[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, Justin Klein.
[SPEAKER_03]: Good afternoon fellow investors, and welcome back to another edition of Best Talk.
[SPEAKER_03]: We are now into the back half of the year, it's crazy, right?
[SPEAKER_03]: The second quarter is behind us, that means the first half is behind us.
[SPEAKER_03]: But a lot to unpack during this hour with you, our job is to give you data and perspective and today is a special day in the fact that we're able to look back in the first half.
[SPEAKER_03]: And start to think about what the second half might have in store and usually you start to see some trends.
[SPEAKER_03]: Begin in the second quarter that kind of
[SPEAKER_03]: propels us into the back half of the year.
[SPEAKER_03]: We're going to look at that in much much more on today's show and let me think all of you participated in our wealth webinar yesterday on income had a producing come what are the pitfalls of various income generation sources.
[SPEAKER_03]: if you want to read if you missed it you want to watch it again you can go over to our youtube channel it is up over there so make sure you go check that out now just a bit we'll talk about today's mark performance and run down the show topics but as usual we'll tackle this first call a question now hello and welcome to try to reach out to you guys about
[SPEAKER_08]: This is a stock that I've held, but it's done very, very well.
[SPEAKER_08]: Do I need to trim my position?
[SPEAKER_08]: Do you think I should buy some more?
[SPEAKER_08]: I was in for your answer.
[SPEAKER_08]: I hope you have a good evening, Frank.
[SPEAKER_03]: Well, we can't clean harbors, they're engaged in environmental energy industrial services.
[SPEAKER_03]: As you would imagine, in this world where a lot of money is going into add-outs centers, their businesses benefited, especially those environmental services, those industrial services, et cetera, they do that they work with landfills, they have treatment, services, storage, and disposal facilities, wastewater treatment facilities, and solvent recycling centers as well.
[SPEAKER_03]: So, a $16 billion market cap, it has been on a nice run
[SPEAKER_03]: because earnings are growing and they're expected to grow 18% this year, 10% next year to $9.49.
[SPEAKER_03]: Since, however, the $290 stocks, so based on forward-looking earnings, you're talking about over 30 times forward-looking multiple, which is kind of on the expensive side.
[SPEAKER_03]: Now if you're looking at an enterprise value, even if that's in about the 15 range, 14 range, should we say, forward-looking, which is on the highest side.
[SPEAKER_03]: Zoom out here.
[SPEAKER_03]: Yeah, that's when you started a broader pullback from about 260 all the way down to 1983.
[SPEAKER_03]: When I will say it's technically, it looks like it's probably the beginning of a broader correction.
[SPEAKER_03]: There's that at reason to sell it, if you're a long term holder, no, not necessarily because this correction may be something similar.
[SPEAKER_03]: Where it goes from going from 270 all the way on under 180, you know, that was about a 30% correction.
[SPEAKER_03]: It doesn't feel great, but obviously it worked its way higher.
[SPEAKER_03]: It's a very good business with a strong balance sheet, which are inequity around 14 and a half percent, not amazing, but very solid, very consistent.
[SPEAKER_03]: It's taking that cash flow about 400 million per share, and they're buying back shares.
[SPEAKER_03]: So they're doing smart things with that cash flow.
[SPEAKER_03]: They don't pay a dividend, but their dividend's kind of that share, buy back.
[SPEAKER_03]: So I like the business.
[SPEAKER_03]: It wouldn't be a time for me to pick up more.
[SPEAKER_03]: I would wait until about the 250 range.
[SPEAKER_03]: The 290 now, I think it probably works its way down there over the coming 12 months.
[SPEAKER_03]: Maybe not, but the technicals are telling me that.
[SPEAKER_03]: And so are the valuation.
[SPEAKER_03]: So I'd be very patient on it.
[SPEAKER_03]: I would be a long term holder because I like the business, but I wouldn't be adding to it until you get to 250.
[SPEAKER_03]: thanks for the call.
[SPEAKER_03]: Now at a great show yesterday, we looked into a story about a teaching moment and how Wall Street targets are built, why they move, and how little they should drive your decisions.
[SPEAKER_03]: Luke got into that and it was a great show.
[SPEAKER_03]: If you answer, we also answered he also answered questions on EQT corporation and is a natural gas.
[SPEAKER_03]: I think it's a natural gas
[SPEAKER_03]: That was submitted via our YouTube channel.
[SPEAKER_03]: And if you happen to miss it, go check it out.
[SPEAKER_03]: The best way to get every show is to follow and best talk wherever you get your podcast.
[SPEAKER_03]: Now, we have a lot of ground to cover.
[SPEAKER_03]: Today, over the next 45 minutes and time permitting, we'll get to all of it.
[SPEAKER_03]: Our main focus point is reviewing the first half of the year.
[SPEAKER_03]: What were the expectations going into, 2026?
[SPEAKER_03]: and how did they, how did the first half live up to the hype, shall we say?
[SPEAKER_03]: What shifted throughout those first two quarters?
[SPEAKER_03]: And what does that mean for the back half of the year?
[SPEAKER_03]: What does that mean for setting up back half positioning?
[SPEAKER_03]: And you are portfolio.
[SPEAKER_03]: So we'll dig into that.
[SPEAKER_03]: Then I want to touch on the streaming wars and cable cutting, what this means for you the viewer, but also the companies within the space, how profitable
[SPEAKER_03]: Well, they continue to be over time.
[SPEAKER_02]: We have another topic.
[SPEAKER_02]: I haven't read it.
[SPEAKER_03]: I mean, where is it?
[SPEAKER_03]: I'll find it.
[SPEAKER_03]: Don't have an in front of me actually.
[SPEAKER_03]: I'll find it, but we have more to talk about.
[SPEAKER_03]: Oh, yes, that sort of was AI exuberance report from the BIS, so we'll dig into that story as well
[SPEAKER_03]: Most importantly, there will be your calls.
[SPEAKER_03]: We have voice bank calls, one is on index performance, as well as the Vanguard Information Technology Index BGT ETF.
[SPEAKER_03]: And then we have some questions that came in via the comment section over on the Avastoc YouTube channel.
[SPEAKER_03]: As always, so we're going to take a quick break, however.
[SPEAKER_03]: Please remember you can call any time.
[SPEAKER_03]: Leave your question on the Avastoc Boyspank.
[SPEAKER_03]: And if you're listening via our live stream, or possibly an AM1220 in the Bay Area, you can call right now 8-889 chart up next of a comment on today's market activity.
[SPEAKER_06]: Millions of downloads have proved there's value in every invest talk podcast.
[SPEAKER_06]: Call anytime 24-7.
[SPEAKER_06]: Invest talk.
[SPEAKER_06]: 888-99 chart.
[SPEAKER_03]: It hit 99 chart.
[SPEAKER_03]: It hit 99, 2, 4, 2, 7, it's like a through-nastered question.
[SPEAKER_03]: On today's show, let's take a look at the markets.
[SPEAKER_03]: It was a bit of a down day.
[SPEAKER_03]: Nasdaq was down two thirds of 1% S&P, about a quarter of 1% the negative and Dow was flat.
[SPEAKER_03]: I really reflected some downside moves in the semi-conductor space overall.
[SPEAKER_03]: That was really what was dragging down the performance.
[SPEAKER_03]: You had names like
[SPEAKER_03]: AMD down 6.9% until down 9% micron down 10 and a half percent.
[SPEAKER_03]: names like Kaley Tencore, Sandis, aim at our private materials, land research all down around 10% as well.
[SPEAKER_03]: So that was really the big drag, a lot of maybe some worries around the sustainability of their earnings growth going forward.
[SPEAKER_03]: Part of this was Apple applying for an exemption to buy memory from a bit of a Chinese supplier that's been banned
[SPEAKER_03]: These hardware makers are looking for ways to get around these extremely high prices of the inputs that are going into devices that are not AI data centers.
[SPEAKER_03]: Because the AI data centers are sucking up all of the supply.
[SPEAKER_03]: And so that's what's set that industry back over all and set the market back in general.
[SPEAKER_03]: That was the big winner as that looks like they are shifting to supplying compute to the rest of the industry as opposed to simply building out compute for themselves and running their own.
[SPEAKER_03]: And models mainly because their models are behind.
[SPEAKER_03]: the big players.
[SPEAKER_03]: So the market liked that.
[SPEAKER_03]: That was up like I said 8.8% on the day.
[SPEAKER_03]: So very interesting.
[SPEAKER_03]: Mixed back financials were strong.
[SPEAKER_03]: However, you also had some strength out of the software space.
[SPEAKER_03]: So an area that had been struggling and starting to turn around.
[SPEAKER_03]: I have been saying for a little while now, this looks like a good risk versus reward within the software space for a lot of names now.
[SPEAKER_03]: long term that certain some of those names will be big losers, but in the short term, you're getting a bit of a counter trend balance.
[SPEAKER_03]: And the economic front, ISM manufacturing was down a bit from May from 54 to 53.3, but still near a to your high order, new orders took down from 56.8 to 56.
[SPEAKER_03]: Employment increased, though, from 48.6 to 49.7.
[SPEAKER_03]: So you kind of have more of a neutral,
[SPEAKER_03]: employment picture coming out of the manufacturing sector and that fed into the ADP report of 98,000 jobs produced private sector jobs produced in June.
[SPEAKER_03]: That's down from 120,000 in May below consensus of 110 to 120.
[SPEAKER_03]: We will have the jobs number that comes out tomorrow, a day early, so that certainly will be a big market.
[SPEAKER_03]: mover of released at 8.30 a.m. Eastern time.
[SPEAKER_03]: The street is looking for about 115,000 jobs for the month of June, which would be a step down from May's big number at 170,000.
[SPEAKER_03]: The expectation is for unemployment to rate to stay steady at about 4.3 an hour of the earnings to increase the value of about 0.3%.
[SPEAKER_03]: so we'll see how the market reacts to that tomorrow.
[SPEAKER_03]: We also had some earnings at a names like Nike.
[SPEAKER_03]: Nike had relatively disappointing earnings but it was up on the day and then it usually is a fairly good sign so we could be finding a bottom in Nike.
[SPEAKER_03]: potentially.
[SPEAKER_03]: So we'll keep an eye on that.
[SPEAKER_03]: Treasuries were a bit weaker with yields up to four basis points across the curve.
[SPEAKER_03]: But most importantly, the 10 and 30 years were up eight basis points.
[SPEAKER_03]: So that's the yield.
[SPEAKER_03]: That's the yield.
[SPEAKER_03]: The curve steepening, overall, and could be weighing on equities going forward if those longer dated bond yields continue to rise, which they have been for a number of months now.
[SPEAKER_03]: Dollar next is up.
[SPEAKER_03]: 2% gold finished up 1.1 silver up 1% on the day, Bitcoin reversed.
[SPEAKER_03]: Now 2.5% back above 60,000, so a bit of a shrink there as it was
[SPEAKER_03]: threatening to break well below that 60,000 mark still certainly can but got a bit of a reversal today and WTI was down 1.3% on the day.
[SPEAKER_03]: So that was the market for the first trading day of the second half of 2026.
[SPEAKER_03]: Let's go answer a YouTube comment question.
[SPEAKER_03]: Dan Max says, hey guys, love a show.
[SPEAKER_03]: I've been holding 20 Microsoft shares since 2021.
[SPEAKER_03]: It's only returned about 13% profit.
[SPEAKER_03]: You think it's worth?
[SPEAKER_03]: It's a keep holding, sell some, or sell all.
[SPEAKER_03]: This is always the difficult thing when we ask anybody asked a single stock question.
[SPEAKER_03]: A lot of it's what other exposure do you have?
[SPEAKER_03]: what's the waiting, et cetera.
[SPEAKER_03]: So it, I always want to give you that caveat because in a vacuum, the answer could change.
[SPEAKER_03]: Especially with large cap names because they're large cap, they're big mega caps for a reason, they have usually good businesses.
[SPEAKER_03]: But overall, software has been taken to the wood shed.
[SPEAKER_03]: Near-term, I would say this is not a time to be selling Microsoft, at least aggressively.
[SPEAKER_03]: Because I do think there's some upside,
[SPEAKER_03]: In the short term, because the software names look to be bottoming, so I would be cognizant of that.
[SPEAKER_03]: I would be more up to buy more here as opposed to sell it, so just to heads up there on Microsoft.
[SPEAKER_03]: Still a good business.
[SPEAKER_03]: There's some long-term risk to it, mainly I think the CapEx build out that I think have gone a bit too far and the fact that their free cash flow is now turning south.
[SPEAKER_03]: that have a ability to take cash flow by down debt, buyback shares, et cetera.
[SPEAKER_03]: And Microsoft's free cash flow has just simply desoligated because of this cap expanse.
[SPEAKER_03]: So I still worry a bit about Microsoft long-term, but near-term, I think there's more upside for Microsoft as the software space takes a turn for the better.
[SPEAKER_03]: Now, our 24-hour and best talk, voice bank never closes so you can leave your finance and investment question anytime and 80 to 99 chart, and I'll work continues after this break.
[SPEAKER_06]: This is in Vest talk, now closing in on 63 million downloads, and Justin Klein is here taking your questions live.
[SPEAKER_06]: 88899 chart.
[SPEAKER_03]: Let's talk about the streaming industry, especially in light of the recent acquisition of
[SPEAKER_03]: after which the price of the stock fell about 25%.
[SPEAKER_03]: And then there's the paramount skydance merger of Warner Bros.
[SPEAKER_03]: Discovery.
[SPEAKER_03]: And since the 2025 highs, that stock is down about 50% as well.
[SPEAKER_03]: What the shows is that the industry is consolidating mainly because they need scale.
[SPEAKER_03]: Because the business is just not as strong as it was when selling people were cable subscribers.
[SPEAKER_03]: Today, there are about 62 million U.S. households with traditional cable TV subscriptions.
[SPEAKER_03]: A 3.5 million fewer than one year ago, so you can see kind of the melting ice cube at probably high single digits.
[SPEAKER_03]: per year, a decade ago, there was 36 million more.
[SPEAKER_03]: So you're talking about nearly a hundred million.
[SPEAKER_03]: So over a decade, we come from about a hundred million to about 62 million.
[SPEAKER_03]: So about drop by a third in a decade, probably drop another third in a decade as well.
[SPEAKER_03]: So the pie is shrinking.
[SPEAKER_03]: Streaming subscribers, generating less revenue and profit, then cable subscriber simple as that,
[SPEAKER_03]: We'll keep prices relatively low, switching costs is relatively low.
[SPEAKER_03]: It's just a matter of logging into your account and canceling or pausing.
[SPEAKER_03]: You're never really locked in long-term, like you used to be with TV member TV when you remember with cable, you used to move and they would offer you a promo discount to lock in for a year or two, but that's no longer the case.
[SPEAKER_03]: add depending on that original content or what you really want to watch.
[SPEAKER_03]: And that is why Paramounts is combined with HBO and Warner discovery just allow them to lump it all into one and keep their subscribers to hear.
[SPEAKER_03]: And so what we're in the midst of is a what is likely a new equilibrium of lower profit levels.
[SPEAKER_03]: And that is why when you're looking at this industry from an investment standpoint, you need to understand that debt is a big issue.
[SPEAKER_03]: And I think that's why these other companies are struggling from paramount to fox, et cetera.
[SPEAKER_03]: Because the market does not want to see these businesses take on so much debt.
[SPEAKER_03]: Because they know over time, they're just gonna be pressure on their margins.
[SPEAKER_03]: Yes, there's going to be ways for them to maybe make their content more efficiently, especially with AI.
[SPEAKER_03]: But people don't want that.
[SPEAKER_03]: People don't want to tune in for AI.
[SPEAKER_03]: So overall, it's still going to push the prices lower and the margins lower, because there's going to be so much demand on these companies to actually produce good content.
[SPEAKER_03]: So when you're looking at investing in the space, understand the reaction to these recent acquisitions and adjust your expectations for the business accordingly.
[SPEAKER_03]: Let's move back to a fresh listener question from A to 899 chart.
[SPEAKER_00]: Hey, I was looking to get some exposure to a good dividend stock.
[SPEAKER_00]: And I was thinking of the Campbells company, CPB ticker symbol.
[SPEAKER_00]: What are your thoughts on that company?
[SPEAKER_00]: And I'll be listening back.
[SPEAKER_03]: This is a great question.
[SPEAKER_03]: I'm not sure if you turned into the webinar yesterday.
[SPEAKER_03]: But this is the exact type of company.
[SPEAKER_03]: that we generally talked about as a eventual value trap.
[SPEAKER_03]: And there's a lot of these in the package food business and the consumer staples business.
[SPEAKER_03]: Businesses that took on a lot of debt maybe paid to hide dividends and didn't weren't smart about keeping their balance sheet right-sized for the cash flow for the earnings, et cetera.
[SPEAKER_03]: And over time, their debt level has grown, their cash flow has fallen, and yes, the dividend looks good.
[SPEAKER_03]: It's 6.6%, but if their debt continues to rise, that's going to become an issue.
[SPEAKER_03]: In 2023, their debt was 4.7 billion.
[SPEAKER_03]: Actually, that was the beginning of 2024.
[SPEAKER_03]: So you're talking now.
[SPEAKER_03]: two and a half years.
[SPEAKER_03]: It's gone from 4.7 to 6.4 billion.
[SPEAKER_03]: Not a giant move, but certainly in the wrong direction.
[SPEAKER_03]: Especially when you look at the Mark have only 7 billion.
[SPEAKER_03]: And if we cash flow of 683 million down from a high of nearly a billion dollars back in 2022.
[SPEAKER_03]: and 1.1 billion back in 2016.
[SPEAKER_03]: So it's been in a long downtrend when it comes to its free cash flow, but it's earnings as well, are expected to fall again.
[SPEAKER_03]: 20 cents at this year, and then 10% next year to $1.95, this is a melting ice cube.
[SPEAKER_03]: You do not want to buy this as a dividend stock now.
[SPEAKER_03]: It could have turned around in the short term.
[SPEAKER_03]: You're getting some strength right now.
[SPEAKER_03]: Short term, I think it's getting this counter-trend rally.
[SPEAKER_03]: But I don't like the long-term trends of the business.
[SPEAKER_03]: I don't like that debt.
[SPEAKER_03]: This is an exact type of value trap or dividend trap that you want to avoid.
[SPEAKER_03]: It's something we talked a lot about yesterday on the webinar.
[SPEAKER_03]: So go check that out over on YouTube.
[SPEAKER_03]: Now the next and best talk.
[SPEAKER_03]: We'll look into the story.
[SPEAKER_03]: The index fund trap, when they are also 2,000
[SPEAKER_03]: I just own the index means very different things depending on which index you're talking about.
[SPEAKER_03]: The story gives the chance to explain how Mark kept weighted indices are different.
[SPEAKER_03]: The story is for tomorrow, but I'm Justin Klein ready to take your calls now at 8 8.99 chart.
[SPEAKER_03]: at KPP Financial.
[SPEAKER_03]: Accountability means more than advice.
[SPEAKER_03]: It means we invest alongside you.
[SPEAKER_03]: Through our parallel investing approach, when we recommend an investment for clients, one or more KPP principles invest their own capital at the same time.
[SPEAKER_03]: same day, same price, same percentage.
[SPEAKER_03]: If your portfolio moves, ours does too.
[SPEAKER_03]: That is a alignment.
[SPEAKER_03]: That is transparency.
[SPEAKER_03]: That is the KPP difference.
[SPEAKER_03]: Visit investtalk.com to get your free portfolio review.
[SPEAKER_06]: There are a few things that make KPP financial special.
[SPEAKER_06]: One of them is parallel investing.
[SPEAKER_06]: This means they invest right alongside their clients.
[SPEAKER_06]: Here's how it works.
[SPEAKER_06]: When KPP financial makes a trade for their clients, just in line makes the same trade for himself and KPP.
[SPEAKER_06]: On the same day, at the same price, and same percentage.
[SPEAKER_06]: No front running, no special treatment.
[SPEAKER_06]: Learn more about parallel investing at investtalk.com.
[SPEAKER_03]: Our main focus point today is about the first half scoreboard.
[SPEAKER_03]: We're half a year into 2026.
[SPEAKER_03]: So let's talk about the performance at different asset classes.
[SPEAKER_03]: What was expected is we started the year and what that means for the back half of 2026.
[SPEAKER_03]: So let's look at some performance figures, the B-com.
[SPEAKER_03]: The Bloomberg commodity next up about 14 percent, especially led by oil price spikes in the first half of the year, large cap growth up 13.8 percent on the year.
[SPEAKER_03]: Large cap overall up about 10 percent, the S&P 500. International developed right about 5.2 percent on the air emerging markets only up 1.8 percent, really dragged down by China.
[SPEAKER_03]: Investments are getting bonds.
[SPEAKER_03]: We're down about 2.4 percent on aggregate
[SPEAKER_03]: certainly a time where the accelerating inflation figures are hurting the bond market overall and one of the reasons why we talked about taking more credit risk than duration risk.
[SPEAKER_03]: That negative
[SPEAKER_03]: performance was really driven by longer duration assets.
[SPEAKER_03]: Now, where were we going into the year?
[SPEAKER_03]: The prevailing narrative entering 2026 was that the Fed was going to stimulate.
[SPEAKER_03]: We're going to continue the continuation of the easing cycle.
[SPEAKER_03]: Jerome Powell started easing last year, paused, and then it was all about, okay, who's going to be the next Fed president?
[SPEAKER_03]: net, then we got Kevin Worsh, and as the year went on, especially post the Iran war, you saw inflation that was somewhat moderating, still kind of staying in that two and a half to three percent range.
[SPEAKER_03]: Instead of continuing that disinflationary kind of slow impulse,
[SPEAKER_03]: easing expectations turned into what is now an expectation of one to two rate hikes between now in your int.
[SPEAKER_03]: And that inflation is now sticky of well above three and in some instances registering now at about 4%.
[SPEAKER_03]: So with that backdrop, it's pretty surprising if you're honest that we're getting somewhere in the high single digit return so far in the first half of the year, depending on which indices they're index, excuse me, you're looking at.
[SPEAKER_03]: The top of the four sectors in the first half of the year were technology.
[SPEAKER_03]: about 31% to really was the main driver here.
[SPEAKER_03]: Reunication services up 22% materials up about six and a half percent.
[SPEAKER_03]: Utilities up 1.2.
[SPEAKER_03]: Healthcare though in consumer staples were down.
[SPEAKER_03]: But that top line number actually hides
[SPEAKER_03]: the rotation that started in the back half of Q2, where materials, financials, a lot of defensive sectors, like in super staples, in real estate, started to outperform, and especially the mag seven names were the big underperformers, and really the tech sector performances driven by a lot of those hardware names, the chip names, the memory producers, etc.
[SPEAKER_03]: But those are also starting to, as you saw today, starting to
[SPEAKER_03]: show a little bit more volatility, which usually when you're in a strong trend and you start to see volatility, they usually start at the trend changing.
[SPEAKER_03]: So that's the story as we're heading into the back half of the year that this capex cycle is going to broaden now, especially when it comes to the beneficiaries of the capex cycle, into things like infrastructure companies,
[SPEAKER_03]: They give them nuts and bolts, the picks and shovels of that industry.
[SPEAKER_03]: On top of that, with what's going on geopolitically, companies are starting to prioritize supply chain security and resilience over just the lowest cost, which is kind of a continuation of what we see in since COVID, where it isn't about just about just in time inventory and just in time inventory management, it's about resilience of your supply chains.
[SPEAKER_03]: especially in light of the closing of the street or removes.
[SPEAKER_03]: Companies are trying to find alternatives and when they can actually secure that alternative, raw materials, especially, or means a production, they're actually taking advantage of it despite the cost.
[SPEAKER_03]: And that's one of the reasons why industrials are doing better because they're now able to charge higher margins, or higher prices and extract higher margins from the products and services that they supply to the market.
[SPEAKER_03]: So those are some big trends that we are seeing as we head into the back half of the year.
[SPEAKER_03]: From a macro perspective, the economy remains relatively resilient.
[SPEAKER_03]: Ernings are strong.
[SPEAKER_03]: However, there's a lot of overcrowding within the momentum factor.
[SPEAKER_03]: So the businesses that have done very well, a lot of those increases in earnings in the near term,
[SPEAKER_03]: In industries like semiconductors like memory that historically are very cyclical, they can have very big boonets of bust cycles when it comes to their earnings.
[SPEAKER_03]: And then other companies have seen big valuation jumps because of their private investments in things like open AI or anthropic, etc.
[SPEAKER_03]: And those are also not very reputable.
[SPEAKER_03]: And a third pillar here is the tax cuts.
[SPEAKER_03]: that we're implemented this year, that are feeding into higher corporate profits because of lower tax bills, that will continue into next year, but it won't be a stair step in growth, right?
[SPEAKER_03]: So that's another factor that I think makes the current jump in a lot of earnings expectations, a little bit more flashing the pan as opposed to sustainable longer-term trends.
[SPEAKER_03]: Now, I think there are some of those,
[SPEAKER_03]: But in the near term, what you've seen is more around this flash than the pan factors, as opposed to long term secular tailwinds, which I think under pan a lot of what's going on in the industrial space, in the material space.
[SPEAKER_03]: And then you get into fed policy, which we've talked about them aggressively, maybe not aggressively, but starting to take in policy,
[SPEAKER_03]: In the back after the year, if that comes to fruition and do you think that could continue to bring multiples down across the market, but overall, economic growth remains relatively solid-wide, because businesses are banks, excuse me, are lending to businesses.
[SPEAKER_03]: A lot of this has to do with deregulation, rolling back some of the protections, the implemented post-financial crisis, that's a big factor that's opening up balance sheet capacity for
[SPEAKER_03]: something underappreciating the first half of the year, and I think another reason why financials are also joining the industrial and material sector as broadening out the breadth of this rally as we headed to the back half of Q2, back half of 2020, 26, excuse me.
[SPEAKER_03]: This is Vestock and our 24-7 invoice bank never closes, let's play another listener question now.
[SPEAKER_04]: Hi, Justin and Luke.
[SPEAKER_04]: Long, long time we'll certainly show you from the Midwest.
[SPEAKER_04]: I know the technology sector, memory, chips, and everything, has really been going sky high and doing great, but there's also a bit of volatility to it at times.
[SPEAKER_04]: I'm wondering if a solution or another good way to invest in these things and maybe limit
[SPEAKER_04]: LK, that considering doing this, I was wondering if either one of these two funds looked better to you guys if one was more of a thumbs up than the other or if you consider them both equal.
[SPEAKER_04]: Thanks for your help and advice.
[SPEAKER_04]: Have a good holiday.
[SPEAKER_03]: Thank you for the call and your continued patronage of the show.
[SPEAKER_03]: Appreciate that.
[SPEAKER_03]: What you said earlier is absolutely correct in a day like today where they experience a lot of
[SPEAKER_03]: VGT, for example, was down nearly 2% on the day.
[SPEAKER_03]: XLK was, let's see what that was, got about two and a half percent on the day.
[SPEAKER_03]: So what you can see is XLK is more tied to some of the hardware names, probably white underperform today, in such a material way.
[SPEAKER_03]: In video, VGT, they are very similar.
[SPEAKER_03]: A lot of the top same holdings,
[SPEAKER_03]: for VGT, the video Apple Microsoft Micron and Broadcom for Excel K. They're both very tied to the text base, the text base is starting to, once again, and we've said underperform.
[SPEAKER_03]: You're getting more names of VGT, there's 323 equity holdings versus Excel K, only 74, but Excel K and Excel K is more heavily tied to the top 10 holding 64% of this fund is in the top 10 holdings.
[SPEAKER_03]: That's a bit better with VGT, but it's still 61%.
[SPEAKER_03]: So you're very still concentrated in, in the second video, 17% of VGT, where it's also about 14% of Nvidia.
[SPEAKER_03]: Neither of these, I get excited about right now, because as I said, this is the area that is starting to lose its momentum.
[SPEAKER_03]: Yes, those hardware names are starting to do better, but their risk versus reward after the run is not what they used to be.
[SPEAKER_03]: And that's why I could said that the rally is broadening out.
[SPEAKER_03]: That's healthy for the broader market.
[SPEAKER_03]: But what you're doing is now moving into, if you are buying either one of these names, is moving into a sector that is starting to, that is overcrowded, positioning is starting to reverse and going into different parts of the market.
[SPEAKER_03]: So this is the exact opposite time you want to be adding to these names.
[SPEAKER_03]: In fact, you want to be selling these type of ETFs or these type of companies.
[SPEAKER_03]: And not saying completely.
[SPEAKER_03]: And we're not black and white.
[SPEAKER_03]: This is the time to trim.
[SPEAKER_03]: This is around a time to reduce your exposure to the space, not increase it.
[SPEAKER_03]: Thanks for the call.
[SPEAKER_03]: Let's squeeze in another YouTube comment question.
[SPEAKER_03]: Randy 23 says, we love to hear your thoughts on XM.
[SPEAKER_03]: TRXMTR.
[SPEAKER_03]: It's growing fast, expanding margins, and it's turning to free cash flow positive.
[SPEAKER_03]: You think it can outperform the market over the next five plus years, okay?
[SPEAKER_03]: Let's take a look at this, a small name only about a $5 billion market cap.
[SPEAKER_03]: Name is Exometry.
[SPEAKER_03]: And power marketplace, industrial sourcing platform, interesting.
[SPEAKER_03]: So we've cloud services, as use marketplaces, proprietary AI to help buyers efficiently source custom manufactured parts and assemblies and attain instead pricing in lead times, interesting.
[SPEAKER_03]: Interesting, one of those industrial applications for AI.
[SPEAKER_03]: I tend to, if I'm going to invest in it by the AI hype,
[SPEAKER_03]: applications of the technology that I kind of, with lean towards earnings.
[SPEAKER_03]: I've been negative consistently up until last year, within 38 cents and 71 cents this year and then a dog 25 next year.
[SPEAKER_03]: However, stock has had a pretty good run.
[SPEAKER_03]: Let's start.
[SPEAKER_03]: In April, it was trading around $36 per share.
[SPEAKER_03]: I don't see, let's see, yeah, I guess free cash flow quarterly has now turned positive.
[SPEAKER_03]: It was 4 million, only for the second time in their history, in the positive territory.
[SPEAKER_03]: This is a name I would keep on my watch list.
[SPEAKER_03]: They continue to issue more shares, I don't love that, and it's just a bit too expensive for my liking.
[SPEAKER_03]: That's where I think there's good risk versus reward.
[SPEAKER_03]: You know, I'll pay 40 times or something like that for this type of name, but not 90 times earnings.
[SPEAKER_03]: Okay, so keep on you watch this.
[SPEAKER_03]: Wait for more volatility and be buying on major dips because it'll have that.
[SPEAKER_03]: Let's put it back to another voicemail question down.
[SPEAKER_07]: Hi, I was going about an eyeing now.
[SPEAKER_07]: 100% on it.
[SPEAKER_07]: I wanted to know if I should sell it, keep it, or just, I'm more.
[SPEAKER_07]: Thank you for your help.
[SPEAKER_03]: Looking at iron, mountain, you double your money.
[SPEAKER_03]: This is definitely a time to trim a bit.
[SPEAKER_03]: I would imagine, and you've seen it over the past couple of days as well.
[SPEAKER_03]: This is sold off from a high, just a week ago, about $135 for sure.
[SPEAKER_03]: Now we're down at her 21.
[SPEAKER_03]: It broke below the lows in June.
[SPEAKER_03]: Today, the technicals are certainly reversing.
[SPEAKER_03]: And then the valuation.
[SPEAKER_03]: $2.60 expected in earnings next year of funds from operation.
[SPEAKER_03]: It's a reap revenue out there.
[SPEAKER_03]: which is too rich for my blood at $121 per share.
[SPEAKER_03]: So yes, I would be at the minimum trimming your position, potentially selling all of it, because I do think the valuation is way too high with the level of growth.
[SPEAKER_03]: We're growth is slowing this year and next year and so I would be once again trimming at the bare minimum.
[SPEAKER_03]: Thank you for the call.
[SPEAKER_03]: Now we're heading into our final breaks.
[SPEAKER_03]: So if you have a question for me, it's been awesome time to get it in.
[SPEAKER_03]: Just give us a call right now, eight, eight, nine, nine chart.
[SPEAKER_05]: Got a question for Justin or Luke?
[SPEAKER_05]: You're the best person to ask it.
[SPEAKER_02]: I wanted to pick your brain about Apple.
[SPEAKER_02]: What did you think about their earnings call?
[SPEAKER_02]: It's just a good time to add to my position.
[SPEAKER_05]: Call in Vestock, 888-99 chart.
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[SPEAKER_06]: How they get there, and when they get there, that depends on many factors.
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[SPEAKER_01]: was listening to a podcast from earlier this month in June.
[SPEAKER_01]: You mentioned that you believe that the indexes are not going to perform like we've seen moving forward.
[SPEAKER_01]: And I kind of wanted to just understand the rationale, the reasoning behind that.
[SPEAKER_01]: Is it because they're heavily weighted in tech?
[SPEAKER_01]: Is it because just a basic mathematical version to the mean?
[SPEAKER_01]: They've been so elevated the last several years that now we're going to get back to, they're going to kind of not follow
[SPEAKER_01]: And overall, we'll kind of see that nine, 12% whatever it is year over year.
[SPEAKER_01]: Just as wondering why you think the indexes won't perform as long as we've been forward.
[SPEAKER_01]: Thank you guys a lot.
[SPEAKER_01]: Thanks for all you do, let's see you guys every day on the way to work.
[SPEAKER_01]: So talk to you later now, bye.
[SPEAKER_03]: Well, I think there are a couple factors that are likely to cause the indices to probably disappoint
[SPEAKER_03]: Over the next 10 years, compared to the past 10 years, I think number one is more in a real basis.
[SPEAKER_03]: I think indexes will continue to go up outside of a major recession where there's major layoffs, because I think one of the big reasons why the indices and markets continue to go up is because people are best in a four or two ways and go to a targeted fund, that goes into the indices, et cetera, and there's a lot of flows there that are really, really resilient.
[SPEAKER_03]: is especially with unemployment rates so low.
[SPEAKER_03]: So I think that will be a continued factor.
[SPEAKER_03]: Now will the net flows shift as more boomers retire and start to pull money from the 401k, et cetera, that's certainly possible.
[SPEAKER_03]: But that's something I can continue to watch over the short-to-medium term to see, could the broader markets falter in some way, shape, or form?
[SPEAKER_03]: So there's data I'm watching, and then there's the inflation side.
[SPEAKER_03]: So like I said, I think those continue to go up, but if inflation now is averaging three, four percent, versus two percent before, but the indices perform the same, while you're net after inflation, real yield is going to be lower.
[SPEAKER_03]: So that's to me a big factor, and then there's that concentration risk where these mega caps have
[SPEAKER_03]: are so dominant within the the indices, I think what the top 10 or 40% of the S&P will that.
[SPEAKER_03]: Yeah, 36% of the S&P are just those top 10 holdings.
[SPEAKER_03]: And most of them are the hyperscalers, five of those 10 are Microsoft Amazon, Alphabet, meta.
[SPEAKER_03]: These are names that used to be very, very casual positive.
[SPEAKER_03]: They were taking that money.
[SPEAKER_03]: They were,
[SPEAKER_03]: applying them back into share issue or share buybacks.
[SPEAKER_03]: Then you got to top of that that once again, the flows from forum, okay, retirement investors going into these indices.
[SPEAKER_03]: And it just was a recipe for those stocks through really outperform.
[SPEAKER_03]: But as you've seen as a blade, they're starting to underperform because of the shift in dynamic of their business being very cash flow.
[SPEAKER_03]: uh... starts capex uh... intensive asset intensive as opposed to these low asset very high margin high cash flow businesses so i think that's a big shift in in that aspect and then there's obviously the valuation a lot of there's a lot of over valuation within the uh... the sector or that the indices uh... but depends on the sector and ultimately there's financial gravity that will likely set in at some point where
[SPEAKER_03]: There's just won't be, actually let me step back.
[SPEAKER_03]: We're got about this factor that I started to think about a little bit more recently.
[SPEAKER_03]: And that is the civil unrest or social unrest, shall we say.
[SPEAKER_03]: Where people are a little discouraged with what's going on with the broader economy and how to fix it.
[SPEAKER_03]: And I think the next bout of politician that will lead, right?
[SPEAKER_03]: Right now, right now we have a populist person on the right.
[SPEAKER_03]: That's strong.
[SPEAKER_03]: for better, for worse, whatever you think of him, that's what he, his rhetoric was, at least.
[SPEAKER_03]: In these areas, for turning to the areas, you're likely to ping pong back to a populous person on the left, that's how these things work.
[SPEAKER_03]: And that is a person that will probably try to raise.
[SPEAKER_03]: Taxes will be less focused on asset markets, become more truly populous by enacting more,
[SPEAKER_03]: new deal type of policies.
[SPEAKER_03]: I think that will be a also a shift in how market structures operate.
[SPEAKER_03]: So I know that was a long convoluted answer, but hopefully that gave you some perspective on how I think market's going through all the other things that came.
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