Inflation, Health Tech, And Alcoa’s Strong Q4

at Bloomberg dot com slash podcast. You're kind of a rough start to the year for markets here, and uh, you know, it's been a while since these markets have had to deal with a rising interest rate environment, and people are concerned about, you know, how these risk assets really perform here in that type of environment. Let's check in with a professional who does this for a living, Jim Lowell. He's the c i O of Advisor Investments. Jim,

thanks so much for joining us here. I love to get your thoughts, like, what are you telling your clients as you know, you kind of start two and this is gonna be a different environment than what most investors have had to deal with for the last I don't

know decade plus. What do you say, Jim, Well, one of the things we're saying is that any sort of selling on short term rumors or news is welcomed by us because of course, as long term investors, that means we can add to our best ideas at this kount of price is something that was pretty difficult to do over the last year or two, not to mention over the past decade where everything was going up like a hockey stick. In particular, of course six or seven stocks

inside of the SMP. We're also pointing out that inside the SMP those six seven stocks that really drove its performance mass the fact that's the vast majority of stocks are either in correction or even crash level discounted pricing. There's a lot of opportunity both we think on the growth and the value side of offense. UH is you are a discipline, patient, long term investor. For traders, I think i'd be, I'd be exceptionally cautious, but we're not traders,

so we are relatively optimistic. Relatively optimistic, Jim. There's a lot of talk about a d basis point rate hike in March when you have the bond market really just posing in twenty seven basis points. But of course traders in particular making the leap that that means perhaps to rate hikes wrapped into one in as soon as March.

Is that a line of thinking that you're taking seriously? Well, we certainly look at all the opinions, both both respected and simply the those that are broadcasts and red large on the daily headlines. But we were patient, will will let the data and the FEDS come to us. The Fed clearly as broadcasts the fact that they are going to be tapering fast there raising rates more, potentially raising rates at a higher eclip than is expected. Any consensus

still expects the quarter point. I can first go around, not a not a half point, but whatever the said in fact does. We think it's a little bit different this time around. They're not trying to fend off any sort of recessionary pressure. They're trying to tamp down inflation. And investors, if they us look at the headlines, would think that inflation was nothing but negative news for them.

But of course it infences organic growth and no organic growth that the set is clearly concerned that things might get overheated. So that's an environment where we think investors clearly can can take advantage of other people's fears. A Jim Worth just kind of getting starting beginning earning season here, what are you looking for in terms of earnings, I mean, how criticals of you to get some really strong earnings here in terms of trying to think about that pe

ratio for this market. So we like to say that earnings drive the markets because for the most part they do, although obviously subject to momentum driven headline and news. What we're looking for this time clearly we're looking at the degree to which top bottom line sales were or were not impacted by the latest virus variant um, but we're

also very focused on guidance. We want to know where our best business leaders see their current state and also where they think they're going to go from here in the next quarter or two. It still remains a very difficult environment in which to forecast from from virtually any business inside of any industry where one thinks one will

be just a quarter or two ahead. But we're definitely looking at i would say guidance, not more so but equally as much as we're looking on how companies are being able to continue to manage in the pandemic slash endemic that we're in. So how do you hedge against it, I mean bets into do you just do it through the bond market. Do you through do it through Big Tex? Do you do it through commodities for example, oil, copper? How do you How do you protect yourself so you

can do it through all of those. But we're big believers that bonds are great bulwarks, great bluffers for stock market volatility. Cash for outright defense but also for opportunity. We think cash will definitely play an attractive role and

investors portfolio this year for both of those reasons. Um we would we would probably be hesitant in terms of trying to go on the commodity side to hedge our our bets, mainly because the commodity side is purely dependent upon inflation lingering higher and longer than we think it may yet do. That said, we do have some tactical training portfolios that that are open to both commodities and

currencies as ways of hedging stock market volatility. Jim, I'm willing to take on a little bit of extra risk here. Should I be looking at emerging markets? I think emerging markets established foreign markets, China, which is a market unto itself all present long term investors good opportunities here and now, even out of this difficult starting game for the US market. In two we've seen the EFA that the broad established foreign market measure UH even relatively greater strength than our own.

We know there are opportunities, we know there are rubies in the rubble across the global global landscape, but you're gonna have to be highly selective. We think finding good active managers with stellar track records in being able to turn over stones in the international market makes for for a good purchase idea here, you know, fascinating stuff. I love that you talked about emerging markets a little bit.

I want to bring it back to the equity market because a lot of people, and I think I can throw Paul Sweeney into this as well, is perhaps a little bit more optimistic on the value trade. The idea the airlines, cruise lines, hotels essentially are going to come back. But we started that kind of thinking at the beginning of and look how it turned out. What are your

thoughts on that? Well, my thoughts are that Omicron is not going to be the last variant, and that we are going to have to continue to be able to battle the headwinds of a virus that's clearly capable of awarding our our best efforts and hopes uh, in terms of being more disruptive for a longer period of time than I think anyone priced in last year. We don't

think that that changes this year. Rather than be beholden to sectors that obviously would have a firelit under them if we could finally turn the pandemics corner, we like to invest in managers who have good track records being able to find decent value in growth stocks and growth in value stocks across across the spectrum. So we don't think this is a time to be either style specific or to try and that uh, you know, even quarter

of the ranch on one major value oriented theme. But that's we have begun to increase the waiting within our overall portfolios on the value side of the ledger. We definitely think there's some opportunity there. Jim, Before we let you go, i'd love to just get your number one message you're going to your clients with today, because there's so many cross currents out there in the market. So my number one messages don't let short term selling trump

long term views. The reality is that what happens today is going to matter infinite, desimally less. But you think it will three five, ten years down the road, what will matter most is sticking to your discipline, hopefully being diversified so that you can smooth out the volatility. Come what may, there will always be volatility, and achieve the goals you hope to achieve while still being able to sleep well at night. All right, Jim, thank you so much.

We appreciate that. Jim Lowell, Chief investment Officer for Advisor Investments are based up in Newton, Massachusetts. A lot of smart folks up there in the Boston Greater Boston area. Okay, folks. The Aluminium Company of America otherwise known as ALCOA, they are based in Pittsburgh, one of the great American companies. Stock reported better than expected results today, Stocks up two today,

A up a hundred and sixty seven percent Aluminium? Who would have thunk it up a hundred sixty seven percent over the trailing twelve months. Our next guest gets a b A in Industrial Engineering and Operations research from Virginia Tech. Who does that? And then get some masters at Carnegie mill and so I'm thinking this person likes numbers. Bill Applinger, he's a CFO and executive vice president for ALCOHOLA Hey, Bill, Thanks so much for joining us. I know you're you're

busy these days with your earnings. Here just give us a snapshot of what you guys reported with your quarterly earnings and then more importantly with your guidance. Hey, Paul, thanks, thanks for that great introduction, and thanks for having me on. We had a strong fourth quarter recorded close to a billion dollars of adjusted but UH adjusted net earnings were two dollars and fifty cents of share. We provided guidance UH for the first quarter that said it would be

as strong as as the fourth quarter. UH. We're seeing some very good under the ying market fundamentals in our in our industry, riding the benefits of some higher prices. But over the last five years we've really spent a lot of time trying to transform the company into the company that has become This year and UH one, the fourth quarter really capped off a very strong one that

was transformative for the company. Talk to us a little bit about how you're pricing in simply some of these kind of new supplies that may or may not come. In December, you halted, and I say you'll CoA halted their primary aluminum production at its plant in Spain. You're also dealing with cut output from of course you're the rest of Europe and China. On top of that, you're

dealing with potential conflict between Russia and Ukraine. How are you crunching the numbers on that pretty h WE We have seen UH some supply constraints that have come about in in Europe. As you alluded to, with the higher energy prices in Europe. UH we in Spain had to purtail the facility that we have there a little over two d thousand metric tons. We have seen significant reductions and capacity, and some of our competitors also in Europe.

UM combine that with some of the overall structural changes that we see in China UH in that they are capping their their UH their their output to a forty five million metric ton capacity cap really combined with some of the stronger market dynamics that we're seeing on the demand side, has UH has it led to some of the higher aluminum prices UH that that we're UH that we're seeing today. As far as the Ukrainian situation goes, UH,

the impacts of that are yet to be determined. However, if it does have any impact as far as higher energy costs in Europe, that would put further pressure on some of the supply side uh in in Europe, and uh, aluminum is largely you know, very energy intensive and therefore, uh, you know, increased energy costs would put upward pressure on on aluminium crisis. So it remains to be term be determined based on what the response from other countries will be.

Bill you mentioned, Uh, you know, aluminium is energy intensive. How do you think about your carbon footprint you as a company, as an industry you know, I'm sure you're getting some question slash pressure from investors and other stakeholders about the kind of the whole E s G aspect of your business. How do you guys think about that? Oh, we think a lot about it, Paul, and the industry itself is decarbonizing, uh, and we think we will lead

the way. We along with our joint venture partner Rio Tinto, have launched the technology called Elisis, which is zero carbon smelting. So it is a revolutionary process that takes the carbon emissions out of the smelting process. And UH we will be uh coming out with a commercialized package for that, or I should say Ellisish the joint venture will be coming out with a commercialized package for that in four and that will lead the industry in low carbon technology

for UH for for aluminum smelting. I'm just looking at your forward guidance here. A lot of this is based on just stronger aluminium demand. This persistent supply constraints. Any concerns around meeting some of that capacity, that's a course been a concern we talked for the oil market, for example, can you apply the same to aluminum? So on on. On the capacity side, um we we have seen very strong UH demand growth UH in one across all of

our end markets. We're projecting that that will continue in two UH and we will have demand growth in in in the aluminum demand space. UM so we will be able to meet some of that by some of the restarts that we are currently having in uh IN. Down in Brazil, we've announced capacity that will be coming online UH later this year in one of our Brazilian operations called Alumar. We are also restarting a small amount of capacity in Australia. UH so we will be able to

meet some of that higher demand. In essence, though across the industry, we are seeing a deficit of of metal going into two about another million and a half metric tons of deficits. So that should burn off some of the inventories that we see across the industry. Hey Bill, When we have members of the corporate C suite on, we love to just get a sense of yeah, maybe how their businesses has been impact by this pandemic. I think so we think about al COHA, this is you know,

iconic aluminum manufacturing industrial America type company. How is it some of the ways that your company, your business, your day to day has been impacted by the pandemic. Well, when when the pandemic first hit back in February, in March of we we took action to make sure that we would be able to keep our operations running. It has not been easy, especially with the with the latest omicron variant UH spreading so rapidly. However, we've not we've

we've largely not been impacted from an operations perspective. We've been able to keep the plants going. We reacted quickly, we added shifts, we we did everything we needed to do. So a real testament to the folks that are that are running our plants that we've been able to keep that going the rest of the rest of the organization, probably very similar to a lot of the companies that

you talked to. We've gone to a flexible work policy, uh, you know, to to to the credit of many of the people at work at Alcoa, we've been able to release earnings as quickly as we do even though we've been remote. We've done a numerous spawn train actions, we've done a lot of corporate activity, announced our first dividend in the fourth quarter, and largely uh, much of the staff continues to work remotely. And so how about the

on the labor front? Bill, just quickly thirty seconds? Are you okay on the labor front, because we here a lot of companies are not the labor front of tell you honestly, Paul, the labor front has been difficult, especially in certain parts of the world. We've been able to work through it. We we do that by making sure that our compensation packages are fair and competitive. But I really believe that the long term vision of the company is one that appeals to people and uh, and we've

been able to manage through some of the difficult labor environments. Hey, Bill, thanks so much for joining us. We really appreciate getting

some of your time. Bill Opplinger, CFO and executive vice president for Alcoa UH company just reported some pretty strong numbers of stock has performed very well over the trailing twelve You know, I think I'm probably like a lot of investors that during this pandemic, I've spent more time thinking about healthcare investing, you know, big farmer, biotech, healthcare services, UM. Because you think about how well these farma and biotech companies did in terms of delivering a vaccine to the

world in such incredibly short time. UH, it really makes you rethink kind of your views of healthcare, and our next guest certainly spends a lot of time thinking about investing in healthcare. That's Nina dec A, senior research analysts at Robo Global. Nina, thanks so much for joining us here. I wonder where you guys are thinking about maybe where

some of the best opportunities are in healthcare right now. Sure, so, UM, as you mentioned, there's just been a lot of really interesting and impressive UM demonstrations of technology and innovation over the last couple of years. With the endemic, rapid adoption of telehealth, for example, UM, we've seen a lot of companies rise about what we're not hearing. Oh and you mentioned the vaccines. Of course, the rapid um UH research

and development and bringing vaccines to market. Now, as we look forward, we've got the next public health crisis, which is UH staffing shortages, and that is driving a very compelling needs for automation AI, UH data integration technology, robotic solutions. So when we look forward on UH. In fact, we have a Healthcare Innovation e t S the tickers H Tech ht e C. It's comprised of about eighty five companies, half of which are small MidCap names that a lot

of people have never heard of. However they're they're driving fast growth. One of which is called both Sarah. This is a company that helps to integrate all the different medical devices within a hospital and smooth and make the

nurses workload a lot more efficient. We need this type of technology as we move forward to deal with the fact that UH, the the US healthcare system alone has lost over a half million healthcare workers since February UH And then a Striker just announced that they're going to

acquire both Era. This goes to show that there is demand for these these integration capabilities helped here just got digitized in the last ten years, and so we're going to see a lot of investment dollars going towards digitization and integration moving forward. You know, that is fascinating to me.

The combination of biotech and AI sounds like something from perhaps Paul, I mean, Paul and I talk about just the kind of very binary response when it comes to some of these biotech stocks and getting FDA approvals or clinical trial developments or everything. How do you price something like that? How do you looking at this the monster gains that Paul was mentioning in the biotech space. How do you decide if you want to really enter the sector at a time when this is of course very

front and center. Well, interestingly, you mentioned a great entry point would be now, uh, if you get the h tech portfolio, it's trading at around five and a half times next year's sales. Um that that valuation is just not sustainable for these high growth technology forward disruptive companies, um with with very most of which have very strong balance sheets. To two thirds of the portfolio is net

cash positive. So or I should say it so um So as you look forward right now, these stocks have all really come in due to concerns about rising interest rates inflation. UM tech stocks kind of took a back seat last year because people are concerned about companies that aren't profitable yet or don't have cash positivity yet. But when you look at healthcare innovation, we are only in the earliest days. We have just seen one type of mr and A therapy come to market, and that is

the vaccine for coronavirus. There are over twenty other uh mRNA therapies that that the company of Maderna had in its pipeline and all it took for is one to come to market for the rest of these to all UH see some some further UM tail winds for that industry. And that's just one area. UM. We're going to see more adoption of telehealth. We're gonna see early cancer detection.

There's been over ten billion dollars worth of M and A going towards companies who are looking to acquire new technology to help detect cancer earlier, and estimated hundred thousand lives can be saved each year if cancer is the text center. The technology exists and now it's a matter of adoption. This is a huge multi billion dollar market opportunity. There's a long runway for growth here and this is a great entry point you we gotta get you back.

There's a ton more to talk about when you're talking healthcare investing in healthcare, and again, I think a lot of folks probably have a greater appreciation for some of the opportunities in the healthcare investing space. Nina Decca, senior research analysts for Robo Global uh former cell Side analysts Piper Sandler. Piper Sandlers all always had really good healthcare research and they've trained a lot of good analysts there.

Today's Bloomberg Markets brought to you by Commonwealth, supporting more than two thousand independent financial advisors with the solutions they need to grow a thriving business. Commonwealth Go where you grow. Visit Commonwealth dot com to learn more. Well. I think the first lesson I learned on Wall Street way back in six from Johnny Coglan, the head of the block trading desk at pain Weber, and probably the most valuable lesson is don't fight the Fed. So now I've got

to fed raising interest rates. This year they kind of indicated three. Now the market was telling me four, maybe as many as five What is a trader to do? What is an investor to do? David Coudla, founder CEO and c I O of Mainstay Capital Management, hopefully has some answers for us. David, how are you thinking about

your Federal reserve in Hi? Paul? Yeah, it's been I think more fun and meaningful to watch this or listen to this bidding war that seems to have been going on the last week as to who can call for more rate hikes or a higher basis point rate hike. We you know, we had Jamie Diamond last week at this time talking about six or seven rate hikes this year.

Bill Ackman one up and with fifty basis points at the first March hike, and then JP Mortgage Global ce IO Fixed Income earlier this week on Bloomberg talked about eight rate hikes in and so I think, you know, investors need to take that for what it's worth. Uh. These are smart people that have good ideas. But you know, we think that the market has priced in somewhere around four rate hikes right now, and we expect and there could be another pivot by the Fed as we get

towards that March meeting. We have CPI coming out just six days before it and talk to me a little bit about just I mean, we've talked about the amount of rate hikes and of course the markets pricing, and there's also been the thought that what if every meeting just comes with the rate high. It's kind of a two and one if you will, Uh, at what point do you start to see the bond market, the equity market, or even the underly economy having averse reaction to that?

You know, it's interesting when we look back historically, Uh, there's a lot of anxiety leading up to that first rate hike. We're seeing that right now. Uh, and we're seeing a lot of that almost seems like a near panic these last few weeks with the ten year, two year getting bit up really across the whole short and intermediate term portion of the of the yield curve. But as rate hikes start, uh, we sometimes will see, you know, the markets settled down a little bit, the equities tend

to do okay. It's it's probably going to be a more important about, you know, where investors are looking to have their exposure and what they're gonna do about volatility in because we expected to be quite a bit higher than what we've experienced really the last twenty two months since since the pandemic started, we've had very little volatility. We've just now broken a record for a pullback for

the S and p fived through yesterday. So, you know, I think it's important for investors that they look at with the FED, not as as Paul kicked off the segment with don't fight the Fed. So when the FED has been easing these long duration stocks, tech stocks, even you know, the gross stocks that are nonprofitable that were highly leveraged very well because of so much money slashing around, that liquidity is now going to be drying up. And so we think that points is to the high quality

names with good free cash flow, profitable, good balance sheets. Uh. And that's in either growth or value. We think it's important that if if investors haven't done it yet, that they're bringing more value into their portfolio, because this will be a year for value. Um. But most importantly is companies that uh, not necessarily an exercise bike with an iPad, but companies that are are highly profitable, high free cash flow, very strong balance sheets. I like my exercise bike with

an iPad. I think I must might even have like a hundred thirty rides or something. How about Paul's a peloton man, Jen Sherman fan something. Nothing. I don't and I don't mean that against the product, not at all. Just just you know, there's a lot of other examples out there of of stock that did so well during the pandemic or during you know, this period of AD

twenty billion dollars of stimulus to the too. You know, the let's face it into in the financial system that finds its way to stocks, and and that's let those stocks continue get bit up and we're seeing the we're seeing the air come out of those Now we've all heard the statistic of you know, of the of the stocks in the NaSTA Accora down more than um It's it's been it's been a blood letting. Ye absolutely all right, David, thank you so much for joining us once again. We

always appreciate getting your perspective. I think of all our guests, critic dame, it's got the strongest social media game. I mean, yet it'll be all over to fulfill you on Twitter. You do absolutely you need to followed. David Coodley is the founder, CEO and c I of main Stay Capital Management, He also is a founder and sponsor of Engage. That's the world's largest student stock pitch competition conference. It's hosted

at the University of Michigan. It's are really a great event getting some young folks to really think about investing in the stock market. And David's been a founder and sponsor. That's that's really cool too. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm a Miller. I'm on Twitter at Matt Miller venty three and on Faull Sweeney I'm on Twitter at pt Sweeney.

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