Investors are continually looking for a good deal in the stock market. But how exactly should we define value?

Quantitatively, publicly-traded companies should serve as compounding machines for their investors. They raise capital — either through debt or by issuing stock — then put it to work into projects. If the after-tax profits they generate are greater than their associated costs, they’re creating value for us as the owners of the business (i.e. as the investors).

But the investing world is also extremely complex. Markets are changing and being disrupted by new technologies every year. CEOs and leadership teams are continually trying to balance between their desire to be visionary and their need to be efficient. Underinvesting in growth could put a company several steps behind its competitors. Yet going “all-in” on an acquisition that turns out badly could very quickly light their shareholders’ capital on fire.

So what are we as the investors to do?

Are there specific metrics we should look at, to determine if a company is using our money responsibly? How should we figure out what the right price is to pay for a stock? And are their any specific stocks out there right now, which might be significantly undervalued and could represent a great bargain for us as investors?

To help us answer those questions, we’ve brought in an expert.

7investing CEO Simon Erickson recently spoke with John Rotonti, who is the host of the JRo Show podcast (and available on both Spotify and Apple Podcasts).

John previously worked for nine years at The Motley Fool, where he was an analyst on several newsletters and most recently served as their Head of Investor Training and Development. Simon and John have been friends for a decade, and we recently exclusively published his interview with legendary Fidelity fund manager Joel Tillinghast on our own 7investing site.

Their conversation begins with the key takeaways from John’s conversation with Joel. Over a period of 34 years, Joel’s Low-Priced Stock Fund accumulated $26 billion in assets and generated annualized returns that outperformed the broader S&P 500 by an average of 379 basis points every years. That outperformance over a three-decade span is indeed a feat of legend.

John described Joel’s value-based investing approach and how he estimates an intrinsic value. The two then discuss the specific metrics that Joel was using as an initial screen to identify valuable and potentially undervalued stocks — such as a ROIC greater than 10% coupled with a P/E ratio of below 23x.

Simon and John then ran a screen of their own, using seven of the specific criteria that Joel similarly looked for. They came up with a list of 89 publicly-traded stocks, and they dug deeper into two of them: Crocs (Nasdaq: CROX) and American Eagle (NYSE: AEO).

Then two then discussed stock-based compensation, and how investors should think about it as an alternative to salaries or cash bonuses. Stock-based compensation is a non-cash charge that is added back when calculating a company’s free cash flow. But it also typically results in shareholder dilution — meaning investors are getting a smaller pie of the overall pie.

As an example, they discussed Broadcom (Nasdaq: AVGO). Broadcom is generating an incredible 45% free cash flow margin and returned an even-more incredible 90% of revenue to shareholders through buybacks and dividends last quarter. Yet there is nuance in the numbers; as many of the shares were simply to offset stock-based comp or for additional shares issued through acquisitions.

John and Simon then turned to capital allocation, which is how companies can use their profit stream for the benefit of shareholders. They used Intel (Nasdaq: INTC) as an example, who was previously using capital primarily for dividends and buybacks but has more recently been investing in building new fabs to capitalize on the growing demand for high-performance chips.

In the final segment, the two discuss The Home Depot (NYSE: HD) and Texas Instruments (Nasdaq: TXN), two companies who have been capital allocation decisions this year that could be questioned on whether they were good for long-term shareholders.

Publicly-traded companies mentioned in this podcast include AMD, American Eagle, Apple, Broadcom, Crocs, Hewlett Packard, Home Depot, Intel, NVIDIA, Taiwan Semiconductor, Texas Instruments, Asana, Atlassian, Cisco, Microsoft and Palo Alto Networks. 7investing’s advisors and/or its guests may have positions in the companies that are mentioned.

Don’t miss out on future conversations like this! 7investing has recently published interviews with the CEOs of PubMatic, Rocket Lab, and more. Join 7investing’s free email list to get our podcasts and investing insights delivered directly to your Inbox.

Sponsor Disclosure: The advertisement in today’s podcast was paid for by Public Investing. Must activate Options Account by March 31 for revenue share. Options not suitable for all investors and carry significant risk. Full disclosures in podcast description. US members only.

Transcript

SPEAKERS

Simon Erickson, John Rotonti

Simon Erickson  00:00

Hello, everyone, and welcome to today’s episode of the 7investing podcast where we’re here to empower you to invest in your future. You can learn more about our long term investing approach and see every one of our stock market recommendations at 7investing.com.

Simon Erickson  00:14

My name is Simon Erickson. I am thrilled I am so excited to welcome my guest to the show today. John Rotonti is an old friend. He’s also the host of the JRo podcast. He’s been investing long term or he’s been helping to educate long term investors for more than a decade. John, I think I speak for everybody when I say welcome to 7investing podcast. It’s a real pleasure to have you on the show.

John Rotonti  00:36

I’m so glad to be here, Simon. Thank you,

Simon Erickson  00:38

John. You know, we’ve chatted about quite a few topics over the years. And I wanted to kind of dig into a couple of those. Later in the show. We’ll talk about capital allocation, we’ll talk about dividends and share repurchases. We’ll talk about a couple of companies that are doing this well, and maybe some that aren’t as well. But I think that a really good way to start our conversation is a previous interview that you had with Joel Tillinghast who if that name is unfamiliar to a lot of people, kind of a legendary fidelity value investor. 30 year career, you know, outperformed the market over three decades. And you recently interviewed him, and I know that he’s kind of a hero to you, and has a lot of the same kind of investing style as you follow. But maybe to start this conversation. You know, John, what was some of the key takeaways that you had from the conversation with Joel here recently?

John Rotonti  01:25

So he’s definitely a role model and a hero of mine in the in the investing world of ours. So it all started, you know, the first investing book I ever read, I was in college, I’m 43. Now, so you know, this was over well over 20 years ago, was Peter Lynch’s one up on Wall Street. And when I read Peter Lynch’s book, maybe for the only time in my life, I had an epiphany moment about what I wanted to do with my life. Maybe that was the only time in my life. And two things happen when I read Peter Lynch’s Book One is, I had the epiphany that I kind of understand this maths, I was always good. I wasn’t, I didn’t major in math or anything. I wasn’t very advanced in math, but I understood the basics very well. I was always good in math, I was comfortable in math. And when I read Peter Lynch’s book, you know, he goes through a couple ratios in the book, a couple of metrics in the book, all of that made sense to me. And at the time, I didn’t know what a stock was. But the math made sense. So that was one epiphany that went off. And the other one was, as an 18 year old, I think I want to do this for a living. And so Peter Lynch’s book, to me had the most impact on me, because it set off that that realization moment of what I wanted to do with my life. And it gave me the confidence that I thought I could be decent at it.

John Rotonti  02:52

And so over the years, I started to follow Fidelity, because that’s where Peter Lynch worked. You know, he was only a portfolio manager there for only 13 years, at least on the Magellan Fund. But I ended up subscribing to a newsletter that followed fidelity funds, because I wanted to learn more about fidelity. This was not a fidelity product. This was a a separate individual that believed in Fidelity’s products, and he put out a newsletter. I think it was like Fidelity monitor or something like that. I don’t remember the name. But I subscribe to it for a few years.

John Rotonti  03:26

And that’s when I first came across Joel Tillinghast, because this fidelity watcher talked about how good Joel was. And that’s when I learned that Joel worked under Peter Lynch. And so that’s when I started first became a follower. And a student of Joel, you know, and then over the years, I learned that he didn’t just work for Peter Lynch. Peter Lynch interviewed Joel. Peter Lynch hired Joel. Peter Lynch trained Joel. And Joel worked under him for several years and Peter was like his mentor, why would I not be interested in that? Right? Like that’s like the dream scenario for almost any investor to get hired by train, buy study under and work for a legend like Peter Lynch.

John Rotonti  04:19

And then you know, Joel put out this great book. You know, and when I say when I say I read something like I read it and I mark it up I got I go crazy with some of this stuff. And you know, he did you like you said a 30 year career and he beat the market after fees by four percentage points per year on average, over 30 years. And that’s, you know, four percentage points of annualized Alpha. It’s pretty impressive. What I what resonated with me about his style, and his philosophy is he focuses on high quality companies and he defines quality as and it’s, it’s In the interview that we posted to 7investing, and thank you for giving me that avenue to post it, by the way, but, you know, he talks about, he’s looking for profitability. He’s looking for lifespan companies that are going to be around a long, long time. And he’s looking for certainty. In those future earnings and cash flows, he’s really looking for predictability, and then and then valuation. And so basically, he’s looking for the best businesses in the world. And he waits until they’re trading at really low multiples.

John Rotonti  05:31

And that’s sort of what I do. It just, it just feels right to me. It’s where I’m most comfortable within my own risk tolerance. And so that’s what I look for these companies that score really highly on, you know, profitability and return metrics, they have good organic growth, but they are predictable to some degree. I can, I can model them, I can forecast them to some degree with some degree of confidence and conviction. And then I just really wait for their stocks to get crushed. And so it becomes a game of patience.

Simon Erickson  06:09

It’s fantastic, John, you know, and like you said, there’s some great quotes from Joel, one of them that you included in that piece that we published up on 7investing.com was: “Without any concept of intrinsic value, it’s impossible to gauge whether the market has already picked up on your insight.” In the world that we’re in today, right, it’s kind of an ADD investing world, in many ways out there. On social media, there’s so much momentum, there’s so many Gamestops and AMCs and, you know, these to some extent, cryptocurrencies and Bitcoins, it’s nice to go back and really get into the trenches, figure out what a company is intrinsically worth and find those mispricings out there in the market. John, you know.

John Rotonti  06:46

People love that, quote. Thank you for sharing it without an estimate of what you think a company has intrinsic value is, it’s not just that you don’t know when to buy. You also don’t know when to sell, you don’t know when to trim, you don’t know when to add. You don’t know when buybacks are intelligent or not, you don’t know about acquisitions when they’re intelligent or not. You literally are completely unanchored, from any sense of reality of what the company is doing, you have no way to measure anything that the company is doing. And then it just becomes, it just becomes a guessing game. And that works for some people, but it’s not how I want to invest.

Simon Erickson  07:33

Now, the discounted cash flow analysis has become kind of a standard in this industry, right? Everyone wants to bring the future free cash flows back to the present, getting intrinsic value with the stock is worth throwing a price target. And then when it’s lower than the price target institutions are going out and buying it. John we will talk about Joel’s approach and the screen that he had in a minute here. But let me first ask what your approach is, how do you approach intrinsic value? How do you figure out if a stock is a good bargain right now.

John Rotonti  07:59

I try to use a lot of methods, you know, two or three and triangulate on what I think is a range of fair values. And for companies when that range is narrower, I have more confidence. That’s like Pepsi, right? Like Pepsi grows at like GDP plus a couple percentage points every year organically. They’re really well run, they do some good capital allocation. And you get, you know, higher mid single digit EPS growth. And it’s it’s relatively stable and predictable. And so if I was going to try to value Pepsi, which is a very good business, my my estimated range of values is going to be narrower for other companies that are earlier in their lifecycle, or they have lots of different lines of businesses, some that are disruptive and innovative. Some of which are some of which those lines of business are not even really earning anything yet.

John Rotonti  09:01

Right. Like for example, with Tesla, their, their AI, their robots, their Robo taught taxis, the you know, service revenue, software revenue, high margin software revenue from FSD. All of that is very hard for me to model at least for me to model. And so my range of estimated fair values for Tesla is going to be much wider. I used I use this kind of cash flow models, but you know, you can make a discounted cash flow model, whatever you want. And I do a lot of guest lectures at universities at Tulane at Fordham. I did one recently at the University of Dayton. And a lot I’ll sit in a lot of students stock pitches and they’ll share their models with me and what they do almost every time without fail because this is their first time running a DCF not critical of this at all. But they’ll just make the model close to where the stock is currently trade. to write, and they’ll just show it and they’ll just show that the stock is 10 or 20%, undervalued just make it work like that.

John Rotonti  10:08

Once again, that’s not a criticism, this is their first time ever doing it. But you can tweak little things in the cost of capital, or in the early years of revenue, or in the terminal growth rate, and just make it whatever you want. And so if all if I was a fund manager, I was a portfolio manager, I had some analysts working for me, and all they did was bring me their DCF and tell me the stock is undervalued. That’s not enough for me. It’s just one of many tools that I’m going to use. Now the DCF is good because it allows you to, to use scenario analysis, and it allows you to see what the primary drivers of value are for a particular business because the primary drivers of value are not the same for every business for a really high margin high ROIC business.

John Rotonti  10:58

The primary driver of value is by far organic revenue growth by far and you can play with the model and see that clear as day free low margin, low ROIC business, organic revenue growth actually destroys value. As you know, in that case, the primary driver of value is an increase in margins or ROIC to where it gets above the cost of capital. And you can see that clear as day by playing with the model. And so it does show you clearly what the levers of value are.

Simon Erickson  11:30

Let’s talk about a couple of those screens. You know, just to close the chapter here on Tillinghast, you know, this is a guy that over 34 years outperformed by an average of 379 basis points outperform the market over a 34 year career by all and he said almost four percentage points a year. And then by the end, you know, was mentioning $26 billion of capital, I mean, those those are phenomenal numbers.

Simon Erickson  11:55

The world has changed a lot in 34 years, it’s easier to now do screens today and find those companies than it was three decades ago. But I think it’s really interesting, you pointed out in this piece in this interview you did, John is when you have somebody with a track record like Joel. And then he also has got the performance to show it. He shared exactly what he’s looking for. He shared exactly the metrics that he screens for when he’s looking for companies. And he had a couple of the specifics that he was looking for.

Simon Erickson  12:24

Return on equity have greater than 10%.

Simon Erickson  12:26

Return on invested capital greater than 10%.

Simon Erickson  12:29

Free cash flow that is greater than net income.

Simon Erickson  12:31

Long term debt divided by EBITDA less than 4x.

Simon Erickson  12:36

A little bit of insider ownership

Simon Erickson  12:38

A P/E ratio of less than 23x.

Simon Erickson  12:41

And a company that’s buying back shares.

Simon Erickson  12:43

That seems kind of like a broad base screen. But of course, it’s necessary, right? He’s looking for value companies that are undervalued out there, that he can now predictably understand what their intrinsic value is worth. Any thoughts on the screen that Joel uses? And why specifically this has driven so much outperformance over 34 years? ,

John Rotonti  13:02

Yeah, and you know, so that screen is, you know, a first level once he gets there, then he dives much, much, much deeper. You know, I think Peter Lynch called, you know, said he was one of the greatest investors to ever live. And that he was, I don’t know if his other worldly analytical or something like that. But he’s incredibly analytical, he dives deep into the numbers. So the screen is the extremes, like he won’t ever go higher than a leverage ratio of four. But he’s very cautious around debt. And so in most cases, it’s the debt to EBITDA as much less than four, like much less than four, and then he won’t ever or very rarely pay higher than 23 times. But in most cases, it’s much, much, much, much lower.

John Rotonti  13:49

In the interview that we posted to your site. You know, he said, for an average or middling business, he wants to pay a PE of single digits, that means less than 10. He then said, for a above average, a good high quality business, he will pay almost like it’s hard for him to do it. But he will pay a team, it’s multiple. And then he say, in the most extraordinary of cases for the best businesses. He said he will pay a low 20s. That’s how I came up with the 23. I assume low 20s means 23. But that’s in his most extreme case, this guy is not paying off. He’s, he’s waiting for these great businesses that meet those criteria to tray down to low multiples of normalized earnings.

John Rotonti  14:40

And that’s the thing in the book, he talks all about normalized earnings kind of mid cycle normal. He’s not just taking one year, and assuming that denominator is is what normal earnings power is. And then just real quickly, he’s looking at these things over time. So he’s not looking at the most recent fiscal year. Over the last 12 months and saying, Okay, our ROIC of at least 10%, free cash flow to net income of at least 100%. He’s looking back at the averages over 10 years or more, he talks about what he loves about value line. In the interview Valley, he said Value Line give me 15 years of data, like he’s looking at the averages over time.

Simon Erickson  15:21

And he owned quite a few stocks in the fund. Right? It’s several hundred that were in the fund that he had, right.

John Rotonti  15:27

I think when he retired at the end of 2023, it was in the seven hundreds. You know, probably an influence that he got from Peter Lynch, you know, Peter Lynch owned, you know, 1000. So, yeah, he, he had a long tail, very long tail of small bets. Optionality bets.

Simon Erickson  15:49

It’s an interesting math, right. It’s interesting, John, you know, he’s not going to catch the NVIDIAs. He’s not going to catch the Teslas. They’re not going to show up in his universe if he wants to invest in, but he’s just got such a collection of high quality, predictable businesses that outperform over time. It’s a strategy that works for a value investing legend. We’ll jump into a couple of the individual companies here in a minute. And we’re gonna be chatting a little bit more about capital allocation, which is how companies turn business performance into investor performance of a quickly sponsored read.

Simon Erickson  16:21

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Simon Erickson  16:26

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Simon Erickson  17:08

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Simon Erickson  17:25

John, with that said let’s get back to a couple of the individual companies that we found on this screen. We posted this to Twitter, we put it in the article too. But people are probably at this point asking Okay, great Tillinghast who’s got an awesome screen. He’s got 700 companies out there, which ones might even be worthy of future attention. So we ran that screen with the metrics that we just discussed a couple of minutes ago, it came back as eighty nine publicly traded companies that fit every one of those criteria that we just mentioned.

Simon Erickson  17:53

A couple of the names that were mentioned that we’re not going to chat about but at least worth potentially looking deeper into was Applied Materials, Best Buy’s Best Buy excuse me, Carter’s Dick’s Sporting Goods and Meritage homes. I want to talk about too, though a little bit more in detail because these are kind of off the radar of a lot of investors you know that are going out there looking for the NVIDIA is looking for the Tesla’s looking for a lot more exciting, sexier companies.

Simon Erickson  18:18

But these two might not appear in a lot of those screens. But they did and telling us the first was Crocs CROX. The second was American Eagle, AEO. And I bring this up because you know, Crocs is a shoe retail. You know, they’re making shoes out there. American Eagle is a what I think of as the mall bricks and mortar retail store. That’s been around for 30 years. But these are two companies that showed up. And I wanted to give a little bit of commentary on each of them. John, please feel free to jump in with this if you’d like to, but at least to kind of start the research on why these are interesting.

Simon Erickson  18:52

Crocs is selling at nine times earnings. This is right in the sweet spot of what Tillinghast likes to pay out there. It’s probably a very undervalued stock. Because when you’re thinking about companies that are you know, 7 or 8 or 9 times earnings, there is not a whole lot of growth expectation baked into those companies. In fact, when you’re talking about seven times earnings, you’re so unless you’re you’re kind of looking at an industry that’s perpetually in decline, right? We’re used to this for tobacco companies, maybe commercial real estate, a lot of these kinds of retailers are we’re chatting about. There’s just such low expectations from the market.

Simon Erickson  19:25

Crocs is interesting, though, because this is a company that in five years has done has quadrupled. Its revenue from a billion dollars in 2018 to $4 billion in 2028. And its gross profit has also quadrupled over that same time, too. But it’s been very conservative about its own costs, right SGA selling general administrative has only doubled in the same timeframe. And when you’ve got revenue growing by $4 billion, and you’re associated costs only up $3 billion. Of course that fell very quickly to the top to the bottom line. earnings over that five year period gone from $50 million a year to eight 100 million dollars a year. It seems to me John that this is a company that’s performing decently well has been very conservative in its own cost structure and a nine times earnings. Perhaps is is a good opportunity, a good bargain in this in a market out there. Any thoughts about Crocs? Yeah,

John Rotonti  20:18

I have a few thoughts about Crocs. So my, my Twitter profile picture is of my Crocs. I saw that I did see that, literally of my feet. So I have three pairs of Crocs. I have a pair that I wear outside. I have a pair that I wear only inside almost like my house shoes, my slippers. And then I have a fleece line pair. For I have eight nieces and nephews. I’ve probably bought five pairs for them over the years. You know, just to put some numbers on this, like you said, five year revenue CAGR. I’m in cap IQ right now. Through the end of 2023 30%. Five year revenue CAGR. Five year unlevered. free cash flow CAGR. 50%. So, you know, it seems this, this is not a slow grower, like the multiple is implying, I think it has a low multiple, because people, I believe, incorrectly assume that crocs are a fashion fad. That’s been around forever. I mean, they’ve been around for at least 20 years, I think I’ve had mine for, you know, going on 15 years, I don’t know, when this company was founded. Obviously, I could look it up easily. I just don’t have it in front of me. But I’ve had mine for 15 years. It’s, you know, high return on equity. And I’m talking like, high like 6070 8090 100% returns on equity growing very rapidly. You know, the other thing I think the market was concerned about was that it made this sort of big ish acquisition for HeyDude. And they took on some debt to do that. And it’s sort of changed the financial profile a bit. I don’t think it’s as negative as the nine times multiple would imply. I like Crocs quite well.

Simon Erickson  22:18

Yeah. It certainly fits the screen. It’s an interesting one CROX if you want to follow along with that one.

Simon Erickson  22:25

And send John a note, if you need a pair of Crocs. I think that he is a good purchaser who’s helping that top line.

Simon Erickson  22:30

To the other one American Eagle. You know, this is this is like I said, I always think of this as the mall store. Right? This was trendy back when we were in high school 30 years ago. It’s still there. It’s still going, you know, so many of those other kind of bricks and mortar retailers have shut down have closed their doors. American Eagle has is still going strong out there. This is one that had a really good year last year, John, it was up 53% in 2023. You know, it’s kind of one that has been a steady grower revenue from five years ago, $3.8 billion, about 5 billion here’s here today, you know, gross profits 1.4 to 1.7 billion. It’s done decently well is kind of kept a little slow made digit growth and operating income and net income out there.

Simon Erickson  23:17

But the thing that’s really interesting, but I think that has been maybe worth considering today is that valuation multiple has contracted so significantly, when I say valuation multiple I mean the multiple of what a company is paying for what the market is paying for either earnings or for free cash flow.

Simon Erickson  23:34

Specifically for free cash flow again, as a business has been around for several decades, it is churning out cash flow back in 2021 is a business that traded at 40 times free cash flow. Today, it’s trading at 7.7 times free cash flow. So even though you’ve kind of got steady growth, right, we’re seeing a company that’s increasing its earnings power, it’s increasing its free cash flows every year. It seems cheap. It seems like a company that is still growing same store sales 6% a year and it’s getting 19% growth on its online channels. Gross Margin improves 340 basis points year over year still churning out pre free cash flow. But so less than eight times price to FCF. John any thoughts about American Eagle? Seems like a Tillinghast kind of value stock out there.

John Rotonti  24:17

This is one that I have not looked at but I will say based on what you just read it it has piqued my interest enough Simon to go to a few malls and walk through the stores right and see what they look like how they’re merchandised how crowded they are check out the the product lineup you know check out the customer service and so it is interesting enough for me to the next time that I do go to a mall I’ll make a point to walk into the stores and check them out.

Simon Erickson  24:53

It is it’s so interesting you know this type of investing model a book companies right you know, there’s not a whole lot of unknowns out there Crocs American Eagle you can model these Wallstreet as model these but still the bar is very low. And you know, if you hold on to the good companies to just continue to outperform like this, over 10-20 year periods you get you get a record, like telling us, it’s pretty interesting.

John Rotonti  25:15

To be right on all of them, right? You just buy, I was gonna say a basket, but he bought 700. But you, you know you if you buy 789 10 of these, you know, and you’re and you’re right on five or six, and you hold them long enough for as long as they remain good and undervalued, you can do quite well.

Simon Erickson  25:35

John, my last question is why do you think that Peter Lynch was such a fan of Joel Tillinghast? What do you think his greatest strengths were that set him apart from the rest of the pack of institutional investors?

John Rotonti  25:45

I would, I would. I haven’t spoken to Peter Lynch about this, but based on Peter Lynch’s prologue to the book. And based on what I have learned about Joel, I would say that Joel is an incredibly independent thinker. Incredibly independent, he’s contrarian in his DNA. And the other thing that I would say is, you know, maybe two more things. He’s an intrinsic value investor.

John Rotonti  26:17

You know, when I asked him what his secret sauce was, in the interview that we posted to your site, he said, you know, quote, unquote, something to the effect of I compare a stock price to what I think its intrinsic value is, he’s an intrinsic value based investor. And then the third thing is that he’s incredibly smart and analytical he can, he can analyze and sort through mountains of numbers and mountains of data, I mean, six 700 companies, right in his portfolio. And he and you know, yes, he has a big analyst team working for him, but he knows something about all those companies. And so he’s just the brain power is exceptional as well.

Simon Erickson  26:58

Well, fantastic job on the interview. John, we’re going to include a link to it in this podcast show notes, we’ll put it up on 7investing.com. Thanks, again, for doing that and making available for our audience. I learned a lot from it. I think that everybody that reads it will learn a lot from it as well.

Simon Erickson  27:14

I want to shift gears you know, we chat a lot about Joel but let’s talk a little bit more about a lot of those screens, you know, P/E screen is very different than a price to free cash flow screen. Because you’re dealing in earnings, which can be you know, which are GAAP reported there can you can manipulate earnings, you can do a lot of different levers, you can pull the change those versus the cash is actually going out the door or being generated for the benefit of shareholders, like free cash flow implies. This is a two beer conversation. John, we could go a zillion different directions with this. And you and I have certainly over the last decade.

John Rotonti  27:48

We’re in the South. So maybe this is a three beer conversation.

Simon Erickson  27:51

Probably at least right. And get some southern beers. Some of those New Orleans beers.

Simon Erickson  27:57

Maybe maybe one though, that I think if we wanted to make us a one beer podcast conversation, is the concept of stock based compensation. Because so many companies are tech companies right now, right? So many companies pay heavily with, with equity with with shares with options. And that’s kind of par for the course. Now, if you’re hiring tech talent, you almost have to do that Silicon Valley has made several decades of breaking this the norm. But stock based compensation is something that would deduct from earnings and show up in the denominator of a price to earnings ratio. But then it’s added back to the free cash flow number when you’re looking at price to free cash flows out there.

Simon Erickson  28:37

So a lot of companies, especially tech companies, you’ll see these astronomically high cash flow numbers, and then these kind of much more conservatively reported earnings numbers, and a lot of it is because of these non cash charges, specifically stock based compensation. Let me open that conversation up to you, John. I mean, you’re you’re really right there into the financial statements. Every time you’re looking at companies.

Simon Erickson  29:00

Where do you stand on stock based compensation is a good practice is something that’s gotten out of hand out there? What do you feel about stock based comp?

John Rotonti  29:08

I think it’s I think it’s gotten out of hand by some companies in some industries, but I don’t really care so much, how a company decides to compensate their employees as much as I do. That I, you know, I don’t like that they add it back to adjusted earnings. And I don’t like that day. report that they have high free cash flow margins, although reporting is perfectly in line with accounting standards. You know, it is according to accounting rules added back in the operating cash flows section of the Cash Flow Statement. I don’t like that. I think that’s insane and perverse, the the accounting rules. I think it’s insane and perverse.

John Rotonti  30:05

I think that stock based compensation is clearly an equity raise. And an equity raise is a financing activity. And so I think it should be included in the financing section of the Cash Flow Statement that would remove remove confusion. And we would have a more accurate picture of what true sustainable economic free cash flow is. I have nothing against stock based compensation, I just am against how some companies use it to suggest they have these huge free cash flow margins.

Simon Erickson  30:39

And let’s look at a couple of those right just to show some examples of what this looks like out there. And this is, again, there’s not there’s not a clear good or bad line between this it’s, you know, a little bit of how you interpret this.

Simon Erickson  30:51

One that’s worth looking deeper into is Broadcom, AVGO is the ticker for this. And this is a company that’s in the semiconductor industry, highly acquisitive, pays a ton of stock based compensation, especially to the companies that’s acquiring, you know, it’s issuing shares that it’s giving out to the owners of those companies, and then also to its own executives, right.

Simon Erickson  31:09

This is a company John that’s churning out a 45%, free cash flow margin. Which is really, really high, that’s fantastically high. And then even something we just talked about on Twitter is during its most recent quarter, it paid out, at least in the the the reported earnings announcement 90% of revenue through shareholder returns either as a dividend or as a share repurchase.

Simon Erickson  31:33

And he’s going to say 90% of revenue that’s paying out you know, for me, is it good from there, give me a shareholder and 45% free cash flow margin, this has got to be a fantastic company.

Simon Erickson  31:42

And to be clear, Broadcom is a fantastic company, the last 10 years, total return for shareholders 1,910%. So it’s a fantastic I mean, 19, bagger, you know, 18, bagger for the company out there. But there’s some nuance to this, right. stock based compensation is fantastic for employees. And it’s fantastic for investors, when the stock price is going up. As Broadcom stock has been going up. It’s also proven to be terrible. When a stock price falls, Snapchat, we shall this you know, a lot of Silicon Valley companies that just kind of during the zero interest rate policy, were shooting to the moon issuing tons of stock based compensation, everybody’s popping champagne values, or bottles, and then the rug gets pulled out from underneath it right, the music stops, they stop getting paid in equity, the stock price gets cut in half, if not worse than that. And all of a sudden, you’ve got huge layoffs and nobody would got paid for the work that they did.

Simon Erickson  32:37

So it seems like it’s a double edged sword. You know, in Broadcom’s case, it’s interesting, because you see a company that on the surface of it is buying back a ton of shares. It’s generating huge free cash flow margins, yet its outstanding share count, John, is still increasing, because of the shares. It’s paying to its executives, and because of the shares it’s issuing for its own acquisitions. And I think as investors at least to take it with me, I hate to hear just talking about things to take away from me is you have to account for that you can’t just dismiss it or put it in a footnote, when you’ve got a company that’s part of the capital allocation strategy, you’ve got to account for that somewhere, either in the shared dilution of what you’re expecting in the future, or at least kind of consider it a, you know, Apples to Apples cash charge, because you’re not just paying cash bonuses. You’re paying for the summer, even if it’s not a cash charge. Any thoughts on all this?

Simon Erickson  33:26

John, I went off on a little bit of a tangent on that. But your thoughts on stock based comp at Broadcom?

John Rotonti  33:31

Yeah, you know, I think that you make a good point that a company that doesn’t have a wide moat, you know, if it’s a weak business with a deteriorating moat, with the with a weak business model, the last thing you want a company doing in that situation is buying back stock. Even if it trades at a low multiple, because those are like the Snapchats. Those are the the, you know, and those are the value traps. Basically, these are companies that have very weak fundamentals, very weak business models, low barriers to entry, no moat, not a beloved product, it’s not really relevant. But it optically trades at a low P E.

John Rotonti  34:14

And so some investors, not necessarily Snapchat but in just in general, some investors that gets cheap. You don’t want that company buying back stock even though the PE is low, because it’s a deteriorating value to intrinsic value is falling. And you saw that in places like Bed Bath and Beyond which was taking on massive amounts of debt to buy back stock that optically traded at a low PE and the stores were empty. No one wanted to go to a Bed Bath and Beyond anymore, because you could buy it cheaper and better elsewhere.

John Rotonti  34:47

You know, you saw that at Intel under previous leadership, previous leadership into Intel for a time was leading an Intel in in somebody Dr. Manufacturing it ended up resting on its laurels. It ended ended up mortgaging its future not investing enough into into fortify in that mode not investing enough into research and development, and instead decided to buy back a lot of stock. And and the result of that was it gave it gave up its competitive lead to AMD, Taiwan Semiconductor and Nvidia. And now it’s playing catch up under a new great leader, which has really focused the capital allocation framework on what is needed for Intel in this day and age. So yeah, buying back stock even when the multiples optically cheap is not always the right decision. In that case, if a company does have excess cash, it’s, you know, smarter to return it as a dividend or a special dividend. As a general rule, and then I’ll turn it back to Simon as a general rule. If a company has high ROIC reinvestment opportunities, you want them investing every penny every penny that they can into those high ROIC reinvestment opportunities. If if they have an opportunity to reinvest every dollar of earnings of capital back into the business at high ROIC it would be a crime to buy back stock or pay a dividend. But if it does not have competitively advantaged investment opportunities that are going to earn an ROIC above the cost of capital, then it should return capital to shareholders. I don’t think enough companies return capital to shareholders. And then the question becomes what is the right balance between dividends, special dividends, and share repurchase?

Simon Erickson  36:50

This is this is culture, right? This is like the brass tacks of a company is like this is a culture and we don’t we don’t mean culture, like free breakfast for all employees in the mornings. We mean the culture of like what is the company’s discipline on how it’s using the money that’s created for the good of shareholders, right? How does it make decisions? What is the executive like.

Simon Erickson  37:10

You just mentioned, Intel is a perfect example. Right? If you’ve got a CFO that’s kind of running the ship, he’s buying back a ton of shares. He’s straining the capital out of the business rather than reinvesting it. He’s going to lose share to Taiwan Semi, which is exactly what what Intel did. And then on the design front, like you said to Nvidia, AMD, they could have seen that coming, you know, but they certainly did not invest in the business like they needed. And now you see Pat Gelsinger, like you just mentioned Intel’s a fascinating case, because you’ve got the guy that worked with Gordon Moore decades ago back at the helm saying, hey, I want to steer the ship in the right direction, you see that they’ve made some difficult decisions laying off 10s of 1000s of employees, cutting that dividend by two thirds, you know, kind of putting, pulling back on buybacks. So pulling back into it like basically saying, we’re not going to financially engineer this business. And we’re we’re investing in the Foundry Group, because we want to woo Apple and the other tech companies to use Intel’s foundries rather than Taiwan Semis.

John Rotonti  38:06

I’m glad you brought up until that, you know, there are there are cases where buybacks are not not only the right opportunity, but by far the most value of creative opportunity. Warren Buffett has said on multiple occasions, the surest way, the surest way to grow, per share intrinsic value is to buy back undervalued stock.

Simon Erickson  38:31

I want to talk about a couple of red flags, you know, we’ve talked about kind of Intel, I think is, at least in my opinion, a good a good case, I think they’re they’re doing right by shareholders for capital allocation. And again, when we say capital allocation is a couple of options that management can use their profit stream, specifically their cash flows for the good of shareholders, right, you can just let it sit on the balance sheet like Apple did for a long time. You could reinvest it into into growing your business more and more every year, like Amazon did, you know capital expenditures servers, things like those, you can you can make an acquisition you out and buy another company m&a, you can pay a dividend, which is you’re taking cash out of the business, giving it to your shareholders, or we’re going to repurchase your own shares. And we’ve kind of discussed a lot of those there’s given takes for a lot of them.

John Rotonti  39:17

You can also pay down debt, which paid out great long term debt to shareholders, because shareholders have a residual claim on the cash flows.

Simon Erickson  39:23

And companies that are capital intensive, like American Tower kind of comes to mind immediately, you know, you’ve got kind of this, these thresholds, you know, you’ve got these line items in spreadsheets a business is saying, you know, this is how much we’re gonna use to pay down debt this quarter. This is how much we’re going to be paying out as a dividend.

John Rotonti  39:37

I mean, it they vary their capital allocation, right. So a lot of companies you’ll see him say our number one priority for free cash flow allocation is to maintain a leverage ratio in the two to three times ranked right. So their number one priority is paying down debt. Once it hits at three once it hits the high end of that range, then You know, take it from there, then maybe it’s, you know, growing the dividend in line with earnings. And then maybe it’s, you know, opportunistic tuck in acquisitions. And then it’s opportunistic buybacks, but they prioritize the allocation of that free cash flow.

Simon Erickson  40:16

And I will say, John, you know, we’ve talked about companies like Constellation Software before they do acquisitions very, very well. Some companies are very methodical about how they acquire Warren Buffett, of course, has been acquiring company over years, but a lot of companies will really screw up the m&a cap allocation piece right to go out and make boneheaded acquisitions. It’s the surest way a bad acquisition is the surest way to like shareholder capital on fire.

Simon Erickson  40:37

We saw this with HP, Hewlett Packard, kind of the notorious example goes out spends $10 billion on Autonomy, a software company. Writes it down, I believe, $9 billion within 18 months. You know, that’s kaput, right? That’s Altria, you know, the cigarette company goes out and buys Juul and writes it down within two years, I mean, a bad acquisitions all the time.

John Rotonti  40:57

You see it with Microsoft buying the handset business from what was it, they bought some they bought some foreign handset business. You saw it with Teladoc buying Livongo, they immediately write these things down.

Simon Erickson  41:17

Yeah. And it’s tempting, right at the time, you know, you don’t want to get left behind, you don’t want to get disrupted, you don’t want to have a smaller company displacing you, or taking market share. I understand why companies make acquisitions. But a lot of times, they don’t do a very good job with this. Maybe they need to be watching your interview with Joel.

John Rotonti  41:32

Telling us how you feel a lot of times executives feel powerful making a big deal right there in the headlines, they announced a $2 billion deal. Sometimes they get paid based on revenue growth, what’s the easiest way to grow revenue, make a big acquisition. Right. And so it’s a lot of times it’s power trips, and things like that.

Simon Erickson  41:52

I’ve got two that are red flags. I want to point these out on the show, John, I’d love to hear your thoughts on these but at least two that are worth digging into deeper, these are great companies, these are companies that are very large, you know large cap companies that have been around for a long time. But it seems like sometimes, if you get into this capital allocation, every year you paid a dividend, you just get used to kind of always paying so much for the dividend. You get so much for buying back shares. Maybe you’re doing it to keep Wall Street happy, maybe you’re doing it for financial engineering purposes. But sometimes, maybe there should be a little bit more discretion on things like this that shouldn’t be scrutinized like Intel did here in the last year.

Simon Erickson  42:34

The first one that kind of comes to mind is is Home Depot. You know, Home Depot, of course, the largest Do It Yourself retailer out there. A huge company, but it’s got really some weakness in its business.

Simon Erickson  42:43

Right now consumer discretionary spend is down. same store sales during fiscal 23 were down 3.5%. Management even guided for another 1% decline and same store sales here in 2024 for forward sales. And it’s kind of broad based, right? Transactions were down average ticket was down, this is just kind of a tough time.

Simon Erickson  43:04

But this retail and of course, Home Depot is going to be fine. I don’t think that Home Depot is going bankrupt or anything else bad from this. But they raised $2 billion in debt because they wanted to continue paying their dividend. And they wanted to continue to buy back shares. So they’ve gotten used to and now because of the slip in earnings, the stock is selling at a five time five year high of a P E multiple of 24x. It just seems like something like that is a red flag to me.

Simon Erickson  43:28

You know, perhaps when the business is a little bit weaker in a cyclical market, like we see with consumer spending for yourself retailers, maybe you don’t need to keep stepping quite so aggressively on the gas pedal, especially when it comes to buybacks and dividends. Any thoughts on Home Depot? John?

John Rotonti  43:43

I’m probably less concerned with Home Depot, because I think this is just a you know, operates in a cyclical industry. And then on top of that it had a extreme cycle. And it’s it’s it’s still overcoming some believe it or not, some COVID. Year over year COVID comps. Home Depot has always run with large amount of debt. You know, I don’t have the numbers in front of me, but 40 45 billion in debt, net debt, even in the $30 billion range, I think, but they generate I believe stable enough free cash flows to manage it. I don’t have the sort of interest coverage, you know, I could look it up really quickly, but or the freak the net debt to free cash flow, you know, basically net debt to free cash flow, but how many years would it take home depot to pay off all of its net debt with sort of average normal free cash flow? I don’t expect that to be much higher than like, three to four years, but maybe it is I don’t I don’t have the numbers in front of me.

John Rotonti  44:58

I think over time maybe the biggest concern for me with Home Depot, Simon, is, look, I don’t like that either. But it’s also it doesn’t have opportunities to grow at store base, it’s, you know, maybe opening 2, 3, 4 stores a year. And so growth is coming from growing, growing sales within each store. Its online businesses, Omni channel business. It’s it’s MRO business maintenance and repair business, but not from opening new stores. And so a lot of the easy growth is sort of done with, right. And so that’s why, at this stage of its like, lifecycle, I think Home Depot is more into this sort of capital allocation phase of its life, if that makes any sense.

Simon Erickson  45:50

It certainly does. And I agree, and the digital channels, you know, just trying to, you know, really big with contractors, you know, transactional business training vendors, use the app, place the order, pick it up the store, and then as quickly as possible, get what you need. They’ve invested in that a lot. So it’s still a 14% operating margin business, it seems like it’s going to do just fine. It’s just that you don’t love to see them raising debt, just to pay out the dividend and buyback shares. And it doesn’t seem like this is a very opportune time to be doing so.

John Rotonti  46:14

So I pulled up the numbers. I was low, it has 52 billion in debt. 48 billion in net debt. Okay, 48 billion in net debt, its interest coverage ratio is currently 11, which I consider to be safe would so buy EBIT to interest expense. I mean, how many times could one year of EBIT one year of operating income, pay its interest expense. And basically, this suggests that one year of Home Depot’s operating income could pay 11 years worth of its interest expense. Now, to be fair, that 11 number is lower than it’s been in the last five. But I do think that margins are compressed a little bit and earnings may be compressed a little bit. So maybe in a more normalized environment, its EBIT, the interest expense should average about 12 or 13, which is what I think I have in my model, but I haven’t updated it in a while. So numbers are a little below average, but they’re not overly concerning to me. Now, in all fairness, maybe I have a little bit of a blind spot with Home Depot, because it’s a long term holding of mine.

Simon Erickson  47:24

As it is mine too, John. It’s a fantastic job.

John Rotonti  47:26

And I love that you’re pointing this this out. If we don’t look at red flags, then we’re just flying blind.

Simon Erickson  47:32

And I’ve got another one. I’ve got another one. That’s a favorite of you and me that you and you and I’ve shared a lot about how good of a return on investment capital this company has posted for decades now. And it’s in my very home state of Texas. It’s Texas Instruments.

Simon Erickson  47:45

John, you know, I’ve heard you wax poetic about this company. It is a fantastic company, really, really good returns on invested capital. There’s no debating that at all. But let’s get into the nitty gritty, let’s look at a couple of things that maybe are potentially worth digging into more as an investor.

Simon Erickson  47:59

Again, this is an analog chip maker, you know, they’ve got their own fabs are spending tons of money right now on capital expenditures, because the inflation Reduction Act wants domestic supply of these chips, right. And so you get a 30% tax break basically on equipment that’s used into fabrication and construction equipment. And so you’ve got a company in Texas estimate a very, very weakness again, the business right now, especially in industrial and automotive markets, kind of 13% Drop in its fourth quarter revenue.

Simon Erickson  48:27

During all of 2023, its operating cash flow fell 26% down to $6 billion. And yet, even with declining sales, declining cash flows, because it’s taking advantage of those tax credits, capex budget was up 81% During 2023, now to $5 billion part of the capital allocation plan, right, they put this right in front of shareholders, but the advantage or the combination of fewer cash flows coming in the door. And then greater capital expenditures is basically free cash flow fell 77% year over year, right only $1.4 billion for the year.

Simon Erickson  49:01

And that’s not enough to cover the $4.5 billion it paid in dividends. And then the $300 million, it did in repurchases.

Simon Erickson  49:09

Now, to be fair, it did kind of cut back on a three purchases this year didn’t have a whole lot of money coming in organically to fund those. And so it pulled back on that a little bit. But it still goes out John, and it issues $3 billion with a debt between 4.6 and 5.1%. Right just to pay that dividend consistently, that it shareholders want to see. Tea is a fantastic business, it’s going to be around it’s got 100,000 customers, you know, 80,000 products or something analog chips that it’s selling out there. But in terms of capital allocation, I don’t think I love this move of going out there and raising debt, you know, putting $3 billion of debt on your balance sheet at 5% just to pay out a dividend that you could really, really quickly cut back on in a time like this. When you’re seeing a decline in sales and declining cash flows. There’s always a little bit of a red flag.

John Rotonti  50:00

So once again, so Ti is going up Ti is going through a, in my opinion, a more difficult phase of its lifecycle than is Home Depot. Home Depot, in my opinion, is just as relevant as ever, it’s just going through some hard comps from that COVID now over. And, you know, I think it’s going to be fine. I also think Texas Instruments is going to be fine.

John Rotonti  50:31

But there are two things that are transformational changes at Texas Instruments. One is they have a new CEO. You know, the former CEO is a legend. And they have a new CEO, who I’m less comfortable with just because he’s newer, and then their their capex profile is not only higher currently, and by higher I mean, like more than double what it was historically. But it’s going to remain higher for a while. And so they are in a massive capex cycle right now. I, I believe that when they come out of this capex cycle, whenever it is, five, six years down the road, that they will come out with faster organic growth, more market share, higher margins, and higher returns on invested capital, at a time when the world is going to need so many analog chips, you cannot run anything in the digital age without analog chips. They’re really, really important.

John Rotonti  51:55

It’s sort of a paradox, people thinks everything’s going digital. But the more digital we go, the more analog we need to manage things like power and battery. It’s going to take them a while to get there. Simon and it could be the financials are going to look uglier than normal for a while, I don’t know how long that’s going to take. Just you know, maybe at a high level, really good, long life businesses, they go through multiple life cycles. So it’s not like you know, in business school, you kind of learn and you know, this, but I’m just speaking out loud.

John Rotonti  52:29

In business school, you kind of learn that businesses are founded, and then they go through a hyper growth phase, and then they mature, and then they decline. And then they die. Well, it’s not always like that we just talked about Intel, right? Like, companies can go through multiple of these S curves, as they’re called in their life. It’s not just a linear, you’re born and you die. And, and so companies that you know, have 30 40 50 60 or 100 year histories, or longer go through multiple of these life cycles, multiple of these investment cycles, sometimes they grow faster, sometimes they grow slower. But I believe that both Home Depot and Texas Instruments have staying power and relevance and very wide moats that will allow them to survive a difficult part of the cycle and then thrive coming out of it.

Simon Erickson  53:26

I think that’s a perfect description of John, you know, and then like we said, kind of to frame this all back together. Again, capital allocation is important to investors, and where the companies are spending capital, on your behalf is very important to the investment returns. And I think that a lot of industries, especially the semiconductor industry, right now, in particular has gotten us to kind of stable, pay a dividend, you know, buy back shares, like we saw with Intel several years ago. And now with this, you know, Sam Altman going out there, say $7 trillion, we need to raise to do the training of the next era of AI, there’s gonna be a lot of chips out there, they’re gonna be a lot of, of demand. And perhaps that equation is shifting from dividends and buybacks to organic reinvestment of the business and capital expenditures.

John Rotonti  54:12

Yeah, and one last thing I’ll say is, you know, you can people can manage their portfolios, however they want, but I just want to encourage, there’s nothing wrong with trimming a stock, you don’t have to sell out of a stock completely. You’re not abandoning it, right. And so I’ve owned Home Depot and Texas Instruments probably for I don’t know, Home Depot for more than 10 years Texas insurance probably going on 10 years. If I’m concerned about something, I can trim it, I can trim Home Depot, I can trim Texas Instruments to make it a smaller weighting in the portfolio. It doesn’t mean that I have to get out of it completely. But there’s absolutely nothing wrong with trimming up position when these occasional concerns pop up. And if you own a business long enough if you own a compound are long enough, these concerns are going to pop up, nothing is ever perfect forever, right? And so when these things happen, yeah, I’ll trim back a little.

Simon Erickson  55:09

It certainly is. Well my goodness, what a fantastic discussion we’ve had here today. We’ve kind of run the full gamut about how companies are using their money for the good of shareholders.

Simon Erickson  55:19

We’ve talked about things like stock based compensation as an alternative to a cash bonus. We’ve talked about dividends. We’ve talked about buybacks. We’ve talked about capital expenditures. We’ve talked about some examples of companies that are doing those well, and maybe not so well. We’ve talked about how to screen for those companies and the things to look for, especially with an investing legend, like Joel Tillinghast.

Simon Erickson  55:40

It’s been really nice talking with another investing legend here, John Rotonti. Again, one of my favorites in the business, especially when it comes to educating investors to make better decisions. John, I really appreciate this. Thanks for being on the 7investing podcast here this morning.

John Rotonti  55:53

Simon, thank you so much for having me. I’d love to come back on I have one last parting piece of data for your listeners. I just quickly did the math. Home Depot has averaged over the past five years about $13.5 billion in annual free cash flow. That’s an average of the past five years. Current net debt $48.4 billion. So its current net debt to average free cash flow over the past five years is 3.5. So it would take Home Depot, three and a half years to pay off all of its net debt with its average free cash flow.

John Rotonti  56:27

Simon thank you so much for having me on. I think 7investing is incredible. I love all all you’re doing I love your incredible stock picking from your team and the transparency that you share. And I hope we can do this again soon.

Simon Erickson  56:38

Absolutely. And definitely follow John’s own podcast the JRo show, John, what’s the what’s the URL that people can go to check out your own podcast?

John Rotonti  56:48

I have no idea. It’s on Spotify and Apple and YouTube. I don’t even know about that stuff.

Simon Erickson  56:54

JRo Show. Go on Spotify and search for JRo Show.

John Rotonti  56:58

So literally what I do is I go to Google and I type in JRo show Spotify. Then I type in JRo show Apple and JRo show YouTube. And it all comes up but it’s on iHeart. It’s on all the major Amazon podcasts on all the major platforms. Absolutely.

Simon Erickson  57:13

John’s one of my favorite investors out there really a pleasure chatting with him here today.

Simon Erickson  57:17

I hope you’ve enjoyed the show everyone. This has been yet another successful seven investing podcast. And please come vote with us. We’re going to be putting Crocs and American Eagle into our own stock picking competition that we’re running alongside our partner Stock Card. We’re going to we’re going to be picking one of those two companies for our own entry for the 7investing portfolio.

Simon Erickson  57:39

So that’s a wrap for this episode, or you can check out all of our podcasts at seven investing.com/podcast or see all of our recommendations at 7investing.com recommendations. We thank you very much for tuning in. Until next time, we’re here to empower you to invest in your future. We are 7investing!