Earnings wrap + Michael Frazis on his growth portfolio

Bryce: [00:00:15] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you going? 

Alec: [00:00:30] I'm very good. Bryce earnings season continues on and I feel like we haven't taken a breath now. 

Bryce: [00:00:37] Content continues, earnings season continues. Market never sleeps between the hours of ten and 4 p.m. here in Australia.

Speaker 1: [00:00:45] Sure it does.

Alec: [00:00:47] That's great. I feel like we're learning so much about individual companies, about state of the economy, about the ability of our content team to be able to keep up. Yes, but it's a funny one because the market has had a good month. 

Bryce: [00:01:00] It has had a good month. Some companies have had a great month. [00:01:03][2.1]

Alec: [00:01:03] Here's some stats for you. The S&P 500 was down 23%. It's now only down 13% for the year. The Dow was down 18%. It's now down 9.7% for the year. Yeah. Are we out of the woods? [00:01:17][14.0]

Bryce: [00:01:17] No. [00:01:17][0.0]

Alec: [00:01:18] Is it only blues of blue skies and rainbows? I guess. [00:01:21][2.9]

Bryce: [00:01:21] Could be. I'm not a forecaster. [00:01:23][1.3]

Alec: [00:01:23] And so we'll talk about that. We'll talk about what we've learnt from earnings season. We're going to take a look here in Australia and talk about some of the biggest movements here. And we've got Michael Francis, a fund manager, joining us today, a massive episode today. [00:01:43][19.2]

Bryce: [00:01:43] That's it. Really excited to hear from Michael about what he thinks is going on in the markets. And if you're unfamiliar with Michael, make sure you listen to some of our previous episodes with him. Incredibly intelligent guy. And if you're wondering what it's like to invest in life sciences, that's his area, one of his areas of expertise. But we'll hear from him later in this episode. Just a reminder before we start, when not experts, we're not fine financial professionals, we are not licenced. We are here learning just like you. And nothing on this podcast should be taken as advice. So let's kick in with a market wrap just like we did last week. Plenty going on. And so when you've touched on the bounce that we've seen on the S&P and the Dow having some of their losses and when the earnings season is arguably one of the biggest contributors to this bounce, what we thought would could be a really rocky earnings season is turning out in some instances for some companies to be to be the opposite, reporting incredibly good growth numbers and stories. [00:02:45][61.4]

Alec: [00:02:45] Yeah, and there are some companies that aren't and we'll get to them. But let's start with the two companies that really took the market's breath away this week. Is that too much to say potentially? Well, let's talk about it. This sharing economy stocks, Uber and Airbnb have always been lumped together. They were founded within a year of each other. They rode those same technological waves to get to where they are, the sharing economy, bellwethers and pioneers. And as if they wanted to be spoken about in the same breath, they decided to report on the same day. [00:03:18][32.6]

Bryce: [00:03:19] Yeah. Well played. [00:03:20][0.6]

Alec: [00:03:20] What did they report? [00:03:21][0.4]

Bryce: [00:03:21] So uber revenue up 105% year on year. Now, we obviously know a year ago where where most of the world was in some form of a lockdown or. [00:03:30][8.8]

Alec: [00:03:30] The fascinating wrinkle in that number. Uber eats was up just 7%. Yeah. Is that not fascinating? [00:03:38][8.0]

Bryce: [00:03:39] I don't know. Is it like a given where we were. [00:03:41][1.7]

Alec: [00:03:41] But it's one of the hottest are one of the biggest winners from COVID and lockdown. Everyone was at home, everyone was ordering, but even they managed to eke out a some growth. Obviously, this 105% year on year growth is mainly driven by trips, as you said. But I found it fascinating that I still uber eats. Yeah, I certainly have stayed. I certainly have been ordering less. Have you less? Yeah, not none less. [00:04:07][25.6]

Bryce: [00:04:08] First quarter of positive free cash flow in history for Uber, they did still post a net loss of $2.6 billion. However, the share price responded 19% up on the day of of reporting. So saying that positive cash flow is a good sign for investors. [00:04:24][15.9]

Alec: [00:04:25] If people are wondering how do they report positive cash flow but a $2.6 billion net loss, a lot of the loss was driven by some of their investments, investments in grab, investments in RIVIAN. And one other investment that I can't remember all down. And we've really got to give Uber CEO Dara Khosrowshahi some credit here. He said that we're going to focus on profitability. I think he said they would take 12 months to deliver positive free cash flow. They did it in three. [00:04:52][27.4]

Bryce: [00:04:53] Nice one, Dara. Yeah, he's done it. Yeah. Well, it is good to say, I think they've burnt something like $25 billion of investor money they have. [00:04:59][6.2]

Speaker 1: [00:04:59] Yeah. [00:04:59][0.0]

Bryce: [00:05:01] So it is, it is good to see that they've righted the ship somewhat in the last three months. But the other company in in the sharing economy ran Airbnb, one that we spoke about. I would add on the show we could go back kind of nights, maybe four weeks ago and did call that it could be coming for a good earnings season is and I think. [00:05:20][19.8]

Alec: [00:05:21] On this show is advice so. [00:05:22][1.2]

Bryce: [00:05:23] Known and their revenue Airbnb up 58% 103 million bookings across the site and that came in at a gross value of $17 billion, up 27%. They are profitable $375 million of profit and they are back above pre-pandemic levels, $379 million. [00:05:45][22.4]

Alec: [00:05:46] Even when. [00:05:46][0.4]

Bryce: [00:05:47] I say. [00:05:47][0.1]

Alec: [00:05:47] Short change from $4 million chase and they sharing economy stuff made every dollar right. [00:05:52][4.9]

Bryce: [00:05:53] But I just love it. They're back above pre-pandemic. The world is back. [00:05:56][3.3]

Alec: [00:05:57] Can I give a shout out to the CEOs and investor relation teams that are doing three year comps, that are doing year on year comps and then also doing a 2019 comp to give us a like an idea of how they measure up pre-pandemic. It's just very helpful. [00:06:10][13.2]

Bryce: [00:06:11] Yeah, well, you've got to sell the story, right? If they weren't doing that. [00:06:13][2.7]

Alec: [00:06:14] Story that you would to be like, What are you. [00:06:15][1.7]

Bryce: [00:06:16] Doing? It's all about the story. You got to sell the stories. [00:06:18][2.2]

Alec: [00:06:18] Some companies are, some companies are. And I think it's just it's a nice nod to we recognise that we. [00:06:24][6.0]

Bryce: [00:06:24] Could do ten year comps. [00:06:25][0.8]

Alec: [00:06:26] Well no it's just nodding to the give us a pre-pandemic column. Yeah. Yeah. Anyway, so the sharing economy stocks are good. They're looking like things are good in the sharing economy. Whether they will continue to be good is a question that only you as an investor doing your own research can answer. But let's talk about Heinicke and Bryce, because you have been telling me that your Heineken budget is through the roof. You've been buying plenty of be wrong. [00:06:51][25.2]

Bryce: [00:06:52] I have been buying plenty of beans. Actually went out for dinner the other night and ordered a Heineken. Don't yes. Don't come at me, though. There weren't many beers on the menu. Ordered a Heineken. Got a corona. You're actually out. [00:07:02][10.2]

Alec: [00:07:02] There. I did the same thing. But you know what, price? We're not alone ordering Heineken's while out because they reported a 37% jump in revenue and a 22% jump in profit. Things are good from the Dutch beer maker. [00:07:18][16.0]

Bryce: [00:07:19] Yeah, not. Unsure. But the reason they are saying these numbers is a recovery of bars in Asia and Europe, which is surprising because it felt like Europe never really shut down a lot of their bars compared to some other countries. But profit is ahead of 2019 again. Pressure, costs, pressure coming. So that was part of their forecast. Ren tell me what's happened with Apple. [00:07:41][22.2]

Alec: [00:07:41] Yeah, so this happened late last week, but after we recorded revenue up 2%, $83 billion of revenue in the quarter. How do you like what the two things that everyone looks at in that revenue number, iPhone sales up 3% to $41 billion. Quick maths, the iPhone sales about half of their revenue. Okay. Yeah, they're not a computer company anymore. They're fine company services revenue. Now, this is the category that everyone's looking at. Can Apple build recurring revenue streams from things like Apple TV and Apple music? And are you just answering that question? [00:08:15][34.0]

Bryce: [00:08:16] Yeah. [00:08:16][0.0]

Alec: [00:08:16] Well, it's up 12% to $20 billion. Yeah. Nice. Yeah. So about a quarter of their revenue is now from services, a business that they've been working really hard to build but wasn't really a thing. Call it five years, ten years ago. So that's really impressive. Yeah. But again, 41 billion, 20 billion, three quarters of their revenue is from those two categories. So the Mac new MacBook keyboard in the quarter didn't really out of there. [00:08:42][25.9]

Bryce: [00:08:42] Not a lot. [00:08:42][0.3]

Alec: [00:08:43] Of profit, down 11%, though. So this is a trend that we're seeing across the board this earnings season, revenue up, profit down. What does that mean? [00:08:50][7.5]

Bryce: [00:08:51] Bryce revenue, profit down costs higher costs, higher costs coming through. Nice and you've got here Ren share price fell 29% from high. [00:09:01][10.0]

Alec: [00:09:01] Yeah. So this wasn't related to earnings season, but this is just so Apple fell 29% this year and then it's recovered about 25%. It's only down 10% from its highs. Wow. I'm kicking myself that I didn't buy. Yeah. [00:09:14][12.8]

Bryce: [00:09:15] Wiped almost $1,000,000,000,000 from its value after a 30% fall. [00:09:18][3.2]

Alec: [00:09:19] It's just like did we miss the opportunity? [00:09:21][1.9]

Bryce: [00:09:21] Not there's always opportunities around. [00:09:23][1.4]

Alec: [00:09:23] Love is how. [00:09:23][0.4]

Bryce: [00:09:23] You look at. [00:09:24][0.3]

Alec: [00:09:24] It. Well, tell me about another company. [00:09:25][1.1]

Bryce: [00:09:26] This is not an opportunity, but we'll keep going. Nintendo sales of 2.3 billion down 4.7% on the previous quarter. Profit also down 15% to 762 million. Biggest driver for this was sales of their switch unit. Now, I'm not a massive gamer, but this their unit is down 22%. However, Nintendo, quote, demand is stable. [00:09:49][22.7]

Alec: [00:09:50] So so we said we weren't only going to talk about good reports. I think this one qualifies as a report. The perhaps not so good. Yeah. Now, Bryce, I want to break up these earnings seasons because we've got so many companies coming through the next two companies that earnings were pretty, you know, par for the course, Starbucks and Yum! Brands instead of giving the results. I just want to ask you a question about each of them. Okay. Starbucks coffee chain, you know. Well, you get your coffee from there every morning. Not true. Interesting note in the earnings. What do you think contributed more to revenue, hot drinks or cold drinks? [00:10:26][36.2]

Bryce: [00:10:27] Cold. [00:10:27][0.0]

Alec: [00:10:28] No hills. Cold beverages accounted for three quarters of American sales in the quarter. Three quarters? [00:10:36][8.0]

Bryce: [00:10:37] Yes. It's summer over there, I guess. [00:10:38][1.6]

Alec: [00:10:39] Still do. You switched to cold coffee in. [00:10:43][3.7]

Bryce: [00:10:43] Summer now, but it would be all the franchise and all of those iced coffees and the. [00:10:47][4.7]

Speaker 1: [00:10:48] Yeah, I know, I know. I like think. [00:10:50][1.7]

Bryce: [00:10:50] With ice in there. [00:10:51][0.7]

Alec: [00:10:51] I know what the cold drinks are. [00:10:53][1.5]

Speaker 1: [00:10:53] But three quarters. [00:10:54][0.8]

Bryce: [00:10:55] Yeah it's a fair bit isn't it. [00:10:56][0.9]

Alec: [00:10:56] It's a chunk. Yeah. Yeah. Anyway I found that is interesting though overall not a super interesting report for Starbucks. They did. I think they sold globally about 3%. Same store sales growth. It's a company just that just keeps grinding on, keep ticking upwards Yum brands. So for people unfamiliar with Yum brands, they own KFC, Taco Bell and Pizza Hut, three global brands. Yeah, they're trying Taco Bell again in Australia. Obviously awful. They've tried it so many times, but they're going again anyway. Full credit. You got to keep trying. That's you've got to be optimistic in business. Mixed report for them of those three major brands, Pizza Hut, KFC, Taco Bell, two reported same store sales down and one reported same store sales up. [00:11:44][48.2]

Bryce: [00:11:45] KFC up and Pizza Hut, Taco Bell down. [00:11:48][2.8]

Alec: [00:11:49] No KFC, same store sales globally down 1%. Pizza Hut, same store sales globally down 3%. Leaving Taco Bell, same store sales up 8%. [00:12:02][13.0]

Bryce: [00:12:03] Wow. Well played. I do not like Taco Bell based on what they served up here in Australia. And let's keep moving. Madonna vaccine company up 15%. Beat expectations on revenue and earnings. Their revenue of 4.75 billion was up 9% year on year. Same story as what we're seeing across the board in is profit down though 21%, 2.2 billion. But margins are very strong. They're also doing a 3 billion buyback. [00:12:32][28.6]

Alec: [00:12:32] Just do that quick maths profit down 21%. So increase in cost their revenue a 4.7 profit of 2.2. [00:12:39][6.8]

Bryce: [00:12:40] Yeah, so margins. [00:12:41][1.0]

Alec: [00:12:41] Almost 50%. Yeah, that's up. [00:12:43][2.0]

Bryce: [00:12:44] More vaccines for free anyway. Robin Hood now one of the hottest stocks during COVID retail. Investors jumping on the bandwagon using that platform in a big way. But the story here is absolute staff layoffs. [00:12:59][15.2]

Alec: [00:12:59] Yeah, so they take part. They announced a 9% staff lay off earlier this year, this earnings season. This week, they reported a 23% staff layoff. They're laying off almost a quarter of their staff just this round. The share price is up 15%. And that's because investors love the fact that robinhood's focussing on becoming profitable. That story is playing out over and over again around the world. Unprofitable companies that are taking the necessary steps to focus on profitability are being rewarded by shareholders. Zip in Australia is another example where without really comes to mind, Robinhood announced a net loss of 295 million for the quarter. So they've got a bit of growing while cutting costs to get to that profitable number. But I think the commentary from Robinhood CEO is commentary that we've heard echoed throughout this earnings season. A lot of companies thought that the pandemic would bring forward demand and you know, for Robinhood, it would bring a lot of retail investors into the market. For Amazon and Shopify, it would bring forward a lot of changing customer habits to online shopping rather than offline shopping. That thesis was wrong. What we're saying is it didn't bring forward a lot of demand. It just had it was a transitory spike in demand and Amazon overbuilt, Robinhood over hired, Shopify over hired Peloton. Yeah, that's their home business around it. I think what we're saying is in 2020, a lot of people were talking about, yeah, change, permanent changes as a result of COVID. And what we're saying is where a lot of people are reverting back to pre-COVID habits and you know, companies that were banking, literally banking on those changes being permanent are now having to course correct Amazons having to cut costs, robinhood's having to Robinhood and Shopify having to lay off staff. That's commentary that seems to be repeated a lot in different geographies across different companies that we've got to course correct. And companies that are taking the necessary steps to cost correct are getting rewarded. So Bryce heaps more results coming in. We are running short on time, so head to our Instagram. We're covering heaps more a few data points just to close it out before we move to Australia Bespoke the fund manager, they had this data set so the Nasdaq was up 4% one day last week. But Bespoke found that 48% of all 4% days in the Nasdaq's history occurred on the way down between two. In 2002. There are a number of false breakouts, dead cat bouncers, whatever you want to call them. So that's a watch out. [00:15:35][155.6]

Bryce: [00:15:35] I guess it's 5050. [00:15:36][0.5]

Alec: [00:15:37] No, no, no. Just 4% in that drawdown. [00:15:39][1.9]

Bryce: [00:15:40] Okay. [00:15:40][0.0]

Alec: [00:15:41] 48% in that drawdown. Okay. So it's basically the conclusion it's the biggest down days, but also the biggest up days happened during a downturn. Okay. So that's one thing just to watch out. There might still be a bear out there. The second thing is small caps are absolutely beating expectations. 74% of small caps that have reported so far, this is according to RBC Capital Markets, 74%, three in four have beaten estimates for revenue and 71% have beat estimates for profit, which is a record for revenue and a record for profit. [00:16:15][33.6]

Bryce: [00:16:15] Well played. Pretty good caps. [00:16:16][1.0]

Alec: [00:16:16] Yeah. It's also because expectations are. [00:16:18][2.0]

Bryce: [00:16:18] Just so low, so grim. You should check out. I'll have a look at this small cap index, actually. Alright, nice weather. And that's a wrap of global earnings, as we said. Check out our Instagram, which has plenty more earnings analysis each day as they come out. But then let's move to the ASX here in Australia. Now the ASX share market game is back up and running. This segment is applicable to those playing but also those not as we're going to take a look at some of the movers and shakers on our home market. You can register for the game. It closes on the 13th of October. The game starts 11th of August and finishes on the 24th of November. Plenty of prises up for grabs. First prise 2000, second 1500 and third 1000. There's a new prise this year as well for the university best individual portfolio prise. If you're a university student, you can win $1,000 if your portfolio outperforms all other uni students. There's a resources page visit ASX dot com dot IU and we'll put a link to the game in our show nights. I know that there's members of the Equity Mates community also playing. Head to our Facebook community group to find out details on how you can join them. But again, let's have a look at what is happening here on the local market because there's been some interesting developments with one of the hottest stocks or coldest depending which way you look at it. [00:17:39][80.8]

Alec: [00:17:39] Yes, that is zip. [00:17:40][1.0]

Bryce: [00:17:41] But before we do that, we're just going to be looking at the ASX 300 here. [00:17:44][3.1]

Alec: [00:17:44] So we had a look at market index. Secondly, you are the smallest company in the ASX 300 according to market index has a market cap of about 250 million bucks. Okay. Have a guess what it is. Oh, sorry, sorry. I'll tell you it's name. Have a guess what it does. Five Inch Ltd, Fairfax Mining, a motley focussed gold miner. Nice Australians love mining. When we filtered on the ASX 300 and looked at the biggest movers for the last month, you're right, one name above the rest and that was. [00:18:20][35.4]

Bryce: [00:18:20] Zip zip pays zip co ltd. The ticker is Z one. [00:18:24][4.3]

Alec: [00:18:25] The Chinese. [00:18:25][0.3]

Bryce: [00:18:26] Taipei. Now look, it's. [00:18:28][1.9]

Alec: [00:18:29] That's not the reason for the uptrend but it didn't hurt. [00:18:32][3.1]

Speaker 1: [00:18:32] It didn't have to hurt. [00:18:34][1.3]

Bryce: [00:18:35] So unfortunately it has it's been an absolute roller coaster hit the highs of about 14 bucks subsequently has sunk to, I think, a low of about $0.45. It's coming back a bit y bit a bit. It is up 123% in the last month. [00:18:52][17.2]

Alec: [00:18:53] It's up over 200% in like the last six or seven months. [00:18:55][2.7]

Bryce: [00:18:55] So it's on a bit of a tear that they are on the path to profitability. They were in talks for a merger or buying another buy now highlighted company here in Australia called Sezzle. They no longer are going through with that and focussing on some of their more core products and getting the company to a Profitable Point. Yeah, that's why it's it's ripping a little because the share shareholders think that that's probably a better idea than spending money on buying another buy. Now pay later. [00:19:24][28.3]

Alec: [00:19:24] We're going to spend stock not money but still still costs. We spoke about it with Robinhood Zip. They closed operations in Singapore. They closed pocket book, which was another app that they own. And the market has loved that. A few of the other big movers megaport up six almost 60% in the last month. You were saying of Mike before that you feel that Megaport is one of those trendy stocks. [00:19:48][23.6]

Bryce: [00:19:49] Yeah, I'm not. I'm going to leave it at that. I'm not going to give any sort of indication of buy holds or sells, but it has a lot of noise in that community. [00:19:56][7.3]

Alec: [00:19:56] Yeah yeah. EML payments on the A down almost 20%. That one gets a fair bit of buzz in the community, but from memory I think it's had a real a real run and now this is just a bit of a pullback. [00:20:08][12.0]

Bryce: [00:20:09] Yeah. For those that I'm sure that's wrong. [00:20:12][2.8]

Alec: [00:20:13] AML is down 70% for the in the past year they go. [00:20:18][5.4]

Bryce: [00:20:18] So some of these companies really, really busting but it's interesting. Yeah. So the past month we've got a spread of 120% for zip up and then life360. Inc is up 53%. So they're the biggest movers. What about losers? Getting a bit of a throwback here because one of the first companies we spoke about when we started Equity Mates was Asia Australian Agricultural Company. It's appeared in one of the biggest losers for the month. But yeah, just getting a bit of a throwback there. We spoke about it 2017. Yeah. Still kicking around I think. What is it up. Is it is it up since we. [00:20:51][32.4]

Alec: [00:20:51] Spoke about it, it's up about 25%. But we obviously didn't we don't make any recommendations. We just touched on it. We just were learning about companies. I think it it just listed or something. [00:21:02][10.9]

Bryce: [00:21:02] The thesis was China from memory. But yeah. [00:21:04][2.1]

Alec: [00:21:05] Demand I'll say. Yeah. Anyway, it owns roughly 1% of Australian landmass. [00:21:09][3.9]

Bryce: [00:21:10] Wow. Yeah, that's pretty interesting. [00:21:11][1.4]

Alec: [00:21:12] Anyway so that's, that was the when we felt it on the top 300 companies. Yeah. We then filtered on the top 200 companies. Now according to Market Index, the smallest company in the ASX 200 is called Grange Resources, which kind of gives it away. But what do you think it does? [00:21:31][19.2]

Bryce: [00:21:31] Mining? [00:21:31][0.0]

Alec: [00:21:32] Well, it owns and operates one of Australia's largest integrated iron ore mining and pellet production businesses. So you're mining and then using that meant using those resources. Again, the Australian theme comes through. [00:21:45][13.0]

Speaker 1: [00:21:45] Yes, yes. [00:21:46][0.7]

Alec: [00:21:47] But when we filtered on the ASX 200 rather than the ASX 300, the first big takeaway is there's not a lot of overlap, which really is an indication of how much more volatility there is in that 200 to 300. [00:22:00][13.3]

Bryce: [00:22:01] Yeah. [00:22:01][0.0]

Alec: [00:22:01] Bracket. Yeah. Which obviously we're not going to give you advice on the game, but if you're playing a short term game, you've got 12 weeks to try and win this thing. You probably want to lean into volatility. Yeah, CBA isn't going to win you the game. No, you can take that as advice because we're talking about the game. [00:22:17][15.6]

Bryce: [00:22:19] Yeah, I couldn't agree more in that bottom 100 is might provide you a little bit more opportunity. Keep in mind though, it does go the other way. Looking at how looking at how some of the companies in the bottom 100 have fallen compared to the falls of the top 200, it is starkly different. So let's let's take a look at that. Some of the biggest movers for the top 200 over the past month, the biggest winner was med lab clinical. They're up 62%. [00:22:45][26.0]

Alec: [00:22:46] A few names that caught my eye pinnacle. Yeah, yeah, up 42%. Whitehaven Coal. Coal has had a good. [00:22:52][6.0]

Bryce: [00:22:52] Run, absolutely run and Wisetech Global up 32%. We'll have we'll touch on them in a moment. Continue to outperform some of the Australian tech stocks but in the on the other side ran some of the losers Coronado Global Resources, GrainCorp, Tabcorp is down 7% webjet despite everything that's going on in travel, is down 5% for the month. [00:23:14][21.7]

Alec: [00:23:14] Yeah, I think you just have to be really mindful about the month long timeline because it just can really obscure the story like GrainCorp, second biggest loser in the ASX 200, down 11% in a month and yet over the past 12 months it's up 43%. Vega Yeah. So it's just, it's just being mindful of like the timeline that you're playing in and in this ASX investor game, you've got 12 weeks and so you've got to be relatively short term. But yeah, I imagine if we look at Webjet, it's probably done alright with the reopening trade and it's just come off a little bit. [00:23:47][32.7]

Bryce: [00:23:47] I'm actually looking at Webjet, not year to date but last 12 months. It's flat, it's gone through everything wrong roller coaster up and down. [00:23:55][8.1]

Alec: [00:23:56] It's choppy, isn't it? [00:23:57][0.8]

Bryce: [00:23:57] It's just unbelievable. It's slowly clawing its way back from the bottom of the pandemic. But anyway, let's have let's chat about some of the key takeaways from this Ren so that those who are playing the game might have something to think about as they enter, and those that aren't can still have some action and some, some talking points as well. [00:24:14][16.8]

Alec: [00:24:14] So you can be kept up to date. So we spoke about zip. We don't need to do that again. We spoke about the 200 and the 300 and where the volatility is. My the third take away from me was tech about it. You remember a couple of years ago we spoke about the wax stocks. W I X Yeah, and it was Australia's answer to FAANG. [00:24:35][20.7]

Bryce: [00:24:36] Yeah, Wisetech Appen, Afterpay was in there. Altium And then. [00:24:40][4.7]

Alec: [00:24:40] Xero, now Bryce You listed those five. Here's how they've gone in the last 12 months. Wise Tech up 61% now. Afterpay got acquired by block. Lock is down 67% in New York. It's down 34% in Australia because of the strength of the US dollar appen down 67%, Altium down 11% zero down 34%. One of these things is not like the other. [00:25:05][24.9]

Bryce: [00:25:06] Zero. [00:25:06][0.0]

Speaker 1: [00:25:08] Was zero. [00:25:10][2.0]

Bryce: [00:25:10] Is not like the other. Yeah. Why is tech absolutely outperforming. Yeah. Killing it. Absolutely killing it. Hopefully. Fingers crossed we can get Richard White on the show as part of our ASX Say Connect series. If you're listening, Richard, we'd love to have you on to talk through it. But yeah. [00:25:26][15.8]

Alec: [00:25:27] Interesting stuff. Yeah. Shout out to Alex Eagle's, someone I went to school with who works at Wyse Tech and I caught up with at our ten year reunion recently. [00:25:34][7.3]

Bryce: [00:25:35] Nice and Ren. Coal goes both ways. [00:25:37][2.1]

Alec: [00:25:38] Another takeaway Cole does go both ways. We said Whitehaven Coal was up 35%, one of the biggest movers on the upside Canada Global. The biggest loser in the ASX 200. Also a coal company. [00:25:52][13.9]

Bryce: [00:25:53] There you go. [00:25:53][0.2]

Alec: [00:25:53] What's the difference? [00:25:54][0.5]

Bryce: [00:25:55] Management? I have no idea. [00:25:58][2.8]

Alec: [00:25:58] Do you think just different companies? I think Conrado does coking coal that's used to create steel. I think Whitehaven probably does the one that's used to create energy. So maybe there's maybe there's that. But that is complete conjecture with no research to back it up. But how you do your yeah. [00:26:15][17.5]

Bryce: [00:26:16] That's how you play the game cycles. So if you're interested in playing the ASX share market game, you can head to ASX secondary or there'll be information in our show notes. Now before we jump into our conversation with Michael Frazis to get his views on the current state of the market, how he's deploying capital. We are just going to take a quick break. But remember, tickets to fin fest are available equitymates.com/contact fin fest. Michael will be joining us at fin fest. Some actually jump on there, only $47 and you'll hear from some of Australia's best experts. So we can't wait. It's coming up. Hot tickets are selling fast. We're getting a merge back together for the first 100 people that walk through the door. There's plenty of opportunities to win. I think one of the sponsors on the day is going to be giving away an internship. Ren one of the sponsors. [00:27:02][46.8]

Alec: [00:27:03] Is another one's going to be giving away a $10,000 portfolio. 10,000 of you take the internship. I'll take the portfolio. [00:27:08][5.2]

Bryce: [00:27:09] One of them's giving away a $10,000 portfolio. That's right. So there's gonna be so much stuff happening on the day. We cannot wait to see you there. And we're going to be chatting to Michael Francis straight after this break. Wow. All right. So as we said at the top of the episode, we're really excited to get a friend of the show back on who we haven't had for a while. And that is Michael Frazis, the founder of Frazis Capital Partners. Michael, welcome back. [00:27:42][33.0]

Michael Frazis: [00:27:42] Hi. Thanks so much for having me back. [00:27:44][1.3]

Bryce: [00:27:44] It's been a while since we chatted chatted with you. And since then markets have done some pretty crazy things. And we're going to spend the next 15 or 20 minutes getting an understanding of how you're thinking about all things growth stocks, really, because that's been your jam for the last couple of years or so. So let's start with the current state of the market. What is your assessment? [00:28:04][20.2]

Michael Frazis: [00:28:05] What is the assessment? Well, I think it's small-cap growth and life sciences where we play. It's really been one of the kind of toughest environments in the last several decades. Obviously, there's many ways to value growth stocks. One way you can value stocks in general is just the number of companies that are trading, you know, the low cash on their balance sheet and at the lows, which is only only kind of four or five weeks ago, that number exceeded the peak of the GFC and the very end of the bear market from 2000, 2000 to 2003. Wasn't that kind of an October 28? By then it was the low in March 2009. And in terms of companies trading for listing cash, we exceeded that. So this huge amount of distress, obviously, it didn't hit all corners of the market the same way. Some industries, obviously, energy, commodities, old school industrials, you know, had the best year they've had in a very long time after a long period of under-investment did in our corner of the market, it was almost that has been on record. So that obviously made it challenging, but also meant that there was plenty of opportunity and eventually seen if that moment has now passed. You know, things have rallied pretty hard from those lows. My personal view is I know, but anecdotally and from everybody I know as well, statistically based on, you know, prime broker data that everybody kind of went max short, max underweight technology and Bryce. It was not really acceptable for for a professional manager to kind of admit they are in these kinds of stocks. And it really swung those very sharp swings. Usually these things take two years, but it really swung from ultra high values and ultra high optimism to kind of ultra low. So it's kind of like in November last year. And for us it's really started kind of six months before that along with other growth funds like us. But really, I guess everybody ran all the way to one side of the boat and probably way too far. The boat tipped almost it over and everybody's rushed all the way to the other side of the boat and now just seems to be sterilising just a little bit to everybody, still kind of extremely dash. So that's a pretty good set up actually for for us. [00:29:55][110.0]

Alec: [00:29:56] It's a fascinating moment that we're in because obviously the sell everyone sort of lived through the sell off and got so bearish. But the last couple months we've seen things rebound a little bit. The Dow in the US was down 18%. It's now only down nine and a bit percent for the year. The S&P 500 was down 23%. It's now only down 13% for the year. So some of the some of those names are coming back a little bit. But I guess the the question on everyone's lips is, is this the start of a recovery or is this a dead cat bounce? So I know it's an impossible question to answer, Michael. No one knows where the market's going to go, but what are your thoughts around that question? [00:30:41][45.2]

Michael Frazis: [00:30:42] I think you break this down into things into few factors. The kind of thing you said is probably like positioning, valuations, sentiment, and I guess the actions of central bankers and liquidity. And so one thing we were all very wrong was after the big sell off in January and February. But things actually things are not actually that far in our space below after this big rally, I actually thought that was more like if you look at sentiment positioning, all those things and all those things swung all the way to the extremes that typically mark lows and maybe, you know, hit where things were at the peak of COVID. So to me, the combination of those things was clear by signal, as it turns out, you know, another significant leg down as Ukrainian war, the war in Ukraine. In Ukraine, energy prices spiralled out of control. Federal Reserve came out extremely aggressive, fastest tightening in 40 years, and that caused another leg down. But a lot of things we are in that halved in the three months after that. So anything I'd say about the market direction take with a grain of salt and got that went so wrong but now you know those those factors are still at actually more extreme survivals like that down not kind of Lehman Brothers crash but kind of like the low in March 2000 and not you know all those positioning momentum sentiment all those things actually pushed to new depth. And that was the case in mid-June. That doesn't mean there's going to be a recovery because all the ingredients are there. And, you know, whether you measure by full bear ratings, by a cash on fund manager balance sheets or just broader sentiment, what you're doing in the market, you know, everybody's underweight growth in technology and is going to get caught. So upside if technology continues to rally and I think that's what we saw last month apparently from the. I could you people of the Bible as best sellers were kind of 4521 people recognising, you know, tech after last tech crash. Tech rallied from, say, 2000 to 2000 3 to 2018, really almost up broken. And then you could argue that it went all the way to November 21. Performance is basically dependent on how much you allocated to those leading technology companies. You could almost like rank funds according to, you know, the exposure to that, knowing this red situation where funds and underweight technology. And I think there'll be plenty of people who are wondering what to be really careful to make sure they're not the wrong side of another five or ten year bull market and all those ingredients for that are basically in place now. [00:33:09][147.7]

Bryce: [00:33:10] Well, with that in mind, Michael, how do you think about getting back into markets at this point in time? If you're sort of suggesting that there's a probability that there could be another bull for five or ten years, you know, is it something that if you don't get in now, you miss out? Like, how do you think about redeploying? [00:33:27][17.2]

Michael Frazis: [00:33:28] Well, I wish I had that problem because we wrote it the whole way. We didn't we didn't actually sell it out and sit on a pile of cash, sadly. So plenty to reflect on on that. There's phenomenal companies are trading incredibly cheaply. So I'll give you some examples of leverage. As reported last night is the number one e-commerce platform, fintech platform in South America. It's going to top out at 58%. It's profitable. It increased to a peak in Jan 21, which is roughly in line with a lot of growth stocks, including our fund, and then sold off 70%. Now, since that time, it's increased in size by two and a half times the increase in profitability. And it's a clear dominant market leader just executing a massive scale that the low which was recently which was like right at the end of last night, which wasn't exactly great news for me on financial and financial reporting, but at that point it was a sales beat. Sales been around for a time that point on a sales basis. Anyway, it reached the depths of the march, doesn't it not? And this is a company that just reported 58% top line. So this is a huge disparity in my sector. Again, it's not the whole market. It's very much the corners of the market. The small mid-cap growth lifesciences that we play in. Everything has gone all the way to 2022 to 3 levels or beyond in a seven day trading way below cash. There's many companies trading way below cash, but the companies themselves, a lot of them are still doing very well. I think probably does make sense to wade in and start stop the highest quality, fast growing companies that are down 60, 70%. You know, it's it's like that famous Amazon banner where Jeff Bezos wrote off after the tech crash originally. You know, he just listed all their achievements. They're still growing. They're still out of use that in revenues from that same cross across a lot of the good tech companies that survived that crash. You know, they are delivering on fundamentals. If you can find an amazing world class company that is continuing to deliver exceptional growth, exceptional fundamental performance is down 60 to 70% over the last one and a half years and is trading cheaper than it probably ever has before. You know, the mix of all those things is pretty positive. Yeah, but I kind of envy anybody that's managed to sell a massive pile of cash throughout this whole thing. [00:35:41][133.0]

Alec: [00:35:42] Yeah, well, we we spoke to Nick Griffin from Munro last week and he went to 40% cash in, I think, January. And Bryce and I were both quite jealous of that because similar to you, Michael, we've we've written it down and hopefully writing it back up. Something interesting that he was saying because in sort of 2020, 2021, he was investing in a number of these high growth, sometimes unprofitable companies as well, you know, the Spotify of the world. But he was saying that coming out of this this sell off, he's he's looking at slightly different names. He's looking at more than megacap tech names who are looking kind of cheap at the moment, you know, maybe trading at like a 20 times pay. Are you changing your focus at all in terms of the companies you're you're looking or maybe is your investable universe broadening at a time like this? [00:36:34][52.0]

Michael Frazis: [00:36:34] Yeah, I mean, there's a couple of aspects to that. So they're very different, very different styles. So big tech, largely what we can do. I think ultimately we just have to have some exposure of some of those names because every time there's a crash and you know, we've had a launch in mid 2018 at the top, then there's that big sell off immediately, then rally, then kind of crash and you know, ten month rally, then one and a half year down. So I kind of this whole plan seems to feels like it's been in a kind of bear market, but whenever that happens is huge flat within tech, you know, larger companies and being on the wrong end of that is can be pretty painful. But I think I think that's not really where the action is. Now, you could buy something like Google or Microsoft, Absolute Monsters, Google obviously a little bit more cyclical. Microsoft, you know, just going from strength to strength for better or worse like that. Absolutely, extremely high quality businesses, not expensive, but that's probably where the best investment return opportunities potentially even on a risk adjusted basis. So right now you've got for example, on June, you had multiple companies with FDA approval trading for less than the cash on the balance sheet. So, you know, these companies are going to succeed and it's certainly worth something in normal times. If they fail the trial, biotech fails, the trial attracts roughly double the cash and stays there. The distress got so bad in the last few months that prices crashed, went straight through that, irrespective of basically whether the company was delivering or not. We've added, I think, three companies that fit that bucket but were trading for less in cash and have either imminent already FDA approval and licences. What else is interesting? I think there's that within software there's a pretty big disparity between five or six high flying names that are still very expensive, like Datadog, CrowdStrike, you know, these are MongoDB. They're very high quality growth and sense that it's extremely likely that we have very high degree of certainty that growth is going to come through. But they're not they didn't get bummed out like a few other companies. And then you've got companies with kind of more junior that traded that indifferent three times to 15 times out of the 30 times to four or five times. And these are loss making companies, obviously, but they are building these revenue streams. The revenues per user are growing and we know what software companies look like scale. So the other type of opportunities, I don't think you need to go to unprofitable tech to get the returns on a rebound that people might be having trouble actually finding. One that we bought today day is crocs. [00:38:58][144.0]

Speaker 1: [00:38:59] Oh yeah yeah. [00:39:00][0.8]

Michael Frazis: [00:39:00] Yeah. So it's kind of like it sold off a similar similarly to some of the growth stocks down 65 70%. It didn't acquisition which is risky because you never know if the insight so it's kind of like a casual shoe company so who knows maybe they sold out at the right time and that was at peak sales and maybe crocs themselves or peak sales based on the excess cash that we had last year. So that's kind of like there are risks involved, people's go to company growing. You know, when it bought it was like a kid five 15% for free cash flow yield. A long history of buybacks is going to be paying down debt next year, but will that switch back on buybacks perhaps mid-next year? So that's like an example and I wouldn't necessarily recommend anyone to go rush out, but that's exactly stuff that's extremely profitable, that's had that small cap mid-cap growth moves that you don't need to what you just value at this convention is possibly want. Also kind of look, people seem to be waiting in these days. Yeah, they're. [00:39:55][54.4]

Bryce: [00:39:55] Back. They're getting back. [00:39:55][0.6]

Speaker 1: [00:39:56] Mm hmm. [00:39:56][0.5]

Michael Frazis: [00:39:57] Yeah. So tell you what they did is they slashed all the conventional marketing and then invested heavily in influencers and collaborations. [00:40:03][5.7]

Alec: [00:40:04] Oh, okay. [00:40:04][0.2]

Michael Frazis: [00:40:05] Yeah, let's yoghurt and all that kind of stuff. And the practical for nurses, artists. [00:40:10][4.7]

Bryce: [00:40:10] Yeah. They've become quite back in vogue. [00:40:12][2.0]

Alec: [00:40:13] Yeah. We need an influencer led campaign to listen to our podcast. [00:40:15][2.4]

Michael Frazis: [00:40:16] Just you two are the influencers. [00:40:19][3.5]

Speaker 1: [00:40:21] Not the. [00:40:22][0.9]

Michael Frazis: [00:40:22] Founders table. [00:40:23][0.3]

Alec: [00:40:23] Oh, then we need the Crocs deal. [00:40:25][1.6]

Bryce: [00:40:28] Before we just close out. Michael, we're really excited that you'll be joining us at Fine Fest, which our audience are now well versed in. And for those in the Equity Mates community who haven't yet bought tickets Equity Mates dot com slash fin fest to grab a ticket, they're only $47 and you'll get the opportunity to listen not only to Michael share his thoughts and words of wisdom, but plenty of other experts from around Australia. So Saturday, 15th of October, we're really excited to add Michael to the to the list of speakers there on the day. And thank you, Michael. Obviously for for supporting Equity Mates and and Fin Fest. We really appreciate you. You're taking out of Saturday to do that. But look, it's obviously a really interesting time in markets. And if you were to sort of pass on some closing thoughts to those retail investors out there who may or may not be sitting on some cash, wondering what to do, perhaps maybe if you could just. Yeah, pass on some closing thoughts. [00:41:26][57.9]

Michael Frazis: [00:41:27] I really reluctant to give a market call having done of course, I reckon if you buy it, if you buy the high quality, fast going companies that are down significantly trading at an all time lows or just coming off them, I think there's much more you could ask for when it comes to investing. So yeah, that's kind of situation and today. [00:41:46][18.9]

Bryce: [00:41:46] Some great opportunities out there. And I think, you know, we're trying to do our best to keep people excited about the markets at the moment. It is. It's one of those times where we'll look back. And if we haven't been able to take advantage of the opportunities out there now, we might be kicking out some. Yeah, so. [00:42:02][15.6]

Michael Frazis: [00:42:03] Well, you know, it's funny. Yeah, it's like every every market bottom, every single one, nobody believes it's a bottom at the time. And then you swear yourself that you will not make the same mistake again. And we finally we finally got there in June. Like even in June, I was like, I've given up hope, you know, it's just going down. Everything's going down to zero, you know, like that was like what I was feeling. And I'm like usually extremely optimistic, but I was feeling that who knows what everybody else was feeling. But it's funny, like, if Max did. That would have caught almost everybody I know by surprise. I don't know a lot of people who got quite aggressive on the wrong side and covered. I can't think of anybody that springs to mind that was by her, you know, in the last couple of months. But I guess we'll find out if there's a long rally to come out with the stories of what they the lies and things like that. Yeah. [00:42:47][44.7]

Bryce: [00:42:48] Classic. So they'll never tell you. Yeah. Anyway, it's interesting. [00:42:51][3.6]

Speaker 1: [00:42:52] It's interesting times. [00:42:53][0.7]

Bryce: [00:42:55] And all you can do is just keep learning and learning from your from past experience, I think. And it's speaking to people like you here. Help us do that. So, Michael, thank you so much for your time. We'll have to get you back on for a full episode to unpack it all in a little bit more detail. But also, can't wait to catch up at Finn Fest and hear how things have progressed since then. Maybe we'll be reroofing through the bull market. [00:43:15][20.5]

Speaker 1: [00:43:16] Hey, guys. [00:43:16][0.1]

Michael Frazis: [00:43:19] Let's hope so. Thanks, guys. We appreciate it. Thanks for having me on. [00:43:22][2.9]

Speaker 1: [00:43:22] Thanks, Michael

Bryce: [00:43:24] Always great to chat stocks if you haven't picked up your first ticket Equity Mates dot com slash finn fest but will pick it up next week. 

Alec: [00:43:30] Sounds good. 

Bryce: [00:43:31] Hey, thanks for listening to this episode of Equity Mates. We love hearing from you, so drop us a line at Contact@equitymates.com or even better go to your podcast player and leave a five star review. Also a reminder that the Equity Mates content train doesn't stop when you've run out of episodes to binge. We've got a brand new website, a Facebook discussion group. We're on Instagram, YouTube and slowly making our way as an influencer on Tik-tok. Well, that's Ren. So come and say hello and join the community. We'd love to welcome you. Until next time.