Behind The Idea

We couldn't wait to get to our year-end review on Behind the Idea, so we're sharing it before your Thanksgiving week travel. It's our 100th episode, and the last episode of our Gone till November special series, a more introspective quartet of episodes. We also discuss on the podcast one other reason why we've released this early.
Topics Covered

3:00 minute mark - The Alphies - categories

4:15 - Favorite guest

12:15 - Favorite story

27:00 - Most interesting idea

35:16 - Most surprising stock performance

41:15 - Least surprising stock performance

46:30 - Best performers

49:15 - Listener awards


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Over the last two weeks, Mike and Daniel have pitched respective long ideas. This week, we looked backward at mistakes we've made in our investing careers. The theory goes that your investing mistakes also amount to your investing tuition, and that true wisdom is learning from others' mistakes, rather than your own. I can only hope there's something for you as listeners to learn from our mistakes, as broken down on today's podcast.
The investments in question date to 2016 and 2017. Mike went long on Gilead Sciences (GILD) based on their scientific prowess and low multiple, and even as his thesis sailed on him with Gilead's acquisition of Kite Biopharma, he couldn't find the exit door. Daniel went long Uniti Group (UNIT), even having concerns about its failure to cover its dividend and what the huge yield portended, let alone the binary risk that was introduced into the stock. We hope there are lessons to be learned from our mistakes.
Topics Covered

4:00 - Mike's bad choice - Gilead Sciences (GILD)

6:00 - What was compelling about GILD?

10:45 - At the time of purchase, did you have any concerns?

14:30 - How did the investment play out?

18:30 - When did you realize it wasn't working?

25:00 - What are the lessons learned?

28:00 - Daniel's bad choice - Uniti Group (UNIT)

29:30 - What was your thesis?

38:00 - Specific downside concerns

41:00 - When did you realize it wasn't going well?

55:30 - What lessons did you learn?


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We continue our special November series. Mike shares his long thesis for Varian Medical Systems, an industry leader in oncology treatment devices that has a lot of attractive business aspects, though it's valuation is also challenging. Daniel tries to probe the thesis for any gaps, but the moat here seems quite strong.
Topics Covered

5:00 minute mark - Introduction to Varian Medical Systems and the business case

12:40 - How much does it matter that there are two revenue lines in the income statement? Oncology vs. Proton and Product vs. Service

19:30 - Any reason to think they are transforming more to a service business? 

24:30 - Market and customer relationship strategy... moat around business.

31:00 - Is a throughput based model something to be concerned about?

36:00 - Valuation

53:30 - The under the radar aspect of VAR.


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We kick off a special November series where we stop breaking down other people's ideas and try to dissect our own. Daniel shares his long idea on Stitch Fix, a fast-growing e-commerce clothing company that also will have to face a lot of competitors and skeptics as it tries to scale to profitability. Mike plays devil's advocate to interrogate the thesis.
Topics Covered

3:30 minute mark - SFIX thesis

6:00 - What do you like about SFIX?

11:00 - Actual experience with Stitch Fix

20:00 - Business model

25:00 - Growth prospects of retail clothing market SFIX is operation in

31:00 - Where does SFIX fit in the market of fragmenting consumer preferences?

34:30 - How does SFIX handle inventory management?

37:00 - Is SFIX's customized really a big advantage over other retailers?

46:00 - How much choice do consumers really have?

52:00 - Valuation discussion


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There are three sorts of stories we've gravitated towards in the past 95 episodes of Behind the Idea:

Value traps and/or value plays, the sorts of junk we might invest in. Examples: Cars.com (CARS), AT&T (T), Dell (DELL), Kelloggs (K) from the short side.

Growth stories that break our value-oriented brains. Examples: Amazon (AMZN), Shopify (SHOP), Crowdstrike (CRWD), Lyft (LYFT), PagerDuty (PD) from the short side.

Battleground stories or news stories. Examples: Boeing (BA), PG&E (PCG), Chipotle (CMG), Trupanion (TRUP).


This week we cover Teladoc (TDOC), which falls squarely in categories 2 and 3. The company is a fast grower on the top line, but it's yet to crack break even profitability metrics. We've published many short ideas on the company on Seeking Alpha, but we recently published a PRO+ top idea by Value Alpha that takes the long side. As with many of these stories, there are both exciting things going on and questions raised that deserve a closer look.
We break down the long case, and then we raise our questions. Beyond assessing the Teladoc story itself, we also get into what we look for in growth stories like this, and what it means to invest in an execution based story.
Topics Covered
3:00 - Assessing the long case

8:15 - Market leadership and the total addressable market story

13:45 - Teladoc's revenue model and Value Alpha's valuation model.

19:00 - Pricing vs. valuation rears its head

22:00 - Teladoc's industry position and is it a real moat?

27:45 - Valuation arbitrage and the messiness in the story

31:00 - What about the short case?

36:30 - The significance of the 'execution-based' story

40:00 - The reliance on acquisitions and the trends in visit fees.


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On this week’s Behind the Idea, we jump right into the long case for a beloved dividend company and notorious corporate name, Altria, ticker symbol MO. We speak with Atlas Research about his bull case for Altria as a stock that will beat the S&P 500. There are the recent concerns around vaping, the break-up of the Philip Morris merger, and the ESG angles and squeamishness around owning a cigarette stock. Depending on your predilection, that’s either a recipe to stay away or the very reason to buy. Atlas is on the long side and makes the case as we grill him on this week’s Behind the Idea.
Topics Covered2:45 minute mark – reviewing the past few years for MO and the bull case8:15 – The obvious value story, but is it…too obvious?11:45 – Looming liabilities for Juul?15:15 – Looking at the Phillip Morris merger18:15 – The ESG angle21:45 – Addiction driven models24:15 -The MSA’s legacy28:15 – What role does cannabis play for Altria?34:15 – The economics and regulatory outlook for vaping38:15 – Summing up the investment case40:45 – The classic sin stock story 
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Activists come with a reputation, and few have as big a reputation as Elliott Management. AT&T (T) also comes with a reputation. The two come to ahead with Elliott Management's recent letter advocating AT&T refocus on core businesses. The letter is very compelling on where AT&T went astray, and a little more predictable on what they should do next. But at a 10x forward PE, there's not much that needs to go right. So does Elliott's argument make sense? Are AT&T shares worth turning on? We discuss this week on Behind the Idea.
Topics Covered

3:15 minute mark - Elliott Management's takedown of AT&T8:00 - Basic summary of Elliott's prescription9:15 - Key graphics/charts from the letter13:00 - The value/special situations investor funnybone16:45 - Underownership of AT&T - lack of confidence, also an opportunity?21:45 - Why the loss of DirecTV and Time Warner execs is so alarming26:45 - How much of this ground has been covered before?30:00 - Elliott's Activating AT&T plan 36:00 - Reactions to the road map46:00 - Final risks for investors to keep in mind
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Ligand Pharmaceuticals has been both a strong performer over the past decade and a target of short sellers for some time. The stock has struggled over the last 18 months, though, and Seeking Alpha author 8 Diamonds Advisors feels that the stock has become a strong buy again. The thesis rests on the company's shots on goal approach and its more diversified model. We discuss whether this holds up and what that means for investors.
Topics covered: 
3:15 - Key elements of 8 Diamonds Advisor's thesis and understanding the company's products
6:15 - "Shots on goal" - what does that mean and how does it work?
15:45 - The challenges in analyzing the business model
19:45 - Management's place in the thesis
24:15 - What's gone on the past few years?
26:45 - The short theses over the year
35:45 - The Promacta divestment and a share buyback (?!)
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Not that price is truth, but the price chart for Range Resources over the past five years is really ugly. But the company has long been a favorite of Seeking Alpha authors. We try to pick apart this bearish market consensus vs. bullish author sentiment with an idea from KCI Research Ltd. on the company and why its valuation is too cheap to ignore. 
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Tim Heitman of Investing 501 joins us to discuss his Hill International thesis. He likes the stock as a turnaround story and on growing gross profits, as well as some accounting quirks that may be hiding the opportunity from the market. 
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