CNBC Overtime’s Post

Transcript

Well, joining us now is JP Morgan senior analyst Stephen Tusa, six time ranked number one in institutional investors All America Research poll. It's great to have you on the show. We've been teasing it all hour. So I'm going to start with it top picks. What do you like as we have seen some profit taking from the sector after a strong start to the year. Sure, thanks for having me. So over the last about 18 months, the big driver for the group has been multiple expansion, but underlying that has been earnings revisions. Positive earnings revisions, the groups up about 10% this year and as you said it's underperformed the S&P, so it's derated a bit as economic concerns have magnified here in the last month or so. But earnings revisions have been effectively flat. The best performers have been those where the earnings revisions have been positive. You know, even a 5% earnings revision has resulted in, you know, 30% upside in names like Eaton and Train and for a name like Vertiv vertices up 80% on a 10%. Ish positive revision. So what we're trying to do here heading into a second-half where we were characterized the corporate tone is cautious stability. We're still looking at positive earnings revisions on the one hand at the high end of the barbell, but keeping an eye on valuation at the other end of the barbell. As you know, basically the the drivers of our of our top picks, our top pick heading into the second-half would be Vertiv stock has pulled back here recently on a combination of demand. Concerns around AI applications not potentially not playing out in line with the related capital expenditures that are coming, as well as some concerns around competition coming from Asia. We think those concerns are overblown, that they're going to see a very nice sequential increase in orders, which suggest dramatic earnings upside in the years ahead to the tune of 2025% were 10% above consensus. Today. Stock has pulled back about 15%. We think it's a good time to reload. The second one would be eaten similarly in that direction, an electrical that has data center as well as grid exposure where we see five to 10% earnings upside. Yeah, that's also derated a bit. And then finally three M, which is much more of a value play. Those are the three OK. And of course eating invertive names that we know very well on overtime in part because they have been part of that AI infrastructure build out Halo effect in terms of some of the moves we've seen there. As you just as you just flagged 3M has a new CEO. This is going to be the first earnings that. We get with him Bill Brown, former aerospace and defense guy at the helm. We also know that three M, like some of the other big old school industrial conglomerates has been looking to simplify its portfolio. What do you expect? What do you expect with new leadership at the helm? Yeah. So first of all, I think the former management team has done a pretty good job with the setup here. They cut the dividend in the first quarter. So we've gotten that negative catalyst out of the way. They've cut it to a reasonable place it in. Applies a very stable free cash flow that's just above where consensus was when they cut it. So some some decent momentum in the core business. They also undertook a major 700 and $900 million million dollars of restructuring. Those costs are now flowing through that should flow through more next year. So the setup here for the new CEO is pretty good. We expect him to continue to execute on margins that that's been a pillar of what he's done over his last. A couple of experiences and he will tinker a bit with the portfolio. We think there's opportunities here perhaps to sell some businesses, maybe do a couple acquisitions here and there. Obviously the big lever here is the P Fas liability, which is uncertain. But even assuming a pretty sizable leg, two or three of the P fast liability, we still think there's, you know, 15 to 20% upside here and that's really the margin expansion in the portfolio are really going to be two key focuses for him.