US manufacturing has essentially been in

a recession for three straight years and

we have only just emerged now the ISM

PMI survey just just reached above 50 in

the last 3 months and that's after three

consecutive years of sub 50. It's the

longest construction period in the

survey. Three straight years and we are

only three to four months into a

recovery. While everyone is trying to

chase hyperscaler, semiconductor

companies, space companies, there is an

enormous investment opportunity

happening right now underneath

everyone's nose that involves just basic

US industrial champions that are

businesses that have essentially been

off their radar for in some cases 5 to

10 years.

>> Hello and welcome to Other People's

Money. I'm Maxy and I'm joined today by

Chris Seuk. He's an investment partner

at Teima ETFs where he manages two

funds. One focused on manufacturing and

reshoring RS and the other focused on

electrification VOLT vault. Both have

performed very well compared to the

market since their inception and

year-to- date. Chris, thank you for

joining me today.

>> Hi Max, thanks for having me on.

manufacturing, reshoring,

electrification. I might argue that

they're tied to a broader trend of

reindustrialization. We could argue

about whether we're re-industrializing

or this is a new wave of

industrialization that's very different

than the industrialization that this

country had before. I'm sure we're going

to get into those nitty-gritty details,

but I want to just start out with a with

a question more broadly about this is

something that we've been hearing about

from multiple administrations. It

broadly has bipartisan support that we

should be uh re-industrializing here in

the United States and whether it was the

CHIPS act with Biden or tariff policy

from President Trump um it it's clearly

being pushed at the highest levels of

government. My question is to what

extent is it a reality?

>> I get that question all the time. I

think

reindustrialization

um or deglobalization,

you know, in terms of a world scale re

uh are both extremely real. And where do

you see that most? Um just look at the

um unprecedented

size of backlogs within

um you know household multi-industrial

businesses whether that's um GE GE

Vernova um companies like Caterpillar. I

mean we're looking at backlogs here that

have historically never been recorded.

Um, you know, backlog at Caterpillar is

north of $60 billion. The backlog at

Vernova is north of almost $90 billion.

So, the notion that this is some kind of

um yeah, fantasy that we don't really

see this on the ground is frankly

nonsense. and the backlogs of these

businesses, whether they're large caps

like the ones I mentioned or even

smaller caps or medium caps, we have

seen unprecedented order backlogs for

businesses that extend out to two to

three years in length. And um the other

place that an investor or an audience

member can look at is simply industrial

um production. Um actually yesterday or

the day before yesterday we got the

April industrial production number and

and that that was I think 1.7% which a

lot of people I think have kind of said

well that's not a big number frankly

speaking that's a huge number because we

have seen almost three to four decades

of stagnation in industrial production

here in the US so what's important I

think from an investor standpoint of you

is is not to look at the absolute

figure, but look at the rate of change

of that number. So, you know, it's real.

It's look at the backlogs. We're

building production capacity here in the

US. We are at um unprecedented highs in

terms of non-residential construction.

The numbers are real. They're out there.

They're in the order backlogs. They're

in the order backlogs of

multi-industrial companies here in the

US that people are familiar with. These

businesses have revenue, they have

earnings, they have cash flow. These are

not loss-making companies. Uh so yeah,

sorry that's a long-winded

answer to your question, but I think

this idea that that it's, you know,

look, in terms of re-industrialization,

um I think it was much more in the

headlines two years ago. uh I think it

has left the headlines and we can talk

about those reasons why but I think

underneath the radar the investment

opportunity with regard to

re-industrializating reindustrializing

the US is is still in its very early

stages.

>> People have an idea of it in their head,

right? We're all the jobs that went

overseas are going to come back and

we're going to be making the same

things. Manufacturing is going to look

the exact same and and that's not how

it's going to work out. That's not how

it's working out right now. And so my

question would be what is the

re-industrialization image that people

have in their head and how does the

reality differ uh this time around?

That's a great question. Look,

re-industrializing

uh or rebuilding

the US industrial capacity to make

things, if you will, is not not about

taking a factory out of China or out of

Thailand or out of Bangladesh and moving

it to Louisiana. That's not what's going

on here. What's going on here is that

the US

is the epicenter for incre the

incremental dollar being spent you know

capital investment. So it's about when a

company faces the decision to expand a

footprint for production abroad or

whether we have the ability to do it

here in the US. The US is the first

choice for incremental capital

investment being done around the world.

You know, by US companies and by foreign

companies are, you know, the US global

share of foreign direct investment, I'm

not going to throw that many statistics

out here, but um the US share of foreign

direct investment is showing that I mean

it's upwards of it's north of 20% and if

you look back over the last couple of

decades, US share of global FDI has been

anywhere from sort of 10 to 15. So the

magnitude of that number is is enormous.

So again um I think there I agree I

think there is this perception that oh

you know we're still waiting to see all

these factories come from Asia back to

the US that's not happening. But what is

happening as I said is that every time a

COO sits down in his office or in front

of the border with his chief executive

and says we're going to do a factory

expansion. Where are we going to do it?

It's here. It's here because if you want

to sell in the largest, most homogeneous

market in the world, you have to make it

here. You can no longer make it

somewhere else and ship it into the US.

That business model used to work over

the last two and a half decades. And

that's what happened. And that's what

got the US into this condition where its

industrial footprint is in tatters.

That's over. in no administration,

regardless of what side of the aisle

we're on, we're not going back to a

world where we're gonna de where we're

going to go back to globalization. The

train has left the station.

>> So my question from that would be why

has the train left the station? There's

so many factors. You hear people talk

about the energy advantage of of

production here in the US. You hear

people talk about there's a push and a

pull, right? Obviously, the the tariff

policy has since been reversed, but you

know, that's that's clearly a policy

that is meant to make it more um more

palatable, more economical to to do

business here versus overseas. And and

then at the same time, you have the the

supply chain shocks that we have seen

over the past few years, some of them

self-induced, others thrust upon us by

COVID. And so my question would be for

those COOs who are saying our our

marginal dollar on capex should be spent

here in the US. What is the driving

force?

>> There are multiple drivers. I mean

policy was one but what the government

is essentially doing is crowding in um

US manufacturing. So the government is

saying look we're going to write big

checks. We're going to help you. We're

going to incentivize you to build here.

Now, that started with um really the the

firing gun for for that for that

force was Jake Sullivan who was Biden's

um I think he was a security adviser.

basically the US you know Sullivan made

a presentation once and said the US

needs to become more self-sufficient

with regard to strategically important

industries whether it's you know defense

energy semiconductors

um and and that kind of recognition by

the Biden administration to sort of

financially support that

um you know effort to make the US more

self-sufficient with regard to these

strategic industries has has since

um leaked down into the private sector.

The new administration, the Trump

administration has essentially

embraced that same but also that that

the same sort of strategy, but it has

rather than making making here an

option, making here is now frankly under

the Trump administration a mandate. So

Biden wrote checks, Trump is using

tariffs. I mean, the Biden

administration

essentially continued all the Trump

tariffs from Trump 1.0. So, um, as I

said, I don't think we'll see a future

president run on any platform that

involves, let's go back to, um, shipping

manufacturing abroad. And

now, let's just get on to the other

aspect. Let's just say we don't have the

government there, and they're not

telling us to make here. Well, and we

don't have tariffs. The fact is that US

companies now that I speak to on a

regular basis, you know, have found that

it's it's now very coste effective to

make things closer to where you sell

them. So we can all talk get into

accounting and say you know there's

lower working capital but you know at

one point if you flash back to the year

2000 when China entered WTO which was

really the kind of which was really the

very beginning of the US letting its

industrial

infrastructure um degrade um if we go

you know if we go back then you know

you've you've you've you've got this

point where now that's I think people

recognize that but companies these, you

know, labor costs in China were 30, 40x

20 years ago. They've now um, you know,

labor costs in China, you know, what

they're paid per hour for manufacturing

have gone up marketkedly to a point

where they're not where the US is, but

getting closer to where US manufacturing

is, dollars per hour. And what a lot of

investors need to realize, it's not just

about cost of making the good, you also

have to transport. So, what's gone up in

the meantime? Fuel prices have gone up.

Um, the cost of intellectual property,

protecting intellectual

property that is 7,000 miles away. The

cost of if you make something in a red

color, and it turns out when you're

selling it here in the US, people want

blue, the cost of retooling a factory

7,000 miles away versus right down the

street is much more expensive. So, you

know, this cost of of customer service

is is a lot cheaper if you can do it

closer to where you sell the item. So,

all these kind of intangible components

to the cost, the total, you know, the

TCO, the sole total cost of making

something is not just labor, but it's

transportation, it's protecting IP, it's

doing customer service, it's lower lower

um working capital costs. So when you

put it all together, making here in the

US now makes a lot more sense than it

did 20 years ago.

>> To what extent is it also a different

mix of goods? It it's more advanced

manufacturing, right? Textile work is

probably not coming home, but the the

advanced manufacturing that we're

talking about is it's a completely

different mix of goods that are being

manufactured here. To what extent is is

that true?

That's

that's true. So when an investor looks

at this opportunity, they don't you one

shouldn't think of it as, oh, we're

going to start making more steel and

we're going to make a lot more chemicals

and a lot more clothing here. That's

that's not happening. And what's what is

happening and and you can see it in the

numbers. Again, this is not just Chris

Seing this. This is this is in the

census numbers um in the St. Louis Fed

numbers from uh April's industrial

production. Things like um

communications

equipment, electrical equipment,

semiconductors,

even chemicals um and utility equipment.

So uh this this is where the US excels

and where we have some of the well we

have some of the global champions in

terms of in terms of utilities

electrical semiconductor companies um

and yes I you don't think and I agree

with the notion that you know we're not

going to bring all this what I call a

commodity centric equipment back to the

US from lower cost parts of the world

And and and before you ask it, and I

know it's coming, someone's going to

say, "Yeah, but you know, where are all

the manufacturing jobs?" So, we lost 7

million manufacturing jobs over the last

15 years. I don't see manufacturing jobs

coming back. News flash, guys, that's

not coming back. Okay? But what is

coming back is manufacturing. What is

coming back is industrial production.

It's, you know, it's there in the

numbers. Uh, and the way we're going to

get there, we being the US, is through

automation and through equipment that

improves efficiency. And that's where

the investment opportunity is. The

investment opportunity isn't in

infrastructure, roads, tunnels. That was

kind of re-industrialization

a few chapters ago. But where we are now

is we've built facilities, we've built

production centers, and you see that. Um

and I think over the next few years

those factories will be kitted out and

equipment will be put into those

factories and a lot of that equipment

will be um whether it's you know

companies that are benefiting like

Rockwell Emerson Machine Vision like

Cognex all these companies that make if

you go inside a factory like I do every

month when I visit our companies if you

go and look inside what the equipment is

anything that's automation and

efficiency related that's where the

investment opportunity is because no,

we're not going to get 7 million jobs

that we lost due to globalization back

again. It's not happening.

>> So, you brought up a couple of sectors

that I would say are deeply tied in with

the AI capex spend. And so, my question

would be to what extent are these themes

linked? How much of the the industrial

production growth that we're seeing

right now can you try draw a direct line

to semiconductors AI data center

buildouts versus not not that this that

isn't secular or and and sustainable but

to to other trends that that might not

have that AI capex risk.

>> Yeah. Got it. I I this drives me nuts

because you know there is this notion

out there and and I see it every day and

and my incomings are all about space and

AI. Look, the reindustrialization

um investment opportunity is is is built

on on just again um it I mean just to

answer your question directly AI

currently is 67% of power consumption

here in the US of electrical cons power

consumption manufacturing is 26% of

electricity consumption here in the US

so yeah AI is important but it's still

small is it growing quickly Yes, but the

real driver of of of of power

consumption here in the US and and then

this sort of segus into the adjacency of

electrification

is is manufacturing. Um, and you know,

it's it's the driver. AI is important.

It's in the headlines every day, but

it's still very small.

>> I want to shift a little bit here to

finding the winners, right? It's great

to recognize these economic trends, but

at the end of the day, we're we're in

the business of investing and the

question is who's going to benefit? How

do you keep track of um this flowing

through to companies, you know, top and

bottom lines? I I characterized the

investment opportunity this way, which

is um

if we go back five years or so, the the

opportunity was we're building more

roads, building more bridges, and

infrastructure was kind of stage one.

And now, as I said, we're entering a

different stage. in that different stage

is you know we've built all these big

things um and structures and we've built

the outside walls of factories if you

will to oversimplify it but as I said

now we're going to put things inside

these factories and in many cases we

haven't the you know the US it hasn't

started producing things yet we've built

the facilities to produce and as we

start to fill out those factories I

think the biggest investment

opportunities as I said um the single

largest investment opportunities will be

in equipment. So any type of equipment

that is used to make stuff and whether

it be um fasteners made by fastenol um

pneumatics made by Parker Hannifin um uh

Ingresol Ram that makes anything that

goes anything that gets moved in a

factory um is moved via a ball bearing.

It's moved by fluid i.e. pneumatics. Uh

it's either vacuum or pumped. That's

stuff that Ingresol makes, um Parker

Hannneathan makes, Fastenol. These these

businesses that I've mentioned are some

of the most well-managed

business companies full stop the end in

the country in the world for that

matter. And and what I think investors

need to realize is that the

reindustrialization investment

opportunity here is both um cyclical. it

is. I'm not saying that cycles don't

exist anymore. I think they do. But I

think we also have a secular driver here

that we didn't have 10 years ago. And

the secular driver is what I've just

mentioned, which is I think that the US

now has entered a stage where where, you

know, either through be, you know,

having the option to make here through

being financially supported by the Biden

administration or through the Trump

administration, which has basically just

hit people over the head and said, "You

have to make things here." Um we've had

you know this is industrial stocks are

now confronted with secular cyclical

this the cyclical part has only

is has only emerged in the last three

months I mean and if you look at sort of

everyone's gold standard gauge of you

know of manufacturing

um is the ISM purchasing manner ser

survey which I'm sure all your your

audience knows um but the ISM PMI survey

just just reached above 50 for the last

over you know in in the last three

months and that's after three

consecutive years of sub50s. What does

sub50 means? The score of sub50 is

contraction. It's the longest

contraction that the US manufacturing

sector has had has experienced in the

record of the entire survey. It's the

longest construction period in the

survey, three straight years, and we are

only three to four months into into um

into a recovery. And and I've spoken to

a number of businesses in the last three

weeks before the quarter closes and

demand is still shaping up well. So, so

inside the factory walls, any company

that makes anything to do with

automation, ball bearings, um pumps,

pneumatics, um all of these kind of call

them like really rudimentary products

that that help businesses manufacture

things more efficiently. and and that's

where that's where I as an investor who

manages you know our US manufacturing

reassuring fund that's where I'm looking

and that's where that's where I'm

invested even you know even Caterpillar

just to take that name again I mean

Caterpillar is essentially three

businesses under one roof it's it's it's

um construction equipment all the yellow

equipment that that everyone sees out

there uh it's resource industries which

is all the equipment they make for mines

and it's power and energy which is which

is their um generator business. So um

over the last four years the resource

industries and construction equipment

has essentially not grown and what

Caterpillar has survived on is demand

for its power for for its energy you

know for its reciprocating engines for

its gas turbines which are being used

for backup power of course now being

used for primary power as well. But that

business last quarter you've seen all

three divisions grow. You saw

construction industries grow the all the

yellow equipment. You saw resource

industries have an order backlog growth

that it hasn't seen since 2012.

And and and the power and energy

business continues to rock and roll. So

all three cylinders within Caterpillar

are now are now working. And um and so

again, you know, these companies are

these are these are businesses that as I

said, the cycle's there. I think what

we're going to be confronted with is a

much more much more protracted cycle now

and that's as I said going to be

supported by this secular

demand driver for industrial businesses

in the US as I said to to to make more

things here and as I said the US is the

epicenter for incremental capital for

the in amount of dollar of capital being

spent. It makes me think about

sequencing, right? So, you said the the

infrastructure, the sort of pure

infrastructure, that was a that was an

earlier phase. Now, we're talking about

manufacturing equipment. And I guess my

question would be, is there how do you

think about the way that this is going

to go over time? And is there a point in

time when the people who are the buyers

of this equipment who are then

manufacturing the the more endofthe-line

goods become the play as as they reap

the benefits of the efficiencies of

these machines?

>> US manufacturing has essentially been in

a recession for three straight years and

and investors just are not aware of that

and and we have only just emerged now.

You know we are now seeing Caterpillar

talk about reaceleration of order books

for construction equipment. We have seen

some of the largest distributors of m of

of equipment factory equipment here in

the US start to talk about order growth.

Um companies like Gates which makes

belts and chains and drives that go

inside a factory. They have started to

say that as the year has started we are

starting to see a pickup in orders after

three and a half years of stagnation. Um

and and and and so the cycle is is

really um put the infrastructure in

place first. Um because we can't move

goods around the the country unless we

actually have an infrastructure that can

get them from point A to point B. That's

done. So infrastructure is over. Um if

you look at the IJA like 70% of the IGA

which was Biden's big you know open

checkbook to basically subsidize um

large infrastructure projects 70% of

that has been committed. So not saying

it's done entirely but that's largely

done. What's happened now is that we've

started to build more factories. Um, we

see that in the non-residential

construction numbers which are continue

to kind of operate at all-time highs and

the structures are up and now you know

that in some cases still being built um

and now we're getting to a point where

as I said those structures are going to

be filled with equipment and and that

equipment as I said is everything from

is is all this call it say it this way

the the real investment opportunity now

in where we are is short cycle. So all

of this sort of ball bearings, all um

lubrication systems, all this kind of

really um call it unexciting rudimentary

products, okay, that people don't really

think much about, but frankly speaking,

like filters, filters that go into

anything around a factory requires a

filter because liquid needs to be

filtered, air needs to be filtered, gas

needs to be filtered. You know, Parker

Hannneathan is just recently made an

acquisition of Filtration Group. It's

now the largest filter comp filter maker

in the world. I don't know if anyone has

gone into a Home Depot or a Lowe's and

taken a look at like filters that you

buy for your air conditioning system,

but they're they theyigh next to

nothing. They look like a piece of paper

and they charge you like 40 bucks for

those things. So, the margin on

industrial filters is essentially a

license to print money. So, you know,

I'm trying to put that example out there

because these are critical components to

the inner workings of a factory. Uh and

these critical components are very high

margin products where US companies like

Parker, like Fastenol um um you know

have have uh like Ingresol have very

high or are global leaders in these

products and and again these are

products these are companies that as I

said you know these are these are

products that have revenue have earnings

have cash flow have great managements

they buy their stock back they even have

dividends. So again point is out there

that you know while everyone is trying

to chase you know hyperscaler

semiconductor companies space companies

there is an enormous investment

opportunity happening right now

underneath everyone's nose that involves

just basic US industrial

champions that are businesses that have

essentially been off the radar for for

in many in some cases 5 to 10 years and

and and so again I kind of like zoom out

here. You know what's happened over the

last four years in the industrial

manufacturing space in the US is that

there have been

some very large headwinds and it started

as we emerged out of COVID we had supply

chain shock right where there just

wasn't enough of things. So when

companies ordered if they if they needed

a hundred the purchasing manager ordered

a thousand because he thought they or

she thought they would get cut back. So

the trouble is that the US supply chain

adapted much more quickly than people

expected it to. So this purchasing

manager who ordered a thousand items

thinking they got a hundred walked into

work one day looked at the loading

platform and saw a thousand on the

platform and said holy crap. And so what

does that mean? What does that mean? Is

that you don't reorder right away. It

means that you have to work off those

thousand items that you overordered for.

And that sort of that that's that issue

really plagued US manufacturing for the

last 36 months. And that's that's called

detocking. So, so the supply chain

shortage morphed into over supply for

mostly a lot of short cycle things like

bearings, fasteners, pumps, um,

pneumatics and there was a lot of that

sitting on the shelf that had to get

worked off over and that took

essentially three years to work down

those those high inventories. We're done

with that now. I've spoken to a number

of companies in the US manufacturing

space. I've spoken to all the largest

manufacturing distributors. So, you

know, if you're not Caterpillar or

you're not GM and you're a manufacturer,

you generally don't order all your

inside factory stuff from the maker of

the factory stuff. You order it from a

distributor. So, you order bearings from

there are a couple very large um factory

equipment distributors in the US. We own

one of them called Applied Industrial

Tech. Um and and and those those that

reordering just essentially never

happened. and it it finally that the

stocking came to an end this year. Now,

layer on top of that, what were some of

the other issues that the the

manufacturing sector had over the last

couple of years? Um, higher for longer

interest rates. So, if you're a project,

if you're a co CFO, CO and you're you're

about to greenlight a project and you

have no sense of what interest rates are

going to do going forward because

they're continue to creep higher, you're

generally going to not greenlight a

project. You're going to wait. Um, so

rates have been higher for longer. That

has cast a fog over the industrial

space. Detocking has cast a fog over the

industrial space. The big elephant in

the room is tariffs. So throughout

basically the last two years, Trump

tariffs have essentially changed on a

monthly basis. So if you're a COO of a

manufacturing business about to launch a

new project, your head is spinning

because every day tariffs changed. What

did that mean? it meant you just delayed

your decision to expand your or or build

your new factory here um in the US. So

um but what's happened over the last 6

months is that tariffs are still here. I

mean they haven't gone away and we can

talk about that. Um but tariffs most

companies understand how to manage

tariffs now. Um and what does that mean?

Here's what it means. It means um we

absorb some of the price increases that

tariffs cause and you and I absorbed the

other price increase that tariffs

caused. So manufacturers have absorbed

it and they've put through price

increases over the last year and a half.

So tariffs I think are no longer at

least with companies that I speak to,

they don't really mention tariffs

anymore as being this sort of bogey out

there that is preventing them from doing

anything. So as I said, you know, we can

talk about interest rates where they're

going. Are they going to go

substantially higher? We can. I don't

think so. And I think longer term, as

long as we have the current president

that we do, I think there's going to be

a general desire to see rates go lower.

So, we have lower rates, tariffs are

more manageable, detocking is over, and

and these these are really these have

been big big kind of impediments to the

manufacturing sector over the last three

years. and and we're now kind of just

emerging out of that fog. And we see it

in the first quarter numbers. We see

order books starting to pick up for all

short cycle equipment. And that's where

all this equipment that factories use to

make things. That's the investment

opportunity and that's where that's

where that's where the fund at least

that I'm managing that's what I'm that's

what I'm focused on going forward for

our investors. Well, it's interesting

you talk about this this uh

manufacturing recession, but at the same

time, the performance of the fund kept

up broadly speaking with the market over

that period. So, these companies were

still performing well compared to the

the investable universe that most people

are looking at. And in the last 6

months, we've seen the acceleration. So

what you're talking about from a

fundamental and economic perspective is

playing out clearly in the price but

they have maintained strength during

that um during that period. So what can

you attribute the the the strength to?

Obviously you have the pickup in the

order books now but in that period where

you said things weren't as rosy why were

these companies able to uh generate

returns for investors? If you're a

manufacturer, the closer you were or are

to large projects over the last three

years, the better your business has

been. So, as I said, all these

infrastructure projects, the closer you

were to those type of projects as a

supplier, the better your business was.

If you if you weren't close, if you were

a small or medium-sized company, for

example, you know, generally large

projects have managers on them who like

to do business with large suppliers,

whether it's a construction company,

whether it's, you know, providing

electrical equipment. They're not going

to small medium-sized industrial

businesses to support, you know,

multi-billion dollar um factories or

multi-billion dollar highways, etc.

They're going to large large cap

businesses. Now what I think you have to

be careful with when you look at at

performance of stocks over the last few

years is that the one this one single

part of the industrial space that has

worked well

uh is aerospace and defense. And if you

if you look at the XLI for example, if

you look at a passive index of

industrial stocks, the XLI is is full of

aerospace and defense companies. The

aerospace and defense industry has grown

uh by leaps and bounds for the last five

years and is still growing. The issue

with aerospace and defense stocks within

the industrial space as a whole indust

uh aerospace and defense companies are

enormously expensive on valuation. So

this this idea for example Parker has a

portion of his business that's aerospace

and defense but it's it's it's only it's

30%. Um uh Eaton has Eaton which is the

largest maker of electrical um equipment

in in in the world um um medium and low

voltage has a portion of this business

which is aerospace and defense. Um but

again it's it's it's under it's under

30%. So, so some of these businesses,

industrial businesses that have exposure

to um number one large projects and

number two aerospace and defense have

have done have done well. But I'm saying

that's not where the opportunity is for

an investor. The opportunity is to is to

basically avoid those. And that's you

know in our fund I'm doing is I'm saying

look aerospace and defense stocks they

are trading at all-time high valuations.

um EPC companies so engineering you know

uh and procurement companies call them

you know industrial construction

companies like um like you know flu or

primorus there's a whole cottage

industry of of construction companies

listed in the US they have generally

been licenses to lose money but given

the demand for industrial construction

over the last few years these stocks

have all made all-time highs they have

never been higher in terms of valuation

and they have terrible track records for

creating shareholders value, but they've

been in the right place at the right

time. So, the valuations within the

industrial space of aerospace and

defense stocks and construction stocks,

um, you know, those stocks have

performed well, but have what I think

are are are overvalued in terms of in

terms of their multiples based on their

future earnings potential. And you have

this whole cater of other businesses

that have essentially been left behind

over the last three to five years. And

as I said that's with inside the factory

walls and these are shorter cycle. So

the short cycle parts of the industrial

space these are stocks that are lower in

terms of multiple and are also um

troughing in terms of their earnings. So

you know what is that that's that's um

as as Trump would say that's a beautiful

thing. You know it's to an investor if

you can buy trough earnings on a trough

multiple show me that every day. And

that's where we've positioned uh that's

where I positioned our our US

manufacturing.

>> And and let's talk about multiples a

little bit. What are the multiples you

like to use for industrials and and the

as you said, you know, these these are

still cyclical businesses. Oftent times

with with cyclical businesses, there's

they look the most expensive uh when

they're cheap and they look the cheapest

when they're expensive. And so I I

wonder how you think about the sector

through that lens. I'll answer that

question first with our new

manufacturing stocks and second with

electrical. So, u manufacturing

um one cannot look at fiscal year 1 or

fiscal year 2 EPS numbers uh and and

construct a valuation off that because

we are operating in most short cycle

businesses businesses you know haven't

grown earnings for the last few years.

So you have to basically do the homework

and and that's why I that's what I'm

here to do is I'm here to look at these

companies say what is the earnings

potential of this business if if this

sort of cycle starts to recover again

now that detocking is over now that

interest rates are probably going lower

now that you know now that now that

tariffs are kind of out of the way you

know we haven't even talked about the

big beautiful bill but that's also going

to kick in as a positive so my view is

to sit here and say what is the earnings

power of a ball bearing company like

Timkin three, four years down the road.

And that's what the investment community

isn't doing right now because when you

ask anybody on the sell side or even on

the buy side and you talk to them about

a ball bearing company, they don't even

want to talk to you because they're

like, "Yeah, now that's a boring world

industry. Hasn't grown in the last few

years." Well, news flash guys, like

their order books have just started to

recover in the last couple of quarters

and these are cheap stocks and these are

companies

um that have really strong balance

sheets. And what have they done over the

last three to four years? the businesses

that haven't had revenue growth and have

had order stagnation, what they've done

is gone back through their businesses

and focused on efficiency uh and cut

costs and and reduced footprint of of

their production facilities. So these

companies short cycle businesses are

emerging leaner and meaner than when

they kind of went in through this

detocking and and and high interest rate

period and and you know have comm

confronted with all these sort of macro

headwinds like tariffs. they have used

the last few years to get more efficient

and I think when you start layering in

uh a revenue growth incremental positive

revenue and a as orders pick up and they

have in the last three or four months I

think these short cycle businesses are

poised to actually over earn because

they have cost bases which they've

worked on over the last few years I mean

Gates's you know Gates the symbols gees

it's it's it's a poster child for this

for for what I've just outlined Gates

has has you know, reduced the

manufacturing footprint. They've cut um

SKUs. Timkin has done the same thing

like these businesses are are are are

lean and mean now and ready to exploit a

pickup in sales. Um and and yeah, that's

you know, this these are investment

opportunities out there. I also will

look at DCF. So um you know again don't

look when you look at a short cycle

business don't look at near-term

earnings because near-term earnings are

a reflection you know it's a bias of

investors what they've gone through over

the last few years which is this period

of as I've talked about which is you

know they've had some real headwinds

that are now that are now past us. So

you have to build an earnings model that

involves not thinking about okay you

know what would this company look like

last cycle. A lot of these businesses

over the last five years in the

industrial space and short cycle are

very different now than they were five

years ago um and are leaner and meaner.

And so you have to kind of what I do is

I look at actual what I think the

earnings can be going forward. You know

I don't invest on consensus. I mean

that's just you know consensus is

nonsense. I mean, if you're going to pay

someone an active fee to manage your

investments, okay, and they talk to the

and they tell you about they're using

consensus, fire them, okay, you pay an

active manager to build an earnings case

that is is something that is unique to

what they view as an investment and

that's what I do. But we also

triangulate things with like simple

DCFs. Uh we use price to cash flow, we

use PE historical, PE relative. Um, I'm

not I'm not, you know, I'm not a single

lens person when in terms valuation

because, you know, over my 25 years of

of of being in this gig of a fund

manager, I've learned that there's more

than one way to skin a cat in terms of

how to value a stock. And, you know,

generally if you use one approach, um,

yeah, you're you're going to miss

things. Well, it sounds to me like it is

that classical scenario where if you are

using trailing valuations and you're

just extrapolating that the the sales

and earnings are going to be the same,

they look expensive. But what you're

saying is that that that we are entering

this period where expensive becomes

cheap because you're entering an

inflection point in in sales and

earnings.

>> Yes, for sure. I mean, you know, we we

and and and I think that's where the

street, you know, and um you know, there

are some excellent analysts on the

street. Don't don't take this message

the wrong way but uh you know the people

on the street and and I think just

investors at large even on the buy side

you know have have just essentially been

trained to focus on on

you know the big growth numbers whether

it's you know hypers scale stocks AI all

the current like themes that are

centrally in the headlines every day or

space um and and the real and again the

real investment opportunity here there's

another one and again as I said it is in

kind of you know nuts and bolts type

manufacturing

um equipment businesses and and people

think yeah that's kind of boring stuff

but I mean look I mean year to date

there have been multi there are

multi-industrial stocks and and I don't

know if it's we can mention names here

but like there are several stocks that

are up 30 40 50% just this year okay I

mean Parker Hannifan which you

You know, GE used to be, I think, kind

of seen as the gold standard for

manufacturing champions in the world.

Parker Hannneathan has probably taken

their place. I mean, Parker, that stock

has tripled over the last, I think,

three, four years. So, investors think

it's cheap.

>> I still think Parker's cheap. They have

a whole new business. As I said, they

bought Filtration Group, which I don't

think they closed on it yet, but I think

they are about to. And when and when the

company has an opportunity to talk about

this new leg of their business, which is

industrial filters, as I said, making an

making and selling an industrial filter

is essentially a license to print money.

And and it's it's again one of those

industries you don't think much about,

but every industrial or manufacturing

process requires using a filter because

you can't use dirty air, you can't use

dirty oil, dirty water, all that stuff

needs filtering. Um the US is entering

is entering and and you know a

manufacturing renaissance and I you know

I hate to use that word but like it is I

mean this whole notion of ingenuity is

is is emerging here in the US. I mean

honestly you know I trying to resist it

but the whole SpaceX mention I mean

SpaceX is some ways an adjacent sort of

to this US ingenuity thing. Um and that

sort of mindset is is is growing here in

the US is where again if you are a

foreign company you you have to make

here. So companies like ABB like large

industrial electrification businesses

everything ABB sells in the US is made

here you know whether it's in Wisconsin

they've invested5 billion dollars in the

US over the last few years. Um so you

have to make it here. Um you know and

tariffs tariffs you know tariffs have

not gone away. Um you know the AIPAS

were were declared invalid by the

Supreme Court but the current

administration has you know they still

have the 232s. They still put in the

122s and there's the 338s and you know

that's a whole another you know episode.

But you know tariffs what have what are

tariffs? like tariffs. What tariffs have

done has literally driven incremental

capital investment back to the US.

That's what it's done. Why? Because

essentially what a tariffs do, they make

prices higher because that's how

companies deal with tariffs. They just

increase prices and they absorb some of

the cost which is what manufacturing

companies have also done. Higher. What

if you're a manufacturer of something?

Where do you want to sell? In the part

of the world where prices are highest.

The US is essentially that place right

now because tariffs have made prices

higher. The only way to access that

market of high prices to sell your stuff

is to make it right here on shore. So

you know this, as I said,

re-industrialization has sort of left

the headlines and manufacturing has left

the headlines because of high rates,

because of stocking, because of tariffs.

Um but those those those headwinds have

now have now moved past us and and some

investors are recognizing that and and

you know electrification is same issue.

I mean you know both rein both

manufacturing and and and in and power

they're both investment opportunities

that that have surfaced because the US

has neglected number one its

manufacturing footprint over the last 20

years. And when did that start? That

started when China entered WTO. That's

basically the firing gun. So when China

came into WTO, basically all US

manufacturing went offshore. That's

stopped. That's not happening. Is never

going back to that again. In terms of

electrification, we've had two two and a

half decades of no demand for power.

Okay? So we haven't built new

transmission. We haven't built new

distribution. We haven't built new

generation.

we've had just there's no reason to

invest in our on our electrical

infrastructure and all of a sudden we

wake up one day and we have

manufacturing like I said that's 26% of

power consumption we have these new

things called data centers um we have

transportation which I still think will

electrify and we have electrification of

everything so what is electrification of

everything it's sort of catchall for you

know it's about to get really hot this

summer you're going to turn on your HVAC

a lot more you're going to you know we

all just use more electrification for

everything. So these, you know,

electrification isn't a data center

story and it that's so frustrating. It's

it's just an overall,

you know, wave of demand for power. Just

like in the US, we have an overall wave

of capital investment into into

factories and production, industrial

production because because we haven't

built anything for the last two to three

decades. And so this sort of neglect of

our industrial and the neglect of our

power footprint, that's where the

investment opportunity is here. And and

you don't need to buy,

you know, lossmaking businesses as an

investor to get really strong returns

from either one of these. I mean, in the

industrial sector, these are, you know,

Gates, Ingresol, Parker, um, you know,

CAP, these are extraordinarily

well-managed businesses that have

enormous cash flow. Um, you know, same

thing in electrification. You don't need

to go out and buy lossmaking nuclear

companies. You can just go out and buy

Eaton. You know, they make everything

from the grid straight down to the chip

inside the data center. Like that's like

they are one-stop shop for anything

electrification. Like these are real

businesses that are here today with

great managements, great cash flow,

great earnings and and as an investor.

Yeah. As I said, you don't need to go

out and find,

you know, the new new thing like what's

the new I mean get that all the time

like what's the new Eaton? What's the

next Vernova? The next Vernova is

Vernova. Okay. And the and the new eaten

and what's what's after eaten? well

eaten because these larger companies are

going to continue to dominate the space

and I'm not saying that there aren't

small and medium cap businesses in here

that that investor can there are and and

I own some of them um you know and

they're very unique um but again as I

said and I me only mentioning this

because you don't you know you can get

very solid returns as an investor and

not have to take massive risk to take

advantage of both of these

Yeah, you know, investors have been uh

constantly searching for bottlenecks,

right? What's the next bottleneck stock

in these in these supply chain buildouts

and and a lot of times the commentary is

is moving down and down the market cap

levels into higher risk companies. Some

of them might have profits, you know,

recent profits. Some of them are are

completely unprofitable. Some of them

are even pre-revenue. Um, and so you're

saying you don't need to go there to get

exposure to this electrification theme.

>> No,

>> let's let's shift our focus to that

electrification theme. And and you said

it's not just data centers. And

>> and a lot of people have talked about

the the lack of investment in the grid.

This to me seems much more like the

revitalization.

>> And just before you leave the

re-industrialization, I mean, we didn't

I didn't get a chance to talk about the

whole humanoid thing. I know and I again

I'm out there seeing companies every day

you know the whole humanoid thing is

coming like in a couple of years time

it's coming okay and all the things that

humanoids you know robots all this you

know everything talks about we don't

have enough manufacturing jobs and yeah

we don't and all of that's going to be

so how do you address the fact that we

don't have all these manufacturing jobs

that's you know that's through

automation and and through um you know

equip equipment effic equipment that

helps you increase efficiency. So the

whole humanoid thing is early, but when

I speak to companies that are in the

supply chain, they say it's going to

come a lot sooner than people think it

is. And you know, think things like um

micro bearings, micro motors, actuators,

like all the things that make a robot

articulate. Like there's an enormous

supply chain out there. And there are

some really com big companies that that

don't talk about it but are currently

supplying into the humanoid um

opportunity as well. And you talk about

like things like Timkin. They make all

the actuators that go into robots. Like

anything that articulates a hand, a

foot, a Lego, anything like that all

needs an actuator. And there are very

few companies in the US that make

actuators in the world frankly. Um, you

know, and and

>> again, you're saying you don't need to

own a recently despbacked subbillion

dollar company with a couple

and I will answer your question about

electrification, but this whole thing

about like the re-industrialization, I

think it's real short strip and you know

what is one of the biggest ways to play

the whole to invest in the whole

humanoid space? There's a company called

TX. What does TX do? They make um they

make garbage trucks. They make rock

crushing equipment. Um they make all the

lift trucks that utility companies use

to work on power lines. Um and and and

and they make they also own the Genie

brand. So all those lifts are used

inside outsized factory. So what is

Terrace? Also the largest investor in

Appronic. What's Appronic? It's the

biggest kind of like skunk works for um

development of humanoids. So um they are

one of the largest investors who also

became the largest investor intronic

that um Google did. So you know there

are a lot of ways to kind of invest in

these sort of you know okay fine let's

talk about AI I really don't want to but

how does AI work? It needs physical

there needs to be a physical component

for AI to work in a production process.

So what does that mean? That means as I

said um any automation it means things

like machine vision which is cogn. So AI

needs a physical layer and the physical

layer is all this stuff that is used in

the manufacturing process. call it yeah

it's physical AI pro you know equipment

and and so that's that's another big

place that's another investment

opportunity I think investors look at

and as I said there are some really

unusual places to find that and TX is

one of them um Timkin is one of them

they make the whole supply chain for

humanoids you know that's coming um as I

said manufacturing jobs look I mean I

live in a part of the country where you

know you know every spring people put

the sign on their front lawn that says

you know Jimmy or Sally just gra you

know is just graduated from high school

and is going on to, you know, Harvard to

Yale. Nobody puts a sign in their front

yard saying, "My son's going to go on to

work on a factory line or become a

electrical utility line worker." Okay,

we're we are not getting those jobs

back. All those 7 million jobs,

that's not going to come back. And

that's not where an investor should look

to find validation for

re-industrialization. where you look to

find a validation re-industrialization

is simply is simply you know um the fact

that we are we've made more

infrastructure we've made more factories

and now we're about to fit them out now

moving on to electrification same issue

I mean the US has neglected its um power

generating and its transmission

distribution footprint for for over

three decades why I mean frankly

speaking and I speak to all the

electrical equipment and all the utility

companies it's is bad management. I

mean, utility companies have neglected

their infrastructure. Um, and now we're

seeing enormous um amounts of money pour

into pour into um you know, utility

equipment around the country. Um

and and you know that equipment you know

is again we just don't have it's you

can't make it fast enough. Um and that

you know the the demand for power which

has been 0 to minus one for the last two

and a half decades is now anywhere from

2 to four. I've seen numbers from the uh

energy information agency that are

saying that the number could be um you

know 3 to five going forward. So we've

had this massive inflection from nothing

to call it tripling. I know that we talk

about numbers like two three four 5% it

doesn't sound like much but when it

hasn't grown for the last couple of

decade that ends up being a pretty big

number. So that demand for power as I

said is not a data center. It is a data

center thing but it's not singularly a

data center thing. Manufacturing is

triple or almost 4x the size of power

consumption that data centers currently

use in the US. Transportation we can

talk about like I you know what I own a

you know I own a 2008 Corvette so I'm a

big fan of you know combustion engines.

Um but transportation is going to go all

electrical. it will um and and as I said

IoT these are drivers out there of

electrification it's not just data

center and I I you know the issue with

electrification is we can order all the

turbines from Vernova and Zemens and

Hitachi can order all the turbines that

we want and we can get Caterpillar to

put all the reciprocating engines and

CCGT turbines um you know on utility

campuses or behind the meter which is

the whole idea where companies who need

power now don't go on grid they're just

going to put generators in the parking

lot. Um, you know, all of that all of

that demand out there once it finally

comes online

cannot be supported by the current

electrical grid that we that we have

here in the US. So you

>> behind the meter is not enough to make

up for the the burden we're going to

have on the grid. So, so and behind the

meter was like the cool kid on the block

for like the last 12 months and that's

all people wanted to talk about. I kind

of thought it was interesting and I was

sort of putting one foot in the boat and

thinking it was but in the last sort of

four to five months.

I think behind the meter is nonsense. I

actually think and and this is after

speaking to the hyperscalers. I just got

done. You know, I was just out at the EI

conference. Edison Electric Institute is

basically like the US utility industries

think tank and they do a conference

every year. It's it's like the high

school prom for utility managements. Um

they all get together once a year and

you know um anyway so but I I go to that

conference and I speak to managements.

Um behind the meter,

you know what does that mean? Behind a

meter means that if you need power and

you need it to today, you call the

utility company. They said, "Okay, fine.

We understand. You're on the list. We'll

connect you in seven years." So, you're

like, "Oh, okay. I need power sooner

than that, guys. I can't wait seven

years to get on the grid." So, what do

you do? You call up, you know, you call

up Verova. And Vernova says, "Okay, we

put an order for a turbine. You know, we

want to see um we want to see that you

have it permitted. We want to see that

you have an installer and oh, by the

way, we want 25% down a down payment."

and you're like, "Okay, fine. I'll I'll

comply." Oh, by the way, you put in the

order today, we'll give it to you

sometime in 2031. So, okay, you can't

get power there. So, now what do you do?

You go to someone like Caterpillar and

say, "Guys, I know you make large

engines for construction equipment, but

you also make power engines that can

sit, you know, on a platform and

generate power." whether it's a

reciprocating engine that is fueled by

you know gas um or whether it's a CCGT

which is combined cycle which is a

turbine that essentially it's like an

aircraft engine so you go to Caterpillar

and they say okay you know we'll give

that to you you put that on your site

you power your factory the trouble is

what if that goes down you need another

backup to that so what the trouble is is

that the cheapest way for a company a

large load and large load is sort like

the buzzword for a for a a data center

or a factory. The cheapest way for a

factory or data center to get power is

to connect to the grid. Um and um the

most expensive way to get power is to is

to build behind the meter be that's just

it's just more costly.

Um so what large load companies do

whether it's Google Meta um or any large

industrial company in the US um they

want to get on grid first and then they

want to have backup power. So, you know,

the whole behind the meter, I think, was

sort of in theory um interesting, but

the trouble is it's very expensive

because even though you put a generator

out in the parking lot, you still need

to buy another generator to back it up.

And that generator is very, very

expensive, much more expensive than

connecting the grid. So hyperscalers and

large load factories the the primary in

the primary initiative is to get

connected to the grid eventually. Uh but

in you know in the near term if they

have to you know if they have to have

power today you know they might try to

go behind the meter but every company I

speak to says we want to be on grid. So

you know we've seen some very large

behind the meter projects like the one

down in Abalene. Um, you know, there's

one out in Wisconsin and in in Laram in

Laram. Um, so there's three or four

large ones in the US that are, um,

underway, but, you know, they haven't

gotten remotely close to being

completed. So I think the momentum for

behind the meter which is you know

essentially bring your own power um in

theory sounded okay but um you know has

turned out to be um not not the first

port of call for anyone who needs power

today. The issue today you know where I

find the biggest opportunities for power

are you know broadly speaking if you

need power move out to Texas, move out

to the Midwest. You need to go to places

in the country where power is relatively

cheaper, where there's more affordable

land, where there's more affordable

labor, and these are, you know, in in

the in the electrification fund, we own

equipment as well as utilities, our

utility exposure is mostly in rural

parts of the US. in those you those

rural parts of the US whether it's Idaho

which recently got Micron as a customer

I mean if you look at like Icorp which

is the Idaho utility company and you

looked at their their their PowerPoint

you know their biggest customers were

like Idaho dairy and Chobani okay and

then if you look at over the last couple

of years you know you now see um Micron

as a customer you see Meta as a customer

so you know large loads which are

basically a buzzword for company that

needs a ton of power you rural parts of

the US is where the investment

opportunities are and you know look um

the utility of old like our parents

utilities these were the business model

was 3 to 5% earnings growth 3 to 4%

dividend yield and you kind of walked

off and said I've got 6% total return

the utility of today a regulated utility

of today is 8 to 9% EPS growth and 3 to

4% dividend yield so you're looking at

12 13% total return you might go yeah

but you know I see that you know you

just talked about 40% % returns, you

know, in other parts of, you know,

manufacturing or hypers scale companies.

The fact is utility companies now are

signing large load customers up for

15-year contracts. So that 8 to 9% div,

you know, EPS growth and the 3 to 4%

dividend yield, that's the duration of

that promise is now 10 years out for

some of these utility companies. I mean,

next era energy, you know, which is the

owner of Florida Power and Light and

also the owner of the largest power

development company in the US, like Next

just said 8 to 9% EPS growth plus 4%

dividend yield out to 2035. Like they

put that on a slide. Okay? So like if

you are an investor as I said you know

if you're going to put your kids through

school if you know 10 years down the

road you don't need to go out and buy

Oakllo or Nano or New Scale all these

like kind of revenueless profitless

businesses that basically use the word

framework all the time every time they

announce a contract framework which

means nothing like you can go out and

buy next which is one of the most well

capitalized they just b you know they

just made a run at Dominion you know

Dominion so next has just gone from good

to great because they just got access to

data center alley in on on in on the

east coast. I think the deal goes

through because I think CEO of Nextera,

you know, got, you know, kind of an

eyewink from the administration.

Um, you know, and the PJM grid network,

which is basically the whole

mid-Atlantic part of the US is suffering

right now from not enough power, you

know, and next era didn't have access to

that market, but will now that they're

acquiring Dominion. So, you know, I

think the administration has said, help

us fix this, you know. So the in the US

we have nine networks, nine grid

networks and the most densely populated

grid network in the US is something

called PJM. Um it's it's it's a mess

because they just didn't build enough

power. Um and power prices have gone up

10x in the last 24 months. So again,

this whole notion that electrification

is, you know, nonsense, like again, if

they don't listen to this presentation,

just go check the PJM power price

auction that happened 7 months ago where

power prices went up 10x

over a 12-month period. And that's price

capped. It would have gone up higher had

they not had the price caps in place.

price caps have caused there to be

little gener new generation made in this

large network in the US. So, you know,

they're short of power and um and and

then next just got access to it if they

you know, because Dominion is in the

PGM. Next isn't. Um but, you know, the

combined business now, I think, is

better than than it ever was previously

and you know, it's a holding in our

fund. Um but again you know again small

medium company small medium caps do do

play a role in the fund and and you know

I own a company called Powell you know

company called Belfuse and you know

these are these are these are smidcap

type names sub10 billion dollar market

cap companies these are pure plays on

very critical electrical pieces of

equipment whether it's industrial

circuit breakers so Powell just to give

you a quickie on run a driveby in Powell

their their end market was oil and gas

platforms where they sold circuit

breakers. Um um you know, fast forward

today, they're now confronted with not

only oil and gas as being a customer

base, and by the way, that that that

entry has been sort of suffering for the

last few years, but it is now beginning

to pick up. But Powell now serves

utility companies and for the first time

just announced a large data center last

quarter. So these small medium-sized

companies, you know, that we service or

that I service, these are businesses

that are evolving over time. You know

these are business that used to serve

equipment and make equipment for a

certain industry that is this equipment

is now in demand by new industries that

they haven't served in the past. And

Belus is the same thing. Belelfuse is

like a minianol. They make they make all

the equipment that protects and connects

um power sources. So all the connectors

um that's what Belelfuse does. They did

it for the defense industry but now

they're doing it for the industrial

sector. So there are a lot of small and

mediumsiz businesses that are finding

themselves kind of in the kind of like

at the you know at the epicenter of

demand for their products that you know

they hadn't seen historically because it

utility industry hasn't been a customer

or you know factory hasn't been a

customer but now they're their products

are finding new market. So um you know

the portfolio right now is about half

large cap and half half small medium.

Yeah, I I want to talk about what the

grid the future grid looks like. So,

right now, depending upon who you asked,

it's it's about 1.4 terowatts is is what

the the grid can produce right now. And

so, I guess looking out 5 10 years, what

do we need?

>> And then the the other question is what

are we going to get? Because there's

what we need and then there's what's

actually doable with the with all of the

regulation and and community push back.

Certainly there is push back to to some

of these data center projects and and

the effect that they're possibly going

to have on power prices for for everyday

consumers and and I think it's relevant

to talk a little bit about SpaceX here.

It was funny. People have been talking

about, oh, is it cheaper to do data

centers in space? And there was an

investor who said, guys, it's not about

whether it's cheaper. It's about that he

wants to put a terowatt that's, you

know, compare that to the to the the

grid of the United States. And and

there's no regulation in space, right?

So, if you need to build a terowatt of

power, where can you do it and not have

to deal with 50 state governments to get

all of this done? And so, you know, my

question is is we we clearly need more.

or are we going to get it?

>> The biggest impediment and I get people

say, "Oh, you know, Chris, I've you

know, I've missed the electrification

investment opportunity." And my my

answer is

you haven't.

um for several reasons is that the

biggest pinch point in terms of the

investment opportunity and for

electrification in the US is that we

simply we the US simply does not have

the resources necessary to um to

essentially rebuild generation and

rebuild grid. We just don't have the

skilled labor to do it fast. um this

won't you know it took two and a half

decades to essentially let our

manufacturing footprint fall into

tatters. It's taken two and a half to

three decades and let our infrastructure

for electrification basically fall into

tatters. I mean just step outside your

front door and look down the street and

see every utility pole that is like

hanging in one direction and the other

and ask yourself is this the kind of

infrastructure that is going to really

support the modern economy? like our

infrastructure in terms of

electrification is is is

crap and it needs to get fixed. It can't

get fixed overnight because we don't

have the skill set and labor source to

do it quickly. Um the other big pinch

point though is that the US needs uh

where I'm looking for future opportunity

in electrification is high voltage. The

US needs a mammoth amount of

reinvestment in high voltage and that

what's that? That's 765 KV. So most of

the high voltage basically, you know,

when you when you, you know, look

outside your car going down an

interstate or a highway or through, you

know, rural parts of the US, you see

those sort of 10 stories tall lines,

that's all that's all high voltage. So

high voltage power lines in the US is a

sort of cottage segment that is um that

is there are two companies exposed to

it. It's quant, which is basically the

designer and builder. there that and

they have the craft skilled labor. Um so

like you know if you're a contractor you

can raise your hand and say yeah we can

do that high voltage project. The issue

is

the virtually the only company that has

their own labor force where where where

they can bring people onto the job right

away and not subcontract is quantum. The

other big investment opportunity in high

voltage in the US is American Electric

Power which is one of the country's

largest utility companies. it's

regulated by A um which is the symbol

they have built like 85 to 90% of the

high voltage going around the US. So

there are some mammoth contracts and

I've confirmed this with other companies

that I've spoken to in the in the

utility and in the electric sector.

There are some mammoth high voltage

contracts that are going to get awarded

over the next couple of years and there

are and those are two companies that

investors can take a look at. Um so high

voltage is an issue. The grid at the

moment is you produce power in one place

and you send it to the end user in the

other place. It's one-dimensional. The

grid needs to get multi-dimensional.

Meaning, you know, if people on the West

Coast are, it's 3:00 a.m. in the morning

um and they're not using power, that

power needs to get back on grid and sent

to the other parts of the US that are

just waking up. So, our grid is not

built like that. The grid essentially

stopped getting modernized in the 1970s.

Okay. So how there's power available.

Okay. You know, um

>> it's not necessarily the the the

sticker, you know, the sticker number.

It's the efficiency that the grid

>> it's the Yeah. I tell my people, you

know, on our it's the grid, stupid.

That's the issue. Um the grid isn't

something where you can just dump tons

of power on it and hope people use it.

The grid is like, think of it like a

scale. It needs to be balanced. What

you're on, if you use a lot of power on

one side, you need to be careful that

you don't overuse. you need to have make

sure power is getting used on the other

side. So the grid is a balancing it's a

balance and and you can't just shove

tons of power onto a system because

you'll overload it and then the grid

fails. Uh and then you have to call, you

know, quant and they'll come out and fix

it and that helps Quant's earnings. But

um

data centers in space,

okay, when that data center and

satellite data center breaks down,

who's going to go fix it?

>> A humanoid.

>> A Tesla robot, of course. and then and

then the resuring fund, you know, will

will perform well because Timkin is

going to sell all the parts that go into

those humanoids. But look, um the issue

with

with electrification is again um the

grid is the biggest pinch point, not the

generation. I mean, yes, you have to

wait four years to get a gas turbine

from, you know, from Vernova or from

Zemen's or from, you know, um

>> FTA.

Okay, you know, right again, right

place, right time. There will be, you

know, there will be a time period. So,

look, if you're going to build a $4

billion data center, okay, you're not

calling up someone and say, you know

what, sell us a 20 year old, you know,

engine that just got pulled off the wing

of some, you know, 737. Like you're

going to call someone who says, "We can

give you a turbine

if your engineer walks into the data

center and smells something in the air

that he doesn't like

and we'll send a technician out there in

30 seconds to fix it." Okay, that's what

a customer who is building a large

factory or a data center needs. They

want to see 500 pages of documentation.

They want to see 500 pages of of use

case that shows the thing has a 99 point

and you know people are into this whole

39s 49.99

uptime. They don't want to go out and

buy some used aircraft engine that you

know has essentially flown across the

country 7,000 times. Okay, that that

might be a product where a small and

medium size factory will take a chance

on, but you need documentation, you need

uptime guarantees, you need a company

that will service it. Okay? And you

know, with Verova, honestly, the most

underappreciated component of the

Vernova business is not that they have

an 87 billion equipment backlog. It's

that they have an $80 billion service

backlog. Okay? So, every one of those

turbine comes with a 10-year service

agreement.

So, so the duration of the investment

opportunity in electrification

is growing in terms of scale. Number

one, the projects are getting bigger in

terms of gigawatts needed and the

duration of the projects is getting

longer. Meaning that the utility

companies used to sign seven, eight,

nine year,

you know, supply agreements to a

factory. Um, you know, Amazon just

signed with Nysource, which is the, you

know, big Indiana utility. They just

signed up for 15-year contract. So, the

duration of the earnings growth for

regulated utilities

just gets longer. Okay? And and the

capex grows quarter after quarter. Um,

and the electrification opportunity, as

I said, won't get fixed overnight

because we just don't have the resources

to fix it because it's been neglected

for two and a half decades. Um, and

yeah, it it it's this is a long burn

investment opportunity where where the

earnings estimates for equipment

companies keep getting chased higher. I

mean, if you were in the if you sell

equipment into a data center, if you're

not growing 100%.

You're you're probably losing share. I

mean, you know, you looked at like Eaton

last quarter, they had 240% growth in

equipment that they sell into data

centers. Okay. Um like, so if you're not

growing rapidly, you're losing share. Um

and in reg, you know, you don't have to

go buy a merchant utility company.

Merchant utility companies are companies

that don't have end customers. They just

sell power to the highest bidder. Like

this would be like Talon, Vistra,

Constellation. These companies traded

close to Nvidia type multiples last

year. Now came crashing down. You know,

look, you sell an Electron's an

Electron. Whether you buy it from a

merchant company like Constellation or

you buy it from Nexta, it's the same

Electron. You know, we pay 20 times

earnings for Nexta or pay 35 times for

Constellation, who by the way hasn't

announced a new data center in like nine

months, you know, and Next Era has. I

mean, Nextera is basically Google's

go-to power developer. Um,

yeah, regular Cheetos are a great way

for investors to get access to the

electrification team without taking call

it value high valuation risk. But again,

there are small medium-sized businesses

out there that I think will change

dramatically over the next few years

because as I said, a company like Powell

that sells into oil and gas is now

selling to utilities and now selling to

data centers. like there's a whole

market opening up to that business that

will that will mean its earnings, you

know, will double or triple over the

next few years. I mean, even a company

like Caterpillar, I'm going back to

resuring for a minute. I mean, that

company earns five and a half bucks a

quarter. Okay? I I think Capital I think

Caterpillar I think that company's

capable of at least $10 a quarter by