Ep. 304 The 12 Metrics You Need To Find Long-Term Market Opportunities
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Hello and welcome to another episode of the Investing with IBD podcast. It's Justin Nielsen here, your host. It is January 22nd, 2025, and it's great to be with you all today again. And kind of like last week, we've got a new guest here to introduce to all of you with some new different styles. Also kind of focused on the long-term investment strategies. It's Nancy Tangler. She is a CEO and CIO at Laffer Tangler Investments. Welcome to the show, Nancy. Hi.

Gosh, Justin, thanks so much for having me. Yeah, so my pleasure. Allie Corum, of course, who hosts a lot of our things, she highly recommended you. And of course, I've seen you on CNBC and kind of doing the circuit. But it's great to talk to you and kind of pick your brain a little bit on what I think are some unique approaches to how you go through your stock selection. And let's get into it. But first...

I want to just kind of get a little bit of your background, where you kind of came from and how you got into this business. Oh, boy. Well, I started the business, I'm sorry to report, in the mid-1980s. I was going to be a fighter pilot after college, and I applied, took all the tests because it seemed really exciting. And then one day I just woke up and said, what are you doing? You're going to be in the military. And it was after I got my physical and had to do exercises for them with

in your next to nothings. And I was like, this is not for me. So I joined a bank in Northern California and had a big trust department. And the gentleman I worked for had developed this approach, relative dividend yield, as a way to identify value. And so we were value investors, but everyone else was using low PEs and relative PEs. And we had to explain, you know, we had to sell our process and the concept of value. And so it was

It was a long process, but it became very popular. Well, and hey, look, if it's one of those things where you're kind of doing what a lot of other people aren't doing, you get good at sales, right? Really knowing your stuff, so.

So creative. Yeah. Learning how to sell ice to Eskimos, if you will. Well, that's awesome. So let's talk a little bit about some of the strategies that you've come up with. And in particular, you know, whenever I think of long term investments, I almost always feel like you need to lean on earnings because nothing screams, you know, long term potential like the ability to grow your earnings, you know,

usually in a very stable way, in a very steady pace, but to such a degree that it's something that investors are going to get excited about. So what is your approach to kind of choosing your long-term investments? Well, yes, you're dead right, Justin. I mean, certainly earnings matter. The problem is Wall Street isn't very good at estimating earnings. And so, you know, every quarter we get about two-thirds of the companies reporting a

either above or below, and it's mostly above analyst estimates. And so what we were – and remember, back then, this was like the days of fax machines, barely. And we'd get these research reports from New York by the time we got them in San Francisco. You know, they were out of date. So we were trying to find a way to look at companies that gave us insight into what management thought about future earnings growth.

And in the large cap companies that we owned then and in many cases own now, the management set the dividend as a portion of what they think is long-term sustainable earnings power. A recent great example is one of our largest holdings and kind of the poster child for our investing theme, Walmart. They, for a decade at least, just kind of raised the dividend 1% to 2% every quarter. And then about two – every year, sorry. And then about two quarters ago, they raised it 11%.

And that told us – we already owned it. It was already one of our favorite names. But it told us that management was very confident about the future and that earnings growth would accelerate. And indeed, it has. So that's the information you get from using relative dividend yield. And we basically – anyone can graph it themselves at home. You take the historical yield and you graph it against the S&P 500 and

And what you come up with is these really clear periods of when the yield is high and a period of undervaluation and when the yield declines, a period of overvaluation. So, yeah, you can see in this chart, this is a fallen angel growth stock, which I will reveal in a few minutes. But you can see that… Way to build attention. Yeah.

What's that? Way to build a suspense. Oh, yeah. Just hang on there. We'll be right back after the commercial. So what you see is that this stock got to a yield that was above 3%, and actually at the time above the 10-year threshold.

And it was considered before that a growth stock. So what relative yield told us was it was cheap. And then we had to do our fundamental work, which I know we'll be talking about later, to determine if it was a value trap or what we call a terminally cheap stock or not. And you can see that it was not. It's a return to growth. And that's reflected in the relative yield graph.

decelerating or declining into our sell range, which means the price of the stock's gone up dramatically. Okay. So I was going to ask you about that because you mentioned the term terminally cheap. And a lot of times, of course, when you look at dividend yield, it's a ratio. And anyone that understands numbers, numerator over denominator, if you decrease the denominator, which in this case is the stock price, that's an easy way. You know,

get a cheaper stock or a stock that falls, it's going to make your dividend yield go up. So how do you kind of factor that in and make sure you're not just, you know, oh, I'm winning, you know, on yield because I've got a stock that's falling apart.

You're absolutely right. All the research shows, Justin, that the top two deciles, and in particular the top decile in terms of yield, is the segment of the market that underperforms over almost every time period. And the reason for that is exactly what you described earlier.

Yeah.

And I think some of the best work we do for our clients is the companies we never bought in the first place because of our fundamental work or the companies that we got out of. So think Intel, Zillow, CVS, Amazon.

Those were names that we owned at one point, and we saw that the model and the management teams were not up to the task, and we exited well before they crumbled. So you're kind of avoiding the top decile, recognizing that they're kind of a cheap stock. So you kind of have your sweet spot. Where is your sweet spot?

The portfolio target is 50% above the S&P 500. And we're there. We're yielding a little bit over 2%. But what's important is that dividend growth, the annualized dividend growth in the portfolio over the last five years has been 13%. So you can see we're buying companies that are growing the dividends. And if you take the income out of the portfolio, it's a hedge against inflation. It also, this rapidly growing dividend provides...

and declining markets. And, you know, it also gives you the insight that I mentioned earlier. So we're in the sort of center decile. We will hold a stock until, you know, the yield gets well below 1%, but we won't buy it unless it has a yield above the S&P 500. Now...

So let's talk a little bit about tech stocks, because, of course, when the 90s hit, it was almost like dividend yields. We're all about growth. We need to put that money back into R&D and everything. And no one cared about dividend yields for a little bit. So what did that do to your model?

Well, we didn't get invited to a lot of cocktail parties. Let me put it that way. My business partner at the time was speaking at one of the analyst societies. I think it was in New York. And he gave a speech about relative dividend yield. And this guy came up to him and said, I don't believe in dividends. And he

my partner said, well, I didn't know this was a theology conference. But yeah, it's like watching paint dry. I mean, back then you were excluded from tech stocks. Now many of the tech names that we own in this portfolio do pay dividends and are growing the dividends between 10 and 15%. So again, we're not striving for absolute yield. We're striving for the information we get and then the protection and the income producing properties of dividends. So I

I think that would really be the easiest way to explain it. We didn't own the tech names, many of the names, most of the names at the end of the 90s. And so then we developed a second metric so we could participate in that very important space. Okay. And this is an important one because, of course, what goes into earnings? Well, sales, revenues. So talk a little bit about this fundamental metric that you use and how you use it.

Yeah, well, I developed this as a valuation metric in the days of Enron, because what we knew is that earnings, you know, there's all sorts of different earnings estimates. There's, you know, there's pro forma, there's gap, and you could drive a truck between the two of those. And so we wanted a more reliable estimate.

And so sales. And we figured if anybody manipulated sales, they would go to jail, just as what happened with all the Enron kingpins. So we wanted to pay – we wanted to look at sales, again, in the same fashion. The stock sales history, expected sales, sales.

Mm-hmm.

So you're seeing, is this the sales growth or the sales number or what are you using? It's the relative price to sales ratio. So when the stock is below the green line, that means you're paying a relatively small amount for, and especially based on the past, for a future unit of sales of this company. And so the chart, I'll reveal, both of those metrics are Apple.

OK. And the time period was about two to ten to twelve when we were accumulating it. And both valuation metrics confirmed that the stock was cheap. And so we love when that happens. Right. And it also goes to show you that, you know, a lot of these tech names, they they they did change their tune. Right. Whereas dividends didn't matter for a while.

All of a sudden you started seeing more tech names, Microsoft, you know, Amazon, you know, you know. Oh, yeah. Let's let's start doing a yield, a dividend. I wish Amazon, Google. Oh, I'm sorry. I was thinking Alphabet. Yeah. Alphabet. Yeah. And Meta. So. So.

So with these two metrics, I mean, you know, I mean, this this seems like a good start, you know, because, again, with the dividend, you're almost getting that analyst opinion, but more accurate. And then, of course, the sales, which is, as you said, it's not really something you can fudge there. So what else do you kind of add on to your approach here?

Yeah.

And we go through the – there they are. The company has to pass a majority of those factors before we will even consider buying it. And so this is one I sent you, as you know, on CrowdStrike. And we did this analysis in February of 2024.

You could argue we were early. We added the stock to our portfolios when they had the Delta, you know, shutdown airlines across the world. Right. Bad blue screen day. We reassessed. And that's exactly what you're supposed to do. So is this management team still competent? Is the...

franchise value and market growth going to continue? And what is the future catalyst for outperformance after this trying time? And we reconfirmed that the company still met our metrics, the management handled it as well as you could have, and we added to our positions. Sometimes we reassess the fundamentals and we exit in the names, for example, like I mentioned earlier. So that brings up a good point.

What about the technical analysis? Does that factor in at all? I mean, CrowdStrike got hit so hard on that day. And again, just as a reminder for folks, this was February 12, 2024, where this analysis was done, so a little bit before that. But...

If you see something happen, an event, and it really affects the price in a big way, is there any kind of technical analysis or sell stops or something like that where you're managing your risk in that way?

Yeah, well, yes, we do pay attention to technicals because in the short term, the algorithms in the hedge funds drive the volatility. And so if you're paying attention to the technicals, you can get much better entry points. You know, the traditional value manager by instinct historically said, oh, it went down, I'll buy more. And what I've learned over the 30 plus years I've been doing it, OK, 40 years I've been doing this. I wasn't going to call you out on it.

Sometimes you just need to, the opportunity cost is so big, you need to exit. And so we will do that. We don't have like a 25% stop loss in the portfolio, but we will reassess and then either add

add to the name or exit entirely. And that's, that's, that was our experience with CrowdStrike. We only had a modest entry level position. And so we added, and it's, it's a bigger portion of our portfolio. And from the bottom, that was a great move from where we bought it. The original shares, you know, we're about even, but we've bought a lot more since then. So this holding has done well for us, despite the, the, the draconian, uh,

Yeah, yeah. And so I also wanted to just kind of back up a little bit to share this graph that you shared with me, because this is CrowdStrike in terms of its relative price to sales ratio. So you kind of have these red lines that are identifying some targets. So how do you use this?

Yeah, so that bottom line should be green. I think it was just an oversight. I'm going to go correct somebody after we're done. But you can see that based on its own history, even though it's not super long, CrowdStrike has been an expensive stock for sure. And even though on a PE multiple basis, it's expensive, if you look at it on relative price to sales ratio compared to its history, it is not. And so that was what gave us the courage to

to initiate and then to add more. And Palo Alto is our biggest holding in cyber, but this was a name we definitely wanted to own. Okay, business leaders, are you here to play or are you playing to win? If you're in it to win, meet your next MVP. NetSuite by Oracle. NetSuite is your full business management system in one convenient suite. With NetSuite, you're running your accounting, your finance, your HR, your e-commerce, and more all from your online dashboard.

Upgrade your playbook and make the switch to NetSuite, the number one cloud ERP. Get the CFO's guide to AI and machine learning at netsuite.com slash wallstreet. netsuite.com slash wallstreet. Well, now I'm looking at CrowdStrike and I'm looking at the dividend yield and I'm seeing a big fat zero here. So how does this...

You know, how do you use your 12 factors? How important is dividend yield? Are the 12 factors kind of treated equally or can you fail some and it's OK? Or these are the non-starters. You failed it and it's a no go. No, no. You got to pass the majority so you can fail on the qualitative. You can fail four if.

if need be. And you can see we have an NA for dividend coverage, but a fail on relative PE because the relative PE is high. But we run a growth strategy and that does not have any yield requirements. And that's where this stock is held.

In our dividend growth strategy, our equity income is really the official name. You can tell we're not marketing people. We're just portfolio managers. That's where we focus intensely on relative dividend yields. But we're always looking at both metrics to confirm what we're seeing from one. And if we get attractiveness on both, then that's good.

important to us yeah absolutely so um let's switch gears a little bit because this is kind of given i think a good idea of your stock selection and i love that you have it you know broken down with okay here's our factors that either it is or it isn't um

It makes it kind of real easy to kind of see that in a dashboard kind of way. But let's also talk about portfolio construction. How heavy are you getting in terms of your position sizes? How much do you say we can own in any particular sector? What's kind of your portfolio construction methodology? Yeah, that's a great question because that's where some of the art form comes in, I'd say.

So we run very concentrated portfolios compared to the rest of the world. The growth and the dividend growth strategies have about 25 to 30 names. And then we have an even more concentrated strategy. It's our 12 best ideas. And it's an actual strategy that people are invested in. All of them have low turnover compared, again, to the rest of the world, 25 to 35%. And the top performer...

over the last five and a half years since we started the 12th best is the 12th best. The annualized return is something like 16.8. Um, because what, what, what, what I know as a PM and what the research shows is that the optimal, uh, diversification is 12 names. And when you're, when you have more than that, if you're not willing to take meaningful positions, you're detracting from total return. And so if you look at our, our,

the dividend growth strategy about the top 10 holdings represent almost 50%. And the same is true for our growth strategy. So we, we,

We don't buy anything less than 2%. If we don't have that much conviction, we have no business being in the stock. No, that makes a lot of sense. Again, as you said, yes, maybe you're getting yourself a little bit lower risk in terms of your standard deviation, but what you give up can be quite large as well. So being that concentrated, again, I have to just ask a little bit more about

that risk management side. You know, when you're that concentrated, do you have to have different rules there for that level of concentration to make sure nothing gets out of...

doesn't take the portfolio down with it. Yeah, yeah. We've had a few stinkers in there, but what's amazing is that even still, you know, you can generate attractive returns. I know I've talked about this with you before, but if you look at the average hedge fund, they've returned 8% to 10% over the last decade. And we as active managers have done a lot better. And I think that's because we do have a long-term focus on

And we are focused on the S&P as our risk benchmark. So I didn't answer your question on sectors. We won't go more than one and a half times at all.

time of purchase, any sector. And except if you're talking about materials and, you know, the really small ones, we'll, we'll go double those at least. But it's important to know a where, what sectors do you want to be overweight in? And we're currently overweight technology, consumer discretionary and industrials, and we're moving to an overweight and financials. But also you have to overweight the better companies. And that's, that,

that's what we've been able to do to our, to, to the benefit of our clients. And, you know, as active managers, we have been able to add value because we like some stocks better than others, companies better than others. Well, and, and for that sector, you know, kind of waiting, uh,

You mentioned, oh, OK, we're seeing some movement in financials. Are you doing that as kind of a bottom up approach? You're seeing the stocks that are meeting it. Or is there some other metric that you're using to say, oh, the sector is looking good for these reasons? Yeah. So the stocks give you the information like, you know, there there's a lot of attractive names that are still reasonably valued.

in 1990 in February, going into, I'm sorry, in 2020, going into February, we didn't know about COVID. We didn't know we were going to have the perfect storm bear market. But what we did know is we couldn't find many, if at all, cheap, high quality companies. So we put a hedge on all of our clients' portfolios. It was just simple. We bought puts against the SPY, but the companies will tell you information. And so we start there, but we also have a macro viewpoint of,

And our investing theme has been for two years, and it will continue, I imagine, for a number more. And it is old economy companies that are pivoting to the new technologies. That's why Walmart's the poster child. And then the suppliers of the picks and shovels, the infrastructure, the software. And that's many of the names that we'll talk about today that we think will continue to drive margin and earnings growth. And that's where we're focused. So that's our kind of macro theme today.

that leads you into companies that are using the new technologies and then into overweights in certain sectors. Yeah. And I mean, again, I like how with your 12 point fundamental analysis, you know, as part of that, okay, what are the catalysts? What are those, what are those new things either in their industry or that this company is doing? You know, again, it just really jives with a lot of the things that we learned from the founder of investors business daily, William O'Neill in terms of finding that new, uh,

So I want to kind of shift gears a little bit again to kind of see some of this in action. So maybe we could start with Tesla as an example, because this is a stock that you were owning at various times. And so I think January 2023 is what you shared with me, which is fantastic.

right down here at the lows. I think you were maybe two points or something off of the lows here for $100 stock, which isn't too bad.

What did you see there? How was that not like trying to catch a falling knife? Well, we were looking at the technicals, and that was important. I'd owned the stock before. We took a double in it, and then it felt just way too much like gambling. Remember when Elon was sleeping on the factory floor and his CFO was leaving? He had three board members, and they were mostly insiders. And then he went on the Joe Rogan podcast and smoked pot, and I was like, ah!

So we had a double in the stock. We sold it and we left about a four times, fourfold increase on the table. And that's when I learned a valuable lesson about him, his vision, his strategy and his ability to execute. So when he was selling the stock to buy Twitter, and remember, that's when that was in the fall of 2022. We were already in a bear market anyway. So everybody was in a pretty foul mood. And

And we looked at it in, began looking at it in January. And then, you know, we talked to the technicians that we like. We looked at the charts and we picked it off at about 103. And then we had time to buy it. I mean, it went up pretty nicely, but we had some time to buy it. And then when it got to be in the mid 200s, we sold it. It might have been 230, 240. I don't remember exactly. Yeah.

we trimmed it back and then when it sold off again, we added back to our holdings and we

And during that period, you know, what you were hearing from folks in, and I'm trying to just, I'm looking at my notes that I wrote at the time. What we were hearing was that, you know, he was cutting prices because he couldn't sell cars. What we thought was he was cutting prices to drive his competitors out of business. But we never bought the story as just an EV car company model. I had the good fortune to go to the Megapack store

which is the electric utility grade batteries to store renewable energy. I went to the factory in Lathrop, California, and I was so impressed with the earnings growth that even at that time, and it's been proven out since, that portion of the business, though small, is the fastest growing, most profitable part of the business. And so that will be a bridge to full self-driving, which we think is much more likely to be fast-tracked under a Trump administration strategy.

and also CyberCab and just the AI, the sheer breadth of the AI usage of this company. I think you really want to own this stock for the long term. So whenever it gets volatile, we step in and add to holdings. But we do take money off the table when it rises because...

it is volatile. And so you want to trim back. So it's been a great stock for us. I went to the cyber cab event that was in LA. Yeah. It was, it was long on cool, Justin. It was a little short on details. The stock sold off afterwards member and Uber went way up, which is also a member of our 12th best ideas portfolio. Um, but, but what I, I discovered two things. Um,

that the innovation continues and that the devotees don't really care about the details. Those are the individual shareholders. And I found my home health care solution in Optimist, the robot. Okay, perfect. So you're going to be home health care or bartending? Either of both, really. Well, and it's funny, and I should have mentioned at the outset that I do have a position in Tesla myself. Okay.

but you know, some of these bases here, I mean, this, this was a 30% correction here. And then you had like a 50% correction here. So, um, I guess again, when you're,

You mentioned that some of this was that you were selling into strength, but is there another element that's like, oh, okay, we've got to batten down the hatches to a degree, and what are you using as kind of those sell signals to match the position that you might be holding for a longer term, but to make sure that you don't take your portfolio down with it?

Right, right, right. So Tesla is not in our 12 best ideas portfolio, not because it's not a great idea, but because it is exceptionally volatile. And it is a stock that investors love to hate. And so what we do is we just are very disciplined. We set a target for the name. And when it rises to 50% above that, we will trim it back. So we were selling – well, trimming, not selling –

many of our tech holdings in early July of last year. And we just got lucky. And then when they sold off through the end of the summer, we bought...

added back to some of the names. Tesla was one of those. And so we will continue to do that at the margin. But once we decide, as we ultimately did with Apple, that it was just too expensive, we went from trimming to selling and then put it in and left it at the minimum position in our portfolio, which is two to two and a half percent. And so I caught that you said targets. How are you setting those targets? Is it based on...

Is it based on forward-looking PEs? What helps you set those levels of, okay, this is where we need to start taking some of our profits off the table? Yeah, yeah. So back to the 12 factors. The catalyst for outperformance is critically important to us. And so we spend a lot of time, I sent you a 12-factor on CrowdStrike. The analyst had about five catalysts for outperformance. Yeah, right. And so...

And the same for Tesla. And for us, it was the energy business, so the mega-pack business, the full self-driving and autonomous vehicle business. And on top of that, the second most, or equally as important, I should say, is the analysis that we do on management. So it was clear to me that Pat Gelsinger was not up to the job of saving Intel. So we got out...

A number of years ago, same with Karen Lynch. I think her name was, I've already forgotten at CVS. The model wasn't good. They, they paid, you know, they paid down debt. Then they accumulated a ton of debt and we just thought that the business model was broken. And so we got out. So it's fundamentally driven, but it's really heavy on what's the catalyst and what's, what's the man of management team like. And, and,

So I'll talk about that again when we talk about my stock picks at the end. Very good. And before we kind of end this part, I wanted to also bring up Adobe as an example of, okay, you need to know when to not overstay your welcome or recognize a hint when something is telling you, okay, this is not working. So what was the deal with Adobe? Yeah.

I think management has disappointed too many times in the last year. And so, yeah, they're going through a transition. We get that. You know, the AI, the Firefly business and the adoption, sorry, adoption of generative AI in their installed base is great. And they are the industry leader, but they're not monetizing it.

And I think we still own it in our growth portfolio. We just didn't think it was any longer a best idea. We will give management time, unlike Wall Street, time.

But we won't wait around forever. And it just seems like they've come a little bit tin-earish about earnings. And I think they need to – I imagine next report they'll blast it off. But it's been a disappointment. And so we thought there were better places to be. And we added in a name I'm going to talk about later. Okay.

Okay. Well, you know what? Why make the people wait? Let's go ahead and get into some of those of your ideas, some of your 12 best ideas names. Where do you want to start? I think I want to start with Spotify, which is what we used to replace Adobe.

Okay. And I do have a position in Spotify myself. So, yeah, this is one. In terms of a few of the things that we look at here at IBD, this blue dot is kind of telling you about relative performance versus the S&P 500 as seen by this line here. And a blue dot is when something's in a base and performance.

has that relative strength line near new highs. So on the price side, this definitely has that relative performance to the S&P 500. But tell me what you're seeing. Yeah, so we found it. We sold Meta a long, I don't know, a number of years back and bought Spotify. And

It was a good trade, actually, even though it would have been great if we held both. But we really wanted to own this name because we thought that the management team was responsive and nimble to the market and to investors.

We knew that last year was the year of monetization. So they started delivering earnings and they added price increases, which drove earnings. And now they're set in a position. Oh, and then they opened up like Joe Rogan onto other platforms, which increases advertising revenue and revenue.

doesn't really give up much in terms of exclusivity. And so that, I think that was a very wise move. And then, you know, the earnings growth is going to be 58% in 2025, 28% in 2026. So on a pay ratio basis, and it's

It's trading at just slightly above one. So price earnings to growth rate, that's a very reasonable valuation. And we think that the growth continues. And then add in the fact that it's recession-proof. And you saw Netflix recent earnings report. Subscribers are subscribing, and that's what we've seen from Spotify. So it's a member of our 5 for 25 list and a member of our 12 Best Ideas portfolio. Yeah.

You know, so you mentioned the earnings. So certainly one of the things that sticks out is that this has not been profitable, you know, really until I'm going to scroll down here. I lost my cursor. OK, there we go. So, yeah, you can see, as you as you mentioned, just recently kind of got into the profitable zone. So is the sales has the sales been strong enough to kind of.

Yeah, absolutely. And that's why we look at relative price to sales because sometimes you want to own companies that are in strong growth mode.

even before they deliver earnings, if you think they're on track. And I think that's what Daniel Ek did very well. He managed expectations. They reinvested in the business for many years. And then they understood, just like Tesla did, that it was time to –

to put earnings on the board. And so they did that and they're continuing to grow. Margins have improved. So it's just, it's a great company and it's a staple in many households, funny enough. And so I think, I think we, you know, we believed that it was in a much stronger position than Adobe was. You know, you mentioned staples in a household. So I'm going to

just lead into Amazon with that because one of the staples in my household is those boxes that just pile up outside my door. So tell me what you're seeing with Amazon. And I do have a position in this myself as well. I swear I didn't go out and buy your portfolio before you came on. I'm so happy we intersected on a number of stocks here. But yeah, tell me what you're looking at here with Amazon.

Yeah, so this was I gave an interview to The Wall Street Journal at one point early in the decade. And this was our stock pick for the decade. And I think it will continue to deliver very nicely for investors. When Andy Jassy took over, he got Tim Cooked. So he was underestimated. He was dismissed. And the stock sort of struggled for quite some time.

Then the company delivered on what they said they were going to deliver on. Cloud growth is still a critical portion, AWS, a critical portion of the business. But their advertising revenues are growing. They've streamlined retail and delivery. And it's a company that can continue to thrive as they've grown the media aspect of the business. And yet, unlike Disney, which...

which has a hard time, you know, trading at the sum of the parts or in excess of the sum of the parts that,

Amazon does and can. And so if you look at earnings growth there, they're expected to grow 21% in 2025, 22% in 2026. The peg is well under two. And remember, they're still kicking off $50 to $60 billion in free cash flow after record CapEx budgets of around $50 billion. So we think this name can continue to deliver and outperform the

They have a pristine balance sheet, and they have a management team that is really delivering on every metric.

Yeah. I don't want to open up the can of worms, but one of the things I did notice when I was reading some of your reports that you shared with me is that free cash flow was a big thing. You were definitely keying on that on a number of metrics. And when you were looking at management and catalysts and everything, that free cash flow definitely was something that stuck out to me as being important to you.

Yeah. And it's one of the quantitative factors that we pay very close attention to. Yeah. Yeah. It is important for so many reasons. And I'm sure every investor pays attention, but it is important because it takes out CapEx. I mean, free cash flows after CapEx. And so that's, you know, when you hear all these companies are spending too much money.

I don't know if you can kick off $50 billion annually. I'm just waiting for Amazon to declare a dividend, but I've been waiting. I've been talking about it for three years, and so far they haven't taken the hint. And then I'll just say one last thing about this, Justin. So for your viewers and for all retail investors, when a stock is up, sometimes it's hard to

you know, to say, do I want to buy it here? And so I just went back and looked at Amazon since the IPO in May of 1997. And my numbers are, you know, a few weeks old, but the stock is up somewhere around 275,000%.

So if you're buying a company that has, you know, great strategic vision, market dominance, all the things that we talked about in the 12 factors, you can. When was it too late to buy Amazon? Yeah, right. Well, and I guess there's two sides to that, you know, because a lot of people would say, well, gosh, if you thought it was if you thought it was too, too expensive up here.

Shame on you. Or too expensive up here or too expensive up here. But, you know, then other people might say, well, eventually, won't it be too late? I mean, it's gone up so much. How much more can you expect? And...

The law of large numbers, right? With a lot of these companies, you know, now granted, they hit one trillion and it felt like two trillion happened so quick after that with a lot of these companies. So how do you kind of, you know, quell investors' fears that they're going to be the ones that are late to the party and they end up cleaning up?

Well, we all still have scars from 2000. But this is a very different technology and a very different...

of the technology. So if you think back to the 90s, you had companies that were being valued on eyeballs, internet companies. And then the internet companies, many of them failed, e-toys, e-pets, all of that. And then that hurt the infrastructure providers like Cisco, which was trading at 100 times peak earnings. So you have to be aware of your environment. And

And there have been periods, long periods, um, or seemingly long periods where, where Amazon is underperformed. Uh, but it just really is a way to provide you with an opportunity to get in and, and to, to draw the equivalency further. I would say, remember Walmart was the great growth stock in, in the eighties and, uh, it became a value stock and, and then now it's back to growth status. And so if you're buying great companies that you can own for a lifetime, um,

Doug McMillan was the secret sauce at Walmart. Satya Nadella was the secret sauce at Microsoft. So you have to keep all of that in mind as you're looking and thinking about how long can I own these companies and are they really names that I can own for a lifetime? And those are the kind of companies we're trying to buy because turnover is expensive and

from a capital gains tax standpoint. So to the extent that we can buy great companies that we can hold for very long periods of time, and oh, by the way, if they are paying a growing dividend, I'm getting paid to wait, that's even better. And so those are the things that we think about and look at. But Intel was once a great growth company, and it had deteriorated, and we thought the previous CEO...

didn't do the firm any favors. He had been the CFO. And when they brought Gelsinger in, he got the benefit of the doubt from us, too, until he didn't. And instead of turning the company around, he went hat in hand to DC. And for us, that was the exit point. Well, and it sounds like, again, with all these companies that you're talking about, Amazon, Walmart, there is a

not an element of complete reinvention, but certainly a somewhat reinvention where, again, Amazon started as a bookseller and now AWS accounts for such a huge portion of their revenue. You know, Microsoft, yes, it was an operating system and then it didn't do anything for 15 years until cloud computing came up, came about. So there is that. Yes.

100% right. And so the pivoting becomes critical because, you know, don't forget who developed the mouse? Xerox.

Right.

And I feel like with some of these stocks that you've talked about just now, Walmart, Amazon, Tesla to a degree. And again, I do have positions in Amazon and Tesla and Spotify. You know, Spotify also in there. I think it's easy to understand that on a consumer basis. Make your next move with American Express Business Platinum. You'll get five times membership rewards points on flights and prepaid hotels booked on amextravel.com.

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But let's go ahead and shift gears to now, ServiceNow, because this is one that might be a little bit more difficult for people to kind of, you know, if you're not using ServiceNow, how do you know what those catalysts are and how well it's doing? Yeah. And they are led by one of the – I said this on a Bloomberg interview, and he sent me an email, the best CEOs in the country, I think. He's also a great salesman, and that's Bill McDermott.

And so what you want to pay attention to, this is a company that has delivered low to mid 20% earnings growth every quarter for the last three or four years. So even during the bear market of 2022, they continue to deliver growth in the 20% range and above.

and they weren't being rewarded for it. And so you have to think about who's going to benefit from generative AI computing. And ServiceNow is kind of the conductor, the traffic manager on the cloud, and utilizing the data to enhance their customers' experience. And so what really keyed in for me is there was a –

A CIO survey, and I'm going to read the numbers because I get up at four in the morning, so it's almost bedtime for me. 71% of CIOs believe that AI will be very productivity enhancing. This is a Bernstein CIO report. 80% said they were exploring potential applications of large language models.

but only 8% said that they were going to be, that it was in their budget for this year. That's mind blowing. And McDermott came out in an interview and said, he believes that spending on generative AI and generative AI cloud is going to be 20 trillion by 2030. So he only has to be half right. And that's going to be a compelling metric. But then again, if you look at the peg and I don't know if I had that in my writeup, but, um,

it's expensive on a multiple basis, but it's not terribly expensive on a

on a pay ratio basis. I think it's around two times. And so, you know, if you've got a stock, Tesla's trading at four and a half times, or it was the last time I looked on a pay ratio, that's kind of lofty, but that's a story stock and service now is an earnings growth stock. And then, and the CEO has said, and I quote, we are perfectly positioned for the convergence. And he's talking about AI and generative AI cloud computing. And,

that we're seeing with cloud computing AI and workflow automation. And so you're constantly hearing companies that are implementing workflow automation. We just signed up for a software that, you know, it's AI driven that combs all the financial sites, yours included, and

And we'll give you insight into earnings, what were the summaries. You can say how many times was, you know, all the stuff that you need. And it can replace, in our firm, it will replace an analyst. Yeah, yeah. And, you know, to your point here, as you said, this is an earnings grower, EPS growth rate of 32%.

that we show right here on our metrics. And we have this earning stability factor. So the lower the number, it goes from one to 99, the lower the number, the more stable. So this kind of tells you a four, this is very stable. So you have a high earnings growth that's very stable. That does tend to be something you see in a lot of these long-term leaders. That's awesome. Yeah. But now...

I noticed here, Nancy, that, man, the yield was none on all of your ideas. So I want to make, you know, because someone on our YouTube, live YouTube channel, Tim, who I've met personally, he was saying, like, you know, why all this focus on dividends? So it's just one factor, though, for

right? It is. Well, we have a strategy where you must own a dividend and you must pay a dividend. And then we have growth strategies I mentioned earlier. So in the growth strategy, I don't really care if they pay a dividend because I'm buying stable earnings growth. I love that metric. And that's what you want to own if you think the economy is slowing or just that you think...

that we're going to be in a kind of a moderated GDP environment. But the dividend, I mean, Microsoft pays a dividend. Google pays a dividend now. Apple pays a dividend. And then other names that we own in that portfolio would be names like Carrier and Emerson Electric. And I'm trying to think of...

Isn't it funny? Like I do this every day and I can't. Starbucks, which you'll probably get emails about. McDonald's. And so we want to have exposure. Goldman is one of our 12 best ideas and one of our five for 25. They not only pay a dividend, but they grow it pretty handily. And then Walmart, as I mentioned, and, you know, a whole host of chip names. The name I've been talking about the most over the last five years is Broadcom.

which at one time was trading at 3.5%. We call it the poor man's NVIDIA. And the yield was close to 4. Capital allocation plan is amazing. And we bought that name in 2018 when they did the computer associates program.

transaction and it's been a monster workhorse and they've continued to grow the dividend around 12% on a trailing five-year basis. So we do care about dividends, but in our growth portfolio, we don't care so much about dividends. Yeah. Well, Nancy, this has been very informative. I really appreciate you coming on the show. And again, I think you hit it out of the park in terms of a first-time guest. So really appreciate all your insights.

Thank you so much for having me, Justin, and sharing those charts with me. Absolutely. And you know what? I also want to just – what's the best way for people to get more information? I see that you have behind you an ETF, but what is the best way for people to get more information on you? Follow you on Twitter? Yeah, absolutely.

And Tangler. And I'm tweeting, I'm ex-posting more. And then in terms of, I do have LinkedIn, but I don't remember. It's just Nancy Tangler. And then we have a website, www.laffertangler.com. And our, our,

Our dividend growth ETF, TGLR, owns many of those names, plus Oracle, which is among the largest holdings that pay dividends. So that's the only publicly traded fund. But give us a call. Wonderful. Sign up for our work. We publish quite frequently. Awesome. Well, again, thank you for coming on the show, Nancy. It was great meeting you. Thank you. You too, Justin. It was a lot of fun. Thank you. Okay.

That's going to wrap it up for us this week, but I hope you join us for next week because we've got Matt Caruso coming back on the show. Matt is, of course, one of my favorites only because the first time I did this on my own, Matt was my guest, and so he holds a special part in my life.

heart for doing that and being such an easy guest for me. And it's almost like we've got, you know, we had David Cox on last week, Matt Caruso this week. It's like we're doing Canada in January. So I hope you join us for that. It's going to be a lot of fun, as always, with Matt. And that wraps it up for us this week. We'll see you next time. Bye now.

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