#282: Is Intel a Turnaround Play? — INTC Stock Analysis

0:00I think Intel could become somewhat in that same bracket of too important to the US economy to fail. So it makes a very interesting place from a stock investor where there's a very big safety net there for Intel, I believe. It's getting loads of investments. So it's investing over$100 billion in US production. I think what would be a great thing to happen is if Intel split off its chip design company and just focus on the foundry. And then all of its efforts could be to becoming a true alternative to Taiwan Semiconductor. So there's a lot of embers in the fire here, potential green shoots.

0:49Emmett, how are we getting on?

0:51Emmet:How are you, Michael? How are things down in South France? Lovely. No, yeah, we've got a bit of a gray day outside for the first time in a while, so I really can't complain. And same up here in Dublin. It's kind of the first dark, slightly damp autumnal day, I think in a while. Yeah, I got a little concerned. Do you know when it just kind of, you randomly remember daylight savings time all of a sudden? So two weeks, it's about to get a bit dark and dreary and miserable. Do you know, a former board member of my Wall Street is a guy called Gary Hill, who's one of the most wonderful people I ever met.

1:23Emmet:And his brother, Stephen, is one of the most influential linchpins in American music, specifically African-American music. So he was the CEO of BET, which is a TV channel. I think it's a black entertainment television, something like that. So Stephen knows and has met everybody, absolutely everybody from the music industry, especially from Motown, whether it's Stevie Wonder or Michael Jackson or Lionel Richie or Diana Ross or uh rihanna like this guy uh stephen knows everyone and the relevance of that and he's he's an absolutely amazing guy like you you kind of look at him on on uh instagram and he's out with paul mccartney or you'd see him kind of going out for dinner with sting so he's a very very very uh connected in the world of music uh but the reason i mentioned that is twice a year he writes an email to his friends which i'm privileged to receive and it's always on daylight savings so he writes for the hour that was lost and the hour that was gained and he writes a story from the history of his life which is absolutely amazing now uh i guess as a as a segue should any of our listeners be interested drop your email to pod at my wall street.com and i'll ask him nicely now to add you to the list it's literally from his gmail he may not do it so i don't want to make it a promise but he always has a great story and last in the last daylight savings email he told the story about he had won a ticket to go to the grammys before before he was let's say famous himself and he was sitting up in the nosebleed seats the back the back the back top top top row a back seat and he saw in the very very front row michael jackson sitting beside Quincy Jones and he said it was a goosebumps moment because this was his hero like unadulterated hero and he decided I'm going to go down there and introduce myself to MJ and of course you know can imagine the layers of security and the story he tells about going from up there in the nosebleed seats to actually achieving what he set out to do and way way more it's just brilliant so anyway daylight savings coming soon and i'm looking forward to getting stephen hill's biannual email very good all right you're uh kicking off the show you have a bit to say first well i have an interesting stat for you mike the here it is the easiest and most effective way to have earned 25 annualized returns from microsoft since its 1986 ipo required holding through 16 years of no returns 16 years of nothing en route to some of the greatest wealth creation in history wealth creation machine for every person but a share bought back then at ipo was kind of split adjusted about 10 cent or thereabouts and now today as we record on wednesday 15th of october a share in microsoft is about 515 dollars so to use that old tired example had you invested a grand in microsoft back at IPO and just sat on your hands from 1986 to today, so that's 39 years, you'd have$5.1 million.

4:54Emmet:So really, the two ingredients was having spotted Microsoft. I guess the second ingredient is having$1 ,000. And the third ingredient is temperament are being extremely forgetful. So I, as you well know, and as our listeners know, know I want some of these. I want stocks that I can point at and go, wow, I bought Microsoft in 1986 for 10 cent and equivalent. And I had a couple along the way, our listeners know who they are, Netflix and Tesla and Chipotle. And I know my next delivery is going to come from within Horizon. That's just, I know it. And as long as I can keep our members engaged and believing in the life-changing power of buying and holding incredible companies my work is 80 done i just have to keep telling people don't panic so i really wanted to start this podcast with that message don't panic because according to thomas phelps who wrote a book called 100 to 1 in the stock market and then it's kind of successor and follow-on chris mayer who wrote the book 100 baggers i'm hard to find them who we or I interviewed on this podcast and we regurgitated there two or three weeks ago.

6:08Emmet:100 baggers, stocks that grow 100 fold in value take between 16 and 25 years. So it's not something that it's like, okay, I've bought it. Where's my 100 bagger? And I've, as the chief pilot of Horizon over the years, seen people spooked out, bothered, annoyed, and actually in many cases quite angry with me because two years later, three years later, the stock is down 20 or 30 % or 40 % or worse, which was the case of Microsoft, by the way, in those 16 years. I'm economizing in detail. That's just the way it goes. Steve Ballmer has a lot to answer for. Yeah, well, that's right. And yeah, say nothing.

6:51Emmet:But Horizon, the service I'm running, is just a minnow. It's coming up to six years old. I'm 50 years old. And I hope to have, I hope I have everything in place to keep Horizon going for very, very many more years. And it is built to find the next mega winner. It's my life's pursuit. So for a short time, as those who heard last week, we are offering it for over half price off. That's$500 off$999. So you pay only$499 and there's only a handful of spots left. And just relevant detail, we're repricing it to two grand in 2026. so lock in effectively 500 books today and in fact if my wall street eventually goes all in on profit we're always going to keep this podcast we'll keep horizon going um but but it's going horizon is going to be run on if you're in your in basis no more members um and to existing members uh on that point once you're in your in you will remain on the price you're on so uh and you know for all of those people listening who are still considering becoming a member sign up just sign up today for this effectively one and a half grand off next year's 2k ticket price so you pay only 499 i will find the next netflix in a new guise and that said uh as i said i bought netflix but i also bought it in horizon which is up 434 percent since that purchase uh but that's boring 439 what snore fast so what i need to stay calm and get a couple of hundred baggers which are stocks that increase 9 900 percent uh from the purchase a hundred bagger you go up 9 900 if you sit down with a pencil that would make sense but let's say i need to find stocks that are going to grow 10 000 percent that's what i'm chasing in slow motion it takes 16 to 25 years to land one two three sign up today before we change the price from 499 to 2k or even worse just shut the door remove the door build the wall where the door used to be so email pod at my wall street and frank or someone on his team will look after you right mike on with the show yeah yeah funny you said build the wall there um because we're moving into i don't know what i don't know what to call this it's this kind of weird wrinkle in what is already an incredibly weird stock market um but essentially that's just the government taking up equity stakes in public companies so the trump administration has made this decision where it's kind of got a list of short list of companies it believes to be vitally important either to national security efforts or to the industrial policy it wants to bring in and we've talked about the the isolationist viewpoint that's becoming clearer and clear this american first policy um and so i want to talk about i want to talk about two different things first i want to talk about the kind of rare metals that has become just this absolute very uh very aptly called like a gold rush essentially over the last couple of weeks um you've probably seen the headlines by now or else you're wondering why everyone is running up to buy these rare metal stocks so so far the government is taking up a position in mp materials it's well a four about about 400 million dollars worth of shares it's got about 15 ownership and essentially what the u.s is doing is trying to strengthen its access to domestic rare earth minerals because this is an industry completely dominated by china uh china produces about 70 of the world's supply rare earths from mines and processes almost 90 and that's when the u.s is seeing say china as some form of adversary to be that reliant on on the country for the materials that go into semiconductors the materials that go into batteries materials that kind of fund and like power an awful lot of everything we do now um it it makes a lot of sense even though it is quite a weird tangent for the government to go and be building stakes in public companies um so it wasn't just MP materials it was lithium in lithium americas as well lithium obviously is one of the key components that goes into batteries especially ev batteries as well uh so the trump administration built a small equity stake there as part of this u.s energy department loan thing um but again essentially it's just making sure it has access to these lithium lithium resources uh i'm just looking as well so the third one is trilogy metals uh it's canadian mining company which focuses on copper um and i'm just looking at the three stocks i mentioned their year-to-date return so mp materials is up 470 lithium america is up 200 and trilogy metals which is a tiny company the stake um the us took was i think 35 million dollars or something like that stocks up 700 year-to-date so i haven't been following the story at all i mean literally you're you're schooling me here but just a quick question i presume that run-up in share price happened only after the administration went in or did they declare they're going in and then was there rush tell me well so there's a bit of both so obviously the vast majority of it is from them buying up buying up these positions but there's also other companies um critical metals was another one and uh can't remember the third name but but there's also these companies where they're seeing the us and China trade tensions?

12:23Because as I mentioned before, China has a complete and almost total control over this industry. And so if China is getting stuck with 100 % tariffs like Trump threatened last week, what is that going to do for this? Because that's been kind of China's ace in the hole where they're like, oh, we can keep this away from you. So the US is going to have to look elsewhere. So yes, it is very much based on the US buying up um buying up stakes but the other rare metal stocks have been shooting up as well because of this trade tension between china and the us and it makes a lot of sense in that you know these are vital for defense is a very important aspect of this you know what i mean our electronics our semiconductor supply chains these are things that are becoming more and more important in this when you when you inject ai into the picture and the the like the necessity for AI supremacy.

13:22Because if you think about it from a military aspect, if one country has kind of ring-fenced the materials to build the next generation of AI chips, that is kind of giving it a supremacy that the US is not going to be comfortable with. So it does make sense from that point of view.

13:38Emmet:It does, yeah. It makes a lot of sense to me. I mean, if rare earth minerals are, sorry, not if, rare earth minerals are a critical component to tomorrow's world. and if you don't if you don't got none you don't got no future yeah and so and so essentially what the administration what the administration has drawn is drawn a line in the sand and says we don't want to have to rely on a potential adversary for this now whether that's possible whether there is enough there outside of china within these companies i'm not sure like as in i think that that that deserves a much deeper dive than what it said but that the mania around them now is all built around this tension between China and the fact that they need to kind of domesticate the supply chain there.

14:21These resources are just too important to allow foreign government control. And then, yeah, this isolation policy, we can dive a bit deeper. There's an America first investment policy, which was launched kind of at the start of this year. And it's quite an isolationist view of the world. I don't want to delve too deep into the politics of it, but the general gist is that the US believes it's strong enough to rely just on itself. This thinking was behind the H1B ban as well. The H1B, not ban, but bringing in that fee for H1Bs, which, do you know what I mean? That is shooting yourself in the foot.

14:58You're reducing your access to talent there. I think the tech companies in Silicon Valley would have gone, wait a minute. Now, we don't have the sheer supply of engineers needed for that. And there's more political games involved there and maybe tension between India and what India is doing with Russia or whatever else. But at the gist of it, and I think you've seen it, especially from your man, Howard Lutnick, the guy from Cantor Fitzgerald, who seems to be the kind of acts like a court gesture. And then like under the hood, there seems to be a very clear push towards USA first isolationism. We're strong enough.

15:38We don't need help from other countries, especially ones we see maybe as not the friendliest, especially China. and so that's where all this is coming from and that's kind of set up that's where the rare rare metal rush is happening right now but then i wanted to talk and get into it a bit deeper with the other company the u.s government took a stake in which is intel uh so you heard about this the u.s holds i think it's about 10 equity stake now in intel which is part of a weird deal where essentially intel was due about nine billion dollars from the chips act which was brought in under biden and it's essentially trying to essentially trying to again uh bring semiconductor production back to the u.s because they're so reliant on taiwan in particular um trump saw this money going to intel was like look you're you're not getting this money unless we get a bit of a taste essentially uh one of those are the deal things i guess um but this one stands out with me because we talked about how dependent the world is on taiwan semiconductor it's responsible for about 50 of the world's foundry market so foundry is a chip manufacturer it's also known as a fab and it'll take say designs from nvidia or broadcam or apple all of these companies that don't manufacture their own chips they're called fabulous chip designers so taiwan semiconductor tsmc makes them for them and that's why it's seen as one of the most important companies in the world like it's pretty obvious you know you see a company that kind of global importance based in taiwan and it's easy to get a little worried obviously we see the frailties of the global supply chain come to the fore around covid that's one aspect of it geopolitically very fraught um To say the least, this isn't new news, but China has always had its eyes on Taiwan since essentially the Mao revolution.

17:40That's a very interesting story to dive into as well, because Taiwan actually has its eyes on China. If you listen to them, I don't know how possible that is. But whatever about the kind of the history of it, the geopolitical backing there of, okay, there is high, high tension between China and Taiwan. Obviously, China has an awful lot of power there. And even we're saying in recent years, maybe NATO is looking quite weak in the form of, you know, what Putin is doing in Ukraine or whatever else. Maybe Xi Jinping, who's cozy up to Putin a lot in recent years, maybe he's getting ideas. I'm not sure.

18:23But whatever else, very, very fraught geopolitically. Obviously, COVID showed the frailties of it, too. And then the cherry on top of all that is that it's also on a tectonic fault line between the Eurasian placer and the Philippine Sea placer, something like that. So on top of all of that stuff, earthquakes are a very real risk to Taiwan as well. so if you're having 50 of all the chips in the world come from this one place it does show a bit of over-reliance and a bit of over-dependence you know what i mean we're talking risk factors that you put in a 10k or whatever else that'd be number one underlined and in bold so you see all that and yes it makes sense that u.s want to have a serious alternate on home shore so the problem is intel which has kind of been a hot mess for about 10 years it made some like we're it's funny we're talking about steve ballmer and microsoft missing missing the boat there around the or 2000s to 2015 uh wherever around that decade i suppose uh intel was very similar from about 10 years ago um so it didn't really transition to advanced chip manufacturing modes fast enough and it underinvested in key technologies.

19:40One of the main ones being extreme ultraviolet lithography. So have you heard of the company ASML? I did indeed. Yeah. So that's essentially what ASML did. They make these extreme ultraviolet lithography machines, which are essential for advanced chip-to-double design.

19:56Emmet:So when you see one of those machines, it's a glimpse into human creation at a complexity level that's unreal. But yes, I've looked at those machines online and I'm like, heavens above, how did we ever arrive here? It's funny, we're talking about these companies, so ASML and Taiwan Semiconductor, how important one single individual company is to just global supply chains on a massive scale. Purely in China. Yeah, it's like the Jenga block and there's one little Jenga piece on the very bottom that you really don't want to tip over. so Intel missed the boat on those two main things and Taiwan Semiconductor did the exact opposite and basically took a commanding lead in advanced chip design so it also helps as well that Taiwan is just a foundry whereas Intel designed its own chips and then manufactured them so companies like Apple, NVIDIA, AMD they could innovate a lot more quickly with Taiwan Semiconductor instead of sold Intel's latest design.

21:01You know what I mean? They could go and design themselves. So it's not any one thing, but it's a series of missteps that in the space of about 10 years gave Taiwan Semiconductor a huge leap. And that's how they've all become so reliant on Taiwan. But with this isolationist mindset in place in Washington, and especially one that is trying to avoid reliance on China. China. I realized that came out like a Trump impression. Where do we stand with Intel? And this is a very interesting point for the company because it reminds me a small bit of Boeing in the sense of Boeing did everything wrong over the last five, ten years.

21:46And it's still chugging along. It's very much too big to fail, too important to fail for the US economy. And I think the way the investment that's gone into Intel, the positioning on it and the over-reliance on Taiwan Semiconductor. That's all a relatively new thing. So I think Intel could become somewhat in that same bracket of too important, not too big to fail, but too important to the US economy to fail. So it makes a very interesting place from a stock investor where there's a very big safety net there for Intel, I believe. it's getting loads of investments so it's investing over$100 billion in US production it's got a new fab in Arizona with the aim of kind of making it the most advanced semiconductor manufacturing making sure that that happens on US soil now instead of in Taiwan it's looking at more just focusing on its foundry elements looking at customers there instead of trying to flog its own designs as much I think what would be a great thing to happen is if Intel split off its chip design company and just focus on the foundry.

22:59And then all of its efforts could be to becoming a true competitor. And it's already a competitor, but a true alternative to Taiwan Semiconductor. So there's a lot of embers in the fire here, potential green shoots. NVIDIA has already invested$5 billion into the company. I wouldn't be surprised if the hyperscalers got involved too. Amazon, Google, Microsoft, Apple, OpenAI, Tesla, whoever. Because this is viewed as a matter of national security, that Intel works out and takes back control from Taiwan and rests away the power that China could potentially have over the entire world's semiconductor production.

23:43It'll also get you in the good books with the Trump administration. It does make an awful lot of sense that these companies will come in, that will help Intel. And pretty much, yeah, I just think it makes a very interesting case for Intel in terms of we talk about asymmetric bets and risk reward and reward outweigh and risk. It feels like there are not a lot of risks when it comes to Intel, just the fact that these powers need and want it to do well. Despite all of the missteps, despite all the managerial stuff, the CEO conveyor belt and everything else, Intel needs to work. For the US government, for these US-based companies, for global supply chains, for geopolitical tensions, even flipping tectonic plates shifting, Intel needs to work.

24:35So that's kind of where I'm at. And I think it's a very interesting point for a stock. And yeah, look, the US government is telling you to, essentially telling you to buy it. We're backing this. Why wouldn't you back it too? So yeah, that's where I'm at. It's an interesting point. I don't think the US government has ever been this involved. Maybe it's taking after China in that sense. The Chinese government has given some of its public companies huge advantages. The EV space in particular, it's got loads of backing. That's a lot of the reasons why companies like BYOD and NIO have been able to produce cheaper electric cars because they got a lot of government backing.

25:16Huawei was one as well. Actually, they weren't allowed into a lot of countries because of the Chinese government's influence. So it's almost like in order to fight China in a way, the Trump administration is in some way emulating them and helping its public companies. And it looks like that's what it's doing with Intel right now. So it is a very interesting point. It makes an interesting investment case. I think I could be convinced pretty easily that Intel long-term should work out from here. So yeah, what are your thoughts? I kind of went on a bit of a rant there.

25:52Emmet:No, I think it's a fascinating conversation. Firstly, because when you look at governments, like they're one of their many duties to make sure that tax money is being spent effectively and that they are looking after the greater interest of the nation in the decisions that they make. So you could say that every decision is a consequence of the strategy. So whenever I've looked or observed governments getting involved in divesting or acquiring a company, it's a matter of strategic interest. And people my age and generation and nationality will remember in the whatever was, year 2000 or thereabouts, the Irish government divested its telecom operator, the national telecom provider.

26:40Emmet:Because up until that point, through the evolution of the nation, it was a matter of strategic interest that everybody got a phone line. Then it became a matter of competitive interest. So they divested what was known as Aircom, now known as Air. And that was something like 25 years ago. How did that go for the investors of Ireland? Well, that's quite interesting. And that's another story. It is, but it's a relevant story, even though anecdotes do not make data. So you can look at one tiny example and extrapolate it and go, well, and therefore, but that's the wrong thing to do. But in Ireland, as I've probably said on a podcast many hundreds of episodes ago, had you stood on the top of Grafton Street, the main shopping street in Dublin, and straw pulled 100, 10 people, 100 people, 1 ,000 people at the time the government was selling off Aircom and advising its citizens to buy shares, which is a whole other conversation, and asked people on Grafton Street, is Aircom a model of operational efficiency?

27:50Emmet:Is it, you know, is it customer at the center of the world? Is it led by a founding passionate CEO? Is it whatever question that would come from the annals of great stock investing wisdom? The answer the 10, 100 ,000 people would have said is no, no, no. Somehow, though, we were as a nation convinced to buy shares to the point where our banks were giving us interest-free loans to do so. But looking at Ireland in the evolution of this state, we are historically extraordinarily unsophisticated when it comes to the stock market. Not because we're an unsophisticated nation, but because we are a nation that came a different route.

28:36Emmet:Whereas if you'd done that in America in the year 2000, or again, whatever year it was, late 90s, it would have been wholesale ignored. right so bringing it forward to your point we're flipping it over to a highly sophisticated capital market arguably the most sophisticated capital market in the world america and they're doing something in the opposite direction which is they are looking at these assets whether it is literally an atom on wholesale or uh or the the assemblers of atoms and they're saying our future is fully dependent on our ability to have access to this resource. And it feels to me very much like a nation's need for clean water, which is the simplest, most base need of every nation on earth that they can get clean water.

29:26Emmet:And, you know, a lot of wars in history were fought either over religion or access to clean water, you know, our land, within that land was clean water. And this, to me, feels very analogous to clean water. A nation like America must have all the building blocks in place for the year 2030, 2040, 2050. So I think right now what they're doing is very strategically smart. I don't have a view as to whether which companies are better, but certainly you can imagine that the administration has taken quite a strategic view of all of that and done the right thing. so i i i mean i have a front row seat in the balcony of ignorance at this point and you've as i said at start you've just schooled me on most of it it was news a lot of what you told me was fresh information and touching on news i was like i didn't know that so um i think it's a it's it's a very interesting one to watch another thought i have is over like uh trump is he's not a year into his presidency what other assets might be acquired i know he bought a whole vault full of bitcoin in the recent past and now we're looking at things that are are effectively the building blocks of an ai future so i'll be curious to see what else is coming down the rails yeah yeah i i don't really know how to react to governments buying up uh public companies like that but they're kind of they're kind of telling you something do you know what i mean they're voting with their feet a little bit i was listening to a podcast recently to an irish social commentator called blind boy who some of our listeners will be aware of um i think american ones won't but no days earlier yeah i had guffawed at ever listening to this guy tell my oh really yeah i had never up until i was on a plane recently and my wife's like just listen to it because he was interviewing what i suspect will be the future president of ireland as it's a it's a two-horse race at the moment so yeah so um so anyway the uh i was listening to this uh podcast and in in he was interviewing catherine connelly one of the two candidates for presidency and and the two of them got quite involved in a conversation around neo-libertarianism I think they were calling it, which for me, I had to hop on.

31:55Emmet:Well, I forgot to hop on. I planned to hop on the internet to read up on it. But the crux of the discussion was that governments are divesting all resources. Sorry, the Irish government has a wider strategic picture of divesting or privatizing things that are critical to the Irish interest. And this is something that, as I said, look, I am the most ignorant in the room on the subject. I sit there, I listen, and thoughts pop into my head and out. But I certainly think that the bigger picture is you could argue either side of the coin. as a as a as a lay by person you could say it is not in the interest of a government to take a stake in anything other than maybe health education and social welfare or you could argue that the government should have a hand on the wheel on all industry that are is critical to the future of that of that country and i think sitting here in this tiny little island floating in the atlantic I've had a you and I have had a view that's informed by a small nation you know figuring it on their own and then you look to America and you see uh this bigger strategic thinking in my opinion and I happen to think that the American administration is correct in doing what it's doing but as I said front row seat balcony of ignorance that's true I'm sure flip tops every four or eight years do you know what I mean and this is funny as well because Republicans are classic small government stuff and let the private markets dictate everything.

33:25And now they're here getting involved with buying up public companies and going very socialist-esque in terms of controlling a lot of private interests. So we won't delve too deep into it. Where are we going next? We're talking profit next.

33:43Emmet:Yeah. And actually, before we do, I just remember to say something. So we have a listener called James in Liverpool. James, can you hear me? I'm talking to you. My co-founder, John, was talking to James during the week. And I just thought I had to shout out to the guy because he told John that he was inspired to do a QFA because of Stock Club. Maybe to disprove the stuff we're saying. but I just wanted to say hello to James from Liverpool who is one of our very long time listeners and to express my gratitude for his listenership and trust so hello James. How are you James you're also reminding me that I have loads of CPD to do so thanks for that.

34:28All right how many hours have you to ratchet up? I think it's 15 and I haven't started so yeah good uh good little shot to the system there james thank you for that right mike starting

34:41Emmet:today we're adding a new bite-sized segment stock club called following profit which clearly we picked as a play on words so the definition of a profit is someone who foretells the future or reveals truth with insights that others can't yet see um and that's the meaning behind the service we've launched, Prophet, which I hope is quite obvious. Now in religion, prophets were messengers who interpreted the divine will, I suppose. And we're going with the plain ordinary everyday future telling type, as opposed to someone who God has whispered into the ear of gently. So we're just talking about plain ordinary prophets standing on the hill, blabbering on about the future.

35:27Emmet:So Prophet, this new segment in Stock Club is called following profit and in this segment mike going forward you or i we are going to spotlight one of profit's current 10 stocks because it's really very interesting the stocks it's it's um turning out every four weeks and for absolute clarity so people are like what's this now my wall street has two products horizon which i spoke about at the top of the podcast and it's my hunt for 100 baggers and it's story driven um and it's concentrated folio and it's explicitly long-term i buy stocks on horizon in the hope i'm going to hold on to them for 10 15 20 years and it's basically horizon is doing what i've been doing my whole life and i always will and it has fewer moves and and bigger swings as it were as you say in america and and and horizon is all about sitting through the boring middle bit on the route to massive gains whereas profit is a rules-based low effort system for people who want to just tell me what to do service they don't really want to tune in and listen to me blather on about a company for years and quarters um so anyway profit holds 10 stocks that's it when you send it for profit you get 10 stocks it rebalances monthly or specifically every fourth Friday and what happens is it says sell stock a b and c and then take the money from that sale and put it equally into d e and f okay so that's how it works and its track history is it's savage if you excuse excuse the expression like profits track history is unreal and over the subsequent episodes we'll explain a little more about profit and how it was conceived and built which i think would be quite interesting people but what's very interesting as i said about services that despite it only identifying large cap companies on one of the two big stock exchanges which is the new york stock exchange and nasdaq it uh which implies that any broker from revolute to vest to sofi can make the trades every few weeks it delivers a list of stocks that very few people discuss or even know about which uh which is why i was saying to I think it's going to make for a very new, interesting segment.

37:51Emmet:And I need to caveat, most importantly, and we'll probably say this every week henceforth, that we're talking about accompanying the knowledge that profit may sell tomorrow. We don't actually know. Unlike Nexus and unlike Horizon, where you and I, Mike, and our team debate a stocks addition or removal, and we can see it on the train tracks, with profit, it is very much codified. and yeah everything it's not it's it's as much momentum as it is fundamentals so oh for sure i mean like so we could talk about acme bricks here on stock club which we record on wednesday and it goes live on thursday and find then uh profit on that friday as i said it changes every fourth friday might sell acme bricks and all of a sudden that very conversation might have gone stale but that's the world we live in so anyway look let let's get on with it so that's the that's the new segment called following profit so so the first the inaugural stock from profit one of the stocks it currently owns and it's up 60.59 percent since it identified it and told people to buy is a company called how met aerospace how i met your mother aerospace how met aerospace and how met isn't that a name of a show how i met your mother i met your mother yeah okay phew if it wasn't that would have been a total can we edit that out i don't know what happened in my head so how met aerospace is one of those rare industrial companies that has completely reinvented itself for a modern age and it's if its name is unfamiliar i'm pretty sure our listeners and families at home, as it were, will know its heritage because its roots go back to a company called Alcoa.

39:43Emmet:Have you heard of Alcoa? No. Well, it's an American metals pioneer that helped shape the aerospace industry ostensibly in the 20th century. So after a whole load of restructuring events, Alcoa split in 2016. which i remember and it created a business called arconic which focused on engineering products and then alcoa corporation uh which was all about smelting and we've all seen videos and tv shows with giant metal machines with molten lava um metal flowing out well that's kind of what the alcoa corporation does the most people be like boring but we know it has to be done but it's the other one, the Arconic business that's kind of interesting because then in April 2020 Arconic broke itself apart and they had a higher margin precision engineering business that ultimately became Helmet Aerospace and it's the stock that Profit bought a few months ago and is still holding despite thousands of other contenders for those 10 spots of active stocks that it recommends so the separation from Arconic gave this company a clean focus on a single mission which is very important with a business like we are out to achieve x and the problem with alcoa be up until that point it was out to achieve x y and z and and so arconic um gave the company a clean focus on one mission which is to make the advanced components to keep planes and engines and heavy machines running safely and efficiently.

41:22Emmet:And right now, HowMet's work touches almost every major aircraft program in the world. So if you look at a business trying to find it has its tentacles into potentially every single customer, this is the one. It produces turbine blades and engine components from nickel and titanium super alloys and it manufactures the fasteners that hold airframes and jet engines together and forges huge big structural bits and pieces that effectively form the backbone of modern aircraft and it even makes lightweight uh aluminium or aluminum if you're american aluminum wheels for the global trucking industry now i don't know if it makes the stuff you actually interact with on a plane like the hand paper dispenser in the bathroom uh you know carpet seats yeah like the the bathroom the size of a coffin you know we've all been in it for your shoulders to you i don't even know how you manage on an airplane in those bathrooms, craning your head one side and everything.

42:22Emmet:And those little paper things, like they're holding onto the paper like sheets of gold or the wee net basket thing in front of your knees. Don't think they make that. Like that, where that little net basket becomes your home. You gotta go, that's it. That's where I keep all my stuff. Anyway, HowMet is led by a guy called, by its CEO, a guy called John Plant. I'm pausing because I'm sure half of our audience are in stitches already. i i think it's mildly funny because howmet operates a network i'm such a nerd howmet operates a network of engineering and manufacturing plants and i am a total nerd and his name is john plant it's like if you heard the ceo of cadbury's is called john chocolate or not as obvious or john chill he's the ceo of netflix mike give me another one help me here i'm thinking well you told me to do this and i went down a complete rabbit hole um so this is called an uh at wait let me get in it right an aptronym yeah person a person uh name whose name is what they do exactly yeah like my friends and my friend james stock but he's not in stocks and susie's stock they i'm like you pair you should be in the stock market i play tennis with them or the soup business but uh yeah so i went down rabbit hole yeah and um there's some good ones rich fairbank is the ceo of capital one is that true yeah uh i actually just said hey think of a funny one for a name yeah i'll wait for this now so there's rosalind brewer she is on the board at starbucks and she was also a director at molson cores i know that's brilliant should i headhunted her she's like what am i doing here take your money and sit there we just want you we just want your name on the board we want to make the uh we want to make the company cards alexander graham bell for the telephone this is an obvious one william's words william wordsworth english poet good one hold on a minute stop the big click pause hold on a minute oh wordsworth is good but hold on when someone said i'll give you a bell like that was an old but certainly irish expression which was way of saying gonna ring you i always thought of alexander graham bell i presume maybe they were talking about the fact that the phone is a little about a bell and the noise the phone makes yeah um well there you go thomas crapper have you heard of him yeah he invented the uh the latrine the mod the modern water closet yeah uh tell me who else billy 12 trees have you heard of him no what does he do his dad is a tree surgeon um well then you mean his dad why is this guy 12 and then uh there's a defender for the belgian national team called mark demand oh no come on that's crazy i got two more two more okay tell me go anthony wiener have you heard of anthony wiener hot dogs i guess is he no no worse more sinister he's an american politician who used to send pics of his uh appendages to people and then my personal favorite a russian hurdler called marina stepanova it took a minute for the penny to drop that's good i like that they're all better than john plant yeah well you gave me you gave me a task and i kind of i did well that was good i mean i just wondered like when john plant like the ceo of a giant plant business walks into a room how you john plant are like yeah right what's your real name anyway look this guy he turned how met into one of the most profitable industrials in America.

45:57Emmet:It's actually a very impressive business. And halfway through this year, at the end of Q2, which they reported on the last day of July, I think, they were hitting record highs across every metric. Second quarter revenue came in at like just over 2 billion, which was up by 10 % year-over-year. And that was kind of a consequence of an increase in commercial aerospace, 21 % jump in defense revenue, which is not surprising. industrial gas turbines oil and gas components rose up up up up up only the truck and transport divisions slipped a little teeny weeny about about three or four percent but margins across the whole business continued to expand and ebitda climbed 22 for crying out loud to about you know nearly 600 million i think it was which represented a nearly 30 margin so this is a really hot company and the company's ability to generate cash has been remarkable it's one of these hidden businesses in plain sight that you could just see you could throw it there and it sleepily gets better over the years in q2 the stock charts unbelievable tell me why it's up uh 11 it's up 12-fold since 2017-18 it's up uh four or five in the last five years yeah it's about 100 in the last year Well, it's up 60 % for profit.

47:18Emmet:I'll take it. Anyway, it has a whole load of cash and how it uses the cash is exactly how long-term investors like. It's what they like to see. They've purchased$175 million of their own stock at an average price of$142. bucks they're buying another 100 million dollars worth um and they've paid down 76 million dollars in debt they've increased their dividend to by 20 percent to to about 12 cent per share i mean come on that's lovely stuff they're buying back their shares they're killing their debt they're paying their shareholders it's operating like a proper mature cash generating powerhouse and the balance sheet now carries about 546 million in cash with a record low net debt to EBITDA ratio of just 1.3 fold and the borrowings uh well anyway look unless the CA unless you're a CFA unless you're James and Liverpool all of this stuff is getting kind of a bit boring to listen to but it's actually a really really great business each each of Hamlet's four divisions is contributing big time engine products through 13 year over year 33 margin fastening systems grew nine percent and so on so for the full year the management of of how met expects are only about nine percent revenue growth and as a growth investor i think like 20 plus is table stakes but that's my mindset that's what i pursue and in fact profit was like that's good enough good enough is great enough is good enough so it has it's found a really what is currently a great business and i'll stop there it's it's a really the whole business is a pretty remarkable evolution like it started off smelting aluminium it's like um hey mick how how are you how are you mike what story i'm going in here to smelt aluminium for the day good man yourself sounds like an exciting day fast forward a few generations and they're building tiny wee whatnots for every plane on earth and and it's become this precision manufacturer for everyone advanced airspace programs right through the plane that you last sat on so there you have it rising margin strong cash flow shareholder friendly approach to deploying its capital howmet is proving that even in an age dominated by technology this kind of really disciplined manufacturing can be can make your business a world-class compounder so that's it um should we score it and based on what i told you mike and based on you just being you how much do you like to sound the helmet scale of one to five well yeah i just wrote a very much reminds me of september stock of the month uh i won't give away the name but um yeah and i won't pretend i know it these are the kind of these are the kind of companies i'm interested in that like build their moat around highly engineered processes and very sticky and and And there's this element of a company being a very mission critical part, but small part of, say, its client's total bill of goods.