Disrupting The Market For How Consumers Borrow To Buy

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Two scalps taken, 30 stolen horses recovered, and a good yarn to tell when he went back East. All in all, it had been a pretty successful expedition for wilderness scout Kit Carson.

He’d escaped death multiple times, helped map 2,000 miles of the Oregon Trail, and along the way, unwittingly launched the J.C. Penney department store.

Penney’s came about by accident when Carson put his foot down a rabbit hole in Kemmerer, Wyoming. In June 1843, Kit and his exploring buddy, John Fremont, quickly realized they’d stepped in the first known coal deposit in Wyoming Territory – definitely something to write home about.

A few maps and a newspaper notice later, Kemmerer was a booming mine town with railroads, shanties – and a shiny new general store called the Golden Rule, run by straight-laced Baptist shopkeeper James Cash Penney… (pictured below)

Penney took “do unto others” so seriously that he refused to allow his customers to go into debt. Where most stores in frontier towns issued piles of store credit or scrip, Penney ran a strictly cash-only establishment – pay upfront or get out.

Surprisingly, the coal miners loved it. Penney’s first year in business scored him $29,000 in a town of a thousand, well over $1 million in today’s money. Dropping the Golden Rule name, but keeping the gold-only ethic, he opened up nine more newly named J.C. Penneys across the Rocky Mountains over the next decade… and then kept expanding.

By the mid-1950s, with over 1,600 locations across 48 states, Penney’s had established itself as one of the Big Three American dry-goods stores, neck-and-neck with catalogue kings Montgomery Ward and Sears. The difference was that Sears and Montgomery Ward offered store credit… and JCPenney still refused.

By 1957, that stance had started to pinch Penney just a bit.

Post-World War II, young baby-boom families eagerly purchased cars and Frigidaires on credit (via a growing assortment of bank-licensed charge cards, in addition to store credit). Ward and Sears were only too happy to feed the beast. If JCPenney didn’t start offering credit too – proclaimed then-vice president William Batten – they’d be out of business by 1970.

Reluctantly, James Cash Penney – a year or two away from retirement – agreed. Batten took over as president in 1958, stamped out the J.C. Penney Charge Card, and the long-delayed credit party got started. Even James Cash himself had to admit “It seems to be working,” as he prepared for the chain’s first year of $3 billion sales in 1970, one year before his own death.

Apparently, JCPenney customers just loved to be in debt. And that insatiable appetite for credit caught the eye of Dee Hock, the mysterious man who invented the Visa card.

Finding The Chaordic Way

Dee Hock had cut up all his credit cards by 1968.

“I have absolutely no use for credit cards,” he explained. Like James Cash Penney, he believed in exchanging money, not debt.

The only difference was that Hock envisioned a giant, cashless, cooperative network of virtual money, where merchants, consumers, and banks freely traded value back and forth. He called this system – a decentralized, self-governing organization – “chaordic,” because it was a blend of chaos and order.

He dreamed all this up while twiddling his thumbs as a mid-level manager at the National Bank of Commerce in Seattle.

And when his boss knocked on the door and asked him to fix the bank’s broken credit card system, 39-year-old Hock jumped at the chance…

Bank of America had tried to “license” its proprietary credit cards out to other banks (like Hock’s employer, Bank of Commerce) for $25,000 a franchise, but the clunky arrangement rapidly imploded on itself.

Hock’s vision was radically different: He proposed that Bank of America should give up its rights to the card, and that the new credit card, called VISA, would be owned and operated jointly by a cooperative of banks. Privately, he didn’t believe VISA should be a credit card at all, but something more akin to a debit card: a global “exchange of value.” (The member banks nixed this idea, because credit made them a lot more money than debit ever would.)

Still, Hock’s powers of persuasion were almost magical. Within two years, he’d convinced Bank of America to relinquish its rights to the “Americard”… gotten 3,000 banks on board as cooperative owners… and risen to CEO of the newly-formed company. He’d also turned the stumbling business around and grown it at 50% annually.

And then he took things a step too far.

Building The Visa Empire

In a move far ahead of his time, Dee Hock decided to loop merchants in as part of the credit card transaction. Specifically, JCPenney, which he knew was ga-ga for credit cards.

Credit cards worked then – and still work – as direct communication between banks. The merchants and consumers don’t have access to payment information. They are just dragged along for the ride (and dinged for fees). But in Hock’s democratic vision, this wasn’t fair: Every participant should be in the loop.

As he put it:

Many bankers refuse to realize that many large retailers can do everything a bank can do, and often better. [J.C.] Penney is more sophisticated in data capture and data communications than any bank I know of.

Credit-crazed Penney was also an easy sell. In 1979, Hock offered them a deal they couldn’t refuse: He’d cut them into the VISA network as direct partners, without routing them through a third-party bank.

Of course, the problem there is… if merchants can do anything a bank can do, what do we need banks for?

That’s what spooked Hock’s bank colleagues at VISA – and why they forced him out of his boardroom chair and sleek penthouse office in 1985. He spent the next decade sulking on a ranch in Pescadero, California, before reemerging to give lectures on chaordic management.

Without Hock, VISA continued to grow into a $700 billion credit card juggernaut – but along strictly conventional lines. It boxed out merchants and consumers and operated as a bank-to-bank-only network. And in 2008, it ditched its cooperative structure and became a standard shareholder-owned corporation.

As for JCPenney… like many tee-totaling Baptists who take their first drink later in life, JCP couldn’t hold its liquor.

Drunk on credit, the chain eventually found itself $3.6 billion in debt and filed for bankruptcy in 2020, following which, its stores have been slowly going dark in malls across America. James Cash Penney would disapprove.

Dee Hock, too, expressed disappointment in how his brainchild had turned out:

By the standards of what VISA ought to be, it would be a lie to deny a sense of failure. I do not believe that VISA is a model to emulate. It is no more than an archetype to study, learn from, and improve upon.

Strangely, in the 40 years since Dee Hock left VISA, no one’s managed to do that. Nobody seems to be able to build a Hock-style payments network that satisfies banks, merchants, and consumers. Walmart, Target, and Lowe’s have all tried and failed.

And then – not long ago – one tiny payments company succeeded…

Directly inspired by Hock’s cooperative network, virtual monetary exchange, and bank-merchant-customer equality, this is an under-the-radar fintech that’s solved almost everything wrong with Big Credit Card. It’s a company with insane scale and a pristine balance sheet, one we recommended live on stage at last year’s Porter & Co. Annual Conference… and one that we’re officially adding to our portfolio in this issue.

Sixty Years Of Nothing

Nobody has built a payments network to supersede what Dee Hock created with VISA. Visa (V) and American Express (AXP) went live in 1958, and Mastercard (MA) followed in 1966. Then there were 60 years of no innovation, while these incumbents compounded. And still do…

But consider how much a retailer pays to use the card networks every year. Large retailer Target (TGT), for example, recorded $105 billion of sales in fiscal 2025 – and about $75 billion of that filters through the card networks. Credit transactions cost a merchant 2% to 3% and regulated debit closer to 0.5%, so blended across the mix Target pays on the order of 1.5%. Target does not break out the figure, but the arithmetic is not hard – call it $1.1 billion a year to card processing against $3.7 billion of net income, roughly a third of what Target earned last year.

Across the top 15 retailers, with a trillion dollars of sales, the prize was some $15 billion a year. In 2012, those 15 retailers – Walmart, Target, Best Buy, and others – formed a consortium called the Merchant Customer Exchange (“MCX”) to build a payments network of their own, and four years later it was dead, having asked consumers to scan a QR code at the register in exchange for nothing at all.

But one company understands the lesson that Dee Hock understood in 1968 and the one MCX did not. A network is not assembled from the side holding the money. It is assembled from the side holding the choice. Every attempt to build a competing network had failed because none addressed a consumer need.

That is the company we are recommending today. It started from the other side – the consumer side.

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The Millionaire Who Was Denied A Car Loan

Affirm Holdings (Nasdaq: AFRM) is the company we are recommending in this issue. Started in 2012 and still run by the founding CEO, it generates $50 billion in total volume, $4.26 billion in annual revenue, with 28 million active customers, an increase of 21% over the last year.

A credit card is an open tab – the bank grants a limit, the balance revolves, and interest compounds. It’s a system some call “buy now, pay forever.” There is currently $1.2 trillion in outstanding credit card debt, $10,000 in existing revolving debt per household, and $15 billion in late fees collected per year.

Affirm’s model – built upon the buy now, pay later (“BNPL”) concept – inverts it. Each purchase is its own small loan, with a fixed number of payments, a fixed end date, and the total cost disclosed before the buyer commits. There are no late fees and no deferred interest. Affirm earns money only when its borrowers repay. That focus is the design principle the entire network is built on – underwrite every transaction, and never profit from a customer’s failure – and has been Affirm’s mission since 2012:

Deliver honest financial products that improve lives.

Affirm’s CEO is Max Levchin. Levchin is part of the PayPal mafia – a small group of entrepreneurs who helped start the payment platform and have gone on to lead other successful ventures. But two years after the PayPal IPO in 2002 – making him a multimillionaire – Levchin was denied a car loan. He had immigrated from Ukraine as a teenager, put himself through the University of Illinois, and used a credit card to fund one failed venture after another without understanding what it meant to his credit score. The pain and embarrassment from getting denied a car loan sticks with Levchin to this day.

The denial kept him away from credit cards for good, but also got him thinking: Why is the American credit system designed so that the lender wins when the borrower stumbles?

So in 2012, he went back to his friend and fellow PayPal engineer Nathan Gettings and asked him to take on the part PayPal never reached – credit, where the abuses live. Levchin explains…

The way to disrupt the financial system at the very core is you have to go after credit. Credit is the heart of what banking is. That’s how money gets created – banks lend out money, and that’s how it’s manufactured. And financing is probably the single most important thing. It’s the way to invest in your better self.

Gettings left Palantir Technologies (PLTR) – which he helped found with Peter Thiel – to co-found Affirm with Levchin as its chief risk officer. While at PayPal, Gettings and Levchin read patterns and data to discover fraudsters or terrorists. Now at Affirm they were looking at the behavior of ordinary borrowers, and the question was how much to lend.

This was the work Levchin knew best. Every bank in America runs on a core system built to underwrite an account – one decision, one credit line, rarely revisited. Affirm needed to underwrite a transaction: this buyer, this merchant, this item, this term, decided in the split-second time a checkout page takes to load. No vendor sold that system, because no lender had ever wanted it. So in the first two years before it made its first loan, Affirm built its own ledger from scratch.

What the ledger made possible is a risk score calculated for each transaction rather than each customer. Like any lender, Affirm takes in data from the credit bureaus (Equifax, TransUnion, and Experian are the top three), then adds what only Affirm can see – the merchant, the item, the cart, and, with permission, the cash flows in the borrower’s bank account. Affirm created what it calls ITACs (an acronym without an expansion name) – a proprietary score from zero to 100 assigned to nearly every loan. ITAC’s edge over a bureau score is significant. Cutting originations 30% using ITACs would eliminate 70% of delinquencies, while the same cut using a traditional FICO credit score would catch only 36%.

All of it – the ledger, the models, the years of losses – was a fixed cost built into a vertically integrated, data-preserving network. This meant Affirm could go straight to the merchants that wanted out from under the card networks but had no way else to go.

Selling Demand, Not Payments

Layaway is the oldest merchant-funded financing in American retail. The customer pays over time, the store holds the goods, and the store absorbs the cost because it sells a product and converts a shopper into a buyer. Affirm has a new take on layaway. The customer takes the item home today, the merchant pays Affirm a merchant discount rate or the consumer pays in simple interest, and the underwriting happens at checkout with Affirm taking the credit risk.

Affirm started with the hardest problem it could find. The early businesses were furniture, engagement rings, and Peloton exercise bikes – purchases too large for a credit card and too small for a bank loan. These are among the hardest underwriting transactions in consumer finance – unsecured, discretionary, and extended to consumers with thin credit history – which is why banks had left them alone for decades. If Affirm’s model worked here, it would work anywhere.

A $2,500 Peloton bike does not sell itself – but 0% over 39 months does.The merchant – in this case Peloton – can offer financing it could never have underwritten itself, on terms it chose, with no exposure if the borrower fails.

Then Affirm proved it worked. Merchants who added Affirm at checkout saw conversion rates rise 28%, and roughly 70% saw larger average carts. Affirm took the credit risk, the servicing, and the collections, so the retailer got the sale without becoming a lender.

The checkout page is the most contested real estate in retail, and a merchant adds a payment option only when it makes the best business sense to do so. Amazon (AMZN), Shopify (SHOP), and Walmart (WMT) all put Affirm directly onto their checkout pages.

The traditional card system generally benefits banks issuing credit cards. Affirm asked merchants to offer their pay-over-time solution, so that consumers could buy what they wanted, and the merchants said yes because it ultimately drove them higher conversions. The value moved in the direction that forms a network.

The Rise Of A Network

Now, 14 years later, Affirm has grown gross merchandise volume (“GMV”) by 37% to $50.2 billion in fiscal year 2026. Affirm added $13.5 billion in GMV in a single year. Behind those numbers are 28 million active consumers, transacting roughly seven times a year each, and 571,000 active merchants – merchant count grew 51% in 12 months, with the growth rate itself accelerating.

The reason behind that acceleration is what matters, and Levchin described it himself in the most recent shareholder letter. Affirm is a network, and the defining property of a well-built network is that the cost of staying out of the network rises as the network grows. Consumers increasingly expect to see Affirm on a merchant’s checkout page, and every additional merchant gives a consumer one more place to buy with Affirm. The two sides feed each other – the merchant that stays away from Affirm to save on fees pays in lost sales.

Well-managed networks see very little churn. In fact, Affirm’s merchants have expanded their volume at a dollar-based net expansion rate averaging 120% over the past three years – so if Affirm never signed another merchant, the existing base alone would grow the network by 20% a year. Every new Affirm merchant is upside on top of a base that compounds by itself.

The second effect is what makes Affirm stand out over the traditional card network. When a merchant offers Affirm at checkout, it hands Affirm its customers. To state the obvious… each of the 28 million consumers using Affirm has an Affirm account and a repayment history on Affirm’s ledger. Increasingly, they also have an Affirm Card in their wallet.

Affirm paid nothing to acquire any of them. The merchants paid Affirm – the discount rate on the first transaction is the acquisition cost – that means Affirm has a negative customer acquisition cost. Merchants accept this because they would rather Affirm be the bad guy so they don’t have to send their own customers a late notice. The merchant introduced their customers to Affirm. Affirm owns the relationship. Now, once a consumer has repaid the loans through Affirm, Affirm can offer them the next product.

The same mechanism is now doing Affirm’s international expansion for it. Shopify, for example, carries Affirm into each new market as the exclusive provider behind its Shop Pay Installments – Canada and the U.K. in 2025, Australia at the end of August, then Western Europe – and every Shopify merchant in those countries can switch it on from their admin dashboard without an integration. Affirm arrives in a new country with a merchant base already attached, and acquires local consumers the way it acquired American ones: paid to do it.

The Affirm Card: The Walmart Test Case

Walmart is the proof point. In 2019, the giant, low-price retailer was one of the first enterprise merchants to integrate Affirm, and it built its financing offer around it. By late 2024, Walmart was roughly 5% of Affirm’s GMV and about 2% of adjusted operating income. Then in March 2025, Walmart’s fintech arm, OnePay, signed leading BNPL platform Klarna Group (KLAR) as exclusive installment provider and moved the checkout. Affirm shares fell 10% on the news, and the transition was substantially complete by the September 2025 quarter.

Conventional wisdom would say that if a major retailer ends access to your product, your sales will suffer significantly. But what happened next is the most important data point in the Affirm story. At Affirm’s investor day this May, CEO Levchin said Affirm did not lose volume at Walmart. A large majority of Walmart shoppers who had been using Affirm at its checkout got Affirm Cards and kept using Affirm – online and in the aisle – with no direct Walmart integration at all.

The Affirm Card is a Visa debit card that lets a consumer pay in full from a linked account or turn any purchase into an Affirm BNPL loan on the spot. Because it runs on Visa’s rails, it works at every merchant that accepts Visa, whether or not that merchant uses Affirm (more on the Affirm Card below). Walmart had introduced its customers to Affirm. Affirm kept them, and carried them straight back into Walmart’s own aisles.

Affirm volume at Walmart continues to grow despite the termination of Affirm’s contract. Klarna reports that its Walmart business is running in line with expectations. Both can be true. The point is not that Klarna failed. It is that the consumer relationship, not the merchant contract, turned out to be the asset – exactly what Hock’s framework predicts.

What the Walmart example demonstrates is that merchants no longer need to be sold. Since April, Bed Bath & Beyond, Crate and Barrel, and ServiceTitan have gone live, Etsy has signed, and Samsung has renewed. The merchant without Affirm is now the one with the conversion problem. And the network is nowhere near full. Affirm is present on about 80 of the top 250 U.S. e-commerce sites, and only about one in 10 U.S. e-commerce merchants offers it.

Dee Hock had hoped Visa would evolve from a credit card – an instrument of debt – into a transaction device for the exchange of value. The banks that owned Visa chose interest instead. Walmart demonstrated what Affirm’s consumers are worth once they carry the Affirm Card with them. That is the second growth vertical, and it is the card Hock never got to build.

Serial S-Curves: The Affirm Card

Each of Affirm’s businesses has followed an S-curve – slow adoption while the product finds market fit, a steep run of growth as it catches on, then a plateau as the market matures. Checkout is well up its curve. The Affirm Card is the second, and it is on the steep part right now.

The card brings Affirm’s model – per-transaction underwriting – to the physical world, where roughly six times as much spending happens as online. It works as a debit card for everyday purchases, but any eligible purchase over $50 can be converted into an installment plan from the Affirm app within 48 hours, and a consumer can also set up a plan in the app before walking into the store.

Card GMV grew 124% last quarter to an annualized run rate above $11 billion – about 22% of the total – and active cardholders doubled to 5.2 million. Before the card, using Affirm in a store meant opening the app, generating a virtual card number, adding it to a phone wallet, and tapping. The card established Affirm’s presence in the physical world. Offline volume has more than doubled year over year in every quarter since the card began scaling in 2023.

The Affirm Card is still in its early innings. Cardholders spend roughly $4,000 a year on Affirm, more than twice the average active consumer. And only 19% of active consumers have signed up for an Affirm Card, and the ones who have spend double – the steep part of the curve is ahead.

The card also told Affirm where to go next. Cardholders began using it for elective medical procedures, professional services, and automotive repairs – categories with no Affirm integration and, historically, no good financing. Affirm is now building direct integrations in each category. Volume from those verticals is in the billions annually and growing at twice the rate of the overall business: professional services up 74%, elective medical up 85%, automotive up 140% in Q2 of 2026.

There is a third opportunity within the Affirm Card – and it could take it from 5 million holders to 20 million. In August, Levchin promoted Michael Linford from chief operating officer to president – freeing the founder to spend more time with a small team, known internally as zt1 (Zero-to-One), that works exclusively on early proofs of concept.

The shape of it is already visible. Merchants now pay to reach Affirm’s consumers directly. The Affirm app hosts a marketplace where brands fund 0% offers to be featured, and twice a year Affirm runs the Big Nothing – a network-wide sale, modeled on Amazon’s Prime Day, where participating merchants offer 0% APR (annual percentage rate) on purchases made with Affirm, and pay for the privilege by absorbing the interest. The second Big Nothing drew twice the merchants of the first and generated roughly $500 million of GMV in a few days.

That is an advertising business in its infancy: 28 million consumers Affirm can underwrite individually, and merchants pay Affirm for demand. The next step is to route that merchant funding into rewards on the card. Rewards bring more consumers onto the card, consumers are what merchants pay Affirm to reach, and the underwriting loop tightens as Affirm processes more transactions. Affirm’s long-term goal is an everyday payment card with 20 million cardholders spending $7,500 a year – $150 billion of GMV from the card alone, three times Affirm’s entire network today.

This is what the vertically integrated, data-preserving, software-defined network was built for – managing, aggregating, mining, and modeling data, and around preserving all of it. Its successful implementation means merchants and consumers hand Affirm far more to work with than any other payment network receives. The payoff is that a very large set of possible applications can be built on top of this foundation.

The Bank Option, And How Affirm Funds Itself Today

Every loan Affirm makes has to be funded, and how it is funded is the difference between a lender and a network. Affirm uses three channels.

1. Warehouse lines – revolving credit facilities from banks, secured by the loans themselves – fund the loans Affirm keeps on its balance sheet. Affirm draws as it originates and repays as borrowers pay, the way a retailer finances inventory
2. Asset-backed securities (“ABS”) package those loans and sell them to bond investors, in both revolving and one-off static deals
3. Forward-flow agreements sell whole loans to partners such as Canada Pension Plan Investment Board, which take the assets off Affirm’s books entirely and pay Affirm to service them

At the end of June, committed capacity across the three stood at $30 billion, up from $26 billion a year earlier – enough on the platform’s five-month weighted-average loan duration to support more than $70 billion of annual GMV.

Affirm’s loan book turns over roughly twice a year, which means Affirm’s cost of funding tracks the market within quarters. When rates rose in 2022 and 2023, funding costs jumped and margins compressed almost immediately. When Affirm repriced its loans, the recovery came just as fast. A bank with a 30-year mortgage book cannot do that, but a network with a five-month duration book does it naturally.

It is a lender with a bank’s volume and a software company’s capital base. Affirm’s total platform portfolio – every loan outstanding, on its books or sold – was $20.2 billion in June. Of that, Affirm funds just $896 million with its own equity, an equity capital required ratio of 4.4%, and management guides to keeping it at or below 5%. A conventional bank holds roughly twice that against its loans. Affirm also carries $1.5 billion of net cash against its convertible notes. And the price of that capital keeps falling. The credit spread on Affirm’s revolving ABS deals has decreased from a range of roughly 240 to 310 basis points in 2023 to about 95 to 110 basis points in 2026 – a decline of some 175 basis points in three years. Average cost of funds fell 103 basis points in the past year to 5.8%. The most recent static deal, in June, was four times oversubscribed and priced at the best blended spread of any Affirm securitization to date, the fourth in a row to clear with a duration-weighted yield below 6%.

Affirm publishes the loss curve for every static securitization it has issued since 2023 against the loss investors assumed when they bought it. In all six deals, realized losses have tracked at or below pricing. Bond investors are being paid for risk that has not materialized, and they respond the way anyone would – by bidding tighter next time. Forward-flow partners also respond by expanding. Year-end forward-flow capacity has grown from under $1 billion in 2021 to nearly $11 billion in 2025, and the investors who signed in 2021 are still adding capacity four years later. It is the merchant retention story again, this time in the debt markets.

Now Affirm is gaining distribution through the banks themselves. Affirm Edge embeds Affirm’s installment lending directly inside bank and credit union apps, with pilots launching in early 2027 and a $140 billion addressable market by management’s estimate. In 2022 the thesis was that the Affirm Card would compete with bank debit cards. But Affirm Edge becomes the pay-over-time layer inside the bank’s own card. The institutions that were supposed to crush this business are becoming its distribution channel, while Affirm keeps the origination, the servicing, and the data.

Since its founding, Affirm has originated most of its loans through a partner bank and in its prospectus it named that dependency as a risk factor and deposit funding as the structural advantage its bank competitors held. On January 23, Affirm applied to the Federal Deposit Insurance Corporation (“FDIC”) – a federal agency that protects accountholder deposits – and the state of Nevada to establish Affirm Bank, a Nevada-chartered industrial loan company, with John Marion, a JPMorgan Chase veteran, as its president.

If approved, Affirm would originate its own loans and, over time, fund a portion of them with insured deposits rather than capital markets. Management’s near-term estimate of the benefit is modest – on the order of 15 to 30 basis points of originated volume. The ceiling is considerably higher: every 100 basis points of funding cost saved across the roughly $10 billion Affirm funds on its own balance sheet is about $100 million of pre-tax income, against $417 million of operating income today. The application is pending in the friendliest charter environment in two decades, with leading car manufacturers General Motors (GM) and Ford Motor (F) both winning FDIC approval the day before Affirm filed.

The comparison is the architecture behind the most durable consumer finance franchises in America, American Express – a payments network attached to a deposit-funded bank. Neither path contributes revenue today, but either could be the next S-curve down the line.

Affirm’s Growth: Fueled By Network Effects

Affirm has reached the point every network builds toward – where the majority of fixed investment is behind it, and growth converts to profit at the incremental rate rather than the blended one. Every projection here reduces to two variables: how much volume crosses the network, and how much of each dollar Affirm keeps.

In fiscal 2026, Affirm processed $50.2 billion of GMV and collected $4.26 billion of revenue – 8.5 cents per dollar, half of it interest income, a quarter merchant fees, the rest loan sales, card, and servicing. Four costs scale with volume: credit losses, processing, funding, and the loss on loans purchased from its originating bank. Those costs consumed 4.3% of revenue. What remains is revenue-less transaction costs (“RLTC”) – $2.08 billion, or 4.15% of GMV, earned after absorbing credit losses the card networks never touch.

RLTC is the closest thing Affirm has to a traditional revenue line, and it shows both faces of the business. In fiscal 2023, the interest rate shock pushed funding costs up faster than Affirm could reprice, and RLTC fell from 4.3% of GMV to 3.3% in a year – the lender’s dilemma. Because the book turns over every five months, Affirm repriced loans within quarters, and RLTC recovered to 4.2% – the network’s answer.

The same shock produced Affirm’s largest operating loss – $1.2 billion in fiscal 2023. Three years later, the same business model the market had written off produced $417 million of operating profit, a $1.6 billion swing. From fiscal 2024 through fiscal 2026, roughly 53 cents of every incremental revenue dollar reached the operating line – about $44 million of operating profit for every additional $1 billion of GMV.

Incremental margin – the change in adjusted operating income over the change in RLTC – ran 81% in fiscal 2025 and 76% in fiscal 2026. The ledger, the risk models, and the merchant integrations are built and paid for. Lenders scale costs with their book. Networks do not. That is why Affirm’s adjusted operating margin went from 16% of revenue to 29% in two years – and why, in our base case, operating income will more than quadruple by fiscal 2029, to roughly $1.9 billion on a 21% margin.

The volume is still arriving – Affirm will add as much GMV in fiscal 2027 as it processed in all of fiscal 2022. Affirm trades at roughly $25 billion today – about 12x trailing RLTC and 9x fiscal 2027. Our $60 billion base case is 14x fiscal 2029 RLTC, on a business that will have doubled and still be growing 25% a year.

We ran five RLTC paths through the same volume and cost assumptions. The matrix shows what each is worth per share across a range of RLTC multiples, against $70 today and 370 million diluted shares.

At 12x – today’s multiple – Affirm is worth $139 per share on fiscal 2029 RLTC: 86% above the current price, a 28% annualized return to the target date. At 14x, the multiple behind our $60 billion target, it is $162 and 35% a year. On a price-to-earnings equivalent, a $139 share price implies 33x normalized fiscal 2029 earnings compounding at roughly 40% a year, or 23x adjusted earnings. For a business growing that fast – on infrastructure already built, and paid for through a decade of reported losses – that is not a demanding multiple.

At 8x – the trough multiple a credit shock would produce – the bear case is $80, still above today’s price. The market is pricing Affirm as though fiscal 2029 will look like the bear case and the multiple will decline on the way there while our base case requires neither.

None of the five paths includes 20 million Affirm Card holders, Affirm Edge, or the rewards engine. Those are the reasons the range may prove conservative.

The 30-Year Mission

Dee Hock wanted two things Visa never accomplished. He wanted the merchant and the consumer inside the network as members rather than paying tolls outside it, and he wanted the card to be an exchange of value rather than an instrument of debt. The banks that owned Visa refused both, pushed him out in 1985, and built a $700 billion company on the design its founder called a failure. Hock explained it this way:

I could devise no way to include cardholders and merchants as owner/members of the system. They should have been, for they are certainly relevant and affected parties.

Levchin has called Affirm his 30-year mission, and the company is 14 years into it.

The first half built what Hock could not: a ledger that underwrites every transaction on its own, merchants that pay to bring Affirm their customers, consumers who carry the network in their wallet, and funding partners that bid tighter every year.

The second half is the card Hock described in 1968 – an everyday payment card in 20 million wallets, funded by deposits from Affirm’s own bank, reaching up-market into affluent households whose spending the card networks built their economics on. Every party Hock wanted inside the network is inside it, on one ledger, and each is better off in the network than left out. This is what the early stage of a true network looks like: GMV compounding at nearly 40%, 571,000 merchants, and nearly 30 million consumers.

The person who has to finish the job is the one who started it. Levchin is 50, has run Affirm since 2012, and controls it – roughly 8% of shares outstanding, while controlling 44% of the voting power. In August he handed daily operations to a president so that he could go back to building products from zero. His net worth is tied to the stock, and his job is the next S-curve – he literally only wears Affirm branded merchandise.

Today a merchant pays the card networks a toll to get paid. On Affirm, the merchant pays for demand – Peloton funded 0% because it sold bikes, and in the Big Nothing campaign, merchants across the network funded 0% and paid Affirm for the traffic. That is an advertising business in its infancy, and unlike any other advertising platform, Affirm knows not only who wants to buy but who will be approved, and can make the offer in the same second.

The consumer side is the mirror image. Route that merchant funding into rewards on the card, and more consumers carry it into their daily spending. Approved consumers are exactly who merchants pay most to reach, because on Affirm the merchant is buying a sale it would otherwise have lost.

Everyday spending is the volume the card networks have never had to earn – and it is the volume Affirm is building the rewards to take. The value of a network is that merchants feel they have to be a member. Max Levchin is building this network with the owners he chose, and at less than $25 billion the market is pricing it as a lender and not a network.

Action to Take: Buy Affirm (Nasdaq: AFRM) up to $92 per share

Affirm is among the most volatile large stocks in the market – it fell 10% in one day on the Walmart news, and the shares have traded between $42 and $92 in the past 12 months. We recommend patiently sizing the position so that a 30% drawdown is survivable, because one will come, and the thesis will not have changed if it does. We are assigning Affirm a risk rating of 4 and will add it to the Exponential Growth category.

Review Of Recommendations

This month’s “buy” recommendations:

• LandBridge (LB)
• Amrize (AMRZ)
• Uber Technologies (UBER)
• Salesforce (CRM)
• Vicor (VICR)

This month’s existing “hold” positions:

• Deere & Company (DE)

This month’s new “hold” positions:

• Axis Capital (AXS)
• Chubb (CB)
• International General Insurance (IGIC)
• Kinsale Capital (KNSL)
• Loews (L)
• Progressive (PGR)
• Skyward Specialty Insurance (SKWD)
• W.R. Berkley (WRB)

LandBridge Thriving On Higher Oil Prices, With Data Center Upside

The West Texas landlord, LandBridge (NYSE: LB), reported excellent Q2 results on August 5. Revenue increased 41% year-on-year (“YOY”) to $67 million, while net income jumped 68% YOY to $31 million. Cash flow margins reached 60% with the company generating $40 million in free cash flow during the quarter.

The company is benefitting from the acceleration in U.S. drilling activity in response to higher oil prices. Domestic oil production recently set a new high of 13.9 million barrels per day, led by supermajors like Chevron (CVX) and ExxonMobil (XOM) in the Permian Basin. The increased drilling activity in the Permian is driving greater volumes of produced water in the basin, translating into higher royalty payments for LandBridge.

LandBridge reiterated its 2026 outlook for EBITDA (earnings before interest, taxes, depreciation, and amortization) to reach $220 million. It also announced advanced discussions with seven counterparties representing over 10 gigawatts of power and data-center capacity for land leasing deals. LandBridge CFO Scott McNeely characterized these as projects with signed documents undergoing diligence or agreements currently under negotiation, rather than preliminary outreach. He also noted that the counterparties include a mix of hyperscalers, engineering, procurement companies, and power-generation businesses.

Management expects that “multiple” of these negotiations could convert into firm leases with revenue beginning to flow in by the end of next year, although no formal deals have been announced. West Texas has become home to one of America’s hottest spots for data-center construction, given the abundance of dirt cheap fuel via natural gas – which often trades at negative prices due to lack of pipeline takeaway capacity. And as one of the largest landholders in the area, LandBridge is perfectly positioned to capitalize on this boom.

With the core business performing exceptionally well, and the future upside potential from data-center leasing activity, we remain bullish on shares of LandBridge.

Action to Take: Buy LandBridge (NYSE: LB) up to $104.31 per share

Inflation Continues Weighing On Amrize

Concrete and aggregates maker Amrize (NYSE: AMRZ) continues facing the same macro pressures weighing on the overall sector: commodities inflation pushing up costs. In the company’s latest Q2 earnings report on August 6, management lowered its earnings outlook as a result of $155 million in added cost inflation it expected for the full year. Since then, oil prices have risen 33% while diesel prices have jumped to a new high above $200 per barrel.

Meanwhile, interest rates have also increased substantially, with the 10-year U.S. Treasury yield hovering near multi-decade highs of 5% while mortgage rates are firmly above 7%. This has added further downward pressure on an already-weak housing market, a major source of demand for concrete and aggregates.

But it’s not all bad news. On the plus side, the data-center build-out shows no signs of slowing, as AI capex estimates continue getting revised higher. Following the latest Q2 earnings results from the leading technology companies, data-center spending is expected to eclipse $1 trillion this year and $1.3 trillion in 2027. Strength in data-center construction is offsetting the weakness in residential housing and non-AI construction, and we expect this trend to continue fueling overall growth for Amrize revenue.

Putting it all together, we see a mixed picture for Amrize over the next several quarters. The strength in data-center spending will likely keep revenue growth trending solidly at mid-single-digit rates. But rising costs will weigh on margins, with analysts lowering their earnings estimates by 8% over the past several weeks for both 2026 and 2027.

Amrize shares are down 30% this year, and now trade at just 13x forward earnings – the lowest valuation on record, and a substantial discount to peers like Vulcan Materials (VMC) and Martin Marietta Materials (MLM) that trade at low-20s forward price-to-earnings (P/E) ratios. Thus, we believe the near-term margin pressure has been more than priced in, with the shares offering significant value for long-term investors willing to look through the next few quarters of weak earnings. Insiders also apparently see value here, with seven insider buys since August, totalling over 50,000 shares at prices in the mid-$40 range.

We remain bullish on the long-term potential of the business once today’s commodities inflation passes.

Action to Take: Buy Amrize (NYSE: AMRZ) up to $73.80 per share

Uber Execs Buy Shares As The Stock Retreats

Two of Uber Technologies’ (NYSE: UBER) top executives bought stock on the open market this month. On September 4, President and Chief Operating Officer Andrew Macdonald purchased $5.3 million of shares at prices about 6% above where the stock trades today. On September 10, CEO Dara Khosrowshahi bought $10 million at prices within 2% of today’s, on a day the shares touched their lowest level since early August. Speaking at a Goldman Sachs conference that afternoon, Khosrowshahi said U.S. mobility demand has accelerated since late last year, and that management considers the stock “really cheap.”

The purchases followed a September 2 restructuring that cut roughly 3,300 corporate roles, about 10% of Uber’s global workforce and its largest reduction since 2020, to remove management layers and redirect spending toward rides, delivery, and autonomous vehicles (“AV”). Rather than keep the savings as margin, Khosrowshahi said Uber will reinvest it, along with declining insurance costs, in lower rider prices and growth.

Uber is also pressing ahead with its largest acquisition. In July, it agreed to acquire German food-delivery platform Delivery Hero for $14.8 billion in cash, or $13.7 billion net of the stake Uber already owned. The offer document was published on August 27, opening an acceptance period that runs through November 5, and on September 2, Delivery Hero’s board recommended that shareholders tender. Uber expects the deal to add to non-GAAP EPS on closing, rising to high-single-digit accretion by year three, and to nearly double the number of markets where it offers both rides and delivery, from 34 to 58. Completion, which requires antitrust clearances, is expected in the second half of 2027. On September 15, Uber closed its first euro-denominated bond offering, raising €4.5 billion (about $5.2 billion) across five maturities from 2029 to 2046 at coupons of 3.75% to 5.25%, versus more than €21 billion in orders.

The AV network kept expanding. On August 19, the Croatian city of Zagreb became the first in Europe where riders can book an autonomous ride through the Uber app, using Pony.ai (PONY) technology with a safety operator on board. On September 10, the operator began fully driverless test rides on an airport route. Khosrowshahi said Uber now works with nine AV partners and expects 15 by year-end. Competition is arriving too: Tesla (TSLA) began charging fares for its two-seat Cybercab in Austin on September 3, with about 45 vehicles registered, and Uber’s shares fell 3.5% on September 8 as investors weighed the launch. Alphabet’s (GOOG) Waymo has reportedly told Uber it plans to operate on its own in Austin and Atlanta from January 2028, when their agreement allows.

Shares trade nearly 30% below the 52-week high set last September, while Q2 gross bookings grew 24% YOY and trailing 12-month free cash flow exceeded $10 billion for the first time. Since our January 2025 recommendation, the stock has gained roughly 6%.

Action to Take: Buy Uber Technologies (NYSE: UBER) up to $100.38 per share

AI Fears Give Way To AI Profits For Software

Leading enterprise software company Salesforce (NYSE: CRM) has clawed back much of the ground it lost earlier in the year. Investors haven’t forgotten the scale of the selloff: software-as-a-service stocks shed $285 billion in market cap in a single February session, and the iShares Expanded Tech-Software ETF (IGV) fell 35% from its 2025 high by April, as the market grappled with the idea that AI is eating software.

After bottoming out in June, Salesforce has regained roughly 70% of that loss. The turnaround coincides with a shift in the narrative: instead of asking whether autonomous agents will cannibalize Salesforce’s seat-based licensing model, investors are now digesting hard evidence that the company is monetizing AI directly, and that the survivors of this paradigm shift will end up more valuable than the old software incumbents ever were.

Salesforce has pivoted its pricing structure toward consumption-based billing, charging per automated task completed rather than per human worker.

The centerpiece of that shift was Claudeforce, an expanded partnership with leading AI platform Anthropic announced alongside earnings that makes Anthropic’s Claude the default reasoning model across Agentforce and Slack, while turning Salesforce into a plugin inside Claude itself. The relationship already runs deep enough that Salesforce expects to spend around $300 million on Anthropic tokens this year, on top of a stake in Anthropic now valued at about $5 billion.

Salesforce’s fiscal Q2 2027 results (released August 26) showed revenue of $11.3 billion, up 11% YOY, but net income of $3.53 billion – with earnings per share (“EPS”) of $4.29 – jumped 87% from a year ago, with the company pointing to a $2.6 billion gain on strategic investments from its Anthropic stake. Stripping out that gain, the underlying business still accelerated: current remaining performance obligations grew 14% YOY in constant currency to $33.5 billion, the strongest quarter for net new annual order value in four years. Agentforce annualized revenue crossed $1.5 billion, up 240% YOY – an acceleration from the roughly 205% pace of Q1.

Management raised full-year revenue guidance to $46.1–$46.4 billion and hiked full-year EPS guidance to $16.67–$16.71, up sharply from the $13.11–$13.19 range given back in February. Salesforce has since closed its $3.6 billion acquisition of customer-agent platform Fin, with the Contentful deal expected to close shortly, and Dreamforce 2026 kicks off this week in San Francisco under the banner “Becoming The Agentic Enterprise,” where the newly announced Salesforce-in-Claude plugin moves into open beta.

The capital-return story we highlighted after Q1 has only gotten more aggressive. Salesforce plowed a record $27.1 billion into buybacks in Q1 as part of its $25 billion accelerated repurchase program, part of a $50 billion board authorization, and continued repurchasing shares in Q2 – pulling the diluted share count down 14% to roughly 821 million. Even after the rally to around $256 per share, Salesforce trades at roughly 17x forward earnings on its newly raised guidance, well below Microsoft’s and Google’s 25x, despite comparable AI-driven revenue growth. That’s still a multiple that prices in a fair amount of disruption skepticism the last two quarters have started to disprove.

Action to Take: Buy Salesforce (NYSE: CRM) up to $263 per share

Vicor Buys The Land For Fab 2 and Fab 3

On September 11, power-systems producer Vicor (Nasdaq: VICR) announced it is purchasing a 334,000 square foot building on 66 acres in Merrimack, New Hampshire, and a separate 54-acre parcel in Hooksett, New Hampshire. The two sites will house ChiP Fab 2 and Fab 3, with a combined footprint of nearly 1 million square feet. Fab 1 in Andover, New Hampshire, is 320,000 square feet on 16 acres, and its utilization is approaching capacity.

Two details matter for our thesis. First, Vicor put a one-year lead time on initial deployment of Fab 2, which moved the expansion date up from 2028 to late 2027. Second, Fab 3 is new. On the July earnings call CEO Patrizio Vinciarelli described a second fab sized at two to three times Fab 1. Friday’s release describes two fabs on two sites, and the acreage supports a build-out roughly four times the size of Fab 1 over time.

The scale of the commitment makes more sense in light of two earlier comments from management. At the June annual shareholder meeting, Vinciarelli said second-generation vertical power delivery (“VPD”) would fill not just one fab but “a multiplicity of fabs.” And on the Q4 2025 earnings call, he disclosed that one customer alone represents enough volume to fill two fabs. That customer is not named, but the profile – massive AI hardware volume and in need of a non-infringing power solution with U.S. sourcing – points to Nvidia (NVDA).

The release also restates the licensing case in Vicor’s own words. It says original equipment manufacturers (“OEM”) and hyperscalers whose systems were banned from importation need freedom to operate and U.S. sourcing, and that Vicor’s licensing practice plus multiple fabs provide both.

On September 16, Vicor disclosed a non-exclusive VPD license to “a leading AI OEM” with the right to procure modules from unlicensed suppliers – paying royalties on all of them, with substantial discounts for buying Vicor’s own chips directly. Five days after the fab sites, this is the licensing design win that confirms the demand behind the capacity build.

The announcements follow an August 25 board authorization of a new $150 million share repurchase program with no expiration, replacing the prior $100 million plan. With $454 million in cash at the end of June, Vicor can fund the fab build-out and retire stock at the same time.

This is a capacity and demand signal. We have moved Fab 2 forward a year in our model, added Fab 3 to the bull case, and updated our long-term range of outcomes above. Our recommendation is unchanged.

Action to Take: Buy Vicor (Nasdaq: VICR) up to $275 per share

Deere Raises Guidance And Reiterates The Bottom Of The Farm Cycle

On August 20, Deere & Company (NYSE: DE) reported Q3 net income of $1.38 billion, or $5.10 per share, up 7% from a year ago and above the $4.70 consensus estimate – its first YOY profit increase since Q4 2023, after 10 consecutive quarterly declines. Net sales and revenue rose 5% to $12.6 billion. Management raised full-year net income guidance to a range of $4.75 billion to $5 billion from $4.5 billion to $5 billion, and repeated its view that 2026 will mark the bottom of the agricultural equipment cycle.

Construction and small-agriculture equipment again offset weakness in large farm machinery. Construction & Forestry sales rose 18% to $3.6 billion, and segment operating profit climbed 84% to $436 million, driven by data-center, infrastructure, and pipeline work, with order backlogs now extending into fiscal 2027. Small Ag & Turf sales rose 12% to $3.4 billion. Production & Precision Agriculture, the large-tractor and combine business, fell 6% to $4.0 billion as South America and Europe softened further. Deere now expects that segment’s sales to decline about 10% this year, the bottom of its prior range. Results also included $110 million of refunds on tariffs the Supreme Court struck down in February – $382 million so far this fiscal year – a one-time item that will not repeat in Q4 and that accounts for most of the quarter’s YOY gain.

Early orders for model-year 2027 planters and sprayers are running up mid-single digits versus last year’s completed programs. Used inventories of late-model high-horsepower tractors are down nearly 40% from a year ago, and the spread between new and used equipment values has normalized. Management still describes the coming recovery as measured, and expects net tariff costs to approach $1 billion in fiscal 2027, up from an estimated $750 million this year as refunds fall away.

On July 8, Deere settled the Federal Trade Commission’s right-to-repair lawsuit, agreeing to a 10-year order that gives farmers and independent repair shops the same diagnostic and software tools its dealers use, with no monetary penalty. That closes the government’s case, which had remained open after the $99 million class settlement we noted in April.

Deere paid $1.62 quarterly dividends in May and August and declared another $1.62 payable November 9. Share repurchases totaled $697 million through nine months, down from $1.1 billion a year ago.

Shares have gained 44% this year and 67% since our September 2023 recommendation, including dividends.

At nearly 40x the midpoint of this year’s guided earnings, the shares already discount much of the recovery management is describing.

Action to Take: Hold shares of Deere & Company (NYSE: DE)

Stepping Back From Property-And-Casualty (“P&C”) Insurance Companies

In Tuesday’s Daily Journal, Porter explained a major asset-allocation change to Porter’s Permanent Portfolio – recommending selling P&C stocks from the portfolio. For Complete Investor, that recommendation translates into “hold” status. He explained it this way:

The 10-year U.S. Treasury yield hit 5% on Monday, September 14, driven by soaring energy prices, the widening war with Iran, and a bond market losing patience with Washington’s deficits.

Then, on Wednesday, September 16, the Fed announced a 25-basis-point rate hike, meaning we’re at the beginning of a rate-hiking cycle.

There are real risks to this cycle because of the size of the national debt. Total marketable U.S. Treasury debt outstanding is $31.8 trillion, and roughly half of that will reprice in the next 18 months.

If rates average 5%, that will add $220 billion in annual interest expense – a 21% increase to current interest expense ($1 trillion currently). It would also add 12% to the annual deficit. These bigger interest payments will surely be paid for by yet more inflationary government deficit spending.

That will push us into a very dangerous situation. The Fed may not be able to raise rates high enough to stop the inflation this time because our debt stock is now so large relative to GDP.

The main concern is that this inflationary cycle may be much harder to control, because it’s being driven by factors (entitlement spending, global geopolitics) that aren’t easily constrained. And that kind of macro outlook appears similar to the 1973-1974 inflationary period, which didn’t resolve for a decade.

That means our P&C insurance stocks face a very tough outlook.

P&C insurers write the policies that cover your car, your home, and your business against loss. They invest the premiums they collect, called float because it sits in their account between the day you pay and the day a claim gets paid. And insurance companies invest mostly in bonds.

That business model works well when rates and inflation are calm. It comes apart when they spike, for three reasons that hit at once: claims get more expensive, the bonds that insurers already own lose value, and the stock market’s current multiple shrinks.

For a conservative investor, our recommendation is simple: stand aside from the P&C insurance industry until interest rates find a ceiling.

For our own track record in Porter’s Permanent Portfolio, we are selling our 25% P&C allocation (“Insurance”) in full. The proceeds move into our cash holdings, whose target allocation rises from 25% to 50% of the portfolio. The Lindy stocks (“Equities”) and the gold-and-Bitcoin allocation remain at 25% each. For Complete Investor, we change their status to “hold.”

In that Journal explaining this change in the portfolio allocation, Porter said this:

We acknowledge that this kind of tactical move is risky. Selling triggers taxes and opens us to another risk: selling too soon. I recognize the 10-year U.S. benchmark yield touched 5% in 2007 and again in 2023, and both times it reversed. If that happens a third time, we will look foolish holding half the portfolio in cash while stocks and bonds recover without us.

I see a slew of risks that our country hasn’t faced in 50 years: massive and growing deficits, an energy shock now running through the global bond market, and the automatic cost-of-living increases built into Social Security and other entitlement programs. Together they point toward double-digit inflation and a 10-year Treasury yield above 8%, not a retreat below 5%.

This change applies to our own track record, not to every account built around this idea. The Porter & Company Porter Portfolio Index ETF (PCPP) that Tuttle Capital Management runs keeps its rules-based 25% allocation to each of its four sleeves. And your own allocation may not need to change either, depending on your tax situation, your time horizon, and how much of this risk you are already hedging elsewhere.

Check out the full list of recommendations here.

Porter & Co.
Stevenson, Maryland

For important disclosures and disclaimers, please visit our Legal Disclosures page.

The post The End Of The Credit Card Cartel appeared first on Porter & Co..

Issue#162, Volume#3

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Four Companies That Are Paying Them In The Right Way

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Editor’s note: Before we get into Porter’s Journal for today, we want to share his new Ignition Point broadcast. In the newly released video, he reveals how several separate technological forces are fusing to create what Porter calls “the next Mag7.” Watch it here.

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Yesterday I wrote to you about “secret” dividends.

These are the huge sums of corporate profits that end up being allocated to things besides cash dividends. Finance bros call these decisions “capital allocation,” and they frequently make all of the difference between a winning investment and a losing one. After all, only about 35% of corporate earnings come back to you directly in dividends. Most of the cash ends up in other places.

One thing a good management team will do with these funds is pay the second kind… a secret dividend. This is a way of returning capital to you – but it’s a dividend that never shows up in your brokerage account. There isn’t a record date. There isn’t an ex-dividend date. There is no particular time limit to benefit from these dividends and they’re not announced – you can’t know exactly when they will be paid. You just have to keep track of them by watching the company’s share count. If they’re paying a lot of these kinds of secret dividends, then the share count will fall. And, as a result, your ownership interest will grow over time.

That can make you extremely rich. But these kinds of secret dividends can also ruin you. The difference comes down to one question to ask:

Do You Trust The People Running The Company?

The Same Thing Happened At Boeing

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Presented By: Porter & Co.

3 Things To Know Before We Go…

1. People are staying unemployed longer. One in four unemployed Americans has been looking at least six months for work. As of August, 1.93 million people, or 27.0% of all unemployed, have been out of work 27 weeks or longer, up from 17.8% in February 2023. While unemployment holds steady at 4.1%, it’s getting harder to find a job.

2. Diesel supply is tightening on both sides of the Atlantic. With diesel and heating-oil supplies already drastically low, ExxonMobil’s (XOM) Joliet, Illinois, refinery, which makes roughly 11 million gallons (6% of Midwest capacity) of gasoline and diesel a day, has been offline since a power outage on Sunday. Meanwhile, state-run oil producer Saudi Aramco told European refiners this week that they will get no crude next month after a drone strike shut the East-West pipeline, which bypasses the Strait of Hormuz.

3. Meta (META) taps the junk bond market. Bitcoin miner, now data-center operator, CleanSpark (CLSK), is seeking to raise $2.2 billion in a junk-bond offering to fund a Meta-backed data center in Georgia. This is a notable shift in credit quality for Meta’s AI-infrastructure financing, previously done through investment-grade bonds. Data-center operators have issued $39 billion of high-yield debt so far this year, making it one of the fastest growing areas of the junk bond market.

Chart Of The Day… Sabre (SABR)

Yesterday, travel-software provider Sabre (SABR) issued new bonds and repurchased existing ones, reducing the company’s total obligations coming due in 2029 and 2030 by 45% to $1.7 billion. SABR shares rose 11% to $2.32 on the news. Year to date, shares of Sabre, a Distressed Investing recommendation, are up 70%.

Please note: The investments in our “Porter & Co. Top Positions” should not be considered current recommendations. These positions are the best performers across our publications – and the securities listed may (or may not) be above the current buy-up-to price. To learn more, visit the current recommendations page of the relevant service, here| New Window. To gain access or to learn more about our current recommendations, call our Customer Care team at 888-610-8895 or internationally at +1 443-815-4447.

The post The Second Secret Dividend Can Make You Rich… Or Ruin You appeared first on Porter & Co..

In Porter’s first issue of Porter & Co. Biotechnology, he recommended one of the key players in gene silencing, Arrowhead Pharmaceuticals (Nasdaq: ARWR). However, he felt that we needed to wait for a better entry price. In that August 1 issue, he said that Arrowhead had done everything right: its triglyceride drug is approved and selling, it has pushed gene silencing into muscle, fat, lung, and brain, and the large drugmakers have paid Arrowhead billions for access. The stock had run from $15 to $87 in the past year. We want to own this company below $75, he concluded.

Shares of Arrowhead Pharmaceuticals are now trading around $67 per share, so we are moving them from our watchlist into a “buy” recommendation, below $75.

Action to Take: Buy Arrowhead Pharmaceuticals (Nasdaq: ARWR) below $75 per share

The post Moving Arrowhead Pharmaceuticals Off The Watchlist appeared first on Porter & Co..

The value of The Trading Club tracking portfolio settled at $125,872 as of Thursday, September 17 – up 25.9% since the May 30, 2025, inception date (see the detailed portfolio snapshot below). Based on last Friday’s trade alert, we made the following transaction in our Trading Club tracking account on Monday:

Bought to open one Invesco QQQ Trust (Nasdaq: QQQ) $680 put, expiring October 16, 2026, at $9.06 per share.

In this update, we review the options set to expire today, September 18, and set the stage for our next series of trades to be released next week. As a reminder, the upcoming recommendations will be shorter-duration “interim” trades, expiring in mid-October. Later in the month, we will return to our normal schedule of publishing quarterly trades, as well as a video recording that walks through each position.

Options Expiration Review

Eight options positions in The Trading Club portfolio are scheduled to expire at the close of trading today, including five covered-call positions and three cash-secured put trades. No action is needed, as we plan to hold all positions through the expiration date.

We’ll begin with a review of the covered-call positions, listed below.

Covered Calls Expiring Today

• One Celsius Holdings (Nasdaq: CELH) $35 covered call, covering all 100 shares of our 100-share long position
• Two Figma (NYSE: FIG) $25 covered calls, covering 200 shares of our 300-share long position
• One WaterBridge Infrastructure (NYSE: WBI) $35 covered call, covering all 100 shares of our 100-share long position
• Two Viper Energy (Nasdaq: VNOM) $46 covered calls, covering 200 shares of our 400-share long position
• One WaterBridge Infrastructure (NYSE: WBI) $35 covered call, covering all 100 of our 100-share long position

Based on Thursday’s closing prices, each of the underlying stock prices for these call options are well below the call strike price. As such, these covered calls will likely expire out-of-the-money and become worthless at the close of trading today. In this scenario, we pocket the premiums free and clear, while still retaining the underlying shares, meaning we are then able to repeat a similar trade.

Conversely, if any of the underlying stocks rally and close above the option strike prices today, the options will expire in-the-money. This means our shares will get “called away” and sold at the strike price after the close of trading.

We’re happy with either scenario, and thus no action is needed for these trades.

Next, we’ll review the cash-secured put positions, listed below.

Cash-Secured Puts Expiring Today

• Two Celsius Holdings (Nasdaq: CELH) $30 cash-secured puts, representing a $6,000 capital commitment to purchase 200 shares at $30
• One Philip Morris International (NYSE: PM) $175 cash-secured put, representing a $17,500 capital commitment to purchase 100 shares at $175
• One WaterBridge Infrastructure (NYSE: WBI) $30 cash-secured put, representing a $3,000 capital commitment to purchase 100 shares at $30

Based on Thursday’s closing prices, shares of Celsius were well below the put-option strike price, meaning this option will likely expire in-the-money at the close of trading today. In this scenario, our broker will automatically purchase 200 shares of Celsius on our behalf at $30 per share, for a $6,000 purchase commitment.

Alternatively, if Celsius shares rally above the strike price by the close of trading today, the option will expire out-of-the-money, and we pocket the premiums free and clear, while our obligation to purchase shares disappears.

Conversely, shares of Philip Morris and WaterBridge were above their respective put-option strike prices at the close of trading on Thursday. If shares remain at or above these recent prices, the put options will expire out-of-the-money, removing our obligation to purchase shares. Conversely, if shares fall below their option strike prices, we will be on the hook to purchase 100 shares of stock at the option strike price.

In all cases, since these are cash-secured puts, our broker has already set aside enough restricted cash to make good on these purchase commitments in the event that any of these put positions expire in-the-money. And because we are willing buyers of each of these underlying stocks at the option strike prices, we will simply hold these positions through the expiration date.

Next, we’ll briefly review our plan for Monday’s trades.

Monday’s Game Plan

To set the stage for our overall market outlook and trading plan going forward, we’ll begin by addressing the following subscriber question from The Trading Club Forum:

Today [September 15], Porter published a very worrying post about the national debt situation and rising interest rates. He recommended selling P&C insurance stocks. I know we don’t hold these stocks, but clearly he is very concerned about the market. I am hoping you can provide your thoughts on the state of the market and how you plan to prepare for what seems like an inevitable market fall. Very worrying times ahead for sure and NOT a time to take risks and not have a clear strategy in place in advance. As the Boy Scouts motto says, “Be Prepared,” which sounds smart to me.

Yes, I share the same concerns as Porter regarding the sharp rise in interest rates, along with the global energy supply crisis, on top of the risks associated with the potential unwind of the artificial intelligence (“AI”) boom. We’ve written about these threats in our prior two weekly updates, which you can find here and here. And in response to these risks, we’ve begun aggressively adding defensive positions into the portfolio, including our recent covered-call sales and protective put purchases.

Of course, it’s also worth pointing that Porter included one key caveat with his warning about the threat from higher interest rates. That is, no one – not even God himself – can predict the future path of interest rates. And I would extend that caveat to the broader idea that no one can reliably predict the near-term swings in any market prices. The past week provided yet another reminder of this fact. Energy prices fell despite additional attacks on energy infrastructure. Long-term bond yields fell despite the Federal Reserve hiking overnight interest rates. And technology stocks rallied even as the two leading AI companies warned of an imminent AI-apocalypse and a potential slowdown in large-language-model development.

So, yes, we are mindful of the downside risks in the market. But the flip side is that we can be wrong, or early (which is the same thing), in recognizing and reacting to these risks. And ultimately, it’s up to every individual investor to decide how they will allocate their capital in the face of the potential risks in the market.

As for our approach in The Trading Club, our goal is to strike a balance between both sides of the risk/return equation – a goal we believe is made possible with a prudent options-trading strategy. Right now, that means foregoing upside on a substantial portion of the portfolio in order to harvest consistent options premiums with our covered-call and put-selling strategies. And to reinvest a portion of these premiums into downside hedges in the technology sector, which we believe is most at-risk from an inevitable (but unpredictable) turn in the market cycle.

Finally, we also plan to maintain a focus on stocks that are beaten down and out of favor, where the discounted valuation means the long-term risk of capital impairment is low. But of course, that doesn’t mean that a cheap stock can’t get cheaper, or won’t get swept up in overall market volatility, as we’ve seen across a large number of our holdings recently.

Over a full market cycle, we have confidence that this basic process of buying good stocks on the cheap, harvesting consistent options premiums, and hedging the downside is a winning formula. That confidence comes from having seen this process work in our own investing portfolios, and it’s why we put real money behind this strategy and promised to show you every trade along the way, warts and all.

On Monday, we plan to continue executing our same basic strategy with a series of similar trades to the ones that expired today. We remain bullish on each of the existing holdings in the portfolio. But given the risks we see in the broader market, we will continue playing defense by harvesting consistent options premiums on many of these stocks, and reinvesting a portion of these premiums into additional hedging trades.

Stay tuned for more on Monday, when you can expect to receive the next trade recommendations in your inbox.

Next, we’ll show each position in the portfolio broken down by trade type.

Portfolio Review

The table below shows all current holdings as of the close of trading on Thursday, September 17. Please note that we have recently modified some of our recommended prices.

A few notes on how to read and interpret this portfolio table.

Please pay special attention to the “Action” column, where we specify whether each trade is a “buy” or “sell to open” transaction.

Next, the position size for each trade is equal to the current value of the position, with the exception of the cash-secured puts. In the case of the cash-secured puts, we define the position size as the total value of our future commitment to purchase 100 shares for each contract. This number is calculated as follows:

Position size = number of contracts x 100 x put strike price

We use this number because it accurately reflects our total capital commitment, and thus our total risk exposure on the trade.

For example, in the case of the Celsius Holdings (Nasdaq: CELH) $30 puts, the position size equals 2 x 100 x $30 = $6,000. We use this number because it accurately reflects our total capital commitment, and thus our total risk exposure on the trade.

To see the current profit/loss across each open position and other details, please see the live snapshot of our tracking portfolio at the end of this update.

We have compiled a summary overview of the latest quarterly trades released on June 22, which you can find here. Since then, we have recommended the additional trades listed below:

1. On July 17, we recommended purchasing shares of Novo Nordisk (NYSE: NVO), which you can find here
2. On July 21, we recommended purchasing shares of Hims & Hers Health (NYSE: HIMS), and we provided the analysis for the company on July 24, which you can find here

If you have any questions or feedback, The Trading Club Forum is the best chance to get a quick response from our team.

Alternatively, you can always email us at mailbag@porterandcompanyresearch.com.

Good investing,

Ross Hendricks
Porter & Co.

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