Vitaly Umansky, Global Gaming Senior Analyst, Seaport Research Partners
Vitally Umansky is the Global Gaming Senior Analyst at Seaport Research Partners and has been based in Hong Kong for the past 18 years.
Prior to Seaport, Mr. Umansky was the Global Gaming Analyst with Bernstein Research (Sanford C. Bernstein) for nine years.
Before research, he was in private equity and advisory in the gaming and leisure industries; was CFO of New Cotai Holdings, a private equity backed casino development investment and company; and earlier in his career was with Merrill Lynch investment banking in M&A and leveraged finance, where he did work in gaming, leisure and hospitality, among other industries.
“I do global gaming.
I’m based in Hong Kong, and I frequently travel to the U.S.
My coverage is largely the gaming stocks that have Asia exposure, both the large caps in the U.S. and Hong Kong-listed Asian gaming stocks.
We’re going to be expanding coverage down the road to include more U.S.-oriented gaming companies, as well.
I’ve been doing equity research since 2014.
I previously was with Sanford Bernstein, and I’ve been with Seaport for about two years.”
“The first company in my coverage reported yesterday afternoon, so it’s good timing.
Las Vegas Sands (NYSE:LVS) had the best performance that they’ve ever had in Singapore, which is their flagship property.
The Marina Bay Sands, which is the largest casino in the world, blew away all expectations, well above consensus estimates and significantly above my bullish estimates for that market.
That’s probably been the biggest surprise so far.
It’s literally just getting underway, so you haven’t had that many companies reporting yet in the gaming space — it’ll be happening over the next two or three weeks.
But I think if you look at the entire market, that Las Vegas Sands’ result in Singapore will probably stand out as one of the biggest surprises of the third quarter results.”
Mr. Umansky focuses in on the online gaming sector.
“In my coverage, MGM is a half-owner of BetMGM, which is the third-largest online operator in the United States.
They pre-reported their Q3.
They’d been having some problems, but the last two quarters they’ve been seeing a nice turnaround.
They’ve engineered some changes within the company.
They’re much more focused on the online casino piece of the business, which is more profitable than sports betting.
You’ve got operators like DraftKings (NASDAQ:DKNG) and Flutter (NYSE:FLUT), which owns FanDuel, which dominate the sports betting market in the United States.
I think the biggest question around the sports betting market coming out of these earnings and management conversations is going to be around prediction markets — a new market that’s been developed by other operators who are unlicensed gaming operators, and they’re trying to implement a sports betting type of business without complying with state law, using a federal loophole in the Commodity Futures Trading Commission rules to try to create what they do not call a gaming market, but is effectively a gaming market.
In the long run, if it’s allowed and if the lawsuits that are currently in process go the way of the prediction markets, they are a new competitive force within the online sports betting industry.
That’s something to keep an eye on. But overall, the online business in the United States is the growth market for gaming in the world right now.”
The international “whale” high-roller in the Las Vegas market looms large in investor’s minds but perhaps it should not.
“The bulk of the business in Las Vegas is U.S.
International business has been a very small piece of Las Vegas, 5%, for some operators maybe a little bit more, a little bit less for others.
That business is softer.
The Canadian business, for example, has seen a significant drop off in visitation into Las Vegas.
As we’ve seen, the overall number of tourists coming into the United States from Canada dropped off dramatically.
This is largely in light of some of the new regulations and laws passed around visitation, in terms of potential risk for tourists coming in and what they have to deal with, and there seems to have been backlash, especially from Canadians, about coming to the United States.
If you look at Florida, for example, not necessarily a gaming market, but visitation to Florida, which was a really big destination for Canadians, especially in the winter months, softened dramatically.
We’re seeing a significant amount of residential real estate being put up for sale by Canadian owners who no longer want to come to the United States.
The same thing is happening in Las Vegas.
They’re just not coming.
We’ve seen a 40% or so drop in the number of airline seats flying into Las Vegas out of Canada.
So, it’s definitely been in decline.
However, recently there have been some new airline routes into Las Vegas. Air France, for example, now has a direct flight from Paris to Las Vegas.
They haven’t had that in a long time.
Overall, international business has been soft, but it doesn’t impact the regional casino market in any way whatsoever.”
More insight into the current gaming market and interesting plays in the new online gaming sector are revealed in our interview with Chad Beynon.
Chad Beynon, Managing Director and Head of U.S. Research at Macquarie Capital (USA) Inc.
Chad Beynon is a Managing Director and Head of U.S. Research at Macquarie Capital.
Since 2007, Mr. Beynon has headed its consumer sector coverage and has been conducting research and publishing reports on gaming, lodging and movie theater companies.
In 2012, Mr. Beynon received recognition as one of Institutional Investor’s Rising Stars of Wall Street in gaming and lodging as voted on by corporate clients.
Prior to joining Macquarie, Mr. Beynon worked at Prudential Equity Group covering the beverage sector, followed by the gaming sector.
Mr. Beynon graduated from the University of Maryland, double majoring in finance and logistics/supply chain management.
“It’s difficult to appreciate the wealth effect from rising equity prices and home prices for higher income earners, but it’s really helped the economy.
In addition, we believe that up to 40% of U.S. homeowners don’t have a mortgage anymore, so their liabilities have come down.
And, as mentioned, they continue to prioritize spending on travel, whether it’s bucket list types of items, taking their families on vacations, or just exploring parts of the world that they’ve only read about in a book.
And then shifting to the digital landscape, we continue to see a healthy shift towards digital versus. retail experiences.
This includes mobile gaming — sports betting or iGaming — media streaming, as well as wellness trends aided by technology.
In addition, improved technology has benefitted the travel experience, from booking to curating the experience.”
“The second one that we like is Churchill Downs (NASDAQ:CHDN).
This is a $10 billion market cap company.
They have a prize-winning asset in the Kentucky Derby, which generates money from sponsorships, media, ticket sales, and wagering around the Kentucky Derby, which is the first week of May every year.
That event continues to grow.
They also have exposure to land-based casinos that benefit from the horse racing industry in states where the local governments are trying to maintain the level of investment in that horse racing industry.
The company also increases their dividend by 7% per year, which is rare in the space.
They have acquired 5% of their own stock this year.
And we think they’re trading at a fairly attractive valuation.
So, that also fits into the higher end spending category.
A second thematic is towards digital, particularly the picks and shovels side of technology.
Within sports betting there are two companies that provide the official data to the leagues, to the teams, and also to the media broadcasters.
And importantly, they are the leader in sports betting integrity, so when we see potential issues from a sports betting integrity standpoint, these companies also serve as the whistleblower.
They are extremely important to the leagues, which continue to see rising valuations.
These companies include Sportradar (NASDAQ:SRAD) and Genius Sports (NYSE:GENI).
They essentially have a duopoly in the space.
They have deep moats around their data collection processes, and they continue to work with advertising companies to increase the value of their business.
Next, we do want to have exposure to the B2C side of this sports betting growth, and that leads us to DraftKings (NASDAQ:DKNG).
This company is a top two player domestically in sports betting and iGaming.
Recently there’s been some competition in the prediction markets, which are a highly contested form of trading.
These trades or contracts may be around potential outcomes of an election, a game show, or even the World Series.
There are legal issues around this, but we think DraftKings will come out of this in great shape, regardless of the decision.
Last week, they even made an acquisition in this space, so they essentially bought an insurance policy to participate in this space if it remains legal, and if it doesn’t remain legal, we think it’s a value stock at these current levels.
Bottom line, they’re growing 20% and currently trading at below average valuation levels.”
Get access to the complete interviews of both of these world class analysts, along with many more, in the current sector report from the Wall Street Transcript.
Garik Shmois, Managing Director, Senior Equity Analyst, Loop Capital Markets.
Kathryn Thompson, Partner, CEO, Thompson Research Group (TRG).
Construction stocks are hot in certain sectors according to these two award winning equity analysts.
Garik Shmois is Managing Director and Senior Equity Analyst at Loop Capital Markets.
He covers stocks within the construction materials and building products sector.
These include cement, aggregates, wallboard, roofing, cabinets, and plumbing manufacturers and distributors.
He was ranked as the No. 1 earnings estimator in coverage by StarMine/Financial Times (2014, 2017) and the No. 1 stockpicker (2012, 2014, 2017).
He has been interviewed by CNBC, The New York Times, The Wall Street Journal, and Bloomberg. Earlier, he worked at Longbow Securities and National City Bank.
He is a graduate of Binghamton University and received an MBA from Case Western Reserve University.
His stock picks lie at the intersection of the Trump and Biden Administrations:
“…the Infrastructure Investment and Jobs Act, IIJA, that was passed into law late in 2021.
It is funding that supports highway and street construction amongst other areas of infrastructure.
And it is dedicated through the program’s expiration at the end of September of 2026.
The Trump administration has stood behind IIJA.
And there’ve been other parts of the Biden administration’s agenda that have been supportive of construction spending that have been more at risk.
But for IIJA, there’s been no indication that the funding will be pulled.
And conversely, when IIJA funding runs out later next year, there’s actually been early signs of optimism amongst our contacts in D.C. that there will be a successor bill to IIJA that will be passed in relatively short order.
So that would support funding levels at or above actually current direct spending levels…
Within our coverage, we are positively disposed to the more infrastructure-focused companies.
And a lot of that comes back to the IIJA discussion that we’re having.
We have visibility to highway funding, which is the largest source of demand for our heavy materials coverage.
And because of that, and because most of our heavy materials coverage sees at least half of their demand coming through infrastructure, that provides a lot of volume visibility.
In addition, a lot of these companies are in very consolidated geographic markets, and this provides very strong pricing power.
And then lastly, a lot of these companies are not exposed to tariffs.
So, they’ve been able to see very strong margin expansion because inflation has not been as material as in other areas we follow.”
The specific stocks deal in heavy construction materials.
“I’ll give you one heavy materials and one building products name that we like.
On the heavy material side, it’s CRH (NYSE:CRH).
They are the largest aggregates company in the U.S. and they are vertically integrated, which provides them with leading positions in cement, ready-mix concrete, asphalt and paving.
Their vertical integration allows them stronger margins across their businesses.
We like them because as the largest aggregates producer, they are overexposed to infrastructure, which we’re bullish on right now.
They’re also very active in M&A, and on an annual basis, they make significant acquisitions that help with external growth.
The shares are also trading at a discount to peers.
And there could be an external catalyst on the horizon as we expect them, at some point, tough to predict when, but at some point we expect them to be included in the S&P 500, which often leads to a re-rating.
On the building product side, Owens Corning (NYSE:OC), a roofing insulation manufacturer, has housing exposure.
But it’s a cheap stock, and there’s some concern about the housing cycle.
However, the company is well positioned because they’re gaining share in roofing, their largest segment, and that is offsetting new-construction weakness.
And when the housing cycle does come back, they’re very well positioned within doors and insulation.
So, we think the shares should trade at a higher valuation because their execution over the last several years has been very strong.
Their margin performance is very similar to high multiple peers.
And we think the valuation should expand.
Many of their peers trade at a 3- to 5-turn valuation premium to Owens Corning with very similar if not worse performance.”
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.
Kathryn Thompson believes that the AI boom will support the equity valuations of key construction pre-cursors to data center builds.
“You’ve got to pick your spots. APi certainly has done quite well.
But perhaps a different company that’s also in inspection services, that is a newer publicly traded company and that has a reasonable valuation now, is a company called Acuren (NYSE: TIC).
Acuren just completed its acquisition of another public company, NV5.
Combined, Acuren and NV5’s services support key AI/data center complexes and value chain — energy and water infrastructure — continuity.
NV5 brings exposure to building solutions, geospatial and infrastructure customers, with significant increased exposure to IIJA funding and data centers.
For example, NV5 recently announced a $5 million data center substation design service contract in Georgia and Nevada.
The Street is just now getting to know Acuren, and there’s still much to learn about the company…
Our research efforts are looking at the value chain for AI for maintaining and sustaining the actual data centers and the AI network on a go-forward basis.
So my bet on a go-forward basis is you’ll see more companies that are services for energy infrastructure or water infrastructure.
So we already cover a couple of names that benefit, including Core & Main (NYSE:CNM) and CRH.
But my bet is you’re going to see more in the coming months.”
Get all the details on construction stocks and other infrastructure equities by reading these interviews from top tier equity analysts in the new Construction, Building Materials, Basic Materials and Specialty Chemicals Report, exclusively from the Wall Street Transcript.
Taylor Lauber is the Chief Executive Officer of Shift4 Payments (NYSE:FOUR) and a member of the company’s board of directors.
Taylor Lauber, CEO, Shift4 Payments (NYSE: FOUR)
He has been with Shift4 since 2018 and his prior roles include President and Chief Strategy Officer.
He has been a corporate officer since the company’s IPO in June 2020, but his roots extend far beyond this as one of the company’s first interns 25 years ago.
Before joining Shift4, Mr. Lauber worked at Blackstone in a variety of strategy roles, most recently as the COO and lead portfolio manager for Blackstone Total Alternatives Solutions funds.
Before joining Blackstone in 2010, Taylor worked as a Private Banker at Merrill Lynch. Mr. Lauber received an Economics and Finance degree from Bentley College.
In this exclusive interview in the Wall Street Transcript, Taylor Lauber explains his primary case study for Shift4 Payments (NYSE:FOUR).
“To provide an example of our business, we like to have people visualize a visit to Yankee Stadium.
You’re buying your ticket to the game online.
You’re using a digital ticket to enter.
It might come with a free voucher that you need to also present digitally.
You may spend money in a dozen different ways in an ecosystem like that, and they’re all very unique commerce experiences, whether you’re buying a hat, or ordering a round of drinks in a suite versus a table service restaurant inside of just one venue.
We try to specialize in that level of complexity.
We try to pick areas of commerce that are a lot more complicated than we think they necessarily have to be, and then pursue those very vigorously.”
Shift4 Payments has been growing its business through acquisitions of adjacent competitors.
“Revel is a great example.
It was restaurant software.
We know that very well.
We invest a ton of time in it.
We own our own software.
We’ve acquired others.
And yet, to make that software work well, they were working with like three different payments companies, a bunch of different hardware companies, and different security layers.
If we own that business, we can deliver all those pieces and a Revel customer should be a heck of a lot happier because they get one hand to shake — or one throat to choke when it’s not working well — and it’s not this grand series of finger pointing.
And as you can imagine, the connectivity of all of that information under one roof helps solve problems much more quickly.
We have found that acquiring pieces of the value chain can really differentiate us.
From a growth perspective, it’s great, because you can actually instantly inherit a lot of customers that are sending their payment volume to dozens of other places and don’t love that experience.
And it’s an easy conversation: “We’ll consolidate everything for you.
We can help you save money.
You can get updates much more easily because we own the whole value chain.
And when it doesn’t work, you know who to call and that entity is 100% responsible and is empowered and has the tools to manage the entire ecosystem.”
Taylor Lauber explains the acquisition strategy for Shift4 Payments (NYSE:FOUR):
“So needless to say, acquisitions have been a healthy area for us to build out capabilities where we don’t have them, in a good way, and Givex, I think, is an example of that.
We also inherited a bunch of customers.
Obviously, Givex is its own 30-year-old business, with a bunch of customers, and then cross-sell those customers and make their lives easier.”
The expansion into adjacent verticals explains the company’s recent growth trajectory.
“In terms of how it brings us to categories, it’s that philosophy.
We don’t start with the idea that restaurants are the right vertical to go after and therefore, let’s go.
We actually start with where are the problems in commerce and where do we think our skill set could be applied?
So, lo and behold, restaurants pop up in hotels, and we start to become educated on how to solve more problems. And again, we weren’t in any hotels eight years ago. We’re now in 40% of the hotels in the country with that kind of philosophy.
And sometimes you need to acquire a technology capability to service hotels on top of what you already do for that hotel and other times it’s that you need to build something, or maybe just partner with 10 different companies in order to solve their problems.
As you start to think through that, it becomes very easy to spot the next thing to solve. We started touring a stadium as customers in Las Vegas. They wanted us to buy a suite because we had a business there. They said, “Come visit the stadium.” And we’re walking through and we said, this is just like a hotel: There’s an online sale. Then the guest shows up. Then they navigate this experience and buy food and buy merchandise. And hopefully they all stay overnight.
I think as you double-click on the verticals we serve with that mindset, you’ll see that they all actually have a lot more in common than you’d think.”
“…We have a founder who is Chairman, who owns the largest single share of stock in the company and votes and controls the company.
Oh, and by the way, he’s done it for 26 years before me, and we’ve been friends since we were 16 years old.
All this to say that there’s not a lot of ambiguity around the mission.
From that standpoint, I hope as little changes as possible.
I will say we are different as a company.
We started last year with 3,000 employees.
We’re going to end this year with 6,000.
And I mentioned that 75-plus country growth that we’re experiencing.
You can’t be the same company.
Maybe we balance the idea that we’ve been on a successful march for 26 years and deviating from that would be, quite frankly, dangerous, with the idea that every two to three years of those 26, we had to change the way we were operating to help manage scale.
So, how do I think about this through the lens of what the business is today?
Really, really predictable, what I call battle rhythms.
I don’t want anyone in the company to guess what a Monday morning is going to look like versus a Thursday afternoon versus a Friday evening.
Helping the 6,001st employee to join the company as quickly as possible, and understand what we’re focused on, and when and how to, quite frankly, just navigate the complexity of a growing organization.
Our priorities are always clear, and I think we try to keep as few of them as possible, but inevitably, you can’t say you want to be in over 75 countries and not deal with nuance there.”
Get the complete interview, exclusively in the Wall Street Transcript, and develop further insight into Shift4Payments (NYSE: FOUR).
Bank CEOs sometime have a reputation for leading boring lives. These two bank CEOs survived life threatening situations that resulted in a new business focus that has led both their banks to greater success.
Brent Beardall, President, CEO and Vice Chairman of WaFd Bank
Brent Beardall is the President, Chief Executive Officer and Vice Chairman of WaFd Inc., NASDAQ:WAFD.
Mr. Beardall joined WaFd in 2001 as Vice President & Controller. In 2003, he was promoted to Chief Financial Officer, a position he served in for 11 years prior to being assigned to his current role with responsibility for all client-facing activities of the bank.
He was awarded the title of President in 2016. On April 1, 2017, he became only the sixth CEO in the bank’s 100 year history.
In January 2022, Mr. Beardall was appointed Vice Chairman of the Board.
I want employees that have heart, that care about others.
And I want to be a bank with heart. I want to help out, and that’s really what a bank is about — to be able to help.
What we found is, if you give someone a chance, 90%-plus of the time they will pay you back and they will be customers for life.
It’s really easy to make a loan to someone that’s absolutely qualified.
Everybody will make a loan to them.
It’s making loans to people that are right on that edge of if they’re qualified or not.
But that’s the loan that’s really going to make the difference.
And you look at what we’ve done in this country from a financial institution standpoint, we’ve really closed our doors to the most needy, and so, OK, go ahead and do your banking outside of the regulatory financial institutions.
So that they’re going to the payday lenders.
Think about how hard it is to get ahead when you’re paying 20% interest.
It’s impossible.
And so, what I want to do is be that bank with heart and open up to people that wouldn’t normally bank with us.”
Brent Beardall recognizes that a bank must be more than a simple mortgage lender.
“…A mortgage loan, a 30-year fixed rate mortgage loan is a unique instrument.
It has what’s known as negative convexity, meaning it is never worth more than the day you book it.
And you’re like, why is it that rates go up, it goes down in value; rates go down, it goes down.
It’s never worth more.
It will stay the same.
That’s because if rates go up, the value goes down because you are now earning a below market interest rate.
So, all of a sudden, they’re going to extend, just like it’s happened today — everybody with their 4% mortgages.
So, it’s less valuable to the bank when rates go up because you’re now underwater in terms of what you could earn on that.
And then what happens on the downside is, historically, if rates went down, nobody really paid attention to it.
I’m happy with my mortgage, I can pay it.
But now with technology, oh, my goodness, your rate is now a quarter of a percent higher than what the market is.
I can let you click on this one button and I can refinance you with very little paperwork, and it’s going to save you, you name it, $200 a month.
And so now all of a sudden, the bank that made the mortgage — that mortgage is gone because it’s paid off and gone somewhere else.
So that’s what I meant about technology, and primarily cell phones, because it’s so easy.
And it is really artificial intelligence; once artificial intelligence really kicks in, they’re going to say, OK, hey, Brent, here’s one button, you can choose which of the five mortgages you want.
So why would you want to be in that business where if rates go up, you’re stuck with something you don’t want, and if rates go down, it just converts to cash.”
John Hairston, President and CEO, Hancock Whitney
John M. Hairston is President and Chief Executive Officer of Hancock Whitney, NASDAQ: HWC.
Mr. Hairston has served as CEO of the company and the bank since 2008, and President of the company since 2014.
Prior to becoming President, he served as its Chief Operating Officer from 2008 to 2014.
Mr. Hairston served on the board of directors and was a faculty member of the Graduate School of Banking at Louisiana State University in Baton Rouge, Louisiana, and at the Georgia Banking School in Athens, Georgia.
He also currently serves on the boards of directors of the Gulf Coast Business Council, New Orleans Business Council, Mississippi Economic Council, and The National WWII Museum.
“…The real catalyst for somewhat of a hockey stick growth curve really occurred following Hurricane Katrina. Our organization — and I have to give credit immensely to each of our team members during that time — really exhibited heroic efforts to reopen the organization very quickly, faster than most of our competitors.
In many cases, we had facilities that had been leveled — where there was nothing left but a slab.
And our associates stood up trailers, folding tables, motor homes that had missing windows and windshields, whatever we could get to serve the community in the absence of a lot of banks.
In doing so, that created a fairly massive trajectory of growth.
In fact, the first 105 years took us to $3 billion; then over the next 20 years, to $35 billion.
The catalyst for that really was the aftermath of Hurricane Katrina, which was as difficult a time as our region had seen.
It presented a great deal of economic growth, and we were very fortunate to participate in that rather heavily.
From there, very rapid organic and inorganic growth took us to the $35 billion in assets we have today.
Along the way — and this is somewhat cultural because of our focus on strength and stability — the organization has been remarkably stable.
We haven’t had a dividend decrease since 1967 — nearly 60 years — and have been rated by BauerFinancial, Inc. as one of America’s strongest and safest banks for 143 consecutive quarters, which is almost 36 years in a row.
Despite all the growth and the interesting periods in our economy from the 1970s through today, the company has been remarkably stable and successful.”
The FDIC has recently been dramatically downsized but John Hairston has handled this regulatory change in stride.
“I presume that you recognize that we’re an FDIC chartered bank.
We have a State of Mississippi charter, because that’s the state in which we’re headquartered.
Then, we have an FDIC obligation.
We also have a holding company that owns our bank which is regulated by the Federal Reserve.
With the FDIC, I’ve been impressed so far with the ability of the organization to roll with the downsizing of the organization.
Every organization from time to time goes through a belt-tightening or a downsizing.
We’ve been through it several times in our existence.
We always come out the other side in better shape than when we enter it.
I expect the FDIC is going to do the same.
So far, we’ve seen no degradation whatsoever in the quality of exams.
We, as a midsize bank, are under what’s called a continuous exam process; we have exams going on all the time.
There were the days of having the FDIC show up for two or three months a year and leave.
When we crossed $10 billion, that all went away.
We have a couple of dozen exams throughout the year.
There’s always an exam going on, on some area of the company.
We’ve seen zero degradation in the quality of the examination staff, in the thoroughness of the exams, the quality of the questions, and the timeliness of the exam results.
If anything, we’ve been getting results back faster.
We’ve really seen no apparent degradation in the quality of the work that they’re doing.”
Vlad Vitoc, Chairman, CEO, and President of of MAIA Biotechnology
Vlad Vitoc, M.D., is Chairman of Board, Chief Executive Officer, and President of MAIA Biotechnology Inc.
Dr. Vitoc has a broad array of experience across commercial strategic analysis and planning and medical affairs, with over 25 years of experience in Oncology Pharma/Biotech.
Dr. Vitoc held leadership roles at Bayer, Astellas, Cephalon, Novartis and Incyte and has managed and supported over 20 early, launch, and mature stage compounds, which have included targeted therapies and immune therapies across more than 25 tumor types, including colorectal cancer, hepatocellular carcinoma, lung cancer, breast cancer, prostate cancer, and renal cell carcinoma.
“MAIA is an oncology company at which we develop new therapies for cancer that have a novel mechanism of action: telomere targeting and immunogenic effect, teaching the immune system to respond to cancer.
Our lead molecule is ateganosine, our new nonproprietary name for THIO, and is now beginning pivotal trials for commercialization in non-small cell lung cancer — NSCLC — after having shown extraordinary efficacy in a Phase II trial in the course of the last couple of years.
We have several follow-on molecules — three that are in preclinical development as we speak and several more in reserve, ready to proceed as well.
We look forward to bringing them to the clinic in the course of the next year or so.”
The cancer cure that MAIA is testing is a telomerase based approach:
“Cancer is a group of diseases that occur in the aging population.
There are many mechanisms by which cancer can appear, but one very important mechanism is the shortening of the telomeres.
With aging, telomeres, the protective end caps at the end of the chromosome arms, become shorter and shorter.
When they become critically short, then diseases of old age start to appear, including cancer.
Now, in cancer cells, something extraordinary happens: They turn their enzyme telomerase back on.
And so, they regain the ability to lengthen their telomeres.
Now, we have a scenario in which the cancer cells have long telomeres and reach a state of replicative immortality, continuing to divide, and the tumor grows, whereas the normal cells continue to suffer with short telomeres.
This happens in the process of aging.
The farther we advance in age, the shorter our telomeres become, and the more important this mechanism becomes in cancer genesis.
The enzyme telomerase is key for the THIO mechanism of action.
It picks up THIO instead of a guanine base and places it in the structure of the telomere, creates an unstable telomeric structure.
The telomere collapses, the DNA unwinds and the cancer cell dies.
What we observed in the preclinical setting is that this process is very fast and efficient.
It happens in 24 to 72 hours. And THIO directly kills 70% to 90% of the cancer cells.”
Erez Aminov, Chairman, CEO, MIRA Pharmaceuticals
Erez Aminov is the Chairman and Chief Executive Officer of MIRA Pharmaceuticals, Inc., a biopharmaceutical company developing treatments for neuropsychiatric disorders.
In addition, Mr. Aminov serves as the Chairman and Chief Executive Officer of Telomir Pharmaceuticals, Inc., a biotechnology company dedicated to treating age-related inflammatory and degenerative conditions.
Mr. Aminov also founded Locate Venture Corp, where he supported early-stage biotech enterprises and fostered growth through strategic partnerships.
He has also served as a trusted consultant for multiple biotech firms and successfully guided two companies through IPOs on the Nasdaq.
“Telomir-1 is our lead oral therapeutic designed to target key drivers of aging — including telomere shortening, oxidative stress, and metal imbalance. In a recent prostate cancer animal model using highly aggressive human cancer cells, Telomir-1 reduced tumor size by approximately 50% at both low and high doses.
It actively suppressed tumor growth while selectively protecting healthy cells, addressing long-standing concerns around telomere-elongating drugs and cancer risk.
When combined with Paclitaxel — a commonly used chemotherapy agent known for its efficacy but also its toxicity — Telomir-1 eliminated mortality and significantly reduced side effects.
We believe this protective effect is linked to Telomir-1’s ability to regulate metal ion activity and reverse oxidative stress, a major driver of chemotherapy-induced toxicity.
We’re also exploring Wilson’s Disease as a potential lead indication.
It’s a rare disorder caused by copper accumulation, and because our drug works through metal regulation, it’s a strong mechanistic fit.
As an orphan disease, it may also offer a faster clinical development path.”
Alan Auerbach, Chairman, CEO, President, Puma Biotechnology
A cancer cure for metastatic breast cancer is the goal of Puma Biotechnology.
Alan H. Auerbach has served as Chairman of the Board and as CEO and President of Puma Biotechnology since its inception.
Before joining Puma, Mr. Auerbach served as Founder, CEO, President and a member of the board of directors of Cougar Biotechnology from the company’s inception in 2003 until its acquisition by Johnson & Johnson in July 2009.
From July 2009 until January 2010, Mr. Auerbach served as Co-Chairman of the Integration Steering Committee at Cougar (as part of Johnson & Johnson) for Cougar’s lead product candidate, abiraterone acetate, which was approved for the treatment of metastatic prostate cancer in the U.S. in April 2011 and in the European Union in September 2011.
Prior to founding Cougar, from June 1998 to April 2003 Mr. Auerbach was Vice President, Senior Research Analyst at Wells Fargo Securities, where he was responsible for research coverage of small- and middle-capitalization biotechnology companies, with a focus on companies in the field of oncology.
“Puma is a biotech company that is dedicated to the development and commercialization of drugs for the treatment of cancer.
The company was founded in 2011 upon the licensing of the drug Neratinib from Pfizer.
Neratinib is an orally available, irreversible, pan-HER inhibitor that inhibits HER1, HER2, and HER4.
The drug is currently FDA approved and is commercialized under the trade name NERLYNX.
The approval in the U.S. is for both the extended adjuvant treatment of HER2 positive breast cancer and for HER2 positive metastatic breast cancer.
It is also approved in many other geographies outside the U.S., including Europe, China, Canada, Latin America, and the Middle East.
And then in 2022, we added another product to the portfolio.
We in-licensed the investigational drug alisertib, which is a selective, small molecule, orally administered aurora kinase A inhibitor.
We’re currently developing the drug in multiple tumor types, including small cell lung cancer and hormone receptor positive HER2 negative breast cancer.”
A positive development for this cancer cure innovator is the positive income statement, rare among microcap biotechnology companies.
“As we mentioned in our most recent conference call for our fourth quarter earnings, Puma saw positive net income in fiscal year 2023 and 2024.
A lot of that was obviously driven by NERLYNX, because that’s our commercial product.
But it also was due to the financial discipline that we have instituted across the company in the last few years.
We’ve been very, very focused on expense reductions, which we have performed and which we continue to perform as a major contributor to our positive net income.
So, it is very nice for us to be able to have the revenue from NERLYNX, be able to clinically develop alisertib, and also achieve positive net income, not only for 2024, but also which we’re guiding to for the full year in 2025.
And we remain very, very committed to continuing to achieve that positive net income.
And we’ll continue to reduce expenses if we need to, to achieve that.”
Private equity investing is all the rage with pension funds and college endowments ramping up returns with their estimates of the value of their limited partnership shares.
There are value investment portfolio managers who see incredible discounts to these estimates of value in their publicly traded portfolios.
Private equity investments at a big discount to public valuations: is this a current sweet spot for investors?
Scott Hood and Evan Fox detail their logic in two exclusive interviews in the Wall Street Transcript.
Scott Hood, Chairman and Portfolio Manager, First Wilshire Securities Management
Scott Hood, CFA, CFP, serves as Chairman and Portfolio Manager at First Wilshire Securities Management Inc. He joined First Wilshire as an analyst in 1993, was promoted to Chief Executive Officer in 2001, and became Chairman in 2019.
“…On the institutional side, we’ve noticed there’s been less and less interest in active management, and a lot more interest in private startups, private equity, and maybe real estate.
We have studies going back over 90 years on the market and value and small cap and mid and large and international, and we’ve been in this remarkable time of a very few large tech stocks in the U.S. dominating the world’s returns.
So, I spend a lot of time on the more technical aspect of that, and also trying to give examples of these hundreds of small companies that trade almost like private equity.
They’re like private equity without the high valuations; there are all these great companies that are a bit forgotten, because there’s not as much interest in those inactive and small companies.
On the individual side, say high-net-worth individuals, I spend a lot of time explaining First Wilshire and our research process and what’s different.
You asked, what are people worried about?
They were worried about politics, so we had to explain that there really hasn’t been a correlation between who got elected and performance in the stock market.
Every time there’s an election, there’s a big group of people who say, “I’m getting out of here if so-and-so wins,” so we’ve tried to put this into broader, historical context, to explain that it’s probably not a good idea to take all your money and make extreme decisions based on a single election.
And then we’ll spend time explaining that, well, when the market’s gone up a lot, people tend to feel more excited, and then they have too much money in the market, and then when things get a little scarier, they tend to take money out — and usually it should be the opposite.
I guess I’ve learned in decades in the business that psychology can be more important than earnings, growth and valuations, so we spend a lot of time with the clients on that.
I explain a lot about our history and our firepower.
We’re all, I’d say, academic, investing business nerds.
We don’t have a marketing department, so we’re not out there banging the drum about First Wilshire.
And the problem is, most companies are all about marketing and not much on the meat and potatoes, and they bring in massive amounts of assets to be put willy-nilly into the same junk that everybody else has.
Somebody like us, who does so much work with such a long track record, we have to explain to clients the difference between us and these other companies that they may have a more favorable impression of them than they should, in our opinion of course, just because the marketing dollars are hitting them in the right way.
Obviously, I’m a little sour about that.”
One small cap company that is wildly undervalue according to the First Wilshire portfolio manager is Aviat Networks (NASDAQ:AVNW).
“There’s a company called Aviat Networks (NASDAQ:AVNW).
They’re based in Austin, Texas.
Aviat does private networks, and in this case “private network” refers to a private cellular and internet network in an area where it works better to do microwave and radio technology rather than wiring an entire area.
Say, a large industrial park, or stadiums use these and are a growing area.
Multiple dwelling unit projects are a growth area.
The company provides the equipment, software, design and installation for these systems.
They had three years of really strong revenue growth and earnings.
Then they had — and this was the time we got interested — an internal control accounting issue.
It was the first quarter last year, and the stock really got hit.
It wasn’t material and it wasn’t intentional, but it really hurt the stock.
Then they came back with strong quarters again, just the stock hasn’t caught up with the performance.
It’s a low p/e company.
It’s trading about 8 times next year’s earnings estimates.
Balance sheet is in good shape.
A lot of growth opportunity ahead.
You look for turnarounds, in a sense.
When they have a problem, you take a look.
A lot of times they’re down for a reason, and it’s going to be hard to turn it around.
We didn’t feel that was the case here.
We felt that the business was in great shape, and the discount that came from the accounting interruption was just too much.
And it’s recovered a little bit, but has a lot further to go.”
Evan D. Fox, Co-Portfolio Manager for Pzena Investment Management
Mr. Fox became a member of the firm in 2007.
“For small caps especially, I think those first couple of questions — why does it exist and is this a good business — make it important to understand that many of the companies that we’re investing in are leaders in some sort of niche market, and that’s what creates the fantastic opportunities.
They’re not going after markets with tens of billions of dollars of revenue.
Instead, we have companies like Shyft Group (NASDAQ:SHYF), that is a leader and one of two companies making step-in vans, which are the ones UPS and FedEx use.
We also own MasterBrand (NYSE:MBC) and American Woodmark (NASDAQ:AMWD), which are leaders in making kitchen cabinets throughout the United States.
And Steelcase (NYSE:SCS), which is one of the two largest office furniture manufacturers in the world.
We have a whole range of other companies that are leaders in specific areas, and that’s what makes it exciting — that we can have fantastic businesses that many people have never heard of.”
Private equity investing through the public market: get the complete exclusive interviews plus many more only at the Wall Street Transcript.
Matt Ehrlichman, CEO, Chairman, and Founder of Porch Group Inc.
Matt Ehrlichman is the CEO, Chairman, and Founder of Porch Group Inc.
Prior to founding the company in 2011, Mr. Ehrlichman was Chief Strategy Officer at Active Network, responsible for ~85% of the company’s P&L.
Mr. Ehrlichman joined Active Network in 2007 and helped grow its revenues from ~$65 million in 2006 to ~$420 million and an initial public offering in 2011.
Before joining Active Network, Mr. Ehrlichman was co-founder and CEO at Thriva, which was acquired by Active Network in March 2007 for ~$60 million.
Mr. Ehrlichman built Thriva out of his dorm room at Stanford University, where he received his Bachelor of Science in Entrepreneurial Engineering and Master of Science in Management Science and Engineering.
In 2014, Mr. Ehrlichman was named USA Today’s Inaugural Entrepreneur of the Year.
Homeowners insurance is Mr. Ehrlichman’s new business focus.
“For a lot of the big legacy insurance companies, the strategy is to sell your insurance product and then hope that the customer never talks to you and you don’t talk to that customer.
They hope they don’t ever file a claim.
We want to be better.
We believe there’s an opportunity to be better than simply hoping there’s never communication.
We want to provide this complete solution around their home, around their move, and then ongoing using our tools to help them manage their home.
We believe that homeowners want to be able to maintain their home and if there are key risks with their home, to let them know proactively if there’s a big weather system coming in.
There are some things they can do to make sure their home’s protected, to make that easy for the consumer.
So, it’s a more proactive experience that simply makes managing and owning a home easier at the end of the day.
That’s different.
I’d also say that generally in the homeowners insurance industry, there are a lot of legacy carriers that, given all of the weather trends, that are just saying, “Hey, we want out. We’re not going to take more business in these places.”
And because of the data and the insights we have, and just how the business has been successful, we want to help homeowners and homebuyers, especially those who have maintained their homes well.
That allows us to meet consumers where they are, which is they need protection for their home. We’re here to partner with them.”
Mr. Ehrlichman has just radically altered the homeowners insurance business model of Porch.
“For a number of years, Porch has been the insurance carrier.
What that means is when there are losses, claims, costs, weather events, that we experience, we pay the claims and we experience that volatility.
One thing we’ve been working on for quite some time — years now — is what we’ve accomplished at the start of January, which is to form what’s called in the industry a reciprocal.
You can think about it kind of like a mutual company.
In the insurance industry, a lot of the big insurance carriers, they’re actually owned by the policyholders.
That’s what the reciprocal is.
We don’t own this reciprocal entity.
It’s actually owned by the policyholder members.
We, as of January, become just the manager, the operator of the reciprocal.
So, all the employees stay with Porch Group.
We run the business, make sure its pricing, the claims are handled really well.
But the reciprocal pays for the claims costs when they come up.
The volatility happens there.
And now our business is set up as just very simple, very clean.
We get commissions and fees back from this reciprocal for managing our business.
That will make us an easier business to predict for investors.
It’ll make it a more valuable business over time because we don’t experience the weather volatility.
Now we go and we help grow the reciprocal and our fees just continue to go up as that reciprocal entity grows…We just announced…the first quarter operating under our new go-forward business model as the manager of the reciprocal instead of the carrier itself.
And so, the results that we demonstrated were going to be important no matter what, just so investors could see a proof point for how this business looks going forward.
Great news: The results were exceptional.”
Going forward, Matt Ehrlichman sees a bright future for Porch once interest rates drop.
“We see three broad trends.
First, homeowners and homeowner purchases.
Existing home sales obviously are still sluggish, and we expect that to continue until mortgage rates come down.
We’ve been in this period for a couple of years now and all that means is that there’s pent-up demand.
As soon as rates go down, we expect the volume of home sales to increase.
That helps our business very directly.
Secondly, weather trends would be the other broad trend; weather is and will become worse.
Again, the great thing for us is that doesn’t impair us in a way that it did previously.
In fact, as weather is worse, homeowners insurance premiums will go up, and we will generate higher management fees.
And third, I think, generally homeowners insurance carriers are making sure that the prices and value proposition is set such that they can remain in business.
They can remain healthy and be able to generate the appropriate amount of profit.
That’s important because we want to make sure that we’re aligned with the market on that and the market’s really moved to make the adjustments that it needs, so that the businesses can remain healthy.”
Matt Ehrlichman believes the homeowners insurance business he has created with Porch is more than just a profit and loss statement.
“At the end of the day, I’ve been fortunate to have built some successful companies before Porch.
So, this is my last company.
The whole purpose of building one more company was to try to build a great company.
That’s the word that we talk about.
Build a company that when you look back when you’re old, you’re deeply proud of.
Certainly, that includes building something that’s really big and really valuable, but it also includes building a company that’s a great place to work, building a company that has a deep sense of values and connection between people.
The first thing that you’ll see up on the wall when you go into a Porch office is, “No jerks, no egos.”
We believe that you can be a good human, you can be kind to one another and still go build something great. Right?
That is a really important part of my job: to make sure that we have just exceptional people, that we’re all aligned on where we’re heading.
We’re all connected by this shared set of values that sets us up to just do great work every day, go solve those next problems that are in front of us.”
Read the entire 3,104 word interview with Matt Ehrlichman, the CEO, Chairman, and Founder of Porch Group Inc. (NASDAQ: PRCH) exclusively in the Wall Street Transcript.
Value stock investor experts advise that the long run strategy is going to win out.
Andrew Wellington, Chief Investment Officer, Lyrical Asset Management
Andrew Wellington is the Chief Investment Officer of Lyrical Asset Management LP, which he co-founded with his longtime friend, Jeff Keswin.
He has been a value investor for over a quarter century.
After spending five years in management consulting, in 1996 Mr. Wellington joined Pzena Investment Management as a founding member and its first research analyst.
Five years later, in 2001, he joined Neuberger Berman, where he went on to run their institutional mid-cap value product.
At Neuberger, Mr. Wellington’s investment performance improved his fund’s three-year Morningstar rating from three stars to five stars, while product AUM tripled from $1.1 billion in 2003 to $3.3 billion in 2005.
After Neuberger, he spent two years in activist investing at New Mountain Capital.
Mr. Wellington graduated summa cum laude and as the top graduating senior from the University of Pennsylvania’s Management & Technology Program in 1990, earning a Bachelor of Science in Economics from the Wharton School and a Bachelor of Science in Engineering from the School of Engineering.
His value stock investor advice is simple: good beats bad.
“When we founded Lyrical, our goal was to generate the highest returns we could over the long run.
We didn’t have to be value investors.
We could invest anywhere we thought would generate the highest returns.
But looking at the data, the cheapest stocks are where you find the highest returns, and so we are value investors.
We look for our investments in the cheapest 20% of the market, the cheapest quintile.
This is now my 30th year as a value investor, so I’ve been doing this a very long time.
Over the first dozen years or so of my career, I was sifting through this cheapest quintile of the market, and I began to observe a few things.
I noticed that I was a lot more successful as an analyst when I analyzed a good business than when I analyzed a bad business.
When I analyzed a good business, things tended to work out a lot more often.
The real world is unpredictable, and all kinds of unexpected things would happen.
But good businesses found a way to adjust, adapt, be resilient, and still end up making about the same earnings I projected it to.
Bad businesses were the opposite.
A lot of things could go right, but if only one or two things went wrong, I ended up with earnings much worse than I projected, and that made them much harder to get right.
And so that was one observation — that good businesses tend to work out a lot better than bad businesses.”
His value stock investor methodology leads to Ameriprise:
“Despite not owning any banks, financial services is currently the largest sector exposure in our portfolio.
How can we have such a big exposure to financials without owning any banks?
Well, we have found many great businesses that provide services that are financial, but don’t have the huge tail risk that banks have, and are thus much more analyzable.
And that brings us back to Ameriprise.
Ameriprise is in the wealth management business with about 10,000 financial advisers.
They are also in the asset management business, primarily consisting of Columbia Threadneedle.
Rather than lending money and hoping to get it back like a bank does, Ameriprise takes in money from clients and charges them fees on it, so it doesn’t have the tail risk that a bank does.
Ameriprise has been a very well-managed company.
If you go back to the dawn of the financial crisis, the end of 2007, before the crisis started, they’ve compounded their earnings at over 15% a year since then.
And yet, over that same period of time, the S&P 500 has only grown its earnings at about 5.5%.
So, this is a company that’s growing two to three times faster than the S&P 500.
And yet the S&P 500 has a multiple of over 20 times earnings, and Ameriprise has a multiple that is less than 14 times earnings.
We like getting two to three times the growth of the market for a huge discount.
On the other hand, while it’s had this great growth rate for over 15 years, and it’s had a low multiple for over 15 years.
The market has not recognized this great earnings stream yet.
So, it’s taken a lot of patience, but just because we haven’t gotten the multiple expansion doesn’t mean that it hasn’t been a worthwhile investment.
Because the earnings growth has been so good, the stock has still been able to do very well without that multiple expansion, and we can continue to patiently hold on to it.
Our thinking is that if they continue to grow their earnings faster than the market and their multiple doesn’t go up, well, that’s a good outcome.
But the market should be greedy and selfish and recognize that it can get a bargain and get this great earnings growth at a much cheaper price, and that should drive the multiple up over time.
And if that happens, then it’s an even better outcome.
Just because re-valuation takes a long time doesn’t mean that’s a bad outcome.
It’s suboptimal. You always have a better outcome when re-valuation happens quickly.
But this is the importance of owning good businesses that can compound their earnings.
The only way you really lose on any investment is you get the earnings wrong or you get the price wrong.
The way you get the price wrong is you pay too high a multiple for a stock, and even if over time you get good earnings, the multiple compresses and hurts your return.
Another value stock investor, and one the Wall Street Transcript has interviewed before, is Scott Hood, CFA, CFP.
“By sticking to cheap stocks we take away the risk of overpaying, and it just comes down to the underwriting risk of getting the earnings wrong.”
Scott Hood, Chairman and Portfolio Manager, First Wilshire Securities Management
Scott Hood serves as the Chairman and Portfolio Manager at First Wilshire Securities Management Inc.
He joined First Wilshire as an analyst in 1993, was promoted to Chief Executive Officer in 2001, and became Chairman in 2019.
Mr. Hood is a Chartered Financial Analyst and a member of the CFA Institute.
He is also a CFP professional.
He serves as a board member of The Mount Wilson Observatory and The Sierra Madre Mountain Conservancy.
Mr. Hood holds a Bachelor of Science from The Stern School of Business at New York University.
“If it’s a severe undervalued situation, it can correct pretty fast, and I’d say every year that goes by things move quicker.
Whereas you could find something that was cheap and it could stay cheap for a little longer, it can happen a little sooner now, there’s maybe a little more information moving around or being discovered sooner.
So, if it’s a quick turnaround and the stock goes up a lot, then it can move into an overvalued position sooner.
When we buy, in a typical case, the one or two analysts that cover the company don’t like it, something’s gone either sideways or down, and after some research we might become sufficiently comfortable that things are turning around and the market is punishing them too much.
Sometimes it’ll take years before we get into a stock.
Sometimes it could be a week or two if we really find something undervalued.
And then we slowly acquire it.
You have to be very careful in your trading — we have internal trading, one dedicated trader with backups and technology — to not spook the market when we’re getting in or out.
We try to hold our cards close to the vest.
The typical pattern of stock ownership for us would be something that’s trading under 10 p/e with over 10% growth, and people don’t realize the growth and business power yet.
And later, once it starts trading a lot above its historical p/e, the industry p/e, once the analysts have all come back and said “we love it,” we tend to move out of it into something else cheap and misunderstood.
One change we’ve made over the last 20 years is we might hold it a bit longer even though it’s gotten back to a decent valuation.
We’ve found that companies can run a lot more.
So, as long as we are really confident in the coming quarters’ operations of the company, we might wait another few quarters before we fully get out of the stock.
Actually, a lot of companies will trip up again, and we’ll come back into them years later.
One we’ve had is IMAX (NYSE:IMAX).
You’ve heard of the company IMAX that does the movie equipment and production to produce the highest quality movie experience.
We owned it at one point — actually I think we were one of the top owners of IMAX many years ago — and it was a real turnaround situation.
We got out of it about eight years ago, and then got back into it last year.
So, the same ideas can keep coming around, and if we’ve owned them before, we generally have a fairly high level of knowledge of the company and can get back up to speed quicker.
We’re always looking back at what we’ve owned.
If it comes back into our buying range, we can do it again if everything lines up.
IMAX was a funny case, because you had COVID hit; people didn’t go to theaters, and people learned how much better it was to be at home and not in a sticky theater seat.
But if you do go to a theater, you’re going to want to see the best, something you can’t get at home.
If you’re going to make that trip to the theater and the cost and effort of it, it better be special. And IMAX is a completely different experience.
There was a bad film slate coming out of COVID, and also due to the strikes, and so the material was weak.
The stock was really down.
Then there was a great slate coming, and then they had “Oppenheimer.”
“Oppenheimer” was a beautiful movie on IMAX. Less than 2% of the screens that “Oppenheimer” was being shown on were IMAX screens, but they did over 20% of the revenues.
That shows you the power of the brand of IMAX. They’re global, and they have a big backlog.
But the point is, you watch companies.
The decision to get in is certainly based on valuation and what you know about the company.
And then once you’re out, you keep following them, and you might get another chance.
We might own something twice in a 10-year period, and each time we own it we get in knowing more, and we learn more as we go through the cycle with them.”
Read all the interviews with value stock investors in the current 2025 Value Investing Report, exclusively in the Wall Street Transcript.
The AI revolution has seen investor returns skyrocket for certain semiconductor manufacturing companies.
Tore Svanberg, Analyst, Managing Director, Stifel Financial Corp.
Tore Svanberg is an Analyst and Managing Director at Stifel Financial Corp.
Mr. Svanberg is a Managing Director in the Technology group, covering semiconductors with a focus on analog, connectivity and processor semiconductors.
He has been an analyst for 22 years and has been recognized for his work by The Wall Street Journal’s “Best on the Street” Analyst Survey.
His insight into the upstream components of the AI expansion for semiconductor profits is an important consideration for investors looking to capitalize on this trend.
“First of all, you’re right; there is an exemption for semiconductors, especially exports coming out of Taiwan.
As you may know, Taiwan is the hub, especially for fabless semiconductor companies where you have TSMC (NYSE: TSM) manufacturing wafers for U.S. semiconductor companies.
So, semiconductors are exempt today.
Again, that would be that direct impact, right?
Then, if you think about moving further up the value chain to actual phones and other consumer electronics, yes, you’re right, some of those are also exempt.
But again, keep in mind that as of today, there’s basically a blanket 10% tariff on anything.
Then there’s exemptions.
Obviously, China is the big topic, where the tariff rate is significantly higher than that 10%.
And I guess that’s where, obviously, there has been some encouraging developments from the negotiations that get started on Saturday.
Both parties are working to bring tariffs down, but there is still some uncertainty as it relates to the final numbers as the negotiations include other topics than just economics and trade.
But what’s very interesting, again, from an electronics perspective, is that this sort of U.S.-China trade war didn’t start on “Liberation Day.”
It started almost a decade ago.
I would say a lot of electronics manufacturing has already moved outside of China, especially to places in Southeast Asia.
So here we have countries like Malaysia, Vietnam, Cambodia, and, as you may recall, on April 2, some of those tariffs were very, very high.
I think that’s why investors kind of freaked out, because if those tariffs are going to be high, we have a serious problem.
Obviously, now we have this 90-day window where those tariffs are now more at 10%.
And then there are negotiations going on with each country to see where that number is going to settle down.
But yeah, already a lot of manufacturing has moved away from China and into Southeast Asia.
I think that’s a very important point to make.”
The AI computing process in very energy intensive and requires specification compliant components to make it all work.
“Certainly AI has become a very important growth driver for the semiconductor industry.
But I think what’s sometimes not clear from an investor perspective is how AI is going to impact the whole space.
Up until now, of course, everyone’s been really excited, but Nvidia (NASDAQ:NVDA), because they are the leader in GPUs and obviously GPUs are the bedrock of high-performance compute that you need for AI.
But I think what’s not as well understood is that it’s not just about compute.
You need networking technology, you need power.
There are a lot of semiconductors that go into building an AI cluster.
The two areas that I’m very focused on are on the networking side.
There, you have copper connections and optical connections, and then there are all different types of standards within the networking industry.
And then on the power side, of course, a lot of these AI clusters use an immense amount of power, all the way from the grid to the actual GPUs and CPUs themselves.
There are certainly companies there that I cover that benefit from that as well…
On the networking side, we have companies like Marvell (NASDAQ:MRVL).
They are benefiting from the optical networking that is required in these AI clusters, especially for scale out of AI.
Then, on the copper side of things, which is used more for scale up, we have companies like Credo Technology (NASDAQ:CRDO), also Astera Labs (NASDAQ:ALAB).
All three of these companies have very high exposure to AI infrastructure.
If you then take it a level further down, you have companies like MACOM (NASDAQ:MTSI) and Semtech (NASDAQ:SMTC), which are also benefiting quite a bit from both optical and copper connections.
But their percentage of exposure to these markets is not as high.
So, here we’re talking about maybe 20%, 30% exposure, whereas the previous three companies that I mentioned have anywhere between 60% and 100% exposure to AI infrastructure.
On the power side of things, we really like Monolithic Power Systems (NASDAQ:MPWR).
This is a company that historically has done really well handling the power for the processors themselves.
Whether it’s GPU or CPU power management, they are the leader.
But they’re now also taking things to the next level and working on what we call rack power.
They’re trying to optimize the entire power envelope all the way from direct current transmission that’s coming into the data center, all the way to the actual processor power management.
Monolithic Power is definitely a company that I think is going to continue to benefit a lot from the trends we’re seeing for rack power.”
The AI sector growth may also lead to even more semiconductor stock upside.
“Companies like Texas Instruments, Onsemi, NXP, they all talked about the beginnings of a recovery in the industrial market, which was a bit of a surprise to investors.
I still think there’s a debate out there, whether that is tied to pull-ins because of tariffs or whether we are actually starting to see the beginning of a new capex cycle.
My guess is that it’s probably a little bit of both of those things.
Obviously, if we’re going to see a more sustainable capex cycle, we are going to have to see interest rates continue to come down.
That’s very important for industrial capex.
But we also obviously need to see a little bit more certainty around the tariffs and how those play out over the next few months.
But I would say that is the one area that was a bit of a surprise so far during earnings season.”
Contrarian investing, or being greedy when others are fearful as Warren Buffett says, is a difficult concept for most US equity investors.
“When you’re working for a large bank like Oppenheimer, you’re being compensated well and you are really treated with respect. And there’s just that platform that is amazing. But I wanted to do my own thing, to invest in myself and my own business.
So, I founded Tecumseh Partners. And what Tecumseh Partners does is advise biotech and financial firms on valuation, communication, and strategic positioning.”
Hartaj Singh, Founding Partner, Tecumseh Partners
Hartaj Singh is a Founding Partner of Tecumseh Partners, advising biotech companies on valuation, strategy, and investor engagement. He also writes The Biotech Capital Compass, a newsletter focused on biotech market trends.
Mr. Singh’s 30+ year career spans biotech equity research, hedge fund investing, and consulting — previously at firms like Oppenheimer, BTIG and Lehman Brothers.
With an MBA from Duke and a background in computational neurobiology, Mr. Singh brings a science-driven approach to biotech investing.
“There’s a lot of medical tech that’s exported to China.
So, I think wherever there’s a manufacturing-intensive CDMO model — and I believe WuXi (OTCMKTS:WXXWY) and other firms participate there — those could have some initial headwinds.
Firms that really depend on a global supply chain as a way of operating, for example those firms with Chinese fill and finish or API sources — those could be really impacted.
And then I’m not a medical device analyst, but I do imagine that there’s probably going to be some counter tariffs from China back to the United States.
So, if there’s anything from the drug side, more likely medical device and diagnostics that are going to China, they will probably get hit.
And then the second portion of this is from a biotech perspective.
There has been a lot of licensing acquisition both from the U.S. going to China and China going across the United States.
And that might slow down. Things may cool considerably in terms of boardroom appetite for cross-border deals.”
The contrarian investing thesis for biotech and pharmaceutical companies is a wide area for Hartaj Singh.
“High quality names — and in biotech, what I mean by high quality, is that I think of it as mentally picturing a diamond.
And a diamond has four points when you’re looking at it.
And for biotech, the top point of that diamond is revenues, the bottom part is earnings.
To the right is future competition and to the left is the pipeline.
So, I think companies where you can check those boxes, for example, like a Gilead, like a Regeneron, or like a Vertex (NASDAQ:VRTX), with good revenue growth, and good earnings growth.
Neither of them is perfect — to the right, not a lot of competition in the future, or muted competition, at least in the next five, 10 years.
And then to the left, a good pipeline. These companies check those boxes.
On the smaller cap side, United Therapeutics (NASDAQ:UTHR) definitely checks that box.
There’s a Chinese company we like called Akeso (OTCMKTS:AKESF).
They kind of hit the four points of that diamond.
So, I like those companies because they’re just quality names and you can buy them and keep a low cost base even if they’re being impacted by this tariff volatility.
We also like U.S.-centric commercial companies.
Most commercial-stage biotech companies have 70% to 90% of their revenues from the U.S., which shields them from much of the tariff risk.
So, you actually do away with all that tariff stuff.
Once people get a little bit of time to calm down and away from this tariff volatility, biotech will become a very attractive sector, because the vast majority of commercial companies have more than two-thirds of their sales in the United States.
What’s not to like about that setup?
We also like strong balance sheets and near-term probability, near-term catalyst, PDUFA events.
So the biotech model for large caps and small-to-mid caps won’t be really impacted once this tariff induced volatility calms down.
Because if your clinical catalyst works, or you get a drug approved, or your sales are better than expected, that stock will work, and we like that.
So as an example, we like this company called Avadel (NASDAQ:AVDL).
They’re the second company launching into narcolepsy and with just a very strong execution on the launch of their product called LUMRYZ.
It’s a strong specialty pharma model.
They’re second to Jazz (NASDAQ:JAZZ).
But McKinsey published a study just a few years ago showing that even second-to-market companies captured 25% to 40% market share.
We like Regeneron, in our diversified U.S.-heavy revenue base.
You look at Eli Lilly (NYSE:LLY), people talk about obesity and diabetes.
But the thing is, this company is going to grow multiple double-digits for the next two, three years.
What’s not to like about that?”
Contrarian investing can also be applied to large cap, dividend paying drug companies.
“If you look at the larger cap side, you can definitely see an aging population.
These biopharma companies are looking at Alzheimer’s, arthritis is still big, cardiovascular disease.
But Alzheimer’s and cardiovascular disease especially.
Biogen (NASDAQ:BIIB) and Lilly have made very large investments in Alzheimer’s.
Sales maybe aren’t doing great right now, but once they start picking up, as we saw with biologics 10, 20 years ago in oncology for example, it becomes a huge area for investment.
So, I like to look at Alzheimer’s, cardiovascular disease.
Novo (NYSE:NVO) and again Lilly are seeing therapies for weight loss and an aging population.
The obesity epidemic, GLP-1 growth for Lilly, Novo Nordisk, ripple effects in NASH, sleep apnea, CV — for the larger biopharma companies that’s the area of interest I’m looking at.
For rheumatoid arthritis, there are seven approved anti-TNF medications, and even the seventh one is doing about $1 billion to $2 billion in sales.
I believe that’s the UCB (OTCMKTS:UCBJY) product.
So, when you have a large area like obesity, you can have four, five, six companies do very well in the long run.
And then lastly mental health.
In that area, increasing demand for neurology, even smaller companies are going there.
On the small cap side, when I look at VCs, AI is the rage.
In biotech, AI is just another tool for us. We’ve been doing what’s called “in silico drug development”; that is drug development on a silicon chip.
That’s been a term for 40, 50 years as opposed to in vitro, or in vivo.
So in a petri dish or in a living thing.
In silico drug development will catch a pretty rapid tailwind with AI.
We’re already seeing that.
And the smaller companies, VCs are going to look at that not just in terms of, for example, designing drug molecules or finding diseases where current drugs could be more useful.
But in advancing X-ray techniques and imaging techniques.
Imaging is actually very amenable to AI.”
A contrarian investing case study can be made for Moderna.
“We were long Moderna in 2020, 2021.
Then we downgraded in 2022, and we held there until early 2024 when we upgraded again. But that was based on the idea that their sales, which they thought would be $3 billion, $4 billion last year, would continue that way. And actually, sales numbers just keep on coming down for Moderna.
If the pandemic hadn’t occurred — and Moderna hadn’t generated $15 to $16 billion in vaccine revenue at its peak — then 2024’s $3 billion-plus revenue run rate would actually look quite impressive.
They did their IPO in late 2018. So now, seven years later, it grew to $1 billion to $2 billion in sales, and getting closer and closer to breakeven.
Companies like Vertex, Regeneron, Genentech — how long did it take them to become breakeven?
Closer to 10 years.
We actually did that analysis when I was at Oppenheimer, published that note that it takes biotech companies about 10 years from the point of an IPO to becoming breakeven.
Moderna is right on track.
I think the nucleic acid vaccines will do great.
And they will continue to get more products approved in therapeutic vaccines.
At some point the current negative sentiment will shift and this will become a pretty big buying opportunity.
But right now, first and foremost, the company has to prove that their revenue estimates can’t keep on coming down.
They’ve got to show us a few quarters and one to two years of increasing revenues and getting products to market.
And I do think Moderna management is among the best.
But there’s been a little bit of overpromising, and underdelivering over the last two, three years. What they need to do now is underpromise and overdeliver.”
Get all of Hartaj Singh’s contrarian investing picks and pans exclusively in the Wall Street Transcript.
