26 January 2023

Trey chats with Eddy Elfenbein, a portfolio manager and editor of the blog Crossing Wall Street. They discussed his Buy List for 2022 and reviewed his list for 2023. Eddy’s “Buy List” has beaten the S&P 500 by 102% over the last 17 years.


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  • How the 2022 list performed during one of the worst stock market years on record.
  • Which five stocks Eddy swapped out for 2023 and why.
  • Which stock performance surprised Eddy the most.
  • An overview of the 2023 list and which stocks the TIP finance tool considers to be the most undervalued.
  • Eddy’s thoughts on the markets. 
  • And a lot more.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off-timestamps may be present due to platform differences.

[00:00:00] Trey Lockerbie: My guest today is Eddy Elfenbein. Eddy is a portfolio manager and editor of the Blog Crossing Wall Street. His buy list has beaten the S&P 500 by 102% over the last 17 years. Eddy and I discussed his buy list for 2022 at the top of the year, episode 413, and I’m so excited to review his list for 2023.

In this episode, you will learn how the 2022 list performed during one of the worst stock market years on record, which stocks Eddy swapped out for 2023 and why, which stock performance surprised Eddy the most over the last year. An overview of the 2023 list and which stocks the TIP finance tool considers to be the most undervalued, Eddy thoughts on the markets and a whole lot more. I’ve looked forward to this interview ever since Eddy and I spoke a year ago, and I’m hoping to make it an annual tradition. 

[00:00:51] Trey Lockerbie: The Buy List performance speaks for itself, but I think you’ll find this discussion highlights a lot of the reasons why it continues to outperform. So without further delay, here is The Buy List for 2023 with Eddy Elfenbein.

[00:01:08] Intro: You are listening to The Investor’s Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

[00:01:28] Trey Lockerbie: Welcome to The Investor’s Podcast. I’m your host, Trey Lockerbie. As I said at the top, I’m here with Eddy Elfenbein. Eddy, welcome back to the show.

[00:01:39] Eddy Elfenbein: Thanks for having me. 

[00:01:41] Trey Lockerbie: I have been looking forward to this conversation because you do something very fascinating, you publish something called The Buy List, which is now an ETF. We’ll talk about it but also you only touch this fund once a year, so there is so much to discuss. 

[00:02:08] Trey Lockerbie: So I want to first dive into the performance and then talk about the updates to the fund for 2023 etc. , I’m going to go ahead and brag a little bit for you. The 2022 fund performance came out to a negative 10.42%, but -9.28% adjusted for dividends, which is versus the benchmark of the S&P 500 at -18.11%. This is an outperformance of nearly 9%. I mean, that’s not to be understated in the year we just had. So, can you talk about what it was like to live through it, knowing you had to wait until the end of the year to make any changes?

[00:02:42] Eddy Elfenbein: It was a difficult year, and sometimes you want to take the hammer and bust the case in and grab it and make changes. But I always feel that sticking with the rules is better in the long term because you don’t panic. Keeping with these strict rules forces you to stick to your game plan and stay with the stocks that you like.

[00:03:08] Eddy Elfenbein: And it was an interesting year because I believe it was the fourth worst calendar year of the past 80 years. Some of that is the calendar effect because the peak day was the very first trading day of the year, and then we were tempted with multiple bear market rallies. So, a lot of times, people going by their gut instinct would have been fooled. They would’ve thought, okay, this has passed us by and we’re going to go right back. Nope, then the bears came right in and pushed us lower, and it happened again and again. I think the low didn’t happen until mid-October, so nearly the entire year the bias was always to the downside. It was a really difficult year for the stock market and the bond market as well. The 60/40 portfolio, legendary strategy, had one of its worst years on record as well. It seems like there were no safe places.

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[00:04:11] Trey Lockerbie: Now, your ETF, the ticker is CWS, and you launched it in 2016. It’s had an amazing run, but it ended up flat for the year. I have to assume that’s only a good thing, considering the market we had. Can you talk to us about how you saw the ETF performing versus the fund list on it?

[00:04:34] Eddy Elfenbein: We have to be very careful in our language. In saying that the ETF is based on the Buy List, it’s not always going to be exactly 100% the same. For example, an ETF just has to hold a small position in cash, like 0.3 or 0.4%. We have to do that, whereas when I do the Buy List calculations that’s not figured in at all. It’s always difficult.

[00:05:03] Eddy Elfenbein: On a year like that, we sucked less than everybody else. And, as odd as that sounds, that actually is very important in long-term performance. In many ways, in a strongly bullish year, we’re probably not going to be up as much. But, it’s not symmetrical, so we’ll do much better in difficult years.

[00:05:24] Eddy Elfenbein: And not as well better in those strong years and string together many years of that. It results in long-term outperformance. So, it is odd saying, you know, the ETF was flat or, you know, we didn’t get those returns. That’s actually good news considering the environment. Also, when we, at the end of each year, we rebalance all of the positions. So many aspects. We’re getting good prices, once we do that rebalancing.

[00:05:54] Trey Lockerbie: A couple of thoughts on that. What’s so fascinating about it being flat is that it’s all equities, right? Also, it’s not like some sort of ETF that’s hedged with a bunch of different asset classes. It’s all equities, which I find really interesting. 

[00:06:12] Trey Lockerbie: Now, I know your rule of thumb is, I don’t know if this is a hard and fast rule, remind me, but I know you swap about five stocks every year. This year, were you tempted to change more than five? Because I know there were some dogs in there.

[00:06:32] Eddy Elfenbein: Actually, believe it or not, I was tempted to do less than five.

[00:06:36] Eddy Elfenbein: Sometimes it gets harder and we’ve always said, you know, five stocks each year. My business partner says, there’s no reason you can do four or three. And that’s true, but we’ve never done that. Sometimes I do have difficulty selecting which one I want to get rid of. You naturally become attached to them and you have to fight that urge.

[00:07:00] Eddy Elfenbein: You need to be as rational and business-like as possible. But for example, one of the stocks, Church and Dwight, I like a lot about it. There’s a lot of things I like about this company and ultimately I made the decision to drop it. This year they just had a number of issues crop up during the year as far as managing expenses and dealing with supply problems and inflation. I think it hurts them more than they realize, or I realize. And so I had to let that go. Oh, not Church and Dwight, I like that stock so much. But also we have more than once we’ve had companies that we’ve caught and rejoined us. And that even happened this year with a cool company, Middleby, which did very well for us.

[00:07:54] Eddy Elfenbein: We didn’t have it in 2022. I’m not a good market timer, but boy we got that right because the stock got flattened last year and then I looked into it and we just had it right back. 

[00:08:10] Eddy Elfenbein: And so, you know, that can happen a lot of times. Maybe that will happen with Church and Dwight down the line. So it’s always nice. Another one that did very well for us this year was I know it’s called FCO. It used to be called Fair Isaac. I think legally it’s Fair Isaac, but I think they’re trying to push the FCO and mean even when it’s entered the lexicon, when FCO scores any, and the American knows what you’re talking about.

[00:08:43] Eddy Elfenbein: And they had a great year for us. One, one of our top performers, even jumped 30% in one. And they were on, and I got rid of them years ago. I probably shouldn’t have done that to atone for my sins. 

[00:08:59] Trey Lockerbie: Well, it’s funny how you know that human bias is always going to be a part of the equation, unless you’re a total quant, right? But at least you’re mitigating it with these once a year changes. I imagine that has a huge impact. So a couple of points on what you just said there, the Church and Dwight one, and in our last conversation, we talked about a little bit. You were explaining it as sort of the baking soda and condoms company, right. Where, so you’d never have a hesitation buying something like that, because if you think about it, like, you know, a Buffet style stock where it’s boring or just at least like, everyone’s going to always need these products. I found that to be surprising that it went away. 

[00:09:53] Trey Lockerbie: So, is the sentiment on that more around management as far as what you were saying there? Is it not so much the conglomerate itself as far as the products go, but more about how they’re managing the company itself?

[00:10:09] Eddy Elfenbein: I mean, it’s both. I would say that, you know, in the sense it was, management was blindsided by the macro environment, particularly sales. You know, the cost passing on the cost of goods in a sector that’s very competitive, as far as cost. 

[00:10:27] Eddy Elfenbein: And they had a difficulty doing that, trying to look through. They said their organic would be negative. I’m trying to recall what they had, they said earnings growth would be something like 4 to 8% that got cut and then they said it would be flat. That happened all throughout the year and so that sort of led me to. But instinctively, I tend to like it if it gets into a little trouble. But ultimately I thought, and also I wasn’t really wild about the recent growth numbers. Very similar story with Reynolds Consumer Products, facing many of the same issues, and got rid of it for many of the same reasons.

[00:11:13] Trey Lockerbie: So you mentioned Middleby as well. You’ve brought it back. As you’ve mentioned, you let go of it in 2020, I believe. Talk to us about why or what it’s done to win you back. 

[00:11:24] Eddy Elfenbein: Well, I mean, I have to talk about this, this was one of the most incredible. Rollercoaster rides we have because, so they make sort of industrial kitchen supplies, big ovens and, you know, conveyor belt kind of things.

[00:11:39] Eddy Elfenbein: And when the lockdowns came in March of 2020, the stock got absolutely collaborative. You see, you know, hotels in businesses, this is what is going to impact them. The stock fell, I’m trying to think. It was around one in 20. And it fell to 40 within days. I mean, it was so fast and so hard. And then the company put on one of the most spectacular rallies and it got to 200 by the end of the year, right around there.

[00:12:12] Eddy Elfenbein: I may be off some, but it vaulted from its March. And that’s when I said, okay, this is too much. Let’s take some profits off the table on this. Then so this year it fell again, it fell back to about, from 200 to about one 20, and I was looking at the earnings reports and the last one the bottom line missed, but the numbers were quite good.

[00:12:38] Eddy Elfenbein: I think the EBITDA growth was 23. It’s odd what numbers you can remember. I think that’s what they did. So they were still showing impressive numbers and I’m trying to think it was around $10 per share is what we’re looking for earnings, give or take, and it’s around one 40. That’s not bad for this environment.

[00:13:00] Eddy Elfenbein: And also I just like the long term growth of their operating income. It’s a nice grower, it’s a good business to be in. So I saw that the numbers continued to look good this year and the price went down, and so I figured, Hey, this is a good time to get back in. Maybe, we’ll, we could have the same magic with it, but really like this.

[00:13:24] Trey Lockerbie: Now, I think I do know the answer to this, but I wanted to make sure, did any of the macro themes leading into 2022 help inform the list at all? You know, knowing interest rates were likely going up and you were seeing inflation, et cetera, were you looking to build more of a defense. Portfolio going into the year?

[00:13:42] Eddy Elfenbein: Yeah the short answer is no, but the longer answer is that even by not doing that, it helped us very much. And I think that was the key driver to our out-performance last year. But I can’t take any credit for that whatsoever. But the, this is how I would describe it and filler for a lot of listeners, but when Covid came the market got very.

[00:14:06] Eddy Elfenbein: and the government, particularly the federal government and the Federal Reserve, responded massively. In many ways, I think they were trying to not do what had happened during the financial crisis where the response was somewhat slow. Only as they saw more and more evidence did the response get more dramatic.

[00:14:28] Eddy Elfenbein: This time, they responded dramatically and very early. So you have to understand that the stock market is a delicate balance between return and risk and what the federal. Did as it said, we’re going to take risks off the table. Risk. We’re going to, basically, if you prefer, we’re going to nationalize risk. That completely worked the market.

[00:14:55] Eddy Elfenbein: It’s like putting a magnet near a compass because all of these areas that are much riskier, they had a free ride, they had a backstop. So all of these sectors, places like, you know, Peloton and Zoom and they just took off to the moon. We saw these enormous rallies in this and also in the crypto world, also in the NFT world.

[00:15:20] Eddy Elfenbein: Just all those high risk areas. Meanwhile, the boring areas, the value areas, the low low volatility. We’re really left behind. What it ha, so the story of 2022 was, We completely unspool that and all the high risk areas I thought Facebook meta platforms, it fell by what, 60, 70% Tesla was down all of that.

[00:15:47] Eddy Elfenbein: I mean the stars of the lockdowns really, they felt significant. And then a lot of the value, I wouldn’t call the ETF a value one, but it was value, high quality. And those did well. So it was the resurgence and that was when interest rates were at zero. Who cares about a PE ratio? I mean, it doesn’t matter.

[00:16:12] Eddy Elfenbein: But suddenly when rates are at upper three or 4%, then suddenly people worry about things like valuation. So in many ways, 2022 was the waking up to that, that the valuations came back and some sanity was restored to the market. I didn’t predict any of that , but I certainly rode the events all throughout last year.

[00:16:38] Trey Lockerbie: That’s that sort of rotation, right? You hear about every, so now and then from, you know, momentum, into value, into growth, et cetera. In our last discussion, you said that every year the biggest winner is always one that surprises you. So I’d like to go over the top five winners and highlight perhaps some ideas as to why they did so well.

[00:16:58] Trey Lockerbie: But before doing so, I’m curious to know which stock surprised you the most? 

[00:17:03] Eddy Elfenbein: Oh boy, maybe Aflac. It’s just, you know, it’s such a steady business. They do what they do so well. And I’ve had do you have the numbers in front of you? I don’t know. I 

[00:17:14] Trey Lockerbie: do, yeah, 23.21%. Wow. 

[00:17:17] Eddy Elfenbein: And so, and, but it was 40 points better than the S&P 500 and you know, it’s supplemental insurance, it’s nothing really.

[00:17:26] Eddy Elfenbein: But also I think that, going back to the previous point, it shows you the. You know it did a lot better, it had a better year than Mark Zuckerberg . 

[00:17:36] Trey Lockerbie: I mean, yeah. And to be quite honest, that one in particular is still looking undervalued to me, which I’m going to, I’m going to cover a few of my three that I see in the new list that I’m still very optimistic about, but they’ll just spoiler that one, even though it went up.

[00:17:49] Trey Lockerbie: 20 odd percent in 22 still seems very undervalued. And last time we did touch on this one in the last episode a year ago, and you mention. 70% of the revenue comes from Japan. Yeah. Which I still find to be kind of a fascinating fact. Do you see that shifting? Are they going more global? Is there growth coming from elsewhere now, or is it all kind of still a lot of it coming from that part of the world? 

[00:18:13] Eddy Elfenbein: Well, they have a monopoly in Japan, so that’s always going to be a large part of their business. But they do a significant business. Any growing business in the United States, I don’t know how well that’s going to be balanced in the long term.

[00:18:27] Eddy Elfenbein: But, you know, when you look at the business and they’re, you know, known for the famous ads with the Aflac Duck, America is pretty small in their universe, I think. I think Japan will continue to. A major source of the dominant source of their business. 

[00:18:42] Trey Lockerbie: So some of the other big winners you mentioned, Fico, that was up a little over 38%, which is incredible.

[00:18:49] Trey Lockerbie: HSY, which is Hershey, 19.69%. And then we had scientific applications, s a i c 32.71%. We discussed this last time, so if you want to go back to our last episode we kind of touched on this one in depth. Your shorthand for it was that it’s the Penta. Think about it like the Pentagon’s It help desk, which I’ve always liked.

[00:19:11] Trey Lockerbie: You have this gift for coming up with these really sticky branding ideas for these stocks, which I love. 

[00:19:16] Eddy Elfenbein: Similar. Can I say something about Hershey? And this is a good lesson for investors. People listening out there say that so often the best year to own a stock, you really don’t see your gains until the third year.

[00:19:30] Eddy Elfenbein: And with her, she was really our fourth year. So we had it on The Buy List for three years and it should have done well, nothing great. But then it outperforms by what, 50% this year. It really turned into a rockstar this year, and it’s on The Buy List for the fifth year. So that is, you know, people want to see immediate gains when you do a lot of focused stock picking.

[00:19:56] Eddy Elfenbein: It takes a while. Before you really see that huge pay. And you know, a lot of times they say the best stock to own is one you already know. Another thing with Hershey is that the company said this was not hidden anywhere. The company said we are having productivity problems. We cannot keep up with demand.

[00:20:19] Eddy Elfenbein: And there are multiple articles about this. It’s sort of like they were advertising. Anyone who just bothered to pay attention would see that the company was doing very well and their problem that they were dealing with. Was managing growth and they have since increased capacity to keep up with business.

[00:20:37] Eddy Elfenbein: It’s so odd that this is a name everybody knows. You know, as I said, there’s no city in America called, you know, low fat Pennsylvania, but there is for Hershey, for chocolate. There absolutely is. And they were basically telling us right to our faces, it was a bargain hidden in plain. So I just wanted to add that bit about Hershey.

[00:20:59] Trey Lockerbie: Oh, I’m glad he did. I mean I did, I touched on it with David Gardner recently The Motley Fool because I was challenging non sort of tech oriented stocks, for lack of a better way to say it. And I mentioned that it had reached its 52 week high, and that was fairly recently, you know, in a year where the S&P 500 did what it did.

[00:21:16] Trey Lockerbie: I mean, the markets just in general did what they did. The year hit 52, a week high. Like that’s pretty remarkable. 

[00:21:22] Eddy Elfenbein: I like their business model. They make chocolate and then they sell it for more than they make it, and then they repeat that , and there’s nothing high tech about it whatsoever, but it’s a very profitable business.

[00:21:36] Trey Lockerbie: Now, another big winner was Silgan, if I’m saying that correctly, Silgan Holdings, which was up 21.01%, and. This is one we highlighted in our last discussion because it was standing out to be another one that seemed pretty undervalued. This one, just to recap, is sort of the metal container stock, if you will.

[00:21:55] Trey Lockerbie: You mentioned it’s very boring . It’s very overlooked or overlooked. And talk about maybe the validation you saw with that stock going into the year? 

[00:22:04] Eddy Elfenbein: This, I have to say, is one of my favorite stocks, and I have a soft spot for it. And it’s a very boring company, but I think of it this way, whatever their market cap is, I don’t know, 5 billion or so.

[00:22:17] Eddy Elfenbein: If someone said, here’s a check for $4 billion and recreate, go off and do what Silgan. I don’t think you’d be able to do it. I think you’d need a lot more money to be able to do this. They have production facilities all over the place, so it’s very close to whatever you want to do. It’s not just metal.

[00:22:39] Eddy Elfenbein: They do all sorts of containers. No matter any business needs a container, needs something to ship it in, and they’re the kind of company that if you’re going to be in business, may that involve containers. It’s hard to avoid. I mean if you wanted to, if you said purposely we’re going to avoid them, that would be very evident in your business decisions.

[00:23:05] Eddy Elfenbein: They’re just a part of the industry that you need to deal with. They service their sector and they do a really good job of what they do. So it’s a cool little company. 

[00:23:17] Trey Lockerbie: Now, I’m jumping to an assumption here, but given all the supply chain issues we had, and it seemed metal containers were part of the equation just being really high in demand and very low in supply, did we see a big price increase happen for Silgan?

[00:23:30] Trey Lockerbie: Did they, were they able to capitalize on that? Do you think that was part of the market performance? Maybe talk a little bit about the revenue growth or something that was driving. 


[00:23:38] Eddy Elfenbein: Yeah I think it was a good example of revenue growth does not always equal volume growth. So I think they did a good job of balancing the higher prices and you know, and getting to their customers as well.

[00:23:52] Eddy Elfenbein: So that was a a key issue last year for that. But I was impressed by the way the company perform. 

[00:24:01] Trey Lockerbie: All right. Well, let’s talk about some of the bigger losers here. I’m just going to go over a couple of them. You mentioned Reynolds, but that one, although it was facing headwinds, like you said, it wasn’t down that big.

[00:24:11] Trey Lockerbie: It was only down negative 4.52%, but you still nixed it for 2023. , whereas Trex, TREX, ticker, and just to refresh my memory, that’s Yeah. Just Trex company. Right? So Trex, ticker, TREX was down negative 68%, but has stayed in the mix for 2023, so, I’m kind of curious to know more about what drove these decisions. You know, it’s obviously not all performance related. 

[00:24:36] Eddy Elfenbein: Right. So one of the things when you look at the company you want today, are the problems internal or are the problems external? If the problems are external, look, a good example is Aflac. They always have to deal with the yen dollar exchange rate. But the thing about that factor is it comes and goes.

[00:24:54] Eddy Elfenbein: So if it works against you in one quarter, it may work against you in the. But if there’s a problem with the business, something endemic to them, that’s a much bigger issue. So with Trex, they make the fake wooden decks, they were blindsided by the housing industry or knocked down due to the weakness in the housing sector, it’s not really due to their failings as a business.

[00:25:25] Eddy Elfenbein: Once the housing sector Revives and gets better. I have every reason to believe that Trex will get better. There’s nothing implicit within the business that is a problem for Trex. So that’s the key. And whereas we were talking about was a Reynolds, the ones that I thought there was, you know, greater problems in the performance of, in the execution of their business, that had me more concerned. 

[00:25:56] Trey Lockerbie: So going into 2022 Reynolds, you were looking at it, I believe we talked about it a little bit last time as a turnaround opportunity. Their free cash flow had recently taken this huge dive and it dropped off the list in 23. But I’m just kind of curious, was that. Not the case, just not seeing the turnaround opportunity or it just didn’t prove out in the timeframe you were looking for?

[00:26:17] Eddy Elfenbein: Yeah I would say so. They said that e p s for this year would be a buck 56 to a buck 70, something around that. And then that was lowered once and then it was lowered again to around a dollar 30 per share. So, we’ll, you know, the Q4 numbers will be out later this month or maybe early February. So it was that continuation, not one but two downgrades that really had me concerned about what was going on, and I didn’t feel that it was turning around the way my thesis was.

[00:26:51] Eddy Elfenbein: And that’s really a key to selling in stock when it’s no longer the company that your original thesis is. And I had to come to the realization that my reasons for buying the stock were not panning out even though the loss wasn’t that bad. 

[00:27:10] Trey Lockerbie: Let’s dig in a little bit more on the 2023 buy list. So you newly added Polaris and there’s a repeat company there, step in, and both of their free cash flows seem to have fallen off a cliff fairly recently as well.

[00:27:23] Trey Lockerbie: You know, Polaris was 805 million in 2020 to negative 39 million in the trailing 12 months. 

[00:27:31] Eddy Elfenbein: The number for 2020 was very high. And in fact, I believe it had really been creeping up in the late teens. So the 2020 2020 number was significantly high compared to all their previous trends.

[00:27:46] Eddy Elfenbein: And you’re right, it completely tanked in 2020. And I believe so a decent rebound last year as well. Now also if you look at the operating income, the adjusted operating income, that’s pretty stable. And it has been and I think we’ll continue to be. So it sort of just wants to add those other variables to what I look at.

[00:28:08] Eddy Elfenbein: The thing about Polaris. By conventional metrics. It’s a cheap stock and there’s a strong cyclical factor to the industry. I mean, snowmobileS&Play things. And obviously that’s going to go better when the economy, you know, people are going to cut back on those sorts of good examples of a consumer cyclical stock.

[00:28:30] Eddy Elfenbein: And that can be difficult too. Under conventional metrics. And so you always want to adjust for where you are in the economic cycle. So that’s just for people doing securities analysis. That can be very tricky because you can get false negatives by just following regular PE or EBITDA or enterprise value or something like that.

[00:28:59] Eddy Elfenbein: So I always want to take a more expansive view. Polaris, I’m probably not getting it at the best time considering the fragility of the economy. But given its price, given its historic operating income, I think there’s a very good chance in three years that it could turn into a decent winner. So, you know, it is similar to Hershey.

[00:29:24] Trey Lockerbie: So in a way, are you viewing these two stocks as maybe in a similar framework that Reynolds was, where you’re looking at them as these turnaround opportunities? Or are they simply just economic cycles that you’re waiting to pan out? 

[00:29:36] Eddy Elfenbein: I would say with Polaris as a turnaround element with step, not just that I see as a count I may have had 55 years consecutive of increasing earnings.

[00:29:49] Eddy Elfenbein: It’s also, it’s a small company. I mean, maybe two and a half billion in market, but a lot of people don’t even know about this company. It’s a wonderful, wonderfully run company and I think it’s what I see as more than the long term growth. And even though, you know, I had a difficult year, but I’m optimistic about it.

[00:30:09] Trey Lockerbie: So Miller ticker, MLR had a pretty tough year. It was down over 20%, but you held onto it. And last time we spoke, you mentioned you do have this soft spot for this stock . So how has that conviction held up through 2020 twos performance? 

[00:30:27] Eddy Elfenbein: Well, let me say that if you have a well diversified portfolio, It’s always a good idea to have one off-road stock, one that’s kind of different from everybody else.

[00:30:38] Eddy Elfenbein: And that’s Miller. Miller is by far the smallest company, so step in is maybe two and a half billion. That’s our second smallest. Miller is probably 320 million. I mean, it’s one. The size of our 29th largest company. That’s how small it is. And then you compare it to a, so like Thermo Fisher or Danaher Company like that.

[00:31:02] Eddy Elfenbein: It’s barely, it’s a tiny drop. It’s a cool company and I really like it. And my thesis is a longer term turnaround. So they make towing and recovery equipment. No analysts file it, no Wall Street and I mean, there are people who file it, but no major Wall Street firms. So when you say what earnings expectations are, we just don’t know what happened with Miller.

[00:31:27] Eddy Elfenbein: Is that the business? Very much hurt by the lockdown and the period following the lockdowns. But if you look at the 2019 numbers, I think the earnings were 3 43 per share recently. Really a few weeks ago, the stock was going for $21 per share, so the PE ratio of a couple years. Is what, six times earnings?

[00:31:55] Eddy Elfenbein: Seven times earnings, but it’s just getting up to its full potential. Of where it had been, the revenue has already got there. The last earnings report was quite good. I think revenue was up maybe 25% and net income was up 35%. So they’re recovering very strongly. So I still see it in play, my thesis.

[00:32:20] Eddy Elfenbein: Is that it’s a company that was wrecked and is doing well and a lot of people just don’t see it yet. I wouldn’t be surprised that Miller is our top performer for this year, but getting back to your larger point, and that is a good example of a 20% loser as you’re not bothered at all by it. In fact, it is probably maybe in the last two or three months, it’s up 30 odd percent.

[00:32:43] Eddy Elfenbein: It’s actually been moving up steadily, but as long as I see that continuous increase, I’m trying to think this year or so, we’ll get the Q4 report. They’ll do earnings sales of around 900 million in 2019. Their earnings before interest before tax. Was about 50 million. And so now the market cap is about 600 and 320 million.

[00:33:13] Eddy Elfenbein: It just seems so obvious to hold this and wait for the market to come to its senses. I think it’s a really neat company. 

[00:33:22] Trey Lockerbie: Yeah, this one was interesting to me because this would be sort of on the higher end of what you would call a microcap stock, and I know that you’re sector agnostic.

[00:33:30] Trey Lockerbie: I was kind of curious though, raises the question around size agnostic, right? You’re not, it kind of jumps all over from mid caps large caps, so now micro caps and I’m curious if that’s intentional or if my second question is just how did these micro caps appear on your radar because you gotta go fishing a little bit deeper for those.

[00:33:50] Eddy Elfenbein: It’s always cool to get something that nobody else knows about. So I will go I’ll get an unusual stock that if I think about, especially LA companies that nobody else follows. And that’s a great way to find values. I saw Morningstar, which by the way, just had our fifth.

[00:34:10] Eddy Elfenbein: From Morningstar, congratulations. They call us. Thank you. They call us mid-cap growth, and I remember when I first went, really, we are it means nothing to me. It’s just the 25 stocks. They put it in their computer and they said, , this is midcap growth, but in no way, I don’t, doesn’t mean anything to me.

[00:34:30] Eddy Elfenbein: But I like to get a couple, like I said, off-road companies. I don’t know if I’d call Miller Small Cap or Microcap, something that nobody knows about. I think you always want to know, it’s a simple game. You turn over rocks and look for diamonds. Whoever turns over the most rocks wins the game.

[00:34:51] Eddy Elfenbein: And that’s really what it’s about. So I’m willing to look in an unusual non-traditional place if I think there’s a good bargain to be had. Not only that, but I’ll write it with a 20% loss in one year. 

[00:35:07] Trey Lockerbie: It’s pretty remarkable. Now, there are a couple other stocks in the new list that to me, are really standing out when I’m using our TIP finance tool, I’m coming up with double digit forecasted yields, and we already talked about Aflac, even though it was up in the mid twenties in the last year, I’m still seeing it as a very undervalued.

[00:35:26] Trey Lockerbie: Science applications we already talked about as well, SAIC. So they were up 35% in 2022. Still looks undervalue to me. And then there’s Seise, ticker ce. This one really jumped out to me and not only is it a new addition, but I, our investing tool, shows that Buffet and Tom Gainer both hold small positions in the stock.

[00:35:45] Trey Lockerbie: So I always perk up when I see those names attached to something and it’s. up big just in the first 10 days of this year. So give us a high level overview of what Celanese does?. 

[00:35:59] Eddy Elfenbein: They make acidic acid and that is something that has a huge number of applications within industry. It goes from paint to adhesives.

[00:36:09] Eddy Elfenbein: It’s a hugely important part of the chemical industry. And they have a 25% market share. It’s a very, I wouldn’t say dominant, but very strong position within the market. They also make many other chemicals as well. Now, this has been an important year for them. Let me backup and talk about DuPont, which is a company that has.

[00:36:33] Eddy Elfenbein: Struggled over the last few years, and this has been in the news over the last five years, I think DuPont, is that the market is up roughly 50%. DuPont is down 50%, so they are trying to change their direction. So they sold one of their major units and CEL said, Yeah, we’re interested. And they did a massive deal for the DuPont unit and it cost 11 billion.

[00:37:02] Eddy Elfenbein: So if you see on the balance sheet right now, you see a huge cash position, I think of nine and a half billion. And this is a, this is not just an acquisition, but they’re merging with a company about their same size. So it’s a huge deal that they’re doing. And the stock did not do well at all last year, and I think some of that was a reaction.

[00:37:27] Eddy Elfenbein: As I look at the numbers, I think it’s a good deal, but oh, let’s see. Warren Buffet is sitting on a big loss right now in Celese, but I like it and I think this deal. Can be a game changer. It again, it will, I think they said it’s going to be accretive to earning something like $4 per share this year so that is just the deal closed in November.

[00:37:50] Eddy Elfenbein: They announced it in February, just closed it in November. It’s an interesting company and I think this deal will make them even stronger. 

[00:37:59] Trey Lockerbie: Something interesting about the company is that while it does do industrial chemicals, as you kind of mentioned, it’s also an acidic acid is vinegar, right? So by definition, so it’s, it goes into food and beverage products.

[00:38:09] Trey Lockerbie: So it’s interesting that it’s falling into the consumer product side as well as the industrial market. So it’s hitting lots of different industries, which I find fascinating as well. All right, so shifting gears a little bit here, I’d like to talk about your newsletter because there’s some upcoming news.

[00:38:23] Trey Lockerbie: We definitely want to get into it a little bit here. First and foremost, I’d like to raise more awareness on this newsletter. Talk a little bit more about how you started it, and I’m kind of curious, just personally or selfishly if this is what you use to keep your hands busy during the year. not touching that.

[00:38:41] Eddy Elfenbein: Don’t do any trading . I understand what you’re saying. Okay. You’re calling me lazy. I understand. Newsletter, it’s through Substack I started writing the newsletter back in 20. and it’s basically the same thing. I would send it out so that there are two newsletters I do, there’s a free [00:39:00] one that goes out every Tuesday, and then there’s the premium paid one that goes out late Thursday night.

[00:39:07] Eddy Elfenbein: I date it before Friday, and every once in a while I’ll have special newsletters. If something important has happened that I want to talk about, the Tuesday letter is more of a general, Discussion about the markets and the economy, where the premium version talks more about exactly how we should go about investing and what areas look good right now.

[00:39:30] Eddy Elfenbein: And I sort of break down the companies and what I like and what I dislike, and I enjoy it. It’s a lot of fun and it keeps me busy. 

[00:39:39] Trey Lockerbie: In your most recent newsletter, you. Quote in Q4, Wall Street Analysts slash their 2023 earnings forecast by 4.4%. That’s the largest cut since 2014. Wall Street doesn’t buy any of this.

[00:39:53] Trey Lockerbie: Over 5% talk from the Fed. The future’s market currently expects the Fed to hike by 0.25%, 25 basis points in February and another 25 basis points in March. That would bring the target range to 4.75 to 5%. Okay, so. The December CPI report comes out tomorrow. So I’m going to ask kind of a fair question, but I always love getting people’s real time predictions on things like this where I think the market is expecting it to come into the mid sixties.

[00:40:23] Trey Lockerbie: Right? That seems to be kinda the consensus. Yeah. 6 65. Yeah. Where do you think it’ll come out? Do you agree with that? And if so, what do you think the market reaction will look like? 

[00:40:33] Eddy Elfenbein: It will be 6.517462. I don’t know but as I said, the more important thing is that trend. So it’s been going, it was the peak was 7.1, and this we’re talking about the year over year rate.

[00:40:51] Eddy Elfenbein: Has declined for the last five months in a row, and I think it’s very likely that it will be number six. We’ll learn tomorrow. I’m not worried [00:41:00] about the specific numbers, but it’s the trend that inflation appears to be receding. I’m not saying it’s fully receded or we’re in the safe zone yet, but the trend is going in the right direction.

[00:41:13] Eddy Elfenbein: Part of that is due to some problems with the economy, most particularly in the housing sector. This is due to the federal reserve’s higher interest rates. So the context of the bit that you read before was a number of Fed officials coming out. Strong rhetoric, tough talk, that they’re going to keep rates high.

[00:41:36] Eddy Elfenbein: They’re not worried about the after effects of it, and they’re going to fight inflation until inflation is defeated. It’s very easy for them to speak. That way to issue tough talk, but to follow through on that is much more difficult. If the economy continues to weaken through this year, which I think is very likely, I think the Federal Reserve will hold off on its interest rate increases, and in fact, the future’s market thinks.

[00:42:04] Eddy Elfenbein: That the Fed will be cutting interest rates before the end of this year. In fact, interest rates will probably be at the same place they are right now. One year from now. It’ll be, you know, some minor increases and then some minor decreases. But the Fed particularly Mr. Bostick was very forthright on his comments earlier.

[00:42:27] Eddy Elfenbein: This. I just don’t see it happening. And we see it’s not just me, but it’s in the futures market. It’s in those analysts that you just quoted. The Fed is here and the market is here, and whenever that happens, the market or reality, has a good track record of prevailing. 

[00:42:48] Trey Lockerbie: You also wrote about unemployment. Fell to 3.5%.

[00:42:52] Trey Lockerbie: This was the sixth time the unemployment rate got to 3.5% since 1960. , the only months that were  lower came during the wars in Korea and Vietnam. In other words, this was the lowest peacetime unemployment rate in 75 years. And I know by peacetime you just mean there’s not a draft, you know, going on in the US.

[00:43:13] Trey Lockerbie: But do you think unemployment is the linchpin here as far as what we’ll need to break in order for the Fed to pivot? To actually pivot, right. Does it mean decreased rates or do you see any other risks? And if so, how much do you think unemployment will have to be? 

[00:43:29] Eddy Elfenbein: Oh boy, that is a really good question. I just don’t know exactly.

[00:43:33] Eddy Elfenbein: I would probably think, you know, around 5% or so to see that real. There is some rule for the Economist, which is seeing, I think interest rates go up by half a percent from their low or an average of below. So that would bring us up to about, you know, 4% or so. I think that’s very possible.

[00:43:53] Eddy Elfenbein: Now the issue. That could put a hamper into this disjointed nature of the economy where we’re seeing housing hit hard, but other areas of the economy are doing just well. In fact, there was just an article. In the New York Times talking about how this recession may fall harshly or unevenly on white collar workers compared to blue collar workers.

[00:44:20] Eddy Elfenbein: I don’t know if that will be true. So that could impact how the Fed responds. Is it broad? But my fear is, Unemployment and the housing sector stand right between the Federal Reserve and its goals for inflation. So they are sort of the collateral damage, but we almost always know that’s going to happen.

[00:44:44] Eddy Elfenbein: My fear is that the unemployment rate will rise this year and almost will have to rise this year. 

[00:44:51] Trey Lockerbie: So another interesting point from your last newsletter was that you highlighted American Waterworks. Its ticker a w. And you gave it a very favorable review. It’s actually the stock has been up almost 30% since mid-October of 2022.

[00:45:06] Trey Lockerbie: So it’s been on this tear you over the last few months. I’m kind of curious why it wasn’t included in 2022 . 

[00:45:14] Eddy Elfenbein: I said such nice things about it and I did my, my so. In the Tuesday newsletter. I like to highlight stocks and I want to draw lessons from that. And this is an interesting company because it’s completely boring.

[00:45:27] Eddy Elfenbein: It’s a water utility company, and nobody had any hopes for this stock whatsoever. It was spun off by a European subsidiary in 2008, and when they were going to do the I P O, there was no interest in it, they talked. Would it be 25, 20 $6 per share? No, nobody, they figured it finally went off at 2150. This was in 2008.

[00:45:53] Eddy Elfenbein: And the conglomerate got rid of it because they thought it was a no growth area and it was an anchor to them. Nobody on Wall Street was interested in them, and it has been a fantastic success story. It’s over I’m thinking $160, I think is where they are now. So up nearly eight fold. It’s been a huge winner, as you said.

[00:46:15] Eddy Elfenbein: It’s been up handsomely since October. So boring stocks can be great investments and companies that nobody has any interest in. Once they’re cut loose from the mothership, they’re free to do what they want. In many ways, they’re much better at managing themselves. So the point I wanted to make to investors is that there’s always a place where you could find good stocks.

[00:46:42] Eddy Elfenbein: And the thing is, when people are told, oh, here’s a company to invest in, the first question to ask is, well, what do they do? And that’s actually not the most important question. The most important question is how well do they do whatever it is they do? And I almost feel so many novice investors, they want to know, oh it’s it’s involved.

[00:47:04] Eddy Elfenbein: Artificial intelligence or it’s involved in something with DNA technology or cybersecurity or blockchain, they want to get into the concepts. That’s not so important. The company can be as dull as dirt and American water work certainly is, and it’s been a huge winner over the last 14 years. and in fact, to your point, it’s pretty pricey now.

[00:47:28] Eddy Elfenbein: I think it’s 34 times trailing earnings or maybe forward earnings as well. Also that the earnings line or the operating earnings is nice and smooth. I really like to see that and as an investment analyst, it really helps out seeing nice with the complete opposite would be Celanese, where it’s all over the map.

 [00:47:50] Eddy Elfenbein: It. It’s a cool company. Just too expensive right now. I probably should have said that in the newsletter. Yeah. It’s one but one to keep an eye on. If it does like Middleby and tanks, I’ll certainly consider it. 

[00:48:02] Trey Lockerbie: Yeah. I also wanted to highlight that the free cash flow has gone negative over the last few years as well, so it’s kind of, you know, hard to know when that’s going to swing back and, and how exactly.

[00:48:11] Trey Lockerbie: Evaluate, that kind of thing. But I want to talk a little bit about The Buy List as a whole. So you started this in 2006 and its historical performance over its 17 year existence is 435.73%, and that’s versus the S&P 500 of 333.17%. So we’re talking about an outperformance of over a hundred. and you know, I believe that’s an outperformance of roughly six or so percent per year.

[00:48:41] Trey Lockerbie: Right. So that’s pretty remarkable. Right. So I’d love to talk a little bit about how this whole thesis has been playing out for you over this period of time. Obviously, I imagine you’re more bullish than ever on it, but are there any other insights or lessons you’ve learned over the last 17% that you feel have led to this outperformance, other than, you know, simply rebalancing once a year.

[00:49:04] Eddy Elfenbein: You know, people ask, they treat the rules of the Buy List as if it’s a hindrance. And in many ways I see it as a benefit because, so 25 stocks, we turn over five each year. So that means it’s an average holding period of five years. So when you add a sell these or a middle B, you think, okay, if the stock market were to shut, For the next five years on average, will I be comfortable owning middle B five years from now?

[00:49:33] Eddy Elfenbein: Yes, I would. It forces you to think that way because you know you are going to be married to this stock for quite some time. Aflac, it’s on for its 18th year, Pfizer. That’s also for its 18th year. So having this, these artificial rules, I think in many ways helps me because it forces you to think about these stocks as businesses.

[00:49:58] Eddy Elfenbein: What truly makes them valuable? Will they continue to be around? In five or 10 years. So I think it’s a benefit of having this system. Also, I don’t panic. What would’ve happened in March, 2020? What would’ve happened in late 2008? I, how would I have behaved? I don’t know. But I know at this point I can say I just can’t.

[00:50:22] Eddy Elfenbein: I buy it and I held right on through earnings. So it, you know, stock selection is the best when it’s most businesslike and these rules, Forced me to be, to approach it as a business and make business-like decisions. 

[00:50:40] Trey Lockerbie: So I’d like to learn a little bit, as much as you’re willing to share about Eddy Abe’s system for finding these stocks because, and I’m more curious actually, if it’s changed over 17 years.

[00:50:51] Trey Lockerbie: What resources do you look to investigate where you might find undervalued picks? 

[00:50:57] Eddy Elfenbein: I would say, you know, mostly what I do is like to look at the annual reports, the 10 Qs, the 10 Ks. Look at what they’re doing, and look at their competitors. Whenever I talk with officers of a company, I always like to ask what they think of their competitors?

[00:51:15] Eddy Elfenbein: That’s always an interesting line of inquiry. And I you know, talk to management, talk to the, you know, PE people in investor relations, see what the company is doing. I also pay a lot of attention to the stability of the business. I pay a lot of attention to their market position. How strong, you know, for example, SAIC, you know, if you’re in the Pentagon, you’re going to have to deal with them at some point because they’re just so important to what.

[00:51:42] Eddy Elfenbein: The mission is of the Pentagon. It’s companies like that you want to find that, you know, the, it will be very difficult to replace them. I think I talked about how you would replace Silgan tomorrow. It would be very difficult. I like to look for companies with management I trust, so I like to hear companies do not have to give earnings forecasts.

[00:52:04] Eddy Elfenbein: There’s nothing and the rules that say they have to do. But I like companies that do, and I like companies that you know, that these earnings forecasts are reasonably accurate. I don’t need them to be right. I just need them to understand the problems. I like to hear companies talk about the problems that they’re having.

[00:52:24] Eddy Elfenbein: Also, if you just reiterate earnings, that’s often dismissed. But I think that’s good news. Say companies saying things are going to. As planned this year, and they still are going. So I never overlook a reiteration of earnings. I want to just have a great deal of trust in the management.

[00:52:43] Eddy Elfenbein: You can never be a hundred percent perfect, but of the Ammos family that runs Aflac. These are people I really have a high degree of faith in. I remember when the terrible earthquake happened in Japan and Dan Amos, the CEO, said On Monday morning, when we go to work, we plan for exactly what is happening now.

[00:53:05] Eddy Elfenbein: So we have this covered. And ha, having that is such an enormous benefit when you go about investing the level of trust that you can place in management, like that. 

[00:53:17] Trey Lockerbie: For those who want to follow along with this strategy. Obviously there’s the ETF, the ticker is CWS, which is crossing Wall Street. It’s also, you know, the blog and website that this is all based on.

[00:53:28] Trey Lockerbie: So I really want to give you the opportunity to hand off to the audience about where they can find more on crossing Wall Street, the ETF, your newsletters, all of those things. 

[00:53:37] Eddy Elfenbein: Sure I’ll give, I promise I won’t give you the hard sell on the ETF, but the ticker symbol is CWS. And I started this with my business partner.

[00:53:46] Eddy Elfenbein: I never thought, how do you just start an ETF? But we did, if we were able to get, and I think I looked at the latest numbers and I think every year, hundreds of ETFs closeup shop. We’re in our seventh year. I looked at the numbers earlier today. I think we’re going to close all the time. For AUM assets under management.

[00:54:07] Eddy Elfenbein: So we are growing and thriving. We beat the market. We just got our fifth star from Morningstar. We’re also the first ETF in the history of the world to have a fulcrum fee. So the fee, if we. Don’t beat the market, then the fees go down. If we do beat the market, then I get a little bonus, the fees go up.

[00:54:30] Eddy Elfenbein: So it all depends. Basically, If I do well, I do well. If we don’t do well, I don’t do well. So my interests are aligned with yours. We are this tiny fund and we are the first ones. They’re open-ended funds, but we were the first ETF to do so. I never chose a ticker symbol before, so that was something of a unique experience.

[00:54:51] Eddy Elfenbein: So CWS was open, so we jumped on that. It’s traded on the New York Arca. You may remember, that was the Archipelago, which was bought by the NYSE, which is owned by ICE, which is another buy list. If you were to buy one share of each of the 25 stocks on The Buy List, that would run about $4,500, but you can get the whole thing in one package.

[00:55:18] Eddy Elfenbein: I think it’s right now about $47.40 per share. We started at $25 back in September of 2016, and so we’re just growing, thriving, getting more converts out there. So it’s been a learning experience. Now, I’m also on Twitter @EddyElfenbein. At Substack, it’s cws.substack.com where I have my newsletters, the free newsletter, if you just want to try that out, it comes out every Tuesday.

[00:55:54] Eddy Elfenbein: And then if you want to join us for the premium letter, that’s $20 a month or $200. For a whole year and that comes out I date it for Friday morning, and I’ve been doing that for a couple years now, and I really enjoy it.

[00:56:10] Trey Lockerbie: And you are one of my favorite follows on Twitter, so I highly recommend people do follow.

[00:56:14] Trey Lockerbie: Your humor is always refreshing, part of my feed. So Eddy, I just love everything you’re doing here. I think it’s incredible. I’m so honored you came back on the show a year later. I hope we can make it an annual tradition at this point. Maybe we can keep following up and going over, because I love this strategy and I think it’s so fascinating.

[00:56:30] Trey Lockerbie: So thanks again and I hope we’ll see you in 2024. 

[00:56:33] Eddy Elfenbein: This is fun. So thanks for having me. 

[00:56:36] Trey Lockerbie: All right, everybody, that’s all we had for you this week. If you’re loving the show, don’t forget to follow us on your favorite podcast app. And if you’d be so kind, please leave us a review. It really helps the show. If you want to reach out directly, you can find me on Twitter @TreyLockerbie. And don’t forget to check out all of the amazing resources we’ve built for you at theinvestorspodcast.com. You can also simply Google TIP Finance, and it should pop right up. And with that, we’ll see you again next time.

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