. Notably, this year, they acquired Slack. You know, in years past, they acquired Tableau and MuleSoft. Those are some of their other large acquisitions. And they can acquire Box for a lot cheaper, and I believe they could get it for about $4 billion. Second to that, I think ServiceNow might acquire BoxIncorporated too, but I think Box will be acquired. That would be my main prediction. And then I think either by Salesforce or ServiceNow.
Simon Erickson 29:20
Are you a fan of Salesforce’s acquisition strategy, Matt? They have made quite a few of those over the last decade. Are they doing a good job?
Matt Cochrane 29:27
Yes, I would say they are doing a good job, (but) I thought the the slack acquisition was a little large, actually. So I’m not sure. Personally I would say I’m a fan of some of their acquisitions, but overall strategy of adding capabilities to their core product and just making their core ecosystem more and more sticky to its existing customer base. Ah, yes, I am a fan of that strategy. And I think Marc Benioff has done a great job of that.
Simon Erickson 29:56
Yeah, definitely $4 billion. That’s pocket change for Salesforce with all the money that they have to spend for acquisitions right now. Hey, Steve Symington, what do you think about 2021? What’s on your radar?
Steve Symington 30:05
I suspect it’ll be better than 2020. And I like how it you asked for reckless M&A predictions, and we’re all providing well reasoned predictions that’ll probably happen
Steve Symington 30:18
They sound crazy on the surface. So I’m going to throw a crazy one out too. Let’s go out on a limb and say that Tesla merges with Volkswagen. And I, you know, I’ll say that actually, I think recently, Musk was asked, I can’t remember where he was asked if they would ever perform a hostile takeover, which would be really interesting, right? And he said, now we have no interest in doing a hostile takeover of anybody. But if anyone had merger considerations, we talked about it. And Volkswagens one of those that kind of comes to mind, especially given their long term focus on transitioning to an Eevee model. And, and that could be really interesting. Actually, and, you know, putting aside the fact that Tesla’s like four times more valuable than Volkswagen now, which is just.. some people think is crazy. But we’ve gone out on a limb already to say it’s not so I know a lot of people who probably say, oh, goodness sakes, like the benefits of bringing a legacy automaker into the fold in one with a forward looking vision could be could be really interesting.
Simon Erickson 31:20
I love that Tesla made its way into the conversation. This is a much more realistic M&A acquisition than mine that I gave Maxx about it being with an oil company. Maxx, do you have thoughts about Tesla in the Volkswagen acquisition? I know you have something that you’re thinking about Tesla right now.
Maxx Chatsko 31:37
I think, you know, we talked about this before, but Tesla should just do this gargantuan stock raise. Then I might actually support it at. I mean, it was that today like $1.9 trillion market cap
Steve Symington 31:50
640 billion. (laughs) Yeah.
Maxx Chatsko 31:52
Wait till next Monday, it’ll be up. Yeah. If they had a bunch of cash, like some stupid amount, $50 billion, I don’t know. Like, yeah, you could see. I think it’d be worth that valuation. But it’s just such a momentum stock right now. I don’t know. I don’t like it. Thanks for putting me on the spot.
Simon Erickson 32:09
I had to, Maxx. I couldn’t help it. I knew you had to have something to say. Austin Lieberman. I’m gonna come to you next, what’s your most your reckless prediction for 2021?
Steve Symington 32:18
We’re picking on Salesforce a lot. I think this one’s not too reckless. I think it’s going to happen. I think Alteryx gets acquired by Salesforce. They acquired Tableau. Alteryx and Tableau partner a lot. They work together really well. It would make sense for them to add that into the mix, or Alteryx is going to get acquired by Snowflake. Move quickly. My reckless prediction is that Tesla, because we haven’t mentioned Tesla on this call yet, acquires Ford. Maxx. I’m curious what you think about that?
Maxx Chatsko 32:50
Yes, I like it. I like it. Well, I think actually my reckless prediction, I’m going to change it is that Tesla’s gonna buy both Volkswagen and Ford. How about that?
Austin Lieberman 33:00
I think Ford would be interesting because they’ve got the leading, you know, F150. Also calling it out. I’m a minivan owner. I think Tesla’s gonna produce a minivan soon. They should. It would be an awesome market for them. Alright, let’s let’s take this off track podcast. Let’s keep it going, Simon.
Simon Erickson 33:17
Okay, well, we said to swing for the fences. And I self described this as being reckless. So bear with me on this one guys. But my reckless prediction for ’21 is that Schwab is going to acquire Coinbase. Coinbase is IPO’ing in the next few weeks, they have filed the paperwork to be one of the largest cryptocurrency exchanges that will now be publicly traded. They have more than 30 million accounts and $6 trillion in assets for Schwab already. They do not have a very large cryptocurrency platform yet. They got a little bit from the TD American trade, TD Ameritrade, excuse me acquisition of this past year, they you have a platform, but then you look at Coinbase that has 35 million accounts globally. I think something like this would make a lot of sense. Schwab is a progressive brokerage. They slash the conditions for their trading of equities. They got access to cryptocurrencies through that TD Ameritrade acquisition that are taking place on the CME exchange right now, I think something like this is going to be very intriguing for them, as cryptocurrencies and Bitcoin, especially become more prominent in our financial services industry.
Maxx Chatsko 34:26
Hey, Simon, what, what valuation do you think it’s going to have at the IPO granted if it doesn’t pop 400% the first day?
Simon Erickson 34:34
By the way, Maxx, I didn’t say Tesla in my prediction. So I’m not I’m not going to ask you for thoughts on Tesla acquiring my company. The last private valuation that Coinbase was reported at was $8 billion in 2018. So that was two and a half years ago. I know it’s worth a lot more than that. I wouldn’t be surprised to see this come to the public markets at more than $20 billion in the IPO.
Steve Symington 34:56
They I think last I checked that it was 28 was what they were at looking for, so.
Simon Erickson 35:02
So that’s reckless. That’s my swing for the fences. We had quite a few reckless predictions there. I think that we put Maxx on the spot enough on this segment of the show and we talked a lot about Tesla, which is always in the conversation for these kinds of things. But again, Manisha was looking at a CAR T and gene editing players. That’s definitely a developing part of biotech right now. Maxx, you were saying that an oil and gas company is going to acquire a electric utility. Dan Kline saying that Amazon could buy Kohl’s. Matt Cochrane saying that Salesforce or ServiceNow might buy Box. Steve saying that Tesla might merge with Volkswagen. Austin saying that Alteryx could get acquired by Salesforce or Snowflake, or that Tesla could merge with Ford and Simon Erickson saying that Schwab is going to acquire Coinbase. This was a fun podcast today. Thank you everyone for tuning in, as we make some some fun, reckless predictions for 2021 and also on a more serious note offer our thoughts about valuation. So we appreciate you tuning in. Once again, we are here to empower you to invest in your future. We are 7investing.
Related 7investing Content:
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
Anirban and Matthew were joined by Alex Morris, creator of the TSOH Investment Research Service, to look at seven former market darlings that have taken severe dives from...
On episode 5 of No Limit, Krzysztof won’t let politics stand in the way of a good discussion - among many other topics!