Bill Aulwes: Welcome to Always Savvy with Bill Aulwes. I'm a financial advisor at UBS in Phoenix, Arizona. This podcast is your guide for meaningful conversations with leaders across a variety of industries. The format is simple. Our goal is getting you the most interesting information in just a few minutes. We keep it short, but still want you to be savvy.
Welcome back to Always Savvy. I have the pleasure of having four of our equity strategists join me today. We've got Nathaniel Gabriel covering industrials and materials, Eric Potoker, Healthcare, Kevin Dennean, technology, and Jay Dobson, Energy and Utilities. Thank you guys for being here.
Nathaniel Gabriel: Delighted to be here.
Eric Potoker: Thank you.
Bill Aulwes: So we're going to do a rapid fire format, and we're just going to go around the table with three questions. We'll take each of them one at a time. So I always find it interesting how people end up in their careers. So tell me a little bit about how you found your way to covering your industry sector and we'll start with you, Nathaniel.
Nathaniel Gabriel: This sounds great. Terrific question. So in college I was an economics major. I had had an internship in equity research and absolutely loved how intellectually stimulating it was, which I continue to appreciate today. So in one of my early jobs, I was at a small sell-side equity research shop and they said, "Well, we actually have two openings. You could take consumer staples or you could take industrials." And I thought about it. I thought, oh, industrials is a dying old world industry and there's no reason for me to look at that. So I said, "I'll take consumer staples." It wasn't long before I realized innovation in consumer staples is something like designing a new catch-up packet. So I quickly went back and said, "Can I take industrials after all?" So I've been tracking that ever since.
Bill Aulwes: Okay, fair enough. Thank you.
Eric Potoker: I was not an economics major in college. I was actually a history major and I went to Washington, D.C. thinking I would do something political. And in looking for jobs, what I found that would pay me was not a political job. It was working for a small company called the Advisory Board, which had a financial services arm and a healthcare arm, where we did light consulting research for hospital clients. And I ended up working in that part of the business, learning a little bit about healthcare, realizing how dysfunctional of an overall system and market it was. And that really appealed to me because within that, there were always interesting investment opportunities. So then fast-forward a few years, I came out of grad school and I wanted to do something in finance and my healthcare experience was really my best path into finance, but also the most interesting one for me given my background.
Bill Aulwes: Okay, fantastic.
Kevin Dennean: I was an accounting major in college and I never wanted to be an accountant. So I started off in actually municipal bonds and I wrote some programs to create municipal derivatives, just bounced around after that. Ended up at a small buy-side shop and we were just shorthanded of people to listen in on some conference calls, and it was just... I segued into covering the sector beginning at the end of, I think it was '97.
Jay Dobson: Actually, my mother instilled in me a love of stocks, but I went to college and got a finance degree. Remember writing in my senior year my first research report, which what I had to do for a class. Went on to get my CFA, but was doing consumer durables and utilities and a little bit industrials actually at my first job. And when I moved from Washington, D.C. to New York, I got placed with the utility analyst and as they say, the rest of it is history.
Bill Aulwes: Okay, very good. All right, we'll come back to you, Nathaniel. Thinking about your industry in particular, industrials and materials, and for each of you the same question, what are the trends that you see emerging and you can sort of think about that from a short long-term perspective.
Nathaniel Gabriel: Yeah, so it's a great question. Kind of pivoting back to that original joke that I made about industrials being a dying old world industry, it's very much the opposite of that today. For a while, we had the industrial internet of things, which really just meant that everything was full of sensors throwing off reams of data that nobody knew what to do with. But now, many parts of industrials are becoming indistinguishable compared to technology. And we have a lot of software businesses, we have a lot of automation businesses, we have autonomous defense businesses. And I think the industrial space, especially in their participation with AI and data centers, is becoming increasingly intertwined with the technology sector.
Eric Potoker: Probably going to echo some of those sentiments with regards to healthcare. And I think healthcare as a sector has been woefully behind other sectors in terms of managing data and even having access to data. And I think as the pressure builds from a fiscal perspective on particularly the US government, but on other governments, the pressure to then start looking for better ways to ration care and save money, using data to find the most effective pathways to managing patients and providing therapies, I think is going to become an ever-increasing trend. It's been talked about for 20 years without much really having been done, but I think the fiscal pressure is going to just tighten over the next decade and force that dynamic to play out in healthcare.
Kevin Dennean: Yeah, for me, from a technology perspective, it's all about artificial intelligence. And I think as interesting as it's going to be over the next three to five years to watch what technology companies do, from where I sit, it's actually going to be much more interesting to watch what companies in other sectors do putting AI to work. So I think that the real opportunity and the underappreciated opportunity for AI is that technology is only about 5% of GDP, but I think AI will go after the labor market.
When I say go after, I don't mean necessarily displace it, but get some of that budget and help drive productivity in essentially every single sector of the global economy. I don't think any industry is going to be untouched by this, and I think it's just a gigantic opportunity for technology companies because as I said, technology's 5% of GDP plus or minus, labor's 55 to 70% depending on how you want to measure it. So I think there's a win-win here. I think a lot of industries are going to get a lot more efficient, a lot more productive, a lot more profitable, and I think that technology companies have a much bigger addressable market than they ever did.
Bill Aulwes: Yeah. I saw this morning, apparently Equinox here in New York City has AI massages. You go in and you can completely customize it, you can change it, the pressure, it scans your body, looks for issues. So I mean, that's an interesting play. I didn't think we were going to see that.
Kevin Dennean: Yeah, that one wasn't on my radar to be honest.
Jay Dobson: Yeah, I mean, the overriding issue here will be technology bill. I mean, sitting my perch, energy and utilities, we talked a little while ago about the growing demand for energy, and that's clearly the long-term trend we're seeing, but I think you have to dig down a little bit. Yes, that's going to be electricity, that's going to be oil and gas, and then it's going to be technology. Where does nuclear really take us? Where does geothermal really take us? What are some of the efficiencies we end up seeing in wind and solar? And then you could go with hydrogen, which is really, really expensive these days. So the answer, I think is both the need for energy and then the technology behind energy, which I think will just continue to evolve mostly out of necessity in the near term because of growing demand. But ultimately, I do think, and Kevin raised this issue, the technology and AI side of things is going to drive, I think innovation much faster and it'll be coming just in time.
Bill Aulwes: Okay, thank you. So to wrap us up, last question. Looking around the table at your colleagues here, if you could cover someone else's industry that's in this room, who would it be and why?
Nathaniel Gabriel: So for me, while I'm very passionate about technology as a hobby, I would say healthcare. Very much a science nerd. I love that the scientific method is in full use in the healthcare space. I see bits and pieces of it, the companies that make technology that's used in life sciences or for pharmaceutical packaging, but that's where I'd gravitate, although I'm a little bit squeamish about biology. So I need to get over that pretty quickly.
Eric Potoker: That shouldn't stop you because I've never taken a biology class, even in high school. I will actually return serve to you, Nathaniel, when I first got on the buy-side, part of the mandate from the hedge fund I worked at was to cover diversified industrials alongside of pharmaceuticals and medical devices. I had a lot of fun with maybe 20% of my time I spent covering those companies. In part because the way to analyze them was in many ways so different than healthcare companies, but also because of how there was this cadence in terms of the economic cycle and looking at different companies that were early cycle, late cycle, mid-cycle, and just that they made really interesting things. And what you mentioned earlier, how they were transforming from old economy into more technology into other industries, I also thought was fascinating and just made them fun companies to cover.
Kevin Dennean: I'll go with healthcare. I just think that as I think about the world over the next 20 years, I think the intersection of healthcare, technology, economics, and public policy, I think it's going to be a fascinating place to be.
Jay Dobson: People who know me would know, I would say healthcare, self-proclaimed hypochondriac, but I'm not going to go there. Really, it's tech, and I guess I would get specific and say sort of the intersection, as Eric was saying, of health and tech. But Kevin put it right. I mean, technology, if we look back 20 years ago, push our society, our globe so far so fast ahead and AI is about to do that maybe on steroids going forward. And so just watching innovation, whether it's in my energy space or really sitting in Kevin's space, I think it's just so much fun and it'll have, as Kevin said, implications for every industry that everyone covers. So we'll all get a little bit of it.
Bill Aulwes: Sounds good. Thank you all for sharing your perspective today and joining me. I appreciate it. My name is Bill Aulwes. Feel free to reach out with any questions about your financial needs. You can reach me at william.aulwes@ubs.com. Aulwes is spelled A-U-L-W-E-S as in Sam. Have a great day.
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