- 7/9/2025
Gabelli portfolio manager Thomas Browne sits down with TheStreet Pro's Chris Versace and Louis Llanes to talk all things small-caps, investing in the sector, and dividend stocks.
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00:00Welcome one, welcome all, to the latest episode of the Streets Stocks and Markets Podcast.
00:07While mega and large cap stocks have been making headlines recently, this week we are chatting about small and mid cap stocks,
00:14as well as another favorite investor topic, dividends.
00:18And we're doing all of this with Thomas Brown, portfolio manager of Gabelli's Keeley Gabelli Mid Cap Dividend Fund,
00:25their small cap dividend fund, and the SMID Cap Value Fund, in helping me put Thomas through his paces today.
00:34We're joined by Luis Yanis, SVP of Wealth Management at Farther, and as you folks know, he's also a Street Pro contributor.
00:47Gentlemen, thank you so much for joining me this week, and we're only halfway through, but what a week it is.
00:54Recent reports show inflation is creeping back into the economic data.
00:59We have renewed Trump trade and tariff uncertainty.
01:03Initial reports or Amazon's Prime Day just isn't starting off as strong as folks had hoped it would.
01:10And as if that isn't enough, before too long, yes, we are going to be covered in big bank earnings.
01:18With all of that said, Thomas, welcome.
01:21How are we feeling? What are we thinking about the market?
01:24Feeling good.
01:26Thanks for having me, first of all.
01:29Appreciate the time and the interest.
01:34You know, it's fun to talk about small cap stocks, although sometimes I feel like, you know, we're the only people who aren't talking about, who are talking about small cap stocks.
01:43It's been a long time since there was a lot of attention paid to them, but I think that, you know, we're going to have our day and it's coming soon.
01:54So, now, what makes you think that?
01:57And I'm not trying to poo-poo small cap stocks.
02:00You know, in the past, when I've run different products at the street, we have, you know, more than dipped our toes into small cap stocks.
02:07But, you know, of late, like I said at the intro, there seems to be a lot of focus, not even on large cap stocks, really on these mega stocks that have been driving the S&P 500, the NASDAQ.
02:18But what gives you, I guess, hope that these other strategies will come back into favor?
02:25Yeah, I think that, you know, if you look over the long term, right, is, you know, more than the last year or two or five or even 10, you know, small cap stocks have outperformed, right?
02:39When you look at where they're set up today, right, is when you look at the S&P 500, it trades at around 23 times earnings.
02:46That is a standard deviation and a half to two standard deviations above, say, the 10 to 20 year averages.
02:54You look at small and mid cap stocks, they're more in the 16, 17 percent, 17 times earnings.
03:00And that is below their long term averages, right?
03:04So, you've got one group of stocks that is very highly valued, you know, well above the long term averages.
03:11And another group of stocks that is valued well, significantly below their long term averages.
03:17So, it seems to me like over time, and it's not going to be this quarter, it may not be this year, it may not be the next two years.
03:26That, you know, that has to come back to, you know, the averages.
03:31So, I think about that, and, you know, typically, when we see faster earnings growth, that's when we tend to see multiple expansion.
03:40And, Lewis, as I'm thinking about this conceptually, at these smaller cap stocks, mid cap stocks, shouldn't we be seeing faster earnings growth?
03:47You know, it's funny, I was just looking at the numbers this morning, and I was just doing a back of the envelope, you know, equity risk premium, where you just take the dividend yield, expected growth rates, you know, and you kind of, you know, kind of back into what's expected, what's kind of baked into the cake.
04:04And, it seems to me, you know, adding on to what Tom said, that the real issue is the expectations of growth.
04:11I mean, you even have almost negative expectations of growth in the small cap stocks.
04:16You know, that's kind of like CFA 101, you know, we have a huge divergence between the expectations.
04:23And, you know, there's a lot of divergence in the small cap area between high quality companies and low quality companies, and selectivity is important.
04:31But, it just seems a little out of whack to me, or a lot out of whack to me, in that I agree with Tom that somehow, over time, that we'll revert back to the mean.
04:40Okay.
04:41Well, you know, as I always say to folks, you know, when I'm writing and discussing the pro portfolio, we have to, you know, obviously be cognizant of what's going on in the economy, the stock market, but we don't buy the stock market, is what I always say.
04:54We need to be mindful.
04:55And, I suspect, Tom, that it's the same with you.
04:58You know, you're not buying small cap market.
05:00You're buying individual small cap securities.
05:04So, what are some of the characteristics that you look for when, you know, down-selecting some candidates for the portfolios at Gavelli?
05:12Sure.
05:13So, we manage three different funds that you talked about, the small cap dividend, the mid-cap dividend, and then the SMID fund.
05:20We use two different strategies, the small cap dividend and the mid-cap dividend, basically the same strategy.
05:26The SMID fund is very different.
05:28And both strategies, okay, are highly differentiated.
05:33So, in the dividend strategies, not many people look at dividends in smaller cap companies, right?
05:39It's despite the fact that, you know, if you look at the, you know, the company that has the longest record of paying dividends in the United States is a company called York Water.
05:49They've been paying a dividend since 1816, right?
05:53If you look at the company that has the longest history of raising its dividend consecutively, that's American States Water, 70 days in a row, right?
06:02If you look at the Russell 2000, it actually yields more than the S&P 500 today, right?
06:10So, despite, you know, all these really positive attributes, you know, people don't look at dividends, generally speaking, in small and big-cap stocks, you know?
06:21And so, that is, you know, one point of differentiation.
06:24On the other hand, if you think about, okay, if a company is going to pay a dividend, what has to happen, right?
06:31It is, one, they've got to be able to generate free cash flow.
06:34They have to be able to do it over a long period of time and sustainably, right?
06:38Secondly, because they've made this very long-term commitment, they're going to be a little more circumspect about what else they do with money, right?
06:46Maybe it raises the bar on acquisitions and stock buybacks and other ways that they might use their capital, right?
06:54And then, thirdly, a dividend is a very transparent reward to the shareholder.
07:02It shows that the management team, the board, knows who owns the company, right?
07:08So, if I take, you know, free cash flow, conservatively financed, and an acknowledgement of who – and a board and a management team that knows who owns the company, that's a pretty good starting place.
07:21That's why we focus on dividends.
07:22The other strategy, right, the SMID strategy looks at companies undergoing substantial corporate change, right?
07:30And this is more than firing a bunch of people or selling a division or making a small acquisition.
07:36This is spinoffs.
07:38It's companies emerging from bankruptcy.
07:41It's management change at the top after a period of underperformance.
07:47So, it's things that lead us to believe that the future is going to be better than the recent past.
07:53And so, those are sort of where we start getting inside.
07:58Those are the things we look for, you know, to winnow it down.
08:01Because, as you point out, there's 2,000 stocks in the Russell 2000.
08:06How do we narrow it down to 75?
08:07So, dividends, you know, lops off, you know, 60% of the Russell 2000, right?
08:2040% of paid dividends.
08:24Almost all, you know, in eliminating that 60%, you're also eliminating almost all the companies that are losing money.
08:31Right, right, right, right.
08:34So, you know, that's a, dividends are a good starting point.
08:38And then the restructuring is just a pretty select list all the time that varies how much there is to look at.
08:49So, where do you think we are, you know, kind of in the market?
08:54You mentioned the S&P 500s, you know, multiple around 23 times.
08:58We're getting ready to head into the second half of the year.
09:01I have, personally, I have my concerns about the upcoming earnings season.
09:06Not so much about the quarter itself, but the guidance and the uncertainty, given what we're seeing on the tariff front,
09:12especially the things that have developed or redeveloped over the last couple days.
09:18You know, Tom, what are your thoughts?
09:19And then, Lewis, I'd like to get yours.
09:21Yeah, I think that, you know, we'll, you know, we start kicking off earnings next week with the banks.
09:28You know, I don't think that there will be a lot of news out of them, right?
09:35They just went through, you know, the stress tests and stuff.
09:39The big news has gone there.
09:42You know, when we talk to banks, credit looks okay.
09:44The dynamics, you know, particularly for smaller banks behind net interest income, look like they're improving.
09:51Deposit costs have leveled off.
09:53You know, with the back book of loans made in 2021 and 22, they were made at lower rates.
10:00Those are rolling up into higher yields.
10:04Same with securities on the books as well.
10:07You know, so the dynamics behind improving net interest income are improving.
10:13And then, you know, and so, you know, the big banks are next week, the small banks are the week after,
10:18and then you start into sort of more general companies.
10:22I agree with you that, you know, it's going to be tough for companies, you know,
10:29particularly, you know, with the news over the last couple of days that, you know, on tariffs,
10:33you know, it seemed like during the second quarter, that news got, trended better, right?
10:42Because it started bad and trended better during the quarter.
10:47You know, in the last couple of days, it's gotten a little worse.
10:50And so, you know, when companies reported first quarter earnings, there was a lot of uncertainty.
10:58Some of that uncertainty went away.
11:00It seems like when they report second quarter earnings, you might be back to the uncertainty.
11:06Lewis?
11:07Interesting.
11:08Well, I don't know if you're asking in relation to small cap or not.
11:13Well, just, it's more of a general comment.
11:15But I would think that uncertainty for some translates to uncertainty for probably more.
11:22Yeah, I think we're going to go through a digestion period of the new tax rules
11:26and how that's going to impact things.
11:28And foreign policy is really affecting a lot of things for a lot of investors,
11:35whether it be in the private markets or in the public markets.
11:38And that was actually a question I had for you, Tom.
11:41With all of the changes with tariff, potentially, nobody really kind of knows what's going to happen there.
11:45Are you seeing any kind of increases in industrialization investment here in the United States?
11:52Or do you see any impact that's going to affect your specialty in the mid and small companies
11:57that will allow growth to accelerate higher than anticipated by many investors?
12:03In spots, you are seeing, you know, big companies announce projects here in the United States.
12:10And we have investments in some companies that are in the construction business
12:15who will help those companies build new factories, you know, in order to produce in the United States.
12:23You've also seen a lot of talk about data center build-outs, you know.
12:28And so that's going to require power.
12:31That's going to mean construction of power plants.
12:34It's going to mean construction of transmission lines.
12:37It's going to mean construction of buildings, you know.
12:39And so companies that are involved in building those factories and those data centers
12:45and the electricity sources to power them, you know, that's clearly –
12:55and there's clearly a good outlook for those.
12:58Now, Tom, Lewis isn't going to put you on the spot, but I am.
13:02So as you talk about some of these areas just now, are there names in the Gabelli funds that you can reference,
13:10or at least are there names that are popping up kind of on your radar screen?
13:14Well, we have an investment in a company called Primoris, which is a construction company,
13:19another company called Fluor, a construction company.
13:24You know, both of those are, you know, decent-sized positions in our funds
13:29and will benefit from all the activity you're seeing in terms of reshoring and data centers and so forth.
13:37Everest is the third company that fits in that mold.
13:43Great.
13:44So you've talked – you know, touched on financials a little bit.
13:46We talked about, you know, the big, you know, AI data center play.
13:50Are there other areas that are kind of on your radar screen as we move into the second half of the year?
13:55And I'm asking this because I just wrote a piece to portfolio subscribers that, you know,
14:01we are starting to see consumers pull back a little more than we thought previously.
14:06Restaurant spending is falling.
14:09Pfizer published some great data on this showing restaurant traffic and spending falling both in May and June.
14:16And here we are, we've got, you know, ConAgra coming up, very curious to hear what they have to say
14:21about their volumes for packaged foods, especially after Kroger upped its, you know,
14:28same-store outlook for the back half of the year.
14:32So is there anything there that you're looking at or any other seasonal types of plays?
14:37We tend not to be very theme-oriented and tend not to be, you know, seasonal-oriented.
14:46Quite frankly, it's that we really look for what we think are, you know, better-than-average companies,
14:53try to find them at, you know, better-than-average times in their life cycles,
14:58and then buy them at better-than-average valuations.
15:01And, you know, and so those factors do tend to take time to play out more so than, you know,
15:10hey, sometimes we get lucky and things go right very quickly and it works.
15:15And, you know, we usually buy them at prices that when they do, it's a really great return.
15:22But we're willing to live with companies for some period of time and let them do the hard work and compound for us.
15:32Right. So is it fair to say that the diligence process then to graduate from being a contender to a position
15:38is pretty rigorous?
15:40Because it sounds as if that, and just looking at the amount of research that's out there on, you know,
15:47of small-cap companies, it's not as prevalent as it is on some of the larger brethren out there.
15:53I would argue, though, at the same time, a lot of the large-cap research is, you know,
15:59what's the nice way to put it, Lewis?
16:01Weak?
16:02Weak, crowded, groupthink.
16:06So what's the process then, Tom, for you?
16:09Do you spend a lot of time with management teams and kind of really getting,
16:13rolling up your sleeves to understand the business?
16:15We need to understand the business and we need to give comfort that the people who are running it
16:20are sort of on the same side of the table as we are and kind of have the same vision.
16:27You know, and so, yeah, it's talking to companies, it's reviewing the filings,
16:31it's, you know, trying to gauge where the street is at on a stop, you know,
16:39and spending the time to really get to know companies.
16:43And, you know, quite frankly, you're going to get to know them even better as time goes on.
16:49Agreed. Agreed. Go ahead, Lewis.
16:51I have a question.
16:52You know, you keep hearing about more and more companies are staying private longer.
16:57When I first got in this business, you know, 30 years ago,
17:01we saw lots of dynamic companies, small-cap companies earlier, and we had lots of opportunities.
17:05I mean, do you feel like that's affecting the small-cap space now, any of those regulations?
17:11Or do you feel like that maybe that's going to change in any way in the near term or in the next five years even?
17:19It's hard to think with as much money that's in private equity that that's going to change, right?
17:24And it's also hard to think that it hasn't had some impact on, you know, IPOs and so forth,
17:33is that it's not easy to be a public company.
17:39You know, there are standards that you have to meet,
17:42and, you know, not every company can do it or wants to do it.
17:50You know, when we meet with management teams, you know,
17:53one of the things that's always surprising to me is how much time management teams do spend with investors
17:58because, you know, it's hard running a business, too.
18:03And so, yeah, I think, Lewis, that there's something to what you're talking about,
18:10is that, you know, companies who don't necessarily need capital can stay private much longer until they do.
18:24I think that's right.
18:25But in my past life as an equity analyst,
18:28I know that there are companies that have gone public that, you know, didn't need to.
18:32It was more of a forced liquidity event by either private equity.
18:37And in some cases, you know, it was a feather in the cap of the management team.
18:43But I also know of a few that, you know, a few years later, they really regretted it.
18:48And I say that because, as you pointed out, Tom, it is a lot of work that you have to do.
18:53They're kind of hamstrung to some extent on what they can and can't do,
18:57what they can say, what they can't say.
18:59But at the same time, there's also the issue of what if they go public
19:03and the stock, as we like to say, doesn't find any love across Wall Street
19:08or the larger investment community.
19:10And, you know, there's tons of examples for that.
19:15And at the same time, I wonder that if companies are staying private longer,
19:20you know, are they getting, you know, their story more in line?
19:25Are they ironing out the keeks in the business?
19:27Do they have a more refined strategy that when they do come to market,
19:33they might be, you know, a better buy than if they came, you know,
19:36two years earlier, three years earlier?
19:40I think we've all seen instances where companies came public too early.
19:46So, you know, having the access to private capital to stay private longer
19:51to really get your ducks in a row has certainly benefits some companies.
19:57You know, and as I'm thinking about that, there's a question that we didn't ask you
20:01right off the bat, and I have to apologize because, you know,
20:05and I'm sure, Louis, you'll kind of catch where I'm going with this.
20:09Tom, how are you defining small cap and mid cap?
20:12Because when we first started in the business,
20:15small cap was like $250 million market cap and below,
20:18and it's risen steadily.
20:20Same thing with mid cap.
20:21Yeah, no, you're exactly right.
20:23I mean, when we started the Keeley small cap dividend fund,
20:27you know, under the SEC rules, there's a naming rule.
20:31So to say, okay, it's small cap, what does that mean?
20:33Well, initially that was $3.5 billion and down, right?
20:37So $80 million fund had to be $3.5 billion or lower for small cap.
20:42Yeah, did you catch that?
20:43Now we probably think $5 billion is small cap.
20:45Now, mid cap's where sort of the real changes happen, right?
20:50Is that with mid cap stocks, when we initially defined it,
20:53it was $15 billion, right?
20:56Now the average market cap of the Russell mid cap index is about $22, right?
21:02So mid cap has really expanded beyond.
21:07Wow.
21:08I just, I remember the big deal when small cap was bumping up against a billion.
21:12Now I'm dating myself, I realize this, but wow, that's crazy.
21:17Yeah, yeah.
21:18When I was earlier in my career, you know, it was billion and down with small cap.
21:23And everything else was, I don't think people thought about mid cap at the time.
21:28So it was small cap and large cap.
21:30Now if small cap, it's mid, it's sort of a hybrid, mid and then large.
21:37And mega.
21:39Right, right, right.
21:40Sorry to bounce back.
21:41A billion seems like a large cap, but, you know, when you've got half a dozen companies
21:46that are worth more than a trillion, I mean, that's 10 times what you thought, large cap.
21:53No, no, 100%.
21:55Are you finding, you think, more opportunities in small cap land now that we have a better
22:01handle on this, on the way it's defined or in mid cap land?
22:09I think we look for opportunities sort of across the spectrum.
22:13I would say probably, we're finding opportunities in both.
22:19You know, in mid cap, it's more been on the restructuring side.
22:24You know, if you spin out of mid cap companies in small cap, it's been kind of across the board.
22:31Or not across the board, but we're finding ideas there.
22:36I mean, there have been stocks left behind and that where the business is good and likely to get better.
22:46Okay.
22:47And let me just shift gears a little bit, focus a little bit on dividends, because we've been talking
22:51about small and mid cap stops.
22:52Dividends, I personally think dividends are fantastic.
22:56I say that both as a portfolio manager and an investor.
23:01I like the way that they give us another way to value stocks, whether we're using dividend yield
23:06or some other metrics out there.
23:08But what I really like are companies with a rising dividend policy.
23:14And you mentioned, I think, American States Water earlier.
23:18Is this kind of a criteria for you as you look at dividends for some of the products that you're
23:22managing or how do you use dividends kind of to evaluate some of the candidates?
23:28Yeah, we're we try to be flexible in our approach, but we certainly lean more towards
23:35companies that will grow their dividend.
23:38You know, we're not yield seeking.
23:41We we view dividends as sort of a sign of a better company and a better potential investment.
23:46Right.
23:47Then saying, yeah, we want a 10 percent yield.
23:52So so like if we think about the dividend universe, we really bucket think of it in four
23:58buckets.
23:58Right.
23:58There's high yield.
23:59Right.
23:59Which these days is five to six percent, maybe more.
24:03You find REITs, some banks, MLPs and then some special situations in there.
24:11Right.
24:12The next group would be what we call solid steady.
24:14And it's kind of exactly what it sounds like is these are companies, you know, your long
24:19term growers, your dividend achievers, your dividend aristocrats, you know, would fit in
24:24there where they grow their dividend, they grow their earnings and they grow the dividend
24:28in line with earnings.
24:30But neither growth rate is all that great.
24:35You know, then the third group who categorizes growth.
24:38Right.
24:39And these are companies where they're growing the dividend at an accelerated pace.
24:43That may be like 10 percent or more these days.
24:48And what's going on there is either companies are kind of restoring earnings power.
24:55And so the dividend is keeping up.
24:58Right.
24:58Because we are value investors also.
25:00Right.
25:00So so fast growing dividends, fast growing earnings.
25:04That's not really our thing.
25:05Right.
25:06So it's earnings recovery that's driving dividend recovery or dividend growth or companies where
25:12maybe historically they, you know, bought back a lot of stock, but either the stock has
25:17gotten more expensive than they want to pay for it or they looked at it and said, gosh,
25:22you know, our stock's 20 and we bought back 5, 10 percent of the company at 30.
25:30Maybe there's a better way to do this.
25:31You know, you know, and you see that, you know, and then the final group would be what
25:38we call attractive.
25:39And it's just it checks the box.
25:41Right.
25:42But we but we like the stock for other reasons than what the what the difference represents.
25:48Right.
25:48Right.
25:49So and like if we look at the portfolio, it's already in.
25:52But if we look at the portfolio, 70 to 80 percent of it is in those two middle categories, growth
25:57and solid, steady.
25:59And, you know, how you define those is pretty slippery, quite frankly, over time.
26:04And then then there's details at high yield and attractive.
26:09Right.
26:09OK.
26:10So, Louis, let me you mentioned earlier when we were talking before we started recording
26:14that in your past life, you were a hedge fund guy.
26:19And let me let me let me let me tap into that.
26:21So I hear what Tom is saying about dividends and small cap stocks.
26:26But, you know, I also understand that, you know, the Fed is keeping rates high, most likely
26:31higher for longer, maybe through the back end of the year.
26:34Maybe we get to maybe we get one, possibly depending on the inflation data.
26:38No rate cuts.
26:40Do you think that the small and mid cap and dividends come back into vogue when the Fed
26:47starts cutting rates?
26:50Yes.
26:51Yeah.
26:51I mean, by definition, it'd be a they have a better duration profile, which just means
26:57you get more of your earnings back faster, which generally would be something that would
27:01be more attractive to people, investors, if rates were a little bit higher.
27:05And those companies that are growth companies, you tend to get your earnings later and you're
27:11kind of getting your your payback on the come.
27:14And if you have a higher interest rate, they tend to be less attractive to many investors.
27:18So I would say yes.
27:20You know, one of the things, you know, I've done a lot of quant work in my life and on
27:23dividends.
27:24And I've always noticed that the small the rising dividend on the smaller as you go down,
27:31I usually, you know, usually I've done it by ranking stocks by by size and then kind
27:36of looking at it that way rather than kind of having hard points as to, you know, market
27:40cap in terms of just looking at relative size.
27:43It seems like the the rising dividend theme was probably going to do better, in my opinion,
27:49in this environment than the other categories, because there is a there's a desire for growth.
27:55And I just think those companies are likely to do better.
27:58And many investors are, you know, capital seeking private equity more in the smaller
28:03side right now.
28:04And so people wanting more steady growth in dividends is there's just not that many
28:09companies to choose from in that category.
28:11I mean, the last time I ran that screen was a month ago and I look at it, I look at it all
28:16the time and it just seems like the small cap area, if you're selective, you could do really
28:21well in the small cap area in the coming years.
28:25And the valuations are, you know, more attractive and the S&P 500 is just way overpriced, mainly
28:33because of, you know, a relatively few amount of stocks.
28:36But we're also in a disruptive environment right now.
28:39So in terms of technology, and I think that's going to affect the small cap space, it's just
28:44hard to know exactly how.
28:46So I don't know if I answered your question or not, but I don't I'm not sure you did either,
28:50which is why I'm going to flip it over to Tom.
28:51Tom, Fed starts to cut rates.
28:54Do you think we see small cap, mid cap and dividend payers come back into vogue?
29:00Maybe growth, maybe not as much as the only focus of the market?
29:05Well, Lewis is right about duration is that, you know, lower rates are good for growth stocks,
29:11but they're also good for interest sensitive stocks.
29:14And so, you know, if you look at the composition of, you know, the Russell versus, versus the
29:20S&P, it's much more heavily weighted in banks, it's more heavily weighted rates, you know,
29:25and so those are, and more heavily weighted in utilities.
29:29And so those are areas that should outperform in a, you know, following rate environment.
29:36Right.
29:36That's kind of what I was thinking.
29:38All right.
29:39So let me, let me ask just a couple of quick questions here, Tom.
29:44I just want to get your thoughts.
29:45I did a little bit of homework on some of the positions that you guys have in the small
29:51cap and the mid cap fund.
29:52And I just want to ask just one or two questions on them, if that's okay with you.
29:56Okay.
29:57In the, in the mid cap fund, you have Norton LifeLock and Molson Coors.
30:02We know that Constellation Brands has kind of taken it on the chin a little bit.
30:06What's, what's the thinking behind Molson Coors?
30:09Well, Molson Coors has been through a multi-year restructuring where they've significantly improved
30:13the profitability.
30:16The beer market is challenging right now.
30:19And, you know, weather hasn't helped.
30:22Second quarter, you know, is, is a bit up in the air, I think.
30:27But if you look at the valuation of Molson Coors relative to other brewers, huge discount
30:33that eventually we think has to close in some form or fashion.
30:38Okay.
30:38And then on, on Norton LifeLock.
30:41So I, back when I did the Stocks Under 10 portfolio with the street, we own Norton LifeLock.
30:46Yep.
30:46It was, it was an interesting, compelling business.
30:49I haven't kept up with it.
30:51Is there anything of late that keeps you very excited about that business?
30:55It's, it's a, it's a grinder, quite frankly, is that they have, you know, they, they've made
31:02some good acquisitions over the last couple of years, you know, to really consolidate the
31:07personal online protection market.
31:12You know, and, and so, you know, that, that, they, that they have a strong position there.
31:20It's not a fast growing business.
31:21It's, you know, low to mid single digits, hugely profitable and trades at a really cheap
31:27price.
31:28You know, when they, when they made the Avast acquisition, they funded off with floating rate
31:34debt.
31:35So as rates come down, profitability should improve.
31:38Um, but they've, they've done a nice job there.
31:41Um, yeah, I've, I've often wondered what would happen if you took Norton LifeLock and Clear
31:47Secure and kind of smashed them together.
31:50Well, they're, you know, they just made an acquisition of a company called MoneyLion, which,
31:54you know, I think they view, you know, one of the main reasons that you want, you know, privacy
32:02on the web is to, um, protect your financial transactions.
32:06And MoneyLion kind of gets them into personal financial management.
32:11Um, and so it'd be interesting to see exactly how that plays out over the next several years.
32:18Yeah.
32:18I was thinking more along the lines of, um, combining what Norton LifeLock is doing with
32:24identity and identity management that Clear Secure has.
32:27So maybe I'm, maybe, maybe it's something that'll get, who knows, but if we switch gears
32:33a little bit, Tom, and think about the small cap dividend value fund, you've got, um, Ensign
32:38Group and Wintrust Financial.
32:40I think those are among your larger holdings.
32:42Yes.
32:43What's the story there?
32:44So Ensign is probably the best run of this, of the skilled nursing facility companies.
32:50So the senior housing companies, um, and their focus is on skilled nursing as opposed to assisted
32:56living.
32:57Um, you know, that's an area that, you know, due to aging population, um, is, uh, going to
33:06continue to grow.
33:07Ensign's been a very good acquirer.
33:11Um, and yet they're only in like 17 or 18 states.
33:15Um, they're not going to be in all of them because all of, you don't want to own nursing
33:19homes in all states, but you know, this is a company that really continues to have a very
33:24long runway of acquisition opportunities.
33:27Um, uh, and, and like I said, you know, it's extremely well managed.
33:33Um, Wintrust is a bank here in Chicago, um, who's another very good acquirer, um, and, and
33:42runs to business very well, great on credit, really good at making loans, um, you know,
33:49and, and, and, you know, and trades it, you know, 10, 11 times earnings.
33:54Excellent.
33:55Excellent.
33:55Louis, any, any thoughts, any portfolio questions?
33:59Um, well, I, I, one of the, I asked my two main questions was the private market question.
34:04And I guess I might, one question I would have for you would be to what degree do you
34:09think excess returns could be achieved from the restructuring element versus, you know,
34:15the other, the other elements that you're talking about, you know, you had them in different
34:19groups, which, which area would you see the most, are you seeing the most opportunity in
34:24right now?
34:24So our SMOOT fund really focuses, I mean, it's, it's really a legacy of, you know, the
34:33firm that John Keely founded in the eighties and it, and it really focuses on companies
34:37undergoing very substantial corporate change.
34:40About half the fund is invested in companies that either were spun off or spun off a company.
34:47And if you look at the long-term track record spinoffs, right, since 1993, there have been
34:51about 750 of them, if you bought all of them on the first day of trading and sold them a
34:59year later, you would have outperformed by about 9 percentage points, right?
35:05Only half of them work though, right?
35:08Half of them outperform, half of them underperform, but in aggregate, the ones that outperform do
35:14extremely well.
35:15And, you know, you've seen, you know, bigger companies looking at it, right?
35:21It is GE broke into three pieces.
35:23We invested in Vernova when it was spun out of GE in the mid cap fund, actually, a little
35:30over a year ago.
35:31It's been a wonderful stock, you know, we didn't anticipate, you know, that AI would drive so
35:37much power demand, but it is, and Vernova is one of the leading makers of power turbines.
35:43And, and, and, and it's benefiting from that, both in its business and its stock price.
35:49Um, uh, you know, you know, 3M spun out a company, Johnson and Johnson spun out a company, but then
35:57there's lots of little companies who are doing the same.
35:59Yeah.
36:00Yeah.
36:01I, I remember, uh, the big spin outs of carrier and Otis elevator, right?
36:07And I was, I admit I was skeptical about Otis elevator and that stock.
36:12If I remember correctly, the, a year later after the spinoff, it was dramatically higher.
36:16And I just, I, I didn't see it, I mean, you know, very often, you know, the spinoff is
36:24viewed as being sort of a less attractive part of the business.
36:27So it struggles to gain its footing.
36:30The other thing is, you know, early on in the process, very often index funds have to
36:34sell it.
36:35So it becomes a, you know, so the first trade is unusually attractive.
36:40Um, you know, and, but then, you know, on the other side of the coin is you now have
36:45a management team that's solely focused on that business and is solely getting compensated
36:50for the results of that business, as opposed to being, you know, a divisional president.
36:55You're now the CEO and now, you know, your results, you know, really can create greater
37:03rewards.
37:04Um, not that people were slacking off while they were part of the division, but, but there's
37:10just a heightened sense of urgency, I think, you know, and then in some cases you find companies
37:15that have been starved for capital that, um, now that, you know, they're independent, they
37:21can allocate the capital the way they want.
37:23Totally agree.
37:24Tom, you've been great with your, uh, time, very generous Louis, the same.
37:29Uh, but before we get out of here, fellas, any closing thoughts, any, anything we didn't
37:34talk about that we should.
37:35Of course.
37:36Uh, for me, no, I, I'm good.
37:38I'm, I'm just more looking to you to see what the closing thoughts you might have.
37:39No, I mean, you know, um, you know, thanks for your time and to your listeners as well
37:45and viewers.
37:46Uh, appreciate the opportunity to come on and talk to you.
37:47Excellent.
37:48Excellent.
37:49Well, thank you both for joining me this week.
37:50That is this week's episode of the Stocks and Markets, a podcast by the street.
37:51We will be back with a fresh episode before you know it.
37:55Yeah.
37:56Excellent.
37:57Excellent.
37:58Well, thank you both for joining me this week.
37:59That is this week's episode of the Stocks and Markets, a podcast by the street.
38:03We will be back with a fresh episode before you know it.
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