Phil Skolnick, Managing Director, Equity Research, Eight Capital.
Phil Skolnick is Managing Director, Equity Research, and Senior Oil & Gas Analyst at Canada’s Eight Capital.
He formerly was Managing Director and head of global energy research at Canaccord Genuity.
He received an MBA from Texas Christian University. He also received an economics degree from Bethany College.
In this 2,430 word interview, exclusively in the Wall Street Transcript, Mr. Skolnick emphasizes his research on the smaller independent exploration and production companies in Canada as a sweet spot for investors in 2022.
“The COVID pandemic caused the whole industry in 2020 to basically go into survival mode.
They had to cut back dramatically on capex spending, not just on the exploration side or growth side, but in some cases even on the maintenance capex side. And they had to figure out ways to reduce their breakeven costs.
And so what we’ve been seeing as the consequences of that on the supply side — particularly on the U.S. oil production side — production is down roughly 1.5 million barrels a day still today from the peak of the pre-pandemic levels.
Activity level still remains somewhat low. And now with supply chain issues, we’re seeing cost inflation happening as well.
And so, because of all this, we’ve been bullish on oil prices.
Back in probably June or July of 2021, we made a call that oil is headed into the $90 range. And it hasn’t hit that point yet, but it’s been very close here of late. And we still do see that happening. We can see, like many others have been saying, $100 at times as well.
The companies have been focusing on returns to shareholders for the most part.
What that means is that they’re trying to maximize free cash flow generation. And rather than putting all that free cash flow back into the drill bit, they’re returning it to shareholders in the form of dividends and/or share buybacks.
Because of that, we’re seeing these companies, for the first time since I’ve been covering the space, since 1997, where you’ve had free cash flows that in some cases are as high as 50% on strip pricing.”
This leads Phil Skolnick to direct his investors into specific smaller-cap oil producers.
“The one thing generally we’ve been recommending since late last year, and we reiterated, is that the market is rewarding the smaller companies that are able to actually grow because they don’t impact the supply picture.
If they can do it on a positive debt-adjusted basis, that means increased value to equity holders.
We’ve been favoring the smaller-cap companies and the ones that screen the best on those metrics for us are InPlay (OTCMKTS:IPOOF), Spartan Delta (OTCMKTS:DALXF), Gran Tierra (NYSEAMERICAN:GTE), PetroTal (OTCMKTS:PTALF), and Tamarack Valley (OTCMKTS:TNEYF).”
These plays hit the investment benchmark for Phil Skolnick:
“One measurement that we’ve been watching here since October of 2021 is the free cash flow yield plus debt-adjusted production per share growth.
And InPlay, Gran Tierra, PetroTal, and Tamarack Valley show probably the best on those metrics and what we call the combination of adjusted free cash flow and adjusted production per share growth.
We call it debt-adjusted total return, because this is all about returns to equity holders.
PetroTal has over 200% 2022 estimated total debt-adjusted return and Inplay has about 200%.
And that dwarfs the other companies that are anywhere from 10% to 100%. Gran Tierra is about 50% and Tamarack Valley is well over 50% on a debt-adjusted total return basis.
The ones that really stand out the most though of those names that we are highlighting or favoring are Inplay, PetroTal, and Spartan Delta — these companies are trading at two times or less EV-to-debt-adjusted cash flows on this year at strip pricing.
So not only are they showing tremendous debt-adjusted total return potential, but they’re trading at basically bargain valuations that we have not seen in this space.”
The imminent expansion of the Alberta to British Columbia pipeline will bring a significantly positive development to the oil producers of Canada:
“The two pipelines, the big ones.
You have the TMX, which is the Trans Mountain expansion. And that’s almost 600 thousand barrels a day of new capacity that’s expected to come online, possibly as early as sometime next year.
The key about Trans Mountain expansion is that it will give you the gateway to Asia. And with Asia, you’ll get premium pricing for Canadian oil, especially for the heavy oil.
And so, we could see at times where Canadian heavy oil could trade at a premium to Brent pricing, because it is in such high demand.
In Asia, with the petrochemical build out — especially China wants to be the dominant player in the pet-chem business as well.
Increasing pet-chem demand yields increased demand for heavy oil. The pandemic slowed things on that growth a little bit, but as we’re coming out of the pandemic, you’re going to see that demand for heavy oil continue to rise…
The thing about the U.S. is there’s no new refineries being built.
There’s nothing going on in terms of increased demand. But what is happening is that as you have increased demand from Asia, and when Trans Mountain expansion comes online, that’s going to be an even further headwind for the U.S., particularly in the Gulf Coast and the Midwest markets, because those are heavy oil consumers that do rely on Canadian heavy oil as feedstock.
And so if they’re going to have to start fighting more and more for those barrels against Asia, that’s just going to be further headwinds on refining margins in those two regions.
In terms of the whole energy transition, the move for carbon emissions reduction, it is an impediment to growth.
It’s not only just the policies, but you’re seeing the shareholders as well, where activism is going on in the space and getting the majors to decarbonize themselves.
That just means less spending on upstream.
What that does is to put further downward pressure on supply, which then puts further upward pressure on oil prices.
Now in Canada, they’re looking to work with the industry in terms of the whole carbon sequestration and we’re still waiting for some agreement to come out between the government and the oil producers, the oil sands producers.”
Get the full detail and all recommendations from Phil Skolnick by reading the entire 2,430 word interview, exclusively in the Wall Street Transcript.
Tom Deitrich, President and CEO of Itron Inc. (NASDAQ: ITRI)
Tom Deitrich was appointed president and chief executive officer and named to Itron Inc.’s board of directors on Aug. 6, 2019.
He joined Itron in 2015 as executive vice president and COO and has played a major role in shaping the company’s strategy to partner with cities and utilities to deliver industrial IoT solutions.
Mr. Deitrich has more than 25 years of experience in global operations at leading technology firms and has held numerous executive management positions where he led business-level strategies that transformed and significantly improved business results.
He has extensive experience in product management, research and development, supply chain management and business development in several industries, including industrial equipment, telecommunications and semiconductors.
Before joining Itron, Mr. Deitrich was senior vice president and general manager for Digital Networking at Freescale Semiconductor. Prior to Freescale, Mr. Deitrich worked for Flextronics International (NASDAQ: FLEX), Ericsson Mobile Communications (NASDAQ: ERIC) and General Electric Corporation (NYSE: GE).
Itron (NASDAQ:ITRI) provides services to utility networks.
In this 3,388 word interview, the CEO of Itron (NASDAQ:ITRI) Tom Deitrich details his company’s prospects and strategy:
“We go to market in three segments: Devices, Networks, and Outcomes. So a device is a measuring type of device, so a meter or a sensor, and it really makes measurements to provide data. So how much electricity are you using, how many gallons of water have you used, is an example.
Then the network takes that data, that measurement, and communicates it robustly and securely back for processing. And the processing could be as simple as what’s your monthly bill or it could be detecting all of these other things that I explained in the distributed intelligence world.
And outcomes really is using all of that data that gets collected to make intelligent business decisions.
So it could be, how much was Constance’s electricity bill? It could be, hey, you’ve got a leaky pipe in your neighborhood and water is being wasted, or it could be smart city applications to automate streetlights. It could be crowd noise.
Where is an empty parking meter? Where are assets being used incorrectly? Where is an asset or air quality monitoring?
You can hook up any kind of sensor to this and be able to process that data.
So that’s three ways that we support our customers — the device to make the measurement, the network to communicate all the information, and then the outcome is all of the processing to make intelligent decisions and use that data for the benefit of the utility as well as the consumer.”
The challenge to utility service management is the sweet spot for Itron (NASDAQ:ITRI) services and products:
“We see our customers are really facing three very large challenges.
There are challenges with infrastructure — the infrastructure is getting old, and it’s starting to break down.
There’s more and more cybersecurity attacks, there’s more and more need for sustainability.
So renewables are being put into the generation side of things. How our utility customers cope with those infrastructure challenges is megatrend one.
Number two is the environmental side of things, and that is things like wildfires and floods and hurricanes.
These things are happening more and more.
Climate disruption is happening and storms happen. And that again is a real challenge too.
How do you keep the lights on and clean water flowing in that kind of an environment?
And the third is the consumer push — the service imbalance.
So, let’s suppose you used a delivery service last night to order your dinner. You knew when you ordered your dinner, when your food was going to arrive and how much it was going to cost, and where in real time you can look at your smartphone and see how quickly the driver was coming to your house.
That level of service you were having with another thing that you interacted with in your life, the delivery service, do you have that same level of service from your utility? Do you have that same insight? So that’s a real challenge for our utility customers to be able to live up to the service expectations that consumers have compared with other things that are going on in their life.
So if you combine infrastructure, environmental and consumer challenges that our customers are up against, how do they overcome these things? How do they make sure they’ve got reliable and resilient services in that kind of environment?
And fortunately, we’ve got technology solutions to be able to overcome those challenges and cope with them.”
The CEO of Itron (NASDAQ:ITRI) Tom Deitrich is pleased with his company’s performance in 2021:
“Utilities generally buy technology and they deploy it and they amortize it over a long period of time.
They live in a regulated environment.
They’ve got utility commissions that govern how they spend money.
But now, because of this new business model, we’re really operating in such a way that there is a recurring revenue stream for Itron.
It’s a different way for the utility to procure technology, and it is allowing them to be more agile as to who knows what will happen next in terms of renewables or electric vehicles or storms and outages.
So it’s more flexible.
And we’re really, really pleased to have been able to A) develop the technology, but B) prove it in the field, in terms of the capability that it provides and the resiliency that it provides, the agility that it provides, but also have that new business model to put it into the field.
So deploying things as a service is different than deploying them as a sold widget or asset.
And it is that combination of new technology, new business model and proven benefits that we were really, really excited to see go from concept and vision to actual business and benefits to customers last year.”
Get the complete detailed interview that explains his company’s strategy and prospects for growth in 2022 in this 3,388 word interview with the CEO of Itron (NASDAQ:ITRI) Tom Deitrich, exclusively in the Wall Street Transcript.
Ryan Connors, Boenning & Scattergood
Ryan Connors has picked A. O. Smith (NYSE:AOS) and Mueller Industries (NYSE:MLI) as two of his stock portfolio buys for 2022.
Ryan Connors rejoined Boenning & Scattergood, Inc. in January of 2015 and serves as Director of Research as well as Senior Analyst covering water and environmental equities.
He was previously with the firm from 2006 to 2010 as Senior Analyst covering the water sector. From 2010 to 2014, Mr. Connors served as Managing Director of Water & Agriculture Research at Janney Montgomery Scott.
His experience also includes buy-side research positions with PNC Advisors, where he covered industrials and basic materials, and ProShare Advisors, where he was responsible for fixed income research and trading.
Mr. Connors has won numerous analyst awards, including being named #2 stock-picker in the machinery sector for 2019 by Reuters/Refinitiv. Mr. Connors earned a bachelor of science degree in finance from Saint Joseph’s University and an MBA from Georgetown University.
He resides in Huntingdon Valley, Pa., with his wife, Kelly, and their three children.
He is a member of the Finance Council at Saint Albert the Great Parish and an on-site volunteer serving the men of Saint John’s Hospice, a homeless shelter in Philadelphia.
Get more top picks and insightful industry sector analysis in this 3,534 word interview, exclusively in the Wall Street Transcript.
“The other issue, somewhat related although different, is pricing power. We’ve obviously had a lot of inflation in raw materials — copper, chemicals, plastics, pretty much everything — and also labor.
These are all seeing inflation.
And so one of the big issues is which companies have the best ability to pass those higher costs through to their customers through price increases. And that’s really important in this environment, because if you can’t pass it through, then the company itself takes a hit on their own margin and profitability.
There’s a great example of a company we like that’s done exceedingly well on pricing power — that’s A. O. Smith (NYSE:AOS). So A. O. Smith manufactures water heaters. And sometimes just plain old common sense dictates who has great pricing power.
When your water heater breaks down, you’re taking a cold shower until you get a new one. And so you don’t tend to call your plumber and say, “Well, can you shop around for five different deals and get back to me in a week and we’ll figure out what’s the best price I can get?”
No, you say, “Get the quickest water heater you can find and please get it over here within an hour. I need hot water.”
And so that industry tends to have the ability to pass through raw material price costs, because consumers don’t want to wait.
They’ll pay whatever price they have to to get that hot water back. And so AOS is a company that’s done exceptionally well and the stock’s done very well in passing through raw materials costs ever since this inflation boom sort of began 12 months ago.”
The award winning equity analyst Ryan Connors has some firm opinions on 2022 investments in the Mueller publicly traded stocks.
“…Our top picks right now — or actually if I had to name our top three — there’s Mueller Industries (NYSE:MLI).
And there are two different Muellers. There’s Water Products, that I mentioned earlier — MWA — but Mueller Industries is MLI. And the beauty of Mueller Industries is that they’re very much under the radar, even though it’s a $3.5 billion company.
We’re the only sell-side Wall Street firm covering the company. So they don’t have a lot of coverage. They don’t do a lot of communications and conference calls, and so forth.
And what that’s done to them is they’ve sat out the ESG bubble a little bit because they don’t really get out there. And they haven’t published an ESG report and communicated with investors on that.
So they’ve traded a p/e multiple of about 10 times earnings. And again, we’ve got companies north of 50.
They’re growing just as well. They’re posting very good return metrics, etc. So we think it’s a great buying opportunity in MLI.
The other one I would mention is Valmont Industries (NYSE:VMI), which is a company doing highway infrastructure products.
It stands to benefit from some of the federal spending that’s come down the pike, which is a lot different from water. Federal spending is really not a good thing for the water industry. It is a good thing for the highway industry. And Valmont plays into that quite nicely.
They’ve also got a good business in irrigation. And farmers are spending more money today.
They’ve come out of a multi-year downturn. And the farm capital spending has been very strong.
And so we expect them to benefit from that as well.”
Ryan Connors says there are additional reasons to invest in A. O. Smith:
“Water utilities, on the other hand, do charge a fee, which is your water bill that you get in the mail. And so, when you pump federal money into that system, you give local politicians an incentive to decrease the billing rates, which is very politically popular at the local level.
But that makes the system less financially sustainable going forward.
Now they’ve got a billing rate that’s below the cost of service. And that can’t sustain that system going forward. So it’s a very counterproductive thing to sort of dump federal money, or even state money, into that system.
So one of the challenges is the federal government is putting money into the water industry to try to recreate the legacy water system nationally. And there are many people who believe that that’s not the way to do things going forward and what should happen is treatment of water should take place in your home at your tap.
In other words, the old way was you would treat the water at a central treatment facility, pump it out through these pipes, and then we turn on our tap to drink.
But now, there’s more and more distrust of that tap water because people don’t know what exactly happens to that water between that treatment plant five miles away and their home. And you read about things like what happened in Flint, Michigan, with lead in the water And people get scared — rightfully so.
So the idea is that there are certain companies, and A. O. Smith is an example, that are very active in the area of what we call in-home water treatment or POU — point of use water treatment — where you install a treatment system under your own sink.
And it doesn’t really matter how the water arrives at your house, because you’re treating it right there at the tap and you’ve got 100% confidence that it’s going to be clean.
So it’s not bottled water. It’s even better because you’re not dealing with the plastic.
You’ve just got a nice treatment system right there at your home.
And there’s cost estimates that say we could outfit the whole country with one of those. They’re only a couple of hundred dollars each. And the government would probably negotiate an even better deal than that.
So why wouldn’t the federal government be incentivizing that type of infrastructure instead of the legacy type central treatment system?
So bottled water, bottled water usage, has actually suffered in the pandemic, simply because people aren’t out as much.
A lot of bottled water gets purchased in an airport or somewhere where it’s a pure convenience.
When people are home more, and working from home, this sort of in-home treatment where you’re treating the water and able to drink it straight out of the tap becomes more preferable and cheaper than actual bottled water.
So related to that, we have a “buy” rating on A. O. Smith.”
Get the complete detail by reading the entire 3,534 word interview with Ryan Connors, exclusively in the Wall Street Transcript.
Ryan Connors, Director of Research & Senior Analyst
Boenning & Scattergood, Inc.
www.boenninginc.com
email: rconnors@boenninginc.com
Christophe Gaussin, CEO, the Gaussin Group
Gary Patterson, EVP North American Operations, Gaussin Group
Christophe Gaussin was appointed Chief Executive Officer of the Gaussin Group, the hydrogen powered vehicle manufacturer, in 1994.
Trained in design office techniques and all processes of product manufacturing and having worked in the company since 1992, Mr. Gaussin has an excellent vision of products and sectors.
Holder of a management control diploma from the Institut de Management Control (ICG-1998) and an Executive MBA from Concordia University in Montreal (2005), he was also President of the Haute Saône Chamber of Commerce from 1997 to 2001.
Gary Patterson is the Executive Vice President of North American Operations for Gaussin.
He joined the hydrogen powered vehicle company in September 2020 with more than 25 years of B2B information technology experience.
An expert in change management, he knows how to use innovative solutions based on the exploitation of data.
Prior to joining Gaussin, Mr. Patterson previously held the position of Director of Operations at Bestmile, a Swiss supplier of a fleet management platform for mobility players aiming to deploy, manage and optimize vehicle fleets, autonomous or not.
At Bestmile, Mr. Patterson was responsible for strategic partnerships as well as customer operations, including deployment and support operations.
Prior to that he served as Vice President of Technology at Dell Technologies [NASDAQ: DELL], overseeing cloud management infrastructure and software delivery.
In this 3,674 word interview, these two senior executives from Gaussin Group explain the development of hydrogen powered vehicles and how the cutting edge in this carbon killing technological innovation is progressing.
“It’s our vision to be a game changer.
We had an opportunity 10 years ago to create this portfolio of products for ports, logistics centers, airports and smart cities. So it was really a transportation focus which started with the off-road segment, and now we have on-road focus, based on a new Road Truck Skateboard.
Also, I’m speaking with you from Riyadh in Saudi Arabia, where we just completed the 2022 Dakar Rally. We participated in the experimental category, and we were the first one in the history of the race with a hydrogen truck, zero emissions.
It is the first hydrogen racing truck ever built and we won in this category.
We were alone by the way, and we had zero emissions, zero noise in Saudi Arabia during two weeks of racing, and now there is a special event with His Highness Salman bin Abdulaziz Al Saud, the King of Saudi Arabia, who wanted to see the truck.
It’s really something, and it’s very interesting to understand. Every 100 kilometers, we produce something like 100 liters of water per hour with this truck because of the phenomenon of hydrogen. You split the hydrogen with a fuel cell, and you produce electricity for the vehicle and water.
So it’s really clean, it’s zero emissions, and silent — which is very important for the driver, because you don’t have a gearbox anymore. The noise of a racing truck is normally very tiresome.”
The hydrogen powered vehicle is a highly specialized propulsion system that the Gaussin Group has mastered:
“You can really compare it to your car. It’s a tank and instead of petrol that you have in the tank, you have hydrogen. And so when you need more autonomy, you need, for example, to do this race, the Dakar, it’s impossible to do with batteries alone, because you will have a very short autonomy.
And so here we are using the hydrogen like a range extender or like a tank. And of course, the more storage capacity you have, the more autonomy you have with hydrogen.
Next, you produce electricity thanks to fuel cells, and you always need a battery because you need to store electricity. And electric motors for the torque that we must have due to the weight — you need a lot of power when you want to start.
And so, you need a battery.
In fact, in all applications that a battery is used for, hydrogen can also be applied. People want to make a comparison between batteries and hydrogen, but in fact, you always need a battery, but the battery will be smaller, and you will add the hydrogen and the fuel cell…”
The question of how the hydrogen propulsion system works is addressed in the interview with the two Gaussin Group executives:
“TWST: How is the hydrogen different from battery, and is one actually better?
Mr. Patterson: In effect, think of the hydrogen as allowing you to charge the battery while you’re moving. So today, you have hybrid cars that use a petrol generator to charge the battery, but you’re using fossil fuels. With the hydrogen, you’re using a hydrogen generator to charge the batteries.
Mr. Gaussin: Five years ago, batteries were very expensive per kilowatt, though not as productive. And we do believe that now we will see the same cycle with hydrogen, but in this industry — with massification, with volume — the price will decrease dramatically.
But the fuel cell will be smaller, more powerful. It will be the same story of the learning curve thanks to the technology.”
The Gaussin Group is also racing to provide this hydrogen propulsion technology on a global basis:
“We don’t want to hide all these new technologies. We want to share this technology to be able to produce in the U.S. and to integrate local suppliers, step by step.
For example, we have an agreement with Plug Power (NASDAQ: PLUG) in the U.S. to integrate their fuel cell.
We have another agreement with Microvast [NASDAQ: MVST] — it’s a battery manufacturer — and so, we wish to localize and to create an ecosystem, and after that, to offer first-class maintenance services. And the goal after that is to create transport-as-a-service.
It’s really for the final customer, but he will be able to pay per kilometer or per hour, and it will be very simple for him with an App. It’s our business model.”
Get the complete detail on the Gaussin Group strategic objectives for a hydrogen powered vehicle future and the expectation of return for shareholders, exclusively in the Wall Street Transcript in this 3,674 word interview with Christophe Gaussin, Chief Executive Officer of the Gaussin Group and Gary Patterson, the Executive Vice President of North American Operations for Gaussin.
Christophe Gaussin, CEO
Gary Patterson, Executive Vice President for Gaussin North America
Gaussin SA
11 rue du 47ième RA
Héricourt France
+33 3 84 46 13 45
www.gaussin.com
email: info@gaussin.com
John Ewart, Investment Manager, Aubrey Capital Management
In this 3,821 word interview, John Ewart, an Investment Manager at Aubrey Capital Management details his belief in the emerging markets growth stocks of India, Singapore, China and Indonesia.
Mr. Ewart is a Co-Manager for the Aubrey Global Emerging Markets portfolio and joined Aubrey in 2012. He is an Economics graduate from Strathclyde University and member of the CFA Institute.
Mr. Ewart began his career with Glasgow-based FS Assurance in 1988, and managed European equity portfolios in the U.K. retail and pension fund market.
In 2000 Mr. Ewart joined First State Investments to manage the pan European retail and segregated client portfolios. In 2004 Mr. Ewart moved to Alliance Trust PLC and subsequently managed a U.K. specialist portfolio, before proceeding to manage a Global Equity portfolio, and latterly the Global Emerging Markets portfolio.
“We’re very focused on growth. And when we say growth, we mean cash flow growth.
We look for companies that generate specific metrics, notably a return on equity in excess of 15%, cash flow return on assets of 15%, and ultimately profit growth of 15%. These are not easy parameters to meet.
If you look at the MSCI Emerging Markets Index, that index has struggled to achieve a return on equity of 15% over the last 10 years and has done so very briefly.
We hold excellent businesses with the level of profitability that enables them to reinvest in their expansion and further capitalize on that growth opportunity. So our focus is very much on growth investing.
But the valuation of those stocks in the portfolio is also clearly a key parameter.
In terms of regions, our biggest exposure at the moment is to India, where we have over 40% of the portfolio. You may think that’s a high figure, but we’re very much in the camp of being active managers.
We have our own analysis and that guides our stock positions.
There are many stocks within the index that we do not buy for our clients.
Many are heavily influenced and some are dominated by various governments in different parts of the world. Some carry risk in areas where there are industries in decline, delivering poor returns, or having limited growth prospects.
And we think that consumer-focused opportunity is, in many ways, the area where we can see the prospect for enterprise and successful business continuing to expand and providing greater areas of opportunity as we go forward.”
India has lagged China in respect to COVID 19 pandemic recovery.
“By contrast, what was seen in India was a bit chaotic.
And India is now considered to be going through this third wave of COVID. The first wave really impacted the poorer segments of the society, particularly those that live in urban, dense areas.
When the government basically decided that they were closing the economy, a lot of these people had to leave because they didn’t have access to employment, therefore they couldn’t afford to live in the urban areas they were in.
That was a humanitarian disaster, because you had individuals trying to walk literally hundreds of miles back to their villages. India learned a lot — learned a hard lesson from that.
The second wave of COVID in India really affected more of the middle class. And what you found was a lot of people confined themselves to their homes for safety reasons.
You also then found the adoption of various behaviors, and sectors such as food delivery being very popular. Again, we’ve seen that in countries such as China during the whole COVID experience at the outset.
We start to see this repeat of consumer behavior in different countries when similar situations arise. And even when individuals have the option of being allowed to go out and visit restaurants post the COVID waves that we’ve had, there is still a reluctance, there is still a hesitation.
So the adoption of food delivery has actually become much more almost mainstream in people’s behaviors. And certainly, there’s been a lot of evidence in China and in India that this sort of change in consumer behavior is here to stay. Not just a temporary phenomenon because of COVID.”
An emerging market faces challenges idiosyncratic to it’s own specific government and region:
“…If you consider the prospects in countries such as South Africa, Mexico or Turkey, it’s very difficult for the consumer to feel optimistic, because the outlook politically remains challenged.
The outlook for economic growth has been very difficult for a number of years.
And quite simply, if the consumer doesn’t feel optimistic about their employment prospects, their income growth, then they will not spend to the same extent. So, whilst we’re broadly optimistic, it’s very country specific and is very focused on the consumer itself.
One of the biggest challenges at the moment is the negative sentiment toward China as a country, as an investment destination — less because of the outlook for the consumer, which we continue to think of as optimistic with economic growth, inflation under control, increases in wages and salaries for those that are employed in China — but because the government really has made a virtue of its Common Prosperity program.
We think a lot of corporates are wary of not conforming with that and have to be seen to conform with those government aspirations. Consequently, we’re seeing a lot more expenditure on areas which are being encouraged by the government.
But many companies are of the view that they have to be seen to be the good corporate citizens, otherwise they possibly incur the wrath or the disappointment of the government. That type of government intervention is not always welcome.
And despite the fact we can understand the greater aims of the government in China, we think there are other ways to achieve those aims, rather than squeezing the corporate sector.
Interestingly, there has been recent evidence of local government in China attempting to squeeze payments from small, local entrepreneurs to offset their reduced income from land sales, and this has resulted in push back, which is encouraging.”
The stock markets in emerging markets, especially growth stocks, offer a stock picker’s advantage over index investing.
“I would highlight is that when you look at emerging markets over the last 10 years, the actual growth in the index, the MSCI Emerging Markets Index, has not been that spectacular.
And for a lot of global investors who sit in America, they look at the returns they’ve received from the U.S. indices and think, “Why should we bother with these emerging markets?”
Although there’s the prospect of political strife in China, maybe the prospect of currency concerns in Turkey, the point that we would make is that there are strong structural drivers which present investors an opportunity to invest in good businesses, genuinely good businesses.
And they have been established and run by successful entrepreneurs. And they’re providing good services that a huge population wishes to participate in.
So the strategy that we have adopted, and that we have ingrained within our philosophy, has resulted in very significant returns, comfortably ahead of the returns from the index.
These are significant returns which have provided a benefit to our clients, including our clients in the U.S. who have recognized the longer-term structural growth opportunities that we discuss with them.
So please look beyond the index and look at the actual active fund managers who are identifying these themes, investing in good companies and delivering alpha.”
Get the specific stock suggestions and more detailed analysis be reading the entire 3,821 word interview with John Ewart, Investment Manager at Aubrey Capital Management, exclusively in the Wall Street Transcript.
John Ewart, Investment Manager
Aubrey Capital Management
www.aubreycm.co.uk
email: clientservices@aubreycm.co.uk
David Marcus, Evermore Global Advisors
David Marcus is Co-Founder, Chief Executive Officer and Chief Investment Officer of Evermore Global Advisors, LLC.
He co-founded the firm in 2009. Mr. Marcus is portfolio manager of the Evermore Global Value Fund and the separate account portfolios. Beginning his career in 1988 at Mutual Series Fund, he was mentored by value investor Michael Price.
Mr. Marcus managed the Mutual European Fund and co-managed the Mutual Shares and Mutual Discovery Funds, representing over $14 billion in assets. He also was director of European investments for Franklin Mutual Advisers, LLC.
In 2000, he founded Marcstone Capital Management, LP, a long/short Europe-focused equity manager, largely funded by Swedish financier Jan Stenbeck.
Mr. Marcus later founded and was Managing Partner of MarCap Investors LP. He graduated from Northeastern University in 1988 with a B.S. degree in business administration and a concentration in finance.
In this extensive 4,892 word interview, exclusively in the Wall Street Transcript, David Marcus reviews the current value investing philosophy of his money management firm and details his top picks for 2022 and beyond especially among European family businesses.
“Our view is always, “OK, it might be undervalued, it might be cheap, but who cares? What’s going to make it less cheap? What’s going to make it go up?” That’s why we look at these catalysts and things that can get the value, I would say, from the stock to the shareholder.
How do you get the value to us as owners of those shares?
And we are fixated on that.
We also have a long-term affinity for companies that are family controlled, or tightly held, where you might have a family or a couple of individuals that control a publicly traded company. And they’re investing for the long term. And we can tag along with them, as they continue to create shareholder value over time. Those can be really good compounders.”
The lifelong investor David Marcus found great investments in the European family businesses no one else was interested in:
“I grew up in a house where my dad and my uncle owned a small stock brokerage firm. It was a two-man show. They were forever talking about stocks. I knew this was the business I wanted to be in.
While I was in college, I did an internship for a mutual fund, and that was run by Michael Price. Michael is a well-known legendary value investor. I was lucky that in 1987, I was an intern answering the phones before, during and after the crash of 1987.
And he invited me to come back after I graduated from college. I went back.
I was really a grunt. I worked on the trading desk for him as an assistant. And I just wanted to get out there and pick stocks.
Everybody in the firm basically just worked for one guy. And what I found was that whenever somebody pitched an idea, if it was in the U.S., Michael had an opinion on it.
But when the only person doing the non-U.S. investing left the firm, I realized that Michael had really not focused as much on the European side or the non-U.S. side. So I said, I’m going to put my effort there, because I thought there was a lower barrier to get airtime with him and pitch an idea.
And what I found was that in the early 1990s, the Nordic region, especially Sweden, was going through a devastating financial crisis.
And what I learned early on was that in a crisis, investors generally go home.
The Americans go back home. If they’re in Europe, they go back to America, the British back to the U.K., the Germans to Germany and so on.
When I went to Sweden, which was the first country I ever visited outside the United States, I had the place to myself as a foreign investor.
I saw nothing but opportunity.
All kinds of companies were restructuring, spinning off assets.
You had all these families that control businesses. I just started coming back every six or seven weeks.
I just immersed myself there. And I found that there were a lot of bargains.
And then I went from Sweden to Denmark, to Finland, to Norway, to France, to Germany.
I saw that there were these families that controlled companies.
I needed to get to know them. I wanted to know what the main shareholders thought. I started calling on all these families.
Many of them had really never talked to investors before. And I just would keep calling until I got a meeting.
And I built this great network of individuals and families that control companies all over Europe. I eventually expanded it into Asia, but I really spent my time mostly in Europe, just because that’s where so much opportunity was.”
“Norway is a great example of a country where they discovered oil but have not completely transformed.
Norway became one of the richest countries on earth.
They have a trillion-plus government-controlled oil fund, which was created from taxes on oil. And over the years, a lot of families became very wealthy servicing the oil and gas industry, be it through oil services, building the rigs and deploying the rigs, the boats, the drills, etc. Now, in many cases, they have repudiated what made them successful.
They’re using that cash and capital to be at the forefront of technology for the tomorrow opportunity — carbon capture, clean hydrogen, offshore wind farms, etc.
It’s interesting you can find companies where you are paying sort of the valuation of the old businesses but getting the tomorrow opportunity.
It’s not just Norway, I’m just using that as a key example. But we’re seeing it across the region.
People historically have said that you don’t have a lot of entrepreneurialism in Europe. That’s BS. France, Germany, U.K., Italy, we’re seeing entrepreneurs and innovators bubbling up everywhere. There’s a vibrant private equity and venture capital market.”
Read the entire, extensive 4,892 word interview with David Marcus of Evermore Global Advisors, exclusively in the Wall Street Transcript and get his top picks and detailed knowledge of best publicly traded opportunities among European family businesses.
Adam Rozencwajg, Managing Partner, Goehring & Rozencwajg Associates
Adam A. Rozencwajg, CFA, is Managing Partner at Goehring & Rozencwajg Associates, LLC.
Mr. Rozencwajg has 15 years of investment experience.
Between 2007 and 2015, Mr. Rozencwajg worked exclusively on the Global Natural Resources Fund at Chilton Investment Company with Mr. Goehring.
Prior to joining Chilton Investment Company, Mr. Rozencwajg worked in the Investment Banking department at Lehman Brothers between 2006 and 2007.
Mr. Rozencwajg holds a bachelor of arts degree with a major in economics/philosophy from Columbia University.
In this 2,639 word interview, exclusively in the Wall Street Transcript, Adam Rozencwajg details his basis for the oil price increase and the natural resource company stock prices that will result.
“Clearly, over the last decade, the natural resource sector has been unbelievably out of favor.
People have taken the weighting in the various indices down, in some cases, 90%.
If you look at the S&P 500 for instance, energy was at its peak — 30% of the S&P — in 1980.
The average has been between 10% and 15% and we got as low as 1.8% last year. It’s clearly a very out-of-favor sector.
It’s a very, very out-of-favor asset class.
In the way we like to look at the world, that is where true value is created, at least in the natural resources space; that is, when investors have no interest when prices are very, very low, market caps wither to near nothing.
And what I think has been so fascinating is so many alleged value investors have steered clear of the space, whereas I think if you’re really truly disciplined in the value approach, you look at that and you say, “OK, to the extent that we want to have an energy business going forward, to the extent that we need basic materials, this represents value here.”
The oil price predicted by Adam A. Rozencwajg is based on both microeconomic and macroeconomic considerations:
“When will oil reach obsolescence? The answer to that might be a little abstract.
Oil will become obsolete and fall by the wayside when the total amount of energy to extract oil, refine it into gasoline and use it to power a car — when it takes more energy to do that, using an internal combustion engine, than to generate electricity from windmills or solar panels and mine the minerals to make an electric vehicle battery and produce the EV.
Right now, that is clearly to the benefit of the internal combustion engine.
So long as that’s the case, it’s going to be very, very, very difficult to move away from gasoline and diesel.
And jet fuel; there’s really no viable alternative. So we monitor that very closely.
We look at all the different technologies coming out. We look at all the different battery technologies.
But we’re extremely critical, and we don’t see anything that can really improve on the energy economics.
People say, “What about the CO2 side of things?” But what people don’t understand is that if you can’t do something in a more energy efficient manner, you’re never going to save the CO2.
It just doesn’t work that way.
Look at places like Germany, where there’s this huge renewable push, and yet the United States is beating Germany in terms of reducing its CO2 per unit of energy. Why?
Well, the United States shut down coal and went to natural gas.
If you look at that, natural gas is just as efficient as coal and it emits half the CO2. That’s great.
That’s why we have 20% of the fund in natural gas.
When you look at oil, it’s a little bit trickier — because what’s the alternative? The alternative today requires a lot more energy, and it’s a lot less efficient than the internal combustion engine.
How far can the names run? Well, for that, you have to really look at what is the long-term sustainable equilibrium price for crude. And then how are the names, the different stocks, what are they discounting in right now.
Today, with oil in the low $70s, I would say that the average oil stock is probably pricing in between $50 to $55, so it’s below spot, let alone what we think the long-term equilibrium price is.
Now activist investors have ingrained themselves in all of the major, supermajor, oil companies around the world and no one is looking to add any upstream spending there whatsoever.
So you had declines already in the Exxon (NYSE:XOM) and Chevron (NYSE:CVX), Shells (NYSE:RDS.A) of the world that’s going to accelerate.
This might sound shocking, but I think oil prices could probably reach $200 a barrel at some point in the next coming years.
We’ve underspent so dramatically on this industry.
That might sound crazy, but right now, natural gas in Europe and Asia is trading between $30 and $35 per million cubic feet for 1,000 cubic feet and that — on an oil equivalent basis — that’s $220 per barrel oil.
That’s the magnitude of what we’ve done.
We’ve starved this industry for capital for too long, and it’s really coming home to roost now.”
Once the oil price thesis is accepted, the prediction implies many stock market repurcussions. Primarily, of course, oil price influences the exploration and production stocks:
“We tend to avoid the supermajors because they have some challenging geological issues and now they also have a target on their back from a lot of activist investors and governments.
We prefer the high-quality remaining independent E&P companies out there.
We prefer a name that we’ve held for years, and we continue to really like, which is Pioneer Natural Resources (NYSE:PXD).
Also Matador (NYSE:MTDR) and Diamondback (NASDAQ:FANG).
These are companies that were sort of the usual suspects before, but now there’s absolutely no premium in them whatsoever.
The high-quality Permian names are really sort of the last sweet spot as far as oil stocks to own in 2022.”
Get this complete detailed 2,639 word interview with Adam Rozencwajg , exclusively in the Wall Street Transcript.
Adam A. Rozencwajg, CFA
Managing Partner
Goehring & Rozencwajg Associates, LLC
www.gorozen.com
www.azvalor.com/en
email: arozencwajg@gorozen.com
Hal Malone, Sea/Switch Partners
Martime decarbonization expert Harold (Hal) L. Malone III is a Princip 3,25al of Sea/Switch Partners, a strategic platform dedicated to ocean decarbonization, and the founder of White Fir Global, Inc., a strategic adviso7ry firm focused on the maritime, offshore and energy industries.
Mr. Malone is a member of the Index Committee for the Marine Money Decarbonization Index and serves as Executive Manager of Marine Transportation Partners LLC.
Prior to founding White Fir, Mr. Malone served as the Head of Transportation at Invesco Private Markets, a private investing division of Invesco Ltd., overseeing a more than $2 billion maritime investment portfolio.
Before joining Invesco, Hal Malone served as the Chief Strategic Officer of the Navig8 Group, a fully integrated provider of shipping management services, and spent over 18 years in investment banking, most recently as a Managing Director in the maritime group at Jefferies LLC.
Mr. Malone previously served as a director of Diamond S Shipping Inc., a NYSE-listed crude and product tanker shipping company, and Navigator Holdings Ltd., a NYSE-listed LPG shipping company, and Chairman of Nautical Bulk Holdings Ltd, a drybulk and product tanker shipping company.
In this 3,257 word interview, exclusively in the Wall Street Transcript, Hal Malone details the objectives of maritime decarbonization.
“The global maritime industry generates an estimate of somewhere between 2.5% and 3% of all global carbon emissions.
To put that in context, if that were a country it would be roughly the same emissions footprint of Germany. It is also equal to the carbon footprint of all of the passenger cars in the United States, so it is a very sizable contributor to global carbon emissions.
It is also deemed to be a hard-to-abate sector along with the industries such as the airline industry or aircraft, cement, steel manufacturing, and so on. These are significant contributors to carbon emissions and ones that will require new technologies and new solutions that don’t exist today.
In comparison, the power generation industry has solutions, such as solar or wind or even nuclear, that are zero emissions, but there are no large-scale carbon-free solutions for the global maritime industry.
So it is a big, big problem that is important to all of us. It is also one that is at its earliest stage of technological evolution. That is why we chose to create the Marine Money Decarbonization Index. We really highlighted the companies that have a range of technologies and services to help address this problem.
We then had the opportunity to partner with ETFMG to make the MMDI investable by ordinary investors.”
Marine decarbonization expert Hal Malone lists the specifics that lead to an investable security for ocean cleaning stocks:
“One thing I’ll just point out here is the diverse use cases for a ship — so whether it’s traveling over a regulfar route, or how far it’s traveling, or what cargo it is transporting.
For ferries and short sea shipping, say around Europe or say between the United States and Hawaii, or the United States in the Caribbean, you have a set fleet that’s traveling back and forth, so solutions such as batteries or fuel cells can be very efficient.
But when you look at things like large container ships moving from Asia to the West Coast of the U.S. or vessels carrying grain from South America to Asia over voyages that last weeks, if not months, you’re going to need a potentially different solution.
This brings us into the second category, and that is green fuel production and related infrastructure. There are a number of initiatives to look at other potential fuels, as opposed to hydrocarbon-based fuels, such as ammonia, methanol, or liquid hydrogen itself.
There are a number of companies that are developing fueling solutions and the infrastructure that will be needed to ultimately deliver these to the maritime industry.
The industry will need distribution and storage systems and you would need essentially the gas station equivalent for ships that are capable of actually delivering the fuel to the ultimate vessels. That would be a second large category.
The third large category would be what we call on-board systems and technologies such as trip optimization technologies.
There are also a lot of on-board carbon capture and storage technologies that are super interesting.
A company with a technology that’s actually available today is called Kongsberg Gruppen (OTCMKTS:NSKFF), and it has developed a hull-cleaning robot.
It is a relatively simple solution that can have a meaningful impact of, say, 5% to 10% of the fuel consumption of the ship just by keeping its hull clean.”
Maritime decarbonization is an issue that drives the highly experienced Hal Malone:
“Until recently, I ran the maritime investment portfolio within Invesco’s private capital business, and we had about $2 billion of capital there that we were stewarding. I also sat on the board of two public NYSE-listed companies in the sector and so from that realized how topical marine decarbonization was…
Shipping faces a substantial decarbonization challenge that matters to all of us.
We have helped create what we believe is a unique way for investors to participate in what we think is going to be a rapidly growing investment in solving this challenge.
We are offering investors exposure to unique non-U.S.-based companies that they may not be familiar with or might not otherwise come across…We have a core tier, which is fixed at 20 names and that has an 80% weighting in the index…
Ultimately, our mission is to help address challenges that we all share as a planet, which is how to decarbonize everything that we consume and everything that we use in our daily lives.
Ninety percent of all of those things move by ship at some point and so it is something that is part of all our daily lives.”
Read the entire 3,257 word interview, exclusively in the Wall Street Transcript, to get the full detail from Hal Malone on the prospects and investing opportunities in maritime decarbonization that will clean our oceans.
Harold (Hal) L. Malone III
Principal
Sea/Switch Partners
www.seaswitch.com
A value investing portfolio manager rarely gives a detailed interview on how to maximize returns by finding undiscovered public market gems. 2022 may turn out to be the focus year for value investing as stocks rotate into more asset rich sectors. These portfolio managers tell you how to maximize your gains at this point in the stock market cycle.
Ira Rothberg, Broad Run Investment Management
Not-Hot Sectors Offer Long-Term Growth and Compelling Valuations
Ira Rothberg is a Portfolio Manager and Managing Member of Broad Run Investment Management, LLC, which was founded in 2012 and serves as the subadviser to the Hennessy Focus Fund (HFCSX/HFCIX). Between 2009 and 2012, Mr. Rothberg worked for FBR Funds as the Co-Portfolio Manager of the FBR Focus Fund (the predecessor to the Hennessy Focus Fund).
Randy Warren, Warren Financial Service
Fintech, Regional Banks, and Travel: Rising Sectors
Randy Warren is Chief Investment Officer of Warren Financial Service, a registered investment advisory firm. He also manages WFS Funds, the institutional division of Warren Financial Service, which includes hedge fund and private equity investment products.
Scott M. Kimball, Taplin, Canida & Habacht
Buying Debt Securities That Were Sold for the Wrong Reasons
Scott M. Kimball is Co-Head, U.S. Fixed Income for BMO Global Asset Management. In this role, his primary responsibility is leading the application of the investment process across the team’s strategies.
Janet Rilling, Wells Fargo Asset Management
Incremental Yield in a Low Interest Rate Environment
Janet Rilling, CFA, is a senior portfolio manager and head of the Multi-Sector Fixed Income – Plus and High Yield team at Wells Fargo Asset Management.
Sean Chaitman, Shelter Rock Management
Reopening Plays That Also Offer Good Long-Term Performance
Sean Chaitman has been the President and Chief Investment Officer of Shelter Rock Management since the firm was founded in 2006. He has close to three decades of investment experience leading portfolio managers and as a research analyst.
Raymond Saleeby, Saleeby & Associates
Fragrance and Flavor Businesses Remain Strong in Inflationary Times
“The…best business that I found in the last five years — it’s a phenomenal business — is the flavor and fragrance business. It’s termed different names in different areas. But it’s a great business. The same companies have been around, for the most part, the last 100 years, and the barriers to entry are enormous.”
Bill Caton, First Wilshire Securities Management
“Given our long history of researching small-cap value stocks, we possess a massive database of individual company research which allows us a more comprehensive view of a company’s life cycle. We have built proprietary research tools to quickly assess company fundamentals no matter what global exchange they are listed on.”
Eric J. Marshall, Hodges Capital Management
Hard Asset Companies Better Positioned to Weather Inflation
“Companies that have a lot of hard fixed assets will actually see better equity appreciation in an inflationary environment than companies that, for instance, may be in software or cloud computing, where you don’t have the same type of hard assets benefiting from inflation. They’re not as sensitive to property, plant, equipment, land…”
David A. Volpe, Emerald Advisers
Stephen Amsterdam, Emerald Advisers
Joseph Hovorka, Emerald Advisers
Mega Caps Offset Smaller Growth Names
“We’re fortunate [portfolio managers] at Emerald. For 30 years, we’ve employed pretty much the same fundamental, bottom-up research approach to help us stay ahead of the market. We have specialized staff. You’ll see we have individuals who are Ph.D.s and physicians, as well as those with deep technology skills, skill sets and experience on the business side to understand and invest in those more technical and specialized areas. We also have venture capitalists and policy veterans, industry experts, and so you have this mixture of both highly skilled specialists, as well as generalists, which allow us to do a real fundamental deep dive into the companies that we invest in.”
John Buckingham, Kovitz
“Kovitz is a wealth management firm providing asset management, financial planning, retirement projections — pretty much the full gamut of anything that a high net worth client would need..And the principles, if you will, that we follow are espoused in The Prudent Speculator investment newsletter.”
Martin H. Bergin, DUNN Capital Management
Commodities Strategy Does Well in Inflationary Times
“…Once you start seeing the velocity of money pick up, inflation is going to take off. And you’re starting to see it now because you see wage rate gains in the employment sector. So this will start driving what they call wage inflation spirals. And, of course, wage increases always fall behind the inflation in the marketplace. So inflation is like a tax on everybody. It hits everybody equally.”
Complete your investing education by reading all these detailed interviews and more, only in the Wall Street Transcript.
Asset management has a long term goal: the acceleration of returns greater than the overall market with the preservation of your client’s capital. Developing an investment philosophy and the discipline required to see it through many years of market volatility is a highly prized skill that creates measured value. The asset management firms, money managers, and portfolio managers that are profiled in these very detailed interviews demonstrate the top professionals in this business today.
Bottom Up Stock Selection on Both the Long and Short Side
“Sector agnostic on both the long and short side of the strategy…By design, we avoid high short interest stocks. We don’t use leverage and we don’t use derivatives…Then, waiting to see if our thesis plays out.”
Chris Wright, Kayne Anderson Rudnick Investment Management
Double Digit Returns for Investors
Mike Moore and John Birkett are “bottom-up fundamental analysts” who invest both long and short.
John Birkett, Goodnow Investment Group
Mike Moore, Goodnow Investment Group
Find Unique ESG Investments with Fairpointe
Frances Tuite finds the best values in the ESG investment space, often overlooked value gems.
Frances E. Tuite, Fairpointe Capital
Smaller is Better in High Yield Investing
Robert Sydow finds the high yield credit opportunities that his competitors overlook due to small deal size.
Robert Sydow, Mesirow Financial
Global Deep Value Stocks with Significant Upside Potential
“We seek unique, deep value ideas on a global basis…We have offices in Singapore, India, as well as in the U.S.”
Sandy Mehta, Value Investment Principals
Buy Industry Leaders When They’re Down
“You buy good companies and you hold them forever. You hold them and don’t ever sell. You don’t pay any tax unless they change the rules on you…”
Bobby Edgerton, Capital Investment Companies
U.S. Structured Credit Markets for Higher Current Income
“The Angel Oak Multi-Strategy Income Fund is a unique strategy focused on identifying the best relative value within the U.S. structured credit markets, predominantly mortgage credit.”
Sam Dunlap, Angel Oak Capital Advisors
Quality Small- and Mid-Caps Deliver Better Performance
“What we see is investors overpaying for high-beta stocks and underpricing high-quality, stable, boring businesses. We believe that the opposite should be true. Investors should place a premium on these companies that can deliver stable and growing free cash flows and returns on invested capital in excess of the cost of capital.”
Jeff Kautz, Ballast Equity Management
Randy Hughes, Ballast Equity Management
With Higher Rates Looming, Tax Optimization Is Even More Essential
The complex nature of tax policy in the United States creates specific investment hurdles for each individual taxpayer. The professionals at Knightsbridge Capital use their experience to maximize the returns for their investors.
John Prichard, Knightsbridge Capital Management
Kurt Beimfohr, Knightsbridge Wealth Management
Investment Returns Become Magnified from Out-of-Favor Stocks
Minneapolis Portfolio Management Group finds the out-of-favor value plays that return big when 2020 becomes 2021 and beyond. These money managers believe in Aesop: “That in the End, the steady, resourceful & relentless Tortoise Still Wins the Race.”
Phil Grodnick, Minneapolis Portfolio Management Group
Harrison Grodnick, Minneapolis Portfolio Management Group
Rob Britton, Minneapolis Portfolio Management Group
