Pitch Summary:
Zebra Technologies Corporation is strategically repositioning itself by exiting the robotics market to focus on its core vertically integrated technology stack. This move is expected to simplify operations and improve margins. Despite facing near-term headwinds from memory chip pricing pressures and challenges in the retail environment, Zebra is poised for long-term growth. The company is enhancing its portfolio with acquisitions like Elo Touch and Photoneo, which expand its front-line and machine vision capabilities. The anticipated new memory capacity in 2026 and 2027 could alleviate pricing pressures, supporting margin-accretive growth. With a target price of $350/share, Zebra is recommended as a Buy.

BSD Analysis:
Zebra’s strategic exit from the robotics segment aligns with its focus on vertically integrated solutions, which could enhance its competitive edge in the industrial automation market. The company’s investments in RFID and AI-enabled devices position it well to capitalize on the digitization of retail and transportation sectors. However, the challenging consumer market environment, exemplified by retail bankruptcies, poses risks to Zebra’s growth. The company’s financial flexibility, supported by a $1.2 billion credit facility and a strong free cash flow conversion rate, provides a buffer against these challenges. Zebra’s ability to navigate memory chip pricing pressures will be crucial in maintaining its growth trajectory.

Pitch Summary:
MicroStrategy is aggressively increasing its Bitcoin holdings by issuing digital credit instruments, aiming to capitalize on the appreciation of Bitcoin. The company has raised significant capital to acquire Bitcoin, enhancing its Bitcoin per share metric. By issuing preferred equity securities with a fixed cost, MicroStrategy captures the spread between the cost of capital and the appreciation of Bitcoin. The company has established a cash reserve to cover dividend obligations, allowing it to hold Bitcoin without selling it to meet financial commitments. This strategy positions MicroStrategy to benefit from Bitcoin’s long-term appreciation, although it carries significant risk if Bitcoin’s price declines.

BSD Analysis:
MicroStrategy’s strategy of leveraging digital credit to acquire Bitcoin is a high-risk, high-reward approach. The company’s ability to issue perpetual preferred equity without maturity obligations provides a stable capital base for Bitcoin acquisition. However, the company’s financials are heavily impacted by Bitcoin’s market price, with significant losses reported due to the cost basis inversion. The company’s reliance on Bitcoin’s appreciation means that any prolonged downturn in Bitcoin prices could severely impact its financial health. Despite these risks, the company’s strategy could yield substantial returns if Bitcoin’s value increases over the long term.

Pitch Summary:
QXO, under the leadership of Brad Jacobs, is poised for significant growth through strategic acquisitions in the industrial distribution sector. The company has raised substantial capital, including $3 billion in convertible preferred stock, to fund acquisitions meeting a minimum threshold of $1.5 billion. This financial strategy positions QXO to capitalize on consolidation opportunities in fragmented markets. Jacobs’ track record of optimizing costs and scaling businesses adds credibility to QXO’s growth potential. However, the stock’s current valuation reflects investor enthusiasm, and future performance will depend on successful execution of acquisitions and integration.

BSD Analysis:
QXO’s aggressive capital raising and acquisition strategy highlight its ambition to become a major player in industrial distribution. The company’s focus on acquiring businesses with strong distribution networks and potential for operational improvements aligns with Jacobs’ expertise in value creation. While the market has responded positively to QXO’s plans, the execution risks associated with large-scale acquisitions remain. The company’s ability to integrate new businesses and achieve synergies will be critical to realizing its growth objectives. Additionally, the competitive landscape and economic conditions could impact QXO’s acquisition targets and valuation. Investors should monitor QXO’s acquisition progress and financial performance closely.

Pitch Summary:
FTAI Aviation has launched a new venture, FTAI Power, which aims to convert CFM56 engines into gas turbines to address power generation bottlenecks. This initiative leverages FTAI’s existing aviation assets and expertise in engine maintenance, allowing for efficient repurposing of engines for power generation. The modular 25 MW units are designed for quick deployment and scalability, targeting supply gaps in AI compute demand, data centers, and energy-intensive industries. Analysts project significant EBITDA growth from this venture, with potential to generate $750 million to $1 billion annually at full production capacity. The market has reacted positively to this diversification strategy, which could enhance FTAI’s earnings power and smooth out cyclical fluctuations.

BSD Analysis:
FTAI Power represents a strategic extension of FTAI’s core competencies in engine management and maintenance. By repurposing existing assets, FTAI can capitalize on the growing demand for reliable and scalable power solutions, particularly in sectors constrained by electricity availability. The company’s extensive inventory and maintenance infrastructure provide a competitive advantage, enabling rapid scaling of turbine production. As the power generation landscape evolves, FTAI’s ability to offer flexible and localized solutions positions it well against traditional, capital-intensive power projects. The venture not only diversifies FTAI’s revenue streams but also reinforces its identity as a platform company, enhancing its long-term growth prospects.

Description:
Value: After Hours is a podcast about value investing, Fintwit, and all things finance and investment by investors Tobias Carlisle, …

Transcript:
Uh, we’re live fellas. This is Value After Hours. I’m Tobias Carlile joined as always by my co-host Jake Taylor. Our special guest today is Andrew Andy Summers of Summers Value Fund. He’s a healthcare specialist. How are you Andrew? Good to speak to you. >> I’m well. Thanks for having me today. >> Welcome. >> Let’s uh let’s just talk very quickly. Um, talk to us about your strategy and your philosophy in sort of a healthcare value focused fund. Sure. So, I’ve spent the preponderance of my career in the healthcare sector. Uh, so that’s why we focus on healthcare. But, um, the Summer’s Value Fund takes a concentrated long-term approach, uh, to investing in the healthcare sector. We, uh, primarily look for special situations or companies that are off the beaten path or underfollowed, underloved. uh they’re usually out of favor when we buy them. Uh and then we like to hold them for a long time until that um misperception is cleared up in the market. Uh we started in 2018. Uh I spent most of my career at large asset managers including Invesco Funds and Janice Capital. Uh I’m based in Denver. I’ve always been in Denver, but um because of my healthcare orientation and background, that’s what we focus on in the summers value fund. >> What are some of the uh unusual things about health care that perhaps generalists or folks in other sectors don’t know or understand that they need to know to survive and thrive? Yeah, healthcare is a very complex sector and the complexity really stems from the regulatory environment and the constant change that’s occurring uh on that front. Uh you know there’s different policies coming out of Washington at any given time. We’ve seen a lot of that so far under the the Trump uh administration, but uh what’s happening at the FDA is another sort of angle to it and just sort of the the regulatory path to getting drugs and devices to the market. Um so you just have this kind of sort of constant uh change happening on the regulatory front that uh adds complexity uh that most generalists I think are not necessarily uh used to. And then of course you have like commercial dynamics that are always changing as well. Um you know the payers play a very significant role in the health care sector. So you have to understand uh what they’re willing to pay for, what they’re not willing to pay for, and how that might be changing. Uh on the commercial side, of course, on the government side, they’re a big payer as well. So you have to know how CMS is viewing uh drugs and devices and the changes that are coming out of CMS. So um you know, there’s just a lot to really digest in the health care sector and that can create complexity that would make maybe generalists somewhat uncomfortable. I think before we came on I was just saying that I’d seen some chatter last year on Twitter that healthcare was particularly cheap relative to the rest of the index and it seems to follow this long cycle where I can’t I think it might have been early 2000s where it was comparably cheap and then it went on for a very good two decade run and it seems to have been a little bit weaker more recently to the point where it looks like a it could be a very good opportunity but could you perhaps narate for us why it’s had that long period of outperformance and what’s caused that sort of recent period of of uh of underperformance. >> Yeah. So, healthcare did really well I think coming out of the financial crisis really 2010 to 2015 was a spectacular period for the sector. There was a lot of uh merger and acquisition activity happening at that time. there were a lot of uh new product launches, exciting new product launches happening at that time and so that drove uh a lot of interest in investing in healthcare. Uh biotechnology specifically uh did extremely well in that period of time mostly because of the innovation that was coming out of that uh part of healthcare. But um and then in 2015 things really changed. Uh the sector kind of peaked 2015 maybe into 2016. Uh the there were more patent drugs coming off patent in that period of time which created headwinds to growth. There was less innovation happening in that period of time. Uh I think you saw some reduction in M&A activity. I know from 2022 to 2024 uh you know we saw quite a big drop off in M&A activity. So just some of these things stacking on top of one another created a situation where the sector underperformed for a period of time. So we would agree with you at least on a relative basis uh the sector looks very attractive uh compared to the broader market. >> Yeah. GMO had a piece recently on that was talking about this healthcare and um the valuation versus the market and they had it you know they they showed a chart that went back to the 1980s and um you know it was like I think it’s if I look at it in squint now it’s you know minus 40% below on a relative basis and this is sort of their composite metrics that they’d use of like PE uh normalized price to sales cash flow dividend yield u but the other interesting thing they had was a chart in there that was um healthc care spending as a fraction of GDP and they had all of the other OECD nations and they’re kind of like all together on this you know it’s an upward trend and they’re now somewhere in the 10% category and the US was up at like 18 plus as this outlier you know ramp above everyone else what first of all what do you make of that I guess and then second u is that sustainable is that actually argument that we’re maybe overspending as a society on healthcare relative to others and maybe that that could be a tail a headwind what which previously was a tailwind. How do you how do you think about that? >> That’s been a longunning debate in the healthcare sector whether or not we’re overspending relative to the rest of the world. I I don’t really think that’s open to debate. Clearly we are based on the data. But there’s a thesis that the United States is subsidizing the rest of the world with our innovation. And that innovation is expensive. And because of that, we charge high prices for the innovation that we bring to the market here in the US, countries outside the United States, Western Europe, uh, and so forth, they pay much less than we do for those drugs. And so there’s an idea that we’re sort of sponsoring or subsidizing the rest of the world with the R&D that’s taking place inside the United States. So, uh, I think that’s something that the Trump administration is sort of taking headon, which other administrations did not necessarily. So now for the first time really in the 30 years that I’ve been doing this, you’re seeing price concessions on the part of drug companies in the United States. The inflation reduction act uh is driving a lot of that. And so that’s put some pressure on the on the sector especially on drugs specifically that we just haven’t seen historically. But it all feeds into the fact I think that we are as a nation spending quite a bit more than other developed nations around the world. >> To your point though, the other side of that coin is that there are drugs available in the US that just aren’t available in the rest of the world. And until they’re approved by whatever their local regulator is, they s they’re just not available. And if they’re not, you know, they want to pay a lower price, but if that drug company doesn’t agree, they’re just never available. So the US has has a a bigger menu. But my question was more about biotech. Uh similar to the trend that we saw in healthcare where it was it was it looked to be unusually cheap. I I thought I saw some chatter last year too that biotech was looking unusually cheap too. Is that true? And and what why do you think that that’s occurred? >> Yeah, I think that is true. If I look at my portfolio specifically, a year ago, we had about 5% of the fund in biotech. And fast forward to today, we have about 40% of the fund in biotech. But it’s been a real sea change for us uh beginning about a year ago. And um I think to your initial point, you know, you’re spot on. the sector was or the industry was out of favor for a number of years and that led to undervaluation but but more importantly what I’m seeing today is you know biotech has always been about innovation cycles and right now we’re on the cusp of a really strong innovation cycle within biotech and usually what that does is it drives broader investor interest so generalist interest um and it also drives more M&A uh and So I think um and and the industry has matured a lot and a lot of these small cap companies today have matured to the point where they can launch drugs on their own and that didn’t necessarily happen 20 years ago. They almost always partnered with a bigger pharmaceutical company to commercialize something that they innovated internally. Well, these days, uh, I’m seeing a lot more biotech companies that are more than willing and capable of bringing these innovations to the market on their own. And so, um, it’s created a backdrop, I think, that’s pretty exciting today and and very investable. Uh, and so that’s why you’ve seen us move more broadly, uh, in that direction. H, >> how do you think about biotech? Because there’s one way where if you’re fairly unsophisticated investor from outside looking at the biotech maybe just looking at how much cash they’ve got on the balance sheet taking a basket approach and knowing that some are going to work some aren’t going to work and it and hope that you get more winners than losers at the end of that or you could take a much more targeted approach. So how do you how do you think about biotech and what are you looking for as a sort of catalyst or or the thing that piques your interest? >> What if I got a D in biochemistry in school? Uh well everything we do at Summers Value is targeted. So we are a concentrated fund. We own roughly 10 positions in any given time. Maybe it’s eight, maybe it’s 12, but something around 10. And so because we’re so concentrated, we take uh what I would call more derisked approach to investing in biotech. So, we’re not I’m not a scientist by background. Uh I don’t invest in science projects as an investor. So, something that’s phase one, phase two, uh is just way too early for us. Um there’s too much risk. Uh something that’s completed phase three and perhaps is uh waiting approval by the FDA or has been approved by the FDA is waiting commercialization. That’s about as early as we will go in the process. But but by waiting until the very end, we take a lot of the development risk out of the equation. And then at that point, we’re really accepting commercial risk, which is something that I’m much more capable of understanding. And so because of our approach and the way it’s designed, um we we are able to take a more targeted uh approach to what we do in biotech. And that applies to anything we do uh in healthcare. >> You mentioned that uh an innovation cycle. you expected an innovation cycle to kick off or in in an innovation cycle. What what’s driving that most recent innovation cycle? >> Well, I just think historically these things have come in waves, right? Where um you get a lot of investment which leads to a you know a period of time where you see the other other side of that which is the productivity of that investment. Um and right now we’re just seeing a lot of new drugs coming to to the market. Um the FDA has been relatively uh benign uh to the industry which is always helpful. Uh when when the regulator um is is is taking more of a lazair approach uh that’s always helpful. I’ve been investing in periods where that hasn’t been the case. So that’s also helpful uh to get new drugs to the market. Um, but I think it’s just more of a cycle and right now we’re we’re in the the positive early innings of of another innovation cycle. Now, the one thing that I would point out, and I think this is incredibly important, and it’s more of a macro um observation, but we’re sitting here today in 2026, and between 2026 and 2030, there is a pretty significant patent expiration wave affecting large cap pharmaceutical companies. In fact, it’s the biggest patent expir wave the U industry’s ever seen. So, just to throw something out there at you, of the top 10 pharmaceutical companies around the world, five of those 10 are going to lose 50% of their revenues between now and 2030. >> So, if you if you appreciate that as a backdrop, you know, you’ll understand why more M&A is coming. It’s very obvious the way that these companies are going to get out of this hole is by acquiring the innovation that’s happening in biotechnology today. And and so I’m very optimistic uh that we’re at the beginning of a multi-year wave of uh M&A uh and and alongside that of course is this innovation cycle that I just described which I think will feed that um that M&A cycle. At the risk of revealing how little I know about healthcare is is what what are the impacts of the mRNA or AI on I know those are two different things but >> why don’t you talk I don’t mean together I just mean mRNA is a you know I guess that’s a 5-year-old technology now but that seemed to be like something that might spur an innovation cycle if it’s a different way of delivering a drug and then AI is a different way of analyzing the data And I did preface that by saying at the risk of illustrating how little I know about healthcare. >> Yeah, those are those are pretty broad topics. Um I don’t know that I’m qualified necessarily to give you an opinion on mRNA and the impact that’s going to have. That’s a really small subset of biotechnology. uh you know the the innovation that we’re seeing is pretty broad-based actually um across different therapeutic categories with within healthcare. Um we are seeing some leading edge uh technologies emerge in oncology specifically immunology some other areas that are fun driving some of that innovation but um I don’t and and AI you know that’s also pretty broad u companies are using AI now uh in their sort of early stage modeling of molecules that they’re looking at bringing to the market bringing into development um which I think over time will increase the hit rate or decrease the development risk of those uh assets. Um, but I think it’s still pretty early days as far as how that’s being utilized inside of drug companies to uh improve their hit rate, if you will, uh for drugs that they’re they’re developing, but it is certainly coming and it’s certainly going to be something that uh uh you’re going to see more usage of over time. How about uh GLP1s as a kind of a massive headwind actually for all of the if they do what they say they do which is fix a lot of sort of like uh chronic diseases of abundance that I think is what is the health care system addresses a lot of those today. If GOP ones actually do eliminate some of that uh those chronic issues, uh where does that leave us then for is it is there as much healthcare as we need then if we’re kind of gotten better at the the very upstream part of it? >> So the GLP1 drug class is probably the closest thing I’ve ever seen to a magic pill that the industry has developed. So, >> and I would uh back that up by with some anecdes were still the everyone wanted to talk about them the whole time. >> Yeah. So, they have metabolic benefits, so they lower your weight. They have cardiovascular benefits, so they lower your blood pressure. Uh they improve your lipid profile. They have cognitive benefits which I think are maybe still more on the early side of being uh totally uh played out but uh they’re being looked at in dementia and other cognitive um diseases. But I mean literally uh they they lower cancer potentially cancer rates because again you know people are losing weight and uh obesity is one of the primary drivers of of cancer. Uh, so again, the closest thing to a magic pill that I’ve ever seen. The side effect profile is relatively benign. The first 30 days can be tough on your GI track. So, you might have nausea and vomiting for your first 30 days, but if you can get through that, uh, the long-term impacts are profound. And if you’re paying attention, Novo just launched a higher dose of their oral GLP-1. Uh it’s oral oral wovi and interesting side note um so this goes back about six years but I did a lot of work on this drug class before it was really um sort of widely understood to have you know it’s going to be the biggest drug class of all time. We owned a company called Hemisphere which had a which got a royalty on the oral form of WGOi. And so uh I was very early to the you know this drug class. I did a lot of research back then literally spent a year of my life um you know understanding the profound impact that this drug class was going to have. And um unfortunately Nova Nordisk bought that uh from us in 2020, but um >> for too cheap I imagine. >> Well, if it was still around today, you could imagine what it would be worth. But um >> yes, I would argue um they sold it too cheap. But um yeah, we had uh a very good idea that this was going to be the largest drug class of all time back then. But there were very few small cap ways to get exposure because obviously Nova Nordisk and Eli Liy being, you know, very large companies aren’t really on on my radar, per se. They should have been, but they weren’t. >> Andy, you’ve had some experience with activism. um in healthcare. Can you tell us a little bit about that? >> Yeah, so I’ve I’ve uh I’ve run two activist campaigns in my time at Summers Value. I would say one was an abject failure. That was number one. Uh and then the second one has been uh a very big success. So the failure um ultimately failed because the business wasn’t a great business. Um, I was able to get a board seat and was able to to to drive positive change, but the the mistake I made was the business was not high quality. Uh, and it was more fragile than I than I expected and and it encountered too many headwinds and I was only on the board there a year. I stepped off and sold my position but sold it at a loss. But the the second I used the learnings from the first campaign, applied it to the second uh was far more successful with the second. That was in 20121. Um I’m on the board of that company today. Um but it’s it’s been a fantastic experience. uh we have a wonderful management team and and uh board of directors there who are um you know performing at a very high level and and I’m very pleased with with how that has performed >> and uh talk to us a little bit about your board positions. >> Well, I’m on the board of a public company today called Electromed. It’s a small medical device company based just outside of Minneapolis. And I’m also on the board of another medical device company called Restore 3D. They’re a private company. They’re based in Raleigh, Durham, North Carolina. And the way I got involved with Restore 3D is we led the series A round uh in 2024 and I took a board seat alongside that that capital raise. And then we also participated in the series B raise last year which was led by Partners Group which was one of the largest uh private equity firms in the world. Um and now they’re also on the board. But uh Restore 3D it’s interesting. So we have the main fund but we’ve also launched what we call deal funds around the main fund. So the first deal fund we launched in 2021 that was the activist fund. We closed that fund last year. Uh that that fund was very successful. Um so we end up returning >> single single idea SPVS. >> Yes, exactly. So a deal fund for us is an SPV. >> Uh but um so that fund is gone now. Uh deal funds two and three for us were uh investments in Restore 3D, the private orthopedic company that I just just described. >> And what do they do? Yeah, it’s really interesting. So, the orthopedic market today is dominated by Striker, Zimmer, uh J&J, and a few others. And if you need a new hip or a new knee and you go find a surgeon to do the procedure for you, that surgeon is going to take some measurements while you’re on the table. They’re going to go to the the stock room. There’s a floor to ceiling inventory of different sizes of these hips and knees. And the doctor’s going to say, uh, Mr. Carile is a size five. So that’s what we’re going to put in him on the table. >> Small and small and weak. Toby, by the way, for >> that’s the biggest size that they have. >> Yeah. Um, and then, you know, 90% of the time that works fine, right? uh maybe 95% of the time that works fine. The patient has a good outcome and um you know gets back to their their daily life. However, in 5 to 10% of the cases uh it doesn’t work. It doesn’t fit uh the size or the shape um and the patient has a really bad experience. So what we do at Restore 3D is we’re personalized orthopedics. So, if you go see your surgeon and you say, “Uh, Mr. Taylor, you need a new hip.” Uh, you need to go get a CT scan first. Uh, you get the CT scan. It gets sent to Restore 3D. We use AI and machine learning to make a patientspecific implant for Jake. And then we 3D print it in Raleigh, Durham, or outside of Boston. We have two manufacturing facilities. We 3D print it and then we ship it to the surgeon and the surgeon will put it in. Um it’s um I would say it’s it’s a more contemporary business model. I think it makes a lot more sense. Everybody’s size shape is very different and so we think that everyone deserves personalization in orthopedics and that’s what Restore 3D is delivering. Now Resto 3D also does ankles and hips. I’m sorry, ankles and shoulders. And that’s probably where where we’re most differentiated. Um, if you think about your shoulder or your ankle, there’s a lot of anatomy there uh relative to your hip and and and your knee. And so that’s where personalization can really uh create better outcomes for patients. And those were where our products are most unique. But Restore 3D did almost 90 million of sales last year. We’ll do well north of 100 next year and we’re planning an IPO in the second half of this year. Uh it’s been a great experience for me. Um there’s a fantastic management team involved. You know, the longer I do this, the more I appreciate that people matter and the management team at Restore 3D has sold uh three companies previous to Restore 3D. They’ve always sold them to publicly traded companies for really good exits to their investors. So, this is their fourth iteration together as a team. I think that matters a lot. Um, but I’ve also been able to kind of watch uh from the inside what it’s like for a company to go public and just the bankers and how they interact and and and the the preparation that’s happening uh in advance of that. So, it’s it’s been a it’s been a great experience so far. >> Partially. So, >> what sort of market cap do you expect? I mean, I don’t want to I don’t want to get the pricing. I’m just sort of interested in like going going public as a small or mid or I I don’t imagine it’s a large, but you know, there’s been a lot of talk about a lot of companies foregoing that trying to stay private for longer and raising more and more VC so they become public as large caps to sort of escape whatever sort of, you know, is is going on in small and mid. Does that factor into the to the equation at all? Do you consider then? >> Yeah. So, I think in the case of Restore 3D, we’re in a very good position because we have now the backing of one of the largest uh PE funds in the world and they’re very prepared for the company to stay private longer and support the business along the way. So we have um I think a very uh attractive position where we could stay private longer if we wanted to. Obviously that’s a broader trend in the market that companies are staying private longer. Um but I would having said that I think uh you know we would entertain going public. We we we are in fact moving down that road as well. So um if the market is open and the market is um you know attractive we will we will push that button and go public. Um it’s interesting right as a as a small cap investor the the pond that I fish in has been shrinking for >> right >> 25 30 years. um you see companies uh being acquired all the time but there’s not a good sort of uh backfilling of those companies with through IPOs or other mechanisms. So um I view it uh positively as a small cap investor. Uh I’d like to see more companies go public um over time but but I think we’re in a really advantageous position where we don’t have to. But we will if the market environment is is right. Let me just give a quick shout out and then JT will do some vegetables at the top of the hour. Uh Toronto, Valpareo, Breenidge, Snomish, Boisey, Lousan, Switzerland, Asheville, Tampa, Hunter Valley. Good for you living the dream. Bangalore, Mororrow, Ohio. Oh, got a hard one here. >> Vogga, Iceland. >> Is that really you in Iceland? Orlando, Goththingberg, Sweden, Nashville, Tennessee, uh, Tallahassee. Got some good questions in here, too. We’ll come back to Andy after the vegetables. All right. So, let me start with a perhaps strange claim that most market failures don’t come from bad ideas. They come from good ideas that work too well and get taken too far. They come from systems that become so good at rewarding the right behavior that actors learn how to fake it. And in markets, we like to believe that we’re filtering for quality, like better businesses, better technology, better management. But what if that belief might be backwards? What if markets don’t select for truth at all? What if they select for what looks like past success? And that brings us not to Wall Street, but to a Russian botonist uh who was studying weeds. And in the early 20th century, uh, a Russian botonist named Nikolai Vavalov noticed something strange happening in agricultural fields. It’s worth sharing a bit of background on Vavalov first before. Uh, he wasn’t just a theorist. He’s actually quite an ambitious field scientist. and he traveled relentlessly and led extensive uh expeditions across dozens of countries, walked through the fertile crescent, the Ethiopian highlands, the Andes, Central Asia, and uh he identified what he called centers of origin, which were regions where crops like wheat and rice and maize and potatoes first emerged and where their genetic diversity was the greatest. And to protect this diversity, he created what was in effect uh in effect basically the world’s first modern seed bank. and he believed that humanity’s long-term survival depended on preserving that variation. Uh, and being Russian, of course, here comes the tragic part of the story. Uh, in the Soviet Union, agricultural science was was very politicized. And this pseudocientist that you probably heard of of named Trophim Lasco rose to power by telling the regime what it wanted to hear. Basically, that that crops could be forced to improve quickly through ideology really, not genetics. And that belief aligned perfectly with the political incentives. Vavalov Vavalovv disagreed uh and he thought that you know biology actually had some rules and constraints uh around genetics and you couldn’t will productivity into existence and for that he was arrested uh and eventually he died of starvation in a Soviet prison in 1943 which ironically during a famine uh by the way uh while the seed bank that he built was protected by his colleagues uh who themselves actually starved rather than eat the seeds that they were guarding. So, enough Russian uh sadness. Let’s go back to the farm. Uh farmers, you know, are planting wheat and barley and rye and and they’re they’re carefully cultivating these crops and they’re doing what farmers have always done, like and they’re removing the weeds. And over time, something really unexpected happened. The weeds didn’t disappear. They adapted. Certain weeds began to look like the crops themselves. Their seeds became similar in size and shape. The the stocks bent in the same way. Their growth cycles synced up with the the harvest schedule. And the weeds that survived weren’t necessarily the strongest or the fastest growing necess but they were the ones that best impersonated what the farmer wanted to keep. And this phenomenon became known as Vavalovvian mimicry after Vavalov. So whenever a system tries to filter, optimize or reward certain traits, the environment adapts to it and over time the participants evolve to look like whatever passes the filter regardless of whether that is there’s underlying substance to it. So biology does this, social systems do this and of course financial markets do this. So uh markets like farms are selection machines, narratives, benchmarks, screening, they determine what survives and what gets removed. And investors are constantly trying to separate the signal from noise, the the wheat from the chaff. But but this act of filtering can change what gets produced. So once a market starts rewarding a specific trait, growth, margin, ESG scores, AI exposure, index inclusion, the participants don’t just compete honestly on fundamentals anymore. They adapt their appearance, they evolve. So the most obvious form of this Babalovian mimicry in markets occurs through narratives. Uh you know, as Morgan Hel has said, every market valuation is a number from today multiplied by a story about tomorrow. And when the market becomes hungry for a specific story, companies learn to speak the language of that hunger. And they, you know, think back to.com bubble. Late 90s, it becomes impossible to raise capital basically unless you were an internet company. And so firms adapted. Traditional businesses threw.com onto their names. Uh launched a website. Pitch decks now are about eyeballs and not about revenues. Valuations exploded, not because really economics had changed, but because the desired phenotype had. The same logic plays out during every spack boom. Sponsors reward massive tams, aggressive forward projections, visionary storytelling. So the companies evolve to meet those expectations and these financial projections get stretched further into the future. Narratives get bigger. Uh reality sort of becomes optional for a while. And of course, we’re we’re seeing this now with AI in a lot of ways. Every company’s added AI to its product roadmap. uh earnings calls or something like 60% of recent earnings calls in the S&P 500 have explicitly mentioned AI. Uh and there’s a there’s another mechanical version of Vavalovian mimicry that happens inside the index. So today something like half I don’t know that I feel like the number moves around but half the US equity ownership is tied to passive strategies. Uh that means inclusion in an index isn’t just really a symbol. It it determines your liquidity, your cost of capital, the immediate valuation. So these companies adapt. They structure their share classes to meet index eligibility requirements. They manage float and buybacks to optimize waiting. They they time their splits or spin-offs and and corporate actions around rebalancing schedules. So this capital floor flows towards what what’s included and um it gets reinforced then in the by benchmarks. Uh and then of course you have closet indexation that happens behind that that furthers the momentum with concepts like uh I don’t know if you guys have heard of this like completion portfolios as a thing in in big allocators basically like you don’t want to lag too much uh the S&P uh so these assets are evolving not really necessarily to be better businesses but to fit the benchmark mold and you know this crop is the index and the weeds are the companies reshap reshaping themselves to look more like it. Uh, so I want to bring this back to markets in uh in by quoting some Howard Marks for you. And this is from his second dare to be great memo which I believe came out in 2014 and it’s it’s worth a read. It’s quite good. So here’s Markx. For years I’ve posed the following riddle. Suppose I hire you as a portfolio manager and we agree you will get no compensation next year if your return is in the bottom nine deciles of the investor universe but $10 million if you’re in the top decile. What’s the first thing you have to do the absolute prerequisite in order to have a chance at the big money? And he says no one has ever given the right answer before. Do you want to give a guess as to what what what he’s about to say? >> Toby, that’s the question for you. >> Yeah, I I have no idea. I’m I’m thinking about the answer. I I imagine you just like that’s got to be momentum, right, in the short term. You look at what’s worked this year. >> Um well, that’s not Markx’s answer. Maybe that is maybe that’s 50 market talking. >> What do you think, Andy? You got a you got a view? Yeah, I think you have to uh be willing to uh take some take some risk, >> higher risk portfolio. >> So here here’s Mark’s answer. Quote, uh the answer may not be obvious, but it’s imperative. You have to assemble a portfolio that’s different from those held by most other investors. If your portfolio looks like everyone else’s, you may do well or you may do poorly, but you can’t do different. And being different is absolutely essential if you want a chance at being superior. In order to get into the top of the performance distribution, you have to escape from the crowd. Non-consensus ideas have to be lonely. By definition, non-conensus ideas that are popular, widely held, and intuitively obvious are an oxymoron. Thus, such ideas are uncomfortable. Non-conformists don’t enjoy the warmth that comes from being at the center of the herd. Further unconventional ideas often appear imprudent. The popular definition of prudent, especially in the investment world, is often twisted into what everyone does. So that’s the connection. Uh Vavlovian mimicry says once a farmer rewards a certain look, weeds evolve to copy that look. And Howard says if you want top desile returns, your portfolio can’t look like everyone else’s. So you put them together and you get a a simple warning. The the crowd doesn’t just make you wrong. It trains the world to say what looks right right now. That’s where bubbles come from. The moment that the weeds learn the crop’s phenotype and express it. This is why non-consensus ideas often feel imprudent because prudent in markets just means looks like the crop. But if your goal is an enviable long-term results, that type of consensus prudence is actually the enemy. You have to think for yourself and resist the Vavlovian mimicry. >> Well, I’m sorry that I failed that test. I think uh Howard Marx wrote that I think it’s clear that he wrote that in 2014 because that hasn’t been true since 2014, >> right? >> It’s been a uh it’s been a large cap growth market since over the very long term. Howard Marks is right and eventually we go back to that kind of market. We may already be there. It may have started in October last year. >> Don’t jinx it. >> Good one, JT. Ah, it’s I don’t have any influence with the the man upstairs, dude. just I’m just saying um we had a couple of good questions here Andy uh this is from the this is from the the listeners uh what are Andy’s thoughts on the farmer supply chain rechina and active ingredient manufacturing >> I’m curious about that as well >> there was a followup uh with respect to rapamy particularly >> also that one >> so we talking about contract manufacturing >> active ingredient manufacturing is the question, but you >> I would say more generally like biotech in China and like their capabilities starting to approach the US and what that means for for the industry. >> Yeah, I think that is true. I went to China multiple times when I was working at Janice and I can tell you going back to 15 20 years ago when you went over there it was very unimpressive. um it was the stone ages compared to what was happening in the United States. Fast forward to today, you have very sophisticated companies operating out of China. The regulatory environment over there has uh sort of fostered uh an innovation uh and uh innovation period that you know maybe has caught them up very quickly to where we are and you’re seeing today more US and and European pharma companies sourcing uh compounds from China as a result to bring them to the US and to other developed markets. And I think that speaks volumes about how far they’ve come in a short period of time. Obviously, we’re seeing onshoring as a trend. Uh and so you’re going to see more manufacturing done here. You’re going to see more active ingredient sourcing done locally over time. Um and so I think that’s something to be aware of. But as far as drug development is concerned, China has caught up in many ways to what we’re doing in the US. And uh you’re seeing that just in the uh the deals that have been struck recently um between big pharma and some of the companies over there to bring those products to our markets. >> Andy, uh you’re a long short investor. Can you talk to us a little bit about what you look for on the short side? >> Yeah, so I short for absolute performance. I don’t short to hedge, just to be clear on that. And um I learned a long time ago the hard way that uh shorting something because it’s expensive is is a terrible strategy. Uh so we don’t do that. Uh but what we do do is we look for things where you know market expectations might be very divergent from our internal expectations. And the way that we express that generally is through new product launches. That’s where I see the most inefficiency. the market either gets it wrong by being wildly over optimistic or wildly under optimistic. And so that we can create a divergent view there sometimes that we can take advantage of on the short side. That’s where we’ve made most of our money since inception. But generally speaking, we’re very selective on the short side. We might have zero shorts. We might have three or four um but we don’t have 10 or 20. Uh I think one of the ways that you know the hedge fund industry has failed is by obviously the fees are higher and a lot of managers justify those fees by having too many short positions on at any given time and I know from experience that it’s just very very hard to to have that many good ideas at any given time. So I think many managers don’t make money in the short side long term as a result of that. I’m very proud that that we’ve made money on the short side since inception. We’ve made money most years since inception, but I believe the key to our success is is selectivity and not feeling the pressure to have x number of positions on at any given time and having the benefit of waiting uh for the right opportunity to present itself. >> Would you be able to walk us through a position on the long side on the way you’re thinking? Doesn’t have to be open. can be something that you’ve closed, but just so we get an idea of how you think about some of these uh positions. >> I’d assume a a fifth grade level of understanding of uh biology. >> Yeah. So, um maybe for the audience, I’ll talk about something that’s it’s kind of boring actually uh and easy to understand, but um we’ve been invested in a company called UFP Technologies since 2020. And UFP Technologies is a manufacturer of medical devices, an outsourced manufacturer. So companies like Striker uh will contract with UFP technologies to uh manufacture their products on their behalf. Um today, uh UFP’s biggest piece of business is with Intuitive Surgical. So they manage they they produce sorry all of the uh pouches and drapes for the uh Da Vinci robot. Um they do that out of the Dominican Republic. But what what drove my interest originally is at the time UFP Technologies was a 200 maybe 250 million market cap and they were categorized as an industrial. So they were slowly migrating from manufacturing uh let’s see aerospace products um for example and doing more medical device manufacturing um they were somewhere around 60 70% maybe 60% of the business in medical devices and the rest in other but they were they their gigs code was industrial so as a healthcare investor I had never heard of them. Um, I think most healthcare investors at that time wouldn’t have known who they were, but uh, I could see that they were migrating to be a healthcare company. And I could also see that the multiple they were trading at was far below that of a healthcare outsource manufacturer. So there was sort of an arbitrage there between an industrial manufacturer and a healthcare manufacturer. And so at the time they were trading at maybe 14 15 times earnings. They had a lot of cash, no debt. Um, but what was unique and interesting about the management team there going back to management is extremely important is they had a history of um acquisitions and very few companies have the DNA have the culture to be consistent and uh you know obviously positive acquirers of other assets over time. Most companies fail. I think empirically that’s that’s proven out. But this company had a track record of success. Um, and because the industry was so fragmented, it was primarily comprised of mom and pop operators, you could just see they had this long runway to make acquisitions. Uh, the management team had an algorithm that was extremely attractive. They were buying things at four or five times IBITA. um they were um integrating them into their business with the one the one goal of always becoming more valuable to their clients. And I just think that culturally, you know, that drove a lot of their success. Let’s always become more valuable to our end client. And so what’s happened since 2020 is today they’re 90 plus% medical manufacturing. So now they’re considered to be a healthcare outsource manufacturer which has improved the multiple. Uh they’ve grown earnings much faster than expected because they’ve layered in acquisitions over time. Um and and so um it’s been a very good stock for us. We’ve sold quite a bit of it at this point, but it’s still uh represented in the fund and it’s something that I could see us owning uh for another, you know, five or 10 years just because again, we’re nowhere near the end of what they could be doing as far as consolidating this industry. >> What’s the ticket for UF Technologies? >> It’s UF P is in Patty, T is in Tom. >> Makes sense. Uh >> checks out. Uh, I’ve got a little note. Uh, 2004 to 2007. I slightly blanked on why I wrote that. >> Running a solo manager hedge fund. The experience. >> Yeah. Thank you. >> Yep. Yes. So, between my time at Invesco and my time at Janice, I had a fund from 2004 to 2007. It was a healthcare focused long short fund. And essentially what happened was in 2004 Invesco was consolidated into AIM which was in Houston. So they moved the operations the investment team to Houston. I carved out my team and I created a fund company called Silvergate Capital Management. Very quickly um got to 100 million plus in AUM. Uh I I ran them for three plus years. uh the closed it down and what happened that drove me to close it was there were two investors uh they were fund of funds who came together they were on tourism they were going to be a great long-term partner uh for us um 12 months later they redeemed um to go a different direction and at that point I was forced to make a decision to gut it out and try to rebuild or to shut it down. Um there were signs in the market kind of beginning in August of 07 that something was really wrong. Um just a lot of volatility happening in a lot of strange places that I hadn’t seen before. And so I took between August and uh uh the end of the year wound down and then joined Janice in February of 2008. But but I would say that there’s the the the industry back then was very different than the industry today. There were far more fund to funds and other allocators in the landscape. Uh it was much easier to raise money. Uh you know fast forward to today the number of allocators interested in hedge funds I think has decreased considerably. returns maybe have not met expectations. But also you now have private credit which is you know garnering a lot of interest from from allocators. The the private equity industry is you know 10 trillion in assets today. It’s much larger than it used to be. So um there’s a lot more competition I guess uh out there for hedge funds. But the to be a single manager to to go out and launch on your own. I think the calculus today is very different than it was in 2004. Uh it’s much harder today. The break even is higher. The cost of doing business is higher. Uh it’s just a very different environment. >> When you look at the market for small value healthcare and more broadly, what what do you see? What is it? What where do we where do you feel like we are in the cycle? >> I think it’s it’s a very attractive backdrop right now. You’re we’re in a period of time where small cap has underperformed for what 15 years. I mean, it’s been a long time since small caps have outperformed long or large caps. Uh we’re in a period of time where healthc care has, you know, underperformed for probably the last decade. So the backdrop I think is really favorable from a valuation standpoint. I have no uh problem finding double digit free cash flow yields. Uh my my metric in in small cap healthcare right now. They’re they’re everywhere. And so I think the starting point for attractive future returns is is there. Um I again we talked about this already but I think you’re going to see more M&A uh going forward since companies acquired out of my portfolio. So about one every 12 or 18 months and the last four have been acquired by private equity. One one of the things that I talk to my clients about a lot is you know in the late 90s when I was at Invesco we had a venture capital fund. We were one of the early investors in Gilead. uh for example and one of the things we always talked about as a team was you know the discounts that we were able to source private company investments at. It was it was very pervasive back then. You never got market price or a premium always at a discount. Well, you fast forward to today the private markets everything’s a premium. And what I’ve se it’s almost inverted, right? Where in the public markets nobody wants volatility anymore in their portfolio. So they’re willing to pay big prices for what you see privately. Um but what the result of that is in the public markets um the valuations are are extremely attractive and and and more broadly you know the market structure has changed so much over the course of my career. You know Jake referenced it. I think the number is closer to 65% of the market is passive now. Um there are far fewer active investors like me out there sourcing opportunities and kind of 500 million to two billion which is kind of my sweet spot. Um and so and then you know look on the sell side there used to be 150 you know brokers out there doing research on and many of them were doing it on small cap companies. Today there’s more like 30 maybe 40. Um, so there’s just far fewer people doing the work on the area of the market where I I focus my time and and so you add all these things up and it’s just kind of created this enormous void uh where valuations today are really really attractive and I would expect private equity to step in and continue to buy assets out of the public markets. I think that’s a no-brainer. I would think more strategics will get involved on the biotech or innovation side of things where they need to fill the gap in their their own uh portfolio as as their drugs go off patent. But but I think the backdrop for the for the next three to five years is extremely favorable. That’s very interesting. I’ve I’ve got a question from uh Lotto Allocator. Uh why do you think the FDA is demanding an in-house control group on cure qur? Do you have any do you have any view there? Isn’t the efficiency data versus well-established baseline good enough? Is it too specific? You you know what they’re talking about there? >> Yeah. So uh unicure is a very interesting situation. Uh background unicure is developing a drug called AMT130 for Huntington’s disease. If you have any background or knowledge on Huntington’s disease, it’s it’s a really nasty disease. People are struck with Huntington’s in the prime of their life, usually in their 30s or 40s. It’s um a fast progressing disease. It’s incredibly debilitating. Uh you lose motor function, you lose cognitive function. Uh it’s really hard on the caregivers, it’s really hard on the health care system overall. It’s an enormous unmet medical need within healthcare. And a lot of drugs have been developed for Huntington’s over the years and they’ve failed. It’s a very difficult drug disease to treat. There are some drugs approved today for um Huntington’s Korea, for example, which is the tremors associated with Huntington’s disease, but there really hasn’t been a company that’s cracked the code on uh on the underlying disease progression. And so what Uniure did that was incredibly unique is is they they developed a drug that’s developed delivered via a vector. Uh so you have brain surgery. uh and it goes deep into the stray atom of the brain and it delivers a vector uh that will disperse the drug inside the tissue. Um and what they showed in uh a group of patients uh in the fall was that AMT130 was the first drug to ever affect disease progression and it did so relatively like in a market fashion. like these people for the first time ever were going back to work uh for example which never happens. Um and so um UniCure thought they had alignment with the FDA on the development pathway for the for the product. They were going to use a historical control group um as a means to test the progression of the drug instead of instead of control. And what happened was in the fall the FDA came back and said actually wait pump the brakes. We don’t have alignment. Um we are going to require something uh more along the lines of an active comparator uh before we approve the drug. And so it’s left Unicure in there trying to figure out the path forward. the uh the the Huntington’s community is is up in arms because they thought they had a drug for the first time that was going to treat the disease. The physician community is up in arms because they thought they had a drug. Um but it’s it’s it’s a really unique situation and and I don’t know what the outcome is going to be. My guess, my best guess is that the FDA is going to relent and somehow allow this historical control group to be the uh comparator uh and then find a way to move the drug forward because the the alternative is maybe a multi-year new trial, which I don’t think um people have a lot of appetite for. Uh, I just think there’s going to be enough pressure that the FDA is going to relent and uh allow this to move forward. The the the unmet need in the market is just too great. >> All right, good color. Thanks very much, Andy. Uh, we’re coming up on time. If uh folks want to follow along with what you’re doing or get in contact with you, what are the best ways to do that? >> Yeah, via our website at uh www.summersvalue.com summersvalue.com is the best way or andy summersvalue.com. Uh you can reach out anytime. >> Good stuff. JT, any final words? >> No, thanks Andy for coming on. That was interesting. >> Yeah, thanks. I appreciate the time. >> Andrew Summers, Summers Value Fund. Thanks so much for joining us, folks. So, we’ll be back next week, same time, same

Pitch Summary:
Tasmea is a promising investment due to its strong growth in revenue and earnings, driven by a disciplined management team with significant insider ownership. The company benefits from stable and resilient revenue streams, with 94% of its revenue coming from repeat customers. Despite a 30% decline from its highs due to acquisition-related risks and skepticism in the Australian resources sector, Tasmea’s business model is less cyclical than expected, focusing on maintenance and uptime maximization. The acquisition of WorkPac enhances its strategic position by removing labor bottlenecks, allowing for larger project bids. The company’s ability to cross-sell services and bundle offerings leads to higher margins and more wallet share per customer.

BSD Analysis:
Tasmea’s recent acquisition of WorkPac, although initially met with skepticism, strategically positions the company to handle larger and more complex projects by internalizing labor logistics. This acquisition, despite causing some share dilution, is expected to be EPS accretive and adds 15 master service agreements to Tasmea’s portfolio. The company’s focus on non-discretionary maintenance activities tied to safety and regulatory compliance provides a predictable pipeline of work, with a strong opening order book for FY26. While cyclicality in the Australian resources sector poses a risk, Tasmea’s diversified end markets and exposure to long-term tailwinds like electrification and renewable integration mitigate this risk. The management’s significant ownership stake aligns their interests with shareholders, and their track record of disciplined cash flow management supports the investment thesis.

Pitch Summary:
IQVIA Holdings Inc. is trading at a near all-time low valuation of 15x NTM P/E, offering a compelling investment opportunity. The company emerged from the merger of IMS and Quintiles, which has proven to be synergistic over time. IQVIA benefits from secular growth drivers and has a range of capital deployment options that support high single-digit ROICs with future upside potential. These factors contribute to long-term EPS and free cash flow growth in the low-double-digits. Given its historical premium valuation relative to the S&P 500, the current discount appears unjustified.

BSD Analysis:
The CRO industry, including IQVIA, has matured but continues to benefit from outsourcing tailwinds. Despite the broader market’s negative sentiment towards life sciences, IQVIA’s strategic positioning and operational strengths make it resilient to economic challenges. The company’s historical performance and strategic initiatives suggest potential for a valuation re-rating. Investors should consider the broader industry trends and IQVIA’s specific strengths when evaluating its investment potential. The market’s current perception may overlook the company’s robust growth prospects and strategic advantages.

Pitch Summary:
ICON plc is currently trading at a historically low valuation of 13x NTM P/E, which presents a significant opportunity given its strong fundamentals. The company benefits from secular topline growth drivers that support mid-single-digit organic growth or better. It has numerous capital deployment options that enhance its return on invested capital, with potential for future upside. These factors contribute to long-term EPS and free cash flow growth potential in the low-double-digits. Despite the current market environment, ICON’s characteristics suggest it should not be trading at a 25%+ discount to the S&P 500, especially considering its historical premium valuation.

BSD Analysis:
The CRO industry has seen significant consolidation, enhancing the competitive position of major players like ICON. While the market has been indiscriminately negative towards life sciences, ICON’s business model is well-positioned to weather economic uncertainties, including recession and inflation risks. The company’s strategic capital allocation and operational efficiencies provide a buffer against potential headwinds. Furthermore, the historical context of ICON’s valuation, compared to its past performance and industry dynamics, underscores the potential for a re-rating. Investors should consider the broader industry trends and ICON’s specific strengths when evaluating its investment potential.

Pitch Summary:
Galaxy Gaming (GLXZ) is currently trading at $2.00, with a potential upside of 60% if the acquisition by Evolution closes at the agreed price of $3.20 per share. The deal offers a significant premium and is backed by Evolution’s balance sheet, with a break fee in place if approvals fail. Despite regulatory hurdles in Nevada, the underlying business remains stable with improved debt terms and a strong licensing portfolio. The market is pricing in low odds of the deal closing, presenting an asymmetric risk-reward opportunity.

BSD Analysis:
The primary risk to the deal closing is Nevada’s new regulatory stance, which complicates Evolution’s acquisition due to its exposure to grey markets. However, Evolution’s recent earnings call suggests the deal is not critical enough to warrant major business model changes. Nevada’s decision will likely hinge on Evolution’s willingness to comply with conditions or potentially exit certain markets. The standalone value of Galaxy Gaming, with its refinanced debt and global reach, provides a safety net, making the current market price appear overly pessimistic.