Lake Cornelia Capital's Judd Arnold on $TOI and a bunch of other stuff

Episode Summary

Executive Summary: Andrew Walker and Judd Arnold discuss Judd’s shift from traditional, valuation-driven hedge fund work to a more liquid, inflection-focused style of investing built around story, liquidity, and option value. The conversation centers on how to size positions before an inflection, why some situations attract market attention, and a deep dive into TOI’s oncology-services model, along with examples like Nebius, ASTS, Sable, and merger-arb situations.

Main Topics: From traditional valuation to inflection investing (Priority: 5/5): Judd explains moving away from overly 'cute' or illiquid ideas and toward liquid, story-driven situations where investors can build a position before the market fully recognizes the inflection. Liquidity as a core investment filter (Priority: 5/5): The discussion emphasizes that the best outcomes in Judd’s experience are in names that become liquid, or are already liquid, because liquidity enables sizing, fast exits, and participation in rising attention. Sizing around option value and downside control (Priority: 5/5): They explore how to scale positions as conviction increases, focusing on bounded downside, right-tail optionality, and the importance of knowing when a thesis could fail abruptly. TOI pitch: oncology services and capitated care (Priority: 5/5): Judd gives a detailed bull case for TOI, arguing its oncology model can undercut hospitals and fee-for-service benchmarks by routing care through a lower-cost, more controlled outpatient and capitated structure. Why certain businesses attract attention and others don't (Priority: 4/5): The speakers compare stocks like Nebius, ASTS, and TOI to more mundane ideas, arguing that some businesses naturally pull in generalist capital because the story is big, tangible, and easy to understand. Merger arbitrage and event-driven lessons (Priority: 3/5): The conversation widens to risk arb, regulatory uncertainty, and examples like Warner Brothers/Paramount/Netflix and the Acorn/Fresenius case, highlighting how narrative and timing drive outcomes.

Key Arguments: Judd’s edge is no longer in forcing uniqueness, but in identifying liquid situations where a real story or inflection can be sized aggressively once it begins to work. The market often rewards ideas that people care about; liquidity and narrative can matter as much as, or more than, near-term valuation metrics. Traditional cheapness with poor liquidity often fails to monetize, while seemingly expensive liquid names can rerate dramatically once the story catches on. Position sizing should expand only after downside is bounded and the inflection is validated; liquidity is the main defense against being trapped. TOI’s oncology business can create value because it is cheaper than hospitals, benefits from a high reimbursement benchmark, and can shift from fee-for-service to capitated contracts over time. TOI may be differentiated from failed primary-care value-based models because oncology has less MLR volatility, clearer drug-cost economics, and stronger structural support from the healthcare system. CMS is unlikely to aggressively crack down on hospital oncology margins because oncology is politically sensitive and economically important to hospital earnings. Oncology drug pricing, especially around off-patent/biosimilar transitions, can remain sticky longer than investors assume, supporting margin persistence. Generalist capital can be powerful once a story is obvious; names like Nebius, ASTS, and TOI may rerate primarily because the market understands and cares about them. Event-driven opportunities require thinking in terms of probability, duration, and option value, not just static downside/upside tables.

Data Points: Lake Cornelia launch: Substack launched in early 2025 - Judd describes the new public-writing platform as part of his investing process. Probability PM cares about an idea: 10%-20% - Judd estimates the chance a PM would care about a typical senior analyst pitch at large funds. Chance a high-conviction idea works: 1 in 4 to 1 in 5 - Judd cites a friend’s historical hit rate on high-conviction ideas. Nebius share price at discussion start: $18-$20 - Walker and Judd discuss their early exposure to Nebius before the stock became more liquid. TOI share price low: $0.12 - Judd notes TOI bottomed during tax-loss season after a major drawdown. TOI share price at time of discussion: ~$4.20-$4.80 - Current trading range mentioned during the conversation. TOI target price: $15-$30 in two years - Judd’s stated upside estimate in the substack note. TOI valuation: 0.7x revenue - Judd says TOI is trading below 1x revenue. TOI net debt: ~$40 million - Approximate leverage figure cited for the company. TOI shares outstanding: ~130 million - Rough share count used in the valuation discussion. TOI EBITDA: Zero EBITDA in Q4; $20M-$40M next year; ~$75M exit-rate by 2027 - Projected operating trajectory discussed by Judd. TOI street revenue estimate for 2026: ~$600 million+ - Judd says consensus is still low and expects guide raises. Medicare Advantage PMPM: $1,000-$1,500 per member per month - Referenced to show TOI’s oncology touchpoint is a small portion of total healthcare spend. TOI oncology touchpoint PMPM: $30-$50 - Used to show the business is a small slice of overall health-plan economics. California TOI PMPMs: ~$3 PMPM - Because physician groups handle more administration in California. Florida TOI PMPMs: ~$35 PMPM - Illustrates better monetization in Florida expansion markets. TOI margins: ~15%-20% - Gross or operating economics discussed for the model. TOI incremental margins: ~20% - Expected as the model scales and contracts layer in. Hospital oncology share of earnings: ~25%-30% of hospital margin - Judd argues this is why CMS is reluctant to crack down. Ketruda patent expiry: 2028 - Used in a discussion of how slowly oncology pricing may adjust. Sable initial warrant price: $1 pre-close - Example of a high-upside, high-volatility option-style investment. Sable downside duration: 2-3 years - Judd explains how long duration protected the downside in the original thesis.

Pivotal Quotes: "What if I do a sub stack where I just say, this is interesting?" — Judd Arnold: Explaining why he launched Lake Cornelia Capital’s writing platform and moved away from pitching only 'unique' ideas. "We don't know which names are going to work." — Judd Arnold: Core rationale for keeping a portfolio of smaller positions and scaling only when the thesis proves itself. "If you are correct, that people will care, and the right tail potentially will be the perception of right tail is big enough." — Judd Arnold: Summarizing his framework for option-like investing in liquid stories with major upside.

Implications: The episode suggests a market regime where liquidity, narrative, and timing can dominate classic cheapness. For investors, the takeaway is to size around inflections, keep downside bounded, and focus on businesses the market will actually care about.