Episodes

Dan Ferris:                 Hello and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin:    And I'm Corey McLaughlin, editor of the Stansberry Daily Digest. Today, we talk with Stansberry Research senior analyst Mike Barrett.

Dan Ferris:                 Mike is an old friend. He has worked for us since 2011. He's one of the very best things that has ever happened to me in this business. And I think he'll be one of the best things that happens to you too as an investor. Get your pens and pencils out. Take notes. He's a really smart guy. So, let's do it. Let's talk with Mike Barrett. Let's do it right now.

Corey McLaughlin:    For the last 25 years, Dan Ferris has predicted nearly every financial and political crisis in America, including the collapse of Lehman Brothers in 2008 and the peak of the Nasdaq in 2021. Now, he has a new major announcement about a crisis that could soon threaten the U.S. economy and could soon bankrupt millions of citizens. As he puts it, there is something happening in this country, something much bigger than you may yet realize and millions are about to be blindsided unless they take the right steps now. Find out what's coming and how to protect your portfolio by going to www.AmericanDarkDay.com and sign up for his free report. The last time the U.S. economy looked like this, stocks didn't move for 16 years and many investors lost 80% of their wealth. Learn the steps you can take right away to protect and potentially grow your holdings many times over at www.AmericanDarkDay.com. 

Dan Ferris:                 Mike Barrett, my friend, welcome back to the show. Great to see you as always.

Mike Barrett:              Great to be here. How are y'all doing?

Dan Ferris:                 Good. Good. I didn't take the opportunity to look up and see how long it has been since you've been on. Do you remember? It has been a while.

Mike Barrett:              It has been about a year, I think. That doesn't sound right to you? I think it was about this time last year. It could have been longer. Time flies when you get old, right?

Dan Ferris:                 I know. We shouldn't be talking about this because then people will say, "Well, he was just on last year, Dan."

Corey McLaughlin:    That's what I've heard. Yeah.

Dan Ferris:                 All right. So, with that dispensed, it's great to see you. And I think we should talk about – let's talk about how you might be thinking about things differently in light of everybody's favorite topic, of course, which is [President Donald] Trump's new trade policy, tariffs, etc., etc. Do you care about this at all? Do you think about it? Do you – is it part of your analytical process? Does this affect you at all as an analyst and as an investor?

Mike Barrett:              Absolutely. I don't think there's any way to ignore it. It's real and it doesn't depend – it doesn't matter how you feel about it. It's happening and it's going to affect your investments one way or the other. Whatever you're feeling about Trump and the tariffs, you've got to address this and be ready for it. So, absolutely.

Dan Ferris:                 So, what in the heck do you do, man? I mean, address it as an investor. For me, it has been a bit of a head-scratcher because on the one hand, you can see very clear differences between if this tariff regime continues and if he gets what he wants and manufacturing comes back to the U.S., you can make all those connections, but the time frames aren't necessarily easy to figure out. And for example, this morning I had a thought. I was sitting here kind of staring at my computer thinking, "Well, it's probably not hard to get a lot of manufacturing jobs back to the U.S., but – or a lot of manufacturing, but it might be hard to get a lot of manufacturing jobs." Right? Maybe they're replaced by robots to a degree that nobody anticipated. So, I don't take any of this for granted. It seems like it has obvious implications, but does it really? I mean, I'm struggling here a little bit.

Mike Barrett:              Well, what I do is I try to frame everything within – I pay attention to market cycles. I think the two most important market cycles are the one-year cycle and the four-year cycle. Over the long arc of financial history, we see that the stock market tends to put in a significant low once a year. Last year, it did it in August. And then it puts in a major four-year low approximately every four years. Last time that happened was October of 2022. So, in my mind, I say, "OK, ideally the next major low is set for October of 2026 or thereabouts." And then I work within that framework to sense where are we going to go from here.

                                    So, a month ago, what I did was I came up with three scenarios for how the stock market was likely to unfold over the next 18 months until October of 2026, and then we began to monitor those and track them to see which one was going to play out. My highest probability scenario was that stocks would bottom imminently. They would move back up possibly to all-time new highs and then decline into this 2026 low. And that's what has happened.

Dan Ferris:                 Yeah, I mean, that April 8 bottom was pretty – a pretty decisive recent bottom. And I think the market was up more than 20% off of that at one point. So, pretty impressive. But you say we're going into a 2026 low. Do you have any idea what part of the year that might happen in or no, it's just a free-for-all next year?

Mike Barrett:              Well, ideally, this four-year cycle plays out. If it plays out as it has in the past, then in October, fall of 2026, we would expect this low. But of course, what happens is sometimes it comes sooner, sometimes it comes later. Sometimes those cycles are five to seven to eight years. Sometimes they're two years. So, you pay attention to the things that are happening on a daily basis and how they come into play and how they'll impact that cycle. So, one of the possibilities that I was tracking was that stocks don't bottom, that they continue into a major low either later this year or into 2026 and then that – from that bottom then they just move forward. That doesn't appear to be what's happening now.

                                    But what's interesting is that I think the bottom is definitively in. The question is, where do we go from here? And in my view, stocks have limited upside from here, and I have a variety of reasons for that. But I mean, everybody thinks, "OK, the bottom's in. Let's go out and buy stocks." I don't think that's the right approach here for a number of reasons. If you want to, we can get into those. So…

Dan Ferris:                 Yeah, before we do that – I do want to get into that. But I noted – you said something that I was already curious about. You said the four year – essentially, what I took from what you said was the four-year cycle, let's not get ridiculous about it. It's not a four-year cycle. It's a maybe three-, four-, five-, six-, seven-year cycle, it sounds like. So, you really...

Mike Barrett:              No, no, no, there's – it's more definitive than you're making it sound. It really, truly is. If you look over a long, extended period of time – I know people that have done this, they've gone back into the 1800s and come forward and they can tell you that every cycle this has happened divided by however many number [of years] it is, the average time from bottom to bottom was about four years. So, you can count on that.

Dan Ferris:                 But that's what I mean. So, it's an average. It's not – it sounds like it's – an average tells me it's not strict though, right?

Mike Barrett:              Correct.

Dan Ferris:                 And you did mention, you said – it could be five or seven, you said.

Mike Barrett:              It can be. And if you go back and look – for instance, after the bottom in '05 to '08, we went a long period of time before stocks bottomed again. And then what happens is, to compensate for that long cycle, we have short cycles. Like, for instance, stocks bottomed in '18, they bottomed again in '20, they bottomed again in '22. And in my view, when I looked back over the – over history, I expected that because we had had these previous long cycles. And so, when you average out the sevens and the twos and the threes, what you come up with is a cycle that's about four years bottom to bottom.

Dan Ferris:                 Got you. All right. Now, that makes sense. OK, so with that out of the way then, thank you –

Corey McLaughlin:    Now we get to the limited – why do stocks have limited upside? I know you've been writing about it in Select Value Opportunities, but what – let's explain it here.

Mike Barrett:              Yeah. Well, we look at a variety of indicators on a daily and weekly basis. One of those things that I look at, of course, is sentiment. And I've figured out how to track sentiment as a single number. That number oscillates between minus 30 and plus 30, with neutral between minus 10 and plus 10. And so, what I'm looking for is, on any given day, where is sentiment right now? Is it extremely optimistic? Is it extremely pessimistic? Is it somewhere in between?

                                    And so, what I'm finding is that, particularly after this positive news on the tariff front, sentiment has gotten extremely optimistic. And what that means is that investors are making aggressive assumptions about revenue growth and profit margins and the expectations for what stocks are going to do over the next three to five years. And so, a lot of that, in my view, has already been baked – that upside has already been baked into the current prices that are – that they're trading at today. So, I won't be surprised if stocks hit new highs but I just don't know that there's – now, I could be wrong. And I'm – we've hedged in the sense that we've got eight excellent stocks in the portfolio of Select Value. And if I'm wrong, they're going to outperform the market just as they've continued to do over the last year or two, and so, we'll be good. But in my personal view, based on everything that I see, stocks are extended, valuations are extended, and there just isn't going to be much upside from here.

Dan Ferris:                 Yeah, we are – as you're talking, I'm trying to get a chart up here, and my computer's not cooperating, so I don't know the exact number, but we're not more than, I think, 5% or so from a new all-time high. So, I agree that wouldn't –

Mike Barrett:              About 3%.

Dan Ferris:                 3%. OK. Thank you, Mike.

Corey McLaughlin:    Yeah, pretty close.

Dan Ferris:                 Yeah. So, yeah, that's not a lot of upside necessarily, but the point is that upside above that appears to be limited. Of course, if you – if you've ever read 10 words of any of the Digests I've written in the past three years, you know I agree with you. So, I've been talking about that a lot.

Mike Barrett:              Well, if sentiment was closer to – was more pessimistic about the future as stocks were coming out of this bottom and if valuations – one of the interesting things that we can do as far as understanding valuations, whether they're overvalued or undervalued or where the market is, is we track 100 of the leading stocks traded on this – on the U.S. exchanges and we rank them every day from the most undervalued to the most overvalued. And over time, what we find is that typically you expect there to be more undervalued stocks than overvalued stocks. But that isn't what's happening right now. What's happening is the number of overvalued stocks – and when I say overvalued, I mean the share price is currently above, and in some cases well above, my estimate of its intrinsic value.

                                    A perfect example is Walmart. I've got the value at about $85 a share. It's trading at, what, $97, $98 a share. So people have piled into Walmart because they see it as a defensive play in this – as this tariff thing plays out. And again, if you look at it strictly from a standpoint of revenue growth and margins and so forth, the valuation just doesn't – the price that you have to pay for it today just doesn't make sense.

Dan Ferris:                 Yeah, it's not much of a hedge at $97, is it, against a recession?

Mike Barrett:              No. No. Well, the problem is that they just reported earnings last week. The CEO was very clear: "We've – we're going to be hit by – we're going to have to pass some of that hit on if it does happen." It has already started. And remember that Walmart's – I'm modeling about a 4.5% operating margin. I mean, that's a very slim, slim margin. 2% free-cash-flow margin. So, there's not a lot of room for movement here. Now, they admitted to that. I mean, there is some room to absorb some of those hits, but, ultimately, the reality is they're going to have to pass that on.

Dan Ferris:                 Yeah, that's ugly.

Corey McLaughlin:    Yeah, and that's the thing about – when we were talking about [how] sentiment's super positive now, it turned very quickly off just kind of the promise of relaxation of tariffs or some sort of deals or whatever, but I don't think we've even seen the actual impact of them yet in all the data, as far as – I see people saying that might come June, July, somewhere in there. What do you think about that? Do you care about that? Or, I mean, is that – or are you just looking – yeah.

Mike Barrett:              I think you're right on, Corey. I think that – I think investors have forgotten that this is like a Category 5 hurricane that has swirled around in the Atlantic. It's out there. We know it's out there. Is it going to be a direct hit? Is it going to swerve and barely [hit] us? And I love the way one business owner put it recently – I think it was to Bloomberg. This was after Trump said, "I'm going to drop the tariff from 145% to 30% out of China." This particular business owner said, "I thought I was going to lose an arm and a leg. I just found out I'm going to lose just two fingers." Well, I don't know about y'all, but I don't want to lose two fingers. That's still going to be awfully painful. And now, Tim Cook, he has been told that his tariff might be a little bit higher. He might lose a whole hand. I don't know. So, there's still a lot of pain coming potentially. And so, we don't know how this is going to play out.

Dan Ferris:                 Yeah. Uncertainty.

Mike Barrett:              And so, to run out and buy stocks – I mean, I'm OK owning some stocks and really high-quality stocks here, and we do, but to go out and aggressively buy stocks with this backdrop just doesn't make sense to me.

Dan Ferris:                 Yeah. Yeah, the point is well made. Howard Marks wrote a piece about this recently, and Tim Price from Price Value. They both wrote, "We don't know. I don't know. Nobody knows." Howard Marks says the uncertainty, it's not just risk. There's great uncertainty. And those two things are not always – it's not necessarily the same. It's like you say, we see that Category 5 hurricane out there and it could hit. But it could – we don't know where it's going to hit. There's uncertainty about where it's going to hit. And will it still be a Category 5? Is there such a thing as a Category 6? Could it do that? It could be much worse, or not as bad. It's just – and especially when you get a capricious fellow like Donald Trump behind all this, the headlines can come so hot and heavy: 10%, 100%, 50%, 30%. It's just – there's no way to plan for this. There's no way to predict anything anyway. But there's really – you've got to be careful about what you do.

                                    And I agree, you don't run out and sell all your stocks. If you own Costco [Wholesale] and you've got a huge multibagger out of it, you don't sell it. But you don't go running after –

Mike Barrett:              No, no. See, that's another one of the stocks that is on our daily report that's overvalued right now quite a bit. And it's funny, when we started this service back in '22, the most overvalued stocks were the Big Tech stocks, the Adobes and the Microsofts and so forth. Those stocks now are mostly showing up on the undervalued or fairly valued lists and the more defensive stocks are showing up on the overvalued lists. So, I suspect that what will happen is, if there is a resolution to this and stocks begin to take off, you're going to see the Walmarts and the Costcos and the O'Reilly [Automotive]s and the AutoZones and so forth pulling back as people pull out of those positions and move into more risky stocks.

Dan Ferris:                 Yeah, but overall – that is obviously a really good tactical sort of a move to prepare for and to expect and to maybe anticipate and profit from if you see it happening. Definitely. But just the overall situation to me is a bit – it's a bit tenuous. Overall, I know how a lot of Americans invest. This is what I'm thinking. I don't want to be too vague. Americans buy stocks every week, every two weeks in their 401(k)s. They're overwhelmingly buying the S&P 500, so they're not diversified. They've got a third of their money going into the top 10 stocks every paycheck. And I'm just afraid that their returns over the next five, 10 years as they seek to retire, perhaps, many of them will be really, really disappointing from here.

                                    And it's – the way I see it, it's the perfect setup now for a sideways market because I think most people, myself included until very recently, think, "Well, we've had this kind of really long, incredible bull run." The market is 60x since 1980. I mean, just – the S&P 500 [Index went] from 100 to 6,000, basically. It's incredible. You can always buy the dip, etc., etc., etc. And the reason for it, I think, is something people are just only now learning about, which is that the maker, China, we've sent all these dollars to China. They've come screaming back into U.S. investments, and trade and investment, they tend to flow the same way. So, when the trade flows differently, the investment will flow differently. And I think that's the one big thing that could finally derail the endless bid under U.S. stocks. It has been an endless bid. That's my great fear right now, is a sideways market that just beats the crap out of retirees for the next 10 years.

Mike Barrett:              Well, I try to –

Corey McLaughlin:    That doesn't sound very fun.

Dan Ferris:                 Yeah, I mean –

Mike Barrett:              I was just – my – I try and select value to just stay close to where we are now and look out just a week or two or just anticipate by just a step or two where we're going to be and try to stay ahead of wherever that is. I just have learned over the years that I'm not very good at making these big directional calls and that there seems to be a lot of risk. I love the way Howard Marks says, "You can be directionally correct, but if your timing is wrong, you might as well be wrong." And so, I just learned the hard way to just stay focused on what's happening right now, what I can anticipate over the next few weeks, and work with that.

Dan Ferris:                 Yeah, a few weeks. That's not a bad time frame to work with. So, let's talk more about how you do that. You're obviously – you're looking at good-quality companies. You're waiting for them to be attractive by valuation, it sounds like, which is – most people would say, "Well, that's not a timing mechanism." Mike, what do you – how can you buy value and look out over three weeks? Can you put those two pieces together for me?

Mike Barrett:              Sure. Yeah. So, valuation is only one of the things that we're looking for. We insist on both valuation and momentum, because one of the things that's very important for people to understand is a stock can be undervalued for months, if not years –

Dan Ferris:                 Don't I know it.

Mike Barrett:              – until there's a catalyst that's drawing people to buy it. And that could just be simply – as simple as a broad market upswing that people have decided, "Hey, these stocks are undervalued and we're going to move into them." So, what I also do on a daily basis is I monitor momentum signals on these 100 stocks. I look every single day and I keep track of them. And so, we insist on there being not only an undervalued stock, but one that's triggering one of these momentum buy signals before we buy it.

Dan Ferris:                 All right, that makes sense. You are – I haven't been keeping good track, but you're one of a handful of folks, a couple of them from around the MarketWise universe, who have talked about this combination of fundamentals and momentum. That's – and people have been doing that for some time, but mostly, a lot of people still talk about fundamentals or momentum. But you're putting them together and creating a system that has done pretty well, has it not?

Mike Barrett:              Yeah, it has. And my mantra and the mantra that I live by and the one that I've used for this service is figure out what works, then keep doing it over and over again. I mean, it sounds simple, but it's not. As an aside, when I went in for my physical a few months ago, the blood test results come back, and the doctor says, "They look like you're a healthy 20-something." And that's great news for an old guy like me, but it's the culmination of decades of doing the little things like getting two hours of exercise each day faithfully and not diverging from those things and doing them day in, day out, year in, year out.

                                    And so, it's the same thing with investing. What I've learned over many years is that – don't get pigeonholed into value or momentum or some other thing. Put it all together into a system, figure out if it works, and if it does work, just stick to it and keep using it.

[Coughs]

Excuse me.

Dan Ferris:                 Now, if I know Corey, he's wondering, "Wait a minute, Mike, two hours every day?"

Corey McLaughlin:    You know me well, Dan.

Mike Barrett:              Two hours a day.

Dan Ferris:                 That's amazing.

Corey McLaughlin:    What are you doing? You're running –

Mike Barrett:              Two hours a day.

Corey McLaughlin:    You're running? Walking? What are you doing? Golfing? The golf course?

Mike Barrett:              Well, it's funny, my – now that I'm 64, what I do is different from what I did at 44 or 24, although I like to say that I'm 64 going on 34 because I still have a lot of aches and pains because I still push it pretty hard. But I weightlift every day. I shoot – I play basketball every day. I swim every day. I ride my bike every day. Sometimes I just do hard labor around my place. That qualifies for all of that. So, it's a variety of things. And I'm fortunate that it's all here at my place that I can do it. I don't have to get in the car and ride to a gym or anything. But yes, I shoot for two hours a day. I get up early so that I have plenty of time. I'm usually done working at 4 p.m. And then from 4 p.m. to 6 p.m. I'm outside getting my exercise.

Corey McLaughlin:    That's great.

Dan Ferris:                 Well, I want our listeners to know that this doesn't surprise me. I know Mike to be – I sometimes say I wish I were more like him. And this is one of many ways in which I were more like him. I actually get a decent amount of exercise. I think I lift some weights a few times a week and just try to keep in motion when I can. But yeah, two hours a day, that's impressive. And I thought the plantation would kind of be part of the equation there. But what's the state of the plantation right now? You're not – last time I talked with you, you weren't – you didn't – you weren't producing or something. It was…

Mike Barrett:              Yeah, it has been a tough few years. We had another – talking about hurricanes, we had another major hurricane hit us directly last year in October. We survived that. The place did pretty well. The trees were fine. What's interesting is that we had about 10 and a half inches of rain. That was on top of historic high levels of rain over the last two or three years. And so, the water table is very high. Pecans don't like that. So, what's funny is that it's like, as soon as the storm came and went, somebody flipped a switch and turned us into Arizona because for the last seven months it has basically not rained.

                                    Now, that's OK. That's mostly OK. But my saw-palmetto crop is pretty much toast this year. I had a great crop last year, harvested nearly half a ton of berries. I probably won't get 100 pounds this year because it's so hot and dry. But this is what happens. This is farming. Farming is like investing, Dan. Every year there's some new exciting challenge that you're going to have to deal with that you're not – it's hard to anticipate.

Dan Ferris:                 So, I have to tell my one farming joke now. I heard it – and this was real. This was real. It was a radio interview, which tells you how long ago I heard this. And it was a financial show. And there were three guests and one of them was a farmer and the other two were financial people. And the host said something like, "What would you do with a million dollars right now?" And the two financial guests said something like T-bills and stocks or real estate or something like that. I don't – the memory is fading, so I don't remember exactly what they said anymore. But I remember what the farmer said. The farmer said, "Well, I guess I'll just go on farming till it's gone."

                                    [Laughter]

Mike Barrett:              Amen, brother. Oh, gosh.

Dan Ferris:                 Yeah. So –

Mike Barrett:              I don't think most people appreciate how capital-intensive farming is. And I really have great respect for my farmer brothers and sisters out there who do this for a living because, man, it's tough. I mean, just because the tariffs are hitting and prices of all your inputs are going up doesn't mean your crop prices are going up. They could be going down. And I just saw a headline recently that farmer defaults are starting to rise. And it's tough. It really is tough.

Dan Ferris:                 So, are the Chinese still buying up all the pecans?

Mike Barrett:              Yeah, I think so. They get the best of the best.

Dan Ferris:                 Wow.

Mike Barrett:              I haven't talked to those guys in a while.

Dan Ferris:                 The Chinese are just like – the Chinese are like, "Trade war, real war, we don't care. We must have pecans."

Mike Barrett:              Well, when they're willing to buy your entire crop right off the – put it all on the boat and ship it overseas, that's – wow, that's a great deal. Or at the front end of the year, at the season when the prices are best, that's a good deal.

Dan Ferris:                 Yeah, I can see the meetings at the top levels of the Chinese government and they have a list of priorities, and it's like pecans, copper, oil. Oh boy. I've learned so –

Mike Barrett:              That's – they're smart.

Dan Ferris:                 Yeah, they are. I've learned so much from you, Mike, I really have, about all kinds of things.

Mike Barrett:              That's another thing that's helped me get – keep my health good, is eating pecans, eating walnuts and pecans. They've got a lot of tremendous health benefits. I encourage everybody to do the same if they can.

Dan Ferris:                 Do you drink alcohol, Mike?

Mike Barrett:              No, I don't.

Dan Ferris:                 Have you ever?

Mike Barrett:              I don't. And – oh, yeah, when I was in high school – when I was in college, –

Dan Ferris:                 High school.

Mike Barrett:              Yeah, I had – I did my share. But it's funny you asked that because we recently went up to New York City for my wife's birthday and we got delayed on the way back. And so, I had to kill some time reading something. I picked up a Men's Health [magazine], which I used to read every month but hadn't read in a while. So, they had this insert about your liver. And I started reading. It was very interesting. It was just factual. And at the very end, the only thing that I remember from the entire insert, which was really fascinating, was this: They talked about drinking, they talked about alcohol, and they said, "Every time you drink alcohol, a tiny piece of your liver dies." And I thought, "OK, well, I'm glad I don't drink anymore because I don't want a little piece of my liver to die every time I drink."

                                    So, there you go. I'm not saying nobody should drink. I'm just saying that if you – I just made a conscious decision to not drink. That doesn't mean I won't from time to time. Like, if I go to a wedding or something, oh sure, I'll have a drink. But I just made the conscious decision not to drink anymore. I don't want to lose a little piece of my liver every time I take a drink.

Dan Ferris:                 OK, well, that's good to know because I drink almost every day, so maybe I'll cut back on the frequency. I've heard that before and it's – I've always thought, "Boy, I hope it's a really tiny piece." Either that, or I hope I have an unusually large liver. I hope I have spare liver.

Corey McLaughlin:    Yeah, I feel like I lost too much of mine when I was younger, too, already.

Mike Barrett:              Yeah, right. I mean, that's what you start thinking about. "OK, well, when I was in my 20s and – yeah, I drank more than I should have." But you find that as you get older, you should do less of those things. And if you're wise, you do. And if you don't, then what happens is options start getting taken off the table for you. And I don't want that to happen.

Dan Ferris:                 Yeah, that's very wise. That sounds like my dad used to say: Keep your options open. And it would be health and finances and all kinds of things.

Mike Barrett:              Right. Yeah.

Dan Ferris:                 Speaking of options, do you ever trade options?

Mike Barrett:              No, we don't do options at all. I traded them in my early investing career, had a little bit of success, more with commodity options and futures than I did with stock options, but never really got excited about it. It just wasn't my thing. I think that talking about what works, figure out what works and keep doing it over and over, that's part of the process. You're an investor, you're a new investor. Maybe options is your thing. Maybe some hybrid deal where you trade stocks and have options on stocks. That was never my thing. I had to figure that out. I think every investor has to figure that out. What's my deal? Is it just buying stocks and bonds? Is it just buying mutual funds? Is it options? Is it commodities? Whatever it is. And so, you have to experiment a little bit, take some risks, check it out, try it out. And that's what's great about MarketWise. We've got all these different products to help people not have to start from scratch as they go on those different journeys.

Dan Ferris:                 Yeah. Yeah, it's good to get those mistakes out of the way when you have a tiny amount of capital.

Mike Barrett:              Right.

Dan Ferris:                 Early in your life. I've made some of those myself.

Mike Barrett:              Definitely. Definitely.

Corey McLaughlin:    Me too. Mike, I'm looking through your rankings list right now. And you mentioned the tech stocks. Some of them are undervalued. I am – I've got to say, I'm surprised that you've written about Nvidia before. I'm pretty surprised by how much undervalued that is right now. I mean, what's going? What are your thoughts on what's going on with that stock right now?

Dan Ferris:                 OK, well, I may have a totally different – as a caveat, I may have a totally different opinion after tomorrow when they report earnings. But I mentioned this earlier, that – I think I mentioned it earlier. The three most important inputs for valuation are revenue growth, profit margins – specifically operating margins, which ultimately impact reversion value – and free-cash-flow margins. Let's talk about Nvidia. This is a company growing year over year 50%, 60%, 70%. That's down from 110%, some crazy number. Operating and free-cash-flow margins are in the 50%, 60%, 70% range. I mean, it's just astronomical what this company has been able to do. They're minting money quarter to quarter. Of course, the question is the future. Where do we go from where we are now, and what's the expectation in the future? And I think my estimate of value is about $200 a share. Is that what it says there, Corey, as you look at that list?

Corey McLaughlin:    Ah, yep, exactly.

Dan Ferris:                 OK, so my expectation in coming up with that number is that – and I'm pretty closely aligned with FactSet, the analysts who formed the consensus of – the consensus of analysts who cover it and report on FactSet. We expect the growth to diminish pretty significantly. I'm only forecasting, like, 25% to 30% growth over the next five to seven years, diminishing from what it is now. I'm looking at margins diminishing from where they are now. I mean, it's just natural. This isn't just an Nvidia story. This is what happens. I mean, you've got [Advanced Micro Devices], you've got other companies, you've got white-box manufacturers that come in and steal little pieces of market share. This is just the reality of what happens in a capitalistic society.

                                    But here's the point on all this. Even when you make all those adjustments and you come up with a $200 share price based on 20% to 25% to 30% growth, which is about half of what it is right now actually, and you come up with a $200 share price, that means that if you buy it today – Nvidia – you're paying – you're at – your implied growth rate is, like, 10% to 12%. So, is Nvidia going to grow at 10% to 12% to 15% looking forward? I think so. Now, again, we may find – there may be something that we learn tomorrow that changes that algorithm, but that's the way I approach valuation. And that's what has worked for me. That's what has been very successful for me.

Dan Ferris:                 So, Mike, when we were exchanging e-mails about preparing for this podcast, you mentioned you wanted to talk about a couple of names that we have in Extreme Value, one of which was ROAD, ticker symbol R-O-A-D, Construction Partners. I don't remember now – I'm looking through e-mails trying to find it. I can't find it. I don't remember now why you wanted to talk about that. What was on your mind with that?

Mike Barrett:              Yeah, well, I'm glad you brought that up because one of the questions that people have, subscribers have, is, "OK, you've got these two value-focused newsletters and what makes them different?" I mean, we've talked about some of that. I have other aspects like momentum that I introduce into my system that we don't pay close attention to in Extreme Value. But I think the point I wanted to make about that is, when we buy stock in Extreme Value, our preferred time frame is forever. We'd like to buy it today and know that we never have to sell it.

                                    Of course, it doesn't always work out that way. Most of the time it doesn't. But the idea is that we want to compound value, we want to compound wealth over a long period of time. And Construction Partners, as you mentioned, is a – it really emulates and embodies what we're trying to do at Extreme Value. We bought it in 2021. It was – the pandemic was still going on. It was cheap in relation to the growth expectation that we had, which is where most of the time value is found, is in the mispricing of growth. And what I love about the stock is it's the largest asphalt paver in the Southeast United States. Georgia, Florida, Alabama, South Carolina, North Carolina, these are its key markets. What they do is they go out and they acquire – there's thousands of these asphalt-pavement companies. They go out and acquire them little by little. And before you know it, if you look back over the time that we've owned the stock, the growth in EBITDA [earnings before interest, taxes, depreciation, and amortization] and revenue and free cash flow, it's just incredible.

                                    And so, if you can buy these kinds of stocks early and get in at a good price and then hang on through the tough times, it's amazing what they can do for you over time. I think we're up 350% on that one. We're up 550% on Sprouts [Farmers Market]. Here's the other thing that I wanted to talk about, is that sometimes there's an optionality associated with these kinds of stocks that you get – you don't have to pay for. It's like a free option. So, in a way, we do have – we do trade options. We get free options sometimes. And what I mean by that is – here's a perfect example. I told you that it's a Southeast-oriented paving company. What they've now – they've been talking about this for years... It's now happening. They've moved into Texas and Oklahoma.

                                    Now, you can imagine how many thousands of paving companies there are in Texas. And so, I expect that that EBITDA growth and that revenue growth and so forth will just continue to – I mean, I'm hoping that five years from now when you have me on this we're still owning – we still hold ROAD and it's now two, three, four times bigger and more valuable than what it is today. I'm not saying that it's undervalued today. I'm not saying Sprouts is undervalued. But I wanted to talk about those as ideas that sometimes, if you have a long time frame and you're patient – one of the things that's interesting about Sprouts, we saw the same opportunity for it to grow strongly when we bought it back in 2021, I think. What we didn't anticipate because we didn't know about it at the time was this obesity-drug craze. And so, what has happened is now that people are losing 100 pounds, 150 pounds, 250 pounds, they don't want to put it back on. They're eating better. They're staying away from ultra-processed foods. They're eating more fruits and vegetables. They're eating the things that Sprouts focuses on and is a leader in. And so, it has kick-started the stock. It has been a wonderful option that we paid nothing for when we bought it in 2021.

Dan Ferris:                 Right. That's, for our listeners' sake, Sprouts Farmers Market, ticker symbol SFM. And as Mike said, it has been wonderful. And he makes a good point there. We buy these things when they're most attractive, but ideally speaking, they're not trades. They're investments for the long term. And [coughs] excuse me – we mentioned Costco as well. We have that in the Extreme Value portfolio as well. And as you said before, it's nothing you'd want to buy right now because it's very expensive. So, the return from this moment might not be great, but that doesn't mean you'd sell it because we bought it when it was cheap. You want to hang on to that for the long term because it will continue to be a phenomenal business, I believe, for some time. It's actually – Costco is one of the ones I really like to talk about because it's so simple. You go to Walmart, they've got 150,000 SKUs [stock keeping units], products on the shelf under enormous space. And under also enormous space, Costco has 4,000 [SKUs]. So, it's – they [have] two kinds of mustard instead of 20 or whatever, and they just move it and move it and move it and they turn inventory [around] actually more frequently. And it's a pretty phenomenal thing. And then they make you pay to go shopping there, too, which is pretty wonderful. The whole thing is really cool.

Mike Barrett:              Yeah, and what's great about that is that throws off a couple of billion dollars or whatever the number is and 99% profit. And so, it turns into pure cash flow. And so, they already operate on a very thin – I think their operating margin is even lower than Walmart –

Dan Ferris:                 It is.

Mike Barrett:              – which creates this wonderful moat around the business. Who in the world can compete with a company that's earning a 3% profit margin? So, it discourages new entrants into that business.

Dan Ferris:                 Yeah, I mean, Costco, when I've looked at the net margin over the years, it has been less than 2%, consistently less than 2%. But it's so consistent. That's the amazing thing. And you talked about that in your personal life, consistently exercising two hours a day and consistently doing all kinds of things that have kept you healthy. And businesses are the same way. If they can do something consistently right again and again and again the way Costco does – and Walmart, too, and Sprouts and these other companies that we're into, it's an amazing effect. And that's – you can just sense the compounding in the consistency of their business model and the results that it generates. It's really – that's why we emphasize in Extreme Value the five clues, because we're looking for consistent free-cash-flow generation, consistent margins, a consistently good balance sheet, and a consistent capital-allocation policy with dividends and shared purchases and other things, consistent returns on the capital they invest. When you get those things consistently, it almost, almost – I'll say almost doesn't matter what the actual numbers are, right?

Mike Barrett:              Right. Yep, you're absolutely right. Good point.

Dan Ferris:                 Yeah, it's – and it's –

Corey McLaughlin:    These are always the companies –

Mike Barrett:              But you have –

Corey McLaughlin:    These are always the companies that I hear about and I wish I had put some money into 10 or 15 years ago and just left it there, because I'm looking at Construction Partners, that chart right now, and I think as we speak here it's already making a new all-time high. And so, I think the point – and Dan, to your point, if you're concerned about a sideways market for a long time or just the behavior of the indexes in general, if you have these companies – I feel like these are the ones that tend to just – are consistently right for you over time. And that's what you want, especially if you're in retirement or near retirement.

Dan Ferris:                 Right. And if I'm right about this –

Corey McLaughlin:    And then, if you're like me and younger, I just wish I had put some more into it and then just let it compound for 50 years and –

Dan Ferris:                 Exactly.

Corey McLaughlin:    – it'd be good. Hopefully.

Dan Ferris:                 And if I'm right about that sideways market, Corey, here's the thing. Your returns over the past whatever-it-is decades, pick your number, two, three, four decades, have come very often from the elevated valuations that are concerning Mike and I right now. If I'm right about the sideways market and the effect of a whole different global trade regime, if that really comes to pass, asset prices will suffer. But if you own these high-quality companies and they continue with this consistent business model that they're able to do, the returns will be there. They'll just come in a different form. They'll buy back more stock or they'll pay bigger dividends. The returns – when the cash is there, the returns are there. That's where the returns really come from. They're not supposed to come from the market saying it's worth 70 times earnings. That's not where returns really, really are supposed to come from. So, you can tell how excited – high-quality businesses get Mike and I all worked up. And you too, I know.

Corey McLaughlin:    No, they get me when I own them and I see – I'm thinking of – I really – one of the things I learned working at Stansberry was the value of these insurance companies. And just over time – it's really remarkable.

Dan Ferris:                 And there it is. Consistency.

Corey McLaughlin:    Once I started getting into the macro end of things and thinking about those things, I'm like, "Well, these insurance companies, they're trying to figure all of this out." They're actually trying to figure all of this out too from the gyrations of the economy and all the Fed stuff and interest rates and whatever you want to get into. They're trying to think that way too, and maybe more so than other businesses. So, to me, that made sense as well. And so, that was appealing. But yeah, there's W.R. Berkley –

Dan Ferris:                 Berkley, yeah.

Corey McLaughlin:    – a Japanese company just decided, "Hey, we're going to buy – you're a good company. We're going to buy 15% of your shares outstanding." And you want to talk about optionality? OK, did I know that was going to happen? No. But if – that's good for the stock, I would say. So –

Mike Barrett:              Right.

Corey McLaughlin:    Yeah.

Dan Ferris:                 Yeah. Gosh, Berkley. Bryan Beach, who is our colleague at Stansberry – we've had him on the show a couple of times – he shot an e-mail around the other day. I don't know, Mike, if you were on this thread, but he said, "You guys at the Stansberry Investor – the Stansberry's Investment Advisory – you've been taking victory laps on Berkley for 10 years or 15 years or whatever it is, but the person who originally picked this was Dan Ferris." Because I picked it and I bought it in 2008. It was one of a handful of stocks anybody picked that year that actually went up –

Corey McLaughlin:    Oh, nice.

Dan Ferris:                 – because they were buying their investment portfolio. Their underwriting is just iron consistency. That's one thing. And then the investments were iron consistency because they were buying [municipal] bonds. They weren't losing – they weren't going to lose money. And they've continued just doing the same thing. And all you had to do was listen to the CEO at Berkley, and he got on a conference call and he said – he started to speak and he was very calm and very authoritative, and he said – he started off by saying, "Property and casualty insurance is a long-term business." And I went, "Amen." Back then – like, amen. In 2008, somebody's telling you something is a long-term business? Amen. And he's right and that's the way they run it. So, yeah, love those companies. I love those great insurers.

Corey McLaughlin:    Well, I have you to thank, then, for finding that one.

Dan Ferris:                 Yeah, patting myself on the back here.

Corey McLaughlin:    I'm glad we – glad you said that. Yeah, glad you said that. And it's another one that's family owned – the CEO and the largest shareholders. And that's something we've talked about before, too. Those kinds of companies that have this – and have this long-term staying power with the cash, that's – I mean, those are the best of the best, I think.

Dan Ferris:                 All right, so I need to tell our listeners that as a newsletter-writer guy, I think Mike Barrett is – he competes for one of the top two or three things that has ever happened to me. Although, arguably, happening upon Porter Stansberry many years ago as a roommate was probably a little better, I'm just going to say.

Mike Barrett:              I'd say that was a whole lot better.

Dan Ferris:                 Yeah. But Mike, I always get the year wrong. You started with me in like 2010, am I right?

Mike Barrett:              '11.

Dan Ferris:                 '11. I always get it wrong.

Mike Barrett:              March of '11.

Dan Ferris:                 And one of the first things you did was [you] found Constellation Brands, which then was – it has still got beers and spirits. It's an alcohol-beverage company. Still it's our best closed pick. We got a 650% return out of that one. And I think right now we're up to 1,000% out of ADP [Automatic Data Processing], which I bought in 2008. But he worked on me for, I don't know, it was a few weeks or so and he sent me this idea. And I can't believe – I'm embarrassed almost to say it. The first time I was like, "Oh, I don't know." I was like, "Oh, I don't know." I mean, alcoholic beverages? Duh. Gushing free cash flow. It was a no-brainer. And Mike's e-mails were very humble. He was like, "I think this looks pretty good." If it would have been, "You're dumb if you don't buy this," that's probably what he was thinking. But we did. And it worked out extraordinarily well. And from then on I was – 

Mike Barrett:              Well, our timing –

Dan Ferris:                 Go ahead.

Mike Barrett:              Our timing was great because we got in six months or so before the Corona deal. Once the Corona beer deal happened, I think that next day the stock shot up 30%, 40%, 50% and it never looked back.

Dan Ferris:                 Yep. Yeah, it did. I was like, "Whoa!" I mean, it was a huge –

Mike Barrett:              Another one of those optionality deals.

Dan Ferris:                 Yeah.

Mike Barrett:              So, yeah.  

Dan Ferris:                 Right. You never know. And the way the deal worked out with – they were able to – they really just have the Corona name inside the United States, the big market for it. And they can come up with new products. They own the brand inside the U.S. So, it's a pretty awesome arrangement. Yeah. Things happen with – things – great things happen to great businesses. It's sort of like they make their own luck, don't they? They just – they do everything right. And then you have options that you just don't have when you're a crappily run mining company, for example, which we've managed to avoid.

Mike Barrett:              True.

Dan Ferris:                 Yeah. Yeah. The learning of life is about what to avoid to a great degree, I find. Avoid garbage in your portfolio. And right now, I keep telling people – Mike, maybe you can identify with this – I keep saying in the Digest and in my newsletters and things right now you have been given a gift, which is a chance to unload all the garbage you might still be holding on to. When the market is this elevated and people are crazy about AI, I mean –

Corey McLaughlin:    Yeah, that was a great point, Dan. When I saw you wrote that, I was like, "Thank you for writing that." Yeah, it's – exactly. If you want to, right now would be a great time to unload those things.

Dan Ferris:                 Right. You'll feel smarter in the end, won't you, then if you hold on. Mike, do you like crypto? Do you own bitcoin?

Mike Barrett:              I do. I do own a little bitcoin. I do own a little bit of Ethereum. But I own just enough. I owned quite a bit more of it and sold when it went into that meltdown a few years ago. But my base – cost basis – was so low that I made a pretty significant amount of money. And I haven't looked back. I got a nice chunk of change. I got my money back at a time when people were really worried if it was going to stay on the board. And I kept hold of some, enough of it to – I don't have to worry. If it goes up, I'm going to make some nice money. If it crashes to zero, I'm not going to lose that much.

Dan Ferris:                 You're right where I am. Bitcoin put a pool in my backyard and I have enough left so that if it skyrockets, hallelujah, and if it goes to zero, who cares? Yeah.

Mike Barrett:              Yeah. Right. Now, Corey, if your bitcoin goes to zero, you'll care, as I recall, right?

Corey McLaughlin:    I'll care. I'll care some more. But yeah, I haven't put a pool in yet, Dan, but we're working on it. Yeah.

Dan Ferris:                 All right. OK, we are – it's time for our final question right now. It's the same question for every guest, no matter what the topic, whether it's financial, non-financial, whatever, identical final question. Mike, if you've already said the answer, feel free to repeat it. And the question is simply if you could leave our listener with a single thought, a single takeaway today, what would you like that to be?

Mike Barrett:              Well, I knew you were going to ask a question kind of like this. I couldn't remember exactly what it was. But – so, I've been giving it some thought. And we haven't talked much today about generative AI and how wonderful it is. How awesome it is in so many different ways. Besides the fact that it's AI stocks and all that – well, it has not got anything to do with that. Just the ability to use this service on a daily basis is wonderful. At least, that has been my experience. And I'll tell you in a moment why I'm getting at this on a – as a for instance.

                                    I think I've told you I'm in the middle of writing a book series about the Bible. I've been working on it every day for almost three years now.

Dan Ferris:                 You did tell me. Yeah.

Mike Barrett:              And I use [Google] Gemini daily to find scripture passages that I can't remember. I can't remember exactly where the great commandment is, for instance, in Deuteronomy. I type into Gemini where – immediately it tells me where it is. So, it has been a wonderful resource for me.

                                    But I wanted to leave readers with this. It may be of some value to them. I used Meta AI sometime last year to help solve an age-old problem for myself. I told you earlier that I do things, have been doing things every day, personally, forever. One of those is having a protein shake, and inside that protein shake are about 13 things that I put, one of which is a banana. So, I eat a banana every day. What's one of the most difficult things in the world? It's to keep bananas from overripening. You go to the store, you buy them, you put them on the rack in the kitchen, and within two days they're starting to spot up, and it tastes weird, and you end up having to throw them out or turn them into banana bread.

                                    I thought, there has got to be a solution. So I said to Meta AI, "What's the best temperature to store bananas so that they don't – so they stay [fresh]?" I think it told me, like, 52 degrees. OK, well, your refrigerator is, what, 35 [degrees], just above freezing? Your room temp's [in the] 70s. And bananas need to be somewhere in between. I said, "OK, so what's the solution?" They immediately told me to get an insulated lunchbox, which of course we had several of those in the house, get an insulated lunchbox, stick the bananas inside of it, and stick it in the refrigerator. That way, you reduce the temperature – you improve the temperature inside the lunchbox from the 30s to somewhere in the 50s.

                                    And so, I've been doing this now for not quite a year, seven months, and wow, it's awesome. I don't have to worry about bananas ever spotting again. I put six or seven of them in a lunchbox, stick them in the refrigerator, and I can eat every banana in the bunch over the next week without it ever turning – the taste turning bad or going bad on me. So, I just throw that out there in case somebody else is tired of buying bananas and then having to deal with it three or four days later when they go bad.

Dan Ferris:                 So, for sheer uniqueness of answers, I think you may be at – you're top two or three at least, Mike.

                                    [Laughter]

Mike Barrett:              That's what I was shooting for, Dan.

Dan Ferris:                 Yep.

Corey McLaughlin:    That is awesome.

Dan Ferris:                 I won't be forgetting that one anytime soon.

Corey McLaughlin:    No, I won't either. I have two relatively little kids who eat bananas every morning for breakfast and I think my wife will be very happy when I tell her this later today, that we're going to –

Mike Barrett:              Great. Great.

Corey McLaughlin:    Thanks to AI.

Dan Ferris:                 So, I'm shorting –

Mike Barrett:              It's the real deal.

Dan Ferris:                 I'm shorting banana futures as we speak. So, yeah.

Mike Barrett:              Thanks to AI.

Dan Ferris:                 All right. Listen, Mike, it's always a pleasure to talk with you and I'm really glad that we were able to do it once again. Thanks so much for being here.

Mike Barrett:              Yes, sir. I enjoyed it.

Dan Ferris:                 All right. We'll talk to you again soon, too, I promise.

Mike Barrett:              OK. Sounds good. Not – you're not going to forget the next time?

Dan Ferris:                 That's right. I'm not even going to mention the last time. We're not going to bring up the memory of 60-something dudes.

Corey McLaughlin:    We won't talk about the last time.

Mike Barrett:              Sounds good.

Dan Ferris:                 All right.

Mike Barrett:              All right. Take care guys.

Dan Ferris:                 You bet.

                                    All right. So, in sum, we've got fundamentals, momentum, high-quality businesses, and put your frickin' bananas in a lunchbox and put them in the fridge. Not a bad haul for one podcast interview, huh?

Corey McLaughlin:    Yep, valuations, exercise.

Dan Ferris:                 Yep. Yeah.

Corey McLaughlin:    Don't drink. Yeah, basketball. How's he playing basketball? I should have – I'll have to ask him again. But yeah, no, that was great. I think that we could just listen to him talk for an hour and learn everything. I mean, it was just great. Love it. I can see why you have worked with him for all these years. Yeah.

Dan Ferris:                 Yeah, he has got – oh, yeah. He was – when Brian Hunt [former editor-in-chief at Stansberry] and I were interviewing people, we actually got it down to just two candidates to meet in person, and the other one was a young guy who I think would have done a fine job. But then we talked to Mike and we were like, "This isn't a hard decision, right?" And Brian said, "Right." So, that was that. And we knew that – we actually took them both out to dinner that night and we knew it already that night. So, it was a little funny. But it has just turned out so well from the very beginning.

                                    And I want to tell the listeners: If you're an Extreme Value reader, or not, actually, I just want them to know Mike has forgotten more about valuing assets and businesses than I know, and I've been at it for nearly 30 years. But he was at it for a decade and a half before he met me. So, yeah, he has been there and done that and valuing real estate properties and businesses and publicly traded companies. He is – to my way of thinking, he's the best at it in all of MarketWise. Maybe others might not agree about that, but I'm a little biased because he works with me on Extreme Value, but he's really – he's quite perfect for our business and we're lucky to have him.

                                    But I wanted to tell you, Corey, he has got – on the plantation, he has got a basketball court. He has got, I think, a nine-hole golf course on the plantation.

Corey McLaughlin:    Yeah, I remember that. Yeah. Yeah.

Dan Ferris:                 Yeah, so he has got it all right there, man. It's a – it's not a bad deal.

Corey McLaughlin:    Down in Florida. Yeah.

Dan Ferris:                 Yeah.

Corey McLaughlin:    Yeah.

Dan Ferris:                 Cool.

Corey McLaughlin:    Yeah, no. And for any subscribers – and Alliance members, I know, have access to Select Value Opportunities that he writes each week. And it's really like a tool, and then plus, he also writes kind of an analysis piece each week, which shows his intrinsic valuations of all the companies that he tracks and those top 100 overvalued, undervalued, and how you can really get a snapshot of kind of where the market's at in terms of overvalued or undervalued, too. Even if you don't want to buy any of the individual companies, you can still get a snapshot of how the overall market is looking from a valuation perspective. So, yeah, it's an awesome tool that I don't think enough people know about. So...

Dan Ferris:                 Yeah, I agree. It is a really powerful tool. And if you're an Alliance member or if you want to become an Alliance member, you have access to it. And it's a perfect combo for what we do because it's a tool you can use on your own. But then you've got Mike Barrett, who is no slouch, also advising you on what's attractive right now at any given moment. It's just – it's a really great thing. Similar to what Mark Chaikin does. He offers a great tool but great advice, too, based on decades of experience also in his case. So, it's pretty neat. Very much what we're about at Stansberry.

                                    So, that was awesome. That was another great talk with Mike Barrett. Maybe we should have him on – we should have Mike on every three months and everybody else can do six or 12 months or something. But yeah, that's another interview. And that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we really, truly did. We do provide a transcript for every episode. Just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word, "Transcript," and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com, please. And also do me a favor, subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you're there, help us grow with a rate and a review.

Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour. Have a guest you want us to interview? Drop us a note at [email protected] or call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week, I'm Dan Ferris. Thanks for listening.

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