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Speaker 1: This is Coast to Coast. I'm Carol Masser. We are

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Speaker 1: here every day bring you the latest news from the

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Speaker 1: world of business and finance and the most interesting stories

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Speaker 1: in global technology from Silicon Valley and beyond. Powered by

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Speaker 1: our more than twenty seven journalists and analysts in more

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Speaker 1: than one twenty countries. You can download Coast to Coast

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Speaker 1: on iTunes, SoundCloud, or Bloomberg dot com. You can also

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Speaker 1: listen to our radio show weekdays at two pm Eastern

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Speaker 1: only on Bloomberg Radio. Well, I don't know who it's

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Speaker 1: falling floor. Maybe the short sellers are pretty happy today

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Speaker 1: shares an Oracle down more than eight and a half

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Speaker 1: percent after yesterday's earnings report. Here to help us understand

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Speaker 1: what's going on Onora. Ronald Bloomberg Intelligence a senior a

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Speaker 1: software analyst. He knows all things about software and I

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Speaker 1: T services. You can follow on a rag on Twitter

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Speaker 1: at on a rag underscore ruana for okay, on a

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Speaker 1: rug underscore run of for what happened at Oracle. We

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Speaker 1: were talking about this after the closer trading yesterday, and

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Speaker 1: it seems as though the sell off just accelerated today. Yeah,

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Speaker 1: I mean after you know, we talked about it, and

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Speaker 1: we went on the call, and then on the call

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Speaker 1: the sales guidance for next quarter. Um. You know, it

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Speaker 1: was slightly below what the what the street was expecting. Now,

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Speaker 1: in a normal circumstances, that wouldn't have been that big

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Speaker 1: of a deal, you know, plus minus a couple of

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Speaker 1: percent points. But you know, we have seen some very

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Speaker 1: strong results from software companies over the last um month

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Speaker 1: or so. So the question is, you know, why aren't

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Speaker 1: these guys doing so well? You know, the issue is,

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Speaker 1: you know, a couple of things. One is on the

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Speaker 1: application sides, which is slowly moving into subscriptions. When you

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Speaker 1: see that, you know, the revenue gets pushed out. So

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Speaker 1: depending on how many clients moved from license to subscription,

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Speaker 1: there is volatility there because if you do the license model,

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Speaker 1: the revenue gets booked up front, spread it out over

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Speaker 1: the life of I pay x amount every month for

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Speaker 1: the course of the contract. Fair enough, So okay, so

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Speaker 1: you're one. You actually see a massive reduction and revenue

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Speaker 1: from the same client. So in order for article to

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Speaker 1: grow on that, you have to book a lot more business.

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Speaker 1: That has been the case for anybody who's gone through

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Speaker 1: the transition whether it's been you know, Adobe or Autodesk

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Speaker 1: and article in sap UM. So that's one issue, and

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Speaker 1: the second issue is on the database side of it,

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Speaker 1: where um it's their I T business. They have a

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Speaker 1: new product that came out in January and that should

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Speaker 1: pick up as the year goes by. You know, unlike

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Speaker 1: a traditional software company which is on the application side,

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Speaker 1: database work takes time for people to upgrade. It's not

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Speaker 1: as you know, as soon as it comes out people

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Speaker 1: go and upgrade it. So there is a longer tail

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Speaker 1: to that. So you know, in our view, if you

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Speaker 1: look at down a few quarters, some of this should

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Speaker 1: return back to normalcy. But the issue at this point

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Speaker 1: is that the next quarter guidance is not very strong. Okay,

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Speaker 1: let's let's just break off to these two different areas

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Speaker 1: because you're talking about a databases. Will get to that

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Speaker 1: in a second. How does the sales Force and I

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Speaker 1: don't mean Salesforce dot Com although they are a big competitor,

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Speaker 1: and of course Mark Bennie off at Salesforce and Larry

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Speaker 1: Ellison there is a lot of history between those two individuals.

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Speaker 1: How does the actual sales Force sell a license subscription

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Speaker 1: versus a software as a service subscription, so a large

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Speaker 1: I mean over the last few year, I would say

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Speaker 1: a couple of years, they have changed the incentives for

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Speaker 1: the salesforce to sell more subscriptions louder than the license.

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Speaker 1: But more than that, the industry is moving that way,

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Speaker 1: So a client would understand that. Listen, I don't want

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Speaker 1: an on premise software, which is no, no, no, I

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Speaker 1: know that, but I mean in terms of if you

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Speaker 1: have an embedded salesforce, in other words, a group of

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Speaker 1: people whose job it is to go out and sell licenses,

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Speaker 1: and everybody in the world is looking at software as

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Speaker 1: a service as a potential option. They're not going to

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Speaker 1: necessarily buy those licenses. That's what I'm saying. The salesforce

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Speaker 1: an article, has been incentivized more to sell subscriptions than licenses. Also,

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Speaker 1: when they go talk to a client, the client is

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Speaker 1: not keen on buying the license, they want the subscriptions.

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Speaker 1: So their compensation is based more on how much cloud

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Speaker 1: products that they sell which are sold as subscriptions, rather

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Speaker 1: than the on premise products which are sold as licenses.

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Speaker 1: To this, does the does the remuneration, does the money

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Speaker 1: that a salesperson makes by selling a subscription does that

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Speaker 1: also gets spread out over the course of future months,

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Speaker 1: as opposed to being booked when that initial sale or

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Speaker 1: contract is signed. I think it depends with company. It

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Speaker 1: depends on what you're incentivizing it. You might load some

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Speaker 1: of that upfront, which means your margins could be squeezed

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Speaker 1: along with the revenue, but you're pushing them to have

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Speaker 1: a product that has a longer life cycle and is

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Speaker 1: far more profit profitable over a three to five year period. Okay,

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Speaker 1: let's talk database for just a second. You said that

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Speaker 1: it takes time for a company to migrate when you're

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Speaker 1: offering a new database application. Why just because what happens

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Speaker 1: is your normal applications that you have built. There's a

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Speaker 1: lot of connectors that's been built with the databases, so

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Speaker 1: when you have to go and upgrade it, you have

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Speaker 1: to basically redo that engineering again. You need to bring

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Speaker 1: any services people you need to being into consultants. It's

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Speaker 1: not as easy as just giving you a user name

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Speaker 1: and log in to move from one software to the other,

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Speaker 1: which is what would happen in a cloud based work

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Speaker 1: and that move that that transition, if you're running that

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Speaker 1: large database sometimes can be quite proprietary in terms of

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Speaker 1: the kind of data or the kind of database, because

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Speaker 1: there are some specialized databases for specialized industries. Yeah, but

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Speaker 1: article will help you do that. When when it launches

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Speaker 1: a new product, it will you know, it will give

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Speaker 1: you the services which you can help you upgrade to

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Speaker 1: the newer version of the software. And also in this

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Speaker 1: particular case, their newer version allows the allows customers to

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Speaker 1: self provision or self patch the software UM, which is

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Speaker 1: very important right now because of security problems. Patching is

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Speaker 1: becoming a very big issue for UM. You know, the

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Speaker 1: CEOs of fortune companies, right, they don't necessarily want to

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Speaker 1: spend the time and the money being responsible for doing it.

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Speaker 1: They'd rather offload that to the software company like an Oracle. Yes, absolutely,

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Speaker 1: and that's something that we think as the year goes by,

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Speaker 1: we would see an acceleration in both the the database

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Speaker 1: license and subscription piece of it, as well as subscriptions

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Speaker 1: for the applications. Thank you very much for being here,

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Speaker 1: Always a pleasure. On A. Rana, senior software and I

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Speaker 1: T Services analysts for Bloomberg Intelligence. Follow him on Twitter

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Speaker 1: at an a rag Underscore Rana for shares of Oracle

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Speaker 1: may continue to fall. They are down a little bit

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Speaker 1: more than eight and a half percent. You're listening to

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Speaker 1: Bloomberg Markets. I'm Pim fox In for Carol Master. The

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Speaker 1: a breakdown on the shares of Facebook today. They're lower

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Speaker 1: right now by more than four percent. When did Facebook

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Speaker 1: executives know that the information that was available by UH,

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Speaker 1: that was made available by their technology available to Cambridge Analytica?

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Speaker 1: And when did they know what did they do about it?

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Speaker 1: That is just some of the questions that Facebook employees

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Speaker 1: are asking their own Vice president Paul grew Wall, he's

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Speaker 1: answering questions today about Cambridge Analytica from employees of the

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Speaker 1: company at the company's headquarters via video. Here to help

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Speaker 1: us understand this issue and what the likely effects maybe

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Speaker 1: is Adam Levin. He is the chairman of cyber Scout

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Speaker 1: and our own Sarah Friar Always a pleasure, Sarah fire

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Speaker 1: Are Bloomberg News technology reporter, Sarah. I just wanted you

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Speaker 1: can just give us an update. As I mentioned this

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Speaker 1: report at Facebook, employees want to know what the company

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Speaker 1: knew and when they knew it. Do we have any

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Speaker 1: idea as to the answer. Yes, I mean the company

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Speaker 1: is is UH trying to make sure that employees are

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Speaker 1: briefed on the situation, just like, um, you know they're

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Speaker 1: they're going to be doing briefings with lawmakers today and

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Speaker 1: tomorrow for various congressional committees. Um. But employees are really

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Speaker 1: what matters to Facebook the most. If employees are not

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Speaker 1: satisfied with how Facebook's handling things, they might leak to reporters,

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Speaker 1: which would make their situation even worse. So it's better

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Speaker 1: to have this internal transparency. And actually that's something that

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Speaker 1: Facebook has always been pretty good at. Well. The idea

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Speaker 1: that you would end up having leaks that would be

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Speaker 1: available via some social media side, even Facebook or Twitter

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Speaker 1: come to mind, is rather ironic. And Adam Levin, I

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Speaker 1: want you to come in on this. As the chairman

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Speaker 1: of cyber Scout, you're also the former director of the

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Speaker 1: New Jersey Division of Consumer Affairs cyber Scout based in Scottsdale, Arizona.

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Speaker 1: What do you make of this and is there a

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Speaker 1: playbook for how Facebook can handle this current scandal. Well,

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Speaker 1: the reality is this is not the first time that

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Speaker 1: they've had an issue about how data was being used,

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Speaker 1: where it was being displayed, who was using it, what

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Speaker 1: they were using it, for and you know, this is

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Speaker 1: something that has that has plagued the company over the years.

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Speaker 1: Plus you know, they they have a stated policy that

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Speaker 1: Mark Zuckerberg announced years ago that privacy is dead, And

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Speaker 1: this is just again pushing the boundaries of how dead

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Speaker 1: privacy really is, because in this situation, it's not just

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Speaker 1: a question if somebody volunteering to be part of a

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Speaker 1: study that then went awry. It's that anyone who knew them,

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Speaker 1: or anyone that was available for viewing on their site,

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Speaker 1: having done anything in connection with them or being in

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Speaker 1: the same place with them, suddenly got sucked into this situation.

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Speaker 1: And now everybody's on display. So it's like you didn't

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Speaker 1: volunteer to get in the army, You've been drafted into

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Speaker 1: the army. But we're living in a surveillance society that

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Speaker 1: everything we do, unfortunately, is being tracked and recorded and

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Speaker 1: everything from Alexa to Internet of things devices and more

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Speaker 1: and more. People are going to have to start becoming

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Speaker 1: really more aware of this, and companies are going to

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Speaker 1: have to get more sensitive to what could be reactions.

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Speaker 1: But with Facebook, it's not like two billion people are

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Speaker 1: going to flee the site, right Adam Levin chairman, founder

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Speaker 1: a cyber Scout, and Cerifire, our technology reporter in San Francisco.

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Speaker 1: Exactly real something. Well, it could be the start of

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Speaker 1: well it is the start of Jerome Pale's tenure at

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Speaker 1: the Federal Reserve. He will be speaking to reporters tomorrow

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Speaker 1: following the conclusion of the two day fo MC meeting

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Speaker 1: here to help us understand that event and much more

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Speaker 1: when it comes to fixed income bonds debts. Kathy Jones,

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Speaker 1: Senior vice president, Chief Fixed Income Strategists, Schwab Center for

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Speaker 1: Financial Research, and they can all be followed on Twitter

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Speaker 1: at Schwab for Traders. Cathey, thank you very much for

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Speaker 1: being here in the studio. So what what are you

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Speaker 1: looking for from tomorrow's meeting conclusion and from Jerome pal

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Speaker 1: the new Federal Reserve chairman. Well, I think we're looking

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Speaker 1: for pretty much what the consensus calls for, you know,

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Speaker 1: a rate hike. Obviously, UM, we'll be interested in the

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Speaker 1: dots plot and whether they're signaling three or four rate

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Speaker 1: hikes this year. I think there's a good chance that

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Speaker 1: we get pretty close to four instead of the three

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Speaker 1: from the previous meeting. Um, and then we'll just be

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Speaker 1: looking at the asessment of the economy. Uh, they're the

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Speaker 1: tone of the comments and describing the progress on inflation

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Speaker 1: and on the labor market to get a hint of

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Speaker 1: how aggressive they want to be or not. Well, all right,

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Speaker 1: so tell me about the state of the U. S

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Speaker 1: economy right now, because we seem to have a situation

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Speaker 1: in which many things are considered benign. Right, you have

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Speaker 1: relatively low unemployment four point one percent. You have an

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Speaker 1: economy that by most measures would be g d P

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Speaker 1: year of a year of two and a half percent growth,

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Speaker 1: and historically, although interest rates have increased recently, historically low

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Speaker 1: levels of interest rates. Yet there seems to be you

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Speaker 1: can always go and find something negative if you want. Well,

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Speaker 1: there's a lot of anxiety I think around will consumers

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Speaker 1: continue to spend at the healthy pace that they did

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Speaker 1: last year? Um, Actually, the first quarter looks like we've

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Speaker 1: had a bit of a slowdown, but we often have

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Speaker 1: a bit of a slowdown in the first quarter. People

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Speaker 1: tend to spend a lot in the fourth quarter. Slow

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Speaker 1: down in the first court is not always captured in

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Speaker 1: the data. But there's also concern about our expanding deficits.

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Speaker 1: What's happening on trade, all these things can contribute to

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Speaker 1: this sense of uncertainty about the future. So does that

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Speaker 1: change or does that uncertainty offer any guidance as to

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Speaker 1: what you're recommending investors do, at least with the fixed

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Speaker 1: income portion of their portfolios. We really haven't changed our guidance.

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Speaker 1: So we've been saying for well over a year that

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Speaker 1: investors in fixed income might want to consider shortening the

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Speaker 1: duration of their portfolios to make it less sensitive to

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Speaker 1: interest rate increases. Look at securities and the fixed income

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Speaker 1: world that actually benefit from rate tags. Maybe investment grade,

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Speaker 1: floating rate. Now it's maybe treasury inflation protected securities because

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Speaker 1: we're starting to see a little bit higher inflation. We

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Speaker 1: think that will continue over the next six months. And

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Speaker 1: then think about moving up in credit quality a bit.

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Speaker 1: We've had up until very recently historically low value difference

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Speaker 1: between treasury yields and corporate bond yields, and so we thought, well,

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Speaker 1: maybe you want to be in the little higher up

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Speaker 1: than the credit structure, just to make sure that if

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Speaker 1: we get a bump in the road, you're not caught

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Speaker 1: to sell off. Do you believe that investors are too

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Speaker 1: greedy when it comes to what they want out of

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Speaker 1: their fixed income portfolio. Well, I think everyone aspires to

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Speaker 1: um getting something for nothing, right, you know, I think

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Speaker 1: one of the most frequently asked questions I've had over

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Speaker 1: the last six or seven years is why can't I

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Speaker 1: just find, you know, a muni bond high credit quality

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Speaker 1: that gives me four or five And my answer is

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Speaker 1: always it just doesn't exist. If the risk free rate

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Speaker 1: is so, everybody else would want that same thing, and

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Speaker 1: as a result, that competition would probably drive down the price.

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Speaker 1: And you have to say, where's the risk free rate?

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Speaker 1: And if you're getting a lot more than the risk

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Speaker 1: free rate, there's some risk involved, and that's the way

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Speaker 1: you have to think about it. But the good news

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Speaker 1: is I'm optimistic that as rates go up, the retail investor,

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Speaker 1: the everyday investor is actually going to benefit because they're

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Speaker 1: going to be able to get better yields without having

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Speaker 1: to reach into you know, lower credit quality, high yield

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Speaker 1: bonds or emerging markets are all the places people have

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Speaker 1: been looking for yield. Do you think people will rediscover

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Speaker 1: certificates of deposit? They have? We have us seen a

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Speaker 1: huge amount of interest over the past year because c

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Speaker 1: ds are now offering a place to put your money

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Speaker 1: if you don't need it for a year or two.

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Speaker 1: You have that kind of short term cash. And they're insured,

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Speaker 1: and they're insured, and the yields are are not too

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Speaker 1: bad compared to where we were a couple of years ago.

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Speaker 1: Give you twenty seconds get your thoughts on UNI bonds

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Speaker 1: right now. In general, we like new ni's. We think

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Speaker 1: that the credit quality outside of a few hot spots

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Speaker 1: is very good, and the yields are the evaluations are

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Speaker 1: fair here, so I think for a core part of

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Speaker 1: a portfolio, they make sense. Thank you very much for

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Speaker 1: coming in and spending time with us. Kathy Jones, Senior

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Speaker 1: vice president, chief fixed Income Strategist for the Schwab Center

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Speaker 1: for Financial Research, and you can follow uh the Schwab

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Speaker 1: Center at Schwab for Traders at Schwab for Traders on

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Speaker 1: Twitter and just taking a look at the bond market

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Speaker 1: right now. The long end, the thirty year continues, itsel

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Speaker 1: off down fifteen thirty seconds for a yield of three

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Speaker 1: point one one per cent. And we will of course

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Speaker 1: have complete coverage of tomorrow's f o MC meeting conclusion

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Speaker 1: and press conferences. Make you well, the drugs might not work,

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Speaker 1: But the medical devices they seem to be working, at

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Speaker 1: least for investors. Here to tell us more, Dave Wilson,

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Speaker 1: Bloomberg Stocks, Thomas and Dave An email at d Wilson

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Speaker 1: at Bloomberg dot net and Dave I was just looking,

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Speaker 1: for example, at Striker, one of the major medical device makers.

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Speaker 1: Shares up a half a percent today, but again more

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Speaker 1: than five percent over the last month. All right, well,

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Speaker 1: that's just one example of very relatively short time frame

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Speaker 1: of why it is that the medical device makers have

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Speaker 1: done relatively well. And this is a comparison that Ari Wald,

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Speaker 1: who's the chief the technical animals over Oppenheimer, was making

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Speaker 1: in his latest report, basically looking at each of these

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Speaker 1: groups relative to the S and P five and using

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Speaker 1: exchange traded funds as a way into their relative performance. Uh.

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Speaker 1: You look at I shares E T F S. You

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Speaker 1: see that there's one for the drug makers and the

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Speaker 1: ticker there is h E and the medical device ticker,

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Speaker 1: uh for I shares E T S I H I.

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Speaker 1: So what's happened is that if you compare them directly,

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Speaker 1: you see it's been quite a contrast in performance. Going

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Speaker 1: back almost three years now, the ratio between the medical

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Speaker 1: device et F and the pharmaceutical e t F up

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Speaker 1: eighties seven percent from a low in July through yesterday.

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Speaker 1: So it gives you some sense that, you know, let's

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Speaker 1: face it, you can't exactly say healthcare stocks are all alike,

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Speaker 1: because clearly, uh, the the device area of the market

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Speaker 1: has done relatively well, judging by this comparison, at a

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Speaker 1: time when you know the drugmakers, you know, among other things,

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Speaker 1: dealing with the kind of opioid issues that are now

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Speaker 1: front and center and a whole lot of other concerns, well,

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Speaker 1: they're not doing so well. So if you want to

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Speaker 1: know more about this, you know, and you haven't seen

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Speaker 1: the chart already, just send me an email. I'll get

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Speaker 1: it to you, along with the explanation that goes with

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Speaker 1: it and everything I do going forward. The email address

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Speaker 1: is d Wilson at Bloomberg dot net. That's d Wilson

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Speaker 1: at Bloomberg dot net, Dave, just a little bit more

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Speaker 1: medical devices because I was I used to follow St

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Speaker 1: Jude uh, and of course the acquisition of St. Jude

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Speaker 1: by Abbott Labs. UH. If you take a look at

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Speaker 1: the stock of of Abbott Labs, it is a pretty

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Speaker 1: consistent move higher, and at one point there was a

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Speaker 1: lot of consternation about whether there would be big changes

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Speaker 1: in the way that medical devices were taxed, and indeed,

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Speaker 1: as part of the overhaul of the Affordable Care Act,

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Speaker 1: there was an edition of the medical device tax. Now, uh,

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Speaker 1: the sort of ramifications of that perhaps overdone in form

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Speaker 1: of some investor's idea minds. But when you see the performance,

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Speaker 1: let's say, just the Abbott Labs as my example, stock

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Speaker 1: is up nearly ten percent so far this year. Well,

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Speaker 1: it's a good example because if you look into the

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Speaker 1: medical devices e t F you see that Abbott is

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Speaker 1: uh eight point four percent value more than any other stock.

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Speaker 1: Then you go from there and look at metro Onnic

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Speaker 1: and Thermo Fisher Scientific and together, uh, those three are

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Speaker 1: close to a quarter of the e t S value.

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Speaker 1: So it is a very much focused index in that regard. Uh. Nonetheless,

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Speaker 1: I mean you're seeing relatively broad gains because after all,

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Speaker 1: you wouldn't get this disparity and performance without them. Yeah,

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Speaker 1: And a lot of this has to do with the

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Speaker 1: reimbursement schedules, right. In other words, if you have a

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Speaker 1: product that is reimbursable into certain types of insurance, whether

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Speaker 1: that's in the United States or in Japan or the

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Speaker 1: European Union, that can really change the way in which

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Speaker 1: you value a particular stock. And just to mention another company, Siemens.

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Speaker 1: You know they've got this health and nears uh division

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Speaker 1: and uh they are I believe looking to you know,

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Speaker 1: spin that off as a as a completely separate union

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Speaker 1: and an I P O. Well, I mean one other thing,

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Speaker 1: just sort of in the backdrop. You've never heard President

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Speaker 1: Donald Trump come out and talk about races of medical

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Speaker 1: devices the way that he has prices of drugs, you know,

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Speaker 1: and that was a bit of the conversation yesterday with

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Speaker 1: the whole issue of opioids. So you know, you have

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Speaker 1: to put it all together. And this is an industry

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Speaker 1: that is you know, when you look at the pharmaceutical industry,

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Speaker 1: that's to some extent it's kind of back on its heels.

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Speaker 1: At least you haven't seen the same issues arise at

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Speaker 1: least not to the same extent with the device makers,

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Speaker 1: and that may well explain at least in part why

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Speaker 1: their shares are doing so well. Indeed, Yeah, because health

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Speaker 1: diagnostics a big business there, and of course we know

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Speaker 1: that the ge Phillips as well as Roche Holdings and

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Speaker 1: Phillips as part of that group. And I just thought

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Speaker 1: it was interesting that Siemens is looking to sort of

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Speaker 1: split off that health and ear group into an initial

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Speaker 1: public offering and um that would also take a bit

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Speaker 1: of the debt load off of Siemens. Are another way

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Speaker 1: to sort of look at the the effort to financially

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Speaker 1: engineer the independence of the company. And when you mentioned Phillips,

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Speaker 1: I mean, one thing that's interesting is you think of

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Speaker 1: them perhaps as lightbulbs or consumer electronics. They've really made

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Speaker 1: a push into healthcare the last few years and that's

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Speaker 1: the focus of their business, this whole medical device area.

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Speaker 1: So you know, it does kind of show you that

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Speaker 1: that people have seen value in being in this particular industry.

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Speaker 1: And it's clear that investors see the value of owning

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Speaker 1: the shares of the companies, whether we're talking about you know,

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Speaker 1: some of the European ones that were or the US

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Speaker 1: companies that are the focus of this particular e t F.

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Speaker 1: It's the US medical devices e t F. Same thing

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Speaker 1: with U S forms. Go ahead, give the symbols again, okay,

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Speaker 1: I H I is the medal devices E T F

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Speaker 1: and I h E for the pharmaceuticals E T F

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Speaker 1: both I shares. All right, and you got your Bloomberg

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Speaker 1: chart of the day right Indeed, d Wilson at Bloomberg

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Speaker 1: dot net. That's d Wilson at Bloomberg dot net. You

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Speaker 1: can send me an email and you can comment on

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Speaker 1: his musical selections as well. Come brother the journal. Yeah,

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Speaker 1: but you let me drive. Oh no, no, no no, no, honey, please,

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Speaker 1: I'll do the right revel. I want to try it.

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Speaker 1: Just drive baby, good questions trying. This is the drive

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Speaker 1: to the globe. Thanks, we'll drive us down on Bloomberg Radio,

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Speaker 1: all right. And helping us drive to the clothes is

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Speaker 1: Randy Watts. He is executive vice president and chief investment

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Speaker 1: strategist for William O'Neil and Company. He joins us in

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Speaker 1: our eleven three oh studios. Randy, thanks so much for

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Speaker 1: coming in. Before we get into some specific stocks and

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Speaker 1: and uh and ideas and get your thoughts right now

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Speaker 1: on um, what are the investment themes that you believe

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Speaker 1: have value? I think the most important thing to remember

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Speaker 1: right now is that the U S continues in a

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Speaker 1: very strong profit cycle. H Q four earnings and revenues

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Speaker 1: were better than expected pretty much across the board, and

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Speaker 1: in fact accelerated from Q three. When you look at

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Speaker 1: the estimates for Q one for the SMP, we're looking

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Speaker 1: at another acceleration. Estimates are supposed to be up in

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Speaker 1: the teens. When you think about the full year, the

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Speaker 1: markets currently forecasts to do about about a hundred and

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Speaker 1: fifty eight dollars and earnings for two thousand and eighteen,

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Speaker 1: which is about almost increase in earnings, and for next

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Speaker 1: year about a hundred and seventy four dollars, which would

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Speaker 1: be a nine to ten increase. So I think the

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Speaker 1: thing that investors need to remember during this current volatility

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Speaker 1: is that there it is a very strong corporate profits cycle.

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Speaker 1: Profits are getting better, not worse, and it's probably a

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Speaker 1: mistake to get too negative while corporate profits are still

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Speaker 1: increasing at this rate. Okay, I'm gonna be a little

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Speaker 1: negative here because I want to know is the breadth

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Speaker 1: of leadership that would be expressed buy those profits. Has

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Speaker 1: that breath in leadership has it been uh demonstrated in

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Speaker 1: stock performance? So so that's a that's a great, great

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Speaker 1: question and very topical. One thing that is a little

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Speaker 1: concerning about the market is the fact that on a

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Speaker 1: market cap weighted basis, there's only two groups right now

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Speaker 1: in the market trading above their fifty day moving average.

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Speaker 1: That's technology and utilities. I would note, however, that utilities

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Speaker 1: are currently below their two hundred day, So the only

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Speaker 1: sector in the market that's currently above both it's fifty

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00:25:32,400 --> 00:25:37,119
Speaker 1: day and it's two hundred day price daily moving averages technology.

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Speaker 1: If you looked at the market on an equal weighted basis,

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Speaker 1: there be four groups where the average stock was above

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Speaker 1: its fifty day. Those in order would be technology, Transports, healthcare,

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Speaker 1: and utilities. But I would note that the numbers are

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Speaker 1: not outstanding in that sense. Technology has got about its

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Speaker 1: stocks above the fifty day. Utilities, which is the the

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Speaker 1: lowest of that for I just mentioned, is about so.

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Speaker 1: I think one thing that does concern us is the

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Speaker 1: fact that it's been a very narrow market so far

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00:26:09,080 --> 00:26:11,560
Speaker 1: this year. If you look at the major averages, the

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Speaker 1: Dow is basically flat this year, the SMP is up

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Speaker 1: about two and the NAS decks up a little bit

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Speaker 1: under seven percent. We'd really like to see more breadth

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Speaker 1: in terms of sector and individual stock participation. UH for

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Speaker 1: the for the market to continue higher from here. We're

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Speaker 1: hopeful we're going to get that with first quarter earnings,

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00:26:30,840 --> 00:26:32,800
Speaker 1: which again we think are going to be very strong.

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00:26:33,320 --> 00:26:36,199
Speaker 1: I would remind your listeners that this will be the

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Speaker 1: first quarter with the with the new tax rates in effect,

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Speaker 1: and we do think this is going to be a

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Speaker 1: very strong, strong quarter for profits. Okay, strong quarter for profits.

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Speaker 1: And I know this is gonna sound strange. Strong quarter

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Speaker 1: for avocado demands. You know. I did that because I

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Speaker 1: know you want to talk about one particular stock, UH,

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Speaker 1: Calavo Growers, Right. This is a base in Santa Paulac, California.

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Speaker 1: The area um perishable foods, but mainly avocados. It is

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Speaker 1: you know, avocados have been very popular. One of the

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Speaker 1: themes we have inside O'Neil really is this healthy living concept. Uh.

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Speaker 1: Avocado consumption has been going up pretty substantially in the

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Speaker 1: United States. They're one of the leading producers of it,

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Speaker 1: and we think this is a trend that's going to continue.

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Speaker 1: You know, another story we like in that space as

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Speaker 1: a company called Planet Fitness. This is a mid cap stock.

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Speaker 1: They've got about fifteen hundred gyms in the United States.

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Speaker 1: They have about ten and a half million members. What's

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00:27:38,680 --> 00:27:41,480
Speaker 1: interesting about this company is they really cater to the

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Speaker 1: to the newer Jim goer. About forty three percent of

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Speaker 1: their members had not joined a gym before joining Planet Fitness,

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Speaker 1: and they charge them about ten dollars a month. We

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00:27:51,640 --> 00:27:53,760
Speaker 1: think that's a that's a very interesting stock. It's got

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00:27:53,760 --> 00:27:57,200
Speaker 1: about three point seven billion dollar cap. The stock currently

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00:27:57,640 --> 00:28:00,080
Speaker 1: trades around thirty eight dollars. We think they can do

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Speaker 1: about a dollar forty five next year. If they could

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Speaker 1: hold a thirty multiple, that would give you a forty

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Speaker 1: three to forty four dollar stock, which would be a

484
00:28:06,480 --> 00:28:08,840
Speaker 1: nice move from here. Well, that makes the question, then

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00:28:08,880 --> 00:28:10,240
Speaker 1: how much do you how much are you willing to

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00:28:10,280 --> 00:28:11,920
Speaker 1: pay for these kinds of things? Because you know, everything

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00:28:11,920 --> 00:28:13,720
Speaker 1: could be a great stock or a great investment. It

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00:28:13,760 --> 00:28:16,679
Speaker 1: just depends on how expensive it is. And so planets Fitness,

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00:28:16,680 --> 00:28:19,359
Speaker 1: all right, four hundred and thirty million in revenue a

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00:28:19,480 --> 00:28:25,040
Speaker 1: year and fifty three million in net you like paying

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00:28:25,440 --> 00:28:28,280
Speaker 1: whatever it is? Uh? As you said, thirty eight, I

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00:28:28,280 --> 00:28:31,520
Speaker 1: guess it is thirty eight dollars to share. Uh yeah,

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Speaker 1: thirty eight fifty a share um for a company like that. Well,

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Speaker 1: I'll tell you one of things we really like about

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00:28:36,840 --> 00:28:38,800
Speaker 1: it is it's a big industry. It's a twenty five

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Speaker 1: billion dollar industry in the US. They're only doing four

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Speaker 1: h thirty million in sales, as you mentioned, so there's

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00:28:43,560 --> 00:28:45,800
Speaker 1: lots of room to grow. So when we pay that

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00:28:45,880 --> 00:28:47,800
Speaker 1: kind of a multiple for a growth stock, we want

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00:28:47,840 --> 00:28:50,240
Speaker 1: to see if there's a multi year trajectory ahead of it.

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00:28:50,560 --> 00:28:53,400
Speaker 1: Another thing we like is nine percent of the membership

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00:28:53,440 --> 00:28:56,920
Speaker 1: fees are collected electronically, so we like that stability of

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00:28:56,960 --> 00:28:59,200
Speaker 1: the business. And we also like the fact it's a

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00:28:59,240 --> 00:29:04,560
Speaker 1: franchise model. Out of fitness clubs, about franchise to the

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00:29:04,560 --> 00:29:08,000
Speaker 1: company owns in terms of company outright about five of them.

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Speaker 1: And we do think, as we said a minute ago

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Speaker 1: with the avocados, we think healthier living is a is

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00:29:12,600 --> 00:29:15,360
Speaker 1: a trend inside the US and very much on consumer

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00:29:15,520 --> 00:29:18,720
Speaker 1: all right, So eat your avocados and go to the gym.

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Speaker 1: Calavo Growers as well as Planet Fitness By thanks to

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Speaker 1: Randy Watts. He is executive vice president and chief investment

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Speaker 1: strategist for William O'Neill and Company. Thanks very much for

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00:29:29,640 --> 00:29:34,720
Speaker 1: helping us drive to the close. Thanks for listening to

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00:29:34,800 --> 00:29:39,040
Speaker 1: Coast to Coast. You could subscribe to the podcast on iTunes, SoundCloud,

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00:29:39,120 --> 00:29:41,440
Speaker 1: or Bloomberg dot com. You can also listen to the

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00:29:41,520 --> 00:29:45,440
Speaker 1: radio show weekdays at two pm Eastern only on Bloomberg

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Speaker 1: Radio