By coinnews 
00:00 Speaker A
And taking a look at the major averages here in the US stocks rising to begin the new trading month here in May. This is following strong earnings from big tech companies. Joining me now, we’ve got Keith Gangle, who is the Gradient Investment senior portfolio manager. Keith, good to have you back with us. You started out the year saying, investors should bring an umbrella to prepare for the storm. Now you feel that the worst is past and investors should shift focus away from tariffs. So what should they focus on instead?
00:40 Keith Gangle
Yeah, we think the tariff now since the worst is kind of behind us right now, and I think we’ll start seeing some deals on some other countries. So, you know, the market reacted, thought these tariffs would be, you know, in place for a full time. We don’t think that’s going to be the case. We’ll see some, you know, carve outs and some pullbacks. Now, I think what the market needs to focus on is earnings. We’re right in there and last night we saw fantastic earnings out of Meta and Microsoft. I think we have a couple more big companies reporting here as well, but generally speaking, earnings have been very good. And the other thing we haven’t talked about is because it’s been all tariff, tariff, tariffs is been the tax policy. We think there’ll be something passed this fall that investors will like. Those could be kind of a long-term solution that investors can get behind.
01:47 Speaker A
And so with that in mind, as you’re evaluating what we’re hearing from companies over the course of this earning season, are there clear winners that are recession resistant or tariff resistant that are emerging?
02:05 Keith Gangle
Yeah, there’s certainly one. The one that stands out by far has been Netflix. I mean, that’s been a big winner. Great quarter, great guidance. They’re the leading in streaming and they don’t have like opponents. Like, you know, if you’re a retailer, you’re importing whether it’s clothes or some, or if you’re an industrial company, they’re importing some widgets, they could be a tariff on that, which is a tax, which causes the price to go up, which impact your margins. We don’t see that with Netflix. If you’re a Netflix subscriber, that’s one of the last things you’ll give up. If you if your consumers getting pinched a little bit, they will continue to pay for that Netflix subscription. We believe anyway, going forward. So we think they’re in a sweet spot. Again, they’ve been driving sub base, we think they could continue to do that going forward. Last year they had, you know, the NFL, so they have live, so you’re going to get advertising as well. So we think it’s a good place to be.
03:33 Speaker A
So where is the most tariff exposed from your analysis?
03:40 Keith Gangle
Anything that’s like I said, retailers, anything you got your like your Nikes of the world, maybe your LuLemons, someone that’s importing these goods that are selling for a higher price. There could be a tariff on those. So the retailers got to decide whether they’re going to eat that cost, make the actual people exporting it, or pass on to consumers. Obviously, the exporter and the retailer like to pass on the consumer, but at some point in time, the consumer will be pushed to a limit and they’ll do a substitution effect. So I think it’s going to be a balance between all three people eating those tariff tax cuts. So we’ll see what happens there going forward.
04:33 Speaker A
You know, we we seem to use this blanket word uncertainty, but there’s always uncertainty out there, but what there certainly is right now is the lack of clarity. And where do you think that clarity will emerge first? Is it from some of the negotiations and trade deals and us getting details around what’s actually being discussed that the markets can then begin to price into some of the most battered areas, or is it some clarity around how the Fed might even react to the the ingestion of tariffs and those risks into the economy?
05:21 Keith Gangle
Yeah, I think it’ll be clarity around the tariffs. I think that’ll be the first sign. We’re going to see some countries sign up, but we haven’t seen any yet officially. We hear about Japan and the UK saying there’ll be some agreements on tariffs. I think that’ll be the first place. The next place I think will be actually earnings that we’re seeing right now. Earnings have been fairly very strong. So again, these companies that have less, you know, impact on tariffs, you know, Microsoft, meta, perfect examples last night. They had great quarters. So I think those are areas that we’re going to be focusing on. Again, if they’re a company like Netflix, we don’t see tariff impacting at all. So those are kind of companies that we’re looking at focusing on, but I think once you see that first deal announced, I think investors are going to get excited to say, okay, this is what we can see going forward. That’ll be a good place for investors to start investing more aggressively.
06:27 Speaker A
I I guess broad-based on aggregate, have valuations gotten back to a level that seem realistic, especially as much of what has been the main catalyst for the markets over the past two years has been this AI trade. And so with that in mind, are we finally starting to see the the show me story starts to prove through some of the fundamentals that businesses who have talked about the heavy capital expenditures they’re putting towards AI, that it does have runway to actually come to fruition?
07:11 Keith Gangle
Yeah, it does. You touched on right away is valuations been stretched for the markets, but coming to this year, it was about 22 times for PE multiple. With the correction in the markets, now we’re done about 19 times multiple. We think that’s more of a fair value. So we think what the companies are earning, if they can keep on executing, now the earnings projections going to this year about for 15% earnings growth rate. And that’s actually come down quite a bit. Now we’re at about 8 to 10. We said going into this year that 15% was way too high. We thought more like that 8 to 10. I think that’s going to be the realistic number going forward. So that 8 to 10, you know, EPS going forward, you got a 19 20 times multiple on a PE. I think that’s fair value. So now you’re going to have to find those companies that are executing and beating their earnings estimates and driving that outside. That’s the kind of companies we’re looking to invest in.
08:18 Speaker A
All right, sounds like that fits into the thesis for two of your other picks, Google and Broadcom, or I should say Alphabet, rather. Keith, thanks so much for taking the time.
08:31 Keith Gangle
Thank you.