This Sale Won't Last – 5 Stocks Worth Buying

[00:00:00] Speaker 1: Lucky for us, a couple of weeks ago the market had gone on sale. The corrections hit, and some of the best businesses in the country got marked down pretty hard, and a few of them have already started to climb back up. So this window, well, it's not going to stay open for long. But there's one that I want to start with. So this company has $638 billion in signed, contracted revenue, money customers are already on the hook to pay, and the stock is still trading 57% below its high. So it seems like the market is ignoring these receipts because this is exactly the kind of company that I'm here to talk about today. So they're going to be best-in-class businesses that happen to be on sale that Wall Street just kind of sort of got bored with. And I don't want to waste your time. So hey, I'm Brian. If we haven't met before, I retired six years ago at the age of 46 after a corporate career with Target and Amazon and being extremely smart with my investments. And now I want to turn that hobby into something that I can at least share with you. Because having freedom over your time, it's the best thing there is. Now, before I just start rattling off names, here's the one idea that makes this whole video make sense. Most stocks trade on a guess. Wall Street estimates what a company might sell for the next year, and it prices that stock on that hope. So the moment the market gets a little bit scared, it stops trusting that guess, and good companies happen to fall pretty hard. But a few companies don't just trade on a guess. They trade on a receipt of contracts. So when a business signs a customer to a multi-year contract, that revenue gets booked before a dollar of it is actually collected. That's money the customer is legally on the hook to pay. And the companies that I'm buying right now are priced as if that money isn't even there. Which brings me back to the company from the top of this video. The one that's sitting on that $638 billion of signed revenue. And it's Oracle, the database company that your bank is probably running on. And here's why that number is the whole story. A year ago, Oracle's contracted books at around $138 billion. Today, it's $638 billion. And that's not a typo. It grew more than four times over a single year. So to put $638 billion into perspective, that is roughly what Nvidia, the company at the center of this entire AI boom, that's what it was worth back in 2021. So that was their market cap. And Oracle isn't valued at that. That is just the contracts that they already signed. Unfortunately, most of it came from just one deal. And it was a $300 billion agreement to supply computing power to open AI over five years, which is about $60 billion a year, roughly the size of Oracle's whole business today. So a single customer is close to doubling the entire company. Now, here's the other side, because there's a little bit of a catch. To deliver all that computing, Oracle has to build the data centers first. And building, well, it happens to be pretty expensive. In fact, their construction spending went from around $6 billion a quarter two years ago to roughly $16 billion a quarter right now. So that's about $55 billion across the entire year. And sadly, that type of spending completely flipped their free cash flow negative to around $24 billion in the red. And it's a swing of nearly $60 billion from where it was just two years ago. So it goes without saying that Oracle is spending an enormous amount of cash today just to fulfill contracts that pay out over the next several years. Which it then brings us to the real question. If Oracle is sitting on the biggest order book in its history, why did the stock fall so hard from its high? Because a year ago, that open AI deal, that's exactly what sent it to that high. When the deal was announced, the market added nearly $250 billion to Oracle's value in a single day. That happens to be its biggest jump since 1992. Then, of course, the honeymoon phase wore off, and then the mood completely flipped. Wall Street did the math and they realized that close to half of that book leans on a single customer, OpenAI, which loses money and hasn't gone public yet. And this is all happening while Oracle borrows to build for them, and its cash flow is now running negative. So the same $638 billion that was treated as an asset on the way up suddenly got re-read as a liability on the way down. So is that fall justified? Part of it, honestly, yes. If you're building on debt for a customer who might not pay, that contract is only as good as that customer. And I'm not going to pretend that the risk isn't real. But here's the devil's advocate, and it's almost absurd. The day before the OpenAI deal, Oracle was worth about $241 a share, before a dollar of this book even existed. And today, it's down roughly 40% from that, even after signing $638 billion in contracts that are sitting on top of it. So let's say we go ahead and strip out OpenAI completely from the books. Even then, you're still buying a bargain, because you can still buy this whole company for a lot less than what it cost before that deal ever happened. So for my money, Oracle is a business that the market just got a little bored with at exactly the wrong moment, because they're really cheap on the sales that it's already made, while it spends to lock in the sales that it's about to make. Like right now, I'm accumulating it slowly, on weakness, in small pieces, because the chart, well, it's still a little broken, and I'm not trying to call the bottom. But the receipt, well, they happen to be real, and I'd rather own it while everyone else is just staring at the price tag, not knowing what to do. Now we'll move on to our next company, and this one is a completely different animal of Enodata. So here's the one idea to hold on to. In a gold rush, you can bet on the miners, or you can sell the shovels, which I talk about in many videos. Because every AI company on Earth, OpenAI, Google, Anthropic, all of them, is racing to build smarter models. And to do that, they need one thing above all else, and that happens to be enormous amounts of clean, labeled, human-checked data so it can train on it. Somebody has to build out the data. And it doesn't matter which model is going to win the race, because they all buy their shovels from that same shortlist of suppliers. So what exactly is Enodata? Well, it's a small company worth about $2 billion that has quietly become one of the go-to data engineers for big tech's AI. They happen to be a neutral shovel seller that's sitting in the middle of the biggest gold rush of our lifetime. And something happened last year that made being neutral extremely valuable. So Enodata's biggest rival is a company called Scale AI. And Meta paid around $14 billion for roughly just half of it. So to put that into scale, Meta spent about seven times Enodata's entire value just to buy half of one of its competitors. And of course, its other customers think Google and OpenAI, well, they started to pull their workload away from them. Because no lab wants to hand its secret training data to a company that's half-owned by a direct rival. So suddenly, overnight, independence just went out the window. And what used to be just a little footnote for Enodata suddenly became its single biggest selling point. And of course, the business is booming. Revenue grew 58% just last quarter. Its 12th straight quarter of growth, with management guiding to at least 40% for the full year. And of course, here's the part that I like most. A year ago, one giant customer was more than half of everything that Enodata sold. Today, that same customer is down to about a third. And it's not because it shrank, but because so many others grew around it, including a second big tech giant that went from almost nothing to nearly a third of revenue in a single year. So picture the one customer who used to be the whole story. Well, now they're just one of eight seats that are sitting at the table. Now to the flip side, which is very real. And this is a small company, so the stock can swing very hard in either direction, and it's not a very cheap buy. And it trades at around 46 times its earning because everyone can already see the growth. And on top of all of that, the people betting against it are betting loudly. Short interest sits near 14% of the shares, and it has been climbing very fast. So when you're like me and you're buying Enodata, you are buying the right shovel seller, but unfortunately it happens to be in the choppiest corner of the market. So why exactly did it fall from half of its high? Well, it's not because the business broke. It just posted its best growth yet. Honestly, I think it fell for three very plain reasons. It's a small, fast-moving AI name that gets sold really hard whenever the market sours on anything AI. And of course, short sellers piled in, betting the growth is going to slow. And of course, it didn't help that its own executives began to sell a chunk of their own stock near the highest of highs, including the founder, CEO, cashing out at around 24 million dollars. And some of that is very fair because 46 times earnings is a very rich price. And insiders selling into strength is a real yellow flag, but none of it is a crack in the business. It just happens to be a re-rating of the mood and the price. So overall, the machine underneath isn't broken. And that short bet has a little bit of a flaw in it. The one thing they're leaning on the hardest is that InnoData depends too much on a single customer. And that happens to be the very thing that they're fixing the most. Because like I said, that customer has gone from more than half of the company to about a third in a single year, while the rest of the big tech just keeps lining up behind it. So how exactly do I play this? Well, InnoData is the highest risk name on my entire list, and I treat it exactly that way. I have it as a very small position, so the kindest size so that a bad month never really hurts you, because this stock is going to be violent either way, up and down. But it is that neutral shovel seller in an arms race that isn't slowing down anytime soon. And I would rather own a little of that than none of it at all. And when quality names go on sale, well, the real tell isn't always in the discount. Sometimes it's who's buying it while everyone else is looking away. And someone who has mastered exactly that is Howard Marks, the investor that Warren Buffett drops everything to read. That brings us to the portion disseminated on behalf of Mayfair Gold Corporation, where Marks and his Oak Tree Capital own roughly four and a half million shares. And Mayfair, well, they happen to be the only pre-production gold stock that Oak Tree holds. But the ownership picture is the standout. Insiders hold about 35% of Mayfair. Institutions, another 28%, and high net worth investors, 20%, leaving less than a fifth for retail investors. And they all keep buying. Insiders have put around $20 million into their stock in just two years. And the CEO recently added another $400,000. And Carson Block's Muddy Waters, well, they hold north of 17%. So what exactly are they buying? A developer climbing the Lassonde curve. The Fen Gibb Project in the Trimmins Gold District just posted a pre-feasibility study with an after-tax value around $652 million Canadian, a 24% return, and first production targeted for 2030. And management already built and ran mines like Detour Lake, which is in that same region. Concentrated ownership, heavy insider buying, and a near-time producer in Canada's top mining jurisdiction. That's the kind of setup that most investors are looking for. Plus, they are located on the New York Stock Exchange and are available on most every exchange out there. As always, do your own due diligence and learn more about Mayfair Gold down in the link in the description. Now, I'm going to move on to the company that takes that receipt idea from the very top and makes it almost too obvious. And that's Sterling Infrastructure. Remember how I said a few names are trading on a receipt instead of a guess? Sterling is the cleanest one on this entire list. So what do they actually do? Well, when a tech giant decides to build a data center, long before a single server even begins humming, somebody has to move what is basically a small mountain of dirt. They need to grade it out flat, they need to pour the foundations, and now wire the power into it. That extremely unglamorous, absolutely essential groundwork is Sterling's entire business. They don't own the data center, they simply build the ground that it stands on. And in the middle of an AI boom that runs on data centers, it seems like a pretty good place to be. So I should probably share the receipt. So Sterling's backlog, the work that it's already been hired to do but hasn't finished yet, now sits north of $5.5 billion. And it grew by half again in a single year. That is more work already signed than the company built in the last two years all put together, sitting in the order book before they've even broken ground on most of it. And the growth underneath it is pretty much just as loud, because the revenue nearly doubled last quarter. So for a construction company, those are not normal numbers. This has quietly become one of the most profitable, fastest growing infrastructure names in the country. And it carries no net debt, with a return on equity around 40%. So here's the real puzzle. A company growing like that with a receipt like that is trading at about 46% below its high. And of course, here's the twist. And it's a good lesson. Last year, Sterling bought an electrical contractor, so it could now offer the groundwork and the wiring all on the very same job. And that electrical work runs at a thinner margin than Sterling's core dirt business. So when you blend it all in, the segment's operating margin slipped about four points. And of course, Wall Street saw the dip and they decided the golden business was losing its shine. So a lot of them begin to sell. And the management's own words broke it down by simply saying, it's purely mix. They just happened to bolt a slightly less profitable business onto a very profitable one. And the average overall just came down a little bit. Now, of course, the sell-off, it's not crazy. The stock had a run for a long time and a long way up. And it was not cheap. It still trades nearly 40 times earnings. And the blistering growth is set to cool down from around 60% this year toward the low 20s next year. And of course, those are real reasons to want a lower entry. But the core business is still elite. And the receipt just grew by half. And the very acquisition they got punished for is the one thing that lets Sterling win even bigger because they get more complete jobs. So we should kind of sit with that for a second. Because the market sold Sterling because one margin number ticked down just a few points. And in the very same quarter, its order book grew by half. And this is exactly why Sterling is a name that I hold with a little bit more conviction than most on this list, even though it's not statistically cheap. It's a net cash, elite margin builder that's sitting on a multi-billion dollar receipt. And it just happened to get sold off for adding a business that makes it stronger. Of everything that I'm covering today, this sell-off is the one that makes the least amount of sense to me. And that's okay, because that's usually where I find better opportunity. So Sterling happened to build the ground that the data center sits on, and this next company builds the power that feeds it. So meet MassTech. And of course, here is the one idea. Every data center we've been talking about needs one thing before it can compute anything else. And that's electricity. And it happens to be a staggering amount of it. For about 20 years, America's power demand sat almost flat. A straight line that was really going nowhere. And then suddenly, AI showed up on the scene. And now, the power that those data centers pull off the grid is set to climb real hard. And on the current forecast, it roughly triples by the end of the decade. And I think that we all get it because the grid that we have, it was never built for that. So someone has to string the new transmission lines, raise the substations and wire the connections that carry all of it. And that someone is MassTech. And just like Sterling, MassTech runs on receipt. So the backlog, the work that's already signed and under contract, sits north of $21 billion. For that company, it's an all-time record. And it grew 30% in a single year. That is the power side of the AI boom. And it's already booked. So in this past quarter, the company beat and actually raised its guidance for the year, with its two biggest engines, power delivery and clean energy, both running extremely fast. So sort of like the other ones, why exactly is a company sitting on a record backlog down nearly 40% from its high? And here's the honest answer. And it's a little bit different from Sterling. When MassTech reported, one of its smaller divisions, the one that builds cell towers and telecom lines, hit an air pocket as a couple of really big carriers began slowing down their spending. So yes, the power business is booming. But that one-week corner spooked the entire market and the stock sold off hard in a single day. On top of that, a lot of that record backlog is scheduled for next year. Not this one. So the payoff sits further out than the impatient money really wants to wait for. Now the drop for this one, I can defend a heck of a lot more than Sterling's. The chart is broken and the momentum happens to be against it. And the strongest cash? Well, it doesn't even land until the back half of this year. And unlike net cash Sterling, this one carries real debt. So there's less room for having any error. So in my mind, this is not a back up the truck moment. Instead, this moment is where the tail is wagging the dog. The market sold MassTech over a slowdown in cell towers. Well, the part that actually matters, like the grid backlog feeding the entire AI buildout, just hit an all-time high. So you're telling me a telecom hiccup grabbed the headline while the real engine quietly just kept booking the work? Well, hey, I'm okay with that. So where exactly does that leave me? Well, on MassTech, I'm waiting. I'm not rushing. I love the story. The grid has to be rebuilt and MassTech is one of the few that can actually do it. And it just bought its way deeper into data center power. But the chart is a little broken and the best cash is still months away. So this is one where I'm going to start small and I add it on weaknesses, letting the setup come to me instead of trying to chase it. It's as to the highest quality business on the entire list and easily the strangest story of the bunch. And that happens to be Applovin. Every other name that we've looked at today is cheap because it's a builder. It's pouring money in and it's waiting years to get paid. Applovin is kind of the mirror opposite of that. It runs the software that decides which ad you're going to see inside of an app and more and more inside online stores, powered by an AI engine that keeps getting sharper every day. Now, what makes it special is the economics. For every dollar of revenue that comes in the door, close to 80 cents falls straight through as operating profit. So to put that into perspective, even Visa, a company almost everyone files under money machine, runs an operating margin in the mid 60s and Applovin runs higher than that. So this isn't a cheap builder waiting to earn. It's a cash machine that really, really went on sale. And it did go on sale in a hard way, down more than 50% from its high. The business underneath grew revenue almost 53% last quarter, and it throws off so much cash that it casually buys back its own stock. So after that massive fall, you're paying around 21 times next year's earnings for one of the most profitable software companies anywhere, at a multiple that this stock almost never carried back when it was the market's darling. For this kind of quality, this is not expensive at all. So why exactly did a cash machine like this fall in the first place? So for more than a year, Applovin lived under a cloud. Short sellers published reports accusing its ad engine of shady data practices. And eventually, the SEC opened and an investigation. And the fear that the whole business was built on something illegal followed the stock the entire way up and the entire way back down. Then, on the very same day that it reported earnings, the company revealed the SEC had closed that investigation with no action and no wrongdoing was found. So the single biggest risk to the company was completely lifted. And of course, the stock dropped anyway. Around 20% that day. Because in that same report, its growth came in just a little bit below plan. And it happened to be its first guidance miss since it ever went public. And here's where I'll kind of argue against myself. Because the sell-off itself isn't baseless. This was a stock that was priced for perfection. So even a small miss gets punished really hard. And the growth is also cooling off. It guided next quarter to something like 47%. It's still an enormous growth, but it's slower than the street wanted to see. And the next big leg is supposed to come from an e-commerce ads business that had only opened up to everyone just this summer. Which none of us has watched scale. At least not yet. And of course, those are just open question marks. But if you step back and look at what actually happened that afternoon, the company happened to get the best possible news and the worst received number all in the same report. And I think that the market only heard about the number. So let's take a step back and think about this. The scariest thing that could ever happen to this company is a regulator ruling that it broke the law. And instead, that was permanently just taken off the table. And on that very same afternoon, the stock got marked down for one soft quarter. Now that's another one that seemed really odd to me because the market seemed to overreact to the number that it was expecting, while they also ignored the huge danger that just got lifted off of its shoulders. So my honest read on Applovin is that it's the highest quality name in this entire group. And in some cases, it's also the most volatile. And I know it sounds weird to say, but I can hold both those thoughts at the same time. Because at the end of the day, this business is still elite. And the fear that was haunting it for a year, it's now completely gone. And it happens to be cheaper than it's ever been in about two years. But of course, the chart is broken. And it's trading well below where it used to. And the stock, well, it can still stay a little bit cheaper for a while because it's in that violent stage. This is one where I already own a lot of it. And I'll continue to buy more once it's convinced me that it's hit the floor. And I think it's coming real soon. Because when you look at the fundamentals, this is an impeccable company. We just need the technicals to catch up to it. So there's the list. It's five very strong businesses that the market marked way down, most of them sitting on revenue that's already signed, it's spent, and it's just waiting to be delivered. And of course, the charts are going to do what they do. And I'd rather just follow those receipts. Hey, just a quick reminder that I'm not a financial advisor. And I do this for educational purposes. And as always, thanks so much for watching.