Wood Pellets are the New High Dividend Opportunity: Enviva is the Way to Invest

Thomas Meth, President, Chief Executive Officer, and co-founder, Enviva Inc. (NYSE:EVA)

The international trade in wood pellets are the fastest growing alternative energy export from the USA to the European Union.

According to the US International Trade Commission, “the growth in wood pellet consumption has been heavily influenced by the EU’s Renewable Energy Directive (RED) requirements1 and the EU’s decision to designate biomass as a low-carbon renewable energy.”

The immediate question is — how can investors make money from wood pellets, this little understood alternative energy source?

Thomas Meth, the President, Chief Executive Officer, and a co-founder of Enviva Inc. (NYSE:EVA) has the answer to this provocative question.  He is the wood pellet CEO.

“Enviva is the largest wood pellet manufacturer in the world.

We have a capacity of 6.2 million tons.

We take a very heterogeneous, fragmented, renewable natural resource in the form of woody biomass and turn it into a commodity, a biomass fuel that can replace fossil fuels, such as gas, coal and oil across the world.”

In his recent 2,409 word interview, exclusively with the Wall Street Transcript, wood pellet maestro Meth pulls no punches.

“We make this product transportable and cost effective.

For example, currently, it is competitive, or even at a lower cost, than any fossil fuel alternative taking carbon pricing into account.

We started this business in 2004 and have been a pure play as a wood pellet company since 2010.

We also consider ourselves an infrastructure business, meaning we sign long-term off-take agreements with credit worthy counterparties across the world.

We have a contracted revenue backlog of over $20 billion, and with that backlog, we are building infrastructure to take that fragmented resource — wood fiber — and turn it into the product that replaces fossil fuels — wood pellets.

In addition to manufacturing facilities, we are also building the logistical infrastructure — port terminals — needed to create storage that will eventually load, transport, and deliver our product in a reliable and timely fashion to our customers.”

A $20 billion backlog represents alot of wood pellets.  This order cushion provides investors with some upside from the current $3 billion market cap, especially considering a current dividend yield of over 8%.

The CEO of Enviva (NYSE:EVA) explains further:

“We have an incredibly supportive market dynamic for our business.

At the beginning of the pandemic, Europe decided to really lean in on green energy and announced the Green Deal, which fundamentally changed the value of carbon in Europe, and has led to more long-term certainty.

From historically EUR20 per ton, to now EUR75, EUR80, going onto EUR100 a ton. That was a massive change in step and a tailwind for our business.

There is a large subset of our business that is the power industry.

The power industry pipeline was developed on the basis of different policy instruments in Europe, such as the coal tax or various incentives for biomass to compete against coal, for example, particularly when carbon pricing was that low.

Fast forward, it’s an incredible vote of confidence from our existing customers that they’re actually willing to lock in incremental contracts, believing that these tailwinds will run for the foreseeable future.

Not to mention, there is a structural biomass shortage and a structural renewable power shortage.

Both of those together allow that particular customer to say, “You know what, we want to make sure we have the biomass available as part of our strategy and we don’t want this to be sold somewhere else.”

So our customer is taking a very long-term strategic view for delivery starting in 2027.”

The wood pellet company is a new opportunity for investors.

“It’s important to note that 2022 was our first year as a publicly traded corporation.

And now we have 10 plants operating, and we’re constructing and delivering a plan to continue to maximize uptime of those facilities, drive down costs, hire the right people, and to retain those people in a job market that has been difficult.

I think we’ve done a lot of good work in 2022 and we’ll continue that way in 2023.

Last thing I will say is, in addition to growing and developing our infrastructure, we’re paying a healthy dividend.

We can do both and we’ll certainly continue to do that.”

Enviva gets support from top tier Wall Street analysts as well as its CEO.

Raymond James Financial (NYSE:RJF) expert analyst Pavel Molchanov, recommends wood pellet manufacturer Enviva (NYSE:EVA)

In his recent, and exclusive, 2,300 word interview with the Wall Street Transcript, Pavel Molchanov, the long term award winning alternative energy expert analyst of Raymond James, touts the wood pellet future and the attraction of it’s investment thesis.

“While the Inflation Reduction Act has gotten a lot of headlines, I think the European energy crisis is even more of a big deal as a catalyst for energy transition.

There are some companies that have a very direct footprint in the European market for supporting energy diversification and security.

First one that I will mention is Enviva (NYSE:EVA).

Enviva is the world’s largest provider of utility-grade wood pellets.

One of the things we’ve seen in Europe, because Russia has basically cut off natural gas supply, is some utilities are needing to burn more coal.

This is not only a big problem environmentally, but it’s also quite expensive.

The price of coal has doubled since the start of the year.

Wood pellets of the kind that Enviva makes are substitutes for coal.

They are renewable because they’re made from wood, and they are also cleaner burning, without the various toxins that coal contains.

Because coal is so expensive, wood pellets for the first time ever are actually cheaper than coal.

It is absolutely a no-brainer for power plants in Europe that are burning coal.

Switching to wood pellets makes perfect sense.

Enviva is a U.S. company and it produces the wood pellets along the eastern seaboard, where there has always been a lot of forestry.

But they are all shipped abroad: 80% to Europe, 20% to Japan.

That makes Enviva a one-of-a-kind story on improving Europe’s energy security as well as promoting greater sustainability by displacing coal.”

The 2022 development of the wood pellet investment opportunity of Enviva is just one unexpected consequence of government focus on the de-carbonization of our energy supply coupled with the Russian invasion of Ukraine.

The CEO of Enviva insists his wood pellet company will be around for the long term.

“One of the most important things in our business is sustainability, and it is at the core and at the heart of what we do.

Let me explain how we ensure that we’re taking the right kind of wood.

For starters, it’s a commercial reality that, one, the straight stem of a tree that can go to a sawmill is five to 10 times more expensive than the type of wood we buy.

So, purely from a commercial perspective, there is no incentive for someone to sell wood to us that should, and would otherwise, go to a sawmill.

It is really important to understand that our industry is symbiotic to the sawmill industry.

Approximately 50% of trees that are harvested typically go to a sawmill and will be turned into long-term carbon storage in the form of furniture or building materials for housing.

The other 50% historically have gone to the paper industry.

As the paper industry has quite substantially declined over the last 20 years in the United States, we are filling that gap in areas where there is no, or very little, demand from the paper industry.

The bioenergy industry can fill that void in concert with the sawmills.

On top of that, we have an industry leading, proprietary Track & Trace system that requires GPS coordinates of where the wood is being harvested so that we can check that the wood does not come from High Conservation Value — HCV — areas. If HCV areas are identified, we will not accept wood from those tracts/areas.

In our processes, it is also really important to know the landowner’s intention to keep the land as forests — this is crucial, and is part of our wood procurement contractual obligations.

Then, we make sure that we understand the quality of the stands coming to us to verify we’re paying the lowest amount of money per ton, which we verify.

We also take the time to better understand where other products from a particular tract are going to further verify we’re taking the right kind of wood out of a traditional timber harvest.

In addition to traditional harvests, we also take sawmill residues from the local processing facilities.

The current yield and the current growth for the wood pellet company Enviva creates an upside to the current stock market doldrums.

Get both the detailed equity analyst interview and the CEO interview, exclusively in the Wall Street Transcript.

Bloom Energy (NYSE:BE) and Enviva (NYSE:EVA) are the Alternative Energy Stocks to Buy According to Pavel Molchanov, Managing Director, Renewable Energy and Clean Technology for Raymond James (NYSE:RJF)

Pavel Molchanov, Managing Director, Renewable Energy and Clean Technology for Raymond James.

Bloom Energy (NYSE:BE) and Enviva (NYSE:EVA)  are just two of the many stocks detailed by top equity analyst Pavel Molchanov, Managing Director, Renewable Energy and Clean Technology for Raymond James & Associates.

Pavel Molchanov joined Raymond James in 2003 and has been part of the energy research team ever since.

He became an analyst in 2006, the year he initiated coverage on the renewable energy/clean technology sector.

In this role, he covers all aspects of sustainability-themed technologies, including solar, wind, biomaterials, electric vehicles, hydrogen, power storage, grid modernization, water technology, and more.

Within the energy research team, he also writes about the broader topics of geopolitical and regulatory issues, climate change, and ESG investing.

This Raymond James analyst has been recognized in the StarMine Top Analyst survey, the Forbes Blue Chip Analyst survey, and the Wall Street Journal Best on the Street survey.

He graduated cum laude from Duke University in 2003 with a Bachelor of Science degree in economics, with high distinction.

In the broader community, he is a member of the Board of Visitors at the University of North Carolina; a member of the Advisory Board at Cool Effect, an environmental project funding charity; and the founder of the Molchanov Sustainability Internship Program at the Royal Institute of International Affairs in London.

“Another company which will have good opportunities in Europe is Bloom Energy (NYSE:BE).

Currently, Bloom is the largest provider of stationary fuel cells in the world.

A fuel cell is a mini power plant.

They are used at data centers, hospitals, and office buildings to provide an extremely reliable supply of electricity.

One thing we know from climate science is that not only are temperatures going up, but weather is less predictable.

This helps explain why the grid has so many disruptions, with lots of outages all over the world.

Fuel cells are a solution to improving the reliability and the resilience of electricity supply for mission-critical businesses such as data centers.

In addition to that, Bloom is starting to produce a second product called an electrolyzer, which is essentially a fuel cell in reverse.

A fuel cell takes natural gas to generate electricity, whereas an electrolyzer takes electricity, passes it through water, and produces hydrogen.

So it’s a way of making hydrogen without a fossil fuel.”

The Raymond James analyst explains the origin of “green hydrogen”.

“This is the definition of green hydrogen.

Green hydrogen is defined as electrolysis of water using renewable power.

The electricity that an electrolyzer passes through water can come from different sources. If the source is renewable — wind, solar, hydro — then the output from the electrolyzer is going to be green hydrogen…

Plug Power (NASDAQ:PLUG) and Bloom Energy are both companies that originally were focused on fuel cells and are now diversifying into electrolyzers.

In that sense there is quite a bit in common.

The technology platform is somewhat different, though.

More importantly, Plug Power is getting into the business of producing hydrogen as a commodity — in other words, selling hydrogen fuel to end users, whereas Bloom Energy is 100% an equipment vendor.

Supply chain complications have presented themselves for both of these companies, and plenty of others in cleantech, because they rely on electrical components.

For both Plug and Bloom Energy, the opportunity in Europe with record high natural gas prices arises from the fact that electrolysis enables production of hydrogen without using natural gas.

By the way, gas is five times more expensive in Europe than it is in the U.S.

In the U.S., we have relatively cheap gas even with the escalation over the past year, but the Inflation Reduction Act created a first-of-its-kind subsidy for low-carbon hydrogen production that will benefit these companies and others…

Recession doesn’t really matter for these companies. This goes back to the point I made earlier — demand has never been better.

The demand for these products is ultimately tied to the cost of fossil fuels.

When fossil fuels are expensive, that inherently bolsters demand for substitutes.

As natural gas in Europe has tripled as a result of the war, that means for the first time ever, green hydrogen is actually cheaper than making hydrogen from natural gas, just like wood pellets are cheaper than burning coal.”

Another lesser known name in the alternative energy sector that the Raymond James experts picks as a top stock is “Enviva (NYSE:EVA).

Enviva is the world’s largest provider of utility-grade wood pellets.

One of the things we’ve seen in Europe, because Russia has basically cut off natural gas supply, is some utilities are needing to burn more coal.

This is not only a big problem environmentally, but it’s also quite expensive.

The price of coal has doubled since the start of the year.

Wood pellets of the kind that Enviva makes are substitutes for coal. They are renewable because they’re made from wood, and they are also cleaner burning, without the various toxins that coal contains.

Because coal is so expensive, wood pellets for the first time ever are actually cheaper than coal.

It is absolutely a no-brainer for power plants in Europe that are burning coal. Switching to wood pellets makes perfect sense.

Enviva is a U.S. company and it produces the wood pellets along the eastern seaboard, where there has always been a lot of forestry.

But they are all shipped abroad: 80% to Europe, 20% to Japan.

That makes Enviva a one-of-a-kind story on improving Europe’s energy security as well as promoting greater sustainability by displacing coal…The demand for these products is ultimately tied to the cost of fossil fuels.

When fossil fuels are expensive, that inherently bolsters demand for substitutes.

As natural gas in Europe has tripled as a result of the war, that means for the first time ever, green hydrogen is actually cheaper than making hydrogen from natural gas, just like wood pellets are cheaper than burning coal.”

Get more on Raymond James top alternative energy analyst Pavel Molchanav’s current top stock picks Bloom Energy (NYSE:BE) and Enviva (NYSE:EVA), as well as many others, by reading his entire 2,300 word interview, exclusively in the Wall Street Transcript.

NextEra (NYSE:NEE), Southern Company (NYSE:SO), and Entergy (NYSE:ETR) Are the Three Southeast Utility Stocks Recommended by this Morningstar Analyst

Travis Miller, Energy and Utilities Strategist, Morningstar Research Services

NextEra (NYSE:NEE), Southern Company (NYSE:SO), and Entergy (NYSE:ETR) are the three top utility stocks recommended by professional equity analyst Travis Miller, an Energy and Utilities Strategist for Morningstar Research Services.

NextEra (NYSE:NEE) is currently yielding over 2.25%, the Southern Company (NYSE:SO) is yielding 4% and Entergy (NYSE:ETR) has a dividend that yields 3.9% at the current stock price.

Mr. Miller holds a bachelor’s degree in journalism from Northwestern University’s Medill School of Journalism and a master’s degree in business administration from the University of Chicago Booth School of Business, with concentrations in accounting and finance.

In this exclusive 2,071 word interview in the Wall Street Transcript, Travis Miller, Mr. Miller details how growth and income can both be found in the utilities sector.

“The Southeast right now appears to be one of the most constructive areas for utilities.

Within that, NextEra (NYSE:NEE) appears very well positioned to grow, given almost 80% of their earnings come from Florida.

We also like Southern Company (NYSE:SO) and Entergy (NYSE:ETR), both located in the Southeast where you have higher-than-average population growth.

We also see generally lower energy costs in the Southeast. There’s a lot of growth opportunity in that region to expand the clean energy mix…

We think the Northeast is going to be exceptionally challenging, both this winter and going forward for the next few years.

From New York up through New England, there’s a scarcity of natural gas. So we expect much higher energy prices this winter and next summer.

Those states also have very aggressive clean energy goals.

When you put together the high and rising energy costs along with the infrastructure investment that’s needed to meet the clean energy goals, we see some rapid escalation in customer bills that utilities are going to have to manage.”

Nuclear power generation may also be riding the clean energy wave despite the closing of the Yucca Mountain waste disposal site by the adminstration of President Obama.

“Most utilities have some type of nuclear exposure, either owning facilities or distributing power from nearby facilities.

Nuclear is a hotly debated topic in the clean energy industry because arguably it offers the most reliable carbon-free power generation available.

That said, there’s been a lot of concern over the years about safety and about nuclear fuel waste handling.

I think we’ve seen, just in the last year, a big mentality shift as people start to run the numbers in terms of getting to 50%, 60%, even 100% carbon-free power generation mix.

You just can’t do it in a reasonable amount of time without nuclear.

Nuclear is still 20% of the U.S. generation mix and it’s the most reliable source of generation in many areas.

The best example is what’s happened in California over the last few months as the Governor’s office and other energy policy makers reversed PG&E’s (NYSE:PCG) decision to retire the Diablo Canyon nuclear plant.

As policy makers in California ran the numbers about how to get to net zero emissions by 2045, Diablo Canyon became a key part of that equation.”

Two more top picks from Travis Miller beyond NextEra (NYSE:NEE), Southern Company (NYSE:SO), and Entergy (NYSE:ETR) are Edison International (NYSE:EIX) and WEC Energy Group (NYSE:WEC).

“One of our top picks is Edison International (NYSE:EIX), which operates the electric grid in most of Southern California.

The big growth story for Edison is that California is aiming to electrify all of its transportation fleet and all of its buildings within the next 20 years to eliminate carbon emissions across the economy.

California’s net zero emissions goals are much more ambitious than any other state.

There’s general consensus among stakeholders in California that utilities like Edison will be essential to support that clean energy transition in terms of providing the electricity for vehicles and for buildings and also ensuring that the grid is reliable and resilient as more demand for electricity comes onto the system.

For Edison that means a lot of electricity demand growth and a lot of infrastructure growth.

Edison International also has one of the lowest valuation multiples and one of the highest dividend yields in the sector right now.

So we think Edison offers an attractive income source as well.

The market’s biggest concern with Edison is an unresolved liability related to past natural disasters that continue to impact both accounting earnings and cash flow. We don’t expect that to be resolved anytime soon. But their core business continues to perform very well…

we think that WEC Energy Group (NYSE:WEC) is a very attractive company for traditional utility investors looking for income, growth and stability.

WEC operates in Wisconsin primarily, which we consider a highly constructive state. It’s also moving very quickly to diversify its energy mix, in particular, adding renewable energy.

State regulators have been very supportive of WEC’s growth plans in areas like solar and wind.

So we see a lot of growth there and support from regulators to ensure that growth turns into earnings and dividends for investors.

WEC has always had very, very consistent earnings.

Their management team is one of the few that offers a very tight window on earnings guidance for the upcoming year and they regularly meet or exceed that guidance.”

The Morningstar analyst sees some challenges to utility stocks such as NextEra (NYSE:NEE), Southern Company (NYSE:SO), and Entergy (NYSE:ETR).

“I think beyond the clean energy transition, which continues to get support at state and at the federal level, the growth of electric vehicles is really going to be a key trend for utilities over the next five years.

Electric vehicle charging in the homes and businesses is going to shift some of the way energy infrastructure historically has been used for the last century.

That’s going to require some more modernization investments and it’s going to require more infrastructure investments.

It could significantly change the way utilities build and operate the electric grid over the coming decade.

At the federal level, we think most of the policymaking has been done through both the infrastructure bill that was signed last year and the Inflation Reduction Act.

So we don’t see a whole lot of federal policy making changes in the next few years.”

Get the full detail on Morningstar analyst Travis Miller top picks NextEra (NYSE:NEE), Southern Company (NYSE:SO), and Entergy (NYSE:ETR) by reading the entire 2,071 word interview, exclusively in the Wall Street Transcript.

Equity Analyst Professionals: Best 2022 Interviews for 2023 Investments

Equity analyst professionals have the attention of investors after the worst year for equity returns in the US since 2008.  It pays to pay attention to these analysts that can find pockets of significant return in a chaotic bear market.

Mike Kozak, Equity Research Analyst, Cantor Fitzgerald

Mike Kozak is an Equity Research Analyst and has been covering the Metals & Mining sector since 2007. He joined Cantor Fitzgerald in 2016.

Mr. Kozak holds a BASc degree in Mining & Mineral Process Engineering from the University of British Columbia, and prior to joining the financial services sector, worked in various technical roles for Fording Canadian Coal, Teck Resources, and Barrick Gold.

In December of 2021, Mr. Kozak recommended BHP, the large cap Australian mining company:  “BHP (NYSE:BHP) is the world’s largest diversified miner. It has a 12% dividend and is trading around 30% below its highs on the year.”

The stock spun out its oil and gas drilling subsidiary into Woodside Energy giving investors shares in that company as well, a “twofer” in 2022 that has returned large double digit gains on the investment to date.

Phil Skolnick, Managing Director, 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 singled out InPlay, with a current dividend yield of over 6%, and PetroTal as two small independent oil and gas exploration and production companies as ones investors should buy in early February 2022.

Benjamin Nolan, CFA, Managing Director in the Transportation sector, Stifel Financial

In his February 2022 interview, Ben Nolan noted that natural gas, and specifically liquefied natural gas, would be the key energy input far beyond the short term.  Mr. Nolan is a Managing Director in the Transportation sector, covering Shipping and Energy Infrastructure at Stifel Financial Corp.

“…You do have a lot of developing economies, various places around the world — India, Pakistan, Bangladesh, even China — where their power consumption is going up a lot.

They’ve got to figure out how they’re going to meet those demands and the cleanest and, generally, one of the cheapest methods of being able to do that is with natural gas.

Now, it’s not carbon free. So perhaps you could argue that it’s just a bridge fuel, but if it is a bridge fuel, it’s a multi-decade bridge fuel.”

Dr. Kumaraguru Raja, Senior Biotech Analyst, Brookline Capital Markets.

Switching from natural resources to natural sciences, Dr. Kumaraguru Raja is a Senior Biotech Analyst at Brookline Capital Markets.

Previously, he was Vice President, Biotechnology Research at Noble Life Science Partners. He started his equity research career in 2010 as a Senior Associate Analyst on the Citi Research biotechnology team.

Dr. Raja noted in his March 2022 interview that many biotechs had raised enough capital:  “…These companies are actually sitting on a lot of cash, which will provide them with a runway for at least one to two years.

And they don’t have to worry about the high cost of capital, at least for the next one or two years.”

Lisa Ellis, Senior Analyst, Sanford C. Bernstein & Co., U.S. computer services and IT consulting.

Lisa Ellis is a partner and Senior Managing Director at MoffettNathanson LLC. She leads the Payments, Processors, and IT Services business.

In her April 2022 interview, Ms. Ellis touted that most hated of categories, cryptocurrency technology.  Her recommendations may be just what the devoted contrarian investor requires.

Haendel Emmanuel St. Juste, Managing Director and Senior REITs Analyst, Mizuho Securities USA LLC.

Haendel Emmanuel St. Juste is Managing Director and Senior REITs Analyst at Mizuho Securities USA LLC.

He joined Mizuho in early 2016, having spent the previous 15 years on Wall Street, with platforms including Morgan Stanley, UBS and Green Street, focused exclusively on the REIT sector.

His May 2022 interview specifies a certain type of real estate investment as the best for our current position in the economic cycle.

“We’re still constructive on REITs, we’re just of the view that you need to be increasingly selective.

There’s more value out there.

We like names and sectors where there is pricing power and ability to offset some of the rising costs, where you are still seeing good demand, and I think we touched on a lot of that with residential and with shopping centers.”

Vijay Kumar, Senior Managing Director, Evercore ISI

Vijay Kumar is a Senior Managing Director on Evercore ISI’s Healthcare Services & Technology Research Team, primarily focusing on the medical supplies and devices and life science tools subsector.

“Medtronic has had some recent setbacks on the new product pipeline side. And most of it is either about unfortunate timing, or a communication sort of issue.

Yet the underlying fundamentals remain very strong.”

Business development companies or BDCs are a small but high yielding stock sector.

Casey Alexander, Senior Vice President – Research Analyst, Compass Point Research & Trading, LLC

Casey Alexander is a Senior Vice President – Research Analyst with Compass Point Research & Trading, LLC covering business development companies, which he has been following since 2009.

“Barings BDC…is managed by almost a unique team. They operate more in the traditional middle market.

But it’s managed by Barings Asset Management, which has over $300 billion in assets under management.

They manage the general account for their parent company MassMutual.

They have a far more bespoke method of investing and therefore the loans that they invest in, they have less competition for, are able to create better terms, better yields and, in general, a better total return.”

Tore Svanberg, Analyst and Managing Director, Stifel Financial Corp.

Tore Svanberg is an analyst and managing director at Stifel Financial Corp. 

He joined the company with the acquisition of Thomas Weisel Partners LLC in 2010.

He is part of the technology group, covering semiconductors with a focus on analog, connectivity and processor semiconductors.

He has been recognized for his work by The Wall Street Journal’s “Best on the Street” Analyst Survey.

“I think the markets that are perhaps more interesting for semiconductor companies would be automotive. There’s obviously a lot of electronic content growth happening in the automotive market.”

Michael E. Hoffman, Managing Director and Group Head of Diversified Industrials Research, Stifel Financial Corp.

Michael E. Hoffman joined Stifel Financial Corp. in 2014.

Based out of the Baltimore office, Mr. Hoffman is a Managing Director and Group Head of Diversified Industrials Research, covering solid/industrial/medical waste, pest control and specialty distribution.

“In the industrial waste space, the bellwether is Clean Harbors with a very attractive valuation entry point and likely to beat and raise in 2Q22.”

Hartaj Singh, Managing Director and Senior Analyst, Biotechnology at Oppenheimer & Co.

Hartaj Singh is Managing Director and Senior Analyst, Biotechnology at Oppenheimer & Co.  His top biotech stock recommendation has returned over 30% since his August interview:

“…We have a “buy” on Gilead.

And we have one of the highest price targets on it.

And it’s just human psychology that if things are not looking good in the outside world, you will generally tend to go to areas or stocks that are safer. So you’ll avoid higher-risk stocks. And in that kind of an environment, the larger caps look very good.”

Richard Safran is Managing Director and an Analyst at Seaport Research Partners

Richard Safran is Managing Director and an Analyst at Seaport Research Partners. 

He is an aerospace and defense equity research analyst and former aerospace engineer and program manager.

He started his professional career working at Northrop Grumman on the B-2 program.

“Russia was a major supplier of titanium to the U.S. aerospace industry and that’s not going to be any more, and aerospace OEMs are now going to have to domestically source titanium and titanium parts.

Well, that goes squarely to ATI. 

People are looking for small/mid-cap stocks that are a derivative call on Russia’s invasion of Ukraine and the U.S. industry de-risking from Russia, well then, ATI fits that bill.”

Nikhil Devnani, CFA, Analyst, Bernstein

Nikhil Devnani, CFA, is an Analyst at Bernstein covering U.S. Emerging Internet, a variety of marketplaces across e-commerce, food delivery, ridesharing and housing.

Mr. Devnani joined Bernstein in 2016 as Research Associate on U.S. Large-Cap Banks and contributed to the team’s No. 1 ranking by Institutional Investor in 2017 and 2018.

His September 2022 interview has some eye opening recommendations.

“My top stock recommendation is actually outside the world of e-commerce right now. So, it’s Uber.

And why Uber? A couple of things.

One is, I think there’s not a lot of very clean stories in internet and probably in a lot of sectors right now.

But when I think about the relative trends, Uber is benefiting from this tailwind of people moving around again, which continues to take place.”

Mike Polark, CFA, Director and Senior Analyst, Wolfe Research

Mike Polark, CFA, is a Director and Senior Analyst at Wolfe Research, LLC covering the medical device industry.

Mr. Polark joined Wolfe Research after nearly 10 years with Baird.

“In large-cap land, I like Boston Scientific.

I cover a series of these medical device bellwethers, I call them — you know, multi category companies that do a lot of stuff. Boston, for me, has been the Goldilocks option — not too hot, not too cold, just right.

And they’re a leader in minimally invasive medicine, so they have a huge portfolio of minimally invasive solutions for specialties like cardiovascular, urology, oncology, electrophysiology.”

Ralph M. Profiti, CFA, Principal, Metals & Mining equity research at Eight Capital

Ralph M. Profiti, CFA, is a Principal focused on Metals & Mining equity research at Eight Capital, covering Senior North American Industrial Metals and Precious Metals companies and commodities.

His November 2022 interview is timely for investors looking to put money to work in 2023.

“In copper, my favorite stock is Freeport (NYSE:FCX). I like Freeport because of its strategic position in the copper peer group as it pertains to, again, having strong balance sheet liquidity. It can have positive free cash flow even at lower copper prices than where we are now.”

Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG) are Good Investments, Stay Away from Facebook (NASDAQ:META) Declares this Professional Money Manager

David C. Hartzell Jr., President and CEO of Cornell Capital Management.

Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG) are the top stock picks from David C. Hartzell Jr., President and CEO of Cornell Capital Management.

He currently serves on The Business Week Alliance/Market Advisory Board and the Barron’s “BIG MONEY” panel of experts.

He is an ex-officio member of the board of directors of the FBI Citizens Academy Foundation; the board of directors of the Chantal Avin Rosin Foundation; the board of directors of the Western New York Innovation and Entrepreneurial Group; The Charles Schwab Technology Advisory Board; The New York Society of Security Analysts; the CFA Institute; Chairman of the board of Clarence Industrial Development Agency, or CIDA; President of the Clarence Chamber of Commerce; and the Chairman of the Erie County Industrial Development Agency, or ECIDA, Leadership council; and is the former Supervisor — Mayor — of Clarence, New York.

“I tend to avoid the newest technology stocks. I learned my lesson back in 2000. Now I buy technology stocks that are a little older like Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG) or Apple (NASDAQ:AAPL) that have been around a while and have proven themselves, rather than trying to find the latest, greatest 10 baggers, as Peter Lynch would call them.

I tend to be a little more conservative. My clients tend to be a little older and skew a little more conservative. So I’m a little more conservative as well and I buy stocks after they have proven themselves…

Valuations are always high with a Microsoft or a Google or an Apple. But we really sit down and take a look at this. I call them second-generation techs.

First generation would be the stuff that’s on the cutting edge.

Second generation like a Microsoft or Google — something that’s been around for a while and proven itself.

The valuation usually is going to be higher than an old-line industrial and such. But I think the question with every money manager is: Do you want to pay that extra valuation? If the equities in question and their criteria don’t fit our system, we won’t pay for that extra valuation. But, with some stocks we will.

For example, we won’t buy Facebook (NASDAQ:META) even though a lot of managers do. We thought the valuation was just too high. So we definitely reject stocks that other people are buying based on our own internal research…

If you go back to 2000 when we were trying to evaluate tech companies and there were just so many, one of the things I learned is, it’s just so difficult to separate the winners from the losers because every company looks so good on paper.

Their pitch is great, their MBA-toting, Stanford-educated CEO is young, enthusiastic and has a rich, full head of hair.

Their product is the next best thing since sliced bread.

Everybody looks good on paper, but can they cut it in this cut-throat tech world we live in? A lot of times, picking out the winners from losers is almost an impossible task in the technology sector.

It is very, very difficult.”

Facebook (NASDAQ:META) is not the only stock that Mr. Hartzell recommends avoiding.  Two stocks that Mr. Hartzell bangs the table for are Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT).

“Let’s use Google, for example.

You get Google and it’s almost like Kleenex.

If you want to find out about something, you go to Google, as does everyone else in the free world.

Google — the search engine — is such a cash machine that allows the rest of Google to experiment in a lot of other tech niches and nooks.

They have a whole slew of products that the public doesn’t even know about that they’ll break out over the next 10 years, kind of like Apple does.

Google is a company we absolutely love for their focus on their core business and their commitment to innovation that will drive profits in the future.

We love Apple for their innovative, consumer friendly, high-quality  products.

Everything Apple does, they just do really, really well.

On the other hand, you can buy 100 small tech companies, or 1,000 small tech companies, and you never know which one is going to be productive, or even if the company is going to survive to the next generation.

So, why do I like tech?

I think that with tech you can make a moat that people can try to breach but it can be very, very difficult.

If you look at Google search, Microsoft tried for years to get Bing off the ground and failed miserably. Nobody uses Bing, and everyone’s tried to crack Google’s moat.

But no one’s been able to. Google equals search, period.

So, with tech, your chances of success increase as long as you are the first in, you’re an innovator, you can keep your product fresh and your company is constantly and unremittingly consumer friendly.

You can really dominate your space, unlike a consumer products company that sells napkins and always faces relentless price competition.

Of course, you have to be great, and things change.

So, as a money manager, you have to be willing to move to the new frontier whatever that happens to be.

You need to know who’s dominating their space.

But as long as you stay on top of things, it’s an exciting place to be, much more exciting than value stocks, which is what we originally staked our claim to when we started our company back in 1989.”

The message from Mr. Hartzell is to stay away from Bitcoin but believe in the United States of America.

“First of all, I would say, don’t buy Bitcoin.

I think Bitcoin is air.

If Bitcoin went to zero tomorrow, it really wouldn’t surprise me.

I don’t know why people get involved in that.

I think it’s the whole Robin Hood mentality: get something for nothing — which of course in the stock market never happens. So I would say first of all avoid Bitcoin.

Two, I would say: Don’t be afraid of 2023.

Because if you look at the economy right now, even though you read a lot of gloom and doom and fear, if you’ve talked to anyone who owns a business, the big problem is finding people.

Unemployment is so low.

Most businesses now that have come out of COVID are humming along and are making money and just recently the Federal Reserve said that they haven’t peaked with the raising interest rates, but they’re starting to back off, so the whole hand of the Fed that was on the market is starting to ease and rate increases won’t be as big as they were in 2023.

We traveled recently to Greece and some of the people there said, “Oh you’re Americans.”

They said, “We love to go to America.

We love America.

We have friends there.

We have friends and relatives in Chicago, and we go there to visit.”

It seems that everyone in Greece has an uncle in Chicago.

“We love going to the United States. We love the United States,” they say.

How nice is that? Sometimes, you don’t hear that in the United States — how good a country we have.

People tend to focus on the negative.

But this is still an amazing economy.

It’s an honest government, honest legal system.

If you get pulled over in your car, you don’t have to worry about the police officer shaking you down, like they do in other countries around the world.

Also, you can mail me $10 right now in the U.S., and you know it’s going to get to me.

Other countries, that doesn’t happen.

I know, because my daughter has traveled all over the world, and we have sent her cash.

Sometimes it gets there, sometimes it disappears into the system.

So this is still just a great country and I think people need to realize that and focus on the future.

The future is bright for America. It really is.”

Get the complete interview with David C. Hartzell Jr., President and CEO of Cornell Capital Management, and learn more about his recommendations Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG), exclusively in the Wall Street Transcript.

Dominion Energy (NYSE:D), Meta (NASD: META) and Air Lease (NYSE:AL): Money Managers Invest Their Own Wealth: 2023 Stock Picks

Thomas E. Browne, Jr., CFA, Portfolio Manager, Keeley Teton Small and Mid Cap Dividend Value

Thomas E. Browne, Jr., CFA, is a Portfolio Manager at the Keeley Teton Small and Mid Cap Dividend Value strategies. Mr. Browne previously was a Portfolio Manager at Keeley Asset Management Corp.

He was also a Portfolio Manager for Oppenheimer Capital, SEB Asset Management and Palisade Capital Management.

Prior to that he was a sell-side technology services analyst and was twice recognized in The Wall Street Journal’s Best on the Street survey.

Mr. Browne received a B.B.A. from Notre Dame and an MBA from New York University.

“…We think that aerospace is an interesting area to invest in these days.

The air carriers seem to be doing better.

People want to get out and see other people either for business or personal reasons after being locked down for the last couple of years due to COVID-19. Airbus (OTCMKTS:EADSY) and Boeing (NYSE:BA) have had difficulty delivering planes over the last several years for a variety of reasons.

And so it seems like we’re getting into a shortage of airplanes. With fuel prices where they are, and newer aircraft being much more fuel efficient, this creates demand for new planes.

Air Lease (NYSE:AL) is one way we’re investing in this trend. They are one of the largest aircraft lessors in the world. They will double their fleet over the next five to seven years.

They’re well managed and the stock trades well below the value of the aircraft. We think that one offers a lot of potential as well.”

Daniel L. Kane, CFA, managing director, Artisan Partners

Daniel L. Kane, CFA, is a managing director of Artisan Partners and a portfolio manager on the U.S. Value team. In this role, he is a portfolio manager for the Artisan Value Equity, U.S. Mid-Cap Value and Value Income Strategies.

“The core Meta family of apps, their core Facebook and Instagram businesses, are healthy — engagement and revenue are growing.

There is a lot of white space for revenue to grow in the future too.

The business faces tough comps from the IDFA headwind related to Apple (NASDAQ:AAPL) changes that are making tracking tougher and putting pressure on advertising revenue.

But we think they’ll come out the other side and continue to grow again.

That core business, we think, is probably worth over $700 billion today. On the other side, there’s the metaverse bet and this is hard to handicap, but the spending is unlikely to be permanent if there isn’t a path to earning an economic return.

Our belief is that based on current expectations in the market, the spending is being capitalized as if it is permanent…

There is no historical precedent where a company has lost over $10 billion per year for a decade building a business.

There will be some resolution to this, we think, in a reasonable time frame. Meaning, we think we have a high percentage of future outcomes on our side.”

John G. Ullman, President and Founder of John G. Ullman & Associates, Inc.

John G. Ullman is President and Founder of John G. Ullman & Associates, Inc. Earlier, he was President of USGM Securities, Inc., and at Corning Inc., he worked in financial management. He received a bachelor’s degree in economics from Johns Hopkins University. He received an MBA from the University of Chicago, with a focus in financial management.

“One specific company within the Utility sector that we like and own shares of is Dominion Energy (NYSE:D).

The utility company sold off its midstream assets in 2020 for $8.7 billion, and it also cut its dividends.

It did a little restructuring.

The stock sold off at the time. Generally, investors do not like it when dividends are cut. The midstream assets were sold to Warren Buffett.

It was seen as if Warren Buffett was getting a good deal in terms of value for the assets, but we liked the long-term strategic thinking of management at the time.

We also liked the valuation of the stock price, it having sold off because of these moves. And with that, we increased our position in Dominion Energy.

One of the strategic initiatives that Dominion’s management is taking is investing heavily in the renewable energy sector.

Management plans to spend $37 billion in renewable energy growth capex, so that is capital expenditure in renewable energy projects that will be in offshore wind.

The company plans to spend heavily in the offshore wind sector right off the coast of Virginia, in addition to onshore wind and solar farms.

These initiatives are supported by tax credits, and the company is protected by semi-automatic rate increases.

Therefore, we feel that this utility company is favorable in terms of a risk/reward scenario that would take place. In addition, we think the downside is fairly limited, while the company can grow along with these initiatives.

One other reason why we see the Renewable Energy sector to be favorable is that it is being supported at the state level.

States are now mandating certain renewable energy goals to meet their climate change endeavors.

We view climate change as a long-term problem, and some of these solutions are being tackled by the utility companies themselves.

So, many renewable energy stocks are priced very, very high. We stay away from those. But we found utilities such as Dominion Energy to be a safer way to invest in the renewable energy sector, given the reasonable valuation.

The price of oil and natural gas is high right now; that is another reason to invest in renewable energy, given that it is an alternative source of energy.

But that said, the price of oil and natural gas can come down. It is very volatile, and it is really determined by geopolitical factors, in addition to overall supply/demand.

While climate change is a long-term problem, we see utility companies with their resources being a major player in tackling that problem.

So overall, we like their management’s strategic thinking, their plans, their investments, in addition to the valuation of the stock.”

Get many more money manager interviews for 2023 stock picks and beyond, exclusively in the Wall Street Transcript.

Atlanta Braves or New York Knicks: Which One is Worth More?

Jonathan Boyar, Principal, Boyar Value Group and Principal Advisor to the MAPFRE AM US Forgotten Value Fund

The chance to buy a piece of the Atlanta Braves or New York Knicks through the US stock market is highlighted in these interviews with professional money managers Jonathan Boyar and Sam Coquillard.

Jonathan Boyar is a principal at the Boyar Value Group and Principal Advisor to the MAPFRE AM US Forgotten Value Fund.

He is President of Boyar’s Intrinsic Value Research LLC., an independent research boutique established in 1975 that counts some of the world’s largest sovereign wealth funds, hedge funds, mutual funds and family offices as subscribers.

He is also a Principal of Boyar Asset Management, which has been managing money utilizing a value-oriented strategy since 1983. Mr. Boyar has been interviewed by Barron’s, Welling on Wall Street and GuruFocus and is a frequent guest on both CNBC and Yahoo Finance.

“…One of our favorite names there is a company called Madison Square Garden Sports (NYSE:MSGS), which is in a decent position in the fund. So currently, the weighting is a little less than 3% of the fund. And this kind of typifies the type of investment we do.

Madison Square Garden Sports is controlled by the Dolan family and sells for the “Dolan discount.” And the Dolans are a family that everyone loves to hate. But over time we have made a lot of money investing alongside of them.

The company has an enterprise value of $4.5 billion. And primarily what it owns are the New York Knicks and the Rangers.

The New York Knicks are valued by Forbes at $6.1 billion.

And they’ve generally been conservative in their valuations.

And the Rangers are valued at $2 billion.

So with an enterprise value of $4.5 billion, you’re getting part of the Knicks for free and getting paid to own the Rangers. So it makes absolutely no sense, but people don’t think value will ever be unlocked, and we disagree with that sentiment.

And we’ve been investing alongside the Dolan family for a long period of time. And we made a lot of money when they sold Cablevision to Altice (NYSE:ATUS) for a price that we never thought that we would receive.

And right now the value of sports teams is going up and up. And the best move that the Dolans could have taken or made has been not to sell the teams as they’ve just gone up in value.

The CAGR has been tremendous, but right now private equity is getting very involved in this space. And it wouldn’t surprise us — because the NBA and the NHL now allow private equity firms to take stakes in teams — if a private equity firm or a family office took a 10%, 15%, 20% stake in the Knicks and/or the Rangers to give the Street a value of what it would be worth to an acquirer.

So that’s a name that we like a lot.

We think it’s almost a double from here based on the asset value of the company.

They’re assets that don’t go on sale very often. They are trophy properties. The last time the Knicks and the Rangers went up for sale was in the mid-1990s.

So that’s something we’re excited about.

And it fits another theme of ours which is that rights to live sports are getting more valuable each year. And this is a way to participate in that value creation. And then sports gambling is another way that these teams will make money…

On the theme of sports teams, there’s Liberty Braves  (NASDAQ:BATRK), which owns the Atlanta Braves baseball team.

It’s controlled by John Malone, who is a very successful media investor. And we think over the next couple of years, he’s going to sell the team for a lot of money.

And publicly traded sports teams don’t generally stay public for very long if you look at their history. The Atlanta Braves is now trading for around $30.

We think intrinsic value is probably close to $45 or so. And it also owns some valuable real estate. It has a very savvy owner who will sell it at the right price.”

Samuel C. Coquillard, Managing Director, Pacific Global Investment Management Company

Another professional money manager picking the owner of the Atlanta Braves as an investment oppportunity for 2023 and beyond is Sam Coquillard.

Samuel C. Coquillard is Managing Director at Pacific Global Investment Management Company.

Immediately prior to joining Pacific Global in 2006, Mr. Coquillard was a Senior Vice President of Chelsea Management Company, an investment advisory firm.

Previously, he was a First Vice President of Merrill Lynch; Senior Vice President at Chase H&Q; and Vice President, Institutional Sales, at Wertheim Schroder & Co. He received a B.A. degree from the University of Southern California.

“A name that we’ve been involved with for a long time is Liberty Braves (NASDAQ:BATRK).

Liberty Braves is a tracking stock, but that’s changing.

Liberty Braves represents Liberty Media’s interest in the Atlanta Braves baseball team and the surrounding real estate development, which is referred to as The Battery Atlanta.

And in November of this year, Liberty Media announced that it would split off Atlanta Braves and The Battery Atlanta into a separately traded public company via a redemptive split. The transaction will be completed by the end of the first half of 2023.

So basically, what’s happening here is Liberty Media, which has had this tracking stock Liberty Braves, will redeem its existing Braves common share stock in exchange for shares of the newly formed company, which will be called Atlanta Braves Holdings Inc.

We think it adds to the likelihood that the Atlanta Braves baseball franchise will be sold.

We think the decision to isolate the value of the baseball franchise, by converting the shares from a tracking stock into its own stock via the redemptive split, is very positive.

Chairman John C. Malone and Liberty Media have a very successful history of unlocking shareholder value by way of financial engineering; we think it’s going to be another example of that going forward.

This one is interesting. There are very few publicly traded major league teams in the United States.

There’s the Knicks and the Rangers, which are part of Madison Square Sports (NYSE:MSGS). And right now, we have the Atlanta Braves.

And so, you have these companies that are very precious; there aren’t many of them around, as everyone knows. And when there is a transaction, I think people are usually surprised by the price that buyers are willing to pay for these assets.

When we look at the Atlanta Braves, the trailing 12-month revenues for the Atlanta Braves Group was $637 million.

And on an enterprise value basis, if you strip out the debt and the equity that’s associated with The Battery Atlanta, the adjusted enterprise value for the Atlanta Braves is about $1.7 billion, which is roughly the same as the current market capitalization.

So, right now, the Atlanta Braves trades at under three times enterprise value to revenue.

The most recent transaction in professional sports was at nine times revenue for the Denver Broncos, quite a difference there.

And the last major league baseball team that sold was the New York Mets. That was about two years ago in a transaction that was about seven times revenue, significantly more than what we understand the Braves are valued at right now.

We believe that a potential transaction for the Braves might prove to be superior compared to the Mets. So if we look at the $2.4 billion purchase of the New York Mets, based on a 2019 report in Forbes, the New York Mets generated about $302 million in revenue. That’s net of stadium revenues used to pay down debt.

Based on the 162-game season, the New York Mets were generating $1.864 million per game translating into an acquiring multiple of seven times revenue. According to Forbes, in the 2021 Major League baseball season, the Atlanta Braves Group generated $443 million of revenues net of debt service. And based on a 162-game season, the Atlanta Braves generated $2.734 million per game.

So, even though the Braves are generating 47% more revenue than in the Mets’ 2019 season, prior to the acquisition, the Braves trade for under three times enterprise value to sales, whereas the New York Mets were acquired for roughly seven times sales.

Obviously, we believe that’s a significant gap.

And the fact that it becomes a pure play on the Atlanta Braves means that that gap in valuation will likely be rectified by a sale.

So the bottom line is we get very interested when we see things like this. The redemptive split and the spinoff of the Braves into an asset-backed stock is something we’d hoped might happen.

We’re not particularly surprised, however, as Liberty and John Malone are incredibly good at this sort of thing.

We think, within a reasonable amount of time, notwithstanding tax considerations, MLB approval and things of that nature, that the company could very well be sold — and then the shareholders of Atlanta Braves could do very well.”

Get the complete details in the complete interviews from these two professional money managers, and many more, exclusively in the Wall Street Transcript.

Medical Device Stocks: Potential Gold Mines or Land Mines?

Mike Polark, CFA, is a Director and Senior Analyst at Wolfe Research

Medical device stocks are a very heterogeneous sector.

Mike Polark, CFA, is a Director and Senior Analyst at Wolfe Research, LLC covering the medical device industry. Mr. Polark joined Wolfe Research after nearly 10 years with Baird.

In this 2,870 word interview, exclusively in the Wall Street Transcript this month. Mr. Polark details his top picks and reasoning behind them.

“In the worst of the pandemic, surgical procedure volumes were net negatively impacted. There were fewer surgeries done.

There were fewer physician office visits done. So let me put it this way, this group was not a COVID beneficiary defined at the highest level — COVID created a headwind.

And so that was very much the story of 2020 and even some of 2021.

I think we’re obviously beyond the acute phase of COVID and now we’re kind of in a COVID endemic world and COVID is still creating some challenges.

They’re less severe than they were.

But it’s still a struggle for hospitals and health care providers.

And so, yes, I think the other way to frame it is — if you were in 2019 and we’re pre COVID, and you were projecting surgical procedure volumes in 2022 or 2023 and then you go to look where we are now with COVID, we’re below where you would have thought we’d be, where you would have thought we’d been in 2019.

So we’re still underperforming as a consequence of the pandemic. And I don’t think there’s an overnight fix; it’s not going to catch up all of a sudden even if the patient demand is there.

And I think the reason it might struggle to catch up is because of the supply side — the providers that help the hospitals, the physician offices, they just don’t have enough bandwidth to allow all this potential pent-up demand to come back all of a sudden. And so it can be smoother sailing from here for sure, versus what we’ve had the last couple years, but a lot of folks like to talk about the backlog or the pent-up demand for health care services of all types because of COVID.

And I conceptually believe that it’s there, but I also don’t believe it can all of a sudden come back because of these supply constraints.”

Inflation is also a concern for medical device stocks as well as COVID-19.

“…Inflation, certainly it’s a consideration, a headwind, that companies are working through at the highest level.

It seems to be more acute in companies that make equipment versus interventional products. But I think the impacts are broad, and I think what these companies are attempting to do, and this includes the biggest of the med device companies, like Medtronic (NYSE:MDT) and Boston Scientific (NYSE:BSX) and Abbott (NYSE:ABT) that I follow, historically they have not captured price increases.

Historically their model was pricing each year flat to down a little bit. And that seemed to work for their business when the CPI was +2 or +3. CPI is now +5, 6, 7,  8.

And pricing flat to down is no longer supportive of their overall business goals. And so they are attempting to, again, at the highest level, at the portfolio level, to reorient and start to advocate for some modest price increases where appropriate.

And so I think, you can only turn the aircraft carrier so fast; it’s slow to develop. But the goal is that if historically, pre COVID, your pricing was -1 or -2 at the enterprise level, today, I’m sensing they kind of want it to be +1 or +2, given where CPI is to cover their costs. And so that’s how the industry is responding to clearly increased costs that they’re facing.”

Innovation in automation is essential to the medical device stock sector.

“Robot-assisted surgery is a major development — all sorts of ways to advance minimally invasive surgical procedures continue to get adopted.

So robots are a piece of that.

But there are other tools and techniques in cardiovascular medicine that can further minimize the exposure for patients, the amount of time they stay in the hospital.

You think about a procedure like TAVR — transcatheter aortic valve replacement — a huge home run for the industry broadly.

The standard of care 10 years ago was surgical aortic valve replacement, which is an open-chest procedure. And if you can avoid stopping a heart and opening the chest you would, and TAVR came along and allowed all sorts of aortic valves to get replaced without that intense intervention.

Same for coronary angioplasty.

So this is a catheter-based technique to clear out blocked coronary arteries.

The alternative is coronary artery bypass grafting, which is an open-chest procedure.

So, open-chest procedures still have their role in the field, they’re still used, but you’re seeing interventional cardiology, these catheter-based techniques where you access the heart from a blood vessel in the leg, are continuing to ramp in popularity and adoption.”

Further medical device innovation is in the close tracking of bodily functions.

“A different trend is smart sensors. Think about wearables defined broadly — certainly you’re seeing wearables play a bigger and bigger role in health care, both in the hospital setting and outside the hospital setting.

Certainly the consumer wearables ecosystem is massive, but when I talk about wearables, I’m focused on companies with FDA clearances, medical-grade wearables, and you’re seeing these devices really increase in popularity and use.

And I think the long-term vision is more of this, and more ways to watch patients, monitor patients outside the hospital, especially patients with chronic conditions.

And then you see wearables really change the paradigm in diseases like diabetes management — the continuous glucose monitor, patch-based insulin pumps — with huge benefits to patients and their daily living. And you’re really seeing companies that sell those devices have huge surges in their revenue performance.”

One medical device stock that fits this thesis is Masimo.

“I like Masimo (NASDAQ:MASI). It’s a mid-cap stock — $7 billion, 8 billion in market cap.

It’s a smart sensor company.

They have leading market share in the hospital for certain vital signs monitoring of respiratory vital signs.

So they’re the global leader in hospital-based pulse oximetry.

And they have some interesting opportunities outside the hospital in the home, to help hospitals and health care systems watch patients more closely.

The stock has come down a lot this year.

They’ve done an acquisition, that’s a little confusing, but that’s created an opportunity in valuation, and I’ve advocated for a sum of the parts approach to this stock.

And I don’t think you’re paying up too much for a really high-quality core business at this point. So you’re getting it, relative to this company’s 10-year history, you’re getting the opportunity to invest in the core business at a below-average multiple.”

One recognizable medical device sector stock that is not high on Mr. Polark’s list is Abbott.

“I have an “underperform” rating on Abbott Laboratories.

Abbott is a very large company, they do a lot of stuff, they have some great brands — Abbott a good company.

I just think right now it feels like a potentially bad stock.

And the primary issue for me, or the primary concern for me, is that the last two years, they have had a surge in profit from COVID testing. They sell rapid tests like BinaxNOW here in the U.S. and obviously that’s taken off.

So when you look at the last two years of financial performance, it looks really good and differentiated versus other med techs through the pandemic, but it seemingly was driven predominantly by the COVID testing, and we’re coming down from the COVID testing mountain top.

And I think we’ve seen the peak there.

And I just worry, as the next year or two unfolds, as we enter a new normal or a new era of COVID with maybe less testing generally — obviously, we’re seeing the molecular testing go way down and I worry that the rapid testing might see a similar decline.

It creates a tough dynamic for their income statement to manage through that huge pop which is then kind of deflating.

I do a lot of work around, what is the business earning otherwise.

And I just think that number is maybe not as high as some folks think, and using an average valuation has gotten me a stock price that’s been consistently a bit below where it’s traded.

So it’s not a table pounder, but I do think as 2023 unfolds, this whole COVID testing tide going out will be more visible in the numbers, and I just worry that it’ll result in a little bit of a further reset of the stock price.

So that’s one that I’m kind of differentially cautious on.”

Vijay Kumar, Senior Managing Director on Evercore ISI’s Healthcare Services & Technology Research Team

Vijay Kumar is a Senior Managing Director on Evercore ISI’s Healthcare Services & Technology Research Team, primarily focusing on the medical supplies and devices and life science tools subsector.

Dr. Kumar’s research expertise spans the diagnostic, medical equipment, medical supplies and life science tools subgroups. In this  June 10, 2022 2,430 word interview, Dr. Kumar reveals some mid year medical device stock recommendations that have come to fruition.

Trillium Asset Management Lead Portfolio Manager: ESG Orientation Doesn’t Mean Sacrificing Performance

Elizabeth Levy, CFA, Head of ESG Strategy at Trillium Asset Management, Lead Portfolio Manager, ESG Core Equity strategy, and a Portfolio Manager on Trillium’s ESG Small/Mid Cap Core and Large Cap Core strategies.

Elizabeth Levy, CFA, is the Head of ESG Strategy at Trillium Asset Management, Lead Portfolio Manager on Trillium’s ESG Core Equity strategy, and a Portfolio Manager on Trillium’s ESG Small/Mid Cap Core and Large Cap Core strategies.

Elizabeth Levy has an answer to questions about ESG investing.

“As Head of ESG Strategy, she is responsible for leading the development and oversight of the implementation of ESG-related policies and initiatives across all investment strategies.

With regards to the first question about ESG in general, it depends on how you define ESG. I would contend that there is no such thing as ESG investing.

There’s investing that uses ESG data, and there is investing to drive a positive impact, but environmental, social and government investing on its own doesn’t exist.

It’s really what your intention is and what you’re trying to do, and that might sound a little bit like splitting hairs, but I think it’s quite important.

The second part of your question: Is this a fad? I would say absolutely not, for two reasons. One, right now, we’re living with 1.2 to 1.5 degrees of changed climate already.

We all lived through the last few months; the variety of physical weather challenges around the world has been incredibly severe — and this is just the beginning. So to invest without considering what’s coming, I think, would be silly.

Why would you not consider what is likely to happen in the future? That is literally our job as analysts and portfolio managers. So I think that continuing to use this type of information is going to, of course, be core to any financial analyst job.

But then on the flip side of that, I would say that a lot of the growth of ESG investing has been because people, investors, really care about these environmental and social issues, in particular.

As I said, we’re all living with the same changing climate.

We’ve all lived through the events, for example in the U.S. in 2020, that really showed some of the social divisions and racial divisions in our country, and I think it’s not a coincidence how much growth we’ve seen in sustainable, responsible, impact investing since then — and it’s because people really care about these issues and people really want to align their investing with their beliefs, their attitudes, their values.

So I don’t see this trend ending anytime soon, because these are issues that are really important, and not just to Americans, we’re seeing it all around the world.”

Elizabeth Levy explains the Trillium process for ESG investing.

“At Trillium, we really take a holistic approach to integrating ESG right into our investment process. It’s not an afterthought or an add-on, or a simple screen.

We see real value in considering E, S and G topics right in our investment process.

So that might mean that we do some thematic top-down consideration when we’re looking for a secular growth theme, for example, and we also do a lot of stock-specific bottom-up work.

So in practice, there’s several different components to our ESG process, because it is so integrated.

We do have a quantitative process that compares companies within their industry to look at the E, S and G topics that are most material to that business model, and that helps us set our investment universe.

And then once our analysts have narrowed in on a target company, we roll up our sleeves and do a deep dive and really get to know the sustainability profile of the individual company that we’re investing in.

All of this work is done collaboratively between our ESG team as well as our fundamental research analyst team, so it’s not something that happens at the end.

All of our fundamental analysts are focused on a specific sector, they understand the environment, social and governance challenges within the particular industries they’re looking at, so we really think it’s holistically integrated into the full process from the beginning all the way through portfolio construction.”

One of the top picks from Elizabeth Levy is First Solar (NASDAQ:FSLR).

“One example I can give you is one of our very long-term holdings, a company called First Solar (NASDAQ:FSLR).

They are a domestic U.S. manufacturer of solar photovoltaic panels for use primarily in utility scale solar power projects, one of the leading solar manufacturers in the U.S.

They have a differentiated technology that allows them to provide utility scale panels at a lower cost than many of their competitors.

We like that they are domestic, and that the current regulatory context, with the new Inflation Reduction Act that was passed this summer, will provide some tax benefits to them as well as policy credits.

We have long admired their strong balance sheet, which is not something that has historically been common throughout the renewable energy industry.

And, we really like that they have a focus on end-of-life responsibility for recycling their solar panels.

As I mentioned, we’ve owned this stock for a number of years, and shareholder advocacy is very important to us.

Last year, we filed a shareholder proposal asking the company for enhanced policies and practices around board diversity.

We actually got a greater than 90% vote on that resolution, which is fantastic. And even better, over the summer, the company added its first woman of color to the board.

So we really think this is a great example of a company that we’ve owned for many years, that we’ve continued to work with, and that fits both our financial as well as our secular growth themes, and has been a good holding for us over a number of years.”

The lack of clarity about ESG investing is an issue for Elizabeth Levy of Trillium:

“I just told you that I don’t think “ESG investing” exists, but there are lots of products out there, including the one that I run, that have ESG in the name, because it’s trying to signify to clients what it is that we do.

I think that the challenge for us as practitioners in responsible or sustainable or impact or ESG investing, whatever you want to call it, is being clear about what it is we are providing to clients, and making sure that clients understand what they’re getting in our products.

Because I think a lot of the challenges, the pushback to this type of investing that’s been out there, has been from folks not understanding exactly what the intention behind the product was.

So I think for all of us, continuing to be clear about what we’re doing is both an opportunity and a challenge at this point.”

Agnico Eagle (AEM) and Solitario (XPL): Gold Stocks Shine as Crypto Tarnishes

Ralph M. Profiti, CFA, a Principal focused on Metals & Mining equity research at Eight Capital

Christopher E. Herald has been Chief Executive Officer of Solitario (XPL) since June 1999

Agnico is the top pick from gold stock analyst Ralph M. Profiti, CFA, a Principal focused on Metals & Mining equity research at Eight Capital, covering Senior North American Industrial Metals and Precious Metals companies and commodities.

His previous experience including gold stock analysis was as a key member of the Global Metals & Mining Equity Research Teams at Credit Suisse and Deutsche Bank, covering North American Industrial Metals & Precious Metals equities in Toronto and New York, as well as Corporate Banking at Royal Bank of Canada.

His perspective on gold stocks in 2023 is enlightening.

“A lot of management teams are thinking, I would probably say the consensus is, another 5% year-over-year inflation on unit mined costs in 2023.

I think that’s something that’s probably going to get flushed out of management commentary when guidance comes out for 2023, with Q4 2022 results.

The other thing is that companies are responding to these inflationary pressures by managing their mine plans more strategically. So, for example, there’s less waste stripping.

There’s more high-grading going on.

These proactive ways of searching for margin are actually going to help the metal price.

Because what it actually does when a company sacrifices quantity and goes for quality is that it has the embedded feature of taking metal out of the market, and that’s actually positive for metal prices.

So I think that there are some proactive moves being done by managements to combat inflation that are actually to their benefit in 2023 and to the benefit of metal prices.

And then the last thing I’ll say is, I think that there’s a common theme emerging that the true nature of value creation in mining — at least over the next three to five years — is going to be through exploration as opposed to M&A.

M&A now has become much more difficult, because not only have valuations declined in terms of multiples contracting, but what you’re also seeing is a divergence of managements willing to sell at such low stock prices.

I think that’s delaying any M&A cycle. And when that happens, I think management teams will focus more on exploration, and that is actually a much better way to create net asset value per share.”

The top gold stock pick from Ralph Profiti is Agnico Eagle (NYSE:AEM).

“My top pick in the gold space is Agnico Eagle (NYSE:AEM), and I like Agnico because of its dominance in terms of its jurisdictional profile.

Agnico operates 12 mines across five regions in four countries — Canada, Australia, Finland, Mexico. My valuation methodology places a premium on a successful track record, on building operational consistency, strong governance practices, and dedicated track records in solid, safe mining jurisdictions, and that’s what Agnico gives you relative to its peers.

In addition, the pro forma Agnico production, which is 3.6 million to 3.8 million ounces a year, that to me is a real sweet spot in the gold mining space, where you’re large enough to attract generalist investors into the shareholder base, but nimble enough that you can create value through exploration, advanced stage development projects, and new discoveries.

I think that Agnico is an enviable position of having great jurisdictions, the ability to move the needle on strategic initiatives, and having a strong balance sheet as well — $2 billion in undrawn credit facilities goes a long way in being able to protect any downside risks that I think the gold market might give us.”

There are gold stocks like Agnico Eagle (NYSE:AEM) and then there are gold stocks like Solitario (NYSE:XPL).

Christopher E. Herald has been a Director of Solitario since August 1992.

He has also served as Chief Executive Officer since June 1999 and President since August 1993.

Previously, Mr. Herald served as a Director of the former Crown Resources since April 1989, as Chief Executive Officer of Crown since June of 1999, President of Crown since November 1990, and was Executive Vice President of Crown from January 1990 to November 1990.

Prior to joining Crown, Mr. Herald was a Senior Geologist with Echo Bay Mines and Anaconda Minerals. He currently serves as non-executive Chairman of Viva Gold Corp. Mr. Herald received an M.S. in Geology from the Colorado School of Mines and a B.S. in Geology from the University of Notre Dame.

His gold stock management experience is elite.

“…About two years ago, after focusing on zinc for a number of years, we decided to go back into the gold space.

And about a year and a half ago, we were presented with this very early-stage project called Golden Crest in South Dakota.

It was a project that didn’t have any drilling on it, it only had a couple hundred surface samples taken, and we looked at it and just really loved what we were looking at there.

We decided to take a flier on it, picked it up, leased this 4,000-acre property from a private company, and that was the start of what I think is one of the most exciting gold plays in North America today, our Golden Crest property.”

The enthusiasm for this gold stock opportunity is infectious.

“It’s in South Dakota, and when we first started mentioning this to our shareholders and the people that may be potential shareholders, they’d say, “What are you doing in South Dakota? Is there gold there?”

The fact of the matter is, South Dakota hosted the single most important underground gold mine ever discovered in the United States, and it was called the Homestake Mine.

It produced 42 million ounces of gold.

At gold’s high, that’s an $80 billion gold deposit that was mined over a 120-year timeframe from the late 1880s. It closed around 2000.

The Homestake mine was phenomenal.

It was owned for almost its entire history by the Homestake Mining Company. And I can tell you, the industry, including ourselves, thought if there was any other gold in the Homestake area, Homestake Mining Company would have found it.

That was our perception, and I’ve talked to a lot of people in the industry and that was their perception.

But when we were presented this new property, it was only about six miles west of the largest underground gold mine in the country.

At first we thought, “Is there really going to be something there?” We started working there, and we started finding gold all over the surface, and the more we looked, the more we found, and the bigger our land position got.

We started with 4,000 acres. A couple months later, we were at 8,000 acres. Six months later, we were at 15,000 acres.

And as we stand today, we’re over 28,000 acres that we control.

And we’re not staking moose pasture, we’re staking areas that have gold on surface.

Our geologic team, including myself — I’m a geologist also — we’ve been looking for gold for 40 years, and I can tell you on this property we’ve found the most gold on surface of any property in the history of our exploration efforts.

It is phenomenal.

We shake our heads at this, because we always assumed that Homestake Mining had found everything, and nothing could be further from the truth.

In fact, if I can give one example, one area that we call Downpour we started sampling about a year ago, and we got some good gold numbers right from surface — and those were right along a Forest Service road.

We went back three times.

We’d get our gold assay results from our first round; we went back and did more sampling.

We got those assay results; we went back and did more. We did it basically four times, and it kept getting bigger.

Finally, we dug trenches, and right now we have five trenches.

They’re right in the middle of a Forest Service road.

I mean, people have been driving over this road for 50 or 60 years.

One of the trenches has 27 meters of 15 grams gold.

If you’re not in the gold industry, 15 grams gold, that’s half an ounce per ton gold.

And the nearest mine to this, the Wharf Mine, which is close to the Homestake Mine, but it’s an open pit mined by Coeur Mining, the average grade that they’re mining there is less than one gram, but we’re finding 15 times that right at surface.

Trench number two had 30 meters of 8.5 grams.

Phenomenal numbers that we had never seen.

And our team has discovered over 5 million ounces of gold on early-stage projects — we’re good at this.

This, by far, is the best project we’ve ever worked on.

We have other trenches not quite as good, but still, for the start of a project, almost unheard of: Nine meters of 2.6 grams, 12 meters of half a gram.

I think we had 12 meters of something like another 15 grams. And we have a series of these types of gold systems scattered over this 28,000-acre property.

For us, I can tell you it is the most exciting property we’ve worked on.”

Get all the detail by reading the entire 3,995 word interview with gold stock CEO Christoher Herald of Solitario (XPL), exclusively in the Wall Street Transcript and more on Agnico Eagle (AEM) in the 2,625 word interview with Ralph M. Profiti, of Eight Capital.