[SPEAKER_03]: This is Invest Talk, from KPP Financial, helping investors make sense of the markets one day at a time.
[SPEAKER_03]: Here's your host, Luke Guerrero.
[SPEAKER_01]: Good afternoon, fellow investors, and welcome to the Tuesday, July 21st, 2026 edition of Invest Talk.
[SPEAKER_01]: I'm your host Lugurron, I'll be with you over the next hour as we seek to educate you about the stories that matter.
[SPEAKER_01]: Give you actionable items to improve your portfolios and most importantly answer your finance and investment questions.
[SPEAKER_01]: To that end, before we talk about today's market performance and run down those show topics, let's tackle this color question now.
[SPEAKER_05]: I was wondering if you could go over the stock Western Union, WU, I always like to listen to the program.
[SPEAKER_05]: Thanks.
[SPEAKER_01]: Western Union is a global money transfer giant, they've been around for really quite some time at this point doing their thing.
[SPEAKER_01]: They first died P.O.
[SPEAKER_01]: back in 2006, but they've certainly been around a bit longer than
[SPEAKER_01]: And looking at the past six years of performance, it is not great.
[SPEAKER_01]: They have been negative every year.
[SPEAKER_01]: Their relative return at some points has been as high as 45 in terms of underperforming the index.
[SPEAKER_01]: Sometimes it's high 50, and underperforming their industry, their revenue is falling on an annualized basis going back to the past five years.
[SPEAKER_01]: It's projected to grow a little bit.
[SPEAKER_01]: This year, from $44 billion to $4.18 billion, and that's the first time they've seen growth at least in the past six years.
[SPEAKER_01]: Net income is down, 48%.
[SPEAKER_01]: You're over year in Q1.
[SPEAKER_01]: Revenue was flat year over year on a gap basis.
[SPEAKER_01]: I'm not really seeing much that I like here.
[SPEAKER_01]: Q&EPS miss via the differences in vendor incentives.
[SPEAKER_01]: They have effects losses that are mounting.
[SPEAKER_01]: It is a company that tends to benefit from seasonal travel money transfers.
[SPEAKER_01]: And that's been weak.
[SPEAKER_01]: I think the only positive I'm seeing is that they affirmed guidance in their most recent earnings, which was in mid-April.
[SPEAKER_01]: You know, I'm not really seeing much that I like I can guess you're interested in it because the dividend is 11% right now This is another example of not choosing to invest in a company because of its dividend because it's been
[SPEAKER_01]: At least 6.8% going back to 2022, but on a real return basis, that's not great.
[SPEAKER_01]: If you're losing 30% a year.
[SPEAKER_01]: So, it's a melting ice cube in a lot of ways.
[SPEAKER_01]: There isn't really any clear path towards strong performance.
[SPEAKER_01]: I mean, there is an acquisition that's closing in Q2 that might help them out with
[SPEAKER_01]: I'm not seeing anything structural that is likely to push this thing in a direction that makes me want to invest in it, even though it's now trading nearly as low as it has over the past five years.
[SPEAKER_01]: So Western Union, hard pass, thanks for the call.
[SPEAKER_01]: What a great show for you yesterday, we talked all about India and how they have been affected in multiple ways by an oil shock by issues with their currency.
[SPEAKER_01]: the rupee and its weakness and in spite of that, still believe they have a pretty strong position the U.S. trade deals.
[SPEAKER_01]: We talked about with that meant for emerging markets.
[SPEAKER_01]: And what a meant for your emerging market investments within your own portfolios.
[SPEAKER_01]: We also answered a listener question on a little known company called Nvidia to your NVDA.
[SPEAKER_01]: If you happen to miss it, I encourage you to check it out.
[SPEAKER_01]: And remember the best way to never miss an episode of Invest Talk is to subscribe wherever you get your podcasts.
[SPEAKER_01]: All right, on to today, where our main focus point is about whether or not mag seven earnings are going to continue to hold the market up because we have major earnings season kicking off for these mega cap tech names.
[SPEAKER_01]: and this obscure volatility measure is pointing to a potential breakout but the bar it's pretty high and geopolitical headwinds are creating an unusually uncertain backdrop.
[SPEAKER_01]: So how these earnings come in will likely determine whether the broader market can hold its current levels or whether we start to see a bit of a breakdown.
[SPEAKER_01]: Also got a couple more stories including one on the Permian Basin and how gas pools in the Permian Basin natural gas can't even get away right now.
[SPEAKER_01]: It's touched on the outlet to also touch on Trump imposing an additional 50% tariff on certain Canadian goods.
[SPEAKER_01]: And today of time at the end of the show, we'll touch on China.
[SPEAKER_01]: and how state-owned funds have been buying a lot of shares in order to float their market.
[SPEAKER_01]: We also have some voice bank calls rated play, including one on M core group, ticker eME, and another on meta platforms to your META.
[SPEAKER_01]: There's also some questions that came in from the comment section of the Invest Talk YouTube channel, and hopefully we'll hear from some of you live throughout the show.
[SPEAKER_01]: Be your head at a new quick break.
[SPEAKER_01]: Please remember you can call anytime and leave your questions on the Invest Talk Voice Bank.
[SPEAKER_01]: If you listen to your live stream or on AM-1220 in the Bay Area, I encourage you to pick up the phone and dial 88-99 chart.
[SPEAKER_01]: Recome back.
[SPEAKER_01]: We'll talk about today's market activity.
[SPEAKER_03]: It's official.
[SPEAKER_03]: Total lifetime downloads for the Invest Talk podcast are now more than 63 million.
[SPEAKER_03]: Luke Guerrero is here now, taking your calls live.
[SPEAKER_03]: Invest Talk, 888-99 chart.
[SPEAKER_01]: We finally got some positive movement in the market today after a couple down days.
[SPEAKER_01]: S&P up nearly 1% at 89 BIPs, Nasdaq, Rore and higher at 129, the Dow's up 74, Rosalty 1,000 small caps leading the way up 1.53% on the day.
[SPEAKER_01]: Memory did well.
[SPEAKER_01]: I mean you saw those AI infrastructure names moving higher again energy of course with continued deterioration in the Middle East you saw industrial metals do do pretty well.
[SPEAKER_01]: as well and then you saw those big banks come in with higher read expectations uh, expectedly doing well.
[SPEAKER_01]: The notable down area, uh, or the notable worst area I would say was probably software.
[SPEAKER_01]: We saw some broad weakness across software, um, you know, although the big banks did well regional banks, which we've talked about over and over again, they underperformed uh, on the day.
[SPEAKER_01]: But in spite of that, I mean, positive day.
[SPEAKER_01]: We like positive days.
[SPEAKER_01]: The bonsai treasuries, a bit weaker, you did see some flattening across the curve, yields were up about 2 to 5 basis points.
[SPEAKER_01]: The dollar was up 20 bit gold, finished up 1.6% silver up 3.6 and of course crude oil up 2.3% on the day.
[SPEAKER_01]: I mean, most of it was really just a bounce in momentum, right?
[SPEAKER_01]: There's no real
[SPEAKER_01]: news headline, a catalyst to play, that push those names, but the momentum names tended to do well today, and then, of course, you have this continued debate amongst market participants about whether this recent unwind and the spaces essentially run its course, and if that could
[SPEAKER_01]: Insatiable AI Compute CapEx flows that we've been seeing for the better part of two years.
[SPEAKER_01]: Is that going to happen?
[SPEAKER_01]: You know, sorry, geopolitics, of course, still important yet investors are for the most part, looking through it.
[SPEAKER_01]: And that's in spite of these ongoing spikes, in spite of the hoothies talking about blocking Saudi Arabia from exporting through a different waterway, and then tariffs, which we'll talk a little bit about later in the day, I would say those three things, pretty much the dominant part of market discussion on the day.
[SPEAKER_01]: Erdings calendar, a bit busier, nothing really sector-moving, I would say mostly, for the most part, company specific takeaways, nothing that really drove the overall market narrative.
[SPEAKER_01]: And in quite a week on the macro front, the only item on the calendar today was ADP's weekly report.
[SPEAKER_01]: You had a weekly pipe private payrolls gain at 16.5,000 over the last four weeks, rather the four weeks ending July 4th.
[SPEAKER_01]: So that is actually desaleration and growth rate even though that's positive.
[SPEAKER_01]: Looking ahead Thursday brings initial claims and then flash PMIs for July will be out on Friday along with a new home sales for the month of June.
[SPEAKER_01]: All right, we got a question from the YouTube comment section and it is DHR's down and it seems to be a good stock.
[SPEAKER_01]: What is a good entry point?
[SPEAKER_01]: How's it looked you guys?
[SPEAKER_01]: Well, let's take a look at DHR.
[SPEAKER_01]: And D.H.R.
[SPEAKER_01]: is Dan or her corporation.
[SPEAKER_01]: It's a medical devices company.
[SPEAKER_01]: So what they do is through a couple of their segments, life sciences, biotech, diagnostics, and now they're patent monitoring platform.
[SPEAKER_01]: They're essentially the, one of the back bones that drive innovation within the biotech space.
[SPEAKER_01]: Now for them, because a bunch of money has been being spent within that sector, it's been pretty good revenue was up to six or a 5.5% year over year, that beat in July was their most recent earnings actually, I think they reported.
[SPEAKER_01]: Maybe yesterday, and they reported today.
[SPEAKER_01]: Um, so earnings looked pretty solid just in earnings per share of beat as well.
[SPEAKER_01]: I'm actually interested to see what are they trading after hours because the stock was down 10.99% today.
[SPEAKER_01]: What are we trading right now?
[SPEAKER_01]: Down another 28 basis points in the after-hour session as well.
[SPEAKER_01]: And one of the reasons why is likely a bit of margin compression, though nothing really meaningful here.
[SPEAKER_01]: And
[SPEAKER_01]: Let's see, what about their debt levels?
[SPEAKER_01]: I mean, their debt levels are about 19 billion on $142 billion dollar market cap companies.
[SPEAKER_01]: Like, not much, not much there as well.
[SPEAKER_01]: They didn't like market, I think, doesn't like the long-term debt jumping from 18 to 25.
[SPEAKER_01]: I don't think that's unsustainable.
[SPEAKER_01]: You did have some segment growth being below expectations.
[SPEAKER_01]: You did have a bit of core revenue decline slightly,
[SPEAKER_01]: was trading in a pretty high multiple before today I mean even with his drop it's still trading at 22 times price to for looking earnings 22 times price to cash flow by pointing at times price to sales it's still a pretty pretty thick valuation at this point.
[SPEAKER_01]: I think that the beaten race is good.
[SPEAKER_01]: I know they're acquiring a smaller company.
[SPEAKER_01]: Markets tend to dislike that sometimes, because cash available to investors is no longer available to investors with acquisition.
[SPEAKER_01]: But overall, I think it is a solid company.
[SPEAKER_01]: I think it's a bit expensive right now for the growth that they're getting.
[SPEAKER_01]: And even though they're up, you're overyear, I mean, 5% revenue growth.
[SPEAKER_01]: on the top line, growth isn't that good.
[SPEAKER_01]: So, you know, I would kind of wait and see what's going on here.
[SPEAKER_01]: You'd a big breakdown after earnings around 21, 20% on an annualized basis.
[SPEAKER_01]: Even if I was looking to get in this name, not much good on the technical side on the momentum side that's telling me now is the time.
[SPEAKER_01]: So that is DHR, Dan or her corporation.
[SPEAKER_01]: Thanks for the call.
[SPEAKER_01]: All right, well, we got a great show for you today.
[SPEAKER_01]: And when we come back,
[SPEAKER_01]: We're going to talk about important stories that matter for you.
[SPEAKER_01]: And as always, we're going to answer your finance and investment questions.
[SPEAKER_01]: So we got plenty to play from the voicemail bank.
[SPEAKER_01]: We got those YouTube comment section questions, but my favorite ones are the ones where you call in life.
[SPEAKER_01]: This is Investock, or we're continues after this break.
[SPEAKER_01]: But I encourage you to pick up that phone now or really any time 24-7 and dial 888-99 chart.
[SPEAKER_03]: In the early days, in Vestock was Jerry Klein and Steve Peasley.
[SPEAKER_03]: Now the torch has been passed and a new generation of hosts is on the job, Justin Klein and Luke Guerrero.
[SPEAKER_03]: So when you've got finance and investment questions, don't forget to call in Vestock.
[SPEAKER_03]: 888-99, chart.
[SPEAKER_01]: Okay, so this one's an interesting new story, and I think some of them were used to hearing about tariffs, but in a different way.
[SPEAKER_01]: So the White House announced a 50% tariff on certain Canadian goods, including wine, hockey sticks, and cement, with those three items and the others as well, it's about $20 billion
[SPEAKER_01]: worth of imports, and it'll take effect in the middle of August.
[SPEAKER_01]: Now, the stated justification is Canada's quote, discriminatory treatment of American products, specifically Canadian policies that require companies to invest in auto production in Canada, rather than the US, and provincial bands of American liquor, energy, potash, fish, and critical minerals, are exempt.
[SPEAKER_01]: Now, I think the part that's the most interesting,
[SPEAKER_01]: is they're being imposed under section 338 of the Trade Act of 1930, and that section has never been used to imposed tariffs before, like ever, 96 years.
[SPEAKER_01]: It does grant the president, the power to levied duties on countries that discriminate against the US companies, but it's completely untested.
[SPEAKER_01]: Legal trade lawyers are already flagging that it's probably going to attract some pretty
[SPEAKER_01]: Well, the old challenges of the tariffs are ultimately imposed, and again, you know, they're delayed until the middle of August, so who knows if they will be.
[SPEAKER_01]: And the back story is kind of beyond that a bit.
[SPEAKER_01]: because Trump threatened Canada with steeper tariffs on Friday in order to compensate for wildfire smoke, drifting into the U.S. is through social posts, the Q's Canada have not properly maintaining their forests and said that American air has been poisoned because of it.
[SPEAKER_01]: And then two days later, you know, with the prime minister of Canada, the World Cup final, and then Monday morning, 30% of tariff on hockey sticks.
[SPEAKER_01]: So, a bit of a whirlwind of what had been going on
[SPEAKER_01]: this outcome now and it's a small fraction of the nearly 400 billion the US imported from Canada last year but I think the signal matters a bit more than the dollar amount because you have to remember right this is in the shadow of
[SPEAKER_01]: a decision about the U.S. M.C.A.
[SPEAKER_01]: the U.S. Mexico Canada agreement to which the president and his first term proposed and signed and these goods, they apply to goods that the tariffs apply to goods that comply with the U.S. M.C.
[SPEAKER_01]: and meaning even if Canadian products meet the rules of this deal, Trump negotiated himself, they're still going to get hit.
[SPEAKER_01]: And that undermines the foundational purpose of the agreement, meaning as a signal,
[SPEAKER_01]: It's potentially more likely that the administration is going to give notice and walk away.
[SPEAKER_01]: Now, the Canadian response was that, you know, quote, it was the latest in a series of unilateral U.S. trade actions that violate this agreement.
[SPEAKER_01]: Others were calling for a
[SPEAKER_01]: And on the on the back of it, you saw some some discussions in the administration about instead of having a three-country agreement, you shift it towards more bilateral deals.
[SPEAKER_01]: But I mean, you know, there's no negotiation schedule.
[SPEAKER_01]: I think for all of us, right, the practical concern is less about wine and hockey sticks and more about the trajectory.
[SPEAKER_01]: What does this mean?
[SPEAKER_01]: For a law that has been untested, what does it mean for an
[SPEAKER_01]: The outcome of which certainly affects many products across the board.
[SPEAKER_01]: All right, let's see if we can fit in another question now.
[SPEAKER_00]: I just in a loop, this is Neil from Chicago.
[SPEAKER_00]: I love your show.
[SPEAKER_00]: We're going to put it there for some time.
[SPEAKER_00]: I had a question about Nike symbol NKE.
[SPEAKER_00]: What's going on with Nike?
[SPEAKER_00]: I have some in my portfolio.
[SPEAKER_00]: That's the thing in on the show.
[SPEAKER_00]: Thank you and have a big day.
[SPEAKER_01]: Hey, I don't think I have an introduce Nike.
[SPEAKER_01]: One of the most well known athletic and clothing apparel footwear brands on the face of the earth.
[SPEAKER_01]: Hasn't had a positive year in performance since 2021.
[SPEAKER_01]: They're down 32.57% this year.
[SPEAKER_01]: So in spite of the brand awareness.
[SPEAKER_01]: hey it's not it's not doing this company is company much good and you know they're they're down in spite of revenue beat i mean when you dive a bit deeper into the revenue beat part of that was recapture from
[SPEAKER_01]: a tear-free fund, but you see the company that has had significantly and consistently contracting margins, whose revenue growth is not only pretty much non-existent with past five years, but they've revenues fallen every year since 2024.
[SPEAKER_01]: Now I think that
[SPEAKER_01]: The turnaround is possible, but it's going to be slow.
[SPEAKER_01]: You're seeing a CEO that is saying the right things that is organizationally restructuring in a logical way, but the results just aren't there.
[SPEAKER_01]: And until you see something there, proof in the pudding, there's not going to be much of a catalyst to break out of this downward spiral that has been going on for the better part of five years.
[SPEAKER_01]: So we used to own Nike for clients.
[SPEAKER_01]: We haven't for quite some time.
[SPEAKER_01]: I would say for now,
[SPEAKER_01]: I wouldn't consider putting this in my portfolio.
[SPEAKER_01]: Thanks to the call.
[SPEAKER_01]: On the next invest stock, we look into this story, stocks beyond tech, where the market is actually working right now.
[SPEAKER_01]: Even as semiconductor stocks sell off and geopolitical headlines dominate, there are pockets of the market quietly delivering solid returns and most retail investors are completely ignored.
[SPEAKER_01]: That's smart.
[SPEAKER_01]: For now, I'm Luke Guerrero, and we are ready to take your calls any time, at 888-99 chart.
[SPEAKER_03]: There are a few things that make KPP financial special.
[SPEAKER_03]: One of them is parallel investing.
[SPEAKER_03]: This means they invest right alongside their clients.
[SPEAKER_03]: Here's how it works.
[SPEAKER_03]: When KPP financial makes a trade for their clients, just in line makes the same trade for himself and KPP.
[SPEAKER_03]: On the same day, at the same price, and same percentage.
[SPEAKER_03]: No front running, no special treatment.
[SPEAKER_03]: Learn more about parallel investing at investtalk.com.
[SPEAKER_01]: Q2 earnings season is kicking off for mega caps.
[SPEAKER_01]: And I think that this might be the most consequential earnings cycle we've had in years.
[SPEAKER_01]: Okay, not because the numbers will be...
[SPEAKER_01]: really bad or really good.
[SPEAKER_01]: I mean, they probably won't be either of those things, but because the bar is kind of in a weird place and the market's relationship with these companies has in a lot of ways changed from what we saw coming out of the pandemic.
[SPEAKER_01]: I mean, there's a bit of an uncomfortable truth here.
[SPEAKER_01]: The Mac 7 as a group have been a drag on the market this year.
[SPEAKER_01]: Bloomberg's max 7 index lost 1.9% in the first half of 26, the S&P gain 9.3, that's on 11 percentage point gap.
[SPEAKER_01]: The second worst start to the year for that group ever relative to the broader index.
[SPEAKER_01]: If max 7 have trailed 300 stocks in the S&P 500 this year, 300, including dollar tree.
[SPEAKER_01]: including Hubble, including company's most people, probably haven't heard of.
[SPEAKER_01]: They are outperforming the most valuable businesses on Earth.
[SPEAKER_01]: And last week made it worse.
[SPEAKER_01]: The Philadelphia Summit conductor index posted its steepest weekly loss in over a year.
[SPEAKER_01]: It's not 18% so far in July alone after last week.
[SPEAKER_01]: And one thing that I think we all have to be concerned about is how the math on earnings has been
[SPEAKER_01]: Kind of become a bit tricky, right?
[SPEAKER_01]: If you look at facts, that's projections.
[SPEAKER_01]: They are making the projection that Mag7Q2 earnings will grow 31.1%.
[SPEAKER_01]: The other 493 companies, the S&P 500, expected to grow about 22, 23%.
[SPEAKER_01]: I mean, that gap is 8 to 9 prevented points.
[SPEAKER_01]: And Q1, it was 45.8 points.
[SPEAKER_01]: That's an 82% narrowing in a single quarter.
[SPEAKER_01]: They will, that means the mags, seven to earnings advantage, the whole reason they are commanding 30% of the index is in a lot of ways collapsing, not because they're earnings are shrinking, but because everyone else is catching up.
[SPEAKER_01]: And the valuation reset because of that, I mean, it's been not so much steady, but kind of dramatic.
[SPEAKER_01]: The PDE has dropped from 33-ish in late October to 23.9 today.
[SPEAKER_01]: The premium over the broad index is down to roughly 2.5 points, so it'll lowest ever.
[SPEAKER_01]: Microsoft is down 20% year to date.
[SPEAKER_01]: That's the worst performer of the group in video is up, but only up 9.5.
[SPEAKER_01]: That's roughly in line with the S&P.
[SPEAKER_01]: That's after gaining over 1100% in the three years through 2025.
[SPEAKER_01]: I mean, the returns in a lot of ways have migrated to different areas.
[SPEAKER_01]: We've seen memory stocks triple.
[SPEAKER_01]: We've seen that the AI trade didn't really die.
[SPEAKER_01]: It just decided to move.
[SPEAKER_01]: What did the mag 7 need to deliver in order to justify even these compressed valuations?
[SPEAKER_01]: I mean, at 24 times earnings, they essentially need to show sustained revenue growth in the midteens.
[SPEAKER_01]: They need to expand margins from AI monetization.
[SPEAKER_01]: I think more than anything, there needs to be some evidence that the hundreds of billions in capex are generating some level of identifiable returns.
[SPEAKER_01]: I mean, we've seen this year, the market has, in a lot of ways, stopped rewarding spending at once proof of revenue.
[SPEAKER_01]: I mean, Microsoft has to show the, uh, AI revenue growing faster than the cloud average.
[SPEAKER_01]: Meta has to show adoption in their model driving engagement, driving and revenue.
[SPEAKER_01]: Meta is a, is an, and business.
[SPEAKER_01]: Now, Alphabet has to show that Gemini's leading to wins Amazon has to show AWS AI services pulling revenue faster than all this money they've been spending.
[SPEAKER_01]: Now, if they deliver, you probably start to see some level of compression stabilization stocks might not lead the market.
[SPEAKER_01]: That ship is kind of sailed for now, but they stop being a drag.
[SPEAKER_01]: The remaining 493
[SPEAKER_01]: Need to rally another 6.8% from here.
[SPEAKER_01]: On top of the 13% they've already gained for the average Wall Street target to materialize.
[SPEAKER_01]: It's doable, but not really if the mag seven are actively pulling things down.
[SPEAKER_01]: And then if they disappoint, maybe things get a little messy.
[SPEAKER_01]: Then make up a third of the index.
[SPEAKER_01]: Thurinings guide in signals that capex is running too hot.
[SPEAKER_01]: But the payback period is longer than assumed or that, you know, this, this, this, this pricing pressure we're seeing externally is actually compressing their AI revenue per token.
[SPEAKER_01]: The next really can absorb it.
[SPEAKER_01]: You would need.
[SPEAKER_01]: all other sectors, for the most part, to simultaneously blast off in order to offset a meaningful decline and hear and lies the concentration problem of the index itself.
[SPEAKER_01]: Now, whether you're bullish or cautious on the Mac 7, I think the concentration risk in the cap weighted index fund is this real issue here.
[SPEAKER_01]: Right, a 30-year portfolio in seven companies that are collectively flat for the year.
[SPEAKER_01]: Well, the other two thirds is up 13% that's your index fund quietly underperforming its own components.
[SPEAKER_01]: And if you haven't added equal weight, small cap, sector specific exposure this year,
[SPEAKER_01]: I think this earnings season is a bit of a reminder that MagSeven's ability to single handedly carry the S&P 500 and a lot of ways this year has shown to be over, for now least, and possibly for a while.
[SPEAKER_01]: All right, let's answer another question.
[SPEAKER_01]: Why don't we answer one from our YouTube comment section?
[SPEAKER_01]: Says, hello, this is Al from Sonoma County.
[SPEAKER_01]: Thank you for your published media.
[SPEAKER_01]: I follow all of it.
[SPEAKER_01]: Appreciate that, Al.
[SPEAKER_01]: My question is on CCJ, can we go?
[SPEAKER_01]: How's in the stock for most of the runup and sold 50% of my position during that time?
[SPEAKER_01]: When would you start buying this stock again?
[SPEAKER_01]: It seems to be the next resistance levels about 80 per share.
[SPEAKER_01]: Would you wait for a heavy volume flush out moment?
[SPEAKER_01]: I believe in the long term tailwinds of the industry and want to get back to a 100% of my target.
[SPEAKER_01]: Position, CCJ is a name that we hold for clients.
[SPEAKER_01]: We bought it a very long time ago.
[SPEAKER_01]: and it has done very well over the past couple of years.
[SPEAKER_01]: In 2023 it was up 90% and up 20% of 2024 up 78% last year.
[SPEAKER_01]: Now it's down about 3% year to date.
[SPEAKER_01]: So it has fallen off a bit off of the highs around 125 now trading at about $88 per share.
[SPEAKER_01]: And
[SPEAKER_01]: It's not really because of poor earnings or anything, right?
[SPEAKER_01]: They had adjusted net earnings of 203 million, just EBITDA of 509 million.
[SPEAKER_01]: That's all higher versus Q1, 2021, 25 as was expected.
[SPEAKER_01]: They had earnings growth about.
[SPEAKER_01]: 243.1% net profit margins, sitting at about 16.9.
[SPEAKER_01]: That was up from roughly five and a half year over year.
[SPEAKER_01]: They were one of the reasons is it just kind of ran away from itself.
[SPEAKER_01]: I mean, it was trading at 60 times price to forward looking earnings at one point.
[SPEAKER_01]: Now, the low here is 26.7.
[SPEAKER_01]: The average is 106.5.
[SPEAKER_01]: It's straight about 54 times forward looking price to earnings right now.
[SPEAKER_01]: And a lot of that is justifiable in some way.
[SPEAKER_01]: I mean, it has gotten very expensive.
[SPEAKER_01]: I'm not going to say it isn't an expensive name, but it is the world's highest grade, or either operates the world's highest grade, or any of mine's at a pretty low cross structure.
[SPEAKER_01]: Caught.
[SPEAKER_01]: Can't talk to a cost structure.
[SPEAKER_01]: And so as you have,
[SPEAKER_01]: All these company spending billions and billions trying to build out capacity, uh, these hyper scalars.
[SPEAKER_01]: There's a structural demand driver that has been manifesting itself in, not just revenue growth, but earnings experience, uh,
[SPEAKER_01]: Margin expansion, chief.
[SPEAKER_01]: I think that as a great name, we still hold it.
[SPEAKER_01]: We did trim it a little bit back to target, reduce the target a little bit when we were seeing this thing and the one tends to one-twenties.
[SPEAKER_01]: I think that the structural tailwind is still there.
[SPEAKER_01]: I think it's meaningful that zero analysts have a sell rating at this point.
[SPEAKER_01]: But I wouldn't start to really crush the buy button to bring that back up to 100% until you see some sort of meaningful breakout from a momentum perspective.
[SPEAKER_01]: It was for the most part flat over the past six months underperforming the S&P about 13 pretty flat on the industry.
[SPEAKER_04]: Probably back down to 45-ish.
[SPEAKER_01]: uh... of a of a multiple is is somewhere at consider uh... put put more into this thing it doesn't mean i would sell out of it because again the structural tailwinds are there and we we do like this name can you go corporation ccj thanks for the call right why don't we do another voice mail high-end desktop i am interested in purchasing e m e m e m core i'm curious what you guys think
[SPEAKER_04]: Also, you feel like it's tied to AI data centers.
[SPEAKER_04]: I'm looking for something that has exposure to that, but isn't as exposed to, if the mag seven companies were to stop spending to build them, I don't want a company that's going to hurt too bad.
[SPEAKER_04]: This one looks like it's diverse enough for has other sources of revenue, but still on the industrial space.
[SPEAKER_04]: Again, a little bit of data center, but not too much.
[SPEAKER_04]: They also report on, I think, the 30th, but I was interested in potentially buying and depending on what you think and assuming that earnings go well in the 30th.
[SPEAKER_04]: And I'll listen on the show.
[SPEAKER_04]: Thanks.
[SPEAKER_01]: Well, I like your frame of mind for,
[SPEAKER_01]: I mean, a lot of reasons, but let's distill it down to three.
[SPEAKER_01]: The first is trying to get AI exposure without being too concentrated in AI giving other revenue streams, excellent way to think about it.
[SPEAKER_01]: The other is the name itself because we hold it for clients in one of our strategies, so we like M core.
[SPEAKER_01]: And lastly, because you see that earnings are coming up, and you have listened and understand that one of the dangers of buying into earnings or just after earnings is you pay volatility premium that makes it a bit more expensive and unrelated to the fundamentals of the company itself.
[SPEAKER_01]: So I do always encourage because the data really backs it up within 10 trading days on either side of earnings, typically,
[SPEAKER_01]: In aggregate, a negative sum game would invest in stocks.
[SPEAKER_01]: Now, this company, which again, we do own for clients, is a mechanical and electrical construction services company.
[SPEAKER_01]: So the way they touch AI is really with these HVACs and mechanical systems.
[SPEAKER_01]: They also do fire protection for data centers.
[SPEAKER_01]: health care facilities and industrial plants, government buildings, they are a roughly 33, 34 billion dollar market cap company.
[SPEAKER_01]: But again, you get this diversity here.
[SPEAKER_01]: You have that mechanical construction facility services, that's where their data centers really are.
[SPEAKER_01]: It's about 42% of the revenue.
[SPEAKER_01]: Meaning that there is about 68% of the revenue elsewhere.
[SPEAKER_01]: And so you do have a broader diversity here.
[SPEAKER_01]: But it's still certainly benefiting from this theme.
[SPEAKER_01]: I mean, revenues up 14% on an annualized base is going back five years.
[SPEAKER_01]: It's remarkable from 8.7 billion, project to be 18.9 billion this year.
[SPEAKER_01]: At the same time, margins have been steady.
[SPEAKER_01]: In fact, grew from 1.5% net margin to 2020 to 6.9 today, EBITDA margin grown from 6.8 to 10.3.
[SPEAKER_01]: Their previous earnings, back in April, beat both on revenue and earnings per share, and they had margin expansion of about 50 basis points.
[SPEAKER_01]: Operating income was up about 26.7%, you know, I think M core has been growing earnings at roughly 35, 36% annually, while the rest of the industry is somewhere about 17 to 18.
[SPEAKER_01]: intersection of not just AI infrastructure, but semi-conductor, reshoring health care construction.
[SPEAKER_01]: And in a lot of ways, you know, it's, it's, it's had such strong momentum for for for so long.
[SPEAKER_01]: Now in the past three months, it's come down a bit about 10% but in spite of that, it's still up 24.27% year to date.
[SPEAKER_01]: And more than anything, it's come back to a reasonable valuation.
[SPEAKER_01]: It's like trading at 23, 24 times price to forelooking earnings.
[SPEAKER_01]: The average is around 20, the highs 31.
[SPEAKER_01]: Now I like this name.
[SPEAKER_01]: I think there's some good potential upside here.
[SPEAKER_01]: I would still wait until earnings in a couple days.
[SPEAKER_01]: You're correct July 30th is the earnings date.
[SPEAKER_01]: But I like your head, I like the themes that you're trying to invest in.
[SPEAKER_01]: And I like that your cognizant of what's going on that may affect kind of the pricing that you get on companies.
[SPEAKER_01]: That is Endcore Group, ticker EME, thanks for the call.
[SPEAKER_01]: Why don't we do another voice call now?
[SPEAKER_05]: Hi, my question is about target, DGT.
[SPEAKER_05]: Let's do you guys think about it?
[SPEAKER_05]: Is it a good sign to buy?
[SPEAKER_05]: Thank you guys for what you do.
[SPEAKER_01]: Target is a name we hold for clients as well.
[SPEAKER_01]: We've held it for about a year now.
[SPEAKER_01]: Probably bought it closer to 105, 110.
[SPEAKER_01]: It's been pretty well over the past 52 weeks, up 36.15%.
[SPEAKER_01]: I think for some time, it's struggled
[SPEAKER_01]: It's much of a presence on online retail, as say a Walmart does, but because of that, it's moved to some pretty low multiples over the past couple years.
[SPEAKER_01]: Whereas coming like Walmart is training a bit more expensive, your Costco has big online retail, training a bit more expensive.
[SPEAKER_01]: Target needed a lot less to go right in the rebuild in order to,
[SPEAKER_01]: have positive performance.
[SPEAKER_01]: So it's trading about 16.1 times price to forward looking earnings.
[SPEAKER_01]: I think in a lot of ways, you know, this is the most improved large cap retailer.
[SPEAKER_01]: This year, you're seeing the first positive comps in five quarters and they had a big beat about 17% on earnings per share.
[SPEAKER_01]: So momentum's good.
[SPEAKER_01]: I think headed in the correct direction after having a rough time.
[SPEAKER_01]: And that's one of the reasons why we hold it in one of our strategies
[SPEAKER_01]: As in Vestock, I'm Lou Greer.
[SPEAKER_01]: We have one goal to help you achieve your financial freedom, or work continues after our final break, so get your questions in now in 888-99 chart.
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[SPEAKER_01]: Now, this next story is probably one of the most counterintuitive things in economics right now.
[SPEAKER_01]: And the first half of the year, crude oil was trading near $100 a barrel natural gas at the Wahahub and West Texas was trading in an average of negative 2.19 per million BT's.
[SPEAKER_01]: Negative.
[SPEAKER_01]: Producers were paying people to take gas in late April when oil briefly touched
[SPEAKER_01]: The gas price had a record low of negative 795 on the same day, gas in Louisiana, Henry Hub.
[SPEAKER_01]: It's a national benchmark.
[SPEAKER_01]: It was trading at positive 272, same commodity, same country, a $10.67 per unit swing.
[SPEAKER_01]: And that's effectively what's going on in the Permian Basin.
[SPEAKER_01]: So what's happening is when Permian producers drill for oil, they also get natural gas to come up.
[SPEAKER_01]: It's a byproduct.
[SPEAKER_01]: They didn't drill for the gas.
[SPEAKER_01]: They don't, they don't necessarily want the gas.
[SPEAKER_01]: They want the $97 barrel of oil sitting next to it, but there isn't enough, rather there aren't enough pipelines to move the gas out of West Texas.
[SPEAKER_01]: And in the rest of the country, so it just piles up.
[SPEAKER_01]: And when supply exceeds the infrastructure's capacity to move it, the prices go negative because producers have to pay someone to take it off their hands.
[SPEAKER_01]: They can't just leave it underground.
[SPEAKER_01]: It comes up with the oil.
[SPEAKER_01]: Now, the premium accounts are about 20% roughly of US gas production.
[SPEAKER_01]: And it's been responsible for most of the growth that has kept domestic prices low.
[SPEAKER_01]: That cheap gas underpins a lot of what we've been seeing with domestic manufacturing and AI data center,
[SPEAKER_01]: the AI data center boom, but the infrastructure itself hasn't really kept pace with the production.
[SPEAKER_01]: Now new pipeline capacity has helped a bit.
[SPEAKER_01]: Kinder Morgan expanded the golf coast express energy transfer open the 400 mile hub rinse in line to Dallas.
[SPEAKER_01]: The blackcomb pipeline is supposed to be coming later this year.
[SPEAKER_01]: And prices have climbed out of the red, but they're still 40% below
[SPEAKER_01]: and analysts for what's worth think that even being that high is a bit of a temporary respite from the likelihood of it going negative again as soon as producers fill the new capacity and the gases they are just waiting, prices probably did back into the red.
[SPEAKER_01]: Now Diamondback Energy reported selling oil at about 9682 last quarter.
[SPEAKER_01]: It's gas revenue, negative $2.15 per thousand cubic feet.
[SPEAKER_01]: Even ever hedging, gas was negative 34 cents.
[SPEAKER_01]: Some producers have curtailed out, but others are getting creative, madador is using its own well, a gas-to-power drilling equipment chevron, building a gas-fueled power plant and a rease-county-to-feet electricity to a Microsoft data center nearby.
[SPEAKER_01]: I think this is interesting because oftentimes things in the real world don't operate as you'd expect them to.
[SPEAKER_01]: It's number one.
[SPEAKER_01]: But it's also both a risk for investors and a bit of an opportunity.
[SPEAKER_01]: The risk is that, you know, negative gas prices, squeeze, permeate and focus producers, total returns, even when oil's strong.
[SPEAKER_01]: The opportunity is your mainstream companies, the pipeline operators.
[SPEAKER_01]: As some of which we mentioned, we get paid on volume regardless of the commodities price.
[SPEAKER_01]: They get paid to move things.
[SPEAKER_01]: They don't get paid based on what it's worth.
[SPEAKER_01]: And the data center angles fascinating as well.
[SPEAKER_01]: If your Microsoft or Meta or Amazon and you're building a data center in the Permian, that means access to the cheap electricity feet stock in America.
[SPEAKER_01]: Possibly the cheapest in the world because according to whatever it is, nobody else wants it.
[SPEAKER_01]: All right, folks, that does it for another episode of in Vestock, Justin and I.
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[SPEAKER_01]: Really, you're on track to achieve your goals just in an eye would love to speak with you.
[SPEAKER_01]: And it's easy.
[SPEAKER_01]: It's super simple.
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[SPEAKER_01]: We talk to investors just like you each and every day, honestly, it's probably my favorite part of the day.
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[SPEAKER_01]: This is Invest Talk.
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[SPEAKER_02]: Invest Talk is a trademark of KPP Financial, because of the nature of the interactive dialogue inherent in the format of this program.
[SPEAKER_02]: It's important for the listener to understand that not all comments made will apply to them.
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