Enlightened Capital Blog

EQIX is the largest retail colocation data center operator globally, with a 20% market share. EQIX was founded in 1998 by Al Avery and Jay Adelson to help scale the growth of the internet by allowing competing networks to connect and share data (check out Tubes for a great description of the physical internet). EQIX provides customers with space and power (colocation revenue), the ability to interconnect with other customers, and operational support and installation assistance. EQIX operates 227 IBX (International Business Exchange) data centers in 63 markets across 26 countries. As of March 26th, EQIX had a market cap of $60bn, and the company generated $6bn of revenue and $2.9bn of EBITDA in 2020. Importantly, 94% of EQIX’s revenue is recurring with EQIX’s sources of revenue described below. From an operational perspective, EQIX's data centers have 99.999% reliability, which is crucial for its customers.

Investor-owned utilities provide electricity and gas to commercial, industrial, and residential customers. Roughly 80% of the sector’s earnings are derived from electric operations, followed by 15% natural gas, and 5% for other. The utility sector should deliver 9-10% annual returns for investors over the next few years, driven by a 3.5-4.5% dividend yield and an average 5-7% EPS growth rate for most utilities. Given how low risk the sector is from an earnings or disruption standpoint, I view total returns as attractive from a risk adjusted standpoint.

Ally is the largest online only bank in the U.S. and one of the largest banks in the country with $183bn in assets. The market currently underappreciates Ally’s ability to grow earnings over the next few years, as the stock trades at 9x 2021 consensus EPS and 7.5x 2022 consensus EPS. Personal and Commercial Auto lending and Auto related insurance, account for 90% of Ally's earnings, and auto market fundamentals remain strong with high trade in values for used vehicles and robust auto loan demand. Additionally, Ally continues to increase its dealer relationships, which has led to a substantial increase in auto loan appliations over time. Furthermore, Ally has expanded beyond its dominant position in personal and commercial auto lending into other asset classes including mortgages, personal loans, and commercial loans, as well as into wealth management through its online banking platform.

After struggling from 2013-2017 through a data breach, unsuccessful expansion into Canada, and weak growth, Target restored itself by successfully executing on its e-commerce strategy. Target has leveraged its roughly 1900 stores as ecommerce distribution centers, remodeled stores, launched a loyalty program, and expanded merchandise selection. This transformation has led to improved ROIC’s and strong EPS growth from 2017-2019, with further improvements in 2020 driven by the COVID-19 pandemic. Strong e-commerce sales (+163% YTD), and much larger average basket sizes (+15% YTD) have led to record revenue and EPS for Target in 2020.

ENB is one of the largest North American midstream companies, generating annual EBITDA of more than C$13bn and Distributable Cash Flow (DCF) of more than C$9.4bn. ENB is well diversified across liquids pipelines, gas transmission pipelines, a gas distribution utility, and renewable power generation. ENB’s earnings have been extremely stable over time, driven by the constructive regulatory environments ENB operates in, which minimize both commodity price risk and volumetric risk. Furthermore, ENB has a strong asset base, transporting 25% of all crude oil in North America including 2/3’s of all Canadian exports to the U.S., and transporting 20% of all the natural gas consumed in the U.S., in addition to owning the largest Natural Gas Distrubtion business in North America.

ISRG is an excellent company demonstrated by its 92% market share in robotic assisted surgery, generating strong ROE’s over time, and with strong growth opportunities ahead. ISRG enjoys a first mover advantage in robotic surgery with more than 20 years of experience selling robotic surgery systems and backed by more than 22,000 peer reviewed articles supporting the clinical and economic benefits of robotic surgery compared to open surgery and minimally invasive surgery (MIS). Furthermore, the robotic surgery market is characterized by high customer switching costs and regulatory barriers. These switching costs are driven by the large capital cost for the robotic systems, and the substantial amount of training surgeons undergo to operate these machines. Furthermore, there are high regulatory barriers to entry, with regulatory approval required for new products to come to market.

Progressive is an attractive opportunity, and I expect the company to generate 12-15% IRR's for investors over the next 5 years. Progressive is a leading property and casualty insurer who has generated industry leading ROE’s over the past two decades driven by its excellent underwriting performance. PGR’s superior underwriting is driven by both a lower loss ratio and a lower expense ratio. Specifically, PGR prices policies on a much more segmented and granular basis than its peers, by utilizing telematics such as Snapshot for personal auto and Smart Haul for commercial auto. Additionally, PGR’s direct to consumer (DTC) marketing strategy and lower commission rates paid to agents have led to lower customer acquisition costs.

Every great investor has a clear investment philosophy helping them narrow down their investable universe from a possible 630,000 global public companies. Professional investors are typically limited in their investable universe based on their fund’s investment policy which determines which companies are eligible for investment based on geography, market cap, sector, and investment style such as value or growth. However, as an individual investor, I have a great competitive advantage: the ability to invest in any company regardless of its geography, sector, or market cap.

UnitedHealth Group (UNH) represents an attractive investment opportunity, and I expect UNH to deliver 13-15% IRR’s over the next five years. UNH maintains a dominant across the healthcare landscape including: health insurance, pharmacy benefit management (PBM), healthcare delivery, and healthcare data analytics and consulting. UNH’s strong market share has led to improving margins and phenomenal returns on capital over time, and I expect these trends to continue going forward. Management has proved themselves to be excellent capital allocators balancing share repurchases, bolt-on acquisitions, and capex and continues to target 13-16% EPS growth over the long-term, as well as 20+% ROE’s and mid-teens ROIC’s. Despite a market cap of $288 billion, UNH has substantial growth opportunities ahead driven by the aging U.S. population, continued consolidation of provider groups, and global opportunities to grow UNH’s healthcare data, analytics, and consulting platform. The scale of UNH’s growth opportunities are underappreciated, as the total addressable market for its non-insurance businesses is $1.45 trillion globally, with $850 billion in the U.S. and $600 billion abroad.

Recently we simplified saving for college by helping you narrow down what financial assumptions to use. For my next trick, I’ll tackle an even more complex topic- retirement planning!

In this post we’ll do the same analysis for retirement planning that we did for saving for college, and simplify the process for you. I’ll walk you through the process of creating a budget, thinking through your financial goals and help you figure out what assumptions to use for retirement planning. I’ll also highlight why it is so important to start saving for retirement as soon as possible.