2022 Portfolio: Mid-Caps Part 2
Detailing my holdings and investment thesis for the "mid-cap" companies inside of my 2022 portfolio.
 |
Run it back, again!
This is Part 3 of 4 in a mini-series that explains the structure of my 2022 portfolio. In case you missed the introduction to my Mid-Cap holdings, I’ve linked out the post below - give it a glance if you haven’t already.
In the post above, I touch on a variety of themes that impact my investing theses. Among these are secular growth trends, inflationary pressures, work from home considerations, international relations, and more.
However - as we outlined in the below post - free cash flow (FCF) per share is the name of the game. We want to identify which companies will produce and grow FCF per share by 2026, invest into them at fair valuations, and feel confident that there’s plenty of room for upside.
Assuming you’ve read 2022 Portfolio: Mid-Caps Part 1, I’m going to skip the detailed introduction. Let’s get straight to the names and my thoughts.
Palo Alto Networks (PANW):
- Cybersecurity
This company was mentioned as a favorite in my cybersecurity secular growth trend analysis here. Their stock went on an absolute rampage in 2021 - finishing the year up +56%. This was driven higher by the company nearly doubling their FCF per share from $8.48 in 2020 to $14.39 in 2021.
The Colonial Pipeline ransomware attack that took place last year was the straw the broke the camel’s back — and PANW is a leader in this space.
The company will likely increase revenue by +20-30% compounded annually through 2026 — marking them close to $11.6 billion in revenue during FY26. They’re currently running a 13% FCF margin, but I’d imagine this figure approaches 15-18% faster than we expect.
$2 billion in free cash flow in 2026 yields $20.26 in FCF per share, or with a 35X multiple, a share price of roughly ~$710 / share — not leaving us much upside for growth. Despite this representing only +5% returns compounded annually through 2026, both Wall Street and I believe the market will continue to put an immense premium on free cash flowing cybersecurity stocks.
12 mo. WS PT: $615 / share
Current fair value: $505 / share
—
Palantir Technologies (PLTR):
- Big Data
Originally pitched on Patreon at $9 / share, 2021 showed us that Palantir is still on track to become a free cash flow printing machine.. eventually. As explained in my mid-week earnings recap published here, the company is on track to do $5 billion in annualized revenue in 2025.