[SPEAKER_05]: on radio on YouTube, streaming live on investtalk.com, and for our podcast subscribers, this is Invest Talk, independent thinking, shared success.

[SPEAKER_05]: Invest talk is made possible by KPP Financial, a registered investment advisor firm, serving clients throughout the United States.

[SPEAKER_05]: Here is KPP Financial Chief Executive Officer, Financial Advisor Justin Klein.

[SPEAKER_00]: Good afternoon fellow investors and welcome back to Invest Talk.

[SPEAKER_00]: This is our Thursday, July, twenty-fourth edition of Invest Talk.

[SPEAKER_00]: We are solidly into the summer months.

[SPEAKER_00]: I know the air is heating up around here in Southern California.

[SPEAKER_00]: and the markets continue to grind new highs and the quality remains relatively robust now we know that is an environment that we are in today won't always be the environment that we're in but it's when you to navigate any environment you have to

[SPEAKER_00]: put a clear balance of risk versus reward and understand the trends that are in place in the short and long term.

[SPEAKER_00]: And that's what we are here to help you with is to get grasp of, get grasp of where we're at, where we're headed and how that is going to impact you and your finances and your investment portfolios.

[SPEAKER_00]: And with that, you can make better decisions with your money.

[SPEAKER_00]: So that's what today's show is all about our main

[SPEAKER_00]: mechanism of action in medical terms would be to answer your finance investment questions is to hear what you have to say what's on your mind and try to give you the best feedback and data so that you can once again make a good well educated decision.

[SPEAKER_00]: Now in just a bit, we'll talk about today's more performance and run down the short topics that we'll hit on throughout the hour.

[SPEAKER_00]: But as usual, we'll talk about this color question first.

[SPEAKER_00]: All right, looking at Jacob's engineering, Jacob's solutions is what it's called now.

[SPEAKER_00]: He's called Jacob's engineering.

[SPEAKER_00]: And it provides technical, professional, and construction services to the industrial space, commercial, and government clients.

[SPEAKER_00]: And the business is doing very well, obviously, part of the whole build out of cloud infrastructure, AI infrastructure that hits it a lot of what

[SPEAKER_00]: Jacob's guts.

[SPEAKER_00]: So their business has done fairly well recently earnings last year, reps, sixteen percent to five dollars and twenty-eight cents.

[SPEAKER_00]: So it's supposed to be the five dollars and ninety-nine cents this year in earnings and then six ninety in earnings.

[SPEAKER_00]: Next year in analysts continue to upgrade those expectations going forward.

[SPEAKER_00]: And that's why we're all trying to sixty-four and really blow out earnings back when was this.

[SPEAKER_00]: And the fall of last year has been kind of consolidating around this one forty level since then it's it pulled back to it's about one of one of five or so but you know we're still kind of in this one forty range I haven't really broken out but certainly a very very good business and

[SPEAKER_00]: And the growth is solid.

[SPEAKER_00]: Now the profitability metrics are not amazing, or turn equity is that about seven percent historically, or turn equity hangs around ten percent, which is good once again, but not amazing.

[SPEAKER_00]: Now what's solid here is good balance sheet, only about two billion dollars in net debt on its balance sheet.

[SPEAKER_00]: It's price to free cash flow is a bit high, it's at thirty times.

[SPEAKER_00]: which is near the high end of its longer term range so I don't love that trading at a mid-twenties multiple if you go by next year's earnings it's around twenty so it depends on if you're looking at current or forward looking and so

[SPEAKER_00]: You know, that's not Uber expensive.

[SPEAKER_00]: It's not cheap.

[SPEAKER_00]: It's a good business.

[SPEAKER_00]: They are paying a dividend that certainly has room to go up.

[SPEAKER_00]: The pair ratios only about thirty two percent so they could continue to raise that dividend.

[SPEAKER_00]: What they've been doing instead with a cash believe in buying back shares.

[SPEAKER_00]: So clearly they feel that the the company is undervalued and

[SPEAKER_00]: You know, there's an argument for that, but they've also been increasing the dividend as well.

[SPEAKER_00]: So taking a lot of that cash, though, five hundred eighty six million trailing twelve months and they don't need to pay down debt because the balance sheet is good and so that they've been paying.

[SPEAKER_00]: There's a strong shareholder yield here, which I definitely definitely.

[SPEAKER_00]: like.

[SPEAKER_00]: So I like the energy that it's in.

[SPEAKER_00]: I wouldn't say it's cheap.

[SPEAKER_00]: I wouldn't say it's overvalued.

[SPEAKER_00]: It's about fairly valued.

[SPEAKER_00]: So I would probably continue to hold it because of the kind of the secular infrastructure trends here and the strong balance sheet and the good shareholder yield.

[SPEAKER_00]: So I'm holding on to Jacob's solution.

[SPEAKER_00]: That's not Jacob's engineering.

[SPEAKER_00]: Our main focus point on the best talk today is how investors can pair companies to find true value.

[SPEAKER_00]: What we're going to look at is relative valuation.

[SPEAKER_00]: How to think about valuing a company and there are different schools of thought.

[SPEAKER_00]: There's your absolute valuation metrics, which are typically looking at the cash flows, looking at earnings, running some sort of a formula.

[SPEAKER_00]: And you can certainly do that more complex.

[SPEAKER_00]: But a common model, which is employed by the street, by Wall Street a lot, especially analysts, is more of a relative valuation model.

[SPEAKER_00]: I mean, looking at other companies in the space.

[SPEAKER_00]: Using that, using them as proxies for the companies you are looking at and say, whether it's over under value.

[SPEAKER_00]: So we'll talk about how to think about the value of a company based on relative valuation.

[SPEAKER_00]: So we'll look at that.

[SPEAKER_00]: We'll also talk about other topics.

[SPEAKER_00]: One is private equity.

[SPEAKER_00]: This is a great

[SPEAKER_00]: some really interesting data that's come out about the deals and the industry last year.

[SPEAKER_00]: And it's becoming more and more looking more and more like a Ponzi type of ecosystem that's been built up here on the private equity and private debt side.

[SPEAKER_00]: And we'll talk about why that is by looking into the numbers.

[SPEAKER_00]: Also, the first half of the twenty twenty five is behind us and there's some new data on electricity use in the United States and not just the overall demand, but where is it coming from?

[SPEAKER_00]: What are the sources?

[SPEAKER_00]: And I think this will give you some insight into what the trends are in the utility space, in the industrial space, etc.

[SPEAKER_00]: So we'll look at that.

[SPEAKER_00]: And then lastly, if we have time, how does the current AI boom compared to the nineteen nineties dot com?

[SPEAKER_00]: Boom, and bubble.

[SPEAKER_00]: So we'll look at that.

[SPEAKER_00]: And we also have questions that you left on your best talk voice bank.

[SPEAKER_00]: One is on the energy sector and the others on leg and flat leg it in flat.

[SPEAKER_00]: Excuse me, LEG.

[SPEAKER_00]: And then we have questions that came in via the comment section over on the best talk YouTube channel as well.

[SPEAKER_00]: And of course, I welcome your live calls.

[SPEAKER_00]: at eight, eight, nine, nine, nine chart.

[SPEAKER_00]: But we're heading into a short break.

[SPEAKER_00]: And I want to hear from you.

[SPEAKER_00]: No question is too simple or too complex.

[SPEAKER_00]: You set the agenda.

[SPEAKER_00]: So give me that stock or call.

[SPEAKER_00]: Once again, that's eight, eight, nine, nine chart.

[SPEAKER_06]: serious investors are certain to have finance and investment questions.

[SPEAKER_06]: Wanted to get your take on WW Granger?

[SPEAKER_06]: And the best person to ask your question in the right way is you.

[SPEAKER_06]: I was wondering from your standpoint that they're at downside in buying fractional shares versus whole shares.

[SPEAKER_06]: And twenty four seven rain or shine, Justin Klein and Luke Rero stand ready to provide their unbiased answers.

[SPEAKER_00]: The issue, though, is really over the last decade or so.

[SPEAKER_00]: It's never maintained this level of profitability for a long period of time.

[SPEAKER_00]: Modernies are incredibly volatile, so when the going is good, take some profit.

[SPEAKER_06]: Your participation makes an investor talk better.

[SPEAKER_06]: My name is Mike.

[SPEAKER_06]: I'm calling in from Orange County, California.

[SPEAKER_06]: This is Lewis calling from Bolivia.

[SPEAKER_00]: Let's go talk to Chris and me.

[SPEAKER_06]: So don't forget to call, investor talk.

[SPEAKER_06]: First off, great show.

[SPEAKER_06]: I'm going to ask you to.

[SPEAKER_06]: Hey, date eight, ninety nine chart.

[SPEAKER_06]: The Invest Talk phone lines never close.

[SPEAKER_06]: And now, Justin Klein is here, call Invest Talk, eight, eight, nine, nine, chart.

[SPEAKER_00]: It hit ninety nine chart, it hit nine nine two four two seven eight.

[SPEAKER_00]: So I could do an extra question on today's show.

[SPEAKER_00]: Now let's take a quick look at the market for today and it was another positive day overall.

[SPEAKER_00]: Not really dramatic though.

[SPEAKER_00]: You had the S&P only up seven basis points here.

[SPEAKER_00]: So four points in total.

[SPEAKER_00]: And the NASDAQ up thirty eight points, really on the back of earnings from Google, that was up eighteen basis points on the day.

[SPEAKER_00]: The dial was actually down three or sixteen points, down seventy basis points on

[SPEAKER_00]: the day.

[SPEAKER_00]: Now, if you look at the heat map of the S&P, you did have that nice move out of Google that did fade and it closed only up one percent on the day and video up nearly two percent broad calm up about the same, but Tesla down eight percent on a very, very bad earnings report cash flow collapsed and it's clear that Elon's

[SPEAKER_00]: Approval rating over the past nine months has just gone down considerably.

[SPEAKER_00]: I think he's at now in of adults in the US.

[SPEAKER_00]: His net fair really rating is now in about negative twenty.

[SPEAKER_00]: Okay.

[SPEAKER_00]: So those that, you know, basically who thinks highly of Elon versus who thinks negatively of Elon.

[SPEAKER_00]: And if you net those out, the percentage is negative twenty percent.

[SPEAKER_00]: So

[SPEAKER_00]: that's very very low for any public figure and it's really manifesting in the the demand for the brand test the brand and that's what you've seen as of late.

[SPEAKER_00]: You also had earnings from the likes of IBM down over seven percent there.

[SPEAKER_00]: You had

[SPEAKER_00]: capital one down three point seven percent that was the biggest weakness out of the finance space.

[SPEAKER_00]: You had consumer services were down booking down one and a half percent McDonald's Disney.

[SPEAKER_00]: What a Starbucks down so a lot of.

[SPEAKER_00]: consumer-facing brands, had a rough day.

[SPEAKER_00]: So Chipotle, that was down to thirteen percent, they're same source sales, they dipped about six percent, chart of communications, about four and a half percent.

[SPEAKER_00]: So definitely some earnings announcements that were not too hot.

[SPEAKER_00]: So underneath the surface, the way that saw the down negative, really a positive day really wasn't that positive over all.

[SPEAKER_00]: Now, if you look at other asset classes, you had rates higher a little bit.

[SPEAKER_00]: Treasuries were a bit weaker across the curve, mainly on the front end.

[SPEAKER_00]: So more, I guess less rate cuts being priced into the market.

[SPEAKER_00]: Gold finished down point seven percent Bitcoin was up point six percent.

[SPEAKER_00]: WT I crude was up one point two percent.

[SPEAKER_00]: So some strength out of the energy.

[SPEAKER_00]: names.

[SPEAKER_00]: On the economic front, you did see initial jobless claims dip down again to under seventeen thousand jobs.

[SPEAKER_00]: So layoffs are abating after a surge over the past couple of months.

[SPEAKER_00]: That's a positive.

[SPEAKER_00]: But continuing claims remains steady.

[SPEAKER_00]: Came in at one point nine five five.

[SPEAKER_00]: million consensus one point nine six.

[SPEAKER_00]: So it was a bit better, but still kind of right at the the previous week was one point nine five one.

[SPEAKER_00]: So it's still ticked up overall.

[SPEAKER_00]: So the number of people that are on the unemployment goals remains kind of static around this one point nine five million mark.

[SPEAKER_00]: And is not showing you a search type higher weakness in the labor market.

[SPEAKER_00]: But we're finding kind of a new equilibrium here.

[SPEAKER_00]: And you know, the big question is will it continue higher so far?

[SPEAKER_00]: It's kind of steadyed out.

[SPEAKER_00]: And so things aren't getting much worse.

[SPEAKER_00]: But certainly weaker than they were at the beginning of the year.

[SPEAKER_00]: the you had market PMI services can at fifty five point two at a consensus at fifty three so that was a bit of a positive manufacturing came at forty nine point five consensus there was fifty two so services beat manufacturing missed now as I've said services are way more important

[SPEAKER_00]: there are seventy percent of the economy plus and so if they're beating that is overall a good report.

[SPEAKER_00]: New home sales did miss a point six percent month over month expectation was coming at six hundred fifty five thousand homes existing homes are talking to him sold and it came in at

[SPEAKER_00]: six hundred twenty seven thousand.

[SPEAKER_00]: So that's why you saw the housing market a bit weaker on the day and sales price.

[SPEAKER_00]: That was down four point nine percent month of earth.

[SPEAKER_00]: I think that was the most interesting median sales price of a new home down four point nine percent month over month.

[SPEAKER_00]: So certainly you're seeing these lower prices or lower activity in the housing market starting to be reflected in the prices of new homes.

[SPEAKER_00]: That was the market today.

[SPEAKER_00]: Very interesting.

[SPEAKER_00]: Day, I still think Ruby main relatively buoyants through probably month end.

[SPEAKER_00]: And then August, once again, is a seasonally weak part, August September, we're over bought, earning season has just been, eh, you know, obviously names that don't knock it out of the park, they get hurt more than those that do.

[SPEAKER_00]: So a lot of the positivity I think has been priced into markets.

[SPEAKER_00]: So I do, once again, expect us a modest setback, nothing major in markets over the next couple of months.

[SPEAKER_00]: So be aware of that.

[SPEAKER_00]: Now we're moving to a break till the comment focus point more answers to your questions.

[SPEAKER_00]: I encourage you to call right now on the Best Talk at eight and eight ninety nine chart.

[SPEAKER_05]: In Best Talk is ready twenty four seven for your finance and investment questions.

[SPEAKER_07]: I'm hoping you'll give me your take on or mat technology.

[SPEAKER_07]: Oh, R.A.

[SPEAKER_03]: Is it a good idea to sell your losses in a Roth IRA and just use whatever you have left to reinvest into better stocks?

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[SPEAKER_06]: And now Justin Klein is here and taking your finance and investment questions live.

[SPEAKER_06]: Call Invest Talk.

[SPEAKER_00]: Let's go talk to Sami in San Francisco, and he wants to talk about interest rates.

[SPEAKER_00]: How are we doing Sami?

[SPEAKER_08]: I'm doing well, Justin.

[SPEAKER_08]: I have a quick question for you.

[SPEAKER_08]: Given this ongoing campaign to lower the interest rates, and we know that inflation has been taking up high, and I think you made a prediction.

[SPEAKER_08]: I think a few weeks ago that will likely end the year at about three percent or about, if I remember that correctly,

[SPEAKER_08]: And if the pressure campaign, you know, works right and interest rates are lowered artificially, I guess, to one person to person, you know, you name it.

[SPEAKER_08]: What impact will that have on the larger economy and the stock market?

[SPEAKER_00]: Well, you remember the Federal Reserve

[SPEAKER_00]: when when the president or whoever is talking about them changing interest rates, they are impacting the short end.

[SPEAKER_00]: They're looking at the Fed funds rate.

[SPEAKER_00]: So that may drop short term T-bills lower, right?

[SPEAKER_00]: The two year and anything, you know, two years and in to a much lower rate.

[SPEAKER_00]: But the longer end of the curve may act differently.

[SPEAKER_00]: We don't know yet.

[SPEAKER_00]: It may, and if you look at five year break events, which is basically the market telling everyone what they feel inflation will look like over the next five years, that's been moving higher.

[SPEAKER_00]: And so if the market sees a lowering of rates to be inflationary, that means that the longer end may actually rise, or may not do anything, I might stay where it's at.

[SPEAKER_00]: And that means that mortgage rates, for example, probably won't come down.

[SPEAKER_00]: So everyone thinks that the Federal Reserve has just this magic wand and can create whatever interest rate for anything that they want.

[SPEAKER_00]: But the reality is they only control so much.

[SPEAKER_00]: And the rest is up to the market and how they interpret for looking policy, economic policy from the government, right, on the fiscal side.

[SPEAKER_00]: And frankly, that's more important.

[SPEAKER_00]: We've talked about the Fed lowering rates and what they're going to do for the last many decades.

[SPEAKER_00]: And I think

[SPEAKER_00]: As time has gone on, they've had far, far less impact on the industry at market with the Federal Reserve rate, the Fed funds rate, then everyone thinks they do.

[SPEAKER_00]: What's far more important when it comes to policy is on the fed side is actually their balance sheet.

[SPEAKER_00]: So quantitative tightening quantitative easing.

[SPEAKER_00]: So they're still doing quantitative tightening.

[SPEAKER_00]: And that is actually effectively hawkish, right?

[SPEAKER_00]: Because they're lowering their balance sheet.

[SPEAKER_00]: That's more important than the fed funds rate.

[SPEAKER_00]: even though everyone talks about the FedFensory.

[SPEAKER_00]: And what's even more important than that is what's happening on the fiscal side.

[SPEAKER_00]: So we talked about it before, if they would go, if doge was to work, and they were actually going to cut spending in a material way, that would be an issue for the broader economy, growth, et cetera, but we're in fiscal dominance.

[SPEAKER_00]: So you can see with all the rhetoric,

[SPEAKER_00]: doesn't really manifest in true austerity.

[SPEAKER_00]: And so that is also inflationary.

[SPEAKER_00]: Okay, and obviously that is one of the reasons why you continue to see the ten year and the thirty year continue higher because the market is worried about not only our fiscal situation and that path, but also how inflationary that fiscal policy fiscal dominance really is.

[SPEAKER_00]: So

[SPEAKER_00]: don't think that the Fed cutting rates, which they may or may not do, and all the pressure, it doesn't mean nearly as much in today's world as those other things.

[SPEAKER_00]: Does that make sense?

[SPEAKER_08]: Yeah, yeah.

[SPEAKER_08]: Can I ask you a quick follow-up question on this?

[SPEAKER_08]: Justin?

[SPEAKER_08]: So then why do they say that if the interest rates were to go down, then somehow that will reduce the interest that we are paying on about that.

[SPEAKER_08]: Because the song end is going to go higher, right?

[SPEAKER_00]: Yeah, because increasingly under both this current under drum pal and even yelling before him, the Federal Reserve has continued to issue more and more, sorry, not Thursday, I apologize, let me back up.

[SPEAKER_00]: Treasury, Treasury, not your own pal.

[SPEAKER_00]: The Treasury, which issues the debt, they have increasingly issued on the short end.

[SPEAKER_00]: So T-Bills, so three months, six months, one year, those type of maturities.

[SPEAKER_00]: And that is very helpful to liquidity and helpful for the broader economy because that is

[SPEAKER_00]: That is effectively cash because it's very little risk there.

[SPEAKER_00]: For the ten year when you're taking a lot of duration risk or a thirty year, right?

[SPEAKER_00]: And so

[SPEAKER_00]: more and more of our debt, I think it's approaching a third of our debt outstanding is on the short end one year or less.

[SPEAKER_00]: And so when they lower rates, that when they go and refinance, that is going to lower the rate on those short term that short term debt that they're going to issue.

[SPEAKER_00]: But it may not change anything on the long end, which obviously they're not having to refinance for many years.

[SPEAKER_00]: So it will save on interest on the debt, but paradoxically, that could be deflationary because that's less fiscal spending, right?

[SPEAKER_00]: Because it is, does save us money as a country.

[SPEAKER_00]: I hope that helps.

[SPEAKER_00]: I know it's complex.

[SPEAKER_00]: Now we're heading to a break.

[SPEAKER_00]: I'm ready to take your calls now at eight and ninety nine chart.

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[SPEAKER_06]: Invest talk.

[SPEAKER_00]: Our main focus point on the best talk today is about relative valuation.

[SPEAKER_00]: And this is a common way that analysts on the street look at valuing a company, seeing whether it's over or undervalued.

[SPEAKER_00]: Now, your traditional way that you learn in finance classes, more about

[SPEAKER_00]: running some sort of formula.

[SPEAKER_00]: Okay, that really looks at cash flows.

[SPEAKER_00]: You just kind of cash flow method.

[SPEAKER_00]: That's the most common one.

[SPEAKER_00]: Okay, where you're looking at, it's what's called absolute valuation.

[SPEAKER_00]: Okay, so there's what is called the dividend discount model.

[SPEAKER_00]: There's the discount cash flow model.

[SPEAKER_00]: These are all looking at

[SPEAKER_00]: metrics of the business and then extrapolating out the future and saying, okay, it's value today should be X. That's an absolute valuation model.

[SPEAKER_00]: Relative valuation model is looking at similar type of companies, looking at its peers or industry averages and figuring out whether it's trading at higher or lower multiples than once again, it's peers or its industry.

[SPEAKER_00]: Now there are many metrics you can use.

[SPEAKER_00]: So P is the most common one.

[SPEAKER_00]: But then there's more complex ones enterprise value to EBITDA, price sales, price to cash flow, et cetera.

[SPEAKER_00]: And frankly, each industry, there's a different metric that applies best.

[SPEAKER_00]: For example, banks, it's priced the book.

[SPEAKER_00]: It's pretty easy to

[SPEAKER_00]: value the assets on their balance sheet versus their debt versus what it's trading for.

[SPEAKER_00]: A telecom company, you probably want to look at enterprise value to EBDA, same with utility company because they're highly capital intensive.

[SPEAKER_00]: So you want to incorporate the debt, so that's EV, and our enterprise value adds the market gap plus the net debt, and that's balance sheet, and then backs out the interest, that's EBITDA, depreciation, and the monetization, all of that.

[SPEAKER_00]: So looking at cash flows.

[SPEAKER_00]: And then price sales is typically good for companies that are early-stage growth companies, and at some point they'll turn all those sales into reasonable business model and profit.

[SPEAKER_00]: So that, I just briefly went over it.

[SPEAKER_00]: There's a lot of other industries out there out there, sub sectors, right?

[SPEAKER_00]: So there's broader industries, but sub sectors have their own dynamics as well.

[SPEAKER_00]: There's tech, but is it talking about hardware?

[SPEAKER_00]: Are you talking about software?

[SPEAKER_00]: Are you talking about legacy software companies or cloud software companies or AI companies?

[SPEAKER_00]: It varies dramatically.

[SPEAKER_00]: So how do you do this?

[SPEAKER_00]: How do you execute this?

[SPEAKER_00]: Well, first is you have to identify comparable companies.

[SPEAKER_00]: Ideally similar size, similar business models.

[SPEAKER_00]: So the analysis is only good as the peers that you choose.

[SPEAKER_00]: If you pick the wrong comparables, well, you're not really getting a good gauge of what the market is, how the market is pricing this industry or sub-sector.

[SPEAKER_00]: Then you need to look at the relative rate ratios, like I said, depends on what industry you're looking at.

[SPEAKER_00]: So high debt industries, like I said, highly in capital intensive industries, that's more of an enterprise value to EBITDA metric.

[SPEAKER_00]: Something that has high profit margins, maybe it's price to sales, price to cash flow, et cetera.

[SPEAKER_00]: And then you obviously have to calculate them and look whether the companies are trading relatively cheaply, relatively expensive, what is the average?

[SPEAKER_00]: And that could help you gauge the valuation of that particular company.

[SPEAKER_00]: Now to be aware, low valuation might indicate opportunity or it could also be because there's a problem with the company.

[SPEAKER_00]: There's some challenges that they're facing that the market is worried that they won't be able to overcome.

[SPEAKER_00]: Maybe that's competition.

[SPEAKER_00]: Maybe that's the loss of leadership.

[SPEAKER_00]: Maybe that's some technological advantage that they've recently lost, right?

[SPEAKER_00]: And they're trying to get back, for example, Intel has traded cheap for a while.

[SPEAKER_00]: That's because they've kind of lost a lot of their competitive advantage to AMD, Nvidia, etc.

[SPEAKER_00]: And they may be able to recapture it or maybe not.

[SPEAKER_00]: And so oftentimes those cheap multiples can turn into value traps if they're cheap for a reason.

[SPEAKER_00]: You can also look at, if you think it's a smaller company, it might be a buyout target, looking at other transactions.

[SPEAKER_00]: So similar companies that have been bought out by larger companies at what multiple, multiple sales, multiple the EBITDA, et cetera.

[SPEAKER_00]: And so this is how you

[SPEAKER_00]: You go about figuring out what their company is over undervalued based on its peers.

[SPEAKER_00]: And this is probably the easiest way for the average person to figure out what the company's cheap or expensive.

[SPEAKER_00]: And like I said, it can be expensive compared to its industry for a reason and still be cheap because that advantage, right?

[SPEAKER_00]: If it's only trading at modest

[SPEAKER_00]: Premium, a modest premium to the industry as a whole, but it has the best-in-class products and services and good leadership and great balance sheet, et cetera.

[SPEAKER_00]: Maybe that premium should be higher and it's still cheap because of how great of a company it is.

[SPEAKER_00]: And vice versa, something that's trading a little bit undervalued, compared to industry, and maybe for reason, maybe there are problems that, or maybe it's just some power, right?

[SPEAKER_00]: It's profitability, isn't quite as high.

[SPEAKER_00]: It just doesn't have some of the advantages, maybe the other companies do.

[SPEAKER_00]: So understand that

[SPEAKER_00]: Just because something is higher lower than average doesn't make it automatically cheap or expensive.

[SPEAKER_00]: They're other, they're called qualitative factors, you have to consider as well.

[SPEAKER_00]: And then, what happens if the whole industry re-rates lower?

[SPEAKER_00]: Maybe the entire industry, I think, you know, think.

[SPEAKER_00]: anything AI related right now.

[SPEAKER_00]: Suddenly, re-rates lower and then doesn't matter whether your company is trading cheap compared to the industry.

[SPEAKER_00]: The whole industry went from eight times sales to six times sales on average.

[SPEAKER_00]: And now what looked like six times sales was cheap now, you know, that's going to also really great lower to four times sales.

[SPEAKER_00]: And now suddenly the price of the stock fell thirty percent.

[SPEAKER_00]: So that can happen as well.

[SPEAKER_00]: And it can be hard to find true comparisons, companies that are public, but also similar size, similar business models.

[SPEAKER_00]: And it doesn't always work because you might be comparing different, maybe they're all apples, but they're different types of apples.

[SPEAKER_00]: And so you can't really compare this sweetness because one is a red delicious versus a honey crisp.

[SPEAKER_00]: And then lastly, it doesn't look at companies' future prospects.

[SPEAKER_00]: Right, you have to compare that as well.

[SPEAKER_00]: What's the future growth look for the business?

[SPEAKER_00]: So using part of analysis is very helpful, but you have to understand its limitations.

[SPEAKER_00]: Let's go talk to Paul and take a live call from Sacramento looking at AutoZone.

[SPEAKER_00]: Paul.

[SPEAKER_01]: Justin, thanks for taking my call.

[SPEAKER_01]: Sure.

[SPEAKER_00]: So you're looking at AutoZone.

[SPEAKER_01]: Yeah, I was looking, yeah, just looking for, I have some cash looking to add some equity to a balanced portfolio that I have for long term.

[SPEAKER_01]: It's been a pretty good

[SPEAKER_01]: stock for a while than watching just wanted to get your take if it's something that you would think of adding to a to a balanced portfolio for the long run.

[SPEAKER_00]: All right looking at auto zone and it's a it's a business that is a consistent which I love earnings back in twenty eighteen or fifty dollars per share.

[SPEAKER_00]: Now this year so to earn a hundred and forty seven dollars per share.

[SPEAKER_00]: Granted, it's only up one percent from last year.

[SPEAKER_00]: But earnings are expected to go up thirteen percent next year.

[SPEAKER_00]: Now I love this because a lot of people might have to look at this chair price and say it's trading at thirty eight hundred dollars per share.

[SPEAKER_00]: That's expensive.

[SPEAKER_00]: Well, it's so only expensive in relation to it's earnings and it's cash flows.

[SPEAKER_00]: So let's take a look at that.

[SPEAKER_00]: So look at profitability and valuation, all that.

[SPEAKER_00]: So return on investor capital fifty seven percent.

[SPEAKER_00]: That is just

[SPEAKER_00]: incredible it's it's a great business that has come down from its twenty twenty three high which is that ninety percent but still very very good business even pre-COVID is that forty five percent return to the capital

[SPEAKER_00]: So, you know, there are only so many of these auto part stores, some auto zone or genuine parts, et cetera.

[SPEAKER_00]: So they kind of a dual-opily there, which is good.

[SPEAKER_00]: Free cash flows out about two billion dollars, which once again has come down, but flattened out here around two billion, which is good.

[SPEAKER_00]: But it's a seventy-one billion dollar enterprise value.

[SPEAKER_00]: So you're not getting a great free cash flow yield, right around three percent.

[SPEAKER_00]: That's okay.

[SPEAKER_00]: They do have a solid balance sheet.

[SPEAKER_00]: They're taking that cash and they are continuing to buy back shares, so there's good shareholder yield here, even though they don't pay it dividend.

[SPEAKER_00]: So I like the business.

[SPEAKER_00]: However, I do think it's a bit expensive, not just because it's trading at their internet knowledge, but the ratios.

[SPEAKER_00]: Enterprise value to EBITDA is at sixteen times.

[SPEAKER_00]: Versus, let's go look at a GPC, genuine parts.

[SPEAKER_00]: What's granted is a little bit different of a business.

[SPEAKER_00]: It is trading at enterprise value, they're on fourteen times.

[SPEAKER_00]: So a little bit higher of a premium history says this is, it's never traded this high.

[SPEAKER_00]: And it provides value to either their perspective.

[SPEAKER_00]: So I worry a bit about that.

[SPEAKER_00]: So it's a name I would buy at some point at the right price.

[SPEAKER_00]: I just don't see this as the time to do it.

[SPEAKER_00]: I would keep in my watch list, you know, analyst expectations for earnings this year.

[SPEAKER_00]: Next year continued to come down.

[SPEAKER_00]: Last two quarters, you had earnings,

[SPEAKER_00]: the client year of year, not dramatically, four percent last quarter, two percent according before, but obviously not a fast grower.

[SPEAKER_00]: So name on the watch list, but I would need to get this at a more reasonable price than worth trading at.

[SPEAKER_01]: Okay, thanks for the insight.

[SPEAKER_01]: Appreciate it.

[SPEAKER_01]: Thanks for the call.

[SPEAKER_00]: Price sales when I was about three and a half.

[SPEAKER_00]: If I can get this at closer to three, high-toes,

[SPEAKER_00]: That's where I'd pick it up.

[SPEAKER_00]: So it maybe would need to be about twenty percent lower around three thousand a share.

[SPEAKER_00]: I think that would be a great price to pick up autos in.

[SPEAKER_00]: Let's keep things moving and pivot to the best talk.

[SPEAKER_00]: Boy Spank, which is open twenty four seven per question that came in earlier on eight and eight ninety nine chart.

[SPEAKER_02]: Hey, Luke and Justin is a Jake in the Barrier.

[SPEAKER_02]: I'm in the middle of doing my semi annual rebound thing.

[SPEAKER_02]: And one that gets your take on the energy sector, I currently have about fifteen percent in my four or three and four fifty seven allocated to oil and gas spread out through XLE, XOP and PSEE.

[SPEAKER_02]: In addition to that, I do have five percent in uranium, URA, bringing a total percentage energy to about twenty percent.

[SPEAKER_02]: Just wanted to get your thoughts on how much of my portfolio should be allocated to energy with uranium included and what your thoughts, PSE is.

[SPEAKER_02]: I was just kind of thinking there might be some opportunity to cost to having it in a small camp energy fund.

[SPEAKER_02]: Look for it for your thoughts on the podcast and thanks for all you do.

[SPEAKER_00]: All right, looking at in BESCO, S&P, small cap, energy ETF, and just energy exposure as a whole.

[SPEAKER_00]: Twenty percent is a bit high, especially if you look at the energy sector, you know, oil, you know, I'm not a huge fan of a lot of the oil names.

[SPEAKER_00]: You know, oil is kind of old news.

[SPEAKER_00]: The new fossil fuel is natural gas.

[SPEAKER_00]: Uranium as well, and so I'm sure they have more uranium at being there versus some of the oil names, which when you buy a PSPSE, you know, you're getting a lot of just traditional EMP companies that produce mainly oil.

[SPEAKER_00]: So, no near term, it is gaining some momentum.

[SPEAKER_00]: I would say the energy space, so I could see

[SPEAKER_00]: a rebound between now and your end and I would be selling into that is what I would tell you.

[SPEAKER_00]: I wouldn't be quick to sell it because I like the recent momentum that you're getting out of the space.

[SPEAKER_00]: But I don't think twenty percent is a reasonable number.

[SPEAKER_00]: I just think there are a lot of other opportunities out there.

[SPEAKER_00]: You know, twenty percent is near that high of what I would have exposure to any sector.

[SPEAKER_00]: And so to say the energy should be the highest exposure to me is just a bit extreme.

[SPEAKER_00]: Now, what's getting that is including uranium and anything nuclear related.

[SPEAKER_00]: So, you know, is that energy well based on most classifications it is?

[SPEAKER_00]: So I would be leaning in the continue to lean in that direction and lesson some of the oil and gas names, unless they have specific advantages, which most of them do not.

[SPEAKER_00]: Some of them have downstream and upstream.

[SPEAKER_00]: businesses that helps them produce higher than average earnings, the building economic mode, et cetera.

[SPEAKER_00]: So there are good ones that are out there, but I would probably be selling that PSCE first and slowly diversifying your portfolio a bit more.

[SPEAKER_00]: I'd probably bring that down closer to the low teens to ten percent in that range of exposure to energy.

[SPEAKER_00]: Thanks for the call.

[SPEAKER_00]: In the United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States, United States,

[SPEAKER_00]: We'll talk about a story tomorrow, but for now, I'm Justin Klein.

[SPEAKER_00]: We're ready to take your calls now.

[SPEAKER_00]: On A today, thank you, I chart.

[SPEAKER_06]: Justin Gline is here, and he's ready with answers to your finance and investment questions.

[SPEAKER_06]: Call in Vestalk.

[SPEAKER_06]: Eight, eight, eight, ninety-nine chart.

[SPEAKER_00]: Let's go answer a call that came in via the Vestalk YouTube channel.

[SPEAKER_00]: Gary Miller says, just looking at Rhine Metal ADR RNMBY.

[SPEAKER_00]: Looks like it's trying to break up.

[SPEAKER_00]: the to the one to the forethirty level, is it more in a decrease risk or a good opportunity to pick it up here?

[SPEAKER_00]: How is the business as opposed to the defense market?

[SPEAKER_00]: Now this is an interesting one.

[SPEAKER_00]: It has exploded over the plus past six months or so mainly on the back of President Trump really pushing Europe to spend more on defense and and really break from

[SPEAKER_00]: Break from relying on the United States.

[SPEAKER_00]: Now it's been an option really since the start of the Ukraine war when it was trading at about twenty two dollars per share.

[SPEAKER_00]: Went up to about forty seven dollars per share and was trending higher until it reached about hundred thirty in January.

[SPEAKER_00]: Now we're at four hundred and ten.

[SPEAKER_00]: So you're just seeing just a huge explosion in the in the chart.

[SPEAKER_00]: The question is.

[SPEAKER_00]: Well, their business, be as strong, well, it will be strong enough to justify the price move.

[SPEAKER_00]: And that's going to be the difficult thing here, as we know that Europe is going to spend more and more, but we'll, how much will go to Ryan Metal.

[SPEAKER_00]: And that's a very, very challenging question to answer.

[SPEAKER_00]: So if you look at,

[SPEAKER_00]: all the metrics.

[SPEAKER_00]: It's going to look kind of expensive.

[SPEAKER_00]: Has a good balance sheet.

[SPEAKER_00]: But the P ratio is a hundred and fourteen.

[SPEAKER_00]: Once again, we know the earnings are going to go up.

[SPEAKER_00]: But to price that in, that's very difficult.

[SPEAKER_00]: What I would say is I think the, this is actually from a chart perspective, and that's really what you have to go on here.

[SPEAKER_00]: Is it does, it's losing momentum.

[SPEAKER_00]: It actually had a, we call it's hopping tail back in June on the weekly, first week of June.

[SPEAKER_00]: And it hasn't recaptured that high.

[SPEAKER_00]: So until it recaptures that high from June,

[SPEAKER_00]: This is actually near term bearish.

[SPEAKER_00]: And it probably needs to come in find a correction to buy more.

[SPEAKER_00]: And I would like it to get to the fifty week moving average right now that's around to twenty.

[SPEAKER_00]: But obviously every week that goes by that's going to continue to go up.

[SPEAKER_00]: So ideally I'd get this below three hundred.

[SPEAKER_00]: And I'd feel more comfortable from a technical perspective, valuation perspective, et cetera.

[SPEAKER_00]: And what's going to technical is our hinting at moments of slowing and a pullback likely ahead.

[SPEAKER_00]: So I'm going to pass on right metal for now, but if it breaks below three hundred, that's where it's start picking.

[SPEAKER_00]: Now, lastly, let's talk about private equity.

[SPEAKER_00]: This is an area where the average investor has been

[SPEAKER_00]: as they do, but they've been sold it, right?

[SPEAKER_00]: And it sounds great on paper.

[SPEAKER_00]: There's a lot of great marketing around it, but the reality on the ground is much different.

[SPEAKER_00]: And now they're trying to sell it to the average investor, through these ETFs, et cetera.

[SPEAKER_00]: And it just doesn't make sense.

[SPEAKER_00]: And especially when you look at the data, what are called continuation funds?

[SPEAKER_00]: And this is where a private equity group sells one assets from one of its funds to a different fund.

[SPEAKER_00]: So robbing Peter to pay a poll.

[SPEAKER_00]: And in the first half of this year, they exit forty one billion dollars of investments in these continuation funds equal to a record nineteen percent of all sales in the industry.

[SPEAKER_00]: So you're talking about one in five sales from private equity is just going to a different private equity fund.

[SPEAKER_00]: And that number is sixty percent higher than it was last year.

[SPEAKER_00]: And this is all because the IPL market is not as strong as it was, there's not a lot of M&A activity because it were interest rates are, and so it's squeezing the amount of cash that is being returned to investors.

[SPEAKER_00]: In fact, for four consecutive years, the industry has returned only about half the cash investors traditionally expect.

[SPEAKER_00]: So, as you can see, as this industry is struggling, they're taking these old assets

[SPEAKER_00]: and selling them to new investors to pay out those old investors.

[SPEAKER_00]: And clearly, what does that sound like?

[SPEAKER_00]: Right?

[SPEAKER_00]: Hang out old investors with new money.

[SPEAKER_00]: Sounds very Ponzi like to me.

[SPEAKER_00]: And these are large private equity firms from New Mountain Capital and Flexi on this equity partners.

[SPEAKER_00]: These are all the type of companies or private equity firms that are using these continuation funds to try and cash out some of their legacy investors.

[SPEAKER_00]: And it just really highlights the rot and the problems within that industry and why I continue to tell everybody, if you can get your money out, you should probably do so as soon as possible.

[SPEAKER_00]: Now, today's show, made you think about your own financial picture, investments taxes, retirement.

[SPEAKER_00]: I encourage you to have her to invest talk.com, look at the portfolio review button and schedule time with myself for Luke to help her in clarity and confidence to your overall plan.

[SPEAKER_00]: And with that, now that it does it, I'm Justin Klein.

[SPEAKER_00]: We think we're listening, we encourage you to tell your friends and family about our free podcast downloads, which you can find anytime, iTunes, Spotify, Google Play, and be sure to rate and review on iTunes as well.

[SPEAKER_00]: Independent thinking should success.

[SPEAKER_00]: It's the best talk.

[SPEAKER_00]: Good night.

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