#287: 2 Stock with 10X Potential From Across the Globe

0:00Businesses are coming onto the public markets larger and larger and larger in the US. Airbnb went public at an$80 billion valuation. Uber went public at 50 something. These European companies or these international companies don't have that same access to the venture capital and private markets. So they have to go to public markets for their investment. So not only are we getting bigger potential, smaller cap and like way more of those type of companies in international markets, but they're not being ring fenced by venture capital, by private markets at all compared to the US. And this is another reason why there are so much green shoots in international markets.

0:42Emmet:Hey, Mike, how are you doing? I see there's a big outage with Cloudflare as we record. I was literally just about to say, we're lucky to be up and running on this. It's kind of everything and anything was down, isn't it? it's kind of like when crowd strike struck and the world shut down earlier on i went i just noticed some website i went to is like check your cloudflare and i thought it was at my end um and then lo and behold website after the other i found was all fair and then i heard you and france were rebooting your wi-fi i was there i was there at the modem for about 10 minutes before i realized it wasn't uh it wasn't my fault which is a good thing i guess yeah actually i thought it there was there was a comical moment where our cto sent around cloud flares outage uh tracker where you can kind of see the meantime to fix and it also was hit by an outage because it was being powered by um atlassian's trello so it also said our outage page had an outage as a result of their outage it was like some kind of episode of the matrix the same with that uh down detector do you know, down to tech.

1:51Oh yeah. So that's down because of the cloud layer. It's funny when it's a business, like there was an AWS crash maybe last month or two months ago or something. And kind of everyone has some idea of, you know, how extensive and important cloud servers in general are, but they're dominated by the big companies. But when it's a kind of lesser known company, like Splash CrowdStrike made two years ago when it had its outage and like seeing the company that the average Joe non-investor wouldn't know a thing about in Cloudflare. And just its kind of general importance to tech infrastructure and kind of what we base our everyday lives on nowadays.

2:31Do you know what I mean? It's funny. It actually harkens back. Did you remember we had on Investicon, we had Eric Bleeker, and one of his picks was Cloudflare and he called it the toll booth for AI? That's right. Yeah, he did. I was thinking about that quote when we were seeing all the apps and everything down today.

2:50Emmet:That's right. Our CFO, Hazel, just sent a slide going, chat GPT is all fair. And I'm like, hold on, you're a CFO. You're not meant to use chat GPT. I think everyone's using it now. I know it's protected as that for sure. For sure. Absolutely. But definitely it has identified a window in the market for outage detectors for outage detectors. did that land very very niche but let's look into it hey let's do it why not so um oh yeah i'd like to start by telling our customers our lovely listeners to open apple or spotify and click on the subscribe button it won't hurt you one little bit folks it won't affect your life in any negative way whatsoever only positive so um that's always i'm going to start every podcast by just saying subscribe to our podcast.

3:46Emmet:It helps us in mystical, magical ways. Absolutely. Okay, so today we're going international with the whole episode, essentially. So we are launching Nexus 3 next week. Yeah. That might be news to some listeners, to subscribers. I guess this is where you'll hear of it if you haven't been emailed already. But Nexus 3 is going live next week. It's a really exciting product based on international stocks you won't find anywhere else. And its role is to discover these hidden gems, essentially. And I would be so impressed, even looking back at Nexus 1, Nexus 2, and the stocks we have in store for Nexus 3.

4:23I would be so impressed if any investor had heard of these businesses before. Maybe with Nexus 1, some have become a bit more mainstream since then. But just finding these kind of businesses, you won't get at valuations that don't really exist in the U.S. anymore.

4:41Emmet:I couldn't agree more. yeah before we get into before we get into you're going to break down like kind of what nexus is and everything i just wanted to go into um go into the kind of reasoning and the importance of not being completely dependent on the u.s in terms of stocks i think just to talk like really quickly about international versus the u.s if you're listening to this right now i imagine your own portfolio businesses i think it's fair to say that the vast majority of those businesses are u.s based. Obviously, big businesses, they have operations all over the world, but they trade in US dollars, they're dependent on the US economy, and they're overseen by US regulators.

5:18They are US businesses. And for the last 10 years, last 15 years, it's been an incredibly good time to own US stocks. They've outperformed international stocks by a distance, completely dominated like public companies as a whole. I think over 50 % of the global market cap is now American. So say the 120 trillion plus dollars of public companies around the world, half of that comes from the US. NVIDIA, Microsoft, and Apple are larger than the Japanese and German economies combined. And I say Germany and Japan, because they're the third and fourth largest economies in the world. You know what I mean?

5:51This is tech related and the AI trade, as Stephanie has exacerbated it in the last couple of years, but just going into like, you know, kind of where it diverged, I suppose, the EU and the US were neck and neck around the time of the great financial crisis. But the difference in supposed regulations and access to capital kind of stifled innovation in Europe and rewarded it in the US, which was the big difference. That's where Silicon Valley came, where all the venture capital money went. And you're seeing the kind of fruits of that labor 20, 30 years on from that. But I suppose that's the reasoning.

6:25We're not really here to talk about that. The point of this is that these things are cyclical. proven to be cyclical. So going back 50 years, it's kind of been tit for tat between US outperformance versus international outperformance when it comes to stocks. International has dominated the late 80s. The US was completely dominated for pretty much all the 90s, especially in the build up to the dot-com bubble. International stocks absolutely outperformed throughout the 2010s and then since then. So since the kind of rebound from the great financial crisis around 2009, It's kind of been the longest period of outperformance for the US, about 16 years.

7:03And in that kind of time period, we're just waiting for a catalyst to arrive because with these cycles, there's always a catalyst that kind of ticks it off. A lot of people thought in April, the Liberation Day and the isolationist policies looked kind of like, oh, maybe this could be the trigger here. You know, we saw, especially at the start of the year, European stocks in particular really outperforming. There was a new attitude towards spending in European countries, especially around defense, but across the board and infrastructure and everything else that looked like, oh, maybe this might usher in a new outperformance kind of cycle.

7:42We haven't seen that. We've seen a complete bounce back from U.S. stocks. They seem to be impervious right now. but now we're talking about say AI bubble talks there isn't any reasonable valuation whatever it is, there will soon be some form of catalyst and we will see international stocks outperform again when that is, I'm not sure if I knew that I would be getting paid a lot more than I am now but the important thing I think from this little mini rant is just that I think it's an incredibly important time to look at your portfolio video, be kind of quite frank and blunt with yourself and see, does it need international diversification?

8:23Because I think becoming less US centric in the stocks you own is going to be very important in the next decade on. I think Goldman Sachs actually just published a report and it says that they think international stocks will outperform the US over the next 10 years. So yeah, it's a bit of just kind of exercise in self-reflection and seeing actually where they're completely dependent on one economy because there are over 60 ,000 public companies out there. There are hidden gems to be found and that's what Nexus is trying to do. So that's where I'm kind of bringing this back to Nexus 3 and the launch.

8:58Emmet:And I think that's a great segue because you and I just last night decided we were going to each pitch an international stock from a previous Nexus publication. And I think it's going to be a really interesting podcast with two outstandingly good ideas and just to i suppose dovetail to the points you're making i think our long-term listeners and valued subscribers know that two years ago we launched nexus one and last year we followed on with the imaginatively named nexus two so when we sat down to decide the name for nexus three it took a while it was a couple of days workshopping but we thought we'd just stick at three at the end now to remind people just are for those who don't know um as mike explained evidently it's our it's our global stock discovery engine and when we conceived the product and the idea and spent 18 months to two years developing it it was the fact that there's about 60 what we qualify as first world stock exchanges that are just this not disregarded but not fully regarded in day-to-day conversation activities we talk about the magnificent seven in the S &P 500.

10:11And by association, those 500 companies and the other

10:15Emmet:ones we discussed are either listed on the New York Stock Exchange or the NASDAQ across the road in New York City. But there is a lot of great companies that have never gone near those two stock exchanges. And what we've remembered is a stock exchange is just a grocery store, or as we say here in Ireland, a supermarket for businesses. But the greatest, like LVMH, which we discussed here in the podcast a few weeks ago, is an example of a global mega-branded giant that has floated almost everywhere except the US. So we took a look at these 60 plus, maybe 65, 66 exchanges to identify potential market leaders and index beaters or whatever you want to say.

10:58Emmet:And we used AI, who isn't anymore, but back in the day, we had a very cutting edge and have a very cutting edge AI system. Very sophisticated screening, which is the traditional way one goes about finding great businesses. They start screening for stocks. So we stuck AI and screening together. We have constantly refined it. And most of all, we've taken expert counsel from a team of advisors, most of whom have been interviewed, or many of whom, not most of them, but many of whom have been interviewed here in Stock Club like Bill Mann and Chris Mayer and so on. And we have a load of other clever people who have created vast wealth through stock investing who have looked over our shoulders.

11:39Emmet:Now, every stock in Nexus gets a Nexus score, which is a score out of 100 that blends quantitative metrics, those kind of metrics that can be expressed with a number like return on equity, return on equity trend, return on invested capital revenue growth insider activity peg ratio and other ones they're all numeric factors and they get a 30 percent weighting and then we combine those with qualitative human assessed factors such as the moat we assess the moat the business has the management the culture and there is a very strong correlation between a high score in nexus and a subsequent performance we can now say because we had nexus one and two so you and i max uh mike and our our wider i nearly called you max you and i max um we need to get a max that's a great name max returns if there's a max returns listening we want you on our podcast so you and i max and our wider advisors have definitely given the green light to the first batch of stocks for nexus 3 which is going on sale next monday and here's all you need to know about that folks are you listening carefully when you subscribe to nexus 3 you will also get nexus 1 and 2 included so while you are opening nexus 3 like it's christmas day you also have all these other presents to look forward to because the day in the sun is coming for the vast majority of those nexus 1 and 2 stocks so you're immediately getting three of the services bundled into one for half price yes you heard it here first you heard it first here you heard it right we are going to offer nexus three for half price which is 999 and for that you get nexus one nexus two and obviously nexus three which is what you're subscribing to for half price for limited period email frank to guarantee your discount frank at my wall street that's mywast.com and we we as i said last week we own mywallst.com but i don't even know if we look at that so email frank at mywallst.com and you will guarantee your discount and that's all i'll say about that because i look through the stocks of nexus one and nexus two and they are bangers they are face melters so you and i decided to each pick one from either nexus one or two i think you went with a nexus one stock and i went with a nexus two stock we're going to pitch them to each other and at the end we're going to decide mike if you had 10 grand how would you split it between the two stocks that were pitching at each other yeah yeah so i'll kick it off with uh nexus one's best performance stock so far which was medcap and i'm not sure now that's kind of uh neck and neck every second day between another stock we've actually mentioned on the podcast i think um must be two years ago at this stage so if you are a really eagle-eyed listener you can go back and get that but i won't give away the name of uh either the best or second best performer nexus one here uh because if you sign up you'll find it out you're about to give away the name of one of the two exactly i don't want to give away too much basically i hear you slightly stingy uh and i think the one you're about to pitch is an absolute face melcher but go go go i can't wait to hear this so the company i am pitching is medcap um oh yeah yeah if you're getting very excited it's a very boring i am i love this stuff it's a very my style kind of business so medcap invests in small medium size niche companies market leaders in the life science industry it has three distinct areas of focuses on so medtech specialty pharma and assistive tech target companies for acquisition which kind of have a similar similar makeup in a sense so you'll have a strong management team with hopefully a majority owner basically you know a founder ceo who owns over 50 of the business a very clear vision for the future a competitive advantage in a niche market and with the potential to grow internationally it focuses on companies in northern europe so mostly scandinavia about 50 the revenue comes from sweden 25 from the other nordics and then the rest based around the uk and europe and i think worth me interrupting because you happened our listeners will deduce perhaps that it is in fact a Swedish company yes very much so I don't think you I don't think you said that you said 50 % of revenue will come from Sweden but Medcap is a Swedish company probably on Nasdaq first north up in Stockholm yes and you know we've talked a lot about how much we like Swedish companies I think it's a country that breeds investors and because of that it gets actually a lot of these style of companies as well, where it's essentially a kind of holding company run by investors and set up.

16:59So set up to invest in, if that makes sense to people. It's kind of a, yeah, I'll give you my money. And I know that the management team is basically investors. They're very focused on returns on investment. And so it takes the pressure off of me monitoring it in a sense, which I do appreciate. But just going slightly more into their investment process. So it focuses on businesses that have sales of less than 50 million a year, doesn't target public companies, and it also doesn't want companies early on in their life cycle. So it wants plenty of cash flows, plenty of profits, not really just potential on a promise just yet.

17:36And that fits in with the wider business model as well, because it takes those cash flows and reinvest them into the portfolio of businesses it has. It's a small business, it's less than a billion dollars in market cap. And I'm going to get into this a bit later, but what I love about this is that It's a very proven business model. We've seen these kind of businesses work. They look a bit like Investor AB would be the classic in Sweden. It's kind of seen as Sweden's answer to Berkshire Hathaway. It's a$100 billion business right now. Lifco is another amazing business in Sweden that started out small scale and managed to use this serial acquire business model to just kind of grow and accumulate and snowball effect and start rolling downhill.

18:20and so when you see a small business with the same potential with a similar early track record with the promising management team that has strong capital allocation skills you get excited and that's why it is in nexus one that's why it's actually one of the best performers in nexus one it's about double since we added it to the service um but what it does differently to maybe a lot of companies i mentioned there and a lot of the companies you talk about on the show in general is that it actually is a very active owner in its portfolio companies. So it says it'll create a new management team when it needs to.

18:54It's happy to work with co-owners and founders as well. But before investing in a business that outlines a very clear strategic plan it has for that business under Metcalf's ownership. And then this can be enhanced then with the classic synergies of joining a parent company. So extra capital for expansion or the use of Medcap's network or contacts or even like synergies with other portfolio companies if it wants to share manufacturing, if it wants to use its network, if it wants to upsell to other customers. And it's also actually not afraid to make acquisitions for that acquired business, if you know what I mean.

19:28So if it buys Emmitsavage.com and Medcap thinks Emmitsavage.com will benefit if it buys MichaelMahony.com, it'll do that. This is a kind of rushing nesting doll of sorts. So Abilia is one of its largest holdings. It's an assistive tech company. It's actually been strengthened by 10 acquisitions in its history. So there are, I think, 13 portfolio companies under the Medcap banner, but it's made 35 acquisitions in the past 20 years. So that gives it kind of taste of what we're working with here. Yeah, I talked about the decentralized ownership structure and why MedCap is going a different way. I think at MedCap scale right now, we've mentioned it's about$700 or$800 million market cap, 13 businesses.

20:16It can exercise this hands-on approach a lot easier. When we see this business in 10, 20 years, which very much hope it will last that 10, 20 years, and maybe it's a$10 billion market cap and it's got 130 businesses, we may see that change. You know what I mean? Like as in it's a lot easier to manage a decentralized structure when you're that big. And this is what it comes down to as well. When like these companies scale, the difficulties arise in being able to keep up that acquisition pace and being able to the acquisitions to have the similar effect on a business. Because if you add a business, if you are a 700 million, 800 million dollar business and you add a business bringing in 50, million euro in revenue that immediately makes a big difference to your top line do you know what i mean but if you are a 10 billion dollar business and you add 50 million revenue it's not going to make the same effect so that that's the that's the challenges that's up ahead of it um so far in 2025 we've seen three acquisitions which kind of gives you an idea of the scale the portfolio businesses are continuing to deliver a strong organic growth which is very important for a whole host of reasons obviously but when you have that combination of organic and inorganic growth working together can make that fly effect, flywheel effect for a business.

21:38It's a very strong business model. If management can show that they have a strong regular capital allocation, which we know they do so far anyways, it's a very clear and transparent growth strategy, which I love. That's why I love seeing these businesses at a small level. Do you know what I mean? because the potential is there, the road is there, and it becomes an execution question. So, yeah, that's the things I kind of really like about Medcap at its kind of core. You know, if you go down to like its most basic, the first principles, thinking levels, smaller companies are just able to grow much faster.

22:16So if you see a business like this built with all the kind of architecture for that kind of growth long-term, but it's at under a billion dollars. Yes, there's huge potential there. So that's what I like. And then, yeah, just going into performance so far this year, because obviously it's been the best performance for Nexus One. It's about nearly doubled in the two years since we first pitched it. But it's actually been a stressful two years in that time. It's kind of a testament to the buy and hold strategy. Surprisingly difficult stock to own, given how successful it has been.

22:52Emmet:So that's interesting. Tell me why. So 2024 was all roses. An easy stuff, I think, 120 % in the space of a year. Me and you were geniuses for picking it, you know, Buffett and Munger reincarnated finding stocks you've never heard of and watching them rise. It's an easy job. But then at the start of the year, so say from January of 2025 to April, stock is basically cut in half. So its specialty farmer division got absolutely decimated in Q4 of last year. to encoding this significantly lower earnings thanks to increased competition on the British market for melatonin. So that gives you an idea of the scale we're up and running at.

23:30But essentially, margins got compressed. There was inventory write-downs. And it was a big shock to the system because this stock was just up, up, up. It was the only way. So to see that getting cut in half in the space of a couple of months, I think it let out a preliminary earnings warning in the middle of January and the stock fell about 40 % in the space of a couple of days. And like these kind of dramatic shifts, I suppose it is a micro cap, so you can be expecting this kind of volatility. But from then April to August, the stock doubled in the same space of time based off strong performance from assistive tech and med tech.

24:11And I guess that's the beauty of the diversified business model is that the underperforming area doesn't have to be the entire pie. And other parts of the business that are not attached to it and wouldn't be affected by the macro factors affecting one aspect can bring it back up. And that's all we saw. And so that's the beauty of the business model shining through there and that it's diversified enough for the parts that are operating well to make up for the parts that aren't. So Q3 of this year, we're back in growth mode, strong organic growth and a few acquisitions, helping that. Sales growing at 20%, profits growing at 32%.

24:52And it kind of recapturing a lot of that momentum from 2024, which is very important. And probably the best thing to come out of kind of its investor relations deck is its long-term targets, which I love to see from any kind of business, but especially a small one like this. So it has a long-term EBITDA CAGR target of 15%. So basically it thinks it's going to grow its earnings 50 % year on year and year on year on year. And it also is going to try to maintain return on equity above 20 % every year as well. two really strong targets. And two really, I love seeing companies focus on return investments in their long-term targets, because not all the companies do.

25:35They focus on sales growth or the focus on profits, but that return investment, how we spend money is the ultimate grade for a management team, especially for a business like this, which is investing in other businesses. And so to see that return on equity figure stay above 20 % for the next decade, any company that does that for long enough is going to be a winner. It's just do that and we'll all be happy or keep doing that. I should say, because it has been doing that in spite of what is quite a volatile year in 2025. So that's Metcap. I'm a big fan. I like the structure. I like the size. I think it's got big potential and yeah, that's all I got.

26:15Emmet:What's not to love? Honestly, everything you said there is like music to my soul. You've got a business with a basket of 35 businesses, each of which was chosen because the management team had a view that they are going to outperform the average returns and they will get a couple wrong but overall in the basket of shares and that basket is going to keep growing the fact that it's still sub a billion is huge and to state the bleeding obvious as they say around these parts like a company that has a billion dollar market cap if when it grows to 10 billion this is really investing 101 the share price has grown tenfold.

26:52Emmet:So just for those people who are very, very new stock investing, market cap and stock price are a proxy for one another. So if a company's shares go from$10 to$100, its market cap has also grown tenfold. My point, I suppose, is that a small business, small businesses grow big and big businesses, well, they can grow bigger, but it is easier to grow from a position of um large a large small cap is about a billion somewhere between one and two billion then moving into mid cap but businesses at this size the size that you have pitched mike have the greatest chance of 10xing and that's not just an opinion that's based on data and i think that's also a nice segue into the stock that i'm going to pitch because coincidentally it is also just sub a billion in market cap as well so the two businesses we're about to pitch are effectively neck and neck in size but i think that's where the comparison ends and i'd say i'd like to make a point just before you get in there because you reminded me of something and this has been a trend that's happening more and more i think because of how lucrative the uh private markets are in the u.s so private equity and venture capital and everything else is that businesses are coming on to the public markets larger and larger and larger in the u.s airbnb went public at an 80 billion dollar valuation uber went public at 50 something these companies would have been public companies and investors across the globe would have been able to invest in them 20 30 years ago that's not the case anymore but what is the case is these companies don't have that access these european companies or these international companies don't have that same access to the venture capital and private markets so they have to go to public markets for their investment So not only are we getting kind of bigger potential, smaller cap and like way more of those type of companies in international markets, but they're not being ring fenced by venture capital, by private markets at all compared to the US.

28:54And this is another reason why there are so much green shoots in international markets. But sorry, go on.

29:00Emmet:It's true. And it's a very important point to make because to find a great business that's still relatively small is a little bit harder. and i know i've espoused so many times on this podcast now i bought netflix when it was a couple of dollars in size well if netflix was born five years ago and it does no way it would have floated at this stage whereas it had great example it is and the same goes for amazon and they're right they are out there there are there are still great businesses that have recently listed or ipo'd that will grow 10, 20, 50 and 100 fold. It's just, you have to look harder to find them, I think.

29:38Emmet:And I am a big fan of MedCap and I love that pitch. Okay, so what have you got for us? Well, as I said, my pick is quite different to yours. It is a Bulgarian business and it is headquartered in the beautifully named Sofia in Bulgaria and it is called Shelley. the shelly group and it is a technology company specializing in the development and the design and distribution i need another d development design distribution and discombobulation of the delegation thank you deli of the internet of things iot which feels like a very 2010 thing to talk about but it is very much on our lap now 2025 26 um and smart building solutions for both DIY users and professionals.

30:31Emmet:So the business was founded in 2010. And I'll explain what it does in a moment and has expanded its presence to over 100 countries worldwide with offices in Bulgaria, obviously in Germany, Slovenia, China, and the USA. And it's positioned itself as this major player and isn't just positioned as it is a major player in the IoT, internet of things and smart building solutions. So what I would also say before I dive in, I'll tell you that it's scored, it's Nexus score in Nexus 2 when we published it just over a year ago was 90, which was the highest I think we'd seen since launching the service. Now we actually have a higher one coming up in Nexus 3, but it was, it had a score of 90 and that was pretty.

31:23Emmet:actually two uh in nexus 3 that are in the 90s oh yes oh uh honestly uh i was getting my broker ready for one of them we never buy a stock in my wall street before it's published we don't front run anything but when i read the write-up i was like no please take my money um but anyway sorry but come back to to shelly it's up 70 since nexus recommended it about a year ago and to be honest I think it's only starting. Now, when you go to their website, it's a veritable treasure trove of domestic rooters and gooters, which caused the average eyeball to glaze over in three seconds. But when you watch the little video there on the website, you quickly find yourself saying, I want that.

32:09Emmet:That's what I want. That would make me happy. I'd be a happier person because it shows a smart home where the lights go on and off as you move from here to there and a lovely app and all the things that, let's say, an up-to-spec home should have. And basically all the homes will have. So curtains and blinds closing at night and lights going on if you're out of the property and so on. And interestingly, a couple of weeks ago, I was served up a few ads on TikTok for Shelly. I didn't have any cookies for Shelly in my phone. And like with respect, it looked like it was made by the Russian army, they were on tea break um there was this 200 kilogram block of muscle telling me about the latest shelly router and guter and looking into the camera and it just knew i'm a 50 year old dude who just likes stuff but anyway i was like wow that is a remarkably bland and unappealing ad here take my money so anyway so they do things and if you want to have a look at shelly's website good luck to you because you will you will see all types of switches and things that you have to screw wires into right or uh or plug into your plug and then sync with an app but we're all going to do that and as we said back in nexus a year ago it's selling into two rapidly expanding global markets the internet of things and smart building solutions the first of those the internet of things um is estimated in multiple papers that you can get online um to grow from approximately 1.4 trillion dollars in 2024 and grow at a compounding rate of up to 25 per year till 2030 and that type of industry industry growth is crackers like to find an industry that's just going to grow 25 solidly for the next five years is one thing and then the other industry they're in which is the smart building solutions market uh which includes all things to do with energy management and automation and security and connected infrastructure and everything being plugged in together and available to the people who are meant to watch these things um was valued way smaller in 2024 which is when nexus 2 was launched and um it was valued at about 100 to 120 billion dollars and is expected to compound at around 13 for many years to come so the first point i'm making is that the router and guter market for shelly's stuff is growing in the two segments that is targeting which is people who are doing it at home and people who are doing plugging their stuff in in offices so they're going after this massive market with smart products that are easy to use and simple to set up and help people save energy and make homes more connected and customizable if you think about it everything now is controlled from the phone and i think one's home is a laggard maybe with the exception of the ring where you can see who's at the door if you've got a ring doorbell but i don't think people have their home as wired up as technology allows them to.