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Stocks of the Week!

In this email:

• A $15B on Themselves 🎲

• $200…. For Free! 🥳 

• The Dumbest Selloff We’ve Seen All Year 🤦 

A $15B on Themselves 🎲

You ever believed in yourself so much you’d put $15 billion on it? Sounds insane, right?

That’s exactly what PayPal have just done.

They’re betting on themselves with a monster stock buyback. After taking a look at their latest Q4 earnings, they might be onto something. 🤔 

The Comeback Story 🥊 

✅ Active accounts are BACK – Added 2.6M net new accounts in Q4. That’s two straight quarters of growth. No more bleeding users = bullish.

✅ Free cash flow is Strong – Pulled in $2.1B in adjusted FCF. That’s 171% YoY increase. More FCF = more money for reinvestment, stock buybacks & who knows? There might even be dividends somewhere down the line.

✅ Margins? Steady. – Non-GAAP operating margin at 18%, only down 34 bps YoY. Not ideal. But definitely not a disaster.

✅ $15 BILLION Buyback – So about that $15 billion bet. The board just said, “Hold my beer. Let’s buy the dip ourselves”. Then signed off on a $15B stock buyback. Fewer shares = higher EPS = more valuable shares. You get the picture.

So Why Isn’t the Stock Mooning Yet? 🚀 🌕️ 

PYPL is trading at just 13.9x forward earnings. That is dirt cheap. Especially when you compare it to other fintechs like:

• SoFi (32.6x) – Market loves their growth story, but PYPL is the profitable OG.

• Upstart (lol, never mind) – Too expensive, too much risk.

After being in the game so long, the markets demanding a little more from Paypal before it’ll get excited.

What exactly are those demands?

Consistent account growth is one of them. And PayPal are on the way there. But at this valuation? The risk-reward looks pretty tempting so I’m willing to jump in before we curve back up.

The Risks You Gotta Know ⚠️

Those demands are probably the biggest risks to more downside. Can they keep growing accounts?

Two quarters of growth is great but if we see users churning then it all gets undone. Is it likely that all those users are going to delete their PayPal accounts? Not really.

But I think even a modest slow down or fall in account numbers could tank the stock more than is warranted.

They’ve also got some pretty big competition in the space. Apple, BNPL. That means they can’t get lazy. They need to make sure things stay lean & efficient to keep margins healthy.

Value Play With Upside

So what’s the call?

High-quality fintech stock, underloved valuation, massive FCF machine. Analysts seem in agreement that fair value is somewhere around $95-$100/share.

That leaves upside at just under 29%. If they keep growing accounts & use the spare cash on buybacks, that might even be conservative.

There is a healthy does of risk with it. I’m keeping position size small. Somewhere around 0.5% of the account.

I do think this is going to be a silent winner though. The market hasn’t caught on yet… but when it does have your spacesuit ready…. 🚀 

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The Dumbest Selloff We’ve Seen All Year 🤦

Betting against irrational fears is the fastest way to big profits.

Investors are throwing a tantrum because it’s scared AI will make Adobe irrelevant. The reality is the complete opposite.

AI is just going to superpower Adobes product suite. They already basically own the entire creative software world. Photoshop, Premier Pro, Acrobat. Any of those ring a bell?

Buying the dip here seems like a no brainer. But let’s take a closer look to be sure.

Why is Adobe Taking L’s?

Two words. AI panic.

OpenAI dropped Sora. It’s an AI video generator & investors lost their minds.

Why?

Because they think AI tools will make Adobe’s software useless. Then Deutsche Bank decided to pile on with a downgrade, and boom. Adobe’s stock was in the gutter.

But I think the market’s got this one wrong.

AI Isn’t Adobe’s Enemy

If Adobe took the same approach Blockbusters took to Netflix I might be more worried. But they’re not.

Instead of running away from AI or pretending like it doesn’t exist Adobe is running towards it with open arms.

🔹 Firefly AI is already integrated into Adobe’s products. That makes design workflows faster & better.

🔹 GenStudio is Adobe’s secret weapon for enterprise marketing. More AI = more users = more $$$.

🔹 AI is expanding Adobe’s market, not shrinking it. Adobe is already cashing the cheques by raising prices on its AI integrated products.

You’re left with a business that’s almost too big to fail & actually getting better with AI. I know it first hand. I use a lot of their suite to bring this content to you….

Investors Sleepwalking

Here’s where it gets even better.

Adobe’s forward P/E ratio is at historic lows. In plain English? The stock is stupid cheap right now.

Last time the valuation was this low the stock snapped back like one of those medieval slingshots & left shorters with watermelon on their face like her…

And Adobe are buying back shares like they know something we don’t. But I’m pretty sure they’re just thinking the same thing I am.

My Plan 🗺️ 

Let’s make this one super simple. When I list it out, it’s hard to not be bullish.

✅ Unstoppable moat – No one else has Adobe’s full-suite dominance.
✅ AI is an accelerator, not a disruptor
✅ Undervalued stock – Adobe has rarely been valued so low. It’s a good a time as any to buy in
✅ Financials are elite – 89% gross margins, 25% net margins, 10+ years of double-digit revenue growth.

Adobe makes up 0.4% of my portfolio. That’s going to be doubled on market open.

General consensus is there’s at least a 25% upside from current price. Adobe isn’t going anywhere. But this sale won’t last forever.

That’s all! See you same time next week 👋 

P.S Hit reply & let me know what you thought of this weeks newsletter. All feedback is welcomed ❤️