[SPEAKER_06]: This is Invest Talk, from KPP Financial, helping investors make sense of the markets one day at a time.
[SPEAKER_06]: Here's your host, Luke Guerrero.
[SPEAKER_02]: Good afternoon, fellow investors, and welcome to another week of Invest Talk.
[SPEAKER_02]: I'm your host, Luke Guerrero.
[SPEAKER_02]: Today's Monday, May 18th, 2026.
[SPEAKER_02]: Now as always we got a great show planned for you today, including a great and important focus point, a market wrap up, and your finance and investment questions answered.
[SPEAKER_02]: To that end, why don't we kick things off by answering a fresh, colored question now?
[SPEAKER_08]: Hey, I'm calling about track who's supply, TSCO, wanted to know what you thought about it at this level.
[SPEAKER_08]: Thanks.
[SPEAKER_02]: Tractor Supply Company is a name we used to hold for clients in one of our strategies.
[SPEAKER_02]: You'll notice I used the past tense because we recently sold out of it.
[SPEAKER_02]: Now TSCO is the largest rural lifestyle retailer in the United States.
[SPEAKER_02]: They do farm and rent supplies, pet products, tools, seasonal goods, livestock feed.
[SPEAKER_02]: across the U.S. Now, there has been significant price deterioration since April 21st.
[SPEAKER_02]: KSCL has continued sliding.
[SPEAKER_02]: I this lid from roughly $52 in February, down to about 42 in April.
[SPEAKER_02]: They've since fallen down about $31 a share to be enough about 3.76% today.
[SPEAKER_02]: Now, revenue mist, net income and earnings per share declined year over year.
[SPEAKER_02]: You had two consecutive quarters of earning misses now on record.
[SPEAKER_02]: You had gross margins, pressure by tariffs, you had cost inflation, freight cost inflation, you had their pet category under pressure, new customer acquisition of it softer than people at Hope to see.
[SPEAKER_02]: So, I'm not telling you a lot of positives here.
[SPEAKER_02]: One positive, though, taken with a grain of salt, as management did reaffirm their full year guidance despite the Q1 miss.
[SPEAKER_02]: control.
[SPEAKER_02]: Now you could say, okay, it's cheap.
[SPEAKER_02]: Certainly cheaper than it's been for quite some time.
[SPEAKER_02]: It's only training at 13.9 times price to forward looking earnings.
[SPEAKER_02]: I mean, it's nearly the cheapest valuation over the past five years.
[SPEAKER_02]: And one of the cheapest in the company's history of being public.
[SPEAKER_02]: And you could say, okay, well, this is a blue chip compounder who is just suffering from structural issues in the economy, but those problems aren't going away having to consecutive quarters of misses is not good for a stock, especially one that is in a persistent, I don't know, over 50% drawdown.
[SPEAKER_02]: And so the bottom line is, sometimes the things are on fire sale prices, they're at fire sale prices for a reason.
[SPEAKER_02]: And catching a falling knife, heading into a print that could very much be their third consecutive quarter of misses, probably not a good call.
[SPEAKER_02]: That is tractor supply company, digger, TSCO, thanks for the call.
[SPEAKER_02]: We're going to show on a Friday, taking a look at AI's next chapter and whether the NASDAQ 30,000 rally was sustainable.
[SPEAKER_02]: We also answered plenty of listener questions, including one on Verizon.
[SPEAKER_02]: So if you happen to miss that episode, go check it out and remember the best way to get every episode is to follow Invest Talk wherever you get your podcasts.
[SPEAKER_02]: Off for today, or rather off to today, got a lot of great stories to go over, including my main focus point about market volatility and how the volatility itself isn't the problem.
[SPEAKER_02]: But rather emotional investing is because volatility, once again, has investors nervous, but historically, it's the emotional reactions during these turbulent markets that have often led to the worst investment decisions.
[SPEAKER_02]: We'll also touch on a story about Kevin Warsh more specifically, given that he is a new Fed chair.
[SPEAKER_02]: We'll take a look at his own words to try and understand his thought processes.
[SPEAKER_02]: Also, touch on AI super apps and how they are revolutionizing the internet in China.
[SPEAKER_02]: And to be of time at the end of the show, we'll talk about the housing market.
[SPEAKER_02]: We also have some voice bank calls ready to play including one on the state of the U.S. economy and another on Celsius Holdings Inc. As always, we have questions that came in from the comment section of the invest stock YouTube channel and of course I welcome your finance and investment questions now or any time throughout the show.
[SPEAKER_02]: We're going to do a quick break.
[SPEAKER_02]: Please remember you can call any time and leave your questions on the invest stock voice bank.
[SPEAKER_02]: If you're listening to our live stream around AM1220 in the Bay Area, pick up the phone and dial 88899 chart.
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[SPEAKER_02]: Now on to a summary of the market today, stocks mostly a lower to start the week, though they did end a bit off of their worst levels.
[SPEAKER_02]: The S&P and NASDAQ now both declined.
[SPEAKER_02]: Well, the Dow was roughly flat and the Russell 2000 dipped as well.
[SPEAKER_02]: Brent was actually positive with the majority of sectors higher and the equate S&P outperforming the cap weighted index by about 70 basis points on the day.
[SPEAKER_02]: A pretty notable divergence.
[SPEAKER_02]: From the index level weakness driven by what has been probing at markets and that's the AI trade.
[SPEAKER_02]: Summisen memory extended their recent pullback as well big tech was mostly lower with Tesla and Nvidia, the notable declineers from that group, multi's tech hardware networking bio tech names, also some of the worst performers, but underneath the surface there was plenty of Greek software, energy banks, particularly regional banks, ensures exchanges, payments,
[SPEAKER_02]: staples, dollar stores, all of those names that were performed, it was more than anything a healthy rotation day even if the headline numbers didn't really reflect positivity.
[SPEAKER_02]: Now, the Iran War narrative continues to produce
[SPEAKER_02]: enormous headline volatility.
[SPEAKER_02]: You get every little bit of progress towards a resolution changing the way market participants are perceiving the issue.
[SPEAKER_02]: Now, late in the afternoon, the president posted that Middle East leader, some cutter, the UAE and Saudi Arabia had asked the U.S. to hold off on a planned military attack on Iran, which Trump said was scheduled for tomorrow.
[SPEAKER_02]: Earlier in the session, updates continued to vacillate between diplomacy strikes, diplomacy strikes, but all in all, crude oil, WTI specifically settled up 3.3% in this choppy headline noise driven trading day.
[SPEAKER_02]: You had another key focus being rate stabilization, following last week's backup in yields, treasuries, little change, just slightly firmer, and yields down about two basis points at the short end.
[SPEAKER_02]: But the global bond yield breakout continues to get flagged as a headwin for risk sentiment.
[SPEAKER_02]: You have Japan, you have the UK notable areas of scrutiny, and we all know how important rates in Japan relative to the USR for liquidity in the market.
[SPEAKER_02]: That being said, the market is still pricing roughly 15 basis points of hikes through your end and there's growing fear about rapidly deteriorating energy inventory buffers and how that could push crude and also push yields even higher.
[SPEAKER_02]: Now on the positive side, there was good M&A news, next era confirmed an all-stock deal to acquire Dominion from nearly 67 billion creating the world's largest regulated electric utility.
[SPEAKER_02]: You had activists headlines, you had PE investment, market also waiting for signals later this week from Nvidia's report on Wednesday evening, and a heavy slate of retail earnings
[SPEAKER_02]: That'll sort of the dollar slipped three, tens of a percent gold and silver were roughly flat on the day.
[SPEAKER_02]: Tomorrow we're bringing pending home sales and some fed speak.
[SPEAKER_02]: A week, of course, at building towards Thursday's claims.
[SPEAKER_02]: Filly fed manufacturing housing starts and flash PMIs.
[SPEAKER_02]: Alright, let's take a look at a question that came in from the comment section of the Invest talk.
[SPEAKER_02]: YouTube channel, it says, hey Justin, unfortunately Justin's not here today, so we have to settle for Luke, but hey Justin, enjoy these weekend updates and deep guys.
[SPEAKER_02]: I'm thinking about adding a low-cost utility ETF like FUTY as a bond proxy into a retirement account that adds a bit more potential upside to duration risk in bond funds.
[SPEAKER_02]: I found UTS and it's a bit contrarian, but I am unsure if that is worth the cost.
[SPEAKER_02]: Differential.
[SPEAKER_02]: eight versus 49 basis points, one thing I know as well is that next era is the top holding on FUTY and other low cost ETFs, while it's a top 10 in UTES, but much less exposed, not sure how the next era purchase of Dominion enters into the picture.
[SPEAKER_02]: Now, it's taking these two things, FUTY is the fidelity MSCI utilities index ETF.
[SPEAKER_02]: It tracks the MSCI USAIMI, which is the investible market index utility 2550 index.
[SPEAKER_02]: A mouthful.
[SPEAKER_02]: It is dirt cheap, dirt cheap, 8 basis points.
[SPEAKER_02]: As was mentioned, next era is the top holding it about 14 to 15% of the fund has broad exposure to about 70 utilities, lower volatility about 3 to 4%.
[SPEAKER_02]: So I'll have dividend yield 2.5 to 3%.
[SPEAKER_02]: And it is passively made it.
[SPEAKER_02]: So you're getting the whole sector worths and all.
[SPEAKER_02]: Now, U-T-E-S is the shortest reads utilities, E-G-F.
[SPEAKER_02]: It is active, so you are paying more because it's active.
[SPEAKER_02]: You're paying six times the cost for F-U-T-Y.
[SPEAKER_02]: Next, Eric, is in the portfolio but a much smaller weight it is more concentrated.
[SPEAKER_02]: So, think 25 to 35 names instead of 70.
[SPEAKER_02]: There's higher volatility about double the volatility but the active management means that somebody based on conviction is underweighting or overweighting names on any given.
[SPEAKER_02]: Day, it has historically had more midstream pipelines, less pure regulated utility exposure.
[SPEAKER_02]: And so does the bond proxy question kind of work?
[SPEAKER_02]: Well, utilities as a bond proxy makes sense.
[SPEAKER_02]: They offer yield.
[SPEAKER_02]: They have predictable, regulated cash flows.
[SPEAKER_02]: They rate sensitivity, similar to long-duration bonds, but they also offer equity upside.
[SPEAKER_02]: That bonds don't.
[SPEAKER_02]: You have rate-based growth.
[SPEAKER_02]: You have data center demand.
[SPEAKER_02]: You have electrification cap X.
[SPEAKER_02]: utilities behave like bonds.
[SPEAKER_02]: They sell off in a falling rate environment.
[SPEAKER_02]: They rally.
[SPEAKER_02]: Between these two, I would say F U T Y is probably the pureer bond exposure because it's market cap weighted towards the biggest most stable regulated names.
[SPEAKER_02]: Whereas U T S is less of a bronze proxy and more of an active bed on the sector.
[SPEAKER_02]: You're in higher volatility.
[SPEAKER_02]: But that means
[SPEAKER_02]: less bond like behavior now.
[SPEAKER_02]: We talked about a little bit next era acquiring dominion in an all stock deal dominion shareholders.
[SPEAKER_02]: I think you're getting roughly 0.8 shares of next era for each dominion share and the combined company is going to be
[SPEAKER_02]: Huge, what this means for both of these is, FUTY is going to get more concentrated in the next year.
[SPEAKER_02]: It's already the top holding, post merger, the combined entity could be 20% of fund, depending on how the index, reconstitutes whereas UTS is a bit better positioned here.
[SPEAKER_02]: You're going to have a less of a concentration effect.
[SPEAKER_02]: They can manage that concentration risk because it is
[SPEAKER_02]: active.
[SPEAKER_02]: So the question really comes down to is 41 basis points of a fee worth it.
[SPEAKER_02]: The real question is, are you looking for tilted, concentrated exposure?
[SPEAKER_02]: Or are you not?
[SPEAKER_02]: You are oftentimes going to find that level of difference for an active fund.
[SPEAKER_02]: That is just the name of the game.
[SPEAKER_02]: if you want a contrarian active bet on utilities, UTS.
[SPEAKER_02]: I think you're thinking about this the proper way and you're understanding the differences of how one might want to use two funds that invest in the same industry, the same sector, but in a completely different way.
[SPEAKER_02]: Thanks for watching, and thanks for leaving your question in the comment section.
[SPEAKER_02]: Alright folks, we are headed into our first long break of the day.
[SPEAKER_02]: When we come back, we'll talk about my main focus point and of course answer your finance and investment questions here on Invest Talk.
[SPEAKER_01]: Luke Guerrero is here and ready to tackle your questions.
[SPEAKER_03]: Is it a good idea to sell your losses in a Roth IRA and just use whatever you have left to reinvest in to better stocks?
[SPEAKER_01]: Just wanted to ask you about one stock that I'm looking at in Turkey, E.T.R.
[SPEAKER_01]: Call in Vestock, 888-99 chart.
[SPEAKER_06]: In the early days, in Vestock was Jerry Klein and Steve Peasley.
[SPEAKER_06]: Now the torch has been passed and a new generation of hosts is on the job, Justin Klein and Luke Guerrero.
[SPEAKER_06]: So when you've got finance and investment questions, don't forget to call in Vestock.
[SPEAKER_06]: 88899, chart.
[SPEAKER_02]: So I want to step back a little bit from the Daily News cycle and talk about something that's been on my mind as I watch how investors have responded to the last 11 weeks of chaos.
[SPEAKER_02]: Since the Iran War started on February 28th, we've had the S&P drop 8% in a month, then rally to all time highs.
[SPEAKER_02]: Oil has gone from 70 to 1, 26 and back to 98, goal drop 10%, during a crisis when most people think it's supposed to rally.
[SPEAKER_02]: The 10-year yield has swung between 396 and 4.5.
[SPEAKER_02]: Consumer sentiment hit at the lowest reading in 70 years and through it all, the single biggest detriment of weather, or rather determined in of weather,
[SPEAKER_02]: An investor made money, or a lost money wasn't their stockpicks, their asset allocation, or their marketing, it was whether they let their emotions make their decisions.
[SPEAKER_02]: Oxford Risk, a behavioral finance research firm, estimates that emotional investing costs investors approximately 3% in lost returns per year over the long term.
[SPEAKER_02]: In volatile environments like the one we've been in,
[SPEAKER_02]: That cost can be significantly higher.
[SPEAKER_02]: The research breaks into two components.
[SPEAKER_02]: The reluctance cost, which is moving to cash during volatile periods in missing the recovery, and that runs about four to five percent annually.
[SPEAKER_02]: And the behavioral gap, the tendency to buy when markets are high and sell when they're low.
[SPEAKER_02]: That adds another one and a half to two percent per year.
[SPEAKER_02]: Compounded over a career, those losses are devastating, a three percent annual behavioral drag.
[SPEAKER_02]: on half a million dollar portfolio over 20 years costs you $400,000.
[SPEAKER_02]: and foregone a wealth.
[SPEAKER_02]: But the date on panic selling is particularly damning.
[SPEAKER_02]: We'll see if it ends to do it.
[SPEAKER_02]: Analyze the 10 worst single day drops in US stock market history.
[SPEAKER_02]: 87, 97, 2008, 2020.
[SPEAKER_02]: We're lost as range from 7 to 20% in a single session and in seven of those 10 cases.
[SPEAKER_02]: The market was higher within the next 10 trading days.
[SPEAKER_02]: In one case, it was flat.
[SPEAKER_02]: Only two continued lower and both corrected shortly after.
[SPEAKER_02]: The average median short term rebound was five and a half percent.
[SPEAKER_02]: Panic selling locked in the worst possible exit price in the vast majority of cases.
[SPEAKER_02]: And we saw this pattern play out in real time during this crisis.
[SPEAKER_02]: Investors who sold during the March sell off when the S&P was down 8% oil was spiking and the headline was apocalyptic locked in losses before the market stage one of the sharpest recoveries in recent memory.
[SPEAKER_02]: The SAP erased all its war losses and hated new all-time high by mid-April.
[SPEAKER_02]: The investors who panicked sold in March funded the profits of those who stayed disciplined.
[SPEAKER_02]: Now, the psychology behind this, it's well documented.
[SPEAKER_02]: There is plenty of research on loss of version, showing that humans feel the pain of a loss roughly twice as intensely as the pleasure of an equivalent game.
[SPEAKER_02]: A $10,000 portfolio decline feels, bound as bad as a $20,000 game feels good, that asymmetry drives people to sell it exactly the wrong time, the emotional pain.
[SPEAKER_02]: of watching their portfolio fall becomes unbearable and selling provides immediate psychological relief even though it locks in a financial loss.
[SPEAKER_02]: This is a related bias called Reacency Bias.
[SPEAKER_02]: It's been especially powerful during the war when gas prices surge and headline scream about horror moves and inflation and recession risk.
[SPEAKER_02]: The recent negative information overwhelms the longer term data showing the markets are covered from geopolitical shock.
[SPEAKER_02]: The average entry you're declined for the S&P is about 14% even near that unpositive.
[SPEAKER_02]: Volatility is not an aberration, it is the price of admission for long-term equity returns, but in the moment, when your portfolio's down in the news is terrifying, it feels like this time is different, and it almost never is.
[SPEAKER_02]: Now I'm not saying you should ignore risk, or refuse to adjust your portfolio.
[SPEAKER_02]: There's a difference between strategic rebalancing and emotional panic.
[SPEAKER_02]: Strategic rebouncing means reviewing your allocation against your plan, trimming positions that have grown beyond your target weights and ensuring your portfolio reflects your actual risk tolerance and time horizon.
[SPEAKER_02]: That is rational, that is proactive, that is valuable.
[SPEAKER_02]: Emotional panic means selling because the headlines scared you buying because you're afraid of missing out or making any trade driven primarily by how you feel rather than what the data shows.
[SPEAKER_02]: The practical framework for managing emotions during volatile markets starts with having a plan before the volatility arrives.
[SPEAKER_02]: If your investment policy says you hold 60% equities and 40 bonds and a drawdown takes you your equities to 55, your plan says rebounds.
[SPEAKER_02]: Second, automate what you can, DCA.
[SPEAKER_02]: It forces you to buy more shares when prices are low and fewer when prices are high.
[SPEAKER_02]: If the opposite of what emotional investors do and it works precisely because it removes the decision from your hands.
[SPEAKER_02]: Third, limit your consumption.
[SPEAKER_02]: A financial news during volatile periods.
[SPEAKER_02]: I know it sounds counter-intuitive.
[SPEAKER_02]: On a financial radio show in podcasts, but the research is clear, the more frequently you check your portfolio, the more likely you are to make an emotional driven trade.
[SPEAKER_02]: Fourth,
[SPEAKER_02]: Remember, the base rates, since 1945, the S&P has delivered positive calendar year returns 73% of the time.
[SPEAKER_02]: The market has recovered from every single crash, correction, recession, war, pandemic, and crisis in history, not quickly, not painlessly, and not without drawdowns along the way, but it has recovered every time.
[SPEAKER_02]: The Iran War has been a stress test for every investor's emotional discipline.
[SPEAKER_02]: Gas is expensive, consumer sentiment is low.
[SPEAKER_02]: But volatility is the cost of long-term returns.
[SPEAKER_02]: Emotional investing is the cost of not understanding that.
[SPEAKER_02]: On the next invest talk, we'll look into the story.
[SPEAKER_02]: Is 5% the new normal for long-term interest rates?
[SPEAKER_02]: What the bond repricing means for investors?
[SPEAKER_02]: That's tomorrow, but for now I'm Luke Guerrero, and we are ready to take your calls any time at 80-80-90-90.
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[SPEAKER_05]: It means we invest alongside you, through our parallel investing approach.
[SPEAKER_05]: When we recommend an investment for clients, one or more KPP principles invest their own capital at the same time.
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[SPEAKER_04]: Hi, Justin and Luke.
[SPEAKER_04]: I would love your take on Celcius Holdings, ticker CGLH.
[SPEAKER_04]: I've had it on my watch list for quite a while, and I've had it packed for an alert under $30.
[SPEAKER_04]: I think the evaluation and the risk
[SPEAKER_04]: seems to make sense as a very small allocation to my portfolio, you know, one to two percent tops.
[SPEAKER_04]: I was debating starting to sell, put down here, close to in the money.
[SPEAKER_04]: I would love your feedback on the show and we'll list it on the podcast.
[SPEAKER_04]: Thanks so much.
[SPEAKER_04]: Okay.
[SPEAKER_02]: Celcius Holdings Inc is to her CELH.
[SPEAKER_02]: It is a functional energy drink company.
[SPEAKER_02]: Their flagship Celcius brand on a new, which is their women-focused lifestyle energy drink and rockstar energy, which they acquired last year.
[SPEAKER_02]: That's far this year.
[SPEAKER_02]: Layered down 35.88% down 25.54% over the past 52 weeks, and they currently sit at about $7.7 billion in market cap, about $2.44 billion in debt.
[SPEAKER_02]: Now recently, they had a massive, massive Q1 beats on May 1st.
[SPEAKER_02]: They had revenue up 138% year over year.
[SPEAKER_02]: They beat by 2.6%.
[SPEAKER_02]: They beat on EPS, suggested EPS, that is, by about 41%.
[SPEAKER_02]: They beat on Justin Bieber, about about 28%.
[SPEAKER_02]: And they beat on gross margins, or rather, they had a growth on gross margins of about 90 basis points
[SPEAKER_02]: So what's going on here?
[SPEAKER_02]: Because you have a classic beat and drop scenario.
[SPEAKER_02]: They reported this massive beat, but the stock is continued following to what is, I think new, fresh 52,
[SPEAKER_02]: weak lows perhaps see now they're training about twenty two dollars per share back in oh yeah now this this is a fresh fifty two week low of twenty nine thirty three and the reason why is because often times headline numbers obscure what's going on and the course else he's brand only grew six percent all the growth came from acquisitions
[SPEAKER_02]: They also have extreme, extreme concentration risk.
[SPEAKER_02]: PepsiCo represents 59% of the revenue for distribution.
[SPEAKER_02]: And 45.5% of accounts are receivable.
[SPEAKER_02]: And so okay, at these prices, they have a lot of buy ratings, just because the price is falling off so much.
[SPEAKER_02]: It's only trading at 16.8 times.
[SPEAKER_02]: Price to four looking earnings.
[SPEAKER_02]: It's near a low of the past five years.
[SPEAKER_02]: It's only trading at six times book value.
[SPEAKER_02]: And you do have those acquisitions, a Lonnie News growing 100% year over year.
[SPEAKER_02]: That's solid monster.
[SPEAKER_02]: It has a significant discount to monster, which is the category leader, right?
[SPEAKER_02]: Which is 24 times earnings.
[SPEAKER_02]: But there's not a lot of growth in their core Celsius brand, Rockstar is declining.
[SPEAKER_02]: That revenue concentration.
[SPEAKER_02]: It's a,
[SPEAKER_02]: It is a transformed, multi-brand energy drink company with these acquisitions.
[SPEAKER_02]: It's at a cheap valuation.
[SPEAKER_02]: But this lack of growth on the top line or lack of explosive growth on the top line.
[SPEAKER_02]: And decline in some of their businesses, just tells me that it's possible that the bottom is not in yet.
[SPEAKER_02]: And so you'll get another read in the middle of August,
[SPEAKER_02]: I wouldn't bet on this thing, moving much to the upside that it's CLH, Celsius, holdings, ink, face to the call.
[SPEAKER_02]: You know, why don't we play another listener question from A to D, 99 chart?
[SPEAKER_03]: Hi, there.
[SPEAKER_03]: On to me.
[SPEAKER_03]: Thank you for all that you do.
[SPEAKER_03]: I'm trying to look for more picks and shovels play for the AI I'm right now.
[SPEAKER_03]: Certainly, I have VRT.
[SPEAKER_03]: And I know it's getting a little expensive for me to kind of add on to it.
[SPEAKER_03]: is what are the other competitors are up and coming to hopefully take the market share.
[SPEAKER_03]: I asked Jim and I
[SPEAKER_03]: an AI, what other competitors would be from BRT, and they mentioned Modine, M, O, D, and Eden Corporation, E, T, N. So just don't need anything on BRT.
[SPEAKER_03]: I'm just looking to see just am I on the right path for these picks and shovels?
[SPEAKER_03]: And that's right now like what do you think would be kind of a good thing to do more fundamental analysis between those two stocks,
[SPEAKER_02]: always good to try and play something like AI through what is frequently the less volatile picks and shovels names.
[SPEAKER_02]: And so let's take a look at these because they are potentially too good picks and shovel picks, if you will, but they are very different risk profiles.
[SPEAKER_02]: So
[SPEAKER_02]: And so what Modeen manufacturing does is they are a thermal management and cooling solutions company.
[SPEAKER_02]: So they shellers and air handlers and liquid cooling for data centers.
[SPEAKER_02]: They transform from an old school auto parts thermal company into what has become an AI infrastructure play.
[SPEAKER_02]: The goal case for them is NetSales is up significantly 31% year over your data centers sales are up to 78% their record or they have a record order book with five years of visibility.
[SPEAKER_02]: They are targeting two billion in data center revenue by fiscal year 2028.
[SPEAKER_02]: I mean, you literally cannot run a data center without cooling.
[SPEAKER_02]: This is as picks and shovels as it gets.
[SPEAKER_02]: Now there's a TNT corporation that is a power management, so think
[SPEAKER_02]: circuit protection, power distribution, back up power for data centers.
[SPEAKER_02]: This is kind of a grid to chip infrastructure company, everything between the power grid and the server rack.
[SPEAKER_02]: For them, they have seen data center orders surge 240% in Q1.
[SPEAKER_02]: Data center revenue is up 50%.
[SPEAKER_02]: as well.
[SPEAKER_02]: They are investing 30 million in a new manufacturing facility.
[SPEAKER_02]: But it's still trading at a premium multiple for an industry competitor.
[SPEAKER_02]: They have some headwinds in their vehicle and immobility segments or their legacy businesses which are dragging, which aren't really their avenues for growth.
[SPEAKER_02]: Anyway, but it's certainly worth noting.
[SPEAKER_02]: And if AI didn't set or build out slows, I mean the growth narrative weakens and that's
[SPEAKER_02]: companies.
[SPEAKER_02]: And so the bottom line is I think that between these two ETN is probably the safer more institutional quality pick.
[SPEAKER_02]: It has a diversified revenue base, it has a reasonable valuation, dividend, massive scale, partnership within video.
[SPEAKER_02]: It's kind of one of those core AI infrastructure.
[SPEAKER_02]: Holdings were as MOD is kind of the higher beta higher wordplay.
[SPEAKER_02]: It's a pure AI data center
[SPEAKER_02]: It's high.
[SPEAKER_02]: Let's see what their current valuation was sitting at today.
[SPEAKER_02]: Let's pull that one back up as my computer slowly loads.
[SPEAKER_02]: 33 times price for looking earnings.
[SPEAKER_02]: I mean, that's near the high of where it's been over the past five years.
[SPEAKER_02]: Lower volatility in the T&E probably sleep better at night for tactical trades, MOT probably has a bit more torque.
[SPEAKER_02]: I like both of these aims to be honest, MOT may be a little bit expensive for me, but we're noting MOT their earnings coming on May 26, so generally the rule of not entering a position into a name because you're paying a volatility premium applies to MOT.
[SPEAKER_02]: thanks to the call.
[SPEAKER_02]: Looks like we had a live call.
[SPEAKER_02]: Thanks Eugene for holding on while I was blabbering away on these two names.
[SPEAKER_02]: I think you got a question about IBM.
[SPEAKER_02]: How can I help you?
[SPEAKER_07]: Hi.
[SPEAKER_07]: Thanks so much for their opportunity.
[SPEAKER_07]: I just wanted to get a sense of stock IBM.
[SPEAKER_07]: It's been trading towards the low end of its 50 to 20 weeks.
[SPEAKER_07]: And I just wanted to see what should thought about it and whether this could be a good entry point.
[SPEAKER_02]: Sure, IBM is the international business machine corporation.
[SPEAKER_02]: It is a technology behemoth.
[SPEAKER_02]: It's got a long history.
[SPEAKER_02]: It's a $200 billion market cap company with very little debt relative to their size, only about $57 billion in debt.
[SPEAKER_02]: So they operate through software.
[SPEAKER_02]: So think, uh,
[SPEAKER_02]: Watson XAI on a mission, it's about 45% of the revenue, they've got a consulting business, which is about 30% of the revenue.
[SPEAKER_02]: Then they've got their infrastructure, so they're cloud business, that that's about another 20% of the revenue.
[SPEAKER_02]: And they've been trying to pivot from this legacy IT name to an AI first hybrid cloud platform.
[SPEAKER_02]: And so how's that been going?
[SPEAKER_02]: Well, they recently reported earnings in April, April 22nd to be exact.
[SPEAKER_02]: And they saw revenue up about 9% year over year, that beat, it saw adjusted earnings per share up 19% year over year, that beat by about 5% margins expanded by about 100 basis points.
[SPEAKER_02]: That's gross margin.
[SPEAKER_02]: You saw operating margin expanded by about 140 free cash flow, get 2.2 billion, that's up 300 million year over year, that's the highest they've seen in decades.
[SPEAKER_02]: So things are starting to actually go, well, they're seeing growth across the board.
[SPEAKER_02]: They saw about free cash flow growth of 1 billion year over year.
[SPEAKER_02]: They had a quarterly dividend raise of 169 per share.
[SPEAKER_02]: But in spite of all of this, you're down about 24% over the past 52 weeks.
[SPEAKER_02]: And so, um, I'm sorry, you did a date.
[SPEAKER_02]: And so the question is, why?
[SPEAKER_02]: Well, consulting revenue is growing slowly.
[SPEAKER_02]: It is the highest margin segment in its stalling.
[SPEAKER_02]: They are seeing, uh,
[SPEAKER_02]: Partnerships with businesses like Oracle, Microsoft, table off a bit.
[SPEAKER_02]: I think it could be because of its Genie Eyebook growth.
[SPEAKER_02]: And then they're seen about seven billion in growth there.
[SPEAKER_02]: It could be,
[SPEAKER_02]: certainly one of the most undervalued names in the space and means trading the lowest valuation it has in the past five years right at thirty thirty five percent off its 52 week high it's just fifteen times price to forward looking earnings are still a 3.1 percent dividend yield and they have
[SPEAKER_02]: Solid growth in their GNI book.
[SPEAKER_02]: AIM on aization is kind of real here, right?
[SPEAKER_02]: IBM's hybrid cloud mode, it's defensible, it's a bit compelling.
[SPEAKER_02]: This could be a value entry here, but understand that it's been on a bit of a downtrend for the past couple of months.
[SPEAKER_02]: There's been a bit of momentum deterioration.
[SPEAKER_02]: And tell you, see some sort of structural move upward.
[SPEAKER_02]: I probably wouldn't enter here, but the valuation certainly is attractive.
[SPEAKER_02]: That is IBM International Business Machine Corporation.
[SPEAKER_02]: Thanks for the call.
[SPEAKER_02]: Now the Senate confirmed Kevin Warsh is the 11th Federal Reserve Chair in the modern air on Wednesday in a 5445 vote that was the closest and most divisive confirmation for a Fed Chair ever.
[SPEAKER_02]: Worsh's evolution on Fed independence is the key thing investors need to understand and the Wall Street Journal reviewed nearly 150 of his speeches of his testimonies, his media appearances over the past 20 years, and it's been an interesting trajectory.
[SPEAKER_02]: Kevin Worsh was on the Fed board from 06 to 11.
[SPEAKER_02]: He was the inside skeptic worried that bond buying programs and balance sheet expansion were going too far that the Fed was becoming an instrument of politicians and that the institutional credibility was the most valuable asset the central bank possessed.
[SPEAKER_02]: After he resigned in 2011, he continued pressing similar arguments from the outside, but was sharper language.
[SPEAKER_02]: He criticized the Fed for being too tolerant of inflation near 3%, called that dangerous stuff and argued the central bank needed to stay focused on.
[SPEAKER_02]: But by 2025, the tone shifted.
[SPEAKER_02]: We're started attributing inflation progress to the president's policies rather than the Fed's actions.
[SPEAKER_02]: He described Trump's frustration with the Fed as understandable.
[SPEAKER_02]: He told politicians complaining about mean treatment from politicians to grow up and beat tough.
[SPEAKER_02]: In October of 25, he said the Fed was working at cross purposes with the president.
[SPEAKER_02]: He called for regime change at the Fed in a CNBC interview.
[SPEAKER_02]: And his confirmation hearing in April, washed walk to a careful line.
[SPEAKER_02]: He said Trump had never asked him to predetermined rate decisions, and that he wouldn't agree if he pressed.
[SPEAKER_02]: He stated Fed independence means everything to me, but he also said independence has to be earned, and hasn't been earned because the Fed hasn't delivered on its promises.
[SPEAKER_02]: He described independence as being at its peak in the operational conduct of monetary policy, a narrow redefinition that leaves room for White House coordination on international finance and other measures.
[SPEAKER_02]: Now, Worsh,
[SPEAKER_02]: plans to tighten the Fed's coordination with Treasury and the administration on non-monetary policy.
[SPEAKER_02]: He wants a smaller balance sheet, which he argues should allow for a lower policy rate.
[SPEAKER_02]: He's replacing Stephen Moran, who dissent in from every FOMC vote calling for larger cuts when the Fed cut and calling for cuts when the Fed held.
[SPEAKER_02]: For investors, three things matter practically.
[SPEAKER_02]: First,
[SPEAKER_02]: CPI's at 3.8, oil is near 100.
[SPEAKER_02]: Consumer sentiment is at record lows.
[SPEAKER_02]: The labor market is in zero growth equilibrium.
[SPEAKER_02]: Rate cuts with the one thing worse in Trump clearly want, but inflation data makes them nearly impossible to justify.
[SPEAKER_02]: Markets are pricing less than a 5% chance of a cut this year and about a 1 in 3 chance of a hike by December.
[SPEAKER_02]: Second.
[SPEAKER_02]: He's one vote out of 12 on the FOMC.
[SPEAKER_02]: Powell is staying on his governor and will continue to vote.
[SPEAKER_02]: Other committee members have been hawkish on inflation.
[SPEAKER_02]: Worst can set the tone.
[SPEAKER_02]: He can shape the communication.
[SPEAKER_02]: He can influence the debate.
[SPEAKER_02]: But it can't, you know, land really cut rates against a committee that sees inflation as the primary risk and the right.
[SPEAKER_02]: The third, the independent's question.
[SPEAKER_02]: It's going to be tested in real time.
[SPEAKER_02]: The president publicly demands rate cuts while washholds.
[SPEAKER_02]: If Worsh cuts, despite elevated inflation and a wave that looks politically motivated, the bond market will punish it immediately to higher long-term yields.
[SPEAKER_02]: Markets watching, Worsh knows the market is watching.
[SPEAKER_02]: How he handles that scrutiny, and the June meeting will set the tone for his entire tenure.
[SPEAKER_02]: This is Investalk.
[SPEAKER_02]: I'm Guerrero and we have one goal here that's to help you achieve your financial freedom.
[SPEAKER_02]: Our work continues after this break and is our final break, so get your questions in now and 8-8-99 chart.
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[SPEAKER_00]: I wanted to pick your ring about Apple.
[SPEAKER_00]: What did you think about their earnings call?
[SPEAKER_00]: It's just a good time to add to my position.
[SPEAKER_01]: Call in Vestock.
[SPEAKER_01]: 888-99 chart.
[SPEAKER_06]: investor is working to build a secure financial future.
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[SPEAKER_02]: Well, the US has been consumed by the Iran War and inflation debate.
[SPEAKER_02]: China has quietly, excuse me, quietly entered with the economist is calling the third era of the Internet.
[SPEAKER_02]: Already more than 600 million Chinese users are thought to have used some form of agentic AI app.
[SPEAKER_02]: Applications that don't just answer questions, but actively perform tasks ordering products, booking services, making purchasing decisions on your behalf.
[SPEAKER_02]: On May 11th, Ali Baba announced it had fully integrated Q&A its chatbot with TaoBound, which is its shopping platform.
[SPEAKER_02]: With a few commands, the AI can now procure products and services for users end-to-end.
[SPEAKER_02]: By-dance is preparing a similar integration between DonBound, its chatbot.
[SPEAKER_02]: And do a hint, its short video and shopping app.
[SPEAKER_02]: Tencent is slowly integrating a new model called HY3 with WeChat, its ubiquitous, messaging and payment platform that has millions of business mini programs that could be woven together with AI.
[SPEAKER_02]: Now, the significance for investors is that this represents a completely different AM on aization model than what's developing in the US.
[SPEAKER_02]: In America, the AI bill that has been infrastructure first.
[SPEAKER_02]: Nvidia sells GPUs, hyper-scaly cell compute companies like inthropic deploy models,
[SPEAKER_02]: In China, the buildout is consumer first, embedding AI agents directly into the apps that 600 million people already use for shopping, already use for communication for payments, and for entertainment.
[SPEAKER_02]: In China's tech giants are uniquely positioned because they already operate super apps that combine commerce, messaging, entertainment, and payment into a single platform.
[SPEAKER_02]: When you integrate an AI agent into that ecosystem, the AI doesn't need to acquire users.
[SPEAKER_02]: Alibaba has, Taobao, by dance has Duhin, Tencent has WeChat.
[SPEAKER_02]: The question is whether consumers will adopt AI shopping agents 600 million already have.
[SPEAKER_02]: The question is which platform becomes the dominant gateway?
[SPEAKER_02]: Now, a competitive dynamics are fierce.
[SPEAKER_02]: Tencent's Ponyma warned that a land grab for AI services is coming.
[SPEAKER_02]: Device makers are entering the race too.
[SPEAKER_02]: One announced AI models embedded in their smartphones and electric vehicles.
[SPEAKER_02]: Huawei could muscle in through its smartphones and EV software.
[SPEAKER_02]: Auto executives believe many young Chinese will access a gigantic AI through voice conversations with their cars, not through their phone apps.
[SPEAKER_02]: The business model challenge is real, most chapauts in China are free.
[SPEAKER_02]: By dance, launched a paid tier, but competition is so intense that charging for services seems unlikely soon.
[SPEAKER_02]: In private, tech giants say they're AI agents don't recommend products based on ad spending, but to make these profitable eventually, they probably will.
[SPEAKER_02]: Alleybubbus, Chinese eat commerce operating profit was down 40% you over year in Q1.
[SPEAKER_02]: And while Cloud revenue from AI infrastructure is booming, it requires enormous capital investment.
[SPEAKER_02]: There's also a defensive motivation.
[SPEAKER_02]: Some of the industry worry that an AI power device with a gented capabilities built into its operating system could displace existing super apps entirely.
[SPEAKER_02]: Open AI is reportedly work at it working on such a device.
[SPEAKER_02]: By-dance tried with a ZTE smartphone pre-loaded with an AI system, but it flopped partly because Ali Baba and Tencent blocked it from using their payment platforms.
[SPEAKER_02]: For U.S. investors, this matters because China's AI race is developing a consumer adoption curve that is years ahead of the U.S.
[SPEAKER_02]: While American companies are still debating enterprise AI deployment and building infrastructure 600 million Chinese consumers are already using AI to make purchasing decisions.
[SPEAKER_02]: The companies that win this race, whether Ali Baba, Bite Dance, Tencent, or a device maker,
[SPEAKER_02]: will have built the commercially operating system for the world's second largest economy.
[SPEAKER_02]: That's either an enormous investment opportunity or an enormous competitive threat to US tech companies, depending on how you're positioned.
[SPEAKER_02]: Well, folks, that does it for another episode of Invest Hawk, Justin and I, and the team, thank you for listening and I encourage you to tell your friends and family members about our free podcast downloads.
[SPEAKER_02]: As always, you can find those that iTunes or Spotify and while you're at it, you can really appreciate it if you left us a rate and review.
[SPEAKER_02]: Also, if you haven't yet checked it out, head over to YouTube, type in Invest Hawk with two T's and check out our
[SPEAKER_02]: Good news, we also posted our latest at Welp Webinar to our YouTube channel, the topic was inflation, and you can watch it for free.
[SPEAKER_02]: Lastly, if anything today made you think about your financial future, your positions, your investments, whether or not it's all working to you and is all optimized for your goals.
[SPEAKER_02]: If that came to mind, head over to www.investalk.com and schedule a portfolio review, just in a nice speak with investors such as yourself, each and every day.
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