Since 2008, Mr. Pittman also has been the president of American Agriculture Corporation and Pittman Hough Farms LLC. From 2007–2008, Mr. Pittman served as Chief Financial Officer, Chief Administrative Officer and Executive Vice President of Jazz Technologies, Inc., a semiconductor foundry.
From 2004-2006, he was Partner and Head of Mergers & Acquisitions at ThinkEquity Partners LLC. From 2000-2003, he was President, Chief Executive Officer and Chief Operating Officer of HomeSphere, Inc., an enterprise software company, and TheJobsite.com, which merged into HomeSphere.
From 1997-2000, Mr. Pittman was Head of Emerging Markets M&A at Merrill Lynch in London, where he was responsible for origination and execution of all M&A business in Eastern Europe, the Middle East, the former Soviet Union, and Africa.
He graduated from the University of Illinois with a B.S. degree in Agriculture, received a Master’s in Public Policy from Harvard University, and a J.D. with Honors from the University of Chicago Law School.
In this 3,890 word interview, exclusively in the Wall Street Transcript, Paul Pittman explains his American background:
“I’m an unusual combination of a farm guy and a finance guy.
I grew up in Central Illinois. I have an agriculture degree from the University of Illinois way back in 1985.
When I graduated, as you may or may not know, that was the absolute bottom of the U.S. farm economy in probably the last 50 or more years.
The original Farm Aid concert was in 1985, to give you a context and example of how bad things were.
When I came out of school, I couldn’t go back to my kind of extended family’s farming operation. There was just no more room for any additional people.
Luckily, I had very good grades and I had been involved in a lot of student leadership positions at the University of Illinois. I got an opportunity to go to Harvard to the Kennedy School of Government, which I did. And then, I went on to University of Chicago Law School.
I had a relatively varied law and finance career, ultimately doing buyout of a technology company with a couple of well-known tech executives. I was the finance guy. And those executives were Steve Wozniak, who was the co-founder of Apple and another very successful and talented guy named Gil Amelio, who had been the chief executive of Apple briefly, and of National Semiconductor. So I had this sort of 15-year career of high finance.
I took the capital that I made during that era and started buying farms in the mid-1990s. It was in my blood. It was in my history.
Eventually that grew into what was a large personal portfolio of farmland that my wife and I owned.
We took that farmland public in this company in 2014, when we had $70 million in assets.
Today, we have at current market value, probably $1.3 billion or $1.4 billion of assets.”
The unusual asset class has extraordinary returns:
“At Farmland Partners, we start by looking at the asset class itself, meaning farmland. And then being a REIT is just a certain vehicle, a certain structure that we believe is favorable to investors in terms of its tax efficiency and a variety of other things.
But the core of what we do is that we have recognized that farmland ownership — not farming, but farmland ownership — is a very, very secure long-term business.
It is a total-return asset class. What I mean by that is it’s an asset class with relatively low current yields. About one-third of your total return comes from rents and two-thirds from appreciation.
But a lot of people don’t realize how strong and relatively stable the asset class is. In simplest terms, the reason the asset class is so stable over long periods of time is that it’s all about food, right?
Food consumption gradually increases on a worldwide basis, a story that’s frankly been going on for centuries, probably going on for at least that long into the future.
Every day, population gradually grows, and high-quality farmland gets a little scarcer every year.
Think of your own local community and places that used to be farms but now are now shopping malls or housing developments or schools or whatever it is. This asset class is going to always be in a position of modest but continuous appreciation.
To give you a couple of statistics, the 50-year history in farmland is about a 5.5% to 6% compounded annual appreciation. That’s a really, really big number over time. When you take that appreciation plus the approximately 4% or so current yield on the properties, you would find out that farmland often beats the New York Stock Exchange in total return over any kind of medium-term holding period like three or five or seven years.
At the end of the day, it’s all about investing in gradual global food demand increases in the face of continuing land scarcity.
That’s the strategy and it’s been a successful one for me personally over 25 plus years. And it’s been a successful strategy, frankly, for investors in our public company in the last seven or eight years.”
The inflation hedge is uppermost in Paul Pittman’s investment thesis:
“From an inflation protection perspective, I frankly think it’s as good if not better than gold. I think of it as gold with a coupon.
And then, a lot of investors focus on the asset class itself being essentially non-correlated with other financial assets.
Now, since the company is listed publicly, we’re obviously a little bit correlated, because everything on the New York Stock Exchange is correlated with everything else on the exchange. But farmland itself has a tendency to be strongest in times when the rest of the economy may be struggling.”
Get the complete strategy and future investment prospects by reading the entire 3,890 word interview with Paul Pittman, CEO of Farmland, exclusively in the Wall Street Transcript.
Paul Pittman, Executive Chairman & CEO, Farmland Partners Inc.
Michael Gorman is a BTIG Managing Director and REIT Analyst, focused on health care, retail, freestanding, and specialty REITs. Mr. Gorman has over 17 years of experience covering the sector. Prior to BTIG, he was a lead REIT analyst at Cowen and Company, and held similar roles at Janney Montgomery Scott, Credit Suisse, and Prudential. Mr. Gorman received an MBA from the Leonard N. Stern School of Business at New York University, and a Bachelor of Arts degree in economics from Bucknell University.
In this 3,801 word interview, exclusively in the Wall Street Transcript, Mr. Gorman cites Postal Realty Trust (NYSE:PSTL) and other REITs as top portfolio picks for income investors in 2022 and beyond.
“I don’t get to do it as often as I like to just because of the nature of institutional investing, is that for those that can, I think the small-cap world can be an interesting place.
Because they don’t always get quite as much focus, especially on the REIT side of things, there can be some really interesting disconnects — some companies that are being well run, in an interesting phase of their growth cycle, and it’s not even that they’re not liked, it’s just they don’t meet the cap limitations, they aren’t liquid enough for some investors to get involved with, and that creates interesting opportunities for those that can to get in at an earlier point. There are three that I’m thinking of specifically, and they’re mostly in net lease, one is in the multi-tenant retail space.
Look at a name like Postal Realty Trust (NYSE:PSTL) [a REIT] that only invests in facilities owned and operated by the United States Postal Service. I think the longer that they’re public and the more that they grow, the more attention that they get. They tell a very good thesis and a good story.
They are a consolidator in a fragmented space. They are the post office’s largest landlord. And despite all the headlines, post office real estate is both critical and a tiny fraction of the post office’s budget.
And so that’s an interesting story, a differentiated exposure that you’re not going to get through any other stock, and it’s a small growth story.
And then two other names, both actually managed by the same company.
One is Alpine Income Property Trust (NYSE:PINE), a small net lease REIT that’s early on, but again, great management team, really strong thesis, putting together a good portfolio that’s really come together since the pandemic, so they don’t have legacy issues. 2022 is probably going to be a little bit of a transition year for them just in terms of their balance sheet and teeing themselves up, but this is a team that’s pretty much done everything that they’ve said they were going to do, and they’ll probably set themselves up well for 2023.
And then their sister company, it’s actually the manager, is CTO Realty Growth (NYSE:CTO).
Again, it’s a name that not only doesn’t get as much attention, but they’ve done a lot to the company over the past 12 months.
They converted to REIT status. They sold off a bunch of legacy assets and legacy positions that were not income producing. They’re in the process of reinvesting those. And they’re set up for really strong FFO growth this year.
It’s a really interesting way to get a pretty focused, pretty concentrated exposure to how they invest, and they’re building this portfolio kind of from the ground up.
Again, same management team is playing. They’re sharp, they’re focused, they have a good thesis, they seem like strong capital allocators, and it’s a little bit more of an aggressive way to get exposure to that. We like that, and the valuations are certainly favorable at this point, too.”The specialty REIT Postal Realty Trust (NYSE:PSTL) gets further detailed in this 2,241 word interview with the CEO, exclusively in the Wall Street Transcript.
“My father started this business. He had been in various aspects of real estate for the majority of his life. He was first brought a small portfolio of postal properties in the early 1980s. At the time, he didn’t realize that the Postal Service even leased any of their assets. He ended up purchasing that portfolio, and he loved it.
What he, I guess innately figured out, which we found out to be true, is the Postal Service pays their rent on time, they very rarely move, and you’re able to own and operate the properties throughout the country without the need for on-site property management.
And so he continued to buy these properties and grew the postal real estate business.
I started working with my father during the summers, whenever I had time off, before joining him full time after I graduated college.
He first started taking me to look at buildings when I was around 9 or 10 years old.
We would meet with postal owners all over the country, in both urban and rural locations. In the early 2000s my father took a step back, and I took over the business and continued to grow it. Since then, we have become the largest owner of postal properties.
A few years ago, a banker approached me about creating a public company around our portfolio, and I spent a year or so researching and thinking about the opportunity. I had never thought about this before, as I never had investors to report to, I just operated my business to be as successful as possible.
After a year of thinking, I realized there was a tremendous opportunity in front of me.
Most of the postal property owners own their property for more than 40 years. Most owners are either the original or the second owner of the property.
Currently, there is a generational shift going on with the ownership of these assets, and it’s a very inefficient market, which creates an even greater opportunity for us. And so we decided to take my portfolio public almost three years ago.
And here we are.”
Jamie Friedman is a senior analyst covering IT Services/Outsourcing and Financial Technologies at Susquehanna International Group, LLP (SIG).
He started on Wall Street as an associate at Prudential Securities, emerged as a senior analyst at Goldman Sachs, and launched research at Fulcrum Global Partners in 2001 as one of the firm’s first employees.
Mr. Friedman began his career in the industry working in the systems department at Bertelsmann Industries, and is a graduate of Columbia University.
In his 3,047 word interview, exclusively in the Wall Street Transcript, Mr. Friedman explores the current high growth areas of the financial technology sector and has valuable insight regarding the rise of blockchain technology:
“Payments are really fascinating. I’ll give you a couple of subsectors of growth.
One of the most interesting ones to me is those that specialize in cross-border e-commerce.
Cross-border e-commerce from a payments perspective is really complicated. Part of the complexity is that in a lot of the world, people don’t pay with credit cards. They pay with some alternative payment mechanisms. If you’re a big company and want to expand into an emerging market, you need to make sure that you enable that customer to pay the way they want to pay.
If you go present them — like if you’re Amazon (NYSE: AMZN) and you present a new consumer, new to Amazon in Brazil, with payment options at checkout, and you only offer them Visa (NYSE:V) and MasterCard (NYSE:MA), they’re going to abandon their cart.
My guy has to enable it so that you can pay with the options that are actually in your wallet.
These alternative payment mechanisms are a huge challenge. And really, the specialists in this market are growing 40%, 50%, 60%.
Examples are the companies like dLocal (NASDAQ:DLO) and Adyen (OTCMKTS:ADYYF).
Another subsector is platforms in e-commerce. An example is eBay (NASDAQ:EBAY).
But there are a lot of other platforms, like Shopify (NYSE:SHOP).”
The disruption of the sector looms large in Mr. Friedman’s estimate:
“…Then you have the emergence of online banks.
The best player in this is Square (NYSE:SQ), in our view.
Square has built Cash App. Cash App has 40 million users. They’re making $60 per user per year.
If you look at the functionality they offer, their competitors are ones like Capital One (NYSE:COF) and Discover (NYSE:DFS) and American Express (NYSE:AXP). But Capital One makes $300 per user a year.
So can Square get from $60 now to $100 and $150?
We think they will.
They are a very good option. Their Cash App business is really an attractive story.”
Another analyst specializing in this high growth sector is Lisa Ellis, a partner and Senior Managing Director at MoffettNathanson LLC. where she leads the Payments, Processors, and IT Services business.
She wrote several investment research reports and frequently appears as a commentator on Bitcoin, blockchain, and other cryptocurrencies.
In 2020, she was named to Barron’s list of “100 Most Influential Women in U.S. Finance.”
Prior to joining MoffettNathanson, Ms. Ellis was a Managing Director and Senior Research Analyst at Sanford C. Bernstein & Co.
While at Bernstein, Ms. Ellis was the #1 Institutional Investor -ranked Payments, Processors and IT Services analyst.
In her 2.650 word interview, exclusively in the Wall Street Transcript, Ms. Ellis sets out a framework for her equity analysis of the repercussions of blockchain technology.
“I would probably separate companies or businesses accepting digital forms of payment from them actually accepting digital currencies or cryptocurrencies.
In western markets, the majority of businesses nowadays take digital forms of payment.
That’s simply a credit card, debit card, prepaid card. You can also do other forms of electronic payments like using a digital wallet type of model like in PayPal (NASDAQ:PYPL) or something like that or in Venmo.
Those are digital forms of payment.
They’ve been around for 50, 60 years and are in the more mature stages of adoption in western markets.
Although in many developing markets, in Africa or in parts of Asia or Latin America or even some parts of Southeastern Europe, there’s still a lot of cash used in societies and digital forms of payment slowly take over and displace cash as the primary method of payment. And the vast, vast majority, meaning well over 90% of digital payments in the consumer context, consumers are paying merchants with a card, a digital card.
So that’s like a credit card, debit card. That’s the primary method of digital payment.
Distinct from that is the concept of actually paying for goods with a digital currency.
This would be buying something with Bitcoin as a form of tender.
That’s just like we’ve seen in Ecuador adopting that model.
That’s extremely nascent and is to be determined on how widespread that will become over time.
The primary situations in which there’s a use case or a value proposition for using digital currencies or cryptocurrencies as a method of payment is in countries where the local fiat currency is unstable and so suffers from high inflation or an autocratic government.
Those types of digital currencies are truly an alternative to local fiat currencies.
In western markets where you’re using the dollar or the euro or the yen or some very stable free market currency, there’s not a strong use case really.
People might do it because they think it’s interesting or fun or a different novelty. But there’s not a particular use case for using or value proposition for using a digital currency, whereas in some developing markets, particularly those that suffer from very high inflation, there can be a pretty strong value proposition.”
Ms. Ellis then describes how digital payments have recently begun to evolve under the influence of the blockchain.
“…A shift that you see particularly in e-commerce payments — or it can be in a physical store where you might be paying with your phone — is the intermediation of using some sort of wallet as a method of interfacing.
That’s the best way I can describe it — the interface between you and the merchant, typically a wallet. So, this would be a wallet like Apple Pay (NASDAQ:AAPL), PayPal, Google Pay (NASDAQ:GOOG). The list goes on and on.
Typically, the underlying funding method within those wallets is again, the vast, vast majority of the time — like over 90% of the time, and in the case of an Apple Pay 100% of the time — is still a card-based model.
The underlying true payment method so to speak is still a card, like you load your card in your Apple Pay wallet or you load your cards in your PayPal wallet.
But the digital wallets offer a compelling form of intermediation with merchants because you can do that sort of one-click checkout where it makes it very easy to check out.
You don’t have to manually enter your card information every time and also those wallets can offer other interesting offers to consumers like some special promotions or merchant rewards, and they can keep track of your spending for you and provide information around it.
There are some other interesting aspects of it, but those aren’t new forms of payment per se, but they are new methods of conveying your payment, like interfacing over to the merchants, that has gained a lot of traction.
For example, in the United States across the primary categories of retail, e-commerce or consumer e-commerce — that’s retail, travel, entertainment, media, those types of categories of e-commerce — the PayPal checkout button or using the PayPal wallet as a method of payment is literally a third of the volume in those categories in the U.S. So that type of wallet has become very popular.”
This evolution has begun to develop into the promising use cases around Blockchain technology.
“One of the use cases for blockchain technology where it works particularly well or where it has a particular value proposition is in supply chains.
So, for example, the food supply chain globally is a great example of where companies heavily involved in food supply — so this is like companies like Walmart (NYSE:WMT), which run tons of grocery stores and all of their wholesalers and food suppliers can use blockchain technology.
The benefit of that technology is that it provides a way to very uniquely track items.
It has these unique identifiers that are impossible to copy or replicate. You can’t cheat and duplicate them.
There are very unique identifiers and then also the technology has a very unique aspect that all parties that are given permission on a blockchain system can have good visibility into everything that’s going on up and down the blockchain.
That means you can use that technology — just the characteristics of it make it very amenable to complex supply chain tracking applications.
So you can just imagine that you can track a box of mangoes from Latin America all the way through what ships.
They went on to ship to the U.S. and then what distribution centers they went through, all the way to what grocery stores they landed in. And that way you can not only create supply chain efficiencies to manage bottlenecks throughout the supply chain, but if there’s an outbreak of a foodborne illness, you can very easily track and trace where the food came from.
You can also better guard against illegal farming and things like that in some areas of the world like in the Amazon — also avoid and better track issues like that.
It doesn’t get as much attention I guess, but it’s actually one of the applications of the technology that’s gained the most significant adoption.
It has nothing to do with finance or payments. It’s an application of blockchain technology specifically that’s taking advantage of their unique characteristics associated with asset identification.”
The association of payments, blockchain secured provenance creates a road map for creation of the Smart contract technology.
“Smart contracts are another application of blockchain technology that has gained a lot of early traction in a bunch of different use cases.
The way a smart contract works is that you embed into a transaction a form of what’s referred to as conditionality, meaning it says, “OK, transfer money from Person A to Person B under the condition once these following conditions are met.”
A classic amazing use case of that technology in a developing market like, say, in Africa is for something like crop insurance.
This is insurance that you pay and then you get paid out if your crops fail for some reason. You can set up a smart contract that says, “OK, pay farmer John a certain amount of money if the following conditions are met, temperatures reach a certain level or water fall reaches a certain level, etc.”
So it’s like an automated contract — insurance contract — and what that does is it allows you to do much smaller increments of insurance, for individual farmers for example, which are hard to reach through a traditional labor-based insurance company like actuaries and everything.
You can do it in a very automated online fashion.
It also eliminates corruption, the risk of corruption, from the system because it’s just literally baked into software that automatically pays out under certain conditions. That’s a good example of a smart contract.”
Ms. Ellis wants to emphasize that we are in the early days of blockchain technology growth.
“Bitcoin was invented in 2008.
We’re only 14 or 15 years into a very transformational disruptive technology. It’s still in its early stages.
If you think about that in the internet context, the internet, the origins of the internet, were back in the 1960s and it really wasn’t until the 1990s that you saw the explosion and adoption of the internet.
We’re still in very early stages and many of the companies that investors are the most interested in in the space are actually the companies that are providing the building blocks or the infrastructure for these technologies.
They’re still so nascent that you’re still figuring out foundational things, like how do we securely store digital assets or digital currencies, how do we store them in a secure way such that they are accessible, but also protected from theft and fraud.”
Ms. Ellis has ample advice for how to invest today.
“There’s a group of companies that do asset custody and storage, which are very popular.
These would be companies like Coinbase (NASDAQ:COIN), who is very active in that space.
Paxos is another one.
Bakkt (NYSE:BKKT) is another one that is very strong in that arena.
Similarly, there are companies that just provide a method of moving — on-ramping and off-ramping between traditional assets and currencies and into the digital assets and currencies.
They provide this intermediation layer. Again, that would be exchanges like a Gemini or an FTX, or Kraken is another one.
These are what you’d call the picks and shovels companies of blockchain and crypto or digital asset technologies.
That’s the stage of development that we’re in right now.”
This investment universe is growing.
“In addition, though, increasingly there are other methods of getting exposure to crypto, more to the technologies and the companies building these technologies.
So there are increasingly funds or ETFs, etc., that invest in a group of companies that are all quite active in the space and there’s also some individual companies that are now publicly listed that retail investors could get access to those companies.
Coinbase, of course, is the most prominent large-cap name, but there’s some other ones like Silvergate (NYSE:SI), it is a bank, and Signature Bank (NASDAQ:SBNY) is another bank.
These are two specialty banks that are pretty active in the space, and there’s probably over the next 12 months going to be another wave of new listings that are companies that are directly involved.”
Robert Maltbie, CFA, is President of Singular Research, which provides performance-based research to over 100 institutional clients, and with over $60 billion in assets under management. He also manages a private fund for high-net-worth institutions and corporate executives.
In his 2,319 word interview, exclusively in the Wall Street Transcript, Mr. Maltbie advances his case for small caps with upside potential in the development of financial technology with a view towards the expansion of blockchain technology.
“We focus on small and micro caps. We’re independent performance-based research, unbiased, no banking.
We have about 100-plus, 110 institutional clients. They have about $60 billion in assets.
They look to us for discovery, research, new ideas or old companies with new management, new products. We’re, I guess, frequently called on by major national media when they’re interested in small caps, which is less these days.
And we follow about 40 names and we’re doubling our coverage this year. We think there’s opportunity to grow our share in the market and also valuations are favoring that as well.”
“I think one application is disrupting traditional banking. I’ve seen estimates ranging from one to several trillion in revenue just on fees for withdrawals or bank accounts or wire fees — we’re not even talking about interest rates.
We’re talking about transactional fees that consumers incur from banks.
Technologies like blockchain allow fintech-oriented transaction processors or firms that focus on using this new technology to disrupt and disintermediate by using something that’s far more efficient, more decentralized and open ended, open architecture, that results in quite a bit of benefit to consumers in terms of saving on those transactions…
I think the totality of transactions done with even MasterCard (NYSE:MA) or Visa is so immense that there’s such a margin there to disintermediate within that you could squeeze out a trillion right there, just from that alone.
And looking at companies that can benefit from that, they’ve quite a bit of room for growth.”
“If you’re aiming to be high growth along the cutting edge, or if you have a huge franchise, like a Visa or a MasterCard that you need to defend, you’ve got to be on this. You’ve got to make investments now.
And you have to be very, very serious about this right now because it’s the pace of innovation, the pace of change. Look what’s happened already with the internet and internet two, three, etc., and offshoots of that — it is just an amazingly fast pace of innovation. And you don’t want to end up like a Sears (OTCMKTS:SHLDQ) or a Kmart in retail or other entities that just didn’t prepare and didn’t invest in R&D and in innovation.”
Moshe Katri currently serves as Managing Director of Equity Research at Wedbush Securities, where he has been for more than a year. Mr. Katri has been covering IT Services and Payments for more than 20 years, covering companies such as International Business Machines (IBM), Square (SQ), and PayPal (PYPL), to name a few.
Prior to joining Wedbush, Mr. Katri was a Managing Director with Sterne Agee CRT, where he expanded coverage of the fast-growing payments sector and continued his coverage of IT Services.
Mr. Katri spent the previous 16 years at Cowen & Company, as a senior analyst covering IT and Business Services.
He started his career on Wall Street in 1991, joining Oppenheimer & Co.’s equity research team focusing on Aerospace and Defense before moving to UBS, where he transitioned to covering IT and Business Services.
Prior to his career on Wall Street, he served as a military intelligence officer in the Israeli Defense Forces.
Mr. Katri received his B.S. in Finance and Information Systems and MBA in International Business from New York University.
In his 4,307 word interview, exclusively in the Wall Street Transcript, Mr. Katri develops the basis for his current recommendations in the financial technology sector and his views on the rapidly growing blockchain technology trends.
And these are, I would say, collectively they probably control about 80%, 85% of the total purchase volume.
We cover Coinbase (NASDAQ:COIN) also as a monetization play, but not necessarily as a crypto play.
It’s predominantly the company’s ability to monetize roughly, I don’t know, 40 million users and build an ecosystem of products and services around it.”
Mr. Katri believes much of the upside for these current stocks lies in their ability for the monetization of networks.
“Each one of these players has a place in what we call the payments ecosystem, right?
The networks are sitting pretty much at the center of every transaction.
Instead of clearing transactions, they connect about four different parties in that payments ecosystem.
If you look at the companies that have platforms that service merchants, they’re the ones at first that serve as the gateways between the merchant and the network. That’s another way of looking at it.
But I would say a couple of things about what all these companies are trying to do today, all these companies — and this is not something I would have told you five years ago — all these companies are focusing on monetization.
So what does that mean?
Their bread and butter historically has been more about generating or charging fees, right, for transactions that are done, whether via a shopping network or if you’re traveling. That’s what we call cross-border.
Now, the networks serve as financial institutions.
These are the card issuers and they’re also connected to merchants.
These guys realized a couple of years ago, and probably MasterCard is the one that really started this trend, that if we service so many financial institutions, why don’t we also build a whole set of services business, or what we call value-added services, or ancillary services, where we can actually sell these to our end markets, which would be the financial institutions?
So we’re talking about consulting, we’re talking about other things that are related like cybersecurity or data analytics.
The thought here is that not only can we help them clear transactions or make sure transactions go through, but we can also sell them services.
Lo and behold, four or five years later, for MasterCard, value-added services accounts for 20%, 25% of revenues and it’s a very profitable piece of business.
And ironically, this is the fastest-growing business right now for both networks. So 20% to 25% of revenues from MasterCard, roughly 15%, maybe 15% to 20% of revenues with Visa, the fastest-growing business is here.
And Visa probably had been very defensive, especially given some of the recent volatility in general in travel and a bunch of other revenue sources for the networks.
So the networks have been focusing on monetization and then everybody else has been doing the same thing.
Look at the payroll processors, ADP and Paychex, they’ve also built a set of ancillary services.
Not only are they helping employers pay employees, send them checks or deposit checks into their accounts, but they’re also selling them other ancillary services that are related to back office, whether it’s recruiting, whether it’s insurance.
And it’s interesting that’s really been working nicely.
They serve merchants on one hand and they also serve consumers on the other hand.
Square probably has the best monetization strategy that’s been working flawlessly in the system.
We’re assuming that they cater to about 5 million to 6 million merchants. Not only do they provide these SMBs or mid-sized merchants the ability to clear transactions, but on top of that they also provide them access with other software tools that are necessary for them to operate a business: inventory control, loyalty, other things that are really necessary, and they charge them for using these tools.
That’s what we call ancillary services.
On the consumer side, Square built a digital banking app called the Cash App, which enables you, the consumer, to have a sort of banking account on this platform.
You can get your salary sent there, you can use it for purchases.
And then on top of that, you can access other services that are related to that platform, too.
That’s Square’s monetization strategy.
PayPal also has been focusing on how to monetize their two-sided platforms.
Then you have other two-sided platform companies that we cover and these are companies that on one hand service financial institutions and then on the other hand they service merchants.
So we’re talking about FIS (NYSE:FIS), Fiserv (NASDAQ:FISV) and Global Payments (NYSE:GPN).
On the financial institution side, these guys provide financial institutions with an infrastructure that’s related to trading, commercial banking, peer-to-peer, or P2P. That part of business that’s doing relatively well.
The other side of the business is more focused on merchant processing.
They provide gateways connecting between merchants and the networks and obviously charging fees for that gateway for merchants using the gateway to clear transactions.
But again, every single one of our companies has been focusing on trying to monetize the end markets that they’re focusing on.”
Mr. Katri has become concerned about the “buy now, pay later” space that Square, now called Block (NYSE: SQ) has recently acquired:
“Now the area that we’re concerned about the most in the industry today is the emerging, what we call, “sign up and buy now, pay later,” or BNPL area.
Anything that has to do with buy now pay later from our perspective is a bit problematic because this is effectively an alternative lending business.
This reminds us a lot of the subprime lending business that we’ve seen, I don’t know, 10 years ago.
There are some companies that focus predominantly on that, companies like Klarna, Afterpay that was acquired by Square, Affirm (NASDAQ:AFRM).
What worries us the most here is the fact that the model has not been battle tested during a recession.
We are concerned about rising default rates.
We are concerned about the fact that this kind of form of payment is relatively fast-growing in a consumer base that isn’t necessarily qualified to get your typical credit card.
We’re concerned about rising default rates and people are accumulating debt they cannot afford.
This is probably the only form of alternative lending that is not regulated.
For example, Square acquired app2pay.
Luckily for them, because Square shares fell so much from their high, they’re not paying $30 billion for it but about $10 billion.
Effectively they’ve acquired a lender and I don’t know if this strategically made a lot of sense for them.”
Get the complete detail by reading the interviews of all these equity analysts and more insights into the IT Services sector, and the emerging blockchain technology sector, exclusively in the Wall Street Transcript.
Lisa Ellis and Dr. Catherine Corrigan make money for their investors the old fashioned way — they understand the implications of innovation in Bitcoin, cryptocurrency and battery storage solutions and create methods to profit from these insights.
Lisa Ellis is a partner and Senior Managing Director at MoffettNathanson LLC.
She leads the Payments, Processors, and IT Services business. She wrote several investment research reports and frequently appears as a commentator on Bitcoin, blockchain, and other cryptocurrencies.
In 2020, she was named to Barron’s list of “100 Most Influential Women in U.S. Finance.”
Prior to joining MoffettNathanson, Ms. Ellis was a Managing Director and Senior Research Analyst at Sanford C. Bernstein & Co. While at Bernstein, Ms. Ellis was the #1 Institutional Investor -ranked Payments, Processors and IT Services analyst.
Prior to Bernstein, Ms. Ellis spent 13 years at McKinsey & Co. where she was a Partner in the firm’s Technology & Telecom and Marketing & Sales consulting practices. She received advanced degrees in physics, math, engineering, and business.
Ms. Ellis has deep insight into the Cryptocurrency and Blockchain technology innovations. In this 2,650 word interview, exclusively in the Wall Street Transcript, she details her perspective and develops the thesis for several related stock picks.
“The interest in underlying blockchain technology, as well as digital currencies and cryptocurrency technologies, continues to increase.
It has gone through various fits and starts and spurts, but has continued to increase over the last seven or eight years. And over time, I guess I’d say that the use cases for blockchain and for digital assets or cryptocurrencies are starting to evolve and crystallize into a handful of different use cases.
The underlying blockchain technology is essentially a different form of database technology.
It has applicability primarily in supply chain-related applications, as well as some underlying core banking-related applications. So there’s a lot of interest in that area, and then digital currencies as well as cryptocurrencies, some of the derivative products like NFTs have other use cases.
Some of them are simply in investments and trading like we see with cryptocurrencies. Some are in payments, some are in asset identification and tracking like you see with NFTs.
I guess I’d say the big evolution over just the last couple of years is that the investments in this space have started to align themselves around this sort of four or five major applications for the technology.”
This innovation has led Ms. Ellis to recommend some near term investments for those looking for exposure to the Blockchain and Cryptocurrency Sector:
“For instance, Bitcoin was invented in 2008.
We’re only 14 or 15 years into a very transformational disruptive technology. It’s still in its early stages.
If you think about that in the internet context, the internet, the origins of the internet, were back in the 1960s and it really wasn’t until the 1990s that you saw the explosion and adoption of the internet.
We’re still in very early stages and many of the companies that investors are the most interested in in the space are actually the companies that are providing the building blocks or the infrastructure for these technologies.
They’re still so nascent that you’re still figuring out foundational things, like how do we securely store digital assets or digital currencies, how do we store them in a secure way such that they are accessible, but also protected from theft and fraud.
There’s a group of companies that do asset custody and storage, which are very popular.
These would be companies like Coinbase (NASDAQ:COIN), who is very active in that space. Paxos is another one. Bakkt (NYSE:BKKT) is another one that is very strong in that arena.
Similarly, there are companies that just provide a method of moving — on-ramping and off-ramping between traditional assets and currencies and into the digital assets and currencies.
They provide this intermediation layer.
Again, that would be exchanges like a Gemini or an FTX, or Kraken is another one. These are what you’d call the picks and shovels companies of blockchain and crypto or digital asset technologies. That’s the stage of development that we’re in right now.”
Get all of Ms. Ellis’ deep insight by reading the entire 2,650 word interview, exclusively in the Wall Street Transcript.
Dr. Catherine Corrigan is the President and Chief Executive Officer of Exponent, Inc. Dr. Corrigan joined the Company in 1996, was promoted to Principal in the Biomechanics Practice in 2002, and to Corporate Vice President in 2005.
In 2012, she was appointed Vice President of Exponent’s Transportation Group, overseeing the company’s Vehicle Engineering, Biomechanics, Human Factors, and Statistical and Data Sciences practices, as well as Visual Communications.
She was appointed President of the company in 2016 and Chief Executive Officer in 2018. Dr. Corrigan has consulted in the area of injury biomechanics and on issues related to motor vehicle and product safety for more than 20 years.
Dr. Corrigan holds a Ph.D. in Medical Engineering from the Harvard-MIT Division of Health Sciences and Technology, an M.S. in Mechanical Engineering from MIT, and a B.S.E. in Bioengineering from the University of Pennsylvania.
Dr. Corrigan was elected to the National Academy of Engineering in 2021.
In this exclusive 3,135 word interview found only in the Wall Street Transcript, Dr. Corrigan emphasizes the financial rigor that she demands for her company:
“We have about $300 million of cash right now on our balance sheet.
There are three categories of things that we think about in terms of deploying that cash.
First, we have been committed to a dividend for a number of years now. We have continued to raise that dividend over the course of time, actually raising it faster than earnings. We just recently raised the dividend by about 20%. So we are committed to continuing our dividend program as a way of returning cash to shareholders. That’s an important pillar of our strategy with regard to our cash.
The second is share repurchases. We’ve just recently increased our share repurchase authorization, adding about $150 million to that. Our strategy there is to take advantage of pullbacks in the stock that are unrelated to our performance, but are a function of the marketplace, and to use our cash to strategically repurchase shares.
The third opportunity involves tuck-in types of acquisitions that we think could help us to seed or accelerate new areas of business for the firm. We are very choosy about acquisitions, and it’s been a number of years since we’ve done one. But we do believe, at least philosophically, that there can be opportunities if we find the right partner to make an acquisition that could accelerate some of our growth.”
Dr. Corrigan sees her company growing around new technologies:
“…There are some particular areas of business that we’re very focused on in terms of growth opportunities.
One of them is around energy storage, and batteries in particular. Exponent has been working in the battery and energy storage arena for a number of years, mostly focused early on in the consumer electronics industry.
One example is our work on the Samsung Galaxy Note 7 a few years ago. That’s one of the few public projects that we’re actually able to talk about.
We are now seeing demand for energy storage expertise across more industries.
Transportation in particular is a place where many of the original equipment manufacturers are coming out with pledges around the percentage of their vehicle fleets that are going to be electrified over the next five or 10 or 15 or 20 years. The vehicle electrification trend is driving more and more demand for our expertise related to energy storage, safety and performance.
We’ve got some very advanced methodologies for testing these kinds of energy storage systems, whether those are the small batteries in medical devices, all the way up to utility-scale storage systems that empower our transition into cleaner energy.
Our initiatives around batteries are oriented toward growing that work across industries.”
Get the complete interview with Dr. Corrigan, exclusively in the Wall Street Transcript.
An award winning professional equity analyst and this highly acclaimed CEO both detail the opportunity for safe dividends with a high potential growth rate in the US based natural gas production and distribution sector.
Sunil K. Sibal is a Managing Director and Senior Energy Infrastructure/Utilities Analyst at Seaport Global Securities.
He has more than 25 years of progressive international experience in the energy sector, most recently at Seaport Global, which he joined in 2014 to cover and build out the firm’s MLP/midstream infrastructure research.
Prior to that he was with Citi, where he covered the midstream MLPs and built out the various commodity forecast models.
Prior to Citi, Mr. Sibal held roles identifying investment opportunities in the natural resources and energy sector at Bank of America and Natixis, as well as project development and engineering roles at Fluor and ABB Lummus Global (CVX JV).
He received an MBA from Ross School of Business at the University of Michigan and a bachelor’s degree in chemical engineering from Panjab University in India.
In his 2,337 word interview, exclusively in the Wall Street Transript, Mr. Sibal identifies the lesser known value opportunities among stocks in the natural gas sector that feature safe high growth dividends.
“One other name that I follow is a company called Tellurian (NYSEAMERICAN:TELL), which is in the process of developing a Driftwood LNG liquefaction project.
That project got halted during the time of COVID. And since then, the company has made some progress in signing contracts, but it is looking for financing of this project.
This is a multi-billion-dollar endeavor. It has been difficult for Tellurian to raise financing for Driftwood. So it will be an interesting one to watch.
Whether natural gas will continue to be a significant part of the energy mix in Europe or not, that could play a very important role for the financing of the Tellurian’s Driftwood project. So that’s one name to watch for.”Amanda Brock is the Chief Executive Officer and President of Aris Water Solutions [ticker: ARIS] a leading produced water infrastructure and recycling company primarily focused on the Permian Basin which went public in October 2021.
Ms. Brock has been with Aris and its predecessor Solaris Water Midstream since 2017.
She has spent her career focused on the global oil and gas, power, and water sectors.
Prior to joining Solaris, Ms. Brock was CEO of Water Standard, a water treatment company focused on desalination, produced water treatment and recycling for both the upstream and downstream energy sectors. Previously, Ms. Brock was President of the Americas for Azurix, responsible for developing water infrastructure and related services, and prior to that was President of Enron Joint Venture Management, managing Enron’s global power assets and partnerships.
Ms. Brock serves on the public boards of Coterra Energy, Macquarie Infrastructure Corporation, and is the current Chair of the Texas Business Hall of Fame.
She previously served on the Board of Trustees of LSU Law School and Harte Research Institute for Gulf of Mexico. She was named one of the Top 10 Women in Energy by the Houston Chronicle and in 2016 was recognized both as one of the Top 25 Leaders in Water globally and as a Texas Honoree for Women in Energy.
She also facilitated a White House delegation to Abu Dhabi as part of the Obama Administration’s Moonshot for Water Initiative.
In 2017, Ms. Brock was inducted into the Houston Women’s Business Hall of Fame and in 2020 was named one of the 25 Influential Women in Energy by Hart Energy Oil and Gas Investor magazine.
Ms. Brock is originally from Mbabane, Swaziland, and grew up in Zimbabwe. She completed her bachelor’s undergraduate degree at the University of Natal in South Africa and earned her Juris Doctor from Louisiana State University, where she was a member of the Law Review.
She is dedicated to responsible conservation and passionate about elephants, water and energy security.
In her 1,776 word interview, exclusively in the Wall Street Transcript, Ms. Brock explains her strategic vision for her natural gas services business and her dedication to providing safe high growth dividends:
“The Permian Basin is an arid area and every barrel of water we recycle is a barrel of groundwater or fresh water that is not extracted from local water resources. Our recycling activity has an immediate and long-term benefit for our customers, the communities in which we operate, the environment, and our investors and stakeholders.”
Amanda Brock, President & CEO, Aris Water Solutions, Inc. [ticker: ARIS]
Sunil K. Sibal, Managing Director & Senior Energy Infrastructure/Utilities Analyst
James Harvey is a Principal and Portfolio Manager at Royce Investment Partners, the small and micro cap investing juggernaut. In his 3,750 word interview, exclusively in the Wall Street Transcript, James Harvey details his investing methodology and details several top picks from his current portfolio.
“First and foremost, it’s a value-oriented approach.
We look to buy statistically attractive stocks at low valuations and typically these low valuations come about as a result of temporary issues. As we’re doing our research, we look for stocks whose problems look transitory and possess some kind of catalyst that we feel can close the valuation gap.
Another tenet of the strategy is that we recognize that, especially in small caps, you can encounter a fair share of volatility.
But we understand that volatility differs from risk, so we tend to take advantage of this volatility in order to try and maximize returns.
We identify names that we feel are suitable for the strategy and we divide them into four investment themes.
Number one is unrecognized asset values.
The second category we label as turnarounds.
Third are undervalued growth companies.
The fourth are companies with some type of interrupted earnings or broken IPOs.
One example from the James Harvey small cap value portfolio:
“In terms of unrecognized asset values, we own a company called Atlas Air Worldwide (NASDAQ:AAWW).
Atlas [Air Worldwide (NASDAQ:AAWW)] has been in business for 30 years.
They own a fleet of over 100 aircraft that are mainly used to transport cargo for parcel customers such as DHL and FedEx (NYSE:FDX), but also e-commerce players like Amazon (NASDAQ:AMZN), who’s a customer.
They’re the largest operator of 747 freighters in the world and they break out their business into two segments: airline operations and dry leasing.
In airline operations, they provide services to their customers under agreements known as either ACMI or CMI. ACMI stands for Aircraft, Crew, Maintenance and Insurance.
Atlas Air Worldwide (NASDAQ:AAWW) owns the aircraft, they provide the crew, and they’re on the hook for maintenance and insurance but that’s it. The customer pays for fuel and the other costs such as landing fees and any other expenses. The costs are relatively well known and fixed.
CMI has basically the same structure, but they provide the crew, the maintenance and insurance, and not the aircraft. The contracts they have with their customers basically call for guaranteed minimum flying hours. These revenues are fairly predictable, and the company also provides charter services for sports teams and other organizations that want to charter on a monthly basis and just need access to a plane.
The dry leasing segment is where Atlas [Air Worldwide (NASDAQ:AAWW)] would provide aircraft to a customer and nothing else and then they would just get paid, say, a fixed monthly fee for providing that aircraft. Customers would be, again, people like DHL and FedEx who need extra capacity.
Amazon has become a pretty significant customer for Atlas [Air Worldwide (NASDAQ:AAWW)].
The key to understanding the business is that these arrangements with their clients provide for guaranteed minimum revenues that are all predetermined or pre-negotiated so, again, Atlas [Air Worldwide (NASDAQ:AAWW)] does not take on any fuel risk.
As you might imagine, over the last few years, this has been a bit of a booming business. Revenues have grown very nicely. Global air freight volumes are actually exceeding pre-pandemic levels, so earnings have been great and growth has been very good.
But we like to have it in the unrecognized asset category because other investors weren’t as attracted to these underlying assets.
It would be virtually impossible for someone to replicate a business like this today just in terms of the number of aircraft they have and their ability to serve their customers the way they do. They have a world-class fleet of planes. They keep adding planes. They have a network of customers that I would say are top notch in the business. They have unrivaled global operating capabilities, and these are all really valuable assets.
The shares trade at 80% of book value and today you could argue that the assets that they have might be more valuable than ever. It’s tough to get planes, the capacity is tight, and the services they offer are in very high demand.”
Daniel L. Kane, CFA, is a managing director of Artisan Partners and a portfolio manager on the U.S. Value team. In this role, he is a portfolio manager for the Artisan Value Equity, U.S. Mid-Cap Value and Value Income Strategies. Prior to joining Artisan Partners in March 2008, Mr. Kane was a senior small-cap investment analyst at BB&T Asset Management, Inc. from August 2005 to March 2008. Mr. Kane began his investment career as a domestic equities securities analyst at the State of Wisconsin Investment Board in 1998.
Craig Inman, CFA, is a managing director of Artisan Partners and a portfolio manager on the U.S. Value team. In this role, he is a portfolio manager for the Artisan Value Equity, U.S. Mid-Cap Value and Value Income Strategies.
These two portfolio managers detail their contrarian deep value investing philosophy and top picks in their 4,615 word interview, exclusively in the Wall Street Transcript.
“…We approach investing with a risk-aware mentality, or a risk-aware mindset.
First, we find companies with superior business economics, looking for strong returns on equity and ROIC.
These are companies we’d like to own for long periods of time.
Second, we look for undemanding valuations, which typically occurs when other investors are avoiding a stock because of some setback in the business.
Lastly, we want to see strength in the balance sheet, which buys us time allowing a company to weather any unforeseen near-term storms as their longer-term business economics are eventually understood better by the market.
Stocks with stronger characteristics on all three of these measures typically have a narrow range of possible outcomes and so they merit a higher weight in our portfolio.
Less ideally balanced stocks will not receive the same allocation of capital.
Stocks with a binary outcome are areas we typically don’t invest in.
So while we are primarily focused on the business, valuation helps inform our view of the pessimism baked into the stock price. Typically, when we’re looking at a company, valuation is under pressure because there’s some sort of fear and uncertainty impacting the price. And rather than run away from it, it attracts our attention and interest.
We use an undemanding valuation that’s based upon a normalization of the earnings power of the company. And that’s the core tenant of what we’re looking for — something is pressuring the business today; something is causing margins or sales to be weakening or soft in the near term.
And we use the longer-term time horizon and different snapshots of valuation in order to get a feel for what the value of the company could be in a recovery or a normalization type scenario.”
One example from their portfolio is Royal Philips (NYSE:PHG).
“This is a 130-year-old company that you might recall as Philips Electronics.
The company was founded back in the early 1890s. Over the last decade-plus, the company has gone through a remake, moving from a conglomerate structure to one that’s dedicated and focused 100% on health care.
They spun off a semiconductor business in 2006, spun off their lighting and light bulb business in 2016 and more recently sold their domestic appliances business.
What you’re left with is a diverse medical business with a large installed base of diagnostic imaging devices — X-ray, CT, MRI, PET, etc. — a number of product offerings in image guided therapy, patient monitoring, breathing and respiratory care and personal health. So there’s a large installed base of imaging devices and a footprint that’s really global in hospitals and clinics across the world, which allows them to compete very effectively, versus a lot of their peers.
We got involved with this stock late last year.
Their Connected Care division, which is their second largest, operates in the sleep business. They manufacture and sell CPAP machines for patients who need treatment for sleep apnea, a serious disorder in which breathing repeatedly stops and starts.
Philips is the number-two player in the industry, along with competitor Resmed (NYSE:RMD).
Treating sleep apnea provides a tremendous health benefit for patients who show immediate quality of life improvements. Treatment is also very helpful in reducing the risk of ancillary complications like heart attack, hypertension, stroke and diabetes.
The sleep business ran into a problem in June of 2021, when the company had a recall of their DreamStation CPAP product because they noticed some of the foam that’s used to provide sound abatement for the product was degrading when patients were cleaning it with an ozone cleaning agent, which incidentally the company does not recommend doing.
There are two important aspects to this recall.
First, there is risk to a potential long-term impairment of the sleep business, which is right now only around 7% of total revenue.
In a very concentrated market with only one other significant player, Resmed, it is highly likely that Philips’ business will recover and regain traction.
Recalls are a recurring feature of the sleep business, with Resmed having their own recall in 2007.
Secondly, there is risk from U.S. personal injury lawsuits. Investors are capitalizing billions of dollars of settlements due to ongoing and forthcoming consumer injury lawsuits and multidistrict product liability lawsuits.
That remains to be seen as litigation is in its very early stages.
However, the company’s market value has declined by over $15 billion since they announced the recall. That’s a significant destruction of value when you compare that versus not only the existing pretax profit and cash flow the rest of the business generates, but also the levels of litigation payouts that have occurred in the medical device industry in the past.
Hernia mesh and hip implant settlements were significant but collectively well below $15 billion in total.
For example, Bayer AG (OTCMKTS:BAYRY), a European life sciences company recently settled a portion of litigation that stemmed from the Roundup businesses they bought from Monsanto in 2018.
News reports have detailed where consumers have been exposed to Roundup over longer periods of time and in some cases developed a form of cancer.
Bayer settled that litigation for around $11 billion or roughly $110,000 across 100,000 lawsuits. If you did similar math for Philips’ potentially affected patients, which is a much smaller number than the existing customers using their machines, you’re looking at a number for Philips which is a significantly smaller number than $15 billion of market value that has been erased.
So, we think the market has overplayed their hand in terms of penalizing the company for this litigation risk.
However, we’re eyes wide open with the expectation that the cases will play out over the next couple of years and the company will most likely settle some of these to reduce future litigation risk.
In the meantime, it’s trading for a mid-teens multiple of our estimate of normalized earnings which are obviously currently depressed because the sleep business has faced this setback and they’re not selling new sleep machines.
They’re focused on repairing or replacing machines for the existing patient base. The stock is trading at a level well below the peer set and where it’s lived historically.
The balance sheet is in great condition, with only 1.3x turns of net leverage, but certainly strong enough to be able to handle any litigation outcome, with a payout structure that would most likely take place over many years.
The stock has fallen over 40% over the last 12 months.
It’s one of the best health care businesses out there, especially given the sticky installed base, importance to clinics and hospitals in terms of how this equipment is used for their daily workflow needs to diagnose and treat patients, and strong margin and cash flow profile.
We like Philips; it’s a name we bought and added on the recent downturn.”
Jesse Stein is the Real Estate Techology Expert at ETF Managers Group.
He is also Managing Director of Everyrealm Inc.
Beginning in 2020, he was Head of Real Estate at Republic, a multi-asset investment platform.
He also is the Managing Principal of Advanced Fundamentals, an index and data analytics firm that developed the Brixx Commercial Real Estate Indexes, which serve as the underlying index for exchange-listed futures and options products.
In his 3,195 word interview, exclusively in the Wall Street Transcript, Jesse Stein elaborates on the real estate technology disruption that will innovate the sector and provide years of investment upside:
“Real estate, one of the oldest industries in the world, and one of the largest asset classes, is still, at this point, exceedingly antiquated.
Real estate transactions, which have occurred for hundreds of years, are not too much different than how they were decades ago. The process of buying and selling a home, it’s still ancient, it’s still expensive, it takes way too much time.
Because there are so many moving parts within this transaction, and different firms and different paperwork involved, the companies within this ETF are innovating and disrupting the industry to provide more efficiency from a cost perspective in order to make the entire process more efficient.
Streamlining these manual inefficient activities are included in a number of different parts of the real estate transaction.
So for a real estate seller or brokerage firm, it’s in marketing the property and allowing people to view the property in different ways using technology.
For a buyer, it is in being able to research different properties that are available and to view those properties in ways that you weren’t able to previously.
On the mortgage side, it’s in processing a mortgage origination, and the underwriting and the servicing of the loan.
And then it’s also within the more mundane aspects of real estate transactions — title insurance, the appraisal, the settlement, escrow, closing, home warranty, insurance, everything that goes into selling, buying and then owning residential real estate.
The ETF also includes a number of companies that are providing services for the commercial real estate space.
And it’s also important to point out that this is a global ETF, where approximately a third of the companies are either based in or operate overseas.
So you are receiving exposure not just to U.S.-based proptech companies, but to global technology companies focused on the real estate space.”
Anton V. Schutz is President and Chief Investment Officer at Mendon Capital Advisors.
He is the Portfolio Manager of RMB Mendon Financial Services Fund.
He founded Mendon Capital in 1996 with a long/short and event-driven investment strategy focused exclusively on the financial services sector.
Previously, he worked at RBC Dain Rauscher with an institutional sales trading role in the financial institutions group. He also spent 10 years at Chase Manhattan Bank, where he structured investment products utilizing hedge funds and also developed and applied financial risk strategies.
He has been interviewed by CNBC, Bloomberg, The Wall Street Journal, Barron’s, The New York Times, Financial Times, Business Week, Investors’ Business Daily, Smart Money and others.
He graduated from Franklin and Marshall College and received an MBA from Fordham University.
In his 3,140 word interview, exclusively in the Wall Street Transcript, Anton Schutz develops an interesting pick for investing in the banking technology sector:
“I think one of my most interesting companies, which is my largest position, is a company called Live Oak Bank (NASDAQ:LOB). Live Oak Bank has a venture business called Canapi Ventures.
And they’ve already had one fund. They’re launching a second fund. And I believe they’re going to have some pretty impressive returns from those funds, which will result in some earnings for them.
They have directly funded some venture companies in financial technology.
One of them was just taken over by one of the large core processors.
So that deal hasn’t closed yet, but again, will give them some capital that they can reinvest, make other investment decisions. They’re the largest SBA lender in the country.
And if you’ve got a good growing economy, business is going to be pretty strong for them.
And one of the things that they need to continue to work on is getting core deposits.
Because they’re such a large SBA lender, they’ll be able to get deposits from affinity groups, like veterinarians. So that one is really interesting.”
For additional investment opportunies in the disruption of the real estate and banking sectors by technology, read the entire interviews with Anton Schutz and Jesse Stein, exclusively in the Wall Street Transcript.
Biotech stocks have been hammered in 2021 and so far into 2022 despite the focus on drug development that has accompanied the 2 years of COVID 19 therapy development. These biotech stock research analysts have determined the best case for biotech stock investors and have current recommendations for investors.
Matt Phipps, Ph.D., a biotechnology analyst, joined William Blair & Co, L.L.C. in November 2014, after working as a postdoctoral research fellow at Texas Scottish Rite Hospital for Children.
In the 2019 StarMine Analyst Awards from Refinitiv, Dr. Phipps was ranked the No. 1 earnings estimator in biotechnology and No. 3 across all industries.
“…For a number of companies with new drug launches or recently approved drugs — it’s been tough for them. They can’t have their salespeople go out and meet with doctors face to face to talk about these new approved drugs. So while some companies have benefited significantly, there’ve been plenty that haven’t.
So there is obviously hope that this year, if we return to somewhat of a normal surrounding environment, a lot of the other companies in the biotech world can start to recover to pre-COVID levels in regard to clinical trial enrollment, utilization rates of physicians, diagnoses of diseases, and other things like that. So there are two sides to the COVID pandemic…
My top name for 2022 is a company called Pieris Pharmaceuticals (NASDAQ:PIRS). It’s just over a $250 million market cap company. So it’s a smaller biotech company, but they have a very important Phase II trial readout coming later this year, which I expect to be in the back half of the year. And it’s a program that offers an inhaled drug for asthma patients that hopes and aims to be as effective as some of the newest injectable drugs are.
The market leader in asthma is really DUPIXENT and Pieris’s drug, called PRS-060, goes after the same mechanism of action, but it uses Pieris’s platform technology, which is a much smaller protein than the antibody DUPIXENT.
And so it can be delivered via an inhaler, and asthma patients are very familiar with using inhalers daily. So this would be kind of an add-on to that, as opposed to asking them to get a shot every two weeks.
The early data has looked very promising. It’s been in patients with less severe asthma just because you want to start with patients who are a little bit healthier when you’re trying something new like this.
And then, as they move into this more uncontrolled moderate-to-severe asthma patient, which is really the patient who would need this type of therapy — we’re going to see the results from that trial in the second half of this year.
And this is a collaboration with AstraZeneca (NASDAQ:AZN), one of the leaders in asthma drugs, both inhalers and injectable drugs.”
David Nierengarten, Ph.D., is Managing Director and Head of Healthcare Equity Research at Wedbush Securities. He mainly covers development-stage therapeutic companies. He began his career on the financial side of biotechnology at a venture capital firm that focused on early-stage therapeutic and medical device companies.
“What has affected our companies a bit more than the broad market is that we saw a real decrease in clinical trial readouts over the past year due to the aftereffects of clinical trial start delays.
We saw a slowdown in recruiting due to COVID, and the FDA slow to sign off on INDs or clinical trials or manufacturing sites. And those delays in data readouts have affected our companies even more than the perceived threat of increased interest rates over the near term.
Will that change? Yes, I think it will change. It will change more towards the latter part of this year, Q3, Q4.
Then, we see at least a pickup in our estimates guided to data points for companies under coverage. And generally speaking, in the small/mid-cap space, we expect to see a bit of a recovery in data readouts. And if they’re positive of course, that overwhelms any negative effect from a couple interest rate hikes, or again a tightening of the financial conditions…”
The research analyst has several picks despite the biotech stock headwinds:
“Theseus Pharmaceuticals, they are developing targeted oncology drugs focused on targeted kinase inhibitors, one of which is focused in on the GIST — gastrointestinal stromal tumor — market. They started up a clinical trial recently in late-line GIST patients. They have a promising technology, or research programs, that look for what are called pan-kinase inhibitors.
These can really prevent the emergence of resistant mutations, which has affected a lot of targeted oncology agents and therapies. So we’ll see how they go through the rest of the year.
They’re recruiting patients into that study. So we expect them to open up a study in second-line patients after they understand dosing and scheduling in the later-line patients. And that would open up a potentially larger opportunity for them…
iTeos Therapeutics (NASDAQ:ITOS). That is an immuno-oncology company. They don’t have a lot of their own data coming out this year, but they are working on an anti-TIGIT antibody as one of their lead compounds.
There will be data readouts from related companies, the main one being Roche (OTCMKTS:RHHBY), that should be updating data for their anti-TIGIT antibody. And I think that if Roche shows a positive data outcome, then iTeos should do well also.
They have a lot of cash. So they don’t need to raise money in the near term. ITOS’s anti-TIGIT antibody is a potentially better anti-TIGIT antibody than Roche’s. ITOS is developing it in partnership with GSK (NYSE:GSK), who’s helping to fund that development there too. So that’s one longer-term pick that I like a lot.”
Dr. Kumaraguru Raja is a Senior Biotech Analyst at Brookline Capital Markets. Previously, he was Vice President, Biotechnology Research at Noble Life Science Partners. He started his equity research career in 2010 as a Senior Associate Analyst on the Citi Research biotechnology team.
His expertise includes bottom-up scientific and financial analysis on companies across therapeutic areas and across a spectrum of market capitalizations.
“In my coverage, for example, Veru (NASDAQ:VERU) has over $100 million in cash, and they are also a revenue-generating company. But if you look at the biotech space, in my coverage universe, there are not a lot of companies that are generating revenues or have sales.
So in that aspect, Veru is comparatively well positioned. Their incoming revenues help them offset some of the expenses with moving the pipeline forward. And they also raised money last year, so they have over $100 million in cash. And of course, that is going to help them.
Then Arcturus (NASDAQ:ARCT) also has at least two years of cash in their balance sheet.
So some of these companies are well positioned in terms of cash. Whereas others, they need to raise cash. And given the current market condition, compared to the valuations last year which were comparatively higher, they would raise cash probably at a much lower valuation right now…
I also like Cyclacel (NASDAQ:CYCC), with a very small market cap, about $35 million.
They are also in the oncology space. They also have multiple clinical trials going on. And they are developing targeted therapies for oncology, both solid cancers as well as for blood cancers.
They have a drug called fadraciclib, which is a CDK2 and CDK9 inhibitor. Basically, this drug prevents the cell cycles from progressing, so it prevents the cells from dividing. And this is an oral drug that is being developed for both blood cancers as well as for solid cancers. And they have already started the clinical trials and they will have data readouts later this year.
They also have another drug called CYC140, which targets another pathway called PLK1. That’s also a Phase I/II trial that also will have some data this year. And they are trading probably less than the cash that they have. So I like the risk/reward as the pipeline moves forward.”
Steve Brozak is the Managing Partner and President of WBB Securities, LLC.
In 2013, Dr. Brozak was selected as a top analyst in the pharmaceuticals sector by the StarMine/Financial Times Industry Analyst Awards. He also was named to The Wall Street Journal’s “Best on the Street” list in the category of medical equipment and supplies.
“In the past few years, several mostly smaller companies have evolved with new products to fight infections. The first two I would like to discuss are in the antifungal space and they are SCYNEXIS (NASDAQ:SCYX) and Cidara (NASDAQ:CDTX).
Scynexis is developing a new class of antifungal products. Their lead product has just been approved and launched. It’s called ibrexafungerp and the trade name is BREXAFEMME. It has a broad-based potential for treating a wide range of fungal pathogens.
It’s first market indication is VVC, which is a serious issue that affects practically all women. The other company, Cidara, also has an antifungal platform that I believe also will be critically important in the near future.
I am watching this space because fungal infections are a growing problem.
Fungal pathogens have always been present but are now becoming more recognizable. And these pathogens are not going away. As a matter of fact, their presence is only increasing with issues of temperature and climate change. So I would look very closely at the threat of all infective pathogens, and examine very carefully the two companies I mentioned…
I would say that for both SCYNEXIS and Cidara, the timeline is right now based on price, and for SCYNEXIS, also based on the recent product launch.
I think antifungals are important because we’re now seeing that COVID presents multiple problems, specifically around opportunistic infections, including both bacterial and fungal infections.
Here is why. There are large segments of the U.S. population that are Type 2 diabetic and morbidly obese. And sadly, for that population, fungal infections are at an all-time high.”
Read the full interviews with all of these biotech stock analysts and more, exclusively in the Wall Street Transcript.
George Goldsmith is the Chairman, CEO and Co‑Founder of COMPASS Pathways (NASDAQ:CMPS).
Mr. Goldsmith’s early training and experience was a multi-disciplinary blending of cognitive psychology, clinical psychology and computer science. His first company, The Human Interface Group, was a pioneer in collaborative software and was acquired by Lotus Development.
Mr. Goldsmith led the Lotus Institute and developed software and services to support high-performance, distributed teamwork. He then created TomorrowLab, which provided strategic guidance to internet businesses in the late 1990s.
At the same time, he became a senior advisor to McKinsey & Company’s leadership, and eventually joined McKinsey as CEO of TomorrowLab@McKinsey.
Subsequently, as a member of the Young Presidents Organisation (YPO) and its International Board of Directors, Mr. Goldsmith founded YPO Networks.
In 2002, He founded Tapestry Networks, an organization committed to improving leadership performance and governance effectiveness in regulated sectors.
He still serves as Tapestry Networks’ Non-Executive Chairman.
In this 3,683 word interview, exclusively in the Wall Street Transcript, George Goldsmith the CEO of COMPASS Pathways PLC (NASDAQ:CMPS) details his company’s development of psilocybin magic mushrooms as an investment.
“So we’re working with a very interesting substance called psilocybin and developing a psychedelic medicine.
Psilocybin is an active ingredient in what are often referred to as magic mushrooms. What we’ve developed is a synthetic form, so no mushrooms are harmed in our work!
Our psilocybin, COMP360, is a synthetic pill developed to the highest standards of pharmaceutical development. We have FDA breakthrough therapy designation. So we’re developing this as a medicine.
But what’s really different is it’s not just a medicine. It’s a model of care, with people being supported carefully with specially trained therapists who are present during this powerful psychedelic experience.
And what we find with this is that it gives people a chance to see their life differently, to have less negativity in how they see their life and how they perceive events, and also to have less of that kind of rumination and that kind of constant internal voice.
You know, “Gee, this may not work out well…what if I go into this, will it really work for me… I’ve had this really hard life and I’m just going to continue to have the hard life.”
We know people like this where there’s just that inner voice of expectation. And what our psilocybin therapy seems to do is it has people see their world in a more positive fashion, disconnecting them from some of that negativity, and also to have less of that inner voice constantly talking things down, but really taking a more positive and a more present view of their life.”
Get the complete detail on the development of psilocybin magic mushrooms in this publicly traded company by reading the entire 3,683 word interview, with George Goldsmith the CEO of COMPASS Pathways PLC (NASDAQ:CMPS) exclusively in the Wall Street Transcript.
Todd R. Nelson, Ph.D., has served as the President, Chief Executive Officer and a member of the board of directors of Codex DNA (NASDAQ:DNAY) since July 2018.
Prior to joining the company, Dr. Nelson served as the Chief Executive Officer of several life science companies through expansive phases of financial and commercial growth.
From December 2014 to October 2017, Dr. Nelson served as Chief Executive Officer of DiscoverX Corporation, a leading developer and manufacturer of reagents intended for drug discovery.
From September 2011 to October 2014, Dr. Nelson served as Chief Executive Officer of MP Biomedicals, LLC, a global manufacturer and distributor of products and services for the life science, fine chemicals, diagnostics and dosimetry markets.
From June 2007 to January 2011, Dr. Nelson served as Chief Executive Officer of eBioscience, Inc., a manufacturer and distributor of immunology reagents used in pharmaceutical research.
Dr. Nelson also previously served as Vice President of Global Corporate Development and Strategy at Life Technologies (now Thermo Fisher Scientific (NYSE: TMO), as First Vice President Global Securities and Economics at Merrill Lynch & Co., and as Global Head of Life Sciences at RBC Capital Markets (TSE: RY)
Dr. Nelson currently serves on the board of directors of Tonbo Biosciences Corporation and TCRx Corporation.
Dr. Nelson received a B.A. in Psychology, a Ph.D. in Philosophy from the University of Minnesota and an MBA in Finance from the Carlson School of Business at the University of Minnesota.
Dr. Nelson also completed clinical fellowship training at Mayo Clinic in human genetics and laboratory medicine from 1996 to 1998.
In this 1,921 word interview, exclusively in the Wall Street Transcript, Todd Nelson, CEO, details the investment thesis for Codex DNA (NASDAQ:DNAY).
“We did recently announce that we signed a strategic multi-year, early-access collaboration licensing agreement with Pfizer.
And as part of that agreement, Pfizer (NYSE: PFE) gains early access to our novel enzymatic DNA synthesis technology, referred to as EDS. And we’ve branded this technology as SOLA, and this is a novel way to create DNA.
Pfizer wanted access to this, because they wanted to maintain their leadership position in the mRNA market.
Our system makes the DNA templates for Pfizer’s RNA-based vaccine. The ability to use our system to identify variants allows Pfizer to build more effective COVID or flu viruses faster than before.
By partnering with us, they are able to decrease the amount of time it takes to get their mRNA-based vaccines or therapeutics to market.”
The remarkable acheivement of Codex DNA is a new type of mRNA synthesis:
“The DNA or RNA that we make using these systems can be thought of in the same way that you would use a desktop printer in your office.
We’ve put the technology together that allows the scientists to essentially print DNA or mRNA.
It’s identical to and no different from the DNA that’s in your body today, or the mRNA that’s in your cells today. It’s a platform for development that allows scientists to make products faster.
DNA is the very starting point for most drugs and vaccines today and it has broad-reaching implications beyond COVID. And now with mRNA-based vaccines for COVID shown to be safe and efficacious, it makes sense that we would use it for flu and other vaccines.
That means we have an opportunity to get these critical vaccines for flu into patients and into the population faster than before. Its use extends to a broad range of new therapeutics that are going to be developed on an mRNA platform.
And lastly, one of the most interesting things we’re doing is using our SOLA technology to store digital information.
This expands beyond health care applications and has implications globally for our planet.
It’s a very ESG positive technology.
Current approaches use lots of very toxic organic chemicals to make DNA. Ours is a water- and protein-based solution that uses biology to make the DNA in much the same way your cells do.
We’ve developed a way to actually store digital information — like a song or a video or a photograph or a picture — in DNA.
As told in “Jurassic Park,” DNA lasts for millions of years and is very stable and capable of storing an incredible amount of information.
The rate at which we’re generating data is outpacing our global ability to store data. DNA is the future storage solution. You could store every single photograph ever taken, every song ever sung, in a tube of DNA about the size of your finger.
We can dramatically decrease the footprint globally for the carbon footprint of data storage facilities, as we come up with sustainable data storage solutions that are friendly to our ecosystem going forward…”
This innovation is detailed further in the complete 1,921 word interview with Todd Nelson, CEO of Codex DNA (DNAY) exclusively in the Wall Street Transcript.