StoneCo, Crash, Costco, Bayer (Answering some of your comments)

The podcast discusses several stock analyses, including StoneCo, Costco, and Bayer, focusing on their valuation, growth prospects, and risk factors. The speaker emphasizes that while some stocks appear cheap, predicting future market movements and business performance is difficult, and many opportunities are deemed 'too hard' to analyze confidently. The speaker's primary takeaway is that a value investing approach, focused on long-term compounding and risk management, is preferable to attempting market prediction.

StoneCo Analysis

• 00:00:15 StoneCo's P/E ratio is currently low, potentially indicating undervaluation. However, Morgan Stanley anticipates a potential 50% margin compression due to growing competition, which might lead to a P/E ratio of 15-20. The speaker considers the stock's future difficult to predict and places it in the 'too hard' category due to uncertainty regarding the Brazilian payment processing sector's future.

Market Crash Probability

• 00:02:17 While the market is currently expensive with high inflation and stock prices, the speaker does not predict an imminent crash. He suggests that future returns might be low or close to zero due to current market valuations. He emphasizes that crashes are inevitable but unpredictable, and investors should focus on understanding risks and positioning themselves for various scenarios.

Costco Valuation

• 00:05:32 Costco's stock has a P/E ratio of 55, indicating potential overvaluation despite solid revenue growth. The business itself is excellent, but its current valuation, with a market cap of $400B against $7B in net income, seems excessive. The speaker believes the fundamentals may eventually align with the valuation, but the current price is high.

Value Investing Approach

• 00:06:58 Value investing focuses on identifying undervalued businesses with a margin of safety, prioritizing long-term compounding and risk management over market predictions. The speaker states that while value investing can be successful, it's not a guaranteed path to high returns; the speaker prefers investments where he's comfortable with a range of potential outcomes, including a 0% return, over high-risk, potentially high-reward scenarios.

Bayer Analysis

• 00:07:36 Bayer's stock price is at a 20-year low, with a P/E ratio of 5 and stable free cash flow. However, significant litigation stemming from the Monsanto acquisition presents a substantial risk factor. While the company is attempting to reduce debt, the outcome of the legal proceedings remains uncertain, making the stock 'too hard' to invest in despite its potential for 2x or 3x growth if the litigation is resolved favorably.