'The risk elements are just too big to get over': Pieroni about investing on SpaceX

[00:00:00]Well, markets are moving today led by tech stocks, and we're looking at what's leading the move here. So, here to talk about that and more is Molly Peroni, president of Yakman Asset Management.

[00:00:09]It's great to have you join us. Good morning.

[00:00:11]>> Good morning. Great to be here. So, we're seeing markets very much in the green today. How much of the market movement we're seeing do you think is is led by tech stocks or what do you think is really driving the markets today?

[00:00:22]Well, we're in the second day of SpaceX trading, so perhaps that has something to do with it.

[00:00:29]It's the end second day of the world's largest IPO, and it's up again today.

[00:00:34]That's clearly part of the driver, and then of course we have tech and others following with the with the news about the Middle East.

[00:00:42]>> Okay, so those are the main two drivers.

[00:00:44]Do you see this movement continuing?

[00:00:48]>> We actually we don't have an outlook on the market in terms of what will happen day-to-day on the on the market moves.

[00:00:54]As fundamental value investors, we're looking at investing in the companies in our portfolio and holding them for very long periods of time expecting the price to eventually meet what we think that they're worth.

[00:01:05]>> Okay, so let's get to SpaceX then. We had a weekend to process the biggest IPO as you mentioned on Friday. It is it worth the two trillion dollar valuation at the moment?

[00:01:15]>> We don't think so. Personally, I'm a huge fan of space and the physics and the math that have gone into what that company is pulling off. It's really unbelievable and fantastic. My dad was actually a scientist who developed a patent for a lunar rover module driver, which is early days of space fandom on my part.

[00:01:36]But we just from a value investor lens, we really can't get comfortable with investment like SpaceX.

[00:01:43]>> Yeah, go ahead.

[00:01:44]>> You've got the Yeah, sure. It's a hundred times sales. You've got got key key man risk.

[00:01:52]You know, you're looking, you know, at it's not I'm money yet. We often look at 20 plus years of free cash flow history to determine what we're looking for in a company in our portfolio. And unfortunately, uh, this one just wouldn't wouldn't fit our uh, our appetite. Oh, actually, interesting thing about the governance side of SpaceX, um, often people are turned off by people who can control the company.

[00:02:16]And we're not turned off at all by these owner-operators. You've got companies like this, like Berkshire Hathaway and um, Fox and other companies that are actually um, controlling the company from a shareholder perspective. And we're quite happy to invest in companies that have this type of governance structure. But the risk elements were just too too big to get over.

[00:02:38]>> Why why are you okay with that? You say, you know, from the governing side of things, you're you're okay with that.

[00:02:42]What is it that you like about companies that operate in that way?

[00:02:46]>> We actually quite like what builders do with companies that they control. So, if you think about capital allocation and you own the company and you have the control um, to to vote the shares accordingly, you actually can make very good long-term investments that can build things in the companies that in the short run shareholders may not like because of short-term stock price moves.

[00:03:08]But in the long run, you've actually got this owner-operator mindset that we quite like and look for in the companies that we're investing in.

[00:03:15]>> You mentioned SpaceX not making money yet. I wonder like how risky that is when it is apparently already losing money.

[00:03:23]>> Yeah, we you know, we're looking at free cash flow positive free cash flow um, as we invest in companies and I think that um, you know, they've got if they pull off what they're talking about in um, the S-1 that we all read, uh, it will be it'll be fantastic and we will have missed it. Um, but there's too many things that can go wrong um, that uh, that we can't we can't get over in a SpaceX investment.

[00:03:45]>> What are some value investments that are comparable to SpaceX right now?

[00:03:50]>> Yeah, I think um, I might just highlight one that's a little bit in the zip code because it's got a robotics focus.

[00:03:57]>> [laughter] >> Hyundai Motor is actually in in in the robotics business and they've got, you know, great technology, great science behind the companies and and we think it's a the the robotics business because it's such a small part of their sales is actually a really interesting way to find something that, you know, some some some analysts might not see at first at first glance. They've got a strong balance sheet, they've got really good buyback program, shareholder friendly moves, but you really you think you're buying a car company, but really you've got a robotics business that they bought back in 2021 from Boston Dynamics and it's actually a really important part of their future story.

[00:04:38]>> Yeah, I wanted to ask you about Hyundai's like robotics arm and how that might compare to what SpaceX is doing or planning to do in the future.

[00:04:44]>> Yeah, I I'm not a robotics expert myself. I think that they they've got really charming robotics creatures, if you will. They've got a humanoid, they've got a dog, then they've got a bunch of manufacturing robotics that they use in their own in their own plants, but when you go to see a Hyundai Motor plant apparently, you see the the they call them Spot, the dogs walking around and helping perform functions in the in the manufacturing environment. So, I think many of these humanoid and other types of robots will continue to advance over time, but it's Hyundai Motors is one of the leaders in in the industry, but isn't often spoke spoken of by the general public.

[00:05:28]>> Okay, we'll leave it there. Molly Proni, president of Yakman Asset Management, really appreciate your time. Thanks for joining us.