I genuinely hope something happens in the next few days, otherwise I’ll have to give my thoughts on the entire S&P 500. These daily posts were supposed to include a macro story, plus a buy/sell or addition to the watchlist – not just that exclusively. Yeah, didn’t really work out that way.
Though, I assume that after tomorrow’s speech by Jerome Powell, we’ll finally have a new topic.
FICO ( $FICO (+1,08%)
) – The King of Credit Scores
FICO might not be as well known as the stars of the market like Nvidia or Microsoft, but it’s just as important for keeping the system running. Roughly 90% of top U.S. lenders use the company’s credit scores when making lending decisions. That’s an incredible moat: banks, credit card issuers, and mortgage providers are effectively locked into FICO’s system.
What makes FICO so compelling is that it combines two strengths. First, its legacy scoring model, which is almost impossible to displace. Second, its growing analytics/software segment, which helps financial institutions with risk management and fraud detection. This second part of the business is often overlooked but has strong growth potential, especially as AI reshapes how banks evaluate customers and manage risk.
The company doesn’t grow like a high-flying tech stock, but it delivers steady, predictable earnings with pricing power – and that’s gold in today’s market.
The main concern, of course, is valuation. Even after the recent selloff, FICO trades at a forward P/E north of 50. And the drawdown didn’t happen in a vacuum. Management’s aggressive pricing strategies drew the attention of regulators – an unforced error. Still, when you consider the irreplaceable role FICO plays, the premium is at least somewhat justified.
For me, it’s not a buy right now. But if we ever move closer to $1000 a share, or a forward P/E of 30, I’d reconsider. For the moment, I’m quite content with my Equifax position, which operates in an adjacent space.
Meta ( $META (-0,56%)
) – Not Just Facebook Anymore
What started out of a Harvard dorm room has turned into one of the most dominant success stories in social media. Mark Zuckerberg – the nerd turned free speech warrior – made this rise possible. His vision, together with a strong team, led to several highly successful acquisitions that were integrated seamlessly.
The two crown jewels of the “Metaverse,” WhatsApp and Instagram, weren’t built by Zuckerberg himself. They were bought. And today, they stand among the most successful acquisitions in business history. Very few companies can point to such a track record. Facebook – the company that began the journey – is pretty much dead now. Even among seniors, it isn’t what it once was. But that doesn’t matter much anymore, because Meta has become so much more.
Of course, the company has faced plenty of criticism over the years: scandals, regulatory pressure, and the huge bet on the metaverse. That last one even caused the stock to collapse so far in 2022 that not even Tom Lee could have stayed bullish. But it rebounded. The strategy paid off. And Meta now reports one record quarter after the next. Hands down, this is one of the best-managed and widest-moat companies worldwide.
There is no world where WhatsApp or Instagram are replaced. New challengers like TikTok haven’t dented Meta’s dominance. If anything, the platforms are more entrenched than ever.
Recently, the company has made headlines by hiring away the competition. Meta offered packages worth $100 million to the crème de la crème of AI engineers, poaching talent from top firms – including OpenAI. Zuckerberg is building an All-Star team. Let’s see what they can deliver.
I’m extremely bullish on the company, though after such a strong run I’d expect a pullback. If that happens, I’ll be the first to start building up a position again.
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