This investor is doubling down on AI and real estate

Yahoo

22-05-2025

Listen and subscribe to Stocks In Translation on Apple Podcasts, Spotify, or wherever you find your favorite podcast.
In this episode of Stocks in Translation, Great Hill Capital chairman and managing member Thomas Hayes joins Markets and Data Editor Jared Blikre and Producer Sydnee Fried to discuss the concept of economic moats, a long-lasting competitive advantage, and where to invest amid market volatility. Hayes breaks down the importance of focusing on undervalued companies with competitive moats, using examples of corporations in the housing and tech sectors, as these are businesses that have the potential to thrive amid economic uncertainty.
Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your favorite streaming service.
This post was written by Lauren Pokedoff
Welcome to Stocks and Translation Broadcasting from the New York Stock Exchange.
I'm Jared Blickery, your host, and with me as always is the voice of the people, Sydney Freed.
First, please like, subscribe, and comment on Stocks and Translation on Spotify, Apple Music, Amazon, or YouTube, and today we are welcoming back Tom Hayes.
He is the chairman and manager of Great Hill Capital.
He is a veteran value investor with over two decades of experience spotting market turnarounds in tech, banks, energy, and now housing.
And today we're gonna be talking about the Great Value Renaissance, a phrase coined many moons and shows ago.
Our word of the day is moat, designed to keep out invading armies, and today they repel competitors.
So which castle is Tom investing in?
And this episode is brought to you by the number 7.5, as in years.
That's how.
Realtor.com says it will take America to build enough homes to finally close the housing gap and fix the housing shortage, and Tom has some stock picks to potentially make it worth your while.
So before we dig in, Tom, uh, let's talk about the most recent market action.
You're a value investor, you like the booms and the busts, and we just had one.
What are you swimming in here?
I call it the big beautiful dislocation.
You had, uh, $1.2 trillion of forced sales in the hole from hedge funds and CTAs at the beginning of April.
And then President Trump put out his tweet, now is a good time to buy stocks in the markets.
And did you, uh, not only did we, we were buying, we did a conference call for our clients the day before because people are really worried, right?
There, it looked like there was no, and we went company by company.
We went through balance sheet, we went through, uh, income statement.
We went through free cash flow, and what we saw invariably was all these metrics are going up.
What's going down the price based on, based on the short term noise.
Long term, they've got the moats in the business.
Even if the worst case tariff scenario came to pass, these would be the biggest players and they'd pick up share from the smaller players that were hit the hardest.
And that's why a moat is so critical.
You know, this leads to our word of the day.
Thank you for that time.
Perfect segue.
A moat is a long lasting competitive event.
So, so think of castle moat, like a safeguard to a firm's profits.
So Warren Buffett hunts these kinds of corporate defenses, and we have a few Oracle quotes now to set the mood here.
In 1991, he gave a lecture in front of Notre Dame and he said the most important thing in evaluating businesses is figuring out how big the moat is around the business and what you love is big capital and a big moat.
So is that what we're seeing here in some of the names that you're looking at and who has it?
There's no question.
I mean, sometimes you have, uh, a monopolistic moat like Boeing has a duopoly with Airbus.
That was not a hard one to figure out.
It dropped down to $129 in the most recent sell-off.
Uh, it's very simple.
If you want to go to Airbus, that's fine.
You just have to wait 20 years for your next plane, so that's an easy one.
Then you have brand moats like Buffett invested a lot in Coca-Cola in 1989, 1990.
Uh, now his dividends each year are bigger than his original basis because they keep increasing the dividends.
It has that brand.
Mode has the distribution mode.
So we look for businesses like that, uh, and, and brand modes, and we're gonna talk about a few, few names like the Stanley's, like the Dewalts, like, uh, some of those companies in the housing sector that, um, people have been using these tools for generations upon generations, and they're not gonna go to the second best because they don't last, uh, and they don't have that same type of brand, uh, credibility.
So it sort of sounds like if you have a popular brand or it's a popular company, you have a mode, but that doesn't feel right.
Like, is any famous stock have a moat or no?
That's not how it works.
Well, I look, Apple, I was gonna say Apple Apple has a mode.
It has an ecosystem moat.
It kind of built that monopolistic app store which they continue to, to throw arrows, and he continues to create relationships with administrations and the arrows keep hitting the wall.
Uh, that's protecting the moat, and Tim Cook has done an incredible job at protecting that moat.
Procter and Gamble for years had moats around.
Tide that's been kind of diluted a little bit with the Kirklands of the world, etc.
so you have to constantly be on top of the moat.
You have to constantly analyze the moat, but, uh, but the key is to start with a business that has a moat because if the moat is there, you're marginist and you buy it at the right time.
If the moat is there, uh, you can, you can make it through tougher times, the cyclical downturns, and you come out stronger because in cyclical downturns, the smaller players with the weaker moats go out of business and you pick up share.
I want to get back to a name you mentioned a couple of minutes ago, Stanley Black and Decker, because this hit my list Monday morning.
We had, and we're taping this the week after the latest tariff detente, and, um, that morning I was looking free market at all the companies in the S&P 500 who was leading.
Stanley's at the top of the list.
It was like 12, 15%.
I hadn't looked at this stock in years.
Going on there, uh, they have an absolute moat and they're highly correlated to the home building industry, OK, so they have DeWalt, OK, they have Stanley, they have craftsmen, they have Black and Decker.
So if you think about construction, if you think about projects, if you think about lower interest rates which spurs the, the former.
Uh, uh, it's a huge leveraged play on the recovery of construction, which is gonna come in the back half of the year, and that's the back half of the show and the back half of the show.
Uh, one of, you know, everyone's focused on the Fed.
Uh, what they need to be focused on is what Besson is going to do.
Uh, with capital requirements with banks, the SLR, so he's going to, and the SLR as a liquidity, exactly.
So what the, the case they're making is government backstop securities, i.e., treasuries, mortgage backed securities, shouldn't be counted differently because there's no credit risk.
And if they agree to that, which is common sense because if there becomes credit risk, then we got a lot more to worry about than bank capital ratios, um.
That will enable banks to hold a lot more, and they're going to hold a ton on the short end of the curve which the Treasury then can then use those proceeds if you remember 2012.
I know Sydney's that old.
I mean this goes back to Basil.
That's what I mean, doesn't this remind you of Basils of Basil, we're on the same page.
So, so they can use those short term proceeds, uh, to reinvest on the long end of the curve, which is expected to bring 10 year treasuries down 30 to 70 basis points, which means a 30 year.
Fixed for the for the woman on the street, 30 year fixed rate below 6%.
When that happens, boom times, boom times.
We know that President Trump wants lower mortgage rates and so part of that is I'm asking, is that part of the Mar a Lago accords because there are more, there's more to it than just that.
There's other countries buying US Century bonds, that's 100 year bonds to bring down long term interest rates, but I hadn't really, I hadn't read that particular facet before, so that's interesting.
Yeah, the Mar a Lago accord was, was predominantly.
Uh, rumored in the 1st quarter of this year, which was a currency reset like you saw in Reagan's second term.
I, I don't know that that's fully on the table yet.
Uh, it's, it's implicitly on the table because as China does a deal, so China knew the tariffs were coming.
So what did they do ahead of time?
They just devalued their currency by 20%.
The tariffs were kind of in that same neighborhood, and as the deal is set, part of the deal is going to be get your currency back to normal.
That balance is out trade.
So there, there's implicit, will there be an explicit meeting where you have 8 parties together and they uniformly devalue the dollar, Brentton Woods, exactly, um.
Uh, Plaza accord, uh, the answer is we don't know, but the trend of the dollar is right now you're going to have a counter trend bounce because everyone was bullish on the dollar.
Now that the dollar's falling a lot, everyone's bar, so you get a, get a counter trend, uh, bounce, but the trend, intermediate trend is down.
That's gonna help earnings.
That's gonna help all the things that we're talking about here.
With everything going on right now, we still don't have, you know, a lot of solid trade deals.
How are you thinking about the Market in terms of, you know, companies with a moat, in terms of sectors, what do you like, uh, you know, we're seeing stocks come back to where they were like a month ago before a lot of this happened.
So what are you liking right now is we're navigating this uncertainty.
Yeah, I think if you look at equal weight versus weight S&P, the valuation for equal weight is one standard deviation below its long term average.
which in English means it's cheap, OK, on a multiple basis.
49 493 is cheap.
So you have to continue to look there for the Stanley Black and Deckers, which are part of that 493.
Uh, I think we're going to talk about a couple other, uh, housing stocks as well.
Um, there's just a lot to do.
The the companies that were most impacted by tariffs, which, by the way, was Boeing, uh, or the fear of the worst case, that's where you're going to find your biggest opportunity.
I think the mag 7 will rebound a tradable rebound, but we can't overlook the fact that their earnings power has decelerated from 33% down to 16% and maybe a little bit lower, and that's part of the reason you've seen what they do because when you think about tariffs.
Like how does that really affect Google when they're not in China, you know, uh, and so on.
So, so they've come down relative to their earnings power, the amount of capex that they have to spend to stay competitive, to keep share has impacted their earnings, has also crowded out their ability to buy back tons of stock, uh, whereas the 493 announced record buybacks in the first quarter in the face of all this uncertainty, $665 billion.
Um, talk to me about China real quick before we go to break.
We've talked about Alibaba in the the last time we were here, that is, you know, it came up, it came down, but it's, it's held on.
What do you like about China now?
Uh, what I like is that Xi.
After enough of social unrest and 25%, uh, youth unemployment, got his act together about a year ago, Xi gets it.
Xi Jinping got his act together, uh, has done massive stimulus.
He's now helping his country versus hurting his country, you know, soldering them in their apartments.
That didn't work, uh, and people got tired of it after.
3 years.
So, uh, you're seeing global M2 money supply start to hockey stick, and a good portion of global M2 money supply is China's new stimulus, which started in the last 12 months.
He's committed to taking the country to 70% consumption like the rest of the developed world.
Uh, Alibaba's got 40% of the e-commerce market.
They are toll taker for domestic consumption, so they're gonna benefit from that.
They're gonna benefit from being the number one player in AI.
They have a piece of all the AI startups because as the number one cloud provider, new startup comes in, they say we need compute power.
They say, no problem, I got you covered.
I'll give it to you for free, and we'll, you're gonna, you're a piece of your business and a peek at your business too.
We're gonna take a peek and a piece, uh, we're gonna get equity, so you have equity in all the Chinese AI startups.
Some are going to be 1000 bagers and some are gonna be zeros.
Uh, Alibaba takes a piece.
Alibaba takes a piece.
It's the granddaddy.
It's like the cas it's like the casino owner versus the blackjack player.
They get a piece of all the action on the retail, on the AI, and their models are outperforming open AI.
The models are outperforming deep seek.
Their international e-commerce is growing at 40%.
They got $80 billion of cash on their balance sheet.
They're generating $20 billion of free cash flow.
What else do you want to know?
Uh, as long as Jack Ma doesn't get more greens.
Yeah, that's a bad joke.
Um, oh, and by the way, Ant Financial, the Chinese tech crisis started with the pulling of the Ant Financial IPO.
It was supposed to be the biggest IPO ever.
It's gonna happen in the next 12 months, and we own 35% of that as owners of Alibaba.
We own the stock shares in Hong Kong 9988.
You can, uh, switch out your US shares if you're worried about delisting.
I think it's a lot of noise, but as a fiduciary, I want to protect my investors.
Uh, we, we still own derivatives in the US because.
We can't replicate them in Hong Kong and we're willing to assume that risk.
Wait, how do you, um, how do you move shares from international to US listed?
It depends on your, uh, custodian, but you can call them and they'll just swap out because there's no currency risk.
It's 8 to 1 peg to the dollar, so you'll get 88 more shares per every 1 USADR, but it's the effective same slice of the pie.
All right, hold that thought.
We need to take a short break, but coming up we're gonna be talking housing stocks again in a runway battle to turn heads as well as profits.
This episode is brought to you by the number 7.5.
That is the number of years that Realtor.com estimates it's gonna take America to build enough homes to fix the housing shortage.
So it's a big gap, Tom, and you say it's a big opportunity, and I'm wondering how you're screening for opportunities here.
We already talked about Stanley and the mode and all that.
What else you got?
Well, look, when you had the gold rush, who made the most money?
Was it the people looking at picks and shovels, right?
Uh, in war, you don't want to be.
Betting on the warring factions you want to be betting on the arms dealers.
So that's what we're going to be doing with the housing sector.
So the DH, uh, the, the Hortons, the, uh, the Pulte, the KB homes, all the home builders, it's gonna be a race to the bottom because what's going to take place, uh, is a couple of things.
One, number one, we're opening up federal land, OK?
We've got hundreds of millions of acres.
If we open up at like 1% of it, we'll have enough land.
It's like a half a million.
Uh, acres will be enough to, enough land to bridge the deficit of 1% of the federally owned lands, which is a huge swath, which is a huge swath, OK.
Uh, so we're short 4 to 7 million houses like you said, it's going to take 7.5 years to do that.
Um, and effectively what you're gonna see is a race, a race by the home builders.
I don't want to be in that race because once that happens, once supply picks up, it's a pricing compression.
But if you're doing the builders, the tools for the builders, the Stanley Black and Decker, the construction.
The part suppliers like QXO I think we're going to talk about or what goes outside now that you got the electrical grid down every single month or so in some of the hurricane ridden states and the demand on the power grid, which is an aging power grid, you need a generator and if you need a generator, the Kleenex of generators is called GenerX.
75% of the market.
The game is just getting started there.
So those are our three arms dealers for home building that's to to come in a.
Massive scale in the next 3 to 5 years.
Oh, and by the way, you got 72 million millennials, 45 million people between age 30 and 40 who need homes.
Sydney knows she's nodding in her head.
Listen, it's like there, it's like it feels like the American dream is slowly slipping away in that sense.
I, I have a question though, do you recommend in terms of these kind of tool companies that you go straight for these single stock names or you go to like an ETF so you're just covering all your bases.
My clients pay me to outperform, so I don't go to.
You're not going to an ATF it's.
I mean, you could, you could buy XHB and participate, uh, uh, in a beta sense, but if you want an alpha sense, you got to do some work and say, where am I going to get the most return for the same amount of money?
And that's what we try to do every single day when we get to work, and I love it.
It's like a treasure hunt every single day.
Said Warren Buffett.
You mentioned a couple of names.
What's your favorite story of all the names that you've ticked through so far?
Uh, my favorite jockey, I like to bet on.
because I'm turnaround Tom, uh, is, uh, uh, Brad Jacobs.
OK, if you got QXL.
Brad Jacobs wrote a book called How to Make a Few Billion Dollars.
It was a useful book because he actually made a few billion dollars.
Um, if you got involved with him in 1997 when he invested in United Rentals, you made 79 times your money, so 1 million became $79.
If you got involved when he put $150 million in XPO logistics in 2009.
Uh, you made like 160 times your money.
1 million became 160 million.
So now he's going to do the home building supply sector.
He started with Beacon roofing.
Uh, this is a non-discretionary expense, Sydney, you'll figure this out when you get your starter home on federal land with an endangered elk in your backyard free of charge.
That when your roof leaks, you don't think about should I buy it like you think about should I buy a pink iPhone or White iPhone, you just call the person and you say fix it.
I don't like water in my living room.
So Beacon Roofing is his first one.
He paid 10 times IEDA, a little bit rich, but he's gonna double EEA.
Why?
Because that's what Brad Jacobs does.
He brings in technology.
He creates efficiencies, he doubles IIDA.
That's his platform company.
Then he's gonna roll up 10% of the industry.
It's an $800 billion industry.
He's gonna get $50 to $80 billion.
How much do you know?
Uh, he's got 10 billion.
with Beacon, OK, and this was just announced.
So he's gonna do another 78X.
The stock is probably gonna do another 10x, by the way, because it doesn't account for the technology and the, the special magic that Brad Jacobs makes.
He's a moneymaker.
This guy earns for his shareholders, and here's the beauty.
He put $150 million in QXO.
He just put a billion dollars of his own money in QXL.
So in in XBO we put, put $150 in this one he put a billion dollars.
Uh, we think, you know, this is when you tuck away for 5 to 7 years you probably wind up with a 678 bagger from these levels.
Kind of reminds me of Wayne Hezinga.
Yeah, he's in the Fortune 500 over his lifetime, which is substantial, and they were roll-ups, by the way.
And, and by the way, wouldn't surprise me.
I'm, I'm trying to get Brad on my podcast, uh, if, uh, if that was a model, uh, it's called Hedge fund Tips with Tom Hayes.
It's number one in the hedge fund category, which isn't a narrow niche, but we've been doing it for 5 years and people.
Seem to like it.
Tom, I need, I need an invitation over here.
Oh, you can come any time you want.
Yeah, come on hedge funds.
I have, I have a different question for you.
Are you invested in REITs?
And I'm going to define that for anyone who doesn't know.
REITs are real estate investment trusts, companies that own, operate, or finance income producing real estate.
Yes, we own one.
It's called Crown Castle.
They're one of the biggest, uh, owners of cell phone towers.
They just sold off their fiber business.
They got.
Uh, billions of dollars for that.
They use that to pay down debt.
They have the legacy 40,000 towers that are just cash machines basically require no, no, uh, maintenance.
It's like owning an ATM every time someone uses it, you make a fee.
It's the exact same thing with these towers.
So now it's just gonna be a cash machine.
They'll buy back shares.
They'll buy more legacy type towers, and, uh, and these tend to be interest rate sensitive.
So when rates come down, as we said, Besson's gonna work his magic the second half, rates will go up.
Crown Castle will be a beneficiary as far.
There's real estate rates, uh, there are none at attractive enough levels at this juncture.
We, we were big buyers of Vornado in the hole, if you remember during that big, uh, mini banking crisis, we thought it would take 3 years to double.
Uh, it took 6 months to double and we got out.
So, uh, that one sometimes they take longer than expected like Alibaba, sometimes they happen faster than expected like Vornado, but, uh, the key is the framework is sound.
Does the business have a moat and are we buying it with a large enough margin of safety?
All right, we're gonna stick with the entrepreneurial vibe here because today's runway showdown is all about value-driven CEOs, two chiefs strutting the catwalk with distinct approaches to turning opportunity into profit.
First down the runway is the serial entrepreneur dressed in relaxed business casual, confidently investing in under the radar cash flowing small businesses like storage units and car washes, quiet, consistent, and profitable.
Close behind though is the turnaround specialist, sleeves rolled up, tool kit ready, eager to repair and revive neglected industrials, retailers and manufacturers.
Tom, which value pays off more reliably, the steady entrepreneur building a portfolio from the ground up, or the specialist who sees gold where others only see rust?
Well, I think it's, I think it's a question of scale, right?
You can make a tremendous amount of money buying uh small.
Um, uh, businesses that are kind of fragmented businesses, roll them up, get synergies, uh, whether you do it with car washes, whether you do it with laundromats, etc.
uh, people do that, but If you want scale and you want control of capital, you need to be in bigger businesses, and that's what we try to do in the public markets.
Uh, the beauty, you know, I get approached with private deals all the time, and there are plenty of private deals.
Most of them are betting on the future.
Uh, you know, we're guessing who's gonna cure cancer, who's gonna be the AI leader.
I don't like to guess on the future.
I like to bet on sure things, OK?
And I want a business that's been a Gordon gecko.
I want to bet.
On businesses that have operated through many cycles, many downturns, and operated through and have a big enough moat, a strong enough balance sheet that I know they're going to recover just back to the mean, they don't need to be a home run, doubles or triples over 2 to 3 years, and you compound that with large amounts of capital, it beats, you know, grinding and, and, and, uh, getting synergies from a handful of laundromats or or as an entrepre.
Um, but I will say Brad Jacobs does a combination of that.
So he has his platform company.
He gets the public market multiple.
You get a higher multiple in the public markets, and then he uses that currency and his ability to raise capital in in public markets to buy defragmented businesses, smaller scale businesses, and tuck them into his platform company and that's how he's created.
So much wealth for so many people over the years.
It's great.
Tom I want to switch gears here a little more personal and advice driven.
OK.
So you study the markets kind of day in and day out.
I want you to share with me, with us, like what's the one thing that you think that everyone needs to know about the market, that either they're misunderstanding or sometimes misrepresented.
I think the number one thing like anything in life is to be consistent.
So if you're just buying the overall indices like a VTI Vanguard total market.
Uh, or an S&P 500, buy it every single month at fixed amount, OK?
And the months that you really don't want to buy it where your stomach is churning, you're afraid you're gonna lose your job, whatever it happens to be, those are the months you should buy double because, uh, when you buy down you get more shares and over time that compounds materially so dollar cost averaging, that's kind of your base, you know, put the majority of your money to compound that way and then when you have excess wealth, you start to take some of that and you want it to be a little bit more aggressive and you put it in different buckets and.
Hire different managers like Tom Hayes, you hire, uh, uh, you know, maybe a private equity manager, maybe, maybe, uh, a venture capital fund, etc.
uh, and you diversify with that excess, but start with the basics, get the compounding machine going because it's the 8th wonder of the world, uh, and, um, it's, it's created more wealth.
This beautiful, amazing, the 9th wonder right here behind us.
Exactly.
Guess what?
That is all the time we have.
Really appreciate you stopping by and this will do it for the latest episode of Stocks in Translation.