#283: 2 Cheap Value Stocks to Buy Right Now

0:00Emmet:It's a really interesting company. And as you pointed out to me yesterday, when we were slacking each other, we have spoken about the business in the past. It's a multifarious business, got so many wings to not only its business and its story. It's truly fascinating, but it's also one that I believe looks like value at the moment.

0:23Emmet:Emmet, how are we getting on? Good morning, Mike. Beautiful day in Dublin. How is it in the south of France? it's it's grayer than it usually is but i'm not complaining too bad i think we have a big storm coming in tomorrow so batting on hatches for that yeah oh interesting so i hope it's not coming up here i am i'm i've done picking leaves up off i'm finished picking leaves out of my garden it's just one of those perpetual things when you have a bunch of high trees around you storms equals work yeah yeah the storms here are fairly intense now i think picking leaves out of the garden would be yeah it's such a privileged thing if we lived in i suppose central europe or in in the us storm equals something far more uh violent than picking leaves up off the ground 100 yeah no actually it's funny you mentioned that especially in the us um kind of that kind of comes into my investment thesis for later in the uh later in the episode where i have following profits so that's a little little good look forward to that yeah for later in the show what's actually i think interesting for our listeners is it's it's remarkable how little prep we do on this show and what i mean by that is you and i of course prepare but i don't know what you're going to say and vice versa which i suppose uh lends an organic quality to it so i have no idea what you're going to pitch to me so i'm looking forward to hearing that okay okay where are we going first do you want to talk about well yeah and actually as i mentioned last week horizon is really horizon is our flagship product here at my wall street it's how the business keeps going it's where the lion's share of our research and energy goes and it is a minnow as a service it's coming up to six years old um and i think i said that last week and it is built to find the next mega winner it is my life's pursuit and as we record just this moment wednesday 22nd october 10 in the morning there are 24 positions in the folio or stocks it's just a way of saying stock so like I might have bought one stock six times but that's just one position and of those 24 positions six of those 24 are up more than 100 percent and one of the 24 is down more than 50 percent and I suppose a listener would go so what good for you I lost my shirt on metro mile you bollocks well hold on a minute did you did you keep the shares you were given for your metromile shares and commit to keeping them for 16 years but anyway i am out to find and buy more stocks that grow 100 fold from now from today and only a subset of subscribers will actually have the temperament to hang around for the 16 to 25 years on average that it takes for a 100 bagger to materialize so when I tweet about my 100 baggers and I get my ego fed and fluffed by being interviewed on tv in America or articles here and there about this investing success really the only thing I I should say when that happens is I nearly sold that stock about 500 different times when I needed cash and the hardest thing to do is to not panic um well what I'd say Mike is I've learned a lot of things the hard way which is a pity and in stock investing and running a business like my wall street uh it's also a slow way to learn lessons but i can say that i reckon the five stocks that i'm going to identify in next month's buy alert will all grow tenfold in the fullness of time and i'm going to invest in several of them i'm toying with actually buying all five i haven't made the decision yet and I certainly believe that one of them will grow 100 fold in my life and that's Horizon.

4:16Emmet:It's a service for people whose trust I've earned and who in turn and who basically in return get my best effort at this game. So for a short time as regular listeners know we're offering it at a half price off that's 500 off 999 you only pay 499 there's only a limited number of spots and as i mentioned we are repricing repricing it to two grand in 2026 so lock in 499 now and if my wall street goes all in on profit which is moving closer as a probability we will just consider running horizon on a if you're in your in basis and it's over there in the corner doing this thing with an audience and there will be no more members that decision hasn't been made but i'm simply saying that today you can buy for 499 instead of 2k in the new year or worse shutting the door fully so email pod pod at my wall street.com today and frank or someone on this team will look after you perfect okay um that's horizon done now we're moving to my neck of the woods we're france for the next oh yeah you wanted to you wanted to do a full hour and a half on the on the new robbery but well i i i love those kind of things i i love those kind of things you know a diamond heist it's just so intriguing not that you wish for the bad guys to win but there is something conditioned in us when we watch heist movies or read one million percent and and the fact that it was done in such a way sorry if people are listening they don't know what we're about basically the louvre uh you're the one who's fluent the louvre was robbed uh of like a bunch of uh french historical crown jewels and from the napoleonic empire and stuff like that and all in about seven minutes it was like a really professional heist and no one no one was hurt like that was one of the big things do you know what i mean it It was a very professional job.

6:24You're kind of imagining George Clooney and Brad Pitt in Ocean's Eleven organizing it.

6:28Emmet:If you don't count emotions, I'm sure the security guy sitting outside the door, his feelings were hurt when he looked in and saw the jewels. The jewels were gone. He's like, oh, no, this isn't good. Did somebody move the jewels? Apparently there was a security guard in the room, but their initiative is to protect the visitors of the museum, not so much to protect the jewels. so what did he do just stand there and go i think i think he got everyone away from the dangerous criminals like right yeah when you look at how it was pulled off it's quite interesting they had a cherry picker which kind of lift it's always very simple the kind of dirty loopholes are there to be seen whenever you walk around the place if you're a jewelry heist kind of person you can kind of say that's not very secure um and clearly they had done a lot of tours of the roof you got to imagine as well that footage there's a lot of footage being reviewed at the moment of the millions of people who walk in and out of the door every week yeah yeah no it gives a lot of credence to the effect of just dressed like you know what you're doing so apparently they're all just wearing work vests and no one questioned anything that's so funny it's funny to try and get into a gig sometime by just wearing you know a corporate pass around my neck apparently two lads got into i think it's glass and real extra picking or something they were just carrying a keg they watched past every single checkpoint security ticket whatever just the two of them had a keg and they had a keg i mean that sounds and then they got in with the cake yeah yeah that's just a brilliant day out well i thought right now emma yeah so we're talking about the louvre heist from the start of this recording is about how long it took in and out amazing well i thought we might assess one of the most successful companies in france's history to see if we can pull off an investment heist of our own here on stock club and specifically the company that the week's news brought my attention to or kind of i felt there was a parallel was lvmh better known as louis vuitton moe hennessy and it's a really interesting company and as you pointed out to me yesterday when we were slacking each other we have spoken about the business in the past it's a multifarious business got so many wings to not only its business and its story it's truly fascinating but it's also one that i believe looks like value at the moment so i thought i'd go off on one and kind of explain the history of this business because there are very very few businesses with a backstory like lvmh so say you're going to be here for a while but i am i am glad you're talking about this because luxury stocks of having a bit of a resurgence after a bit of a comedown so yeah it's good timing for this well it is and its story stretches all the way back to its foundation which was a parisian trunk maker in the 1850s and as most people know today lvmh is the world's largest and most influential luxury group it has it's worth about 300 billion euros or 350 billion us dollars it employs 200 ,000 people and apart from all of that it's absolutely fascinating story and it owns so many of the world's leading luxury brands including Louis Vuitton of course and Dior, Givenchy, Fendi, Tiger, Bulgari, Sephora, Dom Perignon I mean its list is certainly I don't think your average person in an average week goes off to buy an lvmh product but most people in their life will at least interact with one and i hope most people who listen to this podcast get to enjoy the products from lvmh you name it i mean it's a luxury monopoly of sorts um and as investors we do like luxury products because they have pricing power that's far less susceptible to downturns and the overall economy they they appeal to people who just don't care they have so much cash it doesn't matter well that's worth expanding on for a second as well is that it seems uh a bit counterintuitive but like luxury brands have always been in some way defensive stocks because their end customer base isn't really affected by what the the kind of average consumer would be in terms of macro uh macro factors and like a depressed economy or whatever they're they're in a different kind of class completely and so that's why luxury that's why luxury companies have always been seen as a beyond kind of the macroeconomic cycle in a sense this time a year ago was in vienna in austria and i was talking to ann marie and i was looking in the window of brunello cucinelli which is i think a wonderful business and it's an apparel company it's it's nothing to do with LVMH.

11:18Emmet:But Anne-Marie told me, as we both know, Anne-Marie is a walking Wikipedia. She's an encyclopedia. She's everything in Pedia. She's so smart and so well-read. And she said, oh yeah, they strategically target people who have an annual clothing budget of$100 ,000 a year. And I was like, what? There's actually enough people to actually target that? So if your annual clothing budget although i'm sure if you if you have that level of wealth you aren't too familiar with what a household budget is but if you can drop 100 grand a year in your clothes then you're a brunelli crucho a brunello cruchinelli uh potential customer likewise with ferrari another independent luxury brand if you can afford a ferrari you don't think about its price they they delivered the best of everything right down to the stitching on the leather and every small moving part in the pit and you just buy it so that's lvmh as customers and i thought i'd start with a little game mike because i'm going to i mean the amount of companies it owns is unbelievable 70 something companies so um i'm going to name an lvmh company and you have to tell me what you think it does what they sell so for example if i say belvedere you say belvedere is vodka correct okay now that that doesn't count i have seven for you so you know i'm gonna start out it's eight now so i'm one for one no i'm okay if i say mark jacobs there you go there's another one for you mark jacobs i think that's not this is this is a warm-up round just well you can't keep giving me these questions i'm trying to illustrate trying to illustrate with example but you've twigged it okay we're gonna jump in your first of seven this is my third of nine no right okay the first one is super simple mike i've handed you this one tiffany tiffany is jewelry correct one out of seven so see i didn't know lvmh owned tiffany oh yeah oh yeah tiffany yeah they're acquired that was one of the stocks that we originally put in our anyway i won't go off when you tiffany's owned by lvmh gavanchi what do they do that's like just fashion isn't it yeah i'll give you that it's a french couture house god you own civilized swine but yes it is it's fashion two out of seven uh krug krug how do you spell k-r-u-g oh i don't know watches maybe no it's a high-end champagne house fully owned by mh so you're two out of three so far art bag i heard bag is whiskey correct well done that's very impressive three out of four kenzo kenzo i don't know japanese whiskey no it's japanese paris fashion when i read the description i never heard of kenzo by the way i was like japanese parisian fashion that's quite the blend but that's how they describe themselves um okay so you're on three out of five number six is fenty beauty what's the fenty i think is that the one rihanna involved in uh i'm giving you that one mike i didn't even know i was like rihanna makeup what is rihanna makeup i had to look up what rihanna makeup was to realize it was rihanna's makeup there you go there you go well done what are you on four out of six i think my count was six out of eight but go on go on and the final one i'm gonna hit you with is daniel roth do you know jesus no he sounds like a director uh they're like what's hyman roth is that a few good men or no what's that other movie kaiser so anyway yeah daniel roth what what does daniel roth do i don't know men's fashion house no i'm not giving you that he daniel roth does watches like if you were saying oh that watch looks like mine and then a daniel roth where it looks at your watch and you're in a swatch they're highly offended this is a daniel roth so he scored four out of seven that's good okay like i mean honestly you and i are not typical lvmh every day of the week type guys but good okay let's kick on so lvmh is primarily listed on the euronext paris stock exchange and the euronext group as our listeners probably know is the third i think it's the third biggest stock exchange group in the world uh ice internet intercontinental exchange group they own the new york stock exchange and a whole bunch of exchanges nasdaq owns a whole bunch of exchanges and then third on the league table to the best of my knowledge is euronext and they as their name suggests have a whole pile of stock exchanges around europe it's ticker lvmh's ticker strangely mc um maybe it's moe i don't know where they got the mc oh of course moe and shan that's exactly what it is uh with listings in exchanges all over europe so they're on the Dusseldorf exchange, Frankfurt, Berlin, Vienna, Stuttgart, Hanover and so on like it really it speaks of a company that's been around a long time that it listed on so many European exchanges and of course it's also available in the US on the OTC over the counter market under the symbol LVMUY so no matter where you are you can buy it so let me start by describing the chart because people that's what they tune in for they love us they love stock club because they're going to hear the description of a chart who doesn't want that so the the story of the chart is one that just goes up and up and up and up and up until the 10th of july 2023 so just two and a bit years ago where the price of an lvm u y and so we're talking about us dollars here the price of a lvmh share in america on the 10th july 2023 was just a couple of cents short of 200 bucks so it went up up up up up up hit 200 bucks and since then it's gone down down down down down and it's about 142 bucks at the moment two and a bit years later it's had a bit of a trough it was down around 120 bucks a couple of months ago and it's now 140 bucks and that's just so people understand the shape of the graph and its market cap as i said at the top of the show is about 350 us uh 350 billion us dollars so let me hop in the time machine for a moment and tell the story the year is 1854 and a 33 year old craftsman named louis vuitton opens a small workshop on rue neuve de cap cn is it capsian in paris and this young fella young vitton was clearly handy because from that first shop he more or less revolutionized luggage making by replacing big heavy roundy trunks with these life rectangular ones that could be stacked for travel and trains and steamships at the time because clearly commercial aviation was a couple hundred years away so he built uh luggage that was easy to stack and his designs became really well known synonymous with quality i don't know if much luxury they probably were they were not inexpensive but it was a quality case and evidently they're very much imagine people who could afford suitcases back in the 1800s that's a very good it was all luxury you know well this is true if you're going anywhere you were well you were well got traveling was a luxury in itself oh that is absolutely true it's a good point so after louis vuitton's death in 1892 which is 38 years after he opened that first workshop his son george vuitton expanded the business internationally and introduced the famous monogram canvas in 1896 it's amazing that that kind of logo uh is so old and that was introduced to combat counterfeiting because people could see these kind of well-built cases were moving so they started get cheap knockoffs mike i mean this isn't a quiz question you've won that quiz can you picture the louis vuitton branding like in a standalone situation do you do you have a picture of it in your mind yeah it's just uh it's just an lv isn't it i see gold lettering on a brown background yeah that's kind of yeah that's what i think it is anyway while louis vuitton was pioneering so while dad was pioneering the leather goods another family enterprise was flourishing in france's champagne region and as as you said rightfully with mc moé as chandon was founded 111 years before louis vuitton was fiddling with keys to try and open his workshop going i can't find the right key um and it was founded in 1743 we're talking ancient businesses here and it was already the most prestigious name in Champagne by the time Louis Vuitton kind of was building his cases.

20:21Emmet:And conveniently for me and for our listeners, I'm going to fast forward through 228 years as if nothing happened at all. I mean, I presume something happened, but I don't know what happened. And in 1971, it merged with cognac maker Hennessy, which by the way, if you can follow this, was established in 1765 by an Irishman. Thank you. I didn't know that. I did not know. His name is Richard Hennessy. Thank you very much. So while all the other Irishmen were fiddling with whiskey and Guinness, this fella go, I'm way more upper brow than that. I'm going to invent a drink called Hennessy after me. So anyway, so they merged in 1971 with Moet and Sean to form a business called Moet.

21:11Emmet:Hennessy and this kind of boozy union created a powerhouse and luxury beverages in the early 70s. So fast forward a bit and by 19 in the 1980s Moet Hennessy and Louis Vuitton were both leaders in their respective fields and but the whole luxury industry was starting to change because more people were moving into that have more than I need category. Globalization, rising wealth in the United States and in Asia specifically were really transforming the whole operations of luxury businesses and old family firms were really facing a challenge of scaling and remaining exclusive and over the years you and I have looked at businesses that were once regarded as exclusive and through over expansion and accessibility and discounting their goods lost their strategic position um like the one that springs to mind is um michael kors like michael kors was once a very exclusive brand and then as far as i know you could buy buy it in more everyday stores and that kind of lost their strategic position but the other ones who said no no we're always priced you want to scale without losing that prestige you know what i mean yeah that's that's the trick really that's yes that's what underpins the entire luxury industry really is being able to maintain that exclusivity while still being able to grow sales every year so enter mr bernard arnaud a french industrialist who is actually an engineer and arno took over his family's construction business in the 1970s and for whatever reason decided to set his sights on luxury stuff i mean his dad was like and his mom were like okay we do we lay bricks and we melt we smell metal and we builds steel stuff and he was like i'm thinking handbags and they're like who are you but anyway he um listened to this for a berkshire hathaway like story i think anyone who knows the backstory of berkshire hathaway 1956 warren buffett acquired a a textile mill called berkshire hathaway and used it as his vehicle for acquisition and growth well this is very very similar so 1984 bernard arnault acquired a struggling textile group called brusac which happened to own christian dior and he recognized that dior had this unmatched brand equity and he decided to reconstruct the company very berkshire hathaway warren buffett moved into that textile company and said goodbye you lot we're going to do this right and that's what bernard arnault did he he reconstructed company he and revived its fashion house and he used it as a base for further expansion and he saw the future he said that the future of luxury would be built to not a single business but a portfolio of really diverse brands sharing the efficiencies back office um while retaining all this kind of creativity branding luxury out front of stage as it were so in 1987 the merger of moe hennessy and louis vuitton happened and it created lvmh and are now quickly maneuvered to become its largest shareholder and the controlling voice of the business.

24:26Emmet:Do I know how he did that? No, just the way I don't know what happened in those hundreds of years that I did a fast forward on. Not really, but it's a thing. Maneuvering to become a large shareholder is a thing. You can do it. He did it and he became a large shareholder. So by 1989, he had consolidated power as the chairman and the chief executive and got going on what really has to be said as one of the most remarkable and successful acquisition sprees in corporate history i remember years ago mike when when my wall street was only a baby um we were short listing the most the best companies that we could see for inclusion in our my wall street app and one was called haynes celestial which is probably worth a conversation on another podcast but it is a family of organic and uh um green brands for personal well healthcare and food so they have a whole pile of brands from in ireland people would recognize cully and scully soup maker that's owned by heinz celestial right through to all types of organic deodorants but at the time heinz celestial had acquired if i'm not mistaken and i'm riffing here 6 000 companies it was the greatest at that time example of an acquired that I'd ever seen.

25:46Emmet:The story changes tack, but it's only said to say that acquisition is very difficult, but when you figure out the algorithm, when you figure out the machine, it can do something great. So over the next three decades, when Bernard Arnault basically was in the driving seat from the late 80s, they, he, built a portfolio of more than 70 prestigious brands, as I already said, and as our little quiz at the top of the show demonstrated it's across fashion leather goods perfumes cosmetics watches uh jewelry wines spirits and so on actually when i was looking through the list of seven companies i actually had to i had to exclude a load that i couldn't pronounce i was like no no anyway um so as i said the list includes all the big names um well more or less all the big names and each label has retained its own personality so when you go into a tiffany shop it is so distinctly tiffany nothing has changed i presume in dozens of years that color whatever it's called the tealy color like so it each of these 70 companies stays true to what they originally were and then they get lvmh's financial strength and its marketing expertise and a global retail network.

27:04Emmet:You can imagine the logistics of being owned by LVMH become a whole lot easier. If you want to open a Tiffany store in Shannon Airport, the delivery logistics get a whole lot easier if you're owned by LVMH. So Arno believed that luxury brands should operate like a family-run business on the surface, but managed with the precision of a multinational corporation backstage. And his philosophy was, and still is, LVMH is a group of small businesses and that's exactly what it is and this approach turned out to be extraordinarily resilient so you can imagine that if there's one pocket of the business suffering leather goods for example maybe another is flourishing like whiskeys so during the 1990s and early 2000s this globalization and travel boom just went over the top and LVMH expanded aggressively into America Japan and then later on China and the rise of the emerging middle class happened coupled with global fascination with european heritage brands because europe was always seen as the home of pure ancient luxury um and it was a revenue growth rocket ship year after year after year as i said when i was describing the graph with beautiful accuracy and by the mid 2000s louis vuitton had become the most profitable luxury brand in the world it had margins comparable with the best tech firms and arnaud invested really heavily in flagship stores on the world's most prestigious shopping streets like chum delizé and fifth avenue and so on and lvmh also became a patron of architecture so it was creeping and and he they commissioned uh frank gahey to uh gary to design the foundation louis vuitton museum in paris and on a slightly related matters people who have watched the news in recent years will recall um uh bernard arnault also gave a massive donation i think was 200 million dollars towards the reconstruction of the notre dame cathedral after it burned down and he gave the group's expertise and brought in the experts so i digress so in 2010 um 2010 was an unusual forced the entire luxury industry to reconsider or its approach to e-commerce.

29:18Emmet:It was clear that the internet had happened and that the internet was where people were going to shop more and more, which was kind of hard. It's hard to even remember that there was a time when going to the internet to buy something was unusual, where now it's custom and practice. And the internet at that time was seen as completely incompatible with exclusivity. You know, if you're going in to buy a Hermes scarf, even by the way i expressed it you're going to a place to buy a hermé scarf there is more ceremony and pump because it's a luxury good so um that was kind of the thing that louis vuitton the company needed to work through and succeed at and it did it very carefully it invested in digital platforms and preserved the in-store experience online which was a massive mountain to climb and in the meantime acquisitions were really continuing at pace with one of the most significant being in 2011 where um they purchased the italian jeweler bulgari for 4.3 billion euro and it really kind of sent out a signal to the world that lvmh is intent on being utterly dominant in the high-end jewelry uh area alongside watches and in 2017 it completed the full buyout of christian d 'or couture bringing the brand that effectively launched bernard anna's career fully under the lvm page umbrella and i'm sure that was one he specifically wanted to achieve 2021 after a whole load of lengthy negotiations and pandemic delays and subjects, a very subject we debated here on Stock Club intently at the time, they closed their$15.8 billion acquisition of Tiffany & Co.

31:09Emmet:And I mean, that tuner was founded in 1837. It is synonymous with American luxury. What's that movie? Breakfast at Tiffany's. It is part of the American zeitgeist. It has such, I think, beautiful branding. It's an amazing business. And the deal was, if not the largest, certainly one of the largest deals in luxury's history. And it gave LVMH this really good foothold into the U.S. luxury jewelry market. And as you guessed it, financially, the company's growth has been staggering. Revenue has gone from about$4 billion in 1989, Bernard Arnault's early days, to over$93 billion in 2024. and its operating profit now exceeds 22 billion euro and its brands i think are 75 to 75 of them at the moment and the market cap frequently surpasses 500 billion euro making a europe's most valuable company and arnaud himself is usually neck and necker has frequently been neck and neck on the weld sticks with elon musk and jeff bezos in the title for the world's richest person and 2025 has brought a slower pace of growth um maybe i imagine the alcohol factor has to come into play here yeah yes you mean the decline in alcohol yeah like as in you're looking at similar stocks like perno and diazio are falling off a cliff i know lbmh's brands are much more luxury than that but it still has to be a big a big effect because the stock was down stock fell more than 45 i think from all-time highs in 2023 to maybe the start of this year yeah that's a fact so i am sure what revenue contribution comes from the family of alcoholic brands but certainly when you look through the family of brands i think roughly one quarter of them are luxury booze um i don't know is luxury alcohol more resilient than everyday alcohol um so like like it's funny even the brand hennessy to me doesn't scream absolute luxury it seems like uh like i don't know anyone who drinks brandy every day but maybe i'm just hanging out with the wrong people but i don't i don't know i really don't know the answer to that question but i suspect like the i remember years ago reading that diagio were investing heavily in non-alcoholic drinks because they could see the trend on the horizon at the time i thought that's crackers even though i personally had stopped drinking i don't drink anymore i thought no no i think the world is always going to drink and sure enough there is a steady decline young people are not drinking the way they used to you gotta imagine that that longer tail will become an early majority and a majority of people um and will affect those luxury alcoholic brands plus you don't buy them often you don't i presume someone doesn't buy a high-end bottle and just down it that sits in the booze cabinet you know but yes and no though like as you're looking at club culture and stuff and say bottles of belvedere sent to tables and nightclubs you know four or five at a time like that that that happens as well so that would be that could be some of the industry that's affected i love the way you knew that mike that's very interesting now but in my exposure to that is like watching the movie carlito's way it was like i'm like oh they bought wow a whole table full of booze for them i never heard of that but like just in the trends of gen z drinking less and less and that becoming uh pervasive pervasive trend in the world of alcohol and and i'm more focused on kind of well-being and health and basically turning their backs on alcohol in a way that the generations before them did not um that's a very good point that didn't occur to me to decline in alcohol so so if you're to just spin over for one second would you be a bear on diageo a pure play in alcohol i don't know it's tough it's tough to see if that if that's if that's a real like um if it's there to stay do you know what i mean it is it is actually a very interesting one and you're right and if some people would not wish to invest in a business that sells alcohol like it is a you could say by association it's a vice stock there's people who go i will not buy diazio because i don't condone any even an arm's length interaction with alcohol that might in fact be the case for lvmh there's a lot of considerations when you go into selling alcohol and i have to say i'm just under equipped on the whole view of the industry at the moment i i i suspect what you're saying is a real threat and that the luxury brands and the alcohol division will go into some kind of secular decline yeah yeah but wait to hear this from this is quite interesting from from lvmh's 2015 earnings call it's a quote from bernard arnault which i think is wonderful um he said i think over the next 20 years you'll have 80 of good years we have 16 good years and maybe there will be four bad years and out of the four bad years there will be two bad years and two very bad years and i cannot tell you which these four bad years will be sorry i'm translating from french english i don't know whether this will be this year next year or in 10 years time but one thing is almost for sure there will be another crisis he said that in 2015 that's quite i thought prophetic like he's he's basically saying that there's going to be in the next 20 years 80 % of them would be good and he said that in 2015 and he was right so the stock is kind of down 20 % year to date its intrinsic value has grown as compounded by 14.2 % annually since 2013 and Arnaud's family holding which is financier Agash I think financier Agash still owns nearly half of the business 47.6 percent of the business and he continues buying shares he is buying shares like a madman so the the i think they're like he still sees value in this in in the business and qt q3 revenue just gone reached 60.1 billion euro um and then uh kind of the the sephora brand mike what's a sephora cell that's makeup is it yeah thanks i didn't know but sephora brand um has has offset um the the weaknesses that you observed in areas like wines and spirits and management expects organic growth near nine percent and earnings per share to grow 12 annually so despite all these headwinds whether it's people are drinking less or there's less disposable income in the luxury sector or French taxes, which I believe are on the up.

38:23Emmet:Free cash flow of around$14 billion and trading less than 20 times forward earnings. LVMH could really deliver a safe 11%, 12%, 13 % returns annually for the next five to 10 years. I see it as one of those businesses that could sit there in the bedrock of your portfolio as one you enjoy owning, enjoy the fact that you can observe so many brands and that it has a 30 to 40 year pedigree, like unmatched, like really it is unmatched in strategic success. And I think whatever future problems it faces, it will outmaneuver them. Yeah, yeah. Yeah, it's hard to look past it in terms of when you think of luxury stocks as a whole, it's top of the list.

39:14Emmet:It's top of the list. Ferrari is obviously concentrated in what it does. And then you like the Brunello Cruccinelli is tiny compared to it. So there are other luxurious investments, Aston Martin and the London Stock Exchange, which is under so much debt. It's a story unto itself. So like there are definitely luxury brands you can buy into. but there's i cannot think of anything that even comes close when it comes to portfolio of pure luxury no compromises like there's no well sephora might be a little bit more every day i i i don't know i just know i've seen a store and i've looked into it um but i i like they really have an incredible to have seven 70 distinct brands you wouldn't even know i'm sure some most of our listeners didn't even know that the brands that we've discussed here on this segment were fully owned by lvmh so that almost speaks to the ability for it to actually acquire in perfect silence and let the business keep running yeah yeah now it's the conglomerate effect as well you say like say the alcohol is underperforming but then it's beauty products and sephora is is making up for that and more and that's how that's how these businesses work and that's the the joy of owning them i suppose as well i'll close with one thing uh because everyone loves me to scrap graphs um I'm looking at a graph here in front of me of EV divided by EBITDA, enterprise value divided by earnings before interest, tax depreciation, and amortization.

40:41Emmet:Wake up, everyone. It's a line. And when it's a positive number, when it's a negative number, new rules kick in. But when it's a constantly positive number, this trend line is very useful to see if it's historically cheap. A stock is historically cheap against itself. and its rivals but the reason i mention it is that the uh the ev divided by ebitda line peaked around 2020 where the the number let's just give it a number it was about 22 ev divided by ebitda was about 22 it just then fell fell fell fell fell to where it is at the moment ev divided by EBITDA is 12.9. So from a historical perspective, this stock actually looks quite cheap.

41:30Emmet:And I think is one that I would like, you know me, I don't go for safe bets. That's not what I'm here to do. You live once, you go, I'm swinging for big wins, but I certainly, I like LVMH and I like the idea of owning it. Would you buy it before I move on? um yeah i i could see myself thriving a small bit and seems like an opportunistic time it's bouncing back from a bad run there for about two years do you know for our listeners um it might be an interesting gift for your loved one at christmas rather than buying them if that's if christmas is a thing you do in your home rather than buying them a very expensive piece of tat Why not buy them shares in LVMH and go, there you go.

42:14Emmet:I bought you luxury and it's an asset that's going to grow in value. Although in fairness, I suppose a Kaiser, so say a watch is going to grow in value or whatever your man's name is. I'd like to see that negotiation after Christmas dinner. Here's your share, sir. Happy Christmas. Right, Mike. Last week, we introduced a new segment, Stock Club, called Following Profit, where you or I will spotlight one of Profit's current 10 stocks. and for absolute clarity horizon which i pitched at top of the show is my 100 bagger hunting service um long-term buy and hold and profit is a rules-based low effort system for those who just have a just tell me what to do uh approach and they want a service that is i don't want to think just tell me what to do and it always holds 10 stocks it rebalances monthly well every four weeks to be precise every fourth Friday and its track history is absolutely savage.

43:11Emmet:An entry-level broker on your phone can make all the trades in profit. And as I said last week, I will, and I'll say every week, I'm going to caveat that we are talking about a company in the knowledge that profit may sell it tomorrow. We don't know. So as with everything we say here on Stock Club, caveat emptor, right Mike, over to you. Which of the 10 actively held profit stocks did you choose to take a look at this week? I had quite an easy decision going through profit. So profit just added a stock I own. It's a former stock of the month. It was once part of the My Wall Street app and it's a business I've admired for a very long time.

43:51So in terms of, it was just added in October's rebalancing, October 10th. So going through the 10 stocks, it was an easy decision for me. Obviously, as you said, it could be sold again on November 7th when it rebalances, but the company i chose was corn main as corn main is one of the only two water work distributors in the us with a national footprint so it sells it's a distributor for water wastewater storm drainage and fire protection products uh basically sells to governments local governments municipalities private water companies professional contractors and then it is in the municipal project space like non-residential commercial projects and then residential projects as well um so it's part of a burgeoning i want don't wouldn't call it a duopoly but a burgeoning duopoly there's two companies in the u.s uh two water work distributors in the u.s with a national footprint everything else is kind of localized competitors so it's a very fragmented market but corn main and then this other company ferguson enterprise they both control a little over 20 percent of the market market they're the only ones that go across the us so it has this business model i love of kind of bringing national scale to local fragmented markets we've seen it work out so well for some of some of the all-time great compounders like watsco or riding automotive copart just one look at their all-time stock show stock charts shows why this works and so a company like coromaine is going to have huge cost advantages over local merchants makes incredibly difficult for them to compete it makes incredibly difficult for new entrants to come into the market and then it's got a and this is very particular for companies like o'reilly automato for core and maine where it's got a much deeper range of products as well um so we're talking about scale i'm talking about national scale compared to say your mom and pop shop uh core main has 370 uh locations across 49 states in the us 5 000 suppliers uh 60 000 customers it has access to over 200 000 what it calls stock keeping units which are just unique products um and many of which are actually exclusive or restricted in terms of core main or core mains distributors are one of if not the only companies that can sell these products so if you are municipality and you want to do an entire an entire project with one supplier core main is more than likely going to be the only place to go to so you've got that kind of foundation for what i think is a really strong business so it's estimated that its total addressable market is about 40 billion 30 billion of that is the u.s waterworks market i've said core main control is a little over 20 of that it says of its total time so if you add on say beyond waterworks the fire protection products stuff like that it's got about 19 of its addressable market so strong mark position kind of dominant in the right areas with also a lot a lot of room left to run which is a very strong position it's made about 40 acquisitions since 2017 and i like to see these kind of companies that have these scale advantages do that because it's only kind of further widening the gap between it and it's very small competitors you know you're expanding obviously you're expanding geographic reach it just uh is making more inroads into canada but also product reach as well so it's it's it estimates that it can improve gross margins of the distributors it buys the smaller distributors by by about 3 % straight away.

47:34So just from its relationship with suppliers, its procurement practices, all of that, you immediately come in, say there's two water work distributors in Galway, Emmett Savage Water and Michael Mahoney Water. Coromaine comes in and buys Emmett Savage Water. It immediately unlevels the playing field and Michael Mahoney Water is goose, unfortunately. And that's the way it goes. And that's why these enduring business models work so well. And it's why companies like Wattsco, O 'Reilly Automotive, Co-Party, in a sense, and Coral Main can dominate smaller local markets. Plus their water is wetter. And that too, of course.

48:13Emmet:I had to just look up. Do you know where they got their name? This is just so boring and simple. Go ahead. It got its name from the core and the main lines in the municipal water infrastructure. So literally, it's a bit like, what's your man last week? John Plant. what we call core lines and mainline call it core in main there that will do us honestly could it be more boring anymore we're a long long way from champagne and handbags with this we sure are we sure are even that i had to like neither you nor i could twig that core in main as a reference to the core in main lines and municipal water infrastructure shows how privileged a life we've had how soft those hands are soft soft hands i was about to say yeah uh so its customers are split up 42 percent of its business comes from municipalities so local governments 38 percent from non-residential projects 20 20 percent from residential products and i'm bringing this up because and this is actually probably why um it got flagged by profit as well so q2 when i started september i think it was uh results came out and absolutely wrecked the stock i think it was down 27 28 in the space of a day uh management reduced full full year guidance based on a weaker housing market and obviously a weaker housing market um in the u.s isn't going to be beneficial for quorum main is 20 for its business and i probably shouldn't say weaker housing market in a sense of it's a lot more nuanced than that do you know what i mean if you already own a house you're absolutely laughing over there uh i think home equity for us homeowners doubled from 2019 to today from a nearly double so 19 trillion to 36 trillion but if you don't own a house you're kind of boned because mortgage rates have essentially doubled since covet so that the act of going and buying a new house has become very prohibitive and now because everyone has locked in low interest rates over covet no one wants to move because they would lose that as well.

50:18So this stymies new building projects a bit, hence why Coromain is feeling the pain. And now obviously that is not a good thing, but it is by a long shot the company's smallest division. So it's stated in the Q2 report, and this ties into what LVMH was happening as well, is that the strength from its municipal demand and stability in its non-residential demand helped to offset the softness in residential demand. So that's kind of where this conglomerate style business really helps in that its diverse income streams mean that the effect of one aspect of it not performing isn't truly felt. Like I think revenue is still up 7 % or 8 % a year despite that.

51:01And I think away from the residential stuff is where the business is going to flourish anyways. So I'm stealing. So the company went public in 2021. So this is all still pretty relevant, but this is an excerpt from the company's S1. And it said, I'm reading this verbatim. The average age of water and wastewater pipes in 2020 was 45 years, up 20 years from 1970. More than 600 municipalities still use 200-year-old cast iron pipe systems, and there are approximately 300 ,000 water line breaks every year, representing the equivalent of a water line break every two minutes. significant investment is needed to close the growing water infrastructure gap an additional estimated 2.2 trillion dollars will be required for repairs and upgrades over the next

51:49Emmet:20 years sounds like an irish water works plan we're a couple of trillion short yeah well this is a 10 billion dollar company there's only two national operators here and it's talking about 2.2 trillion dollars needed for investment i was doing the quick back the knackling that so that's say if you multiply its market 30 billion dollars to say in the water waterworks system by that 20 years you get you get 600 million 600 billion so the 2.2 million dollars invested is four times its current market in just government spending which is 40 percent of the business does that make sense like isn't well it does certainly if you sit down with a spreadsheet and i'm sure a team of mbas came up with that and engineers so i don't doubt its accuracy what i do doubt is its implementability that you know like you you put a number like that out there and it's shocking evan is like oh we better do something about this but the reality is firstly no human brain can grasp the absolute economic impact of that number it just you need it spelled out to you um the second is the disruption to actually do the work they're describing they need they'd have to upend the whole of america the whole of america be getting dug up and and not only that but like given how polarized politics has become as well in the us in particular like huge investments in water pipes would be scrutinized to death depending on who says it first you know what i mean yeah but but underlying that is that these this is mission critical elements to how a town or a city is run.

53:29You know what I mean? Sewage lines, drinking water, wastewater treatment, storm drains. If they fail, and they do fail regularly, it causes carnage. So there's no -

53:38Emmet:Carnage, absolute carnage. Facility number one every human needs is clean water in, still water out. Whatever your system is, that's the first thing to humanity. 100%. So there's no denying the importance of a company like Cormain. And I think because of the moat it somehow build with the barriers to entry the fact that it's very hard to replicate its scale from new competitors there's only two between it and ferguson there i believe it has the the ability to kind of experience sustained demand for that 20-year period without much um coming in and affecting it i think that's the main reason why i own it i think the fact that it's still 20 below low all-time highs it's sitting at just over 20 times earnings makes it a very interesting entry point for right now uh it's not going to be it's not going to be a face melter it's got long-term forecasts of long-term forecasts are two to four percent market growth two to four percent organic growth and then two to four percent from acquisition so six to twelve percent revenue growth uh you know is the kind of range it's targeting it's not that sexy but it doesn't pay a dividend that's what I'm looking at here.

54:50I imagine not. No, especially if it's investing so much in your acquisitions. Well, it's funny because you're right.

54:56Emmet:Usually because of the ownership of a business by pension funds, there's a pressure on them to pay a dividend no matter what they need the cash for, especially utilities. It was quite interesting. Now, I wonder if Ferguson, their best friends pay a dividend. Ferguson is a much bigger company. Yeah, it is. It's way bigger. And they do. They pay a dividend. Yeah. Interesting. Yeah. Yeah. So that's Coramane. And look, this is obviously all said with the fact that in two weeks time, November 7th, that profit can go and sell it and bank whatever. It's 6%, 7 % gain that it's locked in. but uh i was glad to get the opportunity to speak on the stock that i own on podcast and the reasons for why i own it because i think very much um it has defensive capabilities there i think it's hard to disrupt and it'll be a mission critical part of governments the country the economy whatever else you want to talk about like this is the the literal plumbing of that yeah it's very very very important aspect and it needs a lot of attention and detail that probably isn't getting enough of nice pitch and you know i specifically uh like when i see a company in profit that i also like as part of my qualitative analysis process so i've gone through every stock profit ever recommended just a visual there's too many to actually dive into but every four weeks there's been 10 stocks measured for 17 years and i've gone through all of the names on a giant spreadsheet and i do like when i see one that i've personally bought um but what always intrigues me is it sells way before i would have sold or indeed have sold so that's what makes i think it specific especially interesting the fact that you found one that you like that was stock in a month that has great prospects for whether you hold it through the profit duration of holding or indeed for the long term it sounds like a good one to put in the bedrock of your folio perhaps alongside lvmh for sure couldn't have two stocks further apart from each other sewage pipes and uh high-end champagne and watches but so if you could only invest in one of the two companies a thousand euro which would you put it into it's an obvious one for me i already own shares in corn main but i'm interested to hear what you say i think i'd go lvmh i think it's oversold and I think it's just going to deliver a solid 12 % every year for the next 10 years.

57:28Wouldn't turn your nose up at that, right? All right. Emmett, thank you very much for joining me and thank you everyone for listening. We'll talk to you next week.