Agnico is the top pick from gold stock analyst Ralph M. Profiti, CFA, a Principal focused on Metals & Mining equity research at Eight Capital, covering Senior North American Industrial Metals and Precious Metals companies and commodities.
His previous experience including gold stock analysis was as a key member of the Global Metals & Mining Equity Research Teams at Credit Suisse and Deutsche Bank, covering North American Industrial Metals & Precious Metals equities in Toronto and New York, as well as Corporate Banking at Royal Bank of Canada.
His perspective on gold stocks in 2023 is enlightening.
“A lot of management teams are thinking, I would probably say the consensus is, another 5% year-over-year inflation on unit mined costs in 2023.
I think that’s something that’s probably going to get flushed out of management commentary when guidance comes out for 2023, with Q4 2022 results.
The other thing is that companies are responding to these inflationary pressures by managing their mine plans more strategically. So, for example, there’s less waste stripping.
There’s more high-grading going on.
These proactive ways of searching for margin are actually going to help the metal price.
Because what it actually does when a company sacrifices quantity and goes for quality is that it has the embedded feature of taking metal out of the market, and that’s actually positive for metal prices.
So I think that there are some proactive moves being done by managements to combat inflation that are actually to their benefit in 2023 and to the benefit of metal prices.
And then the last thing I’ll say is, I think that there’s a common theme emerging that the true nature of value creation in mining — at least over the next three to five years — is going to be through exploration as opposed to M&A.
M&A now has become much more difficult, because not only have valuations declined in terms of multiples contracting, but what you’re also seeing is a divergence of managements willing to sell at such low stock prices.
I think that’s delaying any M&A cycle. And when that happens, I think management teams will focus more on exploration, and that is actually a much better way to create net asset value per share.”
The top gold stock pick from Ralph Profiti is Agnico Eagle (NYSE:AEM).
“My top pick in the gold space is Agnico Eagle (NYSE:AEM), and I like Agnico because of its dominance in terms of its jurisdictional profile.
Agnico operates 12 mines across five regions in four countries — Canada, Australia, Finland, Mexico. My valuation methodology places a premium on a successful track record, on building operational consistency, strong governance practices, and dedicated track records in solid, safe mining jurisdictions, and that’s what Agnico gives you relative to its peers.
In addition, the pro forma Agnico production, which is 3.6 million to 3.8 million ounces a year, that to me is a real sweet spot in the gold mining space, where you’re large enough to attract generalist investors into the shareholder base, but nimble enough that you can create value through exploration, advanced stage development projects, and new discoveries.
I think that Agnico is an enviable position of having great jurisdictions, the ability to move the needle on strategic initiatives, and having a strong balance sheet as well — $2 billion in undrawn credit facilities goes a long way in being able to protect any downside risks that I think the gold market might give us.”
There are gold stocks like Agnico Eagle (NYSE:AEM) and then there are gold stocks like Solitario (NYSE:XPL).
Christopher E. Herald has been a Director of Solitario since August 1992.
He has also served as Chief Executive Officer since June 1999 and President since August 1993.
Previously, Mr. Herald served as a Director of the former Crown Resources since April 1989, as Chief Executive Officer of Crown since June of 1999, President of Crown since November 1990, and was Executive Vice President of Crown from January 1990 to November 1990.
Prior to joining Crown, Mr. Herald was a Senior Geologist with Echo Bay Mines and Anaconda Minerals. He currently serves as non-executive Chairman of Viva Gold Corp. Mr. Herald received an M.S. in Geology from the Colorado School of Mines and a B.S. in Geology from the University of Notre Dame.
His gold stock management experience is elite.
“…About two years ago, after focusing on zinc for a number of years, we decided to go back into the gold space.
And about a year and a half ago, we were presented with this very early-stage project called Golden Crest in South Dakota.
It was a project that didn’t have any drilling on it, it only had a couple hundred surface samples taken, and we looked at it and just really loved what we were looking at there.
We decided to take a flier on it, picked it up, leased this 4,000-acre property from a private company, and that was the start of what I think is one of the most exciting gold plays in North America today, our Golden Crest property.”
The enthusiasm for this gold stock opportunity is infectious.
“It’s in South Dakota, and when we first started mentioning this to our shareholders and the people that may be potential shareholders, they’d say, “What are you doing in South Dakota? Is there gold there?”
The fact of the matter is, South Dakota hosted the single most important underground gold mine ever discovered in the United States, and it was called the Homestake Mine.
It produced 42 million ounces of gold.
At gold’s high, that’s an $80 billion gold deposit that was mined over a 120-year timeframe from the late 1880s. It closed around 2000.
The Homestake mine was phenomenal.
It was owned for almost its entire history by the Homestake Mining Company. And I can tell you, the industry, including ourselves, thought if there was any other gold in the Homestake area, Homestake Mining Company would have found it.
That was our perception, and I’ve talked to a lot of people in the industry and that was their perception.
But when we were presented this new property, it was only about six miles west of the largest underground gold mine in the country.
At first we thought, “Is there really going to be something there?” We started working there, and we started finding gold all over the surface, and the more we looked, the more we found, and the bigger our land position got.
We started with 4,000 acres. A couple months later, we were at 8,000 acres. Six months later, we were at 15,000 acres.
And as we stand today, we’re over 28,000 acres that we control.
And we’re not staking moose pasture, we’re staking areas that have gold on surface.
Our geologic team, including myself — I’m a geologist also — we’ve been looking for gold for 40 years, and I can tell you on this property we’ve found the most gold on surface of any property in the history of our exploration efforts.
It is phenomenal.
We shake our heads at this, because we always assumed that Homestake Mining had found everything, and nothing could be further from the truth.
In fact, if I can give one example, one area that we call Downpour we started sampling about a year ago, and we got some good gold numbers right from surface — and those were right along a Forest Service road.
We went back three times.
We’d get our gold assay results from our first round; we went back and did more sampling.
We got those assay results; we went back and did more. We did it basically four times, and it kept getting bigger.
Finally, we dug trenches, and right now we have five trenches.
They’re right in the middle of a Forest Service road.
I mean, people have been driving over this road for 50 or 60 years.
One of the trenches has 27 meters of 15 grams gold.
If you’re not in the gold industry, 15 grams gold, that’s half an ounce per ton gold.
And the nearest mine to this, the Wharf Mine, which is close to the Homestake Mine, but it’s an open pit mined by Coeur Mining, the average grade that they’re mining there is less than one gram, but we’re finding 15 times that right at surface.
Trench number two had 30 meters of 8.5 grams.
Phenomenal numbers that we had never seen.
And our team has discovered over 5 million ounces of gold on early-stage projects — we’re good at this.
This, by far, is the best project we’ve ever worked on.
We have other trenches not quite as good, but still, for the start of a project, almost unheard of: Nine meters of 2.6 grams, 12 meters of half a gram.
I think we had 12 meters of something like another 15 grams. And we have a series of these types of gold systems scattered over this 28,000-acre property.
For us, I can tell you it is the most exciting property we’ve worked on.”
Get all the detail by reading the entire 3,995 word interview with gold stock CEO Christoher Herald of Solitario (XPL), exclusively in the Wall Street Transcript and more on Agnico Eagle (AEM) in the 2,625 word interview with Ralph M. Profiti, of Eight Capital.
Dividend paying stock investor Ronald Chan founded Chartwell Capital in 2007 and currently serves as Chief Investment Officer and Co-Portfolio Manager. As CIO, he steers the firm’s investment strategy. As Co-Portfolio Manager, he oversees stock selection and portfolio allocation.
A frequent contributor to Bloomberg Opinion and Financial Times Chinese, Mr. Chan is an adjunct professor for the MBA program at The Hong Kong University of Science and Technology and the author of two books: Behind the Berkshire Hathaway Curtain: Lessons from Warren Buffett’s Top Business Leaders in 2010, and The Value Investors: Lessons from the World’s Top Fund Managers in 2012 and 2021 (second edition).
Mr. Chan served as a member of the Listing Committee Panel of The Stock Exchange of Hong Kong Limited from 2016 to 2022. Since his appointment in 2018 by the Hong Kong Trade Development Council, he has served as a member of the Greater Bay Area Committee: Smart City and Digital Connectivity Task Force.
Since 2019, he has served as an Independent Non-Executive Director for Powerlong Commercial Management Holdings Ltd. He has also been an international committee member of the Hong Kong M+ Museum and a founding member of the Hong Kong Biotech Development Council of the Hong Kong Science and Technology Park since 2020.
Mr. Chan has been the Vice President of the Education Development Foundation Association in Hong Kong since 2005. Mr. Chan graduated with Bachelor of Science degrees in Finance and Accounting from the Stern School of Business at New York University and is currently the President of the NYU Hong Kong Alumni Club and the Vice President of the Pan-Asia Alumni Committee.
He is also a member of the Board of Trustees at Malvern College in Hong Kong and at Worcester Academy in Massachusetts.
“The news headlines seem extremely frightening, and I can understand why people are scared about investing in our region.
Being local, however, we are having the best time of our lives because we are investing in companies that are trading at multiples and valuations that we haven’t seen for the past 25 years.
We are fetching all this low hanging fruit with really high dividend yields. These are companies with dividend yields of over 10% and with sustainable income streams.”
‘As I mentioned, we are investing in the Greater Bay Area of China. This is a region with a population of 86 million people with a GDP of $1.9 trillion.
This means that the economy in the Greater Bay Area is already larger than Spain, Australia, and close to Italy. Most economists predict that in 10 years’ time, the GDP of the Greater Bay Area will grow to $3.7 trillion to $4 trillion, which will surpass France, the U.K., or even Germany.
So I’m betting on the economic growth in this area, with a very high population and good demographics.
For example, we invest in a telecom company that is based in Macau. As you know, Macau operates a lot of casinos. It’s like the Las Vegas of China.
It has a population of only 800,000 people, a very small city.
The main operator in the telecom business is a company called CITIC Telecom (HKG:1883). This company pays an 8.5% dividend yield, trades at relatively attractive multiples.
From a top-down angle, this company is affected because of the COVID policy.
Normally it serves millions and millions of customers from all over the world visiting local casino facilities. But in the past two years, this city has no customers, and the company has had to streamline itself, and it still managed to pay an 8.5% dividend yield to investors.
As this lockdown COVID policy will eventually change, imagine when visitors can return to Macau. Roaming fees will see exponential growth. So for now, we keep buying this stock and let the magic of compounding based on its high dividend yield work its magic.”
Dividend paying stocks are not the investing only focus for Mr. Chan.
“ESG is very important nowadays, especially for Hong Kong listed companies.
In fact, I used to sit on the Listing Committee at the Hong Kong Stock Exchange, and I was part of the committee that steered the ESG policy.
Being at the forefront of ESG, I can assure investors that Hong Kong has one of the best standards in terms of ESG reporting.
The company I just mentioned, CITIC Telecom, which is a listed company in Hong Kong, must comply with all the ESG standards that the exchange set forth. What I can see is that corporate governance has improved dramatically over the past five to seven years with companies being more transparent.
As a fund manager myself, corporate transparency is important certainly, and while we have to ensure that all of our companies comply with the “E,” one thing that I am at the forefront of pushing is how do we improve on the “S.” These days we can’t just think about shareholder value, but also stakeholder value.
In terms of Ukraine and the war, certainly it’s frightening.
No one wants to see war.
In Hong Kong, or in Asia, we are relatively stable in terms of the currency, in terms of inflation, and in terms of how the war affects our region.
Since we don’t have a lot of trades with Ukraine, and many Hong Kong companies don’t have much exposure in Russia, we are not that affected.”
Another dividend paying stock investor, Thomas E. Browne, Jr., CFA, is a Portfolio Manager at the Keeley Teton Small and Mid Cap Dividend Value strategies.
Mr. Browne previously was a Portfolio Manager at Keeley Asset Management Corp.
He was also a Portfolio Manager for Oppenheimer Capital, SEB Asset Management and Palisade Capital Management.
Prior to that he was a sell-side technology services analyst and was twice recognized in The Wall Street Journal’s Best on the Street survey. Mr. Browne received a B.B.A. from Notre Dame and an MBA from New York University.
“At Keeley Teton, we manage small- and mid-cap value strategies with a focus on what we believe are misunderstood or underappreciated areas of that market. Our overall view is that in order to outperform over time, you have to do something different than what other people are doing. And so, we found a couple of different niches that we focus on.
We have two distinct strategies.
One focuses on companies undergoing significant corporate change, so events like emerging from bankruptcy or companies being spun off from larger companies or sometimes companies dividing themselves into two relatively similar parts.
Other areas in that genre are companies that are undergoing conversions to REITs.
We’ve invested in companies that have a franchise business model and sell their company-owned stores to use the proceeds to buy back stock and shrink the capital base.
A lot of different things with the common theme that they’re difficult to understand. By putting a bit of effort into it, you can create a very differentiated opinion about the future of the firm.
That’s one group of strategies that we manage.
The other group of strategies we manage is dividend strategies. We focus on these in the Keeley Small Cap Dividend Value Fund and the Keeley Mid Cap Dividend Value Fund.
Both focus on small- and mid-cap companies that pay dividends.
This is an area we got into about 12, 13 years ago because, one, it was a bit different from our restructuring strategies.
Secondly, it was very much aligned with what we’re already doing — i.e., focusing on small- and mid-cap companies.
And thirdly, and most importantly, dividend-paying stocks have historically produced good risk-adjusted returns.
They tend to produce better-than-average returns over time with less-than-average risk. And that’s kind of the holy grail in the investment business.”
Dividend paying stocks are the bread and butter investing strategy for Mr. Browne.
“Most of the money we manage is actually invested in the dividend strategies.
I think that a lot of smaller-cap investors don’t appreciate dividends. Very few actually look for them within companies.
And I think that some small-cap investors don’t really want to see them.
After all, if a company is small and it’s got nothing better to do with the cash than to give it back to shareholders, why would I want to invest in that? That would be the negative case.
Our view on dividends is that dividends tell you three important things about a company.
Number one is it tells you that the company can, and at least the management team believes that it can, sustain the free cash flow that it’s generating because ultimately sustainable free cash flow is the source of your dividends.
Secondly, because they have made this long-term financial commitment, we think that companies that pay dividends are more likely to be more disciplined about other ways in which they allocate capital via buybacks.
They may be more price sensitive about how they buy back stock or make acquisitions.
The bar gets raised if they know they have to pay their dividend. And so a dividend can help discipline capital allocation.
And then the third thing that dividend tells you is that the management team and the board understand who owns the company because they’re focused on returning capital to the owners.
If you think about those three things, sustainable free cash flow, more attention to the leverage, and acknowledgement of who owns the companies, those are a pretty good starting place to make an investment.
If you compare that to the perception, to the view that small-cap companies that pay dividends are not interesting, we think that difference is what is interesting to us.”
Dividend paying stocks the Mr. Browne currently owns have some interesting characteristics.
“For example, one of our longtime investments that we still have is a company called Marriott Vacations Worldwide (NYSE:VAC).
Marriott Vacations Worldwide is the timeshare business which was within Marriott International (NASDAQ:MAR), one of the largest hotel companies in the world.
When that business spun out in 2011, the shares given to the Marriott shareholders were a very small percentage of the value of Marriott. And so typically, when that happens, the Marriott shareholders simply are not interested in holding this other company. It’s new.
They don’t necessarily know it all that well.
At the time, the timeshare business was perceived as being a less interesting business in the hotel business. Also, the large-cap managers who owned Marriott didn’t have much interest in holding a small-cap company. And so, the stock generally falls pretty sharply after the spinoff, which gives us an opportunity to do our homework and make the investment.
Also, the information is incomplete. So you have to do your homework and really get to know the business. We have to understand the business.
I would say companies do a lot better job of presenting spinoffs these days than they used to, but we still see opportunities in that theme.”
Get the complete details on all the dividend paying stocks that these two portfolio managers own and recommend, only in the Wall Street Transcript.
A Republican dominated or Democratic dominated government has immediate implications on the stock picks in your portfolio depending on the results of next week’s elections.
Mark Boggett is the CEO of Seraphim Space Manager LLP and manager of the Seraphim Space Investment Trust PLC (LON:SSIT), which includes a portfolio of over 20 world-leading SpaceTech companies. Mr. Boggett is a pioneer in SpaceTech investment having co-founded the Seraphim Space Fund and invested into a portfolio which includes three companies that have achieved billion-dollar valuations.
In this 2,331 word interview, Mr. Boggett discusses a politically interesting portfolio pick.
Tracking commercial trade flow data in real time is a prime concern of hedge fund operators looking for an edge. In a Republican dominated US government, the hedge funds will have ample capital to pursue this important information.
“Spire Global (NYSE:SPIR)is a good example. One of the things that Spire is doing is they’re able to track all of the vessels across all the oceans in real time to calculate patterns of trading activity. This enables them to generate insights on food security and, specifically, how the impacts on trade flows as a consequence of the war in Ukraine.
By identifying individual ships, Spire can determine what the cargo of those ships is carrying. So they’re able to understand what’s happening to the supplies of wheat and grain and maize and all of these products and can understand how global activity within food is being disrupted by the ongoing conflict.
Spire was one of the first space companies we invested in through our venture fund back in 2016. It’s now listed on the New York Stock exchange after going through a SPAC merger.
The company has a constellation of micro satellites, typically the size of a shoebox, with around 150 operational in space today. These satellites have three payloads: they collect weather data, track every ship across every ocean, as well as tracking commercial airlines in flight.
They are showing rapid year-on-year growth — with more than 100% per annum — and their revenues are in excess of $80 million ARR with the underlying business growing very positively.”
Another of Mr. Boggett’s portfolio holdings is a competitor to the space based business of Elon Musk.
“One of my favorite holdings is a company called AST (NASDAQ:ASTS) which now trades on the NASDAQ. The company has created a technology solution that enables them to put cell towers into space. They can provide satellite connection from space to any mobile phone without any hardware or software adjustment to the phone.
That is game-changing because while half of the world today is 5G, half of the world is still on 0G.
AST is seeking to address the imbalance. If people in developing countries can suddenly have access to connectivity from a very, very low-cost smartphone, it’s going to have a global impact, enabling access to education, health care and business opportunities.
The company has recently partnered with Vodafone (NASDAQ:VOD) to provide roaming service to their customers through the AST global.
Furthermore, they have already signed contracts with eight other mobile network operators providing roaming access to billions of end customers.
The company is now looking to build out their initial constellation to provide cell tower coverage to the equatorial region — an area with the lowest mobile phone density. It is these important developing economies where AST is going to be able to have the biggest impact.
They have just launched their first commercial satellite to demonstrate this technology working at a commercial scale. This is a really exciting business and one that will provide connectivity to the parts of the world that can’t connect today.”
Pedro Marcal is Director of Equities and High Yield at Aquila Group of Funds, and the Lead Portfolio Manager for Aquila Opportunity Growth Fund.
Mr. Marcal has more than 27 years of investment industry experience. Previously, he was founder and owner of Maccabee, LLC from 2012 to September 2021.
Mr. Marcal was also a Director in the Equities Group and mutual fund portfolio manager at Foresters Investment Management Co. from 2018 to 2019, where he managed Foresters’ global equities mutual fund and co-managed its U.S. equity analyst and trading teams.
He also held portfolio management responsibilities with Fred Alger Management, Inc. and Allianz Global Investors.
Mr. Marcal has a bachelor of arts in economics from University of California, San Diego, and an MBA from University of California at Los Angeles, Anderson School of Business.
In this 2,650 word interview, Pedro Marcal identifies a portfolio position that may benefit politically. Solar powered electricity has become seen as a Democratic Party agenda item.
“There are other attractive beneficiaries of the electrification trend. Electrification requires batteries, and batteries require lithium. We anticipate strong demand for lithium products as demand for batteries increases as part of the electric vehicle transition.
Lithium Americas Corp. (NYSE:LAC) mines, produces and supplies lithium with permits to open up the largest lithium mine in the United States at Thacker Pass in Nevada. LAC is an idea of analyst Steven Yang, who covers industrials, materials and other sectors for the team.
On a recent trip, my co-Portfolio Manager, John McPeake, and I went to Thacker Pass to see the mine site and toured the research center in Reno, where they’re running a scaled-down version of the lithium extraction and processing facility they plan to build.
Thacker Pass will be the largest lithium mine in development in the United States.
Lithium Americas has received all permit approvals from the Nevada division of the Environmental Protection Agency — EPA — and the federal Bureau of Land Management to develop a lithium mine. It is in the early stages of loan approval from the Department of Energy.
We believe the mine at Thacker Pass, if developed as anticipated, provides LAC with a massive resource advantage, which provides a huge moat around its business.
Furthermore, President Biden’s Inflation Reduction Act may benefit LAC in two ways.
One, expanded tax credits for energy-efficient commercial buildings, new energy-efficient homes, and electric vehicle charging infrastructure. Energy infrastructure includes battery technologies and production.
And two, a “make it in America” provision, which focuses on American-made equipment for clean energy production.
While lithium metal is early in the stage of battery manufacturing, having a U.S. domestic supply of lithium is expected to benefit LAC.
We feel the market is underappreciating the difficulty of acquiring federal and state permitting, with appeals processes and large capital investments for both mining and processing that’s required.”
David Swartz is an equity analyst in the consumer sector research group for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.
He covers consumer-focused companies in retail and apparel. Before joining Morningstar in 2018, Mr. Swartz worked as a money manager and equity analyst for a family office in the Seattle area.
He also worked as an analyst and fund manager for three equity hedge funds in the San Francisco Bay Area.
Mr. Swartz holds a bachelor’s degree in economics from the University of California at Berkeley and a master’s degree in economics from Yale University. He also holds a certificate in finance (investment management specialization) from UC Berkeley Extension.
Luxury brands are also often associated with a Republican dominated government that avoids taxing wealth. In this 2,290 word interview, an equity analyst identifies luxury goods that will benefit.
“I have a lot of companies right now that I think are quite undervalued. Some that I would highlight as being undervalued would be Tapestry (NYSE:TPR), which is the parent company of Coach and Kate Spade. Tapestry just had an analyst event this morning, and it was quite positive.
I think the stock is very inexpensive, trading at a low p/e and with plenty of cash flow. I think the handbag category, which Tapestry is highly exposed to, is quite healthy. And also, wealthier consumers that shop its brands are also doing better. So I think luxury companies or close-to-luxury companies are looking strong. And Tapestry is one that I would highlight.
Another one that I will highlight in the same category would be Capri (NYSE:CPRI), which is the parent company of Versace and Michael Kors. Capri also has high exposure to handbags. It’s also had a good year. And I think demand for its products is strong. Versace has been growing and has become profitable. Capri is also an inexpensive stock. And I think it’s also one that’s worth a look.
Others that I think are inexpensive would be some retailers that have had a difficult year this year, but their stocks are down quite a bit. And that would include Nordstrom (NYSE:JWN), which has had kind of a difficult year, but is well off its high and I think it’s quite inexpensive. And I think as luxury shopping recovers, I think Nordstrom would be in pretty good shape.
And another one to consider would be Kohl’s (NYSE:KSS), which went through a sales process this year which did not result in a sale, and the stock right now is trading way below the potential sale prices that were discussed. And I think it is quite inexpensive. Kohl’s owns considerable real estate, which it may actually be selling soon for as much as $2 billion.
Another to consider might be Nike. Nike’s been affected by the troubles in China this year with COVID lockdowns, but I think its China business will recover.
It might take some time, but I think it will recover.
And Nike, I think, is inexpensive and typically it’s worth owning over the long term based on its historical performance. Similarly, Adidas has had a difficult year, and its CEO is actually leaving next year and its stock price is probably as cheap as it’s been in some years after it’s been down about 50% this year. And so, that’d be another one that I would highlight.”
A Democratic led government in DC will continue to support the existing government of Ukraine from Russian aggression.
A contuation of that conflict, dependent on US supplied funding, will also increast the resolve of the European Union to rapidly replace future energy flows from the Russian supplied NordStream system to alternatives.
Pavel Molchanov is Managing Director, Renewable Energy and Clean Technology, for Raymond James & Associates, Inc.
He joined the firm in 2003 and has been part of the energy research team ever since. He became an analyst in 2006, the year he initiated coverage on the renewable energy/clean technology sector.
In this role, he covers all aspects of sustainability-themed technologies, including solar, wind, biofuels, electric vehicles, hydrogen, power storage, grid modernization, water technology, and more.
Within the energy research team, he also writes about the broader topics of geopolitical and regulatory issues, climate change, and ESG investing. He has been recognized in the StarMine Top Analyst survey, the Forbes Blue Chip Analyst survey, and The Wall Street Journal Best on the Street survey.
He graduated cum laude from Duke University in 2003 with a bachelor of science degree in economics, with high distinction.
In the broader community, he is a member of the Board of Visitors at the University of North Carolina’s Institute for the Environment; a member of the Advisory Board at Cool Effect, an environmental project funding charity; and the founder of the Molchanov Sustainability Internship Program at the Royal Institute of International Affairs in London.
In this 1,906 word interview, the Raymond James analyst proposes some stocks that may benefit.
“A company that is uniquely well positioned in the context of Europe’s energy security urgency is ADS-TEC Energy (NASDAQ:ADSE).
This is a German company, and 72% of its revenue came from Germany last year, but it is listed on the NASDAQ. ADS-TEC Energy provides ultra-fast charging equipment. This is the leading edge of electric vehicle charging technology.
For Europe to become less dependent on Russian oil without buying even more from the Middle East, the solution needs to be electric mobility.
As it stands, almost 25% of the new vehicles sold in Europe are electric. Within three years, that will probably be close to 50%. So that means Europe needs more and more charging infrastructure.
ADS-TEC Energy is one of the few public companies that is directly tied to that infrastructure buildout. This is a small-cap, very-high-growth company.
For people that are looking for something a little bit larger, I would point to Bloom Energy (NYSE:BE).
It is the world’s largest provider of stationary fuel cells, which are used in data centers, hospitals, and office buildings to generate clean electricity on site. The electricity can be from natural gas or from hydrogen, in which case, there is zero CO2 emissions.
Also, Bloom will soon be launching its electrolyzer product. The electrolyzer is literally the inverse of a fuel cell. Instead of using hydrogen to generate electricity, an electrolyzer takes electricity and water and makes hydrogen.
This is very relevant in the context of disentangling Europe from Russian energy, because a portion of the Russian natural gas is used to make hydrogen. An electrolyzer enables the production of hydrogen without natural gas. Green hydrogen is a nascent, fast-growing market, and Bloom is about to enter it.”
Election proof your portfolio with these recommendations, and many more, exclusively at the Wall Street Transcript.
Dan Wasiolek has Booking Holdings [BKNG] as a top pick. Mr. Wasiolek is a senior equity analyst for Morningstar Research Services.
He covers lodging, online travel, global distribution system, and gaming operators. Before joining Morningstar in 2014, Mr. Wasiolek spent 16 years as an analyst and portfolio manager covering U.S. mid- and large-cap strategies for Driehaus Capital Management.
Mr. Wasiolek holds a bachelor’s degree in business administration from Illinois Wesleyan University and a master’s degree in business administration, with a concentration in finance, from the DePaul University Kellstadt School of Business.
“Morningstar currently does not expect a recession in the U.S., although we do expect very low economic growth in 2023.
But if a mild recession were to occur, this might not follow the patterns that we’ve seen historically, like in the early 1990s, when a mild recession dipped U.S. hotel demand by several percentage points. Now, although demand has recovered from pandemic lows, we still think demand remains several percentage points below the normalized trend line.
So even if we get a mild recession that typically would contract hotel demand by several percentage points, we actually think that’s kind of where we are already, and that signals that there’s still some pent-up demand.
And then in addition to that pent-up demand there is the trend related to remote worker flexibility, which is something in this cycle that was not around in previous cycles that could aid this rebound, or continue to allow a recovery in travel demand.
As far as regulatory headwinds, the one that could come back is local governments restricting supply of alternative accommodations.
We did see that pre-pandemic, as local governments wanted to make sure that the quality of life of its residents were not overly impacted by units being rented out instead of given to residents to live in. But we’ve actually seen that regulatory headwind reduced during the pandemic.
And we think that trend might continue, at least in the near term, as a lot of local governments are probably depending on travel demand for economic revenue, especially if we’re going to go into a period of slower economic growth.”
This new type of leisure travel combined with business has an implication for selected stocks like Booking Holdings.
“With more people working at home or in a hybrid work-from-home environment, that’s allowed them to work from any location, and take what’s sometimes referred to as “bleisure” trips, where you might be working, but you’re also kind of taking a longer weekend with a family.
In support of this, hotel data shows increased demand for what are called shoulder days.
So you know, you have the weekend — Saturday and Sunday — and then the shoulder days would be Monday and Tuesday, and before the weekend, Thursday. So weekend hotel demand has been extending into these shoulder days, which is signaling that people are combining work with leisure type trips.
Further, both sentiment surveys and travel surveys indicate that people are taking incremental trips because of current worker flexibility.
So, to the degree that that remote flexibility endures, we think that that can allow for those incremental trips to continue to occur.”
This new trend leads the Morningstar analyst to his top recommendation.
“So the bleisure trend touches a lot of the travel industry — the hotel guys, the alternative accommodation players, and even the travel companies exposed to airline transactions. And one name in online travel is Booking.com, which is the main core platform for the company Booking Holdings (NASDAQ:BKNG).
They have a really strong online travel network globally, where you can go and book all types of travel supply, like hotel or alternative accommodations, flights, experiences and so on.
So we think Booking shares actually trade at about a notable discount to our $3,000 per share valuation.
This discount is despite Booking being a really high-quality business and management team that continues to see strong demand.
That said, one headwind for the company would be currency, but we just think that their execution, the amount of demand recovery that they’ve seen, both for traditional hotels and alternative accommodations, has been indicating that they’ve been taking share during the pandemic.
A lot of people are familiar with Airbnb (NASDAQ:ABNB) when it comes to vacation rentals, but might not realize that the number-two player in alternative accommodations is actually Booking Holdings.
They have about half of the share of Airbnb in that vertical. And alternative accommodations probably represent about a third of Booking Holdings’ total room nights. So that would be one name that could benefit from this bleisure environment.
when you look at network advantages — which we think both Booking and Airbnb have — the network is kind of built by a lot of travelers going to that platform. And they’re going there because there’s a lot of supply from travel operators offering hotel content and other accommodations. So people might go to Booking versus Airbnb for several reasons.
Booking.com is a top 10 travel app in about 140 countries in the world. That compares with Airbnb which is a top 10 travel app in about 80 countries in the world. And the demand that Booking has stems from the fact that Booking is really well known in European countries and international countries, maybe even more so than Airbnb.
And in addition to Booking having alternative accommodations, they also have pretty much every hotel type room that you could think of, which is not something that’s present on Airbnb. So if you’re looking just for alternative accommodations, you’re going to go to Airbnb and maybe Booking. But if you’re not sure and you want to look at both hotel and alternative accommodations, you’re probably better off looking at Booking Holdings, especially from a global perspective.
And so Booking Holdings would be the one that we would highlight first in our travel coverage, because of the discount that we think it’s trading at relative to our $3,000 per share valuation. And we think it’s earned our top rating, also just because of the quality of its competitive position.”
Get the complete picture on Booking Holdings (NASDAQ:BKNG), Airbnb (NASDAQ:ABNB), and many more hotel and travel stocks by reading the entire 2,781 word interview, exclusively in the Wall Street Transcript.
Andrew Partheniou is the Vice President, Research at Stifel GMP covering the health care, cannabis stocks and psychedelics sectors, where he joined its predecessor firm GMP Securities L.P. (“GMP”) in 2017.
He provided support to Martin Landry who has been ranked as a TopGun Analyst in the Small Cap/Special Situations and Healthcare sectors in the Brendan Wood International Worldwide Equity Capital Markets Performance — Canadian Equities Report.
Mr. Partheniou has a technical background stemming from his years at a global engineering conglomerate and holds both a B. Eng. from McGill University, and an MBA from the John Molson School of Business.
His take on cannabis stocks as an investing thesis is an interesting one.
“Cannabis falls within the risk/growth sector, which has been impacted by the rising rate environment leading to its underperformance.
There’s also the dynamic within cannabis where some markets are maturing more rapidly than we previously anticipated.
As a result, cannabis retail prices are falling despite us being in an inflationary environment. So companies are experiencing pressure on both ends.
COVID is also waning.
And we say that that’s kind of a headwind because during COVID, consumers had a lot more money to spend sitting at home, and with a lot more time on their hands. Cannabis is definitely your friend when you are in that situation, so there was a lot of spending during COVID.
Now that stimulus has gone away.
However, there are some bright spots.
For example, in supply chain, there hasn’t really been a lot of negative effects in cannabis compared to some other sectors that are a lot more global in nature.
Cannabis, for the most part, is a domestic product.
It is grown within the country and sold within the country. So they have less exposure to supply chain challenges.
There are also important secular growth opportunities with medical states converting to recreational that are still very much a driver of shareholder value creation, and part of our fundamental thesis as well.”
The geography of cannabis stock investing is intriguing.
“In the U.S., it’s a state-by-state structure, because cannabis is illegal at the federal level.
And so every state has its own rules. We see cannabis as a geographic play in the U.S. favoring the East Coast; it’s important to choose the right states that have the most favorable regulations to have an extra layer in terms of barriers to entry with limited versus unlimited licenses.
We believe that there are other moats as well. But that is a very important one — regulatory moats.
In Canada, it’s an unlimited license market that’s legal at the federal level, which is one reason why we’ve seen such intense competition.
This translates to low selling prices, making it difficult to reach profitability which affects equity valuations.
Europe is a completely different story and it depends on which country you’re looking at.
There is no full federally regulated recreational market within Europe; it’s all very medical focused.
Germany is where everybody pays most attention since it is the largest and most influential country within the region. It has a small medical program and right now they’re in the process of creating a recreational market.
But it’s very early days. They haven’t released the draft legislation yet.”
The U.S. also has geographical implications for cannabis stocks within its borders.
“Typically, if we were to segregate the U.S., we would say the East Coast versus the West Coast.
The West Coast states are actually very difficult markets to operate in: prices are low, competition is high and profitability is difficult to achieve.
On the East Coast, states like New Jersey, Pennsylvania, Florida, Maryland — these states are very attractive, for a few reasons.
Number one, they are less mature than those on the West Coast. And so typically, you see less competition and higher selling prices, which leads to better profitability.
For the most part, they are also limited license markets which caps competition and creates a sustainable competitive advantage for those companies that have those licenses.
Our favorite names are those that have more exposure to East Coast states and generate better returns for shareholders.”
The cannabis stock sector expert has his favorite picks.
“Right now, our top pick is Green Thumb Industries (OTCMKTS:GTBIF/CNSX:GTII).
We brought them public back in 2018 and we’ve liked them for a very long time.
They are best in class, one of the largest companies in the country with $1 billion in run-rate sales at around 30% EBITDA margin, generate great cash, and the least leveraged amongst all of our coverage at one times debt-to-EBITDA.
So they have the least refinancing risk as a result, which is important when you’re thinking about a rising rate environment in a capital-intensive industry.
And a reminder, these companies are taxed at egregious levels because cannabis is federally illegal.
They’re taxed at the gross margin level, so they can’t benefit from all the deductions that a normal company does, which translates to over 50%-70% effective tax rates and sometimes higher.
So when you think about that matched with the need to build out production facilities in every state, access to capital is a very important factor.
GTII is also the only cannabis company in the U.S. that’s exposed to every single recreational conversion state, giving them a growth catalyst every year into 2024.
That’s important when thinking about a growth sector, because if you’re not growing, you’re going to get penalized.
So GTII has exposure to a potential $20 billion of mature industry sales in these recreational conversion states, which is roughly what the entire country generated in 2020. And it secures GTII’s growth outlook for the long term…
Two other companies that we like in the U.S. cannabis space are Curaleaf (OTCMKTS:CURLF) and Trulieve (OTCMKTS:TCNNF).
There are more, but those are number two and three. Curaleaf is a $4 billion company and the largest in the country with the only true national footprint as well as the only U.S. company to have assets in Europe.
So that leaves a good amount of optionality if Germany works out in terms of going recreational.
Currently, they’re in a period actually where they’re expanding EBITDA margin, which is a little bit different from others that are trying to defend their margin. And that’s because Curaleaf started off from a lower base.
So that’s a good story to tell right now in this type of environment.
They’ve got great access to capital as well, with their Executive Chairman Boris Jordan. He’s a wealthy, successful businessman with an impressive network.
Trulieve is a cash-generating machine.
They’ve got by far the largest footprint in Florida which is a cash cow for them and have a roughly 14% cash flow yield next year even with a tax rate above 50%.
Despite that, the company is trading at a roughly 30% valuation discount to the top five companies.
We think the main reason is because they still have a relatively narrow footprint.
They’re in Arizona and Pennsylvania as a result of a large acquisition, which was actually the largest in cannabis history.
But the future growth profile is dependent on doing further M&A.
In this type of market, we think that they could pick up some distressed assets, as smaller companies see themselves as losing ground to the larger companies.
We think shares have the potential to re-rate as that plays out.”
Get the complete picture on cannabis stock investing by reading the entire 2,459 word interview, exclusively in the Wall Street Transcript.
Russell Stanley is Managing Director, Equity Research at Beacon Securities Limited and has become an industry leading expert on the Marijuana stock sector. He has focused on the cannabis space since 2016, and his formal coverage universe is dedicated to the U.S. market.
As a controlled subtance, marijuana is in a peculiar grey area of U.S. law.
“Like most, we have followed the progress of federal reform in the U.S.
The rally that we saw in late 2020 and early 2021 certainly reflected overoptimism for the pace of federal reform in the U.S.
It then became clear that it was going to become difficult to get any legislation through the current government, specifically the Senate given the 50/50 deadlock there, as well as filibuster rules. So what we’ve seen since then has been a long decline in sentiment towards cannabis stocks in the U.S., as optimism for reform has declined with little mini rallies here and there, whenever optimism briefly improved.
More recently, the operators we’ve talked to have expressed greater optimism than in the past for the SAFE Banking Act to be passed in some form — more likely during the lame-duck session…
One of the big drivers behind the renewed optimism for the SAFE Banking Act is that its biggest obstacle to date hasn’t been Senate Republicans.
The strongest opposition has been from the key Senate Democrats that released a much bigger, broader legalization bill, the CAOA, which they formally introduced this past summer. Given that bill is not expected to go anywhere, it seems that the Senate Democrats behind that bill have realized that they need to pursue a more moderate pace of reform.
And each of the three key authors there, including the Senate majority leader, has made comments lately indicating that they’re open to passing the SAFE Banking Act if it can be augmented with social equity provisions.
There’s still negotiating to be done for sure, and the lame-duck period is not long at about seven weeks or so, and perhaps less because of the holidays. So they do have to thread the needle, as far as the calendar is concerned. But the operators we talk to haven’t been this optimistic on SAFE in quite some time.
This legal uncertainty along with the general market downturn has not been kind to the Marijuana stock sector.
“The entire space has taken a hit. By our math on a year-to-date basis, the U.S. operators that trade on the Canadian Securities Exchange are down by an average of 50%. The underperformers relative to that 50% include Ayr Wellness (OTCMKTS:AYRWF), Ascend Wellness (OTCMKTS:AAWH) and TerrAscend (OTCMKTS:TRSSF), and each of them have specific contributing factors that we think explain the relative underperformance.
But the entire space is off about 50% and it’s very difficult to find any true outperformers.”
The marijuana stock expert does have some top picks.
“Our top pick right now is Verano Holdings.
It’s one of the largest multi-state operators — MSOs — and it’s also traditionally been one of the strongest performers on EBITDA margins and particularly on cash flow margins which we think is really important. It’s one of the most liquid stocks amongst MSOs.
And we think that as sentiment returns to the space, investors are more likely to gravitate towards more liquid stocks first, from a risk management perspective.
And we think it continues to trade at a discount to its closest peers for a number of reasons, one of them being it doesn’t have a long track record as a public company. And so it doesn’t have as large an investor base, or as wide analyst coverage, although both are increasing as those names do.
On a relative basis, it has outperformed the key benchmark, the MSOS, since early August, which is a trend that we expect to continue. So that’s our top pick.
Another pick on the other end of the size spectrum would be Vext Science (OTCMKTS:VEXTF).
This is a small company.
Its primary operations right now are in Arizona and secondarily in Ohio. Its margins are traditionally amongst the best in the industry as well, but because it’s a small company, it flies under the radar.
We think Vext is an inevitable acquisition target because Arizona is one of the few limited-license markets that does not cap the number of licenses any one company can own. And the MSOs are running out of room to acquire operations in a number of other limited-license markets, particularly in the East, and sooner or later Arizona is going to be one of the only states that they can buy more in.
And we think that makes Vext a worthy buy at this point.”
The marijuana stock sector has less of an inflation worry as more mature consumer product companies.
“Inflation’s impact depends on the state and its market maturity.
In states where the operations or the market itself is considered mature, valuations can be very, very attractive. For example, we recently initiated coverage of a company called Schwazze (OTCQX:SHWZ), and they operate in Colorado and New Mexico.
And Colorado is perhaps the closest thing to a mature cannabis that we have. So Colorado did over $2.2 billion in sales last year, but it is intensely competitive.
And combined with inflation and the impact on the consumer, we think Schwazze is very well positioned to acquire additional assets in a state like Colorado with little bidding competition.
So I’d say it does have an impact in as much as where you’re dealing with a more mature market, and you see pricing pressure on top of that, then the assets might be more attractively valued.
On the flip side, if you’re looking at a new market that is growing aggressively, or is recently legalized — so for example, New Jersey, or a New York, where the state is working to implement adult-use legalization — inflation still matters, but it plays less of a role because those are new markets where the anticipated growth should more than offset any inflationary challenges.”
To get the full detail on the marijuana stock sector and its prospect for growth, read the entire 2,151 word interview, exclusively in the Wall Street Transcript.
Space Tech is a new growth sector opportunity for individual investor. Occasionally, 10x returns in 10 years in publicly traded stocks are possible if the cash investment timing is made during a panicked market that has abandoned growth stocks in general and the general tech indices drag down individual winners.
Internet connectivity in the 90’s, e-commerce in the 2000’s, solar energy for the second decade of the 21st Century and now Space Tech.
Mark Boggett is the CEO of Seraphim Space Manager LLP and manager of the Seraphim Space Investment Trust PLC (LON:SSIT), which includes a portfolio of over 20 world-leading SpaceTech companies. In this 2,331 word interview, Mr. Boggett outlines his portfolio of private and public companies with the potential to unlock a fortune for investors in the next 10 years.
“…Last year we founded, launched and listed the Seraphim Space Investment Trust (SSIT) on the London Stock market.
Since then, we’ve gone on to invest $200 million through that trust during the course of the last 12 months, continuing to build out our space-thematic business and diversify the portfolio.
Globally, we’re now the most prolific investor in the space market, with an overall portfolio of nearly 90 companies, and we’re very much at the center of what’s going on globally in this exciting market.
SSIT was really the next stage of development beyond our venture fund, which was solely focused on investing in businesses that were early-stage seed and Series A companies.
However, the sector was developing so quickly that the Investment Trust was created to provide growth capital both for businesses that we have previously invested in in early funding rounds that were now growing into industry-leading companies, as well as new businesses that we identified.
There was a lack of growth capital opportunity for financing these types of companies and we wanted to set up one that was specialist focused on space to enable us to be a leader in the funding rounds but to also bring other non-space-focused investors into these rounds.
My background has always been as a generalist deep-tech investor.
I had a group of partners, which included Michael Jones, who sadly passed away the year before we launched the investment trust. He was the founder of the company Keyhole Corporation which was bought by Google in 2003. Keyhole Corporation became Google Earth, and Michael became the CTO at Google Earth, Google Maps, and Google Local and helped to scale their operations.
He joined me at Seraphim as a partner because he recognized how the space industry was evolving, the opportunities that were going to be presented for earth observation and the opportunities that were developing from this new digital infrastructure that’s being created in the sky.”
The current market turmoil has also impacted Mark Boggett’s fund.
“The revenue streams are coming from two different areas: One is around global security, with defense and intelligence making up significant demand for space businesses.
This has been a particular driver during the last six months, particularly accelerated through the crisis and war in Ukraine, with budgets around defense and intelligence increasing during the course of the year.
These are the types of technologies, solutions and services available from new space companies that make up the SSIT portfolio and are still recording strong growth during the market downturn.
The other side of the revenue stream from these portfolio companies is centered around climate, sustainability and the issues the world is facing on climate-induced weather events.
Similarly, there is a global trend in identifying solutions that can address these big problems, which has led to the growth of impact funds and green funds, as well as strong retail and institutional interest in addressing these big global problems that we’re facing.
Overall, from a portfolio perspective, these companies are continuing to be able to access funding.
However, as a London Stock Market listed fund, we have seen our share price decline significantly, in line with other investment trusts focused on private companies with growth-related strategies.
There has been a general selloff from the start of the year from companies that are pre-profit and particularly technology-related businesses, which we are completely focused on.
Consequently, we have seen limited volume and liquidity in our shares, and as a consequence, we’ve suffered share price declines — today with the value at a significant discount to our net asset value.
There’s uncertainty in the market as to where we are right now. Therefore, in July we put out a trading statement aiming to give confidence to the market that the numbers that we’re going to be putting in mid-October are going to be reflective of a robust position of our portfolio.
Specifically, the trading statement was to demonstrate the strength of the underlying revenue growth and bookings of the underlying portfolio companies.”
“In the space business, the ground equipment for the vast majority of the legacy satellites that are up there follow geosynchronous orbit — it’s kind of analogous to a 2G cellphone network 20 years ago.
There’s lots and lots of hardware, racks of equipment for the command and control, the telemetry tracking control, etc., to give instructions, etc.
We made a significant investment over the past five years — including we hired executives and technical people from the telecom industry and the wireless industry that worked on 5G networks — and we have converted that satellite hardware ground equipment to software.
It’s called OpenSpace; and it’s open architecture.
I analogize our OpenSpace software to the iPhone iOS system, similar to an operating system.
And now the various modems and other functions and applications, we are also converting those boxes from hardware to software like apps to run on our OpenSpace software.
We have seen incredible market acceptance both with DoD and commercially.
We’ve recently announced two very large program wins, one with Intelsat on the commercial side, and one with BlueHalo and a military program called SCAR, on the national security side.
We’ve just been informed that we have won a another one; it has not been publicly announced yet.
And we have several more that we’re working on that we hope to be successful on by the end of the year.”
Another space tech exec John R. Scannell, Chairman and CEO of Moog Inc. (NYSE:MOG.A), has similarly rosy view of this new investment sector:
“The space business is going very well.
Most of our space business is in some way U.S. government funded and is defense related.
The formation of the Space Force a couple of years ago will have an impact.
The way I describe it is that historically to win a battle, you always sought out the high ground, whether it was at the top of the hill, or the top of the mountain, or in the air in an airplane.
Now space is the high ground, and so there’s a lot of investment going into space opportunities.
We’re seeing some nice business there.”
The skill to provide space tech is a rare corporate attribute.
“…That just gives you a sense of “performance really matters”; it’s in highly critical applications, but it’s also in military jets where we control the surfaces on the wings and the tail that moves the jet.
On commercial airplanes, we do flight-critical systems.
In other words, if our systems fail, it’s a very bad day. It’s this idea of performance really matters that translates to the idea that the cost of failure is far higher than the cost of acquisition.
That cost of failure could be life or it could be just very expensive…the Mars example is interesting.
I’ll give you my story on that from a few years ago when we had some products on the Mars lander.
The way I describe it is, it was a 10-year development program, and it was a 10-month flight to Mars.
And the Moog products had to work for about 10 seconds, but they had to work the moment that vehicle was landing on Mars.”
Marc Bell is a real estate developer turned space tech exec as the Co-Founder, Chairman, and Chief Executive Officer of Terran Orbital Corp., (NYSE:LLAP), a leading manufacturer of satellites primarily serving the United States and Allied aerospace and defense industries.
“We’ve carved out a niche with satellites 500 kilograms and under and we’re also the folks that invented the CubeSat, so we started the SmallSat revolution over a decade ago.
All the SmallSats you see today were based on our initial technology…
What used to cost $1 billion, we can now do for $10 million. What used to take a decade to build, we can now do in months.
We have shown the world how you can do big things in a very small package.
At the end of the day, it’s cheaper to get there from a ride perspective.
The downside is you have to replenish them every five years. The plus side is the cost is a fraction.
Even if you have to replace the satellite every five years, it’s still phenomenally cheaper than building one geosynchronous satellite, and you continue to refresh your technology.
We can design, build, and launch a satellite while the current model iPhone is still being made.
And geosynchronous satellites, you know these things could be the size of houses and they take a decade to build and launch.”
Get the complete picture from all of these Space Tech execs by reading their complete interviews, only in the Wall Street Transcript.
There is a common complaint often heard in the United States that an aging industrial plant has limited the American Dream. This is not the case. In-depth interviews with these 7 American industrial innovators reveals a much greater prospect for growth.
David Dunbar is President and Chief Executive Officer of Standex International Corp.
Prior to joining Standex on January 20, 2014, Mr. Dunbar was president of the Valves and Controls global business unit of Pentair Ltd. from 2009 through December 31, 2013.
He was appointed to that position by the Flow Control business unit of Tyco International Ltd., which merged with Pentair in 2012.
From 1997 through 2009, Mr. Dunbar held senior management positions at Emerson Electric Co., including president, Emerson Process Management Europe, president, Machinery Health Management, and president, Emerson Climate Technologies Refrigeration.
Prior to his employment at Emerson Electric, Mr. Dunbar served in numerous industrial automation and control business roles at Honeywell International Inc.
His company is a leader in a variety in high performance industrial components.
“One is a sensor and switches business, primarily built around the core technology of a reed switch, which is a simple electromagnetic switching technology.
Although it’s a relatively old technology, reed switches are experiencing a rebirth now with the electrification of so many different industries and products.
One example is in electric vehicles — we have four times the content as we do in a combustion vehicle with reed switches for two reasons.
One, the reed switch when it’s open consumes no electricity, no current.
Solid state switches, even when they’re off, still consume current.
In designing electric vehicles, there is a premium on preserving the electrical power, so they’re putting more applications to reed switches.
The second reason for the rebirth is the need to conduct occasional safety tests.
There are these built-in safety circuits that will occasionally open or close various circuits to see if there is a dangerous condition. And during that test, if there is a dangerous condition, there could be as much as 10,000 or 15,000 volts across the switch.
That would burn right through a solid-state switch.
But we have a line of reed switches that can withstand that kind of breakdown voltage.
So we’re finding a lot of opportunity in the safety isolation test circuits for EVs, and also the battery management systems that go into electric vehicles.
The second part of the electronics business is what we call high-reliability magnetics.
These are your filters, transformers, and highly engineered products that go into the power management systems of medical devices, like MRI scanners, or smart grid products for utilities, military, and aerospace.”
Another industrial innovator has his company specializing in motion control.
Richard S. Warzala is Chairman of the Board, President and CEO of Allied Motion Technologies, Inc.
Mr. Warzala joined Allied Motion as President and Chief Operating Officer in 2002.
He was named President and Chief Executive Officer in 2009.
He has been a director of the company since 2006 and Chairman of the Board since 2014.
Earlier, he was President of the Motion Components Group of Danaher Corporation and held various positions at American Precision Industries Inc., including Corporate Vice President and President of its API Motion Division.
“In any motion system, and again we’re talking about controlled motion, meaning that you’re looking for some type of control over the process, at some type of precision, that’s where Allied gets involved.
It starts with a base motor. But motors aren’t just motors.
There are many types of motors.
They all fit different types of applications. Typically, we’re in the precision side of it.
If you start with a motor, you have to move a certain distance in a certain period of time or you have to move to a position so a function can be performed.
You have to add other elements around the motor.
And those elements include what we would call drives, some people call them inverters or amplifiers, all meaning the same type of thing. They’re converting an electrical signal into the current going into the motor itself, which actually makes it move.
If you can do that more efficiently, more effectively, you can make the motor more efficient.
You could have a really good motor and a very poor drive.
So our job is to say: Let’s take the motor, let’s optimize the way we’re directing the current into the windings so that we can make the motor more efficient, create more torque, less heat.
And then as you add other elements to that, many times gearing is a good solution because it allows you to use smaller products, meeting the needs for packaging in the system itself.
It’s more compact by improving torque at a certain speed by just using multiple gears or gear ratios.
And adding to that, you have an encoder for feedback or some type of a feedback device, resolvers or encoders.
It closes the loop in the system itself.
That ensures that it’s doing what it said it was supposed to do. It is feeding back that information to the main controller, which we do as well.
The main controller is the brain over the entire system. So it’s directing everything going on in the machine or the process.
It’s getting signals back whether certain things are done, and then sending signals to do the next operation and/or the next sequence of events that may have to occur.
So Allied provides all of that.
And that’s what we’re talking about — a complete solution.
Start with a motor, add the ability to direct the current into the windings in the most efficient manner possible, add a feedback element that tells you whether or not it’s actually occurring in a continuous closed-loop basis, add gearing if the application requires gearing to give it the performance it needs at the desired speed and torque, and then monitor.
Oversee and direct the entire process through the controller.
So Allied added all of that capability here in the last few years, and we’ve been developing it over the last 20 years.”
3-D printing was all the rage a fews years back but this industrial innovator has turned his company into a champion of American ingenuity.
Ric Fulop is the CEO and co-founder of Desktop Metal.
Mr. Fulop has served as the CEO since the incorporation of Desktop Metal in 2015.
Prior to founding Desktop Metal, Mr. Fulop was a General Partner at North Bridge Venture Partners from 2010 to 2015 and served as a Founder of A123 Systems, Inc. from 2001 to 2010.
“We have a massive moat. We have over 650 patents.
We are number-one market share, 90% market share in metal binder jetting.
We’ve got a significant moat in digital casting and printed hydraulics, also two markets where we’re the leader globally.
We have the best properties in FDA Class II solutions for restorative dentistry where properties of our product are two to three times better than any competitor that is in the market.
So those are the areas where we are best in the world.
And we also have some other new products like our printed foam technology, which is fantastic.
No one else in the world does high-volume printed foams for production, and that allows you to really reduce the weight of products and use less material and produce on demand.
That’s a $120 billion market.
So that’s an area that’s growing quite well, and we expect to continue to take share in it.
We have great customers in the past quarter, companies like Ford and Eaton and Gulfstream Aerospace, Nissan, Oak Ridge National Labs, Serta, Stanford University, Saudi Aramco, Kennametal, Kimura, U.S. Navy.
We have large, enduring customers that are growing with us and are buying multiple machines, so we have good product market fit and segments that are relatively large.
We’re growing faster than our other competitors that are public.
Most of the legacy 3D printing businesses that are public today were focused on prototyping or tooling, which were, I would call, the markets of the past and they’re not growing very fast.
And what differentiates us is we’ve got a technology that’s much higher throughput with much better material properties, delivering better accuracy and tolerances in a setup where we’re enabling our customers to do things they couldn’t do before, and it’s competitive with conventional manufacturing.”
Industrial innovators are found throughout American manufacturing, and the best executives rise to lead their own company.
Josef Matosevic joined Helios Technologies Inc. in June 2020.
Prior to joining the company, he had served as Executive Vice President and Chief Operating Officer of Welbilt, Inc. (NYSE:WBT), a global manufacturer of commercial foodservice equipment, since August 2015.
Mr. Matosevic also served as interim President and CEO from August through November 2018. Previously, he held the role of Senior Vice President of Global Operational Excellence at The Manitowoc Company, Inc. (NYSE:MTW), a world leading provider of engineered lifting solutions, from 2014 to 2015, and as Executive Vice President of Global Operations from 2012 to 2014.
Prior to joining MTW, Mr. Matosevic served in various executive positions with Oshkosh Corporation (NYSE:OSK), a designer, manufacturer and marketer of a broad range of specialty vehicles and vehicle bodies, from 2007 through 2012.
“If you just go to a John Deere or a CNH tractor and look at how their ag equipment is operating, all the hydraulics and the couplings that lift a shovel or that do mining or digging, this is where our product comes into play in hydraulics.
Or even if you go to the Magic Kingdom in the world of Disney and you have any application that raises up in the air that requires hydraulics, we participate in that area as well, in the hydraulic segment and electronics.
So we supply a lot of products to both manufacturers.
And we supply the controls, not just the electronic display, but also the PDM and the sensors.
So you can control the entire functionality of a Nautique Boat for example, through our application, if it’s starting the engine, if it’s filling the ballast tanks, if it’s enabling the radio or whatever it may be.
So those are a couple of markets that we serve…”
The large United States Department of Defense budget also powers industrial innovators.
Eric M. DeMarco is President and Chief Executive Officer of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS).
Mr. DeMarco joined the company in November 2003 when it was Wireless Facilities, Inc. (NASDAQ:WFII), a commercial wireless communications system infrastructure provider, as President and Chief Operating Officer, and he assumed the role of CEO in April 2004.
Since joining the company, Mr. DeMarco has been instrumental in leading the company’s efforts to successfully transition from a commercial communication business via sale and disposition of assets, to build and grow, both organically and through strategic acquisition, a leading national-security-focused technology, product and systems provider for the U.S. and its allies.
Today, Kratos is recognized as an industry-leading provider of high-performance, jet-powered unmanned aerial drone systems, space and satellite communications, microwave electronics, rocket systems for missile defense and hypersonic programs and C5ISR.
Prior to Kratos, Mr. DeMarco was the President and Chief Operating Officer of the Titan Corporation, which was later acquired by L-3.
“Probably most importantly to what you referenced that we chatted about a few years ago, is the Skyborg program, with the Air Force.
In the last couple of months in congressional testimony, it was announced that the Skyborg initiative will become a program of record in 2023 and certain of our jet drones, including Kratos’ Valkyrie drone, falls under the Skyborg program right now.
So that’s very, very exciting.
Related to that, another Air Force Vanguard program, in addition to the Skyborg program, with Vanguard program meaning it’s supposed to be rapidly moved from initiative to program of record.
Another one called Golden Horde, which has to do with swarming drones and swarming munitions, has also been announced to become a program of record in 2023.
And we believe that’s going to be beneficial not only for our unmanned systems in our drone business, but also for our turbine technology business, where we are building engines, very small turbo jets and turbo fans for powered munitions and for jet drones.
Since we last spoke to you, those initiatives, those two Vanguard initiatives, the Skyborg Vanguard initiative and Golden Horde, have now both been publicly announced and acknowledged to become programs of record next year…
We’ve recently signed some contracts with companies in the sugar beet industry.
It is out on these co-ops with hundreds, thousands of acres of harvesting, unmanned trucks transporting to the processing site or the mill to process what is being harvested.
We haven’t emphasized it because it wasn’t quite ready for prime time, but as I said we are now signing contracts and I think over the next few years, at $100,000 and $200,000 per applique kit, if we over the next few years get 5000 trucks, that is a big number.”
John C. Rood is Momentus Inc.’s Chief Executive Officer, President and Chairman of its Board of Directors. This industrial innovator is all in on developing new products for the specialized extraterrestrial industrial sector.
“…we’re working on and plan to have a reusable version of Vigoride.
When you get to reusability, the system will stay in space, and you’ll just send it the cargo and resupply the fuel, which you can then meet in space, refuel yourself, then get the cargo and take it to the destinations you want.
But you can also do things like change the position of satellites, where they can perform a mission for a period of time in one area, you can move them to another, you can repair them and can provide refueling services.
Today, most satellites are still working at the end of their useful life.
They just run out of fuel, so it’s the equivalent of the car runs out of gas at some point and you abandon the car on the road, or in this case in space.
If you have the ability to refuel them, then this will open up a whole new set of opportunities for people in space.
And then the other part is, at some point, we’re going to put so much debris and so many items up in space. This is untenable.
You’re going to need the ability to remove debris or consolidate it as a bare minimum in space.
One of the things that we’re working on as well to give the same orbital transfer vehicle the ability to come up alongside debris, or get rockets or old satellites that have run out of fuel, and refuel and tug them to a new destination, or move them back into the Earth’s atmosphere to burn up.”
Many American industrial innovators move to the United States to pursue their dreams.
John R. Scannell is Chairman and CEO of Moog Inc. He is also leading industrial innovation in the orbital supply chain.
Mr. Scannell joined Moog in 1990 as an Engineering Manager of Moog Ireland and later moved to Germany to become Operations Manager of Moog GmbH.
In 1999, he became the General Manager of Moog Ireland, and in 2003 moved to the Aircraft Group in East Aurora, New York, as the Boeing 787 Program Manager.
He was named Director of Contracts and Pricing in 2005.
Mr. Scannell was elected Vice President of the Company in 2005 and Chief Financial Officer in 2007, a position he held until December 2, 2010, at which time he was elected President and Chief Operating Officer.
In addition to an MBA from The Harvard Business School, Mr. Scannell holds B.S. and M.S. degrees in Electrical Engineering from University College Cork, Ireland.
“We are all over the NASA Artemis I launch that’s about to happen.
We’ve been on the Space Shuttle, Mars landers, and International Space Station.
So that just gives you a sense of “performance really matters”; it’s in highly critical applications, but it’s also in military jets where we control the surfaces on the wings and the tail that moves the jet.
On commercial airplanes, we do flight-critical systems.
In other words, if our systems fail, it’s a very bad day.
It’s this idea of performance really matters that translates to the idea that the cost of failure is far higher than the cost of acquisition.
That cost of failure could be life or it could be just very expensive.
For instance, we have products that steer a drill bit on offshore oil rigs.
If the drill bit fails, it’s very expensive to take the oil rig down for a day.
The cost of failure is very high in some form or other, either monetary or in terms of injury or potentially life. We’re at the high-end.”
Marc Bell is the Co-Founder, Chairman, and Chief Executive Officer of Terran Orbital Corp., a leading manufacturer of satellites primarily serving the United States and Allied aerospace and defense industries.
Mr. Bell is an accomplished entrepreneur with a wide-spanning career.
In 2008, Mr. Bell took a $250 million SPAC public, acquiring startup Armour Residential REIT (NYSE:ARR). Armour today holds over $8 billion worth of mortgage-backed securities in its portfolio.
“We’ve carved out a niche with satellites 500 kilograms and under and we’re also the folks that invented the CubeSat, so we started the SmallSat revolution over a decade ago. All the SmallSats you see today were based on our initial technology…
At the end of the day, it’s cheaper to get there from a ride perspective.
The downside is you have to replenish them every five years.
The plus side is the cost is a fraction.
Even if you have to replace the satellite every five years, it’s still phenomenally cheaper than building one geosynchronous satellite, and you continue to refresh your technology.
We can design, build, and launch a satellite while the current model iPhone is still being made. And geosynchronous satellites, you know these things could be the size of houses and they take a decade to build and launch.”
Get the complete interviews with all of these industrial innovators, and more, exclusively in the Wall Street Transcript.
High dividends and growth at a reasonable price are a rare combination in the US stock market but the recent downturn in prices creates an opportunity for savvy investors.
“I’d like to talk about Taiwan Semiconductor Manufacturing (NYSE:TSM).
Taiwan Semiconductor is the largest semiconductor foundry business in the world. They actually began the foundry model back in the 1980s. They don’t design the semiconductor chips, they manufacture them. So what the industry has increasingly migrated toward is a so-called “fabless” design.
Companies like Qualcomm (NASDAQ:QCOM), AMD (NASDAQ:AMD), Nvidia (NASDAQ:NVDA), etc., will design the chips and then foundries like Taiwan Semi will actually do the manufacturing. Most of the foundry business is in Taiwan industry wide.
Taiwan Semi, as I mentioned, is by far the biggest, with close to a 60% worldwide market share. They have a lead in advanced technologies.
Fifty percent of their revenues right now come from seven and five nanometer technologies.
They’re now rolling out three nanometer technology, which really nobody has right now.
Their biggest competitors are Samsung (OTCMKTS:SSNLF) and Globalfoundries (NASDAQ:GFS), and, to a lesser extent, Intel (NASDAQ:INTC). They are also working on two nanometer technology. Therefore, they have a great technological advantage.
They are benefiting from a number of secular trends.
As the world becomes more digitalized, and more data is consumed, every type of device that you can think of has more and more semiconductor chip content.
Automobiles, for example, are expected to have five times the amount of semiconductor content by the end of this decade as they have now.
The major markets that they serve are high-performance computing.
That can include artificial intelligence, cloud, data centers, gaming, all manner of industrial applications, automotive, electronics, Internet of Things, smartphones, of course. Those are four major platforms that they have.
Right now, they are experiencing some good pricing power.
So, even though costs are rising in the overall worldwide inflationary environment, and there are some supply chain issues, Taiwan Semi has been able to pass on costs, and in fact, their margins have actually been increasing.
They’ve got pricing power and they’ve got increasing margins.
The thing we also like about them is valuation.
The semiconductor industry is cyclical.
It is a growth-cyclical business, because we’ve got these very powerful secular trends that are driving demand for semiconductors.
Taiwan Semi has been labeled by many people as perhaps the most important technology company in the world.
Valuation is quite modest. They’re trading at a forward EV/EBITDA of 8.7 times, and that’s actually a 15% discount to the rest of the semiconductor space.
Now, the semiconductor space is actually in a bear market right now.
If you look at the SOX index, it stands right now just over 3,000, it was over 4,000 back in the beginning of the year, so it’s actually sold off by about 25%.
The reason is that investors are concerned that there might be a worldwide economic slowdown beginning next year.
So many of them are looking past the current good times, and are positioning themselves for a possible float out.
However, we take a longer-term view, so we’ll look right through the cycle. We’ll take a three- to five-year view.
I think when you do that, you’ll see that Taiwan Semi is, I think, a very, very attractive company right now.
The foundry industry worldwide is expected to grow 20% this year, and high single-digits compounded growth over the next five years.
That compares with 4% compounded growth over the last 10 years, so we’re seeing an acceleration in growth.
Again, that’s because of these mega trends of high-performance computing, smartphones, more content, more demand for semiconductor chips.”
There are many more examples of high dividends and growth at a reasonable price in the current stock market. Even the sleepy utilities sector has pockets of growth that are now coupled to dividend payers:
“One of the strategic initiatives that Dominion’s management is taking is investing heavily in the renewable energy sector.
Management plans to spend $37 billion in renewable energy growth capex, so that is capital expenditure in renewable energy projects that will be in offshore wind.
The company plans to spend heavily in the offshore wind sector right off the coast of Virginia, in addition to onshore wind and solar farms.
These initiatives are supported by tax credits, and the company is protected by semi-automatic rate increases…we found utilities such as Dominion Energy to be a safer way to invest in the renewable energy sector, given the reasonable valuation.”
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Gregory Hahn is the President and Chief Investment Officer at Winthrop Capital Management, as well as a founding partner.
He leads the firm’s investment team and is responsible for overseeing the firm’s portfolio management, investment strategies, and security selections.
Prior to forming Winthrop Capital Management, Mr. Hahn was the Chief Investment Officer and Senior Portfolio Manager for Oppenheimer Asset Management and its subsidiary, Oppenheimer Investment Management.
There he was responsible for the oversight of the fixed-income investment process.
He also served as the Chief Investment Officer and Senior Portfolio Manager with Conseco Capital Management (40|86 Advisors). In addition to his investment management responsibilities at CCM, Mr. Hahn was President and Trustee of the 40|86 Series Trust and the 40|86 Strategic Income Fund, and had responsibility for the $1.2 billion real estate and private equity portfolio.
Mr. Hahn holds a BBA from the University of Wisconsin and an MBA from Indiana University.
He is a Chartered Financial Analyst, a member and former President of the CFA Society of Indianapolis, a former Trustee of the Indiana Public Employee Retirement System, and has served as a member on the ACLI’s Committee on State Regulation of Investments.
He also serves as an independent trustee of the FEG Absolute Access Fund, LLC, and is a member of the National Federation of Municipal Analysts.
The Winthrop success story is one that comes with many years of hard won stock picking experience.
“It’s not a glamorous story. I was working at Oppenheimer, and separated from the company in June of 2007.
During the summer as I was interviewing for other jobs, I just wanted to try to find an organization with a healthy culture, do investment work and build the business.
But what happened was, all of a sudden, the job market went quiet.
So I set up Winthrop Capital Management really as a way to stay relevant and to stay in the investment business.
I did it without any capital, without any clients, without any employees, and without any track record.
By Valentine’s Day 2008, the financial crisis was bearing down on Wall Street, and ultimately 3,000 CIOs and heads of fixed income were put out on the street.
By that time I was well along the way of building Winthrop, so I was like, well, this is what I’m going to do.
Today we manage over $4 billion in assets. We have about 26 employees.
And we run both fixed-income and equity strategies for institutional clients.
It’s a walk in faith.
I’m very thankful for the business partners I’ve had along the way. It’s been 15 years now in building out the firm.”
Mr. Hahn and his portfolio management colleagues are big fans of large cap tech stocks.
“We emphasize large-cap stocks, so it’s investing in companies that have over $80 billion in market cap.
Our two favorite companies are Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG), but we’ve had fairly large positions over the years in Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) as well…
Microsoft (MSFT) is an amazing company.
They shifted their business several years ago. It’s moved more into that software-as-a-service subscription model, so you have to buy your Windows subscription on an annual basis — you can’t go to the store and buy a diskette to update your operating system on your PC anymore.
So that’s part of the business.
Their Azure cloud business today, we look at it as one of the top three cloud businesses in the U.S. And we think their ability to compete globally, particularly in China, gives it an advantage.
And then, it’s really a large number of different businesses, but what they’ve done with the gaming business has been pretty solid.
Alphabet (GOOG) is another one of our favorites in the company.
Within Winthrop, we all have our own personal favorites. Microsoft (MSFT) would be mine.
Alphabet (GOOG) is Adam Coons’ — that’s really his number-one pick.
And I think Freddy Lavric would say the same thing — he’s one of our portfolio managers.
Alphabet (GOOG) is a business with the potential for strong revenue growth.
Its advertising revenue is extremely strong. Its cloud solution is also in the top five.
Really, their advertising revenue and the dominance in the search engine business is pretty solid.
The interesting thing is what they’ve been able to do with Fitbit and Nest.
We’re kind of waiting to see how they can further develop and grow that business, but they’ve got the ability to compete with Apple (AAPL) in a couple of areas.”
Get all the top picks from Gregory Hahn and his colleagues at Winthrop Capital by reading the entire 2,620 word interview, exclusively in the Wall Street Transcript.
Gregory J. Hahn, CFA, President & Chief Investment Officer, Winthrop Capital Management