New RMD Rules for Retirees in 2024!

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Good afternoon fellow investors and welcome back to invest talk. This is our Monday, November 18th, 2024 edition. And this Monday we have a special show because Luke is back with me. Usually we're doing the shows kind of switching off and today we Luke's going to co-host with me. So welcome back. It's going to be a fun hour. Yeah, definitely. It's going to be back with you. This is now the first episode of invest talk we've done together while I have a mustache.

There we go. And I had a mustache. Oh, is that two weeks ago? I was Ron Burgundy for Halloween, so I had to keep the mustache for a little bit. Maybe I'll join you. You should. It's November. You're not supposed to shave this month, although I guess you now would need to shave everything but the mustache, but still I would do violating the rules here, violating the rules.

The spirit of the rules. Spirit of the rules. Okay. Okay. Well, we'll see. We'll see how you feel. But nonetheless, we will carry on mustache or beard. However, we are presented on this hour. And for all of you out there, you can see us by heading over to our YouTube channel and checking us out over there. See our charts, see our faces, see our facial hair, or lack thereof. But if you're listening on podcasts or radio,

you can hear our insights and that's what we are here to do which is give you some perspective and some data on your questions and also bring some topics to the table that we think are important to the process of making good decisions with your money both today and into the future.

So that's what the show is really about is addressing what is on your mind and what's on our mind is secondary. So don't be afraid to pick up the phone and give us a call. Now, just a bit, we're going to talk about today's market performance and run down the show topics. But as usual, we'll hit on our first caller question now. Hi, Justin and Luke. I was calling in to get your opinion on

K, K, R, financial. The symbol is K, K, R. What is your opinion on getting into this sector and what would be a good entry point? Thank you and I'll be listening to the answer on your podcast.

all right looking at k k are this is one of the largest alternative alternative investment management companies out there and usually pitching their their funds to institute the institutional market endowments and such and uh... their businesses

is doing very well. Earnings supposed to be up 38% this year to $4.72. Now, that is down from their all-time high earnings of $7.31 in 2021. But the stock is at an all-time high, Luke. Why don't you give the audience your perspective on this space as a whole?

Yeah, well, I think we talk about this pretty frequently because people call in not necessarily about firms like KKR, but they may call in about BlackRock or Vanguard or all these firms who essentially their business model is based upon the fees that they get, right? So it's pretty clear to understand that as AUM goes up, as flows are coming in, should your fee level not change? That's how revenue grows. But what we've seen across the industry broadly, right, is fee compression. And so this is something that KKR suffers with as well. But

Even with that in mind, from 2023 until this year, the upcoming year through the end of this year, fees, management fees are supposed to grow from 3 billion to 3.4 billion. So that's certainly something that is impressive. I'm seeing their cash flow has been improving consistently for the past four years.

But the thing that I think that I see that may cause me to hesitate is taking a look at their for-looking price earnings 25 times, price to book 5.5 times. That's the upper end of their range. So maybe this is a situation where it's a company that's done well in an industry that's done well, but may be a little bit overvalued. What do you think?

Yeah, and I worry about, I've talked about this with a lot of the private investments that are out there, private REITs, private debt vehicles, et cetera. There's not a lot of clarity into how those have been structured and the risks that are involved. And so while things are going well generally in the credit markets, I think this will continue to do fine. But if there's any upset in the

You know alarm, you know, we see that with a member was the book bookstone read that was that was cutting redemptions, you know, that's something that

was a kind of a red flag, I think, in the private REIT space. Now, you haven't had a lot of those big headlines around the private equity funds and a lot of what KKR deals with. And so I think right now that's fine. But I worry that there's been a lot of misallocation capital in that space. And that will eventually come to light. Now, that might not come to light for another year, two, three, four years down the line. Who knows?

And the technicals are certainly fine on this. So I think from a momentum perspective, it's fine. From earnings perspective, like you said, their cash flows improving, their business is improving. I just think there's a very high risk at these price levels. So I wouldn't buy it for the long term, but maybe as a trade with a tight stop probably at the 100-day moving average. Thanks for the call. Let's go pivot to a live call and talk to Sid in North Carolina looking at Uber.

I just think and Luke, thank you for taking my call. I have been sharing some news on CLDC and other things. It's a good company overall in your view and each year. And what is the entry point that you are looking at? It looks like some of the numbers are quite OK, but I'd like to hear your opinion. Thank you so much for your time.

All right, looking at Uber, I don't think we need to tell everybody what Uber does. Now, we'll say from a technical perspective, this is somewhat the opposite of KKR. I'm actually seeing some pretty bearish move over the past six, seven weeks. Now it peaked out around $86 and change. Now we're down to 69 and change. And this looks like it's rolling over after this long rally from the fall of

or summertime of 2022 when it bottomed around $20 per share. Now, from an earnings perspective, Luke looks like earnings just to be $1.79 this year and $2.37 next year, which would be an all-time high, but $70 stock, is it worth 30 times for looking earnings? What do you think?

Well, I do want to start by saying it is an impressive company in that, right? This last year was the first year that it was actually profitable. And a lot of people have been holding on for a long time trying to get some profitability in there. And certainly over the past five years, their cash flow has improved. And their revenue has grown pretty significantly from 11 billion back in 2018, protecting about $43 billion this year in terms of top line revenue. And as I mentioned, their margins, obviously they're improving because now they're starting to make money.

They had negative net margin for about four years. And then they had 5.1% last year projected to be about 8.8% this year. So the margin expansion is something that I like as well. Potentially, maybe in the past couple of days, there was some positive news that could have driven the stock price higher. Maybe you see a drop off today related to the fact that a former executive was on the short list for the transportation department.

though President-elect Trump did announce somebody else, not the guy, a former lawmaker, rather than somebody out of Uber that could have been related to some of the price drop off today. But I do think, like you said, there are a little bit of risks out there for the company being this expensive.

Yeah. And I don't like the combination of companies that are trading at high multiples and then poor technicals. It tells you that the market is starting to re-rate the multiple lower and I'd like to see this settle out and earnings to become a little bit more consistent.

I think the positive here is generally people are getting used to taking ubers and doing uber eats a lot more so from a consumer habit standpoint, I generally like this space because it's just becoming the norm.

And and uber you know it's kind of be kind of a winner take all type of platform, but I would be patient on this and have this come back in this needs to probably get to around 50 that's where from from zooming in on a weekly chart or zooming out excuse me on a weekly chart. Let me give you a major support level.

Yeah, somewhere around $45, $45 to $50, I think that's where lines up from a technical perspective and a fundamental perspective for me to buy Uber. But I would do patient on it for now. Now, we're going into a short break. On the other side, we'll be previewing today's topics and talk about today's market activity. Please remember that you can call anytime and leave your questions on the Invest Doc voice bank at 8 at 8.99 chart.

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Now we have a lot of ground to cover over the next 45 minutes or so and our main focus point concerns this topic new rmd rules for retirees in 2024 and retirees will be impacted by significant changes to rmd rules in the secure act 2.0 and there are other

stipulations in that act that we will cover as well. On top of that, we will touch a bit on what a Trump administration will mean for Bitcoin, Bitcoin as surged, but does it really make sense based on the facts at hand?

And then lastly, companies are really rushing to get ahead of the Trump administration when it comes to financing themselves in the corporate bond market. So we'll look at that story as well. On top of that, we have other topics. One is a voice bank question on meta platforms, and then some questions that came in via the comment section over on YouTube as well.

And of course, we welcome your finance and investment questions right now at 8 to 8.99 chart. Now, Luke, let's take a quick look at the market today. It was a decidedly positive day overall. You had the S&P up about 40 basis points, the NASDAQ up about 60 basis points. And what else do we have? What did you see? What did you see in markets?

We have small caps, only up 11 basis points, not big movement on the bottom end of the market there. I think, generally speaking, it was just a bounce, really, from last week, which was had some pretty negative sell-off towards the end of the week, if you recall, right? The S&P 500 and the NASDAQ both shed, you know, two, three percent. And so you just kind of see this bounce-back.

As we enter this period of really calm before the storm of changing federal policy, right? People just at this point in time trying to interpret what moves may mean for administrative policy moving forward and what the effect that could have on interest rate cuts of the path of interest rates. And so it seems to me like we have more likelihood of positive tailwinds than headwinds heading into the year with positive seasonality with share buybacks and all these things that could elevate valuations and elevate stock prices headed into 2025.

Yeah, I agree. There's not a whole lot of economic data. Maybe some CPI numbers coming out. I know we have obviously the jobs number for November will be important to the policy path. And we have NVIDIA earnings. Is that tomorrow?

with the 22nd from not mistaken that's coming up because in video obviously a big part of the indices nowadays and 20 pretty much a 20th okay so day after tomorrow. So it will be in in video of all the.

the large megacap tech companies, I would say it's the most volatile potentially, just because it's kind of new to the size and there's a lot of expectation for earnings and if obviously market doesn't, it doesn't hit those market expectations, it could fall or continue to surge higher and have more short covering and

and really have big movements i think the market's pricing in a ten percent movement one way or the other obviously may not move that much but that's the market is kind of pricing in so that'll be big going forward like you said we're starting to get into what would we have a week from is a week from thursday is.

is Thanksgiving. So once you get a brew and Thanksgiving, you get into that kind of light holiday trading and markets tend to float up, especially in years when stocks are higher. People don't want to take profits until the first of the year, so often they wait.

There's a lack of sellers and then you have a kind of consistent buyers into your end. So that's kind of what we're seeing a lot of market structure issues that are likely to keep the markets moving positively through your end. Now, moving into a break, still the comments, podcasts and radio show on AM1220. I will tackle more of your voice bank calls and get to the main focus points. So stay with us or give us a call at 8 to 8.99 chart.

You've got two for the price of one. Justin Klein and Luke Guerrero are here, and they're taking your finance and investment questions now. 888-99, chart.

Now let's pivot over to our main focus point and that is in regards to the Secure Act 2.0 and how it is impacting RMDs for 2024. And the original Secure Act was passed only five years ago and it moved the RMD age from 70 and a half to 72.

A lot of lawmakers thought that what did not go far enough and so they ended up proposing and passing the secure act 2.0 and really the major change here is the move in return the RMDs. The the required known distributions from iRays and 401ks and not just moving it to 72 but moving it to 73 as of 2023.

and then it will go all the way to 75 in 2033. So for now, it's 73 for RMDs. Yeah, and another change it makes is it reduces the RMD penalty to 25% or 10% if corrected within two years and also adjusts the statute of limitations. Starting from the tax return due date rather than the filing date, which would potentially help some avoid penalties if the IRS assessments are delayed.

And from on the Roth side, it was always kind of odd that Roth 401Ks had RMD requirements because the point of RMDs is that the government wants their money, eventually they want to tax your money and RMDs are a way to force money out of IRAs and

and have you pay that, whereas Roth, you've already been paid. So it kind of didn't make sense, but the Secure Act 2.0 allows Roth 401Ks to not be subject to the RMD rules before the account holder passes away.

You know, another issue was complexity, right? So what this tries to do is it tries to simplify RMD calculations for retirement accounts with annuities by allowing distributions from both annuity and non annuity parts to be combined. It also makes annuities more attractive by permitting specific payment adjustments and expanding the use of what's called qualifying longevity annuity contracts or QLACs, raising the limit to 200,000 and eliminating the 25% cap.

Yeah, I think that was a gift to the insurance industry, which obviously probably lobbied for that. And then another change was RMDs for surviving spouses. Now, basically, it moves it. So if the shareholder dies before RMDs are required and their surviving spouse is the beneficiary, RMDs from the inherited account aren't required until the year.

the deceased account holder would reach 72. Now, the tweak around Secure Act 2.0 is that it moves that to the RMD age going forward. So that basically will move it to 73 because it's based on the deceased account holder's age. But then obviously in 2033, that RMD will move to 75. And then that will be the required age for RMDs for whoever inherited that IRA.

Now, the last change is really around how qualified charitable distributions will effectively lower your RMD. So what it does is it adjusts the $100,000 annual QCD limit for inflation, raising it to $105,000 for 2024. And it allows a one-time $50,000 QCD to certain charitable trusts or gift annuities starting in 2024. Is that correct, 2024?

Yeah. And yeah, it's 23. Oh, 23. Sorry. That was a last year. Yeah. So, you know, that's the one I think beyond just moving the RMDs up that I like the most. I love when they index these things to inflation because, you know, you set something in place and obviously inflation will kind of change the effectiveness of that rule over time. So, getting that link to inflation I think will be important as well.

Now, let's put it over to a question that came in via our YouTube channel, the comments section on YouTube channel. CJM asks, hello, and best talk. What are your thoughts on Dell? What is a good entry point? Now, Dell Computer, a company that went private and then went public again back in 2018.

And it's been a big winner of one public round $20 per share. Now it's at $136 per share. So pretty big run, Luke. What are you seeing on the valuation front right now? Well, on the valuation front, I think that

taking a step back, talking about cash flow and profitability while you see cash flow kind of being stagnant over the past five years, because this is really going to inform really how valuation looks relative to the improvement of the company. Well, they're the price earnings for looking price earnings about 14.

That's pretty low for what you'd expect in terms of companies within the hardware, the computer hardware business price, the cash flow, and about 15 that's near its five-year high. So generally speaking, on every valuation metric we're looking at, you can see that it's at or below its five-year average. That's nice. It says even though it's ran, it's still relatively cheap.

Yeah, that's what it says. But I mean, you also have to keep in mind that this is a five year average and a lot of different things happened within the past five years, right? Part of it had to do with the pandemic. A lot of people were upgrading their tech. A lot of people were upgrading their home offices. A lot of people were doing spending. And then you got to think about the cycle of buying these types of things, right? Hardware advances, until it reaches a point where software needs to improve in order for a new hardware to be generated. And so cyclically buying consumers, cyclical purchases of computers and whatnot also has an effect on that.

Yeah, I mean, the good thing here is that even though you're right that you got that surge in demand from the pandemic, their profitability has now reached at all time high since they went public again in 2018. So I like that, although, you know, obviously it's driven by AI investment, you know, their servers and such are part of that big cap expend from a lot of the big tech companies. What I don't like though is the technicals are actually weakening a bit peaked back in

the CMA, when it peaked out around $175 per share, then fell rallied since, but still isn't broken above any major support or major resistance. So, you know, I still don't love it technically, although I like the company longer term. I just don't think this is the time to jump in on to go. Thanks for the call. Now, we're adding into a break. I'm Justin Klein here with Luke Guerrero, ready to take your calls at eight to eight, 99 chart.

Every investor is working to build a secure financial future. The more you learn about how the market works, the better your chances for success.

Then the next and best off, we'll look into this question. Our incomes finally catching up to debt. The debt income ratio has declined slightly because average earnings have increased by 6.2% annually since the pandemic. We'll get to that story tomorrow. But first, we're going to pivot over to another live call. Paul from Dallas is asking about A on AON and listening on our podcast. Paul, are you looking to buy or do you own AON?

Well, I have a small stake in that. I bought it about a year and a half ago. And since then they did a stock split and then it's run up over the past month. And I'm wondering is what would a good point be to increase my position in that?

Well, that's a tough question. Now, first off, I'll give the positives for Aeon. The positives are it's profitable, very profitable, and it's good to return an equity, 25%, return to the best of capital around 24%, and it's five-year median return equity is 23%. So it's consistently profitable and has

pretty solidly positive free cash flow. That's good. No debt pretty much in its balance sheet, very little. And those are the positives. But Luke, you're seeing some negatives on the valuation front, right? Yeah, right. Because it's more than just about finding good businesses. It's about finding good businesses at fair prices. And this thing is trading at

pretty much the higher end of its five-year range. I mean, it's an HVAC company trading at 46 times. It's forward-looking earnings. It's an HVAC company trading at 13.6 times its price to book, 45.6 times its cash flow. And the reason why it's doing that is, well, people are anticipating the growth streak over the past five years, which was 21.9% on an annualized basis to continue. But for me, this looks to be one of those names that is

certainly has earned the run up a tad over the past year. But the growth projections to me just seem a little out of left field. I don't know, what are your thoughts?

Yeah, I think the run that it's had is put this in a very overvalued position. It bottomed in early 2022, around $32 per share. And now it's all the way up to $131 per share. So it's quadruple since then. And so I used to see that as a valuation that is out of whack here.

Based on forward-looking earnings, even if they earn nearly three dollars per share next year, so it's $2.94, you're talking about a 40 plus multiple for an HVAC company. And yeah, they're growing, but is this growth going to be sustained?

I don't really think so. And if you look at the free cash flow, it's only a hundred million dollars, which is good, but that's flattened out over the past couple of quarters. And you're talking about a free cash flow yield based on enterprise value of one percent.

That's not very good. And enterprise value either on 36% or 36 times, excuse me, price of sales around nine times for an HVAC company, it's just out of whack. So where's a good price to add to it? I don't know, a 50 to 60% lower from here. That's probably the only time I would actually be thinking about selling this more than I would be adding to it at this point.

You know, it's, it's surge. It's starting to weaken a little bit over the past couple of weeks. And to me, it's more of a cell than, than buying anytime soon. Very good. Thank you so, so much.

No problem, Paul. Thanks for the call. Now, when people take the time to leave an invest podcast review on iTunes, we're going to take a courtesy by getting to their questions quickly. And from ASE says, I have shares in URI. I'm up on it. Want your take, sell, hold or trim?

URI is United Rentals, and a name that has done very well as of late. It's coming off in all time high. But earnings must be $43 to share this year, $46 to share and change next year, and it's an $832 stock. What are you seeing, Luke, from the valuation and trend standpoint?

Well, their cash flow has improved pretty steadily since the end of 2021. One trend that I really like is they have consistently bought back shares over the past three years down from over 75 million shares outstanding in 2020, just just about 65 million shares outstanding. Now they pay a 78 basis points dividend yield.

But the pair ratio is only about 16. So they have a lot of room to run there. In terms of their debt, well, 14 billion in debt on a $54 billion market cap company. And that is trending higher. Their debt levels are up from about 10 billion in the pandemic. And so then with all of that said, what's it looking like on a relative valuation basis? Well, it's again at the upper end of its range, which

Really a lot of companies are right now, right? Elevations are very elevated right now. So it's trading at about 6.4 times price to book, about 11 times cash flow that is certainly on the upper end of its range here. So I think this to me seems like another company that may not necessarily be a sell on my end, but certainly a hold right now at best.

Yeah, I would agree with that. Essentially, you look technically, you are getting what we call MACD diversions, meaning it's making a new high on the weekly, but the MACD is not. And so showing you that momentum is certainly waning. And if you look at the earnings, earnings growth is waning as well. And because a year ago, plus their earnings growth was in the 20s, up in even the 30% range in, let's see, fourth quarter of 2022, first quarter of 2023.

But last quarter earnings growth is only up one percent sales growth is only six percent. And if you look going forward sales growth is only projected to be around four percent next year and earnings only in the five to six percent range. That's not that great especially like you said Luke a trading at kind of near all time high multiples.

So you line that up with the fundamentals, or with the chart, excuse me, and that growth waning. I think this is ready for a multiple contraction. So I would be at least trimming it here, and I would have a tight stop on it. Let me give you the stop. Yeah, honestly, if this broke below the election night lows, which would be kind of right around $7 or $8 per share, this would be

a cell for me. I think the technicals would certainly be broken or breaking at that point. And once again, you combine that with fundamentals. I just don't see a reason to hold on to it for very much longer and less than momentum just picks up to the upside. All right. Thanks for the call.

Now, Luke, let's talk a little bit about Bitcoin. And Bitcoin obviously surged after the election. And it's at a near an all-time high. Let's see. What is Bitcoin at now? Is it? 91,000? 91,000, which is kind of near the all-time high. Or, yeah, 90,000, 586 right now. All-time high was sometime last week, right around 95. Let me correctly.

So, you know, it's obviously done very, very well since the pandemic and

A lot of enthusiasts are excited about some changes that a new Trump administration would bring. The first would be a change to the SEC. Obviously, Gary Gensler is not a big fan of cryptocurrencies, crypto listing exchanges, mining, etc. And all of that could potentially change under a Trump administration.

So Luke, do you think that the community has this right or do you think they're overstepping their enthusiasm? I think there's two parts to this. You see rumors flying around about the Trump administration wanting to have no capital gains taxes for US-based projects and a

strategic stockpile of Bitcoin. And so what the market seems to be pricing in, the crypto market seems to be pricing in, is this best case scenario right now. It has surged exponentially since the market broadly, since the election. And so the question is, well, is it likely to get the best case scenario? The US federal government is an incredibly unruly body that is difficult to turn.

And so even if they do try and move towards that scenario well, then that takes time as well. And so that may be a little bit of an overstep. The second part of it is, is if you're loosening regulation, that would inherently help new cryptocurrency. But Bitcoin is not really one of those things that's being attacked by the SEC, right? So I don't really see how a change in regulatory relationship with the crypto market necessarily benefits Bitcoin so much as it does some of the other projects.

Yeah, I think that's the the I think that's the best argument here is that Bitcoin is already treated as a commodity and it avoids which means it avoids a lot of direct SEC oversight itself. It has futures connected to it. It has obviously ETFs connected to the price of Bitcoin. It's kind of those other alt coins that would be treated with a lighter touch

during a Trump administration. And so outside of Dogecoin, if you look at the other altcoins, they're underperforming the move in Bitcoin. And so net net, you would imagine that this would be more beneficial for those altcoins itself. But there's a few arguments that says maybe that's not true. Now, the first would be that Bitcoin is the

the name brand. And it's the biggest crypto. Therefore, if this is good for crypto, then ipso facto, you buy Bitcoin. And obviously, there's no fundamental valuation of Bitcoin and so are any crypto. And so it depends purely on sentiment. And so sentiment drives buying when people are excited about the space and net net, they buy Bitcoin. What do you think of that argument?

No, I think that's entirely fair, but I think that the first argument that I made is kind of more.

the one that I lean on, which is we are pricing in within the crypto space, mass adoption. And not only mass adoption, but government sponsored mass adoption. And not only government sponsored mass adoption, but essentially zero regulatory bodies and all whatsoever. And I just think that the US government, again, is an entirely massive, unruly body to move, let alone move quickly. And so I just think there's a little bit of a rational exuberance here.

Well, speaking to that, the other argument for why Bitcoin has surged over the altcoins is that the Trump campaign promised a strategic national Bitcoin stockpile. Now, as you said, that may or may not happen due to the unruliness of government bureaucracy. But the big question is, where will these dollars come from, especially if Trump and the Doge

administration, Elon and Vivek are trying to cut spending and try to streamline the government. Are they really going to divert American resources, dollars that could be used to bring down the debt in order to buy Bitcoin? I think that's

That's a big question here is what will those priorities be? Because as we know, we're in a tough fiscal situation and putting this at or near the top of the list of priorities to get our fiscal house in order, I think would be a hard sell. And it's still hard to predict what new administration would do. Now, the third argument centered around Bitcoin, Bitcoin surge is that

Bitcoin is an inflation hedge and the market is pricing in a Trump administration being more inflationary. The hard argument there is that historically, Bitcoin has actually been a poor inflation hedge and it moves more closely with speculative stocks like the NASDAQ than it does inflation, which if you want to bet on that, you probably want to bet on gold. So what do you think of that?

Yeah, I certainly agree with you there. I've never understood the argument that Bitcoin is an inflation head. You can call it digital gold. It does not make it digital gold. There is no, as I'm aware, industrial use for Bitcoin as there is. For gold, there are not countries that are stockpiling, rather that can use their stockpile of Bitcoin to do anything other than transact on a payment network. So I never fully understood the argument behind it being an inflation hedge just because there's only

21 million of them. Yeah. Moreover, we'll only ever be 21 million of them. Well, Bitcoin, either way, I think we all can agree. Price is built mainly on animal spirits more than any hard economic analysis. Now, let's move things along and swim back to the Best Talk Voice Bank. You know the number? It's 8 to 8.99 chart.

Hi guys, this is Kevin calling from Locker Center, California. I was calling to ask about a company auto live or auto live ticker is a L V as in Victor. They supply safety equipment like airbags and be built to a lot of different car companies from around the world. I know it's sensitive to economic conditions, but seems to be at a PE ratio.

at or below. It's like long term average. And I'm wondering if this is a good stock to pick up for long term hold. Appreciate your thoughts as always. Thanks.

All right, looking at auto live, it's a global leader and passive safety components and systems for the auto industry. You think seat belts, front airbags, side impact airbags, steering wheels, et cetera. Now, their largest customer is Renault Nissan Mitsubishi, 10% of sales. Stylantis accounts for 10% as well. So a little bit smaller, but Volkswagen, 9%.

Okay, and 34% comes from the US, from the Americas, and then followed by Europe, 27, China, 20%, and the rest of the world, 19. It's about a $7 billion market cap here. The technicals, though, are not that great, peaked out around $128 per share back in May, and now it's down to $298, so the technicals, I would say, are poor. What are you seeing on the earnings evaluation front?

You know, in terms of earnings, right? They have seen some earnings growth from 45 in 2022. Earnings per share, 45 to be 815 this year, 1006 next year. Their margins are generally expanding from a low of two and a half or 2.5% in 2020 to

6.2% this year. You know, technically you're right, it does look poor. One thing I'm interested in is given the exposure it has to China and the role China has in EV market, how can that discompany benefit asymmetrically from its competitors?

Yeah, I think that's a big question. I do like that they are buying back shares. They do have, I think, a reasonable amount of debt and a balance sheet. Free cash flow is nice around $493 million, which is near the high end of its 10-year range. But it's a solid company with good profitability. I just worry about those technicals. It remains weak. And obviously, if interest rates continue to rise, that can hurt auto sales.

So, I would pass on it for now. I think it's a fine company. I just wanted to see the technicals improve before I would jump in. Now, this is an invest stock. I'm Justin Klein here today with Luke Guerrero, and we have one goal here each and every weekend to help you achieve your own version of financial freedom. And I work continues after this final break, so get your questions in now at 8-8-9-9 chart.

Invest Talk. Tell your friends they can listen live, download the free podcast, or watch Invest Talk on our YouTube channel. Here's another question from our Invest Talk YouTube channel. Randy23 says, would love to hear your thoughts on TDG TransDime Group. Thanks for all you do. All right, looking at TransDime or TransDigum, DIGM. How would you say it, Luke?

Trans dime. Let's go with that one. It sounds more professional. It does, right? Well, they manufacture and service the versus set of specialized parts for the commercial and military aircraft industry.

So they have three segments, power and control, airframes and small and non aviation segments and mainly off road vehicles and mining equipment. Interesting here. They're doing very well. If you look at earnings, they were pre-pandemic. They were $18 per share. Now this year's systemic $37 per share and $43 per share. Next year, the stock has rolled over. It peaked out around $1,400.

$50. Now we're at $1,252 per share below all the major moving averages. I definitely like the technical setup. What do you see on the fundamental front? Well, the revenue growth is pretty solid over the past five years on an annualized base about 8.7% and most of that is pretty evenly split. They did dip down in 2021 during the pandemic, but there's been a pretty solid growth rate since then. Their margins look pretty solid. About 18.7% net margin as of this

most recent fiscal year. They have a lot of debt. They got 24 billion in debt on a $70 billion market cap company and their interest coverage ratio is only about 2.87 times, which is still fine, but probably a little less breathing room than a lot of other companies would have. I think from a thematic perspective, it looks like

Only 2% of the revenue comes from non-aviation, 50% from power and control from those airplane systems, and 28%, or rather 48% from airframes. And I think over the next four or five years, what you're probably gonna see is aerospace defense companies doing particularly well as some countries in Europe rearm. Certainly, air forces is a big part of that. And so I think thematically they have it, but I am worried about the debt levels here.

Well, if you're listening to the market and you look at like Lockheed, Lockheed is actually doing very poorly since the election. So is the market actually pricing the opposite that, you know, if say the Trump administration is trying to do what they say, which is cut.

large S in the government. I certainly think there's the military spending that could be cut, right? And maybe is that what the market is telling you and TransDime along with Lockheed is part of that? Potentially, but also if you look at TransDime, right, 37% of its revenue is foreign. And so yes, if the U.S. decides it's kept military spending, which still stands to be seen, I could probably have a billion dollars in my pocket if I called the bluff on every time a leader said they were cutting military spending.

If the US does cut military spending, they do cut foreign aid who has to rearm countries that have generally been under the umbrella of US protection. And so 37% of the revenues coming from outside of the United States, from European markets, from Asian markets, Japan generally has been a little bit remilitarizing post World War II, we demilitarize them. And so the growth of not necessarily saying comes from the United States, it comes from the foreign markets rather.

Yeah, and I definitely hear that argument, but I'm looking at valuation too, and it looks pretty steep. Price of sales nine times. We know anything above 10, it's usually very, very extreme. Especially, you know, usually those are reserved for tech companies, and obviously this is an auto tech company. You have free cash flow, about a $2 billion on a $89 billion market enterprise value. You know, you're talking about about a two and a half percent free cash flow yield, nothing crazy.

Or exciting there to be honest with you. So price enterprise value there around 23

which historically is near the higher end of its longer term range, which ranges from about eight all the way up to 30. So I don't like it there, and I don't like the technicals. So I'm not a fan of this. I just don't like the trends and earnings as well for this year and next year. Those are coming down. And so there's a lot of strong expectations built in that I just don't think this name is going to live up to.

Lastly, before we close, I want to get into some interesting news around, oh, I guess we don't have time. I wish I had time for this. I don't have time. We are closing up on Justin Klein, along with Luke Guerrero for this episode of Best Doc. And we take care of listening. We encourage you to tell your friends and family about a free podcast downloads, which you can find anytime at iTunes, Spotify, or Google Play.

and be sure to rate and review on iTunes as well. And remember, we can help you better understand your portfolio dynamics and calculate your investor risk number by heading over to investdoc.com. Click on the portfolio review button and taking advantage of our free and confidential portfolio review. Now, if you haven't optimized your 401k, we can help you there as well. And you can start by heading over to investdoc.com independent thinking should success. This is the best talk. Good night.

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