SKEPTIC’S GUIDE TO INVESTING
Straight Talk for All, Nonsense for None
About - Our podcast looks to help improve investing IQ. We share 15-30 minutes on finance, market and investment ideas. We bring experience and empathy to the complex process of financial wellness. Every journey is unique, so we look for ways our insights can help listeners. Also, we want to have fun😎
Your Hosts - Meet Steve Davenport, CFA and Clem Miller, CFA as they discus the latest in news, markets and investments. They each bring over 25 years in the investment industry to their discussions. Steve brings a domestic stock and quantitative emphasis, Clem has a more fundamental and international perspective. They hope to bring experience, honesty and humility to these podcasts. There are a lot of acronyms and financial terms which confuse more than they help. There are many entertainers versus analysts promoting get rich quick ideas. Let’s cut through the nonsense with straight talk!
Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.
SKEPTIC’S GUIDE TO INVESTING
Big Debate: Tech, Finance and Health Stocks to Own
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Join us as we navigate through the intricacies of stock investing as we approach 2025. This episode delves deep into the predictions of the stock market, highlighting significant players across technology, finance, and healthcare.
- In-depth analysis of Microsoft’s valuation and growth potential
- Exploration of semiconductor giant ASML’s market challenges
- Adobe’s crucial role in AI and document management discussed
- Debate on top stock picks: value vs. growth perspectives
- Overview of investment strategies in the finance and healthcare sectors
- A discussion on the impact of external market factors on stock selection
- Insights on portfolio construction and risk management
You can find more insightful discussions in our next episode, where we’ll tackle how to manage risks in the investing landscape.
Straight Talk for All - Nonsense for None
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Hello everyone. It's Steve Davenport and Clem Miller, again from Skeptic's Guide to Investing, and we thought today we would start and have a little debate about what names we think are going to do well in the next year. So when people look at their portfolios, we as CFAs look at the construction and say, ok, in the tech sector I'm going to have this much and I think I should have this many names, and we try to construct what we think are the best in each of those sectors and then hopefully, when you combine it in the right weighting, it gets close to the best portfolio you can have overall. But it ultimately is built on the best names and you've got to feel that for the market environment that we may experience this year, which is a pretty big caveat because I don't know what the Fed is going to do, I don't know what Trump is going to do and I especially don't know what's going to happen militarily at any of the fronts that we're currently dealing. So I'd say that we all come at this from a position of humility. We realize it's tough, but you still have to pick, you still have to decide, you still have to choose. So when I kick this off, the way it's going to work is I'm going to pick my three best names for a particular sector and then I'm going to give you my justification for why I think this name is the best. I think this name is the best.
Speaker 1:So when I start this process, I looked at technology and I said, okay, you know which names really do I feel, from a standpoint of price to fair value, offer me the best opportunity. And so when I do that, I come down to one of the leaders and one of the giants, which is Microsoft. Microsoft's now at 0.81. And therefore, you know, it's still got upside of almost 20%. It's kind of been pushed to the side by the excitement of NVIDIA and the excitement in the chip space, but it's still a pretty, you know, pretty much the elephant in most rooms in terms of what it has and what it can do for your portfolio portfolio. So I think Microsoft belongs to be there and is at a reasonable price.
Speaker 1:The next one I look at is a little bit foreign to us, but it's pretty familiar to anyone in semiconductors ASML, which is from the Netherlands, and ASML Holdings is at 0.82, and it's a name that is just integral to all that's going on, whether you're talking about AI chips or other chips, asml is going to be in the middle of how they are produced and how overall semiconductor growth in the next five years is going to be. So I like what ASML represents and I like the fact that we go globally when we look for the best names in these things, and I think this is one instance where a US manager might not own it just because it's a foreign company, which I think is really not the right thing to do for your clients. There's an ADR that you can trade in the US. It's a global brand. It is known across all the countries. So therefore, I say why let nationalistic views segment?
Speaker 1:And then the last name and the one that has the biggest discount to fair value and is in our portfolio for our core, is Adobe. Adobe's at 0.75 of its fair value, which means it has 33% upside before it gets to what we think is the right price. The right price. That, to me, adobe is just everywhere in our lives, whether I'm downloading a short story or whether I'm downloading the documents for my taxes. Everything involves a PDF, everything involves how do we process these documents? How do we produce documents to put on our webpage? How do we make sure that our data and our integrity of our documents is good?
Speaker 1:And I just think that Adobe is like a part of your life that is not going to change.
Speaker 1:It is the leader, clearly, and it is going to continue to lead as we evolve into more video and other. And I look at all this work that we keep doing in terms of our discussions we have about proprietary information proprietary, you know, robotics and whether something is AI generated. I think that Adobe is going to be the firm that comes out and says this has been documented and certified. This is, you know, this is not AI, bot generated. This is a person, and I think that we're going to have to have somebody differentiate what's real and what's AI or computer generated. Ai or computer generated I think that Adobe sits right in the middle and I think that that is going to be a very interesting area growing forward. So if I don't want to pay too much right now and I want to buy something for the next 12 months that's going to give me the best results in the technology space, I'm going to say Adobe, and I know that may not be on Clem's top three or favorite name, but that's why we play the game.
Speaker 1:That's why we have this, because I think, that Clem has more of an orientation towards growth. I have more of an orientation towards value, and that's why we're pretty skeptical when we talk to each other about what the other thinks. So, clint, if I have to pick, if you have to pick three in the tech space, hey, steve, who are you talking to, steve?
Speaker 2:before I give you my three, let me challenge you a little bit on your three, okay?
Speaker 1:That's not fair. You made me go first and you blindsided me.
Speaker 2:So you know, let me say that on Adobe, you know you mentioned at the end that you know they might be might be in the validation of AI business. I'm a little skeptical about that. I think the market is definitely discounting Adobe right now because they aren't exploiting the AI trend. I don't really feel like I have enough evidence to be able to say that Adobe is going to ride that trend. They almost feel like a company that's going to be left behind. To me, they almost feel like a company that's going to be left behind by the AI train. But I could be wrong. I could be wrong about that.
Speaker 1:I guess I would say it's been said about Adobe, since I've been following it, that it's too expensive, it's too pricey. All they're doing is converting. You know, and I remember when people were starting to use the Internet because I'm an old dog and I remember people saying, well, adobe is not going to survive because as we go to more computer and digital we're, you know how does Adobe fit? And I look at it and say they're so integrated. And I just went through a closing. You know, for this house, everything was Adobe and you know it was all signatures and sharing of data. And I look at the process and I say, boy, this is a lot more automated than it was six years ago. Right, that closing was more automated than the one before.
Speaker 1:Yeah, in terms of gathering documents, when I'm doing my taxes, I go into my Fidelity account, I go into my Schwab account, I download the PDFs, I send them to my tax. You know it's electronic and its center is Adobe. So you could think, hey, somebody else is going to come in an AI space and suddenly get the reputational. And I would say, if they do, adobe will buy them and they will attach it to the process they already have with every business, and I think that it's going to be. You know, somebody's got to overcome that bridge and attack that wall and knock down, and I don't. If you have a couple of contenders, I'd love to hear about them.
Speaker 2:Well, let me talk about, let me talk about your others, and then I mean just ASML.
Speaker 1:You're going to eventually have to give me three names.
Speaker 2:you know, and I'm going to have to do this to you, I know. So. Asml is the Dutch maker of the enhanced ultraviolet and deep ultraviolet lithography equipment that's used by Taiwan Semiconductor and other companies in order to make chips Taiwan Semiconductor and other companies in order to make chips and I am concerned about ASML these days. I used to think ASML was the greatest right. I'm concerned about it in the last couple of years because one it's been subject to the US export control rules. Now you might think, why is a Dutch company subject to that? Well, the US Export Control Agency, the Bureau of Industry and Security in the Department of Commerce, has something called the Foreign Direct Product Rule, has something called the foreign direct product rule. So if you've got a piece of equipment and this EUV equipment from the Netherlands, from ASML, is huge and if you have a piece of equipment that embodies some element of US technology, then the US has the right to say you cannot export to China. So that's happened and ASML cannot export to China. I'm also concerned about ASML's sales of equipment to Taiwan for obvious reasons having to do with politics in the region. So I'm a little bit concerned that ASML could be subject to these risks, and I think that political risks play a role in the discounting that the market is doing of ASML.
Speaker 2:Finally, let me talk about Microsoft. You know, I think there's a rule of size issue, right? So I think Law of large numbers, yeah, law of large numbers. So I think that when you have a company like Microsoft or Google or Apple, at a certain point they don't grow anymore or they don't grow as much, and growth is the, in my mind, growth, earnings, growth is the main driver of returns over periods of time, time, over longer periods of time, and so if I look at what microsoft has been doing, especially over the last year more than a year um, I don't see a lot of uh, I don't see a lot of growth, a lot of um, you know, a lot of um.
Speaker 2:I don't see a lot of growth. I don't see a lot of price appreciation, I just don't see it. And so I'm not sure what it would take to have another growth spurt in Microsoft. They're already in a number of industries. They're already pursuing AI, of course, with their OpenAI investment or partnership. They already have a cloud business in Azure, so I'm not sure how much more they can do. I'm less convinced about Microsoft than I am about NVIDIA or Google.
Speaker 1:Okay, I originally mentioned Google as tech, but it really belongs in communication, so we're going to leave Google aside. Well, no Google, yeah Google. That's really a communications discussion. So we got three sectors we're going to cover today tech, finance and healthcare, and so I will make one more comment, and then we'll have to go to get Clemson.
Speaker 2:My comment would be.
Speaker 1:Look, I heard this five years ago. With servers, Amazon is the king, Amazon has the server business and Microsoft is entering. And all of a sudden, five years later, Azure is, if not competitive, a leader in this space. And I look at it and say, okay, if they're a leader in this space and we know that we're going to need server farms for this AI, I think that Amazon and Microsoft are going to be the ones who have those, and the question is what kind of chips are they going to have and how are they going to grow? And I think that, by its project, you made this easy for me. Open AI is going to be at the forefront of what happens in this space. It is a project that is supported and guided by Microsoft.
Speaker 1:Therefore, I don't see how they don't become a big player in this space?
Speaker 2:Yeah, I don't understand. Now they don't become a big player in this space? Yeah, I don't understand. What I don't understand is why Microsoft hasn't done better, even though the market realizes that they have open AI. I just don't.
Speaker 1:I think that Clem. I think people get overly excited about some names. I think we can argue if we wanted to have a show just on NVIDIA.
Speaker 1:We could do that. I think that we got too many names to think about right now. I would just say all right, those are my three and I can defend them and I can give you my number one. But I will defer to you to see what your top three are and then I will criticize them and then I will try to berate them so that you know my top name will be. Your top name Is that fair, Even if it's not fair. It's what we're going to do.
Speaker 2:Um, so I would say that my number one name, name which I've held for an awful long time, uh, which has done very well for me, uh is aristaaristanetworks.
Speaker 2:Okay, and arista network growth portfolio what you have it there in our growth portfolio, not our core. It's client-to-cloud networking, so it's in that same thematic as cloud. So that's my number one. It's got 41% net income margin. It's got a interestingly, it's got a short interest ratio of only 0.78. It's got a forward peg of about 2.06, so not a lot Is the fact that it's got a 1.79 beta, because I'm trying to lower beta in my portfolio, so I do offset that with some staples and some other stuff. Okay, so there's that.
Speaker 2:I would say that my next favorite favorite uh on this list uh, would be netflix, and netflix has a short interest ratio of about one point. I mean, we all know netflix, okay, um, and I think netflix is dominant in its industry and its narrow industry Short interest ratio 1.48, which is good Forward peg, really attractive, nicely valued at 1.32. And it's got a beta, interestingly enough, of 0.45. Yeah, and it's a different space income to margin ratio of 32%. So I really like Netflix. So that's my second choice in this field and, again, we're looking forward. This isn't necessarily what is at the top of our portfolios because we've let, I think, especially I don't know about you, steve, but I tend to let some of my positions run a little bit uh trimming a little bit here and there, so like meta and nvidia are at the top, but they're not necessarily my best choices going forward uh, blogcom and nvidia are at the top of mine as well, so I would say those names I just have trouble going, trouble going for the next year.
Speaker 1:And so let me just summarize my critique of yours would be so I believe that we are going to see stubbornly high inflation and that is going to cause the markets overall to have struggles, especially if to see enough inflation Friday where the people would start to put in the future an interest rate increase, if the market sees that the names that are going to be hurt first are those higher beta names.
Speaker 1:So I would say that's where I would have the problem with Arista.
Speaker 1:I think it's a great name, but if we start to discount with a higher rate, if we start to see higher rates at all I think this market has been discounting the Fed lower, lower, lower and if not lower, at least stay the same and if we start to see that tariffs are inflationary I think that you and I may disagree about some things, but I think we both agree about that Then, all of a sudden, I think we're going to start to see rhetoric about inflation, and rhetoric about inflation is going to cause the Fed to raise, and if they raise, I would rather be in the names which have huge balance sheets and are very safe with very good core businesses, because they're not going to give you the same discounted cash flow impact of a higher discount rate.
Speaker 1:So that's where I look at ASML, microsoft and Adobe and I know I'm going to get some flack for this, but the biggest discount is in Adobe. So I would put Adobe as one, microsoft as two and ASML as three, and so it comes down to my view on Adobe versus your view on Arista. And now we battle to the death before we go on to the next sector.
Speaker 1:My argument would be Adobe is so integrated into our business environment and our individual environment that it represents a cash flow king because of all the things that it does for businesses and therefore it can't be removed in terms of you know, I can delay enhancing my network security and doing things with Arista, I can't delay or eliminate Adobe. So therefore I think it's more critical to core businesses and therefore I would say it will be less impacted by an increase in rates. And therefore, for the next 12 months, it's obvious Adobe is the winner. Ready, let's go on to the next sector.
Speaker 2:You know, I didn't even give you my third one. But that's okay. Okay, go, go, go.
Speaker 1:Give me a third one.
Speaker 2:So just to remind everybody, you told me earlier it was Spotify. Just to yeah, I told you earlier Spotify Okay. Spotify is my third Okay and you know it has a high short interest ratio, but it's got a low peg and it's got a low beta. Beta is only 0.85. And it's very profitable a net income margin of 79%. So it's very, very profitable.
Speaker 1:I think they're great names. I just have to look at it and say, from my perspective of if we hit a volatile market and if that volatility is going to have a higher discount rate, the names with more growth into the future in my mind are going to have a higher discount rate. The names with more growth into the future in my mind are going to be more impacted. So therefore, I tend to go a little bit safer. My three names I mean ASML, microsoft and Adobe I think have a little better balance sheet strength than your three names. I think your names have better growth strength than your three names. I think your names have better growth.
Speaker 1:So I think the question to me becomes which is more important for you in the next 12 months? And so I probably would have picked Netflix, because of its low correlation, as the number one, but you didn't. You picked Arista. So I'm going to say Adobe is better than Arista from a standpoint of balance sheet and volatility and I think that's going to be what stakes it to a better return going forward for the next year. What's your final minute? Give me your final argument and then we'll.
Speaker 2:Well, I don't know how we resolve this if we have a tie. So I like the idea of you mentioned that I tend to be more growthy, so let's just talk about that, okay.
Speaker 1:The reason I like growth I still love you, Clem, even if you are a growthier guy.
Speaker 2:You don't have to defend the reason I like. Okay. So I'm anticipating that we're going to have an economic slowdown, if not even a recession, and what happens in those periods of time is that the market will price up growth opportunities, and so I see a good potential for growth opportunities being priced up, and you have to. I mean, these are growthy names, but remember, I've got a portfolio that includes a lot of names that don't fit into that Arista or Netflix category.
Speaker 1:No, I think that you know. My view is I think we are going to have a recession as well, and so in the next 12 months, I think we're going to see a downturn in the market. There's going to be a lot of pressure on the Fed to respond with lower rates. I think they're going to say that inflation is not out of the woods and we aren't done with tariffs. So I think that we're going to have a Fed who is sitting there saying we need to probably do something. And it's not popular with markets, but since we saved the world during COVID and we've saved the world several other times because of what was a Fed reaction to market swoon, I think the Fed is going to be a little bit slow to react. And that slowness in reacting I think we could see rates higher in six months and lower in a year and a half, because I think that we will start to have the documentation of slow growth and no growth. And then, all of a sudden, the Fed will say all right, now that we've verified that inflation is dead and growth is challenged, it's time for us to take rates back down. And as we move out of that period, I think you could be right.
Speaker 1:I think our difference is in time frame.
Speaker 1:My belief is, over the next year we're going to want growth, but we're going to want it to be very stable and very cashflow positive and I think that some of these older names, like a Microsoft that you think might be challenged in terms of growth. I think Microsoft just isn't being valued as much as others, and it's not necessarily because it doesn't contain the value. It's just because I think there's a little misvaluation and emphasis on the chips. You put the chips and everything is important for AI. In reality, people are starting to talk about the stacks of software and how does the software drive the chips and how does that application solve a need for people and how we integrate all those things. I think initially it's a chip battle and then, as we go forward, I think it's going to be a software battle. So I look at the lithography work of ASML, I look at the software and the server centers of Microsoft and I look at Adobe and how documents and ultimately videos are going to be evaluated for truth and honesty.
Speaker 2:Do you?
Speaker 1:have Amazon too, steve.
Speaker 2:Huh, do you have Amazon too?
Speaker 1:Yes, Okay, I have Amazon, but Amazon is not in tech, it's in whatever.
Speaker 2:Oh yeah, Well, kind of in tech.
Speaker 1:Yeah, clem, I'm a disciplined guy. I'm not a kind of a tech so I get to. No, we picked one name, so I don't know. We should have probably resolved this whole tie question, since we only have two of us, right? Yeah, do we want to look at what? Do we want to look at Analysts forecast, or how do we? How do we? How do we break a tie?
Speaker 2:Oh, I don't know. I mean, we don't. Why do we have to break a tie?
Speaker 1:All right, let's just say we came with a tie. We're tied between Arista Networks from Clem and Adobe from me. And now I'm going to go into health care and my three health care names are going to put Clem to sleep a little bit, but he needs a nap. He's had a busy day so far. So step back, close your eyes. Clem and my three names in healthcare are really solid names with great cash flow and great businesses. And those three names are Danaher, Becton, Dickinson and J&J.
Speaker 1:And I'll start with J&J, because someone asked me if I was to buy bonds, who would I buy? And I said you'd buy corporates, because I think corporates are underestimated right now in terms of their quality of their balance sheet. We keep having this argument that treasuries are the safest, even though our budget deficits and our budgeting process is going to blow up in about two weeks, when the debt ceiling comes and goes and we don't have a budget. I'm going to say J&J's balance sheet is still A+, the US government is A. I think J&J's balance sheet is where you want to be when you look for the next 12 months. As we said, I think that it'll be challenging. I don't think people are going to stop bleeding. I don't think the need for gauze and other medical is going to go away. So I kind of feel that in the healthcare space that's been all about GLP and obesity and all of these other things with the human genome.
Speaker 1:I like the stability of a name like J&J. I like the dividend. I like the dividend growth. I like the fact that the company is just going on. It continues to find ways to grow and I know Clem is always looking for that growth in terms of revenue. But I think when you look at some of these bigger companies, they can take a small revenue growth. But because they can operate in so many different countries, because they can operate in so many deals in terms of long-term vendor contracts, I think a J&J is a very good place for you to put your money today and it would be my number one in health care. What are your top three? Clint.
Speaker 2:So the two I've had for a while, and then I'm going to introduce a third one which I just added at a smaller amount. Steve, can I hear you? Can you hear me now? Yeah, I can hear you. Okay, boston Scientific Okay, steve, can I hear you? Can you hear me? Now? I can hear you. Okay, uh, boston scientific okay, uh and uh, interactive surgical are my two that I've held for a long time on um talking about, and then my third one, which I recently added at a smaller amount, is gilead Sciences.
Speaker 2:Gilead Science, so Boston. Let me start with the Interactive Surgical. It's got a 28% net income margin. It's got short interest ratio of 1.18, which is pretty low. It does have a high peg, very high peg 5.04, and its beta is 1.23. So it's expensive. It's done pretty well and I offset that with some of my cheaper and also lower short interest ratio stocks. So a peg of 2.61 and a beta of 0.75. So I'm bringing down beta on that one to help offset what we're seeing from interactive surgical.
Speaker 2:Interactive Boston Scientific, uh, medical surgery items, so everything that can get uh stuck in you after surgery. They, they provide those kinds of items and uh. Interactive surgical provides uh, basically robotic, uh equipment for use in surgery. So these are all I'd say. Boston Scientific provides the sort of ongoing needs for surgery and interactive surgical is really the future of surgery.
Speaker 2:So, moving down the list, I just recently add Gilead sciences, because they uh mainly because they are really into they've really won a number of of uh approvals by the FDA, uh, and and others for some of their new drugs. So this is kind of a thematic play, but you know it's done. It's done very well. It's got a beta of really only 0.52. Of really only 0.52. So it helps bring down my beta for the portfolio which, as I said to you, is important for me.
Speaker 2:It's got a short interest of 1.84. And it's got I think it had a loss, actually a net income loss last year, which I don't like to see normally. But let me see here, if it's yeah, we don't have a oh no, it's got a forward peg that's really really attractive of 0.56. Nice. So it's got a really attractive forward peg, it's got a really attractive short interest ratio and it's got it's got a beta that pulls down the beta for the portfolio. So it's all those things that, um, uh, things that have helped it. The only thing I don't like is the fact that, at least from an accounting standpoint, they've had a loss recently. But looking forward, it looks pretty good and it's shown some good performance over the last six months as well. So those are my three, steve.
Speaker 1:What are yours?
Speaker 2:One, two, Number one among those, I'm going to say Boston Scientific. That's the one I've held in the portfolio the longest. Okay.
Speaker 1:So here's how I look at the three names and this is my approach. It's different than your approach, but the three names have a price-to-fare value. The Danaher has a price fair value of 77%. The Becton Dickinson is the best value with a 69% price to fair value and J&J is the worst at 0.99. But when I go over and I look at the grade based on balance sheet and based on information and I look at financial health grade, all three are A's. So all three are going to be names that have good financial health. But then I look at profitability. At profitability, j&j has an A and the other two's are Bs. So I like the fact that I'm getting them for better value.
Speaker 1:But I can't get away from that difference of A's versus B's in profitability because I think your point about companies are going to look for people, investors are going to look for companies that have good profitability which they can maintain through a downturn, and I think that J&J is that stock for a lot of people. So I agree that Boston Scientific has an interesting area and is very hard Good moat. It's going to be very hard to unseat Boston Scientific and the medical community. I think they're a good company. I'm just looking for a calm in the storm and I think if there is a storm this year, the J&J will get a lot of bid up because of people looking for a safe harbor. Do you want wanna make a?
Speaker 2:final question what about the law of large numbers?
Speaker 1:I think the healthcare industry, based on America's spending on healthcare, is going up, not going down, and I think that the aging of America is gonna mean that the healthcare sector as a whole is going to get more attention, not less. So I'm not worried about the size of the healthcare budgets. I think that there'll be more pressure on the farmers, which in my mind, opens up opportunity for names like this, like Becton and J&J. They are not a constant battle of when does my patent expire and when do I go to generics. And that whole drug kind of treadmill that I don't think we've figured out is very hard to invest for that treadmill. I like the idea of being safe. Safety is important. So safety wins in my mind with J&J.
Speaker 2:You got any? No, I think it's a better play than Novo Nurisk and Lilly at this point.
Speaker 1:Yeah. I mean, I think it's a good you know it's a good place to be and that's why I picked it. I think we could be a little growthier. I like your names. They're in our growth portfolio. Gilead is and um, the other name that we that we kind of like, but I think it's kind of gone a little bit uh, in the price area is vertex we have.
Speaker 2:Yeah I used to have that and berserker.
Speaker 1:Tex is at 1.35 a fair value. Yeah, I, I used to. I used to have that. And Vertex is at 1.35, a fair value.
Speaker 2:Yeah, I used to have Vertex and then even in my system it kind of priced its way out. When I look at J&J.
Speaker 1:Last item here forward PE 15.4. Danaher is at 27. And Becton is at 16 and a half. So in my mind, even though it's at its target price, 15 times earnings really. You know, when you look at some of these names in the AI space, you don't start until 35 times earnings. So I'm paying for this earning stream in a way that I think is reasonable. So what do you think? Have we killed the healthcare sector and we're going on to finance?
Speaker 2:I think so let's do finance.
Speaker 1:So finance, again, is not the sector that's the sexiest, it's not the most glamorous in terms of growth and it's not going to get on anybody's list of people doing TikTok videos about finance, but it is a place that represents a large percentage of the economy, percentage of the economy and therefore, as people that want to allocate to what the business is happening, we look at this sector and think it's pretty important that it represents a pretty significant plus 10% weight in the overall benchmark. So my three names in this space are ICE, intercontinental Exchange, berkshire Hathaway, which is insurance and other investments, and Visa, the transaction company. So all three of them have very different businesses about this portfolio. Because it really allows you some diversification. When you think about these three names in related to the AI space and related to the obesity space or related to anything in terms of growth in our society, these three names to me offer you a different perspective. Ice, as we know from its growth in buying the New York Stock Exchange and other exchanges around the world, is going to be a factor in the crypto space, the exchange and how the exchanges are run and coordinated worldwide. I think that when that is completely done, ice will be in the middle of it, and I think that when that is completely done, ice will be in the middle of it, and I think that ICE will be helping to legitimatize the overall crypto space. I think it has good growth prospects and I think it has a good you know. It is in a good place. So therefore, I really like ICE personally. I really like ICE personally. It's also an A-rated financial health, but so is Visa and so is Berkshire. So they're. I think that, based on its returns over the last three years, again it comes out to be very interesting 17.5 for Visa, 11 for Intercontinental and 15 and a half for Berkshire.
Speaker 1:I think that what Berkshire is doing is causing a lot of consternation among managers like me, which is why do they have $330 billion in cash waiting for investments? They don't think they can find things that are going to be good investments, and so Berkshire is making a large statement with their cash position, and I kind of like the idea of a company that says what they feel and does what they feel based on their analysis, and doesn't worry about what others are thinking or doing. I like that independent nature, I like the fact that it's been around and I think it's got unbelievably capable people. They reported and wrote their letter last week that was released on Saturday Again. Aja Jane is a genius in insurance and I think that they are a leader in the energy space. I like the two managers they've hired to help manage their assets that are offsetting their insurance liabilities. I like what they do.
Speaker 1:So I'm going to go out on a limb here and again, be probably more conservative than I need to be, because I worked hard to get this money. I don't want to lose it. So I look a little more at downside protection and I think Berkshire is my pick in the finance space. I think they're going to be able to charge more as insurance premiums are raised in a lot of states because of weather. I think that's going to lead to more profits and I think they've done an unbelievable job of managing the assets. I think the fact that they're selling Apple and selling Bank of America is telling you their opinion of the markets are that they may have too much exposure in spaces that have run a long way.
Speaker 1:I love the prudence, I love the thoughtfulness. I love the fact that they are not stepping back and saying we don't want to be in these spaces, but we want to be in spaces that we truly believe have the best prospects, and I like that. And so if I can get management of one of the greatest assets if you look at the last 50 years, if I can get a management team that doesn't cost anything in terms of an additional fee, berkshire is like a mutual fund for me. It should be held like gold or like other assets. It really shouldn't necessarily have to go up against other companies on a PE or on a price to book level, because I think it's just a different asset. And so, whether it's in that alternative space like infrastructure and it does have an infrastructure type feel, I don't know where it's going to go in the next year, but if I had to pick one in the finance space, I think I'd go Berkshire. Clem, what are you doing in the finance space?
Speaker 2:Well, you raised a lot of interesting issues here, ok, well, I'm of interesting issues here.
Speaker 2:Okay, so, so I'm skeptical, right. So let me say first of all, well, no, let me. Let me jump right to my favorite financial stock, which is progressive insurance, and that's the and that has a short interest ratio of 0.93, which is good, forward peg of 1.16, which is really good, and a beta of only 0.21. Over the last six months it's generated 13.1% net income margin of 11, and it's generated 13% of return over the last six months. So it's, I really like it. It's been doing well for me. I mean, I've held it for, I don't know, maybe a year and a half, two years, and it's continued to do well for me. So I really, you know it's got a pretty steady uh pace to it. So I really like progressive insurance and it's by far my favorite, uh favorite, financial now I like, I like, uh, american express.
Speaker 2:I also like visa and mastercard. I have all three of them, uh, in my portfolio. Uh, at the moment I have american express is slightly uh, higher uh percentage, higher weight than the others, but you know, they're all, you know they're all doing well, uh, they all have. I would say you know, similar metrics, roughly similar metrics that all fit into you know what I like in terms of short ratio and forward peg and beta. So I like, I like all of those. So I also just, you know.
Speaker 2:I just wanted to say on Berkshire, I agree with you everything you said about Berkshire and I would further say that I like Berkshire because it represents yet another insurance company in addition to Progressive, and so so I like that. You know, down my list, not in the top 15, is Brown and Brown, which I don't know if you've even heard of that, right, yeah, smaller insurance company. So those are my names. My favorite name, as I mentioned, is Progressive Insurance. Okay, by far, I would say. Let me say this while we're on this topic, and I don't know if this falls into the financial area or not, but I do have, at the moment, since you brought up Berkshire, I have 9% in cash, a little over 9% in cash, okay, and I've got 4% in gold in gold ETF, gld. So I'm being pretty conservative there. Gold has a beta of 0.12 and it's hada really good run and it's a really good run that's being buoyed by Chinese purchases of gold and, and I think that's a secular tailwind for gold.
Speaker 1:No, I think. I mean, I've looked at gold for clients and written options against gold and I think it's an interesting asset to stabilize a portfolio. I think it's. The question is is, how do you? You know there's a carrying cost and there's a management cost and you kind of have a question about what is it producing? What is it giving you in terms of return? It gives you stability, it gives you a low correlation, but it's hard to see.
Speaker 1:You know and try to estimate versus other names, versus other names. When I look at the betas of my names, I'm surprised that both ICE and Berkshire have betas near one and Visa is the best with a beta of 0.6. So I still will stick with my Berkshire. I don't think it pushes me that far in terms of. I think that beta might be a little bit of a time period specific and it might not necessarily if I look over the long enough time horizon. So I think this has been an interesting discussion. Now we have to pick our best of the three. So your best idea right now for somebody for the next 12 months, based on coming from these three sectors. You have three names. I have three names. We need to pick one. If we only had, you know, a 2% position we were thinking of starting right now, where would we put the money?
Speaker 2:Where would we put the money? Progressive insurance, okay, okay. And the reason why is because I anticipate we're going to have a recession and I think progressive insurance will power through that recession. I think Boston Scientific will do well as well. Maybe Ariston, you know, maybe might do a little less well, but I think Progressive Insurance would be my number one. Keep in mind that I also have the gold and the cash.
Speaker 1:Yeah, I've got a couple of bond funds as well. What we're really saying is in equity exposure, if you were to take it, who would you want to take it with? Who do you want to walk down? We're only dating these stocks, we're not marrying them. Clem, my three names were Berkshire, j&j and Adobe, and of those three, based on where I think the market's going to go, I think I would probably stick with Berkshire. So we're in the same sector, we're in the same industry. I think it's just a question of which given name has the best prospects. So I hope that this has been an interesting discussion for people. I hope they like it and I hope that you give us some ideas and some names and some things to discuss. If you like this, let us know, send us a text, send us a message, share and support us. Skeptic's Guide exists, with no commercials, for everybody to try to improve their investing IQ. Thanks everyone for listening and we look forward to our next topic, which is how to manage risk in this environment. Thank you, have a good day.
