Humilis's Brian Belski Talks Stock Market

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Tom Keene** (0:07)
This really important conversation, because it has been front and center in every conversation. We had one of the charms of Brian Belski at Humilis, with the success of going out in his own, this whole shop that he's done across Canada and across America, is there's like, Paul, it's not verbose-ness. It's not like, you know, 12 pages and, you know, a million words and all that. Our pick is Microsoft. Brian Belski, discuss.

**Brian Belski** (0:35)
Good morning. You know, the three B's of public speaking and writing are be brief, be bright, be gone.

**Tom Keene** (0:41)
Axios, Nick Johnson did that at Axios. Okay, Microsoft.

**Brian Belski** (0:45)
Microsoft, we think, has this war, we know it has this war chest of cash. Microsoft has proven through the years that they can monetize these new things that they take on. I think Microsoft in particular of all of the, you want to call it a hyperscaler or software company has been unjustly beat up.
And as you've seen, the spending is not going to go away, but in terms of how, and on AI by the way, but how they've been able to continue through a longer term perspective, manage these properties. That's why we own Microsoft. And we're going to continue. Microsoft is down in the second quarter. Heard our portfolios, we still had great performance in the second quarter. But at the end of the day, we're longer term investors, and we believe in hub the management there, and we believe what they're doing.

**Paul Sweeney** (1:30)
It just comes down to, what I find challenging, I think, as you think about the software stocks, the software as the service stocks, is yes, I can see a case where AI could disrupt a lot of their business, but I don't even know what AI is going to do. I can't figure that out. And so, much less than then to say, Microsoft is going to be hurt of service now, it's going to be hurt of soft, you know.
But I guess the market is just saying, we're selling now and we'll figure it out later.

**Brian Belski** (1:57)
Yeah, I just, like the meta news is confounding to me. I know everyone was excited about the stock was up double digits, but now they're spending on cloud and now they're pivoting this way, and now they're trying to chase this, building it versus spending on it. I just think that Microsoft's been much more consistent in its operations and I want to stick with the consistent deliverers.

**Tom Keene** (2:18)
Jim Chanos with Bloomberg Money here two weeks ago, nailed the meta thing. He calls it the Neo Cloud. We can't figure out what to do with AI, so we're going to compete with Amazon on the cloud. Nadella, and major shout out, Bradley Olson and Tina Leigh at the Wall Street Journal with this definitive Nadella interview. I read his bio. Nadella is not normal. I think a huge body of the investment public doesn't understand his internal drive.

**Brian Belski** (2:46)
I don't think so. And remember, too, when he took over, that company was after Steve, and no one liked Steve.
And I remember I was both at Piper and Merrill during those days, and we had huge presence in the Pacific Northwest. Pacific Northwest in particular owned a lot of Microsoft stock, and they did not like him.
And so the private wealth perspective of that really started to, when he came in and brought more process and discipline and how they were monetizing these new properties and moving away from the subscription service into more of the deliverable software and all that kind of stuff, that's where it really took off. So I'm a believer, we're there. I think of a stock that now it's becoming more of a value stock.
If you take a look at the balance sheet and the price to free cash law on that company, it looks pristine. So we really like it. It's much more contrarian, Paul, I would say, than trying to pick the bottom and be a hero in Salesforce or Adobe. We just don't think that they're in the same league and that's why we're sticking with it.

**Paul Sweeney** (3:52)
We had a small mid-cap portfolio manager come in this week and finally with a smile on her face. Because her performance in the Russell 2000 is 2X out of the S&P 500 this year, which is, you know, doesn't happen very often. How do you think about small mid-cap stocks?

**Brian Belski** (4:07)
No, we've been believers for a while and we've been wrong, aside from the second quarter. And the way that we look at it is we look at the small mid-cap indices within the S&P 1500 And if you take a look at the mid-cap, in the small cap, the S&L dramatically outperformed the mid-cap at like five or six hundred basis points. And the reason why the Russell 2000 outperformed the S&P 600 is because you have a lot more companies in the Russell 2000 that don't own money. So there was GoGo, JoJo, the juicier companies. But if you take a look at the S&P 600 small cap, S&L, price to cash flow, balance sheet, earnings discernibility, better than large cap, better than large cap, and the growth rates for the second half of the year are better too.