Home / Blog / Not All Growth Stocks Are Dead With Austin Hankwitz (Cash Flow Freaks)

Not All Growth Stocks Are Dead With Austin Hankwitz (Cash Flow Freaks)

May 17, 2023May 17, 2023


Editor's Note: This is the transcript version of the previously recorded show. Due to time and audio constraints, the transcription may not be perfect.

We encourage you to listen to the podcast embedded above or on the go via Apple Podcasts or Spotify.

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This episode was recorded on February 28, 2023.

Austin Hankwitz: Selling, I'll say it. I'm selling. I don't think though that, like, I'm not - see, that's the thing. You made it so black and white by yourself. I'm sitting on my hands. I'm dollar cost averaging a little bit, right?

Daniel Snyder: Welcome back to Investing Experts Podcast. I'm Daniel Snyder. Today, we're joined by Austin Hankwitz from Cash Flow Freaks on Seeking Alpha. We dive into the Hims & Hers Health (NYSE:HIMS) earnings report that was just announced. And if he thinks the company is still a buy or now a sell after the 19% pop and share price. We also get insights of what's going on in his $2 million portfolio project that he's sharing, and I put him in the high see for what his game plan is for this year.

Just a reminder, anything you hear on the podcast should not be considered investment advice, at times myself or the guest my own positions in the securities mention. But this is for entertainment purposes only and you should seek advice from a licensed professional before investing. And if you enjoyed this episode, please do us a favor, share it with somebody. It's pretty simple to do. Hit that little arrow button in your favorite podcasting app, send it to them via text and say, you are missing out.

Now, let's get into the show. Austin, always good to have you back. I got to say I miss every other co-host on the show, but I love that we stay in touch. We get your details of, like, what's going on with the companies that you're watching, the $2 million portfolio and everything else? But let's just start things off with the people that don't know who you are. Give them a quick little recap of how you guys started investing, your background, how you started your service, and kind of what you guys do in there?

Austin Hankwitz: Yeah, 100%. Thanks so much for having me, Daniel. I do also miss co-hosting this podcast with you. But yeah. So quick just one, two here about myself is my name is Austin Hankwitz. I'm 26 years old, so I'm not one of these veteran accolade having investors that you might see or might host here on this podcast. I'm young, right? So I have this younger mindset.

I'm 26. I went to University of Tennessee. I got a degree in Finance and Economics in 2018. I took that to go to mergers and acquisitions for a publicly traded healthcare company called, Amedisys (AMED). Throughout three years out of college, we did about $1.2 billion in deal flow over that - of that time period. And once the pandemic hit in 2020, I sort of had this weird desire to talk about my authentic and transparent relationship with money as it relates to investing or buying real estate or building my creditor anything and everything in between.

And so instead of lip syncing and dancing on TikTok, I decided to talk about my portfolio. And turns out people really appreciated that, right? People really liked this 20 something year old at the time, talking about his wins and losses and trying to pick stocks and allocation toward this specific index or this specific industry or sector, whatever it might be.

And so that sort of turned into a newsletter that that I got a lot of really cool sort of traction with. And then I said, you know, what? "Let me share these stock picks. Let me share these ideas. Let me just kind of bring this into a more formal fashion and do that on Seeking Alpha, right? So that's the Cash Flow Freaks.

Essentially, this is a service around identifying and investing in two companies who are either 100% free cash flow positive. They're paying and growing their dividends. It's a good time. Or in a company who we're going to talk about in a little bit, sort of on the opposite side of the aisle, they're going to flip free cash flow positive in the coming 12 or 18 months perhaps, and their share price should see some appreciation because of that.

Daniel Snyder: This company that you're describing right now and for people that have been listening to this show for a long time, they'll know what this company is because you've mentioned it countless times. You mentioned it last year. We talked about it and did the whole episode on it. Then we did another episode on this company beginning in January with Raul Shah. He gave his take. You also kind of batch it up and you're like, yes, this all makes so much sense.

And now they just reported last night, Monday, after the bell with incredible results, maybe you want to get people the name of the company, what they do as a summary, and what those numbers are.

Austin Hankwitz: Absolutely. And so I just want to rewind though and give the credit words due to the people in the beginning that I don't know when we had that episode. It was September, October, November, whatever. But we did a whole episode pitching this company to you guys and how much we liked it, how cool we thought it was. Daniel had some good push back, some good skepticism, but it all turned out to work out pretty well here. But the name of the company is Hims & Hers Health, right? So ticker symbol, HIMS.

And to kind of like give you guys the quick play by play on what happened here, the company was launched in 2017. It's a healthcare tech company. This would have built the solution to connect people seeking medical care with the licensed providers, right? So download their app, share your location, and you're immediately offered an option to - the option to treat a wide range of ailments like sexual health, hair and skin, mental health, and everyday health care like cold and flu, primary care, stuff like that, right?

But if you think about this now as not just a kind of Teladoc 2.0 vibe, but also from a software SaaS company in the sense of, like, a subscription-based model. HIMS is really interesting and that's where, to me, I got so excited about this and the other guests, I think the same as rule that we talked with was also so excited. So here's what happens, right? And this is obviously applicable to people in a bunch of different and unique ways, but I can only speak for myself.

So me personally, I am terrified of losing my hair, right? So I'd take a prescription called finasteride and it's like a little 10 milligram pill every day just make sure that I don't lose my hair. That prescription is given to me as a subscription through Hims & Hers, right?

So I pay HIMS every single month a monthly subscription amount. And in return, I get my medication delivered to my door. And so I'm now - if you think about it now to this kind of perspective of a SaaS company, I'm now that that customer, right? I'm not giving them the MRR, the ARR that they're looking for, and to kind of give a little bit more color as to what that average customer is paying during the Q4 earnings that came out just the other day here is $55 per month on average is how much the average subscriber pays to Hims & Hers to receive their prescriptions.

And to me, that idea of kind of saying, okay, we get the Teladoc, we get how fun and cool that is to meet with a doctor, get connected to a licensed provider. But then also say, "Hey, this is not just a one-time exchange of goods and services and money here. This is a - how do we get them to come back every single month, right? How do we get them to subscribe to something that we can give them?" And Hims & Hers also offers - we talked about the hair and skin, the mental health, everyday health care, sexual health stuff like that.

And specifically, I think what's cool about this company is the drugs that they prescribe are now at this point where they are generics in the sense that they are the finasterides, there's for ED, there's tons for different birth controls, where there's a bunch of different prescription drugs that are prescribed to these patients that have margins that can kind of generate margins in the 70% to 80% for the company.

So to kind of round off this whole thought of the SaaS business model, you think a SaaS company like a (mdny) or a Datadog (DDOG), they have margins in the 70%, 80% range. They've got the monthly recurring revenue, the annual recurring revenue. They're always landing and expanding. And HIMS is doing the same, but they're not a software company and they're not being priced yet as a software company, but they have all of the same characteristics and margins as one.

So that's kind of just a high-level breakdown there of why I'm generally excited about the company. Happy to dive deeper into the specifics as it relates to their earnings.

Daniel Snyder: I've got questions for you. I'm looking here at my charge. And I mean, this is a stock that's up 17% on the earnings that were - was just announced, right? Brand-new 52-week high. I think when we did the episode, last year, I think it was like around a $6 share stock or maybe a little less even. Since our January episode, the stock is up like 66%.

So my first question off the top before we get into the actual metrics and some devil's advocate questions I have for you is, is this company still a buy? I think that's what people are going to ask you first and foremost. Based on evaluation, they're not free cash flow positive, they're still working on EBITDA. Would you still be recommending this stock to people today?

Austin Hankwitz: So it's really funny. The short answer, yes. It's still a buy in my opinion. It's really funny. I had shared that I think what had happened was Jefferies, the investment bank, upgraded them from a hold to a buy, ahead of their Q4 earnings release about three weeks ago or so. And their stock just - it did a great number, right? It went up maybe, I don't know, call it, 15% or 20% a day because of that. And people are like, wow, I missed the boat. It now at $9. What do I do?

Listen at a $2 billion valuation, a company who will do, call it, $1 billion in revenue next year, they're trading at two times sales. Whenever we talked about this company, Daniel, they were trading at one time sales, right? And as a company who is and you mentioned the adjusted EBITDA, they actually just reported positive adjusted EBITDA for the very first time for the quarter, so $3.9 million for Q4 and that will continue to be positive for the rest of hopefully forever, right?

But in 2023, it's going to be positive, 2024, 2025. And we'll get to those guidance here in a little bit. But for the person listening right now, it's like, "Hey, did I miss the boat? What is this? Do I even look at this anymore personally?" I would say yes. I would say that it's still a buy, it's still a company to look at. It's still a company to consider because of specifically the 2025 guidance that the company management team had provided us during their earnings call, and that specifically is revenue of $1.2 billion in 2025 and adjusted EBITDA of $100 million.

Daniel Snyder: All right. So then let me ask you this. We're talking about the gross profit margins being in the 70% to 80%. You mentioned it's similar to a SaaS company like Datadog, which we've also talked about before. And their whole strategy is land and expand, right? And that's kind of what you're pitching here is that they get somebody buying one product and then they get them to buy two, three, four, and that's how they increase the monthly revenue, which makes sense to everybody.

But how is it that a competitor, if they're just selling goods, right? Teladoc is a service company. You have to be connected with an individual that you then talk to, and that's a little bit different than just saying, hey, here's a product I'm shipping to your door every single month. Amazon (AMZN) does this. What is - I mean, we see Amazon moving into medical. And Amazon's margins aren't even that great on that side of the business. Are you expecting any threat from Amazon in regards to making them have to start chipping away at their margin here?

Austin Hankwitz: I love this question because when I was listening to the all-in podcast, which if you guys haven't listened to that, I recommend listening into that. They made these - there's an episode about, call it, two months ago where they made these 2023 predictions.

And one of the predictions for 2023 for them was that Amazon was going to swoop lean into this third leg of healthcare, which we saw them do the $5 a month on limited prescriptions. I forget the name of that specifically. I think it was a PrimeRX or something of that nature.

But - so that did happen, which so kudos to them. But they also said that they are not ruling out the idea of Amazon acquiring a Hims & Hers or a Roman or one of these type companies and just saying, you guys have the data - you have the consumer base, right, 10 cumulative medical consultations. 1.04, so 1,040,000 monthly subscribers to your service at $55 a month, right, like, that is insane. You have all of these people who are already customers of you. We're just going to come in and acquire you, and it's $2 billion market cap that's peanuts for Amazon, right?

So I think that, to your point, could Amazon come up here and be a viable competitor? They certainly could. Or they could be a buyer? But now here's something interesting that I - again, this is more speculation than it is with data.

So I just kind of, like, this is my vibe that I'm getting is a lot of customers of Hims & Hers are people in their 20s and 30s, maybe even early 40s, who might not have the luxury of having the access to Teladoc. The company benefits that give you the Teladoc login and they're paying for it, right?

So they don't want to pay the $150 or $200 for a consultation with a doctor on Teladoc for one time. It's just to really calculate. They don't feel that. Doesn't resonate with them. But Hims & Hers has kind of structured themselves differently. They said, we want those people. We want the people who are - you might not have those perfect company benefits, but do still need access to everyday health care like birth control, hair and skin, and sexual health, right?

So things of that nature is where or people of that nature rather is where Hims & Hers, I think personally are doubling down. And they're saying, we have these million subscribers. How do we have to take to 2 million, 3 million, 4 million by 2025, 2027, 2030. And those same people, right, the people who are kind of pushing back against the company benefits in the Teladocs, I think don't want to do the amazons, right?

I made a TikTok video about Amazon's $5 thing, how much money it will save a lot of people, how great of a service this is, and the comment section was flooded with people saying, I don't want Amazon having my health care data. I don't trust Amazon. I don't want Amazon, right?

So I'm not at all saying that that's going to have any material impact on Amazon's ability to recruit people and HIMS' ability to retain whatever, right? But just kind of feeling out the vibe here with the customers that I think that HIMS are going after and the same customers that Amazon wants. I don't think Amazon - let me say this. I don't think HIMS will lose market share.

Daniel Snyder: So Amazon just closed the $3.9 billion acquisition of One Medical. And we know Walmart has been entering the space trying to compete with Amazon. Any thoughts on Walmart being the acquirer of HIMS and moving into that sort of things?

Austin Hankwitz: That would make a lot of sense. However, the only reason that I'm leaning more towards Amazon is because about 12 months ago, maybe it was close to a nine, HIMS and I could be misspeaking here as it relates to how I'm describing this. But Hims & Hers has an actual storefront on Amazon's website where you can just like shop all of their products, right? So about 12 or 18 months ago, Hims & Hers launched an app.

So essentially, before this, it was just a website that you could, like, make a consultation, do the whole, like subscribe to your specific prescription, things that nature. Then they came out with the app, tons of education, which was their storefront, but they had this weird, like, nine-month period where they didn't have an app and it was still a website, but they wanted to sell some more. So Amazon helped them launch their own storefront on Amazon's website.

So I think and I haven't logged into it in a while, and it looks like you might be looking at it right now. So please correct me if I'm wrong here. But I think they do have this storefront on Amazon where you can shop all their products and get the prescription from a doctor and things of that nature.

Daniel Snyder: The only thing that I would think about is how Amazon has taken the cut of them whether they're just fulfilling the logistics of it as Amazon likes to do. But is there a way for them to streamline or sell across multiple channels to broaden their reach as their audience. Do you want to go through the underlying metrics of what was just announced financially on the [call? I haven't] [ph] done that yet. Let's go ahead and go through those.

Austin Hankwitz: So actually, before we do that though, I'm actually going to give a little bit more color as to what the original projections were for this year as it relates to whenever they made their public debut in in 2020, right? So when the company hit public markets in 2020, they had a few things going for them. They had about 2 million telehealth consultations. They had 250,000 monthly subscribers. And because they were vertically integrated, they had, like 70% gross margins, okay?

So now if we look at their 2020 investor deck, they were projecting for 2022 to have revenue of $233 million, gross profit of $175 million, and negative $9 million in adjusted EBITDA loss. However, that was obviously not the case for this year. This year, we saw revenue of $527 million, right, so that is way more than twice as much as what they were originally projecting.

Daniel Snyder: Like quadruple, right?

Austin Hankwitz: Quadruple. Yeah. It's insane. From a gross profit, I mean, their margins were 77% this year. I didn't do the math on that, but call it $440 million or so, which is way more than the $175 million. And then from an adjusted EBITDA perspective, they were saying for the year that was going to be negative 9%. It was certainly negative for the year. However, they have flipped positive from the adjusted EBITDA perspective.

But specifically now want to talk about their operating loss and the net loss and how that has narrowed substantially year-over-year. So if we look at the operating loss for the year of 2022, we see a negative $68.7 million compare that to the negative $115 million of last year, right? And then from a net loss perspective, we saw it negative $66 million or so and compare that to the negative $108 million last year.

So we're seeing that only a company who's growing revenue by 94% year-over-year, but we're - in flipping, adjusted EBITDA positive for the very first time. But they're also narrowing their operating loss substantially, narrowing their net loss substantially. And I read here earlier this morning on their transcript for their earnings call that their marketing as a percent of revenue is down for the year, I believe it's like 5% or 6%, right?

So they're growing substantially. They're spending less as a percent of revenue. And everything's moving in the right direction from an economies of scale perspective.

Daniel Snyder: Yeah. This is really interesting a company overall. I mean, it's something that I didn't exactly believe in last year when we first talked about it. But, I mean, the company is performing So I've got to ask you, is this company a part of the $2 million portfolio project? And then why don't we just take a second as well? Just tell the people that don't know what that is, what do you have going on with that?

Austin Hankwitz: Yeah, 100%. So generally speaking here, right, I'm 26, and I'm young. And so I kind of have this luxury of being able to be aggressive with my money as well as I'm smart enough not to be too aggressive, right? I saw what 2021 did. I saw all the crazy stuff that happened.

So generally speaking here, the $2 million portfolio is me saying, listen, I want to have a $2 million portfolio invested in the markets by over the next 10 years, right? Give myself a 10-year shot clock to achieve this. And the goal of this portfolio and again, this is more of a dividend growth portfolio per se, so more than 50%, we'll talk through the specific metrics here. But more than 50% of this portfolio is invested into dividend growth stocks.

But my goal here is I want as much of this portfolio to be invested into quality, long-term, secular growth trend, dividend paying companies at discounted prices given the volatility we've seen in the markets over the last 12 months to 18 months, and we'll likely continue to see over the next 6 months to perhaps 12 months, who knows.

But I want to be investing while these quality companies are seeing all this volatility. And so I want to just pile as much money into companies who are not only flipping free cash flow positive, but those that are already free cash flow positive, right? I want to receive those dividends because qualified dividends are taxed much more favorably than ordinary income, and I want this $2 million in the next decade to be the Austin Foundation that sets me up for financial independence by the time I'm 40 years older or so.

Daniel Snyder: Right on. So with this portfolio, you started at the beginning of this year. You've been allocating funds to it. Do you have a couple of stocks in here that you might be able to share with our audience today as to what you've been buying and why you see this paying off in the next 10 years, why these companies?

Austin Hankwitz: Yeah, 100%. So just to kind of go through the top here and call out a few. So the first one that I was just super stoked to have kind of the word or the phrase, like beat like, beat someone to the punch line there is not exactly it, but I was able to get a handsome bit of Taiwan Semiconductor, TSM right before Warren Buffett announced his position. So I was really excited about that.

But yeah, I mean, it's companies like that, right? Companies who are growing their dividends like crazy. I can positively say that the average five-year compounded annual growth rate for a holding inside of this portfolio is over 12%, right? So the goal is to be investing in these dividend growth stocks, right? So we've got Taiwan Semiconductor (TSM). We're seeing Visa (V). We've got a little bit of Home Depot (HD).

Now here's one that I think is interesting or two rather. The first one that I think is interesting and this is not yet a dividend growth stock in a sense that you think that the dividend is growing, but it's actually more of just like the growth stock side of this. And we actually talked about the stock, Daniel, in one of our early episodes, Academy Sports and Outdoors (ASO), right?

So Academy Sports and Outdoors is a holding in the portfolio. If anyone listening right now wants to go look at their stock price over the last, call it, two years, it's been going up into the right. Like, all this volatility we've seen is…

Daniel Snyder: We crushed that episode. I just got to give props to us, like [Multiple Speakers]

Austin Hankwitz: We did so well, man. We did so well. So that one - that's a holding in here. And again, they just started paying a dividend. It's not a crazy growth dividend stock just yet very new to the markets. But from a growth stock perspective, I want access to that, right?

And another one here is Williams Sonoma (WSM), right? Growing dividend like crazy. But then we also have REITs. So we have a couple of REITs in here, and it's very common that REITs aren't exactly growing the dividends at a crazy amount. So, we have VICI Properties (VICI), varying to gaming and things of that nature.

We have Realty Income Corporation in the company. Everyone listening right now, I'm sure has heard of. Ticker symbol, O. If you rewind, I think, on their website, it says since like 2002 or since the last 20 something years on their Investor Relations websites, they've performed some 14.5% or 15% compounded annually, which in their data has outperformed the S&P. I like the consistency. I like the dividend. So that's kind of where that came from.

And again, we've got the W. P. Carey (WPC), the VICI, AMT, O. And then also there will be special circumstance ETFs that I think are more kind of there to offer diversity of income. So we've got companies like JEPI, JEPI. We've got QQQX), right? We have these companies who are writing covered calls against their underlying positions in the S&P and in the Nasdaq and generating more of an income, right? So as it relates to dividend income, it's coming from a bunch of different ways.

Now as we think about the $2 million portfolio as a whole, it's hard to achieve true growth, just betting on dividend stocks in general, right? So - and again, I'm young, so I want to have exposure to technology. Both on the tried and true side when you think of like Apple (AAPL) and Salesforce (CRM) and Microsoft (MSFT) and Google (GOOG,GOOGL) and Amazon; but then also on the more riskier side, companies like Hims & Hers,

So from my allocation, we've got 50% now in these dividend companies because I do want to own a lot of equity in companies who are paying and growing dividends that will continue to be these qualified dividends for me over the next decade. But I also want to see the upside from investing in something that I believe in wholeheartedly, which is technology over the next 10 years.

And so from a long technology perspective, it's about 25% allocation right at those big tech companies. And then from a risky technology perspective, it's about 20% allocation, leaving us about 5% left to be parked in SCHD.

Daniel Snyder: So let's start with this. Main question I have for you is, are any of these stocks set up on a dividend reinvestment program, or are you taking the income and taking that tax hit and then reinvesting?

Austin Hankwitz: Good question. So as of today, they are all set up on the dividend reinvestment program. However, they - I do not have them set up to be reinvested in themselves. Instead, they're reinvesting in the strategy as a whole, right? So they're reinvesting into the, like, all the money that I'll make. I think my broker here is telling me I'll make, as of right now, about $18 in dividends this quarter. And so those $18 will not be reinvested into the specific names, but instead back into this general strategy of 50% and the dividend growth 25% in technology, 20% in riskier technology, and 5% in SCHD.

Daniel Snyder: And if people want to see this portfolio that you put together, can they find that on Cash Flow Freaks? Is it up there ready for them?

Austin Hankwitz: It is. It's all up there ready for them. It's all integrated into the back end as it relates to Seeking Alpha's Marketplace Service. You'll get access obviously to the portfolio with a bunch of tabs inside. So I know how I explained that might have been a bit confusing. So I break it down by sort of characteristic, right?

So I break it down. It's a REIT. I got a whole REIT tab and I got my REIT research on the fun stuff as it relates to those or if it's maybe these long risky stocks that I'm excited about. We have a whole tab for that. Research for every single one of those as it relates to the holding and my investment thesis.

Daniel Snyder: Yeah. I was going to say you have the research library tab here and you even put in the Seeking Alpha Quant Rating. Just so it's there…

Austin Hankwitz: That's right. That's right, man.

Daniel Snyder: Awesome. There's another question I wanted to ask you. Specifically, you pointed out Taiwan Semi, right? And we saw recently in the most recent Berkshire (BRK.A, BRK.B) 13F Form that they've started selling a significant portion of that company. I mentioned it on a previous episode as well with Bertrand. Are you still fully invested full cam TSM for the long run?

Austin Hankwitz: I am, right? Because if you think about, like, just the general secular growth trend, semiconductors, like, as a $440 billion company, like, they fit perfectly inside of that. And a lot of that everything as it relates to where the industry is going. They're going to ride that tailwind just fine.

To me and I actually had a question from someone that was like, hey, listen, like, the actual share price of these names might be down a little bit. Like, are you worried, like, what's going on? We've seen volatility over the last couple of weeks now. It's like, at the end of the day, no, right? Because there's a long 10-year time horizon that I'm - that I give myself to invest in these companies. But it's also this dividend growth that I'm so excited about, right?

So if we look here into Taiwan Semiconductors from a dividend growth perspective, that's 10% compounded annually for the last five years. And who knows where it's going to go in the future. Generally speaking, there will be instances that, oh, here's a great instance, here's a wonderful instance of me saying that I was wrong and got out of it.

3M, I only remember that episode that we had. Oh my gosh. What happened to that stock? So I, as of like, I think it was yesterday, traded in my 3M position, which I was down 25% or 30% on, which at the - at its core is not a dividend growth stock, but back to this idea of companies who are paying and growing their dividends for the long-term really one of that diversification. Treated that company in for W. W. Grainger, GWW is the ticker. They're expected to do awesome EPS over the next several years here.

But yeah, so that's where it's like, hey, hands up. I got it wrong. I - I'm moving out. We're doing something different, right?

Daniel Snyder: I love when you say that though. A lot of people want to come on and talk about all their winners and they never talk about their losers. And it's like, the whole thing is we all have losers, right? It's just managing their risk side of things. And 3M (MMM), I mean, that episode that we did about the lawsuit and everything else going on there, I mean, it's a big overhang for the stock, so it kind of makes sense. But bravo to you for owning it. I know our audience always appreciates when they hear the real, real on the episode as well.

So I want to move it away from the portfolio here. And let's start talking about the overall markets, right? People are looking at these overall market levels while we're recording this, the S&P 500 has been balancing around this 4,000 psychological level for - seems like a quite a few days now. Overall market, not just individual stocks, even though I'm sure somebody keep in mind and say it's a stock record market, as we know. But overall market levels, are you a buyer at these levels? Or you think it's still time to sell?

Austin Hankwitz: Gosh. That's such a black and white question. I love it. Overall market…

Daniel Snyder: I want to make you take, too. You guys just know…

Austin Hankwitz: Yeah, I know I will. Overall market at 39.93 [ph] for the S&P 500. All right. So here's the game play, right? I'm a big believer that because rates are going to be higher for longer. Because what we've seen with the ISM manufacturing ensure services bounce back and but who knows if that's now sort of a new trend? Inflation jumped up in January, right?

We're not seeing things go perfectly to plan as they were three months ago, right? With this new data, I think as rates stay high for longer, all the things I just mentioned, we're going to see continued volatility in the markets in 2023. And I'm not sure if that's going to go away by the end of the year, by next summer. I don't know what that timeline is.

But what I do know is history, right? And history tells us that the last 5 times that the consumer price index has been above, I think, it was 6%, maybe it's 8%. I can find the statistics here for you. It was like 1953, 19 - two times the 1970s, once the 1980s, and literally just last year.

The unemployment rate had to spike above 6%, and we had to have a recession before inflation would come back down to actual, the store [ph] 2%, right, 2.5%. We've yet seen that. The labor market is very strong. But then if you look at the housing starts and the permits that have been granted, those are plummeting right now. However, construction employment is still up and still steady. But if you look back at the last four times that it did plummet, construction employment also plummeted, right? So maybe that's a forecast where it could be happening with the or it could be coming later this year with unemployment.

I just - I do not think that we're out of the woods just yet. I am selling. I'll say it. I'm selling. I don't think though that, like, I'm not - see, that's the thing. You made it so black and white by yourself. I'm sitting on my hands. I'm dollar cost averaging a little bit, right? But I'm not saying, all right, we're out of the weeds. Bull markets here. Let's load the boat. That's not how I feel.

How I feel is, I will continue to do this whole stock pickers market thing, right? I'll find the HIMS. I'll find the companies who are paying and growing their dividends. I'll continue to do that and bet big on those companies while also being a net buyer of assets, generally speaking, as it relates to the markets, but not in a very aggressive way.

Daniel Snyder: I'll give you that answer. That's a good wrap up at the end there. Because, really, it's all about, like, first half, second half, story, maybe it's quarter-by-quarter. I mean, we were talking with Eric on last week's episode about him looking six months ahead and what he's seen as well from the housing data and service data and then sticky inflation and all that stuff, like, anybody that's listening right now, you should go listen to that episode that Eric had. I mean, he laid it out.

Austin Hankwitz: Yeah. Eric is amazing.

Daniel Snyder: He's a great guy. And his research is phenomenal.

Austin Hankwitz: 10 times better than mine. He is awesome. Everyone, go listen to him, for sure.

Daniel Snyder: But what about this PE multiple? Are we - if you're saying that you're - you would be a speller right now. Is it a multiple story going on in the overall market if interest rates are higher for longer?

Austin Hankwitz: Yeah. I think it is multiple, right? Because, like, if you think back to the last couple of bear markets we had and I don't have the data in front of me. But I remember kind of seeing the numbers of how the PE multiple has contracted from, like, call it, I don't know, 17 times down to, like, 13 times or, like, 18 times down to, like, 14 times. Like, every single time that we've had a bear market before we've seen a bottom, it really contract down this 13 times, 14 times range.

And I think the lowest we ever got was in October, and it was like 16.5 times or 17 times, right? And to me, as we listen to these earnings calls from companies like Walmart or Home Depot or Target here, I think, probably just came out. I haven't listened to it yet, but I'm sure it's going to be the same story in the sense that we're seeing continued inflation.

Our earnings are going to be down. Things of that nature looking forward. It's like, okay. So we're - I don't know the PE ratio right now. I'm assuming with the S&P, it's around, call it, maybe 18.5, 19, maybe I have the number in front of you. But why are we trading at some sort of premium if the companies who are embodying, I would argue Walmart is very much what retail is and Home Depot is very much on what retail is, right?

These companies that are embodying what retail is going to look like and what the consumer mindset and more specifically what corporations are going to be reporting and are looking at and guiding to over the next, call it, nine months. If those are not great, then why are we putting a frothy valuation on top of something that is not great. I don't understand that, right?

So I think that the PE multiple needs to come down to this, call it, 14 times, 15 times before we really see a bear market bottom. But as it relates to finding that bottom, would I - something I'm more looking at is the economic indicators, right? I want to see the ISM Manufacturing data turned around, right?

We're still nosediving. Sure the services has moved from, I think, it was, like, 49, up now to 55, but that was one month. Like, what the trend, right? I want to see these very specific - I want to see the ISM data turn around because if you think about it, I saw a chart from a guy named David Marlin who was able to sort of pull together what's historically speaking, over the last, call it, three decades of how the S&P 500 has performed in bear markets to find those bear market bottoms in relation to the ISM data.

And the chart that he shared, I don't know if it was one that he created or something that Bank of America (BAC) when these banks had created, but essentially it was saying that the ISM data has been the best predictor of where the stock market bottoms are because once that sort of trough has been created and we're moving back up in the right direction, then it's safe to assume that either if we saw a bottom, that was the bottom or there would be - there's going to be a bottom here pretty soon.

So I'm - I do care about valuations. I do care about PE multiples and things of that nature for the S&P 500. But to me, it really just comes down to like what's the economy doing? Because to be quite honest, like and we've heard this quote a 100 times at the market.

The market can be crazy much longer than you can be solvent, right? The market was crazy in 2020, 2021. 2022 is sort of like a snap back to reality, but even we saw this crazy bear market rally to start the year, right? Like, there's going to be some times where the market goes absolutely not when you kind of look around in the economy and the data comes out, it's like, wait, inflation is higher than we thought. People are unemployed. But this is happening at housing starts, A, B, C, X, Y, and Z.

So that means when I'm more focused on versus like the PE multiple. But as someone who is a net buyer of assets, obviously, I do want to keep it high on the PE multiple of the market.

Daniel Snyder: Some people out there are saying, "Well, the multiple is still frothy because the bond market is predicting the cuts further down the road, and therefore, they're assessing the risk in that standpoint. And you guys sent over these charts about the two-year yield. Why don't you kind of just break down for us what we're looking at within these charts?

Austin Hankwitz: All right. So, essentially, if you look at these two charts.

So the first chart is the two-year note bond yield. And now we're looking at almost 4.8% yield on the two-year. And historically speaking, we have this awesome chart by Bank of America. And what they've done is they've sort of overlaid the S&P 500 market bottoms on top of the two-year yield. And a trend that you might see that I think is very apparent in this is before the market has bottomed and truly seen a bottom and then we turned around or back up to the races, the two-year yield has peaked and fallen by at least 50 basis points, right?

We've - you could argue that we might have seen that peak in November, right, when it was trading around this, call it, 4.75, and then it came down to almost 4, right? That would have been the 50 basis point mark, but now we're even seeing higher highs in the two years.

So I would argue that that is probably invalid at this point. So generally speaking, the bond market is telling us that the market hasn't bottomed yet. There's a ton of housing data that's telling us unemployment is going to be skyrocketing as it relates to construction. I mean, there's so much data that is pointing to ISM data. There's so much data that's pointing to.

We're not out of the woods just yet, which is keeping me on the sidelines, generally speaking, right? I'm still nibbling here. I'm investing in that buyer of assets, but I'm not saying, "All right, guys, I'm in. I'm doing everything I can to buy risky companies. I'm doing everything I can to buy this and buy that. I'm just - I'm patient. I'm dollar cost averaging appropriately. I have a large cash position that is more than the equity position I have in my portfolio right now."

So just be very clear here with people listening, right? I am majority cash at this moment. But I just don't see us out of the weeds just yet.

Daniel Snyder: Gotcha. Thanks for breaking that down. I got one question left before - well, actually, two questions left before we let you go. First question is, in regards to the portfolio that you keep talking about, is that a monthly allotment that your dollar cost averaging it in? If you're selling something, do you do that quarterly, monthly? How are you handling that?

Austin Hankwitz: Yeah. It's a good question. So I'll answer the second one first as it relates to selling something. I don't want to kind of judge my winners and losers on, like, a monthly or even two-month basis. But on a quarterly basis, right, when I opened up this portfolio in October, so I'm a six months in at this point called five months, four months. And looking at this 3M position, it was a clear loser. And obviously, if anyone listening right now, listen to the episode we did about 3M.

Daniel and I both know about the loss, so we know about a lot of headwinds that this company is facing. And at that point, it just to me made a lot more sense to say, listen, I'm going to cut this last word as thinking about the perspective of the bond market for a second, right? The six-month is yielding 5.1-plus percent. It's like, would I rather just take that money and put it into something risk-free like bonds? Like, that's a no-brainer. I'd much rather do that than try and roll the dice here with 3M.

So that's kind of how I kind of approach that. And from the perspective of a time horizon kind of rebalancing, I think quarterly is fair. I think every quarter, it's a good theme to kind of look around and say, okay. What is performing best? What is performing worse? Why is that happening? I do this more on a weekly basis because I'm kind of hyper obsessed about it, right?

So if you follow and are subscribed to the Cash Flow Freaks, you'll see a portfolio update every Sunday saying your way. Where I did an update on Adobe (ADBE), and I did an update on Home Depot as well as Union Pacific Corporation (UNP), and I talked about obviously what had happened with the derailment in Ohio. And then the day after I published that the CEO stepped down and the stock went up 12% or something, right? But long story short here, I'd say, is a quarterly basis is pretty healthy as it relates to rebalancing.

Daniel Snyder: The last question before I let you go, get on and out of here is where can people keep up with you? Where can they contact you? Where can they chat with you if they have more questions?

Austin Hankwitz: So if you are all at all interested in learning more about the cash flowing or soon to be cash flowing companies that I'm investing into specifically, be sure to check out the Cash Flow Freaks. It is a Marketplace Service on Seeking Alpha, here's what you can expect.

So every Monday morning, what my team does is we publish something called the Week Ahead. And what this is, it's a general update on what to expect in the markets that week. If it's specific names for earnings, if it's specific economic news that's supposed to come out or investor relations, we got the Tesla (TSLA) thing coming out. I think that's tomorrow, right?

So as it relates to the markets, what to expect from a high-level going forward? And my hot takes us to what I think is going to happen, right? So I gave some hot takes on Hims & Hers before the earnings came out. I gave some hot takes on Snowflake (SNOW) before their earnings and as well as Target. So that's what to expect on a Monday basis.

And then on Sundays, what to expect is a good recap of everything that actually moved the markets. If it was specific earnings is where we dive deep, we show the charts, we show the position sizes, all that fun stuff. As it relates to the economic reports, we dive deep on those, we get good quotes from other economists who have much more experience than myself to hopefully add some additional color. Then we also give you guys the play by plays on those investor presentations and investor days. So I'm excited to tune into Teslas and then give the play by play on that.

And then on about a monthly, maybe biweekly basis, it really depends on how because here's the thing. I'm not a believer in posting content just to post content. Like, I don't want to pitch a stock to you guys without having a full understanding of what that company is and why I'm excited about it.

But normally, every two to four weeks, you can expect a new stock pitch breakdown analysis, Hims & Hers and Academy Sports and Outdoors was November's. And obviously, we see how that did. And so that's also what to expect.

And then finally, on Monday nights, we have some livestreams. So for about an hour, 45 minutes to an hour depending on the crowd and how long Q&A lasts. I'll sit down and I walk through some prepared remarks as it relates to updates on the economy, a little bit about maybe earnings that had happened last week or give you guys, maybe a preview as to what I'm working on as it relates to a stock pitch. And, yeah, it's just a fun time to connect with about a dozen or two other people who are subscribers.

So really fortunately, you guys are here to listen to what I have to say and so open-minded about my ideas and looking forward to anyone and everyone's perspectives in a hot takes in the Seeking Alpha's Marketplace of Cash Flow Freaks.

Daniel Snyder: Well, I got to say I mean, you've amassed a huge audience. I think we all appreciate the analysis and the data and you've taken the time to put all this content together. We always love talking to you here as well, getting the updates from you from your portfolio and elsewhere. And we're going to do it again here in a few months because that's what we do.

We like to check-in with you. We'll see if your minds has changed what you're recommending to people at this moment in time. I know…

Austin Hankwitz: Can I just drop in just so I can say in three months from now that that I said this on the record button here, Perion Network. Perion Network, PERI, is a company that I'm very diving deep into right now. Essentially, a long story short is they have a strategic partnership with Microsoft Bing to pretty much be their exclusive advertiser network.

So if anyone wants to advertise on Microsoft Bing, I ChatGPT, all the fun stuff that they're going to see over the next six to nine months. You want to advertise on Bing, you got to go through Perion Network. So they have a four-year $800 million strategic partnership with them. And I'm doing a lot of research in the company right now, but very excited about that.

So hopefully, in three months when we check back in, I will have some updates.

Daniel Snyder: So you're saying that research is going to drop soon. So people should check it out.

Austin Hankwitz: That research is dropping tomorrow.

Daniel Snyder: Oh, but there you go. When you're hearing this podcast episode, it probably will already be out. So we're going to go ahead and make sure that we link in the show notes page as well as put those graphs up and everything else that you sent, so that people can easily find that.

Austin, thank you so much for your time. Lot of great information in this episode. I love what you're doing the $2 million portfolio.

And everyone, if you have any comments about the episode, drop them on the show notes page. I'll jump in, I answer questions, Austin does as well, and we look forward to talking to you.

Just a reminder, everyone, if you enjoyed this episode, leave a rating or a review on your favorite podcasting app. And we'll see you again next week with a new episode and a new guest.

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Editor's Note: This is the transcript version of the previously recorded show. Due to time and audio constraints, the transcription may not be perfect. We encourage you to listen to the podcast embedded above or on the go via Apple Podcasts or Spotify. Click here to subscribe to The Cash Flow Freaks. This episode was recorded on February 28, 2023. Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: Austin Hankwitz: Daniel Snyder: We encourage you to listen to the podcast embedded above or on the go via Apple Podcasts or Spotify. Click here to subscribe to The Cash Flow Freaks.