Well well, the past few weeks have been quite a ride... I have seen my portfolio gaining 8k, losing 10, and gaining 4 again in just about a month. This is why I recommend not looking too often at your broker account to make investing much more enjoyable. While I could not resist the temptation to watch, I kept focusing on simplifying my portfolio. Why? Because I want to keep up with each one of the companies I own, and I cannot do it for 70+ tickers. My aim is to lower my holding to 50 tickers by year-end, and 35 in the long run.
Life Storage, this is not a goodbye, but see you soon
Life Storage (LSI) was my first official reco for my readers, I discovered it almost by accident as I was looking into the micro-fulfillment players and was wondering if self-storage companies were benefiting from it. Turns out Life Storage was the only US-based self-storage company I could find that had a decent plan about it through its warehouse anywhere business, which is a B2B (business-to-business) forward stocking solution. Self-storage facilities are essentially being used as micro-fulfillment centers, combining storage assets with proprietary technologies. This brings warehouses closer to consumers and improves inventory monitoring accuracy, resulting in better last-mile logistics. It's a brilliant concept because self-storage facilities are so close to end-users. So far, it has collaborated with Allergan, Deliverr, Michael Kors, Eli Lilly (NYSE:LLY), Diebold Nixdorf (NYSE:DBD), and Zillow (NASDAQ:Z).
LSI grew its FFO (funds from operations) per share (the price per earnings equivalent for REITs businesses) at 9.3% CAGR since 2010. The most rapid increase occurred in the years following the 2008 crisis with a record 19% in 2012. But it would need to grow, according to my calculations, 17% CAGR for the next 5 years to justify its current valuation, which has skyrocketed 64% since my first reco just a year ago (I calculated this with the assumption it would come back in the +20% range of its median Price to FFO 5 years from now). It is not impossible but it sure does not leave any margin of error/safety.
Plus, it does not have enough "skin in the game" (low insider ownership & low Glassdoor ratings) for me to take that chance.
The truth is, LSI stock probably had a stellar performance in the past year not so much because of its growth prospect, but because of its solid dividends in an extremely low-interest world. This is the same reason why the stock lost 9% this month, as the FED laid out plans for a rate increase next year. I did not buy LSI for being a bond alternative, and dividends players are worst off in a rising inflation economy. I am taking the gains, being thankful, and moving on. I may go back to LSI in the future if its value is more about the business and less about yield arbitration.
Veeva Systems is the king of my scorecard right now, and I love everything from it.
Is it possible to mix the power of cloud software with one of the world's most profitable industries? It is, Veeva Systems (NYSE:VEEV) offers cloud-based software solutions globally to biotechnology and pharmaceutical businesses.
Specializing in that niche market sets Veeva apart from other cloud software providers and has helped build a loyal client base. Veeva provides solutions for multichannel customer relationship management, customer data, regulated content, master data management, and other needs in the health sciences industry. Veeva Systems' platform is in high demand since time is money when researching novel medicines and therapies. That means quicker product development, better marketing and compliance with regulatory laws. AstraZeneca, Merck, and Eli Lilly are among Veeva's 950 current clients.
Veeva´s clients aren't going back to the old manner of doing things. And there's no Pepsi to balance Veeva's Coke. It is so far ahead of any potential rivals that they are an afterthought. This is shown, among other things, in an operational cash flow margin that has surpassed 40% in the last year. It also provides room for the business to create and cross-sell other services. Veeva Nitro (its artificial intelligence-powered commercial data warehouse) and Andi (its integrated artificial intelligence customer relationship management application) are two recent developments that highlight some areas in which Veeva is expanding.
Some might say its valuation if you just compare classic SaaS metrics such as EV/EBITDA or EV/Sales compared to the rest of its peers. But it is so far from the average in terms of value creation (Returns on capital invested + growth) that it is absolutely normal. Actually, the implied Free Cash Flow growth for the next 5 years is about 28%, which gives a good amount of safety margin if you look at its average 55% FCF growth in the past 5 years. I am very confident it will easily surpass that, not necessarily from accelerating sales growth, but because their operating margins have been steadily increasing for the past 10 years. GuruFocus Fair value model even tags it as "Fairly Valued".
This is by far the highest scorer on my scorecard, with a never-seen-before 23.5 points out of 30, astonishing. Why? because besides its wide moat from its switching costs, stickiness (with a net retention rate above 120%), low-cost advantage and regulatory entry barriers, it also shows maximum optionality, perfect financial fortitude and skin in the game. Its CEO and founder owns about 8% of the company, Glassdoor rating is above 4, and it has an inspirational mission of "advancing human health and wellbeing". The only thing it lacks is positive insider signals, but it would be too good to be true. I am adding to my position and may add again in the near future.