Scharf Investments, LLC’s Post

It’s that time of year again when we gather with our friends from iM Global Partner at their spring client event in Paris at Pavillon Ledoyen. Eric Lynch, managing director of Scharf Investments, represented the firm and met with clients at the event last week. He shared thoughts on the current market environment and where we see compelling investment opportunities in U.S. and global equities. Eric also participated in iM Global Partner’s “Best of Boutiques” event at the Ritz Paris alongside peers from other partner firms. We appreciated the opportunity to share our insights with clients and prospects, and we enjoyed our conversations. This week, Eric travels with colleagues from iM Global Partner to meetings with clients and prospects in Stockholm. #activemanagement #valueinvesting #quality #global #teamwork

Where can investors turn for attractive investment opportunities in AI outside of Nvidia? “We believe Oracle is a cheaper way to play AI,” said Brian Krawez, CFA, president and lead portfolio manager at Scharf Investments. He recently spoke with Doug Krizner on Bloomberg’s “Daybreak Asia” program and shared his thoughts on Oracle ahead of its earnings release and forecast for double-digit revenue growth. “I’m not sure when the fever will break in terms of the AI trade.” Brian also discussed the Fed, interest rates, and the potential for value stocks in this higher-for-longer interest rate environment. He also sees compelling investment opportunities outside the U.S., including Samsung. “Samsung is one of the largest tech companies by revenue and is a stealth way to play AI.” You can hear Brian's interview beginning at the 22:50 mark in the link below. Thanks Doug Krizner and Bloomberg for a great conversation. https://lnkd.in/gp9Z_mNQ Discussions in the link above include forward-looking assumptions and opinions by Scharf Investments and there is no guarantee that the recommendations will be profitable. Investments include risk of loss. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The viewer should not assume that an investment in the securities identified was or will be profitable. #activemanagement #valueinvesting #quality #ai #averagestock

We saw a nexus shift with the consumer in Q1 from discretionary to non-discretionary spending. “Bigger names such as Walmart and Costco are doing well, and others like Target and smaller discount retailers are being impacted,” said Eric Lynch, managing director at Scharf Investments, on a recent appearance on Schwab Network’s “Morning Trade Live” program with Oliver Renick ahead of Five Below’s earnings report. Eric discussed the current state of the consumer and discount retailers, and reviewed the typical retail growth flywheel and how discounters such as Five Below are feeling under pressure. Thanks Oliver Renick and Schwab Network for a great conversation. https://lnkd.in/gb-SRJKp Discussions in the link above include forward-looking assumptions and opinions by Scharf Investments and there is no guarantee that the recommendations will be profitable. Investments include risk of loss. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The viewer should not assume that an investment in the securities identified was or will be profitable. #activemanagement #valueinvesting #quality #earnings #inflation #consumerspending

After many rate hikes and keeping rates high in the hopes that inflation will come down, the Fed seems stuck on what it can do to reduce inflation to its 2% target. “Is the Fed even driving the bus,” said Eric Lynch, managing director at Scharf Investments during a recent appearance on Reuters TV. The Fed seems to believe that it can control inflation with monetary policy, but “monetary policy doesn’t control all inflationary pressures.” With headwinds such as trade wars, fiscal debt/deficits, and global conflicts, we don’t believe that the Fed can rely on monetary policy alone. Eric also shared his take on what’s moving markets lower and the downside to having such a large concentration in tech. Thanks Lisa Bernhard and Reuters TV for a great conversation. https://lnkd.in/gvuUp7kp Discussions in the link above include forward-looking assumptions and opinions by Scharf Investments and there is no guarantee that the recommendations will be profitable. Investments include risk of loss. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The viewer should not assume that an investment in the securities identified was or will be profitable. #activemanagement #valueinvesting #quality #fed #inflation

Nvidia isn’t the only way for investors to get in on AI mania. “We think there are a lot of sneaky ways to play AI,” said Brian Krawez, CFA, president and lead portfolio manager at Scharf Investments. He recently spoke with David Pollard of Reuters TV’s “Market Insight” program and shared his thoughts on AI mania and how it is reminiscent of the tech bubble of 1999. More than 40% of the S&P 500 today is made up of tech and tech-like companies—more than at the peak of the tech bubble 25 years ago—so investors need to be wary of overexposure to the tech sector. With valuations in mega-cap tech names as high as they are now, we believe investors should look at other ways to get in on AI through companies such as Samsung and Oracle. Brian also shared his thoughts on recent retail earnings and consumer demand, and reiterated a key theme for 2024—the revenge of the average stock. Thanks David Pollard and Reuters TV for a great conversation. https://lnkd.in/d8XeZAyh Discussions in the link above include forward-looking assumptions and opinions by Scharf Investments and there is no guarantee that the recommendations will be profitable. Investments include risk of loss. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The viewer should not assume that an investment in the securities identified was or will be profitable. #activemanagement #valueinvesting #quality #ai #earnings #averagestock

Nvidia reported earnings after the bell yesterday and they exceeded expectations. “We’re expecting to see another strong quarter as the trend has been stratospheric, but guidance for next quarter will really tell the story,” said Eric Lynch, managing director at Scharf Investments during an appearance yesterday on Reuters TV. Q2 guidance came in stronger than consensus forecast, but Nvidia is at a tipping point as it moves from development and production to real-life use cases. “Semis are great until they aren’t,” said Lynch as Nvidia will probably follow a similar boom/bust cycle that tech names have historically experienced. Thanks Elena Casas-Montanez and Reuters TV for a great conversation. https://lnkd.in/g2XfFVH6 Discussions in the link above include forward-looking assumptions and opinions by Scharf Investments and there is no guarantee that the recommendations will be profitable. Investments include risk of loss. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The viewer should not assume that an investment in the securities identified was or will be profitable. #activemanagement #valueinvesting #quality #nvidia #earnings

Brought a little bit of home—the Santa Cruz Redwoods and Ridge Vineyards—to the Citi NYC Expo this week! Perfect opportunity to celebrate our addition to Citi’s Focus List, 2024 Playbook, and Thematic Outlook Portfolio. Wonderful event and great conversations! Eric Lynch Thad Heggeness #activemanagement #valueinvesting #quality #largecap

Brian Krawez, CFA, president and lead portfolio manager of Scharf Investments, was a guest on Bloomberg Intelligence yesterday. During his conversation with hosts Paul Sweeney and Tim Stenovec, Brian shared his thoughts on a range of topics related to the current market environment. His interview begins at the 10:26 mark in the link below. >> Too much tech—The tech sector in the S&P is a larger component of the Index than it was in 1999. In 2014, tech made up 17% of the Index and today it’s at 41% when you include “tech-like” names such as Tesla and Amazon. >> Good time for value stocks—Over the past 45 years, when interest rates have been below 3%, growth stocks have outperformed. However, when interest rates have been above 4%, value stocks have outperformed. With interest rates expected to be higher for longer, that bodes well for value stocks. >> Buffett and capital allocation—Warren Buffett recently shared that Berkshire Hathaway has amassed more than $180 billion in cash, which is expected to grow to $200 billion by the end of Q2. Buffett has always been a tremendous steward of capital and we’ve seen that you can trust management to do the right thing in deploying that capital. >> Bullish on Oracle—Cloud is starting to become a larger percentage of Oracle’s total earnings. We believe investors looking to participate in AI would benefit from this under-the-radar cloud play. Thanks Paul Sweeney, Tim Stenovec and Bloomberg for a great conversation. https://lnkd.in/g42VAC4U Discussions in the link above include forward-looking assumptions and opinions by Scharf Investments and there is no guarantee that the recommendations will be profitable. Investments include risk of loss. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The listener should not assume that an investment in the securities identified was or will be profitable. #activemanagement #valueinvesting #quality #defensive #averagestock

This weekend saw the “Oracle of Omaha”—Warren Buffett—making his annual appearance at the Berkshire Hathaway shareholder meeting. He reported that the company is in a strong financial position with operating earnings up 39% year-over-year and more than $180 billion in cash on hand. “Buffett still has a money machine,” said Eric Lynch, managing director at Scharf Investments during an appearance on CNBC. “He’s getting insurance premium float for free and basically turning that into 5% yields on that boatload of cash he has in T-bills.” Berkshire Hathaway has been a top holding in the Scharf portfolios for a long time. We have strong conviction in the company and its leadership team, and we believe this is a fantastic higher-for-longer interest-rate play. Thanks Dan Murphy and CNBC for a great conversation. https://lnkd.in/gVfWE9z9 Discussions in the link above include forward-looking assumptions and opinions by Scharf Investments and there is no guarantee that the recommendations will be profitable. Investments include risk of loss. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The viewer should not assume that an investment in the securities identified was or will be profitable. #activemanagement #valueinvesting #quality #defensive #warrenbuffett