00:00 Speaker A

My next guest is using utilizing an investing strategy called a quote opportunistic value approach. Joining me now, we’ve got Aaron Dunn, co-head of Value Equity and portfolio manager at Morgan Stanley Investment Management. Aaron, good to have you here with us. So let’s start off what exactly opportunistic value approaches are and how other investors can follow your lead there.

00:38 Aaron Dunn

Yes, we take an approach, I think, which is extremely relevant in today’s market, and that is, uh, starting with businesses we’re looking at investing in, leaving the stock aside for a second and saying we want to own, uh, good businesses that earn good returns on capital, they allocate capital appropriately, they maintain a proper balance sheet which does not put equity holders at risk in a, in an economic recession, uh, and also they generate a lot of free cash flow allowing them to compound value over time. That’s the general underlying, uh, view of how we look at companies. And so, from a value perspective and an opportunistic perspective is we look at that business we say, okay, where are we on a risk reward basis? Where are we on a, um, uh, where we think our downside is relative to an upside and you know what causes dislocation is stock could be something like we saw in March and April, which is the tariff, uh, uh, movement and the the tariff volatility in the market. And that’s I think what really creates a a lot of opportunity for us because you know, good companies were thrown out with bad companies and in early April and throughout March. And so, that creates a ton of opportunities for us to, um, to, to buy what we would use as really good companies. So what we’re looking for is a very strong reward or risk view relative to our downside. We’re looking for good companies to invest in. We think that’s extremely important today.

03:01 Speaker A

Who are some of those companies? Give us an idea, especially of the ones that you’re looking across, assessing, and being able to check off all of the items on the list that you just laid out.

03:17 Aaron Dunn

Yeah. And I think this is extremely important today. And and what you’re going to find is, what we’ve had so far is really more technical in nature and uh, you know, people selling equities because they were, they were probably over allocated. Um, and so, what you’ve seen is the entire market in a indiscriminate manner come down. Now, what I think we’re about to see is what are the earnings impact from what happens in the economy. Um, but when you have these periods of sort of uncertainty, investors tend to flock to where companies can still grow. And I think when we do our fundamental work and looking at companies, we want to find companies that are able to grow, um, not irrespective of the economy, but really with a thesis in mind that allows them to maybe uh, grow earnings through cost cutting or, or a changing uh, of the business structure at times. So, but that sounds really interesting. So two stocks or three stocks I’d mention, you know, one is McDonald’s. Uh, this company reported uh, uh, last week. Uh, and they reported what’s not a great quarter. The low end consumer is down, it’s very weak. Um, but they are innovating in the uh, in the menu, and I think that’s extremely important. It’s a capital light business model. They don’t own the restaurants, they, they, they, they have uh, uh, entrepreneurs to do that. So, it’s a capital light business model and maintain a fantastic balance sheet. And with that innovation in the menu, we think they’re bringing value back to customers and we think that you’re going to start see, start to see sales really increase.