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David Trainer says the Fed and liquidity remain important drivers of the market (0:23). There are huge opportunities now in energy and industry (3:40). This is an excerpt from a conversation on the Seeking Alpha Investing Experts Podcast.
transcript
Rainer Scherbier: David Trainor, welcome back. Recently, you have published several articles on Seeking Alpha discussing some ETFs and industries. How do you feel about things?
Coach David: Well, I think the most important driver of the market today is the Fed and liquidity. As long as we inject more fiscal liquidity, more monetary liquidity into the market, I think we’re going to see stocks start to continue to rise like they are now.
We’re inventing new meme stocks all the time. Nvidia (NVDA), Arm (ARM), and more. I think we’re actually seeing some sophistication and improvement, I believe, in our retail investing base, that to be a meme stock, you don’t have to be a junk stock, right? Walmart Inc (WMT) is even up sharply.
Walmart has long been a key stock of ours. It has become expensive. We checked it off the list. This year it has grown significantly. I think what’s happening is that this liquidity is latent, the excess liquidity in the hands of a lot of individuals and retail investors is getting smarter.
I think the bored apes are tired of chasing meme stocks and they say, I don’t have to put my money into junk stocks that are going bankrupt, why don’t I invest in Walmart? The same effect can be achieved by simply eliminating some of the risks.
So, I think it’s a positive move, but Renner, in terms of the market as a whole, I think a lot depends on what the Fed does and what people think about interest rates and what that means for excess liquidity. .
RS: It’s interesting because it has a lot to do with what we were talking about in July. The more things change, the more they stay the same. What do you think – there’s been a lot of discussion, we’ve been discussing this on the podcast, that there may not be a rate cut for at least the first six months of the year. what do you think? Do you agree with the Fed’s handling of this issue?
DT: Yeah, I think it’s a tough situation. I mean, I think I would have been more different, raising money earlier, earlier, rather than waiting as long. This creates a very different context. I think the Fed is doing the right thing under the circumstances. This is a wait-and-see situation, and they don’t know that there are many theories that there is a large lag effect in raising interest rates, and they will soon catch up.
So the economy fell off a cliff, spending etc. also fell off a cliff. That doesn’t seem to be the case. So while growth was rapid, it was not so high that it forced the business engine to grind to a halt.
It’s slowing down, which I think is the intended effect of the Fed. I think they have to continue to see it hopefully continue to gradually slow down. This is the soft landing they want.
In the process, I hope investors get smarter, that they chase fewer junk stocks instead of traditional meme stocks, and invest their money more wisely to actually create shareholder value and deliver for shareholders in the long run. value enterprises. them.
RS: So, what does this look like for you? What do you think of a worthwhile investment?
DT: Yes, it’s very simple. That’s energy and industry. The infrastructure of our economy, physical infrastructure, technology or digital infrastructure is also important, but it’s overrated. We see real opportunities in energy and industrial materials. Some stocks in these industries are indeed attractive.
One example of a case study is Warrior Met Coal, Inc. (NYSE: HCC), which we report on Seeking Alpha. We released it a few months after we gave it to the customer. A lot of the work we do on Seeking Alpha right now is on individual stocks, which will be delayed quite a bit, but Warrior Met Coal is just a great example.
I think it’s up 60% since we first put it on our focus list. This is a great example of a business that is really overlooked, but it’s important and it’s overlooked for a number of reasons, right? The report is titled “Coal in Green.” Because people make mistakes or they don’t understand that there are two types of coal.
There are thermal coal and metallurgical coal. People say the really environmentally harmful coal that needs to be phased out is thermal coal. On the other hand, the situation for metallurgical coal is not as bad, if not even close. It is also an indispensable element in steel production. And steel is an important element in the production of alternative energy equipment.
So, windmills, solar panels, they all require a lot of high-quality steel. So, up the value chain, we find Warrior Met Coal – which was trading as if its profits were going to be permanently down 50% or 60%. It was thrown away with the baby – that baby was thrown away with the coal water, right? Power coal water.
In fact, they are not an environmentally harmful business. They are in growth areas and we need to get back into production and keep the steel we need to keep our economy functioning. This is the material needed to build bridges and build the transition to clean energy.
So I think that’s a good example of one of our picks in that area doing really well as far as materials, industrial picks, and we think will continue to do well. Rayner, the reason I like this stock is the risk reward is much better, right?
You’re great – all of us, all of our long-term ideas, they’re going to have a lot of cash flow, right? Huge free cash flow yield. However, it’s super cheap and a growing business. It’s not a sexy business, it’s not a business that people talk about, but it’s still a growing business, an important business.
NVIDIA (NVDA) news may trump Warrior Met Coal news all day long, but you can trust that this is a business that’s here to stay and will create value for the long term.
We believe that this narrative is finally changing in a positive way because as we effectively bet the world, the economy, and the industrial complex on green energy, we are building a bridge to nowhere. Just not there yet. It will take decades or more to build up enough green energy production to meet demand. This is the bottom line.
This has been an important part of our research for several years as we have added more and more energy names to our long list of ideas and focus. Incidentally, our Focus List has been performing extremely strongly since 2021. It’s really outperforming the market by a wide margin. We’ve been adding energy names because when we did our research, we found that demand and use of fossil fuels will go up in the next few years and won’t go down in 30 years. When it does, there will be a slight decline because windmills, solar panels, etc. don’t have enough energy to replace it.
Best of all, even the Energy Information Administration predicted this. No matter where you look, and if you do your best, you’ll find that energy demand is rising, while green energy production isn’t growing any faster.
That’s why you see people like Larry Fink holding back on forcing people so hard to get off fossil fuels. It was a bit of a disaster. In many ways, we’re seeing power curtailments in California and other parts of the world because right now we don’t have enough energy to meet our needs because we basically sold off all of these fossil fuel assets. Now, they’re buying them back, and people are just waking up to the fact that, look, fossil fuels are not going away anytime soon.
BTW, if you don’t want energy prices to skyrocket, you need fossil fuels to fuel the world until green energy is ready. There’s still a long way to go.
