Income Investment Opportunities in Today's Market: Fortune Makers Lecture Series

Now here we are as a firm. So Left Brain Investment Research, which is where we have a subscription-based research service. And we offer our research that we do in-house to other advisors and other professionals and also other advisors who like to manage their own portfolio. In the chat box, you'll, you'll get an idea of how to be able to check out LBIR on the web and hopefully subscribe. We have a wealth management division which a lot of our viewers today know us from, where we manage accounts and portfolios and help clients build, grow, and preserve wealth. And finally, we have a hedge fund that we run, Left Brain Capital Management, where we use our research and our investment ideas for accredited investors as well. Now I'm going to turn it over to, to Brian to talk about the world of Left Brain and how you can get involved.

Thank you, Nolan. I will move on to the next slide. And thank you to everyone for being with us. We really appreciate it. A lot of, a lot of familiar faces and hopefully a lot of faces we don't know, trying to get our name out there and be well, more well-known in the investment world. So as Nolan alluded to, kind of the basis of everything we do is Jarvis. That's our securities evaluation software that we created in-house. We follow 1,000 stocks. There's just too much that we could do by hand. So we need the technology to help us orient where our research goes. And what's even more interesting or more exciting is we've got almost 1,000 bonds in there now. At the beginning of the summer, we had about 400. Kind of the reason why we're getting together with you today is to talk about the opportunities that we're seeing. You know, with interest rates as low as they were for as long as they were, we're really hard-pressed to find any opportunities in the bond world without going really deep into the, into the high yield space. But now we have the opportunity to purchase bonds in the investment grade space that can get us 6 to 9% of yield, which we find pretty exciting in the context of the last decade. So just a little bit about who we are and what we do. For those that don't know us, we've got a lot of ways that you can get in touch with us and keep up with what we're doing. As Nolan said, we've got a biweekly newsletter. That's the Jarvis newsletter.

The—

again, the basis of that is the Jarvis outputs that we get every week and we give you our, our insights that are based on that and kind of what we're looking at from a research point of view and an investment point of view. As it says at the bottom of the slide, if you, if you click into the chat box right now, Nolan's put in a few of the links of how you can find us. You can subscribe to our newsletter. We also have our subscription service, which is Left Brain Investment Research. We provide 6 to 10 of our full-length stock reports per month in that, and that those are the reports that our analyst team led by Madhu put out every week for us. Those are the reports that we use to make investment decisions in-house. And so if you don't work with us, that's one way that you can get in touch with us. And also we have our affiliated business, which is Left Brain Wealth Management, where we do manage client accounts. So as a part of that, we're offering portfolio reviews to those of you that don't work with us. We're happy to give you a second opinion, whether, whether you do work with an advisor or you don't. We're happy to help and provide you our opinion on the way that you're oriented. And also, before I go on to the next one, is also, as Nolan said, we have our weekly YouTubes. We're really proud of putting out on YouTube. You know, Nolan has been generous with his time. To go ahead and give us his insights on the market every week. And if you're not following that, if you're not watching those, definitely click into the chat box. There's a link to get you to the page and please subscribe and share it with your friends. We want to get it out as much as possible. We put a lot of work and effort into those. So with that being said, as well with our investment research service, ordinarily $299 a month for our basic subscription, which gets you the 6 to 10 In any case, for our basic subscription, again, 6 to 10 research reports per month on a full-length basis and our chosen, which is our favorite bond and stock opportunity each month. We're offering a special offer for those of you who are on the call today. It's usually $299 a month for basic. We're going to offer it for you for $199 a month for the, the, for the duration of your subscription. If you put in income 199, $199 at checkout to receive that promotional price. So definitely get in touch with me if you are of interest in our subscription service. And here, just to give you a little bit of a rundown of what we're going to cover today in today's session, quite a bit to go over. The first is a little bit of definition for income securities. I know a lot of investors are well-versed in stocks, but maybe not so much in income securities or in bonds. So we're going to just give you a quick primer for those of you who aren't as familiar with bonds. We're also gonna talk to you about high-quality corporate bonds, a couple of opportunities that we see in the market. Again, with rates being so high, opportunities are there in the market with bond prices much lower than they've been in the past few years. Also, we're gonna talk about municipal bonds. Nolan's gonna walk you through a couple of municipal bonds. You know, there are literally thousands of municipal bonds out there. Really difficult to get a handle on which ones to buy. That's why professional management is really so important, especially if you're trying to invest in bonds. And just to toot our own horn here a little bit, we've got a process that can help investors, you know, find the way to get those right, the proper bonds in their portfolio to set them up for the next few years. And also with municipal bonds, there are tax advantages that we want to take advantage of and we want investors to consider. We're not going to leave you without any stocks. You know, we're known for stocks as well. We're going to talk about one stock that we've been following this year, kind of in the mid small to mid-cap space that we really find very attractive at a very attractive valuation and a very strong business. And then also, as we advertised in the, in the lead up to this, we're going to talk to you a little bit about some end of year portfolio strategies as you come to the end of the year. There are a number of things that you want to consider as an investor and make sure you're taking advantage of everything in the tax code and everything along those lines. As you come, as we come to year end. And at the end, we'll have a Q&A. So just a few definitions for you. Income securities, just as it sounds, these are securities that generate most of their return through interest and dividends. So we're talking mostly about bonds here, but you could also put stocks with high dividends in there in the income securities category. You know, 6 months ago, we were really looking at high yield bonds. We were looking at dividend stocks because we just weren't able to generate return on high-quality bonds, but, you know, things change in the markets and they have changed dramatically in today's market. We'll walk you through that with a couple of slides here coming up. Default risk. This is what we have to worry about as bond investors. Contractually speaking, if you own a bond, the bond issuer has to pay you those coupon payments and they have to pay you the principal at the end, at maturity, at the maturity date. The only fly in that ointment is if the company does default or go bankrupt. So that's the risk that we have to worry about when we look at bonds. And again, part of our process is about understanding the underlying business that goes along with these securities. And so importantly, we keep on top of those things on a day-to-day basis for our own clients. If we're, if we're owning a bond for clients and something changes, we are not afraid to sell that bond and move on to something else. And then finally, interest rate risk. That's the risk that an investment's gonna decrease in value due to an overall rate rise in the market. So that's what we're seeing, the opposite side of that right now. Folks who are holding bonds, they've seen those bonds go down in price because interest rates have gone higher. That's interest rate risk in a nutshell. But if you have cash to put to work, it's actually a huge opportunity for you. So definitely something to keep in mind. We wanted to, go ahead and talk to you about, you know, what the current average interest rates are in a number of different asset classes. Because obviously as investors, we have many different options that we can, that we can access if we want to get income from our investments. So the first is 1-year Treasuries that this was taken 2 or 3 days ago. So forgive me if the rates have shifted slightly since then, but 1-year Treasuries are a little bit over 4.5%. We've got 10-year Treasuries under 4% now. 5-year CDs are yielding something a little bit over 4%. Money markets are still quite low at under a quarter percent. We've got municipals. Those are, you know, bonds that are coming from governments, local, state, and a few federal, about 3.5%. Triple B. So this is where we're going to focus a lot of our energy and effort is in the triple B bond space and the double B bond space. Right now we can get about 6%. In the average BBB bond in the 5-year space. High yield index, that's high yield bonds. We're almost, almost at 9%. We do play a little bit in high yield, but we're looking at the higher echelons of high yield. And then finally, S&P 500 dividend yields around 1.6%. Just to give you some context when we talk about these actual ideas that we have, remember back to the slide 11, what interest rates look like on a number of different securities right now. We want to just give you some context, historically speaking, on how things look right now. We've got a— this is a chart that goes all the way back to 1980 on the 10-year US Treasuries, 10-year bond. As you look back toward 1980, you can see interest rates went skyrocketing all the way almost to 16% in early 1980s. You know, what happened was in those days there were a lot of investors that bought bonds early in the '80s, just sat on those bonds and made double and triple their money. In really low-risk instruments. We don't think this is exactly as extreme of a situation by any means. But if you look down toward the end of the chart, you can see obviously rates went down and down and down for 40 years. Finally, they're starting to kick higher. We think this is an opportunity to finally lock in some of these nice rates, these nice yields on bonds, whether it be in Treasuries, whether it be in municipals, or especially in corporate bonds where you can get a lot higher yields than you can in Treasuries. Our thinking being that, first of all, we want to lock in these rates. If you can lock in 6 to 9%, eventually rates are going to come back down. You're going to be in a really strong position as an investor. And then just to give you a little bit of a sense of average yield by rating. So this is the way that credit ratings go. AAA is, of course, the highest rated bonds you can find in the corporate bond space. Very few companies are even in AAA anymore. AA will be kind of your Amazon, Google, some very, very, very strong companies. Single A, a little bit, you know, very strong companies, a little bit lower credit quality. Where we see the opportunity is in BBB. So that's the bottom level of investment grade. So above the red line, we call that investment grade. Below the red line, we call those high yield bonds. So we're concentrating our efforts in the BBB space where the average yield is around 6%. Now, by selecting bonds, we can find bonds that can get more like 7% or 8%. Again, where professional management really helps is in selection of securities. And then we're also concentrating our efforts down in the BB. So right at the very, very top echelons of high yield, where average yields around 7%. So what we really like about BB is if these companies, you know, we're picking companies that we feel very strongly about the business and their balance sheet. They look very solid. They pay their debts, no question about it. We're looking for companies that might be able to get upgraded into above that line to BBB, where you might experience a very nice price increase. The reason being for that, a lot of institutions are not able to buy bonds that are below that red line. So when they come above the red line, you know, insurance companies then are able to buy bonds that go from a BB to a BBB. We've seen a lot of these situations where we see a credit upgrade from below the line to above the line, where you actually can experience a nice capital appreciation or price appreciation in your bond almost instantaneously. So that's why we really like BB. And so that's where we are concentrating our efforts in terms of bond investment. We'll kick it over to Nolan, and he's gonna talk us through the first bond idea of what we like and why we like it.

So, Nolan, thank you, Brian. Nicely done. Nicely— nice recap and laying the land for what comes next, which is why people tuned in, which is actual investment ideas. So thank you for the preamble. So let's get to it. What do we like? This has been a challenging year in the market. Both stocks and bonds are down this year. It's not very often that it's happened. I think a year like this, there's only been 5 in the last 100 years. That's the bad news. The good news is that what comes next, generally on the other side of this one-year hench, you're generally looking at really high returns both for stocks and bonds. And that certainly could happen this time. One area, though, that has not struggled this year for consumers is travel. We are spending just loads of money for travel. At first, it looked like it was just pent-up demand from COVID People being tired of being cooped up. But there has been no abatement at all in the desire to travel. We've heard that from every business— hotel, car rental, Airbnb, the airlines. I mean, people are definitely traveling and spending a lot of money doing it. So it's an area of focus for us. One of the names that we like is, uh, we like Delta. And Delta is the second largest airline here in the US. The airlines are doing really well. If I know all of our clients at the wealth management side, you're all rich. So I know you've all been traveling. And I know you know that the planes have been full, airports have been full, and you haven't gotten a cheap price since COVID on a ticket. So people are paying up. And now business travel is actually starting to come back, which is a real boost for these airlines. And typically oil prices are up, and oil prices is their largest expense next to salaries. So you'd expect airlines to not do so well in a higher oil price. But even with that, they were showing record profits for these airlines. So the bonds that we like for Delta is they have a 4.75% coupon bond that matures in 2028. This is a bond that trades today for less than its maturity value. So remember, all these bonds, they come out generally at $1,000 per bond and they mature at $1,000 per bond. By convention, they generally price them at 2 decimal points. So $0.93 on the dollar for this bond, it's going to mature at $0.100 on the dollar. That's why the yield to maturity is higher than the 4.37%. So 4 and 3/8 of your return is going to come from interest. The other 1.4% just going to come because the bond matures at 100 cents on the dollar and we're buying it at 94. The credit rating here, this is the equivalent of what Brian talked about. This is an investment-grade bond. So it's the lowest ranking on the investment-grade chart, but real high-quality bond, very close to 6%. Here's a price chart to take a look at the bond to see what it's done the last 5 years. So here you can see where interest rates really have, have driven everything crazy. Going back to January of this year, this bond was priced above its maturity value. Again, it matures at 100 cents on the dollar is what they have to pay us at the end. And in January this year, this bond was 104, 105. So it's priced at a premium. That's not the only time. Before COVID this bond was also priced at a premium. During COVID the bond price went down. Everybody was scared of everything. Quickly recovered, and again, now it's about 94 cents on the dollar. So that's the first bond that we highlight that we, that we like, that we think is very attractive. What's the story with Delta? Again, it's the second largest airline by passengers carried. Um, in 2020, when COVID struck, The airlines weren't flying, and Delta lost $12 billion in net income that year, which is why the bond price went down. Interestingly, they never stopped paying interest payments. They've always made their interest payments. They just took on more debt to do it. But imagine if you could have bought this bond during the depths of COVID you would have done fantastic. And in this year, or last year, 2021, they delivered a record profit despite a challenging environment. And as of Q3, we've just heard a lot of the travel companies report earnings— American, Delta, Spirit obviously is merging right now, Southwest— and they're all having record years. But profits are back to the 2019 pre-COVID levels. So these businesses have recovered, and they recovered well, quickly. Travel— the tailwinds for Delta, the travel demand is showing no signs of slowing down. They've actually pared down and used their free cash flow to pay down debt for 4 straight quarters. About $1.51 in earnings last quarter, and we're expecting about $4 billion in free cash flow in 2024. That'll be the highest that they've had in a very long time. What are the risks? Well, we do have some risks. Uh, one big one is fuel costs. If they continue to go back and oil price goes back to over $100 a barrel, which you could Clearly, that could add to their cost and even to their profits somewhat, especially if they don't pass it along to customers in higher ticket prices. Demand could slow if the Fed does really step on the gas to increase interest rates high and fast and tip us into a recession, a bad one. Then the demand could slow. People could stop traveling so much. Airlines, because it's capital intensive, they do carry debt. Any time you have debt, that makes you more risky than a company that doesn't. And if you have debt, you need access to the capital markets to be able to turn over those debts and refinance. So those are the big risks with Delta. I'm going to talk— turn it back to Brian now, and he's going to talk about another travel bond that we like.

Thank you, Nolan. So I just wanted to mention something on a little bit more of a general basis before we jump into Royal Caribbean. And from an investment point of view, what we're looking for Generally speaking, is we're looking for companies or investment opportunities where something temporary happened that made the price of those investments fall. Nothing changed in the business. The business is still strong, moving forward at a really strong clip. That's what we're seeing in these travel situations. You know, 2020 COVID, obviously a huge blip on the radar, but it really didn't impact the way these businesses work on a going-forward basis. So That's why we like, you know, what we're seeing in the travel industry. We also like, you know, Airbnb is a great stock that we've been following over the last few months. And a number of other securities in the travel space are all very attractive. And as you know, and as Nolan mentioned, travel is very hot right now from the business point of view. But here we're going to talk about the Royal Caribbean 2027 bonds. This is a 7.5% bond. Of 27. So a 5-year bond giving you 7.5% of yield per year. And the bond price is trading below 90 actually, uh, cents on the dollar. So your yield to maturity is, is over 10. This credit rating is B, so it is in the high yield space, but it was a, it wasn't investment grade credit before COVID And of course they had to take on a lot of debt during COVID They were shut, their ships were shuttered, the expenses didn't stop. So, uh, Very similar to Delta, similar situation. And then also wanted to point out something for you as well. This is a discount bond. That means it trades below its maturity value of 100, is at 89. If you buy this in a taxable account, there are tax advantages. Of course, you're going to pay ordinary income rates on that 7.5% coupon or interest income. But on that, that trip from 89 to 100, which you're going to get paid in 2027, that part is taxed at your capital gains rate. So that's a lower rate for most folks out there. And so there is a tax advantage to buying a discount bond. Again, this is the chart for the, for the bond going back 5 years. As you can see, this bond traded all the way up to 130 before COVID dropped all the way down to 60 and it's been recovering since. What we wanted to point out here is that a 7.5% coupon bond. If we have a situation where interest rates do in fact fall again in the future, we would not be shocked to see this bond trading back up to $0.120 on the dollar, $0.130 on the dollar. Now, as active investment managers, that's one of the advantages we provide to our clients is that when we see a bond maybe that we're holding and it goes up to $120, then we can make a decision and maybe sell that bond and lock in the, lock in the gain and move on to something else. Or we can decide to hold on. And if you're an income investor and you really, you know, you really need that 7.5% to pay your bills in retirement, we can stay with it. But there are a lot of options that you can have with a high coupon bond like this if interest rates are going to fall. And we think eventually they will. This is a temporary situation. We've been in a low interest rate environment for around 15 years. We think we're going back there at some point in the next few years. So, Uh, just a quick, uh, quick primer on the story. A lot of you probably know Royal Caribbean. They're the biggest cruise line out there, uh, by revenue. Again, revenue zeroed out just like Delta's did, uh, but expenses were $6 billion in 2020. So they really had no option but to go to the capital markets and, and issue more debt, issue more bonds. And that's why there are so many lucrative bonds out there right now. So during the pandemic, they actually never had a problem financing, uh, getting financing, just that they had to pay very high rate, uh, of return for that. So there are some bonds out there that are even 11% and 12% on Royal Caribbean. Uh, to the extent that they could call them back, they've done so. Um, but again, we see a really good opportunity in these bonds, especially that they're trading at a discount. And we also wanted to point out, again, this was an investment-grade credit before, before COVID They have a stated aim to get back to investment grade And if they do so, we do expect the price of this bond to trade much higher than it does today. So tailwinds, again, travel showing no signs of slowing out of the pandemic. I know a lot of consumer products may be not doing as well, apparel, retail, but nothing could be further from the truth in travel. We're seeing tons of travel. You're at the airport, you're anywhere. With regard to vacations, you're seeing throngs of folks out there. Business is returning to historical levels for Royal Caribbean. We had kind of a joke in the office for the last few quarters. They kept saying, okay, one quarter from now we're gonna be back to normal in terms of how much passengers and bookings we've got. Well, we're actually finally to that moment where bookings are back to normal levels for Royal Caribbean. Positive earnings per share in the last quarter. Again, with the amount of debt they have and the amount of interest they have to pay out, it's impressive. That they're actually profitable again. And a lot of things to really like about the passengers that work with Royal Caribbean. They tend to have an affluent passenger base, so they do have pricing power. We think they can continue to raise prices, especially as demand stays strong. And they also have the youngest fleet of ships of any of the major cruise operators. New ships means more fuel efficiency, that means more profit. And they're also bigger, that means more More passengers per ship, that means more revenue. So a lot to really like here. And we really like the high barrier to entry on Royal Caribbean on cruising. Obviously, it takes a ton of capital to get a cruise line up and running. So those that are in business, they've got a huge moat around them. And as Nolan mentioned to me yesterday, every 7 seconds we've got someone retiring, and that's another potential customer for the cruise lines. We really like what's going on here from a business point of view.

Yeah, I was just going to say, for any of the viewers that are actually clients and you've been a client of ours for a very long time, you'll probably remember this name. I was doing a review with a long-term client earlier this afternoon, and after 9/11, the cruise lines got hit really hard. And for our clients, we actually bought this stock years ago and it did very well and then we ended up selling it. So it's back to the future for Royal Caribbean. Except for this time, like Brian mentioned, um, these cruise lines during COVID took on a lot of debt to survive. So we don't think the stock is as attractive anymore because you're going to be very diluted. You have a lot of debt ahead of you. So I think these cruise lines will do extraordinarily well, like Brian mentioned. Unlike a lot of companies that take on a lot of debt, this is actually a growth business. You know, the cruise lines are still growing at mid to high single digits. And it's also a trade-down story. If we get into a situation where the economy does go into a recession, cruise costs are much less than their land-based alternatives. So in times where the economy gets slow, cruising actually does very well in comparison.

Thank you, Nolan, for all that color. And then, of course, we got to point out the risks. There is a lot of debt on this business. And as Nolan said, you much rather be an investor in the bonds in this business than in the stock of this business. Just as a general concept, companies that carry a ton of debt, you generally don't want to own the stock because there's so much, so many investors in front of you. A lot of money has to go to debt service. So it's definitely an opportunity for bond investors, though. Any kind of recession would derail this company's recovery to some degree, although Nolan, as Nolan said, the trade-down story is operative here. And then, of course, inflation similar to Delta fuel costs, any other labor costs. Cost of operations going higher will cut into the profitability of this business. So that's Royal Caribbean. And we wanted to show you one more thing. You know, a lot of folks kind of have a stigma on bond investing, the expectation being, okay, if I want to make real money, I've got to invest in stocks, and bonds is kind of boring. You can't really make a lot of money. We wanted to dispel that myth here just by explaining how the cash flows work on bonds. So, but when we buy bonds for clients, we usually buy them in increments of $10,000. So if I'm going to buy $10,000 of face value of this I'm going to buy this bond. It's going to cost me about $8,900. So again, 7.5% is the interest on this bond. That means every year I'm going to get $750 in interest payments for that $10,000 in face value. And then we get to the end of the term. The maturity value is $10,000. So again, if the company doesn't default, doesn't go into bankruptcy, you're going to make that money from $8,900 all the way to $10,000. You're going to get— even though you paid $8,900, you get paid back the $10,000 at the end. So that's why we like discount bonds. So right here, I've, I've totaled up all the cash flows. That's going to total to you about $13,750 or exactly that number on the 5 years on your $8,900 investment. We went ahead and did the calculation on that. That's 54% of total return over 5 years. So again, if you have that stigma on bonds that, okay, well, maybe I can make a couple of percent on it, You know, this is like a stock-like return on a bond instrument. And that's the type of stuff that we're finding in the market. So again, if you don't work with us, you know, give us a call and we'll talk you through some of the stuff that we're seeing in the bond market. And then finally, we wanted to also talk about if the bond returns to maturity value. So just a little quick background on bonds. They can trade, you know, they're, they're issued at 100, they pay off at 100. But in between those, those two dates, they can trade anywhere. So again, this bond's trading $0.89 on the dollar. If business picks up, if interest rates come down, or the combination of the two, and the bond returns to maturity value or $100 in 1 year, your total return between that and also the interest payment, you're going to make 18% on that bond in 1 year. So pretty impressive, the type of money you can make in bonds if it does go right and you pick the right one. So that's Royal Caribbean 2027s. That's another one of the corporate bonds we like. And we're going to transition over to Nolan. He's going to talk to you a little bit about municipal bonds, another type of bond here in the market.

Thank you, Ryan. Nicely done on those Royal Caribbean bonds. You got me all excited, really enthusiastic for my Christmas cruise. So thanks a lot. So we want to talk a little bit about munis. We often have had these calls. We talk about bonds a lot. I know in our office we talk about bonds a lot. And for those of you who are clients, we own bonds for you. So we talk about these type of corporate bonds quite a bit. One type we almost never talk about is municipal bonds. And municipal bonds are bonds that are issued by local states and state governments. And the thing that makes municipal bonds is, one, you have fair— favorable tax treatment of interest payments. Typically they're tax-free. Not all of them. Some of them are taxable muni bonds, but the majority of them are tax-free. So that tends to be attractive. Because the interest payments are tax-free, they tend to be much lower than other type of bonds. And one of the reasons we haven't talked about them much over the years is they haven't been very interesting. Like Brian mentioned in this earlier slide, interest rates have been low for eons, really. And so municipal bonds really haven't paid much, so they haven't been of much interest. But this year, as we mentioned, with everything that's happening globally and economically, One of the great opportunities is interest rates are up and muni bond payments are up. And now they're interesting. Historically, they've had very, very low default rates. Brian mentioned the chart earlier that had the investment-grade ratings from AAA down to BBB. Historically, if we were charting for municipal bonds, they would have almost lower rates of default than, than all of those shown on the corporate bond charts. All right. So here's one that we like a lot. This great state of Illinois. It's the state where we're headquartered. I'm not sitting there now. I'm in the other great state of Florida. But Illinois State has a lot of bonds that trade, and one of them that they have is a general obligation bond. All bonds are backed by someone or something. Earlier we talked about Delta, and the Delta bond is guaranteed by Delta, the full faith and credit of the company. Same thing with Royal Caribbean. Sometimes you'll have assets back, and I'm— in the case of Royal Caribbean, you do have the ships that are there. But in the case of the state, what do you have? There is no physical assets, and they don't really earn money. But when you hear general obligation, that just means that, uh, this is backed by the full faith and credit of the state. So all of their income generation ability, ability to tax, the ability to govern, So this is a very high-quality promise to pay, which is why the default rates are very, very low. And it's backed by the entire state revenue. So this is a bond that was issued some time ago. The coupon's 3.5%. It matures in about 8 years. The credit rating here is high. This is investment grade at BBB+. But this bond trades today at less than its maturity value. Today it trades at about 90 cents on the dollar. If you take a look back, just going back to January, this bond traded at over its maturity value at about 105. Again, as we looked earlier, interest rates are up this year. So bond prices have come down somewhat. Has nothing to do with the ability to pay for high-quality issuers. It's just a matter of interest rates in general are up. So here we get to buy this bond at a discount if we buy it at 90. It matures at 100, which is its maturity value. The yield to maturity is 5.5%. But remember, my income here is tax-free on a federal level. If I'm in a 32% tax bracket, it's the equivalent of a 7% yield to maturity. And we just want to point out the interest payment, that 3.5%, that is tax-free when it comes to you. But this bond also has a capital gain component. We're going to buy it at 90 cents on the dollar, it's going to mature at 100 cents on the dollar. And that part is capital gain taxed at capital gain rate. This is one of the bonds that we like, we think it's very attractive. Another reason that we like the state of Illinois, I know a lot of you live in the state of Illinois, and you'll remember several years ago, Illinois finances were just the pits before Pritzker came in. I'm not giving him all credit for fixing the balance sheet. But things have gone much better for Illinois. They've done a lot of self-help They've also raised taxes and done some other things. But the financial circumstances for Illinois are much better than they were 4 or 5 years or so ago. And they used to have a credit rating that was the lowest among all states. It actually fell out of investment grade. And I know a lot of people, there were bonds that traded during that time. We talked to a lot of retail clients about buying them. And a lot of people didn't want to touch them because they were scared about Illinois finance. Because I know they had like a 5% coupon 2033 bond. Fortunately, we did buy them for some clients. That was the time to buy them because those bonds have appreciated handsomely. Illinois credit rating has been upgraded 2 or 3 times into investment grade. So you've gotten nice capital gain from these Illinois bonds. Anyway, long story short, we think the balance sheet for Illinois is very healthy. We think the financial trends here are very good. And this looks like an attractive municipal bond to our eyes at that attractive coupon on a tax-free basis. Here's another municipal bond that's almost at the highest rating that you can get. So here's a AA municipal bond. This one was issued when interest rates were very low. The coupon here is very low at 1.95%. Because of that, look at the bond price and what it's done here this year. It's gone from par or 100 cents on the dollar to today we can buy it at 72 cents on the dollar. and it has nothing to do with the ability to pay. Again, this bond is rated AA. This is for Sanger County Unified School District out in California. It's a 9-year bond. But if you put those two together, buying it at 72 cents on the dollar and this 1.95% coupon, the yield to maturity here is over 6%. And again, this is on a very high-quality bond. The income comes tax-free. And remember that going from 72 to 100, that part is should be capital gain. There are risks with municipal bonds. There is a risk of default. It's extremely low with municipal bonds, extraordinarily low, but there is a risk of default. There is an interest rate risk. That's the primary risk with municipal bonds. I buy some bond at 3% or 2% and federal treasury rates go up to 4% or 5%, 6%, my bond has to be discounted and I have to wait to maturity to be made whole. And then there's also the reinvestment risk. And that is that I'm going to buy this bond. For example, a lot of people now are saying, hey, aren't 1-year bonds attractive? If I buy a 1-year bond at 4% or CD and just wait and then just reinvest it when rates are higher, that'll be a good thing. Maybe, maybe not. If interest rates— if I buy a 1-year bond and next year interest rates aren't 4%, the economy hits a rough patch, so the Fed lowers rates. And my 4% bond comes due in a year, but rates then are only 3%, that's what's called reinvestment risk versus having bought a 10-year bond where I could lock in 5, 6% over multiple years. So those are the risks as it relates to municipal bonds. Now we're going to turn back over to Brian to talk about what we all like to talk about, which is stocks.

Thank you, Nolan. So if you're a stock investor, we got something for you today as well. And that's InMode. This is an Israeli-based company. They're in the healthcare space, elective procedures. So they do machinery and equipment for elective procedures. So for years, of course, plastic surgery has been huge. We're betting on the vanity of the US public and the Western, the Western world. And I'm never going to bet against that. Let's be honest. Traditionally, there have been two different types of ways to do cosmetic procedures. The first is, of course, lasers. And then the second is invasive surgery. So InMode sits in between the two. They've got some really interesting technologies and the stock trades at about a 17x price to earnings. Really, really growthy company that's growing revenues at over 30%. So pretty amazing that it trades at such a low valuation and it's just a $3 billion company. So a lot of room to grow here. So this is the stock history. So this company came public in the middle of 2019. As you can see, a huge run-up from about $6 all the way up to nearly $100. We started to follow the company sort of at the top part there. Didn't really do a lot of investing there, but our analyst Madhu did a, did a report on it, greenlit it, really liked the business even when it was trading at that high valuation. Again, we want to talk about companies and investment opportunities where, you know, the business didn't really change. All that changed is the stock price. That's what we see here. You know, a lot of growth stocks fell precipitously. In the last year after, you know, a lot of these large-cap growth stocks sort of topped out. There was a bit of a contagion effect to companies like InMode, and the stock dropped, oh, I don't know, 75%. We started picking it up in the 30s, low 30s. We're in the mid-30s now. It was almost 40 earlier this week. But again, valuation is only around 17, 16 times price to earnings. for a company that's growing as fast as InMode is, very, very impressive opportunity. Let's go to the next slide. So we just wanted to show you a little bit about the company, uh, and the fundamentals of the business. Uh, like it says here, this is from the company's, uh, investor presentation. What they have in medical aesthetics is the treatment gap. So laser procedures, not invasive, but they aren't very effective. Plastic surgery, uh, can be effective, but it's very, uh, not only expensive, Recovery is very difficult, very invasive. So obviously there's a, there's a space for something in between. That's what this company is doing, InMode. They've invented some laser procedures, some other procedures that sit in between laser and plastic surgery, outpatient procedures. We're not talking about— there's not a lot of scarring, not a lot of downtime, not, not knowing anesthesia is required. And, uh, again, like I said, the vanity of the U.S. consumer— the demo that they're looking at is 35 to 60. Um, man, that's, that's the strike zone for this thing. Um, so let's go to the next, uh, the next slide. Um, just to give you kind of a sense of what they do, um, this is what they call radio frequency-assisted lipolysis, uh, the holy grail of plastic surgery. So they're able to liquefy some of the fat underneath the skin Without getting into too much gory detail, people used to do liposuction surgery and things along those lines. This is something that's far less invasive, not quite necessarily as efficacious, but very, very effective. And the results have been very strong. And this product is really sweeping the nation.

Yeah, I was getting ready to say, Brian, I saw something in one of their presentations that over like 90-something percent of people over the age of 40 could use a procedure. It was mind-boggling when I heard it. I was just thinking about me. I got these bags under my eyes. I'm getting ready to be 52 next week. I got these bags under my eyes. I'm looking at myself and I'm like, where did those come from? And according to InMode, that's something that their technology can, can deal with. So who knows, maybe I'll go in and get an appointment and call it research.

All right, well, if anyone's, uh, shopping for Nolan for Christmas— and anyway, here's, uh, just a, you know, a picture of one of their machines. Hands-free body remodeling, uh, you know, tightening, toning, transforming is really what they're trying to do with the technology here. Not only is it really good for the patient, but, you know, from a business point of view for doctors— and they can work with doctors from dermatology to a number of different specialties— you know, it's really from a business point of view, very attractive proposition. So That's why the growth has really been so strong there.

I think the other thing that's a surprise too, Brian, as you mentioned this one, they sell these devices as equipment that the doctors can do, and then the equipment has margins of 80% on selling the equipment. And their early devices, you know, was all equipment sales. Typically, you know, you have something like an Intuitive Surgical or an Illumina where there's a razor, razor blade where they almost sell the, the device with no margin so you can buy the consumables, the supplies to operate it, and that's where they make margin. But it's not the case with Enmol. They make 80% on their devices. They have about 11% now of their revenues that are coming from consumables, what you need to put in the machine and make it work. And they said all of their new devices that are coming will all have consumables attached. So it's conceivable that this is a company with 80% margins where you can see margins actually going up in the future.

We love recurring revenue. Nolan, just a few of the numbers here. Again, low valuation. Our analysts rated it a green light. We like the profitability. So like Nolan said, 80, 80% gross margin, that turns into a 41% net profit over the last 12 months. So extremely profitable business. Usually when you're looking at growth, growth companies and growth stocks, You're looking at companies that don't have positive, positive free cash flow and positive profits. That is not the case here. Growing at 34% with that profitability, really exciting. And then we're always looking for growing addressable market. This is a really much, very much a growing addressable market. And this is a disruptive company that's going to disrupt a lot of the legacy technologies in plastic surgery. So all very exciting there. And then of course, there's risks. FDA clearance process is always a huge risk in any kind of a medical device field. Product liabilities is another issue that could come up. None of this is really imminent, but it's something we've got to consider as investors. And then finally, acceptance in the medical community. This is novel technology. It does take time and effort and sales— salespeople to get out there, pound the pavement and get this into doctors' offices.

So that's—

those are the risks on Inmode. But we really like the business, very profitable and growing at a very high rate and trading at a very low valuation. With that, we're going to move over to Nolan. He's going to close us out with some end-of-year portfolio planning strategies as you get ready for the new year.

Thank you, Brian. Nice work on, on Enmode and on Royal Caribbean. Well done. Thank you. So a few things here as we get ready to wind down 2022. There's a little bit of work to be done before we close the chapter on the year. A few things we wanted to bring to your attention. One of them is a capital gain, capital loss activity. So it's not been a great year in the investment markets. I know when we look at portfolios, we see some red. We don't love to see it, but we do. And there's some things that we can, that we can do. There's a kind of a couple of things happening with investment holdings this year. One of them, like Brian mentioned, it's just the environment, the macro environment. So a lot of companies, they're doing just as well as they were before, like an in mode. But the price is cheaper. I would say that's the minority of companies. Then there's these other companies where the stock price is down, but also their business models have been impacted. So they're just not as good as they were before. Netflix comes to mind, Nvidia comes to mind, Meta, Facebook comes to mind. Those aren't the only ones. I mean, the, the list goes on and on. And the point is, as an investor, what do you do? Do you just buy and hold and wait for them to come back, or do you take some action? And so we think if you have a holding in category number 1 where you own an in mode where nothing's changed but the stock price, maybe that's not anything you want to do anything with. But if you have some of these other businesses where their business model in this current environment doesn't look as attractive, instead of sitting there with an unrealized loss, it makes sense for us to possibly sell that holding realize that loss and do something else with the money. So we have two choices after we sell to realize the loss earlier in the year. I know for a lot of our clients, we did portfolio rebalancing. So in the first quarter, we had a lot of gains that we took in the early part of the year. And if you don't do anything at the end of the year, you may end up paying capital gains this year, even though the returns weren't great this year. But if you sell some of the losses, you can bring that gain down. And possibly turn it into a loss. We can write up off up to $3,000 per year against our ordinary income. So that's one of the things that we can do. The other thing, if it's a holding that you love, maybe you own Tesla and you absolutely love the shares, but you bought them in January. And now with Elon Musk fooling around with Twitter and everything else that's happening, maybe it's an unrealized loss, but you love the business. You can sell the, the, those Tesla shares and then wait 31 days and buy them back. Or what we like to do is just buy more shares today, wait 31 days, and then sell the original one. Or you can just sell shares altogether and use the money to buy in mode. Either way, before the end of the year, there's still time in the calendar to take a look at your portfolio and do action. Now, if you're a client of ours, this is something that we're doing on your behalf. Well, we have a lot of people listening to us that are kind of clients that didn't wait, but these are the type of actions that we think when we get to November that we really want to take a look at. Another thing we want to bring to your attention is Roth IRA conversions. You know, we're a firm that absolutely loves the Roth IRA. I was going to get a tattoo. It would be the words Roth IRA. It's one of the few tax advantages that we actually have left, that we can have an account, grow the money tax-deferred, and have it all come to us in the future 100% tax-free. And a lot of people don't have a lot of money in Roth. There's a lot of reasons why, but we don't see a lot of money yet in Roth, and we think it's one of the very unused strategies. In a year like this year where portfolios are down, we think it might make sense to consider converting. That's moving money from an ordinarily taxable IRA to a Roth IRA in this year. And there's a few reasons for it. If I own shares, let's say I own 100 shares of something and it was priced at 50 at the beginning of the year and now it's priced at 30, I can convert those same 100 shares over to the Roth. And if the business recovers and those shares go back to 50, then all of the upside I had comes to me tax-free. The other thing I can do is I can convert cash, but the same thing applies. I sell some security, I take cash, I convert, put the money in a Roth. And the numbers show that when we had years like this where both stocks and bonds are down and we're in a midterm election year, all signs point to strong returns ahead. And if I convert now at a, at a low time and then the market goes up, subsequently in the future to recover, then I can actually accelerate those returns. So Roth IRA conversations, I think, makes a lot of sense. And then finally, if you're still working and you work for a publicly traded company and you have access to employee stock plans, I'm going to say be really, really careful here at the end of the year in the fourth quarter that you don't do something to trigger taxes here in late November, early December, and come February you're going to end up paying taxes on it. So be very careful, employee stock here at the end of the year. And with that, I'm going to turn it back over to Brian to wrap us up.

Well, folks, I learned a couple of things about Nolan this week or today. You might be getting a cosmetic procedure and a tattoo. So I don't know if that's a midlife crisis or what we've got going on there. But anyway, so we just wanted to wrap up kind of what we discussed. You know, if you came in late, We're gonna be, we're taping this. So if you're on our list, we're gonna get it over to you once we have it all edited and all of that. So don't worry if you came in late. So interest rates on the rise gives us opportunity to lock in some really nice yields from 6 to 9% for the next 2 to 15 years. Again, if you're not working with us, we'd love to talk to you. I'll put my email and phone number in the chat box if you have interest in that. Fair, a few corporate bond ideas we've talked about in the travel, in the travel space. That's Royal Caribbean and Delta. We've got a couple of municipal bond ideas. That was Illinois general obligation bonds and these Sanger California bonds. We've got Inmode, a company that we're really excited about. Again, if, if you're interested in our research, Left Brain IR, that's the, that's the place to find us. Got again 6 to 10 stock reports per month if you're a subscriber. And again, if you want to get involved, Income199 will be the, the, the coupon code there to get $100 off your, your membership. And then finally, again, contact us for a portfolio review. Even if you're working with somebody, we'd love to be a resource, give you a second opinion, and I will throw my, my info in the chat box when I kick it over to Nolan. Again, we've got a lot of ways to find us, subscription options. There's the Jarvis newsletter that's free. Just get on our mailing list. It'll come over to you every, every Saturday morning. YouTube, we're up every Friday morning with those. We really depend on folks like yourselves to be a beacon for us, to trumpet, you know, our— what we've got going on here. So if you like what we've got on YouTube, please share it with your friends and colleagues. It helps other investors find it. You know, we have a novel investment strategy here. And we'd like to get it out to more folks. So please give us a hand with that. Basic subscription and premium subscription are both available if you want to subscribe to our research.