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Listen to Walmart shares as we talked about at the top surgeing pushing the retailer's market value over five hundred billion dollars for the first time after I posted stronger than expected first quarter earnings and boosted it annual.
Sales and profit forecasts. So we wanted to know more.
It's the e commerce business, it's the store business, it's the average ticket spend. There's a lot going on, Tim, when we talk about.
Well, also the outlook, we welcome Bloomberg Intelligence Senior Retail, Staples and Packaged Food analyst Jen bartashis at a Bloomberg Intelligence headquarters in Princeton. Okay, Jen, break it down for us investors. Certainly loved it, But what do we learn about the business today and what can you tell us about the broader economy?
So we learned a couple of things about the business today. The first is that some of the investments Walmart has been making are really starting to play out. They're able to consistently grow operating income ahead of revenue, which is a great story for them to be able to tell they're gaining market share, and ultimately their e commerce business is a really showing signs of taking off. So all of these things together really are working for the company.
We're also seeing that consumers are still value focused and Walmart is offering that value to people not just from a price perspective, but also from things like convenience, and that's what's helping to draw in some of those higher income households that they've been talking about.
Well, when it comes to what they expect in terms of adjusted earnings coming at the high end or slightly above its original guidance of two twenty three to two thirty seven per share revenue growth of three to four percent for the full year, it was it analyst just too low on it, or was that's kind of what the business was, and Walmart's just surprising and doing better than not everybody really thought.
And the thought, yeah, well, Walmart, you know, came into the year with their initial guidance a little bit conservative because it was really unsure where where the consumer was and where they would be. So you know, today they nudged up that guidance.
A little bit.
They're at the high end of their previously stated range. I wouldn't be surprised if at second quarter earnings they actually adjust their guidance for the full year. But it's really they're staying a little bit conservative just because there are a lot of factors at play that affect consumers.
Still listen, they're massive, right, and they certainly play into a certain sect. I would say, I think it's fair to say of the consumer. Although we've known, you know, coming off the pandemic and just other times that we feel like their customer base has widened out, has it? What do we know really about the demographics of who is the Walmart chopper?
Well, historically you would have considered about fifty percent of their customer base to be in that lower income household type of demographic. But today what they talked about was that when they did write their demographics, between those who aren't under fifty thousand, those fifty thousand to one hundred
thousand households over one hundred thousand dollars a year. It's about a third of their business each So that's a meaningful shift in the way that their consumer based and it really does bode well for them going forward that they should be able to retain some of those higher income consumers who tend to spend more and they tend to buy more discretionary items as well.
Hey, Jen, those higher income consumers, those folks who are in more than one hundred thousand dollars a year, are they flocking to Walmart right now because they're looking for value? Or is Walmart doing a good job of offering items that those wealthier households tend to go out and shop for. Which one is it? If you were to say it's one.
Of these things, well, I would say initially when we had really high food inflation, it was the price draw. But Walmart's been investing in upgrading their stores, improving the customer experience, and once you got those customers in the door, they saw that there were other changes that were happening with regards to merchandising that is appealing to them. So
it's a story of two parts. The first part was price, and now it's also about service conveniences that leads into that omnichannel e commerce growth of over twenty one percent from a global basis. People like the idea of being able to order, have it shipped to their house or pick it up a curbside, and that's really driving a lot of the interest in the company.
Yeah, talk a little bit about that. How is Walmart Plus doing, especially when compared to Amazon Prime. How do you look at these two programs together.
Well, it's a good question. When I look at Walmart Plus, it's really about locking in loyalty. The majority of the uses for things that are shipped to home and a lot of grocery orders you can order unlimited amounts, you know, and have it delivered or ship. When it comes to Amazon, they did launch a new subscription program for grocery at nine to ninety nine a month on top of your
annual membership Prime fee. But so clearly Amazon is seeing some of the success that Walmart has had with that subscription model and see that there is a convenience play to be had with consumers who are who are interested in that sort of service.
Are the folks who are using buy online pickup in store? Is it true that they're going in and actually buying more once they get to the store, because that's a way that you know, that's a way that companies hope, that brick and mortar companies hope to get folks inside the store to buy more.
It does happen more often than you would think, because people are on their way to the store and they think, oh, I forgot to add this to my order. I'm just going to hop it and grab it. And when they're in the store, then that adds like two or three things, three things wow by the time they get to the checkout. So it is something that actually really does happen. It's not with every order, but it's it's more often than most people would think.
All right, sounds really rosy.
And you know they also saw what traffic and unit increases that helped out sales growth grocery business fueling the growth.
Over at Walmart.
Yet they did cut workers, right, They are very cognizant of higher costs generally, I guess across their world as well as kind of everybody's world. So any commentary color around.
That, Yeah, sure, Walmart is a very much an everyday low cost provider as well as an everyday low price provider, and part of that is really being disciplined with regards to costs. Now, we saw announcements in the last month about things like closing down the health clinics. We saw the announcements about corporate job cuts. Those are in fact
likely related to a certain degree. But Walmart is one of the things they do is they're not afraid to try something, but if it doesn't pan out, they pull back and they reassess, and so some of those cuts that we saw are really a reflection of that attitude towards their business.
Hey, if there's one business that you think that we should be kind of keeping on our radar that maybe Walmart's going to be moving into aggressively that could move the needle top and bottom line.
Just twenty seconds left, what would it be?
I think I thought I heard you say fintech on TV earlier, but I don't know if that's it.
If we looked at what Walmart's doing in their international segment with fintech, there's a lot to be excited about. And so whatever they can adapt and bring more into the US and what they're trying to do with fintech here could be a catalyst.
All right, interesting stuff.
As always, Hey, thank you so much Bloomberg Intelligence senior retail Staples and packaged food analysts, our own Jen buttarsis uh with really the rundown on everything to do with Walmart.
Today, you're listening to the Bloomberg Business Week podcast Can't Just Live weekday afternoons from two to five pm Eastern Listen on Apple car Play and and Brout Auto with a Bloomberg Business app or want us Live on YouTube.
You may have done it or someone in your family.
We're talking about DNA testing with a company like twenty three and me or ancestry dot com. Interesting to find out more about you know, of course, where your family's ancestry composition is, right, We all talk about it. We find out, Hey, you know, did you know my family's done it?
All right?
Well, the DNA testing industry was aiming for a bit more, to a world where the medical community added genetic testing to its standard operating procedures.
I don't know, Carol. Maybe you find out stuff you don't necessarily want to know sure about your family or relative. That's part of the story.
Hey, I've got a half sister. It's all part of the cell. Don't I don't, at least I don't know.
Yet after here's and millions of spit kits, the doctors still don't care when it comes to this type of testing, at least for companies that are mass market. Mass market genetic streamings remain well apart from the medical mainstream, and for one of the players in the industry, twenty three and meters, it's actually never made a profit. Carol. It's the cover story of the new issue of Bloomberg BusinessWeek.
It's on newstands, it's online on the Bloomberg and here with us as Bloomberg News healthcare reporter Kristin B. Brown joining us in the studio.
Great story.
I'm so glad you could be here. DNA tests for everyone, lots of genetic data, and bam, research gets a boost and moves faster, and we create a roadmap for living to age one hundred. That's in your story. That was the plan.
That was the plan, Yes, and yet it did not quite go according to plant, which I will say is often the case in science. Right we have a big finding, more like wow, we just have to do this like one or two things, and then we'll solve all disease, which is almost literally what.
They thought would happen.
With the human genome. But then as we start on hangling it, we realized, oh, this is just like way more complicated than we realized, and that turned out to be trouble for a company. It's like twenty three and meters that wanted you to be able to just spit in a tube and learn, you know, all of the diseases you might be at risk for, But it turns out there's not just one gene for heart disease. There are so many genes we don't even know what they all.
It's so complicated and they all interact and we don't know how they interact. So they're they're trying to for some of these things do what's called a polygenic risk wore and say, based on all of these genes, you might have a risk, But it winds up being more like you're slightly more elevated to risk, not an actual roadmap for what do you do to stay healthy and live to one hundred.
And in a small portion of the folks who do the test, it does come back with some sort of result that says, Okay, you do have the characteristics of this sort of genetic you know, I don't even know the proper terminology variant, genetic variant, thank you. But then treatment for that, as you note in your story, can be incredibly expensive.
Right, So, monogenic diseases, there's a lot of them. That's that's genes, a single gene that causes a disease. There's a lot of them, but they're usually.
Very very rare.
And because they're rare, and the therapies are also very complicated, you know, fancy high tech things, they're expensive, small population, small market. So we have gotten a few of these therapies so far, but definitely not the you know, therapies that we expected for very common diseases like Alzheimer's, like cancer. So we've gotten therapies that have a small market and so.
Therefore they're really really pricey.
We talked about people spitting in a tube. I'm not gonna ask for show of hands in the control room.
We're here. But you did it.
I did it.
Yeah, I did not do it.
I have spitt in so many tubes in the course of my journalism career, but I did for this particular.
Story too, And it wasn't the typical twenty three and me twenty dollars.
Thing, right, This is a very high Yeah, so twenty three meters. Latest offering is it's doing sequencing, not genotyping, which is a fancier They're literally decoding every little bit of all of the protein coding regions of your genome, which are the ones that we think cause disease, and in doing that they really hope to get this really holistic, nuanced picture of the genome for me. In the sequencing,
they actually didn't find anything. And then in the genotyping, which is a sort of more low budget option, they found that I might be at risk risk or Celiac disease. But I can tell you I had avocado toast this morning for breakfast. It went fine. It went fine, So for me at least, this is almost one thousand dollars test, and I learned that I might have a disease that I don't have, So I don't know, Well, did.
You do anything about that? Like I'm curious. Did it cause you to say, well, maybe I'll have a doctor look into this.
Well, you know, usually if you have Celiac disease, you know you have a violent reaction when you eat gluten, So I was I felt pretty confident. It also said I might one day develop glaucoma, I have a slightly increased risk, but you can't actually do anything about that. So it's it's I don't know what to do with that knowledge. I felt like I sort of have spent that thousand dollars on some shoes instead. Maybe I don't know, preach into the choir.
Well, the medical community right has been to some extent they haven't embraced this idea. Yeah, So I mean, is that part of the problem. Is it just a case that it's complicated and maybe it is the right idea or like in your reporting, like, how are like what's the kind of feedback on this?
So I started looking into I wrote this story because I started wondering, you know, for for the decade I've covered this topic, people have told me, you know, this is the year genetics is going to catch on, this is the year, this is finally the year. No this year, and it just it just never happened. And so I started asking some of my longtime sources, you know, is this is this happening? You know, what's what's the status.
Here, guys?
And I was surprised to hear from many people who who had been boosters for the genome, who are now saying we're not sure it's ever going to happen, and amazing, Yeah, and you know, with science, you never you never know. Maybe we'll turn a corner, we'll find something that will suddenly unlock everything. But based on what we know now, it does feel like it's just so complicated that for the average healthy person, there won't be value really in
getting a genetic street. Now, if you have a history of cancer in your family, if you want to become a parent and you want to make sure you don't have any genetic conditions lurking in your genome, you could pass on that stuff all worth it. But if you're just an average healthy person trying to live their best life, it just really seems like there's not going to be value in these tests.
It raises the question about what the future is for twenty three and METERI, And that's a big part of your cover story for Bloomberg Business Week, the idea that the stock has been under pressure over the last few years, down more than ninety four percent over that period of time. Richard Branson lost over one hundred million dollars on it going public. What is the future for twenty three and me? As a business.
Yeah, So, I mean they're in a real tough spot. They just got an extension to try and get their stock back up over a dollar. They have until I believe November they'll be delisted. Yeah, the concern is that they will be delisted, and I think and a move to prevent that from happening, CEO and Wojiski has filed an intent to take the company private herself to you know, buy it, buy it back basically, So that could be
one thing we see. But I think that you know, it's a really rocky road ahead for them.
Well, you know, it's interesting and I don't know, is this a company that might benefit being private in terms of having the time, the luxury, maybe the money, you know, to kind of figure this.
Out based on what the stock did when she filed that eight k I would say that the market things that would benefit from from going private. It's it's it's a hard company because it's part consumer, part drug development, and the investors in those two different kinds of companies, and has said this herself, they kind of have different expectations.
So it's a weird blend of things, and that has created an additional challenge on top of you know, having a consumer product that a lot of consumers maybe don't want anymore.
So what about the data and the data breaches that we've heard about the security of this information? I mean years ago, years ago, I'm going to say, my mom was right. She was like, why would I want to give a company this type of information once it's out there? And I was actually defended. I was saying, no, you know these you know, this type of stuff stays safe. Fast forward a few years, there's a big data breach.
Yeah, I mean, Anne has said that she thinks that privacy concerns has been one of the reasons kit sales have slowed. She said that in the past, and you know that could definitely be what's going on. One analyst joke to me that twenty three and meters would probably do better to just give the kit away for free in exchange for getting people's data, because that is the most valuable as they have.
How much we've talked about generative AI, and you think about the more data that comes into the pool, whether or not that can help kind of be a turning point, like more information.
I mean, they have fifteen million genomes. That is one of the biggest genetic databases on par with ancestry and the you know, country of China. So that's that's really valuable. And so if they can keep growing that asset, that could be big.
And to be clear, there was a data breach of people's personal information.
Yes, there was a data breach my personal and it did contain some genetic information.
All right, Elizabeth our producer, YouTube producer and me, we're both with your mom about this in terms of the information. Any questions that you still have, you've reported this story out, you're thinking about it, what questions are still kind of top of mind for you?
Yeah, I mean I think for me, you know, having covered this field for a decade, it was sort of an existential crisis to actually do this story and be, you know, questioning whether the thing that I have governed
for a decade really doesn't matter. So I think that I just want to see how this science unfolds and what value we will wind up getting from the genome, because I don't think that it's going to wind up having been for not that we sequenced the human genome twenty years ago, but I think what we're going to get isn't what we expected. So that's still to be written.
It's fascinating.
I remember kind of early on in my career, like you know, they'd map something and we do a story, and then when they finally completed it, like it was just like why, you know, now we have all the information what we can do with it? But here, we are here, we are here, we are more to come.
That means more stories from you, more cover stories. Bloomberg News healthcare reporter Kristin V. Brown on this week's Bloomberg BusinessWeek cover story, which you can get online on the Bloomberg and catch it also on the newstand.
So you didn't you haven't done one of the customers, I have it.
One of my brothers had.
Yeah, my sister did it. But I think, okay, if she did it, then it's out there.
Yeah, we know people, it's definitely out there.
Connected.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting in two pm Eastern on Applecarplay and Android Auto with the Bloomberg Business ad. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Sony Music group, one of the world's biggest record labels. They got Lil naz k Selene, dionn or artists. They came out today warning AI companies and music streaming platforms not to use the company's content without explicit permission. They don't want any unauthorized use in the training, development or commercialization of AI systems. That's according to a letter obtained by Bloomberg News. Also of note to daycare.
Ownership in a bigger exact way.
So don't use our songs to train your models. Got the memo, You got it?
Yeah?
Okay.
Also of note today in the world of AI, ampier Computing, the chip startup backed by Oracle teaming up with Qualcom to make equipment for AI computing. It's an area that's currently dominated by in video.
There's just a couple of the AI related headlines today. I got to say every morning that we read in there's just a lot of stuff going on, partnership, strategic alliances, or just news from an AI related company. Fair to say, no shortage for more on AI. We're joined by Durgat Malati. He's head of AI at qual Comedy joins us from San Diego. So great to have you here. With Tim and me here on Bloomberg Business Week. Tell us kind of about your world and what's top of mind when
it comes to AI. People say, we're early on in this game. If it was a baseball game, it's maybe what the first inning, perhaps, But tell us what's top of mind when it comes to you guys at Qualcomm.
First of all, thanks for having me here. There's a lot of things that are going on in the space of AI as it runs on devices that you and I usually use, whether it's handsets or phones, whether it is tablets or PCs and so on. So let me spend a little bit of time in terms of explaining
what's really going on out there. So in the last two years or so ever, since generative AI started making waves in terms of its capabilities, pretty spectacul capabilities, and in terms of the kinds of use cases that it can unleash. As Qualcom, we've been focused on trying to bring that technology into devices that you and I can use. And you know, usually one of the questions that comes in is why why do you want to run this on a device? Why can't you just run it on
the cloud? I mean, we do use the cloud for so many different things and what's wrong actually, So it's kind of important to understand what are the benefits that you actually have when you run these amazing generitive AI models directly on devices. The very first one is related to privacy and security. A lot of the times when you actually go through generative AI use cases, you might be wondering, maybe it's just a chat pot. Maybe I ask a question, I get a response, But it doesn't
have to be just a chat pot. It could be. These days we use a lot more of both voice based interaction with devices in addition to using camera and something else to bring in additional context to the question that you're asking. For example, you could be holding up your phone and pointing in a certain direction and saying what am I looking at? The question itself is meaningless unless you kind of put in the rest.
Of the context, right, The context is important.
There you are?
You said, then that's a ton of information that's actually going in and that information you want to actually do process it locally. You might not be fully comfortable actually dealing with all of this in the cloud.
So Jerga, you say, I totally get it. Why this makes sense to have on device, whether that's a smartphone, or a PC. We'll talk about PCs in just a minute. You said you've been working on this a qual Com. Why hasn't it happened yet? Why is it still something that you're working on and not something that you've been able to bring to market to the extent that you want to.
So, actually, if you take a look at it, at least on the smartphone segment, if you take a look at some of the premium t your smartphones, whether it's a Samsung Galaxy S twenty four or a pixel device or something that we are seeing in China with Shaomi and Honor and some of the other devices, all these devices now are capable of based upon keeping aside the pixel part, but everything else based upon snap Dragon platforms from Pollcom, running very large language models directly on the device,
up to seven billion parameters, and these devices are now capable of a lot more things than you're used to. I do admit that the use cases are still gradually waking up to what are the capabilities in the smartphones, because that is something that takes a little bit of time. But if you've kind of taken a look at some of the live translate features or AI based voice assistance, the capability to run very large models directly on device
starts today. It's already exists today in smartphones, and the use cases are gradually coming up, and we're doing our part on the use cases as well as I kind of go through the rest of the discussion.
Jar you guys have you know, you've been talking about phone specifically, but I'm assuming that you're thinking also PC as well, And I'm just curious if that's the case, and you know, you guys have been trying for years to get into the PC market, Why though, hasn't it happened so far, and why maybe is it different this time around? If that's also on your radar and your mission.
So absolutely right, and in fact, when we think of devices, we usually think in terms of smartphones, PCs, XR devices, consumer and industrial iety. So it's the whole gamut of devices that we're actually talking about. Of course, automotive sector is in a category by itself. Let's talk about PCs over here. There is a massive disruption that's coming to this specific segment in the context of AIPCS. Now, the definition of AIPC is, you know, it's up to different people,
but from our perspective. It is a PC in which not only do you have like the equivalent of everyone has heard about copilots, in which you are constantly using something else that is run with which you interact with quite frequently, and use it for productivity, whether it's in creation of documents, edition of the editing documents, are taking one kind of a document and translating into another, and so on and so forth. This is what we would call as like a on demand AI. It's a little
bit like a thadboard. You ask a question, you get an answer. It is more, it is more to it.
Okay, So if there's more to this and we can why do we need an AI PC to do this? Why can't we just do this on the powerful machines that we already have. Why do they need to be AI specific?
So one thing that I mean these productivity tools are they make it significantly more simpler to actually not just interact with your device, but actually make it a lot a lot of the things that you end up doing tend to be far more richer in terms of the capabilities in itself. Let me give an example of that.
By the way, imagine that you're actually on a chat session with your colleague and you're actually talkingalking about a specific meeting that you just had, and the next thing, you know, something pops up saying okay, you want reready share the meeting notes with the person and you just lick yes and that it immediately goes in. Just think through exactly all the things that happened in that whole process.
First of all, this is now the equivalent of what we have been calling as pervasive AI AI, which is constantly running inside your PC. It's actually kind of trying to encapsulate you as the end user and the PC into like one single state and you're constantly predicting, you're thinking on its you know, the PC is actually kind of almost thinking and anticipating the next move from the user and then being very proactively helpful process.
So we've all got a couple of minutes though, So is that why we need an AI PC?
Specifically combination of the two of the productivity tools plus this along with a few other things associated with you know, as a as a as a code generator, or as a content creator. It is something thing that's constantly running in the background. Now, keep in mind that we use our PCs regardless of whether we are connected somewhere to
the cloud or not. I mean, the simplest example is you might be on like a long flight and you want to actually get some work done during the flight, but all you have is just you and the laptop at that point in time, regardless of what the connectivity is, and you still want to have the same kind of productivity.
So it does actually really start growing on you. Quite a few of us insight qualcomm have been dog footing exactly that experience with our own internal reference designs on these aipcs, and trust me, it does change the user expedience.
But what does an AIPC do for the consumer? What do they get out of this? The regular consumer?
A regular consumer? I mean, if you categorize between we talked about productivity tools, let's talk about content creation. Content creation is also kind of a productivity in its own way,
so that part is actually quite clear. But if you start thinking about all the other things, even when it comes to the social interactions and emails and documents, it's on a regular use it at the end of the day, goes through a mix and match of these different kinds of use cases, and we believe that it's actually a pretty big differentiator between the before and after. Now, is it like a big bang moment that happens? That is
something that remains to be seen. But we are on the cusp of all these launchers that are coming up over the next few weeks, and let's see how that plays out.
Do you want me to be replaced Carol by an AI PC? Is that where you're hinting at?
Come on, No, not gonna happen.
Hey, not gonna happen this year. Avatar Avatar to prepare for the show and then the real life Carol and Tim get to do that.
Avatars can do all the work and uh, and then we just step in. Yeah, I'm down with that turret. Thank you so much. Really appreciate getting some time with you.
Malati.
He's head of AI over at Qualkam, joining us from San Diego.
Marco.
Journal.
Let me drive, honey, please, I'll travel.
I want to try.
It's good question.
This is the drive to the Clothes well down on Bloomberg Radio.
It is that time. Can you believe it, Carol? About eighteen minutes from the clothes on Thursday. Neur loves. They can't stocks can't go up every day, Carol.
They can't. Okay, thank you too.
You're welcome.
I do not I know that you just started doing that.
You just started doing this.
I remember the drop during the pandemic. Yeah, great financial crisis.
I'm just kidding so much.
We're a little punchy today.
We have reason to be punchy, though, we do. You got you got a four day week. I have a three day week.
Yeah.
So yeah, I don't know.
This is your Friday.
Yeah, I'm happy.
Hey, I want to get Ryan Kelly's thoughts. He's Chief investment officer portfolio manager at Hennessy Funds. Ryan manages the Hennessy Cornerstone MidCap thirty Fund. It's concentrated a portfolio with thirty small and mid cap stocks and carol its performance so far this year, it's at twenty three percent. It puts it in the ninety eighth percent tile of its peers, and it's in the ninety eight or ninety ninth percentile on a one, three and five year time for him too.
So pretty good performance, Ryan.
You gotta feel good. You just pack it up, go home and say, folks were done for the year. There's my year to date. No, so good to have you here with us. Once again, I don't know. Do I hate to ask like macro for you because I feel like what we really care about is like what you're thinking and buying because you guys kind of drill down
and have a limited portfolio. Having said that, is there anything in the macro that you care about that you think investors should keep on your radar that you keep on your radar?
Well, you know, I mean, thanks for having me on. First of all, Carol and Tim, I was looking back and I think the first time we spoke was almost ten years ago.
CA.
We're talking about gas utilities, so prior to the Great Financial Crisis, as you mentioned.
Which is a reminder, right, which is a reminder we have market cycles, That's right.
But you know, I would say that when we look at this fund and thinking about more macro, we like the mid cap space, and this is a mid cap portfolio, small to mid cap. We really look at companies that are between one and ten billion in market cap, and
we like that space for a few different reasons. Number one, these are companies that are usually big enough that they already have a good track record, they've already seen some growth, they're big enough to matter, but yet they're still small enough that they can continue to grow into different use there whatever they or do, or whatever technology they have,
they can move it into different industries. They can continue to grow and take market share from the bigger guys, and that kind of puts them in a unique space. And then we also like them because they can also be an acquisition target for some of the larger companies as well, and they actually could make a difference. So for this reason we like mid caps. They also are more attractively valued, and that's certainly helped this fund over
many years. You know, these are companies that are not quite well, you're not going to find as many of the you know, large cap techs that are in the AI stocks that are trading at really high valuations. But rather than some of these companies are, especially the ones we look at, are you know, more attractively valued, maybe less growth, maybe simpler and less exciting to look at.
But let's talk about some of these companies because they're no judgment, but like they're not the shiny objects of AI like you mentioned be kind in fact, well, look, I mean performance speaks for itself. Yeah that's true, no question, But I mean some people might be surprised to find that your number one position is in the gap at six point three percent your portfolio. This is a company that has seriously struggled. This is not the gap of the nineties these days.
Absolutely.
What is it about gap? Fo hows you bullish?
Sure? Well, it really just fits all their criteria. We look for companies that are out of favor. We look for companies that they end up being out of favor and they show up because they're trading at lower valuations. One of our biggest metrics that we look at is a price to sales of less than one point five times. That's actually pretty strict. There's only about a third of the companies in the entire market that are trading at
one point five times sales are less. And then what this usually gives us is either sectors or companies that are good companies overall but just don't see that same kind of valuation that others will. We'll see. Then what we do is we make sure we look at only the companies that have seen earnings growth on a year year basis and that have three and six months positive stock performance. If you have all that, we look at your twelve month performance and we add you into the portfolio.
So what happens is we see this time and time again. We saw this with Energy four years ago when nobody liked energy. We saw at one point with homebuilders, and we saw this year as you mentioned, with Gap and Abercrombin Fitch and even Guests. These are all apparel retail We bought them all prior to the holiday season, and we buy them at a three percent position when we rebalance in October. And as you said, Gap is now six and a half percent, so it's doubled since we
bought it. And that's just the way that we do it. We want to buy these companies as they have some momentum and just hold on to them for a period of time about a year each time, before we rebalance again the next year.
Really interesting eight point one billion dollar market cap. The Gap company is down to about fourteen percent of the float is shorted up about four and a quarter percent this year. But interesting, and I guess I think we all are kind of waiting for some next chapter, certainly for this name and whether I don't.
Know, we'll see where it goes.
You like, another retailer, Abercromi Fitch is in there also I don't know take us to Is there any one in particular that's one of your more recent ads?
Sure?
Well.
Actually, all those stocks we're talking about, except for three, were added in October. The way that we do this is we only rebalance once per year. So we like to buy them and hold them and see what happens, and we let the winners ride, and if some stocks aren't doing well for a period of time, we continue to own them as well. And when you buy all stocks at an equate position at three percent three point three percent, because there's thirty of them, we'll get some
that really outperform others. So we've talked about the retail, the apparel retail gap in Abercrombie. We also have a couple, believe it or not, of stocks that have done very well.
Can I say Sprouts?
Oh, in the industrial space, Sprouts is up sixty percent this year.
It's now wow.
Yeah, that's been a great holding for us. Sprouts two companies, Moting Manufacturing and Comfort Systems. They do HVA system HVAC systems, they do heating and cooling, and they're up very nicely since we purchased them last October. So these are the types of companies that the fund buys and that we put in the fund, and sometimes they're just not quite as exciting or interesting as other stocks out there. But over time, as you can see it, it's done pretty well.
You know, it's fascinating.
Modine by the way, up about seventy four percent this year, coming back from milking, like you know, private equity and so on and so forth, you talk to them, even
private credit. Like so many people play in that mid cap space that we focus so much on the big caps and then we get into kind of small caps or venture and so on and so forth, but there's so much happening in the mid cap space that is so much I feel like when we talk about really you know, backbone of the economy, it's so many of these companies.
Ryan always fun, ten years in counting.
Really great to check in with your congratulations because you're fun, as we said.
Just beating pretty much everyone out there. Yeah, so well done, Well done.
Brian Kelly, chief investment Officer portfolio manager at Hennessy Funds, joining us there from Chapel Hill, North Carolina.
I love talking names with him, and.
I love gap Abercrombie, Sprouts, Low.
Dean Manufacturing, cool, really cool stuff.
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