VALUE: After Hours (S08 E18): ServiceNow, Amazon, And AI: Using Options To Find Value In High-Quality Growth Stocks

During their recent episode, Taylor, Carlisle, and Tim Travis discussed ServiceNow, Amazon, And AI: Using Options To Find Value In High-Quality Growth Stocks. Here’s an excerpt from the episode:

[Tim] But we did that last time. But where we found some opportunities lately are on some of these software as a service stocks. So it’s interesting.

I mean, that’s not the normal purview of some value investors, but we look at growth and value as being intertwined. And so stocks that have just gotten demolished, but their underlying fundamentals are pretty strong, like ServiceNow, for instance, was one that has done pretty well lately, but it got absolutely demolished from its 52-week highs. But we actually look at them as being a beneficiary of AI because of where they sit in the IT infrastructure and helping companies kind of bridge that gap and navigate things and get the appropriate permissions and all of that stuff.

And they’re still growing their revenues. They’ve got a really good balance sheet. Management seems to finally want to start taking some medicine on the stock-based compensation, which is a big problem for them.

But you’re buying it at multiples that it’s never been available for. And the options are priced very attractively as well. But of course, we’re willing to own the underlying stock.

So some of those are really good. I mean, even Amazon, when Amazon dipped to 200, that was a great opportunity. We look at Amazon as good of a business as there is in terms of the future and the assets that they have.

If you think about it, you have obviously the retail operations, but AWS is the crown jewel. You have the advertising business, which is bigger than YouTube and growing rapidly and is perfectly situated with where it is. You have them now entering logistics, third-party logistics, competing with UPS and FedEx.

And there’s so many different ways for them to win. And you look at the valuation, yes, free cash flow is getting crushed. So on a price to free cash flow, it’s going to look horrendous.

But this is money that they’re going to earn a fantastic return on in our estimation. I mean, if I was CEO of Amazon, I’d want to be throwing a lot into this because the reality is the AI is that good. It is that powerful.

And I was sceptical, but the more you engage with it and the more you see what you can do with it, it really is. I mean, there’s very, very high limits to how much computing power and stuff like that that they’re going to be able to sell. So I thought that was attractive.

So you’re able to sell puts on really high quality companies like that and manufacture attractive entry prices into the stock. Or if it runs away, then you made a really nice profit too.

Interested in Buffett-style options strategies alongside long-term value investing?

Value Options Letter focuses on conservative options strategies around undervalued businesses, including cash-secured puts, covered calls, and disciplined “getting paid to wait” opportunities inspired by Warren Buffett’s approach to risk and valuation.

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VALUE: After Hours (S08 E18): ServiceNow, Amazon, And AI: Using Options To Find Value In High-Quality Growth Stocks

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