Stocks to own in 2022 | Mary Manning

Maddy: [00:00:20] Hello and welcome to You're In Good Company. A podcast that makes investing accessible for everyone. I'm Maddy, and as always, I'm in some very good company with my co-host Sophie. 

Sophie: [00:00:30] Hello, Maddy. Coming up on today's show, we have an expert view on, I guess, the year ahead in the stock market and how to know whether some of the biggest shares at the moment are fad or future. 

Maddy: [00:00:43] And the top shares to keep your eyes on in 2020. But before that, let's hear from Mads. Where in 2022? Oh my gosh. I'm still in 2020 in my head. I can tell you that right now. 

Sophie: [00:00:57] mentally still in 2020 

Maddy: [00:00:59] and the top share to keep your eye on in 2022. Well done. Well done. But before that, let's hear from a community member. 

Speaker 3: [00:01:09] Show me the money, honey.

Ebony: [00:01:11] Hi, my name is Ebony. I'm twenty nine years old and I'm a performer. I own a variable income that changes month to month, but it generally ends up being between forty one and forty three thousand dollars a year. I started investing in February 2021 and set myself the goal of reaching 10 grand invested by the end of the year. Each week, I transfer at least 10 percent of my regular pay into my investment account and more if I have any extra money coming in that week. Currently, I'm invested in one individual stock and four ETFs. I own shares in Australian Ethical, and that has been my biggest profit so far, doubling in value since I first purchased it. I've also invested in four betashares ETFs US, Athey Asia and Drug. Today, the total value of my portfolio is just over ten thousand one hundred dollars, and since I started investing, I've made a profit of one thousand five hundred and one point and ninety five cents. 

Sophie: [00:02:07] We've been talking so much about money goals, so it's awesome to hear how Ebony's set herself up with the goal of 10K invested at the start of 2020. I did it to 2020. Start of 2021. My gosh, Maddy, you and me with our years today and was able to achieve it by the end of the year with some nice profits as well, 

Maddy: [00:02:29] which leads us nicely into today's episode. Looking forward to the year ahead. But today we're welcoming Mary Manning to the show. Mary is a portfolio manager at Alphinity Investment Management with 25 years of experience. Her focus is on the technology and communication services sector, as well as the Global Sustainable Fund. Mary has worked in New York, Moscow and London and has a Ph.D. in economics from the University of Sydney and an MBA from Harvard Business School. Mary, we are very excited to have you with us today. Welcome to youre in good company. 

Mary Manning: [00:03:05] Oh, thank you so much for having me. It's a pleasure to be here. 

Sophie: [00:03:08] Mary, we always start in the same way by asking our guest, What is the best thing that's happened to you this week? 

Mary Manning: [00:03:14] Oh, that's a good question. Well, it's only Tuesday, so it's stormy. But as you know, school has gone back this week and I have a daughter who's starting high school. And so she started and she's in a new school and she's happy. So that's the best thing that's happened to me in the last few days. 

Maddy: [00:03:28] Oh, it's so exciting that growing up.

Mary Manning: [00:03:31] Yes, exactly. And I think for a lot of parents in Australia who have had kids at home during the summer when it's work from home, it's a good thing that kids have gone back to school town. Yeah, I think I speak for a number of parents and I say that 

Maddy: [00:03:43] absolutely, especially after the last couple of years. And Mary, if you could have dinner with anyone, who would it be and why?

Mary Manning: [00:03:51] So I'll be honest with you, I listened to the episode that you did with Julie Bishop, and I think she picked Vladimir Putin, who would also be one of my top picks. Because with everything going on right now with Russia and the Ukraine and the impact that that could potentially have on global equity markets, I think he would be near the top of my list. So maybe Julie could come to and we could kill two birds with one stone. I would also say Jerome Powell, because as you know, there's so much going on right now with the Federal Reserve. And you know, that's really going to impact the path of equity markets in the next 12 to 18 months. So I think knowing what's going on geopolitically and knowing what's going to go on with US monetary policy would be really helpful. So those would be my top two people for right now.

Sophie: [00:04:33] So both your dinner dates would be able to give you some kind of an inside scoop as to what's going to happen. 

Mary Manning: [00:04:39] Yes, exactly. I'm very focussed on markets right now. for right now, those would be my two people. 

Sophie: [00:04:47] And if you could be a stock or company, who would you be and why?

Mary Manning: [00:04:52] So if I could be a stock or a company, I think I'd pick Apple. Apple, as you know, prior to this recent sell off was a three trillion dollar company, which is just amazing that a company which, you know, started from somewhat humble beginnings could grow to be a three trillion dollar company. So I like that it's big and it's successful. It's also very high quality. I mean, the products that they sell are very high quality, and the products that they sell are also very useful. I also like Tim Cook as a CEO. I think he's fantastic, both obviously as a leader and also on a personal level and the leadership that he shows there. So, yeah, if I could be a company, I think I'd be Apple. 

Maddy: [00:05:28] I saw a pretty crazy thing on social media the other day that talked about when Apple announced its results last week that it and $1 million in revenue every minute in Q4, which is just like, unbelievable to wrap your head around. But I have to say I contributed to that one million. 

Mary Manning: [00:05:44] Yes, exactly over Christmas. I know there's lots of people who they thought that there was pull forward in Apple during during Covid and no one was going to buy any more products. And then over Christmas, clearly that wasn't the case. So that's a good point, Maddy. Another reason I'd like to be Apple is because are earnings upgrade cycle. So they reported earnings last week and they just knocked it out of the park. The stock was up seven percent. Those are the kind of stocks we're looking for. it fits very nicely with our process in the kind of stocks we invested 

Sophie: [00:06:10] so married today, we want to jump into a bit of a look forward into 2022 and get your opinion about, you know, the economy, how it's going to go about certain industries and stocks. And we thought the good place to start would actually be the economy. So for context, we're recording this about six days prior to release, and we know that the RBA is actually meeting today. What are your thoughts about the economy at the moment or the market and the correction that's currently taking place? 

Mary Manning: [00:06:38] OK, so there's quite a few things to comment on in that question. I guess in terms of the economy, it's helpful to look back and see what we've been through in the last two years because it really has been a roller coaster. You had, you know, things were chugging along quite nicely before Covid and then you had very, very steep drops, both in GDP growth and in the market in the early, you know, first quarter second quarter of 2020. And then you had a massive recovery from an economic perspective. That was because there was so much stimulus pumped into economies around the world, both monetary policy. So most of the G3 three or G7 countries cut interest rates to zero or start a quantitative easing to a massive monetary stimulus. And then you also had huge fiscal stimulus. So of course, because of this, the economy's recovered very, very quickly and the stock market recovered significantly also. And then Covid sort of went away, but that stimulus was still there, particularly in a. America, even after that initial wave of Covid, you've had quite a few more stimulus packages. And so I think the question is now are we seeing overheating? And certainly if you look at the inflation in America, that seems to be the case where you have the last inflation print was around seven percent, which is almost unheard of liveable in recent times. And of course, that's, you know, that's a year over year number. So once those weird year over year times evened out, it will go back to, you know, maybe two or three percent. But that's still quite a bit stronger than what we've seen in the U.S. and other developed economies in recent times. So to answer your specific question, I think first of all, at Elephantine, we don't make really big prognosis like the market's going to fall 20 percent this year. So let's be 50 percent cash or, you know, the GDP is going to grow at seven percent. Therefore, we will oriental whole portfolio around there. What we're looking for is earnings leadership in stocks. But obviously, what kind of stocks are are exhibiting earnings? Leadership has a lot to do with with macro and where where markets are going. So I think for right now, certainly I don't think there's any fund manager in the world that thinks that 2022 is going to have the same kind of positive returns that we've seen since the market bottom in March 2020. So like S&P 500 is almost up know 95 100 percent since that, that very bottom part. And that's obviously completely unsustainable. So not expecting that what we are seeing a sort of a change in earnings leadership. So during that whole cove in part, you saw a lot of companies that were beneficiaries of stay at home. So whether this is, you know, Netflix or Amazon or Zoom, these kind of companies, those kind of companies aren't doing that well anymore because you're moving towards more reopening plays and that that trend is in place. And then you're also seeing a sort of a shift towards more defensive because a lot of these growth stocks have got very, very expensive. And I know you guys did a summer series looking at different ways to value stocks. And some of these stocks, like software stocks that were trading at thirty times price to sales and they have no earnings, there's no downside support. So they have done quite badly during this this January market correction. So we're following earnings leadership, and that means very high quality technology and growth companies and then also some defensive balance out the portfolio. 

Maddy: [00:09:55] So, Mary, what do you think might be some of the biggest sort of triggers for either lack improvements in what we're seeing at the moment or, I guess, sort of further negative market reactions over the next few months?

Mary Manning: [00:10:07] So there's two things. One is earnings. So as we've discussed before and thank you for changing the time of of the podcast, there's a lot of earnings coming out. We are right in the middle of earnings season for U.S. and European equities. And so you've actually seen some of these big companies totally drive the market. So Microsoft and Apple are good examples. So last week, you know, tech companies and Nasdaq and some of those more growth oriented stocks were leading the market down. And then Microsoft came out with fantastic earnings and straightaway Nasdaq futures turned straight around and Microsoft itself because of its earnings led the whole market higher. And then you saw that exact same thing happened later in the week when Apple came up with good earnings. And you know, these are trillion dollar plus companies so they can move the market. But I think for things to continue to go higher, you're going to need to see certainly the large cap companies in the U.S. and Europe report strong earnings and then ideally, some of the more mid-cap companies also report strong earnings. I think if you have either this reporting season or next reporting season, you have companies that are reporting very bad earnings and people start to get worried that there's no growth left in these companies. I think that will be bad for the market. The second thing is, obviously you need to watch monetary policy in the U.S. because the world has gotten, you know, it's sort of like the drug addict analogy that the world has gotten used to really cheap money and the world has gotten totally used to QE. And we need to remember that. Remember, during the Trump presidency, he was very, very vocal in wanting interest rates to stay low because he wanted the market to be higher because it made his approval ratings go up. So for many years, we've been in this sort of cycle of, you know, monetary easing and easy money and people have gotten quite used to it. So I think the other thing that we need to look out for in the market is the pace of interest rate hikes by the Fed right now. What sort of baked in is about four interest rate hikes, if it is more than that. That would probably be negative for the market or if it's a faster pace. So if he's doing, you know, 50 basis points at a time rather than twenty five, I think that would also be a negative. Those are the two things I'm watching earnings in the Fed. 

Maddy: [00:12:10] And can you just explain for us, you know, for us living in Australia, why do the decisions that the Fed makes over in the US impact the Australian stock market so much? 

Mary Manning: [00:12:20] It's a great question, Marty, because you know, I did know it in economics in Australia and you know, when you're teaching. And I also worked as an associate professor at Sydney Uni. And when you're teaching, it's very, very focussed on what's going on in Australia. And then when you start investing. Actually, the thing that's sort of the tail wagging the dog is what happens with the US fed, so I think there's a couple of reasons. One is the US is still the largest economy in the world by some measures. China has caught up, but certainly the US, from a stock market perspective and from a economic power perspective, is the largest economy in the world. So what they what happens in America will have implications for the global economy. I think the second thing is, if you remember back to your uni economics, if you're having rising rates in one country and not in other countries that can have an impact on the the currency of that country. So if you're getting a rising dollar in the US, which is what you've seen in the last week and a half and you get weakness in other currencies, you may have noticed on Friday night the Aussie dollar went below 70 cents. That will have implications for four different countries because of the effects. And the last thing is that with the exception of China, and we can talk about that a little bit later, the global economy is still quite correlated. So you've seen the US go ahead and start to raise rates or Canada's raising rates. The UK is going to raise rates. The ECB is probably quite a bit behind, but at some point they may stop QE and raise rates. Also, the RBA, as you mentioned before, has a meeting today and we'll see what they do. But it's quite, you know, some countries often follow what the US does. So that's why it's important for countries even outside the US. What the Fed is up 

Maddy: [00:13:53] to actually failed economics at uni. It was the only subject I ever found

Mary Manning: [00:13:58] is a good point because when I was teaching, I had already done 10 12 years of investment experience and I would sit there looking at these lessons quietly. They just send you a lesson plan. You don't get to pick them up yourself. And I think this stuff is totally useless. A lot of it go, thank you know, for actually investing and for understanding the world. There are better ways to teach it, you know, especially especially microeconomics, macrolide I thought was OK, but micro, you know, supply demand. And which way is the curve going and what happens? Yeah, it has nothing to do with investing. So don't worry.

Sophie: [00:14:33] I must agree. It's probably the subject that you need that I hated the most as well. But Mary, I wanted to ask for medicine. I like this. What's happening with the economy at the moment? It's really a bit of a first for us, especially the first time that we're also in the stock market. Have you experienced something like this before? 

Mary Manning: [00:14:51] I have. And it's one thing, you know, I know you have a lot of many millennial listeners. And if I have one piece of advice to them, it would be to start investing earlier early, as you possibly can. Because the more of these sort of cycles that you go through, you learn to identify things. And so, you know, in my life, I guess I started investing in the sort of late 90s and that was before the tech wreck. So you had the Big Tech racket where Nasdaq fell very, very sharply in the late 90s. And this is certainly not that kind of market environment, but we were talking about this in our morning meeting before and we said, you know, in the last 20 years, we've had the tech wreck and you've had the GFC. Those were the two really big, you know, times when the market fell very, very sharply and then you had other episodes in between their, you know, twenty eighteen would be one example where you had two small market corrections because of interest rates. So we're saying, you know, is what has Jan told us, is this another tech wreck? Is this another GFC or is this just another two thousand eighteen where you have rising interest rates and things, you take a little froth off the top? And you know, it's my personal view that this is this is not a tech and it's definitely not a GFC, because those big sort of systemic risks that we're in the economy in the market at those times are not here right now, but the market is quite expensive and it is a little bit frothy. So I think that this sort of correction that we've seen in January is quite healthy. And as I mentioned before, I have to watch the pace of interest rate rises. But I think that I've seen I've also seen big country specific economic crashes in my career because I didn't do emerging markets for quite a while. So I lived in Russia in the late nineties when that entire economy and markets blew up and the first time I worked overseas was actually during the Asian crisis in the late nineties in Korea. So I've been through a lot of blow ups, and this does not feel like one of those to answer your question. This is a very sort of rational market correction based on a change in the interest rate environment. And so I think it's it's healthy. 

Sophie: [00:16:54] It's somewhat comforting that you've been through, like all these experiences, all these crashes, not that it was necessarily a good thing when you were living through it, but it's somewhat comforting for us to know that first of all, this is a learning experience and second of all, that the market has always recovered post these periods.

Mary Manning: [00:17:10] Yeah, it can. It can be a fantastic learning experience and especially when you're younger. Like when I was working in Moscow, things were terrible and like all the expats sort of left and went somewhere. And if I'd been at a later stage of my career, I would have been a complete panic because there wouldn't have been any deals and I was working in investment banking and investment management. But you know, I was I was twenty two and I was like, Well, this is interesting. I was going to sit here and. And figure out what happens and work on my business school essays and wife by my gym at during the day and then, you know, it all worked out. So the more that you can get experience and you know, when when it's there's not a huge amount of skin in the game, it's not like you're. I think that's really, really helpful and it can help you later on in your career. 

Maddy: [00:17:53] We are going to take a quick break responses that we'll be right back to discuss which stocks Mary has her eyes on for 2022. So, Mary, we've sort of discussed what is going on in the broader economy at the moment, but let's get into the nitty gritty a little bit more. What would you say are the three top industries that you have your eye on for the year ahead? 

Mary Manning: [00:18:15] So I would say consumer and consumer discretionary, in particular, technology and financials. So those are the two three sectors that I've covered in my career. I don't think we have a Copia model. So there's four PMS that that run the global fund and we all have different sectors. So I cover consumer discretionary and then the part of tech that's sort of communication services and internet. So like the FAANG stocks minus Apple, and then someone else covers financials and someone else covers that technology, hardware and software. But the reasons I think that those are the most important sectors. First of all, from the technology perspective, these are the biggest companies in the world. And as we discussed before, these are the companies that drive the US market and a lot of other markets. So you need to have a have a good view on technology. And right now, you know, there's there's thousands of technology companies. The ones that we like the most are probably the high quality technology companies. So Google, Apple, Microsoft, obviously companies that you and all of your listeners will have heard of before. And the reason is they're all in a very nice earnings upgrade cycle, and they're very high quality companies with high quality management, but they're not that expensive. So getting back to these, all those three companies are trading at anywhere between like twenty two and twenty eight twenty nine times price earnings, which is not that expensive. If you think about the quality of companies that you're getting, the return on equity that those companies have and then the growth profile of those companies going forward. So we feel quite excited about those sort of regardless of where the market goes. We were discussing before, it's hard to make a perfect call in the market. If the market goes up, those those companies will do well. If the market goes down because they're an earnings upgrade cycle and their high quality, they'll probably do better than a lot of other stuff. So that's sort of a good place to be positioned in technology and technology context. The stock were shying away from are the ones that have no earnings support. So companies that are unprofitable, you know, there's the Goldman Sachs Unprofitable Tech Index, which has gotten absolutely slammed in January, and I didn't know that existed. Yeah, you do. Should look at it's quite interesting because especially given some of the other podcasts that you've done about how to value stocks. The thing is, if there's there's a whole another way of thinking of valuation is what? Where's the downside support? So, you know, like if you have a stock, it has no earnings and it falls 20, 30, 40 percent, it will still have no earnings. So it's still not going to be at a p where it's attractive to buy. Whereas, you know, one of the companies that we've invested in on the consumer side is Daimler, because we quite like the Mercedes Benz brand name and we also like their transition to EVs, but Dollars trading at seven times PE. So if it falls 50 percent, of course you're going to buy Mercedes Benz at three and a half times earnings lower somewhere that you're not getting in some of the technology stocks. So in technology where we're focussed on high quality companies that have good earnings in consumer discretionary, consumer is an interesting sector right now because you've seen lots of ups and downs through Covid, you had consumers being very wary at the beginning and then you had the reopening plays and you had the stimulus checks in the US and elsewhere in the world. So I guess in consumer, we have different buckets. One is autos. This has nothing to do with where the market is going right now. But we think as a longer term somatic, the transition to EVs is really, really exciting. So companies like Tesla and then Daimler that I mentioned before are in that bucket. And then we have some more defensive companies. So these are big companies like McDonald's or Pepsi. And again, if you know, if the U.S. economy goes starts going south or, you know, the market falls quite a lot, these are high quality defensive companies that will continue to show earnings leadership and have that significant valuation support. So we feel comfortable being in those stocks also. And then lastly, financials, it's obviously a very important sector globally and certainly a very important sector in Australia and financials. You have to do a lot of analysis to figure out what the interest rate sensitivity is, but there's a whole group of banks and financials in the world that are beneficiaries of rising rates. So from a portfolio construction perspective, they're a helpful thing to have in a portfolio when rates are going up because a lot of your other stocks may be going down quite a bit. So to have stocks in there that have beneficiaries of rising rates is really helpful to balance things out.

Maddy: [00:22:32] Just speaking on the financial sector there out of interest, what's your favourite Australian bank? 

Mary Manning: [00:22:38] I haven't looked at Australian banks for over a decade, so I have a good answer. I'll tell you who to Australian bank CEOs who I think are very, very impressive. One is tomorrow at Macquarie because I mean, she was just incredibly impressive. And I, as you mentioned at the beginning, we do have a sustainable global fund at Affinity. And you remember there was the Cop 26. Meeting in in Europe a few months ago and a lot of CEOs from around the world went in, tomorrow was one of those. So we had a call she had a call with with investors when she came back to talk about it. And I was just absolutely blown away with, I mean, she's CEO of a bank, so you would expect her to have expertise in everything related to financial and banking and everything that Macquarie does. But her depth and breadth of knowledge about sustainability issues and how that applies around the world and how that applies to different industries outside her, her industry. I was just absolutely blown away, so I'm not commenting on stocks here just to see them. I think she's pretty impressive. And then, I mean, you maybe you'll see a little bias here. But I also thought that Gail Kelly was really impressive when she was at Westpac, and she she made like a specific impact on me on my career because when I first moved to Australia, I was covering Australian banks and I went to the small group lunch. So it was like a handful of investors, maybe five or six, and Gail and the air person and I was so nervous about this that I overprepared. I had like three hours worth of questions ready. And then, you know, I asked my questions during the lunch and it went, OK. And she came up to me afterwards, and she said, Thank you so much for your questions. You were very prepared and those are very insightful. And I was like, she, you know, I thought she was great because it takes a lot of the CEO to run a bank very successfully and produce those kinds of results, but also take the time to go to individual investors, especially if they're younger and maybe not far along in their career and be like, well done. So I think those are my two favourite bank CEOs from the last, the last 20 years, but I don't have a view on the stocks specifically. 

Sophie: [00:24:42] So you mentioned high quality earnings at the lot of these companies is a way that you define how you're going to add companies to your portfolio. Is this the main factor that helps you pick the shares that you're going to pick? Or is there a, you know, a different process for choosing some of these companies? 

Mary Manning: [00:24:57] So the affinity process is very, very well defined. We're looking for companies that have earnings leadership, and we call that momentum. So it means we're looking for beaten rates, so companies that they beat the earnings and then they raise their guidance and then they beat those that guidance and they raise it again. And so that's the first thing that we're looking for. And the second thing is we're looking for high quality and we actually have a lot of quantitative metrics that we look at to define high quality. So one of those is, are we one of those is balance sheet. And then one of those are some metrics around cash flow. And I know you guys have done some episodes before that are looking at those exact things, but in terms of borrowing and balance sheet, so we're looking for high quality. And then the last thing we look for is valuation. So we are certainly not value investors. We are looking for for high quality stocks with earnings leadership, but you also don't want to be paying 200 times for these kind of stocks. So we actually have those three metrics go MQ B. So that's momentum, quality value. And we have a whole quantitative process that distils down what I know, looking at a whole universe, which companies have good and cuvee. And then from there, that's the stocks that we pick that go into the portfolio. 

Maddy: [00:26:11] As a retail investor, you're always hearing about new opportunities, and I know personally, I get very excited and I get quite a lot of FOMO about, you know, where I'm putting my money or where I'm not putting my money. Do you have any tips for us for how to, I guess, sort of differentiate from the noise and actually understand whether an industry or a potential stock has really good long term potential? 

Mary Manning: [00:26:33] That's a great question. I would say a few things. One is when you're looking at an industry or a stock, I do some really basic like business school 101 type analysis. So like a SWOT analysis and a Porter's five forces analysis. And you know, as you mentioned the beginning, I went to Harvard Business School and these kind of like classic tools that Harvard developed, you know, in the 1980s or 90s, they're still actually quite helpful if you're new to an industry or new to a stock and you're just trying to figure out, you know, is this going to be a long term investment, a good long term investment? Because you're right in the market, there are a lot of people that have FOMO. That's what a lot of these meme stocks are about. It's just, you know, pure FOMO. And so you need to have something that introduces intellectual discipline into the way that you look at stocks. So I found that those two tools are quite helpful when you're looking at something new. I guess the second thing that's helpful is some sort of valuation discipline because yes, stocks can get get a lot of hype behind them. And, you know, my husband likes to call it all sizzle and no steak, and you don't want to invite and you don't want invest in companies that are all sizzle and no steak. Because when the market starts to fall, you'll realise, Oh, jeez, there's not really anything here. There's some sort of valuation discipline, whether it's you know what you're paying, what peg you're paying. I don't think you guys talked about pay ratios in your valuation episode, but Peg is looking at the P divided by the growth rate. So it just makes sure that if you have these, you know, companies that are very high growth. Obviously, there is going to be higher than a company that's not growing at all, but you need to have some sort of metric to make sure that you're not overpaying for that growth. So a valuation discipline would be a third thing. And then, you know, you ask the question in terms of sometimes you're watching, you're watching stocks or something comes in, it's new. I generally don't invest in things that are very new because they're they're untested and you don't have a lot of history to know how they're going to behave in the market. So, you know, there's a saying about stocking stocks, and that's not a it's not a bad strategy. Also, if there's something that you're interested in, then just watch it and watch it really, really closely and see how it does in good markets. See how it does on on bad days, see how it does in different sort of seasonality issues. And then once you're comfortable with with that stock and you've stopped it for a while, then then you can go ahead and invest. 

Sophie: [00:28:55] I think it's good advice and something that Mary and I definitely need to take on board because it is very easy to get really caught up in what's in the news and what's happening this way. So much information out there, it gets a bit overwhelming. Now, Mary, we're going to move into our final segment of today, which hopefully is a little bit fun. So considering there is a lot of news at the moment about stocks, there is a lot of this noise we thought we would play with you fed off future and list off some of the stocks which you think would either be a fad or a great long term buy. So first stock, which I love, is Tesla O Future.

Mary Manning: [00:29:37] I've actually done a lot of work on Tesla because, as I mentioned before, we have these valuation metrics and I think the story of Tesla is is fantastic, and its sustainability credentials for sustainable funds are absolutely fantastic. The only pushback you get on Tesla is valuation. And so I've done a lot of work on the valuation. I'm very comfortable on on where that is. The P is actually the sounds a bit weird, but under 100 times now. So that's actually better than where it has been ever in its future. And a lot of Tesla's peers, as we've discussed previously in the podcast, they don't make any money at all. In fact, most of their pure play peers are loss making. So for me, Tesla is definitely future. 

Sophie: [00:30:18] I was actually reading a Harvard Business Review report about Tesla, which was written a couple of years ago, and they were saying, I think Elon Musk put out that they were going to make they certain targets in like a six year period and they met it all. And the article was quite like, you know, they wouldn't meet those targets because it was, you know, in the past and then they met them all in one year. It was like sales and because they just exceeded expectation time and time again.

Mary Manning: [00:30:41] Yeah, and Tesla, they're really knocking out of the park in terms of EV and EV deliveries, particularly in this kind of environment where there's still supply chain issues and a lot of companies are struggling to even produce anything at at scale. So Tesla is doing really well there, but there's also parts of Tesla that aren't EV related to your point about whether it's future, like the full self-driving and getting to autonomous driving level four and potentially further than that later on. That's a really exciting part of Tesla. What they're doing on the solar side is really exciting. And so as time goes by and all those pieces come together in the Tesla puzzle, I think it's definitely a start for the future. 

Maddy: [00:31:18] The next one is Square, which is now otherwise referred to as block.

Mary Manning: [00:31:23] So this one, we are not invested in square block right now because it's in an earnings downgrade cycle. And so it's a very clear from the affinity process. The earnings are going down. There's a lot of their apps, which were clear beneficiaries of Covid, which are now suffering from post COVID issues. And so it's not an earnings upgrade cycle, so we're not even really looking at it. If I had to choose, I'd probably say Fab. 

Maddy: [00:31:47] I find that interesting because we talked about financials before and how they would be a beneficiary of sort of what's going on at the moment.

Mary Manning: [00:31:54] So financials, I should probably clarify financials. There's a lot of banks that are beneficiaries of rising rates, but that doesn't necessarily apply to fintech or to non-bank financials like stock exchange or asset managers. So banks are beneficiaries because obviously, depending on how their balance sheet is structured when interest rates go up, they don't necessarily have to pass those on to their depositors. So their net interest margins, certainly for a time, can go up and multiplied by their loan book. They make more money. But for some of these stocks that are either really high p or they don't have that sort of deposit loan book aspect to their business model there that they are not beneficiaries of rising rates. I guess the other thing why I'm probably in the fab count for square and lock in a lot of buy now, pay later is because I did spend 10, 15 years of my career just being a bank analyst, and there is so much analysis that goes into making good credit decisions and having, as you mentioned before, watch banks grow up around the world in the Asian crisis, and that Russian crisis and the GFC actually making good credit decisions and extending credit is a very, very difficult. Thing, and I think that in in beanpole, that sort of credit. Part of that is maybe not the world doesn't know how that help is going to act and how it's going to behave in sort of a big downturn. And the second thing is, you know, banks are very, very regulated everywhere in the world. Banks are highly regulated and we all sort of had a free ride for the last few years because it's been unregulated. But I think the bigger they get and the more a more important part of the the global financial system that they get to be. There's going to be regulation coming down, and that's probably not going to be positive for their return. 

Sophie: [00:33:34] The next one, which is interesting, changed its name as well. Is Facebook, now known as Mr. Bad? 

Mary Manning: [00:33:42] I'm going to say I'm 

Sophie: [00:33:43] glad you said that. I'm glad you said that. 

Mary Manning: [00:33:46] And I'm going to qualify it by saying bad with bad ESG. So we don't invest in Facebook partially because of the the earnings, but more because there are a lot of ESG and governance issues at that company. And it's funny. It's funny that you mention the name change. You guys probably wouldn't know this movie, but you can look it up after there was a movie many years ago called Wag the Dog, and it was about this this guy who was the president of the United States and he got into some trouble in his personal life, and he didn't want people to focus on that. So he started this fake war in another country so that everybody would focus on that. And we were talking about work that Facebook changing its name to Metta is kind of like Wag the dog strategy because they were facing all these issues. You probably listened to the podcast, the Facebook files, which were totally damning in terms of their internal procedures. And you know, there's all this stuff coming out about antitrust and governance at Facebook. And then all of a sudden they do this 180 and they change their name and are talking about the metaverse. And it worked for a while, to be honest, that the stock started going up. And then people remember. Hang on a second. There's actually huge problems at Facebook. So that is probably a bit harsh, but I certainly don't think it's the future. I think that the Metaverse is quite interesting at a thematic level. But it's unclear who we're going to be the winners there, and it's unclear whether the Metaverse is actually going to be profitable. It might be interesting, but is it going to be a very profitable thing for companies to get into? So I would say that with that ESG. 

Maddy: [00:35:14] Very interesting. The next one, speaking on ESG has been pretty topical in Australia at the moment. BHP and Fortescue in the Laks dominate the ASX, so I'm keen to hear what your thoughts are. Faraday Future because I know there's sort of there's a lot of PR at the moment about how they're really transforming their businesses for the long term. 

Mary Manning: [00:35:35] Yeah. So I should say that I don't cover Australian stocks, so I don't have a specific view on on BHP. I have spoken to the domestic team at Affinity and they they quite like BHP from a fundamental perspective because a lot of the commodities that they're in, you know, the spot prices are quite a bit higher than where, you know, the earnings forecast has suggested. So that means that there's earnings upgrades in the stock and that's what Alfa is looking for. And then, you know, we do have a sustainable fund for global and we have also a domestic sustainable fund. And some of the strategic initiatives that BHP has started are very positive in terms of moving towards carbon neutrality, and they quite like the strategy that BHP has taken there. So I would say from their perspective what what I've learnt is that BHP is future. 

Sophie: [00:36:23] Good to know. And our last one, I'm going to lead with Disney, but also Netflix kind of same industry. But I want to know about Disney a little bit more. 

Mary Manning: [00:36:34] I'm sorry to sit on the fence, but I'm going to say neither. I think these are stocks that are struggling to find their way in a post-COVID and post-COVID era. So obviously, you know, Netflix has over 200 million subscribers. Disney is a brand name, which every single kid in, not every single kid a lot of kids know. And there's no way that these are these are fads, right? You're not going to lose 200 million subscribers in the content that Netflix has built up. That's definitely not a fad ish. And the same with Disney. It's people like to think about the streaming wars is now what's getting a lot of attention for Disney, but they still do have theme parks, and they have a lot of other parts for their business, which have been there for decades and they're not going away. So I would say that neither of those two stocks are fads. But are the future is that is the tricky, tricky part. I think that, you know, the streaming wars are real. And I think part of the issue with Netflix and why the stock reacted so violently to earnings, the earnings were actually good. The reason the stock reacted so badly was because their subscriber growth forecast was a lot lower than people were expecting. So I think for a lot of these stocks, it's are their streaming wars going on and is there a max penetration that these these streaming companies have met in developed markets? And are they going to be able to continue to grow by accessing developing markets or by increasing their prices in markets where they've already reached saturation? And I don't actually know the answer to those questions. So I'd say. Really not bad, but there's a question mark over whether they're the future. 

Maddy: [00:38:04] I read a really interesting article the other day about how Disney was sort of moving to the Metaverse and working with different game gaming companies to build their theme parks in the metaverse. That had me very interested. I have to say, because you do things like, you know, there's so much focus like you said on the streaming wars at the moment, but Disney has a lot more going for it, whereas Netflix is just a streaming company. 

Mary Manning: [00:38:25] I'm not sure how the Metaverse is going to play out, though, because I feel like if Facebook hadn't been trying to wag the dog, they would have picked a totally different time to get into the metaverse. Because really, everybody's sick of being online. Everybody in the world is like desperate to get out there and deal with real people. Nobody wants to have their avatar go to Disneyland. 

Maddy: [00:38:45] It's like two years too late. Come on. 

Mary Manning: [00:38:47] Yeah. So I feel like maybe in the longer term, but in the very short term, some of these some of these metaverse plays, you know, they're not going to be profitable or they're they're not going to going to take off. I think from a business model perspective, you know, Netflix is getting into gaming because gaming is another really important part of the metaverse. We own Nvidia, which makes the GPUs for gaming, and it is generally considered one of the biggest metaverse beneficiaries. Because if everybody's on the metaverse and you need that sort of GPU to participate in the Metaverse, it's going to be better. So you have those, those kinds of companies. But you know, whether whether Disney is going to be successful in that yet again, there's a question mark there. So I wouldn't if you're looking at Disney or Netflix or any of these sort of metaverse stocks. I always like to say you need to be comfortable in the cake and then if there's icing on top and then fantastic. But I think for Disney and Netflix, you need to be comfortable in the cake of their core businesses. And then if they do something in the metaverse, which adds which is icing on the cake, then fantastic. But you can't buy a stock for the icing because that's when you can get into trouble. 

Maddy: [00:39:50] We love Affair Technology Company. Mary, I have one final question for you before we let you go. What piece of advice would you give to someone starting out on their investing journey? 

Mary Manning: [00:40:02] So I would say, first of all, congratulations for starting on your investing journey. That first step is absolutely the most important. The most important part, and as we discussed before, the sooner you can get into investing, the better off you are because you have much more time to to learn lessons. So I would say try to figure out early on what kind of investor you are because there's lots of different styles out there. There's growth, there's value, there's dividend, there's unprofitable tech, lots of different things. And the sooner you can figure out what kind of investor you are. So, you know, whether it's earnings leadership like affinity, that's the kind of investor that I am. And I like stocks that are growth and I like technology stocks, and I know that it makes it easier for you to go on your investing journey because like you guys mentioned with how much social media there is and there's especially in global, there's tens of thousands of stocks to look at and you need some sort of filter to make sure that you're looking at the stocks that are going to give you a good return and that these are the kind of stocks you'd like to invest in. So the sooner that people can figure out what their filter is, I think the better off they'll be long term. 

Sophie: [00:41:06] Mary, I think that is incredible advice. I love that you said congratulations because it really is the hardest step starting out. But thank you so much for joining us today on your new company. We absolutely loved this chat. Before we go, did you have anything that you wanted to plug if anyone wanted to, you know, get to know more about our alphinity? 

Mary Manning: [00:41:26] Absolutely. So feel free to contact me on on LinkedIn. I'm always happy to to chat with with investors. If you want to know more about Alphinity, please go to our website at alphinity.com.au it has all our funds there and you can learn more about the firm. But lastly, I just want to say congratulations to you because you guys have had an amazing podcast. I listen to your podcast, and I think I remember when you first started that there was the article in the AFR and I thought, Well, these women who are really on to something I wish there had been, you know, when I was at your age, I wish there had been something that I could listen to that was similar. And I told my daughter that I was coming on your podcast this morning and I said, When you get home, you're listening to these women because they're amazing. So I think the fact that what you're doing is applicable to so many different, different people is fantastic. So congratulations to you guys on a great podcast. 

Maddy: [00:42:16] Thanks, Mary.

Sophie: [00:42:17] Thank you very sweet.