Episodes

On this week's Stansberry Investor Hour, Dan and Corey are joined by Matt Franz. Matt is founder and principal of Eagle Point Capital. The registered investment adviser aims to build wealth in the long term while avoiding the permanent loss of capital.

Matt kicks off the show by describing Eagle Point Capital's ownership mentality for buying stocks and what qualities he looks for in a company. As he explains, businesses that have very simple unit economics and that are noncyclical tend to be the best. He also zeroes in on specific metrics to evaluate stocks, the importance of owning businesses that reinvest capital, and his "replication mode" method for assessing a company's future potential...

When we're looking for a business, we want to find a really good business in the past. So they've sort of proven these unit economics. They've proven they have a moat. There's something we can say, "Oh, they had really good results and it's because of this moat." And then we can look into the future and say, "Well, it seems pretty likely that this is going to be persistent and that the future is going to look like the past." And if the past was pretty good, then it means the future looks good.

Next, Matt talks about whether brands can be economic moats. He urges investors not to conflate brand awareness with pricing power, using consumer-electronics company Toshiba as an example. This leads to a conversation about luxury brands, why Matt prefers distributors to retailers, and why he only invests in companies worth 10 times earnings or less. Matt then breaks down his long-term focus, discussing intrinsic value and giving listeners a reality check...

What are the realistic distributions? What's the average company going to grow? The fact of the matter is, very few companies will grow rapidly. So you need to be aware that any time you're paying a high growth multiple, the odds are against you.

Finally, Matt highlights the discipline it takes to be a long-term value investor, as it's human nature to want to add more to a position when it's soaring or sell shares on bad news. However, when you own good businesses, it's best to sit on your hands and do nothing. Matt also shares some guidelines Eagle Point Capital follows when searching for stocks in terms of market cap, industry, risk factor, and cyclicality...

There is always going to be cyclicality of a stock price, but we try to look at underlying cash-flow cyclicality... If you look at something like DaVita dialysis, there were so many fears about GLP-1s, there was a Supreme Court ruling that people worried about, [but] none of that ended up making a difference in their cash flows... When we talk about noncyclicals, we're really talking about those underlying cash flows.