MGM and VICI: Finding Value in the Las Vegas Selloff | Value Options Podcast

Micron Technology

Across the shows: 4 speakers in other episodes, 0 bullish and 3 bearish calls, past 30 days

• Tim Travis · Value Options LetterBullish

  Micron is very cheap at 5.4x forward earnings if its oligopoly-driven earnings are sustainable.

  Micron is an oligopoly with two or three major memory suppliers, so reduced competition has changed the industry's dynamics. Margins are very high and the company is sold out for about two years. It trades at about 5.4x forward earnings, so it is very cheap if those earnings hold. The main risk is China entering memory, which could hurt pricing. Tim says high memory prices are already hurting end markets such as iPhone sales.

  “it's an oligopoly. There's, you know, two or three major suppliers... And the margins are just insane. I mean, they're sold out for, I think, like, two years... It's trading at 5.41 forward earnings. So it's very cheap if you, you know, believe the earnings are sustainable.”at 7:35

• Tobias Carlisle · Acquirers Funds / The Acquirers PodcastBearish

  Micron's low P/E looks misleading because its cyclical earnings need normalizing before it can be called cheap.

  Micron has traditionally been very cyclical and often appears on deep value screens because its earnings are high relative to a low market valuation. Once those cyclical earnings are normalized, the stock may not be cheap. Tobias does not think the nature of the business has changed much. The cycle may just run longer, although he admits he does not know whether demand is now secular.

  “You gotta normalize those earnings... Traditionally, they've been very cyclical... I don't think that nature's changed that much.”at 8:33

Meta Platforms

Across the shows: 12 speakers in other episodes, 13 bullish and 5 bearish calls, past 30 days

• Tim Travis · Value Options LetterBullish

  Meta was dirt cheap; Zuckerberg's Muse AI strategy is a home run that should keep improving.

  Tim thought Meta was dirt cheap for a while. He likes Mark Zuckerberg's strategy of putting the Muse AI product out in the market and calls it a home run. He expects the position to keep getting better.

  “I thought Meta was dirt cheap for a while, and, I mean, I like... Mark Zuckerberg's strategy on Muse and how he's putting it out there. I mean, what a home run. And it it seems like it's gonna keep getting better.”at 10:26

Caesars Entertainment

• Tim Travis · Value Options LetterBearish

  Caesars carries a much weaker balance sheet than MGM.

  Tim compares Caesars with MGM and says Caesars has a lot more balance-sheet risk. He gives no specific leverage figures. He also notes that MGM generates a lot of free cash flow.

  “Caesars has a lot more hair in my opinion as far as the balance sheet than MGM.”at 14:52

MGM Resorts International

• Tim Travis · Value Options LetterBullish

  MGM is deeply undervalued after the collapsed deal, trading near $29 versus a $45-48 bid.

  Tim sold his MGM position into the earlier acquisition, which he thought was fairly priced given regulatory risk. Rising rates made the debt financing overwhelming, and the deal blew up in September. The stock fell to about $29 from a bid around $45-46, and he sees that as too far down. MGM generates a lot of free cash flow and has Macau exposure and a planned Japan casino. Its balance sheet is also stronger than Caesars'. He also says AI and online gambling are a risk, though BetMGM gives it exposure to online betting.

  “MGM generates a ton of free cash flow, and they've got, you know, Macau. Macau has been down a little bit. They also have the development coming in Japan.”at 14:59

VICI Properties

• Tim Travis · Value Options LetterBullish

  VICI is an obvious undervaluation at 10x cash flow with an 8% dividend that keeps rising.

  VICI is a REIT with 100% occupancy and leases of about 40 years, with Caesars and MGM as tenants. Concentration risk exists, and the tenants are diversifying. Buying at about 10x cash flow gives an 8% dividend that has been raised repeatedly, most recently again. Tim compares it with rental-property cap rates and calls it an obvious undervaluation.

  “You're buying it at 10 times cash flow, and you're getting an 8% dividend that's gone up. It keeps going up. They just raised it again.”at 16:07

NVIDIA

Across the shows: 12 speakers in other episodes, 11 bullish and 4 bearish calls, past 30 days

• Tim Travis · Value Options LetterBearish

  Hyperscalers' custom chips are a long-term competitive threat to Nvidia, despite its cheap P/E.

  On a P/E basis Nvidia looks fairly cheap again. However, hyperscalers are building their own chips, using Broadcom and designing their own, which are more energy efficient. Amazon, Google and Microsoft already have viable TPUs and chips, which Tim sees as a challenging competitive threat over the long term.

  “it looks fairly cheap once again on the ETH part of it. But... that's a pretty challenging competitive threat out there, I would think, long term.”at 20:52

Morgan Stanley Direct Lending Fund

• Tim Travis · Value Options LetterBullish

  MSDL trades at 67 cents on the dollar, pricing in far worse than history's credit losses.

  Tim owns MSDL, a BDC trading at about 67 cents on the dollar. Non-performing loans are about 1.8% at fair value, against a long-run average near 1% since 2004. Even in 2009, credit losses were about 6.9%. The price implies all loans recover only about 74 cents on the dollar, far beyond a Great Recession scenario. The loans are adjustable rate, so they benefit from higher rates. The yield is about 13%. A dividend cut would not change the discount to NAV.

  “it's trading at, like, 67¢ on the dollar... what's priced in right now for MSDL is that all of their loans would have to only recover, like, 74¢ on the dollar.”at 27:58

US stock market outlook

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Market gains are concentrated in about ten AI-capex names, so breadth is unhealthy.

  Outside the largest ten companies, which are mostly AI or AI capex beneficiaries such as hyperscalers and semiconductor firms, most stocks are underperforming. Anyone holding the S&P 500 is underperforming those names. Everything else is lagging a handful of stocks, which is not a healthy market. He says this may be justified, but he thinks it is an unhealthy setup.

  “that's anything that's not the biggest 10 companies in the market... Sort of AI or AI CapEx beneficiaries... If you're holding the S and P 500, you're underperforming those names. ... not a super healthy market.”at 4:04

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Highly profitable stocks trade at 11x book, well above the 2000 peak of 7x, so they look stretched.

  Profitability has been one of the best predictors of returns. The profitability factor peaked at about 7x book value in 2000 and now sits at about 11x book. Book value is an imperfect measure, especially for capital-intensive firms. Still, Tobias says that puts the group well past the 2000 peak. Getting it right requires being correct on the business and the forward growth, and analysts have been consistently too optimistic.

  “11 times book value is is pretty stretched. You gotta be right on the business. You gotta be right on the forward growth, and analysts seem to be very optimistic about that, but I think they've been pretty consistently wrong.”at 5:29

• Tim Travis · Value Options Letter

  Dividend and quality stocks sold off to cheap valuations, a real long-term opportunity.

  Dividend-paying stocks have been crushed, including utilities, real estate, Pepsi and McDonald's. Quality names such as these now trade at some of the cheapest valuations Tim has seen. He thinks there is real opportunity for long-term investors, because the selloff reflects short-term fear. About 80% of stocks are down more than 10%, and momentum is poor across most of the market.

  “Anything that... Like, all the dividend stuff's gotten crushed... quality like Pepsi, quality like McDonald's... trading at some of the cheaper valuations you've seen. I think there's real opportunity there for the long term investors.”at 26:39

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Market cycles now turn faster, so today's dislocations should normalize within about eighteen months.

  Tobias thinks cycles are turning faster than ever. Eighteen months is a long time in today's market. He expects that many of the current distortions will have reverted to normal by then. Markets swing faster to the extremes, but they also swing faster back to the median.

  “Think that the cycles are turning faster than they have ever before... Eighteen months is, like, a really long time in the market now.”at 29:34

US Treasuries & yields

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Rising long-term rates hurt small, micro and cyclical value stocks, which have more debt and shorter maturities.

  Long-run rates keep rising, and this hits small, micro and value cyclical companies. Their debt is not as well termed out and they carry more of it. Their businesses are more cyclical, so they feel the pain first and fall fastest. They also recover first and fastest, which makes them the market's bellwethers.

  “long run rates seem just keep... Seem to be just continually jacking up, and that increase impacts the businesses of small and micro and value cyclical stocks because they've got... Their debt's not as well termed out.”at 3:02

• Tim Travis · Value Options Letter

  The ten-year yield fell after a hot CPI, likely because markets expect faster Fed hikes.

  The CPI print was bad, yet the ten-year yield fell and bonds rallied. Tim suggests the market may be expecting even worse inflation. He also thinks the Fed might hike sooner, and that quicker hikes could push long-term rates down more quickly.

  “the CPI was so bad today, and the ten years actually... The yield's gone down. Bonds have actually rallied a little bit today... They might hike sooner.”at 19:10

AI pricing & unit economics

• Tim Travis · Value Options Letter

  AI firms' heavy spending needs profitability, but pricing power looks doubtful amid many options.

  With so many AI product options available, Tim questions what pricing power these businesses have. AI companies are spending large amounts of equity and debt. He argues they will eventually need profitability to justify that spending.

  “what what is the pricing power of the business? ... You need profitability to justify that at some point because you're just spending, you know, equity and debt as well.”at 9:42

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Most users will settle for cheaper older AI models, so AI makers will struggle to earn much.

  Most people may only need an older, cheaper model that delivers 90-95% of the performance. Only a handful of users will need bleeding-edge models and pay for them. That is great for consumers but hard for AI businesses to earn much money from. Tobias compares the sector to hard drive makers leapfrogging each other, which makes it uninvestable unless you know exactly what you are doing.

  “Can they do it with a cheaper version that's just like a a generation or two behind that's, like, gives you 95 or 90% of the performance? ... Great for a consumer, hard for a business to make a whole lot of money with that.”at 22:12

Oil & fuels

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Oil near $100 adds a cost to most businesses, weighing on small value cyclicals.

  Energy is a cost for most businesses that move goods, and it shows up as an additional cost. Oil is back around $100, which is close enough to that level to matter. This has made small value cyclicals a tougher area this year.

  “The other thing is energy, is just another cost for most businesses moving stuff around, and that shows up as a... Just an additional cost. And energy oils, it's back to a $100.”at 3:38

AI infrastructure & data centers

• Tim Travis · Value Options Letter

  Hyperscaler capex hits free cash flow far harder than earnings, so capex returns will matter most.

  Hyperscalers are spending roughly $600 billion. Depreciation is only about a fifth or a sixth of that, so reported earnings take a much smaller hit than free cash flow. What ultimately matters is the return on that capex. Tim notes Michael Burry's doubts about GPU depreciation. Despite this, he still thinks the hyperscalers are decent values.

  “They're not taking nearly as big of a hit to earnings as as they are to to free cash flow. And so what ultimately will matter is what's the ROI, you know, on that CapEx.”at 7:13

AI bubble & tech valuations

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  AI firms are ahead of themselves short term, as dot-com firms were, before real adoption takes a decade.

  The dot-com era was clearly game-changing, but the market got ahead of itself and then collapsed. The internet then took ten or fifteen years to become properly integrated into business. Good businesses emerged from the dot-com wreckage over the last five years or so. Tobias thinks the same will happen with AI companies, which are a little ahead of themselves in the short term.

  “the analogy is the early two thousands... where the .com was clearly game changing for everybody... we did get a little bit ahead of ourselves... it really took ten or fifteen years... I think they're a little bit ahead of themselves”at 12:01

US consumer

• Tim Travis · Value Options Letter

  Consumers are disillusioned; nominal wage gains are not lifting real living standards.

  Employment is good and wages are rising, but those gains are nominal. Tim argues that quality of life is not that high and that people are disillusioned. He links this to a weak consumer-facing stock market and the current war, which is unpopular even among conservatives.

  “But quality of living and stuff like that, I don't think it's that high. I think that people are disillusioned.”at 17:18

Middle East & Iran

• Tim Travis · Value Options Letter

  The war is unpopular with no near-term resolution, so it will keep weighing on the economy.

  Tim says the war is not popular, even with conservatives. He sees no outcome that would resolve it and no solution that would improve things in the short run. He calls this a dreary time for the American economy outside AI.

  “no solution that's gonna make things better, in the short run at least. So... And it's kind of a dreary time for the American economy outside of AI.”at 17:40

US–China AI & chip race

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Chinese AI, led by DeepSeek, was only a little behind the American frontier.

  On a trip to China about eighteen months ago, VCs there said American AI was ahead. OpenAI's American version was ahead of everything else, but DeepSeek, the free Chinese version, was just behind. Tobias notes that this is old technology, but says the field was leapfrogging at the time.

  “The American version of OpenAI was ahead of everything else. But DeepSeek, which is the free Chinese version, was sort of just behind it.”at 21:53

Banks

• Tim Travis · Value Options Letter

  Bank credit quality is strong, but bank valuations have run well above book value.

  Tim says bank credit quality is good, and really good. Valuations, however, are much higher. Citi trades at a large premium to tangible book value after historically lagging, and many banks trade at two to three times book value.

  “bank credit quality is good. It... It's really good, actually. The valuations are way higher. I mean, you have Citi trading at a pretty large premium to tangible book value now.”at 27:22