January 10, 2025 • 1hr 3min

TIP690: Top Stocks for 2025 & The "Buy" List w/ Eddy Elfenbein

We Study Billionaires - The Investor’s Podcast Network

Eddie Elfenbein, portfolio manager and creator of the Buy List, joins Clay Finck to discuss his stock picks for 2025. The Buy List, launched in 2006, consists of 25 equally-weighted stocks that are only changed once per year. In 2016, Eddie also launched an ETF (ticker: CWS) that closely replicates this strategy. The discussion covers Eddie's views on the current market environment, his top performers from 2024, and his rationale for new additions and removals from the Buy List for 2025.

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Key Takeaways

Eddie Elfenbein's Buy List has outperformed the S&P 500 since 2006, delivering 11.2% returns vs 10.6% for the broader market
The Buy List consists of 25 equally-weighted stocks with changes made only once per year (5 additions/deletions)
Top performers in 2024 included FICO (+77%), Miller Industries (+59%), and Pfizer (+58%)
New additions for 2025 include Adobe and Allison Transmission, while removals included Polaris and Celanese
The strategy focuses on high-quality companies with strong market positions and consistent operating histories
Clay Finck shared his investment thesis for Lumine Group, a recent spinoff from Constellation Software

Introduction

Eddie Elfenbein, portfolio manager and creator of the Buy List, joins Clay Finck to discuss his stock picks for 2025. The Buy List, launched in 2006, consists of 25 equally-weighted stocks that are only changed once per year. In 2016, Eddie also launched an ETF (ticker: CWS) that closely replicates this strategy. The discussion covers Eddie's views on the current market environment, his top performers from 2024, and his rationale for new additions and removals from the Buy List for 2025.

Topics Discussed

Market Overview and Strategy (4:29)

Eddie discusses his approach to selecting stocks for the Buy List and his views on the current market environment:

Market Divergence: There has been an unusual divergence between the Magnificent Seven stocks and the rest of the market
Economic Resilience: Despite widespread predictions, a recession failed to materialize in 2024
Selection Criteria: Focuses on high-quality names with strong market positions and consistent operating histories
Portfolio Management: Makes only 5 changes per year, resulting in an average holding period of 5 years

2024 Performance Review (7:00)

Review of the Buy List's top performers in 2024:

FICO: Up 77% for the year
Miller Industries: Up 59%, validating Eddie's thesis from two years ago
Pfizer: Up 58%
Amphenol: Up 44%
Heico: Up 34%

Portfolio Changes for 2025 (14:41)

Discussion of new additions and removals from the Buy List:

Additions:
- Adobe: Strong recurring revenue and dominant market position
- Allison Transmission: 70% market share in core market, reasonable valuation
Removals:
- Polaris: Underestimated impact of interest rates on business
- Celanese: Poor performance, down over 50%

Macro Environment Considerations (30:38)

Eddie shares his thoughts on balancing macro awareness with bottom-up investing:

Economic Indicators: Focuses on interplay between interest rates and stock market
Market Cycles: Pays attention to rotation between value and growth stocks
Risk Management: Uses macro analysis primarily for measuring risk rather than timing markets

Lumine Group Investment Thesis (44:15)

Clay Finck shares his investment thesis for Lumine Group:

Background: Recent spinoff from Constellation Software, trading under ticker LMN
Business Model: Acquires vertical market software companies in media and communications sector
Key Metrics:
- Market Cap: US$7.5 billion
- Estimated 2024 EBIT: $194 million
- Multiple: ~45x EBIT
Investment Case:
- High return on invested capital (20-25%)
- Strong reinvestment opportunities
- Aligned management incentives
- Long runway for growth

Conclusion

The episode provides valuable insights into Eddie Elfenbein's successful Buy List strategy and his approach to long-term investing in high-quality companies. The discussion of specific stock picks and portfolio changes offers practical examples of his investment philosophy in action. Additionally, Clay Finck's detailed analysis of Lumine Group presents an interesting investment opportunity in the vertical market software space.