Friday Night Links

• This publication is important for three reasons that all point to the transformation of conservatism as a political & intellectual movement. First, it announces Lomez’s success as a self-made publisher. He gets talented people to have him publish their works—adds something prestigious to their celebrity—announces to the rightwing audience that they are now in charge of intelligent writing. Lomez will be the most important tastemaker on the right if he keeps this up & his present success already shows how to do it. As liberalism fails & wokies trash the culture, it’s going to be people like him who save the day. [link]
• And as Matt Yglesias has pointed out, if you shift the median over, the tails of the graph are going to be very extreme indeed. The median view of the Israel-Palestine conflict in my social circles is something like: sympathy for both the Israeli and Palestinian people, unambiguous condemnation of Hamas, skepticism of the Netanyahu government’s response to the attacks, and probably support for some sort of two-state solution. Relative to the US public as a whole, that position qualifies as center-left. Relative to the Columbia campus, it might seem right-wing or even “Zionist”. Most people are very bad at placing their own political views in the context of broader public opinion as opposed to their immediate social environment. A student looking to establish that she’s a good lefty at one of these campuses might anchor herself relative to the rest of the student body and not recognize the radicalism of a chant like “from the river to the sea”. [Nate Silver]
• Thus the life of a Philadelphia WASP might go something like this: He would start out being raised in Chestnut Hill, proceed through high school at a local elite day school like Episcopal Academy or a boarding school like St. Mark’s, then move on to college at Princeton, where he would join an exclusive dining club like the Ivy. Returning to Philadelphia, he would live in Ardmore, join a prestigious firm such as Drexel and Company or a family enterprise, assume membership in a city club like the Philadelphia or Rittenhouse Club, and be engaged in various charitable endeavors. He would play tennis at the Merion Cricket Club, attend annual Assembly dances, and spend summers in Cape May. He probably met his wife at her debutante, and would proceed to have a larger-than-average number of children with her, staying together for life. Their children would in turn marry the children of other upper-class families or the children of newly minted wealth as a means of assimilating them into the upper class. [Aaron Renn]
• Despite these near-term challenges, we believe the current market dynamics are just a speed bump in the long-term thesis for soda ash. China looks to have absorbed a large majority of the 5 million tons, evidenced by no significant increases in export volumes from China and what recently appears to be a bottoming of Chinese domestic prices. We know there has been high-cost synthetic production shuttered in Europe at the same time certain international volumes are being pulled from lower valued markets and being directed towards higher valued and geographically advantaged markets. These market dynamics, combined with the end of de-stocking, the expected return of normalized global economic growth and increasing demand for soda ash driven by the transition to a lower carbon world, lead us to believe the market should become increasingly more balanced as we move through this year. This framework should provide for an improvement in export pricing and tighter market conditions as we start our annual price negotiations for 2025 volumes towards the tail-end of this year. [Genesis Energy LP]
• Social conservatism’s problem is that while there is a large constituent base for it, it is a minority position rejected by a solid majority of society. We see this most clearly in the electoral fortunes of abortion, in which the pro-abortion position has won every single time it has been on the ballot, even in deep red states like Kentucky. Cultural conservatism, or at least elements of it, does plausibly command majority support. The majority of Americans are on board with reducing immigration - certainly with ending illegal immigration. Protectionist trade policies would probably also garner a lot of support. The problem here is that cultural conservatives face the united opposition of essentially the entire elite, including of the Republican party. Open borders is the hill the Wall Street Journal editorial page would die on, for example. Bourgeois values are an essentially boutique position that does not exist outside of the conservative think tank world. Plus a few other social science outposts such as the work of Robert Putnam, Melissa Kearney, and Richard Reeves, who don’t directly endorse bourgeois values but document the personal and social consequences of their lack. The bourgeois values are the implicit moral code of the upper middle class, but to the frustration of neoconservatives like Charles Murray, they don’t “preach what they practice.” Bourgeois values have no mass constituency in the country whose culture has proletarianized and badly degraded. [Aaron Renn]
• With the introduction of Ivanhoe Electric’s Typhoon survey, hard-rock geologists can, for the first time, image mineral deposits several thousand meters below the surface. Unsurprisingly, 80% of all copper mine supply comes from deposits discovered within 200 meters of the surface – that is how deep the geologists could “see.” With Typhoon, that has changed. We know that copper porphyries exist at depths greater than 200 m, as several have been discovered by accident. However, the industry has never been able to explore for  these large ore bodies efficiently from the surface. [Goehring & Rozencwajg]
• As top-tier energy density rises, new battery applications will unlock. At around 400 Wh/kg, long haul trucking becomes economically attractive. At 500-650 Wh/kg, short haul electric aviation becomes feasible. Both are within striking distance after CATL’s 500 Wh/kg battery cell announcement. As more 500+ Wh/kg batteries enter the market over the coming decade, long haul trucks will decidedly tip, and electric aviation can start to take off. [RMI]
  

May Day Morning Links

• All hail JS Bach, whose spirit dwells in practically every note written since his death. With supreme contrapuntal skill, Bach sculpts music of perfect form and balance, bestowing it with an emotional power that has echoed through the centuries. From the aching beauty of the cello suites and the bewildering ambition of the keyboard works to the dramatic force of the cantatas, no one has, and could possibly, come close to Bach's genius. [Classical Music]
  
• Institutions lean conservative except for academia. Liberals are louder, but when you average out political behavior over the past 5 years, conservatives engage about as much, and get better results given they dominate governments with less popular vote, they dominate the military and police, and they dominate the corporations. A better picture is this: roughly consistent with mutational load theory, that the right half of the political distribution dominates relative to the left half, because the right half is more functional. The left half only dominates the most dysfunctional, pointless, and powerless of the major institutions: academia. Leftists engage in louder, more non-logical political-looking behavior, with less results, probably owing to a mixture of mutational load associated traits, which as Hanania remarks, include being less happy, more mentally ill, and less likely to start families. The right half of the political distribution engages in more efficient and effective political behavior. [Joseph Bronski]
• Imperial and Exxon seem superior to Chevron at present valuations. Note that Exxon's business will shift more towards shale if (or when) the merger with Pioneer Natural Resources (PXD) closes. Pioneer gives detail of its oil, NGL, and natural gas production volumes. In the fourth quarter of 2023 (release), oil volumes were 381k barrels per day, up 8.5% y/y. Capital expenditures in Q4 2023 were $1.18 billion versus $1.06 billion the year prior; up 11%. So, not too bad of a production shortfall, which is what we found when we were doing the Shale Treadmill research last year. [CBS] 
• This rule has garnered historic attention and the public comment period has yielded an immense amount of feedback, including from various elements of the civil rights and criminal justice movement. It’s clear that there are still more conversations to have, and that will take significantly more time. [HHS]
• Today, the U.S. Food and Drug Administration (FDA), in coordination with the U.S. Department of Justice (DOJ), announced that the U.S. Marshals Service seized unauthorized e-cigarette products valued at more than $700,000. The e-cigarettes were located in a warehouse in Alhambra, CA, and are believed to be owned by several California-based distributors. The seized products were mostly flavored, disposable e-cigarette products, including youth-appealing brands such as Puff Bar/Puff, Elf Bar/EB Design, Esco Bar, Kuz, Smok, and Pixi. [FDA]
• I think the faux convenience of smaller devices has caused an underappreciation of the efficiency of desktop computing. Even wasting time is faster on a desktop, and feels more active. The true tabbed browser, not the goofy facsimile on a tablet or phone, remains the most powerful information consumption tool ever invented. Twenty news links can be launched into the background quickly, and disposed of just as quickly with keyboard shortcuts (Command-W on a Mac) to close and move on to the next tab. Technology with the highest possible information bandwidth is critical if one is attempting to be super productive and add a lot of value to the world while still working reasonable hours. [The Tom File]
• Even the most die hard “America First” right-winger would not publicly propose that the United States invade Canada, conquer it, and exploit its natural resources. Why not? Well, that’s the power of woke virtue signaling. For the vast majority of human history, invading a weaker neighboring state to steal its natural resources would be a no-brainer. But the contemporary United States of America isn’t going to do that because progressive high-mindedness has worked like a “mind virus” to create a more peaceful world. [Matthew Yglesias]

Earnings Q1 2024: Exxon Mobil (XOM), Chevron (CVX), and Imperial (IMO)

Chevron (release)
First quarter liquids production for CVX was 1.1 million barrels per day of liquids in the U.S., with another 800k barrels per day in the international upstream. Their U.S. upstream liquids production was down 3% from the prior quarter and up 29% year-over-year. Capex for the U.S. upstream was up 27% y/y. That gives a "production shortfall" (remember Shale Treadmill) of negative 2%.

Unfortunately, they don't break out the "liquids" production between crude and NGLs, but the price realization for liquids was $57/bbl (vs $73 for intl upstream), indicating that it must have a substantial, low-value NGL component.

International liquids production was down 1.2% from the prior quarter and down 2.2% from the prior year. International upstream capex was up 56% y/y. The international natural gas realized price is much higher than the U.S.: $7.25 per mcf instead of $1.24.

Overall, upstream earnings were $5.2 billion (up 1.5% y/y) and downstream earnings were $783 million (down 57% y/y).

Chevron's free cash flow for the quarter was $2.7 billion, which was down 36% y/y. With a market capitalization of $305 billion (at $165 per share) and net debt of $15.6 billion, Chevron's enterprise value is $320 billion, which puts the annualized FCF/EV yield at only 3.4%.

Exxon (release)
First quarter liquids production for XOM was 816k barrels per day of liquids in the U.S., with another 1.7 million barrels per day in the international upstream. Their U.S. upstream liquids production was down 4% from the prior quarter and flat year-over-year. Capex for the U.S. upstream was flat versus the prior quarter and up 8% y/y. That gives a "production shortfall" of 8%.

International liquids production, which is much more important for Exxon than it is for Chevron, was flat from the prior quarter and up 1.4% from the prior year. International upstream capex was down 6.5% y/y.

Overall, upstream earnings were $5.7 billion (down 12% y/y), downstream earnings were $1.4 billion (down 67% y/y), chemical earnings were $785 million (up 112% y/y), and specialty products earnings were $761 million (down 2% y/y).

Exxon's free cash flow for the quarter was $10 billion, which was down 12% y/y. With a market capitalization of $469 billion (at $118 per share) and net debt of $5 billion, Exxon's enterprise value is $475 billion, which puts the annualized FCF/EV yield at 8.4%, heaps better than Chevron.

Imperial (release)
First quarter liquids production for IMO (net to them) was 357k barrels per day, down 2% year over year, with upstream capex down 10% y/y for a production shortfall of negative 8%. Once again, Imperial has the best results on the production shortfall metric, and this is understated because XOM/CVX likely have a rising share of lower value NGLs in their U.S. upstream liquids production.

Imperial's upstream earnings were (USD) $407 million (up 69% y/y), downstream earnings were $460 million (down 28% y/y), and chemical earnings were $42 million (flat y/y).

Imperial's $1.1 billion of cash from operations, less $363 million of capital expenditure, gives $737 million of free cash flow for the quarter. That is a yield of 7.2% on the enterprise value of $41 billion.

Imperial share count is down 8.2% y/y, although they did not repurchase any shares during Q1.

CBS Thoughts
Imperial and Exxon seem superior to Chevron at present valuations. Note that Exxon's business will shift more towards shale if (or when) the merger with Pioneer Natural Resources (PXD) closes. Pioneer gives detail of its oil, NGL, and natural gas production volumes. In the fourth quarter of 2023 (release), oil volumes were 381k barrels per day, up 8.5% y/y. Capital expenditures in Q4 2023 were $1.18 billion versus $1.06 billion the year prior; up 11%. So, not too bad of a production shortfall, which is what we found when we were doing the Shale Treadmill research last year.

Tuesday Night Links

• Shipment volume increased by 40.0% in cans (35.8% in pouches or pouch equivalents), fueled by ZYNnicotine pouch growth in the U.S., where shipment volume reached 131.6 million cans, representing growth of 79.7% versus prior year. Our share of the category in the U.S. increased for the fourth consecutive quarter to over 74%, up 1.3 percentage points sequentially. [Philip Morris International]
• Zyn has giant growth potential, it is profitable, and yet it is available for a value stock price. If you saw a company selling a high margin, recurring usage non-tobacco product with a hockey stick chart like the one above, the company would be selling for 18x sales right now, not earnings. [Credit Bubble Stocks]
• “But what should I build?” Whatever will get you out of bed in the morning. Whatever you dream about waking and sleeping. Whatever the future must contain, but will not, unless you build it. Your particular contribution is to pluck a worthy idea from the infinite sea of possibility, to determine how it must take form in the physical world, and to contrive a way to connect it to the engine of capitalism so it can generate self-sustaining wealth and value for its users. [Casey Handmer]
• Simon's 1981 book The Ultimate Resource is a criticism of what was then the conventional wisdom on resource scarcity, published within the context of the cultural background created by the best-selling and highly influential book The Population Bomb in 1968 by Paul R. Ehrlich and The Limits to Growth analysis published in 1972. The Ultimate Resource challenged the conventional wisdom on population growth, raw-material scarcity and resource consumption. Simon argues that our notions of increasing resource scarcity ignore the long-term declines in wage-adjusted raw material prices. [Julian Simon]
• Simon challenged Ehrlich to choose any raw material he wanted and a date more than a year away, and he would wager on the inflation-adjusted prices decreasing as opposed to increasing. Ehrlich chose copper, chromium, nickel, tin, and tungsten. The bet was formalized on September 29, 1980, with September 29, 1990, as the payoff date. Ehrlich lost the bet, as all five commodities that were bet on declined in price from 1980 through 1990, the wager period. [Simon-Ehrlich wager]
• I have therefore suggested that, assuming I could command every based person, it would be more effective to start breeding more than leftists by great numbers, ideally in our own space where there is a high concentration of based people of both sexes. This would do much more than based people being isolated in non-based institutions, writing blogs that do little in the grand scheme of things but threaten their salaries. Mutational load aside, the heritability of rightism proves the breeding strategy would be highly effective as long as the numbers are right. The blogging strategy has been tried for decades, with few results, and with no theoretical foundation. The theoretical foundation I have given life to suggests this is to be expected. [Joseph Bronski]
• It is reductive and tautological to just define everything but the NY Times out of the Cathedral. We’re not playing wordgames here — if the Cathedral is “journalism + academia”, and the above chart shows journalism, how is the Cathedral homogenous? These kinds of social analyses must absolutely be based on math, data, and evidence. It’s not acceptable to just make up claims from your armchair. How can anyone but the ignorant ever be convinced by such a method? My main problem with Moldbug’s writings has always been that he is “not a big fan of empirical evidence”. What value does your work have then? I cannot speak for his fans, but I certainly don’t need another man to do my thinking for me. I can come up with my own half-baked shower thoughts. [Joseph Bronski]
• Arkansas plays a trick on first-time visitors arriving from the East. The roads, dead flat and straight, lull newcomers into believing this lack of geological diversity will span the entire state. Then, just beyond the Arkansas Delta farmlands, the gradual ascent from the Mississippi River Valley to the peaks of the American West begins. [Freehub]
• Beyond the intraparty GOP battle, though, Congress’ passage of $60 billion in aid for Ukraine traces back to something simple but rare in modern politics: an ironclad pact of trust between leaders of opposite political parties. It’s all the more surprising given the years of animus between Schumer, the majority leader and relentless political tactician, and McConnell, the outgoing minority leader celebrating what may be his foreign policy coda as the top Senate Republican. [Politico]
• On April 16, 2024 (the "exercise date"), holders of Natural Resource Partners L.P.'s (the "Partnership's") warrants to purchase common units ("warrants") exercised 320,335 warrants with a strike price of $34.00. On April 18, 2024, the Partnership settled the warrants on a net basis with $10.0 million in cash and 89,059 common units. The 15-day VWAP ending on the business day prior to the exercise date was $90.33. Of the originally issued 4.0 million warrants, no warrants remain outstanding. [Natural Resource Partners, L.P.]
• Malek noted that it was not guaranteed that demand for oil and gas would peak in 2030, as predicted by the International Energy Agency, as the populations of developing countries begin to buy more cars and take more flights. JPMorgan forecasts that the world will need 108mn barrels of oil a day in 2030, and that building more wind, solar and electric vehicle capacity could add a further 2mn daily barrels to this total. “We are at a tipping point in terms of demand,” Malek said. “More and more of the world is getting access to energy and a greater proportion want to use that energy to upgrade their living standards. If that growth continues it puts huge pressure on energy systems and on governments.” [FT]
  

"PrairieSky Announces First Quarter 2024 Results, Record Oil Royalty Production"

[Previously: Earnings Notes (Q4 2023), PrairieSky Announces 2023 Third Quarter Results, Canadian Oil Earnings, PrairieSky Royalty Ltd. Reports Q2 2022 Earnings, and PrairieSky Royalty Ltd. Reports Q1 2022 Earnings.]

The market capitalization of PrairieSky (at US$20 per share for the U.S. ADR) is $4.8 billion and the enterprise value (with $152 million of net debt) is $4.9 billion.

The company reported net earnings of $35 million for the first quarter of 2024 (compared with $41 million the prior year) and earnings plus DD&A were $62 million (compared with $66 million the prior year). That's a "cash generation" yield of 5% (annualized) on the current enterprise value. The company paid $44 million of dividends and reduced net debt by $10 million, for a total shareholder yield of 4.5% on the market cap.

Crude oil production was up 8% over the prior year and total BOE royalty production was up 5%. The crude oil realized price was only $56 per barrel, which was up 1.2% from the prior year.

The company generated $58 million of cash from operations and spent $6.4 million on acquisition of new properties, $10 million on debt repayment, and $42 million on dividends.

Slide 9 of the investor presentation talks about PrairieSky's reserves replacement. Since 2016, the share count has increased by only 4.8%, while the proved and probable (2P) liquids reserves have increased by 64% and the production (in MBOE) has increased by 6%. (The total 2P reserves in MBOE went from 5.6 years to 7.2 years.)

• Q1 2024 management discussion & analysis
• Q1 2024 financial statements
• April 2024 investor presentation
  

Works in Progress Links

• What if, Jackling asked himself, you could extract copper not just out of those high-grade chunks (copper content of over five per cent) but also out of the other stuff too? In many mines around the world there were vast volumes of ores which looked to the untrained eye like normal rocks but contained a few percentage points of copper. They were set aside because it was simply too expensive to justify refining them. But, wondered Jackling, might there be some way of changing the calculus? In 1904 at Bingham Canyon, just outside Salt Lake City, Utah, he answered that question in dramatic fashion. Vast quantities of explosives were deployed to blast massive chunks of low-grade ore out of the ground. Steam shovels and steam crushers were brought in to ferry and grind the ores. What was once a mountain was turned into a kind of dust, which was then mechanically and chemically processed in what became known as ‘flotation separation’: the ore dust was mixed with an oily compound and then sloshed and shaken inside large tanks, allowing copper particles to float to the surface before being smelted into solid metal. What might sound like an arcane set of process changes turned out to be utterly revolutionary. Jackling’s ‘non-selective techniques’, as they are sometimes called, meant you could extract copper from even low-grade ores in large quantities. All of a sudden, the metal was no longer in short supply; it was plentiful. Better still, new electrolytic refining methods meant that the quality of copper being turned out by these new mega-mines was even better than the kind previously produced by older reverberatory furnaces, which roasted processed copper ores and dominated the business back in the nineteenth century, when the UK refined most of the world’s metals. [Works in Progress]
  
• Few materials fell from grace like asbestos. Once cherished as an almost-magical material, it is now the archetypal carcinogen. We spent over a century integrating it into buildings, wiring, pipes, brake pads, and more, and we now spend billions of dollars a year removing it. But the standard story of asbestos as a mistake – or even a crime – of massive proportions does not do justice to the real benefits it brought. Asbestos was central to mitigating urban fires, which cost thousands of lives each year as modern cities grew larger, denser, and more flammable. But as we learned to control urban fires without it, asbestos’s health costs seemed less and less worth bearing. Asbestos is in its final days and soon the material will almost disappear entirely. [Works in Progress]
• Crack the nut of geothermal power and it will feed us for billions of years: the Sun will engulf us long before the Earth’s core stops providing us with heat. In the here and now, a successful geothermal industry would mean a neat repurposing of oil and gas infrastructure and expertise; little prospect of Putin-style energy blackmail; and, most importantly, abundant clean energy, available 24/7, regardless of geography. Perhaps equally thrillingly, we would have drilling that would make the Soviets’ Arctic Circle record breaker look like a hobbit hole. [Works in Progress]
• Among other things, that meant bringing back American rye whiskey – the base ingredient for cocktails like the Manhattan. Rye whiskey ruled American bars before Prohibition, but during the second half of the twentieth century, it all but disappeared from the market. In the 1980s and 1990s, only a few US whiskey brands still produced rye whiskey at all, and production was in some cases limited to a single day a year. But as with crème de violette, rye came back in large part because of bartender demand. In Michael Ruhlman’s The Book of Cocktail Ratios, Audrey Saunders, a New York cocktail bar entrepreneur and important figure in the cocktail renaissance, describes becoming obsessed with Rittenhouse rye in the early 2000s after having been served a Rittenhouse rye Manhattan at Crobar in London, which she describes as a ‘hole-in-the-wall heavy metal bar’. [Works in Progress]
• Making cocktails at home means seeking out bottles that are good values and can be used in a lot of drinks. And there just aren’t many ryes that can meaningfully compete with Rittenhouse. In an era of demand-driven whiskey shortages, it’s widely available. At $28 or so a bottle, it’s reasonably affordable. And it is often not only a good choice for standard versions of classic cocktails, but the very best choice, particularly for drinks in the Manhattan family. [Cocktails With Suderman]
• A key advance was the growth of triangulation. The diagram below illustrates the basic idea: if you have the points A and B and measure the angles ɑ and β to C, this uniquely pins down the position of C. Further, if the length between A and B is known, the method also delivers the distances from A and B to C. Triangulation was attractive because it replaced expensive measurement of distances with cheap measurement of angles. After the mathematician Gemma Frisius explained how triangulation could be used for mapmaking in 1533, the method spread rapidly across Europe. In 1578, the astronomer Tycho Brahe used triangulation to map the island of Hven where his observatory was located, and the method is described in many textbooks published before the end of the century. [Works in Progress]
• Very few people understand how difficult it was to build state capacity in the past. Others conclude that things like property rights, state capacity, and development happened easily, quickly, and automatically, and they can’t figure out why developing countries are having so much trouble. Peruvian economist Hernando de Soto spent 13 years visiting land registries in rich countries, asking the experts that worked there how their respective countries created functional systems of property rights. None of them knew; they all admitted to never having thought of the question. While De Soto was focused on property rights, in this piece we will examine the development of state capacity in Mexico. There are lots of definitions of state capacity, but here I mean the ability of the Mexican government to enforce the laws in all of its territories, to be able to tax its people, and to formulate and enact policies. [Works in Progress]
• Some scientific papers receive very little attention after their publication – some, indeed, receive no attention whatsoever. Others, though, can languish with few citations for years or decades, but are eventually rediscovered and become highly cited. These are the so-called ‘sleeping beauties’ of science. The reasons for their hibernation vary. Sometimes it is because contemporaneous scientists lack the tools or practical technology to test the idea. Other times, the scientific community does not understand or appreciate what has been discovered, perhaps because of a lack of theory. Yet other times it’s a more sublunary reason: the paper is simply published somewhere obscure and it never makes its way to the right readers. [Works in Progress]
• Another important takeaway is that not only may Europe have had close to the ‘Goldilocks’ amount of competition between states, but it also benefited enormously from the ability of states to copy the successful innovations of others through means other than through annexation, and a relatively unified collective intellectual culture. Waves of institutional innovations brought about by newcomers forced other states to adapt and learn if they wanted to survive, just as with useful and technological innovations. The introduction of parliaments, the rise of fiscal capacity, and later on executive constraints and the rule of law went hand in hand with enhanced military might, leading to a virtuous cycle of better governance coupled with larger shares in the market of governance. [Works in Progress]
  

Looking at the Magnificent 7

The "Magnificent 7" companies have replaced the "FAANG" stocks, which means that Netflix has been dropped from the growthy-tech investor zeitgeist and Microsoft, Nvidia, and Tesla have been added. The combined market capitalization of the Mag 7 is $14 trillion, which is equal to one-third of the total market capitalization of the S&P 500 companies ($43 trillion). 

That is a very high level of concentration in the top index picks, which means that the returns for the float adjusted, market capitalization weighted index that most index investors buy (SPY) will likely be meaningfully different than the returns on the equally weighted index (e.g. RSP). (The equal weight RSP is trading for 19x earnings versus 21.5x for the SPY.)

Since we are generalists at CBS, it is "our business to know" what is going on with everything, even the frothy Magnificent 7. I thought that we should take a look at the cash generation power of these businesses. What do you get for $14 trillion? How are the free cash flow conversion margins - are these actually good businesses - and what is the valuation (FCF/EV)?

Before I did that, I wrote down my subjective view of business quality or moat for each, on a one to five scale. I am a customer of five of the seven (i.e. all of them except Nvidia and Tesla). How hard would it be for me to fire them? How hard do I think it would be for a team of well-funded 10x engineers to disrupt them? 

Based on that framework, I think that Tesla is 1/5; clearly the worst. (It now has the smallest market capitalization by a significant margin, while it was once larger than Facebook.) I think that Apple is clearly the best, 5/5. I gave Nvidia 4/5 although I am not very familiar with the company or its products. I think that Microsoft, Amazon, and Google are 3s and Facebook is a 2. (Without Instagram, Facebook would be a 1.)

How did my subjective view line up with the numbers? Surprisingly well. Click the table below to enlarge:

Some observations that stand out:

Microsoft blew an entire quarter's revenue, $65 billion, on the acquisition of Activision. But even adding that back, Apple generated almost as much free cash flow ($34.5 billion) as the other six companies combined ($46 billion).

Apple has the second highest free cash flow margin (29% of revenue) of the Mag 7. Nvidia's was 46%, a tobacco-like margin. We know that Amazon is a low margin retail business, Tesla is a joke of course, but Microsoft and Google have very lackluster free cash flow conversion.

Google's stock based compensation (SBC) in the most recent quarter was equal to 30% of cash from operations, and capital expenditures were equal to 58% of cash from operations. (Or 6% of revenue and 9% of revenue, respectively, if you want to look at it that way.)

Apple spent only 8% of cash from operations on SBC in the most recent quarter (3% of revenue), and only 6% of CFO on capital expenditure (2% of revenue), leaving much more free cash flow.

We know that Google is an inferior business to Apple because Google pays a gigantic tithe to Apple. But notice that Apple's most recent quarter cash flow was running at a 5% yield on the enterprise value. That is much more attractive than the other companies in the Mag 7 (which otherwise seem quite expensive).

Apple seems to have the best combination of moat and valuation. If you had to own one of the Mag 7, Apple would be our choice, hands-down, based on business quality and valuation. (Maybe you do have to own one. How far from the S&P 500 index and its performance are you allowed to stray?)

Berkshire has $156 billion of Apple stock, just over a quarter of its own market capitalization. We do not like Buffett's energy pick, but we do like his tech pick.