What Stock Would Warren Buffett Buy If He Started Over In 2024?

What is TKO and Why is it a Top Stock Pick?

TKO is a holding company that owns both WWE and UFC, making it a dominant player in the combat sports industry.

Business Model:

TKO's business model is straightforward. It generates revenue through:

• Pay-per-view events
• Media rights deals
• Live events
• Merchandise sales

Why TKO is a Top Stock Pick

1. Understandability
The business is easy to grasp. Fans watch fights, and the company earns from multiple streams.

2. Economic Moat
TKO has an unrivaled market position with WWE and UFC. These two brands hold over 95% market share in their categories. Competitors like Bellator have failed to make significant inroads.

3. Competent Management
TKO is led by industry heavyweights. Ari Emanuel, Dana White, and Egan Durbin bring expertise and a proven track record in growth and management.

4. Margin of Safety
The combined entities generate a significant EBITDA and trade at a valuation that offers room for appreciation. It's trading at a reasonable multiple considering its earnings and market position.

5. Strong Financials
The company generates over a billion dollars a year in EBITDA. It has strong cash flows and minimal required capital expenditures. This financial robustness makes it a compelling choice for investors.

TKO stands out as a well-rounded investment with simplicity, market dominance, competent leadership, financial prudence, and steady cash flow.

What Risks are Associated with Investing in TKO?

Investing in TKO comes with several potential risks. Here are the main points to consider:

1. High Debt Levels
TKO has accumulated significant debt to acquire WWE and UFC. This leverage can be risky, especially if cash flows fluctuate.

2. Stock Performance
Since the merger, TKO's stock performance has been underwhelming. A 15% drop highlighted concerns and uncertainties among investors.

3. Fighter Pay Issues
The relatively low payments to fighters pose a risk. If fighters unionize to negotiate better pay, it could increase operational costs significantly.

4. Dana White's Departure
Dana White's departure would be a major blow. His leadership has been crucial to UFC’s success. Losing such a key figure could unsettle investors and shake the company’s stability.

These risks make it essential to carefully evaluate the long-term potential of investing in TKO.

Why is Ferrari a Top Stock Pick for 2024?

Ferrari stands out as a top stock pick for 2024 due to several compelling factors:

Heritage and Longevity

• Ferrari's long history and established heritage make it a cornerstone in the luxury automotive sector.
• The brand’s legacy adds to its longevity, making it a reliable investment.

Premium Margins

• Ferrari enjoys some of the highest margins in the industry.
• In 2021, it made over $100,000 per unit sold, vastly outperforming competitors like Tesla and Mercedes.

Exclusivity

• Ferrari's exclusivity is legendary. Only a select few can purchase their top-tier models, enhancing its allure.
• Strict ownership policies ensure the brand maintains its elite status.

Brand Strength

• The Ferrari brand is synonymous with luxury and performance. It commands premium pricing across all its products, from cars to merchandise.
• This strong brand identity drives continuous demand and loyalty.

Financial Performance and Market Cap

• In 2023, Ferrari's revenue grew by 17% to $6.5 billion. Their net profit hit $1.3 billion, showcasing robust financial health.
• With a market cap of around $72 billion, Ferrari ranks among the top luxury automakers globally.

Ferrari’s unique blend of heritage, high margins, exclusivity, and brand strength make it a top stock pick for investors in 2024.

What are the Downsides of Investing in Ferrari?

Investing in Ferrari has its challenges. Here are some potential downsides:

1. High PE Ratio

• Ferrari's price-to-earnings ratio stands at about 54, which is considerably high.
• This valuation could limit upside potential and make the stock more volatile.

2. Changing Consumer Preferences

• Younger generations are increasingly less interested in car ownership.
• The declining desire for luxury cars among younger demographics poses a risk to long-term demand.

3. EU Regulations

• The European Union has stringent regulations regarding emissions and hybridization.
• By 2030, many cars must have hybrid components, which could affect Ferrari's iconic internal combustion engines.

These factors warrant a cautious approach for potential investors.

Lessons from Ferrari's Business Model

Ferrari offers more than just luxury cars; it provides a blueprint for entrepreneurial success. Here are key lessons one can glean from Ferrari’s business model:

Missionary Over Mercenary

Enzo Ferrari exemplified the mantra, “Live and breathe your brand.” This missionary zeal ensured uncompromising quality and authenticity.

“A great mania to which one must sacrifice everything without reticence, without hesitation.” - Enzo Ferrari

Aspirational Brand Building

Ferrari’s heritage and legacy create a brand that people aspire to own. They have mastered the art of making their product a symbol of status and luxury. The lesson here is clear: build a brand that people dream about.

The Power of Saying No

Ferrari’s refusal to dilute its brand by saying no to non-luxury opportunities has preserved its exclusivity. Saying no can help maintain your brand’s integrity and long-term value. This aligns well with the idea that focusing on niche markets can lead to monumental success, as highlighted in Follow Up Boss's journey.

Incorporate these principles and watch your entrepreneurial venture flourish. For more insights on brand power and continuous improvement, learn from Gili Raanan's experience at Sequoia.