Constellation Software Inc. (CSU.TO)

Mea culpa, not a timely pick. The AI bear was let out of the cage almost immediately after this pick. Still holds because his firm just doesn't believe AI will totally disrupt these vertical-market software firms.

Demise of software is a narrative right now, but no evidence in the fundamentals. Not all of its business units will be displaced by AI, and some will actually benefit. Tends to buy companies at low multiples and earn back its money in short order.

He continues to add. Everything that could go wrong did last year. Nothing wrong with fundamentals.

Looking at the chart, he exited his remaining position at the plateau at $3500. Technically, it has to get back to that and that's $900 away (a lot of water under that bridge). 

Tough over next 6 months. Need a couple of quarters under new leadership. Still expensive at 74x PE. Business model needs to do bigger deals, which means more risk; though a lot of software stocks are on sale (but for good reason).

The dip now is a phenomenal opportunity. Metrics haven't been this low in a decade. LLM's like Anthropic are chasing big companies like CSU, which will help LLM's customers to integrate with their product. The moat around CSU is misunderstood.

Vertical software segments such as transit system scheduling or golf course management. Obvious fears of AI, and there is some legitimacy there. Its advantage is that it’s had to resolve all these “edge” issues over the years -- all the little exceptions to the rules that crop up. A new company would have to start from scratch on that front. 

New strategy of acquiring smaller stakes in larger companies -- acts as a defence against AI. Trades at 15x forward PE, cheapest in 13 years. Yield is 0.23%.

He sold it when the relative strength came off, and has since crumbled a lot. It's trying to stabilize now. He's not convinced it will rise. Given the strong sell-off, it may need to go sideways for a while.

Rollup stories tend to run out of steam at some point. Double whammy -- high valuation + concern that software is going away. Probably will have a bounce, but he can't say when, and it probably won't get back to previous levels.

Ignore the noise. Are so well positioned. Software companies are cheaper now. Barriers for entry for AI are high, he feels. CSU trades at attractive valuations. Buy for the long term.

Never owned it due to high PE and they grow by acquisition, whereas she wants to see some organic growth in a company. Are concerns after the CEO resigned, and now there are AI concerns, since they buy software companies. To maintain their growth rate, they have to buy larger and larger companies.

It has changed its business model from its storied days. It used to buy small software companies in the $5 to $7 million range, but has changed to bigger companies and getting more competition with other bidders and which are taking longer to play out. It more recently started buying public companies. Their selection is more limited and it is buying companies that other companies are often interested in. It is time to move on to something else since there is not the same rate of return. However it has had a tremendous run and is one of the most successful stocks on the TSX.

If you own, continue to hold. With AI, growth model to buy other companies doesn't seem the right way going forward. See if management can turn things around, giving them 18 months minimum.

Probably one of the highest compounding rates of return over last 15 years. AI concerns are probably overdone. Earnings reported today continue to be strong. Acquisition targets now much cheaper.

Before buying, he'd want to see the price stabilize and more positive technical metrics. Value investors can start building a position.

CEO left. AI fears. The question is what are you willing to pay for this company? People were paying 30-40x PE for a long time. Its business model is operating in a different world now.

Company will still exist. Volatility will remain. You may be able to buy it cheaper.

One of the best-run companies in NA. Solid. Trading ~15x forward PE, cheaper than ever. If you don't own it now, you probably never will. Because it makes acquisitions, those targets are now trading at lower valuations and so embedded returns should be higher.

For its customers, they click a button and the software does what they need it to do. They're not thinking about upgrading or changing what works. So AI is on the radar, but not an immediate threat.

Valuation always excessive for minimal organic growth and acquisitions that become harder to move the needle. AI fears, CEO left. Now trades at 12x operating cashflow. Strategy hasn't changed. 

Strong cash balance and free cashflow can now take advantage in acquiring software players that have been hurt. Private equity is a big competitor, but that space is facing concerns right now. So M&A should pick up dramatically. Yield is 0.20%.