Amberjae Freeman, CEO, Etho Capital
Amberjae Freeman is Board Chairperson and Chief Executive Officer of Etho Capital and is currently an expert advisor and partner for the ETF Manager Group’s (ETFMG) ETHO Climate Leadership US ETF.
Ms. Freeman heads Etho Capital and its board to shape strategy and execute vision. She also serves on the board of directors of The Forum for Sustainable and Responsible Investment (US SIF) and is on the Advisory Board of the South Bay Economics Institute (SBEI) at CSU Dominguez Hills.
Ms. Freeman’s career in sustainable finance began 15 years ago when she received dual fellowships with the Clinton Global Initiative in New York City and the Clinton Hunter Development Initiative in Kigali, Rwanda. Prior to joining Etho Capital, Ms. Freeman developed innovation-focused thematic portfolios for fintech startup Swell Investing.
As senior analyst for the SRI Wealth Management Group at the Royal Bank of Canada (RBC), she developed proprietary ESG and impact research and mission-related investment solutions for institutional, foundation, and endowment portfolios representing US$2 billion in assets. Ms. Freeman has served as an adjunct professor of political science and economics at Santa Barbara City College (SBCC), and coordinated country-specific research to support asylum cases for the Center for Gender & Refugee Studies (CGRS) at UC Hastings College of the Law.
Ms. Freeman holds a bachelor’s degree and a master’s in Global & International Studies from the University of California, Santa Barbara.
In this 3,404 word interview, exclusively in the Wall Street Transcript, Ms. Freeman reveals her Etho Capital fund methodology and applies it to her top stock picks for investors.
“What we found is that if you consider a company’s total environmental footprint — from product components all the way through to the finished product and beyond — the companies that manage their carbon emissions and environmental resource use better relative to their subsector peers tend to have stronger long-term stock performance. We observed a correlation between these factors. So we developed the ETHO ETF and the index with this relationship in mind.
Our process has five steps: The first step is quantitative. We assess the total carbon emissions for each company in the U.S. stock market and identify companies whose performance is 50% better than the median average of their sub-industry group. We add those to the first tranche of companies that may be eligible for inclusion.
The second step includes the identification and avoidance of companies whose business activities are inconsistent with most ESG mandates. I should say here that all of our investment products are fossil fuel free.
We do not invest in companies that extract and sell oil and gas or coal. Those securities are automatically ineligible. Additionally, companies that generate significant income from alcohol, gambling, tobacco, and the manufacture and sale of weapons are also avoided.
Now, we understand that many investors find exposure to these particular industries perfectly acceptable. However, the negative environmental consequences of tobacco cultivation and the pollution and human health consequences associated with smoking cigarettes is well documented, as is the environmental degradation and pollution that results from violent conflict. As such, these business activities are not in alignment with our environmental sustainability focus.
Next, we do a qualitative assessment of each company to identify material environmental, social, and governance risks.
For example, if a company has a pattern of health and safety controversies, or questionable accounting practices. Such controversies can hamper a company’s business activities, which in turn can negatively impact the company’s ability to create long-term value for shareholders.
Removing companies with a significant pattern of material ESG risks and/or are unresponsive to engagement efforts helps us further distill our list.
Our process identifies positive climate and ESG leaders and then mitigates risk through the avoidance of companies that demonstrate behaviors that are inconsistent with the ESG concerns that are material to their business.
We also include information we receive from a variety of industry subject matter and civil society experts. This is the fourth step in our process.
We keep tabs on the corporate concerns that non-governmental organizations such as US SIF, As You Sow, Rainforest Action Network, etc., are paying attention to and raising awareness about to get even more granularity about company ESG opportunities and risks.
We also leverage industry expertise to learn about new technologies and innovations being developed at companies, with an eye to those that help address our social and environmental challenges. We see these as powerful growth drivers.
Finally, in the case of the ETHO ETF and its index, we equal weight the constituents. This is a diversified product. The ETHO ETF is designed to be a sustainable alternative for core U.S. equity index offerings (e.g. Russell 3000, S&P 500).
We find that by equal weighting the constituents in the portfolio we are able to provide an additional layer of financial risk management in line with these popular broad-market U.S. indices.”
One example from the Etho Capital ETF is the well known stock Tesla:
“Tesla (NASDAQ:TSLA) is one of our top holdings, and that weighting that you’re looking at is not based on how we weighted our portfolio. As I mentioned previously, the ETHO ETF is equal weighted. Its current position in the top 10 indicates how its stock price has moved since it was added to our index.
In the case of Tesla, our research identified it as a climate leader relative to its ICE-based peers.
Additionally, Tesla is not just an automobile manufacturer. We think of it as an integrated energy solutions company. Its innovations in batteries, its solar panels, its work in autonomous vehicles, etc., make its climate leadership case very strong.
Sure, Tesla makes electric vehicles — you know, one of the central problems that ESG practitioners do not talk about or contend with well is the relationship between the proliferation of renewable energy and EVs and the significant human and labor rights issues associated with the extraction of the metals and minerals needed to produce these renewable/sustainable products.
Consider cobalt in particular. The largest deposits of cobalt in the world are generally found in the Democratic Republic of the Congo, which is known for its gross human rights abuses.
Child labor, forced labor, and incredibly horrific violence against women is endemic in this region and much of it involves the control of cobalt and other essential mineral resources.”
To get more insight into the Tesla stock pick, and many others in the Etho Capital ETF, read the entire 3,404 word interview, exclusively in the Wall Street Transcript.
Scott M. Kimball, Co-Head, U.S. Fixed Income, BMO Global Asset Management
Scott M. Kimball is Co-Head, U.S. Fixed Income for BMO Global Asset Management and portfolio manager for the BMO Strategic Income fund. In this role, his primary responsibility is leading the application of the investment process across the team’s strategies.
Utilizing a team-based approach to portfolio management, he works alongside the rest of the portfolio managers on the portfolio construction of client accounts. He joined BMO in 2007 and served as a research analyst prior to joining the portfolio management team in 2011, and during that time, has served as a member of the team’s management and investment committees.
Previously, Mr. Kimball held positions at Merrill Lynch and other boutique investment firms. He began his career in the investment industry in 2003. He holds an MBA from the University of Miami and a B.A. in international business from Stetson University.
In his 2,286 word interview, exclusively in the Wall Street Transcript, Mr. Kimball describes his experienced view of the US debt marketplace.
“The BMO Strategic Income fund is a multi-sector approach to fixed-income investing that looks across the bond market, both investment grade and high yield, as well as in areas such as securitized or structured products, most commonly mortgage-backed securities for both commercial and residential properties.
It seeks to earn an above-average amount of income through a focused, but diversified portfolio of fixed-income assets.
We typically don’t consider maturity of most investments to be a key indicator in this type of a strategy because what we are buying is usually highly idiosyncratic and focused on cash flow generation potential.
Something that has sustainable cash flows with a longer maturity date may be quite favorable. Usually, the types of investments we are making are not directly correlated with interest rates; it’s about the unique bottom-up risk of the investment.
Right now, emerging market debt is our lowest allocation at about 5% of the portfolio and that reflects our views on valuations being more attractive in the other sectors…
So when we think about what the impact of low rates has really been, it has forced people to reach for yield.
In that case, many people have just looked at yield as an indicator of where they should invest. Because of that, they tend to buy into securities without fully appreciating the impact the business cycle could have on some higher-yielding securities.
What happens when there’s an economic disruption or bad earnings cycle is people tend to sell the things with which they’re least familiar first. As we are more familiar, we will step in and look to purchase those securities at very attractive rates.
Because we’re buying based upon a price at which someone is exiting due to the risk of the individual security, we are not making a call on interest rates. We are making a call on the credit worthiness or the cash flow-producing ability of the security itself.
The decision is not tied to interest rates. The bonds that we buy tend to have a lower correlation with interest rates relative to other parts of fixed income.”
One example that has worked out well for the BMO Strategic Income fund is an oil and gas producer.
“WTI (NYSE:WTI), which is an oil name we bought in the thick of the crisis.
What was interesting about it to us was that it’s not a big issuer, meaning it doesn’t have the focus of a lot of large managers, but it’s always had a very conservative financial profile for the oil industry. When the oil crisis occurred, and prices were negative, the bonds fell tremendously, as did everything in the oil sector.
Unlike any other issuer we’re aware of, they actually went to the market and bought back debt at a lower price. What happens is, they issue the bond at par and they buy it back at $0.20 on the dollar. They save themselves a lot of liquidity. That is something that we view very favorably.
Now, rating agencies have a different viewpoint on that. They think that’s a form of default, but, if you look at the way the bond prices had behaved following that maneuver by the company, they did nothing but rally.
Despite whatever the market or the rating agency methodology was indicating about WTI, we recognized early on that this is an operator that has a built-in layer of protection against adverse moves in the commodity itself, but you had to dig deep enough to realize that.”
This bond portfolio manager is rather sanguine about inflation in the near term.
“The market has certainly priced in a lot more inflation risk, but our question is about the durability of it. For example, if you look at the nature of how inflation has flowed through from expectations to real inflation in the past decade, it’s been pretty poor.
There are a lot of structural issues in the marketplace which curtail inflation. Everything from automation through disparities in the labor force are a concern. Then there are current events that we can point to.
We are out of fiscal stimulus we can borrow. We have to actually pay for the next one.
So if we have to issue fiscal stimulus to households, at the same time raise the corporate tax rate, that could curtail inflation, because it doesn’t read well for capex; that is a big part of inflation.
Our view is near-term inflation pressures are real, but likely to subside…
While warranted, a lot of faith was put into the monetary policy tools that were enacted during the onset of the COVID lockdowns, and risk assets really got ahead of where the economic data was.
This has probably shown that not only the central bank has been effective, but the degree of faith in their effectiveness is also at an all-time high. Now, with some modest increases in things like inflation expectations, the market is worried the Fed is behind the curve.
We still side with the Fed. The recovery has a way to go to be on firm footing, so they’re going to keep yields low, and therefore investors are going to continue being more creative in how they solve for income.”
Read the entire 2,286 word interview, with Mr. Kimball of the the BMO Strategic Income fund, exclusively in the Wall Street Transcript.
Scott M. Kimball, Co-Head, U.S. Fixed Income
BMO Global Asset Management
www.bmogam.com
Mr. Chervitz, Chief Portfolio Manager of the Discovery Fund
Darren Chervitz is Portfolio Manager and Director of Research for Jacob Asset Management and Mr. Chervitz also serves as the Chief Portfolio Manager of the Discovery Fund as well as the Director of Research and Co-Portfolio Manager of the Jacob Internet Fund and the Jacob Small Cap Growth Fund, a micro cap and SPAC investing fund.
He joined Jacob Asset Management shortly after the firm was founded in 1999. Mr. Chervitz’s primary responsibilities include evaluating existing holdings, helping to find new opportunities, reviewing portfolio weightings and providing ongoing risk assessment.
His education and experience in the field of journalism — he is a graduate of Northwestern University’s Medill School of Journalism — have given him the perspective and investigative skills needed to dig through mountains of available information to find the most relevant content while asking the tough questions.
In his 4,117 word interview, exclusively in the Wall Street Transcript, Mr. Chervitz describes his micro cap investing philosophy and key picks for the balance of 2021:
“The way I look at the fund is kind of like a public venture capital fund.
What does that mean, exactly? Well, again, we like to go small. To me, this is an area of the market that is underserved in terms of institutional investors. If you look at Morningstar, which obviously tracks all mutual funds, and you look at the small-cap growth category, which is the category they put us in, we are the smallest by far.
Our average, our median market cap, in terms of investment, is somewhere between $300 million and $400 million.
There is no one else in the category that’s under $600 million and only a few under $1 billion. Like I said, that’s where we like to look, in terms of where we start investing — it is under that $1 billion mark.
Again, going small, it is an important part of the process. I also like to start early. Now that becomes somewhat challenging, because for the most part nowadays, when companies come public through the traditional means, or perhaps through a SPAC, they tend to be larger than $1 billion.
You don’t find many small companies and certainly not many micro caps coming public, but you still will occasionally find companies that list directly, and do reverse mergers. They’ll find a way to get to the market in an earlier stage at times. And absolutely, I’d like to find perhaps fallen angels within the IPO or SPAC market that could become an attractive investment sometime in the future.
Starting early can also mean starting over. To me, a lot of times companies will have points in their history where they stumble. Maybe they have an interesting technology, but it’s kind of the wrong time.
Again, we look at companies that we believe most of institutional Wall Street isn’t paying much attention to. Sometimes in these turnaround situations, you can have new management and new technologies, and, all of a sudden, the story has changed somewhat dramatically, and there’s an upside, once again, in the stock moving forward.
That can be an interesting time for us to take advantage of that. So it can mean early in terms of its corporate history, but it can also mean early as in starting over.
I want to get large returns for the risks we’re taking.”
The micro cap strategy has rewarded some obscure picks:
“One of the names that we invested in late last year, which has been phenomenal and remains a large position of the fund, is a company called Voyager Digital (OTCMKTS:VYGVF).
This is a cryptocurrency broker that has obviously ridden the wave of excitement and interest and rising prices within the cryptocurrency space. They have seen incredibly dramatic rises in users and trading volumes and revenues from under $1 million a quarter last year to, in February, they announced over $20 million in revenue.
The company when we bought it was trading at less than $1. It’s now in the upper $20s. It’s been a phenomenal homerun for us.
We still think when you look at the potential, obviously, there are risks, and the higher the valuation goes the more those risks give one some concern, but when you look at some of the competitors in the space, you’re seeing valuations that are even higher than what Voyager has achieved so far.
We still think there’s a fair amount of upside in that name.”
SPACs are providing additional portfolio stocks that could replicate this upside:
“…A company called Inspired Entertainment (NASDAQ:INSE), a company that was actually a SPAC before SPACs were hot.
This is what I’m talking about a little bit in terms of investing in companies that are in some ways not necessarily new but starting over. This is a little bit of both. It’s a relatively new company. It was started by really a legend in the slot and gaming world from Scientific Games (NASDAQ:SGMS).
He brought over a whole team of people from that company to create this company called Inspired Entertainment, which does something similar in terms of creating terminals for the gaming industry. They have really significant market share in London, Greece, and Italy.
They also have created a division within their company called Virtual Sports that is software that allows gamblers to bet on simulated sporting events. They’ve done an excellent job at selling the software to a wide variety of players in the industry, including some of the biggest online sports books in the world.
Entities like the Pennsylvania Lotto also use them within their own programs.
They’ve come through or they’re in the midst of coming through a pretty horrific time because of COVID. Most of their operations are in locations that were affected quite dramatically by the pandemic.
A lot of their locations where their gaming machines were located were completely shut down. For a while, it was a little bit touch and go in terms of how they were going to be able to manage through, but thanks to some healthy payments from the U.K. government as well as this Virtual Sports business that really has grown gangbusters, they were able to push through this.
Now coming out on the other side of it, I really like the upside and potential for this name going forward. They are strongly cashflow positive and trading at a very reasonable value on that cash flow.”
To get all the top picks from this SPAC and micro cap stock investing professional, read the entire 4,117 word interview, exclusively in the Wall Street Transcript.
Darren Chervitz
Portfolio Manager & Director of Research
Jacob Asset Management
www.jacobinternet.com
Chris Natividad is the CIO and Founder of Equbot, the AI stock picking fund
Chris Natividad is CIO and Co-Founder of EquBot. Mr. Natividad brings more than 15 years of experience in the institutional investment management industry.
Previously, he was an Investment Portfolio Manager for Gilead Sciences and Apple Inc.’s Braeburn Capital and was responsible for managing multi-billion-dollar onshore and offshore investment portfolios.
Mr. Natividad’s previous experience also includes investment management and analysis across a variety of asset classes for several financial service firms including Goldman Sachs and Franklin Templeton. He holds an MBA, B.S. and B.A. from UC Berkeley.
In this 3,367 word interview, Mr. Natividad describes the AI based mutual fund powered by IBM’s Watson that he and his colleagues have created.
“AIEQ is the ticker, and it is the first AI-powered equity ETF. It was done in collaboration with IBM Watson and ETFMG. It is combining the growing amount of structured and unstructured investment data.
Working around the clock, the system analyzes over 5,000 U.S. companies to determine a set of securities it will invest actively in each day.
To take a step back one second, our partners at IBM say 90% of the world’s data was created in the past two years. At EquBot, we believe we are going to be saying this every two years from now.
The data is absolutely growing from a volume perspective. The variety, veracity, and velocity of the data is causing this boom. Our mission at EquBot is to transform data into better investment outcomes with artificial intelligence.
We saw that, looking at the data, there has been a tremendous movement towards ETFs. Investors want more transparency and liquidity.
So, we decided to launch AIEQ, the ETFMG AI Powered Equity ETF, just over three years ago, and it has done quite well. It has outperformed its benchmark.
From our system perspective, we continue to see it learn and grow from every single trade.
The way we tend to characterize our operating system is it’s like an army of research analysts, traders and quants working around the clock to help figure out what we should be investing in and when we should be investing in it.”
The AI stock picking incorporates the global data flow:
“When we think about AI in the highest sense, it is about using a technology to replicate human behavior, so to speak. In our instance, the system is autonomously managing a portfolio for AIEQ that is looking at the thousands of U.S. publicly traded companies and creating a portfolio.
To do that, we can take a look at the traditional asset manager framework. We ingest millions of news articles, market signals, things from pricing to volume data daily, and we utilize an ensembled architecture. That’s important for us because we need to have observability into what we are investing in, and why we are investing in it…
To do this, we utilize IBM Watson’s natural language processing as it’s one of the top in this field.
Most people know IBM Watson through beating Deep Blue in chess or beating the “Jeopardy” champions. The reality is, it’s not just the English language. We are processing dozens of different languages.
The analogy I like to provide is: All of these different investment data points is similar to a single pixel.
A decade ago, right, when we’d have video conference calls or something, or even images online, they’d be quite granulated. Sometimes you’d kind of scratch your head and say, what am I really looking at here? Well, fast forward to today, we have high definition and pictures with increasing amounts of detail and speed.
That is the analogy I connect with using our system. We are connecting and adding more pieces of the puzzle to understand what that market picture is and where it is headed.
For AIEQ, we are benchmarked against the broad U.S. market. Retail investors like to compare it to the S&P 500.
Year to date, it has done quite well. We are in the top two percentile. When we look at the one-year time period as of this past Monday…we were outperforming the S&P 500 by north of 20%.
But again, it’s not like the system we just turned it on and said, OK, what do we invest in? It needs to grow over time. What’s increasingly compelling and what we like to talk with many of our institutional investors and institutional clients about is the excess return each year.
The first year we slightly underperformed. The second year, we beat our benchmark. Going to third year, that spread continues to improve.”
The AI stock picking is continually evaluating and re-evaluating the data for appropriate equities to own:
“To provide some context, a quite interesting time for fun was the beginning of the pandemic. We would actually be ingesting information related to coronavirus and the COVID pandemic back in December of 2019. But, if we think about artificial intelligence, at the highest level, it is pattern recognition.
The system at the time was diversifying into consumer staples, so names like Costco (NASDAQ:COST), Walmart (NYSE:WMT), and getting active and increasing exposures into a variety of the different pharmaceutical names that we’re approaching like Gilead (NASDAQ:GILD), Moderna (NASDAQ:MRNA) and Johnson & Johnson (NYSE:JNJ).
These are names with strong balance sheets and they had performed quite well during historically volatile periods.
Now, it didn’t get it 100% correct because the magnitude had never been experienced, meaning the system had never seen something as drastic as the coronavirus. We had only had SARS and MERS, with muted market downturn. Again, the lesson or the magnitude associated with these types of downturns now becomes part of the system and part of that pattern recognition that we’re going through.
We take a deeper dive into the system and we can see that it is scouring clinicaltrials.gov and then, I believe, in March we saw that it was looking at north of 3,000 different clinical trials associated with COVID vaccines, testing and treatment.
There was a selecting of some of the different names with positive sentiment and positive business operating structures to become part of the portfolio in addition to the technology and some of those stable value names.”
To get the complete interview on this AI stock picking innovator, read the entire 3,367 word interview exclusively in the Wall Street Transcript.
Chris Natividad
CIO & Co-Founder
EquBot
www.equbot.com
email: info@equbot.com
John Fieldly, CEO, Celsius Holdings, Inc. (NASDAQ:CELH)
Cameron Donahue, Investor Relations, Celsius Holdings, Inc. (NASDAQ:CELH)
John Fieldly is CEO of Celsius Holdings, Inc. He is a results-driven executive with an extensive consumer goods background and over 20 years of broad financial and operational experience.
In April of 2018, Mr. Fieldly was named Celsius Holdings Inc.’s CEO.
Prior to that, he had been the company’s CFO since 2012. Since beginning his accelerated career at Celsius (NASDAQ:CELH), he has demonstrated a proven track record of driving robust business results and shareholder value.
In his current role as CEO, Mr. Fieldly uses his strong background in financial leadership and operational expertise to focus on and to maximize resources to drive revenue, corporate efficiencies, and shareholder value.
Cameron Donahue is the Investor Relations contact at Celsius Holdings, Inc. He has been also been affiliated with Hayden since joining the firm in 2000. He received a degree in finance from Coastal Carolina University’s Wall College of Business Administration.
In this 3,229 word interview, exclusively in the Wall Street Transcript, these two executives detail the outstanding results of their company over the last 12 months and project future success with their business strategy.
“… Historically, we’ve been selling an emotional selling story. But now, due to our scan data and some of the Nielsen data we’re getting, and the velocity levels, Celsius warrants additional shelf space.
So it’s moved from an emotional selling story into a financial selling story. And Celsius more than pays for its shelf space when you look at the velocities that are turning at retail. We feel it’s getting much easier, but still a very competitive category.
We have such a great story aligned with today’s health and wellness trends, consumer trends, and then the velocity levels we’re seeing at retail. And being the third-largest energy drink brand on Amazon really shows you, giving Celsius the same opportunities — apples-to-apples opportunity in retail — Celsius will perform at the same level, if not better, than the leading energy drinks in the category.
So as many investors are trying to beat the S&P, these buyers in retail are trying to beat the Nielsen scan data category. And in order to do that, you need to bring on these fast-growing innovative brands that are attracting new consumers to the category.
Celsius is 50/50, male/female. And then also, new consumers entering the category for the first time are looking for products that are aligned with their health and wellness trends, the goals, and Celsius very much aligns with that.
In addition, consumers that are aging out of traditional energy are looking for alternatives, and Celsius is capturing that audience as well.
So it’s a great story. We’re working on getting it out there even more and we’re looking to convince more retailers each and every day.”
The key to continued success for CELH is distribution:
“Our goal right now is to get Celsius more distribution, where our consumers are. And historically, we’ve been distributing at the gym and the health clubs, and we’ve expanded into grocery, mass and drug.
And right now, we’re starting to gain traction in the energy category or in the convenience channel and that’s really where about 70% of energy drink sales traditionally have been sold.
So that’s a really exciting time for us. There’s higher velocity levels in the convenience channel.
And we also, just most recently, brought on a national distribution network of over 150 DSD — direct store delivery — partners, of which we cover about 85% of the major metropolitan markets in the United States right now.
So we’re really excited about that, activating our distributors, getting further distribution, increasing our ACV — all commodity volume — in our targeted markets.
I think what’s so important about that distribution game though, as far as making that shift from the traditional early-stage wholesale distribution to this national direct store delivery, is that we typically see velocities at least double in those existing stores.
We’ve historically had kind of between a 30%-35% organic growth rate in our same-store sales.
And so, as they have turned over to DSD, and especially now that we have national coverage, we’ve been allowed to transfer over these national accounts, for example Target, and in the process with CVS.
We also have started the process with 7-Eleven, which I believe will start in May. So there’s going to be a significant number of doors that’s going to add additional velocity to those same-stores as well as the new penetrations that we’re getting from the spring resets.”
A broad age demographic supports the distribution roll out strategy for CELH for 2021 and beyond:
“Historically, we’re seeing 18 to really 44 as really our sweet spot right now, but absolutely. It’s really the product for anyone looking for additional energy; that usage occasion has extremely expanded outside of the gym and health clubs and we’re seeing that.
We’re seeing audiences really engage with us on social media and a variety of different platforms and it’s a broad consumer base, which is really exciting to see.
It’s not that traditional energy drink consumer — that 18 to 24 male — it’s a broader demographic.
And that goes back to why retailers need to carry Celsius, because we attract a much broader audience, tracking the new consumers entering the category that are looking for alternatives, or converting consumers who have been drinking some of those leading energy drink brands, traditional energy drink brands, over the years and really looking for something that aligns with their health and wellness goals.
Celsius is well positioned to be a leader in the energy drink category field with our health and wellness position, our fitness, lifestyle position, as well as the velocity levels we’re currently seeing in existing accounts and the opportunities that lay ahead.
As we activate these distributors, 150 distributors, we feel we’re well positioned. We’re excited where we’re at. We’re not providing any forward guidance but we’ll take it quarter by quarter here. But there’s a lot of momentum underneath the brands, and we look forward to delivering.
We’re working hard.”
To get the full picture from the Celsius Holdings (NASDAQ:CELH) John Fieldly, read the entire 3,229 word interview, exclusively in the Wall Street Transcript.
John Fieldly, CEO
Cameron Donahue, Investor Relations
Celsius Holdings, Inc.
2424 N Federal Hwy
(561) 276-2239
www.celsius.com
Pablo Zuanic, Managing Director, Cantor Fitzgerald
Pablo Zuanic is a Managing Director in Cantor Fitzgerald’s equity research department. He covers consumer and cannabis stocks (a universe of 30 companies).
Pablo is a well known and highly rated equity analyst (II ranked several times; called as expert witness on industry investigations) with a deep global background having covered stocks over the past 20 years in the U.S. (JP Morgan; SFG), Europe (JPM/Liberum), LatAm (JPM), and Asia (Barings), across subsectors (retail, drinks, food, cannabis, personal care, OTC, agro, pet).
His product has been consistently deemed thought-provoking and insightful. He started his career as a management consultant, which brings a strategic mindset to his approach to equity research. He has an MBA from Harvard Business School.
In this 4,237 word interview, exclusively in the Wall Street Transcript, Pablo Zuanic demonstrates his cannabis stock picking ability.
“…In terms of the context, back in 2018, Canada legalized recreational cannabis, so there was a lot of expectation from that legalization.
The large companies in Canada — the large, licensed producers — were able to raise large amounts of capital. Their stocks were bid up on the expectation that the Canadian market would grow, and that these companies would also benefit from overseas opportunities.
So you saw stocks like Tilray (NASDAQ:TLRY) at one point trade at about $300 because people were thinking about a global market of $200 billion and opportunities for these Canadian stocks.
What happened after that was reality set in. Then, pretty much the whole Canadian cannabis space traded down through March 2020, in part because of two reasons: The Canadian market developed very slowly because there were a number of restrictions.
They’re understandable to some extent, because it’s the first G7 country that legalized cannabis at the recreational level. And then also because overseas markets, especially Europe, developed very slowly; these markets were quite restrictive in terms of their access to medical cannabis.
So that was the situation.
As a result, there was a dearth of capital. Companies were not able to meet expectations and were saddled with larger cost infrastructures and excess capacity. They had to write off assets. They had to lay off people, share prices collapsed and there was no access to capital. So that was the situation until early 2020.
Since then, cannabis stocks began to trade up.
People began to differentiate between the Canadian and the U.S. companies.
And in general, there was this expectation that the election could somehow favor the cannabis industry. And that’s what we saw in November with Joe Biden elected president and then the Democrats taking control of the Senate in in early January, after the Georgia runoff.
So since then, there’s been a lot of positive sentiment coming back to the group — both to the U.S. companies and to the Canadian companies.”
The cannabis stock analyst obviously has many specific cannabis stock picks and pans:
“…One high-conviction stock that we like is called Trulieve (OTCMKTS:TCNNF).
They are the largest operator in Florida. First of all, it’s an MSO, because they operate in other states. But for practical purposes it’s an SSO — single-state operator — because close to 95% of their sales come from Florida.
But because Florida does not have caps on licenses for stores or cultivation, once you have a license to operate in the state, they can have as many stores and as much cultivation as they want.
At the moment, Trulieve has 50% market share of Florida. There’s no other MSO that has 50% share with a state.
So Trulieve is unique in the sense that they have 50% share of Florida’s medical market, and the market continues to grow. Only 2% of people there are in the medical program, and in states like Arizona it’s 4%, Pennsylvania is 3%; Oklahoma is as high as 7%.
So the state of Florida still has a lot of room to grow medical sales. So Trulieve has a strong market share position. Also, Florida voters may get a chance to vote for recreational cannabis in the November election, so there is a scenario where Florida could become a recreational state as early as 2023.
You had 130 million visitors a year ago to Florida, and with Trulieve being the Starbucks of cannabis in Florida.
So Trulieve is a stock that trades at a big discount to the rest of group about 9 times EBITDA 22, the average is 15. So it’s a stock that we have a lot of conviction on that would be a top pick.
Another stock that we like in the U.S. is Curaleaf, which is the largest player in the U.S.
They operate in about 25 states right now. And they normally have a number-one or number-two position in most of the states they operate in — and with strong profit margin and cash flow.
We think that scale matters in this industry. Scale can mean complexity, but in their case, they are able to have good profit margins, they are only valued about 16 times EBITDA, so one point over the average. They operate in 25 states and they have depth in the states they operate.
The reason we like this, and think scale matters, is that when Georgia or Texas or other large states approve medical cannabis, we expect that companies with a good track record in other states will have a good chance of getting licenses in those markets.
So Curaleaf would also be a stock that we recommend. Those are two top names.
And the third one I would choose is in Canada — we like Aphria. It’s obviously a global industry. Israel, Mexico could legalize recreational cannabis, Morocco in the next 12 months. Other markets may relax their medical rules — Germany.”
The cannabis stock analyst has a view towards mainstream acceptance of these cannabis stocks:
“Someday perhaps consumer companies that I do not cover — like Diageo (NYSE:DEO) and Anheuser Busch (NYSE:BUD) — or large Canadian companies like Canopy Growth can come in and start buying U.S. cannabis assets.
Right now, they are not allowed to do so as cannabis remains federally illegal.
So the U.S. MSOs that are there now have a bit of a window to consolidate the U.S. industry. Also, there are some private companies that decided not to sell, not to be consolidated in the U.S., but they decided to list, or to do an IPO, or at least list through a SPAC transaction.
So yes, we expect consolidation both in the U.S. and Canada.”
Get the complete detail on these cannabis stock predictions and sector analysis by reading the entire 4,237 word interview with Pablo Zuanic, exclusively in the Wall Street Transcript.
Pablo Zuanic, Managing Director, Cantor Fitzgerald
www.cantor.com
email: pablo.zuanic@cantor.com
John Vandermosten, Senior Biotechnology Research Analyst, Zacks Investment Research
John Vandermosten is a senior biotechnology research analyst for Zacks SCR where he covers a portfolio of biotech IPO and small-cap equities.
His background includes 20 years of experience in a variety of investment management and research roles across all market cap ranges and throughout the capital structure.
Formerly, Mr. Vandermosten was a research analyst for Singular Research covering the health care space and a consultant with Coker Group, a national health care services firm providing financial services to health care organizations. At Coker Group he consulted with clients in a variety of strategic and financial areas, including asset valuations, due diligence and transactions.
Prior to his role as sell-side analyst and consultant, Mr. Vandermosten was a portfolio manager at Westwood Holdings Group and covered health care and other spaces as a research analyst. Mr. Vandermosten was also an analyst at the Teacher Retirement System of Texas.
Mr. Vandermosten has an MBA from Texas A&M University, an M.A. from Tulane University and a B.A. from San Diego State University. He has also earned the Chartered Financial Analyst (CFA) designation and is a member of the CFA Society of Dallas.
In this 3,554 word interview, exclusively in the Wall Street Transcript, Mr. Vandermosten details his new top 2021 biotech IPO stock picks.
“When I spoke with you last, the coronavirus was just starting.
There was a lot of uncertainty around that time about the availability of capital. But actually, it’s been kind of a blockbuster year and the capital markets really opened up.
We’ve had 11 new initiations over the last year, in a number of areas with unmet needs.
One, which is quite interesting, is called Anpac Bio-Medical (NASDAQ:ANPC), and they do cancer screening.
Another is a company developing a peptide able to ferry molecules across the blood-brain barrier: Bioasis (OTCMKTS:BIOAF).
A digital therapeutics company called DarioHealth (NASDAQ:DRIO) is working in diabetes.
And electroCore (NASDAQ:ECOR) is yet another; this company sells a vagal nerve stimulation device that helps people with headaches.
Kintara Therapeutics (NASDAQ:KTRA) has a chemotherapy for brain cancer.
And Lantern Pharma (NASDAQ:LTRN), which uses artificial intelligence to identify populations that will benefit from existing drugs. Right now, they are developing a treatment for lung cancer in non-smokers.
Our most recent initiation is for MiMedx (NASDAQ:MDXG), and this company uses regenerative medicine for wound care. And perhaps in the future if their trials are successful, a treatment for osteoarthritis.
Then also we’ve gone north of the border to Montreal to cover a company called Ortho Regenerative Technologies (OTCMKTS:ORTIF). They’re working on a combination product that may help repair damaged and injured tendons and cartilage, now focused on rotator cuff tears.
And then another recent initiation is Protalix BioTherapeutics (NYSEAMERICAN:PLX), and they should soon see their enzyme for Fabry disease be approved by the FDA, which is coming up at the end of April.
And then another exciting name that we’ve initiated on in January is Reviva Pharmaceuticals (NASDAQ:RVPH). This company has an improved treatment for schizophrenia, and several other neuro-psychiatric disorders. So we’ve been really busy.
It’s been a really busy year for us here.”
Mr. Vandermosten sees little government activity to slow down drug price increases for Biotech IPO stocks:
“Drug pricing has been an issue for quite a long time.
There’s a lot of pushback from payers and consumers on that. And I think at some point, there’s going to have to be a reckoning in terms of pricing. It hasn’t happened yet. I think many were hoping that perhaps the government might do something. And so far, we haven’t seen much.
One interesting thing that I saw is that a substantial amount of revenues come from outside the United States.
And if we have price controls here, it may affect the revenue from the United States, but probably pushes more companies to expand the revenues globally. And it makes these drugs more available throughout the world. We’ll see how that turns out.
You can only raise prices so much before there’s a reaction, because even medicines are elastic. They’ll respond to price increases.
In terms of other trends, another trend I wanted to mention was the high number of life sciences IPOs that occurred last year.
By my count, there were around 120 health care-related IPOs. And that’s pretty astounding.
They’re in all different areas, gene therapy, precision medicine, immuno-oncology and even health care-related SPACs, which you may have heard of. So we’ve observed a high level of interest in going public for many of these life sciences names.”
One of these new biotech IPOs is a pick from Mr. Vandermosten:
“Lantern Pharma IPO’d last year.
They use artificial intelligence to help identify predictive biomarkers and patient subpopulations, and use this information to maximize the probability of success in clinical trials, which can be used to salvage drugs that previously failed, but are otherwise safe and may still be effective in some patients.
So we really like these guys, because we think AI is going to play a big role in success of drugs in the future.
Drugs cost too much, they take too long to develop, and the regulatory burden is very heavy.
And if you can use AI to help identify populations that will benefit more, it means you can run more rapid and smaller trials, and also be more successful.
That means you’ll have fewer failed trials. AI lets you use a system to rapidly process large volumes of information, which really makes a difference in selecting populations for these trials and for these drugs. So that’s an exciting IPO name: Lantern Pharma.”
Another Biotech IPO on Mr. Vandermosten’s need to own list:
“One that I mentioned earlier, electroCore, is one of the names that we like because they have many catalysts right now that that we expect will drive future revenue growth.
I think they’ll beat expectations.
And again, what they do is they sell a device which stimulates the vagal nerve in the neck. And this nerve is associated with many, many different things.
They are approved by the FDA to treat headache, several types of headache. They’re also in investigational studies for respiratory symptoms associated with COVID and in investigations for stroke and several other indications with studies being conducted by the Veterans Administration.
Another thing I like about electroCore is that they’re expanding globally.
Their product is approved by the National Health Service in the United Kingdom, and they’re expanding into all different parts of the United Kingdom, and getting reimbursement guaranteed at a higher level than it used to be.
The NHS is recognizing the value that their product adds. It actually saves the system money. So the National Health Services in the U.K. decided to expand the use of the product, because it’s an overall savings to the system.
And they’re also creating relationships with international distributors in Eastern Europe, Australia and in Canada, which should further expand the growth of their product there as well.
In the United States they also sell into the Veterans Administration and with health care payers here. And those areas are improving as well. So they have a lot of irons in the fire, and all of them seem to be hot right now.
All of these favorable trends should provide a long runway of growing earnings.”
Get the rest of the Biotech IPO stocks and the research backing them by reading the entire 3,554 word interview with Mr. Vandermosten, exclusively in the Wall Street Transcript.
John Vandermosten, Senior Biotechnology Research Analyst
jvandermosten@zacks.com
scr.zacks.com
David Nierengarten, Managing Director, Wedbush Securities
David Nierengarten, Ph.D., is Managing Director and Head of Healthcare Equity Research at Wedbush Securities specializing in biotech stocks.
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.
This biotech stock specialist 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.
“In my specific therapeutic areas, that means for oncology companies in the space where there are treatments for some of the less severe cancers, or cancers that do have other treatments that are more established, which makes it a little bit more challenging for my companies to launch new drugs into the space.
In this 2,488 word interview, exclusively in the Wall Street Transcript, Dr. Nierengarten reveals his top picks for biotech stock upside in 2021.
“My coverage list is all really small mid-cap companies, about two-thirds focused on oncology drug development and about one-third in rare diseases, which in this environment means several gene therapy companies.
So I cover all different kinds of therapeutic modalities from small molecules, all the way up to engineered cell therapies.
For the gene therapy companies, the major impact has been felt on clinical trial recruitments. And since last year there have been several delays in patient recruiting, and in opening clinical sites in particular.
So if a company has to open new clinical sites, it’s been a real challenge, because a lot of the academic centers and hospitals are focused, and we’re all focused, on treating COVID patients and staying ahead of the curve in that way.
So many of these sites literally did not have the time to deal with trying to function as a new clinical trial site for new and different therapies.”
Dr. Nierengarten points out that capital availability drives biotech stock volatility:
“Small- and mid-cap biotechs are exquisitely dependent on the availability of capital.
They have a higher beta than stocks in general. And that’s because once the stock market starts going negative, for example, the biotechs will go more negative, further down, because the assumption is that people will pull back from committing capital to these riskier investments.
And so they have wider swings in the broader market.”
Biotech stocks are a concern at this stage of the economic recovery cycle, according to Dr. Nierengarten:
“The small-cap biotech index peaked out probably late January, early February and has trended down significantly. However, it’s been masked because large-cap performance can mask it a bit.
But small caps look like they peaked out right around February 8, 9 and they’re actually down at around 20% on average since then. So we’ve already seen the beginning of the downturn here.
I think looking ahead into summer in the second half of the year, what concerns me a bit specifically for biotech — but it’s good for the rest of the economy — is as the economy does reopen, will people shift their growth dollars to reopening names that are even more closely tied to the sectors that are recovering, and reopening?
So hotels or cruise lines, airlines, areas like that.
And it’s not necessarily that biotech is doing poorly, or companies are failing or anything like that, but just as an investor, I might see a better opportunity in a highly leveraged hotel chain that now can open up and entertain tourists again.
So that’s my biotech-specific concern for the summer and the rest of the year.
And that’s certainly true in a market downturn where capital becomes less available. And the reverse is also true when capital is more available and the stock market’s doing well, when people often pursue higher beta names to generate even higher returns, and that makes the capital available to the biotech.
So they’re definitely pro-cyclical in that regard. And also just generally speaking throughout the year, they are much more volatile than the average stock.”
Biotech stocks that outperform will be well capitalized, according to Dr. Nierengarten:
“One example tied to clinical readouts coming up soon that I’m quite confident in is Magenta Therapeutics (NASDAQ:MGTA).
The company is working on transplant-related improvements to the stem cell transplant process. They have a couple of data points coming up in the third quarter or fourth quarter of this year. And I think they’ll be positive.
Another name we like is SpringWorks Therapeutics (NASDAQ:SWTX). They have quite a bit of cash, along with a key clinical readout, probably in the third quarter, which is a Phase III for their lead drug, nirogacestat, and desmoid tumors — relapsed desmoid tumors, a rare tumor type.
I have high confidence in a positive readout.
They’ll also have several other earlier stage, clinical readouts throughout the year. So that’s one with multiple data points, and a fair bit of cash to hold them through the foreseeable future.”
There are also some biotech stock standouts:
“One that had a bit of a rough go relating to bluebird bio (NASDAQ:BLUE) is Orchard Therapeutics (NASDAQ:ORTX).
I think they were unfairly grouped in with bluebird bio’s serious adverse events they reported. Actually Orchard and Avro (NASDAQ:AVRO), both are lentiviral-focused gene therapy companies like bluebird, but I think that bluebird’s problems are bluebird-specific to treating sickle cell disease patients, while Avro and Orchard both have not had any similar kind of problems.
And Orchard has a gene therapy now approved in Europe that there should be a bit higher risk tolerance for.
Metachromatic leukodystrophy — MLD — which is a deadly disease — even if you believe that there could be potential problems from their lentiviral gene therapy, I think, the prognosis for that disease is so dire, you take whatever treatment there is available for those patients.
So that one was, I think, unfairly punished. Both of them were hit with the bluebird bio news, and they shouldn’t have been, and they should recover.”
Get all the top biotech stock picks from Dr. Nierengarten by reading the entire 2,488 word interview, exclusively in the Wall Street Transcript.
David Nierengarten, Ph.D., Managing Director & Head of Healthcare Equity Research
email: david.nierengarten@wedbush.com
George Tharakan, Chief Investment Officer, Alamar Capital Management
George Tharakan is the co-founder and chief investment officer of Alamar Capital Management LLC, a private wealth management firm in Santa Barbara, California.
Previously he was the Director of Research and Portfolio Manager at Santa Barbara Asset Management.
Prior to becoming an investor, Mr. Tharakan was an engineer at Intel Corporation where he designed microprocessors.
He is currently the Co-Chair of the CFA Institute – Santa Barbara Chapter and a member of the Santa Barbara Angel Alliance, a group that assists and invests in entrepreneurs in Santa Barbara.
He is also a member of the University of California Santa Barbara (UCSB) Dean’s Investment Group Advisory Board.
Mr. Tharakan graduated from the Indian Institute of Technology (IIT) as the top student in his department, obtained an M.S. in computer engineering from the University of Illinois, and received an MBA in finance, with honors, from the Anderson School of Business (UCLA).
In this 2,313 word interview, exclusively in the Wall Street Transcript, George Tharakan details his investing philosophy and gives examples from his current portfolio.
“I’m the Co-Founder of Alamar Capital, located in Santa Barbara, California.
I started the firm in 2010, with my partner, John Murphy. We manage investments for a diverse group of individuals and institutions in a separate account format. I’m also the Chief Investment Officer, and I manage the Alamar Equity portfolios of the firm.
We are very tax efficient; our average holding period is five years. We invest in long-term compounding machines.
I was the initial client of the firm managing my personal savings, and I remain the largest client in our equity strategy to this day. Both John and I are fully aligned with our clients’ investments.
I started my professional career as a microprocessor designer at Intel and left to become an investor. I have been investing professionally since 1997…
We typically purchase anywhere from 35 to 50 stocks, and use a very long-term approach for investing. Our average holding period is about five years.
We invest across all capitalizations, from about $1 billion all the way up to $200-plus billion in value.
A client who joined us in the beginning, when we started in 2010, would now have made over five times their initial investment.
We typically purchase profitable, growing companies, reasonably priced, with great prospects and strong secular growth, across all sectors. We have investments in consumer, financials, technology, and healthcare, all with varying capitalizations.
We avoid what I call cocktail names. That means, for example, during our entire 11-year history we have never purchased Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Netflix (NASDAQ:NFLX) or Tesla (NASDAQ:TSLA).
I call these the cocktail names because everybody knows and brags about them at cocktail parties.
These are great companies and have been fantastic investments, but we are not sure what value we bring to the table if every mutual fund, hedge fund and index fund owns these stocks in large amounts.
Moreover, they are widely followed on Wall Street with over 30 analysts covering each of these stocks, analyzing and critiquing every single action of company management.”
Currently, the Santa Barbara money manager is focusing his attention on financial and insurance companies:
“For insurance, one of our long-term holdings is Centene (NYSE:CNC), a healthcare insurance company.
We have owned that stock now for 11 years — since we started the firm. And it’s now up roughly 12 times our initial purchase price. The company has a very good management team, and we continue to like it even today.
…There are just a few companies that do what they do.
They started off as a very small regional company based in St. Louis, Missouri, and they have now become a nationwide health insurance provider.
There are very few companies that offer health insurance nationwide. There’s Cigna (NYSE:CI), Aetna (NYSE: CVS), Anthem (NYSE:ANTM), United Healthcare (NYSE:UNH) and Centene.
Healthcare costs are one of the biggest problems state governments are facing.
And although states have tried very hard to reduce their expenses in that area, it’s very difficult for a state to tackle. So they need to outsource it to professional companies like Centene, who find places to cut back on healthcare costs, and be more efficient.
Healthcare is a very inefficient sector in terms of cost, waste and misallocation of resources.
We feel the primary avenue to reduce costs is information; you need access to large datasets across the health spectrum.
For example, which are the best hospitals that provide the best results for a particular surgical procedure, risk-adjusted; who are the best doctors who can provide similar or better results for a lower price; can an expensive drug be replaced with a cheaper therapy; and so on.
So it’s a tremendous information game.
And it’s very difficult for a state or a company to figure all this out. It’s best left to insurance providers because they alone have all the relevant information.
And there are just a few of them with access to this whole spectrum of data to help states and employers drive costs down.
This will become an increasingly bigger problem going forward, as healthcare costs eat up a larger share of the wallet.”
The Santa Barbara money manager George Tharakan sees new opportunities for these companies:
“Well, we have a huge budget deficit and we have a huge amount of debt, which eventually has to be paid off.
So in my view, the only way to solve this is through taxes. Inevitably, taxes are going to go up for both corporations and individuals.
There’s just no way around it.
We cannot continue to have these fiscal deficits year in, year out.
And especially what this pandemic has shown us is that there’s been a severe underinvestment in healthcare facilities across the country, in preparedness for pandemics, and how vaccines are rolled out.
From the beginning, whether it’s the CDC or the FDA, they just all fell behind as soon as this pandemic hit. In the future, I would expect a big investment in these areas.”
Get the complete picture from the Santa Barbara money manager George Tharakan by reading the entire 2,313 word interview, exclusively in the Wall Street Transcript.
George Tharakan, Co-Founder & CIO
Alamar Capital Management LLC
email: george@alamarcapital.com
Hugh Johnson, Chief Investment Officer, Hugh Johnson Advisors picks (NASDAQ:CHKP)
Check Point Software (NASDAQ:CHKP) is being bought by Hugh Johnson, the Chief Investment Officer, Founder, Partner and a member of the Investment Strategy Committee at Hugh Johnson Advisors.
His work on the U.S. economy and financial markets guides the firm’s investment strategy. He joined First Albany Corporation in 1978 after serving as Executive Vice President of Hugh Johnson & Company, Inc. Mr. Johnson has more than 40 years of investment experience.
In this 3,411 word interview, exclusively in the Wall Street Transcript, Hugh Johnson advocates his philosophy and uses Check Point Software (NASDAQ:CHKP) as an example of this investing strategy.
“Basically, I would say we are a conservative manager of assets. We’re not trying to hit homeruns.
We’re not developing pooled assets or mutual funds. We manage individual accounts on a separate-account-by-separate-account, objective-by-objective basis.
We’re managing portfolios for individuals that tend to be in the high net worth, ultra-high net worth category. They tend to be individuals who have very, very different goals and objectives and financial needs.
We do a number of things or provide a variety of services for clients. We do manage their investment assets in most cases. But we also provide estate planning, tax planning, foundation management, as well as managing bill payments.
There are many services associated with a family office business. So it’s many services for individuals.
And then I should add that Hugh Johnson Advisors also specializes in managing assets or portfolios for non-profit organizations. So there is a broad range of investment services we provide.
It is always account by account, individual by individual, or a separate account business. We work really hard at it.
If there’s a philosophy on the investment side it is that we integrate the top down — the overall analysis, the world’s financial markets and world’s economy — with the structure of portfolios, to include asset allocation.
Additionally, there is the bottom-up component, which is picking individual securities. It is quite a diverse approach. But nevertheless, it seems to be working pretty well.”
The market run-up for stocks such as Check Point Software (NASDAQ:CHKP) has created uncertainty for Hugh Johnson’s investors:
“…Our clients are very, very concerned and worried. They’re also worried about something that’s a subcategory of what I just mentioned.
I think they’re all aware of the fact that the stock market has had a significant move to the upside since, say, March 23 of 2020. The rise has been about 70%.
Clients ask the question: Has it come too far too fast? Can we feel comfortable that the stock market has further to go or has it come too far too fast, and therefore is pricey or overvalued? Maybe we are even in a bubble?
And so I hear the words “mania” and “bubble” from our customers often. I think they’re all very, very concerned.
They’ve made lots of money in the stock market. They are asking us, what do they do to preserve it? How do they preserve gains particularly in an environment where it’s difficult to preserve profits or generate a positive return from the fixed-income markets with interest rates being so low?
So those are the kinds of questions we get. Believe me, people are very focused and interested in what’s going on.”
Hugh Johnson believes that this is all part of a cycle:
“I’m a student of cycles going back to 1890. There have been 25 cycles.
I’m not going to go through them all, obviously.
And there’s commonality among the cycles, cycles consisting of three parts: the stock market cycle, which is followed by an economic cycle, which is followed by an interest rate cycle.
And the key is to determine where you are in that cycle and we have developed methodologies to try to determine where we are in that three-part cycle.
And on the basis of that, we see that, first of all, the markets perform in very specific ways at the beginning, the middle, and the end of the cycle.
And if we can identify, by looking at the performance of the financial markets, where we are in that three-part cycle, then making the important decisions in a portfolio, such as asset allocation, sector allocation, doesn’t become easy, but it becomes certainly easier.
So I think that’s the starting point of everything we do.
And once we’ve identified or think we’ve identified where we are in the cycle, then comes the important process of sector allocation and picking individual stocks within each sector or the sectors we want to overweight and the sectors we want to underweight.
Of course, we try to set equity allocation. That’s the starting point. That is what is common to all clients. It’s made very specific for every client.
As you can imagine, some clients want to take considerable risk or they want a very meaningful percentage of their assets allocated to equities and in addition alternatives.”
This leads to the Check Point Software (NASDAQ:CHKP) pick:
“Nevertheless, we are in the early stages.
And if you’re in the early stages, you generally want to overweight the so-called economically sensitive sectors of the market, such as materials, consumer discretionary, communication services stocks, along with technology stocks, industrial stocks.
In that wide group of sectors, there’s a number of features you want to examine or be aware of. And you want to look at the kinds of things or themes that are developing.
An example is Check Point Software (NASDAQ:CHKP). It is a technology company. It’s performed very well.
It’s in the cybersecurity business or the security business. As you know, cybersecurity is receiving much attention these days. Check Point is one of the companies that’s been performing extremely well in that particular corner of the market.
When I look at companies like Check Point, I want to see that the company is in the right business and I want to see that the company is performing well.
And Check Point, although their growth rate has been somewhat slow — and in some ways disappointingly slow to some analysts — it nevertheless has been positive growth. That’s one thing I look at. We look at the general business.
And the second thing we want to look at is, of course, their financial statements, particularly their free cash flow, cash from operations, and the level of cash that they have on their balance sheet.
We want that to be solid and strong in all cases. It’s certainly solid and strong in the case of cash of Check Point. Good cash numbers, good balance sheet numbers and reasonably OK performance, and a good operating statement in a business, which is extremely important at this time.
Cybersecurity is getting a lot of attention and deservedly so. So that would be one company I would mention.”
Get all the top picks from Hugh Johnson by reading the entire 3,411 word interview, exclusively in the Wall Street Transcript.
Hugh Johnson, Chief Investment Officer & Founder
www.hjadvisors.com
email: info@hjadvisors.com
