Perma-Fix (NASDAQ:PESI) has a strong advocate in P. Ross Taylor III , a Partner with ARS Investment Partners.
“We figure all good things come eventually out of cash flow.
The skill set I use in our small-cap area — and also in our all-cap area — is very similar to that which people I know in private capital managements use.
We’re trying to see what a business can produce in the way of free cash flow, what catalysts are out there, what things we see.
For example, in our small-cap area, we own shares in a company called Perma-Fix (NASDAQ:PESI).
It’s basically a nuclear cleanup company.
They actually have a business with Hanford nuclear reservation, probably the most polluted place in the western world. The government’s been looking at cleaning up for decades, but Perma-Fix (NASDAQ:PESI) has a unique capability to pull low level nuclear waste out of water.
Hanford has to separate the waste into high- and low-level waste.
Perma-Fix (NASDAQ:PESI) can literally just pipe the water that comes out in a process called vitrification.
They can pull the low-level radioactivity out of the water, make the water good, and recycle the water back into Hanford and get rid of the low-level wastes.
That’s a unique player in that space. There’s really no one else who does that. That’s a real control choke point.
We look at that as a company that’s trading now around $12. We think from that one project the company will earn a run rate or $3 a share a year, and it will grow from just that one project.
If I’m a private capital, I would love to own all of that business. And that’s the other thing.
We’re always saying, “Would I want to own the whole business?” Would I own a business at $12 a share right now that’s like that? All day.
If I can buy it on 50% to 75% levered, that means I can turn around and as a private capital guy, I can buy from that one project $3 a share in earnings, and that’s just that project. Other projects that make them higher.
What’s that going to be worth?
Well, I don’t think they’ll ever run out of nuclear waste at Hanford, honestly.
But let’s just say they talk about it being 40 to 60 years’ worth of work that needs to be done. That’s well beyond most investors’ horizons, but I would love to own that.
If I’m a private capital guy, I’m interested in owning that entire stream of business, because if I paid $20 or $30 for that stock, I’m going to make a really nice cash-on-cash return over the life of that investment.
So that’s kind of how we’re looking at it.”
The well regarded professional looks at the Perma-Fix (NASDAQ:PESI) stock financially.
“If I pay $20 and I put up 40% of that in cash, put up $8, that $8 is going to generate me $3 a share in earnings power, which should be free cash flow.
You think about, that’s 37%, 38% annualized return at a 70% premium to the current stock price.
And they do have other business that I think could earn another $1 to $5 a share.
So that’s why the inefficiencies are so great. And it’s also why we work with management.
Frequently, these companies aren’t as sophisticated.
Oftentimes, a major corporation will have more people on IR than these people have in the entire administration of a company.
And they don’t always get the best advice frequently.
I have a friend who used to head investment banking at a place, and he used to say, “I can tell you three things about investment bankers. They know nothing about investing. They know nothing about banking. They know everything about their comp package.”
They go to an investment banker and think, “Wow, these guys are smart. These guys are interested in a transaction.”
They’re not interested in maximizing the value of the company.
So we’re trying to find places where we can work with management.
We have at times helped lead to management changes. Through my career, I’ve done a lot of that.
But we’re not an activist.
What we’re looking at is how we get this story realized.
How we get it put out there.
So we talk to companies, and we will say, this is how you need to message.
We just say this is what from our perspective on our side of the street, the buy side, this is what we think the issues are…Something like a Perma-Fix (NASDAQ:PESI) — what we’d be saying is, “OK, our work says you can earn $3 a share out of this one particular business.”
Last quarter, they were trading at nine.
How are we going to close the inefficiency gap?”
The ARS Investment Partner sees value in various small cap stocks besides Perma-Fix (NASDAQ:PESI).
“We have a micro-cap name in the defense space, TechPrecision (NASDAQ:TPCS).
They make key components for attack and ballistic submarines, as well as for certain aircraft programs.
We know the United States has a bunch of nuclear submarines of both varieties.
The attack submarines are the ones that go into war.
They do what you think submarines do.
They hunt other subs and ships and attack land targets.
And then, the ballistic missile subs are basically sitting quietly underwater waiting for Armageddon.
And both of our fleets are well past age.
The cool thing about a nuclear reactor is that it runs forever.
But the bad thing is when the fuel goes bad, then you have to take it into the harbor and fill it up with uranium.
That generally means you have to cut the hull open and pull the reactor, all sorts of things — which, by the way, benefits Perma-Fix (NASDAQ:PESI) because there’s the chance to clean that waste up.
There’s a circle here. But we’re watching here.
There was an editorial in The Wall Street Journal where a senator said, “We need to be able to build more than two attack submarines a year.”
The House Republicans in their version of the Defense Appropriations Act put a rider that says we need to build more than two attack submarines a year.
Right now, we’re building 1.2 a year, where the Navy has said we need 66 total, I think it is. They see us in seven, eight years being down to like 46.
That’s a lot of subs but you can only usually get about a third of your subs at sea at any time.
About a third are being fixed, a third have just come off patrol, and a third are on patrol.
So, 66 means you effectively have 22 boats at any time.
If you’ve got 45, 46, you only effectively have 15.
So, you’re actually operating well under capacity.
And then, if we’re worried about China doing anything with Taiwan, the first line of defense, the one that the Chinese cannot knock out, is attack submarines.
And so, you’re seeing that pressure build up.
We’re looking at TechPrecision.
It’s a $7, $7.50 stock. In our math, we go, “OK, it’s a micro-cap.”
But we see where they can earn $1.50 to $1.80 a share run rate in free cash flow, when the DoD gets these submarine programs up.
We’re not even counting on them winning new business.
And we know that will have to happen.
We need to invest in the industrial base, but we’re seeing all that pressure now to do that.”
Get all the small cap and micro cap picks from P. Ross Taylor III , a Partner with ARS Investment Partners, only in this exclusive interview in the Wall Street Transcript.
Core & Main (NYSE:CNM) is just one of many infrastructure stocks highlighted by this expert portfolio manager.
Kathryn Thompson is a founding Partner and Chief Executive Officer of Thompson Research Group (TRG).
TRG is an equity research and advisory firm focused on the industrial and construction sectors.
In addition to managing and setting the strategic direction of the firm, she also serves as Director of Research.
Ms. Thompson brings over 20 years’ experience analyzing, modeling and advising mutual funds, hedge funds, pension funds, private equity funds and family offices on investment and portfolio management.
She also works closely with key public and private companies, acting as a trusted advisor for strategic planning and growth initiatives.
Ms. Thompson has been recognized by The Financial Times/Starmine as a top Stock Picker in Construction Materials.
A graduate of the University of the South in Sewanee and Vanderbilt University’s Owen Graduate School of Management, Ms. Thompson is a regular guest speaker at industry trade conferences and corporate meetings.
She has been a guest on CNBC and Bloomberg, and is quoted regularly by The Wall Street Journal, Barron’s, Forbes, Fortune, and Bloomberg.
In this 2,072 word interview, exclusively in the Wall Street Transcript, Ms. Thompson details the reasoning behind picking Core & Main (NYSE:CNM) as well as many other infrastructure stocks for her portfolio.
“I am the co-founder and CEO of Thompson Research Group. We started in spring of 2009. And we were one of the early movers in the independent equity research platform.
Today, our business model has evolved, and we are an equity research and advisory firm focused on the construction and industrial value chain.
So that’s anything that touches the residential, non-res, or public construction and markets, whether it’s product or service.
Our equity research clients include large institutional investors — hedge funds, mutual funds and pension funds in the U.S. and Europe. Our consulting and advisory clients are both public and private companies, in addition to private equity and family offices.”
Core & Main (NYSE:CNM) is a good representative of a company that benefits from both government initiatives and the results of increased storm activity in the United States.
“…There are companies such as Core & Main (NYSE:CNM) which fit squarely into water infrastructure and address that issue.
On the other end, you have companies in the heavy materials space that are providing some of the very basic infrastructure to support wind energy buildout.
There’s a lot of rock and a lot of concrete that goes into wind farms.
So those are just two examples.
But overall, the significant driver for demand is either building the infrastructure or being key factors in the value chain that help with environmental matters and that are important for dealing with global warming…
I’ve already touched on, is Core & Main.
This company went public a couple of years ago, and CNM fits squarely into the water infrastructure network.
And it’s a big winner.
The other ones, which is a little bit of a twist, are cement producers, which are the largest producers of CO2 globally.
Cement producers that are very proactively taking measures to reduce their carbon footprint will be net winners, because ultimately, cutting cement production emissions is critical to global carbon footprint reduction.
And there are three names that we view as leaders there — Summit Materials (NYSE:SUM), Martin Marietta Materials (NYSE:MLM) and CRH (NYSE:CRH).
CRH was traded on the London Stock Exchange, but the company just made an announcement earlier this year about the shift to primary listing on the NYSE.
TRG picked up coverage of CRH in June. In fact, we were the first U.S. analysts to pick up coverage.
Dublin-based CRH operations are both in the U.S. and Europe, with ~75% EBITDA in the U.S.
CRH is emerging as one of the world’s thought leaders in how to be responsible for pushing ESG initiatives in the construction industry.”
There may be a competitive innovation to challenge the main products from Core & Main (NYSE:CNM).
“The industry is looking for all sorts of replacement for cement, which is the number two emitter of CO2 globally.
And there is some technology that is being developed to replace the need for so much cement consumption overall.
So that is one area.
The other really basic one is increased use of vehicles using alternative fuels and/or electric vehicles — think about uses for those big heavy concrete trucks that you see rumbling through the city, or big hauling trucks you see in rock quarries.
It’s those type of vehicles that could be moved to non-diesel or non-gas-consuming vehicles.”
Cement is the dominant revenue source for more companies than just Core & Main (NYSE:CNM).
Last week, what MLM reported was a beat for Q2, which was largely driven by upside in its cement and ready-mix concrete earnings contributions. MLM also raised its FY’23 guidance on better pricing momentum.
This is the theme we expect to continue throughout 2023.
Pricing actions that were made last year and that are continuing into this year, even with pretty OK volumes — and when I say pretty OK volumes, organic or aggregate crushed rock volumes forecast report from Martin are supposed to be down 5% to down 1%.
So it’s not like you’re having double-digit volume increases in gaining pricing momentum.
Against that backdrop, their organic aggregate pricing is forecasted to be up 17% to 18%.
So that’s the real story of the names that you’re seeing.
And when you ask, why in the world would you have such strong pricing with such tepid volumes, even if you’re facing just tough comps?
It all goes back to visibility, which goes back to our original golden era themes driving fundamental growth in the construction industry.”
General interest in companies like Core & Main (NYSE:CNM) is increasing as construction becomes an ever increasingly important component in the US economy.
“We publish six different industry surveys that we publish on a quarterly basis. It’s from building products — so it could be wallboard, roofing, flooring, and lighting — to bonding and surety survey, which is looking very heavily at the non-res end market, and everything in between.
It focuses on capturing a large relative market share of the space.
And because the construction industry is largely still private, we’re able to do that by connecting with key private contacts.
This is done through building relationships over 20 years.
And many times, we’re talking to C-suites of these large companies.
So with that, we get a view of not just what’s going on with volume and pricing, but really the outlook and the flavor of fundamental drivers of demand.
And it is these types of surveys that help us to identify secular trends and inflection points and bigger themes that drive key investment and stock picks.
Who’s interested in these surveys?
When we first started that, it was very much our core institutional investor base.
So if you’re a hedge fund, and you’re a large holder of let’s just say Vulcan or Martin, you really want to focus on what’s going on with our heavy materials or state revenue and DOT survey.
Then, more recently, within the past five to six years, we’ve had strong interest from the industry.
And so that’s public companies, private companies, and private equity that also have had an interest, because looking at and reviewing our reports helps them to forecast and think about managing their own business.”
Get all the detail on Core & Main (NYSE:CNM) and the many other stock picks in this interview, exclusively in the Wall Street Transcript.
Air Products (NYSE:APD), EnerSys (NYSE:ENS) and Emerson Electric (NYSE:EMR) are just three of the stock recommendations detailed in these exclusive interviews with award winning investment professionals.
Timothy Winter, CFA, is a portfolio manager of The Gabelli Utilities Fund, The Gabelli Utilities Trust, The Gabelli Global Utility & Income Trust, and the Love Our People and Planet ETF and a research analyst covering the utilities industry for GAMCO Investors.
He joined the firm in 2009 and has over 25 years of industry experience.
Previously he served over 15 years as research analyst covering utilities at AG Edwards, as well as Jesup & Lamont and SM Research.
Mr. Winter has received numerous awards and recognition for his work in the industry.
He was a three-time All-Star Wall Street Journal winner and five-time ranked number-one Electric Utility Team by Institutional Investor.
In 2018 he received Thomson Reuter’s U.S. Analyst Award and was ranked the number-one stock picker in the electric utility sector and water utility sector and number two in the gas utility sector.
Mr. Winter holds a B.A. in economics from Rollins College and an MBA in finance from Notre Dame. He is a CFA charterholder.
In this 2,424 word interview, exclusively in the Wall Street Transcript, the award winning investment professional details his stock pick recommendations including Air Products (NYSE:APD).
“I am a portfolio manager for Gabelli Funds; specifically, three utility funds: the Gabelli Utilities Fund, an open-end fund, the Gabelli Utility Trust, a closed-end utility fund, and the Gabelli Global Utility and Income Trust, a global closed-end utility fund, and also a co-manager of a clean energy ETF — exchange traded fund — called Love Our Planet & People. And I’m also the firm’s utility analyst.”
The Air Products (NYSE:APD) advocacy is determined from the fast growing hype for hydrogen.
“…Green hydrogen is getting significant political and regulatory support and what many call game-changing support in the form of tax credits.
The IRA established a $3/kg tax credit. But it’s still an early technology and the cost curve still needs to come down significantly before it becomes widespread in usage.
But every electric and natural gas utility is piloting and testing hydrogen and electrolysis, which is the process of converting water or H2O to hydrogen.
If renewable energy is used to power the electrolysis the hydrogen is considered green.
Gas utilities are blending green hydrogen into the natural gas supply and putting it through the pipes.
In some areas, as much as 15% is being successfully blended.
Over time, we expect the blend to be more meaningful and could eventually replace natural gas.
Every electric utility is experimenting with piloting natural gas-fired generation with hydrogen.
And the newer plants have the capability of converting to hydrogen.
In 2021, the Infrastructure and Jobs Act allocated $8 billion to $10 billion to establish 10 regional hydrogen hubs, and the DoE — the Department of Energy — is currently trying to decide where these hydrogen hubs are going to be.
The utilities and pipelines are vying for hubs in their various service areas.
So that will also be a big driver of hydrogen going forward.
Investors have to be patient.
Currently hydrogen is not playing a meaningful part of the utility sector or the clean energy sector but there is great hope for hydrogen.”
Hydrogen may be cutting edge but the recommendations for stocks like Air Products (NYSE:APD) is not.
“The safer, more conservative ways to play hydrogen include the leading industrial gas companies that are heavily investing in hydrogen, like Air Products (NYSE:APD), Linde (NYSE:LIN) and Chart Industries (NYSE:GTLS).
They’re going to be big hydrogen players but also currently have other profitable and growing business segments as well as the financial strength and resources to invest capital without the volatility and risk in pure-play hydrogen stocks, like Plug Power (NASDAQ:PLUG), Bloom Energy (NYSE:BE) or Ballard Power (NASDAQ:BLDP).”
Greg Wasikowski, CFA, is a Senior Analyst, Associate Partner and Co-Founder of Webber Research & Advisory, with a focus on renewables, infrastructure and alternative fuels.
Mr. Wasikowski helped lead Webber Research to a runner-up finish in Institutional Investor’s (I.I.) 2020 All-America Research Team, becoming the only new platform to receive ranked I.I. recognition across any of the survey’s 60+ sectors.
Prior to co-founding Webber Research & Advisory, Mr. Wasikowski was a senior member of the #1 I.I.-ranked Wells Fargo LNG, Shipping & Equipment Leasing team in 2019, 2018, and 2017, with a focus on energy infrastructure and shipping.
Mr. Wasikowski began his career as an accounting consultant for RSM, a global leader in audit, tax and consulting services, where he focused on middle-market, growth-focused organizations in the U.S.
Mr. Wasikowski was a student athlete at Bucknell University, where he majored in Accounting and Financial Management while also captaining Bucknell’s Division 1 baseball team.
Mr. Wasikowski is also a CFA Charterholder.
In his 2,306 word interview, exclusively in the Wall Street Transcript, the award winning professional investor lists his recommendations and details the reasoning behind them.
“Renewables and cleantech, alternative fuels — those companies tend to be more growth oriented than value oriented.
So, when thinking about higher interest rates and inflation, supply chain constraints, everything we’ve seen over the last 12 to 18 months have been big headwinds for those companies.
Particularly when you think about the ones that have yet to earn positive cash flow or EBITDA; instead of a next 12 months’ earnings multiple, they tend to trade on an FY3 or FY4 multiple, which is essentially a promise for “later.”
And so, higher discount rates and shifting breakeven timelines have kind of hurt the sentiment across the board for companies like that.
Some examples in our coverage would be Plug Power (NASDAQ:PLUG), Ballard (NASDAQ:BLDP), Clean Energy Fuels (NASDAQ:CLNE) and Fusion Fuel (NASDAQ:HTOO), which is a smaller company.
They’re companies that really haven’t achieved their profitability ramp yet.
So they are probably the ones that get hurt the most by the higher interest rates and general cost inflation.”
This top tier investment professional is a big believer in the Reading, Pennsylvania company EnerSys (NYSE:ENS).
“Long term, I really like all of the names in our coverage.
Thinking more short term, the name that probably comes to mind most in the short and medium term is EnerSys (NYSE:ENS).
That’s the name that we just upgraded from “market perform” to “outperform” yesterday. And we think, without a doubt, they come to mind for near-term execution and improvement.
They’ve had a tough, tough couple of years, with inflation and supply chain constraints really hammering their margins.
But they’ve done a tremendous job recapturing those costs and improving their margins.
They have indirect and direct exposure to all those themes, particularly electrification.
They’re soon to commercialize an EV charging product with battery integration, which I think is a really, really interesting product.
So they’re interesting to watch, because one of their primary business segments is technically a little bit more GDP-linked than some of the other names in our coverage.
And that’s something that we’ll continue to watch.
But given their backlog and their general momentum over the last six months, and their general handle over their costs, it’s enough to get confidence in them.”
The all star investment professional details his affinity for EnerSys (NYSE:ENS) further.
“The EnerSys (NYSE:ENS) DC fast-charging product that they have, with the battery integration, is definitely really interesting.
And it really solves, or at least is poised to solve two of the main problems in the EV charging market: one being grid reliability, and two being just overall product reliability.
EnerSys (NYSE:ENS) is really known for their trusted tech.
They have thousands and thousands of hours of successful uptime with their products.
Some of these products are actually used by NASA in satellites and mission-critical submarines for the military. They do some really interesting stuff.
So, the point being that they are a trusted technology and they don’t put products out there that don’t work.
That should be able to alleviate some concerns there.
And then mostly, it’s the grid reliability.
It’s something that we’ve all heard a lot about, that with the explosion of EVs and EV charging, the grid might have trouble handling some of that demand.
But I think some people don’t quite fully realize the scale with which charging and fast charging, in particular, puts on the grid.
If you hook a fast charger up, it’s like simultaneously putting on a supermarket or five to six residential homes on the grid just with a flick of a switch.
And that’s a lot of stress and can’t be managed everywhere.
So, thinking about alternative solutions, like a battery-integrated product that can draw power at non-peak times, store it, and then be able to satisfy demand during peak hours that’s still charging at ultra fast rates, while also doing peak shaving and just overall energy management on the station.
EnerSys (NYSE:ENS) is introducing a product like that, and we think it can be a really, really interesting product that solves some issues in the EV charging space.
Along those lines, another alternative solution to EV charging, we’re starting to see some dual-fuel charging stations.
Still in early days, but thinking about incorporating alternative fuels, something like hydrogen as long duration storage in a buffer for EV charging stations.
It’s in the same spirit as a battery, but using hydrogen and fuel cells to create electricity to charge battery electric vehicles themselves, while also having hydrogen available on site for refueling hydrogen electric vehicles.”
Hugh Wynne is Co-Head of Utilities and Renewable Energy Research at SSR LLC, an independent research firm providing in-depth analyses of industry trends for institutional investors in both the public and private equity markets.
SSR also provides advisory services to electric utilities, utility regulators and the suppliers of power generation and energy storage equipment.
Prior to joining SSR, Mr. Wynne was Managing Director and Senior Research Analyst at Bernstein Research, where he was responsible for the regulated utility, independent power and renewable energy sectors.
In that role, he was ranked nine times by Institutional Investor in its annual All-American Research Team poll.
Mr. Wynne’s power sector research has focused on the critical long-term trends driving structural change in the industry, including the scale, structure and cost of the investment in renewable generation and energy storage required for states and utilities to achieve their CO2 reduction targets; the impact of increasingly stringent environmental regulations on the coal, oil and gas-fired fleets; and the challenges that the growth of renewable generation presents both to competitive power markets and the traditional utility business model.
Before joining Bernstein, Mr. Wynne was Vice President of Finance at ABB Energy Ventures, the power project development subsidiary of ABB Asea Brown Boveri, where he was charged with making equity investments in and arranging non-recourse financing for major power generation and transmission projects globally.
Previously, Mr. Wynne was a Senior Vice President at Lehman Brothers’ Utilities and Project Finance Group.
Mr. Wynne holds a B.A. degree from Harvard University, where he graduated magna cum laude and was elected to Phi Beta Kappa, and a M.A. degree in economics from Stanford University.
“It’s possible that companies like Emerson Electric (NYSE:EMR), Schneider (OTCMKTS:SBGSY), ABB (OTCMKTS:ABBNY), will be looking at materially larger markets for their products in the coming decades.
And yet that sector doesn’t appear to have attracted the sort of hype and investor enthusiasm that some of the more readily identifiable renewable generation producers have gotten.
There are also investment opportunities in areas like very early-stage technologies: green hydrogen, battery storage, small modular nuclear reactors.
But those are very difficult investments to make now, because at this point, we don’t know which will become the dominant technologies.
Consequently, betting on those stocks now is highly speculative.
What’s overlooked in all this is that the utility sector now enjoys an attractive and firmly entrenched growth rate, reflected in rate base growth of 7% to 8% annually across the industry.
And that seems to be driving earnings per share growth of about 6% to 8% — a growth rate that is likely to persist over the next two decades.
Unusually among stocks with attractive long-term growth prospects, utilities have tremendous barriers to entry.
They are regulated monopolies in their service territories, and their returns don’t get whittled away by competition.
Their returns are set by regulators who have historically been quite generous.
So, the appeal of the utility sector today is that it combines a long-term trajectory of rapid growth with substantial barriers to entry, allowing it to maintain lucrative returns on capital in the long run.
A second important advantage of the regulated utilities is that they historically offered the most stable returns during periods of geopolitical volatility.
U.S. utilities no longer have any international assets to speak of.
Domestically, they’re providing an essential service under regulatory protection.
During downturns in the economic cycle, electricity and gas are necessities subject to regulated prices.
So utilities offer a combination of long-term growth, stable and attractive returns, and defensive positioning against geopolitical and economic instability.
I think these advantages will become more appreciated over time.”
Get all the details on the stocks recommended by these award winning investors, exclusively in the Wall Street Transcript.
Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE) are three top picks from this world reknown energy sector investor.
James A. Abate, MBA, CPA, CFA, is the Chief Investment Officer of Centre Asset Management, LLC, and the Portfolio Manager of the firm’s American Select Equity and Global Listed Infrastructure strategies.
He also serves as the firm’s Managing Director and as the President and Trustee of the Centre Funds.
Prior to founding Centre Asset Management, Mr. Abate was Investment Director, North America, for GAM Investments.
Prior to GAM, Mr. Abate served as Managing Director and Fund Manager/Head of U.S. Active Equity at Credit Suisse Asset Management responsible for its U.S. Select Equity Strategy and stable of Global Sector Funds.
Mr. Abate has achieved Standard & Poor’s Funds Research AAA rating, received numerous “Category King” mentions in The Wall Street Journal, is the recipient of the Refinitiv Lipper Fund Award for Best U.S. Equity Fund, as well as multiyear Investment Week award nominations.
Prior to transitioning to asset management, he was a Manager in Price Waterhouse’s Valuation/Corporate Finance Group, and served as a commissioned officer in the U.S. Army and Reserves, achieving the rank of Captain.
Mr. Abate holds a B.S. in accounting from Fairleigh Dickinson University, an MBA in finance from St. John’s University, and is a visiting Adjunct Professor in the graduate and honors academic programs at the Zicklin School of Business, Baruch College.
He is a contributing author to several John Wiley published books, Applied Equity Valuation, Focus on Value, Short Selling and The Theory and Practice of Investment Management; has written articles that have appeared in The Journal of Portfolio Management, Investment Week, FT Investment Adviser, The Wall Street Journal and Mergers & Acquisitions, among other publications; and his writings with Professor J. Grant, Ph.D., on the economic value added approach to security analysis have been adopted by the CFA Institute candidate study programs.
Mr. Abate is a former member of the editorial advisory board of The Journal of Portfolio Management.
In this 4,060 word interview, exclusively in the Wall Street Transcript, Mr. Abate details the basis for investment in Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE).
“I’d like to highlight is that we continue to be big believers in the income and capital appreciation opportunities in oil and gas pipelines and storage in the U.S.: Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE).
When you look at natural gas pipelines in particular, and the fee growth generation of these companies in relation to the regulatory burden of trying to build any new capacity expansions or new pipelines in the U.S., which is just so crippling — these companies have, in essence, given themselves a very wide moat to competition.
Also, people underestimate the importance of Europe as an export market for natural gas. Because we had such a mild winter last year, there’s an incredible complacency in place in that we didn’t get the same kind of volume impact to growth from the export of liquified natural gas to Europe after the destruction of Nord Stream last year.
The growth in liquefied natural gas is significant and is allowing these companies to be part of that transportation growth process.
If you look at the dividend yield of these pipeline companies, all are near or in excess of 6%. From our perspective, all three of these companies represent exceptional opportunity, both from an income and a capital appreciation potential, driven by opportunistic and sustainable growth.
Many of these stocks had a significant drawdown in 2020, as most of the energy sector did, which had a shake-out of most non-energy-related investors.
However, you’re starting to see a continuation in a lot of the attributes that even generalist investors find attractive in the stocks, in terms of growth and stability of fee income, as well as distributions adding to their appeal.”
Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE) are not the only high dividend investments that Mr. Abate advocates.
“One of the names that we’ve been recently adding to is Enel SpA (OTCMKTS:ENLAY) in Italy.
This is a company that’s been part of the portfolio for a while but we’ve continued to add to our position size as the opportunity has leaned more favorably.
The stock now represents tremendous value to us at a 6.4% dividend yield.
The company is doing an excellent job in smoothly transitioning itself with regards to a complete coal exit by 2027.
Half of its capital expenditures —capex — budget is geared towards renewables, but, at the same time, its fossil fuel business is highly profitable.
The core business continues to be in Italy, the Iberian Peninsula, as well as Latin America.
From our perspective, this is a company with a substantial renewables pipeline, with a continuing legacy fossil fuel business that is becoming even more profitable, and one that is well geared towards the changing environment in power generation globally, and is taking advantage of its dynamism.
Another name that we like is Mercury NZ (OTCMKTS:MGHTF) in New Zealand.
This is a new name for us added to the portfolio. It’s an excellent business in that it’s broad-based in its power generation from hydro to biofuels, with a near-monopoly type status — a very significant moat — with regard to its business.
That moat aspect is really key and shared by most of these power generation businesses, not just Mercury, because of the regulatory environment, and even those that are operating within the unregulated markets here in the U.S. as well as Europe, because of the significant capital intensity creating significant barriers to entry.
Furthermore, power generation investment is timely as we’re seeing an inflection point in profitability as natural gas prices have stabilized at lower prices.”
As US based businesses, Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE) have a built hedge against geopolitical events spiraling out of control.
“Russia, who had the opportunity to conduct its operations in a more meaningful way early in the conflict and settle it very quickly, has chosen to continue its limited operations, which has done nothing but prolong the war, and their inability to accomplish their objectives has led to the current stalemate.
It leads to a high degree of complacency and confidence on both sides, which historically has never been a good thing from a war perspective, because it raises the potential for escalation from forces inside Russia and NATO members due to growing frustration on progress.
So that’s first and foremost what we’re concerned about.”
Read the entire 4,060 word interview, and get all the reasoning behind the Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE) recommendations, exclusively in the Wall Street Transcript, to get all the details.
MacKenzie Davis, CFA, is a Managing Partner of SailingStone Capital Partners LLC, where he is an investment analyst and portfolio manager.
Prior to founding SailingStone in 2014, Mr. Davis was an investment analyst at RS Investments and co-manager of the RS Global Natural Resource and Value strategies.
Previously, he was a high yield analyst at Fidelity Management & Research Company, where he focused on distressed investment opportunities in the telecommunications, power and energy sectors.
He started his career as an analyst at Goldman Sachs (GS). Mr. Davis holds B.A.s in mathematical economics and modern American history from Brown University and is a CFA charterholder.
In this 4,606 word interview, exclusively in the Wall Street Transcript, MacKenzie Davis breaks down how to view the coming transformation of the world’s energy supply.
“Really, what defines what is in each of the strategies is in large part a function of the different institutions’ mandates.
Some institutions can invest wherever they want within the broad natural resources and infrastructure space.
Others have policy considerations and constraints that keep them from investing in things like oil, for instance, or hydrocarbons or mining. So, we end up customizing a lot of our strategies.
But the overarching theme for us as it relates to the energy transition is, first, to define it.
It’s a phrase that has become ubiquitous, and it’s often fit for purpose; people use it for whatever is convenient for them.
Because we don’t have a specific mandate from an industry standpoint or a commodity standpoint, and we don’t run an energy fund or a mining fund or a precious metals fund, we felt like it was important to start with first principles — which is, what exactly is the energy transition — before we start thinking about how to invest around it.
We define the “energy transition” as efforts to address two different but very important and highly related objectives. The first, of course from a Western perspective, is to decarbonize the world’s energy systems.
The second, and equally important and often overlooked in the West, is the need to address all of the challenges related to global energy poverty.
The reality is that the majority of the world’s population exists at or below that energy poverty line, and the areas with the fastest forecasted population growth are the areas with the lowest per capita energy consumption.
As we move forward it’s not sufficient enough for the West to decarbonize — we need to decarbonize globally, recognizing that emerging populations and growing economies absolutely need access to more energy, not less. And so, if we’re going to be successful on either front, they need to be addressed together.”
The global energy transformation has real world implications.
“Uniquely in North America, and particularly the United States, we have a large quantity of globally very competitive natural gas projects.
And as we look out at the world and think about trying to address these dual objectives of decarbonizing energy systems while also addressing this global energy poverty challenge, natural gas plays a really key role in that.
So we think demand for gas will grow, and we have some really wonderfully economic assets right in our backyard.
The second area would be around the metals industry.
We look forward and try to understand what the material intensity of the energy transition is or is likely to be.
It is very hard to forecast, and we should be careful about speaking in specifics, because I don’t think anybody knows what the future looks like.
But as we look at the forecasts and the scenarios and the underlying assumptions around material intensity, it is apparent to us that, in many respects, the energy transition will run through the mining industry, and that owning low cost, very long-lived resources in key enabler commodities — copper is an obvious one, nickel to a certain extent, aluminum — there’s a huge amount of value that will be ascribed to those assets over time.
So that’s a big area of focus for us.
The third area is around grid stability.
As we’ve introduced more and more passive and intermittent power, which is renewables, onto the grid, it’s increasingly clear, not just in the developing world but right here at home, that our grid was really not designed to handle intermittent power sources.”
The inevitable value creation of these trends has developed a high return on equity investment for MacKenzie Davis.
“As I mentioned earlier, our job is to preemptively identify the businesses that we want to own, price them, figure out the intrinsic value of the business today and what we think the business will be worth in five years.
If we can buy it at or below what we think intrinsic value is, the bigger the discount, the bigger the position, in many respects.
And when the market decides that they want to pay for unsustainably higher long-term prices, or ascribe lots of value to projects that we think haven’t been fully de-risked, we’re equally happy to sell.
Here’s a great example.
We don’t have a position in this company today, so I don’t mind talking about it.
It’s a company in the lithium market, one of the largest, lowest-cost producers of lithium, called SQM (NYSE:SQM) in Chile, with a few unbelievable assets.
Truly, geologically unique assets.
One is the Salar de Atacama, which is a potash and lithium rich brine that sits up in the Atacama Desert, which is the driest place in the world.
It’s a great place to have a lithium evaporation pond, because it’s really, really dry and the lithium precipitates out of the brine.
And the other is a caliche ore body, which basically sits at surface and has very high concentrations of iodine and some unique salts.
We had identified that company from an asset and a management perspective 20 years ago, and it wasn’t until there was a really severe disruption in the potash market that the price was low enough that we could afford to invest it and have the margin of safety that we needed to put capital to work.
And then the lithium market took off, and the company went from being a potash company to a lithium company, in the market’s view, overnight.
We ended up selling our stake in a negotiated transaction to a strategic buyer at a significant premium to the current stock price, because somebody was willing to pay us more than what we thought the company was worth.
That’s hopefully a not too long-winded example of the type of work that we’re doing ahead of time, so that we can take advantage of market dislocations when they occur.”
Read the complete 4,606 word interview with MacKenzie Davis, exclusively in the Wall Street Transcript.
Jay D. Hatfield is the Founder, Chief Executive Officer and Portfolio Manager of Infrastructure Capital Advisors, and has almost three decades of experience in the securities and investment industries.
At ICA, he is the Portfolio Manager of several ETFs, including InfraCap MLP ETF (NYSE:AMZA), and a series of hedge funds.
A focus on companies that own real or hard assets, like energy infrastructure and real estate, runs through Mr. Hatfield’s career.
Prior to forming ICA, he partnered with senior energy industry executives to acquire several midstream MLPs, which merged to form a company now known as NGL Energy Partners, LP (NYSE:NGL). He is a general partner of the publicly traded company.
In the years prior to forming NGL, Mr. Hatfield was a Portfolio Manager at SAC Capital (now Point72 Asset Management).
He joined SAC from Zimmer Lucas Partners, and earlier in his career he was head of an investment banking unit at CIBC/Oppenheimer and a Principal in an investment banking unit at Morgan Stanley & Co.
He began his career as a CPA at Ernst & Young, and holds an MBA from the Wharton School at the University of Pennsylvania and a B.S. from the University of California at Davis.
Mr. Hatfield is the Founder of Tutoring America, a non-profit organization dedicated to providing low-income students with supplemental tutoring services and technology to accelerate learning in both math and English language arts.
He frequently appears on or is quoted in Barron’s, The Wall Street Journal, Yahoo Finance, TD Ameritrade Network, and Bloomberg Radio/TV.
“We believe in very detailed fundamental research — we do bottom-up models of every company, we call the company, review our models, we have an outside service that gives us data down to the well level, of course we look at commodities — and then develop differentiated views from consensus, and then overweight companies where we’re more optimistic about earnings and underweight companies where we’re less optimistic.
And we look at relative valuation models to determine which companies are the most attractive and which companies are least attractive, and then we normally underweight the least attractive companies and overweight the most attractive companies.
It’s worth mentioning, we also do write selective covered calls where we think it’s appropriate — normally where we’re overweight — and we believe that does add value over long periods of time as well.”
Energy Transfer (NYSE:ET), Enterprise Products (NYSE:EPD), MPLX (NYSE:MPLX) move to the top of the list using these methods.
“In our view, since energy is risky enough on its own in normal markets — although it actually has been somewhat defensive over the last couple of years, but it often can get volatile — we focus on the companies with a national footprint, investment-grade rating, fully diversified between natural gas, oil, refined products.
Those would be the companies that are more or less household names, at least if people follow pipelines, like Energy Transfer (NYSE:ET), Enterprise Products (NYSE:EPD), MPLX (NYSE:MPLX).
Those companies have diversified, national operations and normally good coverage of dividends, good dividend growth track records. We’re looking for the highest quality, because really, most of our clients are looking for stable to growing dividend income, so they want lower risk, national operations, diversified, investment-grade companies to anchor the portfolio.”
The long term view of the current energy production situation lends itself to support for Energy Transfer (NYSE:ET), Enterprise Products (NYSE:EPD), MPLX (NYSE:MPLX) as good long term portfolio investments.
“We had felt this before, but what we learned from Europe’s attempts at an energy transition is that if it’s done too rapidly, you’re going to have massive price hikes.
People forget that, actually, natural gas spiked before the Ukraine war, and that was a function of shutting down too much nuclear and too much natural gas production, not building any gas-fired units, and trying to rely just on wind, which is not a stable resource.
What a lot of people and investors forget is the first hydrocarbon that needs to be completely eliminated is coal. Coal still represents about 44% of global carbon emissions, and that’s why natural gas exports are so critical.
What should happen — it is not happening right now — is all the coal gets shut down first, and then we produce way more natural gas.
It’s a little bit counterintuitive.
Many environmentalists in the U.S. are trying to fight to close down all hydrocarbon production very rapidly, but we’ve already seen what happens when you attempt that in Europe, where you have a high probability of shortages.
The only scenario where we would have a rapid banning or transition away from all hydrocarbons is if we had a huge expansion of nuclear, but it’s almost impossible to site anything in the United States, much less a nuclear power plant, and they’re phasing out nuclear in most of Europe, particularly in Germany.
So that would be the scenario where you could get rid of all hydrocarbons — where you have a huge expansion in nuclear — but a lot of environmentalists are opposed to it, including me.
I think that the radiation danger of that exceeds the benefits.
So we see more of a 50- to 100-year transition, versus the 10 or 20 that a lot of environmentalists were proposing two, three years ago.”
This all leads to a firm “buy” vote of confidence from Mr. Hatfield for Energy Transfer (NYSE:ET), Enterprise Products (NYSE:EPD), MPLX (NYSE:MPLX).
“We think there’s an opportunity to be a contrarian and buy MLPs at what we think is a discounted price relative to fair value, get high yields that are averaging about 8% right now, get dividend growth, potential low-teens total returns, just because of that overhang which caused a lot of investors to just abandon the sector.”
Get the complete picture on the portfolio picks Energy Transfer (NYSE:ET), Enterprise Products (NYSE:EPD), MPLX (NYSE:MPLX) by reading the entire 2,192 word interview with Jay Hatfield, energy infrastructure expert, founder, CEO and portfolio manager of Infrastructure Capital Advisors, exclusively in the Wall Street Transcript.
McDonald’s (NYSE:MCD) is a dividend growth stock that lets investors sleep at night according to Sean Chaitman, President and Chief Investment Officer of Shelter Rock Management.
He has three decades of investment management experience as a portfolio manager and a research analyst.
Prior to Shelter Rock, he was at Heirloom Capital Management, a long and short investment fund that had assets in excess of $500 million.
He was also a member of the long and short investment fund Zinc Capital Management where he focused on technology investments.
Mr. Chaitman was formerly a senior equity research analyst at Jesup & Lamont Securities Corporation and a member of Smith Barney’s value stock research team.
Mr. Chaitman received a B.S. degree in economics from the University of Wisconsin and an MBA from Columbia Business School.
He was ranked by Reuters as a top 10 small- and mid-cap electronics analyst in its 1999 and 2000 surveys.
He has been quoted and featured in The Wall Street Journal, Investor’s Business Daily, Forbes and The Wall Street Transcript. Mr. Chaitman is married to Lori, global head of investor relations at Kyndryl Holdings, and they have two sons, Max and Jack.
“Another stock that we like is the ultimate sleep-at-night dividend growth stock, and that’s McDonald’s (NYSE:MCD).
It’s been a solid long-term core holding in all of our strategies. McDonald’s (NYSE:MCD) has raised their dividend every year for the last half century. We think the stock can continue to deliver high single-digit to low double-digit returns in the next five years.
The company’s been very successful with their digital ordering, menu creativity and productivity enhancements. We know McDonald’s (NYSE:MCD) will greatly benefit from artificial intelligence which we expect to continue to drive cash flow.
The nice thing about McDonald’s (NYSE:MCD) stock is when the economy is strong, people eat at McDonald’s (NYSE:MCD).
When we’re in a tough economy, like we’re in now, people go there even more.
The stock also tends to shine in difficult markets. Last year it was a standout for having positive returns.
The same thing even happened in 2008, which was the worst market in most of our lifetimes — actually all of our lifetimes. It’s a good hedge for our portfolios when we go through difficult markets…
I would expect when we go through drive-throughs, instead of a person saying, “What can I get for you” — you’re probably going to have a computer, an automated program, asking that.
This will lead to a lot of employee savings and efficiencies…
One thing we know is, at McDonald’s (NYSE:MCD), they tend to get ahead of the trends.”
Two other stock picks rival McDonald’s (NYSE:MCD) in the Chaitman portfolio:
“There’s a couple of stocks that we’re invested in that are benefitting from the resurgence in travel now that the pandemic has subsided. O’Reilly Auto Parts (NASDAQ:ORLY) is a large supplier of car parts and Transdigm (NYSE:TDG) is the leading supplier of airplane parts.
They’ve both been great stocks to own and we think that will continue to be the case over the long term.
Both companies are growing double digits and generate very strong cash flow.
In the case of O’Reilly, more people are taking road trips and new cars have become less affordable.
This is causing more wear and tear on cars. O’Reilly’s taken advantage of this by opening new stores.
They have a large distribution network of readily available parts and a well-trained workforce of service professionals.
This helps generate a lot of repeat business.
They also use a lot of their excess cash flow to fund a large share buyback program.
The company has actually bought back close to 50% of their shares over the last decade.
This is a nice tailwind for their earnings per share growth and it helps support the stock in difficult markets.
For Transdigm, as I mentioned, it’s the leading plane parts supplier and they have the added benefit of being a single-source supplier for a lot of high-margin proprietary parts used on most commercial and military aircraft.
Over time, the company grows with the aerospace industry, but at a much quicker pace, since they use a lot of their excess cash to buy other aerospace companies.
They also pay out large special dividends every couple of years using their excess cash flow.”
Dividends from McDonald’s (NYSE:MCD), O’Reilly Auto Parts (NASDAQ:ORLY) and Transdigm (NYSE:TDG) are not the portfolio building stock recommendations in this exclusive Wall Street Transcript interview.
“We always go through these periods.
And I would go back to a famous quote that Warren Buffett once said: “Only when the tide goes out do you learn who has been swimming naked.”
Every year we get these hot technologies and new investment themes that people get excited about.
There’s a halo effect on a lot of stocks that get caught up in it and don’t deserve it.
People buy up a group of stocks — no matter what their fundamentals — out of a fear of missing out.
You see a bubble form and then the bubble pops.
I think that as you invest over time, you want to be aware of that.
If you remember a few years ago, everybody was looking for the next Tesla.
An electric vehicle company, Rivian (NASDAQ:RIVN), actually went public with no sales and it had a value more than Ford, GM and some other big car companies combined on the promise of making electric trucks for Amazon.
Not surprisingly, Rivian’s stock has dropped about 90% from the IPO. We saw the same with crypto.
I think the lesson to learn is: Know what you own, know why you’re investing in it, and don’t overpay for smoke and mirrors.
This is why we follow processes when we invest — to help keep our emotions in check.”
Read the entire 2,245 word interview, exclusively in the Wall Street Transcript.
PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL) are two bank stocks that were negatively affected by the Silicon Valley Bank debacle.
Christopher Marinac, Director of Research at Janney Montgomery Scott, believes this may provide investors with a low entry point into the stocks.
In this 5,517 word interview, exclusive to the Wall Street Transcript, Mr. Marinac details what it will take for PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL) and the entire banking sector to recover.
Mr. Marinac oversees the firm’s Equity Research team, which covers more than 225 companies within the financials, health care, infrastructure, and real estate sectors.
Mr. Marinac has more than 27 years of financial services and research analysis experience. Prior to joining Janney in 2019, he was Co-Founder and Director of Research at FIG Partners LLC, a premier investment banking and research firm specializing in community banks.
At FIG, he established and managed an award-winning Equity Research team that covered more than 150 banks, thrifts, and REITs.
Earlier in his career, he spent six years as Managing Director at SunTrust Robinson Humphrey and five years as a Research Analyst at Wachovia Corporation (formerly Interstate/Johnson Lane Inc.).
He has served as a financial expert and resource to global and national media outlets including American Banker, Bloomberg, CNBC, Financial Times, FOX Business, and The Wall Street Journal.
Mr. Marinac graduated from Kent State University with a Bachelor of Science in Accounting and Finance.
He is actively involved with Atlanta Ronald McDonald House Charities Inc., where he is serving his fourth three-year term as a board member.
“Every investment participant can either be labeled as a specialist, where they’re bank-dedicated specialists and really understand banks and financials, or they are generalists, which is that they own multiple sectors, they have expertise in some, but they tend to be general, and so they’re not, I would say, bank aficionados.
They own banks because they are required since banks tend to be a major part of the index.
If you’re Russell 2000, you might be almost 20% in banks. Other indices, it may be closer to 12% or 15%.
Either way, the bank sector tends to be a meaningful component of your benchmark, and you must knowingly underweight your benchmark and have zero relative to your benchmark.
Sometimes that happens.
In 2008 and ’09, there were many investors who just completely left the sector because they wanted to let the dust settle on the carnage of the Great Financial Crisis. And because of those memories, a lot of people thought that because of a couple of bank failures that we’re right back to the financial crisis of 2008.
That’s not the case, but it is the issue that we face, because perception can be reality in the short term in the stock market.
And so, we must be respectful of the idea that we have investors who think this is a repeat of 2008 and 2009, and that muscle memory of looking back so quickly at 2008 is why the stocks are underperforming.
The flip side of this whole conversation is the opportunity to have outsized profits in banks if given the time and patience for this to play out.
That’s really where the debate goes, and where I think our conversation could be enjoyable for readers, because I think that’s where the opportunity is.
So part of what I thought might be interesting is to give you a little bit of a lay of the land for what the concern is with investors, and then how we feel it’s going to play out.”
This may benefit investors will to put their investment dollars into PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL).
“…That’s part of the challenge that hit us in March, because Silicon Valley Bank had the largest securities portfolio, a lot of it was classified as held to maturity — HTM — and it was definitely underwater immediately from higher interest rates.
Silicon Valley did not prepare for the liquidity necessary to give their depositors their money back, and so Silicon Valley had a classic run on the bank in a matter of hours on March 9th, 2023.
The bank failed the next day, because the FDIC had to close it because the bank was upside down; they just didn’t have a choice.
That led to a contagion of Signature Bank (OTCMKTS:SBNY) and First Republic (OTCMKTS:FRCB) and a few other banks, namely PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL) who struggled and have since stabilized.
My opinion is that Western Alliance and PacWest moved deftly to raise liquidity and position themselves to get back on their feet.
They have shrunk in size, but they were able to raise liquidity to stabilize these big outflows.
First Republic hadn’t been able to stabilize, and ultimately failed on the 30th of April.
There were a good seven weeks that passed, but First Republic just was not able to stay open as an FDIC bank; they had to be failed, and then JPMorgan (NYSE:JPM) bought the assets at a discount.
So, where we are today is that the marketplace is still struggling with the aftermath.
We have questioned PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL)
The stocks have been very negatively affected, PacWest more than Western Alliance.
As of today, PacWest trades approximately 36% of its tangible book. Western Alliance is about 85% of its tangible book.
Many banks are trading between 80% to 100% price to book. There are a lot of bank stocks trading at discounts.
There’s been all kinds of conjecture about other possible issues with these big regional banks around the country, and I would tell you that I think there’s been a lot of misinformation from the beginning about what is and isn’t a risk in the system.
Investors are confused.
Some of the general investors believe that they can’t invest in banks, and so they took positions to zero.
There’s an anti-bank mentality in many parts of Wall Street today.
It’s unfortunate, but it’s also the same thing we experienced in 2009.
We’ve seen this movie before and we know how it ends, and it doesn’t really end badly, it just ends with challenges that the industry must face to work through the issues.
2009 was really credit related.
This time it is more interest rate related, and we still have to solve some of these problems.”
Read the entire 5,517 word interview, exclusive to the Wall Street Transcript.
Xylem (NYSE:XYL), Etsy (NASDAQ:ETSY), and Copel (NYSE:ELP) are three examples of superior ESG investments approved by top tier portfolio managers.
Amberjae Freeman is CEO and Board Chair at Etho Capital and this Xylem (NYSE:XYL) investor is one such portfolio manager.
Her career in sustainable finance began 15 years ago when she received dual fellowships with the Clinton Global Initiative in New York City and the Clinton Hunter Development Initiative in Kigali, Rwanda.
Ms. Freeman developed innovation-focused thematic portfolios for fintech startup Swell Investing.
As senior analyst for the SRI Wealth Management Group at the Royal Bank of Canada (RBC), she developed proprietary ESG and impact research and mission-related investment solutions for institutional, foundation, and endowment portfolios representing US$2 billion in assets.
Ms. Freeman was also an adjunct political science and economics professor at Santa Barbara City College (SBCC) and coordinated country-specific research to support asylum cases for the Center for Gender & Refugee Studies (CGRS) at UC Hastings College of the Law.
Ms. Freeman received bachelor’s and master’s degrees in global and international studies from the University of California, Santa Barbara.
In this 3,136 word interview, exclusively in the Wall Street Transcript ESG Investing Report, Amberjae Freeman explores the techniques behind ESG investing and what process leads to a portfolio pick like Xylem (NYSE:XYL).
“Our approach is quantitative and qualitative.
Our key differentiator is that we focus first on carbon emissions data.
We use total supply chain carbon emissions data Scopes 1, 2, and the critical and often overlooked Scope 3 carbon emission information to determine a company’s overall climate efficiency and investability.
We also conduct qualitative ESG bad actor risk assessments as well. That means firms with poor management decision-making regarding social and environmental concerns and companies with a significant track record of poor corporate governance would not be appropriate for investment.
We also avoid companies involved in certain kinds of activities, such as the production of alcohol, companies that primarily derive revenue from gambling, or the production and sale of weapons are also ineligible for inclusion…
The way we think about sustainable investing has a lot to do with not just avoiding so-called “bad actors” but also avoiding certain kinds of industries and sectors altogether. For example, we avoid tobacco because the cultivation of tobacco is very carbon-intensive and detrimental to the environment.
In the same way, violent conflicts and war are ecologically disastrous and detrimental to humans and wildlife, so we avoid investing in weapons…
I am surprised that some investors still cling to the notion that investing sustainably means you will have to sacrifice returns. This assumption is patently false.
The idea behind modern portfolio theory is that an investor can maximize their return by taking on the optimal amount of risk and that the best way to minimize risk is to distribute your capital across industries and sectors.
This is, of course, solid reasoning.
However, simply distributing your investments across sectors and industries doesn’t account for the fact that some industries and sectors may experience a significant loss of value over time as they become less viable investments as market demand changes.
The idea behind sustainable investing is that you are trying to create value for your investors in perpetuity. That means forever. To do that, we must have an eye on what is happening in the markets today and what solutions and technologies will shape the future.”
This detailed process has led to an investment in Xylem (NYSE:XYL), along with many other portfolio picks.
“…You may also find Xylem (NYSE:XYL). It is a water technology company that thinks about water solutions holistically. They create water solutions for residential and industrial areas.”
But Xylem (NYSE:XYL) is not the only US stock for investors, our next portfolio manager is a investor in Etsy (NASDAQ:ETSY).
R. Paul Herman, FSA, is CEO, Founder, Chief Investment Officer, Portfolio Manager and Series 65 Investment Adviser at HIP Investor.
HIP Investor licenses its 140,000 impact investment ratings of stocks, bonds and funds to investors, investment advisers, wealth advisers, fund managers, hedge funds, fiduciaries and retirement plans, including 401(k)s.
HIP’s ratings have helped drive the Newsweek Green Rankings and the Peter Drucker Index.
HIP’s strategies focus on great places to work, sustainable real estate, global dividends and sustainability leaders.
Mr. Herman’s book “The HIP Investor: Make Bigger Profits by Building a Better World” is included in 28 university, MBA and MPA curricula.
Mr. Herman is a graduate of the Wharton School of Finance at the University of Pennsylvania, he has advised boards and executives while with McKinsey, and is an adviser to the Sustainability Accounting Standards Board (SASB), Net Impact and Sustainable Brands.
In his 3,200 word interview, exclusively in the Wall Street Transcript, Paul Herman leads investors through the thought process that led to his Etsy (NASDAQ:ETSY) investment.
“We focus on companies that have declared a goal ranging from net zero by a certain year to being climate positive by a certain year. And those all relate to greenhouse gas emissions and other environmental factors.
You’ll find companies across all sectors, all industries, including companies like Novo Nordisk (NYSE:NVO), which battles diabetes, that has an aggressive climate goal, as well as companies like Etsy (NASDAQ:ETSY) that have a business model that reuses materials and hence can have a lower climate footprint, as well.
We also have a Great Place to Work strategy.
This, again, generally is about 50 companies in the strategy.
These are companies where employees have been surveyed, and historically, you’ve seen these firms in Fortune magazine working with the Great Place to Work Institute.
And those companies, in addition, usually have diverse workforces, workforces that don’t turn over, but actually stay inside the company and grow inside the company — and again, cutting across multiple industries and sectors.
But since many CEOs say people are the most important asset, this actually prioritizes companies that value their human capital and typically get a positive return on investment out of employee innovation and employee teamwork.”
While Xylem (NYSE:XYL), Etsy (NASDAQ:ETSY) pass the investment test for our portfolio managers, this portfolio manager has conducted high level analysis has led to an investment decision for Copel (NYSE:ELP).
Yongai Xu, CFA, is a Portfolio Manager at Canada’s Letko, Brosseau & Associates.
Before joining the firm in 2013, she worked for HSBC Bank (China) from 2009 to 2011, focused on retail banking strategy and investment advisory.
Ms. Xu is a graduate of HEC Montréal where she received a M.Sc. degree in finance, and Fudan University, where she received a bachelor’s degree in international economics.
She is a CFA charterholder and a holder of the FSA credential.
In her 2,136 word interview, a TWST exclusive, Ms. Xu goes through the investment analysis that leads to portfolio pick like Copel (NYSE:ELP).
“ESG analysis starts at the very beginning of an investment analysis.
And then each analyst at our firm has an industry-specific framework, because our company is organized along global sectors and global industries, so every analyst is a sector specialist.
They are the one who is most familiar with the most important ESG factors that are most relevant to their sector.
So, whether it’s for developed country companies or emerging market companies, they apply the same metrics.
For example, let’s take the mining industry.
We look at the labor relationship with local communities, the regulatory environment, the safety environment and safety policies of the company, the safety track record, and then all the way to the environmental footprint, like waste intensity, water pollution, and CO2 emission.
It’s a very comprehensive framework, but very particular to that industry.
And because this kind of expertise is needed for different sectors, we believe the analysts are the best people to integrate this ESG analysis, which means we do not layer on external reports or external third-party vendors for the ESG conclusion and ESG analysis.”
This led her to “…one company called Copel (NYSE:ELP).
It’s the third largest power distribution company in Brazil.
If you look at the energy mix of this company, 85% of their power generation assets are based on hydro and 14% of the assets are from wind and solar.
They have a joint venture in a gas plant. And in the most recent 2030 net zero target, they will eventually divest the stake in that gas plant to be net zero by the end of 2030.
And they have a very rich pipeline of new power generation capacities, mostly concentrated in renewable energy. This is the most important reason why we like the company.
And if you look at their corporate governance, they have recently migrated from a lower level to a higher level in terms of corporate governance in the Brazilian Stock Exchange.
And if we look at their track record of shareholder return policy, such as dividend policy and the board composition, and the level of board independence, it’s really a role model in emerging country companies in terms of ESG.”
Sheila King, CFA, is Vice President, Co-Portfolio Manager Fixed Income at Eagle Asset Management.
Ms. King co-manages Eagle’s Tax-Advantaged Fixed Income strategies and Eagle ESG Focused Fixed Income suite of products.
She joined Eagle in 1987 and has 36 years of investment experience.
During her time at Eagle, Ms. King has served as a Credit Analyst and Co-Portfolio Manager.
Ms. King was named to InvestmentNews’ 2022 list of Women to Watch.
She also served on the board of directors for CASA (Community Action Stops Abuse) for 10 years.
She is an avid athlete, having completed Half Ironman and Ironman races and hiked to an elevation above 14,000 feet. She received a bachelor of science degree in business administration from the University of North Carolina and is a CFA charterholder.
In her Wall Street Transcript exclusive 2,755 word interview, Sheila King explains how Xylem (NYSE:XYL), Etsy (NASDAQ:ETSY), and Copel (NYSE:ELP) are not the only portfolio assets that an ESG investor should consider.
“Here’s the way I look at it.
As a portfolio manager, I’m not looking to go up against ESG indices.
I’m looking to go up against the traditional indices — that being, say, the Bloomberg Intermediate U.S. Government/Credit Index, or the 10-year muni-index.
I believe that over a long period of time from an ESG perspective, we’re looking to lower risk.
It’s something you’ll always see from a fixed income manager. And so, lowering risk and having attractive risk/reward returns fits very well for ESG.
So I’m always going up against your traditional indices. And I think that makes sense. I try to let the clients know that. So, certainly I believe that we can. The clients expect us to be able to be in line with — or beat — our indices.”
Xylem (NYSE:XYL), Etsy (NASDAQ:ETSY), and Copel (NYSE:ELP) are just a few of the many portfolio recommendations made by our experienced and expert portfolio managers.
Get them all by reading the entire interviews, exclusively in the ESG Investing report, only in the Wall Street Transcript.
Phunware (NASDAQ:PHUN) has two highly experienced senior executives guiding the company to shareholder returns.
In this 5,432 word interview, exclusively in the Wall Street Transcript, the Phunware CEO and COO describe their path to success.
Russ Buyse is the CEO of Phunware (NASDAQ:PHUN).
Mr. Buyse has two decades of executive leadership experience in both product and services companies, leading teams to create innovative solutions from startups to enterprises.
He founded two companies, served as an executive in six others, and was an Entrepreneur in Residence at a venture capital firm. He holds a bachelor’s degree in computer science from the University of Texas at Austin.
Randall Crowder is the COO of Phunware (NASDAQ:PHUN).
Over the past decade, Mr. Crowder has led over 40 angel investments and deployed over $60M across 14 companies as a venture capitalist.
Mr. Crowder is a co-founder and Managing Partner at TEXO Ventures where he focused on tech-enabled health services and he is the sole founder and Managing Partner at Novē Ventures where he focuses on investing in existing companies looking to leverage blockchain technology.
Prior to TEXO, he led the Central Texas Angel Network (CTAN) to becoming one of the most active angel networks in the country.
Mr. Crowder also founded and launched Texas Venture Labs (TVL) at UT in order to give the next generation of investors unique experiential learning opportunities outside of the classroom.
Mr. Crowder was a Captain in the United States Army and is both Airborne and Ranger qualified.
Mr. Crowder holds a B.S. from the United States Military Academy at West Point and an MBA from the McCombs School of Business.
He is also a Kauffman Fellow and member of the Young Entrepreneur Council (YEC).
The COO of Phunware (NASDAQ:PHUN) explains the company’s beginning.
“Phunware was founded back in 2009.
The premise was pretty simple. It was helping large brands transition from web to mobile. At the time, mobile was non-obvious; about 3% of internet content was consumed on mobile. We set about correcting that.
We built the first NFL app, the first NASCAR app, most of Fox Media Group’s mobile application portfolio, and the Olympics. We’ve done hotels, hospitals, stadiums, airports.
There aren’t many firms with more experience in mobile than Phunware.
But what you become is really a custom development shop and we didn’t want to be that.
We wanted to innovate within the mobile space, so that these large brands could build scalable ecosystems on mobile that took into account all the other competing datasets and third-party solutions that they might leverage in order to scale and grow successfully.
And so, we invested in a platform.
That platform now allows you to license mobile software the same way you would license a CRM from HubSpot or Salesforce.
This allows our clients to tech-enable contextual engagement.
For about 10 years, we were this custom development shop, but we were making these investments in what this platform would become, and we went public with the idea of scaling that location-based SaaS platform.
We raised about $100 million as a private business. We raised over $100 million since we went public at the end of 2018.
We work primarily in the health care and hospitality space, but it’s really anywhere you have a complex user journey; anywhere you need that Disney World experience where you’re going to download a mobile application in order to enhance your experience and optimize everything you’re going to do while you’re on site.
For most businesses, what you’re really looking at is how can I better engage my target audiences, my consumers, and use mobile to make more money, save more money, or get more out of the money I’m already spending and make proper use of all the other systems I use to engage consumers…
Think about your experience as a consumer.
You live a very analog life even though you’re surrounded by a very connected digital world.
You go to a grocery store and maybe you cross an RF signal to open a door, maybe you tap your credit card on the reader when you leave, but that’s it. Technology doesn’t really serve you.
You go to your favorite beach resort and still today, people are sitting somewhere by a pool wondering where in the world the waiter is or you’re sitting on a beach thinking, “I sure wish I could get another towel.”
There are all these moments for technology to serve you if there was just the proper connection, if you can reach the person who could scratch that itch and address that pain point.
That’s what our mobile platform is doing. We’re providing context for that engagement.
Who are you? Where are you? What’s important to you right now? Let’s address that in a seamless way.
That’s what Amazon did. If you think about it, Amazon to the world is a global mall, where not only can you buy books, but you can buy anything.
But to small businesses, it’s their CRM, ERP, and POS business systems all wrapped into one that can manage how they engage you and how they sell you products and services.
We’re taking that exact same framework, and we’re applying it to the real world. We’re going to allow businesses to manage all the things they want to get in front of you, so that we can turn your phone into a mobile concierge because we can’t assign an employee to every single consumer that’s on site.
But every single consumer has a phone.
So, let’s turn that phone into a mobile concierge and let’s get you what you need when you need it. It’s mobile ordering.
It’s being able to book and buy.
That’s what was really surprising to Atlantis in the Bahamas.
It’s a 140-acre island with five distinct luxury resorts, and now they’re making seven figures through this mobile application they licensed from us and that actually surprised them.
What’s going on is that people live in an on-demand world, and they have ADHD. We have consumers with limited attention spans.
If you don’t get them when they’re most willing to make a decision to buy or engage or book, you’re going to lose them forever.
That experience has to be flawless and seamless.
The undercurrent of all of this for Phunware is location. We have the best location-based services capabilities in the world.
As an investor, you should be thinking, “OK, I know you have a lot of mobile experience, that makes sense; I know you have a couple of really great reference customers; that makes sense. What are those moats that you created around your platform? What are those dynamic blockers to other people trying to do what you do?”
It’s actually location-based services, or LBS, that is a huge competitive advantage for us. That’s the ability to triangulate a mobile device, both indoors and outdoors so that I can engage you.
Maybe I want to engage you and tell you how not to get lost at a hospital. Everybody has dealt with that. You go to these massive hospitals, and you can’t find your way around.
We have a solution for that and can make sure that you know where to go, what parking garage to park in, what level to park in, how to go directly to your appointment so that you’re not late, how to basically drop a pin if you want to have somebody else from your care team find you or family member meet you.
And then the same thing for a resort.
You’re at Atlantis and you’re trying to find your way to the Stingray Encounter and you want to link up with your significant other.
We can allow you to book and buy that right from the palm of your hand.
All of that requires this location-based services capability, where we can find you, engage you, and then give you something that actually delights you.”
Randall Crowder, the COO of Phunware (NASDAQ:PHUN) explains how investors will reap the benefits of the Phunware (NASDAQ:PHUN) software platform.
“I would tell investors if I could tell them anything, you’re looking at Phunware and it’s somewhat binary.
The way we’re trading today, if you don’t want to open a position by making an investment, you’re assuming we’re just going to go away.
We haven’t gone away in the last 14 years and we’ve innovated in some of the most incredible spaces and with the most incredible brands.
It’s a great entry point if you’re checking out this interview today because we have traded very well in the past.
If you look back at our stock price, it’s more volatile than we would like, but we have been a top gainer on NASDAQ in terms of volume and price appreciation multiple times: 3x, 4x, 9x.
A lot of people are tracking PHUN, the ticker symbol.
We are very liquid and have great volume for the size of the company we have.
But when our stock starts to move, and we talk about the brands that we’re working with, our stock moves in a big way.”
Get the complete picture of Phunware (NASDAQ:PHUN) by reading this entire 5,432 word interview, exclusively in the Wall Street Transcript.