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Speaker 2: I'm looking at that oil deal a diamondback buying endeavor.
Speaker 2: You have bangstock, which is diamondbackstock. It is up by
Speaker 2: ten percent. Wow, that is a really nice move. Vince
Speaker 2: Piasa is Bloomberg Intelligence Senior Energy Research analyst, and he
Speaker 2: joins us now vinced you like the deal.
Speaker 3: I think the deal ticks all the boxes that we're
Speaker 3: going to need to see in this MNA wave. In
Speaker 3: the permium, it grows diamondbacks, acreage, it grows locations, so
Speaker 3: inventory is not going to be an issue in terms
Speaker 3: of the that they paid. Look diamondback in my universe
Speaker 3: of coverage, it was the highest had the highest premium.
Speaker 3: So they're using their multiple to get this deal done
Speaker 3: and so elevated currency along with some.
Speaker 4: Cash and debt they are They do have a fairly
Speaker 4: low leverage on their balance sheet, so I think this
Speaker 4: picks all of the boxes they'll throw off significant free
Speaker 4: cash flow in twenty twenty four and twenty twenty five.
Speaker 3: So in terms of paying off whatever bank loans that
Speaker 3: they're going to take on for this, I think it
Speaker 3: works out extremely well, and you're seeing the response by
Speaker 3: the investors in the marketplace. It also works out for
Speaker 3: the founding family of Endeavor. They get to monetize decades
Speaker 3: of hard work.
Speaker 2: So, hey, I've got a question with that. I mentioned
Speaker 2: that this is a merger of equals, and I got
Speaker 2: kind of laughed at, like, there's no merger of equals
Speaker 2: and it comes to M and A, but in this case,
Speaker 2: like is there though?
Speaker 3: Well, in this case, think about what Endeavor brings to
Speaker 3: the table. It almost doubles of diamondbacks Midlan acreage, and
Speaker 3: it brings sizeable oil production for the broader diamondback franchise.
Speaker 3: So I would tell you that in terms of size,
Speaker 3: it is a merger of equals, but the family will
Speaker 3: get roughly thirty percent of diamondback with selling off almost
Speaker 3: half the resource to diamondbacks, So it basically doubles diamondbacks
Speaker 3: total size, and the founding family gets about thirty percent
Speaker 3: of the new diamondback.
Speaker 5: Let's say Vince are there any regulatory issues here. A
Speaker 5: lot of M and A going on in this space here.
Speaker 3: Yeah, you know it's going to get a looked at.
Speaker 3: So Southwestern and Chesapeake getting together out in Apalachia, that's
Speaker 3: a gas deal, but that will get a very very
Speaker 3: clear look, a very very deep look by the regulators.
Speaker 3: This will as well. I don't see why it wouldn't
Speaker 3: because of the actual size of this entity. It's going
Speaker 3: to be an enterprise value of north with sixty billion.
Speaker 3: It will be the largest Permian pure play, So it'll
Speaker 3: get looked at. All these deals will get looked at,
Speaker 3: and it'll take a deeper look, same as Southwestern and Chesapeake.
Speaker 2: I was talking to Jenrey this morning. She covers Anti
Speaker 2: Trust for Bloowberg Intelligence, and she's like, yes, like all
Speaker 2: of these are going to have to get looked at.
Speaker 2: They're particularly interested in the exon Permian Pioneer deal and
Speaker 2: that all these deals are definitely gonna have the FTC
Speaker 2: sort of wide eyed looking at it. But you have
Speaker 2: to wonder, though, if they want more oil, they're going
Speaker 2: to have to do it, right, Vince, I mean, it's
Speaker 2: gonna I'm just trying to think of, like what the
Speaker 2: rational will be to block and say this deal, but
Speaker 2: like let Excell Pioneer go through, Like you can't.
Speaker 3: This deal is much more North America centric, much more
Speaker 3: North America focused. So when you think about you know,
Speaker 3: Exon and Pioneer Pioneer fits within Exon's Permian portfolio. But
Speaker 3: Exon is a large, integrated multinational franchise. This is more
Speaker 3: US centric and Permian centric as well. But look, they're
Speaker 3: all going to get looked at. It is what it is.
Speaker 3: This is a very large transaction. Like I said, Southwestern
Speaker 3: Chesapeake is getting looked at. This will get looked at
Speaker 3: as well. It's an important resource. What you have here, though,
Speaker 3: is you have resources now in stronger hands. You have Exon, Mobile, Chevron,
Speaker 3: you have Diamondback. You have very large entities with big
Speaker 3: balance sheets and the capability to take down even greater
Speaker 3: levels of capital in order to move production from the
Speaker 3: delineation phase into the production phase.
Speaker 5: So give me a sense, Vincent, I'm putting my banker
Speaker 5: hat on. Can I keep doing a bunch of deals here?
Speaker 5: I mean, how many players are left?
Speaker 3: Yeah, it's a very interesting question. So we put out
Speaker 3: last year the top twenty private privately held PE sponsored
Speaker 3: names in the permian, in this case Endeavor being the
Speaker 3: second largest Mewborn, which has mentioned that it wishes to sell.
Speaker 3: That's the largest of the top twenty that'll go out,
Speaker 3: we think, because it has been mentioned as a takeover candidate.
Speaker 3: Similar situation Founding family looking to move the assets. If
Speaker 3: you think about the top five, three are now gone,
Speaker 3: so there is a great deal of interest. There's interest
Speaker 3: by the private players as well, especially the PE sponsored players.
Speaker 3: Your gay being close to these vintages that are aged
Speaker 3: and now this capital needs to be recycled, so you
Speaker 3: will see more of that. You will see public buying private.
Speaker 3: Public does have the currency. In the case of Diamondback,
Speaker 3: they had a premium multiple elevated currency that they were
Speaker 3: able to use to monetize the Founding families investment. And
Speaker 3: you'll see that as well, especially in the permium, where
Speaker 3: you do have this difference of large cap premium valuations
Speaker 3: looking for assets and the smaller cap names trading at
Speaker 3: a relative discount to peers, but trading at a discount
Speaker 3: to the larger names as well.
Speaker 4: Well.
Speaker 2: Well, that's really the thing. Private equity being like, oh,
Speaker 2: thank god, we can kind of get these things out there.
Speaker 2: Is a vincement. I also found interesting I was reading
Speaker 2: through some of your research on this just to get
Speaker 2: more background on some of the private players, is just
Speaker 2: how much these private guys have been responsible for bulk
Speaker 2: of the drilling. And in some ways it makes sense,
Speaker 2: right shareholders want the big guys to become capital discipline.
Speaker 2: They're public, they got to report, so therefore they have
Speaker 2: to be capital discipline. But a private guy doesn't have
Speaker 2: to do that. They can do whatever they want. Walk
Speaker 2: me through the importance though, of these guys within the
Speaker 2: shell development.
Speaker 3: Yeah, so we tend to think that the private players
Speaker 3: have been responsible for at least half of the production
Speaker 3: growth in the last few years. What we have seen
Speaker 3: is these privately sponsored players putting out that production growth
Speaker 3: to entice the public players to buy that asset. And
Speaker 3: what the public players tend to do once they integrate
Speaker 3: that asset is to slow that production growth down, remove
Speaker 3: the rigs from that private player, and generate cash flow.
Speaker 3: This enhances free cash flow and allows the public player
Speaker 3: to pay down that debt to push out payouts, give
Speaker 3: it ends or stop buybacks to the investment for rewarding
Speaker 3: them sticking around post a deal. So that's what we've
Speaker 3: seen production growth by the private guys. Public guys come
Speaker 3: on in, buy the asset, turn down the volume, ratchet
Speaker 3: down the speed, generate that free cash flow so that
Speaker 3: the balance sheet, so that the income statement looks stronger
Speaker 3: post a deal. And it's been working for the last
Speaker 3: couple of years. And that's why you see such a
Speaker 3: great reaction in the aftermarket whence these deals are announced,
Speaker 3: especially this deal, and also if you take a look
Speaker 3: at some of the gas deals that have been done
Speaker 3: as well.
Speaker 5: Hey, Vince, as an investor, do ike care about where
Speaker 5: the rock is located? As Pennsylvania shale better than Texas
Speaker 5: Shale's who whoa whoa?
Speaker 2: Yes, yeah you care?
Speaker 6: You care?
Speaker 3: Tell me, yes, you care? You care? Because when you're
Speaker 3: selling a commodity, concentration drives synergies, efficiency and productivity, but
Speaker 3: especially so in places like elegacy play like the Permian,
Speaker 3: or in places like Appalachia or in the Hainesville. Interestingly,
Speaker 3: these last few deals that we've seen, we've seen in
Speaker 3: those plays, those prominent legacy plays, those proven plays where
Speaker 3: you have a lot of runway and you can buy
Speaker 3: these assets, integrate them, grow that concentration and generate those efficiencies,
Speaker 3: generate that productivity going forward.
Speaker 2: Who's next? Who's the next buyer?
Speaker 3: You know what, I will tease the audience. Go on
Speaker 3: to the terminal, look up our research. We put out
Speaker 3: a piece highlighting the twenty private private sponsored E and
Speaker 3: p's in the Permian. We go through that list. Mewborn
Speaker 3: has been mentioned, so we can throw that name out there,
Speaker 3: but there are plenty of names in that top twenty
Speaker 3: list that seem to be putting themselves in a position
Speaker 3: where some type of capital event could be announced.
Speaker 2: Events great stuff. Really appreciate it. Deep teas there, everybody.
Speaker 2: Check out Vincent's research on the Bloomberg Intelligence on the terminal.
Speaker 2: He's Bloomberg Intelligence senior Energy research analyst. You have to
Speaker 2: wonder how many buyers they're going to be right.
Speaker 5: So rock is not rock, Rock is not rock?
Speaker 2: Well, rock is rock, but some rock is better than
Speaker 2: other rocks.
Speaker 5: Some rock is better than other rock.
Speaker 2: Definitely.
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Speaker 5: Great, great game, big, big platform for advertisers, arguably the
Speaker 5: biggest day of the year for the advertisers.
Speaker 6: The question is these seems even work?
Speaker 5: I mean as it worth. It is a worth seven
Speaker 5: mili plus whatever your production.
Speaker 2: I was not impressed.
Speaker 6: I thought some good ones, some some ads were good.
Speaker 5: I like to don't donuts. But there's some people who
Speaker 5: actually measure this as a business. They don't just watch it.
Speaker 5: They measured as a business. Our next guest Kevin Krim.
Speaker 5: He's the CEO of Entertainment Data Oracle. Kids call it EDEO.
Speaker 5: He joined his live here in our Bloomberg Interactive Broker studio.
Speaker 5: He knows his way here. He's been in Bloomberg before. Kevin,
Speaker 5: thanks so much for joining us here. We really appreciate
Speaker 5: coming in. I thought there was some pretty cool ads.
Speaker 5: From your perspective, What are brands trying to do here
Speaker 5: at the Super Bowl and how do they measure if
Speaker 5: it even worked or it was successful?
Speaker 6: How do you think about it when marketers are thinking
Speaker 6: about what they're trying to achieve in any marketing, but
Speaker 6: especially on television, which is at the top of the
Speaker 6: pyramid of value in advertising. At the very pinnacle of
Speaker 6: that peak is the NFL and the Super Bowl is
Speaker 6: at the absolute top when we've measured, we've measured nine
Speaker 6: super bowls now, and what we're measuring is the consumer
Speaker 6: engagement with the brands or products being advertised and any
Speaker 6: marketers trying to achieve awareness and then engagement with their brands.
Speaker 6: And we're measuring engagement as searches and branded website visits,
Speaker 6: app usage, the kind of digital behaviors that are predictive
Speaker 6: of sales lift, but they're immediate and they're easy to
Speaker 6: collect large amounts.
Speaker 2: Of what's the time frame for that? Is it like
Speaker 2: right after the ad airs? Is it in the next
Speaker 2: twenty four hours?
Speaker 6: Most of that engagement happens within minutes of the ad airing,
Speaker 6: But because of streaming, because of the ability to DVR
Speaker 6: or tvo it, you do have a tail to that.
Speaker 6: And we'll see activity for a week or more after
Speaker 6: a big ad airing like like the Super Bowl, And
Speaker 6: when we see what kind of engagement is driven relative
Speaker 6: to what else you can get on TV, like let's
Speaker 6: say an average thirty second spot on primetime broadcaster cable,
Speaker 6: the Super Bowl does many, many, many multiples of that.
Speaker 6: We're talking the average advertiser would have to buy hundreds
Speaker 6: of those thirty second spots on regular primetime to get
Speaker 6: the same impact as a single area on this So
Speaker 6: on a dollars basis, we find that the Super Bowl
Speaker 6: is a very good rational decision for most marketers. But
Speaker 6: then the pressures on the creative, and the creative has
Speaker 6: to be strong or you're not getting your money's worth.
Speaker 6: And that's where you know. We saw ads yesterday. Some
Speaker 6: of them were fantastic, others I think played it too safe,
Speaker 6: and you're going to see quite a range in how
Speaker 6: much engagement is driven from those ads.
Speaker 5: So from your perspective, maybe from the data's perspective.
Speaker 6: Yeah, a winner or two?
Speaker 5: Which one did you?
Speaker 6: Let's talk about real quick. The top five Number one
Speaker 6: was Deadpool three number two.
Speaker 2: I have thoughts on that because I'm a huge deput person.
Speaker 2: Love it, but then again, he could come on, Ryan
Speaker 2: Renns could come on and say hello, and I'd be like,
Speaker 2: that was brilliant, that was amazing.
Speaker 6: It was a fun spot and the tease of having
Speaker 6: Wolverine joining him is very satisfying for any Marvel fan.
Speaker 6: Number two is the film that adaptation of Wicked. Another
Speaker 6: interesting teaser Ariana Grande in one of the starring roles there,
Speaker 6: So that's going to pick up a lot of attention.
Speaker 6: And then number three three was the Volkswagen ad that
Speaker 6: you know of harkened back to their heritage of bringing
Speaker 6: the Beatle to UH to America and then it teased
Speaker 6: their new all electric UH bus, so the VW Bus
Speaker 6: returning to America after a long long gap. Number four
Speaker 6: was Team or Temu as we all learned was how
Speaker 6: to pronounce it? Last yesterday they ran six spots between pregame,
Speaker 6: in game, and postgame. Six spots. That's a huge investment.
Speaker 6: But this is an interesting one. A lot of people's
Speaker 6: opinion of that kind of spot would say that it
Speaker 6: was one of the worst.
Speaker 5: And you know, actually, it doesn't even resonate with me.
Speaker 5: What what what is it?
Speaker 6: Coppening? It was, it's a it's a mobile shopping app
Speaker 6: and uh. They they started their first real kind of
Speaker 6: advertising in the US was last year's Super Bowl. That
Speaker 6: kicked it off. They were one of the most downloaded
Speaker 6: apps in the Google App Store and the Apple App
Speaker 6: Store all of last year. They followed up with a
Speaker 6: bigger bet this year, and it.
Speaker 2: Is discounts are insanity like it like if you go
Speaker 2: on there, I mean you have to measure, like what
Speaker 2: am I actually buying? Like there's that conversation we had,
Speaker 2: but the number price, it's it's unreal. And there's like
Speaker 2: extra deals like it's it's huge.
Speaker 6: Temu and Shine or Sheen, I'm not sure how to
Speaker 6: do it properly. Are both China based apps that are
Speaker 6: about these giant discounts and are very popular apparently with
Speaker 6: with Barbain discount shoppers.
Speaker 5: How about Booze.
Speaker 6: You know, we saw really interesting. We saw no liquor
Speaker 6: ads this year. We saw a smaller number of beer
Speaker 6: ads than last year. What we did see was some
Speaker 6: top performers were soda ads, and we had Poppy in
Speaker 6: our top five. Hoppy is this new? Yes, premium priced?
Speaker 6: Would you call it? Like kind of like more popularized
Speaker 6: kombucha maybe.
Speaker 2: The way without the fermentation, Like I'll get poppy to
Speaker 2: my daughter, but you can't have ka.
Speaker 6: Right because it's trace mounts of Alcoholah, so it's got
Speaker 6: slow sugar supposed to be good for you and two
Speaker 6: dollars a can. Oh so the margins are incredible. It's
Speaker 6: an independent soda company from Austin, Texas, husband and wife founders,
Speaker 6: and you know, they made a big statement in popping
Speaker 6: into the top five. That's gonna lead to a big
Speaker 6: lift in their sales. I mean we can say that
Speaker 6: with total confidence whether that stix or not is alex
Speaker 6: Is saying it's it's it's it's good. So you know
Speaker 6: they may have a shot at.
Speaker 5: Being a to Okay, how about nostalgia In the nostalgia
Speaker 5: driven TV reunions, a lot of reunions, I would say
Speaker 5: they were a mixed bag and sort of in terms
Speaker 5: of performance.
Speaker 6: I loved most of those spots. I mean, the Duncan
Speaker 6: spot was in our top twenty. That was probably the
Speaker 6: best performing of the nostalgia based ads. We saw Jennifer
Speaker 6: Anison and David Shwimmer reunite and.
Speaker 2: The Uber eats like that one.
Speaker 6: I thought that was a fun moment. Yeah, it was
Speaker 6: a fun moment, you know. But again, Oh, and I'd
Speaker 6: say the other top performing spot we had the parks
Speaker 6: and Rec several of the leads in Park and Rec,
Speaker 6: in the in the in the app for in the
Speaker 6: ad for Mountain Dews, Baja Blast Soda, and that was
Speaker 6: a lot of fun.
Speaker 5: Interesting and we had to you know, I like you
Speaker 5: putting in your notes here that streaming is the new syndication. Yeah,
Speaker 5: that's where shows go to live forever. And one of
Speaker 5: the examples and then maybe become popular again. One of
Speaker 5: which is Suits, Suits, which is all over my social
Speaker 5: media feed and I never even paid attention to it
Speaker 5: when it was on whatever network it was years ago,
Speaker 5: but they're making a huge comeback, right, So.
Speaker 6: That was NBCUniversal originally, I think it was USA Network
Speaker 6: when in its first run the top streaming series on
Speaker 6: Netflix for last year, and you saw the Suits stars
Speaker 6: and a bunch of other stars from a bunch of
Speaker 6: the series that were hot maybe fifteen twenty some years
Speaker 6: ago and are now top streaming series in their sort
Speaker 6: of rerun stage on what it's Pea Cock or Netflix
Speaker 6: or or others.
Speaker 2: What else did out to you? What was like a
Speaker 2: wild factor?
Speaker 3: Yeah?
Speaker 6: I mean, I would say besides those those things that
Speaker 6: we talked about, I would say the automotive category was
Speaker 6: really interesting. All the ads outperformed the average. They were
Speaker 6: all import or foreign automakers. They were not any of
Speaker 6: the Big three and from Detroit, which is very unusual.
Speaker 5: Was was that a did you hear anyth coming out
Speaker 5: of Detroit saying hey, we're just.
Speaker 6: You know, I didn't talk directly to all of them.
Speaker 6: Some of them are my clients. I'll be discreet, but
Speaker 6: I would say what I heard loud and clear. From
Speaker 6: the industry overall, you've got to have the right product
Speaker 6: to launch. You don't want to have a disruptive supply
Speaker 6: chain when you're when you're doing a big Super Bowl ad,
Speaker 6: it usually is best to use a Super Bowl as
Speaker 6: the start of a big campaign, So to launch a
Speaker 6: new model is key. And then, yes, if you're coming
Speaker 6: off of bruising, you know, negotiations with your unions, probably
Speaker 6: one of the better things to do is maybe just
Speaker 6: sit it out, wait till next year.
Speaker 2: Well, what's their messaging. It's like, hey, guys, you know
Speaker 2: the we're still making them. You should buy one, but
Speaker 2: we're also gonna do these ices and these are really cool.
Speaker 2: Go buy those like It's like they're enough, We're gonna
Speaker 2: do all that money over there. I mean, it's a
Speaker 2: pretty tricky line.
Speaker 6: It's a tough balancing so to sit on the sidelines
Speaker 6: for this year smart move.
Speaker 5: Were you surprised that we didn't see any price inflation
Speaker 5: this year from last year. Seven million dollars for a
Speaker 5: thirty second spot. Usually we've seen you know, mid single
Speaker 5: high single digit inflation year to year.
Speaker 6: You know, I think it's it's it's a challenging market
Speaker 6: as we shift from traditional to streaming. But I would
Speaker 6: say anyone who bought an ad from CBS this year
Speaker 6: got a fantastic deal, right, I mean, you know, it's
Speaker 6: the super Bowl always performs consistently. But on top of that,
Speaker 6: you had the Taylor Swift effect and you can't plan
Speaker 6: on her team being in the super Bowl. That's that's
Speaker 6: a bit much. But just if you were sitting there
Speaker 6: last September as the season got started and you made
Speaker 6: a commitment to seven million dollars, you you had a
Speaker 6: good hunch that this would be a sustainable positive effect,
Speaker 6: a tailwind, if you will, for the whole sport with
Speaker 6: Taylor involved.
Speaker 5: All right, good stuff, Kevin Krim, thank you so much
Speaker 5: for joining us. Kevin Crime to CEO of Entertainment Data
Speaker 5: oracle Edo, joining slave here on our Bloomberg Interactive Brooker Studio.
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Speaker 2: So SMP five hundred, like you were saying, right, fifty
Speaker 2: twenty eight, and I take a look at the strategists
Speaker 2: call for this year. The average is forty eight sixty seven,
Speaker 2: the median forty nine fifty, the high fifty two hundred,
Speaker 2: the low forty two hundred. So it's like either a
Speaker 2: lot of people are wrong, We're gonna see a lot
Speaker 2: of upgrades, or we're just gonna have a crash out
Speaker 2: at some point, which is quite of interesting.
Speaker 7: At the end of the day, it's all about making money.
Speaker 7: So you do the earnings analysis on the S and
Speaker 7: P five hundred, and the earning surprises so far this
Speaker 7: quarter of those companies that have reported is something like
Speaker 7: eighty percent at this point, so it's impressive.
Speaker 2: Yeah, you can make the argument that it's legit, and
Speaker 2: then it's actually broadening out to a certain extent. Let's
Speaker 2: ask Kim Forrest. She is founder in CIO, a book
Speaker 2: of capital partners. Hey, Kim, I take a look at
Speaker 2: the strategist notespend for this year where we're trading at
Speaker 2: right now? Is this a crash up, a melt up?
Speaker 2: Does it continue or is it fundamental here at this point?
Speaker 8: Well, I have to say, I think people by and
Speaker 8: large are kind of terrible at forecasting, as we saw
Speaker 8: last year, and maybe this is more of the same,
Speaker 8: right And I think I think it's going to be
Speaker 8: a crash up, I have to say, because the markers
Speaker 8: have slow down, or more than slow down, are just
Speaker 8: not there right So, and we'll see tomorrow and this
Speaker 8: is a data rich week where we have more earnings,
Speaker 8: but probably most importantly CPI and then retail sales to
Speaker 8: see if the consumer continues to spend, but we believe.
Speaker 6: It they do.
Speaker 8: They do, so why not and the year above five thousand?
Speaker 8: I think that's a good call at this point.
Speaker 5: Why not own the magnificent seven? Why not keep buying
Speaker 5: them today?
Speaker 6: Is this AI thing real?
Speaker 5: You've got a perspective here, don't you.
Speaker 8: I think the AI thing is real. I have to
Speaker 8: disclose this. I was a software engineer working in AI
Speaker 8: before I moved on over to the world of finance
Speaker 8: as a cell side equity analyst, and so have I
Speaker 8: know of which I speak, so Kimba, it is for real,
Speaker 8: but it's never going to play out the way investors
Speaker 8: think at the beginning of a rush, right, they think
Speaker 8: in Nvidia and Google and Amazon and all the rest
Speaker 8: of the Magnificent seven are probably going to be winners.
Speaker 8: I think they are going to win, but there's going
Speaker 8: to be other more nuanced AI applications that come in
Speaker 8: and it might be the killer app I.
Speaker 5: Mean, I'm looking at in Vidia here, up forty eight
Speaker 5: percent year to date, two hundred and fifty trailing twelve
Speaker 5: month basis in Nvidia overtakes Amazon and market value Bloomberg
Speaker 5: News just across the tape here, do I just keep
Speaker 5: buying these chips?
Speaker 6: Is the chip? Are chips the way to play this?
Speaker 8: I think chips are, But I don't know that in
Speaker 8: Vidia is our final winner. If you notice, there's a
Speaker 8: theme in chip land, and that is to make chips
Speaker 8: that are as good as in Nvidia, but maybe not
Speaker 8: cost as much. Even Sam Altman, although he's kind of
Speaker 8: a dreamer, that's the chat GPT guy, you know, he's
Speaker 8: really going all in on trying to design his own
Speaker 8: chips and getting people, you know, interested in funding this
Speaker 8: new company. But I think that chips are a way
Speaker 8: to go and it's going to allow for a more
Speaker 8: as I say, nuanced approach. You know that we're going
Speaker 8: to have to collect data and chips are the way
Speaker 8: they do that to put into these models. So I
Speaker 8: think chips by and large or a winner here as
Speaker 8: a sector.
Speaker 2: So Kim for individual names, then how do you play
Speaker 2: it if it's not going to be in video?
Speaker 3: Sure?
Speaker 8: Well, I mean I remember I think in Vidia wins.
Speaker 8: But does it continue to like double quadruple. I don't know.
Speaker 8: I'm thinking no. So the next two closest competitors that
Speaker 8: may have a product that can help, you know, people
Speaker 8: build these large AI models at a lower price are
Speaker 8: both AMD and Intel. Now they've been known for PC
Speaker 8: chips and that's been dragging them down, but let's give
Speaker 8: them credit for coming up the curve and serving this market.
Speaker 8: I think that they have a good shot to do that.
Speaker 3: Kim.
Speaker 5: We're about to a little more than sixty percent of
Speaker 5: the way through the S and P five hundred reporting earnings.
Speaker 5: Any themes for you either plus or minus coming out
Speaker 5: so far?
Speaker 8: Sure, I think the smaller companies are looking more interesting
Speaker 8: to me because of mergers and acquisition. Potential mergers and
Speaker 8: acquisition completely dried up in twenty two going into leaving
Speaker 8: twenty two into twenty three, and it's largely because we
Speaker 8: were in a rate hike cycle by the Fed. And
Speaker 8: now that we seem to have reached peak interest rate,
Speaker 8: maybe that is what is bringing people back into M
Speaker 8: and A. And I think looking for high quality companies
Speaker 8: in niche markets is another way to go.
Speaker 2: So this doesn't be like a by the Russell here
Speaker 2: at this point, wouldn't.
Speaker 8: No, No, not at all. You're there's a whole lot
Speaker 8: in the Russell. Look for those companies that have product
Speaker 8: management that are creating and delighting their customers, and that
Speaker 8: might go well with a larger company that needs that
Speaker 8: niche product.
Speaker 2: But by takeout targets, that's that's tough, isn't that. I mean,
Speaker 2: that's that's a tough one.
Speaker 8: It is, but it's exciting.
Speaker 3: It's what were you here?
Speaker 2: Fair enough? Okay?
Speaker 5: So Kim, are there any other sectors out there in
Speaker 5: the market you're looking for or are there factors that
Speaker 5: are kind of driving your process these days?
Speaker 8: Well, we take a kind of weird approach where we
Speaker 8: say we are stock pickers and mirror the S and
Speaker 8: P five hundred with our picks with respect to sector waitings,
Speaker 8: So putting that aside that we're kind of sector neutral,
Speaker 8: I think it's really interesting. Tech is big, and I
Speaker 8: think you should stay concentrated in that, but I'd also
Speaker 8: look for some unloved areas, kind of like consumer discretionary.
Speaker 8: You know, at the top of this segment you pointed
Speaker 8: out most of the strategists think we're going to, you know,
Speaker 8: go backwards from here. But if the consumer keep spending,
Speaker 8: why not look at names where the consumer is spending
Speaker 8: and that they are gaining market share.
Speaker 2: Like where Kim, well, retailers.
Speaker 8: Are a big fascination of mine, and we're gonna at
Speaker 8: the end of this earning season hear a lot more
Speaker 8: from them. I don't really want to trot out any
Speaker 8: of the names because I have smaller names in that section,
Speaker 8: but yeah, I do like retailers, and I think they're
Speaker 8: very much unloved at this point, given you know, we're
Speaker 8: all looking for that poolbacker softness to occur this year.
Speaker 5: All right, Kim, thanks so much for joining us. Really appreciated.
Speaker 5: Kim Farest, founder and CIO of Boca Capital Partners, located
Speaker 5: in Pittsburgh, Pennsylvania. So good stuff there.
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Speaker 5: And you got the dow of two hundred points. I'm
Speaker 5: on forty thousand. Watch there were thirty eight eight hundred.
Speaker 5: So I like those nice round numbers. We eclipse five
Speaker 5: thousand a couple days ago in the SMP sixteen thousand
Speaker 5: on Nasdaq, So I like some round habers there. Yeah,
Speaker 5: and why not? But I know the pros do it,
Speaker 5: and you know, do a little bit more analysis than
Speaker 5: that than just no.
Speaker 2: But honestly, if you just bought like an ETF for NDS,
Speaker 2: you'd be fine.
Speaker 5: All right, Let's check in with Jennifer Apple. She is
Speaker 5: the founder and portfolio manager of Alpine Peaks Capital. She
Speaker 5: joins us via zoom from New York. Jennifer, what do
Speaker 5: you make of some of these heights we're hitting here
Speaker 5: on these markets? I guess it really you know, started
Speaker 5: this latest leg back there in November December last year,
Speaker 5: kind of continuing into this year. What do you make
Speaker 5: of these markets and these levels.
Speaker 9: Yeah, Hi, good morning, Paul and Alex, and thank you
Speaker 9: so much for having me. It is really interesting we
Speaker 9: saw this strength. I think it was really signaled by
Speaker 9: the Fed signaling, you know, especially in early December, that
Speaker 9: they were going to start cutting rates. They baked in
Speaker 9: about three rate cuts as you guys know for twenty
Speaker 9: twenty four, and a lot of commentators are expecting more
Speaker 9: and see a lot of that optimism, I think get
Speaker 9: priced into the market in December, and so it was
Speaker 9: interesting in early January to see some names pull back
Speaker 9: a little. We definitely saw some market volatility, which I
Speaker 9: think is healthy by the way. It offers us all
Speaker 9: opportunity today though as we're starting to I mean, it
Speaker 9: will be interesting tomorrow we get the fresh inflation numbers,
Speaker 9: so that's probably the best indicator of what the Fed
Speaker 9: is thinking to do. But you know, so far, as
Speaker 9: you were just pointing out, companies have been putting up
Speaker 9: pretty good earnings as they posted for most of them
Speaker 9: their fourth quarter results, and so that's definitely positive. It's
Speaker 9: always interesting for people like myself to hear companies actually
Speaker 9: report their outlooks for twenty twenty four and to get
Speaker 9: that guidance. I think there's a lot of speculation as
Speaker 9: to what companies will do, but it's always it's great
Speaker 9: to hear it from the horse's mouth and actually get
Speaker 9: the outlook from these companies.
Speaker 2: So, Jennifer, we've seen the rally sort of broaden. I
Speaker 2: appreciate that the equal weighted indext for the SMP and
Speaker 2: had the breakout that the S and P has, but
Speaker 2: the russels up there industrials, healthcare for the SMP, we're
Speaker 2: doing really well as well. Do you buy the rally
Speaker 2: breadth is good or the rally breath is bad?
Speaker 9: Yeah, it's an interesting question where you have some some
Speaker 9: real breakout strength continue and a handful of names. But
Speaker 9: I think the economy and certainly lower rates will be
Speaker 9: good broadly for the economy. So it makes sense to
Speaker 9: me that we are seeing us more broadly, and that
Speaker 9: is something that I would expect to continue. Obviously not universally.
Speaker 9: It does matter what's happening on a company specific level,
Speaker 9: and you do have winners and losers within that. But
Speaker 9: I think the environment should be supportive for the breadth
Speaker 9: of the valley, if you will, So, how.
Speaker 5: Much or how important is this feeder reserve for you
Speaker 5: and your investment outlook here, I kind of feel like,
Speaker 5: you know, the market's really just trading on where the
Speaker 5: FED is going. I'm not sure there's paying as much attention,
Speaker 5: perhaps to the earnings as we typically do. You view
Speaker 5: the FED and it's impact on the market.
Speaker 9: Yeah, that's such a good point, and I agree with you.
Speaker 9: It's interesting. So we have a five year average building pread,
Speaker 9: and so we are taking that longer term view and
Speaker 9: thinking about our companies across business cycles rather than just
Speaker 9: what next quarter will look like. But I do think
Speaker 9: that a lot of people are focused more on the
Speaker 9: FED right now, and particularly getting excited about the prospects
Speaker 9: of perhaps accelerated rate cuts. We don't think that will
Speaker 9: happen as quickly as some people do. But nonetheless, even
Speaker 9: if you take the two to three cuts that are
Speaker 9: kind of at the bottom end of the outlooks, that's
Speaker 9: still helpful for this coming year. And so it's interesting
Speaker 9: that we do see as companies report earnings, we do
Speaker 9: see them revert more. I feel like there can be
Speaker 9: a lot of momentum and excitement priced into names intra quarterer,
Speaker 9: but we do see them return to typically return to
Speaker 9: trading on their own individual outlooks as they were poort earning.
Speaker 9: So that's always a particularly esteem moment of truth for us.
Speaker 2: If you will, you have some cool companies that you
Speaker 2: look at Rolins If I said that, right, Roland Rollins,
Speaker 2: Yeah he did. Yeah, Pest Control Services, which is take
Speaker 2: r L walkers through while you like this one?
Speaker 9: Yeah, absolutely so. They are the leading pest control independent
Speaker 9: pest control company in the United States. Their largest competitor,
Speaker 9: termin X, was just bought out by a UK company
Speaker 9: called rental Kill last year and leading love yes, okay, yeah,
Speaker 9: And it's just a it's a compelling time in the
Speaker 9: industry for there's a few broader macro reasons, if you will.
Speaker 9: Global warming is supportive of past populations. Demographic demographically too,
Speaker 9: our generation and younger generations are more likely to hire
Speaker 9: somebody else to deal with pests rather than do it yourself,
Speaker 9: as the baby baby boomers tended to do. And so
Speaker 9: we're seeing oh go ahead.
Speaker 5: No, no, go ahead, continue, okay.
Speaker 9: Excellent, So it's a you know, it's a good environment
Speaker 9: for the pests, if you will. And it's a time
Speaker 9: where Round two Kill has always been a really strong
Speaker 9: competitor in the area. They have really powerful door to
Speaker 9: door sales, have been investing heavily in technology, also a
Speaker 9: very clean balance sheet, and that's enabled them to typically
Speaker 9: add between a third and half of their growth from acquisitions,
Speaker 9: and so they continue to roll up smaller pest control companies,
Speaker 9: share best practices with them over time, be able to
Speaker 9: really improve margins there. It's created a very positive dynamic.
Speaker 9: It's also making an interesting transition now from being a
Speaker 9: family dominated company that Rollins family. Actually they just sold
Speaker 9: off a portion of their stake, but they still own
Speaker 9: over a third of the company to bringing them. Last
Speaker 9: year was the first year that professional, a non family
Speaker 9: member was appointed CEO. And so while if Rawlins family
Speaker 9: has done a great job building the business, I think
Speaker 9: there is a really interesting switch to a little bit
Speaker 9: more of a bottom line line focused perspective right now. There.
Speaker 5: We've had a aviation when we talk about Boeing, and
Speaker 5: it has been in the news not for the good reasons.
Speaker 5: You have a manufacturer of aviation parts, Hiko HgI is
Speaker 5: a ticker what's tell us about that company and why
Speaker 5: you guys like it?
Speaker 9: Yeah, absolute, So they're a really interesting company. They make
Speaker 9: what are essentially generic aftermarket aviation parts. So it's almost
Speaker 9: akin to generic drugs if you think about pharmaceuticals, but
Speaker 9: in this case. So they take what's called an om
Speaker 9: part or original equipment manufacturer, and they reverse engineer it
Speaker 9: to be made out of the same materials, to be
Speaker 9: able to meet the same stress tolerances, to last just
Speaker 9: as long and has similar quality, and then that's approved
Speaker 9: by the FAA. It's called Parts Manufacturing Authority or PMA
Speaker 9: is the acronum used in the industry, and then by
Speaker 9: each individual airlines. And airlines like these parts because they
Speaker 9: typically sell or starts at about thirty percent less than
Speaker 9: the OEM price, and that can widen out to as
Speaker 9: much as seventy percent over the year with volume discounts,
Speaker 9: and so it's a great way for airlines to save money.
Speaker 9: And Iiko's really the dominant player in this area. They
Speaker 9: just bought actually their largest competitor, called a Wendcore, and
Speaker 9: it's a space they know really well. It's adding about
Speaker 9: thirty percent on revenue to the company this year and
Speaker 9: It's a very exciting time for them, you know, taking
Speaker 9: the recovery and air travel that's happened post pandemic over
Speaker 9: the last couple of years, and then market gains they've
Speaker 9: made as they can help airlines improve their own economics.
Speaker 2: Jennifer, great stuff. We really appreciate you joining us. Jennifer
Speaker 2: Oppold a founder and portfolio manager of at Alpine Peaks Capital.
Speaker 2: Quite interesting.
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