Arup Datta on Finding Value Opportunities, Picking TER, OVV, ISSC

0:00Welcome back to Opening Bell. Well right now the Dowstown won 20 the S&P 500 is down almost a half of 1%. So you are seeing some pressure on the markets. I want to get a big picture of maybe some investing ideas a root dot us with us head of global quantitative equity at McKenzie investments. So glad you're with us because I know you have an international look too. We've had a reason pull back in stocks. I was just saying how stocks are down for weeks in a row for the major averages. Is this an opportunity or does this worry you greatly? Nice to be with you Nicole. I always think it's an opportunity as you may have seen from research that when opportunities like this when wars happen and things like that happen markets go down and usually as a good is a good buying opportunity. So I believe it's a good buying opportunity. I'd also say Nicole that I prefer more international markets over the US. Some of it has already played out in the last 14, 15 months where as you may know, US has done well but has lagged many international

1:00markets. And so I still believe that it's an opportunity to buy in all markets. I would say the opportunity outside the US EM International also in US small caps are still pretty large. They're not as large as it was 12, 15 months back because some of them have outperformed the US since then. Yeah, and look, we've seen some international outperforming the US. How have you changed your allocation to international? Let's say in the last few weeks, six months, have you upped your international investment, lowered it, what percentage? So we are always always the core manager. That's what we employ in our investment decision making. So we are always about stock picking Nicole. So I would say what we have done versus so we don't really allocate international versus US in terms of the portfolios we manage. But we find the best stocks internationally or in the US are in emerging markets. So no, we haven't

2:02raised that but that's an allocation deficient because I've been a long time 34 years to stock veterans. I focus more on the stock side. But I would say what we have emphasized more is value in our process, especially in the US since last summer because to me that was one of the largest value opportunities I've seen in my now fourth decade in the business. And so I can tell you in our US decision making as we have been picking stocks since last summer we have been employing a little bit more value in our process than we normally do. And that's been nicely playing out as the value opportunity which was really huge is still big but not as huge as it used to be. So important to be a stock picker particularly right now where you see some great value wars and higher oil and things like that can push stocks down but then when you look historically we go back to new highs over time. So you're using this opportunity. I want to get to small caps. I know that's an area you like but you have some names that you brought to us today. How about TeraDine? Where do you think this is headed and why?

3:04I mean TeraDine is in the sweet spot of the semiconductor as you may know Nicole I think the semiconductor space which was largely a cyclical space for many many decades is now being considered more of a secular growth space given all the capital expenditure that the M7 names are doing. And the software area which was largely a secular growth story is being put to question because of all the AI related and how it will impact their business. So TeraDine is in that nice semiconductor space. It has done very well for us and we continue to hold the stock. And as we do in every stock we look at growth value and quality characteristics. TeraDine is slightly expensive given the stock move. However the reason we own it and large amounts of it is because of its growth and quality characteristics. They've been tremendous advances in techniques and machine learning and computing power in the last five, seven years. The most exciting times to be a quantitative manager. And one of the models we have deployed in the last

4:06many years is a machine learning model which predicts revenue earnings for companies. Our model has been predicting better outcomes for TeraDine. That's one of the reasons we own it. It has had strong growth. And on the quality front we have also added quite a few new ways to look at quality of a company compared to a decade or two back. Things like our employees happy where they are. Also some we look at beta volatility predictions and look for the nice mix of that. So for all of those reasons even though TeraDine's worked out very nicely for us we continue to own a full position in TeraDine today. I'm looking at Oventiv a name that we don't follow as closely but I just pulled up a three-year chart. It is at a multi-year high today as it moves higher. It's an incredible chart of 35% in one year but even the three-year chart shows the multi-year higher that it's hitting right now in the world of Matt Gas. No surprise there that it's a winner right and you like this one still more upside potential. Yes absolutely I know the stock price is sort of a one-way up specially given what's

5:09going on in the Middle East in the last few weeks but actually we still find a lot of value in Oventiv. I did not mention value much when I talked about TeraDine that's more a growth quality old for us. In Oventiv's case value it has strong value support because we always look at valuation versus its peers. Yes all of the energy stocks have re-rated up given where the oil prices are today but compared to its peers it still looks very cheap on many metrics like book value a cash flow and things like that so that's one reason we hold it and just as we as I made a case during TeraDine's case even here a machine learning model has good predictions for Oventiv in terms of where its revenue earnings should be compared to where the street estimates are. Also it has strong free cash flow margins so this is the stock we own on value growth and quality all the three basis. Yeah do you have other energy in that gas and utilities that you like is that an area that you've been investing a lot in and in light of the you know not only the war but also

6:11just what we would see how we need energy and power for data centers is that an area that you've sort of put more money to work recently. Yes we have I mean you know we are a corn so we have a diversified portfolio but we have also been adding to names like Devon Energy for sure. Okay Devon Energy how about innovative solutions where does that fit in? That's I know you like to talk about big caps names this is a small cap story for us has been a great performer for us it's in the aerospace area again yeah what's going on in the Middle East and all there's a lot of demand for aerospace and defense and that's a stock we own it's slightly expensive again just like TeraDine but we have very strong growth and quality support for that stock that take care is ISSC as you know and even here a machine learning model predicts better outcome we're proven right because it blew out its revenue earnings expectations a few weeks back when it reported they have a big research spend we look for those things in terms of which

7:11more which companies can be more innovative in the future and they're spending a lot towards R&D so those comprise our growth metrics for innovative solutions also on the quality camp we look at things like happy employees we think they have happy employees so for those reasons we own this stock it's been a good winner for us but we continue to hold this stock all right a ruptada great to see you Mackenzie investments thank you so much really appreciate it