00:01 Host
Yahoo Finance’s Market Madness has reached the final four stage. Today’s much anticipated matchup sees Alphabet taking on Walmart for a place in the final. Amazon lies in the wait after they took down McDonald’s Thursday on Market Catalyst.
00:20 Host
And we’ve got Joe Hegner back with us. He is the Astrazola Capital’s Chief Investment Officer joining me for Market Madness brought to you by Everpure. So let’s tackle Walmart first. Uh let’s go to the YFi Interactive. I have Walmart up about 40% over the last year.
00:41 Host
You can see kind of from the lower left to the upper right, although we’ve stalled out a bit over the last few months. Talk to us about Walmart.
00:54 Joe Hegner
Sure. So Walmart, of course, you know, everyone knows is a is a incredibly well-run business. Um, you know, I think in the last several months in particular, the the runup uh has largely been attributed to this a cyclical trade with with a lot of investment flows in dynamics towards businesses that are somewhat impervious to AI disruption.
01:28 Joe Hegner
So Goldman put a research piece out a month or so ago and I believe it went something along the lines of like heavy assets, low obsolescence, which effectively means
01:41 Host
Oh, yes.
01:41 Joe Hegner
Yeah, it’s so I mean Walmart’s a perfect example of something like that where
01:44 Host
Buy low, yes.
01:45 Joe Hegner
Exactly. And so, um there’s that, which is a is a major reason in my view why it’s been bid up to the extent that it has, but trading up here in excess of 40 times forward earnings, that’s a
02:00 Host
Not excited about that?
02:01 Joe Hegner
That’s that’s a high margin tech multiple, right? And that’s that’s not necessarily, you know, for a for a lower margin kind of brick and mortar business in in logistics business. Um that’s that’s very rich in my opinion. And I would actually look to maybe harvest gains in in a position like that at this at this stage.
02:20 Joe Hegner
Um but the other thing Walmart also has going for it, right, is we’re almost certainly going to get a more dramatic version of the existing theme via this K-shaped economy in the United States over the next handful of months. Um the disrupt the geopolitical um issues and disruption in energy prices, elevated energy. I was just in California a couple weeks ago.
02:40 Host
So was I.
02:41 Joe Hegner
It was $7 a gallon.
02:44 Host
I do remember that. Sticker shock.
02:46 Joe Hegner
You know and so it’s very difficult for me to to um be optimistic about the kind of the lower income consumer. It it’s already been quite a struggle since the pandemic from an inflationary standpoint and the price of price of goods, cost of goods, um at in the household. And Walmart is kind of the leading provider of of cost effective solutions to to that end. And so that really should, in our view, bolster demand on a going forward basis.
03:22 Host
All right, let’s talk about Alphabet. Go back to the YFi Interactive here. Another one-year chart and guess what? Google has doubled off of the lows here uh in late May and you know, recently it’s gone sideways, similar to Walmart, but over a longer period of time. Uh Alphabet kind of in what? Four month trading range? Let’s call that. So talk to us about what you like or don’t like about Alphabet.
03:49 Joe Hegner
Sure. Yeah. So so Alphabet is is I think a really misunderstood story, to to be honest with you. A lot of a lot of analysts focus exclusively on on Google search, right? Because that’s a big driver of their earnings and their cash flow profile. And in the early days of talking about AI disruption, inevitably Google search is going to be called into question because, you know, even my my grandfather uses Chat GPT and and now Gemini to answer what he would have otherwise.
04:19 Host
Yes.
04:20 Host
Fortunately, Google owns Gemini.
04:21 Joe Hegner
So yes. Exactly, exactly, right? And so the proliferation and the acceleration of Gemini, I think is net a huge win for Google. That was a must have. Um but I think more um advantageous to Google and this is less understood is they have an economic interest in just about every promising new technology, whether it be quantum computing, whether it be uh, you know, blockchain technologies. Google Ventures is a prolific investor. And when you’re buying in I mentioned Walmart trading in excess of 40 times earnings, Google’s trading at 27 times forward earnings, less than 30 times.
04:54 Host
Yeah.
04:57 Host
Mhm.
05:01 Host
And they happen to be a tech company.
05:02 Joe Hegner
And they happen to be a tech company with much better margins. Not only that, but you’re you’re buying just the cash flowing portion of that business at 27 times. You’re completely discounting all of the non-profitable startups and the values values there, right? So we’re going to have a couple trillion dollars worth of IPOs worth of non-profitable startups. These these technologies and these businesses I think have an incredible amount of value if you’re a long-term investor. And when you’re buying Google at 27 times earnings, yes, you’re getting the cash flow engine, but you’re also getting all of these intangible assets, these other startups that are built into the price.
05:40 Host
Who knows, maybe they’ll monetize Maps in a big way. Uh let me ask you, because we have to make a decision here. Actually, you have to make the decision. Who’s going to the finals here?
05:51 Joe Hegner
Google. Uh Alphabet is going to the finals here.
05:55 Host
Going to the finals. All right. Not a big surprise there, but really appreciate you stopping by on a Friday afternoon and all your insight.
06:04 Host
Oh, so we got to ask you about Amazon too then.
06:07 Joe Hegner
Oh gosh, okay.
06:09 Host
So let’s back up here. What do you think about Amazon?
06:14 Joe Hegner
Well, Amazon is almost like the best of both worlds from both a Walmart and uh Alphabet standpoint, right? You have Amazon which is the heavy asset, low obsolescence business via the logistics business. It’s such a core part of this economy at this point. And then you have AWS and all of those other kind of investments in that portfolio that really really stand to benefit as AI and computing continue their exponential trajectory, you know, going into going into the future. Their earnings profile that is their very depressed valuation in my opinion. And, you know, not only do they have a incredibly strong economic moat, but they’re going to ride the wave of this this automation and AI. Uh…
07:05 Host
All right, so I got one more question for you. This uh this segment is evolving here. Uh we have to pick a final winner. So now it’s Amazon versus Google’s Alphabet. What are we saying here?
07:13 Joe Hegner
Going with Amazon.
07:14 Host
Amazon. All right. Pull from behind here. Amazon it is. Right at the top there.
07:23 Host
And I we’re going to get you out on that. So, thank you for being here, Joe. Really really appreciate all of your insights.
07:29 Joe Hegner
My pleasure.
