sport football: 5 High Quality Businesses (Vol. 1)

Every so often, the market gives us an opportunity to buy quality businesses at a fair price. Sometimes, it even punishes them far below what they're worth.

The market has struggled this year, and this past week, the selling accelerated. The Nasdaq 100 has officially entered a correction, and the S&P 500 is close behind. After a few years of strong returns with only a few blips, a bear market wouldn't come as a surprise and would be greatly welcomed.

Regardless of what happens from here, there are names already trading at attractive levels today. If the market corrects further, they only get more compelling.

I've identified 10 businesses at the very top of my watchlist, the names most likely to earn a spot in the Carbon Capital portfolio. Below are the first 5, and the remaining 5 will be sent next week. I may enter positions across any of these names in the coming days or weeks.

Over time, I plan to write a full deep dive on each of these businesses and review their earnings reports regularly, sharing my notes and takeaways along the way.

At the end of this email, I'll also share updates to the portfolio and other important notes.

Let's dive in.

Disclaimer: This is not financial or investment advice. I'm sharing my personal investment decisions and reasoning for educational and informational purposes. Always do your own research before making any investment decisions.

V. Ferrari ($RACE)

What does Ferrari do?

Who wouldn't love to own a Ferrari one day? Founded nearly 80 years ago, Ferrari designs, manufactures, and sells luxury performance sports cars. Cars and spare parts make up the vast majority of revenue, but the company also generates revenue from Formula 1 sponsorships, brand licensing, and lifestyle merchandise.

Why is the stock down?

1/ Conservative Long-Term Guidance — At its Capital Markets Day in October 2025, Ferrari issued a 2030 revenue target of €9B, reflecting a sales CAGR of just 5% over the next five years. The company has a 5-year revenue CAGR of 16%, so this represents a considerable slowdown from historical growth.

2/ EV Scaleback — Ferrari originally targeted 40% of vehicle sales from fully electric models by 2030. However, that figure was reduced to 20% at the same Capital Markets Day. According to Reuters, the company has also delayed its second fully electric model to at least 2028, as demand for high-performance EVs is effectively "zero". Investors continue to question whether Ferrari can navigate a transition to a fully electric world.

3/ Iran War Headwinds — In early March, Ferrari suspended all shipments to the Middle East due to the ongoing war in Iran. Many buyers in the UAE, Qatar, and Saudi Arabia are known for the highest levels of personalization, making them disproportionately valuable customers. Beyond lost shipments, the war could also drive up European energy prices and production costs, pressuring margins.

4/ U.S. Tariff Exposure — The U.S. initially imposed a 25% tariff on European-made vehicles in early 2025, before a deal with the EU in July reduced it to 15%. The Americas make up 31% of Ferrari's total revenue, and Ferrari manufactures exclusively in Italy, meaning there is no way to get around these tariffs. Any further escalation between the EU and U.S. poses a direct threat to margins.

Why is it an opportunity?

1/ Sandbagging Culture — Ferrari has a reputation for sandbagging guidance. They hit their 2026 targets a full year early in 2025. At just a 5% revenue CAGR guide, the company has built a significant cushion to outperform, with the order book sold out through 2027 and demand consistently exceeding supply. More importantly, the conservative guidance also serves a deeper purpose. In luxury, excessive growth can be a brand killer. By limiting volume targets, Ferrari protects its reputation and ensures demand stays robust.

2/ EV Misread — At the end of the day, Ferrari's customers want powerful, high-performance engines. Additionally, weak EV demand isn't unique to Ferrari either, it's consistent across luxury automakers. The delay of its second fully electric model to 2028 gives Ferrari extra time to develop in-house technology focused on lighter batteries and sustained power output, and internal sources view that second model as the real game changer, not the first. As a low-volume producer, Ferrari also faces far less regulatory pressure than mass-market brands and will likely be eligible for derogation under current and future emissions frameworks.

3/ Contained Exposure — The Middle East accounts for about 5% of shipments, which isn't massive, and Ferrari can supplement lost volume with orders from other regions. Logistical workarounds, like air freight, are in place. This is a short-term headwind, not a structural issue.

4/ Premier Pricing Power — Ferrari arguably has the strongest pricing power of any brand in the world, and its customers are price insensitive. The company has already implemented select 10% price hikes on high-demand models to offset tariff impact. If tariffs escalate further, Ferrari has the brand strength to pass costs through without destroying demand.

Valuation

As recently as February 2025, Ferrari was trading at a nosebleed 42x forward EV/EBIT. That premium left no room for error. Today, that figure has fallen to 23x, well below its historical median of 30x and its lowest level in nearly 7 years. It's highly unlikely Ferrari will ever return to its early post-IPO valuation of 15x, as the market has already recognized the durability of the business. However, at 23x, the risk/reward profile has significantly improved.

My Take

Ferrari is one of the best businesses ever created. It's a luxury house, not a car company, and it doesn't follow the rules of the auto industry. Its pricing power is unmatched, its brand is one of the most iconic in the world, and its ability to withstand economic cycles is rare. You can't just walk in and buy a Ferrari. Additionally, you need to purchase several entry-level models before even being considered for the higher end, creating a level of exclusivity no one else can match. With just 13,640 total shipments in 2025, Ferrari is selling its cars at an estimated average of roughly $440K. The order book is full through 2027, giving the company robust revenue visibility regardless of what happens to the global economy. I want Ferrari to become a core holding in the portfolio, and I'd look to initiate a position if it dips below 20x forward EV/EBIT.

IV. S&P Global ($SPGI)

What does S&P Global do?

Everyone knows the S&P 500. Few people realize they can own the company behind it. S&P Global provides credit ratings, benchmarks, analytics, and workflow solutions across global capital and commodity markets. Its crown jewel is the credit ratings business, where it operates in a duopoly with Moody's that is deeply entrenched and protected by regulatory requirements. The company also earns high-margin licensing revenue from the S&P 500 index itself, charging asset managers fees based on the volume of assets tracking it.

Why is the stock down?

1/ Disappointing 2026 Guidance — Management guided adjusted EPS of $19.40 to $19.65, below analyst estimates of $19.95, representing roughly 9% growth compared to 14% in 2025. Organic revenue growth was guided at 6-8%, also a slowdown from the prior year. Most notably, the Ratings segment, which makes up roughly half of operating profit, is projected to grow organic revenue at just 5.5%. While unlikely, if interest rates rise, that could slow new bond issuances and reduce the volume of credit ratings, further pressuring the company's most important revenue stream.

2/ AI Disruption Concerns — The market is concerned that AI could threaten S&P's Market Intelligence segment, which accounts for 32% of revenue. The segment operates as a subscription-based platform that aggregates financial data on millions of public and private companies. If AI can replicate those capabilities or find alternative ways to gather that data at a fraction of the cost, it could displace a meaningful portion of revenue.

3/ IHS Markit Integration — S&P Global acquired IHS Markit for $44B in 2022 to expand its data dominance. The company hit its $600M cost-synergy targets ahead of schedule, but capturing revenue synergies has proven more difficult. The decision to spin off the Mobility division, which includes CARFAX, by mid-2026 suggests certain segments didn't fit the core business as well as originally anticipated. The deal was also all-stock, which significantly diluted existing shareholders.

Why is it an opportunity?

1/ Credit Ratings Duopoly — S&P Global controls approximately 50% of the global ratings market. Companies and governments are required to obtain credit ratings to raise debt, and the business is heavily protected by regulatory requirements. This is extremely difficult to disrupt. More broadly, management has explicitly stated they are taking a prudent approach to guidance but broadly sees more tailwinds than headwinds heading into 2026.

2/ Proprietary Data Moat — More than 95% of S&P Global's data is proprietary. AI models are only as good as the data they're trained on, and tech companies will likely pay a premium for verified, proprietary data to ensure their AI outputs are accurate. That makes AI far more likely to amplify S&P's offerings than replace them. On the cost side, AI could also enable S&P to push operating margins higher through efficiencies and streamlined processes.

3/ Strategic Simplification — The Mobility spinoff enables S&P to shed a capital-intensive business, improve margins, and increase return on capital. The end result is a leaner, more focused company. Historically, when companies divest non-core assets, the remaining business tends to receive a valuation re-rating as the business model becomes cleaner and easier to value.

Valuation

S&P Global now trades at a nearly 5% forward free cash flow yield, above its historical median of 4.22%. For context, the U.S. 10-year treasury yields around 4.4% today. The market is essentially offering a duopoly at a higher yield than a government bond, in an asset-light business that aims to return at least 85% of free cash flow to shareholders.

My Take

S&P Global has been in business for over 165 years, and its moat has only widened with time. Ratings operates in a regulatory-protected duopoly. The S&P 500 index has trillions locked into ETFs and derivatives that practically can't switch benchmarks. Market Intelligence sits on proprietary datasets embedded directly into the workflows of financial institutions. And Commodity Insights serves as the legally recognized price of record for physical commodity settlements. Every core segment is protected. The company has increased its dividend annually for 53 consecutive years, and the upcoming Mobility spinoff should unlock further value and a potential re-rating. I'm keen on initiating a core position in S&P Global in the immediate future, and would like to see it retest its 52-week low of $382.

Now, moving on to the final 3, including one I've already started buying:

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