December 8, 2024 • 1hr 28min

TIP681: Mastermind Q4, 2024 w/ Stig Brodersen, Tobias Carlisle, and Hari Ramachandra

We Study Billionaires - The Investor’s Podcast Network

In this Q4 2024 mastermind discussion, host Stig Brodersen and guests Tobias Carlisle and Hari Ramachandra analyze three stock picks while discussing Berkshire's massive cash position. The episode provides detailed analysis of Evolution AB (gaming), Occidental Petroleum (energy), and Alpha Metallurgical Resources (met coal), examining bull and bear cases for each investment.

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Key Takeaways

Berkshire's Cash Position: Berkshire Hathaway has built up a historically high cash position of over $300 billion, potentially due to high market valuations and economic uncertainty
Evolution AB: A leading live casino game supplier with 55% profit margins, strong competitive advantages, and significant growth potential in Asia and US markets
Occidental Petroleum: Warren Buffett has accumulated a 28.4% stake, betting on favorable regulatory environment and energy sector tailwinds
Alpha Metallurgical Resources: A metallurgical coal producer with strong cash generation, low valuation, and excellent balance sheet management through buybacks

Introduction

In this Q4 2024 mastermind discussion, host Stig Brodersen and guests Tobias Carlisle and Hari Ramachandra analyze three stock picks while discussing Berkshire's massive cash position. The episode provides detailed analysis of Evolution AB (gaming), Occidental Petroleum (energy), and Alpha Metallurgical Resources (met coal), examining bull and bear cases for each investment.

Topics Discussed

Berkshire's $300B+ Cash Position (1:34)

The discussion opens with analysis of Berkshire Hathaway's historically high cash position. Tobias Carlisle provides context around current market valuations:

Market Valuation: Shiller PE ratio at 38 vs long-run average of 17, indicating significant overvaluation
Economic Concerns: Private sector weakness masked by government spending
Yield Curve: Longest inversion in modern data, potentially signaling recession risk
Cash Management: Buffett likely responding to high valuations and economic uncertainty by building cash reserves

Evolution AB Analysis (33:16)

Stig Brodersen presents his bull case for Evolution AB, a leading supplier of live casino games:

Business Model: Provides live casino games and slot machines to operators, earning 10-15% of player losses
Competitive Advantages:
- 55% profit margins
- High barriers to entry in live casino game development
- Strong relationships with operators
Growth Opportunities:
- Expansion in US market
- Strong presence in Asian markets
- High demand exceeding current capacity

Evolution AB Bear Case (41:03)

The discussion explores potential risks and challenges:

Margin Pressure: US expansion likely to bring lower margins than Asian operations
Regulatory Risk: 60% of business from unregulated markets
Competition: Potential for new entrants to erode margins
Market Perception: Sin stock status may affect valuation

Occidental Petroleum Analysis (44:02)

Hari Ramachandra presents the investment case for Occidental Petroleum:

Buffett's Investment: 28.4% ownership stake through common shares and warrants
Strategic Advantages:
- Strong presence in Permian Basin
- Recent Crown Rock acquisition
- Favorable regulatory environment
Financial Position: Solid cash flows and improving debt metrics

Occidental Petroleum Bear Case (47:44)

The discussion highlights potential risks:

Commodity Price Risk: Exposure to oil price volatility
Economic Slowdown: Potential impact on energy demand
Debt Levels: Historical concerns about leverage
Industry Complexity: Difficult to assess competitive advantages in oil sector

Alpha Metallurgical Resources Analysis (56:46)

Tobias Carlisle presents his investment thesis for Alpha Metallurgical Resources:

Business Fundamentals:
- $3 billion market cap
- $500 million cash position
- $750 million cash generation in last 12 months
Capital Allocation: Reduced share count from 19 million to 13 million through buybacks
Market Position: Leading met coal producer for steel production
Growth Drivers: Infrastructure development and green energy transition requiring steel

Alpha Metallurgical Resources Bear Case (1:06:28)

The discussion examines key risks:

China Exposure: Uncertainty around Chinese demand and production
Technology Risk: Potential impact of electric arc furnaces
Commodity Cyclicality: Exposure to met coal price volatility
ESG Concerns: Coal industry headwinds despite met coal's role in green energy

Conclusion

The episode provides deep analysis of three contrarian investment opportunities while highlighting the importance of understanding both bull and bear cases. Key themes include:

Market Environment: High valuations and economic uncertainty creating selective opportunities
Value Investing: Importance of looking beyond consensus views and popular narratives
Risk Management: Need to balance potential returns with company-specific and macro risks
Capital Allocation: Role of buybacks and dividends in creating shareholder value