![Gene Sheridan is CEO and co-founder of Navitas Semiconductor (NVTS) and leader of the Gallium Nitride [GaN] innovation revolution](https://www.twst.com/wp-content/uploads/2022/06/Gene-Sheridan-.jpg)
Gene Sheridan, CEO and co-founder, Navitas Semiconductor (NVTS)
Previously, he was CEO of BridgeCo, a wireless audio company that was sold to Standard Microsystems Corporation (SMSC).
He also worked in management at International Rectifier. He received a BSEE degree from Clarkson University.
“Gallium is actually a soft metal that’s a natural byproduct of aluminum.
It’s been around for over a century, but had limited use until recently, when we discovered that gallium when combined with nitrogen forms gallium nitride or GaN for short.
This material forms a 10 times stronger electric bond, and two times higher electron mobility.
In the world of power electronics, those are really powerful properties that actually enable power systems and electricity, managed by power, to be up to three times faster charging, higher density, smaller, lighter weight, up to 40% more energy efficient, and 20% or more lower costs.
So a lot of great things come from this new exciting material called GaN to replace silicon in all types of power electronics.
Power electronics are needed for virtually all forms of electronics from fast charging your phone to very efficiently powering the world’s data centers and the internet to improving the cost payback and energy savings you get from renewable energy such as solar.”
Navitas Semiconductor (NVTS) is a leader in using this chemistry in innovative products.
“….We’re really pioneering the use of this material in power electronics. When we started the company years ago, the material was not being used in production for any power chips. We’ve now brought it to production and commercialized it. It’s really innovative and compelling.
Chips are now being used to fast charge your phone, tablet and laptop, and very soon will power these other applications I mentioned, like data centers, solar, renewables and also eventually electric vehicles…we’re really pioneering the use of this material in power electronics.
We took that technology first to production just three years ago and focused on mobile charging, because it’s a fast-moving market with a lot of volume and a value proposition that everybody can understand — fast charging your phone, tablet or laptop.
It’s now already in over 200 GaN chargers in production, including the top 10 smartphone and notebook companies that are developing their next-generation chargers using Navitas GaN technology.
We completed an IPO last year, raised the capital and now we’re commercializing the technology over the next one to two years into data center and solar.
Then electric vehicles will be the next major segment. That takes a little bit longer.
We expect that to go into production for GaN-based electric cars in 2025.”
“In fact, earlier this year, we announced the creation of the industry’s first electric vehicle design center focused on deploying GaN for those applications.
The first application would be on-board chargers. Similar to fast charging your phone or laptop, we’ll fast charge electric vehicles up to three times faster with the onboard chargers.
That’s just the start of deploying GaN in many other power systems within the car, including the motor control, which actually moves the car, which will ultimately then translate into longer battery range and lower-cost batteries, bringing them to cost parity compared to gas cars.”
Powering up the transition to renewable energy is the opportunity for Navitas Semiconductor (NVTS) investors.
” Today, less than 20% of our world’s energy sources come from renewable energy which is directly creating electricity.
The vast majority, of course, are fossil fuels, which go through extensive, inefficient and very resource-intensive processing before you eventually turn power plants into electrical energy.
In the case of solar and wind, in particular, you are dramatically improving that efficiency transition to convert wind and sun power, infinite sources of power, into clean electrical energy.
We expect that 20/80 ratio of renewable energy compared to fossil fuel to flip around as the whole planet moves to electricity and renewable energy sources.
Today, the power chip business is about a $20 billion market. And of course, we don’t use any power chips in fossil fuel applications. So, as you convert that to the 80% renewables in coming decades, that will dramatically increase the opportunity.
So we’re super excited about the market impact in opening up an even bigger $30 billion, $40 billion, $50 billion opportunity for these power chips in the future, but also equally excited about accelerating this really important trend to move away from fossil fuels and move to renewable, clean, efficient electrical energy.
And the same thing can be said for how we use energy today.
Less than 20% is clean electrical energy.
The other 80% is combustion, gas combustion, gas cooking, gas heating, gas cars.
All of this will step by step be converted to clean electrical energy, and Gallium Nitride [GaN] can accelerate that transition and make sure we have high-efficiency, low-cost reliable electric energy for decades to come.”
Navitas Semiconductor (NVTS) CEO Gene Sheridan wants investors to know that the environmental benefits are also commercial benefits.
“Gallium Nitride [GaN], while it’s very advanced in material, and very advanced with the design innovations that Navitas [Semiconductor (NVTS)] has brought to that material, GaN actually uses old semiconductor fabs, the silicon fabs that silicon doesn’t want anymore.
Fabs that were built back in the 1980s and 1990s, that are fully depreciated and underutilized, can now be retrofitted for pennies on the dollar.
So it’s very capital efficient to use these older, low-cost underutilized fabs.
It allows us to serve our customers, even when we’re growing very fast. Right now we’re offering six- to 16-week lead times where our silicon counterparts are often at six- to 12-month lead times.
So that’s really kept us ahead of the curve, and it allowed us to grow even faster.”
Get the complete story of Navitas Semiconductor (NVTS) by reading the entire interview with CEO Gene Sheridan, only in the Wall Street Transcript.
Tore Svanberg, Semiconductor sector analyst, managing director, Stifel Financial
Tore Svanberg is an analyst and managing director at Stifel Financial Corp specializing in the semiconductor sector. He joined the company with the acquisition of Thomas Weisel Partners LLC in 2010.
He is part of the technology group, covering semiconductors with a focus on analog, connectivity and processor semiconductors.
He has been recognized for his work by The Wall Street Journal’s “Best on the Street” Analyst Survey.
Earlier, he was a senior analyst and managing director at Piper Jaffray.
He began his career as an analyst at Robertson Stephens. He received a degree in international relations from Franklin University in Switzerland. He also received an M.A. degree in international policy studies from the Middlebury Institute of International Studies in California.
“I think the good thing about what’s been happening — you could call it a good thing — because demand has outstripped supply for so long, pricing has gone up a lot, probably the most I’ve ever seen. I’ve been covering the industry for 23 years.
And now that prices obviously are this high, that causes demand to trail off. And I think that is something that you’re seeing basically with the global economy anyway.
So with all this inflation, you’re really starting to see demand deteriorate, because prices are so high. And I would say the same thing is happening on the semiconductor side.
We started already seeing things like PCs and smartphones slowing down and those are obviously more tied to consumer spending. With that slowdown, supply is starting to free up somewhat based on the demand level that’s out there…
I think with the pandemic, those markets had a bit of a resurgence, when we had things like work from home. All of a sudden, everybody bought more PCs and more smartphones. But I would say that that was probably a very temporary phenomenon, driven by the pandemic.
If you look at it longer term, I think the markets that are perhaps more interesting for semiconductor companies would be automotive.
There’s obviously a lot of electronic content growth happening in the automotive market. I would say in broadband — and broadband would basically cover various different subsegments all the way from hyperscale infrastructure to 5G to better Wi-Fi. And then, on the industrial side, there’s also a lot of interesting subsectors that are seeing a lot of innovation, including the medical end market, robotics.
And then obviously, there’s this term AI, artificial intelligence, which can also be sort of an umbrella for a lot of different subsegments within those end markets.”
The semiconductor sector manufacturing is mostly in Taiwan, but there is an “in-sourcing” trend to bring manufacturing back to the USA.
“Keep in mind that most design companies, the companies that design these very compelling chips, they are U.S.-based companies. But they don’t manufacture the chips.
The chips are manufactured primarily in Taiwan, and to a certain extent in China, where a lot of the wafer manufacturing happens. And that’s basically a very natural outsourcing that the U.S. has been doing for the last 30 years, not just in semiconductors, but the U.S. has been outsourcing manufacturing everywhere, not just in semiconductors but in other parts of technology and other parts of industrial manufacturing and so on.
Now that semiconductors have become so important, I do believe that the U.S. would like to see some of that manufacturing happen in a growing way in basically what we’d call insourcing.
But keep in mind that that’s going to take a while. Establishing a whole new manufacturing hub for the semiconductor industry is something that can happen over five to 10 years. Maybe this is year one.
But it’s certainly going to take a while before the U.S. is back to being dominant when it comes to semiconductor manufacturing, even though today, they still dominate what we call the design of the chips.”
The large cap stock picks from semiconductor sector specialist Svanberg:
“…in large cap, there are two companies that I really like right now. One is a company called Marvell (NASDAQ:MRVL), and they are a leader in communications or data infrastructure.
Whether it’s things like 5G or hyperscale data centers, they basically have very high exposure there and are leading the way in developing next-generation data infrastructure.
When we go back and think about things like AI, the only way AI is going to happen is if we get this robust data infrastructure that Marvell is applying with their semiconductors. So that’s one company.
The other company is an analog company called Analog Devices (NASDAQ:ADI). And they are a very strong company in a few end markets. But the industrial market is probably their biggest end market.
It’s about half of their revenues. And there, they are benefiting from some of these other end markets that I talked about — robotics, factory automation, medical. So they’re a leader there.
When I recommend stocks to my investors, I am much more focused on things like enterprise and infrastructure as opposed to consumer, because I do believe that consumer was artificially strong during the pandemic because of the things that we just talked about before. And now obviously, that’s behind us.
Not only that, but with all the inflation that’s happening, I do believe that consumer-related semiconductors are going to slow down the most.”
The bottom may be in for semiconductor sector stocks:
“I would say, when it comes to valuation, instead of looking at things like p/es and EV-to-sales ratios, you can look more at balance sheet metrics to try and find sort of a floor.
So things like dividend yields, free cash flow yields, even things like price-to-net cash per share or price-to-tangible book value tend to be important metrics to use to try and identify sort of a bottom.
And I think if you use some of those metrics, we’re not quite there yet for the broader group, although there are a few stocks that are getting close.
So, for instance, I mentioned Silicon Labs earlier. So that stock is now trading at around four times net cash per share, which I would actually classify as sort of a floor in the stock price.”
Get the complete interview with Tore Svanberg on his current view on the semiconductor sector and his top stock picks, only in the Wall Street Transcript.
Tore Svanberg, Semiconductor Sector Analyst & Managing Director
Stifel Financial Corp.
email: tsvanberg@stifel.com
The medical device sector of the health care industry in the United States was denied access to doctors and hospitals for long periods of time as the successive waves of COVID infections swept through the country starting in early 2020. The establishment of new medical device procedures, whether or not approved by the FDA, was severely constrained by the lack of any ability to train medical professionals, let alone access to patients. These three CEOs describe how the kept their medical device companies alive through the global pandemic.
Joseph Sardano, CEO, Sensus Health Care, Inc. (NASDAQ:SRTS)
Joseph Sardano is CEO of Sensus Health Care, Inc. (NASDAQ:SRTS).
A recognized leader in the medical device sector of the health care industry, Mr. Sardano has spent more than 30 years in management and marketing. He has a successful history of introducing and commercializing new technologies and services in many areas, including electronic brachytherapy, PET and PET/CT, SPECT, MRI, lithotripsy and digital radiography. Before joining Sensus Health care, Mr. Sardano held leadership and management roles at CTI Molecular Imaging, GE Medical Systems, Siemens Medical Systems, Elscint Inc. and Toshiba America Medical Systems, among others.
“Over the past year up to date, we have achieved four straight quarters of profitability, which is a big deal for our company. Mostly, this was due to increased reimbursement provided by Centers for Medicare and Medicaid Services, along with a new leasing program called fair market value lease that we’re providing to our customers. It allows our customers to now purchase our more expensive product, which has a breakeven of approximately a little less than two patients a month for treatment of skin cancer…
We’re selling to the dermatology and plastic surgery space. And we do have approximately 50 hospitals, mostly teaching hospitals around the country that have the system as well.
So the product technique or technology, the characteristic of the technology, is that it uses radiation to treat skin cancer, but it’s a very mild radiation, which is the reason why they call it superficial radiation therapy.
And the characteristic of that radiation is that it’s proton therapy.
And so proton therapy is a lot different than electron beam, which is used for all the other cancers.
The proton therapy only penetrates five millimeters below the surface of the skin, which makes it ideal for skin cancer or other skin inflammatory diseases. And then it dissipates — it goes away. It only kills the cancer cells, but allows all the healthy cells to remain and to continue to work in the body.
It’s a product with technology that actually has existed for decades. And metaphorically, we’ve taken it from what the old telephones look like to now the telephones that we have today. So we’ve modernized it quite a bit, and we’ve made it pretty much foolproof to operate.”
Keith C. Valentine, Chief Executive Officer, SeaSpine Holdings (NASDAQ:SPNE)
John J. Bostjancic, Chief Operating and Financial Officer, SeaSpine Holdings Corp. (NASDAQ:SPNE)
Keith C. Valentine has served as Chief Executive Officer of SeaSpine Holdings Corp. (NASDAQ:SPNE), a publicly traded medical device company focused on spinal implants and orthobiologics, since May 2015.
John J. Bostjancic has served as Chief Financial Officer of SeaSpine Holdings Corp. since March 2015, and in May 2022 Mr. Bostjancic was appointed to his expanded role of Chief Operating and Financial Officer.
“Spine surgery typically requires two things: one, some sort of implant system that is used to stabilize the disease pathology, and two, an orthobiologic that’s used to permanently fuse that stabilized area.
We develop and market both our spinal implants systems and orthobiologics products but outsource the production of our spinal implant systems to third party machine shops.
On the orthobiologics side, we manufacture those products ourselves in our Irvine, California, facility.
We also recently acquired 7D Surgical, based out of Toronto, which developed our market-leading FLASH Navigation with 7D Technology.
The history of the company is that we were once part of a much larger company called Integra LifeSciences, that decided to spin off its spine business back in 2014. And so, a number of our current management team were brought on board to help with the spinoff and SeaSpine became an independent, publicly traded company in July 2015.
For every three shares an investor owned of Integra LifeSciences, they received one share of SeaSpine.
But generally, investors that owned Integra didn’t necessarily want to be investors in a pure-play spine company, so we hosted an IPO-like process to create broader investment interest in our story as an independent growth-focused company…
Today we’re very proud of the fact that more than 80% of our spinal implant revenue comes from products launched since the spinoff, those products and systems that we have put our fingerprint on from a development perspective.
Throughout the years, we have worked very closely with leading surgeons to design those products to meet their evolving clinical needs. We’re also quite proud of the fact that now we are a completely new company from a development and innovation capabilities perspective.”
Barton P. Bandy, President and Chief Executive Officer, ReShape (NASDAQ:RSLS) Lifesciences
Barton P. Bandy is President and Chief Executive Officer of ReShape Lifesciences Inc. (NASDAQ:RSLS).
Mr. Bandy brings extensive leadership experience in health care, specifically in the bariatric and minimally invasive surgery segments. Most recently, Mr. Bandy was President and Chief Executive officer of BroadSpot Imaging Corporation, a privately held ophthalmic imaging company, and prior to that he was President of the Wellness Division at Alphaeon Corporation.
He previously spent 10 years as the senior executive leading the Inamed and Allergan Health Divisions through the launch, growth and transition of LAP-BAND®. Mr. Bandy formerly held positions of increased responsibility in sales, marketing and professional education at Ethicon Endo-Surgery and Karl Storz Endoscopy, America.
“It’s an exciting time for ReShape. There’s not a lot of similar competitors out there.
That’s good news as there’s not really anything in the works for laparoscopic or minimally invasive laparoscopic surgery that will be competing against us. And even if something was to get through the FDA process and get an approval in the next year or two, it’s going to take them significant time and cost to gain reimbursement from the insurance carriers. We’re really creating a new market, an expanded market.
We’re not going after the existing market — that’s controlled by stapler companies led by J&J and Medtronic.
Trying to go to war with them and compete for five minutes in the OR with a surgeon to try and change their preferences — that’s just not the model that was going to work for us.
Therefore, focusing on the patient flow and guiding these patients to their practices, in addition to the patients that these practices were seeing for their stapling procedures is additive. It’s helping more people, it’s creating a new market, it’s creating more business for the practices, it’s providing education to patients that maybe didn’t know they had preferable options before.
We did some focus groups and many people in their 30s didn’t even know what the Lap-Band was, because for the last decade or so, it wasn’t really marketed well, and people now in their 30s were in high school or college back then.
Weight loss and bariatric surgery wasn’t really part of their attention span. For some, now it is. And our demographic, primarily, is a female that’s 30 to 50 that has gotten to that point where they want to do something, but they don’t really want to have something that’s major or aggressive surgery.
We have so many benefits with what the Lap-Band offers.
It’s often performed in an outpatient setting. Doctors and patients both like that, especially in the wake of COVID, they don’t have to go to the hospital.
You can go in and get your procedure in the morning, go home that afternoon, and in a few days go back to work.
It’s very confidential and it’s not a big disruption to your life and your responsibilities. That’s something that’s highly desirable to many.
It’s adjustable with a small port connected to the Lap-Band that’s just on top of the abdominal wall underneath your skin. With a simple office procedure, the doctor can either inject or remove saline from the inner balloon of your band, allowing it to be tightened or opened.
What this facilitates, if you think of a sand timer with the Lap-Band around the top of your stomach, you have a much smaller stomach to fill up with that same sensation of being full.
So you become full faster.”
Get the complete picture on these dynamic medical device companies by reading the entire interviews, only in the Wall Street Transcript.
Florian Weidinger, CEO of Santa Lucia Asset Management (SLAM)
Finding value stocks with supporting cash flow can be a planetary wide search for portfolio managers.
Florian Weidinger has been the CEO of Santa Lucia Asset Management (SLAM), a Singapore-based investment firm since 2021 and is a specialist when it comes to discovering value stocks.
Previously, he was the founder of Hansabay in 2011, which merged its business with SLAM in 2021. Before that, Mr. Weidinger was a vice-president at Lehman Brothers where he last worked for the insolvency administration, after several years with the risk arbitrage, principal investing and investment banking divisions.
He has held multiple board directorships across sectors. Mr. Weidinger holds a B.Sc. degree from City University of London, an MBA from the Stanford Graduate School of Business, and an M.S. degree in environment and resources from Stanford University’s School of Earth Sciences.
“We also like a bank in Papua New Guinea listed in Australia, Kina Securities (ASX:KSL), a rather interesting case. So this is Australian listed, but is the second-largest foreign bank in Papua New Guinea.
Papua New Guinea is about a $23 billion economy that is experiencing a significant uptick in foreign direct investment as a result of rising commodity prices. The nice thing about these types of money, foreign direct investment — contrary to hot money from investors behind Bloomberg terminals — foreign direct investment is money that stays because it’s invested into fixed assets.
In fact, Papua New Guinea’s $23 billion economy is getting in excess of $10 billion, maybe $15 billion FDI in the coming years. So we’re having a significant inflow of foreign investment into that country.
That should help improve the overall revenue opportunity of Kina, which is a direct beneficiary of foreigners coming into the country because they are — as the leading foreign bank in the country and number-two overall — they are the first choice for many foreign companies.
There’s also a very interesting dynamic happening here in that Westpac (OTCMKTS:WEBNF) from Australia has announced that they are leaving Papua New Guinea.
They are not just leaving Papua New Guinea, Westpac is leaving the entire Pacific, and this is part of a broader strategy shift of Westpac.
As a result, Kina is having a clear run at picking up a couple of customers who will have to look for a new banking home in Papua New Guinea.
It arguably is a more exotic security, but we think it’s a very attractive and nice name. That company is paying a dividend yield of 12%, listed in Australia trading around one times book, and earnings are on a nice upward trajectory.”
Katie Stockton, Founder and Managing Partner, Fairlead Strategies
Katie Stockton is warning that current US equity values are not supported by cash flow so value stocks are not the support for portfolios that investors wish.
“…We’ve been recommending reduced exposure to the U.S. equity market for now with the intention of revisiting it when we feel a long-term low has been established.
Our indicators are looking their worst since, unfortunately, 2008, and it doesn’t mean that we’ll have that kind of downdraft in terms of magnitude, but it does increase risk to the downside, more so than we’ve seen for many years.
And with that, especially on the brink of retirement, it doesn’t make sense to have aggressive long equity exposure at this time.
That’s why we feel that the TACK ETF is appropriate for folks at that stage of their investing career, and with their time horizon, because it allows for them to leverage upside in that equity market when the equity market is trending higher.
But it has that risk-off piece that helps them avoid the kind of downdrafts that we did see in 2008, and before that in 2000 through 2003. So, to us, a conservative equity strategy with real attention to managing risk, somewhat of a hedged equity exposure, seems appropriate to us.”
Joe Van Cavage, CFA, Vice President and Portfolio Manager, Intrepid Capital
Saudi Arabia is gushing with cash flow now that they have raised prices for oil to all time highs. Joe Van Cavage has found a value stock company that will benefit.
“Let’s discuss Valvoline (NYSE:VVV). That company is over 150 years old. But it’s another company we really like. Valvoline has two related but distinct businesses inside of it. The first is a nationwide chain of automotive quick-lube stores that provides oil changes and ancillary services to customers.
The second is a manufacturing business that makes engine lubricants under the Valvoline brand and sells them wholesale to other auto maintenance shops, mass market retail and of course, through its own chain of stores.
This company was spun out of Ashland Chemical (NYSE:ASH) in 2016. And management right away went to work fixing the company’s capital allocation, which meant taking the cash flow from a mature manufacturing business and investing to aggressively grow the quick-lube business, which was ignored under Ashland.
This strategy has really paid off because the quick-lube business is a gem.
It has several things going for it. First, they’ve been able to outmanage a very fragmented industry, as customers need less and less oil changes and used cars can extend the period between them. Valvoline has gained share by focusing on an important niche: extreme convenience and quality products.
This means investing heavily in the client experience as well as branding to ensure customers are aware of Valvoline’s quick turnaround times to get them on their way. As a result, the average throughput to Valvoline quick-lube stores is much higher than the industry average and steadily growing each year.
Second, they’ve continually improved their training and upselling capabilities at the point of sale to attach further services to the quick oil change people come for.
Think replacing wiper fluids, engine and cabin filters, etc. Attach rates continue to climb and increase the average ticket at a nice margin.
Finally, newer cars on the road are more often requiring synthetic oil versus conventional.
This costs the consumer about three times more, but doesn’t cost nearly that much more to make. And this has been another ticket and gross margin driver, although less driven by management’s efforts.
So you combine the market share gains with these ticket drivers, and you’ve got a business that has had 15 years in a row of same-store sales increases, including in 2020 when the country was shut down and basically no one was driving. So this is a really nice consumer franchise.
With that said, we believe management was smart to aggressively invest the company’s cash flow into expanding it. The company’s store count has more than doubled since the spin off and will continue to grow double-digits.
Margins in that segment are already high, but we believe are under-earning as the large base of new stores takes time to reach maturity.
There’s just a lot to like about the setup when you consider the existing store base is guiding to comp double-digits this year despite a huge rebound in 2021.
And then, the manufacturing business is a decent business as well, just not quite on the same level with slower growth prospects and weaker pricing power.
It’s been suffering over the last year as its main input, which is petroleum, spikes. And it takes them longer to pass this along to the retail customers like Walmart (NYSE:WMT) than it does for the quick-lube business to raise prices for a consumer who just rolled into the shop.
But it’s something they will get back over a cycle and can probably be seen as a margin catalyst embedded into the idea.
Valvoline is going to separate these two businesses. Now, the separation of these businesses can create a lot of value by allowing more appropriate shareholder bases for a steady cash flow gusher that can pay a large dividend on the manufacturing side versus more of a high-margin retail growth concept that is investing most of the cash flow into new quick-lube stores.
However, it is a trickier-than-normal separation since the manufacturing business sells the quick-lube business its products at cost. So some care needs to be taken to ensure this separation doesn’t destroy value. But management has communicated well that they are aware of this issue while structuring any deal to avoid something like that.”
Meyer Shields, Managing Director, Keefe, Bruyette & Woods
Health insurance stocks are an overlooked investment sector. CEO and equity research analyst interviews reveal some interesting potential investment upside in this segment of the market.
Meyer Shields is Managing Director at Keefe, Bruyette & Woods, Inc., a subsidiary of Stifel Financial Corp. He covers insurance brokers and small- and mid-cap property and casualty insurers. Earlier, he worked at Legg Mason, J.P. Morgan Securities, Inc., and Zurich North America. He ranked fifth among stock pickers in the insurance/nonlife industry in The Wall Street Journal “Best on the Street” analysts survey for 2009.
He has a B.S. degree in actuarial science from the University of Toronto and is a Fellow of the Casualty Actuarial Society. In his interview in the Wall Street Transcript, Mr. Shields states:
“2021 was a fascinating year that started off with really strong earnings because in the first quarter of the year, there was still less driving than normal, and therefore car insurance companies were making an awful lot of money.
And then very quickly, in the aftermath of COVID-related supply chain disruptions, the rate of claim cost inflation, what we call loss trend, for personal auto really accelerated and most companies were actually doing worse or significantly worse than they expected earlier on.
So, over the course of the end of 2021, let’s say the second half of the year, that segment of the insurance industry did fairly poorly because there were consistent indications of rising claim costs, and not much in the way of rate increases.
And the insurance brokers also did pretty well. The economic rebound that we saw last year combined with the tendency of insurance companies to raise rates — and this is predominantly a commercial subsegment-focused industry, that’s what most of the brokers sell — that translated into very solid top-line growth. So that was the 2021 story.
2022 has been sort of tough. I mean, most of the market is down. That seems to be broadly true for insurance companies. There are some exceptions. But the space has been under some pressure and the weak performance that we’ve seen, particularly in growth stocks, has also manifested itself in insurance names that are considered to be growthy.
So it’s been a much tougher start to this year than the end of last year.”
Mario Schlosser, CEO and co-founder, Oscar Health (NYSE:OSCR)
Mario Schlosser is the CEO and co-founder of Oscar Health Inc. a newly public health insurance stock.
Oscar Health develops seamless technology and provides personalized support to help more than 1M members navigate their health care. It has been recognized as one of Fast Company’s most innovative companies in health, one of CNBC’s top 50 disruptors, and one of TIME’s most influential in health care.
Previously, Mr. Schlosser co-founded the largest social gaming company in Latin America, where he led the company’s analytics and game design practices.
Prior to that, he was a Senior Investment Associate at Bridgewater Associates and worked as a consultant for McKinsey & Company in Europe, the U.S. and Brazil. Mr. Schlosser also spent time as a visiting scholar at Stanford University, where he wrote and co-authored 10 computer science publications, including one of the most cited computer science papers published in the past decade, in which he developed the EigenTrust Algorithm to securely compute trust in randomized networks.
In May 2019, Mr. Schlosser and his co-authors, Sepandar D. Kamvar (Mosaic Building Group Inc.) and Héctor Garcia-Molina (Celo), received the prestigious Seoul Test of Time Award from the International World Wide Web Conference Committee (IW3C2) for this work.
Mr. Schlosser holds a degree in computer science with highest distinction from the University of Hannover in Germany and an MBA from Harvard Business School.
Mario Schlosser is currently applying his intellect to the problems of health care insurance coverage in the United States.
“We are the first consumer-driven, tech-driven insurance company startup in the U.S. We started the company in 2012 with an eye towards developing a different kind of insurance company.
From that time period, we now are at 1.1 million members and north of $6 billion in revenues this year. Not only have we developed a health insurer that has among the highest member engagements and member satisfaction anywhere in health insurance, but we’ve also built our technology stack in such a way that we are enabling other risk-bearing entities in the U.S. health care system to build on top of our technology.
So we lease out our technology and our services to others in these two business lines — on the one hand, offering insurance to individuals, and on the other hand, offering technology to other players in U.S. health care.”
This fairly recent IPO stock has a path to profitability:
“We spent a couple of hours at an investor day about two months ago or so taking people through what needs to happen and what we need to do in order for that to be the case.
First, insurance company profitability in 2023 and then, following up in 2025 by overall company profitability. I have really every confidence that with the levers we control there, we are pulling exactly the right sequence and with the right power.
And that the overall market conditions will also be such that everything we need to see around us is falling in place.
So yes, I have confidence.
We’ve now been doing this for 10 years and I think we have also had a somewhat unique history of challenges to navigate. We are one of the few companies in the ACA and the individual markets from the very beginning — and there have been many situations where the ACA almost got defunded, where it changed very, very radically in terms of the market and so on for a new insurance market.
That’s not uncommon at all.
The Medicare Advantage market also went sideways for many, many years in the early 2000s, late 1990s, before it then recovered and became this kind of unstoppable juggernaut for health insurers.
We think we’re very early in a market that will look like that.”
Ann Hynes, Senior Health Care Services Analyst and Managing Director, Mizuho Securities
Ann Hynes is a senior health care services analyst and managing director at Mizuho Securities Co, Ltd. and has alot of advice regarding health insurance stocks.
Previously, she was a senior member of Leerink’s health care research team, and worked at Caris & Company, FTN Equity Capital Markets, and Cowen and Company. She received an MBA from Boston College and a bachelor’s degree from Fairfield University.
Ms. Hynes does not see inflationary pressures impacting health insurance stocks profitability:
“I think of all my subsectors, the health insurance industry is the least impacted.
There are some labor pressures that the companies see. But it is more on the customer service side. They do not employ a lot of physicians, where we are seeing a lot of the pressure point.
From an inflationary perspective, I think what would impact them over the next couple of years would be from providers, like hospitals or outpatient centers or surgery centers, who are really struggling with increased labor costs.
To put it in perspective, historically, for a hospital, labor costs per full-time employee might increase 2% to 2.5%, and currently, it is increasing about 5% to 6% on the base business.
That is a big headwind for hospitals.
They will have to go to commercial insurance companies to try to get paid for that. And typically, that does not happen mid-contract cycle. These contracts are typically anywhere from one to three years and roughly one-third of their book renews each year.
As the contract renews, managed care will need to reimburse health care providers for higher base wage rates. They will have to negotiate and likely have to pay hospitals for the labor increases.
But that will just end up in higher premiums to the consumer.
It is not a net negative from a margin perspective for a managed care company. It is really just going to hit the U.S. consumer.
Because our health care premiums will eventually increase because of the labor market increases on the health care side of the equation.”
Health insurance stock sector CEO and equity research analyst interviews reveal some interesting potential investment upside in this segment of the market. Read the complete interviews to get the complete advice from these highly professional executives, only in the Wall Street Transcript.
Soumit Roy, Ph.D., Vice President, Healthcare Analyst, Jones Trading Institutional Services
As biotech stocks hit multi-year lows, it is helpful to re-visit the pre-COVID 19 predictions of prominent, award winning biotech stock pickers and see if their investment advice has held up.
Soumit Roy, Ph.D., is Vice President, Healthcare Analyst of Jones Trading Institutional Services LLC. Dr. Roy is responsible for research coverage on biotechnology companies within the healthcare sector for Jones Trading.
Prior to joining Jones Trading in 2018, Dr. Roy was a senior research associate at SunTrust Robinson Humphrey, covering small- and mid-cap biotechnology companies with innovative technologies, notably T-cell therapy, targeted medicines, gene editing and next-generation immuno-oncology.
He was a postdoctoral fellow at the Icahn School of Medicine at Mount Sinai, New York, in the Clinical Immunology Department, and his research was focused on understanding and discovering novel agents to improve vaccines.
He earned his Ph.D. from the Albert Einstein College of Medicine, New York, where he helped to develop a novel drug candidate that targets the powerhouse of cancer cells to stop cancerous growth. He holds two master’s degrees, in developmental biology and biochemistry, and has published in the highest-rated scientific journals.
“For the rest of 2019, my coverage is quite catalyst-rich, as we have Phase III and a bunch of mature Phase II data coming out.
ASCO, or American Society of Clinical Oncology, looks like the richest catalyst so far for this year.
Deciphera’s (NASDAQ: DCPH) Phase III top line reads out at ASCO, Mirati’s (NASDAQ: MRTX) competitor Amgen (NASDAQ:AMGN) will likely present clinical data on its KRAS inhibitor at ASCO and Mirati clinical data likely at ESMO, or European Society for Medical Oncology.
Scientists have been trying for the last two to three decades to come up with a targeted KRAS inhibitor, and it finally looks like Mirati and Amgen have cracked the code. Any positive updates from Amgen will likely be read as positive for Mirati.
BerGenBio (OTCMKTS: BRRGF) has second-line lung cancer and second-line AML — acute myeloid leukemia — data at ASCO.
Celyad (NASDAQ: CYAD) is also presenting mature Phase I data in AML and colorectal cancer, Neon [n.b.: acquired by BioNTech] will be presenting 52-week mature data in melanoma and lung cancer at ASCO, and Forty Seven Inc. [n.b.: acquired by Gilead (NASDAQ: GILD)] will provide an update on mature Phase II data with 5F9 in relapse/refractory NHL.
So ASCO looks like a very data-rich event.
Then, there are some data at ESMO and at year-end 2019. It is going to be a busy year.
And as these companies mature, the biggest catalyst in biotech is M&A.
Last year was duller, but this year is starting to pick up on the M&A front.
As large pharma is following a growth-by-acquisition model, we will see how M&A pans out toward the end of the year and into early 2020 as a lot of these companies present mature data.”
David Nierengarten, Ph.D., Managing Director and Head of Healthcare Equity Research, Wedbush Securities
David Nierengarten, Ph.D., is Managing Director and Head of Healthcare Equity Research at Wedbush Securities. He mainly covers development-stage therapeutic companies.
He began his career on the financial side of biotechnology at a venture capital firm that focused on early-stage therapeutic and medical device companies.
Additionally, prior to joining Wedbush, he worked in a clinical-stage, venture-backed biotechnology company, in business development and clinical trial operations.
He received his bachelor’s degree in biochemistry from the University of Wisconsin-Madison and his Ph.D. in molecular and cell biology from the University of California-Berkeley.
“Looking back, rising interest rates haven’t really correlated well to biotech small/mid-cap performance, except in the context of a recession. So if interest rates go up too far and cause a recession, then the biotech market gets hit, just as the entire stock market gets hit.
What has affected our companies a bit more than the broad market is that we saw a real decrease in clinical trial readouts over the past year due to the aftereffects of clinical trial start delays.
We saw a slowdown in recruiting due to COVID, and the FDA slow to sign off on INDs or clinical trials or manufacturing sites. And those delays in data readouts have affected our companies even more than the perceived threat of increased interest rates over the near term.
Will that change? Yes, I think it will change. It will change more towards the latter part of this year, Q3, Q4. Then, we see at least a pickup in our estimates guided to data points for companies under coverage.
And generally speaking, in the small/mid-cap space, we expect to see a bit of a recovery in data readouts. And if they’re positive of course, that overwhelms any negative effect from a couple interest rate hikes, or again a tightening of the financial conditions.”
“The next one or two quarters look a little bit challenging. Mainly because there have been a lot of trial delays. But one company that will have a data readout in the next couple quarters, and that has also weathered this downturn relatively well, is Cogent. They’re developing a kinase inhibitor that could have applications in both a rare disease called mastocytosis, and also GIST.
Their first data readout, probably in the next four to six months, will be an initial readout in a mastocytosis study. So for an aggressive mastocytosis showing hopefully a reduction of a biomarker called tryptase.
And that biomarker is very related to response rate in aggressive mastocytosis. And so if they can reduce that, and show that in their next set of data, I would expect the stock to do well. So COGT is one that should have data in the relatively near term.”
Read the complete interviews from these biotech stocks research analysts and become a better investor today.
David Nierengarten, Ph.D., Managing Director & Head of Healthcare Equity Research
Wedbush Securities, www.wedbush.com
email: david.nierengarten@wedbush.com
Soumit Roy, Ph.D., VP, Healthcare Analyst
Jones Trading Institutional Services LLC
![Paul Pittman is the Chairman and CEO of Farmland Partners [NYSE: FPI]](https://www.twst.com/wp-content/uploads/2015/09/Paul-Pittman-1.jpg)
Paul Pittman, Chairman and CEO, Farmland Partners [NYSE: FPI]
Since 2008, Mr. Pittman also has been the president of American Agriculture Corporation and Pittman Hough Farms LLC. From 2007–2008, Mr. Pittman served as Chief Financial Officer, Chief Administrative Officer and Executive Vice President of Jazz Technologies, Inc., a semiconductor foundry.
From 2004-2006, he was Partner and Head of Mergers & Acquisitions at ThinkEquity Partners LLC. From 2000-2003, he was President, Chief Executive Officer and Chief Operating Officer of HomeSphere, Inc., an enterprise software company, and TheJobsite.com, which merged into HomeSphere.
From 1997-2000, Mr. Pittman was Head of Emerging Markets M&A at Merrill Lynch in London, where he was responsible for origination and execution of all M&A business in Eastern Europe, the Middle East, the former Soviet Union, and Africa.
He graduated from the University of Illinois with a B.S. degree in Agriculture, received a Master’s in Public Policy from Harvard University, and a J.D. with Honors from the University of Chicago Law School.
In this 3,890 word interview, exclusively in the Wall Street Transcript, Paul Pittman explains his American background:
“I’m an unusual combination of a farm guy and a finance guy.
I grew up in Central Illinois. I have an agriculture degree from the University of Illinois way back in 1985.
When I graduated, as you may or may not know, that was the absolute bottom of the U.S. farm economy in probably the last 50 or more years.
The original Farm Aid concert was in 1985, to give you a context and example of how bad things were.
When I came out of school, I couldn’t go back to my kind of extended family’s farming operation. There was just no more room for any additional people.
Luckily, I had very good grades and I had been involved in a lot of student leadership positions at the University of Illinois. I got an opportunity to go to Harvard to the Kennedy School of Government, which I did. And then, I went on to University of Chicago Law School.
I had a relatively varied law and finance career, ultimately doing buyout of a technology company with a couple of well-known tech executives. I was the finance guy. And those executives were Steve Wozniak, who was the co-founder of Apple and another very successful and talented guy named Gil Amelio, who had been the chief executive of Apple briefly, and of National Semiconductor. So I had this sort of 15-year career of high finance.
I took the capital that I made during that era and started buying farms in the mid-1990s. It was in my blood. It was in my history.
Eventually that grew into what was a large personal portfolio of farmland that my wife and I owned.
We took that farmland public in this company in 2014, when we had $70 million in assets.
Today, we have at current market value, probably $1.3 billion or $1.4 billion of assets.”
The unusual asset class has extraordinary returns:
“At Farmland Partners, we start by looking at the asset class itself, meaning farmland. And then being a REIT is just a certain vehicle, a certain structure that we believe is favorable to investors in terms of its tax efficiency and a variety of other things.
But the core of what we do is that we have recognized that farmland ownership — not farming, but farmland ownership — is a very, very secure long-term business.
It is a total-return asset class. What I mean by that is it’s an asset class with relatively low current yields. About one-third of your total return comes from rents and two-thirds from appreciation.
But a lot of people don’t realize how strong and relatively stable the asset class is. In simplest terms, the reason the asset class is so stable over long periods of time is that it’s all about food, right?
Food consumption gradually increases on a worldwide basis, a story that’s frankly been going on for centuries, probably going on for at least that long into the future.
Every day, population gradually grows, and high-quality farmland gets a little scarcer every year.
Think of your own local community and places that used to be farms but now are now shopping malls or housing developments or schools or whatever it is. This asset class is going to always be in a position of modest but continuous appreciation.
To give you a couple of statistics, the 50-year history in farmland is about a 5.5% to 6% compounded annual appreciation. That’s a really, really big number over time. When you take that appreciation plus the approximately 4% or so current yield on the properties, you would find out that farmland often beats the New York Stock Exchange in total return over any kind of medium-term holding period like three or five or seven years.
At the end of the day, it’s all about investing in gradual global food demand increases in the face of continuing land scarcity.
That’s the strategy and it’s been a successful one for me personally over 25 plus years. And it’s been a successful strategy, frankly, for investors in our public company in the last seven or eight years.”
The inflation hedge is uppermost in Paul Pittman’s investment thesis:
“From an inflation protection perspective, I frankly think it’s as good if not better than gold. I think of it as gold with a coupon.
And then, a lot of investors focus on the asset class itself being essentially non-correlated with other financial assets.
Now, since the company is listed publicly, we’re obviously a little bit correlated, because everything on the New York Stock Exchange is correlated with everything else on the exchange. But farmland itself has a tendency to be strongest in times when the rest of the economy may be struggling.”
Get the complete strategy and future investment prospects by reading the entire 3,890 word interview with Paul Pittman, CEO of Farmland, exclusively in the Wall Street Transcript.
Paul Pittman, Executive Chairman & CEO, Farmland Partners Inc.
email: ir@farmlandpartners.com
Michael Gorman, BTIG Managing Director, REIT Analyst
Michael Gorman is a BTIG Managing Director and REIT Analyst, focused on health care, retail, freestanding, and specialty REITs. Mr. Gorman has over 17 years of experience covering the sector. Prior to BTIG, he was a lead REIT analyst at Cowen and Company, and held similar roles at Janney Montgomery Scott, Credit Suisse, and Prudential. Mr. Gorman received an MBA from the Leonard N. Stern School of Business at New York University, and a Bachelor of Arts degree in economics from Bucknell University.
In this 3,801 word interview, exclusively in the Wall Street Transcript, Mr. Gorman cites Postal Realty Trust (NYSE:PSTL) and other REITs as top portfolio picks for income investors in 2022 and beyond.
“I don’t get to do it as often as I like to just because of the nature of institutional investing, is that for those that can, I think the small-cap world can be an interesting place.
Because they don’t always get quite as much focus, especially on the REIT side of things, there can be some really interesting disconnects — some companies that are being well run, in an interesting phase of their growth cycle, and it’s not even that they’re not liked, it’s just they don’t meet the cap limitations, they aren’t liquid enough for some investors to get involved with, and that creates interesting opportunities for those that can to get in at an earlier point. There are three that I’m thinking of specifically, and they’re mostly in net lease, one is in the multi-tenant retail space.
Look at a name like Postal Realty Trust (NYSE:PSTL) [a REIT] that only invests in facilities owned and operated by the United States Postal Service. I think the longer that they’re public and the more that they grow, the more attention that they get. They tell a very good thesis and a good story.
They are a consolidator in a fragmented space. They are the post office’s largest landlord. And despite all the headlines, post office real estate is both critical and a tiny fraction of the post office’s budget.
And so that’s an interesting story, a differentiated exposure that you’re not going to get through any other stock, and it’s a small growth story.
And then two other names, both actually managed by the same company.
One is Alpine Income Property Trust (NYSE:PINE), a small net lease REIT that’s early on, but again, great management team, really strong thesis, putting together a good portfolio that’s really come together since the pandemic, so they don’t have legacy issues. 2022 is probably going to be a little bit of a transition year for them just in terms of their balance sheet and teeing themselves up, but this is a team that’s pretty much done everything that they’ve said they were going to do, and they’ll probably set themselves up well for 2023.
And then their sister company, it’s actually the manager, is CTO Realty Growth (NYSE:CTO).
Again, it’s a name that not only doesn’t get as much attention, but they’ve done a lot to the company over the past 12 months.
They converted to REIT status. They sold off a bunch of legacy assets and legacy positions that were not income producing. They’re in the process of reinvesting those. And they’re set up for really strong FFO growth this year.
It’s a really interesting way to get a pretty focused, pretty concentrated exposure to how they invest, and they’re building this portfolio kind of from the ground up.
Again, same management team is playing. They’re sharp, they’re focused, they have a good thesis, they seem like strong capital allocators, and it’s a little bit more of an aggressive way to get exposure to that. We like that, and the valuations are certainly favorable at this point, too.”
![Andrew Spodek is the Chief Executive Officer of Postal Realty Trust [PSTL]](https://www.twst.com/wp-content/uploads/2020/05/Andrew-Spodek.jpg)
Andrew Spodek, CEO, Postal Realty Trust [PSTL]
“My father started this business. He had been in various aspects of real estate for the majority of his life. He was first brought a small portfolio of postal properties in the early 1980s. At the time, he didn’t realize that the Postal Service even leased any of their assets. He ended up purchasing that portfolio, and he loved it.
What he, I guess innately figured out, which we found out to be true, is the Postal Service pays their rent on time, they very rarely move, and you’re able to own and operate the properties throughout the country without the need for on-site property management.
And so he continued to buy these properties and grew the postal real estate business.
I started working with my father during the summers, whenever I had time off, before joining him full time after I graduated college.
He first started taking me to look at buildings when I was around 9 or 10 years old.
We would meet with postal owners all over the country, in both urban and rural locations. In the early 2000s my father took a step back, and I took over the business and continued to grow it. Since then, we have become the largest owner of postal properties.
A few years ago, a banker approached me about creating a public company around our portfolio, and I spent a year or so researching and thinking about the opportunity. I had never thought about this before, as I never had investors to report to, I just operated my business to be as successful as possible.
After a year of thinking, I realized there was a tremendous opportunity in front of me.
Most of the postal property owners own their property for more than 40 years. Most owners are either the original or the second owner of the property.
Currently, there is a generational shift going on with the ownership of these assets, and it’s a very inefficient market, which creates an even greater opportunity for us. And so we decided to take my portfolio public almost three years ago.
And here we are.”
Get the complete detail on high dividend REIT investing by reading these interviews as well as many others, exclusively in the Wall Street Transcript.
Jamie Friedman, senior analyst, IT Services/Outsourcing and Financial Technologies, Susquehanna International Group
Jamie Friedman is a senior analyst covering IT Services/Outsourcing and Financial Technologies at Susquehanna International Group, LLP (SIG).
He started on Wall Street as an associate at Prudential Securities, emerged as a senior analyst at Goldman Sachs, and launched research at Fulcrum Global Partners in 2001 as one of the firm’s first employees.
Mr. Friedman began his career in the industry working in the systems department at Bertelsmann Industries, and is a graduate of Columbia University.
In his 3,047 word interview, exclusively in the Wall Street Transcript, Mr. Friedman explores the current high growth areas of the financial technology sector and has valuable insight regarding the rise of blockchain technology:
“Payments are really fascinating. I’ll give you a couple of subsectors of growth.
One of the most interesting ones to me is those that specialize in cross-border e-commerce.
Cross-border e-commerce from a payments perspective is really complicated. Part of the complexity is that in a lot of the world, people don’t pay with credit cards. They pay with some alternative payment mechanisms. If you’re a big company and want to expand into an emerging market, you need to make sure that you enable that customer to pay the way they want to pay.
If you go present them — like if you’re Amazon (NYSE: AMZN) and you present a new consumer, new to Amazon in Brazil, with payment options at checkout, and you only offer them Visa (NYSE:V) and MasterCard (NYSE:MA), they’re going to abandon their cart.
My guy has to enable it so that you can pay with the options that are actually in your wallet.
These alternative payment mechanisms are a huge challenge. And really, the specialists in this market are growing 40%, 50%, 60%.
Examples are the companies like dLocal (NASDAQ:DLO) and Adyen (OTCMKTS:ADYYF).
Another subsector is platforms in e-commerce. An example is eBay (NASDAQ:EBAY).
But there are a lot of other platforms, like Shopify (NYSE:SHOP).”
The disruption of the sector looms large in Mr. Friedman’s estimate:
“…Then you have the emergence of online banks.
The best player in this is Square (NYSE:SQ), in our view.
Square has built Cash App. Cash App has 40 million users. They’re making $60 per user per year.
If you look at the functionality they offer, their competitors are ones like Capital One (NYSE:COF) and Discover (NYSE:DFS) and American Express (NYSE:AXP). But Capital One makes $300 per user a year.
So can Square get from $60 now to $100 and $150?
We think they will.
They are a very good option. Their Cash App business is really an attractive story.”
Lisa Ellis, Senior Analyst, U.S. computer services and IT consulting, Sanford C. Bernstein & Co.
Another analyst specializing in this high growth sector is Lisa Ellis, a partner and Senior Managing Director at MoffettNathanson LLC. where she leads the Payments, Processors, and IT Services business.
She wrote several investment research reports and frequently appears as a commentator on Bitcoin, blockchain, and other cryptocurrencies.
In 2020, she was named to Barron’s list of “100 Most Influential Women in U.S. Finance.”
Prior to joining MoffettNathanson, Ms. Ellis was a Managing Director and Senior Research Analyst at Sanford C. Bernstein & Co.
While at Bernstein, Ms. Ellis was the #1 Institutional Investor -ranked Payments, Processors and IT Services analyst.
In her 2.650 word interview, exclusively in the Wall Street Transcript, Ms. Ellis sets out a framework for her equity analysis of the repercussions of blockchain technology.
“I would probably separate companies or businesses accepting digital forms of payment from them actually accepting digital currencies or cryptocurrencies.
In western markets, the majority of businesses nowadays take digital forms of payment.
That’s simply a credit card, debit card, prepaid card. You can also do other forms of electronic payments like using a digital wallet type of model like in PayPal (NASDAQ:PYPL) or something like that or in Venmo.
Those are digital forms of payment.
They’ve been around for 50, 60 years and are in the more mature stages of adoption in western markets.
Although in many developing markets, in Africa or in parts of Asia or Latin America or even some parts of Southeastern Europe, there’s still a lot of cash used in societies and digital forms of payment slowly take over and displace cash as the primary method of payment. And the vast, vast majority, meaning well over 90% of digital payments in the consumer context, consumers are paying merchants with a card, a digital card.
So that’s like a credit card, debit card. That’s the primary method of digital payment.
Distinct from that is the concept of actually paying for goods with a digital currency.
This would be buying something with Bitcoin as a form of tender.
That’s just like we’ve seen in Ecuador adopting that model.
That’s extremely nascent and is to be determined on how widespread that will become over time.
The primary situations in which there’s a use case or a value proposition for using digital currencies or cryptocurrencies as a method of payment is in countries where the local fiat currency is unstable and so suffers from high inflation or an autocratic government.
Those types of digital currencies are truly an alternative to local fiat currencies.
In western markets where you’re using the dollar or the euro or the yen or some very stable free market currency, there’s not a strong use case really.
People might do it because they think it’s interesting or fun or a different novelty. But there’s not a particular use case for using or value proposition for using a digital currency, whereas in some developing markets, particularly those that suffer from very high inflation, there can be a pretty strong value proposition.”
Ms. Ellis then describes how digital payments have recently begun to evolve under the influence of the blockchain.
“…A shift that you see particularly in e-commerce payments — or it can be in a physical store where you might be paying with your phone — is the intermediation of using some sort of wallet as a method of interfacing.
That’s the best way I can describe it — the interface between you and the merchant, typically a wallet. So, this would be a wallet like Apple Pay (NASDAQ:AAPL), PayPal, Google Pay (NASDAQ:GOOG). The list goes on and on.
Typically, the underlying funding method within those wallets is again, the vast, vast majority of the time — like over 90% of the time, and in the case of an Apple Pay 100% of the time — is still a card-based model.
The underlying true payment method so to speak is still a card, like you load your card in your Apple Pay wallet or you load your cards in your PayPal wallet.
But the digital wallets offer a compelling form of intermediation with merchants because you can do that sort of one-click checkout where it makes it very easy to check out.
You don’t have to manually enter your card information every time and also those wallets can offer other interesting offers to consumers like some special promotions or merchant rewards, and they can keep track of your spending for you and provide information around it.
There are some other interesting aspects of it, but those aren’t new forms of payment per se, but they are new methods of conveying your payment, like interfacing over to the merchants, that has gained a lot of traction.
For example, in the United States across the primary categories of retail, e-commerce or consumer e-commerce — that’s retail, travel, entertainment, media, those types of categories of e-commerce — the PayPal checkout button or using the PayPal wallet as a method of payment is literally a third of the volume in those categories in the U.S. So that type of wallet has become very popular.”
This evolution has begun to develop into the promising use cases around Blockchain technology.
“One of the use cases for blockchain technology where it works particularly well or where it has a particular value proposition is in supply chains.
So, for example, the food supply chain globally is a great example of where companies heavily involved in food supply — so this is like companies like Walmart (NYSE:WMT), which run tons of grocery stores and all of their wholesalers and food suppliers can use blockchain technology.
The benefit of that technology is that it provides a way to very uniquely track items.
It has these unique identifiers that are impossible to copy or replicate. You can’t cheat and duplicate them.
There are very unique identifiers and then also the technology has a very unique aspect that all parties that are given permission on a blockchain system can have good visibility into everything that’s going on up and down the blockchain.
That means you can use that technology — just the characteristics of it make it very amenable to complex supply chain tracking applications.
So you can just imagine that you can track a box of mangoes from Latin America all the way through what ships.
They went on to ship to the U.S. and then what distribution centers they went through, all the way to what grocery stores they landed in. And that way you can not only create supply chain efficiencies to manage bottlenecks throughout the supply chain, but if there’s an outbreak of a foodborne illness, you can very easily track and trace where the food came from.
You can also better guard against illegal farming and things like that in some areas of the world like in the Amazon — also avoid and better track issues like that.
It doesn’t get as much attention I guess, but it’s actually one of the applications of the technology that’s gained the most significant adoption.
It has nothing to do with finance or payments. It’s an application of blockchain technology specifically that’s taking advantage of their unique characteristics associated with asset identification.”
The association of payments, blockchain secured provenance creates a road map for creation of the Smart contract technology.
“Smart contracts are another application of blockchain technology that has gained a lot of early traction in a bunch of different use cases.
The way a smart contract works is that you embed into a transaction a form of what’s referred to as conditionality, meaning it says, “OK, transfer money from Person A to Person B under the condition once these following conditions are met.”
A classic amazing use case of that technology in a developing market like, say, in Africa is for something like crop insurance.
This is insurance that you pay and then you get paid out if your crops fail for some reason. You can set up a smart contract that says, “OK, pay farmer John a certain amount of money if the following conditions are met, temperatures reach a certain level or water fall reaches a certain level, etc.”
So it’s like an automated contract — insurance contract — and what that does is it allows you to do much smaller increments of insurance, for individual farmers for example, which are hard to reach through a traditional labor-based insurance company like actuaries and everything.
You can do it in a very automated online fashion.
It also eliminates corruption, the risk of corruption, from the system because it’s just literally baked into software that automatically pays out under certain conditions. That’s a good example of a smart contract.”
Ms. Ellis wants to emphasize that we are in the early days of blockchain technology growth.
“Bitcoin was invented in 2008.
We’re only 14 or 15 years into a very transformational disruptive technology. It’s still in its early stages.
If you think about that in the internet context, the internet, the origins of the internet, were back in the 1960s and it really wasn’t until the 1990s that you saw the explosion and adoption of the internet.
We’re still in very early stages and many of the companies that investors are the most interested in in the space are actually the companies that are providing the building blocks or the infrastructure for these technologies.
They’re still so nascent that you’re still figuring out foundational things, like how do we securely store digital assets or digital currencies, how do we store them in a secure way such that they are accessible, but also protected from theft and fraud.”
Ms. Ellis has ample advice for how to invest today.
“There’s a group of companies that do asset custody and storage, which are very popular.
These would be companies like Coinbase (NASDAQ:COIN), who is very active in that space.
Paxos is another one.
Bakkt (NYSE:BKKT) is another one that is very strong in that arena.
Similarly, there are companies that just provide a method of moving — on-ramping and off-ramping between traditional assets and currencies and into the digital assets and currencies.
They provide this intermediation layer. Again, that would be exchanges like a Gemini or an FTX, or Kraken is another one.
These are what you’d call the picks and shovels companies of blockchain and crypto or digital asset technologies.
That’s the stage of development that we’re in right now.”
This investment universe is growing.
“In addition, though, increasingly there are other methods of getting exposure to crypto, more to the technologies and the companies building these technologies.
So there are increasingly funds or ETFs, etc., that invest in a group of companies that are all quite active in the space and there’s also some individual companies that are now publicly listed that retail investors could get access to those companies.
Coinbase, of course, is the most prominent large-cap name, but there’s some other ones like Silvergate (NYSE:SI), it is a bank, and Signature Bank (NASDAQ:SBNY) is another bank.
These are two specialty banks that are pretty active in the space, and there’s probably over the next 12 months going to be another wave of new listings that are companies that are directly involved.”
Robert Maltbie, CFA, President, Singular Research
Robert Maltbie, CFA, is President of Singular Research, which provides performance-based research to over 100 institutional clients, and with over $60 billion in assets under management. He also manages a private fund for high-net-worth institutions and corporate executives.
In his 2,319 word interview, exclusively in the Wall Street Transcript, Mr. Maltbie advances his case for small caps with upside potential in the development of financial technology with a view towards the expansion of blockchain technology.
“We focus on small and micro caps. We’re independent performance-based research, unbiased, no banking.
We have about 100-plus, 110 institutional clients. They have about $60 billion in assets.
They look to us for discovery, research, new ideas or old companies with new management, new products. We’re, I guess, frequently called on by major national media when they’re interested in small caps, which is less these days.
And we follow about 40 names and we’re doubling our coverage this year. We think there’s opportunity to grow our share in the market and also valuations are favoring that as well.”
“I think one application is disrupting traditional banking. I’ve seen estimates ranging from one to several trillion in revenue just on fees for withdrawals or bank accounts or wire fees — we’re not even talking about interest rates.
We’re talking about transactional fees that consumers incur from banks.
And if you’re a merchant, of course, using American Express (NYSE:AXP) or Visa (NYSE:V), you incur fees that way.
Technologies like blockchain allow fintech-oriented transaction processors or firms that focus on using this new technology to disrupt and disintermediate by using something that’s far more efficient, more decentralized and open ended, open architecture, that results in quite a bit of benefit to consumers in terms of saving on those transactions…
I think the totality of transactions done with even MasterCard (NYSE:MA) or Visa is so immense that there’s such a margin there to disintermediate within that you could squeeze out a trillion right there, just from that alone.
And looking at companies that can benefit from that, they’ve quite a bit of room for growth.”
“If you’re aiming to be high growth along the cutting edge, or if you have a huge franchise, like a Visa or a MasterCard that you need to defend, you’ve got to be on this. You’ve got to make investments now.
And you have to be very, very serious about this right now because it’s the pace of innovation, the pace of change. Look what’s happened already with the internet and internet two, three, etc., and offshoots of that — it is just an amazingly fast pace of innovation. And you don’t want to end up like a Sears (OTCMKTS:SHLDQ) or a Kmart in retail or other entities that just didn’t prepare and didn’t invest in R&D and in innovation.”
Moshe Katri, Managing Director of Equity Research, Wedbush Securities
Moshe Katri currently serves as Managing Director of Equity Research at Wedbush Securities, where he has been for more than a year. Mr. Katri has been covering IT Services and Payments for more than 20 years, covering companies such as International Business Machines (IBM), Square (SQ), and PayPal (PYPL), to name a few.
Prior to joining Wedbush, Mr. Katri was a Managing Director with Sterne Agee CRT, where he expanded coverage of the fast-growing payments sector and continued his coverage of IT Services.
Mr. Katri spent the previous 16 years at Cowen & Company, as a senior analyst covering IT and Business Services.
He started his career on Wall Street in 1991, joining Oppenheimer & Co.’s equity research team focusing on Aerospace and Defense before moving to UBS, where he transitioned to covering IT and Business Services.
Prior to his career on Wall Street, he served as a military intelligence officer in the Israeli Defense Forces.
Mr. Katri received his B.S. in Finance and Information Systems and MBA in International Business from New York University.
In his 4,307 word interview, exclusively in the Wall Street Transcript, Mr. Katri develops the basis for his current recommendations in the financial technology sector and his views on the rapidly growing blockchain technology trends.
“…we cover the network Visa (NYSE:V) and MasterCard (NYSE:MA).
And these are, I would say, collectively they probably control about 80%, 85% of the total purchase volume.
We also cover the payroll processors, ADP (NASDAQ:ADP) and Paychex (NASDAQ:PAYX).
We cover the two-sided platforms that service consumers and merchants, so that would be Square (NYSE:SQ) and PayPal (NASDAQ:PYPL).
And then we also cover two-sided platforms that cater to financial institutions and to merchants. So that would be the likes of FIS (NYSE:FIS), Fiserv (NASDAQ:FISV) and Global Payments (NYSE:GPN)…
We cover Coinbase (NASDAQ:COIN) also as a monetization play, but not necessarily as a crypto play.
It’s predominantly the company’s ability to monetize roughly, I don’t know, 40 million users and build an ecosystem of products and services around it.”
Mr. Katri believes much of the upside for these current stocks lies in their ability for the monetization of networks.
“Each one of these players has a place in what we call the payments ecosystem, right?
The networks are sitting pretty much at the center of every transaction.
Instead of clearing transactions, they connect about four different parties in that payments ecosystem.
If you look at the companies that have platforms that service merchants, they’re the ones at first that serve as the gateways between the merchant and the network. That’s another way of looking at it.
But I would say a couple of things about what all these companies are trying to do today, all these companies — and this is not something I would have told you five years ago — all these companies are focusing on monetization.
So what does that mean?
Let’s look at MasterCard and Visa.
Their bread and butter historically has been more about generating or charging fees, right, for transactions that are done, whether via a shopping network or if you’re traveling. That’s what we call cross-border.
Now, the networks serve as financial institutions.
These are the card issuers and they’re also connected to merchants.
These guys realized a couple of years ago, and probably MasterCard is the one that really started this trend, that if we service so many financial institutions, why don’t we also build a whole set of services business, or what we call value-added services, or ancillary services, where we can actually sell these to our end markets, which would be the financial institutions?
So we’re talking about consulting, we’re talking about other things that are related like cybersecurity or data analytics.
The thought here is that not only can we help them clear transactions or make sure transactions go through, but we can also sell them services.
Lo and behold, four or five years later, for MasterCard, value-added services accounts for 20%, 25% of revenues and it’s a very profitable piece of business.
And ironically, this is the fastest-growing business right now for both networks. So 20% to 25% of revenues from MasterCard, roughly 15%, maybe 15% to 20% of revenues with Visa, the fastest-growing business is here.
And Visa probably had been very defensive, especially given some of the recent volatility in general in travel and a bunch of other revenue sources for the networks.
So the networks have been focusing on monetization and then everybody else has been doing the same thing.
Look at the payroll processors, ADP and Paychex, they’ve also built a set of ancillary services.
Not only are they helping employers pay employees, send them checks or deposit checks into their accounts, but they’re also selling them other ancillary services that are related to back office, whether it’s recruiting, whether it’s insurance.
And it’s interesting that’s really been working nicely.
Look at Square and PayPal, which are two-sided platform companies.
They serve merchants on one hand and they also serve consumers on the other hand.
Square probably has the best monetization strategy that’s been working flawlessly in the system.
We’re assuming that they cater to about 5 million to 6 million merchants. Not only do they provide these SMBs or mid-sized merchants the ability to clear transactions, but on top of that they also provide them access with other software tools that are necessary for them to operate a business: inventory control, loyalty, other things that are really necessary, and they charge them for using these tools.
That’s what we call ancillary services.
On the consumer side, Square built a digital banking app called the Cash App, which enables you, the consumer, to have a sort of banking account on this platform.
You can get your salary sent there, you can use it for purchases.
And then on top of that, you can access other services that are related to that platform, too.
That’s Square’s monetization strategy.
PayPal also has been focusing on how to monetize their two-sided platforms.
Then you have other two-sided platform companies that we cover and these are companies that on one hand service financial institutions and then on the other hand they service merchants.
So we’re talking about FIS (NYSE:FIS), Fiserv (NASDAQ:FISV) and Global Payments (NYSE:GPN).
On the financial institution side, these guys provide financial institutions with an infrastructure that’s related to trading, commercial banking, peer-to-peer, or P2P. That part of business that’s doing relatively well.
The other side of the business is more focused on merchant processing.
They provide gateways connecting between merchants and the networks and obviously charging fees for that gateway for merchants using the gateway to clear transactions.
But again, every single one of our companies has been focusing on trying to monetize the end markets that they’re focusing on.”
Mr. Katri has become concerned about the “buy now, pay later” space that Square, now called Block (NYSE: SQ) has recently acquired:
“Now the area that we’re concerned about the most in the industry today is the emerging, what we call, “sign up and buy now, pay later,” or BNPL area.
Anything that has to do with buy now pay later from our perspective is a bit problematic because this is effectively an alternative lending business.
This reminds us a lot of the subprime lending business that we’ve seen, I don’t know, 10 years ago.
There are some companies that focus predominantly on that, companies like Klarna, Afterpay that was acquired by Square, Affirm (NASDAQ:AFRM).
What worries us the most here is the fact that the model has not been battle tested during a recession.
We are concerned about rising default rates.
We are concerned about the fact that this kind of form of payment is relatively fast-growing in a consumer base that isn’t necessarily qualified to get your typical credit card.
We’re concerned about rising default rates and people are accumulating debt they cannot afford.
This is probably the only form of alternative lending that is not regulated.
For example, Square acquired app2pay.
Luckily for them, because Square shares fell so much from their high, they’re not paying $30 billion for it but about $10 billion.
Effectively they’ve acquired a lender and I don’t know if this strategically made a lot of sense for them.”
Get the complete detail by reading the interviews of all these equity analysts and more insights into the IT Services sector, and the emerging blockchain technology sector, exclusively in the Wall Street Transcript.
Lisa Ellis and Dr. Catherine Corrigan make money for their investors the old fashioned way — they understand the implications of innovation in Bitcoin, cryptocurrency and battery storage solutions and create methods to profit from these insights.
Lisa Ellis, Partner, Senior Managing Director, MoffettNathanson
Lisa Ellis is a partner and Senior Managing Director at MoffettNathanson LLC.
She leads the Payments, Processors, and IT Services business. She wrote several investment research reports and frequently appears as a commentator on Bitcoin, blockchain, and other cryptocurrencies.
In 2020, she was named to Barron’s list of “100 Most Influential Women in U.S. Finance.”
Prior to joining MoffettNathanson, Ms. Ellis was a Managing Director and Senior Research Analyst at Sanford C. Bernstein & Co. While at Bernstein, Ms. Ellis was the #1 Institutional Investor -ranked Payments, Processors and IT Services analyst.
Prior to Bernstein, Ms. Ellis spent 13 years at McKinsey & Co. where she was a Partner in the firm’s Technology & Telecom and Marketing & Sales consulting practices. She received advanced degrees in physics, math, engineering, and business.
Ms. Ellis has deep insight into the Cryptocurrency and Blockchain technology innovations. In this 2,650 word interview, exclusively in the Wall Street Transcript, she details her perspective and develops the thesis for several related stock picks.
“The interest in underlying blockchain technology, as well as digital currencies and cryptocurrency technologies, continues to increase.
It has gone through various fits and starts and spurts, but has continued to increase over the last seven or eight years. And over time, I guess I’d say that the use cases for blockchain and for digital assets or cryptocurrencies are starting to evolve and crystallize into a handful of different use cases.
The underlying blockchain technology is essentially a different form of database technology.
It has applicability primarily in supply chain-related applications, as well as some underlying core banking-related applications. So there’s a lot of interest in that area, and then digital currencies as well as cryptocurrencies, some of the derivative products like NFTs have other use cases.
Some of them are simply in investments and trading like we see with cryptocurrencies. Some are in payments, some are in asset identification and tracking like you see with NFTs.
I guess I’d say the big evolution over just the last couple of years is that the investments in this space have started to align themselves around this sort of four or five major applications for the technology.”
This innovation has led Ms. Ellis to recommend some near term investments for those looking for exposure to the Blockchain and Cryptocurrency Sector:
“For instance, Bitcoin was invented in 2008.
We’re only 14 or 15 years into a very transformational disruptive technology. It’s still in its early stages.
If you think about that in the internet context, the internet, the origins of the internet, were back in the 1960s and it really wasn’t until the 1990s that you saw the explosion and adoption of the internet.
We’re still in very early stages and many of the companies that investors are the most interested in in the space are actually the companies that are providing the building blocks or the infrastructure for these technologies.
They’re still so nascent that you’re still figuring out foundational things, like how do we securely store digital assets or digital currencies, how do we store them in a secure way such that they are accessible, but also protected from theft and fraud.
There’s a group of companies that do asset custody and storage, which are very popular.
These would be companies like Coinbase (NASDAQ:COIN), who is very active in that space. Paxos is another one. Bakkt (NYSE:BKKT) is another one that is very strong in that arena.
Similarly, there are companies that just provide a method of moving — on-ramping and off-ramping between traditional assets and currencies and into the digital assets and currencies.
They provide this intermediation layer.
Again, that would be exchanges like a Gemini or an FTX, or Kraken is another one. These are what you’d call the picks and shovels companies of blockchain and crypto or digital asset technologies. That’s the stage of development that we’re in right now.”
Get all of Ms. Ellis’ deep insight by reading the entire 2,650 word interview, exclusively in the Wall Street Transcript.
Dr. Catherine Corrigan, President, CEO of Exponent (EXPO)
Dr. Catherine Corrigan is the President and Chief Executive Officer of Exponent, Inc. Dr. Corrigan joined the Company in 1996, was promoted to Principal in the Biomechanics Practice in 2002, and to Corporate Vice President in 2005.
In 2012, she was appointed Vice President of Exponent’s Transportation Group, overseeing the company’s Vehicle Engineering, Biomechanics, Human Factors, and Statistical and Data Sciences practices, as well as Visual Communications.
She was appointed President of the company in 2016 and Chief Executive Officer in 2018. Dr. Corrigan has consulted in the area of injury biomechanics and on issues related to motor vehicle and product safety for more than 20 years.
Dr. Corrigan holds a Ph.D. in Medical Engineering from the Harvard-MIT Division of Health Sciences and Technology, an M.S. in Mechanical Engineering from MIT, and a B.S.E. in Bioengineering from the University of Pennsylvania.
Dr. Corrigan was elected to the National Academy of Engineering in 2021.
In this exclusive 3,135 word interview found only in the Wall Street Transcript, Dr. Corrigan emphasizes the financial rigor that she demands for her company:
“We have about $300 million of cash right now on our balance sheet.
There are three categories of things that we think about in terms of deploying that cash.
First, we have been committed to a dividend for a number of years now. We have continued to raise that dividend over the course of time, actually raising it faster than earnings. We just recently raised the dividend by about 20%. So we are committed to continuing our dividend program as a way of returning cash to shareholders. That’s an important pillar of our strategy with regard to our cash.
The second is share repurchases. We’ve just recently increased our share repurchase authorization, adding about $150 million to that. Our strategy there is to take advantage of pullbacks in the stock that are unrelated to our performance, but are a function of the marketplace, and to use our cash to strategically repurchase shares.
The third opportunity involves tuck-in types of acquisitions that we think could help us to seed or accelerate new areas of business for the firm. We are very choosy about acquisitions, and it’s been a number of years since we’ve done one. But we do believe, at least philosophically, that there can be opportunities if we find the right partner to make an acquisition that could accelerate some of our growth.”
Dr. Corrigan sees her company growing around new technologies:
“…There are some particular areas of business that we’re very focused on in terms of growth opportunities.
One of them is around energy storage, and batteries in particular. Exponent has been working in the battery and energy storage arena for a number of years, mostly focused early on in the consumer electronics industry.
One example is our work on the Samsung Galaxy Note 7 a few years ago. That’s one of the few public projects that we’re actually able to talk about.
We are now seeing demand for energy storage expertise across more industries.
Transportation in particular is a place where many of the original equipment manufacturers are coming out with pledges around the percentage of their vehicle fleets that are going to be electrified over the next five or 10 or 15 or 20 years. The vehicle electrification trend is driving more and more demand for our expertise related to energy storage, safety and performance.
We’ve got some very advanced methodologies for testing these kinds of energy storage systems, whether those are the small batteries in medical devices, all the way up to utility-scale storage systems that empower our transition into cleaner energy.
Our initiatives around batteries are oriented toward growing that work across industries.”
Get the complete interview with Dr. Corrigan, exclusively in the Wall Street Transcript.
