3 Undervalued Stocks Bill Ackman Is Buying Now
Summary
Daniel begins by referencing Bill Ackman's warning that investors are repeating the mistakes of 2000 by rotating capital out of high-quality, "boring" businesses into "new shiny things" like semiconductor and AI stocks. Daniel fully agrees with this assessment, noting that a small group of AI-enabled companies has led the S&P 500 rally, while the rest of the market remains flat. He emphasizes that many fundamentally strong companies are now trading at very low valuations.
He elaborates on three such companies:
Daniel then discusses Google's (GOOG/GOOGL) recent announcement to raise $80 billion in equity to fund AI infrastructure, with Berkshire Hathaway investing $10 billion. While Google is a high-quality company, Daniel notes its price-to-operating cash flow of 25.2x is near 20-year highs, making the equity issuance a strategically sound move at an expensive share price. He expresses concern that such capital raises by hyperscalers (including potential similar moves by Meta) might lead to a deceleration of overall AI-related capital expenditure growth by 2028, impacting semiconductor, construction, and energy stocks. He hopes Meta avoids an equity issuance given its lower valuation (12x operating cash flow) and strong balance sheet, advocating for debt financing instead.
Finally, Daniel reviews an interview with MercadoLibre's (MELI) SVP Leandro. Leandro believes MELI's diverse businesses (e-commerce, fintech, credit, advertising) could each become as large as the entire company is today, potentially making MELI a $1 trillion company over the next 10-15 years. He forecasts the business could be three times its current size by 2032 (reaching over $90-$100 billion in revenue from $32 billion, implying a 30% CAGR), driven by expanding its product ecosystem across Latin America. The SVP highlights that the market underappreciates MELI's immense long-term growth potential in its early-stage markets, calling it a "screaming buy," a sentiment Daniel wholeheartedly agrees with.
Mentioned Stocks
Reasoning: Daniel considers Amazon to be undervalued, currently one of the largest positions in his portfolio. The stock is trading at a price-to-operating cash flow of 17.8x, which is lower than its valuation during the 2020 stock market crash and at the low end of its historical range, despite reacclerating operating cash flow and revenue. His conservative DCF model, assuming 16% annual operating cash flow growth and a 20x operating cash flow multiple (below its historical average of 25x), indicates a 19% CAGR, a fair value of $39 and a future stock price of $412 by 2029. Daniel personally purchased more Amazon shares during a recent market correction.
Reasoning: Daniel agrees with Bill Ackman that Meta is "ridiculously cheap" and undervalued. The stock's forward P/E of 18.8x and price-to-operating cash flow of 12x are comparable to historical lows during stock market crashes (e.g., 2020), despite accelerating revenue growth. His DCF model projects an 18.6% CAGR over the next three years, with a fair value of $732 and a future stock price of $968, based on 15% annual operating cash flow growth and a 13x operating cash flow multiple. Daniel personally bought more Meta shares during a recent market correction. He also expresses a desire for Meta not to issue new equity, as he believes the stock is currently too cheap.
Reasoning: Daniel agrees with Bill Ackman that Microsoft is "looking very cheap" and "offering value today." The stock has been flat for over two years, while its underlying fundamentals and operating cash flows are at all-time highs. Its forward P/E ratio of 21.3x and price-to-operating cash flow of 18x are historically low, comparable to valuations seen during the COVID crash and below its decade-long average of 22x. Daniel's DCF model, projecting 13% annual operating cash flow growth and a 20x operating cash flow multiple, indicates a 19% CAGR and potential for strong returns. While he personally prefers Amazon and Meta due to perceived higher undervaluation and specific business aspects, he acknowledges Microsoft as a valuable opportunity.
Reasoning: Daniel states that while Google is a "fantastic" and "high quality company" that will be a "winner over the long term," its current price is "not the most attractive." He points out that Google's price-to-operating cash flow is 25.2x, which is well above its 20-year average of 17.7x and near 20-year highs. He views Google's decision to issue $80 billion in equity as a strategically sound move for the company because it's done when the share price is expensive, thus not killing much shareholder value. However, this high valuation implies it's not an opportune time for new investment. He also suggests that the increasing reliance of hyperscalers like Google on debt or equity to fund capex might lead to a deceleration in overall AI infrastructure growth rates by 2028.
Reasoning: Daniel highlights MercadoLibre's strong growth, with SVP Leandro mentioning 49% revenue growth and believing the company could become a $1 trillion business in 10-15 years. Leandro projects MELI to be three times its current size by 2032 (potentially over $90-100 billion in revenue from $32 billion), driven by expanding its ecosystem across Latin America. The SVP believes the market underappreciates MELI's immense long-term growth potential in its early-stage markets and calls the stock a "screaming buy," a sentiment Daniel "completely agrees" with, seeing "clear runway and opportunity."