🗞 8 Great Stocks That No One Talks About

Happy Sunday!

Here’s what’s on the docket for this week’s newsletter:

• 📊 8 Great Stocks That No One Talks About

• 🔍️ Google: Value Play or Value Trap?

Let’s dive in!

8 Great Stocks That No One Talks About

When a company generates outstanding returns over multiple decades, investors typically hear about them.

But there are some great businesses that just seem to slip through the cracks and go unnoticed. These are typically companies in boring industries with lackluster growth.

However, operating in a slow growing yet durable industry can sometimes lead to long periods of uninterrupted compounding for the market share takers.

Here are 8 stocks that fit that description:

1. Lithia Motors

.Lithia Motors is a serial acquirer of automotive dealerships.

Lithia typically has limited competition for its acquisitions because franchisees require approval from the parent brand (Ford, Toyota, etc.) to sell their locations. Those parent brands prefer to have their main customer touchpoints in the hands of experienced operators.

• 30yr Return: +3,507%

• EV/EBIT: 13x

2. Rollins

Rollins provides pest and wildlife control services through a number of brands, most notably Orkin. Thanks to its scale advantages, Rollins generates superior economics relative to smaller competitors.

• 30yr Return: +6,670%

• EV/EBIT: 42x

3. TerraVest Industries

TerraVest is a Canadian roll-up of manufacturing businesses operating in niche markets such as fuel containment and processing equipment.

The subsidiaries TerraVest acquires are typically a top 3 player in their respective markets.

• Returns since IPO: +9,289%

• EV/EBIT: 30x

4. Cintas

Through both acquisitions and organic growth Cintas has become the largest uniform rental provider globally. Cintas makes and cleans specialized workwear for highly regulated industries.

• 30yr Return: +9,742%

• EV/EBIT: 38x

5. Jack Henry & Associates

Jack Henry provides the technical plumbing for small banks and credit unions. Its services include applications for processing deposits, loans, and general ledger transactions.

• 30yr Return: +16,630%

• EV/EBIT: 25x

6. Brown & Brown

Brown & Brown is an insurance broker that sells insurance on behalf of carriers primarily to small and medium sized businesses.

As a broker, they provide better price transparency and a breadth of carrier relationships for customers.

• Total Return since IPO: +18,083%

• EV/EBIT: 24x

7. Amphenol

Amphenol sells interconnector products for electronics, automotive/aerospace, & industrial use cases.

They acquire companies that sell small components like point-to-point cables, power distributors, and sensors.

• 30yr Return: +24,790%

• EV/EBIT: 27x

8. DSV A/S 

DSV is one of the largest freight and logistics providers globally.

They operate in 90 countries and benefit from high barriers to entry due to the capital intensive nature of the industry.

• 30yr Return: +82,222%

• EV/EBIT: 21x

Platform Update

Introducing Morningstar Research

All FinChat subscribers now get access to Morningstar’s professional equity research reports.

With this launch, FinChat users can get up to speed on a business faster than ever before! ⚡

Featured Story

Google: Value play or value trap?

It’s amazing to think that Google, which has owned a virtual toll-road on the world’s information for the last 20 years, is having its moat called into question.

But here we are.

Ever since the launch of ChatGPT in 2022, investors have worried that Google’s Search business could be at risk of disruption.

And so far, that concern has been validated… somewhat.

There’s no question that search volume is growing on platforms other than Google.

• ChatGPT has an estimated 400 million Weekly Active Users, up 3x from a year and a half ago.

• Perplexity reports more than 100 million queries per week. (Btw, checkout FinChat’s recently announced partnership with Perplexity 😉)

• Grok reportedly averaged 17.6 million MAUs over the 1st quarter of this year.

Additionally, Google’s own paid clicks are now growing at their slowest pace on record.

To add fuel to the fire, during this week’s US v. Google antitrust trial, Apple’s Senior VP of Services Eddy Cue stated that Safari’s search volume (which uses Google as its default engine) declined in April for the first time in 22 years, attributing the decline to the rise of AI.

This immediately sent Google’s stock down more than 9%.

Later that day, Google refuted the claim, stating “We continue to see overall query growth in Search. That includes an increase in total queries coming from Apple’s devices and platforms.”

So What?

What exactly does this mean for Google shareholders?

Well, hard to say. Ultimately, Search is still Google’s cash cow. The segment accounts for more than 50% of Alphabet’s overall revenue.

And if Google Search is truly losing market share (the market seems to think so), it’s going to weigh on Google’s earnings growth over the next decade.

But Google wouldn’t be completely destroyed. Alphabet currently generates $157 billion in annual revenue from its other divisions (YouTube, Cloud, Subscriptions, etc.) and that figure has more than doubled over the last 4 and a half years.

Value play or value trap?

While there’s little doubt that Google is losing some share to conversational AI, it’s important to note that Google’s search business is still growing. In fact, Search revenue grew 9% year-over-year in the most recent quarter driven by a combination of +2% paid clicks and +7% revenue per click.

But markets are forward looking and naturally investors are worried about the declining share.

To put some numbers on investor sentiment, Google is currently trading at a price to earnings multiple of 17x, its lowest figure in more than a decade.

At a mid-teens earnings multiple, shareholders probably don’t need a whole lot to go right to generate a decent return with Alphabet. If Search grows slowly or even flatlines, the double-digit growth from Google’s other divisions should help investors do alright.

However, in a world where Google Search isn’t the only player in town, the tech giant may deserve its cheaper valuation.

A.U.M. Podcast

Alex Fitch - Eliminating Ego and Finding Value

In this episode of AUM, we interview Alex Fitch, the Director of Research at Harris | Oakmark.

During the conversation, Alex delves into the unique culture at Harris and what it takes for large asset managers to generate exceptional returns for investors. He discusses the challenge and importance of eliminating ego in investing and explains why they have cultivated an environment where it’s encouraged to challenge your boss.

We also dive into several case studies of resilient businesses including Alphabet, Salesforce, and Lithia Motors.