TIP751: Mastermind Q3, 2025: Uber, Merck, and Bath & Body Works
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this quarterly mastermind episode, three seasoned investors tackle a fascinating trio of investment opportunities across vastly different industries. Stig dives deep into Uber's evolution beyond ride-hailing, exploring the company's surprising advertising potential and defensible network effects (09:39), while wrestling with the looming threat of autonomous vehicles that could reshape the entire landscape. Toby makes a compelling contrarian case for Bath and Body Works—a fragrance retailer generating massive free cash flow at trough valuations (77:27)—betting on customer loyalty and brand strength in an AI-resistant business model. Meanwhile, Hari presents Merck as a pharmaceutical giant trading at deep discounts due to patent cliff fears (62:49), arguing that the market is overreacting to predictable industry cycles while ignoring the company's dominant position in the rapidly growing oncology market.
Speakers
Stig Brodersen (Host)
Host of The Investor's Podcast since 2014, which has garnered over 180 million downloads. Former Berkshire Hathaway shareholder meeting attendee and co-founder of TIP Media, building one of the largest finance podcast networks globally.
Tobias Carlisle
Founder of Acquirer's Multiple and portfolio manager of ZIG and DEEP ETFs focused on deep value investing. Author and quantitative value investor with extensive experience in contrarian small-cap strategies, frequently appearing on major financial podcasts.
Hari Ramachandra
Co-conceiver of The Investor's Podcast idea during a 2014 Berkshire Hathaway meeting flight. Active investor and financial analyst who regularly contributes insights on technology disruption, market cycles, and investment strategy across multiple asset classes.
Key Takeaways
Master the Art of Ownership Thinking
Stig's approach to building conviction reveals a powerful truth: "I need to first own the stock. Learn differently whenever I own a stock." (04:20) Instead of trying to perfect your analysis upfront, start with a small position to engage your learning systems differently. Your brain processes risk and opportunity with heightened clarity when you have actual skin in the game.
Look Beyond Surface Metrics to Find Hidden Value
When multiples appear "absolutely ridiculous," dig deeper into the operational leverage story. Uber's deceptively low margins hide massive earning potential as they don't need significant CapEx to scale. The key insight: companies in inflection moments often trade at seemingly insane valuations that mask extraordinary underlying economics about to emerge.
Harness Supply-Driven Network Effects
Unlike demand-driven businesses, platforms like Uber require critical mass of supply (drivers) first to create meaningful demand. (11:20) This creates a powerful moat once established—competitors must burn enormous cash to reach that supply threshold. Identify businesses where supply scarcity creates the network effect, not just user growth.
Embrace Contrarian Timing in Beaten-Down Quality
Toby's Bath & Body Works pick at 40% off all-time highs with 12% free cash flow yield exemplifies perfect contrarian positioning. (77:28) The best opportunities emerge when high-quality businesses with loyal customer bases trade at trough valuations due to temporary headwinds or sector rotation.
Pattern Recognition Beats Prediction in Cyclical Industries
Hari's Merck analysis reveals the pharmaceutical playbook: patent cliffs are features, not bugs. (62:56) Instead of trying to predict specific drug success, bet on companies with proven capabilities to navigate these cycles. Focus on businesses where the pattern of disruption and renewal is well-established and management has repeatedly executed through similar challenges.
Statistics & Facts
- $23 billion authorized by Uber for share buybacks, adding to $3 billion already authorized, representing real dollars that could have been invested into growth opportunities instead of offsetting 3-4% annual dilution from stock-based compensation. (54:58)
- 29.5 billion in revenue generated by Keytruda (Merck's blockbuster oncology drug), making it the most dominant platform in oncology, but facing patent expiration in 2028 with biosimilar competition expected to cause gradual 3-5% annual revenue decline rather than a cliff. (64:03)
- $750 million in free cash flow generated by Bath and Body Works, representing a 12% free cash flow yield on the $6 billion market capitalization, while trading at a PE of 7.5 despite maintaining 31% operating margins (highest in retail). (77:25)
