The Three Stocks I Bought This Year: A Detailed Analysis

Stock #1: Ulta Beauty (ULTA)

Ulta Beauty caught my eye earlier this year, especially when I noticed that Warren Buffett’s Berkshire Hathaway had recently acquired a stake in the company. This news caused Ulta's stock to skyrocket, showcasing the power of institutional buying. However, it wasn’t just Buffett’s involvement that attracted me—Ulta’s financials and potential growth did as well.

Let’s break down Ulta’s numbers:

• Market Cap: $18.2 billion
• Enterprise Value: $21 billion
• Cash Flow (Last Year): $915 million
• 5-Year Average Cash Flow: $885 million
• Return on Invested Capital (ROIC): 28% last year, 23% over the last five years
  

These figures indicate a company with solid financial health and a strong return on invested capital. Ulta’s eight pillars analysis revealed all check marks, a rarity that underscores its financial stability.

Ulta has had its share of volatility, with the stock price fluctuating between $574 in March and $318 in August. Despite these short-term swings, the long-term outlook remains strong. Analysts predict profits will rise from $26 per share this year to $43 in the next five to six years, with revenue growing modestly from $11.4 billion to $15.3 billion. The company’s high margins and consistent ROIC suggest it’s well-positioned for future growth.

Using my stock analyzer tool, I input the following assumptions:

• Revenue Growth: 3-7% over the next 10 years
• Profit Margin: 9.5-11%
• PE Ratio: 15-21, based on Ulta's high ROIC
• Desired Return: 9%

The results showed a low price of $340, a high price of $660, and a middle price of $476. At its current price of $376, Ulta still offers a potential 12% return, making it a solid investment for the long term.

Stock #2: Starbucks (SBUX)

Next up is Starbucks, a company that has been making headlines with its new CEO and ambitious growth plans. Starbucks aims to open 177,000 more locations by 2030, adding to its already impressive 38,000 locations worldwide. The new CEO, who previously helped Chipotle expand by 40-45%, seems like the right person to lead this next phase of growth.

Starbucks’ financials reveal a strong business:

• Market Cap: Not explicitly mentioned, but significant given their expansion plans
• Free Cash Flow (Last Year): $3.8 billion
• 5-Year Average Cash Flow: $2.8 billion
• Dividend Yield: 2.55%, though high for a company in growth mode
• ROIC: 50%, even higher than Apple
  

The eight pillars analysis for Starbucks showed some areas of concern, particularly the high PE and price-to-free-cash-flow ratios. However, the company’s consistent free cash flow and strategic location choices mitigate these concerns.

One issue that stood out to me is Starbucks’ large dividend payout. While dividends are generally positive, I believe Starbucks should be reinvesting this money into growth, especially with their aggressive expansion plans. Cutting the dividend to fund growth could be a more efficient use of capital.

Using my stock analyzer tool, I made the following assumptions:

• Revenue Growth: 4-8% over the next 10 years
• Profit Margin: 10.5-13%
• PE Ratio: 20-25, considering Starbucks’ high ROIC
• Desired Return: 9%
  

The analysis gave a low price of $63, a high price of $140, and a middle price of $95. My own cost basis for Starbucks is around $75-85, so I’m satisfied with this investment, even without a margin of safety.

Stock #3: Nike (NKE)

Last but not least is Nike. Despite some naysayers claiming Nike is "dead," I see a strong, resilient company with a bright future. The stock price has certainly seen better days, dropping from $180 in 2021 to around $84 today, but this doesn’t reflect the company’s ongoing dominance in the market.

Here’s what Nike’s numbers tell us:

• Market Cap: $128 billion
• Enterprise Value: $140 billion
• Free Cash Flow (Last Year): $6.6 billion
• 5-Year Average Cash Flow: $4.7 billion
• ROIC: Consistently around 20%
• Dividend Yield: 1.7%, eating up $2.2 billion of free cash flow
  

Nike continues to maintain strong gross margins (45%) and a return on invested capital of 20%. The company’s move towards direct-to-consumer sales should further improve these margins over time. Although the stock price has fallen, I believe this represents an opportunity, not a warning sign.

For Nike, I used the following inputs in my stock analyzer tool:

• Revenue Growth: 3-7% over the next 10 years
• Profit Margin: 10-12%
• PE Ratio: 20-26, reflecting Nike’s brand strength and ROIC
• Desired Return: 9%
  

The tool showed a low price of $62, a high price of $120, and a middle price of $87. At its current price of $84, Nike offers a potential 9.5% return, including dividends.

Conclusion: Why These Stocks?

In summary, Ulta, Starbucks, and Nike are all companies with strong financials, solid growth potential, and, most importantly, they’re currently trading at attractive valuations. While the stock market can be volatile in the short term, I believe these companies are well-positioned to deliver strong returns over the long haul.

Remember, investing isn’t about chasing the hottest stock or following the latest trend. It’s about doing your homework, understanding the business, and sticking to your investment thesis even when the market gets emotional. If you do this, you’ll be well on your way to making sound investment decisions that can grow your wealth over time.

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